Tag Archives: china

Seeing behind the headlines about China’s attack, stealing the governments’ jewels

Summary:  China attacked! Playing a script from countless action-adventure movies, our political leaders and columnists gear up for bold headlines by screaming for war while they know nothing. It’s America. But the info highway gives us information to see beyond the headlines and sort fact from fancy. Here’s the latest news about the massive theft of Federal personnel data. It’s a follow-up to the post describing the attack and who was at fault.

“Experts, shmexperts. Time for action…. Attribution solid enough for the US government is solid enough.”
— Tweets from a man on the street. The kind of American that rulers dream of having.

Cyber Warriors


  1. Dueling US officials.
  2. About attribution of attacks.
  3. What we know.
  4. For more information.


(1) Dueling US officials

From the initial announcement of the theft of files from the Federal Office of Personnel Management (OPM), anonymous officials confidently blamed China — which journalists repeated as fact. The FBI has made no official statement since its “we working” on it statement on June 4. China has denied the accusation, of course.

Today we got more useful information from the GeoInt 2015 Symposium (geoint: geospacial intelligence):

“So what really makes you think that, as the head of NSA and Cyber Com, I’m going to talk with you about this,” he told a reporter here today. … Rogers’ response did seem a trifle dismissive of a reasonable question asked reasonably in an open forum. {Breaking Defense}

Rogers spoke in response to a question about how the National Security Agency was going about attributing the breach to the Chinese government. “You’ve put an assumption in your question,” he said. “I’m not going to get into the specifics of attribution. It’s a process that’s ongoing.”

… Rogers’s hedged response, given during a question-and-answer session at the GEOINT symposium in downtown Washington, comes in stark contrast to the NSA’s approach to attribution during the Sony hack. In that case the FBI, working with the NSA and DHS, quickly named North Korea as the perpetrator, resulting in the prompt issuance of sanctions.

Rogers called that a great example of cross-agency collaboration. “Working across the United States government, DHS, FBI and the National Security agency, we were able to relatively quickly come to consensus about the characterization of the activity we were seeing coming in, which formed the basis of our attribution, and with a relatively high confidence factor, which allowed us to respond in a very public and direct way.”

Why hasn’t that collaboration worked in the case of the OPM hack? Said Rogers: “every dataset is different.”  {Defense One}

Director of National Intelligence James Clapper also spoke at GeoInt, giving a remarkably casual statement on a matter of such importance.

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About the theft of the Federal government’s personnel records: sorting fact from fiction

Summary: We’re into the phase of the OPM records breach scandal where the US public policy crisis process predictably breaks down into finger pointing and aggressive guessing. Here is a brief on what little we know, and pointers on what we certainly don’t know.  {2nd of 2 posts today.}

cyber war


  1. How was it done?
  2. What was taken?
  3. Who was at fault?
  4. Who did it?
  5. Panic!
  6. For More Information

(1)  How was it done?

We can learn the bare bones about this series of attacks from the statement by Office of Personnel Management (OPM) Director Katherine Archuleta (bio here) to the House Oversight and Government Reform Committee. For an easier to read version see this typically excellent ars technica article by

Department of Homeland Security Assistant Secretary for Cybersecurity Dr. Andy Ozment testified that encryption would “not have helped in this case” because the attackers had gained valid user credentials to the systems that they attacked—likely through social engineering. And because of the lack of multifactor authentication on these systems, the attackers would have been able to use those credentials at will to access systems from within and potentially even from outside the network.

Beyond this we hear mostly guesswork.CyberEspionage

(2)  What was taken?

Lots of high-volume guessing in the news. The best answer might be: lots was taken. The Director’s statement says “we have not yet determined its scope and impact”. For a more precise answer see…

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A China briefing from one of the West’s best-connected experts

Summary:  This post provides a deep briefing about China from a major expert. It’s long and somewhat technical, but of the quality that executives and officials pay a lot to get.  {2nd of 2 posts today.}

Globe and China Flag

China Visit: May 2015

Simon Hunt Strategic Services
Economic & Copper Advisory Services

Posted with his generous permission.


  1. The depth of the leadership’s intent to reform the country’s financial system, restructure industry and to internationalise the RMB (its currency) is largely unappreciated and/or misinterpreted by the media and investors.
  2. What is starting to take place is nothing more than reshaping the country and in so doing that of the world.
  3. To understand how serious and widespread will be this transformation we must have an idea of President Xi’s own philosophiesandobjectives.Theycentre around four dynamics:-
    • He sees himself as the saviour of the party and the country since corruption had grown so deep and widespread that it threatened social stability.
    • By reaching back to Mao’s Mass Line philosophy he has got the middle class and the greater mass of population on his side even though others may seek opportunities to unseat him. He has probably got enough cards in his hands to stop any such move.
    • The President wants to develop a more equal society where the income and wealth divide are narrowed. The future of the real estate sector is fundamental to this change. No significant rescue will be mounted so allowing private sector developers to fend for themselves with the State sector being readied to prevent any crash in prices.
    • The president is shifting the country to the left of centre implying that state-owned enterprises (SOEs) will become the cornerstone of growth with the private sector encouraged to join the state sector.
  4. There is an international timetable that the leadership must work within to effect this transformation. It is the autumn meeting of the IMF where once again the proposal to allow China’s currency to join the IMF’s special drawing rights ( SDR) comes up for Board approval.
  5. America and Japan between them have 23.3% of the votes. China is playing hard ball with the remainder to ensure that the resolution is passed.
  6. To help the proposal being passed China will open up its capital account and will make the RMB at least partially convertible by the time of the meeting, at least enough to satisfy the requirements of the IMF articles.
  7. Other moves will mean that credit conditions will be tight in the second half of the year forcing bankruptcies and failures to accelerate as an essential part of bringing price power back to the manufacturing sector.
  8. Fiscal policy is focusing on very specific infrastructure projects that will bring added value to the country; and the currency will appreciate against its trade weighted index.
  9. The implications of a successful SDR resolution will be widespread internationally and domestically in China.
  10. One such implication is that central banks and financial institutions will have to sell dollars to make way for the RMB. Another is that de facto the dollar will start losing its dominant role in trade financing.
  11. Another is that India supports China’s view that a Washington centric world is no longer appropriate for world stability and that a multipolar world should be structured.
  12. China’s monetary policy continues to be prudent. The cuts in required reserve ratios (RRRs) are not intended to stimulate the economy but to help liquefy the banks given the huge demands on them for additional working capital and because they know what is coming down the line.
  13. Real interest rates remain very high given that PPI fell by 4.6% in March implying that real interest rates were 10.8% in March. Credit remains very difficult within the SME sector.
  14. The cuts in interest rates are partially for this reason and because with the opening up of the capital account interest rates must fall towards international levels or risk a serious inflow of capital.

In summary, the leadership is putting China on the road to greatness but having first to suffer the consequences of previous governments’ love affair with credit.

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Will China’s Asian Infrastructure Investment Bank begin a new world order?

Summary: China has created the Asian Infrastructure Investment Bank (AIIB) and signed on enough nations to make it a significant global force, but opinions differ about its odds of success and long-term significance. Some people expect nothing; some expect the world to change. Here I review the various bets and pick a winner.   {1st of 2 posts today.}



  1. The AIIB is perhaps important, & bad
  2. It’s big news. It’s the end of US rule.
  3. Skeptical voices, with good reason
  4. My conclusions
  5. For More Information


(1)  The mainstream view: the AIIB is perhaps important, but bad

For the mainstream view we turn to the Washington Post, where journalist Fareed Zakaria describes the situation and the consensus wisdom of its implications:

This summer, China spearheaded an agreement with Brazil, Russia, India and South Africa (known collectively as the “BRICS” countries) to create a financial organization that would challenge the International Monetary Fund. In October, Beijing launched a $50 billion Asian Infrastructure Investment Bank, explicitly as an alternative to the World Bank. And last week, Xi declared that China would spend $40 billion to revive the old “Silk Road” trading route to promote development in the region.

… But if China uses its growing clout to keep asking countries to choose between the existing arrangements or new ones, it might create conditions for a new kind of Cold War in Asia. It will certainly help to undermine and destroy the current international order, which has been a platform on which peace and prosperity have flourished in Asia for 7 decades.

The Economist gives a deeper analysis, but being The Economist we should assume it gets the details right but misses the big picture. Excerpt:

But the real, unstated tension stems from a deeper shift: China will use the new bank to expand its influence at the expense of America and Japan, Asia’s established powers. China’s decision to fund a new multilateral bank rather than give more to existing ones reflects its exasperation with the glacial pace of global economic governance reform. The same motivation lies behind the New Development Bank established by the BRICS (Brazil, Russia, India, China and South Africa).

… Reforms to give China a little more say at the International Monetary Fund have been delayed for years, and even if they go through America will still retain far more power. China is, understandably, impatient for change. It is therefore taking matters into its own hands.

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‘Warring States’ — The Coming New World (Dis)order

Summary:  Geopolitical understanding comes through seeing the the world through others’ eyes, from other perspectives than our own. Today we have a description of the new world order as seen from China, written by Eric Li (a Chinese venture capitalist).


“Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union. This is a dominant consideration underlying the new regional defense strategy and requires that we endeavor to prevent any hostile power from dominating a region whose resources would, under consolidated control, be sufficient to generate global power.”

— Draft of the Defense Planning Guidance for the 1994-99 (18 February 1992) written by Undersecretary of Defense for Policy Paul Wolfowitz and his deputy Lewis “Scooter” Libby. The resulting uproar forced a prettier final version that masked the government’s true intentions. See Wikipedia for more comparisons between the honest draft and the pretend-final version.

Shang Yang

Shang Yang, statesman of Qin (390 – 338 BC)



  1. Introduction: about the old global regime
  2. The Ailing Narrative of Dichotomy
  3. The Dragon Reemerges
  4. Levithan vs. Free Rider
  5. Leviathan Retreats, a New Future Opens
  6. About the Author
  7. For More Information


‘Warring States’ — The Coming New World (Dis)order

By Eric Li
Originally published at The Asan Forum, 7 October 2013
Adapted from a lecture given at the Asan Institute for Policy Studies in Seoul.
Reposted here with their generous permission

The Korean Peninsula is the last citadel of a bygone era. Since the end of the Cold War, the United States as the reigning superpower has been the anchor of a global architecture built after World War II and solidified during the post-Cold War period. It is organized around a narrative of dichotomy that has dominated international relations for more than half a century. It is a single fault line narrative and ideology is its cornerstone. A worldwide Western alliance, of which South Korea has been a staunch member from almost day one, led and paid for by the United States, is charged with the mission of maintaining and continuing to expand this global architecture.

This era has gone through two phases. The first was the post-WWII phase during which two universal ideologies were engaged in an existential struggle around the globe: Soviet communism vs. democratic liberalism. Both were modern and both were Western. Furthermore, both were brands of historical determinism in that each claimed the inevitability of a preconceived destination for all mankind. In Soviet communism, class as the fundamental unit that transcended all cultural identities would take the whole world to the communist utopia. On the other side of the coin, democratic liberalism counted on divinely empowered individuals to vote their way to the liberal paradise. Both armed themselves to the teeth and drove their visions from continent to continent. In the end, the Soviet Union collapsed and the American-led West lived — hence the American century.

The second phase was the post-Cold War period. Victory in the Cold War led the West to embrace, in the traditions of Hegel and ironically, Marx, an inexorable linearity to history. The United States would lead the victorious Western alliance to implement the utopia of democratic liberalism to cover every corner of the earth. Electoral democracy and market capitalism were to be the building blocks of a new world order. Six billion rational individuals would all make the right choices in the voting booth and the marketplace and, thereby, eventually unify the world under a single set of political, economic, and even moral rules. In the euphoria of globalization many were led to believe that national sovereignty was passé and universality was within reach. Here, the single fault line is between the democratizers and market openers on one side and those who resist conversion or are yet to be converted on the other. Three approaches have been pursued against the latter: direct military containment or invasion (North Korea and Iraq), fostering color revolutions (former Soviet republics and the Middle East), and peaceful evolution (China).

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Danger, America! Wet your pants in fear of China!

Summary: Ruling requires work. Feeding internal factions to prevent collective action. Feeding fears of others, turning their gaze to foreign foes. Feeding misinformation so that they no longer clearly see or understand the world, so that they cannot predict or adapt. Fortunately Americans makes this easy. Here we examine a case study in an America lit only by propaganda.

Click to enlarge


The news media is conducting yet another propaganda barrage on America, as directed by DoD. Here are some samples:

The first story relies on sources which Bloomberg News believes credible:

QinetiQ was only one target in a broader cyberpillage. Beginning at least as early as 2007, Chinese computer spies raided the databanks of almost every major U.S. defense contractor and made off with some of the country’s most closely guarded technological secrets, according to two former Pentagon officials who asked not to be named because damage assessments of the incidents remain classified.

This is obviously an authorized information operation (expect no arrests under the Espionage Act). We don’t know for whom these guys now work (Bloomberg forget to tell us). Would you bet they work for a firm that benefits from cyber-war-hysteria? Also, they show little curiosity as to how China — just emerged from the Third World — developed better cybertechnology than our lavishly funded Defense cyber-infrastructure.

The other stories follow the same pattern: artfully designed leaks from the government and its vendors, reported as gospel by news media’s stenographers. For a journalist’s report on this story look to Kelly Vlahos: “Cyber War: Another Epic Fail“.

I’m glad that DoD found a new ways to incite our fears. The old ones had grown stale:

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Social unrest coming to Europe? If not, why not?

Summary: Five years of crisis in Europe, yet its streets remain mostly calm. What accounts for this? How long will it continue?

“At the heart of the crisis, there is the challenge of redefining the social contract to safeguard the sustainability of Europe’s social model.”
Speech by Benoit Coeure (Executive Board of the ECB), 2 March 2013

“Spot on, Benoit. The trouble is European leaders and institutions seem to want to redefine the contract in ways that at least half of European citizens don’t approve, or trust them to carry out. So underneath the three-headed crisis of austerity, banking and sovereign debt, we have one of legitimacy and trust, which is feeding social unrest.”
— George Magnus, Economic Advisor, UBS, 20 March 2013

Liberty Leading the People, Eugène Delacroix (1830)

The painting “Liberty Leading the Way” commemorates the July Revolution of 1830, midpoint to a century of social unrest in France. It shows the result of mismanaging the forces of change.


  1. Why is Europe still stable?
  2. What comes next?
  3. Compare with China
  4. Leave a comment
  5. For More Information

(1)  Why is Europe still stable?

The stability in Europe since the second downturn began in March 2010 has surprised many observers (eg, me). Three years of depressionary conditions in the periphery have produced no large, severe outbreaks of social unrest. Elections have produced majorities in favor of the European Union and the austerity it mandates (we’ll soon see if February’s election in Italy broke this record).

What produces this stability? The usual supports for incumbent systems are human inertia and people’s dislike of radical change.  Hence the failure of the frequently made forecasts of regime change in developed nations. But those explanations seem in adequate, as does embrace of the EU from fear of war.

History provides a possible answer: the lack of an alternative. Thomas Kuhn in his The Structure of Scientific Revolutions (1962) says that scientific paradigms die not when they are disproven, but when they are replaced by a superior alternative. In much the same way revolutions (peaceful or otherwise) require a new political or economic ideology that can substitute for the old.

Without an alternative, accumulated stress breaks out in futile forms, such as protests and riots. These are a commonplace of history, such as the peasants’ protests (Wikipedia) and race riots (Wikipedia). These can produce incremental reforms (although they usually didn’t), but participants seldom had a vision of a realistic better system. Although recognized as defective, other systems were considered less attractive or unworkable (eg, plutocracy in Holland, city-states in Switzerland). For centuries this provided a buttress for European monarchies.

(2)  What comes next in Europe?

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