Platt Perspective on Business and Technology

The China Conundrum and its implications for international cyber-security – 3

Posted in business and convergent technologies by Timothy Platt on January 21, 2011

This is my third installment in a series in progress on China, with the first two appearing as:

The China Conundrum and its implications for international cyber-security – 1 and
The China Conundrum and its implications for international cyber-security – 2.

I also add that in many respects the most complex and difficult to unravel story I have addressed here with this blog. (Note: before I proceed with the balance of this posting, I want to clarify a point regarding reference URL’s included. I did not include any from People’s Republic of China (PRC) in my first two postings in this series and I will refrain from adding any here or in any follow-up postings. I do this for a very specific reason: China’s Golden Shield Project. Yes, I do know of several China-sourced online discussion boards and similar resources that do not come out of their Ministries and other official government-filtered sources. But I do not want to make their ongoing independent functioning any more difficult by posting links to them that could be picked up on through online searches and blocked. So I stick to Western sourced online references for this.)

At the end of my second installment in this I said that I was going to focus on China’s gray market economy and with the production and marketing of rare earth minerals as a working example. I will post on that, and in detail as it is very telling and an indication of underlying fault lines and cracks that will manifest in other ways in the coming years. But I have decided to postpone that until the fourth installment, and focus here on laying out a major point of conclusion that I will be building an argument for in subsequent postings.

China sees potential threat and sources of political and governmental instability as coming from many directions. Their senior governmental leaders in their Politburo standing committee fear the potential for instability that can come from the West and the United States. They fear the instability that can come from Taiwan and its ongoing example, set if for no other reason than by its continued successes as a part of China outside of their control – and too influenced to them, by the West and the United States. They fear internal unrest and a form of unrest that will only continue to rise with the demise of the old iron rice bowl system and with growing disparities of wealth and influence among their citizens. All of these come together with the internet and with increasing difficulty faced in managing the news and information that the Chinese citizenry can access and share.

Perhaps the biggest single source of unrest, instability and danger that the Chinese government now faces is a “none of the above”: its shadow and black market economy. This becomes visible where it controls so large a percentage of as significant a source of wealth and power as the rare earth minerals market. This becomes visible when it means companies like Dell find they have built large numbers of computers with defective parts that were made in China’s black market industries (see Dell and the complexity of managing a global supply network in a competitive marketplace) and in shadow economy factories, then mixed into the output of the more open Chinese industrial base. This has impact where schools collapse and children die from building failures in an (April 14, 2010) earthquake and it is found that these buildings were constructed with shoddy and defective materials.

Put that way, this complex of problems connects into and contributes to many of China’s other reasons for concern, and both in dealing with their own people and in effectively dealing with the outside world.

Cyber security comes into this insofar as so much of this and in fact all of these problems revolve around information access and control. That means the Great Shield Project and much if not most of the offensive and defensive cyber-warfare capabilities that the country is developing.

This is also an issue that fits into the realm of macroeconomics and the global economy. And the way the businesses of the shadow economy seek out profits regardless of environmental and long term national and public costs, the core problem I write of here is pressing and growing.

I will argue the case that much of what China does in seeking to control its international currency valuation and in seeking to limit internal inflation rates comes directly from strategic decisions as to how best maintain central governmental stability and power. This is a complex balancing act and even when only internal, national and local considerations are taken into account. When the outside world and the West in particular view China’s economic policies and practices strictly in terms of their outward impact, they set themselves up to fail in responding to these forces, and in any efforts to influence them.

My next posting in this series will delve into the still unfolding story of the rare earth minerals market and China’s complex role in it.

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