China’s Step-by-Step Takeover of the South China Sea: Grant Newsham

[RUSH TRANSCRIPT BELOW] “What you’re seeing in the Philippines is one more step in China’s effort to tighten its control over all parts of the South China Sea,” says retired U.S. Marine Col. Grant Newsham, an expert on the Asia-Pacific region and a senior fellow at the Center for Security Policy.

In recent clashes near the submerged reef known as the Second Thomas Shoal, there have been cases of Chinese vessels ramming Philippine ships, deploying water cannons, and injuring several sailors.

In this episode, Newsham breaks down the Chinese communist regime’s decades-long strategy to gain control of the South China Sea, from methodical island building to deploying a combination of Coast Guard, maritime militia, and fishing fleets to harass and intimidate other nations.

Views expressed in this video are opinions of the host and the guest and do not necessarily reflect the views of The Epoch Times.

RUSH TRANSCRIPT

Jan Jekielek:
Grant Newsham, such a pleasure to have you back on American Thought Leaders.

Grant Newsham:
I’m glad to be here.

Mr. Jekielek:
Grant, a little over a year ago, I had you on the show. We were talking about your book, “When China Attacks.” And you paint a very interesting scenario in the book of what that might look like, right? And it, in fact, might not look exactly like what we think of conventionally as an attack. But it’s a very interesting scenario. And I’m glad to be here. And recently, when I’ve been looking at what’s been happening in the South China Sea, specifically around the Philippines, I was reminded of what you wrote in that chapter about the book. So let’s talk about what’s happening in the South China Sea.

Mr. Newsham:
Sure. What we’re seeing, actually, is the outcome of about a 20, 30-year effort by the Chinese to establish control over the South China Sea. And just to give you a sense of the scale of that, the South China Sea is a very, very large, very large, very large, very, very large area. And the South China Sea is about one and a half times the size of the Mediterranean. The Chinese have gone about it gradually, but steadily. And they have moved quicker when they could. And sometimes they’ve gone more slowly.

And they have generally done it without firing a shot, except for one instance in 1988, when they gunned down 60-some Vietnamese sailors and Marines standing knee-deep in water on a piece of Vietnamese territory. And they’ve done it in the middle of the South China Sea that China wanted, so they went and took it. But otherwise, they have done it just by gradually establishing their presence, a physical presence, of course, and also having their Coast Guard, their maritime militia, their fishing boats, and the Chinese Navy always present.
And they have basically gotten de facto control of the South China Sea by about 2015. And that’s almost 10 years ago. So you’ve watched this happen. They have taken over what has always been international waters. And the Americans and the neighboring countries haven’t done much about it. And the one country that really could, of course, is the United States.

Mr. Jekielek:
Well, let me jump in here for a second. I don’t think it’s conventional wisdom that the South China Sea has been taken over at all. After all, we see reports regularly of aircraft carriers heading through there. You know, all sorts of activities. There’s open shipping lanes. And certainly, I don’t think the Chinese regime would say, hey, we control the whole South China Sea.

Mr. Newsham:
Well, they’ve been very clear that they think the South China Sea is theirs. And they’ve gone to great lengths to sort of make that case, even concocting a legal argument for that. But also, as I said, getting physical control. They’re in a position to really choke off the sea lanes through the South China Sea. They’ve passed domestic laws giving them the right to do that.

Most recently, giving the Chinese Coast Guard the right to arrest trespassers in the South China Sea. They just haven’t done it yet very often. Go back in time a little bit. And as I mentioned, this is about a 30-year effort that Chinese have been undertaking. Starting in 1974, they took some Vietnamese islands up in the Paracel group at the northern end of the South China Sea. Then they took some more Vietnamese islands or territory down farther south in the Spratly Islands. That’s when they gunned down the Vietnamese servicemen.

Then in 1996, they established some fishing huts on a reef called Mischief Reef, which was Philippine territory. The Philippines have not been back there since. And then from about 2013 to 2015, they launched an island-building campaign that was impressive, to say the least. And they have built a number of man-made islands in the Paracels up north, but also down farther south, some hundreds of miles from the Chinese mainland, in the Spratly chain.

And there’s three islands that they’ve built that really deserve mention and give you a sense of just how they’ve gone about establishing their control. And those are Mischief Reef, Subi Reef, the Paracels, and Fiery Cross Reef. Now, Subi Reef has been turned into a military base that is actually bigger than Pearl Harbor in Hawaii. So it’s gone from basically nothing to a place that’s bigger than Pearl Harbor. It has deepwater anchorages. You can put your naval forces in there with long runways. Mischief Reef, the same thing.

Mr. Jekielek:
And if I can jump in for a moment, Grant, just to remind people, you know, how did this come from nothing? Like, they were built, right? Yeah.

Mr. Newsham:
Say what one will about the Chinese Communist Party, but Chinese construction companies are very good at land reclamation. And they can do it on a massive scale. They’ve done it. Now, but back to Mischief Reef, that is another, now it’s a full-scale military base now. And it is bigger in size than the District of Columbia. So we’re talking about major bases they have put in there that give the Chinese the ability to do that, hundreds of miles from their mainland.

So they’ve extended their reach and it gives them the platform from which to operate constantly in the region. So they can have ships out there, aircraft out there, as often as they want very easily. And what I would compare it to now is because you’d mentioned you know the sort of Americans doing exercises down there. It’s been a while. It’s sort of the equivalent if you remember New York City before Rudy Giuliani took over and sort of cleaned it up.

But remember Times Square. It was just a complete den of criminality. And the criminals controlled it and it was not a good place. But NYPD, the New York Police Department, anytime they wanted they could push a squad car through Times Square and the criminals would clear out and the squad car controlled wherever it was. But as it went through it the bad guys just closed up and you knew who was going to be in charge. And so the American Navy is now the new controlled Times Square. And something similar goes on in the South China Sea.

So yes the American Navy can go down there anytime it wants and it can sort of part the Chinese. But for every ship that the Americans can put in the Chinese can cover it with ten ships if they want. And it’s come to the point where yes the Americans go but now they have sort of been escorted by Chinese ships. The Americans will say now that we’re not being escorted. Well from America it’s not going to happen.

But the Chinese perspective, well they’re just monitoring who’s coming into their water and they think they’re escorting them. And they say the numbers are not in America’s favor and that’s been the case for a long time. The Chinese have the ability to have a physical presence in the South China Sea. Almost all parts of it that can outmatch anything anyone else can put in there, particularly on an extended basis. And I would note that the Chinese also passed a law in 1992, which said the South China Sea is ours. And it was a domestic law.

And at the time, the commentariat and the West and the foreign policy crowd, they all sort of laughed a bit and said, oh, these Chinese. But over time, once China gradually got the ability to enforce this law and to actually give some teeth to it, it’s a very different arrangement. And nobody’s laughing much about it anymore. So when I say that the Chinese have the place, they certainly do dominate it and that they do have de facto control, even though they don’t have legal control of it.

Mr. Jekielek:
I remember when these reefs were being built, the big ones especially. And I remember there were promises made, right? These aren’t going to be militarized, right? And I remember thinking, what a silly idea, because why are you building it in the first place? What? What other possible reason could you have? But there were all sorts of promises made along the way that were sort of, I guess, in the other direction, if I recall correctly.

Mr. Newsham:
Oh, yes. Xi Jinping actually promised President Obama that he would not militarize these man-made islands. And, well, he did. And the Chinese will, of course, concoct sort of an excuse for this, saying, well, we’re not militarizing them. This is just defensive in nature. The idea was that when they built them, well, this is just to sort of take care of fishing, control fishing interests, or make sure that everything’s in order in the South China Sea,
but they don’t have any desire to actually put military forces out there.

And what you saw at the point when it was obvious these were going to be military installations, you had some very senior military officials. And the senior American officials, for example, one commander at U.S. Indo-Pacific Command [U.S. Indo-PACOM] referred to these islands as the Great Wall of Sand, just sort of dismissively. Another very senior officer said, “I could take these out in an afternoon if a war starts.” And there was sort of a condescension to all of this, that, well, these people will never really amount to a real threat to us.

But the Chinese have gone about, as I say, strengthening these bases. You have aircraft put there, a base there. You have ships there, anti-ship missiles there. The surveillance opportunities to really understand what’s in the region so you can target it are immense. And so it’s just gone from strength to strength. And you’d also hear, I remember, a lot of articles written about how they can build the islands.

But because they’re in a maritime environment, all the saltwater will destroy anything you put on it. And they’re so low to the surface that if a typhoon comes through, it’ll wash them all away. Well, that hasn’t happened yet. But we’ve sort of managed to convince ourselves that nothing bad was going to come of all of this, that China had no real ill intentions. And then you reach a point where, well, they’re there and they’re capable, and there’s not much you can do about it.

Mr. Jekielek:
They’re building these in waters that are owned by someone else, right? And so this is this other piece that’s important. And what’s very curious to me, the Chinese regime has specialized in what we would call gray zone operations, right? Exerting some sort of provocation, something that might be provocative, that achieves an objective, but not quite provocative enough that it elicits a response. Or, you know, that’s not the case. There’s a significant response, and just kind of always kind of testing how far that can go.

This is sort of an approach I’d like to get you to talk a little bit about this. And it just struck me that these reefs, in a way, have functioned like a kind of gray zone warfare. You know, it’s bizarre that the construction of military bases on new reefs in foreign waters would actually be a gray zone. You would think that would be something more than just that.

Mr. Newsham:
Well, it’s a gray zone. It’s not a gray zone if you want to call it a gray zone. And gray zone is not an ancient expression. It’s a more recent term. And what it ultimately means to us is that, well, it’s something somebody does that isn’t
worth going into or getting into a shooting war about. And as a result, if the other side sees that’s how you interpret it, well, they’re going to push that as far as they can, because they see you will always back off. You will always come up with an excuse not to do anything.

But you’d look at what China is doing in the South China Sea, and not just the eyelid building, the way they have interfered with American and our partner nations’ aircraft, with their ships. And they’ve been doing this for years. It’s a miracle nobody’s been killed. They do things like drop chaff or flares in front of a ship or an aircraft, or an aircraft in particular or use lasers to try and blind pilots as well. Their aircraft and ships constantly try to intercept and interfere with the operations of our ships and aircraft and our friends as well. And so that’s the sort of thing that I would point to.
But also most recently, when the Chinese and the Russians sent nuclear-capable bombers up towards Alaska into the American area. We call it a gray zone, but as a practical matter, what the Chinese are doing with these activities is they are, one, rehearsing for war. They are getting their forces more capable. They’re also sort of wearing down us, but creating a sort of conditioning on our part to say, “This is what they do. We just have to tolerate it. There’s nothing which we should do about it. It’s too risky.”

In the meantime, they are improving their position to operate militarily, to project force so that if the time does come where things reach ahead and we have to respond, well, the enemy, which is us, as they will tell you, is not in a position to respond very well because the other side has been able to get themselves positioned, organized. It’s hard to respond without great cost. How they see it is they are improving their ability to dominate their opponent, whereas we see it as just these people just don’t quite know what they’re doing, and with a little bit of tolerance, maybe they’ll behave. And so it is almost like an incantation that works really well on Americans.

Our main point is to avoid war. Avoid conflict. that you’ll always back off. And instead, we should be looking at it and saying, well, let’s give the other side should be the ones worried about what we’re going to do to them. And that is what we should be doing. We don’t do it. And all you have to do is make it very clear that we consider these acts not gray zone. We consider these acts of war maybe at the low end of the scale, and we will respond accordingly. We’re not going to get out of the way. If you think you’re going to ram us, well, we’re going to ram you and give you even more to worry about. And it doesn’t have to be actually sort of one for one.

But in the face of this sort of activity, instead of just sort of tolerating it and hoping that nothing more happens, we’ll do things like suspend the People’s Bank of China’s license to operate in the U.S. for six months, put a complete sort of ban on high-tech exports to China for some period of time, and if there’s any question why we did it, well, you just tell them you know why. We don’t have to tell you. But there’s been no downside when the Chinese do behave like this. And the Chinese have used this really effectively, particularly in the South China Sea. And if the Americans act this way, you know that everybody else is as well. So we’ve sort of set the tone for the other nations when it comes to standing up to the PRC [People’s Republic of China].

Mr. Jekielek:
You know, it’s interesting that you describe this, you know, over nuclear-capable military flight near Alaska, you know, Russian-Chinese joint initiative. It just reminded me of the so-called spy balloon, right? So how do you view that in the context of what we just discussed? How did you view that whole incident now that you have a bit of distance from it?

Mr. Newsham:
Well, it doesn’t look any better with the passage of time. And this is a very predictable response on the U.S. side is to avoid anything that might lead to further conflict and to always be the ones to back off. And allowing the spy balloon to fly over the United States to collect intelligence and then eventually shoot it down and then not release the results of what they found in it, it just shows how far U.S. administrations generally have gone to try and accommodate the PRC.

And no matter what they do, and the Chinese see this, they see this as a very, very bad thing. And you cannot blame them and say, well, the Americans will always back off. And whenever you’ve, in foreign affairs or even in your personal lives, whenever one party is more willing to push and the other side is inclined to compromise, the pushing is not going to stop. You would almost get the impression that on the U.S. side, the Western side, that the belief is, well, we have an alternative, or two alternatives, or one to, to do nothing and to just let it happen, and do express profound concern. And the other alternative is thermonuclear war.

Well, I would suggest that there’s a lot of things in between. In fact, I once asked, this was in probably 2015 or so, I asked a very senior U.S. military officer at today U.S. Indo-PACOM, “Why aren’t we doing anything to challenge this Chinese misbehavior that you’d carry out in the United States, because it so categorizes Gray zone operations?” He said, “What are we supposed to do? Go to war with them?” He was a few ranks higher than me. But even I could think of some options short of going to war.

But that very much was the thinking. So as I say, there’s things we can do that would make the other side think, well, maybe this isn’t a good idea. And, but you do have to be willing, if necessary, to run the risk of coming to blows with the other side. I say, put them in the position of asking, do we want to go to war with the Americans? Instead, the question is usually asked one way by us, and we answer it ourselves. We don’t want to go to war with the People’s Republic of China. But you have to change that dynamic if you’re going to have any success.

Mr. Jekielek:
So tell me a little bit about how these different naval units work, because you mentioned the maritime militia, you mentioned the fishing fleet, of course, there’s the coast guard, and you kind of mentioned them all as part of one unit, which in fact they are, but that’s not obvious.

Mr. Newsham:
They are part of the same unit, ultimately, but we choose not to believe that. If the Chinese have gotten up to a point where they’re going to be able to do anything, they’re going to be able to do anything. And so it’s important for us to convince ourselves that, well, a coast guard or maritime militia is not really part of the Chinese sort of national power, but it’s just something,
it’s civilian, it’s peaceful, that, well, they’ve had great success and they’ve been able to win without fighting.

But what the Chinese have done to exert this control in the South China Sea is you combine these different elements, and of course you have a huge fishing fleet, which is very good just for establishing presence and even pushing people out of areas. The fishing fleet has a sort of an up-gun part of it called the maritime militia. And these are, they look like fishing boats, but they have, you know, very reinforced hulls, they’ve got weapons on them, and they are used really once again as muscle by the Chinese communists. And you can put them in a lot of places, you can have a permanent presence, you can just go park them there.

Some U.S. outfits, private ones like the Asia Maritime Transparency Initiative of CSIS [Center for Strategic and INternational Studies], a fellow named Ray Powell’s operation as well, have actually got the photographs of these ships lined up next to each other in areas that are contested, and they’re parked there. And that’s your maritime militia. And then beyond, then you have the Chinese Coast Guard, and their coast guard ships are, you know, they’re not just, they’re not just, they’re not just built to fight. It’s not just to go catch fishing boats. And some of these are huge.

The Chinese have a 10,000-ton coast guard ship down near the Philippines right now in one of the areas where there’s skirmishing going on, and it’s parked there to intimidate. 10,000 tons is bigger than some American ships, naval ships. So, say they build these to fight, and then you have the People’s Liberation Army [PLA]. Then you have the Chinese Navy. And they have been, they’ve got about 350 ships now. The U.S. military Navy has about 290 and shrinking. The Chinese are building about five ships for every one we do. Their numbers are going way up. They also only have to cover an area fairly close to China. The U.S. Navy has to cover the whole world.

They’ve got the numbers on their hands, on their side, and you can see how they can establish this presence. They have kept the operations mostly with the Coast Guard, maritime militia, and the fishing fleet. And that way they say, well, this is not military. You know, this is not our military out here. This is Coast Guard law enforcement, effectively. And even fishing, you know, just fishermen. You know, who can complain about that?

But when they operate, generally, the People’s Liberation Army Navy is either nearby or over the horizon. It has worked like a charm. The Westerners have said, well, this is just Coast Guard. If we send in naval ships here, well, this will escalate. We’ll be the ones at fault here. And I say it has worked fabulously well for the Chinese.

Mr. Jekielek:
Well, I just, I might add, you know, when you’re talking about the fishing boats, and you said, you know, who could complain about the fishing boats? I’ve read a number of reports over the years about them being, you know, incredibly predatory and doing all sorts of illicit, extreme fishing operations in foreign waters. Is that?

Mr. Newsham:
Oh, it’s like vacuum cleaners. And it’s not just in the South China Sea. It happens in Japanese waters. Ecuador has a huge problem. The Galapagos got sort of clear cut, in a fishing sense.

Mr. Jekielek:
It’s the equivalent of clear cutting, exactly. That’s a very apt comparison.

Mr. Newsham:
You can see it. The Argentinians have complained about it. On the other side, Mozambique, West Africa, has the same problem. And you don’t hear a peep from the environmental organizations, of course. But that’s the nature of the Chinese fishing fleet. And just when it comes to the Japanese, for example, now and then the Chinese have actually flooded certain Japanese territories, maritime territories, with boats, say a few hundred fishing boats. They push them in and start, not just, they, of course, fish, but they, of course, fish, but they, of course, fish. They also, they’re there to send a message to the Japanese that anytime we want, we can put in so many ships, there’s nothing you can do about it.

And we can demonstrate that we have administrative control over these waters that you Japanese think you own. So they can use these as a tool of intimidation in a way to assert control and to take what they want. And it’s happened sort of often enough that the Japanese know they’ve got a serious problem on their hands. There’s even parts of Japanese territory in the south where the Japanese fishermen don’t even bother to go anymore because the Chinese are there or the China Coast Guard actually comes in and harasses them and the Japanese Coast Guard tries to defend them and respond but they tend to be overmatched or overwhelmed no matter how hard they try.

So even what looks like a purely civilian sort of boat is actually a part of this Chinese effort to demonstrate, to exert control. When it looks like a sort of a law enforcement or civilian sort of organization that you see out and about in the South China Sea, you really cannot distinguish it from China’s military power, military force.

Mr. Jekielek:
So what is the significance of what actually happened recently in the Philippines?

Mr. Newsham:
Well, what you’re seeing in the Philippines is just one more step in China’s effort to tighten its control over all parts of the South China Sea. It is a big area, so they haven’t quite got the ability to control it all at all all the time. But with the Philippines, they have leaned in on the Philippines for, it’s been a while now, it really started now before 1991, but it started in earnest in 2012 at Scarborough Shoal. So over a decade ago, the Chinese have just moved in and occupied Philippine territory and there’s places where they would like to get more of it.

And the most recent one is a place called Second Thomas Shoal. And this is like a reef about a hundred miles or so west of Palawan Island in southern Philippines. And the Filipinos have beached an old World War II area or grounded a World War Two era transport ship on the reef as a way to have physical presence. So nobody could say it didn’t belong to them. And it’s manned by a small group of sailors and Marines. And it really is pretty rough living as you can imagine.
And the Chinese have been trying to block resupply by a lot of land. There has been skirmishing just water cannons bumping by of Philippine ships by Chinese boats you’ve even had small sort of inflatable or small boats with chinese troops on them have interrupted and sort of knifed the ships and even chopped the even a Filipino sailor got his thumb chopped off in the most recent event but it’s gotten pretty nasty and to the point that the Chinese can just lock things up if they want and make sure that nobody gets in and so that is the the most recent place where the fight the skirmishing has been going on and this is there’s a political angle to all of this it’s the Filipinos trying to defend their territory and the from really Chinese aggression.

The Filipinos have been very good at publicizing this. They’ve had the press along and they have released videos of what the Chinese are doing. It has embarrassed the Chinese and it’s sort of put them on the back foot for a bit. They are in a position as I say to control the place if they want, but politically it would be too it’s be embarrassing for them to do that but a big problem here is that for some people is that the Philippines has a treaty with the United States.

It’s a defense treaty and the treaty says that the Americans will help the Philippines defend their territory from armed attack. The Filipinos I think have been counting on the Americans to actually come help them and come out to the sharp end to the place where this fighting is going on the skirmishing and the Americans haven’t done it. I’m not sure exactly why you hear different things, but the point is they haven’t come out. You will be hearing a lot of Filipinos asking what is the purpose of this treaty if when we really need you won’t come out and help us? Some people might argue that this is actually strike three from the Filipino perspective when it comes to relying on the Americans.

Once again, a little history is helpful. In 2012 at an area called Scarborough Shoal which is a little over 100 miles west of the of Luzon, the main Philippine island, the Philippines sent a Coast Guard ship out to deal with some illegal Chinese fishermen there. The Chinese showed up with Coast Guard ships and there was a standoff. The U.S State Department negotiated a treaty between both sides that they would each withdraw their boats and withdraw their ships. Of course, the Filipinos did, the Chinese didn’t. They stayed there and the Americans did nothing. Then they came up with a number of interpretations as to why they didn’t have to do anything. Because supposedly the defense treaty didn’t apply. The Filipinos were thinking well why didn’t you help us here?

I actually heard the it was a very senior Philippine official who had just retired i was on a panel with him in tokyo not long after this he was sitting next to me while somebody was giving a presentation on this incident and he said to himself just almost in despair he said and I was thinking, well, there’s things we could have done, and I’m sorry we didn’t. I should have said it, but I didn’t.

Even on the U.S. side, there was one senior official and others as well who actually seemed to regard themselves as having been very successful at avoiding a fight with the Chinese. And they were saying, well, we couldn’t go to war over some rocks, and we avoided danger, avoided this potential conflict. As though this was a success. And yet what it did is it demoralized Filipinos.

After that, the Americans actually encouraged the Filipinos to bring a suit to the Permanent Court of Arbitration in The Hague, and they did. They brought a lawsuit challenging what China had done at Scarborough Shoal and elsewhere in the South China Sea. And the court ruling in 2016 was overwhelming in favor of the Philippine position. Overwhelming. Usually in these decisions they split the difference and neither side leaves very happy at all. But this one obliterated China’s arguments and gave the Filipinos a resounding victory.

And what happened after that is the Chinese said, well, this is just scrap paper. We’re not going to pay any attention to that. The U.S. administration did nothing. They said almost nothing about it. And they did nothing to help the Philippines enforce this or even give them much moral support at all.
And the Filipinos once again felt like they had been stiffed. And that’s strike two.

Now, what is going on at Second Thomas Shoal more recently? Once again, there are Filipinos who see this and say, well, where are the Americans? Why aren’t they out here with us? And some, in baseball terms, you’re all getting pretty clear. You’re all getting closer to strike three as the Filipinos see it. And this potentially causes some real domestic difficulties for the Philippine President Marcos, who has shifted the Philippines back towards the United States, where his predecessor, Duterte, shifted it the other way and was not on good terms with President Obama, to put it mildly. He referred to him very disparagingly.

And part of the reason for that was because of what happened with the permanent court of arms. arbitration decision and Scarborough Shoal. So you can see how America’s reputation and the reliance that people will have on it has really been undercut by some of these things that have been happening in the South China Sea. And that has a ripple effect, often well beyond the region.

Mr. Jekielek:
Well, and then there’s this other element which we talk about sometimes is Taiwan. In Taiwan, we have a lot of high-tech manufacturing dependency on Taiwan at the moment, frankly not just the U.S. and not just Canada that have this dependency. There’s been a lot of increased actual military activity on the Chinese side in the sense of the overfights, which have the purpose of reminding everyone, I guess, who’s in charge or who wants to be in charge. Can you just explain to me briefly where we’re at? And I mean, there’s also a recent report that came out that suggests that China is sort of hunkering down for war almost with the types of resources they’re beginning to store large amounts of. And so that’s another question.

Mr. Newsham:
Yes. Let’s start with Taiwan first. The Chinese have, as you’ve mentioned, have been conducting air operations, naval operations, drone operations to effectively surround Taiwan and to keep at it to the point that they’re almost,
it’s like a python sort of gradually, gradually tightening. You’re seeing more of it more often in more places and getting closer and closer to Taiwan.
Once again, that wears out the opponent, wears out the Taiwan military trying to respond, almost creates a sort of resignation in the civilian population and even sort of a sort of a dangerous sort of acceptance of what’s going on to and to the idea that people who would defend.

The Americans almost see this Chinese activity as just a daily activity. No big deal. And then one day. When the Chinese turn on the sort of arm, the master switch then goes that nobody’s quite ready for it because they’ve gotten so inured to so used to what they’re seeing from the Chinese doing.
It demonstrates as well that a country can’t defend itself, and they can’t keep the PLA away from their territory. And in fact, it keeps getting closer and closer. So that’s what we’re seeing. And there’s this combination of physical activities, but there’s a huge psychological component to all of the Chinese activities when it comes to Taiwan.

Mr. Jekielek:
So this in itself doesn’t mean that China is ready to invade Taiwan, but there has been this recent report and frankly, on the heels of other reports talking about how China is storing certain types of, you know, food, building up food stores. I mean, a whole range of things, actually. I’m just curious if you’ve been following that and what the meaning of that is, in your view.

Mr. Newsham:
This has actually been going on for at least a few years, and the People’s Republic of China has been stockpiling food, grains, oil, energy, iron ore even, and also soybeans and just all sorts of resources that you would need to effectively sanction proof your country. China does go to war with somebody, say Taiwan, they can expect sanctions, but also almost a cessation of much of their trade. And it does look like somebody is storing up supplies for contingency and to be ready for that.
And if you look at the figures of what they’ve actually got stored up, it is immense. And I think that is a reasonable interpretation of what the PRC is going on. But Xi Jinping’s desire to sanctions-proof his economy and even to, as some would say, to decouple it from overseas economies, those have been around for a while. The whole idea of Made in China 2025 was very much intended to make the Chinese economy independent and really free of pressure. And it’s not a potential pressure from anybody outside.

Mr. Jekielek:
Well, and this is what’s very interesting. I want to talk about this decoupling as we finish up here. There’s an interest in decoupling or de-risking, as I think the lighter term that’s used, the U.S. economy from the Chinese one for obvious reasons. But the Chinese themselves, per Xi Jinping, are of an interest in decoupling. It’s just kind of on different terms. Some of these terms would be beneficial for America, the other is not beneficial for America, presumably. And I haven’t seen a lot of meaningful attempts on the decoupling side, I don’t know. But there certainly has been a bit of capital flight, and I saw that foreign direct investment, for example, has gone way down to China, at least in the last quarters. But what’s the reality of that situation?

Mr. Newsham:
I think there’s more happening than we see. The foreign direct investment into China has fallen off the cliff. Even the Chinese admit this. And this is a huge problem for them, because they do depend on the investment, the foreign currency that brings in, the technology it brings in as well. But that has really reduced in the last year or two. You’re also seeing at the small to medium-sized company level, a lot of foreign companies have said, this isn’t a place we can be. Bigger companies have a harder time with that. If you’re in China and have a lot of fixed costs sunk in there, it’s harder to get out of China.

Partly the Chinese won’t let you, or they won’t let you bring out your earnings. If you’ve made money there, you’ve always had trouble bringing it out of China. But also there’s this small matter of, I think for a lot of big companies, if you went into China, knowing it was incredibly risky, that you were investing in a market without a functioning legal system, where a contract means nothing more or less than what Xi Jinping says it does, where corruption is the order of the day, where a government policy is to really suck anything useful out of you and then replace you with a Chinese company, and you invested in there, well that sounds like shareholder lawsuits in the waiting. So big companies have to be careful about exposing them to that. This is all happening.

As I say, it tends to be a little hard to see sometimes. But there has been a shift, particularly if you look back, say, a decade ago where everybody
wanted to be in China. You had to be in there. It was a mantra, and all the lemmings went in. And anyone who said otherwise was considered stupid or just old school, didn’t understand the modern economy. Didn’t understand the opportunity.

Sometimes you have to look back and see how things have changed, and I think there is a growing awareness of the risks to invent companies that get into the PRC. And there’s even more of an awareness at the national level of the threat that the PRC poses to the United States, and just listen to what the Chinese have said. So there has been some change.

Has it been enough to really slow down the CCP[Chinese Communist Party]? Probably not yet, but it is different, and things are different, and it’s moving in that direction which I’ve described. Will it be enough to put the brakes on China’s military buildup, the biggest, fastest buildup in, I would say, human history, others just say since World War II? I’m not sure that it will be enough, but it is a different environment than it was not so long ago.

Mr. Jekielek:
Maybe just comment on that. I think that’s important. Because we talked in this episode about how the Chinese military in some ways and these other Coast Guard, militia, fishing fleet, all of them kind of work as one, or at least
when they are required to, and they’re set up to do that, and it’s part of the strategy. This is coupled with one of the greatest military buildups that we’re aware of, including a nuclear buildup, I might add. So, what are the implications?

Mr. Newsham:
Well, unfortunately, this is the, I’d say, the biggest threat to the United States, to the free world that has ever been around in my lifetime. It’s much worse than what we saw with the Soviet Union. The Chinese have built up a formidable military, and they’ve also had the added advantage of having gotten their main enemies dependent on their economy, on their manufacturing, for instance. You know, things like pharmaceuticals, even many military things, you need to make military explosives, magnets for F-35s.

They’ve got this dependency, which is, you know, there’s an economic component, of course, but it’s almost a psychological dependency, where you have America’s ruling class, this business elite, political elite, academic elite, they’ve all come to think that we can’t challenge China. We can’t upset the status quo. And there’s no good reason why they think that. But they’ve come to think about it. And the sort of elite capture that has come of this dependence, and that basically means prominent Americans, and in other countries, the same thing goes, who have, for whatever reason, have seen their interests as lying in China, and in doing the bidding, either wittingly or unwittingly, of the Chinese Communist Party. Party.

And you see this on Capitol Hill, Wall Street, and with the U.S. business class. That hamstrings a country that tries to resist what the Chinese are doing, which is they’re out for regional domination, global domination. And they’ve been very clear about that. So as I say, what we’ve seen is a threat that I’ve never seen. And we have allowed it to get to a point where it is something where we just might lose. It’s not to say we will, but if we don’t sort of wise up and certainly stop funding our principal adversary, that the odds don’t look very good for us. But we are at least starting to see the problem more clearly. And we at least have a chance. It’s late in the day, but we do have a chance to come out ahead here.

Mr. Jekielek:
Final thought as we finish?

Mr. Newsham:
I may sound sort of glum about all this, particularly when I say describing the South China Sea, where it does look like the Chinese have de facto control and are strengthening it. But at the same time, if you look at the geography of the region, if you go from Japan to Taiwan to the Philippines and down to Malaysia, if you look at it from China’s perspective,
the South China Sea is kind of like a bathtub.

And those nations I’ve described, the so-called first nations, that are in the South China sea are in the southern first island chain. That’s like the other side of the bathtub, properly armed, properly defended. China may have seized control of the bathtub, but they haven’t got the other side. And they have some real problems getting beyond that if we play our cards right. So we do have a good hand to play. We just have to decide we want to play it.

Mr. Jekielek:
Colonel Grant Newsham, it’s such a pleasure to have you on the show.

Mr. Newsham:
Well, thank you for having me. I always enjoy it.