And yet, with all of the changes that have taken place, there are still some odd remnants of an economy from years gone by that no longer exists. Cash, for example, is still overwhelmingly the preferred type of payment. While you see many more domestic credit cards and bank transfers these days, the overwhelming majority of daily commerce is still done with cash, particularly outside of the three biggest cities. And this doesn’t just go for your local 鸡蛋饼, either. I’ve had landlords who prefer to receive months of payments at a time in cash. You still see people making down payments on apartments in cash. Hell, when I lived in Chengdu, they used to pay my monthly salary in cash. Sadly it fit in a money clip fairly easily.

Now, all of this would be fine, except for one problem. The government has had the foresight to change economic policy drastically in 1979, gradually float the currency to avoid crisis and dissolve, sell or drastically change the structure of state-owned enterprises. And yet, it hasn’t occurred to anyone yet that perhaps it’s time to start printing a bill larger than the hundred.

This, my friends makes no sense at all. It would be tough enough putting a downpayment on a house with US hundreds. Imagine doing it with a bunch of $15 dollar bills. This is really the craziest most out of date anachronism I’ve ever heard of. It makes my life painful, and it makes everything seem more expensive. For example, if you buy a computer, most people hand over stacks of cash. That has to be a disincentive to making big purchases. It just feels like you’re spending a fortune.

The one argument I’ve heard for the hundred being the biggest bill is that it is a deterrent to corruption and the underground economy. If you have a trunk full of case, there’s not much you can do with it.

But that seems like a weak case to keep the rest of us miserable. There’s a restaurant in Baoli Dasha where the coffee is RMB 128. That’s right, there is no bill in China that can cover a single cup of overpriced coffee. That’s preposterous.

So if China is really going to promote consumer spending, I have one simple piece of advice: print larger denominations of currency.

From my distorted American point of view, it seems to me like YouTube is exactly what you want if there are any concerns about governmental legitimacy. Let’s look at the Bush years. Do you really think a guy who used to complain that people were ignoring his single great accomplishment (the supposedly strong economy), but left office in the midst of the biggest economic disaster since 20 years before his grandfather began to serve in the Senate really wanted people to examine him with highly focused concentration?

Of course not! It’s not a coincidence that Bush won election and re-election during a period of eight years when Friends, Survivor and American Idol were the top shows six of the years? On the contrary, I’m pretty sure Cheney created these shows (and 24!!) to distract and make the American population dumber. I’m pretty sure they were hoping Punk’d would become a bigger hit, as this would have furthered the cause quite well.

Meanwhile, on the internet,s YouTube and AmIHotorNot were taking off. But things changed. By the 2008 election, Politico and RealClearPolitics were big hits on the internet. Get it? AmIHotorNot.com=Bush in office. Politico=Obama. Safe to say people being more focused on an election than a newscaster fainting, is not good for leaders trying to hide things.

And this brings us back to China and YouTube. I understand that there are tough economic times now. And I know that there are plenty of delicate anniversaries this year. Leaders are cautious. They don’t know what might set people off. But I assure you, having people watching cats throwing up is definitely better than having them asking questions about difficult political matters.

So buck down China, and give us back our wonderfully inane clips. After all, the less time people spend at the FT site, the better for you.

I get that there is a lot of downside to being overly dependent on a single currency–especially dollars right now. I similarly understand that China is really worried that the country has pursued an export-based growth strategy that has left it hugely over-leveraged in US dollars. It is now stuck in the situation where leadership would love to diversify, but failing to continue buying dollars at a fast rate would leave open the possibility that the value might fall. The result would be huge reserves of money with diminishing worth.

From this perspective, I get why China is interested in reducing the importance of dollars as the international de facto currency. Of course, I also understand why people don’t want English to be the official international, and instead would prefer to use a super language. You may remember that there was, in fact, a move toward an international language that everyone could use. It was called Esperanto. And aside from one guy I met in Xinjiang a few years back, no one in the world uses it anymore.

It is quite easy to explain why China’s proposed Esperanto Bucks are no more useful than the original Esperanto language. A universal language s0unds great in theory, but you have to teach people to use it. Plus, you need to reach critical mass. People study French and Chinese than Latvian because more people speak French and Chinese than Latvian. The problem is prevalent in all parts of life. I bought a mini-disc player in 2000 because I figured everyone would be using them. Let’s just say that the iPod reduced its usefulness.

With a new currency, there has to be some inherent belief that everyone will buy into it. If China wants to buy trillions of spacebucks, that’s fine, but I’ll pretty happy to keep my money in dollars. Or Euros. Or Yen. And therein lies the problem. You can’t convince people that Esperanto Bucks are the new world currency unless someone believes in them. With dollars, everyone believes in them because they are accepted everywhere. North Korea counterfeits them, for crying out loud. Even countries that hate America still believe in its currency.

The other obvious problem with China’s idea is that many of the problems that its leadership now confronts relate to the country’s aversion to floating the Renminbi. There is no particular reason why China has to or should inherently float its currency, but there are real repercussions in not doing so. Specifically, in order to target an exchange rate, policy needs to back up that goal. In this case, that means buying huge amounts of dollars, and to a lesser extent, Euros, to ensure that their isn’t too much upward pressure on the Renminbi.

Just as the US is dealing with many of the problems that have emerged from a decade of over-leveraging, so too is China. But the proposed path forward makes very little sense. In fact, the flawed logic of such a system is clear in the opening paragraph of Mr. Zhou’s initial statement:

…what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system.

All of these systems collapsed. The Gold Standard, which was the one that lasted the longest, essentially limited the viability of monetary policy and the total amount of currency in the world, regardless of population expansion. But the most similar system to the one Mr. Zhou proposed was  Bretton Woods, which itself collapsed 40 years ago. Ironically, SDRs emerged in the aftermath.

Even the IMF’s limited use of SDRs shows how useless the system is and how limited it Esperanto Bucks would be. If SDRs were such a great system, one might think that the IMF would use it widely. In reality, it is little more than an accounting tool, backed by no government and used only for purposes like standardizing international postage and costs for luggage.

If I were to create a model for Esperanto Bucks, perhaps I would not use the postal service and baggage check systems as models. Maybe I would use the most widely used currency in the world, the one that people continue to trust in bad times.

Here a number of good links about this that I used as references but was not able to link to in this post:

• Paul Krugman
• Michael Pettis
• Bloomberg
• IMF

Yet, while that sounds sinister, there is no real way to be cynical about this move. Even though China did not come up with this idea with the environment in mind, it nonetheless shows how the WTO can help promote a more efficient marketplace. After the WTO Court ruled that China’s import tariffs were in violation of their committments to free trade last month, the government came up with a creative way to continue to protect its local auto industry.

One might argue that this is protectionism, and it is. But the Chinese have managed to create a genius and positive form of it. They were only able to implement this policy because the local car industry has a natural advantage over foreign competition: its fleet is more fuel efficient. If, for example, things were reversed and domestic industry was producing gas guzzlers, the Chinese never could have gotten away with taxing smaller engines. Instead, China can promote this policy because it is in the interest of the enviornment, an area that the free market typically ignores (free market economics never work well with externalities).

So I say kudos to an increasingly sophisticated group of Chinese lawmakers. Regardless of the motives behind the move, the results will be positive. Not only will more of the cars on the road be of the Chinese small-engine variety, which use less gas, but you should also expect to see foreign competitors building more models that fit the mold. And don’t be surprised if many of them end up in markets outside of China, cleaning the air for those in the rest of the world as well.

Yesterday’s announcement that China had increased gasoline and natural gas prices about 15% only emphasizes the fact that manufacturers here have long held a real advantage over their foreign competitors and continue to do so. Even worse than that, subsidized oil is a disaster in terms of global economic and environmental impact. It distorts market demand for gasoline in China because the normal check on overly robust demand (price) is no longer a factor for consumers. As a result, Chinese drivers buy up gasoline at the artificially low prices, pushing up demand in China and price globally.

You might be wondering how it’s possible that Chinese consumers can continue to have access to cheap gasoline without someone picking up the bill. Two main players pay for this foolish policy: the Chinese government and Chinese oil companies. The New York Times makes the magnitude of this policy blunder clear:

…controls have also squeezed Sinopec and PetroChina, China’s top oil refiner and producer, respectively. They still had to pay near-record oil prices on world markets even if they were not allowed to charge market prices to consumers. The companies lost money on every gallon of gas they sold in China.

That explains the price ceiling side of the equation. These two companies quite logically respond by reducing output, to avoid losing money on volume (which further drives up world price). But there is another side of this equation, and that is government expenditure. How much do subsidies cost the government, and indirectly the tax-payer?

As a matter of policy, the Chinese government sets gasoline and diesel prices well below international market prices in order to encourage economic growth. In 2007, China’s subsidy of gasoline alone was $22 billion, close to 1 percent of its gross national product.

So basically the Chinese government is paying 1% of GNP (not tax revenue) with a result of to costing the country’s biggest two companies billions of dollars, distorting markets, creating oil shortages in the country and encouraging drivers to ruin the environment. This is a seriously disturbing policy. But why do they do it?

Recent economic policy has been built around the “development at any cost” philosophy. If the government can make it affordable for developers to build, they will do so, side-effects be damned. The brilliance of the gasoline subsidy/price ceiling policy from the government perspective is that all of these horrible effects are spread out around the economy, making it more difficult to pinpoint any single problematic effect. However, if China wants to avoid a tidal wave wiping out its recent progress, it will need to begin looking at real market solutions very soon.

There has never been an official U.S. government assertion of Chinese involvement in the outage, but intelligence and other government officials contacted for this story did not explicitly rule out a Chinese role. One security analyst in the private sector with close ties to the intelligence community said that some senior intelligence officials believe that China played a role in the 2003 blackout that is still not fully understood.

Perhaps even more startlingly, there have been assertions from American computer security experts that “China” (defined in the context as a military hacker) breached security systems again in February of this year and caused the Florida blackout, affecting 3 millions Americans in the process.

I can still remember when the blackout struck, I was driving down the street in Brooklyn coming back from a minor league baseball game. It was less than two years after the 9-11 attacks, and people were extremely unnerved for the first few minutes, until people realized that it was not a terrorist attack. Or so we thought.

I don’t really want to get hung up on terminology, but the potential involvement of a foreign government in the biggest American electrical outage in nearly three decades is an extremely unnerving realization. During the Gulf War in the early 1990s, China began to understand how woefully behind its military was technologically. The government began to pour enormous sums of money into its army, and has since become one of the elite forces in the world.

Until I read this article, I was under the impression that China was still significantly behind America, but the enormous development of cyber-militias by the PLA could potentially change the dynamics of international military build-ups, much as the Gulf War did a generation earlier.

The Defense Department has been cautious in choosing its words, emphasizing that threats have come from China as a geographical entity rather than the actual government, but there are clear overtones:

“Numerous computer networks around the world, including those owned by the U.S. government, were subject to intrusions that appear to have originated within” the People’s Republic of China. Although not claiming that the attacks were conducted by the Chinese government, or officially endorsed, the declaration built upon the previous year’s warning that the People’s Liberation Army is “building capabilities for information warfare” for possible use in “pre-emptive attacks.”

Former CIA offical Andrew Palowitch was not nearly as cautious in his comments in the article:

We are currently in a cyberwar, and war is going on today.

Is it possible that while the US was so worried about nuclear threats in Iraq that didn’t exist, tried to re-design the army into a “sleek” fighting force and talk tough with the world, that China identified, and is on the way to mastering, the next frontier of warfare? Sadly, the article reports that the Bush Administration may have been asleep at the switch until recently, arguably distracted by the ill-conceived Iraq “threat,” which was clearly less imminent than cyber-attacks:

Many security experts are surprised that the administration is only now moving to take dramatic measures to improve the security of government networks, because some Cabinet-level and White House officials have been warning about the threat for years to just about anyone who will listen.

Until McConnell, the national intelligence director, personally drove the point home to Bush in an Oval Office meeting in 2006, there was little top-level support for a comprehensive government cyber-security plan. “They ignored it,” one former senior administration official said flatly. “McConnell has the president’s ear.”

How dangerous is the cyber-threat? Reports indicate that experts have been telling Bush for years that the situation has disastrous potential for America, with serious action only being taken recently:

Lawrence Wright of The New Yorker reported earlier this year that McConnell told Bush during the 2006 Oval Office meeting, “If the 9/11 perpetrators had focused on a single U.S. bank through cyberattack and it had been successful, it would have had an order-of-magnitude greater impact on the U.S. economy.” According to Wright, the president was disturbed, and then asked Treasury Secretary Henry Paulson Jr., who was at the meeting, if McConnell was correct; Paulson assured the president that he was.

[Senior US counterintelligence official Joel] Brenner confirmed Wright’s account as “a true story.”

While there have been no widespread reports of specific “terrorism” of this sort, indications are that the tactics are already being used in a sinister way. According to the National Journal article China’s military currently uses its elite hackers for everything from national security to business negotiating tactics:

Brenner, the U.S. counterintelligence chief, said he knows of “a large American company” whose strategic information was obtained by its Chinese counterparts in advance of a business negotiation. As Brenner recounted the story, “The delegation gets to China and realizes, ‘These guys on the other side of the table know every bottom line on every significant negotiating point.’ They had to have got this by hacking into [the company’s] systems.”

Bennett told a similar story about a large, well-known American company. (Both he and Brenner declined to provide the names of the companies.) According to Bennett, the Chinese based their starting points for negotiation on the Americans’ end points.

These revelations come on the heels of an admission by the Bush Administration that the computer of Commerce Secretary Carlos Gutierrez in December of last year:

…spyware programs designed to clandestinely remove information from personal computers and other electronic equipment were discovered on devices used by Commerce Secretary Carlos Gutierrez and possibly other members of a U.S. trade delegation, according to a computer-security expert with firsthand knowledge of the spyware used. Gutierrez was in China with the Joint Commission on Commerce and Trade, a high-level delegation that includes the U.S. trade representative and that meets with Chinese officials to discuss such matters as intellectual-property rights, market access, and consumer product safety. According to the computer-security expert, the spyware programs were designed to open communications channels to an outside system, and to download the contents of the infected devices at regular intervals. The source said that the computer codes were identical to those found in the laptop computers and other devices of several senior executives of U.S. corporations…

None of this is to say that other countries don’t engage in similar practices, although it is much more unusual to see firms using them in business negotiations. Furthermore, there is serious concern that these different breaches are not simply uncoordinated efforts, but part of a broader trend that is based in national security vulnerabilities made possible by the nature of globalization:

Intelligence officials now worry that software developed overseas poses another layer of risk because malicious codes or backdoors can be embedded in the software at its creation. U.S. officials have singled out software manufacturers in emerging markets such as, not surprisingly, China.

In other words, if your company’s security system is designed by a firm, even an American firm, which has many of its coders in China or other foreign nations, competitors might not even need to do much work to access your information. They might already have the keys.

None of this is particularly surprising given the seemingly paranoid view of Chinese toward Microsoft over the last several years. In mid 2007 China Daily published an op-ed entitled “Microsoft operating system caches secret surveillance programs on China?” Hmmm…wonder why they would think that…

All of this could have serious implications for both business and national security in America and throughout the world. It is hardly a revelation that Chinese companies are engaging in such tactics, as many leaders in the foreign business community will not put any information about negotiations on computers in China and are extremely cautious even when talking on the phone about industry secrets. However, the apparent wide-scale of deception must give pause to even the most cynical business people. And national security experts would be wise to wonder if China’s military is running far ahead of the US on the next frontier of warfare. America has some serious catching up to do.

[update: Stan over at China Hearsay thinks I'm nutty, and maybe he's probably right. But I bet he doesn't doubt that Chinese companies are willing to steal information electronically during negotiations. Or if he does I'll get another lawyer to handle my billion-dollar takeover deals.]

“Foreigners don’t understand China,” said torch bearer Fu Shenfeng before the relay started. “They still think we’re stuck in the past. They still think we’re poor. This is our chance to show them the real China.”

And herein lies the disconnect. The Western world does not see China as poor, or economics as the main issue in the debate. Yet inside China there are still heavy residual effects from the past.

In China there was a popular slogan that Mao Zedong used as a tool to encourage strong work ethic during the Great Leap Forward:

超英赶美

Literally it means “surpass England, overtake America.” He was referring to steel production, and it turned out to be a poor target area for Chinese economic growth. People melted pots and pans, and there was starvation as a result of misallotcated resources. The scars from failed experiments like this run deep, and the slogans still echo in the psyches of many.

China has long had a chip on its shoulder when it comes to the economy. The slogan was not “live long and prosper.” Instead, it specifically targeted countries as competitors by which to measure success. It was not only that China was a poor country, but also that the outside world saw it as such.

Many Chinese still seem their country through the same lens as they did a few decades ago. Or at least they see the world through the same paradigm. But the West doesn’t see China through the same lens as it did in the 1960s, 70s, or even 80s. The stories coming out of China tend to be focuses more on how people are becoming rich, rather than how the country is poor. In fact, the fear in the US isn’t that China is too poor, it’s that it owns American debt.

And perhaps the West misunderstands the importance of the emergence of wealth to many Chinese. For Chinese people in their 30s and 40s (and certainly anyone older than that), wealth is new, and potentially fleeting. While China is hardly universally rich, the West seems to have come to grips with the country’s emergence faster than its own populace has. Americans think of China as an emerging economic and military power. They hardly need the Olympics to come to that conclusion (after all, no one thinks of Greece as the world’s great modern economy).

It is almost as if Americans have already accepted Chinese wealth and is asking, “now what?” Meanwhile, many Chinese are still insecure with a wealth that is very recent. They are looking to their remarkable economic accomplishments and want more praise, but are disappointed to see that the endpoint that had always been the focus has now moved. No longer is a robust economy, good education and innovation enough. Now people focus on international soft power, the environment, human rights and freedom of speech.

This provides a non-sequitur for many in China. If the lives of the overwhelming majority could improve so dramatically without a focus on democracy, why should that be the overarching consideration now?

And so this partially explains how we’ve ended up here, with China looking for the world’s love, only to find that it can never earn the affection it so desires. Mr. Fu is right that most foreigners don’t understand China. However, it is not because they think the country is poor, but rather because they don’t understand the struggle that required for it to get rich.

Today China’s steel production is greater than England’s, decades after Mao gave up on that dream. Yet while China may have surpassed England, it shot past so quickly, the two people’s were never able to see eye-to-eye.

Mr. Fukuyama is astute, if hardly groundbreaking, in his assertions that many of the most local leaders are the most ruthless, and also that the central government is generally too weak to control their outrageous behavior. Whereas many in the West think of China as having a Stalinist top-down leadership structure, the truth, of course, is that while Beijing may (or may not) orchestrate major crackdowns in places like Tibet, they are often unaware or not powerful enough to control small local governments in, say, Hunan. Fukuyama writes:

The vast majority of abuses against the rights of ordinary Chinese citizens — peasants who have their land taken away without just compensation, workers forced to labor under sweatshop conditions or villagers poisoned by illegal dumping of pollutants — occur at a level far below that of the government in Beijing.

China’s peculiar road toward modernization after 1978 was powered by “township and village enterprises” — local government bodies given the freedom to establish businesses and enter into the emerging market economy. These entities were enormously successful, and many have become extraordinarily rich and powerful…

The central government, by all accounts, would like to crack down on these local government bodies but is unable to do so. It both lacks the capacity to do this and depends on local governments and the private sector to produce jobs and revenue.

The argument is sound, and ironically few Chinese would be likely to defend local government officials in China I suspect (although please feel free to prove me wrong). Yet Fukuyama gets weighed down in making analogies to Europe of old:

The 19th century British legal scholar Sir Henry Sumner Maine, in his book “Early Law and Custom,” pointed to this very fact in a fine essay titled “France and England.” He notes that the single most widespread complaint written in the cahiers produced on the eve of the French Revolution were complaints by peasants over encroachments of their property rights by seigneurial courts. According to Maine, judicial power in France was decentralized and under the control of the local aristocracy.

Seems like a better example would have been China, two hundred (or five hundred) years ago. China has always been highly decentralized in its power, owing greatly to its enormousness. Yet at a more fundamental level, placing the blame on local officials absolves the central government of much of its responsibility. While it’s true that Beijing does not want rogue local officials terrorizing Chinese citizens, it also has shown little desire to step into disputes unless absolutely forced. In other words, it wants things to be better, it just has little interest in facilitating certain types of change.

Fukuyama seems to miss a fundamental point in his essay, in which the main point seems to be that the ills of Chinese governance come from the powerlessness of Beijing rather than its strength, because “state weakness can hurt the cause of liberty.” He implies that were it not for the central government’s weakness, it would likely be cracking down on local shenanigans. But that is highly unlikely, at least on a wide scale.

On the one hand, the Chinese central leadership seems to have little interest in promoting “liberty.” Such interference in local affairs would immediately connect the country’s top leadership with local conditions. Why would it want that? Isn’t it better to be able to blame local problems on local corruption than taken responsibility at the top?

On the other hand, Beijing is also promoting some of the policies that encourages disregard for the environment and certain types of human rights. Namely, the overwhelming importance of local economic growth over all other considerations. By making “economic development” the singular measure for governmental success, there is an inherent incentive not to protect the environment or workers’ rights. It is in the interest of everyone in power to develop at any cost. And frequently those costs can be tremendous.

In the end Fukuyama’s argument is not really about analyzing what is really going on in China today, but rather telling a broader historical narrative: decentralized governments are more dangerous than centralized power. The problem is that he has correctly identified China as partially fitting into that storyline, but failed to fully address the modern day realities. History does not repeat itself, as Mr. Fukuyama seems to believe (now that we’re no longer at the end of history), instead history’s reflections can be seen in current events. But these reflections are less like those in mirror, clear and precise, and more like those in a lake being distorted by the rippling waters.

For about 10 years the rate was virtually fixed at 8.28:1, and a lot of people still mentally calculate prices at 8:1. The shift over the last few years has been something that the US has been advocating to shrink the yawning bilateral trade deficit, and the trend has not gone unnoticed by Washington. US Treasury Secretary Hank Paulson is currently in Beijing and commented on the rise of the Yuan.

Paulson again praised China for letting its yuan currency rise more quickly, a long-standing demand of the Bush administration.

The Chinese currency, also known as the renminbi (RMB), gained 4 percent against the dollar in the first quarter and has now risen 18 percent since July 2005, when it was depegged from the dollar.

“Although the process of adjustment is not complete, the accelerated pace of appreciation is significant and welcome, and should continue,” Paulson said in a speech to the Chinese Academy of Sciences.

A stronger exchange rate would help China to tackle inflation, now at a near-12-year high of 8.7 percent, he said.

In terms of real economic impact on a macro level, the rise of the Renminbi against the Dollar is not all that significant. US manufacturers have a hard time competing on price with their low-cost foreign competitors, particularly in China, and that will be the case regardless of how much the Dollar depreciates.

In reality, the extreme weakness of the Dollar against the Euro and Pound are probably more significant for manufacturers in the US. VW and Airbus both plan to open major factories in the US as a result of uncompetitive labor prices in Europe (although the latter decision is also partly due to Airbus winning a major US Defense contract).

So while in the big picture the appreciation of the Renminbi is probably small potatoes, it is good politically for US officials. Of course it does have a major impact on foreigners doing business in/with China (not to mention those of us earning salaries in RMB). And as we come out of the period of artificial valuation, the crossing the 7:1 line means that the Yuan is getting close to its “true” value against the Dollar, whatever that might be. Once we reach that point, it’s hard to imagine that a fully floating currency and the end to capital controls would not be soon to follow.

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For the United States, the clearest way of expressing that support is to give full diplomatic recognition to the state that already exists and that the Ta1wanese overwhelmingly wish to preserve. Maintaining ambiguous, informal ties to Taiwan is confusing and potentially dangerous; it obscures Beijing’s understanding of just how committed the United States is to Taiwan’s defense and self-determination.

Recognition would bring stability and certainty, thus actually lowering the risks that Beijing will misinterpret the U.S. position and threaten or actually commence military action to regain Taiwan. Extending diplomatic recognition would no more prejudice the U.S.’ “one China” policy (itself an exercise in confusion and ambiguity) or the ultimate issue of reunification than did U.S. recognition of the two Germanys during the Cold War.

The really scary thing is that Bolton is so deluded, he actually thinks this is somehow a good idea. He somehow doesn’t see that the status quo, while awkward, keeps the region pretty safe. While there is occasional saber-rattling out of Beijing, it seems to be primarily for domestic consumption. It makes me wonder if he is actually trying to create a pretext for war with China, because otherwise it is hard to imagine how such a smart man could be so utterly stupid.

The other really scary thing is that Bolton’s analysis of the situation is actually pretty sharp through most of the article. He carefully argues that the overwhelming majority of Taiwanese support the status quo, and that the independence movement is a small minority, even with Chen Shui-bian having just been in office. And yet despite his general understanding of much of the situation, his conclusions make absolutely no sense. He argues for US official diplomatic recognition after saying:

Many in Europe and the U.S. have misinterpreted what Ma’s victory, combined with an earlier Nationalist Party win in national legislative elections, means for Taiwan’s future. It does not mean that Taiwan is shifting from pursuing independence from China to its very opposite, reunification with the mainland. Quite the contrary. Certainly, many Nationalists do hope for ultimate reunification. But Ta1wan’s political life is far more complicated than the simplistic dichotomy in many Western media reports.

Over the last several decades, there has been remarkable stability in the center of Taiwan’s politics. Faced with the options of reunification, independence or continuation of the status quo, substantial majorities of Taiwanese have chosen the status quo, at least for the foreseeable future. That status quo is that the island is a state — the Republic of China on Taiwan — that meets all the key customary international law criteria: a responsible government, a defined territory and a stable population.

In a 2007 survey of public opinion in Taiwan by Taipei’s Mainland Affairs Council, 81.5% of respondents said they supported maintaining the status quo while deciding on reunification or independence at an unspecified future date. Only 10.2% wanted independence “as soon as possible,” and only 2.2% wanted reunification “as soon as possible.”

I don’t see how his argument lines up at all.

This is the same kind of arrogance that has gotten us into trouble elsewhere in the world. People thought that Iraqis would be delighted to have American occupiers because, to paraphrase Keith Hernandez, “We’re America.” As we all know it did not quite work out that way. Similarly Bolton thinks that the US is so singularly powerful that China will be utterly impotent to counteract such a move by the US.

China will not like this turn of events, but inevitably it will have little choice but to accept dual recognition. Now more than ever, the United States — and Europe and Japan — must be assertive in supporting a strengthening democracy in Taiwan.

Why now more than ever? In the piece he seems to be saying that it is particularly critical now because Taiwan’s economy is growing more slowly than other parts of Asia (although he concedes it is barreling ahead at 5.7%). That seems like a pretty good pace, especially considering that Taiwan’s economy is much more in line with South Korea, Hong Kong and Japan than Mainland China’s, which is far less developed overall, even today.

So at a time when the US economy is verging on a crisis, and Iraq and Afghanistan are stuck in quagmire, how could it possibly make sense to manufacture an international crisis where there isn’t one? Aren’t there enough problems in the world that the neocons don’t need to invent one? Unless they are trying to invent a war that some argue the neocons were originally hoping for before the events of September 11, 2001. Don’t believe me? Maybe you’ll believe this:

The same top Bush administration neoconservatives who leap-frogged Washington’s foreign policy establishment to topple Saddam Hussein nearly pulled off a similar coup in U.S.-China relations—creating the potential of a nuclear war over Taiwan, a top aide to former Secretary of State Colin Powell says.

Lawrence B. Wilkerson, the U.S. Army colonel who was Powell’s chief of staff through two administrations, said in little-noted remarks early last month that “neocons” in the top rungs of the administration quietly encouraged Taiwanese politicians to move toward a declaration of independence from mainland China — an act that the communist regime has repeatedly warned would provoke a military strike.

This is something for every American to consider when they enter the voting booth this fall.