SinoInsight 1
Russia launched “Vostok 2018,” a week of massive military exercises (the largest since the end of the Cold War), on Sept. 11. The exercises are mainly held in Siberia and Russia’s Far Eastern regions, including the Sea of Japan, Bering Sea, and Okhotsk Sea. China and Mongolia participated in the military exercises.
Over 300,000 Russian troops are involved, including 36,000 armored vehicles, 1,000 aircraft, and 80 naval vessels. China sent over 3,200 troops, 1,000 vehicles, and about 30 aircraft.
The main stage of the “Vostok 2018” maneuvers at Tsugol Range in Russia’s eastern region involve thousands of Russian airborne troops and other military vehicles. Tsugol Range is only 95 miles from the border between Mongolia and China.
OUR TAKE
1. PRC state media claim that the “Vostok 2018” drills are a sign of deepening strategic ties between China and Russia. They hint that the PRC’s partnership with Russia is aimed at challenging American global hegemony.
International observers believe that that war games signal a strengthening of relations between China and Russia as both countries look to counter the United States.
We believe, however, that “Vostok 2018,” like previous editions, is aimed at the PRC, and is not intended to signal rivalry with America.
Russia mobilized a third of its standing forces, the bulk of which are ground forces, for the military exercise. If Russia is looking to challenge the U.S., then it would be holding the drills closer to Eastern Europe (where important political and economic centers are located) and with a different composition of troops. Moreover, it seems very unlikely that Russia would have to defend against a U.S. attack from its Far East.
2. Russia and Mongolia have held joint military exercises since 2008. This year, the two countries plan to hold their largest-ever joint exercise in September after Xi Jinping’s Russia visit. A fifth of Mongolia’s ground forces (about 5,000 troops) will be participating in the upcoming war games. Geopolitically, the Russian-Mongolian military drills are aimed at countering China.
3. It is more likely that Xi Jinping and the PRC were invited to “Vostok 2018” to dispel fears of massive Russian military maneuvers taking place near the Chinese border.
SinoInsight 2
U.S. Treasury Secretary Steven Mnuchin sent an invitation for trade talks to a group of Chinese officials led by Chinese vice premier Liu He, according to a Sept. 12 report by The Wall Street Journal. The talks are aimed at giving the PRC another chance to make a deal and defuse an escalation in the trade war before fresh tariffs worth $200 billion go into effect.
On Sept. 13, the PRC Commerce Ministry said it welcomed the offer to talk.
OUR TAKE
1. We are not optimistic about the outcome of new negotiations, if they are indeed held. Based on our research, the Chinese Communist Party (CCP) is still misreading the situation in America, and believes that it can hold out for a result in the U.S. midterm elections in November that is unfavorable to the Republican Party and President Donald Trump. Thus, the CCP is bound to be unyielding in any talks before the midterm elections.
2. We have observed that the CCP is mobilizing its propaganda resources to shape international opinion about the so-called “new Cold War” between the PRC and America. Given the CCP’s previous strategic inclinations, the Party’s elite are unlikely to adjust propaganda strategy (and shoot itself in the foot again) to suit fresh Sino-U.S. trade negotiations.
3. We believe that the Trump administration would ultimately impose tariffs exceeding $500 billion on Chinese goods. China’s economy would be hit hard by the move, resulting in a crisis for the CCP regime. Businesses and investors in China must prepare for a prolonged trade war and its deeper implications for the PRC.
