We are living out the Global Economic War we predicted, first in our report to the Pentagon (http://www.washingtontimes.com/news/2011/feb/28/financial-terrorism-suspected-in-08-economic-crash/) and then in our book, Secret Weapon (http://secretweapon.org/). We argued that in Phase Three, the Chinese would use their bond holdings as weapons. Now, they have basically admitted this (from the UK Telegraph):
Beijing hints at bond attack on Japan
A senior advisor to the Chinese government has called for an attack on the Japanese bond market to precipitate a funding crisis and bring the country to its knees, unless Tokyo reverses its decision to nationalise the disputed Senkaku/Diaoyu islands in the East China Sea.
8:31PM BST 18 Sep 2012
Jin Baisong from the Chinese Academy of International Trade – a branch of the commerce ministry – said China should use its power as Japan's biggest creditor with $230bn (£141bn) of bonds to "impose sanctions on Japan in the most effective manner" and bring Tokyo's festering fiscal crisis to a head. Writing in the Communist Party newspaper China Daily, Mr Jin called on China to invoke the "security exception" rule under the World Trade Organisation to punish Japan, rejecting arguments that a trade war between the two Pacific giants would be mutually destructive.
Separately, the Hong Kong Economic Journal reported that China is drawing up plans to cut off Japan's supplies of rare earth metals needed for hi-tech industry. The warnings came as anti-Japanese protests spread to 85 cities across China, forcing Japanese companies to shutter factories and suspend operations. Fitch Ratings threatened to downgrade a clutch of Japanese exporters if the clash drags on. It warned that Nissan is heavily at risk with 26p of its global car sales in China, followed by Honda with 20pc. Sharp and Panasonic both have major exposure. Japan's exports to China were $74bn in the first half of this year. Bilateral trade reached $345bn last year . . .
This fits precisely with what we have been warning about:
Take the time to read this English translation of an article published in February of last year in an official Journal of the Chinese Communist Party: http://chinascope.org/main/content/view/3291/92. Here are some excerpts:
China's Counter Strategies
When faced with an aggressive U.S., how should China respond? The article "Cast Away Illusions; Prepare for Struggle" that Mao Zedong published on August 14, 1949, is still applicable to today's situation: Our wishes to persuade the imperialists and those who are against China to be kindhearted and repent are fruitless and will never come to pass. The only way is to organize forces to fight against them. One fundamental principle that we must follow is the strategy, "If friends come, treat them with wine; if jackals come, we have shotguns for them."
1. Economic Warfare. Of course, to fight the U.S., we have to come up with key "weapons." What is the most powerful weapon China has today? It is our economic power, especially our foreign exchange reserves. The key is to use it well. If we use it well, it is a weapon; otherwise it may become a burden. Counting on the fact that the U.S. dollar is the international currency, the U.S. government has increased the number of dollars in circulation, leading to its devaluation. The countries with high reserves in dollars will suffer, but the U.S. itself loses nothing. However, for this to be true there is a premise. Someone must purchase those excess dollars they printed. If no one purchases them, then they will only be circulated domestically, inside the U.S., and cause inflation. In order for the countries with foreign exchange reserves in the U.S. dollar to restrain the U.S. from over-issuing U.S. currency, they must act together and not buy U.S. dollars. There are two ways to achieve this. The first is for all these countries to reach a consensus and act together as one. The second is if one country takes the lead, does not buy U.S. dollars, and other countries then follow. Which alternative should China choose? The first tactic requires countries with foreign exchange reserves to reach a consensus. China, Japan, the U.K., India, and Saudi Arabia are all countries with high foreign exchange reserves. Japan is constrained by the Japan-U.S. Security Treaty and will not break away from the U.S., so the probability of Japan cooperating is very low. Great Britain has always followed the U.S., so the probability that it will cooperate with China is also pretty low. There have been recent changes in Britain's political structure. Prime Minister Cameron has adopted a new strategy toward China that increases the possibilities for cooperation, making it a more likely player than Japan. Also, the U.K.'s foreign exchange reserves, which are market adjusted instead of sovereign funds, are to a large extent subject to market impact. India has stayed closely allied with the U.S. in recent years, and Obama promised to support India for a permanent membership in the UNSC. Thus, the probability for India to cooperate with China is also not great. India's purchasing power of foreign exchange reserves is very limited anyway, so it cannot influence the overall situation much. Saudi Arabia does not have much political interest in the U.S.; its purchase of foreign exchange reserves is purely commercial. So they are more likely just to follow the market. Based on this analysis, it is very unlikely that China and these countries would ever reach a consensus. Therefore, we are left with the second option, which is to take the lead in affecting the market for U.S. dollars. This approach is market-driven, so others will not be able to easily blame China. It is a good solution, and also we will not owe anyone anything for the favor of becoming our partner. The key issue is that China must have people who understand the market well and are good at using the market at the right time to impact the exchange rate of the U.S. currency. Of course, the most important condition is still that China must have enough courage to challenge the U.S. currency. China can act in one of two ways. One is to sell U.S. dollar reserves, and the second is not to buy any U.S. dollars for a certain period of time. The first option may cause the U.S. dollar to devalue, so China must consider whether it can take a loss resulting from the depreciation of the U.S. dollar. However, the U.S.'s over-printing currency will also cause the dollar to depreciate and will cause the foreign exchange reserve to shrink even more in value. Thus, in comparison, we will probably end up losing less. For the second option, if we do not buy the U.S. debt, what should we buy instead to increase our foreign exchange reserves? Options are the Euro, the British sterling, Japanese yen, Indian rupee, Russian ruble, and Brazilian currency. At the same time, buying the debt of these countries will help promote good relations and economic and trade cooperation between China and these countries. It will enhance China's economic influence in these countries. Therefore, this is a highly cost-effective tactic, and, more importantly, China is the biggest buyer of U.S. debt. China's actions will have a demonstrable effect on the market. If China stops buying, other countries will pay close attention and are very likely to follow. Once the printed excess dollars cannot be sold, the depreciation of the dollar will accelerate and the impact on Americans wealth will be enormous. The U.S. will not be able to withstand this pressure and will curtail the printing of U.S. currency. The dollar will then appreciate. Most importantly, through this, China's foreign exchange reserves will no longer be "the meat of the Tang-dynasty monk"  for the U.S. Instead, they will become a major economic force to constrain the U.S. The key to success is that China needs to have enough courage and determination to take the U.S. pressure. This is exactly what we need. It just shows how much the U.S. needs China. The more pressure we can take, the more successful this strategy. It will indicate that this "weapon" is highly effective and the U.S. will start to fear us.
2. Financial War. The fact that the U.S. dollar is the world's reserve currency makes the U.S. a financial superpower. Currently, China's increased share in the International Monetary Fund and its increased voting rights are a very big step forward. The problem is not that the value of this share is expressed in U.S. dollars, but that it would be best if the share could be expressed in RMB. Therefore, for China to challenge the position of the U.S. dollar, it needs to take a path of internationalization and directly confront the U.S. dollar. The path of internationalization can be done in four ways. First, use Hong Kong as a springboard to increase the payment of the amount and the issuance of RMB bonds; there has been much progress, but not enough; we should believe in the popularity of the RMB in the international community. Second, using the huge foreign exchange reserve as a guarantee, we can issue RMB bonds globally, allowing other countries to use RMB as their foreign exchange reserve; we can consider setting up a central foreign exchange bank, specializing in the deposit and lending of foreign exchange reserves and related financial services. The huge foreign exchange reserves serve the same role as gold, to ensure that offshore RMB can be exchanged for foreign currency at any time. Third, create an international version of the Chinese securities market to attract foreign companies. Participants can buy the securities with RMB or foreign currencies. Overseas companies that are listed can raise funds in yuan or other currencies. Then the listed companies or a foreign exchange policy can determine the specific proportion of RMB or other currencies. Fourth, establish an international currency trade center, allowing world currencies to trade, forming an international financial market and a foreign exchange market. Specific trading rules and the national currency trade volume can be adjusted according to market demand. China's 30 years of history of reform and opening up show that the Chinese government and its people's understanding and application of the market mechanism and free trade will be on par with the U.S. and other Western countries. China's ability to grasp the laws of the market and the ability to control economic trends are not inferior to those of Western countries. The market mechanism can propel the internationalization of the RMB, rather than relying on government negotiations. We fully trust the Chinese government's capacity to handle the market and the regulations. If these four suggested actions can be implemented smoothly using the market mechanism, the RMB will become the world's reserve currency, putting pressure on the U.S. dollar and undermining U.S. financial strength.
Then, take the time to review Unrestricted Warfare as written by two Senior Colonels of the Chinese People's Liberation Army in 1999. Here is our original post with a link to an online copy:
There is only one rational conclusion. The Chinese understand that we are in a global economic war. Sadly, Washington seems oblivious.