Tag Archives: China

Philippine court allows military deal with U.S. as sides meet in Washington

MANILA/WASHINGTON (Reuters) – The Philippines Supreme Court on Tuesday declared constitutional a security deal with the United States allowing an increased U.S. military presence in the former U.S. colony as tension rises in the South China Sea.

Dozens of anti-U.S. activists held protests outside the court denouncing the deal as a de facto basing agreement that would make the Philippines a launching pad for military intervention in the region.

Manila has long been a staunch U.S. ally and the pact is widely seen as important for both sides, worried by China’s increasingly assertive pursuit of territorial claims in the disputed South China Sea.

The court voted 10-4 to deny a petition of some lawmakers and activists to declare the Enhanced Defence Cooperation Agreement (EDCA) unconstitutional because it surrendered Philippine sovereignty to a foreign power.

“EDCA is not constitutionally infirm,” said Supreme Court spokesman Theodore Te. “It remains consistent with existing laws and treaties that it purports to implement.”

In Washington, U.S. Secretary of State John Kerry and Defense Secretary Ash Carter welcomed the court’s decision as they began talks with their Philippine counterparts on security and economic issues, including tensions in the South China Sea and the Trans-Pacific Partnership trade deal.

“The United States has an iron-clad commitment to the security of the Philippines,” Kerry said in opening remarks. “To that end we welcome the Philippines Supreme Court’s decision … (and) look forward to implementing this accord,” he added.

Philippine Defense Minister Voltaire Gazmin said security cooperation with the United States had become more intertwined amid increasing tensions over the South China Sea.

“While we grapple with non-traditional security concerns and natural … disasters, traditional security challenges, to include territorial and maritime disputes, remain … fundamental concerns,” he said. “Given this strategic context, we should be in a position to address such common concerns, as well as contribute to regional peace and stability.”

The pact, signed days before U.S. President Barack Obama visited the Philippines in 2014, will allow U.S. troops to build facilities to store equipment for maritime security and humanitarian and disaster response operations, in addition to giving broad access to Philippine military bases.

U.S. Senate Armed Services Committee Chairman John McCain called it “a landmark agreement … (that) will bring our alliance to a level of cooperation and integration that we have not witnessed in decades.

“As Manila finds itself the target of Chinese coercion in the West Philippine Sea and is looking to Washington for leadership, this agreement will give us new tools to … expand engagement with the Philippine Armed Forces, and enhance our presence in Southeast Asia,” he said in a statement.

McCain said he looked forward to implementation this year of a congressional Maritime Security Initiative he has championed that will provide resources to build the maritime capacity of the Philippines and other Southeast Asia countries.

Philippine military officials say there has been an increase in U.S. exercises, training and ship and aircraft visits in the past year under Obama’s “rebalance” of U.S. forces and diplomatic efforts to Asia in the face of China’s rise, but the pact would take the relationship a step further.

China claims almost all the South China Sea, which is believed to have huge deposits of oil and gas, and has been building up facilities on islands it controls.

Brunei, Malaysia, Vietnam, Taiwan and the Philippines also have claims. Tension rose this month when China began test flights on Fiery Cross Reef, one of three artificial islands where Beijing has constructed airfields.

(Reporting by Manuel Mogato in Manila; Additional reporting by David Brunnstrom, Andrea Shalal and Lesley Wroughton in Washington; Editing by Nick Macfie, Dan Grebler and James Dalgleish)

Pressure grows on China to rein in North Korea; South launches propaganda barrage

SEOUL/BEIJING (Reuters) – South Korea unleashed an ear-splitting propaganda barrage across its border with North Korea on Friday in retaliation for its nuclear test, while the United States called on China to end “business as usual” with its ally.

The broadcasts, in rolling bursts from walls of loudspeakers at 11 locations along the heavily militarized border, blared rhetoric critical of the Pyongyang regime as well as “K-pop” music. North Korea later responded with its own broadcasts.

Wednesday’s nuclear test angered both the United States and China, which was not given prior notice, although the U.S. government and weapons experts doubt Pyongyang’s claim that the device it set off was a hydrogen bomb.

China is North Korea’s main economic and diplomatic backer, although relations between the Cold War allies have cooled in recent years.

China’s Foreign Ministry urged North Korea to stick to its denuclearization pledges and avoid action that would make the situation worse, but also said China did not hold the key to resolving the North Korean nuclear issue.

“Achieving denuclearization of the Korean Peninsula and safeguarding the peninsula’s peace and stability accords with all parties’ mutual interests, is the responsibility of all parties, and requires all parties to put forth efforts,” ministry spokeswoman Hua Chunying told a news briefing.

The North agreed to end its nuclear program in international negotiations in 2005 but later walked away from the deal.

U.S. Secretary of State John Kerry said on Thursday that he had told Chinese Foreign Minister Wang Yi that China’s approach to North Korea had not succeeded.

“APPROACH HAS NOT WORKED”

“China had a particular approach that it wanted to make, that we agreed and respected to give them space to implement that,” Kerry told reporters after the phone call. “Today, in my conversation with the Chinese, I made it very clear that has not worked and we cannot continue business as usual.”

In a call on Friday with his South Korean counterpart, Yun Byung-se, Wang said talks on the issue should be resumed as soon as possible, China’s Foreign Ministry said.

South Korea’s nuclear safety agency said it had found a minuscule amount of xenon gas in a sample from off its east coast but said more analysis and samples were needed to determine if it came from a nuclear test.

The head of the Comprehensive Nuclear-Test-Ban Treaty Organization (CTBTO), which uses monitoring stations around the world to detect atomic tests, said only “normal” levels of xenon had been detected, at a site in Japan.

“Xenon readings at 1st station downwind of #DPRK test site RN38 Takasaki #Japan at normal concentrations. Sampling continues,” the CTBTO’s executive secretary, Lassina Zerbo, said on Twitter on Friday evening.

The presence of xenon would not indicate whether the blast was from a hydrogen device or a simpler fission explosion.

Seismic waves created by the blast were almost identical to those generated in North Korea’s last nuclear test in 2013, Jeffrey Park, a seismologist at Yale University, wrote in a post on the Bulletin of the Atomic Scientists website, adding to scepticism about the hydrogen bomb claim.

Meanwhile, South Korea resumed its frontier broadcasts, which the isolated North has in the past threatened to stop with military strikes.

The last time South Korea deployed the loudspeakers, in retaliation for a landmine blast in August that wounded two South Korean soldiers, it led to an exchange of artillery fire.

The sound can carry 10 km (6 miles) into North Korea during the day and more than twice that at night, the South’s Yonhap news agency reported.

BORDER PROPAGANDA

A male announcer could be heard from South Korea telling North Koreans that their leader Kim Jong Un and his wife wear clothes costing thousands of dollars. Another message said Kim’s promises to boost both the economy and the nuclear program were unrealistic.

The North’s broadcasts were not clearly audible from the South and appeared intended to drown out those from the South, Yonhap said, citing a South Korean official.

As North Korea boosted troop deployments in front-line units, the South vowed to retaliate against any attack on its equipment, raised its military readiness to the highest level near the loudspeakers, canceled tours of the Demilitarized Zone on the border, and also raised its cyberattack alert level.

In Washington, the North’s actions appeared to have forged rare unity in the House of Representatives between Republicans and Democrats on tightening sanctions against North Korea.

Nancy Pelosi, the House Democratic leader, told reporters that Democrats would support a North Korea bill likely to be brought for a vote by Republicans next week. A congressional source said it was expected as soon as Monday.

But it is unclear how more sanctions will deter North Korea, which has conducted four nuclear tests since 2006.

The United States and South Korea are limited in their military options. Washington sent a pair of nuclear-capable B-2 stealth bombers over South Korea in a show of force after North Korea last tested a nuclear device in 2013.

North Korea responded then by threatening a nuclear strike on the United States.

A South Korean military official said Seoul and Washington had discussed the deployment of U.S. strategic weapons on the Korean peninsula, but declined to give details. Media said the assets could include B-2 and B-52 bombers, and a nuclear-powered submarine.

(Additional reporting by James Pearson, Se Young Lee, Christine Kim, Jee Heun Kahng, Ju-min Park and Jack Kim in SEOUL, Dagyum Ji in GIMPO, Patricia Zengerle, Roberta Rampton, Doina Chiacu and Arshad Mohammed in WASHINGTON, Tim Kelly in YOKOSUKA and Francois Murphy in VIENNA; Writing by Tony Munroe; Editing by Paul Tait and Kevin Liffey)

End ‘business as usual’ with North Korea, U.S. tells China

By Lesley Wroughton and Ju-min Park

WASHINGTON/SEOUL (Reuters) – The United States called on China on Thursday to end “business as usual” with its ally North Korea after Pyongyang defied world powers by announcing it had tested a hydrogen bomb.

U.S. Secretary of State John Kerry said he made clear in a phone call with Chinese Foreign Minister Wang Yi that China’s approach to North Korea had failed.

“China had a particular approach that it wanted to make, that we agreed and respected to give them space to implement that,” Kerry told reporters. “Today in my conversation with the Chinese I made it very clear that has not worked and we cannot continue business as usual.”

China is the North’s main economic and diplomatic backer although relations between the two Cold War allies have cooled in recent years.

The vast majority of North Korea’s business dealings are with China, which bought 90 percent of the isolated country’s exports in 2013, according to data compiled by South Korea’s International Trade Association.

North Korea carried out a nuclear test on Wednesday, although the U.S. government and weapons experts doubt Pyongyang’s assertion that the device it exploded was a powerful hydrogen bomb.

The test angered both the United States and China, which was not given prior notice.

As of Thursday morning, “sniffer” planes and other sensors had yet to detect any evidence, such as particles in the air, that would substantiate the North Korean assertion that it had set off an H-Bomb, a U.S. government source said.

North Korea also said it was capable of miniaturizing the hydrogen bomb, in theory allowing it to be placed on a missile and threatening the U.S. West Coast, South Korea and Japan.

U.S. CONGRESS TO ACT

U.S. Republicans and Democrats in the House of Representatives could join forces in a rare display of unity to further tighten sanctions on North Korea.

Nancy Pelosi, the House Democratic leader, told reporters that Democrats would support a North Korea bill likely to be brought for a vote by Republicans next week. A congressional source said it was expected as soon as Monday.

The legislation was passed by the House Foreign Affairs Committee last February but it was stalled until Pyongyang jolted the world by setting off an underground nuclear bomb test.

The House measure would target banks facilitating North Korea’s nuclear program and authorize freezing of U.S. assets of those directly linked to illicit North Korean activities. It would also penalize those involved in business providing North Korea with hard currency.

“We understand Republican leadership plans to move a bill strengthening U.S. sanctions on North Korea. That will have strong bipartisan support,” Pelosi said, adding that “we will support it.”

It was unclear how more sanctions would deter North Korea, which has conducted four nuclear tests since 2006 while paying little heed to international pressure.

The United States and its ally South Korea are limited in their military response. After North Korea last tested a nuclear device, in 2013, Washington sent a pair of nuclear-capable B-2 stealth bombers on a sortie over South Korea in a show of force. At the time, North Korea responded by threatening a nuclear strike on the United States.

The test also alarmed Japan. Its prime minister, Shinzo Abe, agreed with U.S. President Barack Obama in a telephone call that a firm global response was needed, the White House said.

Obama also discussed options with President Park Geun-hye of South Korea.

A South Korean military official told Reuters that Seoul and Washington had discussed the deployment of U.S. strategic assets on the divided Korean peninsula, but declined to give further details.

A White House spokesman said there had been no talk with South Korea about any introduction of the so-called Terminal High Altitude Area Defense (THAAD) system, a move opposed by China.

“There have been no discussions or consultations with the South Koreans” about the deployment of anti-ballistic missile capability,” the spokesman, Josh Earnest, said.

The system has radars that can track multiple ballistic missiles up to 2,000 km (1,200 miles) away, a range which would reach deep into China.

In response to the latest test, South Korea said it would resume propaganda broadcasts by loudspeaker into North Korea from Friday, which is likely to infuriate its isolated rival.

The South raised its military alert to the highest level in areas along the border near its propaganda loudspeakers, the South’s Yonhap news agency reported on Thursday.

“Our military is at a state of full readiness, and if North Korea wages provocation, there will be firm punishment,” a South Korean national security official, Cho Tae-yong, said in a statement.

(Additional reporting by Meeyoung Cho, James Pearson, Se Young Lee, Christine Kim, Jee Heun Kahng and Jack Kim in SEOUL, Patricia Zengerle, Roberta Rampton, Doina Chiacu and Arshad Mohammed in WASHINGTON,; Writing by Alistair Bell; Editing by Howard Goller)

China lets yuan slide, starts fight to halt turbulence

By Lu Jianxin and Patrick Graham

SHANGHAI/LONDON (Reuters) – China allowed the biggest fall in the yuan in five months on Thursday, pressuring regional currencies and sending global stock markets tumbling as investors feared it would trigger competitive devaluations.

For the second time this week China’s stock markets were suspended for the day before an announcement late in the evening in Shanghai that authorities were abandoning the new circuit-breaking mechanism for halting trade in overly volatile markets.

That heightened anticipation about how Chinese markets may respond on Friday.

The People’s Bank of China shocked traders by setting the official midpoint rate on the yuan, also known as the renminbi (RMB), 0.5 percent weaker at 6.5646 per dollar on Thursday, the lowest since March 2011.

That tracked record losses in the more open offshore currency market and was the biggest daily fall since an abrupt devaluation of nearly 2 percent last August.

But dealers said the PBOC had then intervened heavily to reverse a more than 1 percent fall in offshore rates for the yuan after they hit a record low of 6.7600 per dollar.

The yuan took back all of its losses to stand a quarter of a percent stronger at 6.6755 in European and U.S. trade.

“It’s very similar to the previous round (in August) where they weaken the official rate and then intervene against the dollar offshore to beat back the speculators,” said a yuan trader with one international bank in London.

“That would be a way of starting to stabilize the market.”

The PBOC’s China Foreign Exchange Trade System (CFETS) repeated on Thursday that there was no basis for the yuan’s continuous depreciation and that it was stable against a basket of currencies in 2015.

But the central bank’s fixings have also helped drive the yuan down this week against other major currencies, including a 3.5 percent fall against the yen and 0.8 percent against the euro.

That raised concerns that China might be aiming for a competitive devaluation to help its struggling exporters.

“That’s the fear of the market,” said Sim Moh Siong, FX strategist for Bank of Singapore, adding that it was a zero sum game as other currencies weakened in response, and the end result would be greater volatility.

Others were unsure what policy Beijing was pursuing.

“Frankly speaking, we are still not quite sure where the PBOC boundary is at the current stage,” said Singapore-based Oversea-Chinese Banking Corporation (OCBC).

“The fear of the unknown has become the largest risk for RMB in the near term, despite China’s sizable current account surplus.”

The Australian dollar, often used by foreign exchange dealers as a liquid proxy for the yuan, fell more than half a U.S. cent. The Korean won, however, recovered almost all of its initial falls with banks saying the Bank of Korea had probably also intervened to support the currency.

OCBC noted that against a basket of currencies, the RMB index was still only fractionally down for 2016.

ANZ bank said in a note that the PBOC’s action would nevertheless “create one-way expectation of RMB depreciation, propelling capital flight and leading to significant financial instability”.

DECLINING RESERVES

Data on Thursday showed China’s foreign exchange reserves fell by the most on record last month, down $108 billion in December alone and by $513 billion overall last year.

That suggests an accelerating outflow of money from China which may largely be the result of the opening up of its financial markets over the past year, but also a sign that the world’s second-largest economy is in deepening trouble.

Michael Every, Rabobank’s Head of Markets Research, Asia-Pacific, said once Beijing had won the diplomatic triumph of getting the yuan included in the International Monetary Fund’s reserve currency basket in November, he expected policymakers would let it slip to cope with a slowing, deflationary economy.

“Why people are panicked is because (i) they didn’t see this coming, and/or (ii) the global economy needs a consumer of last resort, and China is sending a signal that they won’t be it,” he added.

A sustained depreciation in the yuan puts pressure on other Asian countries to weaken their currencies and makes commodities denominated in U.S. dollars more expensive for Chinese buyers, which could further depress demand and commodity prices.

Shanghai stocks slid 7.3 percent to trigger the halt in trading, a repeat performance of Monday’s sudden tumble. Japan’s Nikkei shed 2.3 percent in sympathy, and Hong Kong’s Hang Seng Index was down 2.8 percent.

The halt mechanism, intended to calm market volatility, was instead “killing investors” and creating panic, a retail investor in Guangzhou complained.

China’s securities regulator also unveiled new rules on Thursday to restrict selling by big shareholders who have been locked into their holdings for six months since Beijing banned them from offloading stocks to arrest a summer market crash.

In rules that take effect on Jan. 9, they can’t sell more than 1 percent of a listed company’s share capital every three months.

“This is crazy,” said Alberto Forchielli, founder of Mandarin Capital Partners. “Chinese regulators set off on this path in July and they cannot get out of it. They have ruined whatever hope investors still had in the market.”

(Reporting by Lu Jianxin, Lee Chyen Yee and Samuel Shen in Shanghai and Patrick Graham in London; Additional reporting by Lisa Jucca and Masayuki Kitano; Writing by Wayne Cole and Will Waterman; Editing by Ruth Pitchford)

Global stocks, oil tumble as China economy concerns mount

By Rodrigo Campos

NEW YORK (Reuters) – Shares on major exchanges fell for a sixth straight day on Thursday and crude oil prices touched multi-year lows as investors fretted over the state of China’s economy and its ability to stabilize its stock market.

In a move that deepened concerns over China’s economic health, the People’s Bank of China set the yuan midpoint rate lower for an eighth consecutive day. The 0.5 percent decline was the biggest between daily fixings since August.

China suspended a circuit breaker implemented at the start of 2016 that stopped trading for the day when the benchmark index fell 7 percent, a halt already triggered twice this week. Analysts and investors said the mechanism, put in place to avoid market volatility, may have backfired.

“People see the weakness in China and in the overall equity market and think there’s going to be an impact on corporations here in the United States,” said Robert Pavlik, chief market strategist at Boston Private Wealth in New York.

Rounding out its worst four-day start to a year in more than a century, the Dow Jones industrial average <.DJI> fell 392.41 points, or 2.32 percent, to 16,514.1.

The S&P 500 <.SPX> lost 47.17 points, or 2.37 percent, to 1,943.09 and the Nasdaq Composite <.IXIC> dropped 146.34 points, or 3.03 percent, to 4,689.43.

A gauge of major stock markets globally <.MIWD00000PUS> fell 2.2 percent and Nikkei futures <NKc1> were down 2.6 percent.

CURRENCY WAR BREWING

Investors fear China’s economy is even weaker than had been imagined, with Beijing, in a bid to help exporters, allowing the yuan’s depreciation to accelerate. The move risks triggering a cycle of competitive devaluation, said Mexican Finance Minister Luis Videgaray.

The U.S. dollar tumbled 0.9 percent against a basket of currencies <.DXY>, losing 1.4 percent to $1.0929 versus the euro <EUR=> and 0.7 percent to the yen <JPY=> at 117.63.

Brent crude cut a loss of more than 6 percent to trade down 1.6 percent, while U.S. crude <CLc1>, down as much as 5.5 percent earlier, was down 2.3 percent.

The benchmark U.S. Treasury yield <US10YT=RR> touched its lowest since late October. U.S. 10-year Treasury notes were last up 8/32 in price to yield 2.1491 percent, from 2.177 percent late on Wednesday.

Gold touched $1,110 an ounce for the first time in nine weeks as the dollar fell and investors rushed into perceived havens. Spot gold <XAU=> rose 1.35 percent to $1,109.10 an ounce. Its 4.6 percent gain up to Thursday was the best four-day run for gold in a year.

Copper prices <CMCU3> touched a low not seen since May 2009.

(Reporting by Rodrigo Campos, additional reporting by Caroline Valetkevitch; Editing by Nick Zieminski, Meredith Mazzilli and Dan Grebler)

China again lands planes on disputed island in South China Sea: Xinhua

BEIJING (Reuters) – China on Wednesday landed two test flights on an island it has built in the South China Sea, four days after it angered Vietnam with a landing on the same runway in the disputed territory, the Xinhua state news agency said.

The two flights are likely to spark further condemnation from Vietnam, which launched a formal diplomatic protest over the weekend, and the Philippines, which said it was planning to do the same.

Both countries have claims to the area that overlap with that of China, which claims almost the whole of the South China Sea.

Xinhua said the two planes landed on an artificial island in the Spratly Islands on Wednesday morning.

“The successful test flights proved that the airport has the capacity to ensure the safe operation of large civilian aircraft,” Xinhua said, adding that the airport would facilitate the transport of supplies, personnel and medical aid.

Xinhua did not give any more detail about what type of aircraft had landed.

The runway at the Fiery Cross Reef is 3,000 meters (10,000 feet) long and is one of three China has been building for more than a year by dredging sand up onto reefs and atolls in the Spratly archipelago.

On Saturday, China landed a civilian plane on the same runway in the Spratlys in its first test, which was also the first time it had used a runway in the area.

The United States has criticized China’s construction of the islands and worries that it plans to use them for military purposes, even though China says it has no hostile intent.

The United States said after the first landing it was concerned that the flight had exacerbated tension.

The runways would be long enough to handle long-range bombers and transport aircraft as well as China’s best jet fighters, giving it a presence deep in the maritime heart of Southeast Asia that it has lacked until now.

More than $5 trillion of world trade is shipped through the South China Sea every year. Vietnam, Malaysia, Brunei, the Philippines and Taiwan have rival claims.

(Reporting by Sui-Lee Wee; Editing by Robert Birsel)

91 Reported Missing After Massive Landslide in China

At least 91 people were missing on Monday after a massive landslide in China, reports indicate.

According to Xinhua, China’s official news agency, about 3,000 rescue workers were searching through an industrial park in the city of Shenzhen after construction waste slid down a hill at about 11:40 a.m. Sunday, covering a 93-acre area in 32 feet of dirt. The slide reportedly affected 33 buildings, either burying them or otherwise damaging them, and hospitalized 16 people.

Xinhua reported authorities detected some signs of life underneath the landslide, but the muddy composition of the silt was complicating rescue efforts. While 900 people were safely evacuated after the disaster, the news agency reported only seven people had been rescued from the mud.

A researcher with the China Academy of Railway Sciences, who was assisting the rescue, told Xinhua it was the only time he’d seen a landslide of this magnitude in his 30 years on the job.

Xinhua reported that the landslide caused part of an important pipeline that carried natural gas to nearby Hong Kong to explode. Crews were reportedly building a temporary pipe on Monday.

It’s still not known what exactly spurred the landslide, according to Xinhua. It reportedly occurred at a former quarry that had been turned into a site where construction waste could be dumped.

China Angry After U.S. Sells $1.83 Billion in Weapons to Taiwan

The United States government on Wednesday authorized selling a $1.83 billion defense package to Taiwan, a transaction that immediately drew objections, criticisms and sanctions from China.

CNN reported the package Taiwan purchased mainly consists of weapons used for defense. It includes amphibious assault vehicles, a pair of frigates and anti-aircraft and anti-ship weapons.

A state department spokesman addressed the sale at a news conference on Wednesday, saying it was “based on our assessment of Taiwan’s defense needs” and in line with the government’s existing diplomatic policies regarding China and Taiwan, nations that have long been at odds.

China, though, doesn’t see it that way.

Speaking to Xinhua, China’s state-run media service, Vice Foreign Minister Zheng Zeguang said Beijing “strongly opposes” the transaction, which it believes violates the diplomatic agreements. Zheng told the news agency that China imposed sanctions on the companies involved in the sale.

“No one can shake the firm will of the Chinese government and people to defend their national sovereignty and territorial integrity, and to oppose foreign interference,” Zheng told Xinhua.

Relations between China and Taiwan have been fragile since the Chinese Civil War ended in 1949. Taiwan governs itself, though Beijing claims that the island remains Chinese territory.

It isn’t the first time that the United States has sold weapons to Taiwan.

Focus Taiwan, a news agency, reported it was the fourth transaction since 2008, the year in which U.S. President Barack Obama was elected and Taiwan President Ma Ying-jeou took office. Those deals have been worth more than $20 billion, but this was the first exchange since 2011.

A spokesperson for China’s Defense Ministry, Yang Yujun, told Xinhua on Thursday that the arms transaction was “wrongdoing” that would “inevitably harm China-U.S. military relations.” Xinhua reported Zheng summoned officials at the U.S. embassy in China to discuss the sale.

The U.S. state department doesn’t see why the sale would hurt its relationship with China.

“There’s no need for it to have any derogatory effect on our relationship with China, just like there was no need in the past for it to ever have that effect on China,” spokesman John Kirby told reporters Wednesday. “We still want to work to establish a better, more transparent, more effective relationship with China in the region, and we’re going to continue to work at that.”

Vietnam Builds Military Muscle to Face China

By Greg Torode

XUAN MAI, Vietnam (Reuters) – Vietnam’s military is steeling itself for conflict with China as it accelerates a decade-long modernization drive, Hanoi’s biggest arms buildup since the height of the Vietnam War.

The ruling Communist Party’s goal is to deter its giant northern neighbor as tensions rise over the disputed South China Sea, and if that fails, to be able to defend itself on all fronts, senior officers and people close to them told Reuters.

Vietnam’s strategy has moved beyond contingency planning. Key units have been placed on “high combat readiness” – an alert posture to fend off a sudden attack – including its elite Division 308, which guards the mountainous north.

The two countries fought a bloody border war in 1979. The likely flashpoint this time is in the South China Sea, where they have rival claims in the Spratly and Paracel archipelagos.

“We don’t want to have a conflict with China and we must put faith in our policy of diplomacy,” one senior Vietnamese government official, who spoke on condition of anonymity, told Reuters. “But we know we must be ready for the worst.”

Most significantly, Hanoi is creating a naval deterrent largely from scratch with the purchase of six advanced Kilo-class submarines from Russia.

In recent months, the first of those submarines have started patrolling the South China Sea, Vietnamese and foreign military officials said, the first confirmation the vessels have been in the strategic waterway.

DIVISION 308

Militarily, the tensions are palpable northwest of Hanoi at the headquarters of Division 308, Vietnam’s most elite military unit, where senior army officers talk repeatedly about “high combat readiness”.

The phrase is on billboards beneath images of missiles and portraits of Vietnam’s late revolutionary founder, Ho Chi Minh, and its legendary military hero, General Vo Nguyen Giap.

Perched between Vietnam’s craggy northern mountains and the ancient rice paddies of the Red River Delta, 308 is Vietnam’s oldest division and still effectively guards the northern approaches to Hanoi.

Reflecting deep-set official sensibilities towards offending Beijing, one senior officer, Colonel Le Van Hai, said he could not talk about China. But Vietnam was ready to repel any foreign force, he told Reuters during a rare visit by a foreign reporter.

“Combat readiness is the top priority of the division, of the Ministry of Defense and the country. We can deal with any sudden or unexpected situation … We are ready,” he said.

“High combat readiness”, along with references to the “new situation”, increasingly feature in lectures by senior officers during visits to military bases and in publications of the People’s Army of Vietnam. The phrases also surface in talks with foreign military delegations, diplomats said.

“When Vietnam refers to the ‘new situation’, they are using coded language to refer to the rising likelihood of an armed confrontation or clash with China, particularly in the South China Sea,” said Carl Thayer, a professor at Australia’s Defense Force Academy in Canberra who has studied Vietnam’s military since the late 1960s.

While ramping up combat readiness, Hanoi’s once-reclusive generals are reaching out to a broad range of strategic partners. Russia and India are the main source of advanced weapons, training and intelligence cooperation. Hanoi is also building ties with the United States and its Japanese, Australian and Filipino allies, as well as Europe and Israel.

The outreach covers weapons purchases, ship visits and intelligence sharing but will have its limits. Hanoi shuns formal military alliances under a staunchly independent foreign policy.

Vietnam is seeking more Russian jet fighter-bombers and is in talks with European and U.S. arms manufacturers to buy fighter and maritime patrol planes and unarmed surveillance drones, sources have told Reuters. It has also recently upgraded and expanded air defenses, including obtaining early warning surveillance radars from Israel and advanced S-300 surface-to-air missile batteries from Russia.

Indeed, increases in Vietnam’s military spending have outstripped its South East Asian neighbors over the last decade, according to estimates by the Stockholm International Peace Research Institute (SIPRI).

“They are not doing this for national day parades … they are building real military capabilities,” said Tim Huxley, a regional security expert at the International Institute of Strategic Studies in Singapore.

OIL RIG FLASHPOINT

While communist parties rule both Vietnam and China and share political bonds, the two countries have a history marked by armed conflict and long periods of lingering mistrust.

Fresh academic research has revealed how the Sino-Vietnamese war in 1979 was more intense than is widely known, rumbling on into the mid-1980s. The two sides then clashed at sea in 1988 when China occupied its first holdings in the Spratly archipelago of the South China Sea – a defeat still acutely felt in Hanoi.

China also took full control of another South China Sea island chain, the Paracels, after a naval showdown with then South Vietnam in 1974. Hanoi still protests China’s occupation.

More recently, China’s placement of an oil rig in disputed waters for 10 weeks in the middle of last year sparked anti-Chinese riots across Vietnam.

The rig’s placement on Vietnam’s continental shelf 80 nautical miles from its coast was a game-changer, officials in Hanoi privately said, hardening suspicions about Chinese President Xi Jinping among political and military leaders.

Hanoi dispatched dozens of Vietnamese civilian vessels to confront the 70 coastguard and naval warships China sent to protect the oil rig in mid-2014.

“It was a reminder to all of us just how dangerous the South China Sea has become,” said one retired U.S. naval officer.

For its part, China’s military strategists have long been frustrated at the two dozen military outposts that Hanoi has fortified across the Spratlys since losing the Paracels in 1974, Chinese analysts say. China is building three air strips on man-made islands it is building on reefs in the Spratlys that it took from Vietnamese forces in 1988.

A statement to Reuters from China’s Defense Ministry said the two militaries had close, friendly relations and China was willing to work hard with Vietnam for regional peace.

“Both sides have frank exchanges of view on the South China Sea … both sides should look for a basic, lasting solution both sides can accept,” the statement said.

China’s historic claim to most of the South China Sea, expressed on maps as a nine-dash line, overlaps the exclusive economic zones of Vietnam, the Philippines, Malaysia and Brunei. Taiwan also has claims in the area.

Some $5 trillion in ship-borne trade passes through the waterway every year, including most of the oil imported by China, Japan and South Korea.

‘PSYCHOLOGICAL UNCERTAINTY’

The importance to China of protecting its submarine base on Hainan Island – the projected home of its future nuclear armed submarine fleet – could be another flashpoint. Beijing also has jet fighters and many of its best warships stationed around Hainan Island. This South Sea Fleet is close to Vietnam’s northern coast and its vital deep water access channels to the South China Sea and beyond.

Vietnamese generals make clear to foreign visitors they know their limitations. Two decades of double-digit increases in defense budgets have given China a vastly larger and better equipped navy, air force and army.

Foreign military envoys say they struggle to gauge Vietnam’s actual capabilities and how well they are integrating complex new weapons. They are given little access beyond Hanoi’s gilded staterooms.

Vietnamese military strategists talk of creating a “minimal credible deterrent” – raising the costs of any Chinese move against Vietnam, whether it is a naval confrontation or an attack across the 1,400-km (875-mile) northern land border.

If conflict did break out, Hanoi could target Chinese-flagged merchant container and oil ships in the South China Sea, said Thayer, who said he was told this by Vietnamese strategists.

The aim would be not to defeat China’s superior forces but “to inflict sufficient damage and psychological uncertainty to cause Lloyd’s insurance rates to skyrocket and for foreign investors to panic”, Thayer said in a paper presented to a Singapore conference last month.

Vietnam’s foreign ministry did not respond to requests for comment on this story.

(Additional reporting by Ben Blanchard in Beijing and Ho Binh Minh and My Pham in Hanoi.; Editing by Dean Yates and Bill Tarrant.)

Beijing Issues First ‘Red Alert’ for Smog

Officials in Beijing have issued the city’s first red alert for smog.

The Chinese capital city’s Municipal Environmental Protection Bureau issued the alert on Monday. In a translated posting on its website, the bureau said the warning was issued “to protect public health” and “reduce the degree of air pollution.”

The posting indicates that “heavy air pollution” is expected to continue through Thursday.

The Associated Press reported that the levels of fine particle matter (called PM 2.5) were approaching 300 micrograms per cubic meter on Monday. That’s 12 times the level that the World Health Organization, an arm of the United Nations, lists as a guideline for those particles.

The website posting indicates that schools are encouraged to close and that officials will be strengthening emergency measures. The city is also stepping up its public transportation and instituting alternating driving days for vehicles, among other pollution-curbing techniques.

The Xinhua News Agency reported it’s the only time a red alert was issued in Beijing since 2013, the year in which the city implemented emergency management protocols for air pollution.

The red alert was issued as leaders from China and nearly 200 other countries were entering the second week of a two-week climate changes summit in Paris. Much of the focus at the COP21 conference is how to reduce global greenhouse gas emissions and curb rising temperatures.

China emits more greenhouse gasses than any other country in the world.