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UQ China Econ 2ac

Chinese economic collapse is inevitable its impossible to meet future energy demand

Heinberg, 10 fellow at the Post Carbon Institute, fellow at the Committee on International Trade and advisor to the European Parliament,National Petroleum Council, and the U.S. Secretary of Energy, (Richard, China's Coal Bubble...and how it will deflate U.S. efforts to develop "clean coal,Post Carbon Institute, May 4, 2010, http://www.postcarbon.org/article/96251-china-s-coal-bubble-and-how-it-will)//JK

China: Leading the Global EconomyInto the Ditch Some commentators are concerned aboutChina's economy for reasons that have nothing to do with coal. The prime example: it would

appear that Beijing has a problem with over-reliance on property development as an engine ofdomestic economic growth. One of those sounding the alarm on this score is hedge fund manager James Chanos, founder of KynikosAssociates Ltd.; he says China is "on a treadmill to hell," and that the nation is "Dubai times a thousand." He has also been quoted as saying, "They can'tafford to get off this heroin of property development. It is the only thing keeping the economic . . . numbers growing."a A bursting of China's property bubblecould collapse the nation's economy quickly and soon. But it is essentially a problem of money, and money is a creation of the human mind. Currencies canbe reformed; banking systems can be reorganized. Such things are painful and take time, but they are certainly possibleand historic examples are

numerous.n Energy is different. Without energy, nothing happens . Transport systems stall; buildingconstruction and manufacturing cease. The lights go out. You can't make energy out of nothing and you can't call it intoexistence with computer keystrokes, as bankers can do with money. Generating electrical power requires physical resources, infrastructure, and labor. And

so there are natural limits to how much energy we can summon for our human purposes at any given time.s China has become a greatmanufacturing powerhouse largely because it was able to grow its energy supply quickly andcheaply. And so China's contribution to the world economy is to this extent a function of China's contribution to world energy. One significant gauge ofthis link is the fact that Chinese coal production represents more than double the amount of energy contributed to the world economy as compared to Saudi

Arabia's oil production (1,100 million tons of oil equivalent vs. 540 Mtoe.)A If China faces hard energy limits, that means its

economy is living on borrowed time. That also means the world as a whole confronts energy and economic constraints that areharsher, and closer, than we are being told.


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UQ China Econ 1ar

Chinese collapse inevitable in 2012economic unsustainability and social discontent.Chang 11The Coming Collapse of China: 2012 Edition BY GORDON G. CHANG (graduate of Cornell University Law Degree| DECEMBER 29, 2011http://www.foreignpolicy.com/articles/2011/12/29/the_coming_collapse_of_china_2012_edition

In the middle of 2001, I predicted in my book, The Coming Collapse of China, that the Communist Party would fall from power in a decade, in largemeasure because of the changes that accession to the World Trade Organization (WTO) would cause. A decade has passed; the Communist Party is still inpower. But don't think I'm taking my prediction back. Why has China as we know it survived? First and foremost, the Chinese central government has

managed to avoid adhering to many of its obligations made when it joined the WTO in 2001 to open its economy and play by the rules, and the internationalcommunity maintained a generally tolerant attitude toward this noncompliant behavior. As a result, Beijing has been able to protect much of its homemarket from foreign competitors while ramping up exports. By any measure, China has been phenomenally successful in developing its economy after WTOaccession -- returning to the almost double-digit growth it had enjoyed before the near-recession suffered at the end of the 1990s. Many analysts assumethis growth streak can continue indefinitely. For instance, Justin Yifu Lin, the World Bank's chief economist, believes the country can grow for at least twomore decades at 8 percent, and the International Monetary Fund predicts China's economy will surpass America's in size by 2016. Don't believe any of this.China outperformed other countries because it was in a three-decade upward supercycle, principally for three reasons. First, there were Deng Xiaoping'stransformational "reform and opening up" policies, first implemented in the late 1970s. Second, Deng's era of change coincided with the end of the ColdWar, which brought about the elimination of political barriers to international commerce. Third, all of this took place while China was benefiting from its

"demographic dividend," an extraordinary bulge in the workforce.Yet China's "sweet spot" is over because, in recent years, theconditions that created iteither disappeared or will soon. First, the Communist Party has turned its

back on Deng's progressive policies. Hu Jintao, the current leader, is presiding over an era marked by, on balance, the reversal ofreform. There has been, especially since 2008, a partial renationalization of the economy and a marked narrowing of opportunities for foreign business. Forexample, Beijing blocked acquisitions by foreigners, erected new barriers like the "indigenous innovation" rules, and harassed market-leading companieslike Google. Strengthening "national champion" state enterprises at the expense of others, Hu has abandoned the economic paradigm that made his country

successful. Second, the global boom of the last two decades ended in 2008when markets around the world crashed.The tumultuous events of that year brought to a close an unusually benign period during which countries attempted to integrate China into the internationasystem and therefore tolerated its mercantilist policies. Now, however, every nation wants to export more and, in an era of protectionism or of managed

trade, China will not be able to export its way to prosperity like it did during the Asian financialcrisis in the late 1990s. China is more dependent on international commerce than almost any othernation, so trade friction -- or even declining global demand -- will hurt it more than others . Thecountry, for instance, could be the biggest victim of the eurozone crisis. Third, China, which during its reform era had one of the bestdemographic profiles of any nation, will soon have one of the worst. The Chinese workforce will level off in about 2013,perhaps 2014, according to both Chinese and foreign demographers, but the effect is already being felt as wages rise, a trend that will eventually make the

country's factories uncompetitive. China, strangely enough, is running out of people to move to cities, work infactories, and power its economy. Demography may not be destiny, but it will now create high barriers for growth. At the same time thatChina's economy no longer benefits from these three favorable conditions, it must recover fromthe dislocations -- asset bubbles and inflation -- caused by Beijing's excessive pump priming in 2008 and 2009, the biggesteconomic stimulus program in world history (including $1 trillion-plus in 2009 alone). Since late September, economic indicators -- electricity

consumption, industrial orders, export growth, car sales, property prices, you name it -- are pointing toward either a flat lining or contracting economy.

Money started to leave the country in October, and Beijing's foreign reserves have been shrinking since September.As a result,we will witnesseither a crash or, more probably, a Japanese-style multi-decade decline. Either way, economictroubles are occurring just as Chinese society is becoming extremely restless. It is not only that protests havespiked upwards -- there were 280,000 "mass incidents" last year according to one count -- but that they are also increasingly violent as the recent

wave of uprisings, insurrections, rampages and bombings suggest. The Communist Party, unableto mediate social discontent, has chosen to step-up repression to levels not seen in two decades. The authorities have,for instance, blanketed the country's cities and villages with police and armed troops and stepped up monitoring of virtually all forms of communication andthe media. It's no wonder that, in online surveys, "control" and "restrict" were voted the country's most popular words for 2011. That tough approach haskept the regime secure up to now, but the stability it creates can only be short-term in China's increasingly modernized society, where most people appear to

believe a one-party state is no longer appropriate. The regime has clearly lost the battle of ideas. Today, social change in China isaccelerating. The problem for the country's ruling party is that, although Chinese people generally do not have revolutionary intentions, their acts ofsocial disruption can have revolutionary implications because they are occurring at an extraordinarily sensitive time. In short, China is much too dynamic

and volatile for the Communist Party's leaders to hang on. In some location next year, whether a small village or great city, anincident will get out of control and spread fast. Because people across the country share the samethoughts, we should not be surprised they will act in the same way. We have already seen the Chinese people act inunison: In June 1989, well before the advent of social media, there were protests in roughly 370 cities across China, without national ringleaders. This

phenomenon, which has swept North Africa and the Middle East this year, tells us that the nature of political change around theworld is itself changing, destabilizing even the most secure-looking authoritarian governments.China is by no means immune to this wave of popular uprising, as Beijing's overreaction to the so-called "Jasmine"protests this spring indicates. The Communist Party, once the beneficiary of global trends, is now the victim of them. So will China collapse? Weakgovernments can remain in place a long time. Political scientists, who like to bring order to the inexplicable, say that a host of factors are required for regimecollapse and that China is missing the two most important of them: a divided government and a strong opposition. At a time when crucial challenges

mount, the Communist Party is beginning a multi-year political transition and therefore ill-prepared for the problems it faces. There are already visible splits among Party elites, and the leadership's sluggish response in recentmonths -- in marked contrast to its lightning-fast reaction in 2008 to economic troubles abroad -- indicates that the decision-making process in Beijing isdeteriorating. So check the box on divided government. And as for the existence of an opposition, the Soviet Union fell without much of one. In our
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substantially more volatile age, the Chinese government could dissolve like the autocracies in Tunisia and Egypt. As evident in this month's "open revolt" inthe village of Wukan in Guangdong province, people can organize themselves quickly -- as they have so many times since the end of the 1980s. In any event,a well-oiled machine is no longer needed to bring down a regime in this age of leaderless revolution. Not long ago, everything was going well for the

mandarins in Beijing. Now, nothing is. So, yes, my prediction was wrong. Instead of 2011, the mighty Communist Party of Chinawill fall in 2012. Bet on it.


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UQ China Steel

China Steel weak now- slowed growth, profit decline, and export slump proveChina Daily 6-23 [China Daily, 6-23-12, China crude steel sector grows slower,http://www.chinadaily.com.cn/business/2012-06/23/content_15519267.htm, accessed 6/24]BEIJING - Growth of China's crude steel output slowed in the first five months, as demand droppedamid a cooling domestic economy, according to data from the country's top economic planner. Crude steel output increased by 2.2percent year-on-year to 296.26 million tons during the January-May period, down from 8.5-percent growth recorded during the same period last year, data

with the National Development and Research Commission showed. In May, crude steel output rose 2.5 percent from a year earlier, 5.3 percentage pointslower than last year. Aside from output, the sector's profits also slipped sharply. Steel producers saw profitsdown 49.5 percent from a year earlier to 39.5 billion yuan ($6.27 billion) in the first four months.In breakdown, profits of ferrous metals mining and dressing companies dropped 7.9 percent,

while steel smelting and processing companies saw profits down 68.8 percent. Steel price also fell in May, asthe country's average steel composite price index retreated 17.28 points from last year to 118.76. The figure was also 2.76 points lower than the previous

month. China's manufacturing sector has been hard hit, after the country introduced measures tocool its property market, a major steel user, and exports slumped amid a lingering eurozonecrisis.

Chinese steel economy failing nowdemand and prices plummeting.Chovanec 1/16/2012How China Could Easily Have A Hard Landing With Any Slowdown In Construction Growth Patrick Chovanec (AssociateProfessor of Practice at Tsinghua Universitys School of Economics and Management in Beijing, China.) January 16, 2012

http://articles.businessinsider.com/2012-01-16/markets/30631008_1_real-estate-hard-landing-gdp/3

There are two ways that the drop in the property market translates into slower economic growth: direct and indirect.The direct impact is fairly obvious: to the extent that Chinas real estate developers are overextended, and preoccupied with selling off their existinginventory in order to stave off bankruptcy, they wont be commissioning any new projects maybe not for quite a while. That means no work for

construction companies, which in turn wont be buying any new construction equipment. It also means less demand for steel(construction reportedly accounts for 40% of Chinas steel demand), cement, glass, copper pipes and wiring, etc. Italso means less furniture and fewer appliances to fill those new homes (although, as we know, many Chinese investors already leave the units they buy

empty anyway). The estimates Ive seen say these sectors dependent on property construction account for between 20% and25% of Chinas total GDP. Frankly, you dont need a real estate collapse in order to trigger a serious slowdown in thesesectors. All you need is a pause in the hitherto frantic pace of construction. Lets assume the bull argument that, due tourbanization and rising incomes, speculators are right: all the units theyre snapping up today, and holding as investments, will ultimately be filled with endusers. That still assumes a catch-up period. If real estate investment, which according to monthly official figures has (even into November) been growing at>30% year-on-year, keeps outpacing urbanization and rising incomes, the gap will never close. At some point, the pace of construction has to moderate togive all that anticipated end user demand a chance to materialize, and start filling all those vacancies. If demand isnt what speculators imagine it to be, attodays sky-high prices, the adjustment and resulting slowdown will be even more severe. So what evidence do we have that a construction slowdownmay be occurring? Official data on housing starts does exist, but its not a reliable metric. Developers stand to lose their land back to the government if theydont do anything with it after a few years. They are also under considerable pressure to show progress on social housing mandates that may be acondition of obtaining land. For both reasons, developers will often dig a hole in the ground and call it a start, even if they intend to delay further workindefinitely. Last month, Chinas Ministry of Housing and Urban-Rural Development (MOHURD) estimated that as much as 1/3 of reported social housingstarts were just digging a hole rather than actually building apartments. A better approach is to look at the market for construction inputs. The clearestpicture we have is for steel. According to a friend of mine who is an analyst in the steel and commodities sector, and recently completed a countrywide tour

of talking to producers, sentiment in Chinas steel industry is as gloomyas he has ever seen it. n November, Chinese steeloutput was down -8.8%month-on-month, down for the sixth month in row. More importantly, it was down -0.6%year-on-

year, indicating this was more than just a seasonal or partial fall-offfrom the all-time highs it hit in the first half of 2011,which were driven in large part by demand for cheap rebar for construction. Apparently, the demand that drove that boom hasalmost entirelydisappeared. Interestingly, according to one report by Shanghai Security News, steelmakers say that actual sales in 2011 failed tomatch official social housing construction data. Figures released by the China Iron and Steel Association last week indicate that steel output continued

falling in December, by 3.87% month-on-month. Not surprisingly, two things have happened. First, domestic iron ore prices have

plummeted as unused stockpiles have accumulated. The China Iron and Steel Association recently announced that its ironore price index has fallen 22% in the past four months, since the beginning of September, while iron ore inventories at Chinese ports rose to 96.8 milliontons by the end of 2011, up 32% from the year before (Chinese iron ore imports were still up 10% y-on-y in December, but analysts expect buying to slow in

coming months, due to flagging demand). Second, Chinese steelmakers are suffering. According to Caijing, more than 1/3 of themexperienced losses in October and November, and the industry as a whole saw a net loss of RMB 920 million (US$ 146 million)excluding investment gains.
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Overheat Turn 2ac**

Chinese economic growth fuels overheating.OGrady 11 China's overheating economy stokes fears for global inflation BY SEAN O'GRADY , ECONOMICS EDITOR FRIDAY 21 JANUARY 2011http://www.independent.co.uk/news/business/news/chinas-overheating-economy-stokes-fears-for-global-inflation-2190283.html

Fears ofoverheating and escalating inflation in the Chinese economy sent equity and commodity markets around the worldtumbling yesterday, as the country returned to double digit growth rates. Some 1trillion in loans by local banks helped the Chinese economy to recordgrowth of more than 10 per cent last year, though escalating inflationary trends have raised fears about the

sustainability ofsuch expansion in her overheating economy. The Chinese National Bureau of Statistics said the economyof the People's Republic expanded by 10.3 per cent in 2010, compared with about 1.7 per cent in the UK and 2.5 per cent in the US. It means China hasreturned to double-digit growth, having fallen back during the world recession to 9.2 per cent in 2009 and 9.6 per cent in 2008. China has averaged growthof around 10 per cent for the past 20 years, leaving it on some measures as the world's second-largest economy behind the US, having overtaken Japan and

Germany this decade. The world's "two-speed" recovery continues. Apart from the export-driven boom that has seen Chinaaccumulate more than $2trn in reserves, recent attempts bythe Beijing government have been targeted at boostingdomestic consumption, and it has actively encouraged the many state-controlled banks at a national and regional level to lend extraordinarysums. According to the statistics bureau, Chinese banks loaned 7.95trn yuan (755bn) last year, with another 3trn or so of yuan loans made "off balancesheet", according to estimates produced by the credit ratings agency Fitch. While some of this has fuelled rising consumption among the emerging middle

classes and contributed to the rising price of food globally much seems to have gone into a real estate bubble that manyanalysts fearwill burst before long,with unknowable consequences for China and the world economy. Other funds may havegone into "prestige" infrastructure projects that yield little or no financial or economic returns.China's investment rate of 70 per cent of GDP is high even by developing economy standards, and three or four times the proportions usually encounteredin the West. The Government has set a target for borrowing of 7.5trn yuan in 2011, which will trim growth in money supply which is now running at 50 per

cent. Retail price inflation eased slightly in December, but the pressure of rising commodity prices in large part stimulated by China's breakneck growth seems certain to push it higher. Inflation stood at 4.6 per cent in December, after cresting a two-year high of 5.1 per cent in November. On average, inflation

ran at 3.3 per cent over 2010, but it is expected to rise this year. Moreover, much inflationary pressure may be disguised in aneconomy where national and regional officials still have the authority to intervene in markets anddistort price signals. The authorities in Beijing may be even more concerned by the real estate bubble that has seen property prices in hersprawling eastern metropolises rise by annual rates of 30, 40 or 50 per cent in recent years. A property crash would not only harm those Chinese who haveinvested in property but also the banks that lent into that boom, though the residential mortgage market is less developed than in the West. More

generalised concerns about the prospects for China saw stock markets around the world take a hit yesterday. Commodity prices alsosoftened. He Yifeng, an analyst at Hongyuan Securities in Beijing, said: "Overheating signs have already emerged in theChinese economy. The government may have to take measures to cool off economic activity soon."Against a background of "currency wars", the Chinese press hailed this week's meeting of presidents Barack Obama and Hu Jintao as "successful".

That triggers both 1nc impacts

a. Overheating leads to Chinese economic collapse.Chovanec 1/16/2012How China Could Easily Have A Hard Landing With Any Slowdown In Construction Growth Patrick Chovanec (AssociateProfessor of Practice at Tsinghua Universitys School of Economics and Management in Beijing, China.) January 16, 2012http://articles.businessinsider.com/2012-01-16/markets/30631008_1_real-estate-hard-landing-gdp/3The magazine said industry executives foresee an even tougher year in 2012. Cement and glass also show a marked deceleration in growth. Cement outputin November grew 11.2% y-on-y, but that represented a significant fall-off from 17.2% y-on-y expansion for the first 11 months as a whole, and the 17.3% y-on-y growth the industry saw in November 2010. Glass also saw a similar deceleration, growing 7.1% y-on-y in November, compared to 17.0% y-on-y fromthe first 11 months. Cement prices have been declining steadily over the past few months, a trend that Fitch projects will continue into 2012, due toovercapacity. It notes that, because of their high level of investment in building even more capacity, major Chinese cement producers are cash flow negativeCopper presents a more unusual picture. Chinas copper imports in December hit an all-time record high of 508,942 tons, up 47.7% y-on-y. However, thereis little reason to believe this was driven by end user demand. Most analysts Ive talked to believe it was primarily due to a resurgence in speculativearbitrage based on the gap between copper prices in Shanghai and London, and possibly renewed interest in using stockpiled copper as collateral forobtaining loans both practices spurred by expectations of monetary easing. In short, the Chinese are buying copper, like homes, to trade not to use. Ofcourse, land is also a key construction input. Ive already written about the dramatic fall-off in local government land sales to developers, here as well ashere. Newly released year-end figures show that Beijings overall revenues from land sales in 2011 dropped 35.7% compared to 2010, despite robust sales inthe first half of the year. Land sales revenues for residential projects plunged even more steeply, by 55.4%, while the average auction price for residentialland dropped 30.5% (from RMB 7,317 per sq. meter to RMB 5,088). In Shanghai, total land sales revenues dropped 20.0% y-on-y, and average the averageprice of residential land plummeted 41.0%. On January 7, Chinas Minister of Land and Resources stated that nationwide, land sales revenues in 2011 wereup slightly over the previous year, but offered no details. A few days earlier, however, the 21st Century Business Herald reported that nationwide land salesmay have dropped as much as 20% year-on-year. All in all, it certainly appears that some kind of a slowdown, prompted by a correction in the real estatemarket, is taking place in China. What does this mean for the Chinese economy? Not much, argues Morgan Stanleys Stephen Roach, in a recent syndicatedop-ed: Moreover, it is a serious exaggeration to claim, as many do today, that the Chinese economy is one massive real-estate bubble. Yes, total fixedinvestment is approaching an unprecedented 50% of GDP, but residential and nonresidential real estate, combined, accounts for only 15-20% of that nomore than 10% of the overall economy. In terms of floor space, residential construction accounts for half of Chinas real-estate investment. Identifying theshare of residential real estate that goes to private developers in the dozen or so first-tier cities (which account for most of the Chinese property marketsfizz) suggests that less than 1% of GDP would be at risk in the event of a housing-market collapse not exactly a recipe for a hard landing. I think Roach isunderestimating the problem. First of all, 10% of GDP sounds a bit low to me. Reliable statistics forwarded to me by Bloomberg researchers put residentialconstruction alone at 9.9% of Chinas GDP in 2010 (compared to 6.1% at the U.S. housing peak in 2005, 9.3% at Spains peak in 2007, and 14.0% at

Irelands peak in 2006). Roughly consistent with this figure, UBS economist Jonathan Anderson estimates that total real estateconstruction (including residential and commercial) accounted for 13% of GDP in 2010. Second, this number does not includesectors such as steel and cement that are directly and heavily dependent on construction demand. As Ive noted, that raises the stakes to 20-25% of GDP.
http://www.independent.co.uk/news/business/news/chinas-overheating-economy-stokes-fears-for-global-inflation-2190283.htmlhttp://www.independent.co.uk/news/business/news/chinas-overheating-economy-stokes-fears-for-global-inflation-2190283.html


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Third, Ive argued vigorously for some time now that contrary to what Roach maintains, the overhangs in Chinas property market are not at all limited tofirst-tier cities, based not only on the data I have seen but on copious news reports and the evidence of my own eyes. Far from being mere fizz, they are thepervasive outgrowth of deeply embedded structural issues in Chinas economy. Having said all that, lets assume for a moment that Roach is right that realestate construction directly accounts for 10% of Chinas GDP. Now lets assume that the growth rate for real estate investment drops from roughly 30% lastyear to zero in 2012. That sounds catastrophic, but keep in mind, zero growth doesnt mean a cessation of all construction. It means China will build theexactly same number of condos, villas, offices, and shopping malls this year that it did last year an astonishing rate of construction, by any historicalstandard. If the property sector grew by 30% in 2010, and accounted for 10% of GDP, and GDP grew by 8.5% (roughly), that implies a growth rate for the

rest of the economy of 6.1%. If you take real estate expansion down to zero, and assume the rest of theeconomy keeps humming along, that knocks overall GDP growth down to 5.5% a hard landing in mostpeoples book. Again, that may sound extreme, but if we look to the U.S., Spain, or Ireland as an example of what happens when a bubble bursts, themost likely outcome isnt a plateau in construction (zero growth) but a collapse (sharply negative contraction) followedby years in which hardly anything gets built. Im already being generous here in assuming that China is somehow different. More importantly, were onlylooking here at the direct impact of a real estate downturn on GDP: the homes and offices that arent built, the steel and other materials that arent ordered.In the lead-up to the U.S. subprime crisis, Ben Stein (who I generally have a high regard for) famously opined that subprime mortgages comprised such atiny portion of the nations assets that they werent worth worrying about: the total loss may be about of one percent of the mortgages made and probablyless, and a lot of it is insured. This is an absolutely trivial number in the context of a $14 trillion economy with net wealth in the realm of $60 trillion. Steinlater penned a mea culpa, admitting that where I missed the boat was not realizing how large were the CDS [credit default swaps] based on the junkmortgage bonds. That insurance he was talking about actually turned to be a huge problem, not a solution. It was the indirect effects of the U.S. housingcrash the way it triggered reactions throughout the financial system and apparently unrelated parts of the economy that turned it into a real crisis. Soin the next post in this series (Part 2B), I will take the next step and explore the far more serious indirecteffects of Chinas real estate downturn on growth.Ill look at how the property market has been the lynchpin of a much broader investment boom that has been driving Chinas rapid economic growth, andexamine the concrete evidence that this boom is now starting to unravel.

b. CCP collapse Infrastructure and exports cause Chinese economy to overheat and threatenssocial stability, sparking a collapse.

WSJ 10Goldilocks and the China Bears: Rising inflation exposes the Achilles' heel of the Chinese growth model. November 17,2010http://online.wsj.com/article/SB10001424052748703848204575608030288317058.html?mod=googlenews_wsj

Rising inflation threatens China's goldilocks economy. That may sound like hyperbole, given that the country's consumer priceindex remains quiescent by most standards. Last week, the October figures showed prices rising at 4.4% year on year, up from 3.6% in September. As Victor

Shih writes nearby, this is particularly painful for China's poor, and so officials need to contain it right awayto preservesocial stability. But in a world in which many countries are worried more about recession and deflation than overheating, it may not seem like a bigproblem. Can't a bit of monetary tightening do the trick? Perhaps not this time. On monetary matters, China is an unusual case. For the last seven years orso, it has enjoyed a phenomenal economic run. Not only has China's growth since 2003 been fast, it has also been less volatile than in the 1990s or early2000s and inflation has remained at bay. While there were times when the economy slowed or overheated a bit, it always recovered. Beijing won kudos forits technocratic management. How did the cadres do it? They deferred inflation by buying dollars and then sterilizing the increase in the supply of yuan. Theproof is in the monetary policy reports of the central bank. Over the last seven years, the required reserve ratio has risen to a staggering 18% for large banksand 17.5% for other banks, up from 6% in 2003. The People's Bank of China has also been mopping up liquidity in other ways. For instance, as of the end ofJune, it had 4.4 trillion yuan ($665 billion) in central bank bills outstanding. The U.S. Federal Reserve is under fire for expanding its balance sheet, but the

PBoC puts it to shame. By holding down the value of the yuan while also limiting the money supply,China's central bank has enabled impressive export-dependent growth.And when the worldeconomy stumbled, the government doubled down on investment, encouraging banks to lend

freely for infrastructure. Now the bills are coming due. For a start, there's the question of how much more monetary policy ammunition thePBoC has left to fight inflation. A high savings rate has helped keep the banks liquid. Hot money will continue to come in, especially now that the Fed's QE2has been announced, and the trade surplus for October was $27 billion. To keep the yuan-dollar exchange rate stable, the central bank has to continuesterilizing those money inflows before it can even start to fight inflation. If it is unable to do so, inflation could accelerate. Then there's the PBoC's ownfinancial health. Raising the reserve ratio has been its preferred method of controlling the money supply, since it doesn't have to pay interest on the fundscommercial banks are forced to keep on deposit at the central bank. But on its central bank bills and repos, it is borrowing at short-term rates of about 1.5%to 2%. On the asset side of its balance sheet it is earning less than 1.5% on five-year U.S. Treasurys. If the Fed succeeds in pushing down U.S. borrowingcosts further, and inflation in China forces more interest rate increases, the spread on $2 trillion of foreign reserves is going to become costly. Not tomention that the yuan is appreciating against the dollar. Unwinding even a portion of China's huge currency intervention would be painful. As economistJohn Greenwood of Invesco has written, the Malaysians engaged in a similar monetary strategy until the mid-1990s, when inflation emerged. After the

central bank started making losses, it stopped sterilizing. All that deferred inflation came back in a rush. After the bubble burst, theoversized export side of the economy went into a tailspin, companies couldn't pay back theirloans and a painful recession ensued. In the near term, tightening credit could also expose the weaknesses in China's corporationsand put the banks under strain. As long as the lending spree keeps going, companies appear healthy, banks margins are fat and nonperforming loan ratios

are low. The PBoC recently raised borrowing rates by 25 basis points, and the markets expect another rise before the end of the year. Lending

quotas, China's main tool for controlling credit growth, could also be cut. For many companies, this could comeas a rude shock. For a long time, the question put to China bears hasbeen what would spark a crisis. Capital controls mean that there islittle possibility of capital flight, and the government stands behind the state-run banks so there seems to be no systemic risk. While we wouldn't be so bold

as to predict a crash, inflation is one way in which China's goldilocks economy could come to an end andthe bears be proven right


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U.S. steel good

American steel industry is key to US infrastructure, energy development, and the military

Price et al, 10 (Alan H., lawyer at Wiley Rein and head of the firms international trade practice, *and

Timothy C. Brightbill, JD, Adjunct Professor of Law at Georgetown University and a partner at Wiley Rein LLP,

*and Christopher B. Weld, lawyer at Wiley Rein, *and Tessa V. Capeloto, lawyer at Wiley Rein, October 2010,

The Reform Myth: How China is Using State Power to Create the Worlds Dominant Steel Industry,

http://www.steel.org/~/media/Files/AISI/General%20Docs/reform%20myth.ashx, DJH)

Investments like the Anshan investment also raise national security concerns. The U.S. steel sector plays a

critical role in our national defense, and in building and maintaining the nation's critical infrastructure. The

Anshan transaction could provide the Chinese government with direct access to, and information concerning,

current and future U.S. infrastructure, energy and defense projects that may be critical to national defense.

Moreover, as Anshan itself has acknowledged, the investment could provide the Chinese government with potential new

technologies in the steel production industry.


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a2 Asia War

The South China Sea insulates Asian ConflictKaplan 11The South China Sea Is the Future of Conflict The 21st century's defining battleground is going to be on water. BY ROBERT D. KAPLAN(senior fellow at the Center for a New American Security, Kaplan has been a consultant to the U. S. Armys Special Forces Regiment, the U. S. Air Force, andthe U. S. Marines) | SEPT/OCT 2011 http://www.foreignpolicy.com/articles/2011/08/15/the_south_china_sea_is_the_future_of_conflict?page=0,4Europe is a landscape; East Asia a seascape. Therein lies a crucial difference between the 20th and 21st centuries. The most contested areas of the globe inthe last century lay on dry land in Europe, particularly in the flat expanse that rendered the eastern and western borders of Germany artificial and exposedto the inexorable march of armies. But over the span of the decades, the demographic and economic axis of the Earth has shifted measurably to the opposite

end of Eurasia, where the spaces between major population centers are overwhelmingly maritime. Because of the way geography illuminates and setspriorities, these physical contours of East Asia augur a naval century -- naval being defined here in the broad sense to include both sea and air battle

formations now that they have become increasingly inextricable. Why? China, which, especially now that its land borders are more secure than at anytime since the height of the Qing dynasty at the end of the 18th century, is engaged in an undeniable naval expansion. It is through seapower that China will psychologically erase two centuries of foreign transgressions on its territory-- forcing every countryaroundit to react. Military engagements on land and at sea are vastly different , with major implications for the grandstrategies needed to win -- or avoid -- them. Those on land enmesh civilian populations, in effect making human rights a signal element of war studies.Those at sea approach conflict as a clinical and technocratic affair, in effect reducing war to math, in marked contrast with the intellectual battles thathelped define previous conflicts. World War II was a moral struggle against fascism, the ideology responsible for the murder of tens of millions ofnoncombatants. The Cold War was a moral struggle against communism, an equally oppressive ideology by which the vast territories captured by the RedArmy were ruled. The immediate post-Cold War period became a moral struggle against genocide in the Balkans and Central Africa, two places whereground warfare and crimes against humanity could not be separated. More recently, a moral struggle against radical Islam has drawn the United States deepinto the mountainous confines of Afghanistan, where the humane treatment of millions of civilians is critical to the war's success. In all these efforts, warand foreign policy have become subjects not only for soldiers and diplomats, but for humanists and intellectuals. Indeed, counterinsurgency represents aculmination of sorts of the union between uniformed officers and human rights experts. This is the upshot of ground war evolving into total war in the

modern age. East Asia, or more precisely the Western Pacific, which isquickly becoming the world's new center ofnaval activity, presages a fundamentally different dynamic. It will likely produce relatively few moral dilemmas of the kind wehave been used to in the 20th and early 21st centuries, with the remote possibility of land warfare on the Korean Peninsula as the striking exception. TheWestern Pacific will return military affairs to the narrow realm of defense experts. This is not merely because we are dealing with a naval realm, in which

civilians are not present. It is also because of the nature of the states themselves in East Asia, which, like China, may be stronglyauthoritarian but in most cases are not tyrannical or deeply inhumane. The struggle for primacy in the WesternPacific will not necessarily involve combat; much of what takes place will happen quietly and over the horizon in blank sea space, at a glacial tempo

befitting the slow, steady accommodation to superior economic and military power that states have madethroughout history.War is far from inevitable even if competition is a given.And if China and the United Statesmanage the coming handoff successfully, Asia, and the world, will be a more secure, prosperousplace. What could be more moral than that? Remember: It is realism in the service of the national interest -- whose goal is the avoidance of war -- thathas saved lives over the span of history far more than humanitarian interventionism.EAST ASIA IS A VAST, YAWNING EXPANSE stretching nearly fromthe Arctic to Antarctic -- from the Kuril Islands southward to New Zealand -- and characterized by a shattered array of isolated coastlines and far-flungarchipelagos. Even accounting for how dramatically technology has compressed distance, the sea itself still acts as a barrier to aggression, at least to a

degree that dry land does not. The sea, unlike land, creates clearly defined borders, giving it the potential toreduce conflict. Then there is speed to consider. Even the fastest warships travel comparatively slowly, 35 knots, say, reducing the chance ofmiscalculations and giving diplomats more hours -- days, even -- to reconsider decisions. Navies and air forces simply do not occupy territory the way thatarmies do. It is because of the seas around East Asia -- the center of global manufacturing as well as rising military purchases -- that the 21st century has abetter chance than the 20th of avoiding great military conflagrations. Of course, East Asia saw great military conflagrations in the 20th century, which theseas did not prevent: the Russo-Japanese War; the almost half-century of civil war in China that came with the slow collapse of the Qing dynasty; thevarious conquests of imperial Japan, followed by World War II in the Pacific; the Korean War; the wars in Cambodia and Laos; and the two in Vietnaminvolving the French and the Americans. The fact that the geography of East Asia is primarily maritime had little impact on such wars, which at their corewere conflicts of national consolidation or liberation. But that age for the most part lies behind us. East Asian militaries, rather than focusing inward withlow-tech armies, are focusing outward with high-tech navies and air forces. As for the comparison between China today and Germany on the eve of World

War I that many make, it is flawed: Whereas Germany was primarily a land power, owing to the geography of Europe, China will be primarilya naval power, owing to the geography of East Asia. East Asia can be divided into two general areas: Northeast Asia, dominated by the KoreanPeninsula, and Southeast Asia, dominated by the South China Sea. Northeast Asia pivots on the destiny of North Korea, an isolated, totalitarian state withdim prospects in a world governed by capitalism and electronic communication. Were North Korea to implode, Chinese, U.S., and South Korean groundforces might meet up on the peninsula's northern half in the mother of all humanitarian interventions, even as they carve out spheres of influence for

themselves. Naval issues would be secondary. But an eventual reunification of Korea would soon bring naval issues to the fore, with a Greater Korea, China,and Japan in delicate equipoise, separated by the Sea of Japan and the Yellow and Bohai seas. Yet because North Korea still exists, the Cold War phase ofNortheast Asian history is not entirely over, and land power may well come to dominate the news there before sea power will. Southeast Asia, by contrast, isalready deep into the post-Cold War phase of history. Vietnam, which dominates the western shore of the South China Sea, is a capitalist juggernaut despiteits political system, seeking closer military ties to the United States. China, consolidated as a dynastic state by Mao Zedong after decades of chaos and madeinto the world's most dynamic economy by the liberalizations of Deng Xiaoping, is pressing outward with its navy to what it calls the "first island chain" inthe Western Pacific. The Muslim behemoth of Indonesia, having endured and finally ended decades of military rule, is poised to emerge as a second India: avibrant and stable democracy with the potential to project power by way of its growing economy. Singapore and Malaysia are also surging forwardeconomically, in devotion to the city-state-cum-trading-state model and through varying blends of democracy and authoritarianism. The composite pictureis of a cluster of states, which, with problems of domestic legitimacy and state-building behind them, are ready to advance their perceived territorial rightsbeyond their own shores. This outward collective push is located in the demographic cockpit of the globe, for it is in Southeast Asia, with its 615 millionpeople, where China's 1.3 billion people converge with the Indian subcontinent's 1.5 billion people. And the geographical meeting place of these states, andtheir militaries, is maritime: the South China Sea. The South China Sea joins the Southeast Asian states with the Western Pacific, functioning as the throatof global sea routes. Here is the center of maritime Eurasia, punctuated by the straits of Malacca, Sunda, Lombok, and Makassar. More than half the world'sannual merchant fleet tonnage passes through these choke points, and a third of all maritime traffic. The oil transported through the Strait of Malacca fromthe Indian Ocean, en route to East Asia through the South China Sea, is more than six times the amount that passes through the Suez Canal and 17 times the


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amount that transits the Panama Canal. Roughly two-thirds of South Korea's energy supplies, nearly 60 percent of Japan's and Taiwan's energy supplies,and about 80 percent of China's crude-oil imports come through the South China Sea. What's more, the South China Sea has proven oil reserves of 7 billionbarrels and an estimated 900 trillion cubic feet of natural gas, a potentially huge bountyJUST AS GERMAN SOIL constituted the military front line of the

Cold War, the waters of the South China Sea may constitute the military front line of the coming decades . As China's navy becomesstronger and as China's claim on the South China Sea contradicts those of other littoral states,these other states will be forced to further develop their naval capacities. They will also balanceagainst China by relying increasingly on the U.S. Navy, whose strength has probably peaked inrelative terms, even as it must divert considerable resources to the Middle East. Worldwide multipolarity isalready a feature of diplomacy and economics, but the South China Sea could show us what multipolarity in a military sense actually looks like. There isnothing romantic about this new front, void as it is of moral struggles. In naval conflicts, unless there is shelling onshore, there are no victims per se; nor is

there a philosophical enemy to confront. Nothing on the scale of ethnic cleansing is likely to occur in this new central theater of conflict. China, its sufferingdissidents notwithstanding, simply does not measure up as an object of moral fury. The Chinese regime demonstrates only a low-calorie version of authoritarianism, with a capitalist economy and little governing ideology to speak of. Moreover, China islikely to become more open rather than closed as a society in future years . Instead of fascism or militarism,China, along with other states in East Asia, is increasingly defined by the persistence of old-fashioned nationalism: an idea, certainly, but not one that sincethe mid-19th century has been attractive to intellectuals. And even if China does become more democratic, its nationalism is likely only to increase, as evena casual survey of the views of its relatively freewheeling netizens makes clear. We often think of nationalism as a reactionary sentiment, a relic of the 19thcentury. Yet it is traditional nationalism that mainly drives politics in Asia, and will continue to do so. That nationalism is leading unapologetically to thegrowth of militaries in the region -- navies and air forces especially -- to defend sovereignty and make claims for disputed natural resources. There is nophilosophical allure here. It is all about the cold logic of the balance of power. To the degree that unsentimental realism, which is allied with nationalism,has a geographical home, it is the South China Sea. Whatever moral drama does occur in East Asia will thus take the form of austere power politics of thesort that leaves many intellectuals and journalists numb. As Thucydides put it so memorably in his telling of the ancient Athenians' subjugation of the islandof Melos, "The strong do what they can and the weak suffer what they must." In the 21st-century retelling, with China in Athens's role as the preeminentregional sea power, the weak will still submit -- but that's it. This will be China's undeclared strategy, and the smaller countries of Southeast Asia may well

bandwagon with the United States to avoid the Melians' fate. But slaughter there will be not. The South China Sea presages a differentform of conflict than the ones to which we have become accustomed. Since the beginning of the 20th century, we have been traumatized by massive,

conventional land engagements on the one hand, and dirty, irregular small wars on the other. Because both kinds of war produced massive civilian

casualties, war has been a subject for humanists as well as generals. But in the future we just might see a purer form ofconflict, limited to the naval realm. This is a positive scenario. Conflict cannot be eliminated fromthe human condition altogether. A theme in Machiavelli's Discourses on Livy is that conflict, properly controlled, is more likely than rigidstability to lead to human progress. A sea crowded with warships does not contradict an era of great promise for Asia. Insecurity often breeds dynamism.

But can conflict in the South China Sea be properly controlled? My argument thus far presupposes that major warfare will not break outin the area and that instead countries will be content to jockey for position with their warships onthe high seas, while making competing claims for natural resources and perhaps even agreeing toa fair distribution of them. But what if China were, against all evidential trends, to invade Taiwan? What if China and Vietnam, whoseintense rivalry reaches far back into history, go to war as they did in 1979, with more lethal weaponry this time? For it isn't just China that is dramaticallybuilding its military; Southeast Asian countries are as well. Their defense budgets have increased by about a third in the past decade, even as Europeandefense budgets have declined. Arms imports to Indonesia, Singapore, and Malaysia have gone up 84 percent, 146 percent, and 722 percent, respectively,since 2000. The spending is on naval and air platforms: surface warships, submarines with advanced missile systems, and long-range fighter jets. Vietnamrecently spent $2 billion on six state-of-the-art Kilo-class Russian submarines and $1 billion on Russian fighter jets. Malaysia just opened a submarine base

on Borneo. While the United States has been distracted by land wars in the greater Middle East, military power has been quietly shifting from Europe toAsia. The United States presently guarantees the uneasy status quo in the South China Sea, limiting China's aggression mainly to its maps and serving as acheck on China's diplomats and navy (though this is not to say that America is pure in its actions and China automatically the villain). What the UnitedStates provides to the countries of the South China Sea region is less the fact of its democratic virtue than the fact of its raw muscle. It is the very balance ofpower between the United States and China that ultimately keeps Vietnam, Taiwan, the Philippines, Indonesia, Singapore, and Malaysia free, able to playone great power off against the other. And within that space of freedom, regionalism can emerge as a power in its own right, in the form of the Association ofSoutheast Asian Nations (ASEAN). Yet, such freedom cannot be taken for granted. For the tense, ongoing standoff between the United States and China --which extends to a complex array of topics from trade to currency reform to cybersecurity to intelligence surveillance -- threatens eventually to shift inChina's favor in East Asia, largely due to China's geographical centrality to the region THE MOST COMPREHENSIVE SUMMATION of the new Asiangeopolitical landscape has come not from Washington or Beijing, but from Canberra. In a 74-page article published last year, "Power Shift: Australia'sFuture Between Washington and Beijing," Hugh White, professor of strategic studies at the Australian National University, describes his country as thequintessential "status quo" power -- one that desperately wants the situation in Asia to remain exactly as it is, with China continuing to grow so thatAustralia can trade more and more with it, while America remains "the strongest power in Asia," so as to be Australia's "ultimate protector." But as Whitewrites, the problem is that both of these things cannot go on. Asia cannot continue to change economically without changing politically and strategically; aChinese economic behemoth naturally will not be content with American military primacy in Asia. What does China want? White posits that the

Chinese may desire in Asia the kind of new-style empire that the United States engineered in the Western Hemisphere

once Washington had secured dominance over the Caribbean Basin (as Beijing hopes it will over the South China Sea). This new-style empire, in White'swords, meant America's neighbors were "more or less free to run their own countries," even as Washington insistedthat its views be given "full consideration" and take precedence over those of outside powers. The problem with this model is Japan, which would probablynot accept Chinese hegemony, however soft. That leaves the Concert of Europe model, in which China, India, Japan, the United States, and perhaps one ortwo others would sit down at the table of Asian power as equals. But would the United States accept such a modest role, since it has associated Asianprosperity and stability with its own primacy? White suggests that in the face of rising Chinese power, American dominance might henceforth meaninstability for Asia. American dominance is predicated on the notion that because China is authoritarian at home, it will act "unacceptably abroad." But thatmay not be so, White argues. China's conception of itself is that of a benign, non-hegemonic power, one that does not interfere in the domestic philosophiesof other states in the way the United States -- with its busybody morality -- does. Because China sees itself as the Middle Kingdom, its basis of dominance isits own inherent centrality to world history, rather than any system it seeks to export. In other words, the United States, not China, might be the problem inthe future. We may actually care too much about the internal nature of the Chinese regime and seek to limit China's power abroad because we do not like itsdomestic policies. Instead, America's aim in Asia should be balance, not dominance. It is precisely because hard power is still the key to internationalrelations that we must make room for a rising China. The United States need not increase its naval power in the Western Pacific, but it cannot afford tosubstantially decrease it. The loss of a U.S. aircraft carrier strike group in the Western Pacific due to budget cuts or a redeployment to the Middle East couldcause intense discussions in the region about American decline and the consequent need to make amends and side deals with Beijing. The optimal situationis a U.S. air and naval presence at more or less the current level, even as the United States does all in its power to forge cordial and predictable ties with


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China. That way America can adjust over time to a Chinese blue-water navy. In international affairs, behind all questions of morality lie questions of power.Humanitarian intervention in the Balkans was possible only because the Serbian regime was weak, unlike the Russian regime, which was committingatrocities of a similar scale in Chechnya while the West did nothing. In the Western Pacific in the coming decades, morality may mean giving up some of ourmost cherished ideals for the sake of stability. How else are we to make room for a quasi-authoritarian China as its military expands? The balance of poweritself, even more than the democratic values of the West, is often the best safeguard of freedom. That, too, will be a lesson of the South China Sea in the 21stcentury -- another one that idealists do not want to hear.


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a2 Japan

Japanese econ collapse inevitableBloomberg 12 - News Site, business and financial market news (Three Reasons Japans Economic Pain IsGetting Worse, 4/25/12, http://www.bloomberg.com/news/2012-04-25/three-reasons-japan-s-economic-pain-is-getting-worse.html)//CHJapans economic problems are serious and getting worse. Foremost among them is the crushing burden of governmentdebt. Japans ratio of government debt to gross domesticproduct, currently about 2.28, is by far the highest in theindustrial world, almost double that of even Greece and Italy, and steadily growing. Already, the combined costs of interest on thatdebt and social security are approximately equal to total government tax revenue. Japans trade balance is about to go negativefor the first time since 1980. Land values and Nikkei stock values have fallen to about 30 percent of1989 levels. Now, educated young Japanese women are emigrating, Japanese companies areshifting production overseas (even to the U.S.), national politics are in gridlock(six prime ministers in the past fiveyears), and last year Japan experienced its first mass street protests in decades. The economictroubles are symptoms of at least three sets ofdeeper social problems. Regardless of what policiesJapan now adopts, its troubles can only increase unless those social problems are solved. While allthree of these alsobeset other industrial societies, certain local attitudes make them more severe inJapan.


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___**Aff Answers


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UQ Airlines Declining

Airline forecast looks bleak- even lowering oil prices wont help.Fox business, 6/10/12- (IATA Keeps US$3 Billion Net Profit Forecast for Global Airline Industry in 2012http://www.foxbusiness.com/news/2012/06/10/iata-keeps-us3-billion-net-profit-forecast-for-global-airline-industry-in-2012/#ixzz1yvMxLwAl).The International Air Transport Association, or IATA, kept its US$3 billion net profit forecast for the global airlineindustry this year, after earlier cutting the forecast in March from US$3.5 billion . The profits are less than half of theUS$7.9 billion made in 2011, and an even sharper fall from the record US$15.8 billion profit for the industry in2010. The latest forecasts for the global aviation industry comes as top airline executives gather in Beijing for the association's annual general meeting,with still-high oil prices, intensifying competition, and increased government taxation among key issues they will need to tackle. "Fuel prices arenow lower than previously anticipated, but that's on the expectation of economic weakness ahead," said Tony Tyler,Director General at IATA, an industry's global trade group which represents about 240 airlines comprising 84% of scheduled international traffic. Brentcrude oil fell below US$100 a barrel for the first time since October on June 1 and prices are down more than20% from their March highs. However, even with softening oil prices, IATA still expects fuel to account for 33% ofairline operating costs, the same level as in 2008 when oil prices spiked. "The Euro zone crisis is standing in the way ofimproved profitability and we continue to face the prospect of a net profit margin of just 0.5%," said Mr. Tyler, aveteran aviation executive who ran Hong Kong-based Cathay Pacific Airways Ltd. before joining IATA in 2011. The aviation body expectscarriers in the Asia-Pacific region to contribute the largest portion of net profit, at US$2.0 billion , though theforecast was slightly revised down Monday from the US$2.3 billion set in March, due to the weak cargo performance in thefirst quarter as well as slower economic growth in China and India. Meanwhile, carriers in North America are seeing improved prospects for 2012, accordingto IATA, which is forecasting total net profit of US$1.4 billion, up from US$900 million it earlier forecast, as tight capacity is helping to improve yields, akey measure of profitability. European airlines, which are struggling amid a deteriorating business environment, is forecast by IATA to report a US$1.1billion loss, widening from an earlier estimate of a US$600 million loss, due to a combination of slower air traffic demand, high and rising tax regimes andinefficiencies in air traffic management. Separately, Mr. Tyler criticized the European Union's emission trading scheme as "a polarizing obstacle that ispreventing real progress" on reducing carbon emission. "Sustainability should unite the world with common purpose, not divid

N/U- jobs declining in the air sector.DOT 11- department of transportation federal aviation administration, (August, The Economic Impactof Civil Aviation on the U.S. Economy,http://www.faa.gov/air_traffic/publications/media/FAA_Economic_Impact_Rpt_2011.pdf).Why is employment declining so drastically while output is rising? There are three reasons for this apparent contradiction. Thefirst reason is that many airlines are replacing directly employed workers with workers supplied throughcontracts with outside firms. According to annual data from BTS, maintenance employment fell 33 percent from 64,248 in 2000 to 42,774 in2009 (Table 1). The drop in employment stemmed mainly from changes in employment at the network carriers.Among seven network airlines, employment decreased from 55,715 to 31,448. 24 At these carriers, the average number of maintenance workers per aircraft

fell from 16.6 in 2000 to 12.4 in 2009, and the percentage of maintenance expenses outsourced to other firms rose from 24.3 to 38.9. 25 Second, low-cost carriers (LCC), which employ far fewer maintenance employees per aircraft and outsource a higher percentage of maintenance expenses, grewas a share of the industry during this period. In 2009, the number of LCC workers was 3,300 while the number of maintenance employeesper aircraft and the percent of maintenance expenses outsourced stood at 3.2 employees and 55.6 percent, respectively (Table 1). LCCs maintenance activityis lower because these carriers utilize newer aircraft. According to calculations using the Aircraft Inventory data from BTS, the average age of LCCs aircraft

was 9.4 years versus 14.8 years for network carriers in 2009.Also noteworthy is the increase in LCC industry share of domesticflight operations. According to BTS, the annual number of domestically scheduled flights by network airlines fell from 4.2 to 2.5 million between2000 and 2009, while the number of flights among LCCs increased from 1.3 to 1.8 million. Furthermore, in response to the recentrecession, airlines employed fewer maintenance workers and reduced outsourced maintenance expenses.Comparison of the 2008 and 2009 data shows a 7.2 percent decline in the employment of maintenance workers, all attributable to a decrease inemployment at network airlines (Table 1). The data also show a 1.8 percentage-point decrease in the share of maintenance expenses that were outsourced.

The third reason for the fall in industry employment is the substitution of technology for tasks previouslyhandled by employees. For example, more travelers are using the Internet instead of contacting airline ticket agents to book, price-compare orcheck in for flights. Digital technology also has brought about greater efficiencies in handling airline tickets and luggage at airports. 26
http://www.foxbusiness.com/news/2012/06/10/iata-keeps-us3-billion-net-profit-forecast-for-global-airline-industry-in-2012/#ixzz1yvMxLwAlhttp://www.foxbusiness.com/news/2012/06/10/iata-keeps-us3-billion-net-profit-forecast-for-global-airline-industry-in-2012/#ixzz1yvMxLwAlhttp://www.faa.gov/air_traffic/publications/media/FAA_Economic_Impact_Rpt_2011.pdfhttp://www.foxbusiness.com/news/2012/06/10/iata-keeps-us3-billion-net-profit-forecast-for-global-airline-industry-in-2012/#ixzz1yvMxLwAlhttp://www.foxbusiness.com/news/2012/06/10/iata-keeps-us3-billion-net-profit-forecast-for-global-airline-industry-in-2012/#ixzz1yvMxLwAlhttp://www.faa.gov/air_traffic/publications/media/FAA_Economic_Impact_Rpt_2011.pdf


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UQ Defense Base (Aero)

Defense base competitiveness is eroding now

Capozzola 11 AAMSteven, Media Director Alliance for American Manufacturing, What Remains of the U.S. Defense Industrial

Base?, American Manufacturing Blog, 4-14, http://www.americanmanufacturing.org/blog/what-remains-us-

defense-industrial-base

A new report commissioned by the AFL-CIO Industrial Union Council and authored by Dr. Joel Yudken finds that the ongoingerosion of the U.S. manufacturing base has left critical holes in the America's national security.

Yudken's report, Manufacturing Insecurity, reports that "there are advanced technologies critical to military systems

armor plate steel, defense-specific integrated circuits, night vision gogglesfor which domestic sources are inadequate." Yudken

says that significant numbers of items once supplied by U.S. manufacturers are now obtained from foreign suppliers because theyare

"not readily available from U.S. producers." He cites Col. Michael Cole, of the U.S. Joint Forces Command, who observes: theproblem is not just a matter of a handful of highly specialized items designed to meet narrow defense requirements, but the eradication of U.S. industry

capability. He also warns that current strategies to deal with an industrial base that increasingly is unable to supply the military with manufactured parts

and electronic components are not working. Manufacturing Insecurityexamines how much ofU.S. industrial defense capability has

been eroded and looks at the potential weakening of Americas defense industrial base in the coming decades.

Air power is declining boosting the industrial base is critical to reverse the trendHughes 11 Director @ Program on AmericaKent, Director Program on America and the Global Economy, The Defense Industrial Base at Risk, America

and the Global Economy, 1-4-2011, http://americaandtheglobaleconomy.wordpress.com/2011/01/04/the-

defense-industrial-base-at-risk/

For decades America has remained at the forefront of both industrial innovation and national defense. These twin pillars of

American strengthnow exist in a challenging climate beset by uncertain economic and political realities.On December 6th, the Reserve Officers Association and the Woodrow Wilson Centers Program on America and the Global Economy hosted a half day event

that included Members of Congress and policy and industry experts to discuss these and other issues as they relate to the state of Americas defense

industrial base. The speakers provided a number of unique perspectives and touched on a number of key elements affecting the defense industrial base that

ranged from the defense budget and the push to reduce the countrys fiscal deficit to technological developments and the future U.S. international power.

Following welcoming remarks by Bob Feidler of the Reserve Officers Association, Lt. Gen. Michael Dunn (Ret.), President of the Air Force Association,

provided a war-fighters perspective on the declining defense industrial base. The bottom line, he began, is yes, the industrialbase is in trouble. Emphasizing the preeminent supremacy of American airpower throughout

his speech, he noted the antiquated state of the air fleet today, citing a number of planes that are

aging. Dunn argued that while the U.S. Air Force has long been Americas asymmetric advantage, the balance is no longer as one

sided as it has been in the past as nations like Russia and China continue to build up their respective air

fleets. Dunn reiterated the drastic need for greater plane procurement, insisting that the U.S. is not buying enough planes to

sustain its military strength.

The U.S. leadership is fallingspace development is uniquely important to revive our dominance

Gates 6-12Dominic, Seattle Times aerospace reporter, Boeing's Albaugh worries about 'intellectual disarmament' of

U.S., The Seattle Times,http://seattletimes.nwsource.com/html/businesstechnology/2015304417_albaughside13.html

Jim Albaugh is worried about the future of American technological supremacy in the world . "The biggest fear I have is what I call

the intellectual disarmament of this country," said the Boeing Commercial Airplanes chief, who is also this year's chairman of the Aerospace

Industries Association, the trade group for U.S. defense, space and aviation companies. "We still are the leader in aerospace," he added. "Are we going to

be the leader in aerospace in another 20 years?" Albaugh is troubled that the nation's lead in aerospace, the fruit of Cold War military and

space-race projects,will be allowed towither through lack of government funding of new challenges. In a wide-ranginginterview in advance of the global aviation gathering at the Paris Air Show, he ticked off a list of broad national problems that transcend Boeing: Brain

drain of talented immigrants: "The best and brightest used to come to the United States and stay," Albaugh said. "Now, the best and brightest come

to the United States, get trained, and leave, and go back and compete against us ." Defense cuts: "There is no industrial base policy inthe Department of Defense other than market forces," he said. "Right now, the Boeing Company is the only company in the United States that has a design
http://www.americanmanufacturing.org/blog/what-remains-us-defense-industrial-basehttp://www.americanmanufacturing.org/blog/what-remains-us-defense-industrial-basehttp://www.aflcio.org/issues/jobseconomy/manufacturing/upload/manufsumm_092010.pdfhttp://www.aflcio.org/issues/jobseconomy/manufacturing/upload/manufsumm_092010.pdfhttp://www.aflcio.org/issues/jobseconomy/manufacturing/upload/manufsumm_092010.pdfhttp://americaandtheglobaleconomy.wordpress.com/2011/01/04/the-defense-industrial-base-at-risk/http://americaandtheglobaleconomy.wordpress.com/2011/01/04/the-defense-industrial-base-at-risk/http://www.americanmanufacturing.org/blog/what-remains-us-defense-industrial-basehttp://www.americanmanufacturing.org/blog/what-remains-us-defense-industrial-basehttp://www.aflcio.org/issues/jobseconomy/manufacturing/upload/manufsumm_092010.pdfhttp://www.aflcio.org/issues/jobseconomy/manufacturing/upload/manufsumm_092010.pdfhttp://www.aflcio.org/issues/jobseconomy/manufacturing/upload/manufsumm_092010.pdfhttp://americaandtheglobaleconomy.wordpress.com/2011/01/04/the-defense-industrial-base-at-risk/http://americaandtheglobaleconomy.wordpress.com/2011/01/04/the-defense-industrial-base-at-risk/


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team working on a new airplane. There are no [all-new] airplanes being developed for the Department of Defense probably for the

first time in 100 years." Competition from China: "The law of large numbers would dictate that they are going to have more smart people than we aregoing to have. And their government has identified aerospace as an industry that they've targeted," Albaugh said. "The question is, can they be innovative

and can they handle the complex systems integration?" When Defense Secretary Robert Gates visited China in January, the Chinese militarymade avery public test flight of its previously secret J-20 Stealth fighter. "A lot of people saw that as a military threat," Albaugh said. "I didn't. I saw it more as an

economic threat. Theywill sell that airplane around the world and will take away a lot of the market that's been enjoyed by U.S.

defense contractors." NASA cuts and private space ventures: "They are trying to commercialize space. ... Getting the reliability requires a

lot of redundancy, which requires a lot of cost," Albaugh said. "I think it's going to be a money pit for a lot of them." He lamented the U.S.

government's withdrawal from space exploration as the space-shuttle program winds down: "My prediction is that the Chinese will walk on the

moon before we launch an American into orbit again in a U.S. spacecraft ."


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UQ Aero Leadership

The U.S. is losing overall aerospace dominance in orbital launchers and satellites

Kaufman 8 Mark, US Finds Its Getting Crowded Out There:M Dominance in Space Slips as Other NationsStep Up Efforts, Washington Post, 7/9,http://www.globalpolicy.org/empire/challenges/competitors/2008/0709space.htmThe study by Futron, which consults for public clients such as NASA and the Defense Department, as well as the private space industry, also reported that

the United States is losing its dominance in orbital launches and satellites built. In 2007, 53American-built satellites were launched -- about 50 percent of the total. In 1998, 121 new U.S. satellites went into orbit. In two

areas, the space prowess of the United States still dominates. Its private space industry earned 75

percent of the worldwide corporate space revenue, and the U.S. military has as many satellites as

all other nations combined. But that, too, is changing. Russia has increased its military space

spending considerablysince the collapse of the Soviet Union. In May, Japan's parliament authorized the use of

outer space for defense purposes, signaling increased spending on rockets and spy satellites. And

China's military is building a wide range of capabilities in space, a commander of U.S. space forces said last month.

Last year, China tested its ground-based anti-satellite technology by destroying an orbiting

weather satellite -- a feat that left behind a cloud of dangerous space debris and considerable ill

will. Ironically, efforts to deny space technology to potential enemies have hampered American

cooperation with other nations and have limited sales of U.S.-made hardware. Concerned about Chinese useof space technology for military purposes, Congress ramped up restrictions on rocket and satellite sales, and placed them under the cumbersome

International Traffic in Arms Regulations (ITAR). In addition, sales of potentially "dual use" technology have to be approved the State Department rather

than the Commerce Department. The result has been a surge of rocket and satellite production abroad and the creation of foreign-made satellites that use

only homegrown components to avoid complex U.S. restrictions under ITAR and the Iran Nonproliferation Act. That law, passed in 2000, tightened a ban

on direct or indirect sales of advanced technology to Iran (especially by Russia). As a result, a number of foreign governments are

buying European satellites and paying the Chinese, Indian and other space programs to launch

them. "Some of these companies moved ahead in some areas where, I'm sorry to say, we are no longer the world leaders," Griffin said. Joan Johnson-

Freese, a space and national security expert at the Naval War College in Rhode Island, said the United States has been so

determined to maintain military space dominance that it is losing ground in commercial space

uses and space exploration. "We're giving up our civilian space leadership, which many of us

think will have huge strategic implications," she said. "Other nations are falling over each other to work together in space; theywant to share the costs and the risks," she added. "Because of the dual-use issue, we really don't want to globalize."

US will fall behindtransition to renewables is inevitable but Asia will take the lead if the US

doesnt

Morgan and Ronquillo-Ballesteros, 11 *director of the World Resource Institutes Climate and Energy

program **project manager of WRIs International Financial Flows and Environment Project

(Jennifer, Athena, Will the Shift to Clean Energy Lead to The Next Generation of Asian Tigers?, 6/20/11,

Jakarta Globe, http://www.thejakartaglobe.com/opinion/will-the-shift-to-clean-energy-lead-to-the-next-

generation-of-asian-tigers/447824)

The West created the automobile, led the space race, and invented the Internet. Each of these innovations

transformed society, powering rapid economic growth and enabling people to reach new frontiers in ways that

had never been imagined before. Now, however, it isAsia that is poised to lead the next revolution: the

clean energy revolution. A few weeks ago, the Intergovernmental Panel on Climate Change created by the United Nations released a report

showing that the world can shift to 80 percent renewable energy by mid-century. Much of this potential rests in Asia which has been rapidly

advancing its renewable energy production and is becoming the top destination for clean energy investment.The financial firm Ernst & Young recently named China as the No. 1 country for clean energy investment, with India third, and the United States

sandwiched in at second. A recent report from the Pew Climate Charitable Trust found that in 2010 clean energy finance and investment grew globally to

$243 billion. Of that, Asia was the fastest-growing region, as investment in clean energy climbed to $82.8 billion, a 33 percent increase from 2009. In

China, clean energy investment reached $54.4 billion in solar, wind and other clean energy technologies. By comparison the United States saw $34 billion in

investments.Why haveAsian countries surged forward in the transition to clean energy investment and

production? The first reason is economic growth.Many Asian countries are looking for new ways to power their

economies while meeting their development goals, and they understand that investing in innovation can make
http://www.globalpolicy.org/empire/challenges/competitors/2008/0709space.htmhttp://www.thejakartaglobe.com/opinion/will-the-shift-to-clean-energy-lead-to-the-next-generation-of-asian-tigers/447824http://www.thejakartaglobe.com/opinion/will-the-shift-to-clean-energy-lead-to-the-next-generation-of-asian-tigers/447824http://www.globalpolicy.org/empire/challenges/competitors/2008/0709space.htmhttp://www.thejakartaglobe.com/opinion/will-the-shift-to-clean-energy-lead-to-the-next-generation-of-asian-tigers/447824http://www.thejakartaglobe.com/opinion/will-the-shift-to-clean-energy-lead-to-the-next-generation-of-asian-tigers/447824


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them leaders in the global clean energy market. For example, China is already the worlds largest producer of wind turbines and solarmodules. The Philippines declared a goal of becoming the worlds top geothermal electricity producer by 2030. Meanwhile, in India, the company Suzlon

was launched in 1995 and is now is the third-largest wind turbine manufacturer in the world.The second reason is energy security. Many

Asian countries depend heavily on fossil fuels, especially gas and oil, meaning that their security is tied to

international markets and foreign countries. China, India, Japan and South Korea are all among the worlds

leading oil importers (along with the United States and Germany). But none of the Asian countries are top oil

exporters. Several countries in Asia, especially China, are also heavily dependent on coal, a limited resource that carriesadditional concerns, especially around greenhouse gas emissions. In addition, the recent disaster in Japan reminded the world of the low-probability, but

high-impact risks of nuclear power. As a result, many countries are now turning to renewable energy sources, like wind,solar and geothermal, which can be produced at home, carry lower risks, and have a virtually limitless supply. The shift to renewable

energy has a third driver: climate change. Nearly all Asian countries have experienced recent impacts of

extreme weather events, whether its deadly typhoons in the Philippines, drought in China, or flooding in Pakistan.

These are the type of events that are expected to increase in frequency and intensity ifclimate change

continues unchecked. Unfortunately, the International Energy Agency announced that global carbon dioxide emissions the leading cause of

climate change reached a record high in 2010. In order to slow climate change, the world needs to significantly increase its

production of renewable energy. While Asias leadership on clean energy is commendable, it is still not on pace to keep up with the populationgrowth and demand for more energy. Asian countries need to consider how to increase their renewable energy production while meeting the energy needs o

their people. According to the International Energy Agency, nearly 800 million people in Asia lacked access to electricity in 2009. This inequality prevents

many people from having access to basic energy services, including modern appliances for cooking, computers or even lights for reading.What will it

take for Asia to truly transform its energy production from fossil fuels to renewable energy? And, can it do that

in a way that is affordable, sustainable and safe? ; Top minds in business, policy and NGOs are gathering this week in Manila for the AsiaClean Energy Forum, hosted by the Asian Development Bank, US Agency for International Development, and the World Resources Institute, where leaders

will explore what is needed to build a clean-energy economy. One thing is clear: in order to drive investment, governments need to put

the right policies in place. The WRI recently convened a workshop with representatives from 12 developing

countries, and the consensus is that the right policies are the key to making renewable energy more

competitive. This weeks energy forum will inform an ongoing dialogue among government officials, business leaders, investors, and policy

makers that will help shape the direction of Asias energy future. With the right investments and policy

decisions,Asias tigers will lead the clean energy race.


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UQ Air Power

Air power decline is inevitable Obamas military planEaglen, 12 (Mackenzie, resident fellow at the American Enterprise Institute, March 21, 2012, The Air Forces

March Madness, Fox News, http://www.foxnews.com/opinion/2012/03/21/air-forces-march-madness/,

DJH)

Todays Air Force faces serious challenges: a rapidly shrinking size of its inventory and the slow

loss of its cutting-edge capabilities.As the Obama administration looks increasinglyto the Pacific, it is failing toensure that it will have enough resources for its new strategy. At a timewhen the U.S. militarydesperatelyneeds next-

generation technologies to meet the challenges posed by proliferating precision munitions and anti-access and

denial capabilities, the administration has repeatedly chosen to delay, reduce, or even kill most of the militarys

high-tech modernization programs. Since the end of WWII, the United States has maintained its superpower status

through a willingness to support a superior military able to prevail in all battles . While technology can serve as a force

multiplier that allows smaller forces to punch above their weight, the American experience at war throughout the past centuryhas shown

that numbers also matter. The smallest and oldest Air Force in U.S. history needs to get bigger and newer,

quickly. Without an Air Force capable of responding to multiple crises around the worldand almost every major

conflict in historyhas played out on more than one frontthe Obama administrations newstrategy is a recipe for

decline. If the Air Force continues to age and shrink at this rate, the next commander-in-chief will not have the

luxury of asking Americas airmen to sustain a humanitarian disaster relief mission while conducting a no-fly zone

operation, send the president to South America, and support a troop surge in combat -- all at the same time.


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No Link General

No trade off- states fill in the gap and spending is multijurisdictionalSlack et al 9 Professor Emeritus in the Department of Geography at Concordia University (Dr. Brian, 2009,Second edition of the textbook The Geography of Transport Systems, Chapter 3, Hofstra University,http://people.hofstra.edu/geotrans/eng/ch3en/conc3en/ch3c1en.html)Although intermodal transportation has opened many opportunities for complementarity between modes, there is intense competition ascompanies are now competing over many modes in the transport chain. A growing paradigm thus appears to be supply chaincompetition with the modal competition component occurring over three dimensions: Modal usage. Competition that involves the comparative advantage o

using a specific or a combination of modes. Distance remains one of the basic determinants of modal usage for passengers transportation. However, for asimilar distance, costs, speed and comfort can be significant factors behind the choice of a mode. Infrastructureusage. Competition resulting from the presence of freight and passenger traffic on the same itineraries linking the same nodes. Market area. Competitionbeing experienced between transport terminals for using new space (terminal relocation or expansion) or capturing new markets (hinterland). It is generallyadvocated that a form of modal equality (or modal neutrality) should be part of public policy where each mode would compete based upon its inherent

characteristics. Since different transport modes are under different jurisdiction and funding mechanisms, modalequality is conceptually impossible as some modes will always be more advantageous than others. Modalcompetition is influenced by public policy where one mode could be advantaged over the others. Thisparticularly takes place over government funding of infrastructure and regulation issues. For instance, in the UnitedStates the Federal Governmentwould finance 80% of the costs of an highway project, leaving the state government tosupply the remaining 20%. For public transit, this share is 50%, while for passenger rail the Federal Government will not provide any funding.Under such circumstances, public policy shapes modal preferences.


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No Link HSR

HSR doesnt compete with auto or airRosenthal 11 - contributing editor for National Geographic Traveler (John, AMERICA NEEDS HIGH-SPEEDRAIL STARVING RAIL INVESTMENT IS A HUGE MISTAKE, proquest)//RKBipartisan enthusiasm greetedPresident Barack Obama's announcement in 2009 that the United States, long theworld's caboose in train travel, would finally invest in high-speed intercity passenger rail. Much as Dwight D. Eisenhower made theInterstate Highway System a hallmark of his administration, Mr. Obama pledged to make a national network of bullet trains the legacy of his. Governors

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