by George Friedman
January 4, 2016

The sharp decline in Chinese stock markets on Monday is a reminder of two things. The first is the continued fragility of the Chinese market. The second is that any economic dysfunction has political implications, both in Chinese domestic and foreign policy. This, in turn, will affect Chinese economic performance. It is essential, therefore, to understand Chinese national strategy.

The People’s Republic of China (PRC) has been portrayed as an increasingly aggressive country prepared to challenge the United States. At the same time, aside from relatively minor forays into the South and East China Seas, China has avoided significant involvement in the troubles roiling in the rest of Eurasia. There is a gap between what is generally expected of China and what China actually does. To understand what China’s actual national strategy is, it is helpful to follow the logic inherent in the following five maps.

Let’s begin by defining what we mean by China. First, there is the China we see on maps. But there is also the China inhabited by the Han Chinese, the main Chinese ethnic group. Maps of the Chinese state and the ethnic group would look very different.

Han China is surrounded within China by regions populated by what are essentially other nations. The four most significant are Tibet in the southwest, Xinjiang in the northwest, Inner Mongolia in the north, and Manchuria in the northeast. The first three are recognized by Beijing as autonomous regions while Manchuria is a larger region made up of three northeastern provinces. Obviously, there are Mongolians who live in Han China and Han Chinese who live in Inner Mongolia. No region is homogenous, but these four regions, with the limited exception of Manchuria, are not dominated by ethnic Han Chinese. About half the territory of what we consider China actually consists of Han Chinese people.

These four regions are a buffer around China, providing strategic depth to repel invaders. All four, at one time or another, resisted Chinese domination, as Tibet and Xinjiang still do today. Xinjiang is predominantly Muslim, and an insurgency and terrorist movement is particularly active there. Tibet is less active but no less opposed to Chinese domination. Inner Mongolia and Manchuria are generally content at the moment. The mood in these regions varies, but China must always be concerned to maintain control.

Not incidentally, a very similar geography emerges when we look at rainfall patterns. Roughly 15 inches of annual rainfall is needed to maintain an agricultural economy. This line, called the 15-inch Isohyet, is shown in the next map along with areas of population density in the People’s Republic of China.

The area east of the 15-inch Isohyet is Han China plus parts of Manchuria. The area to the west and north are the buffers along with some Han Chinese regions that are lightly populated. So one of the reasons Han China can dominate the buffer states is its relative population advantage. But this also means that the population of China, totaling 1.4 billion people, is crowded into a much smaller area than an ordinary map would show and much farther from most neighbors of the PRC. But for now, the rainfall line roughly defines the limits of what we think of as the Chinese.

The next map adds to this picture. It is a map of annual per capita income by province. It shows an underlying division in China east of the 15-inch Isohyet. First, the economic difference between Han China and the rest of the PRC is striking. Per capita income in the western buffers is between 30 and 50 percent lower than the median income in the rest of China. And the area in China that is above the median—some more than 100 percent above the median—is a thin strip of provinces along the coast. The interior of Han China is not as bad off as the western buffers, but is still well below conditions along the coast. Economically, only the coast is above the median. Every other area is below it. And this defines a division in Han China itself.

However, per capita income is not a measure of economic well-being since it doesn’t tell us anything about the distribution of wealth. A better measure is household income. According to World Bank data, over 650 million Chinese citizens live in households earning less than $4 a day. Just under half of those live in households earning less than $3.10 a day—or about $1,000 a year.

This alone doesn’t capture the true reality. Obviously, the overwhelming majority of these people live outside the coastal region since the coastal region is much wealthier. Put another way, most Chinese wealth is concentrated 200 miles from the coast. The next 500–1,000 miles west is a land of Han Chinese living in Third World poverty. The China that most Westerners think about is the thin strip along the coast. The fact is that China is an overwhelmingly poor country with a thin veneer of prosperity.

We can already see some strategic realities emerging, but before we turn to that, we need to consider the next map—a terrain map of the areas surrounding China.

China’s southern border consists of the Himalayas in the west and hilly jungle country in the east. It is impossible to conduct major military operations in the Himalayas, so talk of a Chinese-Indian conflict is only possible for those who have never tried to supply an army. Similarly, as the British and Americas have discovered, conducting military operations in the hilly jungles of southeast Asia is a nightmare. China can’t invade anyone through the south over land, nor can it be invaded. Southern China is protected by a true Great Wall.

To the north, the PRC is bordered by Siberia. In the far east of Siberia, it is possible to conduct war, but no country has ever tried or conceived of waging an extended war, including invasion into Siberia, nor has any country attempted to mount an invasion from Siberia. Therefore, except for the Pacific Coast, China is secure and contained.

There is occasional talk about Chinese military operations in Central Asia. First, this would have to take place through the hostile territory of Tibet or Xinjiang. The major forces and supplies would have to be transported over 1,000 miles from the industrial base in Han China to the Chinese border. The supply lines would pass through desert and mountains. An invasion of Astana in Kazakhstan would require travelling a distance of at least 700 miles through mountains and near desert grasslands. Fighting in these ranges is as unlikely as invading over the Himalayas.

In effect, China is an island in Eurasia. It can move money around and sometimes technology, but not large modern armies. Therefore, China is not a threat to its neighbors, nor are they a threat to China. China’s primary strategic interest is maintaining the territorial integrity of China from internal threats. If it lost control of Tibet or Xinjiang, the PRC’s borders would move far east, the buffer for Han China would disappear, and then China would face a strategic crisis. Therefore, its goal is to prevent that crisis by suppressing any independence movement in Tibet or Xinjiang.

An equally urgent task is to assure that social conflict does not arise between the coastal region and the Han interior. The loss of foreign export opportunities has placed pressure on the coast. Beijing’s interest in maintaining stability in the interior requires transfers of money from the coast. However, the coast’s interests are focused on the United States, Europe, and the rest of Asia since these are the coast’s trading partners and the interior is incapable of purchasing the coast’s products. No stimulus imaginable can raise the interior’s income levels to the point that this area could become a market for the coast given the poverty they live in currently. This would be a multi-generational project.

This is not a new problem for China. Prior to Britain and the Opium Wars in the 19th century, China was enclosed, isolated, and relatively united. When the British opened China, massive inequality between the coast and the interior arose with the coastal region being more integrated into the global economy than into China’s economy. This led to regionalism and warlords, as each region had unique interests. Mao went into the interior on the Long March, raised a peasant army, destroyed the regional leadership, and enclosed China. China was poor but united. With his death, China went into the next phase of its cycle—reopening itself and betting that this time the coastal-interior split wouldn’t arise.

The split has arisen, but the political consequences have not yet played themselves out, and the strategy of the Communist Party is to forestall this by a combination of repressing any sign of opposition and a massive purge among the economic leadership. This is designed to both hold the coastal wealthy and the interior poor in check. Whether this will work depends on whether the People’s Liberation Army, essentially a domestic security force, can withstand the forces tugging it in various directions. Notably, a purge and reorganization has just begun in the PLA.

The core strategy of China is internal. It has only one external strategic interest—the seas to the east.

China has vital maritime interests built around global trade. The problem is the sea lanes are not under its control, but rather under American control. In addition, China has a geographic problem. Its coastal seas are the South China Sea, south of Taiwan, and the East China Sea, to its north. Both seas are surrounded by archipelagos of island states ranging from Japan to Singapore with narrow passages between them. These passages could be closed at will by the US Navy. The US could, if it chose, blockade China. In national strategy, the question of intent is secondary to the question of capability. Since the US is capable of this, China is looking for a counter.

One counter would be to establish naval bases elsewhere in Asia. However, isolated by a US blockade from these bases, this would be of little use besides shaping regional psychology. Ultimately, the Chinese must create a force that would make it impossible to block access to the Indian and Pacific Oceans. The Chinese are aiming to build a navy that could match the US; however, there are two obstacles to this. First, building warships and support vessels and facilities is fiendishly expensive, and China has put an urgent priority on domestic issues in the interior. Second, building ships is not the same as building a navy. Ships must be forged into fleets, and this requires commanders and staffs experienced in very complex warfare. China has little naval tradition, and building those staffs without a tradition to draw on is not something that would take a generation. Admirals who know how to fight carrier wars are as essential as aircraft carriers.

China’s stop-gap measure is its large number of anti-ship missiles. These missiles are designed to push the United States back from crucial choke points in the seas surrounding China. The problem with these missiles is that the US can destroy them. The US can’t close the choke points while the missiles are there, but the US has the capability to map China’s anti-ship network and attack it before moving into the choke points. China then must control at least some of these strategic passages from air, sea, and land on the islands of the archipelago. And the key island, Taiwan, is beyond China’s ability to seize.

The Chinese currently are unable to break through the cordon the US can place around the exits. China is, therefore, buying time by trying to appear more capable than it is. Beijing is doing this by carrying out strategically insignificant maneuvers in the East and South China Seas, which should be considered less engagement than posturing. China will maintain this posture until it has the time and resources to close the gap. Under the best of circumstances, this will take at least a generation, and China is not operating under the best of circumstances.

China, therefore, has three strategic imperatives, two of them internal and one unattainable in any meaningful time frame. First, it must maintain control over Xinjiang and Tibet. Second, it must preserve the regime and prevent regionalism through repressive actions and purges. Third, it must find a solution to its enclosure in the East and South China Seas. In the meantime, it must assert a naval capability in the region without triggering an American response that the Chinese are not ready to deal with.

The Chinese geopolitical reality is that it is an isolated country that is also deeply divided internally. Its strategic priority, therefore, is internal stability. Isolation amidst internal disorder has been China’s worst case scenario. The government of President Jinping Xi is working aggressively to avert this instability, and this issue defines everything else China does. The historical precedent is that China will regionalize and become internally unstable. Therefore, Xi is trying to avert historical precedent.

— China’s Strategy was originally published at Mauldin Economics.