The sight of nuclear missiles being paraded down the street in a perfectly crisp formation is simultaneously revolting and awe-inspiring.  Yet the Chinese government knew exactly what it was doing when it orchestrated its most prominent display of military hardware in the middle kingdom’s history.

This week is China’s biggest holiday week of the year, celebrating ‘National-day,’ when Mao’s communist revolutionaries took control of the country.  The government  kicked off festivities earlier this week with a military parade that was so intricate and precise it made their 2008 Olympic opening ceremony appear utterly amateurish.

Tanks, armored personnel carriers, and yes, nuclear missiles, were all on the march down Beijing’s main drag; overhead were squadrons of fighter jets and attack helicopters. They all moved in perfect symmetry like a team of gold medalist synchronized swimmers (who just happen to have nuclear annihilation capabilities).

China has been beefing up its military for years, and this week was show time. Sure there were hundreds of thousands of adoring locals beaming with pride, but Beijing was really sending a message to the rest of the world:

We are to be taken seriously.

The thing that most westerners do not realize is that China’s military is largely home grown.  While US and European defense contractors peddle their wares in this part of the world (Raytheon and General Dynamics do big business in Taiwan and South Korea), Soviet-era weaponry still dominates the inventory in this part of the world.

In fact, US intelligence analysts still cut their teeth on Soviet weapons and tactics due to wide scale use in the developing world.  Not the case in China.

The Chinese have their own advanced military weaponry, including 55 publicly traded defense contractors that are just as big and profitable as Lockheed.  If you think that China is ever going to invade Taiwan, these would be a good bet (Xi’an Aircraft International Corporation, Jiangxi Hongdu Aviation Industry Co)

Personally, though, I don’t think that’s going to happen.

For all of its military posturing of late, which includes recent joint military exercises with the Russians, the Chinese have built up their defense capabilities for, err… national defense.

(Conversely, notwithstanding the misguided Bush doctrine, I have long argued that the US should rename its own bureaucracy the Department of Offense, which is indicative of both its true military posture as well as moral aggression.)

Three key factors will likely prevent China from entering an armed conflict:

1) Its military is completely untested; despite China’s shiny new advanced weaponry, its armed forces have not participated in a single combat campaign, so there is no institutional knowledge that will improve combat effectiveness.

2) Children rule family life in Chinese society.  Parents invest heavily in their “little emperors” because children are widely viewed as the older generation’s retirement plan. Who needs social security when you have junior’s spare bedroom?

This is a direct consequence of China’s long held ‘one child’ policy, and no Chinese parent wants to see his investment crushed by unnecessary foreign folly.

To be clear, this is not to say that the US enjoys sending its children into combat; rather, armed conflict is something that American society has unfortunately become accustomed to over the years.  The United States broke the seal a long time ago.

3) China’s policymakers realize that their most effective foreign policy tool is economics, not bullets. Their beefy military is around simply to make war-mongering politicians think twice before rattling any sabers.

Consequently, I would bet on huge profits in Chinese tourism and agriculture before I’d even think about positioning my investments for war with Taiwan (or anyone else for that matter).

Because of the holiday, it’s very slow in Shanghai this week… which is good for me considering that I am in the final throes of my jet lag. Plus it affords me time to scout for an apartment.  More on that adventure later.

About the author

James Hickman (aka Simon Black) is an international investor, entrepreneur, and founder of Sovereign Man. His free daily e-letter Notes from the Field is about using the experiences from his life and travels to help you achieve more freedom, make more money, keep more of it, and protect it all from bankrupt governments.

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