China Prepares for Blitzkrieg

Chinese economic turmoil sent markets all around the world reeling last week, reminding us of just how unstable these last few years of apparent economic recovery truly have been.

But even the momentary 1,000-point slide only hints at what problems the world’s second-biggest national economy might have in store in the long run.

China’s problem isn’t just downgraded growth projections. Its problem — especially in the private sector — is debt.

Massive debt, accumulated far faster than within our own infamously over-leveraged financial establishment.

China’s total debt load as of this summer stood at a whopping 280% of GDP.

The financial press has already dubbed this the “Chinese Debt Bomb” — a bomb whose potential effects are worsened by two factors that distinguish this problem from its American counterpart.

First of all, the single-biggest prong of Chinese debt is carried by corporations, not by the government, as it is in the United States.

Dovetailing with that, unlike the U.S., China’s debtors do not have the authority of the world’s current and still-reigning reserve currency, the U.S. dollar.

Which means they cannot print their way through hard economic times the way our federal government can.

Fast Trains Mean Fast Troops

When it goes off, China’s debt bomb has the potential to do far more than send its rapidly modernizing society into chaos.

It has the potential to put China on the same path that another once-mighty economic powerhouse took when its economy and currency devalued catastrophically.

80 years ago, the same fate befell Nazi Germany — and the aftermath of that implosion plunged the world into war as the German hunger for stability and pride sent them to seek resources by conquest.

Today, China stands at the same precipice… and the latest military analysis presents a frightening but very practical (and therefore likely) scenario as to how its plans could be carried out.

It’s no secret that the Chinese operate the world’s fastest rail network, with over 20,000 kilometers (12,000 miles) of 300 kph (180 mph) or better average speed capability.

That’s 60% more high-performance track than the rest of the world combined.

Not that it matters, but it’s about 60 times the high-speed track we have in the United States.

What does matter is that China just happens to have the longest land border of any nations and shares a common border with 14 sovereign nations — second only to Russia.

Between a Rock and a Hard Place

India, the heir apparent to the status of economic superpower and a rival, is one of those nations.

Russia, a massive, sparsely populated, resource-rich landmass, is another.

Four months ago, a fully equipped brigade of the People’s Liberation Army proved their ability to mobilize rapidly when they boarded one of the nation’s high-speed maglev trains and deployed to an area 300 miles away in less than two hours.

The exercise wasn’t a large-scale demonstration by any means, especially considering that the Chinese Army has 1.6 million active duty troops — the most of any nation.

However, it does demonstrate the ability to project power quickly and efficiently — far faster than any of China’s neighbors could at this point, meaning that even though their rivals might spot a surprise deployment at their border, they would not be able to respond with ample force to it.

Rapid projection of power, illustrated perfectly by the Nazi Blitzkrieg tactics of the early 1940s, as well the modern U.S. Navy’s ability to send entire floating air forces to hotspots around the world, is what separates nations from superpowers.

The desperation to use that ability for aggressive operations, however, is what starts world wars.

The technical ability and infrastructure China has built up, coupled with the rapid destabilization of an economy that grew at unsustainable rates for too long, has created the most dangerous situation the world has seen since before the start of World War II.

And given the abundant presence of modern, multi-megaton, multi-warhead-carrying ballistic missiles in the stockpiles of the three major players — China, India, and Russia — it may well be the most dangerous situation the human race has ever faced.

A conflict between any two of these well-armed but politically and economically unstable giants would without a doubt spill over into widespread war on a global scale — reaching not just the borders of our Western European allies but, inevitably, our own soil as well.

Peace Isn’t Permanent… Volatility Is

I know it may be hard to imagine something like this happening today. Our lives have been relatively stable for a pretty long time.

In fact, we live today in the extension of a period historians have been calling “the Long Peace” for more than 20 years.

Despite the news and images you see from flashpoints around the world on a daily basis, a smaller percentage of the population is lost to military action annually now than at any other time in recorded history.

Sadly, this only means we’re due for one… a big one.

China’s threat to world security isn’t something we can readily stop or even improve. Its own internal workings and rush to modernize sealed its fate years ago.

Our only choice is to be as well prepared as possible — and one of the main focuses of Pentagon strategists today is the development of tools capable of detecting sudden troop deployments and, at the other end, the ability to stop potential ballistic missile strikes against NATO targets.

Answering a Need With High Tech

The answer to the first need is already being met with the advent of high-speed drone technology.

One of the latest examples of next-generation drones is called the Taranis — the Celtic God of Thunder.

Built by BAE Systems (LSE: BA), the Taranis, as its namesake implies, isn’t just a spy plane; it’s an unmanned combat air vehicle (UCAV).

Capable of patrolling enemy airspace, gathering data, and, if required, striking both surface and airborne targets, the Taranis will take the concept of unmanned airpower to the next level.

The plane made its first flight last year. When in service, it will use an unprecedented “deep target attack” mode, during which the drone will operate completely free of any real-time human intervention.

Defensively, the ballistic missile shield has long been a goal of military strategists.

Effectively halting a full-scale nuclear attack on a scale that would have been expected during the Cold War would require the destruction of thousands of individual targets travelling at anywhere from subsonic speed to 15 times the speed of sound.

The technical problem required a multi-tiered solution, which today is finally becoming realistic with modern laser and high-altitude anti-ballistic missile technology.

Lockheed Martin (NYSE: LMT) leads the American effort at the moment, with the development of the Terminal High Altitude Area Defense system, more commonly known as “THAAD.”

This missile system has a range of 120 miles and can engage targets traveling at two miles per second.

It is already in limited deployment, with 24 interceptors deployed to Hawaii to defend against a potential attack from North Korea and additional deployments planned for Guam.

In 2011, the UAE signed a deal to purchase the system, and Oman followed suit in 2013.

Lockheed has also demonstrated the power of portable laser systems with its Area Defense Anti-Munitions battery, which has proven effective at engaging targets at closer ranges (two miles or less).

This small-scale system foreshadows the future of air defense, however, and will certainly be followed up by more powerful lasers capable of destroying missiles from hundreds of miles away during their earliest and most vulnerable stages of flight.

Boeing (NYSE: BA) tested just such a device a few years ago, mounted not on a ground-based platform but on a 747 jet — specifically modified to carry and fire the laser from a nose-mounted array.

The system, called YAL-1, along with its power source, had enough capacity for 20 high-energy shots capable of intercepting missiles from a range of 100 miles.

Cost overruns, along with the inherent impracticality of mounting such an expensive system on a large and otherwise undefended airliner, forced the project into cancellation in 2012, but the concept remains the focus of research and development.

Similar systems are likely to start appearing on American naval warships in the next few years.

While the topic of defense spending does not sit well with many, the need for focused research in this specific area cannot be overstated.

Compared to costly programs like aircraft carriers and next-generation stealth aircraft, anti-missile nets provide active protection for civilian assets rather than projectability of hostile force.

In these uncertain times, the companies pioneering and improving these technologies may be some of the most certain investments you’re likely to find anywhere.

Look for them to capture more and more of our defense budget — even as overall spending faces cutbacks.

Fortune favors the bold,

Alex Koyfman

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