US China Relationship Sours Over $6.4 Billion Weapons Sales To Taiwan; China Overtakes U.S. as Largest Saudi Customer

The already strained relationship between US and China is took a turn for the worse when US announced $6.4 billion in arms sales to Taiwan.

The United States is planning to sell $6.4 billion in arms to Taiwan, a move that will infuriate China and test whether President Barack Obama's efforts to improve trust with Beijing will carry the countries through a tense time.

The United States, which told China of the sale only hours before the announcement, acknowledged that Beijing may retaliate by cutting off military talks with Washington, which happened after the Bush administration announced a multibillion-dollar arms sale to Taiwan in 2008.

The U.S. is "obstinately making the wrong decision," China's Foreign Ministry said in a statement Saturday after Vice Foreign Minister He Yafei warned Ambassador Jon Huntsman the sale would "cause consequences that both sides are unwilling to see." The vice minister urged that the sale be immediately canceled, it said.

Despite its size, the U.S. weapons package dodges a touchy issue: F-16 fighter jets that Taiwan covets are not included. Senior U.S. officials said they are aware of Taiwan's desire for F-16s and are assessing Taiwan's needs.

The arms package includes 114 PAC-3 missiles and other equipment, costing more than $2.8 billion; 60 UH-60M Black Hawk helicopters, costing $3.1 billion; information distribution systems and other equipment, at $340 million; two Osprey Class Mine Hunting Ships, at a cost of about $105 million; and other items.

U.S. officials say the Obama administration's China policy is meant to improve trust between the countries, so that disagreements over Taiwan or Tibet do not reverse efforts to cooperate on nuclear standoffs in Iran and North Korea, and attempts to deal with economic and climate change issues.

China aims more than 1,000 ballistic missiles at Taiwan; the U.S. government is bound by law to ensure the island is able to respond to Chinese threats.

Obama's national security adviser, Jim Jones, said Friday that both Washington and Beijing do things "periodically that may not make everybody completely happy."

China Suspends Military Exchanges With The US

China's response was easy to predict: China summons US defence attache over Taiwan deal.

China says it will suspend its military exchanges with the United States over a multi-billion dollar American arms deal with Taiwan. Beijing has now summoned the US defence attache to lodge a 'solemn protest' against the deal.

The last time America sold arms to Taiwan - in October 2008 - China also stopped military relations with the US. Relations between Beijing and Taipei have improved recently and Taiwan insists it will promote peace across the Taiwan Strait.

This can easily blow over as it did in 2008, or it might be the start of increasing military as well as economic strains. For now, I would expect it to blow over.

By the way, China's protest could easily be political posturing. If China and Taiwan unite (which I think is inevitable), look at what China will immediately have access too.

• UH-60M Black Hawk Helicopters
• Patriot Advanced Capability-3 Missiles
• Osprey Class Mine Hunting Ships
• Information Technology

US would be wise to consider the strong likelihood that whatever military equipment we give Taiwan will eventually fall into the hands of China. All it takes is a vote by the people of Taiwan to bring it about.

Still want to give F-16 fighter jets to Taiwan?

In spite of what China says or how puffy it reacts to these weapons deals, perhaps that is just what China really wants.

China Overtakes U.S. as Largest Saudi Customer

While on the subject of China, please consider Saudi Aramco CEO Says China Overtakes U.S. as Largest Customer.

Saudi Arabian Oil Co., the world’s biggest crude producer, is exporting about 1 million barrels a day to China, more than to the U.S., Chief Executive Officer Khalid al-Falih said.

“We are already exporting more to China than to the U.S.,” he said today in an interview in Davos, Switzerland. “We are prudent and careful about where to invest but our eyes are focused on China and we will continue to look for all opportunities.”

The Saudi company, which owns an interest in a refinery in China’s Fujian province, is in talks with China Petroleum & Chemical Corp. to take a stake in a 200,000-barrel-a-day plant in Shandong. It is also expanding its Ras Tanura refinery on Saudi Arabia’s east coast and the Port Arthur plant in Texas, al-Falih said.

“Long term there will be a lot of consolidation and retirement of old and inefficient refineries,” he said in the interview. “We are building refineries that are going to be the most efficient, well-configured and able to deliver the products and we are comfortable that over their life cycle they will be very profitable. We are not designing them for the markets of 2008, 2009 but we are putting them in place for the next three to four decades.”

Aramco has shut in about a third of its 12 million barrels a day of oil output capacity to prevent a price slump. Crude prices rose to a record in July 2008, before tumbling 69 percent by the end of that year as the recession curbed demand. Oil has since rebounded 65 percent, and traded at $73.43 a barrel at 5:04 p.m. London time today.

While the US is wasting trillions of dollars fighting needless wars, inventing fictional enemies, and keeping troops stationed in 150 countries around the globe (all energy wasting activities), China is quietly building state-of-the-art refinery capacity for the next decade.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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