PAPER DRAGON. A Structural Assessment of PRC Power, Vulnerability, and Strategic Overstatement

LET'S CUT THE PRC DOWN TO SIZE

Executive Position

This paper argues that the People’s Republic of China (PRC) has constructed a global posture that appears formidable but rests on fragile foundations: opaque finance, coercive intelligence operations, externalized logistics dependencies, and largely untested military systems.

While the PRC has demonstrated remarkable effectiveness in espionage, influence operations, and narrative control, its economic, maritime, and military power is systematically overstated—often by Western analysts who mistake scale for resilience and activity for sustainability.

The danger for U.S. policymakers and future intelligence professionals is not underestimating China’s capabilities, but internalizing Beijing’s preferred myth of inevitability and allowing that myth to drive static, risk-acceptant strategic thinking—particularly with respect to Taiwan.

I. Espionage as Economic Strategy, Not Auxiliary Activity

The PRC’s intelligence apparatus must be understood not as a traditional state security function, but as a core economic growth mechanism.

Chinese intelligence activity—spanning the Ministry of State Security (MSS), the PLA Strategic Support Force, state-owned enterprises (SOEs), academic exchanges, and nominally private firms—has been repeatedly documented as targeting intellectual property, manufacturing processes, software, pharmaceutical research, aerospace design, and business strategy rather than purely military secrets.[1]

Nicholas Eftimiades and others have shown that this activity is not opportunistic but systematic, with tasking that aligns directly to national development plans.[2] The result is a structural distortion: Chinese firms often appear globally competitive not because of innovation parity, but because research risk and cost have been externalized to foreign systems.

For intelligence trainees, the lesson is critical:

China’s espionage success is real—but it is also compensatory. It substitutes theft and coercion for organic innovation and institutional trust.

II. The Belt and Road Initiative as Opaque Leverage Architecture

The Belt and Road Initiative (BRI) is frequently described as infrastructure diplomacy. This framing is incomplete.

BRI is better understood as an opacity-driven leverage system characterized by:

• Non-transparent loan terms

• Confidentiality clauses restricting disclosure

• Collateralization of strategic assets

• Lending via layered cutouts rather than centralized accounting

Research by AidData demonstrates that many BRI obligations do not appear in public debt statistics and are often unknown even to borrower parliaments.[3] This opacity is not accidental; it allows Beijing to maneuver politically during debt distress while avoiding coordinated international response.

The cumulative effect resembles a rolling refinancing scheme, where new loans are extended to service old obligations, projects are restructured without public write-downs, and political concessions substitute for financial repayment.

This is not a literal Ponzi scheme—but it shares key characteristics:

• Dependence on continued expansion

• Obscured balance sheets

• Political rather than economic resolution of insolvency

Critically, no central authority inside the PRC can be assumed to possess a complete, real-time picture of total exposure, given the fragmentation of lending across SOEs, policy banks, provincial entities, and offshore intermediaries.

III. The Manufacturing Myth and the Input Dependency Problem

China is commonly described as “the world’s manufacturer.” This statement ignores the input side of the equation.

With the exception of rare earth elements and certain grades of coal, China imports the overwhelming majority of the raw materials and energy required to sustain its industrial base:

• Crude oil

• Natural gas

• Iron ore

• Bauxite

• Copper

• Agricultural feedstocks

China imports roughly three-quarters of its oil consumption, much of it transiting maritime chokepoints such as the Strait of Malacca.[4]

This creates a structural vulnerability:

A manufacturing empire dependent on uninterrupted maritime logistics cannot behave as if maritime disruption is survivable.

The historical analogy is not a continental power, but the mercantile British Empire—with the crucial difference that Britain possessed unquestioned naval supremacy, while China does not.

IV. Maritime Power: Hull Counts vs. Blue-Water Reality

The PRC Navy (PLAN) is frequently cited as having surpassed the U.S. Navy in ship count. This metric is misleading.

Ship counts do not equal:

• Sustained blue-water operations

• Combat logistics under fire

• Carrier air wing proficiency

• Integrated joint command experience

• Wartime damage control at scale

The majority of PLAN operational experience remains near-seas focused, with limited exposure to long-duration blue-water tasking.[5] Many platforms and crews remain untried under combat conditions, and the personnel system emphasizes political reliability over decentralized initiative—an enduring weakness in high-tempo naval warfare.

In a true blue-water contest, numerical superiority alone would not offset deficiencies in:

• Underway replenishment

• Maintenance under attrition

• Coalition warfare

• Tactical autonomy

The implication is not that China’s navy is weak—but that it is context-dependent and geographically constrained.

V. Taiwan and the Strategic Fallacy of the Strait

Perhaps the most troubling element of contemporary U.S. discourse is the implicit assumption that a U.S.–China conflict over Taiwan would be decided primarily inside the Taiwan Strait.

This is a strategic error.

The strait represents China’s optimal battlespace:

• Proximity to mainland ISR and fires

• Interior lines

• Dense missile coverage

A competent adversary does not fight where the opponent is strongest.

In any sustained conflict, China’s true vulnerability lies not in the first days of an amphibious assault, but in global maritime exposure:

• Merchant shipping

• Overseas ports and terminals

• Energy flows

• BRI infrastructure nodes

China operates the world’s largest merchant fleet but lacks the global naval and air coverage required to protect it in wartime.[6]

A conflict that expanded beyond the strait would rapidly test:

• China’s ability to sustain imports

• Its capacity to insure shipping

• Its tolerance for global economic isolation

The appropriate strategic question is therefore not “Can the U.S. defeat China in the strait?” but:

“Where can China not absorb sustained pressure over time?”

VI. Power Projection vs. Endurance

China has demonstrated excellence in:

• Espionage

• Influence operations

• Diplomatic bribery and capture

• Narrative shaping

These tools are effective precisely because they are cheaper than war.

What remains unproven is China’s ability to:

• Sustain a prolonged high-intensity conflict

• Maintain economic stability under maritime disruption

• Prevent elite fragmentation under financial stress

• Control escalation without external trade access

The PRC’s global posture is therefore best understood as front-loaded and brittle—designed to achieve political outcomes before endurance is tested.

Conclusion: The Intelligence Failure Risk

The greatest risk to the United States is not Chinese strength per se, but Western strategic misinterpretation—especially the tendency to treat Chinese narratives of inevitability as analysis rather than propaganda.

China is not a collapsing state.But neither is it a ten-foot-tall juggernaut.

It is a system optimized for:

• Extraction rather than trust

• Control rather than resilience

• Speed rather than sustainability

Intelligence professionals must be trained to see through the shimmer—and to recognize that systems built on opacity, coercion, and external dependence rarely perform well when exposed to time, pressure, and friction.

Endnotes

1. Office of the National Counterintelligence Executive, Foreign Economic Espionage in Cyberspace (various annual reports).

2. Nicholas Eftimiades, “The Impact of Chinese Espionage on the United States,” The Diplomat, 2018.

3. AidData, Banking on the Belt and Road: Insights from a New Global Dataset of Chinese Overseas Development Finance, 2021.

4. U.S. Energy Information Administration (EIA), China Analysis Briefs, 2023–2024.

5. U.S. Department of Defense, Annual Report to Congress: Military and Security Developments Involving the PRC, most recent edition.

6. International Chamber of Shipping; UNCTAD, Review of Maritime Transport, recent editions.