Tag: China

China Has Chosen Instability

The plunging Shanghai Stock Exchange and the sudden reversal in the yuan’s appreciation have caused fears to spread beyond China’s borders. Is something wrong with the world’s growth locomotive? In a word, yes.

Indeed, China’s leadership has chosen instability. They have forgotten my golden rule: stability might not be everything, but everything is nothing without stability.

How did China arrive at this point — a point of high uncertainty and potential economic instability? A look at China’s exchange-rate regimes provides a window into these troubled waters. Since China embraced Deng Xiaoping’s reforms on 22 December 1978, China has experimented with different exchange-rate regimes. Until 1994, the yuan was in an ever-depreciating phase against the U.S. dollar. Relative volatile readings for China’s GDP growth and inflation rate were encountered during this phase.

After the maxi yuan depreciation of 1994 and until 2005, exchange-rate fixity was the order of the day, with little movement in the CNY/USD rate. In consequence, the volatility of China’s GDP and inflation rate declined, and with the yuan firmly anchored to the U.S. dollar, China’s inflation rates began to shadow those in America (see the accompanying exchange-rate table). Then, China entered a gradual yuan appreciation phase (when the CNY/ USD rate declined in the 2005-14 period). In 2015, the yuan began to experience weakness. In terms of volatility, economic growth and inflation rates, China’s performance has deteriorated ever since it dropped exchange-rate fixity.

 

So, why did China drop exchange-rate fixity in 2005? After all, China’s fixed-rate regime had performed very well. Pressure from the U.S. and many nonsensical mercantilist’s arguments, emanating from Washington, D.C., caused China to abandon fixity. Little did Beijing realize that it had chosen instability.

North Korea’s Nuclear Challenge to the West and China

North Korea has grabbed international headlines. Again. Pyongyang staged its 4th nuclear test, supposedly a thermonuclear device.

Proposals for more sanctions and further isolation likely will grow. However, the test dramatically demonstrated that the U.S. attempt to build a cordon sanitaire around the Democratic People’s Republic of Korea has failed.

Washington instead should develop a new policy focused on engagement, not denuclearization. The latter should remain an objective, but even if it remains out of reach the U.S. might be able to reduce military threats on the peninsula.

As always, North Korean foreign policy reflects domestic politics. The test also gives Pyongyang greater leverage in its attempt to engage both South Korea and the U.S.

Talks with the Republic of Korea recently ended without result. The North also long has sought to draw the U.S. into bilateral discussions. However, the Obama administration set as a precondition for any talks that Pyongyang take steps toward dismantling its nuclear program, a non-starter.

In dealing with the North there are only second-best options which might ameliorate the threat otherwise posed by a famously enigmatic, persistently paranoid, and potentially unstable nuclear-armed state viewing itself in a perpetual state of war with America and its allies, South Korea and Japan.

Winning in Africa Might Not Be Worth the Cost to China

Nowhere is China’s growing reach more obvious than in Africa. President Xi Jinping just returned from a trip during which he promised African officials $60 billion in new investment. Beijing also has grown more active culturally, educationally, and even militarily.

The PRC’s increasing role has created unease in Washington. But China has run into many of the same sort of problems which faced America in the past.

The U.S. obviously fears losing business: African trade with China surpassed that with America in 2009. Beijing undermines Western pressure to improve democracy and human rights.

Yet the ultimate results of President Xi’s visit remain to be seen. The photo ops were impressive, but both the pictures and promises may fade over time.

Did Top North Korean Official Die by Accident or Assassination?

Yet another top North Korean official has met a violent and untimely death. No one knows if it was a tragic accident or political assassination.

Kim Yang-gon was in charge of negotiations with South, where he was respected. He supposedly died in an early morning car accident. A surprising number of North Korea’s high officials appear to leave the world this way; yet defectors say accidents are common given the poor streets and tendency of top officials to drive drunk.

Still, it looks suspicious. But it doesn’t appear to be a state-sanctioned hit. Dictator Kim Jong-un praised his “close comrade-at-arms” and showed emotion at the state funeral. 

Perhaps a rival took out Kim Yang-gon. However, while he was well-connected, having served “Dear Leader” Kim Jong-il too, it’s not apparent that he is the sort of rival worth killing.

Which leaves everyone outside again looking through the mirror darkly, as the Bible puts it.

The Korean status quo obviously is unsatisfactory. Indeed, it is positively dangerous. While everyone discounts North Korea’s endless threats against both South Korea and the U.S., as the North’s military capabilities grow people are more likely to treat them as warnings to be taken seriously. Proposals for military action against the Democratic People’s Republic of Korea might enjoy a revival.

Of course, the more dangerous Pyongyang perceives the international environment, the more committed it likely will become to building a sizeable nuclear arsenal and missile force. And to the extent that the North can argue that it is responding defensively to America, the less likely Beijing will be to apply more pressure on the DPRK.

An intrepid few have forthrightly proposed military action. But that would be a wild gamble, risking thousands of lives, mostly Korean, on both sides.

Enhanced sanctions look pretty good compared to war. And tighter financial controls would make it much harder for the Kim regime to do business with the world. However, Sudan gets by despite strict financial controls.

Moreover, without Beijing’s acquiescence, the U.S. won’t be able to cut the North’s lifeline. Forcing a national implosion would have unpredictable and potentially violent consequences.

For some the People’s Republic of China is the preferred option. Just get the PRC to force the North into line. That presumes Beijing has the ability to do so.

Moreover, the PRC has good reason to choose the status quo over creating the possibility of chaos and war on China’s southern border. Moreover, Beijing is unlikely to do any favors for the U.S., which would use a united Korea as part of a containment strategy against China.

If none of these, then what?

Some form of engagement with the objectives of moderating regime behavior, easing the threat environment, constraining arms development, encouraging domestic reform, and improving human development. Not because the chances of success seem great, but because there is no better option.

That means the South should continue talks despite Kim Yang-gon’s death. In fact, in his New Year’s Day address, Kim Jong-un expressed his desire to improve bilateral relations.

And as I argue on National Interest online: “the U.S. should open a dialogue, with the objective of initiating official though low-key relations. A diplomatic presence in Pyongyang would provide a small keyhole for peering into this mysterious country. Although expectations should be low, tempering hostilities could lead to additional benefits, especially if Kim Jong-un uses next year’s party congress to modernize.”

Winston Churchill once said of the Soviet Union that it was “a riddle wrapped in a mystery inside an enigma.” That certainly describes the DPRK for the West. Kim Yang-gon’s death only makes the puzzle more complex. Increasing contact with Pyongyang is the best way to begin to understand the North and influence its future.

Is Reconciliation for Japan and South Korea a Warning for China?

History weighs heavily on East Asia. To Washington’s enduring frustration, its two most important democratic allies, Japan and the Republic of Korea, have been at odds for decades.

The divergence between the two grew especially sharp over the last couple of years, during which ties between Seoul and the People’s Republic of China notably warmed while those between Japan and the PRC sharply deteriorated, driven by the dispute over the Senkaku/Diaoyu Islands. Moreover, South Korea had its own contentious territorial contretemps with Tokyo.

Both parties deserved blame. The South was determined to hang onto emotional grievances—serious and real, but long past. Japan insisted on justifying indefensible actions whose perpetrators were long dead. Destructive domestic politics ruled.

At the end of December, however, the two countries tried to put the issue of the “comfort women” behind them. Beginning in 1931, with Japanese military operations in China, Tokyo created brothels for its soldiers. For years Japanese officials insisted that the women were prostitute voluntarily engaged, despite evident coercion.

Now Japan has apologized and agreed to create a compensation fund. In return, the ROK promised to drop the matter and “address” the issue of the private statue of a young girl, representing the comfort women, facing the Japanese embassy in Seoul.

More Light than Heat: The Latest U.S. Arms Sale to Taiwan

The $1.83 billion arms sale package to Taiwan that the Obama administration announced to Congress in mid-December won’t change the military balance across the Taiwan Strait. Hawkish American commentators criticized the arms sale for not doing enough to provide for Taiwan’s security, but this misses the point. The most important aspect of the arms sale is not the kind of equipment being sold but the message sent by the transaction.

From a military perspective, the equipment in the arms sale is nothing to get excited about. The most prominent items are two refurbished Oliver Hazard Perry-class frigates and 36 AAV-7 amphibious assault vehicles. Guided missiles, Phalanx ship defense systems, and communications equipment make up the rest of the package. None of these capabilities will significantly change the balance of power between Taiwan and mainland China.

What does it accomplish?

First, the timing of the arms sale announcement is important. On January 16th, voters in Taiwan will go to the polls to select a new President and legislators. The period of rapprochement between Taiwan and mainland China championed by President Ma Ying-jeou since 2008 will likely come to an end. It is too early to tell how the election will impact cross-strait relations, but announcing an arms sale so close to the election demonstrates a continued U.S. commitment to Taiwan’s defense.

America Is Winning Burma’s “Great Game” between the U.S. and China

Relations between the U.S. and China have grown tenser as the latter has developed economically and advanced internationally. Few Americans want to cede their dominant position while most Chinese are determined to regain what they believe to be Beijing’s rightful influence.

The two nations are waging a bitter but so far nonviolent struggle in Burma, or Myanmar. And the U.S. appears to be winning.

For decades Burma’s military ruled ruthlessly. The West responded by isolating and sanctioning the generals, who renamed their nation Myanmar over popular opposition.

The junta turned to China for military cooperation and economic support. Beijing, which desired Burma’s natural resources, including minerals, timber, and water, was happy to oblige. The embrace from Burma’s northern neighbor grew ever tighter—too tight, in the view of many Burmese.

In 2008 the military began a gradual process of carefully limited political reform, which culminated in legislative elections in November. The junta’s members had not undergone a miraculous conversion to liberalism. Rather, an important, though largely unarticulated, objective was to reduce reliance on the People’s Republic of China.

For years Burma was a pariah state almost akin to North Korea. There was only limited interaction with both the U.S. and Europe, the most obvious sources of aid, investment, and trade. While Asian tigers roared, Burma slumbered.