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2002 January 13

It's looking more positive in the North Korea situation. As I guessed earlier, it seems that part of the deal will be to pretend that North Korea never said it had nuclear weapons.

In other news....

http://www.nytimes.com/2003/01/13/international/asia/13CHIN.html

This article is talking about the building boom in China which is related to the earlier article on the traffic accidents. The big bet is that financial deficits are sustainable because they will generate enough growth so that the government can pay for the cost of the building later. If you talk a look at what a road does, this looks like a good bet. Once you have a road, you can put an industrial park at the end of the road. Once you have an industrial park, you generate jobs and move people from agriculture to industry. As long as you generate more growth, this will work. The problem is that if you stop growing then the whole thing falls apart.

This strategy should work for another generation. Its possible for China to sustain large growth because its economic level is so low. Once it start reaching developed nation status, like Japan, then you have problems because the construction isn't going into useful economically productive things. But that's something to worry about 20 years from now.

All of this is related to yesterday's New York Times article on Hu Jintao who is showing more of an interest in China's poor than Jiang Zemin. The way that the Chinese government is reaching out to the poor is by building roads and infrastructure.

There is one part that the NYT got wrong....

: State banks, told a few years ago to clean up bad loans and begin acting like capitalist lenders, are pumping tens of billions of dollars into officially sponsored projects that have sometimes failed to produce real returns.

and

:Yet the risks are also mounting, in part because China is trying to outrun or perhaps run away from its inherited burden of socialist inefficiency. Banks still give loans to bankrupt factories to prevent labor unrest. Now, the government has taken to running a budget deficit of about 3 percent of economic output.

This misunderstands the problem. The payments to bankrupt factories are social welfare payments and have exactly the same social function as welfare and unemployment insurance have in the West. The problem with the old system was not that money was being spent in social welfare. The problem is that you have banks trying to play the role of allocating capital efficiently while at the same time worrying about social welfare, and these roles simply do not mix. The same person simply can't issue loans and unemployment checks at the same time.

What banking reform in China has been about is to separate these two functions. The major banks have been turned into profit making enterprises. They no longer have to worry about the social consequences of closing a factory. This is not their job. Instead, that job is the job of the government and the policy banks.

Similarly the method of financing construction is different. In the old way, the government would order a bank to loan money to a project. This means that the bank isn't making decisions on profit and losses and this leads to bad situations. In the new way, the government decides what projects to spend money on and borrow the money from the bank. The bank then can decide what interest rate to charge the government and the government is responsible for figuring out the social consequences of its construction projects.

= 2002 January 12 =

There is one good thing about the North Korea situation. One way or another, we are going to know very shortly if they are serious about getting nukes or not. With their ending of the missile testing moriatorium, they are out of cards. Thus far they have been only taking diplomatic measures, but they haven't physically started moving toward a bomb. The only thing they can do now is to start reprocessing plutonium and to start missile tests. Once that happens, we are in a different plane of events and it becomes pretty clear that they are after the bomb.

I'd say this is going to be known in two or three weeks.

The other deadline that is coming up is the report of the UN weapons inspectors. If the UN gives Iraq a clean bill of health, then I think it would be extremely negligent for the United States to go to war. The basic principle of diplomacy is that good behavior is to be rewarded while bad behavior is to be punished. If we go to war with Iraq after it doesn't seem to have nukes and we don't go to war with North Korea, then this kills U.S. credibility and ability to influence other nations.

=2002 January 10=

I'm not sure what is going on here with North Korea pulling out of the Non-proliferation treaty. I think the basic question here is whether North Korea really wants a war or not. The body language suggests that this is all negotiation tactics, but one does worry. Of course the fact that does one worry means that these are good negotiating tactics. But even if they are negotiating tactics, one false move and then everything falls apart.

The Washington Post has a good article on the situation

http://www.washingtonpost.com/wp-dyn/articles/A35293-2003Jan9.html

=2002 January 9=

There was a major demonstration in Hefei yesterday and the topic of the demonstration was traffic safety. Three college students were killed in a car accident and this has provoked a major demonstration.

That traffic safety is a major problem in China should come as no surprise to anyone who has ridden in a car in China. The roads are very dangerous to pedestrians. One thing that has been missed in Western reports of the demonstration is why this has become an issue now. For a long time, car ownership in China was rare, but while it isn't common it is no longer rare. In addition China has undergone a massive road building effort so that bumpy dirt trails are being replace by very well paved roads. This new combination of cars and good roads has created a very dangerous situation because the social structures (like traffic cops and speed traps) have not caught up.

In other news, I've read some columnists (namely William Safire and Kenneth Adelman) have suggested that the United States withdraw its troops from South Korea. This is an insane idea. First of all, the U.S. force in South Korea is token as it is. There are 37,000 troops who are no match for the million troops in North Korea. The bulk of the defense of South Korea is already mostly in the hands of the 700,000 strong South Korean military. Basically, withdrawing U.S. forces means that the United States is an unsteady ally, and that it really doesn't care what happens in East Asia. The problem here is that the United States really does care what happens in East Asia and giving signals that it is not is really stupid.

An interesting article on the implications of corruption in Taiwan.

http://www.atimes.com/atimes/China/EA09Ad01.html

=2002 January 8=

More signs that things are winding down in North Korea. In the past few days there have been some very angry editorials in the Korean news. What the mainstream media is missing is that these angry editorials are a sign that a deal is in the works. As I mentioned before, neither side can afford to lose face, so it is necessary for both sides to snarl at each other a bit before closing the deal.

What is likely to happen is that North Korea will reserve the right to make a bomb, but will let nuclear inspectors in. The United States will reaffirm that it has no hostile intent against North Korea, and because this is a reaffirmation, the United States can claim that no concessions were made. Look for a softer policy toward North Korea in the next few months.

Also let me go out on a limb and say that the United States is probably not going to war with Iraq. I don't think that the inspectors are going to find enough to justify a war, and I suspect that part of the reason Bush is starting to talk more about the economy is that he can talk less about Iraq and North Korea.

One thing to keep in mind is that newspapers are biased toward the dramatic as well as biased toward focusing on things going wrong. We are not going to war, just doesn't grab the headlines.

=2002 January 3=

Looks like things are winding down in North Korea. I can't imagine South Korea putting a proposal on the table that didn't have a high likelihood of agreement.

http://www.cnn.com/2003/WORLD/asiapcf/east/01/04/korea.negotiation/index.html

http://www.washingtonpost.com/wp-dyn/articles/A7988-2003Jan3.html

Also that story is rather embarassing for CNN. The caption for the picture talks about anger at the United States, but no one at CNN noticed that they are burning a North Korea flag and that they signs are protesting the South Korean governments "sunshine policy" toward the North.

Some other articles of interest today....

An article on the sex trade in China ....

http://www.washingtonpost.com/wp-dyn/articles/A8200-2003Jan3.html

=2002 January 2=

Wrong fact of the day from the New York Times

The Shenzhou spacecraft are converted Soviet capsules from the 1960's that China says can carry people into orbit and return safely.

No they aren't. Just do a google search and you will see that the spacecraft was home designed and manufactured.

=2002 January 2=

I think the North Korea crisis is winding down. There was an interesting passage in the Wall Street Journal article which stated that North Korea officials are now insisting to China that they didn't actually say that they had nuclear weapons in October, merely that they said that they had the right to possess those weapons.

Personally, I think the United States translators are too good to have misinterpreted the remark, but the significant thing here is that by talking about misinterpretation, North Korea can start deescalating the crisis in a way that saves face for everyone. North Korea can say how this episode shows that the United States is a warmongering nation that takes words out of context. The United States can say that with North Korea denying that it has nukes that fuel oil shipments can begin and start working back on Iraq.

It's really hard to say, but I suspect that the Bush administration will come out of this looking good.

=2002 January 2=

A quote from Churchill that I feel might be apropos with North Korea

we seem to be very near the bleak choice between War and Shame. My feeling is that we shall choose Shame, and then have War thrown in a little later, on even more adverse terms than at present."

The Bush administration's policy toward North Korea is starting to make more sense to me.

http://www.washingtonpost.com/wp-dyn/articles/A64117-2003Jan1.html

Basically, the operating assumption is that North Korea is already a nuclear power and that if the United States doesn't react to the nukes then they are effectively useless. The term tailored containment seems to imply here that the United States is going to sit back and let this situation go for a long time.

That sort of makes sense, but suppose the Bush administration does nothing and North Korea starts building bombs. When do people start reacting? When NK has 10, 20, 50, 100 bombs? What does one do when NK has dozens or hundreds of bombs? The United States says that it won't give in to nuclear blackmail, but I suspect that South Korea would rather be blackmailed than to have a neighbor with hundreds of bombs.

We are going into very uncharted territory here, and I have the sinking suspicion that there is a nasty surprise that no one has quite yet figured out and that no one really wants.

Here's this for a scenario......

It's 2005, North Korea has 150 nukes, and demands that South Korea expels U.S. troops or else Seoul gets nuked. The United States sits safely behind a missile defense so it's not going to get hurt regardless of what happens.

What happens next?

Something that is hopefully never going to be significant is that Article III of the US-ROK defense treaty reads.....

Each Party recognizes that an armed attack in the Pacific area on either of the Parties in territories now under their respective administrative control, or hereafter recognized by one of the Parties as lawfully brought under the administrative control of the other, would be dangerous to its own peace and safety and declares that it would act to meet the common danger in accordance with its constitutional processes.

which is much weaker than Article V of the NATO treaty

The Parties agree that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all and consequently they agree that, if such an armed attack occurs, each of them, in exercise of the right of individual or collective self-defence recognised by Article 51 of the Charter of the United Nations, will assist the Party or Parties so attacked by taking forthwith, individually and in concert with the other Parties, such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.

Is it possible that at some point South Korea will consider its alliance with the United States to be more of a liability than an asset and look to someone else (maybe China) for protection?

Is it possible that this is exactly what North Korea wants?

2003 January 1

The North Korea situation continues in the news. One thing that I did note is that Bush seems to be backing away from the rush to war with Iraq, which is a good thing. One can debate whether the North Korean situation is more serious or as serious than the Iraq situation, but I can't imagine any rational person thinking that it is less serious.

The thing that really concerns me is that I have yet to see signs of anything like a coherent policy coming from the United States. Ultimately it boils down to either negotiating or fighting and the United States does not seem willing to fight, so it has to eventually negotiate. Right now the United States appears to be preparing to try to negotiate with the minimum loss of face. The trouble here is that one thing on North Korea's agenda is humiliate the United States.

Another possibility is that the strategy of the United States is to do nothing and let North Korea build as many nukes as it wants with the belief that those nukes would be useless if North Korea can't get the United States to do anything. This might even be considered a rational strategy if North Korea actually has a few nukes already. The problem with this strategy is two-fold, first its impossible to state explicitly and second it makes total hash out of U.S. policy toward Iraq and Iran.

This is the most frightening thing of all....

I don't understand what game the North Koreans are playing. I also don't understand what game the Bush administration is playing. This being the case, there is a very good chance that the North Koreans don't understand Washington's game and Washington doesn't understand the North Korean's game. Wars start due to miscalculations, and there is plenty of room here for miscalculation.

-- JosephWang - 14 Feb 2003