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  • Archive for February, 2013

    PRC v. DPRK? – Will the China-NK alliance remain stable?

    February 19th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    Will the China-NK alliance remain stable?
     
    Global Times | 2013-2-17
     
    By Jasper Kim
     
     
    Given the recent bilateral and UN-based diplomatic discourse between North Korea and China on North Korea’s third nuclear test last week, could Pyongyang and Beijing’s relationship be switching from friends to foes?
     
    The once staunch alliance between North Korea and China has historically been based on shared mutual political interests.
     
    For North Korea, from an economic standpoint, an alliance with China translated into fuel aid and trade revenue, since China provides most of North Korea’s fuel supplies and is its top trading partner.
     
    For China on the other hand, in years past, from a socio-political standpoint, North Korea represented a sought-after strategic buffer zone from thousands of US and South Korean troops and any other military presence, above and beyond the Demilitarized Zone along the 38th parallel that has separated the two Koreas since 1953, the year of the armistice ending the Korean War (1950-53).
     
    From the US perspective, as per its stated Asian pivot, the US-South Korea alliance represents a much needed opportunity to maintain a military presence up to the 38th parallel, above and beyond its military presence in nearby Japan, Guam, the Philippines, Australia, and other strategic locations.
     
    From South Korea’s perspective, maintaining a strategic, albeit shrinking, troop-level presence onshore also represents a not so subtle US and UN military defense security guarantee in the event of a major incursion against South Korea’s sovereign borders or national security interests by North Korea.
     
    Relating to the recently evolving Sino-North Korean diplomatic dynamic – and specifically, how China should treat its Stalinist state neighbor – several perspectives can be taken.
     
    First, there is the traditionalist view which dictates that the Sino-North Korean relationship is one that should continue forward as it has in the past – in terms of economic and geopolitical support – primarily based on the history of alliance between the two countries and their respective leaders.
     
    Second, there is the absolutist view, which states that the Sino-North Korean relationship should be disentangled, given the fact that North Korea’s actions are increasingly unpredictable, and perhaps just as importantly, are increasingly embarrassing to Beijing’s leadership as it is seen as being unable to assert its leadership over the secretive Stalinist state.
     
    Third, there is the cost-benefit calculus view which oscillates between the traditionalist and absolutist views, specifically, that the Sino-North Korean relationship can either be one of an outright alliance or not, based on a multi-factor cost-benefit analysis.
     
    In other words, China should continue to support and outright align itself with North Korea if, but only if, the benefits of supporting North Korea outweigh its related costs, China’s benefits being the aforementioned geopolitical factors.
     
    In contrast, related costs in the calculus are ever-changing, which may tilt the cost-benefit calculus conclusion from a yes to no, in terms of whether Beijing should continue to support Pyongyang.
     
    Related costs could include, but not be limited to, North Korea’s actions potentially or actually negatively impacting China’s increasing rise as a global socio-political and economic superpower, loss of geopolitical legitimacy for supporting an increasingly rogue state from the viewpoint of the international community, embarrassment by being seen as being rebuked or ignored by North Korea, straining of the Sino-US relationship which may trigger a political or economic backlash in various forms, and the cost of providing fuel and economic aid which could instead be used to support other actual or potential future allies within and beyond Asia.
     
    Pyongyang has so far relied on the singular premise that Beijing’s leadership holds the traditionalist view.
     
    But even if the traditionalist view is one that China’s leadership harbored throughout the Cold War period, this premise fails to account for the possibility that Beijing’s leadership at some point may consider and implement the absolutist or cost-benefit calculus views as a matter of policy to North Korea’s possible detriment.
     
    Such a change may occur if the Sino-North Korean relationship continues to deteriorate with more provocative acts by Pyongyang.
     
    For these reasons, the Sino-North Korean dynamic in the 21st century – what I refer to as the “Chimerica century” – is in flux, unlike in years before, which may unexpectedly reconstitute China’s pivot sometime in the future from “China with North Korea” to “China versus North Korea.”
     
    The author is the founder and CEO of the Asia-Pacific Global Research Group.
     
    To view the article in the Global Times website, click here.

     

    North Korea’s missiles & markets – why DPRK defiance dips are market opportunities

    February 13th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    North Korea’s underground “mini” nuclear test may have rattled the financial markets. But financial history has shown that short term market dips directly following the defiant DPRK’s provocative acts often lead to buying opportunities.
     
    This is assuming that a “black swan” event does not occur in which a small provocation can escalate, purposely or accidentally, into a larger-scale conflict.
     
    Shares of defense companies skyrocketed by the daily limit of 15 percent at the news of the North’s test. Shares of Speco jumped by 15 percent and closed at 3,795 won. Victeck surged by 14.94 percent to close at 2,500 won and Firstec closed at 2,495 won, up 13.41 percent.
     
    Here’s a recap of North Korea’s recent provocative acts, and how the financial markets have dipped and then strengthened (based on publicly available sources).
     
    DPRK’S NUCLEAR TESTS:
     
    – North Korea’s third nuclear test yesterday (2/12/2013): had a minimal impact on the South Korean stock market. South Korea’s Kospi closed at 1,945.79 at 3 p.m. yesterday, down 5.11 points from Friday. (The market was closed on Monday for the Lunar New Year holiday.) During the day, the Kospi slipped slightly by 0.08 percent to 1,949.39 at 12:10 p.m. after news reports that the South Korean government detected man-made seismic activity in North Korea’s North Hamgyong Province at 11:58 a.m. The test also had meager influence on the local foreign exchange market as foreign dealers said the Korean won depreciated to 1,095,8 won against the dollar at 12:17 p.m., but rebounded to 1,091.25 won at 1:11 p.m. and closed at 1,090.80 won yesterday.
     
    – North Korea’s second nuclear test on May 25, 2009: the Kospi plummeted as much as 6.31 percent during trading hours but it recovered to 1,400.90, down 0.2 percent from the previous day. In the three months after that test, the Kospi jumped by 20 percent and reached the 1,600-something level.
     
    – North Korea’s first nuclear test on October 9, 2006: KOSPI fell 2.41% but was up 0.96% ten days afterwards;
     
    DPRK MISSILE LAUNCHES:
     
    – Launching of Kwangmyongsong-3 on April 13, 2012: KOSPI gained 1.12% on launch date, but was down 0.57% ten days after the launch (relative to the KOSPI on launch date)
     
    – Launching of Kwangmyongsong 3-2 on December 12, 2012: KOSPI fell 0.55% on launch date, but was up 1.65% ten days after the launch (relative to the KOSPI on launch date)
     
    OTHER EVENTS:
     
    – Death of Kim Jong-il, former DPRK leader, announced in December 2011: the Kospi shed 4.86 percent during trading hours but finished at 1,776.93, down 3.43 percent. The Kospi subsequently gained 10 percent and reached the 1,915 level just a month after Kim’s death, market observers said.
     
    – North Korea firing of artillery shells at South Korea’s Yeonpyeong Island on Nov. 23, 2010: the Kospi managed to rebound just three days after the attack and it jumped by 8 percent a month later.
     
    So as a possible investment strategy, when the “herd mentality” and “group think” of the markets are exiting (selling), one low risk strategy would be to buy i.e., be greedy when others are fearful.
     
    For a clip of Jasper Kim (founder, Asia-Pacific Global Research Group) featured on Bloomberg TV on this topic, see below:
     
     

     
     

    North Korea’s Nuclear Test – predictably unpredictable (4 Impacts)

    February 12th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    1) North Korea’s motivation for the nuclear test
     
    North Korea’s objective with today’s nuclear missile test is to put the international community on edge vis-a-vis its predictably unpredictable acts. By such acts, North Korea will garner the attention, frustration, and fear of the international community, which the DPRK hopes it can convert into diplomatic talks, either bi- or multilateral, which is a forum in which it can solicit economic and non-economic aid, a critically important factor given the dire internal conditions of North Korea today.
     
    2) What to look for now that North Korea has gone through with its nuclear test

    This is North Korea’s third missile test since 2006. There are two things that could be of potential risk going forward. First, whether the DPRK’s nuclear test was based on plutonium or uranium enrichment technology. While North Korea’s plutonium stockpile is relatively fixed and limited–thus placing a potential ceiling on the number of nuclear warheads it can produce with plutonium–a successful uranium enrichment nuclear test would signal that North Korea could continue with producing more weapons grade nuclear material for many years to come. Second, expect the DPRK to continue its saber rattling and brinksmanship, especially in the early days of South Korea’s new incoming president, Park Geun-hye, given the unique history between her father, Park Chung-hee (South Korea’s president from 1962-79) and the DPRK’s leadership in the 1960s and 1970s. In short, North Korea will test President Park’s mettle early.
     
    3) What to expect from North Korea now that it has conducted its third nuclear test?
     
    Expect North Korea to follow-up its nuclear test with further provocative acts, up to the very limit of what it thinks can be done without military repercussions. North Korea’s confidence in this respect is based on the international community’s interest in keeping the Northeast Asian region peaceful and stable. After all, if socio-political conditions deteriorate, international security as well as economic conditions can spiral downward quickly and rapidly, given that the Asian markets could turn into another “Asian contagion” effect based on such “black swan” event. The risk of North Korea’s stance is that things may go over the edge, purposely or accidentally, since the two Koreas are on high alert, akin to two sprung traps ready to snap at any given moment.
     
    4) More sanctions against a super-sanctioned state
     
    Several UN resolutions have been enacted against North Korea with little effect. This is not entirely surprising given that North Korea is a super-sanctioned state–that is, one of the world’s most sanctioned states. So more sanctions on top of a plethora of already existing sanctions will not likely be effective. As a Stalinist state, North Korea is seeking legitimacy and respect among its neighbors. Yet it also harbors a deep fear and suspicion of such neighbors. A carrot and stick approach of, for instance, a Reaganesque ramping up of military defense spending along with strategic carrots in the form of performance-based incentives and aid through verifiable and sustainable calibrated expected future behavior, for the benefit of both Koreas, among others, could be one step in the right direction.
     
     
     

    Samsung Electronics – Silicon Valley “innovation centers” (6 Things to Know)

    February 12th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    (The questions below are partially based on a related interview today with a local Korean broadcaster)
     
    1) What is the motivation behind Samsung’s innovation centers?
     
    By creating innovation centers–Samsung Strategy and Innovation Center (SSIC), which includes a $100 million Samsung Catalyst Fund–Samsung’s objective is to secure the best talent in Silicon Valley. This may say signal increased confidence that it has the ways and means to go head-to-head with the likes of Apple right in Apple’s own backyard.
     
    2) Will Samsung earn a title, “an innovator,” by creating innovation centers? How soon would it happen?
     
    Samsung has publicly stated that its aspiration is not to be a game-changing “innovator.” Instead, it believes that its best strategy is to be a “fast follower.” This means, first, canvassing existing market demand and micro/mega-trends from region to region, and second, adapting technology to in essence “wrap around” such existing market demand. Steve Jobs, Apple’s former CEO, famously stated that “It’s not the customer’s job to know what they want.” Samsung has a polar opposite view–that it’s Samsung’s job to give the customer what they know they want. So far, both have been effective, with the momentum favoring Samsung than Apple in recent weeks, based on Apple’s falling share prices.
     
    3) Why is Samsung looking to create them outside Korea (in Silicon Valley) and not Korea?
     
    Samsung could be creating innovation centers outside of Korea for one of two reasons. First, it could be simply adding to its already existing creative capital as an offensive strategy. Or second, Samsung could be seeking creative talent that it views as lacking onshore in South Korea as a defensive strategy. What is sure is that South Korea’s human capital, and the education of such domestic human capital, does not promote or incentivize thinking outside the box (as of this writing, although efforts and trends may change going forward). As one example, Apple’s “think different” acclaimed marketing slogan in the U.S. cultural context is viewed as a potential good thing, but in South Korea, it is viewed generally as a net negative.
     
    4) Does this mean that Korea lacks creative class talent?
     
    This could certainly be the case. An added consideration is that the corporate culture of South Korea generally has a “do as you’re told” modus operandi. That is, to do your assignment, but not to question it. This is a bit ironic given the nature of the industry, high tech, which has generally been predicated on questioning the status quo and creating and thinking in an unorthodox and different way. One could say that such approach is a Western-Socratic mindset, not entirely fitting of South Korea. Only time and results will tell.
     
    5) Why does Samsung plan to increase investment in the U.S.?
     
    Samsung is essentially trying to maximize it’s ROI (return on investment) by creating a fund for future tech start-ups in the U.S. Silicon Valley has a population of approximately 3 million, whereby 17,000 new start-ups are created every year, which are then followed by 12,000 failures of such start-ups. Samsung may now be understanding that, much like many Silicon Valley VCs, it may take both a good eye of the next big thing, patience, mentoring, and a “wait for the mega home run” mindset by trying to find the next Facebook (although the next big thing most likely is a known unknown start-up that may appear at any given moment).
     
    6) What does this say about Samsung’s global strategy?
     
    Samsung is asserting itself on the global stage through its aggressive Silicon Valley strategy. But according to one source from the KITA, Samsung Electronics and other similarly situated firms have only a few years before it loses its competitive advantage to Chinese firms (which will, in essence, be the next wave of dominant high tech firms).

     

     

    Mobile phones in North Korea?: 1.5M users and growing (4 Factors)

    February 5th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    (The questions below are taken from an interview with a local Korean broadcaster on 2/5/2013)

    1) Mobile phones are a reasonably new phenomenon in North Korea, with even King Jong-Un himself sporting a smartphone, how might increased usage shape the political landscape?
     
    The increasing use of mobile phones, including smartphones, in North Korea has the real potential to dramatically reconstitute the political landscape. An estimated 1.5 million people, according to one source, currently use mobile phones of some sort within the closed Stalinist state. The DPRK even has 3G capabilities–through a joint venture between Orascom (an Egyptian carrier) and Koryolink (a North Korean telecommunications entity)–which is actually comparable to the carrier services used by many South Koreans and Americans today. So this should be a wake-up all that the North is ready, willing, and certainly capable of becoming a wired and connected society–a dramatic shift from its recent past as one of the most closed-off and disconnected states in the international community.
     
    2) Texting has become extremely popular in Pyongyang, and has increasingly been used as a tool in organising protests/riots around the world (think Cronulla riots in Australia, Mozambique riots, London riots), could this new technology lead to an uprising from the people?
     
    Potentially, but nobody knows for sure. It’s not a certainty mainly because the DPRK has strategically disallowed the use of the internet, except for a few rare cases related to the military and one or two educational institutions. So in effect, the mobile phones used by North Koreans today allow for internal calls and texting, but not international/cross-border communications. This exclusion includes the use of social media, such as Twitter and Facebook. This is no accident since the DPRK leadership has likely carefully scrutinized what can and has happened when the general public is allowed to have such access to social media, in which existing government structures can potentially be toppled and replaced–the very outcome that North Korea is seeking to avoid at almost any cost.
     
    3) Kim Jong-Un has been seen with a HTC smartphone (distributed by the KCNA on January 27, 2013). Is this a political choice, a personal preference of design or does he fancy himself a bit of a hipster going against the mainstream?
     
    Kim Jong-Un is the current leader of one of the most provocative states in the world. So he doesn’t have the luxury to choose much of anything, let alone a smartphone with potential cutting edge technology, to be based on purely personal preferences. Almost every move he makes and every word he states can and most likely surely is scrutinized heavily to the highest level of minutiae both inside and outside the DPRK. The HTC smartphone Kim Jong-Un was seen recently with, placed directly next to him at a high level internal meeting involving military and foreign affairs officials, can be interpreted to signal to the outside world that the DPRK is not as technology handicapped as many people believe it to be. Add on to this the North’s successful missile launch last month and we have the makings of a country that may be seeking technology for further future provocative “predictably unpredictable” acts defined to include traditional (military and paramilitary) as well as non-traditional (cyberattacks) in scale and scope.
     
    4) Do you think mobile phones may be another way for the regime to have a heavy hand over its people by spreading mass propaganda?
     
    Certainly so. We believe that the DPRK has signaled an increasing interest and desire to shape the narrative in terms of how the world, including global media outlets, sees it. In the past, North Korea allowed for others to shape this narrative about its intents, capabilities, and desires. But now, maybe because Kim Jong-Un has grown up in Switzerland with the internet, Google, and probably Facebook, the North has become increasingly proactive about allowing foreigners, including foreign journalists, into its borders, as well as to release more information more quickly through its state news channel, the KCNA. So, with 1.5 million mobile phone users, it wouldn’t be surprising to see the DPRK leadership use it as another outlet upon which to shape the narrative about its alleged accomplishments (and maybe even failures, as seen in the April 2012 failed missile launch attempt).