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  • Posts Tagged ‘North Korea’

    Financial hedging strategies in an unlikely Korean conflict: Q&A with Jasper Kim

    April 30th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    Below is an English-version interview excerpt with Yonhap News and Jasper Kim (Asia-Pacific Global Research Group; Director, Center for Conflict Management, Ewha University in Seoul) released on April 22, 2013 (followed by the original Korean version).
     
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    While most believe North Korea would not intentionally enter into a war with South Korea, Jasper Kim warns us about the possibility of ‘black swan event’ occurring in the Korean peninsula.
     
    He suggests that a black swan event should be factored in a risk management strategy. He also stressed the importance of hedging strategies, which include call, put, and credit default swap options on Korea-linked financial products.
     
    Below is the Q&A interview session with Jasper Kim:
     
    Q. Does 김정은 (DPRK leader, Kim Jong-un) not have the upper hand within his own military?
    He has to appeal to the military since his regime is predicated on a “military first” policy. There could be internal strife and/or change within the DPRK, but we cannot figure that out exactly. He has to prove his leadership by being “hyper hawkish” and “super patriotic.”
     
    Q. How can a black swan event happen?
    A black swan event be triggered at any level. It will have serious damage militarily and economically. Analysts, especially in the Ivory Tower, assume that all actors behave according to “rational” behavior at all times in all scenarios. But if you walk along or near the DMZ, from my standpoint, it is clear that there are risks that even one instance of irrational behavior could lead to a possible black swan event in the Korean peninsula.
     
    Q. Is there a “learning effect” relating to North Korean risk?
    The prevailing school of thought among Korean analysts assume that North Korea’s future provocations are “known, known” variables. But I disagree. Given the extremely unprecedented nature of the DPRK leadership (eg, background, age, lack of military experience, third-generation of the Kim clan, etc), it is dangerous to assume that future events by North Korea will mirror those in the past. This is akin to driving a car forward using one’s rearview mirror.
     
    Q. What are your suggestions for markets to prepare for a possible black swan event?
    In the unlikely but possible chance of a black swan event in the Korean peninsula, financial markets in and around Korea will fall in the short run, perhaps in free fall fashion, depending on the severity of such black swan event. But assuming that such event will be resolved, there is likely to be buying opportunities when such markets go south. At the same time, to hedge against further downside risk during a possible black swan event, contingency exit plans must be executed. Upon the occurrence of a black swan event when markets enter into negative territory, the US, China, and Japan each and collectively have a vested self interest in supporting South Korea’s capital markets. Such support can come in various forms, including lines of credit (LOCs), swap agreements, and/or unified and consistent public statements from relevant institutions that the US, China, and Japan will provide adequate liquidity as needed and appropriate to South Korea. Such clear yet succinct statement will be something that financial players and traders will understand, thus instilling market confidence back to the South Korean markets.
     
    Q. You take the position that information, such as the internet, can transform North Korea from within?
    Yes, soft power such as information about the outside world and how the outside world views North Korea’s economic and political conditions could be pivotal to create a desire for change from within North Korea, which I have written about in a recent WSJ Korea Real Time piece.

     
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    <인터뷰>제스퍼 김 이대교수, “北 블랙스완 리스크 경계해야”
    금융시장일반, 펀드 [2013/04/22 10:30 01]
     
    (서울=연합인포맥스) 태문영 기자 = “블랙 스완(Black Swan)은 (한국에) 군사적으
    로나 경제적으로 엄청난 피해를 줄 것이다. 금융시장에도 전염 효과를 낼 것이다. 아
    무도 도발에 대한 정의를 내릴 수 없다. 만약 총알 한 발 때문에 세계 1차대전이 발발
    했다면, 두 번째 한국전쟁이 일어날 가능성도 존재한다.”
     
    제스퍼 김 이화여자대학교 국제대학원 교수는 22일 연합인포맥스와의 인터뷰에서
    남북 간의 관계를 블랙 스완에 빗대어 설명했다.
     
    최근 개성공단 폐쇄와 북한의 도발 위협으로 남북관계는 위기를 맞았다.
     
    긴장 상태가 악화하면서 한반도의 지정학적 리스크가 재부각됐지만, 이전과 같이
    남북의 무력 충돌까지 치닫지는 않을 것이라는 전망이 아직은 많다,
     
    그러나 전혀 예상치 못했던 돌발변수가 발생하는 ‘블랙 스완’ 이벤트로 남북이 충
    돌할지도 모른다는 경고도 제기되고 있다.
     
    제스퍼 김 교수는 이와 관련해 북한 리스크로 촉발될 수 있는 블랙 스완 이벤트를
    경계해야만 하며 이 가능성을 리스크 관리 전략에서 고려할 사항에 넣어야 한다고 설
    명했다.
     
    김 교수는 (북한 관련) 상황을 모두 파악했다고 과신해서는 안 된다고 지적했다.
     
    그는 금융시장에서 예상치 못한 상황에 대비해 포트폴리오의 일정 부분을 헤지하는
    것이 중요하다고 강조했다. 또 심리에 좌우되는 금융시장에서 블랙 스완이 발생했을
    때 위기를 최소화하려면 한국과 주변국이 시장에 대한 신뢰를 보여줘야 한다고 진단
    했다.
     
    다음은 제스퍼 김 교수와의 일문일답.
    – 북한이 개성공단을 포기한 이유와 그 주도 세력은.
    ▲ 남북관계는 군사와 외교, 경제 등 여러 차원(dimension)이 있는 체스판과 같다. 개성공단 문제는 새로운 차원이 추가된 것이다. 공단 폐쇄는 남북한 모두가 잃는 게 많은 루즈-루즈(lose-lose) 상황이다.
    공단 폐쇄 이유는 여러 가지다. 먼저 김정은 국방위 제1위원장의 지정학적 전략 계산에 근거한다. 개성공단에서 벌어들이는 외화와 일자리를 포기하는 대신 장기적으로 더 큰 뭔가를 얻어내기 위함이다. 미래의 편익이 개성공단 폐쇄에 따른 단기 손실을 상쇄하고도 남을 것이라는데 베팅한 것이다. 둘째로 김정은이 직접 선택한 것이 아니라 체제 내 파벌, 즉 군부의 명령에서 비롯됐을 가능성이 있다. 경제적 차원의 문제인 개성공단 폐쇄를 원한 군부의 저의는 긴장을 악화시켜 군이 영향력을 행사하도록 한다는 것이다.
    – 김정은이 군부에 우위를 점하고 있지 않다고 보나.
    ▲ 김정은은 무엇보다도 국내 청중, 즉 군부의 호감을 사야 한다. 북한의 위협 수위가 높아졌다는 점은 체제 내 갈등과 직접적인 관련이 있을 수 있다. 김정은이 정권을 잡은 지 1년이 약간 지났는데 지도부에 많은 변화가 있었다. 새로운 지도자가 들어섰기 때문에 자연스러운 현상으로 볼 수 있지만, 달리 보면 꽤 많은 일이 진행될지도 모른다는 점이 우려다. 우리는 이를 알아낼 수 없다는 점만을 인지할 뿐이다. 각 가능성이 좋지는 않다.
    김정은이 더 개방된 사회와 근대화를 원한다고 보나, 그전에 군부에 호소해야 한다. 따라서 그는 최소한 초기에 강경한 정도가 아니라 초강경한 태도를 보여야 한다. 자신이 초 애국적임을 군부에 증명해야 하기 때문이다. 또 너무 어린 나이를 벌충할 수 있어야 한다. 한국 문화나 정서상 나이가 갖는 의미는 크다.
    김정은은 근대화를 위해 쏟는 노력 그 이상을 군부에 기울여야 한다. 그렇지 않으면 그는 나약해 보이고 친미주의적으로 비칠 것이며, 그 순간 말로를 맞을 것이다. 따라서 그는 극도로 반미주의적 성향을 보여 그런 평가를 떨쳐내야 한다.
    – 블랙 스완 이벤트가 북한 군부 상층이 아니라 하층에서 발생할 수 있다는 지적이 있다.
    ▲ 블랙 스완은 군사적으로나 경제적으로나 엄청난 피해를 줄 것이며, 금융시장은 급락하면서 또 다른 전염 효과를 낼 것이다. 블랙 스완은 상하 모든 계층에서 일어날 수 있다.
    아무도 도발에 대한 정의를 내릴 수 없다. 미국과 남한 모두 도발에 대한 정의를 내리고 사례를 세우고자 했지만, 이는 이성적인 발상이다. 비무장지대(DMZ)에서 이성적인 행동만이 나오지는 않는다. DMZ에서 지치고 겁에 질린 사람들이 예기치 않은 총격을 유발할 수 있다. 만약 총알 한 발 때문에 세계 1차대전이 발발했다면, 두 번째 한국전쟁이 일어날 가능성도 존재한다.
    – 블랙 스완이 발생한다는 신호나 징조는 없나.
    ▲ 신호가 있겠지만, ‘과거에도 있었던 일이며 평소와 다름없다’고 해석된다.
    하지만, 일각에서는 과거의 패턴이 반복된다기보다는 새로운 패턴이 시작된다고 인식하며 전과 다른 계획을 세운다.
    대부분은 북한의 도발이 과거와 비슷하다고 판단할 것이다. 도발 후 수위가 높아지다 요구가 드러나고 상황이 진정되는 식이다.
    일부는 상황이 조금 달라졌다고 본다. 북한을 대표하는 지도자는 완전히 새로운 인물이다. 그는 알려지지 않은 ‘재화(commodity)’다. 어린데다 경험도 적고 외국에서 교육을 받았다. 그가 고위 군부 대신 권력을 쥔 유일한 이유는 성(姓) 때문이다. 김정은이 지도자가 되면서 북한 개방에 도움이 될 것이라는 시각이 있지만, 오히려 그 반대가 될 수 있다고 생각한다. 김정은의 자질이 고위 군부에 약점으로 인식되는 경우다. 김일성 세대에서 멀어지면서 이번 지도자를 어떻게 이해할지 모르겠다는 평가가 나올 리스크가 커진다.
    – 북한 리스크에서 학습효과가 있다고 보나.
    ▲ 김정은의 정권 장악 이후 학습효과가 약간 없어졌다고 본다. 그가 어떤 시각을 가지고 있으며 무엇을 원하고 이를 어떻게 성취할지 아무도 정확히 모른다. 그 자신도 이제 막 권력을 잡았기 때문에 잘 모를 수 있다. 그는 군부에 통솔력을 증명해야 하며, 이것이 그가 초강경 발언을 쏟아내는 이유다.
    다음 도발이 언제 어떻게 발생할지 모르기 때문에 앞으로도 북한의 행보에 그때그때 일일이 대응해야만 하며, 같은 도발이 있다 해도 상황이 달라질 수 있다. 대응 절차를 세우기가 매우 어려울 것이다. 도발의 정의는 과거 사례를 기반으로 했기 때문이다.
    – 블랙 스완에 대한 대응에 대해 설명해달라.
    ▲ 누구도 블랙 스완이 발생하길 원하지 않는다. 단지 리스크 관리를 위한 계산에 블랙 스완이 고려돼야 한다고 생각한다.
    미국 주택시장 거품이 붕괴하기 전 위기 가능성을 경고한 사람들은 비이성적이라는 평가를 받았지만, 2008년 이들은 갑자기 천재가 됐다. 통념과 반대되는 생각이 언제나 가장 대중적인 생각은 아니다.
    한반도의 평화는 유지돼야 한다. 다만, 일어날 가능성이 매우 작은 상황이 발생했을 때를 대비한 비상계획이 있어야 한다.
    비상계획은 블랙 스완 발생 전후를 모두 아우른다. 이벤트 발생 시 그 여파를 완화하고 사후에는 또 블랙 스완이 나타나기 전에 방어를 위해 쓸 수 있는 수단을 제시하는 것이다.
    예를 들어 금융시장에서 북한 관련 블랙 스완이 발생할 것으로 생각한다면, 국채에 대한 풋옵션이나 신용부도스와프(CDS) 등의 수단을 써서 포트폴리오 전체가 아니라 일부분만 헤지해놓으면 된다.
    – 금융시장이 쓸 수 있는 다른 전략이 있다면.
    ▲ 가격이 하락하면 한국 금융시장이 평가절하되므로 중장기적으로 저가매수 기회가 생길 것이다. 그러나 블랙 스완이 발생했을 때 유일한 방법은 시장에서 탈출이다. 그러나 미국이나 일본, 중국 등 주변국이 크레디트라인이나 외환 스와프를 체결하는 등 한국의 유동성을 지지한다는 짧은 발언을 하는 게 유일한 방법이다. 특히 G2 국가가 중요하다. 금융시장은 심리와 신뢰를 기반으로 한다. 중국과 미국은 신용을 지지할 수 있다. 신뢰가 있다면 시장은 리스크를 저가매수기회로 여길 것이나, 그 반대라면 시장은 바닥을 형성하지 못하고 떨어질 것이다. 다른 국가들이 유동성을 공급한다는 발언으로 한국시장에서 시장 변동을 막지 못한다면 그 여파는 전 세계로 퍼져 모두에게 영향을 줄 것이다. 이런 상황은 아무도 원하지 않는다. 따라서 한국에 도움과 지지를 보내는 일이 모두의 이익에도 맞는다.
    모든 것이 시장에 영향을 미칠 수 있기 때문에 그 어떤 것이라도 블랙 스완이 될 수 있다. 하지만, 금융 시장에서 좋은 점은 리스크를 관리할 헤지가 가능하다는 것이다. 따라서 금융시장에 대한 믿음이 있다. 다만, 모든 가능성을 파악했다고 자만하는 순간 추락해버릴 것이다.
    – 미국이 대화 의지를 보였고 북한은 먼저 사과를 요구했다.
    ▲ 신경전이 계속되나, 이견이 조금씩 좁혀지고 있다. 적어도 아예 대화를 거부하진 않았으니 긍정적이라고 본다. 양측 모두 유연성을 발휘할 여지가 있다. 시간이 지나면서 북한과 미국은 직간접적으로 대화할 것으로 생각한다.
    중국과 미국 북한의 ‘G3’ 회담이 효과적이라 본다. 기존 6자회담 참가자는 너무 많다. 북한이 양자회담을, 다른 국가와 6자회담을 원한다면 3자회담이 타협점이라 생각한다. 대화를 통해 서로 이해관계를 확인하는 것이다. 가장 중요한 것은 신뢰다. 6자회담은 이제 너무 형식적이어서 원조를 받을 수는 있어도 신뢰를 쌓을 여지가 매우 작다. G3에서라면 원조와 신뢰 모두를 얻을 수 있다. 신뢰와 신용이 없다면 금융시장에도 도움이 되지 않을 것이며 지정학적으로도 부정적이다.
    대북 정책에서 성과를 기반으로 한 관계 형성이 괜찮은 대안이라 생각한다. 북한이 특정 기준을 충족하거나 목적을 달성하고 나서 이를 증명하면 더 많은 지원을 약속하면서 한 단계씩 나아가는 것이다. 기본급에 성과급을 더해주는 것과 비슷하다.
    – 북한에 정보의 자유로운 이용이 필요하다고 언급한 바 있다. 실현 가능하다 보는지.
    ▲ 가능하다고 본다. 이미 한국 매체에 대한 암시장이 형성돼 있고 북한 내부에는 인터넷과 휴대전화가 있다. 주민들이 외국 정치권에서 하는 말은 선전이라 생각해 믿지 않지만, 보고 듣는 한국 비디오와 음악은 믿을 수 있다. 이를 원하는 주민들 때문에 티핑 포인트(tipping point)가 발생하면 모든 게 급격하게 바뀔 수 있다.
    소프트 파워(soft power)가 (북한을) 움직일 것이다. 문화와 정보, 이에 대한 갈구가 외교보다 더 큰 힘을 발휘할 수 있다.
    – 경제적 원조보다 영향력이 클지.
    ▲ 개성공단 문제만 봐도 알 수 있다. 개성공단으로 어떤 효과를 거뒀다고 확신하기 어렵다. 북한과 남한 근로자들이 함께 일한다면 이론상으로는 서로 더 가까워지고 극적인 효과가 있어야 하나 그렇다는 이야기를 듣지 못했다. 경제 개혁은 긍정적이나, 남북관계에서 기대만큼 게임체인저(game changer)는 아니다.
    – 북한 리스크 이외에 ‘코리아 디스카운트(Korea Discount)’ 요소가 있다면?
    ▲ 대부분 기업 경영구조와 관련한 것이긴 하나, 많은 진전이 있었다. 또 일본과 중국이라는 두 강대국 사이에 있기 때문에 영토 분쟁 리스크 요인이 있다. 이 역시 블랙 스완이 될 수 있다. 하지만 ‘코리아 디스카운트’는 대부분 북한과 관련한 것이다.

    North Korea, Unplugged: 3 steps towards digital democracy within the DPRK’s cyber-wall

    April 22nd, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    As it stands now, North Korea is about the only country in the world unplugged to the internet. Its southern bordering neighbor state, South Korea, has one of the highest broadband internet penetration rates in the world, and is home to Samsung Electronics, one of the world leaders in mobile technology. Its northern bordering neighbor, China, also has or will soon have one of the largest growing numbers of internet users in the world.
     

    So why is North Korea still unplugged in the twenty-first century? The main reason is fear. That is, fear that such technology will spur a possible insurrection against the powerhold of the Kim dynastic clan that has ruled the country since its inception.
     

    Through internet, once a certain percentage of North Koreans understand that their lives are far from “normal,” a tipping point could occur in which its people will begin to reassess the very authority that has dictated almost all the terms on behalf of its people but not necessarily for its people.
     

    For North Korea’s wifi wall to fall, information freedom must be accessible–with the following 3 steps needed to begin the process towards digital democracy within the DPRK’s cyber-wall (which my recent WSJ Korea Realtime blog today, discusses in greater detail):
     

    (1) North Korea’s 1 million mobile phone users as a social network (albeit state controlled, at present): North Korea already has nearly one million mobile phone users, many linked with 3G access. Spottings of late model Apple iPhones and Samsung devices can also be seen especially in Pyongyang, many smuggled in from China (as are DVDs, thumb drives, and other technologies).
     

    2. Policy speech by South Korea to put diplomatic pressure on North Korea: diplomatic pressure can be put onto North Korea to allow some, even filtered, internet access for its people on its own volition, much like in China today. In this spirit, President Park Geun-hye could make a speech to the effect of “Dear Mr. Kim Jong-eun, tear down your cyber-wall” (somewhat Reaganesque but worded slightly more delicately in consideration of Korean culture).
     

    3. Beam and stream internet/wifi access into North Korea from bordering regions: modern technology can be used by state or non-state organizations to, in essence, beam internet and wifi access along the DMZ and other territories into North Korea. Various technologies could be used to accomplish this. With wimax technology, as just one example, a cell tower quite far away can transmit its signal to a receiver dish that is within its line of sight (the receiver is a relatively small device somewhat resembling a TV satellite dish), which then could transmit its internet signal to a radius of up to 25-30 miles away
     

    For the full WSJ piece (Korea Realtime, April 22, 2013), Jasper Kim: North Korea Needs the Internet, So Let’s Help, click HERE.

     
     
     
     

    Korean Peninsula on edge – inside post-Gen X Kim Jong-Un’s head (Update)

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

    With the Korean peninsula on the edge of a possible multiple missile test, US Secretary of State John Kerry is scheduled to land onshore in South Korea today.
     
    The purpose of Secretary Kerry’s visit is to listen to the situation from an on-the-ground perspective and calibrate such views with those in Washington.
     
    Most likely, North Korea’s actions of belligerent and bellicose rhetoric is another attempt to put fear into the international community as a strategy to bring South Korea, the US, and other states to the bargaining table, as it has done with success in the past. South Korea has indirectly hinted yesterday that it is willing to seek dialogue with North Korea. So it seems that North Korea’s negotiation strategy of bipolar brinksmanship (good DPRK, bad DPRK), is a moderately effective one.
     
    We believe, despite the odds against it, that a possible “black swan” event exists in which a low probability event can occur that results in high levels of potential damage. Neither side of the DMZ wants a war. But the risk is of possible miscalculation by either or both sides. From North Korea’s perspective, artillery shelling of an island or warship killing military personnel and civilians did not lead to a military response from South Korea (e.g., the attack on South Korea’s Cheonan warship and Yeongpyeong Island, both in 2010). Similarly, two missile launch attempts last year in 2011 and nuclear weapons tests in 2006 and 2009 also yielded no military retaliation, only diplomatic consternation. Thus, its assumption (which may no longer be valid) is that a similar, or even slightly amped down action, will likely lead to the same type of direct military non-response from South Korea and/or the U.S. According to the DPRK’s possible war game calculus, at most, only more mere sanctions may be imposed upon it. This would sway most states, but not so much with the DPRK, an already super-sanctioned state.
     
    In theory, economic sanctions should deter a “rational” state. But North Korea is not a fully rational state–rather, the DPRK is an emotional, Stalinist state. Thus, economic sanctions–counter to its intended purposes–has made North Korea more belligerent. Further, indirect recent criticism of North Korea from China’s new president, Xi Jinping, may add to North Korea’s paranoia that the international community is against it. If the DPRK feels like it is being backed into a corner, rational behavior can be trumped by fear, which then leads to action that is viewed as “reasonable” and “defensive” from its perspective, but “unreasonable” and “provocative” from an outside perspective.
     
    It’s been said that North Korea’s post Gen-X dictator, Kim Jong-Un, does not want to commit suicide by attacking South Korea, the U.S., or their allies. But what about the possibility of an “accidental provocation” that was neither intended or foreseen?
     
    If a single bullet triggered conflict in Europe and World War 1, could not a small yet unlikely “black swan” miscalculation–defined to include such iterated or non-iterated acts as artillery shelling, transboundary incursions, military technology testing, cyberattacks as well as traditional military provocations–occur and lead to another conflict in South Korea in the future?
     
    Hopefully not. But just like we have life insurance for remote, statistically unlikely possible events, we should also consider the insurance (foreign/military) policy in the event of such unlikely yet possible future black swan events as it affects geopolitics and our highly interconnected global capital markets.
     
    Some may argue this is overly contrarian and alarmist. But such views were also heralded prior to the subprime crisis. As a geopolitical risk management solution, however unlikely or not, contingency and exit plans in the short-run carry little downside, while buying opportunities may exist soon thereafter as the markets become overly discounted due to such inter-Korean tensions.

     

    See below media clips on this issue:
     
    WSJ: Korean War 2? Tiger Tails and Black Swans – by Jasper Kim

     
    – Austria Broadcasting Corp (FM4): South Koreans “on edge”

     
    Australia Network News (ABC), Newsline with Jim Middleton interview segment
     
    CNN TV interview – with Jasper Kim (Power of the Kim dynasty):

     
    – CNBC TV interview – with Jasper Kim (Worldwide Exchange):
     

     
     
     

    North Korea’s “war” declaration: made for domestic consumption but potential for “black swan”

    March 30th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    North Korea has just declared “war” on South Korea.
     
    This is the latest in a streaming series of increasingly bellicose statements from the DPRK and its 20-something leader, Kim Jong-Un.
     
    While many commentators are taking a bet (position/view) that North Korea will not do anything that will provoke war on the Korean peninsula, we believe that a certain amount of attention must be focused on a possible “black swan” event in which a small foreseen or unforeseen event can trigger retaliation by the other side per the responding country’s rules of engagement. Unlike recent skirmishes and attacks along the inter-Korean border region, this time both Koreas are on extremely high levels of military alert akin to two sprung traps in which even a small event can trigger a larger-scale conflict.
     
    We also believe that most of North Korea’s rhetoric is for the public consumption of North Korea’s military brass and general public, in that order. Such acts are in part an effort, perhaps even a desperate one, to secure domestic support, implying that Kim Jong-Un may be losing support at home. Because of Kim Jong-Un’s age (under 30), and inter alia, that he is the nation’s 3rd-generation ruler from the Kim dynastic clan (a “3-3” risk factor), North Korea’s leader has to take a constant “hyper-hawkish” stance to dispel any notion that he may be weak and dovish towards the nation’s historic enemies. Within a Korean cultural context, even one day difference between two people can vastly change relational dynamics.
     
    Below is a quote from a recent CNN story and video clip related to North Korea’s increasing threats, featuring Jasper Kim of the Asia-Pacific Global Research Group:
    “First and foremost, it’s for his domestic audience,” said Jasper Kim, founder of the Asia-Pacific Global Research Group in Seoul, South Korea. “Because without the support of the military, he won’t be around for much longer. And so he has to bolster his support with the brass.”

     

     

    Korean War 2?: Heightened tensions on the Korean Peninsula push to the edge

    March 22nd, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    Is the Korean peninsula on the verge of a Korean War part 2?
     
    According to Asia-Pacific Global Research Group founder (and professor at Ewha Womans University in Seoul, Korea), the risks of this are certainly notable. Jasper Kim notes that both North and South Korea are engaging in a “dangerous game of tit-for-tat” at all levels–military, paramilitary, and cyber, which “has the potential to end very badly given that the two Koreas are like two sprung traps, which can be triggered at any time.”
     
    We believe that the two Koreas are engaged in a worrisome form of bilateral, bellicose brinksmanship. The recent cyberattacks against some of South Korea’s major broadcasters and banks are likely just the beginning of a continued series of purposely provocative attacks meant to shore up domestic support in North Korea, especially from its military for Kim Jong-Un, while simultaneously trying to ensure a type of “zone defense” in North Korea in the form of nuclear and non-nuclear missile technology.
     
    Below are recent CNN TV appearances on this issue featuring Jasper Kim:
     
     

     

    Kim Jong Un and Dennis Rodman: the odd ambassadorial couple (5 Points)

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

    (The questions below were based in part on an interview with a local South Korean broadcaster)
     
    1) What is the significance of Dennis Rodman’s visit to North Korea?
     
    From a political standpoint, Rodman’s visit to North Korea – accompanied by the Harlem Globetrotters basketball team and executives from VICE media group (a news and media group set to debut a related show on HBO in April 2013) – was significant in terms of Kim Jong-Un’s efforts to turn the one-off basketball event into a global diplomatic event that could appeal to the masses, and as a result, serve as a highly calibrated opportunity to continue its push for legitimacy (from the international community) and sympathy (at the grassroots level from average citizens in and beyond Asia).
     
    2) Why did Kim Jung Un allow Rodman and the Harlem Globetrotters into Pyongyang?
     
    Our view is that the DPRK leader took a creative low risk potentially high reward strategy of using the meeting between the highly visible American basketball envoy and North Korean officials (including Kim Jong Un himself) into a shuttle basketball diplomacy forum–by openly declaring that (1) the North Korean leader not want “to do war” with the United States; and (2) Kim Jong Un’s public declaration for President Obama: to “call him [Kim Jong Un].”
     
    What was notable and fairly striking was that such comments were made so public to such a sports cult of personality like Dennis Rodman – who is both famous and infamous within and beyond the basketball court – instead of through more discrete private diplomatic channels. The bottom line is that the highly covered and highly unlikely meeting of basketball enthusiasts from the U.S. and DPRK was a global public platform for Kim Jong Un to reach out to people around the world at the grass roots level – through the medium of basketball – to place pressure on the international community to perhaps rethink the way that people view the closed Stalinist state (as perhaps not so closed after all).
     
    Such event viewed in context with the DPRK’s past recent acts of increased communication with the international community such as by (1) allowing global media outlets to report on the failed missile launch in early 2012; (2) increased and more rapid reporting of both positive and negative local news events (e.g., failed and successful missile launch attempts in 2012); (3) greater openness in the frequency and range of prominent foreign dignitaries (eg, from Bill Clinton to Eric Schmidt); and (4) increased use of mobile phones by both DPRK citizens (through Orascom/Koryolink, a 3G joint venture service) as well as foreigners being allowed to use social media and the internet (including Google) while visiting and reporting on North Korea, which led to the first tweet from the so-called Hermit Kingdom, represents a less than subtle message from Kim Jong Un to the outside world that he views the opening of the DPRK as inevitable and perhaps even favorable.
     
    Not one event is a game changer, but the culmination of such emerging pattern of openness is certainly deserving of serious attention and analysis.
     
    3) Rodman and Kim Jong Un watched a basketball game together and sometimes talked without a translator. The former NBA star was also invited to Kim Jong Un’s palace for a lavish dinner party. Why did the young leader meet and spend significant time with Rodman, but not Google’s Eric Schmidt?
     
    Kim Jong Un’s decision to meet former NBA superstar Dennis Rodman and not Google’s Eric Schmidt (earlier in January) was probably based on comfort level and cost-benefit analysis by the DPRK leadership. In short, meeting with Dennis Rodman provides relatively more potential upside relative to its possible downsides. Rodman is not known for his diplomacy, which in part, led to Rodman’s positive comments towards Kim Jong Un during his visit as a “friend for life” and “good guy.” Of course, the young Kim Jong Un’s affinity for the Chicago Bulls team (that won six national championships in the 1990s), and in particular, NBA superstar Michael Jordan is well known. So along with the political upsides of the meeting, Kim Jong Un also had the opportunity to directly communicate with one of his coveted sports heroes. On the other hand, Eric Schmidt would represent more possible downside than upside since Schmidt and Google are vocal proponents of free, open, and transparent access to information and the internet–things that are not plainly existent in North Korea today.
     
    4) Rodman’s visit has attracted a lot of attention worldwide. What did Rodman gain from the trip?
     
    Rodman gains from added publicity. As the mantra goes, “There’s no such thing as bad publicity.” And certainly, a high profile visit to North Korea – perhaps the most closed state on earth – catapulted Rodman into the top headlines of news affiliates around the world. Vice, the company that organized and sponsored the trip, also benefits for the same reason–attention and publicity, which can easily be monetized and highly beneficial for their new eight-part TV upcoming series debuting next month in April. As one part of the quid pro quo for the trip, VICE agreed to donate basketball backboards and scoreboards to North Korea, which is actually an effective demonstration of “soft power” and “cultural diplomacy,” ironically made by an upstart magazine rather than at the state level.
     
    5) The visit came only about two weeks after North Korea’s third nuclear test. Does the trip signify a thawing of US-DPRK relations?
     
    In short, we believe that the event is an olive branch from the DPRK generally, and Kim Jong Un, specifically, to the U.S., generally, and President Obama (a huge basketball fan and former basketball player), specifically. Kim believes that the shared interest in U.S.-style basketball can serve as the foundation from which to develop stronger (or at the very least, less antagonistic) relations between the U.S. and North Korea. Also note that the teams were not set up in a “U.S. v. DPRK” team competition, but rather, blended teams in which each team had players from both countries, which culminated into a 110-110 tied score (whether the tied score was pre-orchestrated is another issue). Little downside and even some possible upside could be created by perhaps mirroring the basketball diplomacy efforts with a similar basketball game in the U.S. (possibly in Washington D.C.).
     
    In a time of heightened tensions in and around the Korean peninsula, perhaps it is one of America’s most iconic sports, basketball, that can help bring the U.S. and DPRK closer together to forge a diplomatic solution to the ongoing impasse.
     
    Of course, as many commentators have already noted, North Korea has one of the most dire human rights conditions on the planet. So, obviously, the “sports sunshine policy” analysis here should not be construed to condone or find acceptable the conditions that exist and have existed in the DPRK and its citizens. Also, Dennis Rodman’s role and visit to the DPRK is in no way one as a state-appointed diplomat or ambassador. Rather, this research note’s takeaway is that the sports sunshine policy option between the U.S. and DPRK should be one that could be explored as a way to break the half-century impasse.
     
    Below is an ABC news clip related to Dennis Rodman’s recent trip to North Korea.
     

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    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.
     
     
     

    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).
     
     
     

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