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The dominoes begin to fall in China

The dominoes begin to fall in China.

March 18, 2014
Bali, Indonesia

[Editor’s Note: Tim Staermose, Sovereign Man’s Chief Investment Strategist, is filling in for Simon today.]

Forget tapering. Forget Ukraine. The largest single risk to the world economy and financial markets right now is China.

What’s going on in China reminds me a lot of what I witnessed firsthand when I lived in South Korea in the 1990s, before that economy’s crash in 1998.

Just as China now, South Korea was an immature, state-controlled financial system funneling cheap money to well-connected and politically favored large enterprises.

Fuelled by a steady diet of cheap money, these companies kept adding capacity with no regard to profitability or return on capital. They simply focused on producing more stuff and expanding their size. They employed more people, and everyone was happy.

But, all the while, they were borrowing more and more money, until eventually they collapsed under the debt load when liquidity dried up.

Before Korea, the exact same thing happened in Japan, and a giant, unsustainable debt binge brought the “miracle economy” to its knees.

But the Korean and Japanese debt bubbles are nothing compared to what we see in China today.

Consider this: in the last five years, the Chinese created $16 TRILLION in credit that is now circulating in the economy… financing ghost cities and useless infrastructure projects.

Floor space per capita in China is now 30 square meters (about 320 sq. ft.) per person. Japan was at that level in 1988. And the economy burst the following year.

More astounding, this $16 trillion in credit is DOUBLE the $8 trillion in credit that China created in the previous 5,000+ years of its existence.

The Chinese government recognizes it has a problem. It realizes it can no longer keep the dam from breaking. And in the past week, it bit the bullet.

In the last two weeks, Chaori Solar and Haixin Steel were allowed to default, i.e. they weren’t bailed out.

This is the first time in China’s modern history they’ve had a default, let alone two. They can no longer keep the game up, and the dominoes are beginning to topple.

I cannot stress this enough. What we’re witnessing is a major paradigm shift.

Of course, the Chinese government claims they can control the impact of these “relatively minor” corporate defaults.

But as we saw during the sub-prime crisis in the Unites States, the complex web of inter-linkages in the financial system means they are playing with fire.

I expect many more defaults in China in the coming weeks and months. I expect some important Chinese financial institutions to get into trouble.

And I expect the Chinese government will completely lose control over the situation.

My recommendations are 2-fold:

1. If you have any exposure to Chinese stocks, or the Chinese Yuan, I strongly suggest you reconsider.

2. If you have investments in iron ore or copper producers, get out.

But it’s not all doom and gloom. It’s going to take time for China to suffer through this crisis. But, if the Chinese government lets the dominoes fall where they may, the country will be better off in the long term.

The lessons from markets such as South Korea and Indonesia, in aftermath of the 1997-1999 Asian economic crisis, are clear.

If China frees up and liberalizes its financial markets in the face of a crisis, writes off bad loans, and closes down insolvent banks, it will emerge in a much stronger position once the crisis blows over.

And there will be lots of money to be made buying good-quality Chinese shares during the crisis. But, for now, it’s time to brace for the downturn.

South Korean, European Trade Deals Prove Harper Can Land The Big One

South Korean, European Trade Deals Prove Harper Can Land The Big One.

OTTAWA – No one will ever again accuse Prime Minister Stephen Harper and his trade minister of not being able to land the big one.

After years of hooking minnows like Honduras, Panama and Jordan, Ottawa has now not only concluded talks with the world’s biggest economy — the European Union — but also with South Korea and, in doing so, opened the door to the world’s most promising market.

The double-coup will certainly become a bragging point for the prime minister in next year’s expected election campaign — before the impacts of the deals, both good and bad, are felt in the economy.

The prime minister has placed expanding trade, along with balancing the budget, at the top of the government’s economic action agenda and the Conservatives will likely be able to claim progress on both fronts by the fall of 2015.

The agreements also put the opposition — particularly the left-leaning New Democrats — in the unenviable position of either having to cheer “me too” or risk continuing to be portrayed as ideologically set against free trade, rather than a particular deal.

In an interview and news release, NDP trade critic Don Davies reserved judgment until the text of the South Korea deal is released, but blasted the government for an “utter lack of transparency,” and warned about possible damage to jobs in the auto sector.

The reaction from Liberal critic Chrystia Freeland was somewhat more positive, saying the party was “broadly supportive” but will need time to review the details.

Analysts say the South Korea deal, although it is far smaller in scope that the European agreement in principle, has the potential of being transformative in Canada’s dealings with what is becoming the world’s most important and biggest economic regions.

By way of comparison, Ottawa estimates free trade with Europe will expand Canada’s gross domestic product output by $12 billion once fully implemented, as opposed to only $1.7 billion in the case of Korea.

But Ian Lee, of the Sprott School of Business at Carleton University, says Korea’s significance is strategic.

“Now we’re in the major league,” he says. “I see South Korea not so much about the actual dollars of trade that’s involved, but it provides a beachhead into Asia and the Asian-Pacific countries that watch each other like a hawk. So it’s a very important precedent in what I believe is the most important part of the world.”

Next on the menu for Harper and Trade Minister Ed Fast are Japan, India and the biggest prize – the TransPacific Partnership, which includes many of the region’s key economies.

Asia Pacific Foundation of Canada president Yuen Pau Woo agrees Korea represents a “breakthrough” in the region that has resisted Canada’s entreaties for years.

“I think it will have a demonstrable effect on our Japan bilateral negotiations because Korea and Japan compete in our market in a number of sectors (particularly autos) and the Korea deal gives it an advantage over Japanese exporters,” he explained.

Economically, trade deals don’t show their true colours until years have passed.

Most economists and business leaders believe the removal of artificial barriers is a general good for a country’s well being, as it forces domestic producers to become more efficient and competitive, while offering consumers lower prices and a wider variety of goods.

Labour groups, however, argue that the theory works only when the playing field is level. In most cases, they see free trade agreements merely resulting in jobs gravitating to low-wage jurisdictions in a classic race to the bottom.

Ford Canada chief executive Dianne Craig’s chief argument in opposing the South Korea deal is not that the Canadian auto sector can’t cope with the removal of a 6.1 per cent tariff on overseas cars, but that South Korea is not a fair player in terms of trade in autos. The deal will allow South Korea to sell more cars in Canada, she believes, while deploying non-tariff barriers to keep Canadian-assembled cars out Korea.

Still the agreement is supported by the Canadian Council of Chief Executives, which includes Ford Canada and other motor companies as members.

CCCE president John Manley says Ford’s concern has the benefit of putting the government to the test, to ensure Korea does not thwart car imports.

The bigger game, however, is that Canada is positioning itself for the economy of the 21st century that will be dominated by the Asia-Pacific market.

“It’s not enough on it’s own, but it’s consistent with a broader strategy to build better trade links, including supply chains into Asia,” said Manley. “Canada is a small open economy and most of our sectors rely on the ability to export.”

As with the Canada-EU agreement, however, the Korean pact does not guarantee that Canadian firms will be successful in expanding exports and investments.

Toronto-based trade counsel Lawrence Herman says the deal, like all others, should be looked at as a “vehicle” that gives Canadian exporters in goods and services an opportunity, but does not mean they will succeed in seizing it.

He expects they will but also says he is confident that Canadian negotiators have given firms the best deal on offer.

“Canada has some of the best trade negotiators in the world, people don’t realize that,” he said. “They are not going to leave anything on the table.”

Canada-South Korea Free Trade Deal Imminent: Sources

Canada-South Korea Free Trade Deal Imminent: Sources.

canada free trade

CP
Prime Minister Stephen Harper takes part in a bilateral meeting with South Korea President Park Geun-hye during the APEC summit in Nusa Dua, Bali, Indonesia on Monday, October 7, 2013. THE CANADIAN PRESS/Sean Kilpatrick

OTTAWA – The Harper government is set to sign a long-sought trade deal with South Korea early next week, despite entrenched opposition by some in Ontario’s critically important auto sector, sources close to the talks say.

Preparations are underway for a signing ceremony in Seoul early next week, ending nearly 10 years of on-and-off talks that one of Canada’s biggest industries has long prevented from reaching the finish line.

Cracks began to appear in the Canadian auto industry’s united front last month when the association representing Japan’s automakers in Canada came out largely in favour of a deal, saying it would complement the agreement signed in the fall with the European Union and ease talks with Japan.

Another impetus was introduced when Korea was able to successfully complete deals with Canada’s two largest trading partners, the United States and the European Union, leaving Canada out in the cold.

Government officials in Ottawa refused to confirm the agreement Thursday.

The deal, coming on the heels of an historic pact with the EU, will go a long way towards cementing the Harper government’s expansionist trade agenda, and its stated goal that it wants to be a serious economic player in Asia.

Still, significant opposition remains. Ford of Canada chief executive Dianne Craig recently called the 2012 Korea-U.S. agreement a “disaster” for the sector — even though Ford, along with the General Motors and Chrysler, initially supported the pact.

At issue for Canada is a 6.1 per cent tariff on car imports. Critics fear once it’s removed, it will further skew the automotive playing field between the two countries, with Korean-made brands Hyundai and Kia selling about 90,000 units in Canada annually in direct competition with Canadian-assembled vehicles. Korea also assembles autos in the U.S., which it exports into Canada duty free.

Ontario’s economic development minister, Eric Hoskins, said Korea out-exports Canada 50 to one in autos. Hoskins said nothing he has heard from Ottawa so far has eased his concern that Canada’s automakers won’t be even more outgunned once tariffs are removed.

“We want a free-trade agreement that’s good for all sectors, but on autos particularly it’s disadvantageous,” he said. “I haven’t been given information to suggest that the improvements that we’ve asked for have been addressed.”

In particular, Ontario and the industry has asked for a slower phase-out of tariffs and a “snap-back” provision allowing Canada to re-impose tariffs if there’s evidence Korea is not meeting its obligations.

With the deal, Canada hopes to arrest the deterioration in exports to Korea since the U.S. agreement went into effect, particularly in the agricultural sector.

But Jim Stanford, chief economist with the Unifor union, which represents Canadian auto workers, says in effect Canada has traded off “billions of dollars” in the auto sector to win over “tens of millions” in more pork and beef exports.

“It’s a trade of cars for pigs and cows,” he said. “The government is willing to sacrifice autos, which is by far the largest trade item with Korea, in order to make some gains in agriculture and that’s all about the government’s political base in the West.”

Rudy Husny, a spokesman for Trade Minister Ed Fast, said Canadian exports to South Korea had fallen by $1.5 billion — or about 30 per cent — since the U.S. agreement went into effect.

“We will only sign an agreement that’s in the best interest of hardworking Canadians including though the elimination of Korean tariffs and creation of effective tools to counter non-tariff barriers to trade,” Husny said via email.

The data is not clear cut, however. According to U.S. trade numbers analyzed by Washington-based Public Citizen’s Global Trade Watch, the U.S. has also seen the monthly average of exports to Korea fall 10 per cent from prior to the deal. The U.S. Department of Commerce, however, has noted that Ford has increased its export of vehicles into Korea since the deal.

Aside from the auto sector, most business groups in Canada will welcome the breakthrough, particularly if it is the first step to greater economic penetration into the fast-growing economies of Asia.

“Undoubtedly the Canadian-based auto assemblers are concerned, as they rightly should be, but you can’t make trade policy based on only one sector,” said John Manley, who is head of the Canadian Council of Chief Executives, the country’s most influential business lobby group.

“It’s important from an offensive point of view, but it’s also important defensively because, frankly, the United States got in first and they have been methodically taking market share from Canadian producers.”

An agreement will be particularly welcomed by the Canadian agricultural sector, which has complained that Korea’s agreements with other nations has put them at a competitive disadvantage.

Gary Stordy of the Canadian Pork Council said it’s been a straight line down for pork shipments since the Korea-U.S. deal of about two years ago, with exports falling to about $70 million in 2013 from $223 million in 2011.

South Korea is currently Canada’s seventh largest merchandise trading partner and third largest in Asia after China and Japan. But the relationship has been decidedly one-sided, with Korea exports totalling $6.3 billion in 2012 while Canadian shipments totalled $3.7 billion.

N Korea test-fires two short-range missiles – Asia-Pacific – Al Jazeera English

N Korea test-fires two short-range missiles – Asia-Pacific – Al Jazeera English.

Seoul says missiles launched from Wonsan likely flew about 500km towards open sea in a northeasterly direction.

Last updated: 03 Mar 2014 04:02

North Korea has fired two short-range missiles into the sea off the east coast of the Korean peninsula, South Korea’s defence ministry has said, after launching similar rockets last week.

South Korea’s Yonhap news agency said the missiles likely flew about 500km after being launched on Monday, adding that they were believed to be Scud-C models.

South Korea’s defence ministry has said the Scuds are normally fired using mobile launch pads which can be activated with minimal preparation.

“North Korea fired two missiles, which are suspected as short-range ballistic missiles, at 6:19 this morning from Wonsan area towards open sea in a northeasterly direction.” South Korea’s Defence Ministry spokesman Kim Min-seok said at a regular news briefing.

“North Korea is taking peace offensive and provocative acts at the same time. We strictly warn against such acts and strongly urge to stop them immediately.”

The distance would mean the weapon can hit targets in South Korea and Japan.

Launches by the North of short-range missiles are not uncommon as part of regular military exercises.

The firing came days after the beginning of annual US and South Korean joint military exercises, which the North routinely denounces as a preparation for war.

Don’t Be Fooled: North Korea Is Getting Ready to Provoke | The Diplomat

Don’t Be Fooled: North Korea Is Getting Ready to Provoke | The Diplomat.

All signs suggest that North Korea is laying the groundwork to begin a new round of provocations.

zachary-keck_q
February 13, 2014

North Korea appears to be laying the groundwork to begin a new round of provocations, which could very well take the form of a missile and/or nuclear test.

Despite its deliberate (and successful, in the U.S. at least) attempts to portray itself as an irrational actor, North Korea’s provocations usually follow a well-worn playbook. This begins with North Korea mounting a charm offensive that is aimed primarily at South Korean audiences. The purpose of this charm offensive is to create hope that Pyongyang could be turning over a new leaf. Amid this charm offensive, North Korea quietly demands that South Korea and/or the United States do something that Pyongyang knows full well they won’t do. When they predictably fail to meet the demand, Pyongyang insists that it is being provoked, and uses this supposed provocation to justify its brazen actions. This allows North Korea to blame its own actions on South Korea and the U.S., which can be convincing to some audiences in China, South Korea, and even the West.

North Korea has carefully put all these pieces into place over the past few weeks. First, it has launched a huge charm offensive containing more carrots than usual. For example, it has agreed to hold the first family reunions in years between Koreans living on opposite sides of the 38th Parallel. The reunions are scheduled to occur for five days starting on February 20. Important constituent groups in South Korea place a great deal of importance on these reunions, and would be extremely disappointed if they were called off.

Secondly, earlier this month an inter-Korean committee discussing the Kaesong Industrial Complex (KIC)reached an agreement to allow some internet connectivity in the business park in North Korea. It will be the first time any internet has been allowed at KIC in a decade. In announcing the agreement, a Ministry of Unification spokesperson said, “Officials and employees in the North’s border city will be able to use most of the online services now available in South Korea.” The prospect of having the internet at KIC is attractive to the many South Korean businesses that operate there, as well as to those hoping that North Korea will gradually open up to the outside world.

Thirdly, as my colleague Ankit reported, North and South Korean officials held two rounds of talks at the border town of Panmunjom on Wednesday. The talks were held at North Korea’s request. South Korean officials said they were “pleasantly surprised” (in the words of the BBC) to receive the North’s invitation. South Korea’s delegation was led by Deputy National Security Adviser Kim Kyou-hyun, making these the most senior-level talks the two Koreas have held since 2007. Before the meeting began, NSA Kim declared, “This is an opportunity to open a new era of the Korean peninsula. I would like to attend the meeting with ‘open attitude and mind’ to study the opportunity.”

There have also been some less noticed overtures made to Japan and the United States. For example, Kyodo News Agency has reported that Japan and North Korea held talks last month in Vietnam. Tokyo immediately denied the reports, with a Shinzo Abe spokesperson saying that Japan cut off official talks with North Korea after it launched a missile over Japan in 2012. That being said, last May North Korea’s state media announced what was supposed to be a secret trip to Pyongyang by a close Shinzo Abe aide. There have also been reports that the same aide met with North Korean officials last October in northwest China. Thus, the Abe administration’s denial of the meeting in Vietnam last month cannot be taken at face value.

North Korea has been stingier toward the U.S. during this current charm offensive. That being said, it did raise expectations that it might be amenable to releasing the American-Korean prisoner Kenneth Bae, before once again shooting down that possibility. Moreover, Donald Gregg, the former U.S. ambassador to South Korea, iscurrently leading a delegation to North Korea for talks with government officials. Gregg’s trip came at the invitation of North Korea’s Foreign Ministry.

If all this seems too good to be true, that’s because it almost certainly is. Since at least as far back as the middle of January, North Korea has been quietly demanding that South Korea and the U.S. cancel their annual military exercise, Foal Eagle, which will begin on February 24 and run through April. This demand has grown progressively louder as the exercise’s start date nears, and North Korea has threatened to withdraw from the planned family reunions if the military exercise takes place.

As North Korea well knows, there is virtually no possibility that the U.S. and the ROK will agree to call off the exercise, which is precisely the reason it has made the demand. At most, the allies might agree to forgo some parts of the drill that the North sees as most provocative. Even then, they would only do so quietly with no formal announcement.

Pyongyang and Seoul plan to continue discussions ostensibly aimed at finding a compromise that allows for the family reunions to move forward. These are likely to be futile as North Korea almost certainly doesn’t want to find common ground, but rather wants to use the Foal Eagle exercise to blame Seoul for a breakdown in relations.

It’s possible that it may be content with stopping there. However, given how much effort it has put into the charm offensive in recent weeks, North Korea likely has a larger goal in mind. The best case scenario is that the charm offensive has been a ruse to woo China. Chinese-North Korean relations have continued to deteriorate in recent months, with some of the discord playing itself out in public. Beijing consistently urges all parties on the Peninsula to take measures that improve peace and stability, and North Korea may hope its charm offensive — along with blaming the breakdown on South Korea and the U.S. — will put it back in China’s good graces.

The more troubling scenario is that the charm offensive has been laying the groundwork for another round of provocations. If so, there have been a number of signs that suggest that it will take the form of a missile test, likely to be followed closely by the country’s fourth nuclear test. Last week Johns Hopkins University’s 38 North said satellite imagery showed that upgrades to a launching pad were nearing completion, and when finished would enable the site to launch larger rockets.

Then, on Monday, ROK Defense Minister Kim Kwan-jin told the National Assembly that North Korea had finished preparations for a fourth nuclear test, while adding that there were no signs that one was imminent. Still, North Korea’s nuclear tests are almost always preceded by a missile test, which North Korea disingenuously portrays as part of a peaceful space program. It then uses the international community’s “hostile” response to its space exploration to justify a nuclear test.

The 1914 debate: Is Europe’s past really Asia’s future? – World – CBC News

The 1914 debate: Is Europe’s past really Asia’s future? – World – CBC News.

The Japan-China provocations show no sign of letting up

By Joe Schlesinger, CBC News Posted: Feb 08, 2014 5:00 AM ET Last Updated: Feb 08, 2014 5:00 AM ET

People wait to offer New Year prayers at Yasukuni Shrine in Tokyo on Jan. 1. 2014. Both Prime Minister Shinzo Abe and a Japanese cabinet member had just visited the shrine, seen by critics as a symbol of Japan's wartime aggression.  People wait to offer New Year prayers at Yasukuni Shrine in Tokyo on Jan. 1. 2014. Both Prime Minister Shinzo Abe and a Japanese cabinet member had just visited the shrine, seen by critics as a symbol of Japan’s wartime aggression. (Yuya Shino / Reuters)

Photo of Joe Schlesinger

Joe Schlesinger
Foreign Correspondent Emeritus

Joe Schlesinger was a foreign correspondent for CBC for 28 years, covering natural disasters, political upheavals and conflicts from Vietnam to the Persian Gulf. In 2009, the Canadian Journalism Foundation honoured Schlesinger for his body of work.

The Davos economic conference is over, and the presidents, prime ministers and other potentates who attended have gone home with their briefcases full of recipes on how to make the world — and themselves — richer and more secure.

Some of these recipes will surely do some good. Except for one big hitch. The kitchens in which the fate of nations is baked may be in danger of blowing up.

The man holding the fuse aloft is Shinzo Abe, the prime minister of Japan no less.

His warning was that the current tension between his country and China is similar to the rivalry between Britain and Germany that led to the First World War 100 years ago. And it sparked a very angry, un-Davos-like response from the Chinese, one of whom compared Abe to North Korea’s wacky dictator.

While Abe talked in generalities about the trouble brewing in the region, everyone knew that he was talking about the escalating tug of war over the eight contested islands in the East China Sea.

These rocks, some smaller than a football field, are called Diaoyu by the Chinese; they are 330 km from China’s coast and 410 km from Japan, where they are known as Senkaku.

Their inhabitants: moles, goats and albatrosses. More importantly, though, the islands are surrounded by the magical Aladdin’s lamp of our era — oil and gas deposits.

Superpower rules

The area has been controlled by Japan since the days of gunboats and colonial expansion in the 1890s.

And in laying claim to these islands now, China is trying to match its status as a new economic superpower by asserting itself as a military force (as Abe sees it, like Germany did a century ago).

INDIA-JAPANAfter Davos, Japanese Prime Minister Shinzo Abe moved on to India where he talked up the close ties between the two nations as they close ranks against mutual rival China. (Anindito Mukherjee / Reuters)

Two months ago, Beijing announced the creation of an air defence identification zone over the portion of the East China Sea that includes Diaoyu.

The new rules, with their implicit threat of military action against foreign aircraft that don’t identify themselves to Chinese authorities, caused an international uproar.

But the immediate danger is in the military jockeying that’s taking place over these islands.

The warplanes China has dispatched to patrol the area have been challenged by U.S., Japanese and South Korean fighter planes.

With armed planes buzzing each other in a small airspace, there is the very real possibility that a simple miscalculation could lead to war, not unlike the small events that triggered WWI.

Another danger factor is the animosity that still exists between the Chinese and Japanese; in many ways they have never put the Second World War behind them as most other former enemies have.

Echoes of 1914

It isn’t that either Japan or China wants war necessarily — though both are arming noticeably.

What’s more likely going on in the East China Sea is that two of the world’s largest economies — China is No. 2 and Japan No. 3 — have ramped up their bullhorn rivalry as a means of deflecting attention from their own domestic problems.

However, if not checked by the power of No. 1 — the U.S., which is showing its disinclination to intervene abroad militarily — the animosity between China and Japan could unleash a wider conflict.

When 1914 came, there was no hint of the scale of the disaster to come.

Then, as now, the world had gone through a period without the kind of far-ranging wars that devastated continents.

US-JAPAN-SHRINE/A Rising Sun flag with a picture of Japanese Prime Minister Shinzo Abe and Hideki Tojo, Imperial Japan’s WWII general, is burnt during protest outside the Japanese consulate in Hong Kong in December. Large-scale protests took place in South Korea and China after Abe’s visit to the controversial Yasukuni Shrine. (Tyrone Siu / Reuters)

Europe, which endured centuries of bloody conflicts, had been largely peaceful from the 1850s on.

But by the early 1900s, a growing world economy rested on colonial empires. Not just European ones either.

Japan also acquired colonies towards the end of 19th century, mainly by conquering Korea and setting its sights on Russian-controlled Manchuria.

What made being an imperial power so attractive was that it provided cheap colonial labour and raw materials — the equivalent of today’s coveted undersea resources — and turned these colonies into protected markets for the “mother” country’s manufactured goods.

Lines in the sea

In 1914, the world’s two biggest industrial powers were Germany and Britain, who were also among each other’s biggest trading partners.

But the Germans were frustrated because the Brits had the world’s largest empire — and navy. And they became determined to grab a bigger share of the global pie.

Their opportunity came when Archduke Franz Ferdinand, the heir to the Austrian throne next door, was assassinated in June 1914 by a Serbian nationalist.

The Austrians, encouraged by Germany’s promises to back them up with its huge army, blamed the assassination on Serbia and declared war on the Serbian kingdom.

That started the dominoes falling. As expected, Russia came out on Serbia’s side. Germany, in turn, declared war on Russia and, for good measure, on France as an ally of Russia, while Britain joined in as an ally of France.

Once the U.K. became involved, Canada was in automatically as a member of the British Empire.

Even distant Japan declared war on Germany because of an alliance with Britain. And Turkey, which had been at odds with Russia, also joined the fray.

Within four months of Ferdinand’s death just about all of Europe and much beyond was bogged down in a war that would last four years and cost more than 16 million lives.

Some would argue it has continued its baneful influence to this day, from communism to Nazism and the Second World War with its many disastrous aftershocks.

The grievous miscalculations of 1914 should serve all those involved in the current spat over those few rocks in the China Sea as a lesson about the danger of setting lines in the sea and defying the rest of the world with shows of might.

Once the shooting starts it can be too late. As it was in 1914.

Commentary: Japan’s War on History Comes to America | The National Interest

Commentary: Japan’s War on History Comes to America | The National Interest.

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February 6, 2014

Virginia governor Terry McAuliffe has a promise to keep. And it is a promise that tests his and any American governor’s ability to stand up for his constituents against economic blackmail. During his campaign hevowed to support having school textbooks note that the Sea of Japan is also called the East Sea. Japan has reacted to this small addendum by threatening to withhold trade and investment from the Commonwealth.

Japanese ambassador Kenichiro Sasae and a pack of lobbyists have warned Governor McAuliffe that allowing two names for the body of water between Japan and South Korea, North Korea, and Russia would endanger Japanese investment in the State. The Japanese government wants to retain a linguistic vestige of Western expansionism and Japanese colonialism. Korea was a colony of Japan through half of the twentieth century and was forced to abandon its language, geographyhistory and culture.

As a former prisoner of war of Japan, I am familiar with the Japanese government’s use of economic threats to defend its colonial era history and unwillingness to take responsibility for Imperial Japan’s war crimes. Tokyo used these against legislation in 2001 in West Virginia to kill a resolution calling on the Japan to offer a formal apology and compensation to former prisoners of war.

In the spring of 2001, the Rules Committee of the West Virginia House of Delegates unanimously approved House Concurrent Resolution No. 7. As this happened at the end of the legislative session (81st), the full House did not have time to consider the resolution. I was assured that it would be approved in House and Senate in the following year during the 82nd Legislature.

Japan’s Consul General in New York reacted to this delay by sending a letter to West Virginia legislators, Governor, and others stating that the “positive cooperation and strong economic ties” between Japan and West Virginia might be damaged if the resolution was approved. Japan would not buy the state’s coal and steel. His warning was successful and the result was that neither chamber of the Legislature ever reconsidered the resolution.

No governor should allow a foreign government to blackmail his state. Further, no American should allow a foreign government the opportunity to again humiliate its once subjugated peoples. In the end, Governor McAuliffe must decide what lesson that he wants Virginia’s school children to learn: that there are reasonable alternatives to geographic names or that their governor can be swayed by intimidation.

Edward Jackfert, a native of Wellsburg, WV, was a POW of Japan captured on Mindanao, The Philippines. He was twice National Commander of the American Defenders of Bataan and Corregidor.

The Japanese government’s repeated intervention in efforts to set history straight is a painful reminder of the indignities I endured at the hands of my Japanese captors. I was a U.S. Army Air Corps mechanic, surrendered on May 6, 1942 at the fall of the Philippines. I became one of the thousands of POWs shipped to Japan in fetid holds aboard “hell ships” owned by Kawasaki’s K-Line or Mitsubishi’s NYK. In Japan, I was brutalized and humiliated as a slave laborer by four prominent Japanese companies during World War II. I was forced to work for Mitsui, Nippon Steel, Showa Denko, and Nisshin Flour Mills.

There were over sixty Japanese companies that used American and Allied POWs as well as Dutch, Indian, Korean, and Chinese civilians for slave labor. Most are major corporations that still exist and likely do business in Virginia. None have acknowledged or apologized for their use and abuse of these unwilling workers.

Virginians once questioned why a French company (Keolis) that is unapologetic for the Holocaust is allowed to service their VRE rail line. They should now ask why Sumitomo, Kawasaki, and Mitsui rail cars run on the VRE. Conditions in their factory camps (yes, plural) rivaled the inhumanity in those of the Nazis.

I think the Virginia governor should stand up to Japanese threats and ask that maybe it’s time for a means test of corporate responsibility for Japanese companies that want state contracts. Too many Virginians, native born and immigrant, suffered horribly for these companies to now allow them to operate with impunity in the Commonwealth.

Commentary: Will America’s Asian Allies Go Nuclear? | The National Interest

Commentary: Will America’s Asian Allies Go Nuclear? | The National Interest.

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January 30, 2014

North Korea’s nuclear-weapon developments and belligerent rhetoric, along with China’s military modernization and growing assertiveness, are creating direct challenges for Japan and South Korea, Washington’s Northeast Asian allies. In response, the United States has adapted its force posture and declaratory policy, and taken important steps to strengthen deterrence and reassure its allies. The recent decision to send an additional US Army combat force of eight hundred soldiers to South Korea with tanks and armored troop carriers and the pledge to maintain the US nuclear umbrella against North Korean threats is another step in Washington’s efforts to enhance defense of its ally.

While major conflicts have been deterred, it is unclear whether Japan and South Korea are reassured. Publicly and in private discussions, Japanese and South Korean officials insist that they trust US defense commitments. But they ask revealing questions about the conditions under which the United States would act, and how it would do so. They wonder about their roles and responsibilities, as Washington presses them to assume more of the defense and deterrence burden. And they worry about the reduction of roles and numbers of nuclear weapons in US strategy and, despite Washington’s rebalance to Asia, the ability of the United States to defend them well in a fiscally constrained environment. Plainly, US disengagement is a concern.

Could these concerns drive Japan and South Korea to resort to self-help and develop nuclear weapons? Both are technologically capable of going nuclear quickly, and this would be the cheapest way of increasing their indigenous military capabilities. But the real question is whether they would be willing to do so. While Japan remains allergic to the idea of crossing the nuclear threshold, there is growing public support, backed by influential elites, for manufacture of nuclear weapons in South Korea.

Neither Japan nor South Korea would develop nuclear weapons lightly. In all probability, the determining factor in their decision would hinge on its impact on their alliance with the United States.

What reaction, then, should they expect from Washington? There are two alternatives. One is that while unhappy, the United States would keep its alliances to maintain a favorable balance of power in East Asia. That logic would be bolstered by the idea that possession of nuclear weapons by each country would strengthen deterrence of North Korea and China. US policymakers would view Japan and South Korea as the United Kingdom―a US ally with nuclear forces integrated with US forces, with shared nuclear roles and responsibilities―or France―an ally operating independent nuclear forces. In other words, geopolitical dimensions would dominate the US reaction.

The second alternative is that the United States would terminate its alliances. Washington would conclude that permitting a nuclear-armed Japan and South Korea to remain as allies would drive others to follow suit. It would assess that the odds of this happening in Asia are high given growing nuclear latency, complex regional dynamics, and the absence of an organization like the North Atlantic Treaty Organization to hold US allies and partners together. Washington would also fear that this cascade could spill over into other regions, threatening the entire nonproliferation regime, creating instability, increasing war prospects, and ultimately eclipsing the US role as a responsible stakeholder for international order. Here, nonproliferation considerations would drive the US reaction.

Should Washington choose geopolitics over nonproliferation? The short answer is no. In the face of Japan’s and South Korea’s nuclearization, the United States should cut them adrift because endorsing their decision (through a UK-like arrangement) or acquiescing to it (à la France) would be untenable.

Recall that the United Kingdom and France went nuclear before the conclusion of the Nuclear Nonproliferation Treaty (NPT). (Even then, this generated important concerns in Washington.) With nonproliferation now proscribed under international law, entrenched as an international norm, and given such a major focus in US nuclear policy, not upholding it for its allies would be a nonstarter. Significantly, the net result would be a double failure for Washington: a reassurance failure and a failure to enforce nonproliferation rules, exposing the United States to considerable risks it should not take.

The 2010 US Nuclear Posture Review commits the United States to strengthening regional security architectures as needed and in a tailored manner. In Northeast Asia, substantial progress has been achieved through the bilateral consultative mechanisms it has established with Japan and South Korea. As the “strengthening” process continues, Washington should remind its allies that if they broke out of the NPT, they would break up their alliance.

David Santoro is a senior fellow at the Pacific Forum CSIS, where he specializes in nonproliferation and nuclear security, disarmament, arms control, and deterrence issues, with a regional focus on the Asia-Pacific region and Europe. You can follow him on Twitter:@DavidSantoro1.

“Mutated” Bird Flu Kills 19, Infects 96 In 2014 Already; China Says Epidemic Risk Unchanged | Zero Hedge

“Mutated” Bird Flu Kills 19, Infects 96 In 2014 Already; China Says Epidemic Risk Unchanged | Zero Hedge.

The H7N9 mutation of the bird flu virus is “more prone to human infection” than the H5N1 virus, with the fatality rate reaching 20-30%. China’s National Influenza Center (CNIC) has reported athat H7N9 has killed 19 in China this year already and the total number of infections has reached 96. Although , as always, details are few and far between, CNIC’s Shu Yuelong states that “the risk assessment of H7N9 epidemic outbreak is unchanged,” despite the admission that the virus is more difficult to prevent as there is no obvious symptom for H7N9 infected poultrySouth Korea has expanded a poultry cull on fears of contagion.

 

Via Xinhua,

H7N9 bird flu has killed 19 in China this year already, and the total number of human infections has reached 96, according to the Chinese Center for Disease Control and Prevention.

 

Shu Yuelong, director of the Chinese National Influenza Center (CNIC), said on Monday that a large-scale H7N9 epidemic is unlikely during the Spring Festival holiday, as no H7N9 virus mutation that could affect public health has been identified so far.

 

There is no evidence of constant inter-human transmission, and the risk assessment of H7N9 epidemic outbreak is unchanged,” said Shu.

 

Shu reiterated that H7N9 is more prone to human infection than H5N1, with H7N9 case fatality rate reaching 20 to 30 percent.

 

The virus is more difficult to be prevented as there is no  obvious symptom for H7N9 infected poultry, and at present the  CNIC is not able to precisely predict the direction of the  mutation of the H7N9 virus.

 

“We will continue to strengthen monitoring and carry out research,” said Shu.

 

On Sunday, the National Health and Family Planning Commission issued a paper on H7N9 diagnosis and treatment, noting that early report, diagnosis and treatment are the best ways to prevent and control the virus.

And South Korea is slaughtering 1.4 million farm birds…

South Korea is expanding a poultry cull in a bid to contain the spread of bird flu that has been found on an increasing number of farms around the country and in migratory birds.

 

The country’s agriculture ministry said the H5N8 strain of bird flu had been detected on six poultry farms and that there had been 13 cases in migratory birds since the first outbreak earlier this month.

 

No human infection has been reported, while the ministry is looking into four additional reports from poultry farms and more than 50 other suspected cases in migratory birds, it said in a statement on Monday.

 

 

South Korea will slaughter over 1.4 million farm birds, including 644,000 that have already been killed, according to the ministry. That would be under 1 percent of the country’s total 160 million poultry population.

 

The first case of H5N8 bird flu was found on January 17 at a duck farm in the southwestern province of North Jeolla, about 300 km (186 miles) from Seoul.

North Korea ‘executes slain general’s family’ – Asia-Pacific – Al Jazeera English

North Korea ‘executes slain general’s family’ – Asia-Pacific – Al Jazeera English.

Jang was a powerful general in the military before his execution in December [Reuters]
North Korea’s leader Kim Jong-un has ordered the execution of his uncle’s entire family, including his children and relatives serving as ambassadors to Cuba and Malaysia, according to South Korea’s state news agency, Yonhap.Jang Song-thaek, a once powerful North Korean military general, was executed last month as divisions between him and his nephew Kim widened.

All relatives of Jang have been put to death, including even children.Unnamed source for Yonhap.

Kim referred to Jang as “worse than a dog” and “human scum” in his announcement of his execution, which he said was for treachery and betreyal. Pictures showed Jang being led from his office by state security.

“Extensive executions have been carried out for relatives of Jang Song-thaek,” an anonymous source said to Yonhap in a report published on Sunday. “All relatives of Jang have been put to death, including even children.”

The executed relatives include Jang’s sister Kye-sun, her husband and ambassador to Cuba, Jon Yong-jin, the ambassador to Malaysia, Jang Yong-chol, who is Jang’s nephew, as well as his two sons, the sources said.

The two ambassadors were recalled to Pyongyang in early December. The sons, daughters and grandchildren of Jang’s two brothers were all executed, the sources told Yonhap.

One source told Yonhap that some relatives were dragged out of their houses and shot in front of a crowd.

South Korea’s state news agency did not specify when they were killed. The article does not mention any specific sources and the agency is known for its anti-North Korean bias.

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