China: The Neighbors Are Restless

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September 28, 2017: In the United States a major credit rating company (S&P Global Ratings) downgraded the long-term credit rating of Chinese government debut (from A+ to AA-) on the 21st. The other two major American credit rating companies (Moody and Fitch) had done a similar downgrade earlier this year. This is mainly about too much debt and how much of that debt is uncollectable (“bad” debt). To make matters worse Chinese banks are suspected of using the same deceptive banking methods (trying to repackage bad debt as good debt) that brought on the 2008 financial crises in the United States. That economic crisis went worldwide and the Chinese government was forced to use a lot of debt to keep the economy moving. But if too much of that debt is bad there is increased risk of an economic crises that would halt economic growth and take years to fix. The government has made this worse by allowing economic data reporting to be “adjusted” to suit the needs of local (provincial) officials. That was bad enough (and is now being fixed) but during several decades of rapid economic growth this flawed data allowed the state owned banks (which still dominate the economy) to lend too much money. Thus debt in China keeps rising. It went from 254 percent of GDP (nearly three times what it was before 2008) in 2015 to 277 percent in 2016 and unless the government can develop some solutions it will be over 300 percent by the end of the decade. What makes this pile of debt trap so toxic is that, much, if not most of this debt consists of loans that the borrower cannot repay, or not repay in a timely fashion. This is reflected in the rising (54 percent more in 2016) incidence of bankruptcy. The government would prefer to avoid the bankruptcy process because it is embarrassing, turns bad debt into losses and exposes details of how the bad debt mess works. The growing bad debt problem, more than the South China Sea dispute, is what keeps Chinese leaders up at night. GDP growth is slowing, it was down to 6.7 percent in 2016 and the new American government is openly discussing economic retaliation against China. That is scarier than the American military because it can be more safely used by the Americans and the Chinese government refuses to discuss this vulnerability for obvious reasons. It is believed that nearly $600 billion worth of these loans are uncollectable. Chinese banks are trying to avoid writing off these bad loans (which hurts bank profits and puts some of them out of business). Many banks are repackaging the bad loans in an attempt to sell them off for far more than they are worth. Chinese banks call these new items WMPs (wealth management products) and assure buyers they are legitimate but offer these bond-like securities with much higher interest rates than other corporate or bank bonds.

The Economic War On North Korea

While Russia is still doing business with North Korea they are, like China also officially cooperating with many of the new sanctions. Despite that China recently had to explain why some trade with North Korea went up in August. China pointed out that the small print in the new sanctions included a “buffer” period that North Korea took full advantage of to export as much of the now forbidden items (mainly coal and seafood). Meanwhile North Korea has increased food imports from China, its main source for this item, which is not sanctioned. Most of the Chinese food imports must be paid for and this points out that North Korea is still finding ways to obtain foreign currency.

Details of North Korean financial transactions have been found by American investigators mainly because much of the international banking system is run by American firms and subject to scrutiny by the American government. The United States has used this access to identify Chinese banks that are quietly cooperating with North Korean smuggling and other illegal operations. In the last week the U.S. has imposed new sanctions on these North Korean banks and advised China that it will sanction Chinese banks as well, and present proof, if the Chinese banks continue to cooperate with the North Korean government. China is not happy with this American decision but the Chinese are in the midst of a major anti-corruption effort and these new U.S. sanctions could either benefit China or become a major embarrassment if China resisted and the Americans went ahead and publicized the details of how these Chinese banks went outlaw and flouted Chinese as well as U.S. laws.

Some sanctions compliance is fairly obvious, like the new rules banning North Korean workers who have long been legally employed in China and Russia. North Korea responded to the foreign worker ban by quietly ordering overseas workers to stay where they are and work illegally (in deals arranged by their government minders). Yet in many instances the export ban on slave labor is being enforced by Russia and especially China and that is hurting North Korea economically.

The North Koreans see this as yet another challenge that can be worked around. While it is true that there are still a lot of corrupt Chinese and Russians willing to do business with North Korea if the bribe is large enough, that is not working as well as it used to in China. This is because North Korea is very unpopular with Chinese in general and a growing number of senior Chinese officials in particular. Russians are less upset with North Korea, since the Russians do not have over a thousand years of history with Koreans. There aren’t many Russians on the small border with North Kore. Thus while having fewer economic resources than China, Russians are more receptive to shady deals. The problem is that North Korea has become very dependent on the much larger and still expanding Chinese economy. Russia simply cannot supply a lot of what North Korea needs. It is still possible to buy the forbidden goods in China and have them shipped to a fictitious customer in Russia who will quietly send it to North Korea. But that is more expensive. Yet right now what North Korea wants the most are materials for building and operating ballistic missiles and nuclear weapons. Russia can do that, unofficially and illegally of course.

Russia can’t admit it openly but a troublesome North Korea is an asset to Russia. The current North Korean government is more of a threat to Japan, the United States and China and that is good for Russia, which has no illusions about the long-range economic and military threat from China. The other East Asian economic giants (especially Japan and South Korea) are also a threat. This was obvious to anyone who noted the recent (August) announcements of increased defense spending among these eastern neighbors. South Korea announced its largest increase (6.9 percent for 2018) in its defense budget since 2009. This is a direct result of the increasing threat from North Korea. Next year South Korea will spend $38 billion, which is more than a third larger than the annual GDP of North Korea (which spends about a third of GDP on defense compared to less than three percent in South Korea).

South Korea is in the top ten of national economies, something which annoys North Korea (and the current Russian government) but is admired by the other neighbors (including China). Meanwhile Japan is also increasing its defense spending by 2.5 percent in 2018 (to $48 billion). Japan, like China and the U.S., are among the top five economies on the planet. Japan, because of the post-World War II constitution the United States insisted on (and Japan did not much object to) has been largely demilitarized considering the size of its economy. That is changing and the U.S. has dropped nearly all restrictions on what weapons it will export to South Korea and Japan and is ignoring treaties it has with both nations that restrict what types of advanced weapons (like ballistic missiles and nukes) they can develop. The Americans would still prefer that South Korea and Japan not build nukes (which both these nations could easily and quickly do). China and Russia would also prefer that Japan and South Korea remain non-nuclear weapon nations. But if North Korean military ambitions and threats (especially against South Korea and Japan) are not curbed popular opinion in South Korea and Japan is becoming more comfortable with the having their own nukes.

Image Is Something

Every nation has its priorities and for North Korea it is all about image. Most people see that in terms of North Korean nuclear weapons and ballistic missiles. But there are other equally important (to leader Kim Jong Un) issues that get little publicity, and that is intentional. In mid-2017 North Korea ordered its secret police to expand its operations in northeast China (the area just across the northern border) so as to suppress news about the growing number of senior and mid-level officials who are, often with their families, illegally leaving North Korea. The single incident that prompted this new secret police effort was the suicide of one of these families (all five of them). The five took poison after being arrested by Chinese police and facing repatriation to North Korea, where they entire family would probably die anyway but more slowly and painfully. The North Korean secret police were ordered to increase efforts to prevent such defections in the first place. That will be difficult because the mood among many North Korean officials can best be described as suppressed (so the secret police don’t take note) panic and increased efforts to escape from the country and get to South Korea.

Senior North Korean officials who have gotten out in the last few years all agree that Kim Jong Un is considered a failure by more and more North Koreans and that his days are numbered, even if China does not step in and take over beforehand. Yet these senior officials report that Kim Jong Un could keep his police state going into the late 2020s. But time is not on his side and the signs backing that up are increasingly obvious. Kim Jong Un has triggered a trend that will destroy him and nothing he does seems to fix the problem. He believes having workable nukes and a reliable delivery system (ballistic missiles) will enable him to extort the neighbors for enough goodies to bail him out. That is a high-risk strategy. Kim Jong Un is betting everything on this and none of the potential victims seems ready to give in and are instead planning to meet nuclear threats with force not surrender. Escalation and intimidation work both ways.

The latest North Korean nuclear and missile tests have caused Chinese public opinion towards North Korea to become even more hostile. According to opinion polls North Korea has, over the last few years, turned into a larger military threat to China than the U.S. or anyone else. To deal with this China has increased the number of troops and border police stationed near the North Korean border and conducted more military exercises close to the border. This also addresses another Chinese fear (that gets less publicity in China) that a government collapse in North Korea would send millions of desperate, and opportunistic, North Koreans into China. There is no way China or the Chinese living along the North Korean border would tolerate that. Meanwhile China is becoming more hostile to North Koreans no matter what their legal or economic status is. Part of that is because North Korea has become a very unpleasant place for Chinese to visit or do business in.

News of the bad treatment Chinese are suffering in North Korea gets around, even when the Chinese government tries to keep the worst examples out of the news. Chinese individuals and firms doing business in North Korea complain that the North Koreans have become even more unreliable when it comes to handling foreign investments from China. In the past China could impose some degree of discipline on North Korea for abuse of Chinese investors and investments. The North Koreans are increasingly ignoring this sort of pressure and as a result Chinese investors are backing away from current and planned investments. China could order state owned firms to do business in North Korea but does not because these firms are poorly run compared to the privately owned ones and would suffer even larger losses when dealing the increasingly treacherous and unreliable neighbor.

North Korea used to be a dependable place, at least for Chinese with the right connections in the Chinese government. While corruption in China has declined in the past few years it appears to have gotten worse in North Korea, to the point where long-term deals are avoided and transactions are made carefully, usually with payment before delivery. The smugglers and various other criminal gangs in China that do business with their North Korean counterparts have been forced to operate this way as well and for the same reasons. South Korea and Japan have already learned how unreliable North Korea can be when it comes to business deals and Russia has already adopted the wary approach to economic deals with North Korea.

China has visibly increased enforcement of economic sanctions on North Korea but this has not made North Korea any more willing to negotiate. The growing number of police and secret police night patrols in areas where North Korean smugglers long operated is hard to miss, as is the fact that when North Korean smugglers are encountered they get arrested and taken away. Even higher bribes (over $3,000 to make an arrest not happen) no longer work because the Chinese cops will still demand that amount of cash before they will turn the smugglers over to North Korean officials. China never came down so hard on North Korean smuggling before.

China is also cracking down on North Korean drug production and smuggling. This is a matter of self-defense for China and is effective because North Korea make the highest profits from methamphetamine (“meth”). But this drug requires a key ingredient (phenylacetic acid, in the form of white crystals) to be smuggled in from China. Now the Chinese are cracking down on that as well as the meth coming into China. North Korea is seeking another, probably more expensive, supplier in Russia.

While Russia is still doing business with North Korea China and Russia are also cooperating with many of the new rules banning North Korean workers they long employed legally. This exported labor was outlawed by the latest round of sanctions. North Korea responded by quietly ordering overseas workers to stay where they are and work illegally (in deals arranged by their government minders). Yet in many instances the export ban on slave labor is being enforced by Russia and especially China and that is hurting North Korea economically.

The North Koreans see this as yet another challenge that can be worked around. While it is true that there are still a lot of corrupt Chinese and Russians willing to do business with North Korea if the bribe is large enough, that is not working as well as it used to in China. This is because North Korea is very unpopular with Chinese in general and a growing number of senior Chinese officials in particular. Russians are less upset with North Korea and, while having fewer economic resources than China, are more receptive to shady deals. The problem is that North Korea has become very dependent on the much larger and still expanding Chinese economy. Russia simply cannot supply a lot of what North Korea needs. It is possible to still buy the forbidden goods in China and have them shipped to a fictitious customer in Russia who will quietly send it to North Korea. That does not always work and when it does it costs a lot more than getting the goods directly from China. North Korea has less cash for the extra expenses. The Chinese know this and are quite willing to slowly squeeze until North Korean leaders are all dead or more receptive to Chinese needs (no nukes next door and fewer desperate illegal migrants). Yet there is the growing risk that North Korea will get (or thinks it has) reliable nukes and keep threatening China. That is not the desired outcome but the Chinese have quietly reminded leaders of both Koreas (and their foreign allies) that in the past China has occupied much of Korea when the Koreans become troublesome.

Meanwhile China is not happy with South Korea either, fearing the growing military power of South Korea and the recent installation of a THAAD anti-missile battery despite vigorous Chinese diplomatic and economic efforts to prevent that. The diplomatic and economic pressure continues but the South Koreans are in no mood to back off as long as the North Korean threat remains. South Korea believes China could do more to eliminate the North Korean threat. While many, if not most, Chinese and Russians agree with that the Russian and Chinese governments still see economic opportunities in North Korea and are unwilling to do anything drastic.

Crushing The Islamic terror Threat

In the southwest the government is losing patience with Pakistan, a country that has become a major trading partner (and customer for Chinese weapons. The problem is continued Pakistani support for Islamic terrorism. Pakistan denies it is doing this but it is so obvious that even China has gone public with criticism of it. While China continues to use its veto to protect Pakistan from the growing number of UN counterterrorism measures directed at Islamic terrorists who operate openly in Pakistan, it recently reminded Pakistan that China is not an “ally” but a “friend.” China was making it clear that these favors in the UN come at a price and the price is Pakistan giving up the state-sponsored Islamic terrorism. Pakistan has much to lose if China becomes hostile and so far there is no response.

One reason for this increased concern was the number of Chinese found fighting for ISIL (Islamic State in Iraq and the Levant) in Iraq. Since June ISIL lost control of Mosul and Tal Afar in Iraq and not only lost over 20,000 dead but over a thousand foreign women who had married ISIL fighters and were now widows, or didn’t know where their men were (some had abandoned their new families) were taken prisoner and interrogated. The foreign women were mainly from Turkey (nearly half), Tajikistan, Russia, Azerbaijan and China. There were smaller numbers from Europe but most of these left early on. Some of these women are guilty of crimes, like murder or helping to organize terror attacks. Questioning these women to find out who needs to be prosecuted has proved to be an excellent source of information on what ISIL has been up to in Iraq and what future plans are. The ISIL women provided interesting details about Islamic terrorist activity in China and how it connects with the sanctuary Pakistan has long provided Islamic terrorists. This has prompted China to increase security efforts in parts of China with a lot of Moslems.

This mostly means the northwest and Xinjiang province where the government ordered all non-Han Moslems to turn in all copies of the Koran and all prayer mats. This was mainly directed at Uyghur, Kazakh and Kyrgyz Moslems. China is planning to introduce a new translation of the Koran for use in China. This version will apparently have pro-terrorism or anti-government passages removed and the indications are that the new version will be largely ignored by Chinese Moslems. In response to that government censors are also blocking access to online versions of the Koran and arresting Islamic clerics who offer Koran lessons online. This recently led to a Hui cleric in Xinjiang being arrested and sent to jail for two years because he was running a Koran discussion group (mainly with family members) on the Internet. “Hui” is a catchall term for dozens of Moslem ethnic groups in in north central China (mainly the Ningxia Hui Autonomous Region). Most Hui are descendants of Moslem merchants from Central Asia as well as local Han Chinese who converted to Islam.

Nevertheless China has become obsessed about suppressing any Islamic terrorism based in China. The reports from Iraq indicate that this has been successful so far, which was why so many Chinese Moslems showed up among the dead and captured in Iraq. But it was also revealed that many of those Chinese Moslems who had survived the collapse of the Islamic state in Iraq and Syria were planning on going back to China and establish Islamic terrorist groups there. Because of that China has increased scrutiny on Chinese Moslems returning from abroad and imposing more restrictions on where they can travel to when they do leave the country.

The government has also increased Internet security, scrutiny and censorship in Xinjiang in particular and throughout China in general against anyone who tries to discuss Islam online. The government of has hired thousands of new police (Han Chinese only) a month for the last year and installed more surveillance cameras throughout the province, particularly in urban areas. Han Chinese man these surveillance systems.

Venezuela

President Maduro, soon to be president-for-life, recently announced that Venezuela would no longer sell its oil for dollars but demanded euros or yuan (the Chinese currency). This will increase the costs of selling the oil and means less income for Venezuela. This seems counterproductive but Maduro is trying to impress China and encourage China to move forward with plans to invest billions to build new oil production facilities in Venezuela. China is willing to say nice things about Maduro but is not willing to risk a lot of additional money. Maduro relies a lot on its mismanaged oil wealth and the fact that China and Russia have loaned Venezuela so much money he believes that it is in their interest to provide the tech and technicians to get the Venezuelan oil facilities going again. China and Russia will do that, up to a point and for a price. Maduro recently travelled overseas to negotiate the best deals he could and came back without much to show for it. That’s how a corrupt and inefficient dictatorship works. You steal what you can and pay what you must to keep it. Since 2013 Venezuelan GDP has dropped 35 percent and per-capita GDP is down 40 percent. Things will get worse before they get better even with a police state. That’s because the new government must put priority on keeping the government employees, especially the ones with guns, satisfied and content to follow orders. You don’t need a Cuban advisor to point that out but the Cubans provide practical advice on how to get it done as quickly as possible. Russia and China are willing to provide the needed equipment on credit once they are assured that Maduro will be around long enough to pay for all this. China is not optimistic about Maduro surviving.

September 25, 2017: Twice in the last few days four Chinese coast guard vessels entered Japanese territorial waters (within 22 kilometers of land) around the Senkaku islands. A similar incident occurred in May and back then one of the four ships clearly had a gun turret, which most Chinese coast guard vessels sent near the Senkakus lacked until then. A growing number of Chinese coast guard ships are actually older warships with some of their weapons removed. In these cases Japan issues an official protest which China dismisses because China does not recognize Japanese claims to Senkaku. There have been a growing number of such incidents since 2015. So far in 2017 there have been nearly fifty similar incidents compared to 30 for all of 2016 (plus 91 incursions in other areas). In early 2016 Japan announced the creation of a new naval task force to patrol and defend the Senkakus. This force consists of ten new 1,500 patrol ships and two older vessels carrying helicopters. Japan has controlled the Senkakus for over a century and says it will use force to retain possession. China has challenged Japan and its allies to do just that. Aircraft incursions (nearly all from China and Russia) into Japanese airspace also hit record highs in 2016.

September 24, 2017: Saudi Arabia is going to become a major investor in the new Pakistani Gwadar port facilities. Pakistan favors Saudi involvement because it makes Gwadar less Chinese dominated operation and assures the Saudis of better access to Chinese export and delivery of Saudi oil via the pipelines that are part of the Gwadar project. Earlier this year China and Pakistan finally signed the agreement that grants China a 40 year lease on new facilities China is building in the southwestern port of Gwadar. The lease grants China most (over 80 percent) of the revenue brought in by port and free trade zone operations. Gwadar is a key part of the $55 billion China-Pakistan Economic Corridor (CPEC). This project began in 2013 when China agreed to spend $18 billion to build a road from Gwadar into northwest China. This will require drilling long tunnels through the Himalayan Mountains on the border (in Pakistani controlled Kashmir.) The road and a natural gas pipeline are part of the larger CPEC project. This will make it much easier and cheaper to move people, data (via fiber optic cables) and goods between China and Pakistan. India fears Gwadar will serve as a base for Chinese warships. Pakistan has no problem with Chinese warships using Gwadar as it helps keep local troublemakers out. Pakistan has assured China that there would be no terrorist violence against Chinese working on upgrading the port of Gwadar and land links north to China. Pakistan is willing to pay a high price to get CPEC done because it means Pakistan has an ally against Iran and even Western powers that might have some violent disagreement with Pakistan. The Saudis are interested not just because of the economic opportunities but also because over three million Pakistanis work in Saudi Arabia and have been there for some time.

September 19, 2017: Chinese and Russian warships began joint training exercises near the Russian Pacific Ocean port of Vladivostok. Chinese warships have been up here before (in 2013) but this time the Chinese warships moved through the Sea of Okhotsk for the first time. This is near the Kuril Islands, which Japan and Russia have a long-standing dispute over.

September 14, 2017: In coincidental, nearly simultaneous, events North Korea fired a ballistic missile over Japan while South Korea fired two Hyunmoo 2 ballistic missiles. One of these failed while the other accurately hit the target area (at sea) 250 kilometers away. The North Korean missile travelled about 2,200 kilometers and landed in the Pacific. Japan said it tracked the missile and did not try to intercept because it was obvious the missile was following a trajectory that would take it far from Japan. The identity of the North Korean missile was not known.

September 13, 2017: China has restricted access to Mount Paektu, apparently for safety reasons related to the recent North Korean nuclear test, which was conducted 110 kilometers away. Mount Paektu is a dormant volcano on the Chinese border. In fact, half the volcano is in China, where it is a popular tourist destination for South Koreans. That’s because Koreans and Manchus (as in Manchuria, the native people of northeast China) both consider Mount Paektu as a sacred place where their tribes originated thousands of years ago. In 2013 North Korea put some silos for their long range (2,000-3,000 kilometers) ballistic missiles up there because that part of North Korea is a triangle, surrounded on two sides by China. This makes it difficult for the Americans to launch air attacks without entering Chinese territory and makes it easier for North Korean anti-aircraft forces to defend against cruise missile. On the down side, Paektu is a dormant volcano that is active (lava flows and the like) about once a century. The last time it erupted (throwing large quantities of rocks and dust into the atmosphere) was in 1703 and an eruption in the late 10th century blew the top off the mountain and created the current 4.5 kilometers wide crater lake. Volcanologists consider Paektu capable of another major eruption but North Korea considers that less likely than an American air attack. So the silos stay, despite the risk of destruction by lava flows and earthquakes. North Korea apparently believes that silos protected by a sacred volcano are a worthwhile investment to ensure that some of long-range missiles will get launched during a crises. China is more concerned about nuclear radiation coming from North Korea. This time China later revealed that the recent nuclear test had no impact on the Mount Paektu area.

September 12, 2017: Chinese radiation monitors on the North Korean border recorded levels were up seven percent since the September 3rd test and have appeared to have peaked. This data was released because the population along the border know that they face some health risks if radiation levels increase too much for too long.

September 11, 2017: The UN approved new economic sanctions against North Korea and both Russia and China said they would enforce them.

September 9, 2017: China ordered all Chinese banks (including foreign banks licensed to operate in China) to not only stop opening accounts for North Koreans but also to close any such accounts immediately. This is a very harmful economic sanction and the North Koreans respond by ignoring the new rules any way they can.

September 6, 2017: A recent online opinion survey in China showed that 66 percent believed North Korea was a greater military threat to China than the United States. Only 10 percent felt the Americans were a larger threat and 15 percent believed the U.S. was no threat at all. This is consistent with earlier surveys only the degree of hostility towards North Korea keeps increasing. Chinese see North Korea has a poorly managed nation that is ungrateful towards China and unpredictable.

September 4, 2017: North Korean living near the site of the recent underground nuclear weapons test are demanding compensation for the damage done to their home by the earthquake (estimated to be 5.6 on the Richter scale) the test produced. Across the Yalu River some Chinese buildings also suffered damage from the quake and several aftershocks.

South Korea announced that its policy towards North Korea will now on “punishment” rather than negotiation.

August 30, 2017: Somalia has received at least a dozen Chinese 4x4 Tiger armored vehicles (similar to armored hummers). These are second hand but free and in working order.

August 28, 2017: China and India agreed to pull back their military forces on the Doklam plateau, near the Tibet border and negotiate terms to avoid another such incident. This confrontation has been going on since June and escalated. The two nations blamed each other for this confrontation in a very inhospitable part of the world. The Doklam plateau is where the Tibet border meets India’s Sikkim State and is near Bhutan and Nepal. Sikkim is small (7,100 square kilometers) and has a population of less than 700,000. China began building a road into Bhutan that was seen as part of a Chinese effort to threaten the Siliguri Corridor (a 22 kilometer wide strip of land between China and Bangladesh that connects northeast India to the rest of India). India had agreed to help Bhutan oppose Chinese efforts to just grab the disputed area (which is 3,000 meters up on the Doklam plateau and has no real value to anyone). China and India had signed an agreement in 2012 to respect the existing Bhutan border. But like most Chinese territorial claims revived recently incidents like this serve to make the Chinese government look like it is “serving the (Chinese) people” and are carried out at little cost in lives or money. So thousands of Chinese and Indian troops have been moved to this inhospitable part of the world because the Chinese government wants some good publicity inside China. There has not been much violence aside from some fistfights and rock throwing.

Meanwhile India reported that its spy satellites had been keeping an eye on new Chinese airfields and bases in Tibet and noted that China was not building up these facilities so they could support a major military operation against India. At the same China very obviously carries out military training exercises near the Indian border. These exercises in Tibet have become a regular event and get larger each year as more Chinese troops learn how to cope with the problems of high altitude operations. Most of Tibet is a high (over 3,000 meters/10,000 feet) plateau and that causes unique problems for people and equipment not prepared for it. Altitude sickness afflicts over 90 percent of lowland Chinese, but hardly any native born Tibetans. Equipment also has problems, as many mechanical and hydraulic items operate differently at the higher altitudes of Tibet. The pilots and maintenance personnel gain valuable experience each time they spend a week or two in Tibet for training. If the border dispute with nearby India ever got hot, China would have to rapidly fly in additional warplanes and operate them from Tibet. But, as the Indians note, there is no way to support anything more than training exercises.

August 27, 2017: South Korea announced its largest increase (6.9 percent for 2018) in its defense budget since 2009. This is a direct result of the increasing threat from North Korea. Next year South Korea will spend $38 billion, which is more than a third larger than the annual GDP of North Korea (which spends about a third of GDP on defense compared to less than three percent in South Korea). South Korea is in the top ten of national economies, something which annoys North Korea but is admired by the other neighbors (including China). Meanwhile Japan is also increasing its defense spending by 2.5 percent in 2018 (to $48 billion). Japan, like China and the U.S., are among the top five economies on the planet. Japan, because of the post-World War II constitution the United States insisted on (and Japan did not much object to) has been largely demilitarized considering the size of its economy. That is changing and the U.S. has dropped nearly all restrictions on what weapons it will export to South Korea and Japan and is ignoring treaties it has with both nations that restrict what types of advanced weapons (like ballistic missiles and nukes) they can develop. The Americans would still prefer that South Korea and Japan not build nukes (which both these nations could easily and quickly do). China and Russia would also prefer that Japan and South Korea remain non-nuclear weapon nations. But if North Korean military ambitions and threats (especially against South Korea and Japan) are not curbed popular opinion in South Korea and Japan is becoming more comfortable with the having their own nukes.

August 25, 2017: Russia and China banned North Korea from establishing any new businesses in their territory or expanding existing ones. The Chinese are a much larger market than Russia and apparently intent on following through.

 


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