| 2006 | 2005
North Korea Talks
in Beijing: Last Chance for Conventional Diplomacy Dec
Will Tuesday’s Elections Derail Russia’s Grand
Bargain? Nov 12
New North Korea
Talks Oct 31
Discussions: The Most Important Event This Week Oct 29
The World’s Largest
Initial Public Offering Oct 22
Defense Sept 10
Iran and the U.N: A
League of Nations Moment Aug 26
Will North Korea
Test a Bomb? Aug 19
Is China a
Responsible Stakeholder? Aug 13
North Korea Rejects
U.N. Missile-Test Resolution. What’s Next? July 16
Aflame July 15
Ahmadinejad Goes to
Shanghai June 14
Should We Try to Block
a North Korean Missile Test? June 10
Bank of China’s Initial
Public Offering May 30
Child” May 21
The End of
Diplomacy? Apr 30
Hu Comes to America
Chinese Economy Slow Down this Year? Apr 16
An End to the
Consensus on China Mar 25
Premier Wen Jiabao
Sparks Protests Mar 19
Dark Clouds over
Korea Jan 29
Russia and China:
Where Do They Stand? Jan 12
What Should We Do about
Ukraine? Jan 11
A New Forum for North
Asia? Jan 2
December 17, 2006
North Korea Talks in Beijing: Last Chance for
to disarm North Korea
reconvene tomorrow in the Chinese capital. Moscow
is counseling patience, Beijing urges
flexibility, and Pyongyang
says “everything’s on the table.” Nonetheless, few observers are truly
optimistic about a breakthrough. The negotiations have been dormant for more
than a year due to North
Korea’s boycott. Since the parties last
met in November 2005, the North tested a long-range missile and a nuclear
device. At first glance, it appears improbable that Pyongyang will give up its most destructive
North Korea’s tests—or perhaps because of them—the United States has devoted
substantial effort in recent weeks to make sure that the talks, now in their
fourth year, are a success. Chief American negotiator Christopher Hill has suggested
“stop and seal” its reactor in Yongbyon so that it cannot produce more
plutonium for bombs. In November, President Bush signaled that he was willing
to sign a peace treaty with North
Korea’s leader, Kim Jong Il. For their
part, the Chinese, stung by Kim’s defiance, seem willing to exert pressure on
their only formal military ally.
upcoming session, formally designated as the second stage of the fifth round
of the talks, is the last real opportunity for a deal to come out of the six-party
process. North Korea has
already played its last major card, this October’s nuclear test, and the United States has offered about all it can
give to Pyongyang.
American diplomats have recently been talking about the next few days as a
“fork in the road” or a “last chance.” They’re right. Either the North
Koreans are willing to deal, or they are not.
happens if the upcoming talks do not succeed? In this case, the United States
will have to try something radically new because a failure of multiparty
negotiations will represent an exhaustion of the middle-of-the-road
approaches. If a conventional solution is not possible, Washington will have to enforce even more
coercive measures, engage in “transformational diplomacy,” or devise a
combination of the two tactics. In the absence of real progress this month,
the present course of action is not sustainable.
November 12, 2006
Iran Sanctions: Will
Tuesday’s Elections Derail Russia’s
Russia, with assistance from China, is trying to arrange a grand bargain on
nuclear program. Last week Moscow
revealed the two parts of its strategy. Unfortunately for the Russians,
American electoral politics—or at least Tehran’s
understanding of them—may get in their way.
the beginning of last week, it looked as if the world’s major powers had
irrevocably split over proposed U.N. sanctions. For almost two decades Tehran’s “atomic
ayatollahs” have been trying to build nuclear weapons based on uranium cores.
In July, the United Nations Security Council demanded that Iran stop the enrichment of
uranium by August 31. Tehran
refused to do so.
nations then proposed a sanctions resolution, which Russia proceeded to gut last
week. Moscow simply did not want the Security
Council to impose any penalties or restrictions on Iran. According to Russian
proposals, sanctions would have been left to member states. China, Iran’s other primary sponsor, had
indicated that compromise was not possible. “Clearly, I think in a number of
difficult areas the differences cannot be bridged,” said Wang Guangya, Beijing’s ambassador to
the U.N., this Tuesday.
Friday, People’s Daily, the flagship newspaper of the Chinese
Communist Party, reported that Russia
to freeze enrichment. At about the same time Iran
said that it might consider Moscow’s
proposal to enrich on Russian soil. Such a solution, even with all its
faults, would look more attractive to the West if the Security Council was
hopelessly deadlocked on sanctions. Both Russia
permanent members of the Security Council with veto power, looked as if they
were about to stalemate the U.N.
Moscow’s ability to broker a
deal, however, may have been undercut by the Democratic sweep in Tuesday’s
elections. On Friday, Iran’s
supreme leader, Ayatollah Ali Khamenei, said that “the defeat of Bush’s
hawkish policies in the world” was “an obvious victory for the Iranian
president, the incendiary Mahmoud Ahmadinejad, released a similar statement.
Comments from academics in Iran
confirm that the leaders believe they can be even less accommodating in the
wake of the elections in the United
States. Their analysis of this Tuesday’s
results is flawed—there is zero support for Tehran
in either major political party—but the perceptions of Iran’s leaders will undoubtedly
harden their already intransigent views.
enrichment, as proposed by the Russians, would do little to stop Iran from accumulating the knowledge necessary
to build an atomic device—Tehran’s
technicians would still gain the expertise they are seeking. This April the
Iranians announced they had already enriched uranium, which means they are
just a few years from mastering the techniques for producing fissile
therefore, may soon have to abandon its policy of seeking Russian and Chinese
support for its brand of coercive diplomacy. At this point, a
lowest-common-denominator solution just does not appear to be good enough. No
deal looks better than a weak one at this late stage.
October 31, 2006
New North Korea
Chinese Foreign Ministry announced today that North Korea has agreed to return
to the six-party talks. The talks, held since 2003, have been stalled for a
year while Pyongyang
has refused to participate.
the coming days many analysts will praise Beijing for bringing the North Koreans back
to the bargaining table. China
certainly should be credited with skilful diplomacy. Yet it is much more
likely that Kim Jong Il, North Korea’s
leader, decided to resume negotiations primarily because of the Bush
administration’s tough financial sanctions, which were imposed because of Pyongyang’s
counterfeiting of American currency. During the past year the Treasury
Department has been able to constrict the flow of funds in and out of North Korea
by persuading nations around the world to close the country’s bank accounts. Washington’s efforts
were so successful that the North tied the resumption of the six-party talks
to the ending of these sanctions.
of the talks is a step forward. Yet talking is not an end in itself. The United States
has been talking with the North Koreans about their nuclear program since
January 1992. Negotiations since 1992 have been bilateral and multilateral,
formal and informal. They have been conducted in the capitals of the
participants and in neutral settings. Every conceivable format has been tried
at least once. Talks have been everything but successful.
everyone says that we should talk because diplomacy carries no cost. Yet that
is not true. In January 1992 North
Korea did not have the bomb. Today it
does. In short, negotiations have given dangerous despots the one thing they
needed most in order to arm themselves: time.
let’s by all means talk. But we must remember that talking is not an end in itself
and that coercive measures produced this apparent breakthrough.
October 29, 2006
Iran Sanctions Discussions:
The Most Important Event This Week
most important event in the world this week will take place in New York. In the halls
of the United Nations the international community will discuss sanctioning Iran
for refusing to halt enrichment of uranium. Tehran claims that its program is entirely
peaceful, but evidence suggests that it is really trying to develop its own
nuclear weapons. Once it has mastered techniques to purify uranium, it can
use the material to both power civilian reactors and make bombs.
late July the Security Council demanded that Tehran suspend the enrichment of uranium by
August 31. The “atomic ayatollahs” refused to do so. They are willing to talk
to the international community about their nuclear program, but they refuse
to stop enrichment during the course of any negotiations. On Friday, an
Iranian news agency reported that the country had started a second cascade of
centrifuges—the devices that take uranium in gaseous form and enrich it to
Washington wants relatively mild sanctions,
and Europe is suggesting even weaker ones. China and Russia—Tehran’s primary
backers—are against sanctions of any kind. Beijing
and Moscow propose engaging Iran, but the recent experience with North Korea
demonstrates that this tactic is ineffective in stopping a determined regime
from acquiring a nuclear arsenal. The North Korean example also shows that
the combination of tough rhetoric and weak sanctions does not work. According
to an unidentified Western diplomat quoted in The New York Times, the
Iranians think they can live with mild sanctions because the North Koreans
have been able to do so.
Friday, President Bush said it was “unacceptable” for Iran to have the bomb. He is
certainly correct, but the time for words is over. Now, everyone is watching
to see what he will do to disarm the mullahs. For his part, U.N.
Secretary-General Kofi Annan has said that confrontation is in no one’s
interest. He is also correct, but he and the rest of the international
community have tried negotiating with the Iranians without success for years.
Confrontation now appears inevitable unless we acquiesce to Iran’s present course of action.
Analysts say Iran,
unless it is stopped, will have the bomb anywhere from two to ten years.
this is a critical moment. The failure to disarm North Korea has encouraged the
Iranians to go ahead with their own weapons program. Our response to Tehran’s unmistakable
challenge is where we write our history for decades. After all, Mohammed
ElBaradei, the head of the U.N.’s International Atomic Energy Agency,
estimates that forty nations or more could develop nuclear weapons within a
few years’ time.
international system that cannot defend its most vital interests against its
weakest members—in this case North Korea
last. The stakes, therefore, could not be higher.
October 22, 2006
The World’s Largest Initial Public Offering
China is now launching the
world’s largest initial public offering. The sale of about 15 percent of the
Industrial and Commercial Bank of China
is expected to take in around $22 billion in simultaneous Hong Kong and Shanghai listings.
seems the investing world is now going crazy over financial institutions in China.
When this sale closes, Chinese banks will account for three of the ten
largest public offerings in history. All three bank deals will have occurred
within a year of each other. China Construction Bank went public last
October, and Bank of China followed this May.
surprisingly, the Industrial and Commercial Bank listing is creating a frenzy
among Asian retail investors, some of whom have mortgaged their homes to buy
shares. Goldman Sachs, American Express, and Allianz have already paid $3.8
billion to buy stakes in the bank, China’s largest in terms of
assets, loans, and deposits. Institutions and corporates from Hong Kong, Malaysia,
Singapore, Kuwait, and Qatar have signed agreements to
buy big blocks of shares in the offering. The IPO has attracted $200 billion
in orders from eager institutions.
large and small investors assume that ICBC, as the bank is known, has cleaned
up its balance sheet, tightened lending practices, and reformed management.
This financial behemoth—it has more than 18,000 branches in China and almost 100 locations
offshore —has done all these things. In offering materials released by the Hong Kong exchange, ICBC announces it had a
NPL—nonperforming loan—ratio of 4.1 percent as of June 30. This compares
favorably with its announced ratio of 24.2 percent at the end of 2003. The
marked improvement in the bank’s condition is due in some part to the Chinese
government’s non-recourse acquisition of $76.7 billion in bad loans in the
middle of last year. Moreover, several capital injections and recent
operating profits have permitted the bank’s management to write off
additional doubtful assets.
may be in better shape today than just a few years ago, yet it is unlikely that
the bank’s NPL ratio is in single digits as claimed. As an initial matter,
for the last ten years China
has consistently fibbed about the condition of its banking institutions. A
decade ago Dai Xianglong, when he headed China’s central bank, announced that
bad loans constituted no more than two percent of the total then outstanding.
At the time, foreign observers thought the correct figure was somewhere
around 25 to 30 percent. When the foreign consensus moved up to about 40
began releasing figures showing ratios of around 25 percent.
China is now claiming low
nonperforming loan ratios. The China Banking Association announced that at
the end of this May 8.0 percent of loans held by the 19 largest banking
institutions were nonperforming. This translates into bad debt of
approximately $150 billion.
estimates are many multiples of the domestic ones. This May Ernst & Young
estimated that nonperforming loans on the books of the four largest banks
amounted to $358 billion. The accounting giant subsequently withdrew its
report under pressure from Beijing,
but its findings nonetheless highlighted the dimensions of the problem. Fitch
Ratings and Standard & Poor’s subsequently came up with lower, but
comparable, numbers and essentially confirmed E&Y’s views of the general
magnitude of the bad-loan situation. Congress’s Joint Economic Committee in
July cited the Fitch estimate with approval.
says that it maintained a 30.4 percent share of the loans of the four largest
banks at year end 2005. If we apply that percentage to the Ernst & Young
estimate of bad loans, then ICBC’s share is $108.8 billion. In contrast, the
bank claims that its bad loans at that date amounted to only $19.1 billion.
Could ICBC have done a substantially better job than the other three large
banks in avoiding NPLs? Not likely. It is generally acknowledged to be the
third weakest of the Big Four—which is the reason that it is the third of
them to go public. The $108.8 billion figure may not be precise, but it
nonetheless casts doubt on the accuracy of the bank’s numbers in its offering
officials have complained about Ernst & Young’s methodology of compiling
NPL statistics, yet over the last decade institutional analyses have usually
underplayed the magnitude of the bad-debt situation in the Mainland. And
there is reason to believe that they are doing so now, especially because
fast economic development has weakened the banks in the past and appears to
be doing so at this moment as well.
than half of China’s
recent growth is attributable to investment, and half of that is attributable
to state spending. State spending is ultimately unsustainable because no
government, and especially China’s,
has been able to direct the use of capital efficiently over time.
has funneled much of this stimulus through the banks. Bank lending
accelerated during the first six months of this year: the amount of
outstanding loans as of June 30 was an astounding 10.4 percent higher than at
the end of 2005. Beijing
has pushed the banks to make commercial and residential real estate loans,
and many of them rest upon defective mortgages. A large portion of today’s
consumer loans, also made at Beijing’s
behest, appear to be in trouble as well.
recent loan growth, at first glance, appears modest. Total loans at June 30
of this year were 5.2 percent greater than at the end of last year. Yet the
bank is shifting asset growth to new forms of lending, such as reverse
repurchase agreements—up 18.3 percent in the same period—which are not
considered “loans” in the offering materials. ICBC’s total assets grew at an
extremely fast clip of 9.3 percent in the first six months of this year.
growth is unsustainable, even for well-managed banks in well-regulated
economies. ICBC, unfortunately, is not in good condition today. Like the
other three large banks in China,
ICBC is undoubtedly insolvent from a balance sheet point of view. It remains
in business only because it is extremely liquid. ICBC’s problem, disclosed in
its offering documents, is that the ratio of its longer-term loans to total
loans is growing at a fast pace. This trend aggravates the classic mismatch
of possessing short-term obligations—primarily deposits of individuals—and
long-term assets—loans to enterprises and the like. Any loss of confidence in
ICBC could result in severe liquidity problems.
only thing that prevents the Chinese people from withdrawing their savings
from ICBC is that they do not know its true financial condition. A bank that
depends on the continued ignorance of tens of millions of depositors is
always at risk. And so will ICBC’s new shareholders.
September 10, 2006
The Montaperto Defense
Friday a Federal judge sentenced Ronald N. Montaperto to three months in jail
for unlawful retention of classified documents he obtained while working as
an analyst for the Pentagon’s Defense Intelligence Agency. Montaperto will
also forfeit his government pension and serve three months of home detention.
Prosecutors had requested a much stiffer sentence in line with Federal
has admitted to passing highly sensitive information to two Chinese agents in
approximately 60 meetings stretching back to 1983. In addition to other
things, he revealed sources, information, and intelligence gathering methods.
The Washington Times reported that an American electronic
eavesdropping operation against China failed at a time
Montaperto, according to his own admission, passed secret data to Chinese
agents in 1988. He claimed he was trying to obtain useful intelligence from China
during the course of his surreptitious disclosures to the agents. “I never
meant to hurt my country in any way,” Montaperto said according to The
Wall Street Journal . “My reasoning was wrong, but my intentions were
received the light sentence after current and former intelligence and
military officials wrote letters to the court on his behalf. The judge, Gerald
Bruce Lee, also cited Montaperto’s cooperation with law enforcement officials
and his lack of financial gain.
an initial matter, it is hard to accept Montaperto’s assertions as to his
motive in light of the length of time of his disclosures to the Chinese
intelligence operatives. Moreover, there is reason to doubt the voluntary
nature of his cooperation. This is not a case where someone has a change of
heart and turns himself in. Montaperto talked when he had few, if any, viable
if Montaperto’s motives were as innocent as he claims, the justice system
should take into account the nature of the crime and the injury it has caused
when sentences are handed down. Although we may never know the extent of the
damage, it is probable that almost two decades of disclosures have seriously
harmed the security of this country.
important, the light sentence helps remove the element of deterrence from
spying against the United
States. In fact, we may be encouraging
others to claim what will eventually be known as “the Montaperto defense.” Beijing, I am sure, has
noticed the extraordinary leniency and will be counseling its agents on what
to say should they too be nabbed.
August 26, 2006
Iran and the U.N: A League of Nations Moment
the Los Angeles Times reports that Washington
is thinking of forming a coalition to impose sanctions on Iran if the United Nations
Security Council fails to do so.
late July, the Security Council gave Iran until the end of this month
to halt its enrichment of uranium or face the threat of U.N. sanctions.
Various sources report that at that time China
and Russia informally
assured America and the
EU-3 (England, France, and Germany)
that, if Iran
failed to halt its atomic work by the deadline, they would support the
imposition of minor sanctions, such as travel bans on top Iranian officials
and freezes on their assets.
week Iran delivered its
official reply to the international community: Tehran stated it will not stop enrichment.
This refusal followed the U.N.’s announcement this Monday that the Iranians
barred inspectors from the International Atomic Energy Agency from entering
their underground facility in Natanz, two hundred miles south of Tehran. This refusal
constituted an apparent violation of the Nuclear Nonproliferation Treaty. By
now it is clear that Iran
has not been in compliance with this global pact for about nineteen years.
few days ago Russia
signaled that it did not favor sanctions, and China, in less direct ways, noted
its approval of the Russian approach. Both of these nations are permanent
members of the Security Council and can veto any proposed imposition of
sanctions. Evidence suggests that, at least up to the end of 2003, China
was supplying nuclear technology to the Iranians in violation of its own NPT
obligations. Both Russia
and China maintain
important commercial links with Iran.
concept of a global organization ensuring collective security is truly
inspiring, but in practice the mechanisms of the U.N. are breaking down. For
example, the notion of collective security did not work with regard to Iraq.
The 2003 war would not have occurred had the Security Council enforced more
than a dozen of its resolutions that Saddam Hussein was ignoring at the time.
the international community simply cannot permit Iran’s leaders, who espouse
end-of-the-world views and send arms to subnational groups, to continue to
violate their treaty obligations by building a nuclear arsenal. Of course,
the Iranians might ultimately become responsible custodians of atomic
weaponry, but we have to take them at their word when they tell us how they
want to reorder the world—and whom they seek to kill.
the United Nations, like the League of Nations
before it, is facing a critical moment. Should the Security Council fail to
disarm the “atomic ayatollahs,” America, either by itself or in
conjunction with others, will have to do so. There are no good solutions
outside the U.N. framework. Yet there must be a solution. It need not be
American, unilateral, or military, but it does need to be near at hand. Iran
is taking on the world, and we have no choice but to act if we wish to
preserve the international system.
August 19, 2006
Will North Korea
Test a Bomb?
News, citing “suspicious vehicle movement” and the unloading of cable reels
at an underground facility in northeastern North
Korea, reported on Thursday that Pyongyang may be preparing to test a
nuclear device. Speculation that the North would detonate a bomb began soon
after the failure of its new long-range Taepodong-2, which was launched on
July 4 (U.S.
time) along with shorter-range missiles. Many analysts believe that North
Korean leader Kim Jong Il needs to regain prestige lost after the Taepodong-2
blew up early in its flight. Since 2003 Kim has staged events that appeared
to presage a nuclear test. So will the isolated nation actually go ahead this
time and detonate a weapon?
we know, there are virtually no coincidences when it comes to North Korea.
There are three developments that have so far not been linked to a possible
nuclear test. First, events in Lebanon are returning to normal,
which means Kim can grab the world’s attention again. Moreover, he probably
believes the relations between United States,
his main adversary, and China,
his principal ally, were strained by Washington’s
support for Israel
in its struggle against Hezbollah.
Prime Minister Junichiro Koizumi has just riled China
and South Korea
with a visit on August 15, the 61st anniversary of the end of the Second
World War, to the Yasukuni shrine. Kim, therefore, probably feels he can
split Asia while anti-Japanese sentiment is at a high point. The Japanese were instrumental
in getting the United Nations Security Council to pass a resolution
for the July missile tests. Perhaps Kim thinks he should act while Tokyo, another
adversary, is more isolated than usual.
needs aid due to the recent floods. Pyongyang
has indicated that several hundred have died. It is perhaps significant that
Good Friends, a Seoul-based aid agency that has good ties with the North,
stated this week that approximately 54,700 North Koreans died or were missing
and that 2.5 million people were displaced. The Good Friends report is
probably exaggerated. It could be part of Pyongyang’s effort to obtain additional
assistance. This week the North has accepted aid from both the South Korean
government and the U.N.’s World Food Program, donors that it had spurned
after the July missile tests. A nuclear test probably will not occur until Pyongyang has obtained
the aid it needs to get through the winter.
nuclear test appears to be just a matter of time. And the next few months
look to be the perfect opportunity for Kim to act up. To borrow an old Soviet
term he undoubtedly knows well, the “correlation of forces” is now looking
good for him.
August 13, 2006
a Responsible Stakeholder?
United States wants China
to become a “responsible stakeholder” in the current international system. As
a result, Washington engages Beijing in the hopes
that the Chinese will support its efforts to maintain global stability.
be considered a stakeholder if it is continuing to proliferate nuclear
weapons technology to the world’s most dangerous regimes? In 2003, Reuters
reported that the staff of the International Atomic Energy Agency, the U.N.
nuclear watchdog, identified China
as one of the sources for enrichment equipment used in Tehran’s suspected nuclear weapons program.
As noted in The Wall Street Journal Chinese atomic weapons scientists
were working in Iran
as late as the end of 2003. And as late as last year, various sources,
including non-governmental American intelligence analysts, reported that China sold either centrifuges or centrifuge
parts to Iran.
There are other allegations. A decade from now we may learn that some of
these reports were untrue, but there are too many to dismiss all of them at
this time and say that China is a responsible member of the international
Beijing’s defenders say that China’s
behavior has changed for the better since Maoist days and even since the
middle of last decade. Yes, this is true. Nonetheless, China’s improvement is not the
point. As an initial matter, a decrease in Beijing’s
proliferant activities may be because it has already transferred all
necessary technology to its three main beneficiaries, Pakistan, Iran,
and North Korea.
These days, China
provides diplomatic and economic support to these allies. Now, this may be
the only help they need.
important, the issue is not whether the Chinese are headed in the right
direction. The issue is whether they are moving fast enough. The existing
international system could completely fail if hostile and unstable regimes
obtain the ultimate weapon. Unfortunately, that kind of rapid nuclearization
may soon occur. In 2004, the IAEA estimated that at least forty nations could
build a bomb within a few years’ time. Not all of these countries would be a
threat to global order—but many of them would. Like Iran and North Korea.
regard to Iran and North Korea, Beijing
recently sided with the United
States and the other members of the
international community in the United Nations Security Council by supporting
resolutions to stop their missile and nuclear weapons programs. Beijing’s diplomats,
unfortunately, worked hard behind the scenes to water down the strength of
the texts. As a result, the two votes were only symbolic victories, not real
ones, for the United States
Security Council will have to revisit both matters if Pyongyang
choose to disregard the United Nations resolutions. The real test whether China
is indeed a responsible stakeholder will come when the world body takes up
these matters again. Will Beijing
act like a stakeholder when it really matters?
July 24, 2006
War III has begun,” wrote the thoughtful Michael Goodwin of New York’s Daily News earlier this
month. He dates the beginning of this conflict to the fall of the Berlin Wall
or the first bombing of the World
in 1993. On Friday’s Lou Dobbs Tonight he even suggested it started
with the storming of the American embassy in Tehran in 1979. Others say the war on
terror is really World War IV—World War III, in their view, was the Cold War.
clear the United States
is involved in a global struggle against Islamic fanatics and their allies,
but the use of “world war” debases this term and even the concept of war
itself. For one thing, actual military conflict is confined to one part of
the globe, primarily Afghanistan,
Iraq, Israel, and Lebanon. The broader contest with
militants is global but is not first and foremost a military struggle. We can
talk about a War on Terrorism, but that is more like the War on Drugs than
anything else. Yes, much is at stake, but not all consequential contests are
country that devotes its attention to Bart Simpson, Jessica Simpson, and O.
J. Simpson does not feel like it is at war. Some may argue that we should be
fighting a world war, but in fact we are not.
July 16, 2006
North Korea Rejects U.N.
Missile-Test Resolution. What’s Next?
afternoon North Korea
publicly rejected a United Nations Security Council resolution minutes after its
passage. The unanimously adopted resolution demands that Pyongyang “suspend all activities related
to its ballistic missile program.” It also requires all U.N. members to stop
trade with the North in missiles, missile-related items, and materials that can
be used to manufacture weapons of mass destruction. The resolution, passed in
response to Pyongyang’s missile tests earlier
this month, was the first by the Security Council on North Korea since 1993.
that the North has denounced the U.N.’s action—Pyongyang’s U.N. ambassador used the words
“unjustifiable and gangsterlike”— what will happen? The resolution, although
mandatory, does not contain an enforcement mechanism because China
threatened a veto if it contained a reference to Chapter 7 of the U.N.
Charter. A Chapter 7 resolution would have paved the way for the use of
protected him in the United Nations, Kim Jong Il faces unpleasant options at
this crucial moment. Before the missile tests, North Korea’s leader was in an
enviable position. Both China
and South Korea were
supplying him with all the material and diplomatic support necessary to
sustain his regime, and the United
States, by ignoring him, was giving him
time to enlarge his arsenal of nuclear weapons. Now, however, South Korea
has unexpectedly suspended humanitarian assistance and taken a tougher
diplomatic line. Washington, by extending
economic incentives to Russia,
peeled Moscow away from Pyongyang. Even Beijing, the North’s staunchest ally,
distanced itself from Kim. Finally, Japan, which took the lead in
pressing for the U.N. resolution, found a new vigor in containing the North.
is a one-man state, there is intense politics inside the regime. Kim,
therefore, needs to turn this developing debacle into stunning triumph to
maintain his position. What will he do? Submission to the will of the
international community, although the responsible course of action, would
undoubtedly jeopardize his standing in Pyongyang.
Obvious options for him involve testing more missiles or even a spare nuke.
did not need to start this crisis. Now that he has and the world has
responded, it appears he has no choice but to continue his provocative
July 15, 2006
The World Aflame
the Bush administration is being tested by escalating conflict between Israel and its neighbors, a resilient
insurgency in Afghanistan,
an arduous war in Iraq,
intractable nuclear crises involving Iran
and North Korea,
and a seemingly endless struggle against Islamic terrorism across the globe,
just to name the most prominent crises.
there are general trends that are undermining the United States. Russia and China
are emerging as unmistakable challengers to Washington. In Latin
America there is a leftist wave. To make matters even worse, the
underpinnings of the West are under attack: democracy is failing to
consolidate in strategic locations and the global trading system is about to
suffer a major setback. “I am hard-pressed to think of any other moment in
modern times where there have been so many challenges facing this country
simultaneously,” says Richard Haass, the president of the Council on Foreign
one of the ongoing crises would be hard to manage, but each one becomes more
complex when it occurs in conjunction with others, especially when one
problem cascades into the next. For example, it appears Iran instigated the Hezbollah attacks on Israel
to divert attention away from impending U.N. Security Council deliberations
on its nuclear program. If we remember problems are occurring simultaneously,
we can see why the international system is particularly vulnerable at this
time. “Every situation makes it more difficult to deal with another,” says
Zbigniew Brzezinski, who as Jimmy Carter’s national security adviser learned
something about facing more than one problem at a time.
we have to ask: Can the American-led international system fail at this
juncture? Change, of course, is the one precondition for a collapse of the
current global order. And today there is change aplenty. The risk for America—indeed
for all countries—is that the convergence of crises overwhelms the ability of
nations to cope. It is this complexity that makes crisis especially
June 14, 2006
Ahmadinejad Goes to Shanghai
Iran’s fiery president,
Mahmoud Ahmadinejad, arrived in Shanghai
for the meeting of the six-nation Shanghai Cooperation Organization. Iran
is one of four countries holding observer status in the Central Asian
security bloc and is seeking full membership. The SCO, formed in 2001,
consists of China, Russia, and the Central Asian nations of Kazakhstan, Kyrgyzstan,
Tajikistan, and Uzbekistan.
China insists that the SCO
is not “an eastern version of NATO” and is not directed against any nonmember
country. Nonetheless, last year the SCO, prompted by Moscow
and Beijing, demanded that the United States leave an air base in Uzbekistan.
Beijing was largely responsible for organizing
the SCO and apparently sees the organization as a means of countering
American influence on China’s
presence at the SCO summit comes at a particularly sensitive time in Tehran’s relations with
the international community. Iran
has yet to formally reply to a Western package of incentives to halt
enrichment of uranium. Ahmadinejad has been defiant of the West and the
U.N.’s International Atomic Energy Agency in part because of diplomatic and
commercial support from both China
The Iranian president is using his trip to Shanghai
to show that his country is not isolated on the nuclear issue, as Washington claims.
Beijing often criticizes America’s “Cold War mentality” and claims that
rise will be peaceful. Hosting renegade Iran
at this moment, however, is an indication that Chinese intentions may not be
so benign. At the very least, Ahmadinejad’s visit is another sign that Beijing’s foreign policy
goals are inconsistent with those of the West.
June 10, 2006
Should We Try to Block a North Korean Missile Test?
the middle of last month various news organizations have been reporting that
the North Koreans are preparing to test a ballistic missile, possibly a
Taepodong-2. Their last test of a long-range missile occurred in August 1998.
conducted a test of a ballistic missile, it would be in violation of a
self-imposed moratorium declared in September 1999.
Washington has been urging Pyongyang not to test a missile. In the
past, Washington has also tried to block North Korea
from testing a nuclear weapon.
the United States continue
to urge North Korea
not to test its weapons and missiles? Most everyone assumes we should
maintain our efforts in this regard.
should not try to prevent North Korean testing. It’s not as if time favors
us. It does not. The North Koreans, unfortunately, can improve their
inventions with computer simulations and continue development in secret. If
they have the capability to detonate weapons or launch missiles, we need to
know about it. An actual test, therefore, can help us as much as it helps
it’s not as if a test would inspire other bad actors around the world.
They’re already moving ahead at full speed. Iran is proof of that.
Bush administration, of course, does not want another crisis at this time.
But as more than five decades have proven, the North Korean problem only gets
worse over time. We need to deal with Pyongyang
now, whether or not it tests its capabilities.
May 30, 2006
Bank of China’s
Initial Public Offering
The Wall Street Journal, in an article dated today, raises concerns that America is losing some of the larger initial
public offerings from China
because of the Sarbanes-Oxley legislation, which contains tough
corporate-governance rules. Bank of China’s shares begin trading on the
Hong Kong Stock Exchange this Thursday. If, as expected, the
overallotment option is exercised in full, the offering will take in US$11.2
billion and end up as the fourth largest in history.
Street, of course, should be concerned that it is losing any business, but
the American investing public is better off without access to the Bank of
China offering. As an initial matter, the bank claims that its
nonperforming loans at the end of 2005 comprised only 4.9 percent of its
total portfolio. The real number, however, is probably many times
higher. Official NPL statistics of Chinese banks have been—and
remain—notoriously unreliable. Bank of China and the other large
Chinese banking institutions have been reporting sharp decreases in bad loans
in recent years. These decreases seem mysterious, however, in light of
various factors. The most important of them is a rapid expansion of
lending that is inevitably creating new bad loans.
Bank of China in the last few days announced plans to increase its corporate
and retail lending in each of the next three years by 10 to 20 percent.
It is extremely unlikely that any bank, especially one in such a badly
supervised market as China’s,
can blow up its balance sheet and not suffer a large drop in loan
of China, in sum, appears dangerously overvalued. No wonder its
management avoided Sarbanes-Oxley and America’s
security rules by listing in Hong Kong.
May 21, 2006
The “Spoiled Child”
People’s Daily, the self-described mouthpiece of China’s Communist Party, called
the American dollar a “spoiled child” on May 19. Its long analysis says
that the United States
is behaving irresponsibly as the guardian of the world’s reserve
currency. The Chinese newspaper, without referring to the Federal
Reserve by name, castigates the American central bank as “selfish” and
“self-indulgent.” Its general criticism of Washington’s economic policies is equally
People’s Daily has been carrying articles to the same effect for the
past nine months or so. The spoiled-child story, however, is markedly
different in tone. The paper’s May 19 rant does not use Cultural
Revolution language—there is no mention of “running dogs” or “dunces” for
instance—but it nonetheless goes far beyond the polite discourse governments
typically employ in discussing the currency policies of other nations.
we are seeing, Beijing
is becoming more assertive than cooperative when it comes to currency and
trade matters. China
is clearly a stakeholder in the global trading system, but it may not become
a responsible participant if recent events are any guide.
Beijing’s leaders are
continuing to make the wrong choices regarding currency and trade.
Therefore, we need to ask whether they will also continue to make
irresponsible ones in geopolitical matters.
April 30, 2006
The End of Diplomacy?
Bush administration, according to recent reports, has concluded that Kim Jong
Il will not agree to give up his nuclear weapons under any set of
circumstances. As a result of this assessment—made toward the end of
last year—Washington has taken steps to shut
down diplomacy with Pyongyang and step up
coercive measures against North
Korea’s economy. At this time it is
not clear that there will be another round of the six-party talks sponsored
if President Bush’s conclusion is correct about Kim’s intentions, now would
be the time to accelerate diplomacy. Diplomacy, at this time,
carries no cost and potentially promises substantial benefits.
Virtually everyone says that the key to a resolution of the nuclear crisis is
China, but the key to China is South Korea. Chinese
supremo Hu Jintao has been able to protect North Korean autocrat Kim Jong Il
because South Korean President Roh Moo-hyun is doing the same. As a
result, South Korea
provides cover to China
to act irresponsibly. So stripping Seoul
from the Beijing-Pyongyang axis should be Washington’s most immediate tactical
The key to winning over
Seoul is influencing South Korea’s
almost evenly-divided public. The election to pick President Roh
Moo-hyun’s successor will be held in December 2007. Roh has an approval
rating just above 10 percent—he makes even President Bush look popular in
comparison—and his Uri Party has lost every bi-election in the last
year. There is a growing New Right movement in South Korea
so the conservative Grand National Party can win the presidency next
time. Between now and then the White House can help the conservatives
take over the Blue House by making Kim Jong Il look bad and thereby
discrediting the so-called “progressive” forces in the South. America can do that best by making attractive
proposals to solve the nuclear crisis because North Korea will turn them down
anyway if the Bush administration is correct.
can help South Korea
reverse course, the Chinese will be alone in their support of Pyongyang and will,
therefore, have to take a clear stand. They will have to choose between
their future, cooperation with the United
States, and their past, the alliance with North Korea.
In this situation, it is unlikely that Beijing
would openly defy America.
April 16, 2006
Hu Comes to America
Jintao’s itinerary for his trip to the United States is revealing.
From his schedule it is apparent that the Chinese leader is more interested
in influencing the American people than cooperating with their
government. He will spend more time courting the presidents of
Microsoft, Boeing, Starbucks, and Yale than the President of the United States.
are, of course, many contentious and important matters to be discussed
between the leaders of the world’s most populous state and its most powerful
one, but Hu Jintao prefers to limit contact with George W. Bush. Hu has
consistently minimized substantive conversation with his American counterpart
during previous meetings. He is perhaps the only head of state to turn
down a Crawford visit—an appointment in Texas would have made substantive
short, our government is trying to engage the Chinese, but they see less need
to engage ours. If we can draw any conclusions from Hu’s continued
reluctance to chat, it is that China
fears there is more to lose than gain from a change in its relationship with
the United States.
Beijing is getting almost all that it
wants from Washington, yet Washington
is not getting what it needs from Beijing.
So it’s no wonder that the Chinese now appear intransigent. China’s
primary method of addressing the unsustainable trade balance, for instance,
is to publicize purchases of American products that it would have made
anyway. There has been no substantial decrease in governmental
interference in setting the value of the Chinese currency. Despite our
pleas, we have seen no progress in eliminating illegal subsidies to
state-owned enterprises and almost none on stopping piracy of foreign
intellectual property. There have even been attempts to erect new trade
barriers. As the headlines indicate, the Communist Party has over the
course of the last half year cracked down hard on Chinese society from the
Internet to television to newspapers. Beijing
has not extended appreciable help to the West on North
Korea and almost none on Iran. The People’s
Liberation Army is continuing to spend money at a fast clip and is doing so
in nontransparent ways. Beijing has
intensified its efforts to remove American influence from Asia
and the Pacific. As Derek Mitchell of the Center for Strategic and
International Studies says, “there is a sense that the Chinese are not giving
can understand why the Chinese want to take, take, take, but it’s a mystery
why we desire to give, give, give. By now it should be clear that we
need to fundamentally change our policy toward China.
we should not expect the Chinese leader to suggest altering his nation’s
relationship with America.
Hu Jintao’s primary motive for coming to Washington, D.C.
seems to be participation in elaborately staged photo opportunities so that
they can be replayed on China Central Television, the state
broadcaster. Few things can more legitimize the rule of an insecure
autocrat than the pageantry of a summit with the head of the world’s leading
democracy. In an era when America’s avowed goal is to end
tyranny, why are we helping to buttress the uncooperative government led by
April 16, 2006
Will the Chinese Economy Slow Down this Year?
few days ago Yao Jingyuan, chief economist of China’s National Bureau of
Statistics, suggested that his country’s gross domestic product will grow
over nine percent this year. The central government had earlier
targeted growth of eight percent for this period. GDP growth for 2005
was a sizzling 9.9 percent according to official statistics.
are, however, an increasing number of reports, both domestic and foreign,
indicating that Chinese economic growth will be far lower. For
instance, Lombard Street Research, a London
firm, has predicted that growth this year will be just a little more than
half of last year’s. The famous Jim Walker of CLSA, the Asian investment bank,
forecasts a slowdown too, although his estimate of about 7 percent is less
dire. A think tank affiliated with China’s National Development and
Reform Commission says that growth could fall to 7.5 percent.
are many reasons to predict a slowdown of Chinese growth. There are new
investment curbs in China,
foreign direct investment might fall, and American consumers may lose their
capacity to buy Chinese goods, among other reasons. Moreover, there is
always the gravity argument: at some point, China’s economy must come back to
downbeat forecasts are probably off target due to the Olympics factor. Even
if the Chinese economy would slow on its own this year, it is unlikely that
the leadership in Beijing
will permit a downturn in growth rates before the Summer Games in 2008.
Since the end of last decade, the central government has been pumping up growth
through it program of fiscal stimulus. If the economy slows in the
second or third quarter of this year, we will probably see increased pump
some point there will be a downturn. Many countries have experienced
economic difficulties after hosting the Olympics due to falls in tourist
revenue and government spending. China is particularly vulnerable
to a correction. The country has not had a recession since 1976, the
year Mao Zedong died, according to government statistics. The Chinese
are due for a sizable downturn, but it’s unlikely to occur this year.
March 25, 2006
An End to the Consensus on China
consensus about China
has underpinned American foreign policy for more than a decade. Most of
us have believed that our engagement of Beijing
would lead to a more democratic and benign nation. Therefore, Washington’s goal has been to integrate China into
the international community. The concept is simple: if we extend a hand
to the Chinese, they will respond.
China has benefited from this
indulgent approach, which is one of the reasons that it has developed so fast
since the early 1990s. We have helped Beijing
and even overlooked irresponsible conduct in the hope that China would
a result, we have, over time, inadvertently created a set of perverse
incentives. The Chinese engage in bad behavior. We provide
benefits in the hope they will change. So they continue their
irresponsible conduct. We continue to reward them. In these circumstances,
the Chinese have naturally become more assertive than cooperative.
is not to say that China
has not taken some steps in the right direction, but many Americans, ever
hopeful, exaggerate Beijing’s
cooperation such as it has been. We have been looking at China the way
we want it to be, not the way it actually is.
a decade free-trade views have determined our relations with Beijing. This is changing as the
general consensus toward China
is starting to break down. And as trade frustrations mount,
geopolitical concerns will come to prominence as well. It is becoming
increasingly clear that China
is an obstacle—and perhaps the main obstacle—to America achieving its most
important national objective, the denuclearization of rogue states. China has been the primary proliferator of
nuclear weapons technologies since the mid-1970s when it began helping Pakistan
develop its first nuclear device. It is also the principal supporter of
North Korea, a main backer
and a friend of virtually every other nation that now wants the most
destructive weapon in history.
U.S.-India nuclear deal is significant because it signals Washington’s
frustration with China’s
proliferation and even relations in general. The subtext of the
agreement is that the United States
cannot stop China’s
proliferation so it will counteract it with proliferation of its own.
This could be the first visible step to changing the general approach of
cooperating with the Chinese.
are beginning to see China
as the present danger that it is. As Beijing
steps to the forefront as the primary enabler of the Irans and North
Koreas of the world, security concerns will overpower
free-trade considerations in Washington.
And that is the way it should be in this especially troubled time.
demonstrates that China
will not be a constructive force until we act to make it one. Because
the international community is at an important, if not critical, juncture,
now is the time for a comprehensive review of our general approach toward Beijing. Hu
Jintao’s upcoming visit to the United States
is the perfect opportunity for Washington
to begin a more sensible foreign policy.
March 19, 2006
Premier Wen Jiabao Sparks Protests
four hundred peasants from Luxinhe, near Tianjin, protested the seizure of their
land last week, according to Agence France-Presse. The protests
occurred in that village and in front of the Xiditou township government
headquarters. The villagers were apparently encouraged by Premier Wen
Jiabao’s words at the recently-concluded National People’s Congress meeting
As one woman from Luxinhe said, “Premier Wen said our rights should be
protected—we feel justified and heartened.” The premier, at his
televised NPC press conference, stated, “We need to respect the democratic
rights of the farmers, especially their right to independently operate their
Wen’s words highlight the danger to authoritarian regimes when they try to
reform. Peasants, like the ones in Luxinhe, may take to the streets
regardless of the attitudes of central officials, but their protests will
become more frequent and defiant if they believe the central government
supports their general objectives. As many observers have noted, the
Chinese demonstrate when they think they can get away with it. Wen
Jiabao, therefore, may be unintentionally encouraging even more
demonstrations in China’s
Wen, the acceptable face of Chinese communism, will be overseeing a rural
spending plan for this year. Yet money is not the real issue, and
spending more of it may just aggravate matters in the countryside, especially
if government funds are wasted or embezzled by corrupt cadres. The
Communist Party, unfortunately, is not ready to provide the two things that
are necessary to stem rising rural discontent: justice and enforceable
National People’s Congress recently deferred passage of the long-delayed
property law. The law is considered too controversial to be enacted at
January 29, 2006
Dark Clouds over Korea
“Dark clouds of a nuclear war are
hanging low over the Korean
official Rodong Sinmun said yesterday. North Korea
often makes exaggerated threats and dire predictions. The international
community for the most part ignores Pyongyang’s
heated language. And most of the time, that is the correct response.
But perhaps we need to pay
attention now. Today, the six-party talks, which have been held since
2003, are stalled. None of the three main participants—North Korea, China,
to want a settlement. Some observers are even beginning to say that
these nations really hope the talks will fail. It is not clear that
this is in fact the case, but the current state of affairs—a deadlock—is
Perhaps that is why the United States
is stepping up efforts to improve its bargaining position. Washington has been trying to cut off North Korea’s
income for a long time. In the last few months, however, the United States has redoubled its efforts by
imposing sanctions to stop Pyongyang’s
counterfeiting of American currency. Kim Jong Il has a history of using
violence to upset a status quo he finds unacceptable. He undoubtedly
finds it unacceptable for Washington
to stop the flow of cash to his regime. In these circumstances, any
miscalculation—whether by North Korea
or the United States—could
have enormous consequences.
For more than a half century a
nuclear war, even if foreshadowed by dark clouds, has been inconceivable.
We appear to be approaching a time, however, when conflict of that sort is
less so. If there were ever a moment to seek a lasting solution on the
Korean peninsula, it is now.
January 12, 2006
Russia and China: Where
Do They Stand?
Iran, asserting its rights
as a sovereign nation, insists on enriching uranium with its own technicians,
in its own facilities, on its own soil. Europe and America suspect that Tehran is carrying on a nuclear weapons
program. As a result, they have threatened to bring Iran before
the United Nations Security Council. Some believe that it is pointless
to do this because Russia,
and especially China,
will veto sanctions.
Perhaps they will exercise their
veto. Yet it’s time to put Moscow and Beijing on the
spot. We need to know whether their leaders stand with the West or
against it. We have patiently engaged Russia
and they in turn should act responsibly on a matter of great
The Iranian nuclear crisis not
only tests the resolve of Western nations. It also is a test of Moscow's and Beijing’s
January 11, 2006
What Should We Do about Ukraine?
In the first days of this month
Russian President Vladimir Putin, acting through the Gazprom monopoly, tried
to undermine the new democracy in Ukraine. Gazprom wanted to
quadruple the price for natural gas delivered through a pipeline. Putin
ultimately stumbled and has had to make a more reasonable deal with Kiev, but his clumsy attempt raises an issue: Should the
United States try to
further encourage Ukraine
to become part of the West and provide a security commitment? Yes, I
think we should, even at the risk of alienating Russia.
The ongoing insurgency in Iraq shows
that building democratic institutions can be a chore, so defending existing
democracies is especially important. Putin is not going to stop making
trouble just because he failed in his initial attempts to tame Ukraine
through his control of energy supplies. There are so many other former Soviet Republics for him to destabilize and
so many more autocrats to support. If he sees that the West is serious
in assisting Kiev,
however, he may learn to better accommodate his small neighbors.
January 2, 2006
A New Forum for North
Eurasia Group, a political risk
consultancy based in New York,
is sponsoring the creation of the Northeast Asia Regional Forum. The
forum is slated to include the United States,
China, Russia, Japan,
and South Korea.
If the new grouping is formed, the five nations will meet regularly to
discuss “key energy, security, and economic questions.” The next issue
of Foreign Affairs will include an article discussing Eurasia’s plan.
Eurasia, among other goals, would
like to help China and Japan settle
their many differences. The problem is not that there are no venues for
these two nations to talk. There are already many organizations in or
covering East Asia—Apec, Asean, Asean Plus Three, the Asean Regional Forum,
the Boao Forum, the new 16-member East Asia Summit, just to name the ones
that come to mind at this moment. The underlying problem is that
neither China nor Japan really
wants to accommodate the other.
Chinese leaders talk of peace yet deliberately
miss opportunities to converse with their Japanese counterparts. A
pattern of irresponsible Chinese behavior, punctuated only too rarely by
signs of cooperation, is hard to ignore. Nor should we ignore the
possibility that reforming totalitarians—or authoritarians if you prefer—with
territorial ambitions may not be good dialogue partners. History may
not provide clear lessons, but it does show patterns for those who care to
Japan’s leaders may want to
be accommodating, but they must listen to the Japanese public, which may have
passed a no-return point recently. For the first time since the end of
World War II ordinary citizens have a say in Tokyo’s foreign policy, and the
exasperation factor is evident, especially after the revelation of North
Korean abductions of Japanese citizens. So even if Prime Minister
Koizumi wants to settle matters, he has little room for maneuver. In
a nation that once embraced pacifism, now is beginning to feel that it is
counterproductive to exercise restraint.
These two countries don’t need
confidence-building measures, more opportunities to talk, or even Dr.
Phil. They have serious disagreements that require settlement at this
time. They need pressure from outsiders to force them to come to terms,
because it is unlikely that they will do that on their own. The issue
is whether that pressure can be applied in the multilateral setting proposed,
the Northeast Asia Regional Forum. In some multilateral settings
countries disagree and produce nothing but deadlock. The ongoing
six-party talks on North
Korea’s nuclear program is an example
where talking has proven to be nonproductive—and perhaps even
What is really needed is for
someone to deliver tough words to China
Preferably those words will come from neighboring Asians, but that’s not
likely to happen. The United
States may not have more important
priorities, but it is nonetheless focused elsewhere. In this context,
we have to ask ourselves what formalized multilateral diplomacy can
Of course, talking is preferable
to other options, but only in general. There are instances in living
memory where negotiations have only made matters worse.
© 2006 Gordon G. Chang