North Korea: China's Problem, Not America's

September, 2017

Markets have been little moved by the escalation of the North Korean conflict, claims Diana Choyleva in the latest Enodo Weekly from Enodo Economics. They may well be right that short of a nuclear war, in which case all bets are off, Kim Jong-un’s provocations are unlikely to have an immediate material impact. But, together with China’s relentless rise, these are tectonic shifts in the global political order. They argue for an increase in equity risk premiums to levels not seen since the Cold War.

As I write this Weekly, a vivid memory has come to my mind. I see myself, age 11, sitting in our kitchen in Communist Sofia with my English tutor doing a dictation and feeling proud that I got the phrase “nuclear disarmament” right.

Since then, the main nuclear weapon states – France, China, Russia, UK and US – have reduced their arsenals from over 70,000 warheads at the height of the Cold War to around 14,900 today. The three other nuclear weapon states – India, Israel and Pakistan – have not joined the Treaty on the Non-Proliferation of Nuclear Weapons and have been increasing their arsenals.

With its sixth test explosion of a nuclear device on September 3rd it looks like North Korea has now also joined the club.

Experts will make their final assessment after careful analysis of the data. But in any case, the impact of the test, which generated explosive power 10 times greater than the Hiroshima bomb, confirms that North Korea can flatten whole cities. And with its recent intercontinental ballistic missile tests suggesting that the US mainland is in reach, Kim Jong-un has all but achieved his aim of deterring the US from attempting to change North Korea’s regime or leadership.

America’s war in Iraq and its military strategy in Syria, where America was unwilling to commit troops on the ground, have convinced Kim that the best route to secure his hold on power is to deter the US with nuclear weapons. He will not stop short of America accepting that North Korea is indeed a nuclear power.

The unexpected speed at which North Korea has developed a nuclear capability makes the likelihood of a military conflict low. It remains uncertain whether Pyongyang can successfully fit the nuclear devices on intercontinental ballistic missiles, but Washington is unlikely to want to risk finding out the hard way.

While it is unclear whether North Korean missiles are accurate enough to hit the US, they can definitely strike China with much greater precision. North Korea under Kim Jong-un was and is much more of a problem for China than it is for America.

China does not get on well with powerful neighbours, even so-called fraternal ones. She is wary of them, for good reasons, and they of her. Vietnam is the perfect example. Having supported North Vietnam for so many years with war supplies, food and fuel, China found herself at the receiving end of Vietnamese territorial aggrandisement and had to fight a war against this former brother in 1979 to stop the Vietnamese advance.

China shares a land border with North Korea. The old imperial capital of the Kingdom of Koreana is now part of China and the Chinese government has always expected the Koreans to try to reclaim it at some point. It is not in China’s interest to have a nuclear North Korea.

But it is also not in China’s interest to have a unified, powerful, democratic Korea that is at the beck and call of the US. South Korea is already armed with the THAAD missile defence system as well as super radars that can track the whole of Manchuria including the Chinese capital and beyond.

Beijing does not trust Kim any more than Washington does. In fact, the relationship is on ice. The North Korean leader acted swiftly and mercilessly when he killed family members – his uncle Jang Song Thaek in 2013 and his elder half-brother Kim Jong Nam in 2017 – who he believed had conspired with Beijing to oust him.

Clearly, Beijing’s leadership has no sway with Kim, who sees his nuclear success as not only deterring the US from effecting a regime change but also deterring China from effecting a leadership change. What is far from clear is China’s real capability for successful subversive action in North Korea. North Korea is China’s problem but can it tackle it, even with time?

Worse still for Beijing, if the US establishes bilateral diplomatic relations with North Korea and accepts Pyongyang holding some nuclear weapons under a strict agreement, Japan and South Korea will feel the heat and will likely decide to go nuclear as well.

The global political order is set to change irrevocably. Pyongyang has played the US and China against each other successfully so far, to the detriment of China more than America. This will only serve to strengthen Beijing’s determination to become the dominant regional and eventually global power.

In coming years, global markets will have yet again to learn to live with the uncertainty of the “unknown unknowns” that characterised the Cold War.