PacNet #35 – Mekong water usage tests China’s claimed good-neighborliness

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China claims to be a uniquely benevolent international actor—a great power that, unlike other great powers past and present, does not practice “power politics” (self-interested bullying of smaller states) and is not “selfish” or warlike. The PRC government styles itself as the custodian of principles that, if implemented, would excise international relations of conflict and injustice.

Smaller neighbors to China’s south particularly fear domination by a strong China. To assuage their concerns, Beijing proclaims that it “opposes the strong bullying the weak” and supports “building a world of shared prosperity and promoting common development of all countries through every country’s development.”

The issue of managing fresh water resources provides a rigorous practical test of these sweet-sounding PRC assurances. Three major Southeast Asian rivers—the Mekong, the Salween, and the Ayeyarwady (Irrawaddy)—originate in the PRC-controlled Tibetan plateau. Even with this geographic advantage, China has insufficient water. Chinese make up 20% of the world’s population, but their country contains only 6 or 7% of the world’s fresh water supply. The good-neighborliness promised by Beijing’s official diplomatic rhetoric collides with the permanent scarcity of a vital resource. Not surprisingly, the latter wins out in actual PRC policy practice. But while unswervingly serving its own self-interest, Beijing also employs familiar methods to limit damage to the PRC’s desired international image.

Underneath the ceremonial public statements, the actual Chinese belief is that China owns the Lancang and that Chinese people have the right to take or use the water as they wish. They don’t think of it as a regional resource to be shared equitably with their neighbors.

China’s official position, repeated by PRC officials such as Ke Yousheng, China’s permanent representative to the United Nations’ Economic and Social Commission for Asia and the Pacific, is that “we should also respect the legitimate rights and interests of riparian countries in the rational development and utilization of water resources, and take care of each others’ interests and concerns.” The reality is that Beijing prioritizes taking care of Beijing’s interests, with little “respect” for the interests and concerns of downstream neighbors.

Before arriving in Southeast Asia as the Mekong, the river flows through PRC territory as the Lancang. China operates 11 hydropower dams along the Lancang, with another 95 dams on tributaries that feed into the river. The Chinese dams harm the livelihoods of millions of people in the downstream Southeast Asian countries in two ways. First, the dams remove sediment, which includes nutrients that helps plants grow, from the waters flowing through them. As a consequence, rice fields that use Mekong water for irrigation are becoming less productive. Second, by impounding or releasing large amounts of water, the dams can cause or worsen droughts or floods downstream. In 2019, Chinese dams held back such an immense amount of water that downstream countries suffered a severe drought while the Lancang section of the river enjoyed unusually large water levels. Conversely, the Chinese dam operators sometimes open the floodgates during dry seasons without warning, making the river level downstream rise by several meters overnight and causing massively damaging floods. China is also compounding these negative effects by building dams in the downstream countries that will supply electricity to China.

Chulalongkorn University Prof. Thitinan Pongsudhirak argued in 2021 that Chinese officials adjust the flow of water into the Mekong as a diplomatic tactic—for example, releasing more water as a gift before an important meeting between Chinese and Southeast Asian officials. “It’s very clear that the Chinese are using the dams for political leverage,” he said.

Reminiscent of its engagement with ASEAN to advance Chinese territorial claims in the South China Sea, Beijing uses its influence over a regional organization to manage the political problem of Chinese dams disrupting the Mekong.

In 1995, Thailand, Vietnam, Cambodia, and Laos signed an Agreement on the Cooperation and Sustainable Development of the Mekong River and founded the Mekong River Commission (MRC). China declined to join, thus avoiding the agreement’s obligations. Since then the MRC has criticized Chinese dam-building and demanded more information about the operations of dams in China that affect the flow of the river.

Beijing countered by establishing an alternative organization, the Lancang-Mekong Cooperation (LMC) forum, in 2016. As Hoang Thi Ha, an analyst at Singapore’s ISEAS – Yusof Ishak Institute, notes, “The LMC is a prime example of Sino-centric multilateralism, in which China is the one who sets the rules and frameworks.” For instance, the LMC sponsors research projects that highlight the negative impacts of climate change, but not the problems caused by dams, helping Beijing divert criticism away from its own behavior.

The other important aspect of PRC damage control is the creation of alternative narratives that fight back against accusations that the PRC has acted dishonorably. The issue of the Lancang dams has given rise to several examples.

Beijing offers up the typical colonialist argument that its increased influence and economic penetration result in blessings for the region rather than exploitation: “China is solidly promoting Chinese-style modernization, which will bring new benefits to the development of the countries along Mekong River.”

Throughout the COVID-19 pandemic, China faced outside criticism for its reluctance to share key data, presumably out of fear it would make the PRC government look bad. Beijing has responded by insisting that China has been extraordinarily transparent. Similarly, answering complaints that China does not publicize information about Lancang River water storage and release by Chinese dams (which the Chinese government considers a national security secret), government functionaries have retorted that China “provided hydrological data of Lancang River free of charge during flood season to MRC for 15 consecutive years [since 2002].” That data was wholly inadequate; it included only rainfall and water level information from two Chinese-operated hydrological stations, and only for part of the year. China agreed to release additional information starting in 2020 only under outside pressure. PRC media opportunistically called it “a major step taken by China that fully demonstrates the country’s goodwill and sincerity as a responsible upstream neighbor.” Outside analysts continue to question the accuracy and timeliness of the data provided by the PRC government.

The “major step” of releasing additional data resulted from an April 2020 report in which a US-based environmental watchdog organization used satellite data to expose the extent of downstream damage caused by China’s dams.

The PRC government responded to this embarrassing revelation with a three-headed alternative narrative. The first point of this narrative was that the study defaming Chinese dams was scientifically flawed. Secondly, PRC commentators argued that Chinese dams actually help the downstream countries by evening out the flow of water. In particular, these commentators said, the dams made the drought of 2018-2019 less severe for Southeast Asia. Finally, Chinese media and officials attributed criticism of the dams to a US anti-China agenda. A PRC Ministry of Foreign Affairs spokesperson called the 2020 report a “malicious move to drive a wedge between” China and its neighbors. Chinese vice foreign minister Luo Zhaohui claimed that “For political purposes, some countries outside the region have repeatedly used the Mekong water resources issue to spread rumors and stir up trouble, alienating all parties and undermining sub-regional cooperation.”

This allegation is consistent with PRC strategic communication about the South China Sea dispute. In that case, Beijing argues there would be no disharmony between China and its Southeast Asian neighbors if the United States was not “stirring up trouble.”

Beijing might be able to have it both ways with the Chinese domestic audience, persuading them that their government can provide water and electricity while simultaneously being a “good neighbor.” But for China’s actual neighbors, this is increasingly non-credible, as is the notion of PRC exceptionalism. 

Denny Roy ([email protected])is a senior fellow at the East-West Center, Honolulu. He specializes in strategic and international security issues in the Asia-Pacific region.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged.

PacNet #19 – Rare earths realism: Breaking the PRC’s global refining monopoly

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“The Middle East has oil, and China has rare earths.” – Deng Xiaoping (1987)

Rare earth elements (REEs) are a class of 17 metals essential to the technology, transportation, energy, defense, and aerospace industries. These are used for high-powered magnets and precision parts in anything ranging from batteries, solar panels, and wind turbines to smartphones, lasers, and jet engines. The People’s Republic of China (PRC) came to dominate global supply chains for these valuable inputs during the Deng-era of foreign policy characterized by the adage, often translated as “hide your strength, bide your time.” Subsidized state-owned enterprises were empowered to drive competitors out of the rare earths mining and processing businesses, giving the PRC a virtual monopoly by the late 1990s.

The wider world only came to appreciate the strategic implications of this concentration in 2010, when a maritime dispute between the PRC and Japan triggered a total halt of rare earths exports from the former to the latter. Though trade resumed after the incident, the episode highlighted both the vulnerabilities that the dependency allowed, and the PRC’s willingness to exploit those for political leverage. Japan was subsequently motivated to begin investing in alternative suppliers abroad, while the United States moved to jumpstart its own shuttered domestic capacity.

State of the market

Thirteen years later, the green shoots of new market entrants display a small but meaningful movement towards diversifying the world’s REEs supply. The United States and Australia have demonstrated political resolve to break the PRC’s hold on the market. Japan and India are also attempting to establish domestic industries but the barriers to entry remain formidable. The industries of mining and ore refinement are notoriously lengthy and capital-intensive—doubly so in countries with complex licensing and ecological surveying requisites. The PRC still dominates the entire vertical industry and can flood global markets with cheap material, as it has done before with steel and with solar panels. In 2022, it mined 58% of all REEs, refined 89% of all raw ore, and manufactured 92% of REE-based components worldwide. There is no other global industry so concentrated in the hands of the Chinese Communist Party, nor with such asymmetric downstream impact, as rare earths—so the United States and other should pursue further diversification with unique urgency.

The United States: Reviving heavy industry

Beijing’s 2010 dispute with Tokyo was one of its several assertive foreign policy maneuvers to set off alarm bells in Washington and precipitate the Obama administration’s “pivot to Asia.” As the swiftness of the PRC’s rise continued to outpace expectations during the Trump years, American political appetite shifted from defending hegemony in Asia, to addressing its own vulnerabilities at home—including the outsourcing of mining industries for REEs, amongst others such as lithium, nickel, and graphite. The global bottleneck for midstream industry segments like refining is so severe that the few American rare earths miners in operation send their raw ore to China for processing, before it returns to the United States as permanent magnets for use in F-35s, Tesla Model 3s, and the like.

In conjunction with an overarching strategy to address this weakness by revitalizing domestic supply chains for critical minerals, the US government is supporting the buildout of processing facilities in California and Texas for two rare earths juggernauts in-the-making—MP Materials, an American company, and Lynas Rare Earths, an Australian firm. Additionally, the Biden administration’s recent Inflation Reduction Act provided tax incentives for critical mineral businesses, and supercharged two faculties that will allow the executive branch to bolster industrial development on an ad hoc basis: the Department of Energy’s Loan Programs Office and the Defense Production Act. The United States should continue focusing grants towards ventures past the proof of concept stage in rare earths refining and magnet manufacturing, so that they can then access the Department of Energy’s lending resources to scale quickly.

People’s Republic of China: Tightening the reins

The media often characterizes the PRC’s rare earths dominance as the “trump card” of wolf warrior diplomacy, but Xi Jinping likely understands that the implicit threat of applying this leverage outweighs the cost-benefit of its actual use. The international environment of today is far less forgiving than that of 2010, and a rare earths embargo applied tomorrow on a nation like Japan or the United States would easily spark a bellicose trade dispute and push a tsunami of funding towards emerging competitors.

However, there exists a dangerous window during the next several years, when the PRC’s influence over the global industry is diminishing but still overwhelming enough to put importing nations in a bind. In this sense, Beijing could still use its “trump card” over a critical political moment—becoming even more tempting once its monopoly’s decline appears inevitable. Beijing’s cognizance of this scenario is reflected in its recent merger of three state-owned mining giants into the China Rare Earth Group. This massive consolidation allows the party to more easily control the market and develop synergies to bring costs even lower, which will hamper foreign upstarts.

Realist conclusions in a global market-based system

In the long run, monopolistic behavior will be solved by the interconnected markets on which modern society is built. The strategic calculus and narratives between great powers may be swiftly changing, but the fundamental rules of the game remain. The more likely the world perceives the weaponization of the rare earths industry by Beijing, the more pressure will be applied on the two competitive market forces already working towards solutions.

The first is the potential for new market entrants. Rising Chinese export tariffs and spiking prices signal opportunity. Canada, India, and the United Kingdom have all recently announced their intent to develop their first domestic refineries for REEs, with national security interests undoubtedly providing propulsion. Relatively small investments now could pay off big by shaking up market dynamics later this decade, so the United States could seed promising ventures abroad, and consider this high-profile sector an opportunity to build up “friendshoring” partnerships with alternate producers.

The second is the threat of substitutes. Necessity is the mother of invention—and if substitutes can replace REEs in end-use products, then supply fears may be sidestepped. The embedded risks of REEs have already been driving manufacturers like Toyota and Volkswagen to redesign their electric motors with less rare earths or alternative (albeit less efficient) magnet metals. The US departments of  Energy, Defense, and Commerce have been pursuing alternatives, but governments should also consider rewarding companies who find innovative ways of designing their products without REEs, in the style of bug bounties. Even without implementing substitutes, establishing backup options builds supply chain resilience and saps the power of a monopoly.

Tetrataenite is one promising breakthrough in magnetic alternatives. Until recently, this nickel-iron alloy was only observed in meteorite samples, but last year was successfully replicated in a University of Cambridge laboratory. Experts say it has an outside chance at upending the entire rare earths industry in the years to come.

Aside from pressing into the two competitive market forces of new entrants and substitution, the United States should continue subsidizing the rapid development of its rare earths supply chains—particularly the midstream layers: ore processing, mineral refining, and alloying. The faster it can do so, the narrower the window will be for Xi Jinping to play hardball during the waning years of China’s monopoly, and the less likely that opportunity is to coincide with an attempted invasion of Taiwan.

The economic downturn, domestic discontent, and international scrutiny resulting from Beijing’s stringent COVID-19 lockdown policies have left Xi Jinping’s political capital temporarily spent as he works to patch up relations and entice businesses back to the PRC. To break the global refining monopoly without sparking a larger geopolitical firestorm, an inflection point in broadening supply diversification needs to be achieved soon.

Brandt Mabuni ([email protected]) is a resident WSD-Handa Fellow at Pacific Forum. 

An earlier version of this article was published on Pacific Forum’s Young Leaders Blog.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged.

PacNet #66 – Finally at the table, not on the menu: Canada launches its Indo-Pacific strategy

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On Nov. 27 Canada released a long-delayed Indo-Pacific Strategy. The strategy has five interconnected strategic objectives:

  1. Promote peace, resilience, and security
  2. Expand trade, investment, and supply chain resilience
  3. Invest in and connect people
  4. Build a sustainable and green future
  5. Canada as an active and engaged partner to the Indo-Pacific

These priorities reflect the intersection of domestic politics and a convergence with other like-minded countries on strategic imperatives for the Indo-Pacific. This includes understandings of the challenges that China presents for the post-World War 2 rules-based order. It will potentially influence the evolution of the region away from a rules-based order to one that redefines well-established norms such as democracy, human rights, and rule of law, core values Canada and like-minded countries share.

Domestically, the Trudeau government has championed diversity, reconciliation, and environmentalism.  It has succeeded in assembling a Cabinet that represents Canadian diversity. Diversity has also been core to strengthening the quality of Canada’s bureaucracy and protecting the rights and representation at all levels of Canadian society.

Reconciliation with First Nations peoples following the revealing in 2021 of mass graves of First Nation children has taken a prominent place in national discourse. Transforming Canada’s environmental formula to help lead the fight against climate change has become central to domestic political priorities.

These priorities manifest in three pillars of Canada’s Indo-Pacific Strategy (CIPS): 1) Expanding trade, investment, and supply chain resilience; 2) Invest in and connecting people; and 3) Building a sustainable and green future pillar of CIPS.

Linking Canada’s domestic agenda to address injustices to First Nation peoples, CIPS aims to support the economic empowerment of Indigenous Peoples through the implementation of the Indigenous Peoples Economic and Trade Cooperation Arrangement (IPETCA) in cooperation with existing partners—Australia, New Zealand, and Taiwan—and Indigenous Peoples from those participating economies. Canada is creating new formulas for mini-lateral cooperation with like-minded partners to address domestic and Indo-Pacific indigenous peoples’ developmental challenges and injustices. This includes the Pacific Islands, who faced a legacy of colonial neglect of their indigenous people but also existential environmental challenges.

CIPS envisions reconciliation with First Nations, Inuit, and Métis peoples through enhanced indigenous exchanges with regional partners and will support education and skills development for indigenous youth, continue the implementation of the IPETCA, and support the implementation of the UN Declaration on the Rights of Indigenous Peoples. These CIPS initiatives highlight Canada’s commitment to international institutions and the rules they have agreed upon; a rules-based order.

Recognizing the critical importance of diversity in governance, business, and society, the CIPS has outlined its commitment to enhanced support to women entrepreneurs to maximize opportunities in the Indo-Pacific by expanding international partnerships through the Women Entrepreneurship Strategy. It has also committed to increasing feminist international assistance programming based on partner needs and helping to protect the most vulnerable populations and support work to achieve the Sustainable Development Goals. Furthermore, CIPS support efforts toward democracy, inclusivity, accountable governance, and sustained economic growth, helping key countries in the region and working with development partners to reduce inequality and contribute to their economic prosperity.

These formulations will receive traction as they are less value-oriented. This is in contrast to initiatives to strengthen dedicated Canadian funding and advocacy to support human rights across the Indo-Pacific, including for women and girls, religious minorities, 2SLGBTQI+ persons and persons with disabilities. Many states in the region do not share Canadian views on these issues and they may complicate our engagement in the region.

Connecting Canada’s domestic commitment to combating climate change, CIPS will expand the capacity for FinDev Canada to support high-quality, sustainable infrastructure in the Indo-Pacific and provide alternative options to developing economies exploring infrastructure development. This complements the Japan’s Partnership for High-quality Infrastructure Initiative, the Blue Dot Network and the Quadrilateral Security Dialogue (“Quad”) to provide developing nations with choices for their infrastructure and connectivity.

These come with enhancing commercial representation of Canadian clean technology in priority Indo-Pacific markets and help Canada’s clean technology small and medium-sized enterprises with financial support to break into markets in the region. This builds on the already allocated $1.26 billion out of the Canada Climate Finance Commitment toward the Indo-Pacific to assist partner countries with economic recovery and infrastructure needs and to catalyze inclusive and sustainable development through Canadian capital, technology, and policy expertise.

CIPS will prioritize the Indo-Pacific as part of the Powering Past Coal Alliance, which is working to help partners advance their transition from unabated coal power generation to clean energy. The collaboration with partners in the region, Canada hopes to support a transition to cleaner energy rapidly industrializing economies that will have a significant impact on our shared environment.

The convergence with other like-minded countries on strategic imperatives for the Indo-Pacific and concerns about China’s development trajectory reflect the internal debate within Canada of what kind of challenge China presents and the importance of seeing China as part of the Indo-Pacific rather than the reverse.

After a schizophrenic approach to China, CIPS recognizes China’s rapid and dramatic modernization of the People’s Liberation Army, including its offensive technological capabilities and geographic reach, its more assertive behavior and influence in the region.

To address these concerns, CIPS will promote security and stability across the region and at home by increasing military engagement and intelligence capacity as a means of mitigating coercive behavior and threats to regional security including the South and East China Sea and Taiwan Strait. Participation in the NEON Operations to enforce sanctions on North Korea, participation in Quad Sea Dragon 21 exercises, Keen Sword joint exercises, and the rotation of Canadian naval vessels in the region to contribute to naval diplomacy, maritime domain awareness activities, and transits through the Taiwan strait are all past and present activities to support a rulers-based order.

Concerns about the rise of coercive and irresponsible use of technology are reflected in CIPS. These include the spread of disinformation, ransomware, and other cyber security threats that directly affect Canadians, work to destabilize our democracy and our economy. CIPS stresses taking a leadership role in combatting these threats, investing in expertise and technology to better protect all Canadians.

Recognizing ASEAN Centrality as essential to a sustained Indo-Pacific presence, CIPS will stresses working with ASEAN and its member states to ensure full respect for international law, including the United Nations Convention on the Law of the Sea, in the South China Sea. Cooperation will stress boosting awareness of the region and enhance resilience and preparedness, as well as to protect against coercive tactics and the theft of sensitive data, technology.

Despite the significant resources that will be deployed to ensure that CIPS is impactful and sustainable, Canada will face credibility issues. First, the Trudeau government’s walk out of the initial TPP signing in Danang, Vietnam in 2017 created the impression that Trudeau’s government was not a reliable partner and did not understand the priorities of the region, trade, not progressive issues.

Second, naïve attempts to sign a FTA with China also including progressive issues and an ill-conceived visit to India with known Indian separatists has left the impression that amateurism, not pragmatism, lies at the heart of Canadian engagement with the region.

Third, the selection of the Asia Pacific Foundation of Canada (APFC) as the key organization to drive Indo-Pacific engagements seems contradictory. In May 2020, the Foundation released a high profile report entitled “Canada and the Indo-Pacific: ‘Diverse’ and ‘Inclusive,’ Not ‘Free’ and ‘Open’” followed by several high profile op-eds which rejected the idea of a free and open, rules-based Indo-Pacific order. Recently, APFC was recently a co-sponsor of the Nov. 1-2 East Asia Security Conference which invited a known denier of the cultural genocide of the Uyghurs in China and re-iterated the idea of like-minded countries and a rules-based order should not be the platforms for how Canada engages the region.

For Japan, the European Union, Australia, the United States, and ASEAN, this raises serious questions as to what will be the nature of CIPS engagement with an organization that has a track record of rejecting supporting a rules-based order in the region that has been the basis for post-WWII peace and stability and Canadian prosperity and values.

Dr. Stephen Nagy ([email protected]) is a senior associate professor at the International Christian University in Tokyo, a senior fellow with the MacDonald Laurier Institute (MLI), a fellow at the Canadian Global Affairs Institute (CGAI) and a visiting fellow with the Japan Institute for International Affairs (JIIA). Twitter handle: @nagystephen1

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged.

PacNet #48 – Are small modular reactors the solution to growing energy and climate problems?

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The increasingly dominant view in the energy expert community is that nuclear power has a role to play in achieving the 17 “sustainable development goals” identified by the United Nations General Assembly in 2015 (and intended to be reached by 2030). There has thus been rising interest in nuclear power development in several parts of the world, especially in the Indo-Pacific, where growth is the strongest.

This renewed interest comes not long after the failed “nuclear renaissance” of the 2000s. That renaissance never materialized primarily because the devastating accidents at Japan’s Fukushima Daiichi Nuclear Power Plant in 2011 led many countries to reconsider their nuclear power ambitions. Now, however, national energy and climate objectives are again driving these same countries to put the nuclear option back on the table. This interest has only grown in the wake of Russia’s invasion of Ukraine, the subsequent efforts to choke off Russian natural gas and oil exports, and the resulting increase in global prices for fossil fuels.

Many believe that “small modular reactors” (SMRs) and their companion “floating nuclear power plants” (FNPPs) hold considerable promise and that they may be “the next big thing” in the nuclear power market, even though they are not new concepts—they date back to the 1950s. To explore this further and, in particular, the implications for the Indo-Pacific, the Pacific Forum recently commissioned three papers: one by Victor Nian that unpacks SMR/FNPP technologies and discusses their applicability in the region; one by Jor-Shan Choi that examines the nuclear safety, security, and safeguards considerations associated with SMRs/FNPPs; and one by Miles Pomper, Ferenc Dalnoki Veress, Dan Zhukov, and Sanjana Gogna that addresses the potential geopolitical implications of SMR/FNPP deployments.

Seven key insights can be teased out from the papers, which are published in a just-released volume on “Small Modular Reactors: The Next Phase for Nuclear Power in the Indo-Pacific.” These insights include the following:

  1. SMR/FNPPs have appealing features

SMRs and FNPPs are popular because they are small, mobile, flexible, have user-centric characteristics, and are empowered by the advanced (and safer) Generation IV technologies. What’s more, the advantage of SMRs and FNPPs is that they have the potential to offer cost-competitive and clean energy without the shortcomings associated with traditional large-scale nuclear power plants. SMRs and FNPPs can be easily integrated into national energy planning, especially for newcomer countries with small grid sizes or off-grid/remote communities or for countries that are dependent heavily on energy imports.

  1. SMR/FNPP technology is not yet ready, and its prospects are unclear

Most SMR and FNPP designs are still in the research phase or under development. Few are deployed. In the Indo-Pacific, the land- or marine-based reactor types of interest are water-cooled, high-temperature gas, molten salt, or aqueous-fueled. Two reactors are currently deployed in the region: the KLT40S, a pressurized water reactor FNPP developed by OKBM (Russia) and commissioned in Pevek in the Russian far east that is designed to generate 70 megawatts of energy; and the HTR-PM, a high-temperature gas reactor developed by the China Nuclear Engineering Corporation and Institute of Nuclear New Energy Technology that is designed to generate 210 megawatts of energy.

According to the International Atomic Energy Agency (IAEA), SMR and FNPP technologies are unlikely to contribute significantly to the expansion of nuclear power in the next decade. If adoption of such technologies matches the current level of interest, reactor development and deployment will take time to materialize.

  1. There is a pathway to the successful utilization of SMRs/FNPPs

There are several factors associated with the successful utilization of SMRs and FNPPs. Advancing them as early as possible in the industrial supply chain is important for proper integration into energy production. Developing industry standards, to ensure compatibility and interoperability with other systems, and adopting and scaling up SMR/FNPP technologies adequately to enjoy the economies of the multiples are also essential. Finally, ensuring “green passage” for transportable SMRs/FNPPs is a key factor in facilitating safe and efficient mobilization of these technologies for nearshore, offshore, and maritime applications.

  1. Safety, security, and safeguards considerations are a challenge for SMRs/FNPPs

One problem with SMR/FNPP technologies is that they are not devoid of safety, security, and safeguards challenges. SMRs and FNPPs, notably “first-of-a-kind” reactors, have unique features, specific systems, and novel operating conditions, introducing challenges to the established regulatory bodies, potentially leading to safety concerns. The special features of SMRs and FNPPs, notably their transportability, more flexible siting options to include remote or urban locations, and new fuel designs also present new nuclear security challenges, some possibly more serious than those of large reactors. Moreover, because they use different types of fuel that require new technologies in manufacturing and handling of nuclear materials, some SMRs and FNPPs present unique challenges to IAEA safeguards.

The best way to address these safety, security, and safeguards challenges is to adopt a holistic approach. Such a “3S” approach helps better understand the challenges (and opportunities) associated with SMR and FNPP deployments.

  1. SMR/FNPP deployment will happen in a competitive security environment

Nuclear power development has always been intimately linked to geopolitics. There is no reason to think that it will be different this time around, especially given that the security environment is becoming increasingly competitive.

Because Russia has been relentless in its intended nuclear energy (traditional and SMR/FNPP) exports, notably in the Indo-Pacific, and because China looms large over the horizon as a major nuclear exporter in the context of its Belt-and-Road Initiative, there are fears in Washington that the United States might lag behind (because it has a limited nuclear export industry) and lose potential markets or surrender influence in the region to either Moscow or Beijing, or both. Significantly, a few other regional countries are entering the nuclear export business as well.

  1. It isn’t clear (yet) if SMRs/FNPPs will have far-reaching geopolitical implications

Caution is in order, however. The current renewed interest in nuclear power may, as its predecessors, dissipate. Even if it materializes, it will be a very slow process. The United States, then, should keep an eye on key developments and dynamics but not rush into anything.

If Washington wants to help US manufacturers of SMRs and FNPPs gain new markets in the Indo-Pacific, the priority should be Indonesia given Jakarta’s urgent (and massive) need for new power sources. Doing so in the Philippines, Thailand, or Vietnam would only be judicious if these three countries confirm their intentions to pursue nuclear power. Either way, selling (or failing to sell) US manufactured of SMR and FNPP technologies is unlikely to change radically the recipients’ approach to Washington as a trade or security partner.

  1. The United States should ask itself if it benefits from expanding or limiting the nuclear export market

It is an open question whether the United States should focus on competing aggressively to expand the traditional and emerging SMR and FNPP export market (and shape it to its advantage) or if, instead, it should focus on limiting such expansion. Conducting a thorough study on the benefits, costs, and risks of each option would be useful and timely.

This list of key insights is not comprehensive. There is much left to unpack to understand fully the renewed interest in nuclear power and the seemingly high enthusiasm for SMRs and FNPPs, plus the implications for the Indo-Pacific specifically. Our volume’s papers provide preliminary analyses to help jumpstart this research.

David Santoro ([email protected]) and Carl Baker ([email protected]) are respectively President/CEO and Senior Advisor at the Pacific Forum. Follow David Santoro on Twitter @DavidSantoro1.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged.

Issues & Insights Vol. 22, SR 3 – South Korea’s Place in the Indo-Pacific: A Research Showcase for Pacific Forum’s Korea Foundation Fellows

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About this Volume

Papers by the Pacific Forum’s current and previous Korea Foundation Fellows examine pressing issues facing the Korean Peninsula in the 21st century. These include the Great Power Competition between the US and China, North Korea and nuclear security, critical new technologies, and energy security. These papers by emerging leaders in the Korean Studies field offer fresh perspectives on Korean security issues – both well-known and emerging – useful for watchers of the peninsula both inside and out of Northeast Asia.

Authors of this volume participated in the Pacific Forum’s Korea Foundation Fellowship program between 2019-2022, with the generous support of the Korea Foundation 

The statements made and views expressed are solely the responsibility of the authors and do not necessarily reflect the views of their respective organizations and affiliations. Pacific Forum’s publications do not necessarily reflect the opinions of its staff, donors and sponsors.

Click here to download the full volume.

Table of Contents

  1. Introduction: Fostering Conversations on Emerging and Enduring Security Challenges | Rob York
  2. Choose to Win: Two Scenarios on Future Weapons and their Implications for Korea, the US, and Asian Security | Seongwon Lee
  3. South Korea’s Role Amid US-China Strategic Competition | Su Hyun Lee
  4. Between Rhetoric and Practice: Yoon Suk Yeol’s Choice for South Korea and the Indo-Pacific | Eun A Jo and Jae Chang
  5. South Korean Semiconductors: The Crux of Yoon Suk Yeol’s Long-Term Strategy toward Technological Leadership | Kangkyu Lee
  6. Exploring the Opportunities for Comprehensive Response to Disinformation in the Indo-Pacific: Cases of the Republic of Korea and the United States | Jong-Hwa Ahn
  7. The Politics of Multilateral Energy Cooperation in Northeast Asia: The Implications for South Korea, Japan, and China | Juyoung Kim

About the Authors

Rob York is Program Director for Regional Affairs at Pacific Forum. He is responsible for editing Pacific Forum publications, including the weekly PacNet series, the triannual Comparative Connections journal, and the in-depth Issue & Insights series. Prior to joining Pacific Forum, Rob worked as a production editor at The South China Morning Post in Hong Kong. A PhD candidate in Korean history at the University of Hawaii at Manoa, Rob has established himself as a commentator on inter-Korean and Hong Kong affairs, as a regular contributor to NK News and The Daily NK and having been published at The South China Morning Post, War on the Rocks, the Foundation for Economic Education, Korean Studies, and The Journal of American-East Asian Relations, as well as conducting numerous interviews in various media outlets. His research agenda at Pacific Forum includes trade and its relationship with security, media analysis, countering disinformation, and human rights.

Seongwon Lee is a lecturer at the Graduate School of International Studies at Korea University. Previously, he was a non-resident Korea Foundation fellow at Pacific Forum (2020), deputy director for international cooperation at the Ministry of Unification, and interpretation officer at the Republic of Korea Marine Corps. He earned his BA at Stanford University, MA at University of North Korean Studies, and is currently finalizing his PhD dissertation titled “Future Weapons: An Evolutionary History” at the Graduate School of Future Strategy, Korea Advanced Institute of Science and Technology (KAIST).

Su Hyun Lee is the 2021-22 resident Korea Foundation fellow at Pacific Forum. She holds a BA in East Asian International Studies and MA in International Cooperation both from Yonsei University. 

Eun A Jo is a PhD candidate in the Government Department at Cornell University and an incoming 2022-2023 predoctoral fellow at the Institute for Security and Conflict Studies at George Washington University. She is interested in political narratives, memory, and the domestic politics of international relations, with a focus on East Asia. Her dissertation, “Narrating Enemies in World Politics,” explores how post-conflict states narrate their former enemies and what implications these narratives hold for policies of peace and reconciliation. To this end, she compares the narrative trajectories of postcolonial, postwar, and post-authoritarian Taiwan and South Korea, using an interdisciplinary theoretical framework and a mixed-method research design. A paper from this research, titled “Pasts that Bind,” is forthcoming in International Organization.

Jae Chang is a recent graduate of Cornell University, where he studied Government and China & Asia-Pacific Studies. His primary research interests are Northeast Asian multilateralism and the role of identity politics in international relations. Additionally, he is interested in the impact of South Korean pop culture, especially in Korea’s partnership with Netflix.

Kangkyu Lee is a research fellow with the Humane AI Initiative at the East-West Center. He is also a consultant in Korean and Japanese affairs for Blackpeak. He is an incoming PhD student in International Affairs, Science, and Technology at the Georgia Institute of Technology Sam Nunn School of International Affairs and was formerly (2020-21) a resident Korea Foundation fellow at Pacific Forum where he researched the implications of AI and other frontier technologies on international relations and global security.

Jong-Hwa Ahn is an expert in international security and strategic planning. Recently, he worked for the United Nations on policy planning and is currently a Salzburg Global Seminar Fellow for media and journalism. At Pacific Forum, he was a Korea Foundation Fellow for foreign policy and regional strategy and, as an army officer in the Republic of Korea, he served in the Korean Demilitarized Zone and with the United Nations Mission in South Sudan. He also worked on public diplomacy for the Ministry of Foreign Affairs at the Korea Institute of Sport Science and received his Master’s in International Peace and Security from Korea University.

Juyoung Kim is a non-resident Korea Foundation fellow at Pacific Forum, where her research focused on the politics of multilateral energy cooperation in Northeast Asia. She has nearly five years of policy research experience in several think tanks in South Korea including the Institute of Foreign Affairs and National Security, Future Resources Institute and East Asia Institute and her research interest in natural resource governance, the geopolitics of energy and multilateral energy cooperation has evolved gradually from her work experiences. Juyoung recently defended her PhD thesis on the politics of governing Mozambique’s LNG industry at King’s College London, and she received her MSc in International Relations Theory from the London School of Economics and Political Science.

PacNet #24 – Why it’s so hard to quit Chinese steel

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Steel is all around us, from sophisticated defense weapons to railways and buildings, and the COVID-19 pandemic has underscored its critical use in medical equipment. It is the commodity great powers, notably China, may attempt to control and use to coerce other states on international platforms. China’s excessive production of steel is the prime factor in global overcapacity, hurting domestic steel producers in other countries. It also creates unwanted dependencies on Chinese steel, not to mention national security concerns.

Many countries realize this, but fixing the problem is harder than noting it.

China’s hold over steel, particularly stainless steel, has increased radically in recent decades. In 2020, steel production in China exceeded 1 billion tons, at a time when global steel output was 1.864 billion tons (fig 1) total.

But that is not the complete picture. Chinese companies also produce steel in Southeast Asian countries like Indonesia. Production has shifted to ASEAN countries with the onset of the US-China trade war to reduce dependency on China, but if Southeast Asia’s production of steel, an essential component in manufacturing, were controlled by Beijing, then regional value chains remain vulnerable.

Tariff rows over steel

As succinctly analyzed by Elisabeth Braw for Foreign Policy, China has manipulated the global steel market for years. The Chinese government had long subsidized its steel producers, leading to overproduction. China has likely kept prices of exported steel artificially low, a violation of World Trade Organization (WTO) rules known as “dumping.” The European Union in 2015 imposed anti-dumping duties on China, only to later realize that exports of steel from Chinese companies, produced in Indonesia, were still flooding the market. Once the EU anti-dumping duties were imposed on both China and Indonesia in 2019, Beijing retaliated by increasing tariffs on EU steel imports from 18.1% to over 103%.

Indonesia has the world’s largest nickel reserves but has banned nickel exports as a  strategy to boost domestic manufacturing. However, the ban seems to have come (conveniently) after the Chinese company Tsingshan began producing stainless steel in Indonesia. Given Indonesia’s ban on nickel exports, EU steel producers were left in the lurch, whereas the Tsingshan plant in Indonesia continued to produce stainless steel. Tsingshan’s cheap stainless steel exports have rattled markets everywhere. Indonesia was the source of 60% of China’s stainless steel imports in 2018—it had been zero as recently as 2015. The massive export increase is also reflected in a year-on-year difference of 420,000 tons in 2017 to 1.1 million tons in 2018, after which China decided to impose 20% anti-dumping duties on Indonesia.

What are the implications for steel producers like India, Japan, and the United States?

The Trump administration imposed tariffs on all steel imports in 2018, citing a threat to US national security. A 2018 US Department of Commerce report classifies steel as a vital element of national security given its use in “critical infrastructure and national defense,” recommending “immediate action by adjusting the level of imports.” The Biden administration has taken a similar stance, even as Washington and Brussels work toward a settlement.

It became clear, however, that global overcapacity in steel threatens both the American and European steel industries. Japan has also been in talks with the US government since November 2021 to lift curbs on its steel exports under the Japan-US Commercial and Industrial Partnership, and under a newly concluded deal the United States agreed to remove a 25% levy on 1.25 million tons of Japanese steel imports, effective April 1. In its budget for 2022, India removed the countervailing duty, imposed in 2017 on imports of steel from abroad, to bring down steel prices. Given the emphasis on infrastructure in its 2022 budget, and New Delhi’s plans to boost domestic manufacturing under its Make-in-India initiative, steel may be required in abundance.

Modeled on the 2009 Mineral and Coal Mining Law, Indonesia’s ban on mineral exports seeks to channel investment into smelters and processing plants. China has been at the forefront with approximately $30 billion of investment in Indonesia’s nickel value chains. According to the Southeast Asian Iron and Steel Institute, about 59.4 million tons, or 74% of the steel output of ASEAN countries in the next 10 years will come from Chinese projects in these countries. Indonesia will be a leader among them, with an output of 19.5 million tons.

China has several Belt-and-Road-Initiative (BRI) projects in the region, and it is easier to source the essential components of steel for these mega-infrastructure projects from Chinese companies producing locally. However, skepticism over Chinese debt may stall BRI projects in the region. As local consumption slows, ASEAN steel exports will predictably flood international markets even more. For instance, post-China’s anti-dumping duties, Indonesian stainless steel exports to the rest of the world accelerated anxiety among major producers, like POSCO in South Korea, Jindal in India, and local mills in the European Union. In absence of regulatory frameworks, global overcapacity may force steel producers to shut down in many countries and regions like the United States, Japan, and the European Union, in addition to creating dependencies on Beijing.

Possible measures

Despite international pressure, China has had limited success in curbing steel production even after curtailing subsidies. If China, or Chinese companies producing steel in Southeast Asia, continue to dump steel into the international market in this manner, domestic steel industries in many countries will be gravely affected. Given the importance of steel for national security, several countries that view themselves as regional powers in the Indo-Pacific—like India or Japan—and ASEAN nations, which see Chinese maritime expansionism as a threat, may find their autonomy compromised. Even if national security is invoked in such cases to curb imports (like the United States did in 2018), local steel producers will have already suffered substantial damage.

Major steel producing countries may instead coalesce to push the WTO to implement reforms that sufficiently cover the gaps and address ambiguity in dumping regulations, without excluding China from the dialogue in reaching inclusive terms. Large economies like the “Quad” countries (United States, Japan, Australia, and India) might also want to invest in Southeast Asia’s steel sector to ensure diversification and prevent China’s domination of this essential commodity. Since the region is critical for global value chains, preserving its autonomy by diversifying is necessary.

Akash Sahu ([email protected]) is a researcher in Indo-Pacific geopolitics and Southeast Asian studies. He works as Research Analyst at New Delhi-based Manohar Parrikar Institute for Defence Studies and Analyses (MP-IDSA). He looks at traditional and non-traditional security in the Indo-Pacific, balance of power, and inter-state defence relationships in the region.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. 

PacNet #24 – The destruction of North Korean agriculture: We need to rethink UN sanctions

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In 2016 and 2017, in response to North Korea’s continued nuclear testing, the United Nations Security Council (UNSC) expanded sanctions that had previously been targeted at commodities, individuals, and institutions linked to the nuclear and missile sector to sanctions measures that no longer differentiated between the civilian and the military sectors. The 2017 UNSC sanctions included a ban on the import of natural gas and condensates; a cap on crude oil imports to 4 million barrels a year and refined oil product imports, which includes diesel and kerosene, to half a million barrels a year. Military sector oil imports, including rocket fuel, were already prohibited by the Wassenaar Arrangement, prior UN sanctions and bilateral Chinese export controls, so the impact of the UN oil sanctions fell disproportionately on the civilian economy.

North Korea has no indigenous sources of oil and natural gas and therefore depends on imported energy inputs to produce fertilizer and pesticides, to fuel irrigation equipment and agricultural machinery and to transport agricultural inputs including seeds, crops, equipment, spare parts, and labor. Given the UN prohibitions on essential energy imports, it should be no surprise that in 2018 North Korea’s agricultural production collapsed to levels similar to those of the famine years of the 1990s.

Under international law, the North Korean government has primary responsibility for the welfare of its population but that does not mean that outside actors like the UN do not also hold responsibilities. No government or international organization may use the excuse of the wrongdoing of governments to inflict further harm on innocents living in that government’s territory. In war time, the destruction of agriculture in an enemy territory is a war crime.

The Geneva Conventions state that it “is prohibited to attack, destroy, remove, or render useless objects indispensable to the survival of the civilian population, such as foodstuffs, agricultural areas for the production of foodstuffs, crops, livestock, drinking water installations and supplies, and irrigation works… whatever the motive.”

North Korea needs around 5 and a half million tons of cereal a year to feed its people, at subsistence levels. In the 1990s, between a third and two-thirds of a million people lost their lives in the midst of economic collapse and the devastation of North Korea’s agricultural sector. Crop production recovered to the extent that between 2012 and 2016, domestic food production, averaged around 5 million tons a year. The food gap was filled from a more or less even split between commercial imports and food aid. In total, recorded imports hovered at around half a million tonnes a year, increasing, after a reduced harvest in 2017, to an import requirement of just over three-quarters of a million tons for 2018, as sanctions tightened.

Improved agricultural production combined with a manageable food import requirement had been accompanied by significant improvements in child nutrition. By 2017, according to UNICEF, North Korean children, whether in terms of stunting (a sign of long term poor nutrition) or wasting (a sign of starvation conditions) on average were significantly and measurably better off than if they had lived in other poor Asian counties like Nepal or even some wealthier countries in Asia, like Pakistan, India, and the Philippines.

In 2018, after the implementation of energy sanctions, agricultural production fell to just over 4 million tonnes, leaving an enormous food deficit of 1 and a half million tonnes in 2019. Put another way, if the only food available in 2019 had been from domestic food production, only about two-thirds of the 25 million population could have received even a basic subsistence level ration. There was no humanitarian crisis in 2019 because China and Russia stepped up with massive food aid as well as fertilizer and pesticide support and, very likely, ignored sanctions limits on oil exports to the DPRK.

Even prior to UN energy sanctions, the North Korean economy was getting by with globally low levels of oil inputs; the 25 million population was second only to the Democratic People’s Republic of Congo as the lowest per capita consumers of oil in the world. The UNSC December 2017 limit on refined oil imports to 500,000 barrels a year is less than Australia, an oil producer itself and with a similar size population to the DPRK, imports in one day. Agriculture in North Korea is founded on hard physical labour, mainly by women, because of the nationwide lack of technology and farm equipment. Nevertheless, there is a limit to how much human labour can substitute for the diesel that is necessary to transport crops and labour from one place to another or the natural gas and oil products necessary to produce the fertilizer and pesticides to ensure adequate yields from insufficient land and inhospitable terrain.

Neither the United Nations nor the member states have a road map that sets out how the goal of DPRK denuclearization will be achieved by sanctions that target the civilian economy. Perhaps the UNSC assumption is that the people will rise up and overturn the government if conditions get tougher. Yet North Korea is, by almost any criteria, including GNI in total or per capita, one of the poorest countries in the world. In destroying agricultural production, the 2017 sanctions have made day-to-day life a literal struggle for the physical survival of families and communities, which does not leave time, opportunity, capacity, or motivation for individuals to also risk their lives by expressing political criticism of a security-focused authoritarian government.

In 2003 the UN had abandoned non-targeted sanctions because of the many well-attested reports from internationally respected health professionals that showed how non-targeted sanctions did not discriminate between innocents and wrong-doers and had caused the deaths of millions of children in Iraq and Haiti. The United Nations Security Council cannot excuse itself through a bureaucratic insertion of “humanitarian exemptions” in its resolutions. The loss of agricultural production destroys farmers’ capacity to grow food in future years. The scope and scale of North Korea’s food production losses could only be compensated by what would have to be the largest and most expensive food aid operation in the world. No member state is seriously proposing this as an option. Ethically, it is also a rather grotesque idea that the same organization that destroyed the population’s ability to feed itself should offer “humanitarian” aid as recompense.

In 2020 China and Russia face coronavirus. If the disease damages their own agricultural production cycle or if they decide they need to keep their oil and cereal stocks at home to protect against the economic uncertainties brought by the global pandemic then, while energy sanctions continue, the North Korean population will again face the threat of starvation. The UN’s own agencies that have been resident and working in North Korea for 25 years and more, especially the FAO and the WFP, have already documented how these new sanctions have brought back a level of food insecurity unknown since the famine years.

This is the start of the agricultural season in North Korea. At least until the UNSC has brought forward a detailed impact study of sanctions on food security, oil, and energy sanctions should be suspended.

Hazel Smith ([email protected]) PhD FRSA is Professorial Research Associate at the School of Oriental and African Studies (SOAS), University of London; Professor Emerita of International Security, Cranfield University, UK; Member Global Futures Council on Korea World Economic Forum and Fellow, Wilson Center, Washington DC.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.