Issues & Insights Vol. 21, WP15 — More Harm than Good: Why Chinese Sanctions over THAAD have Backfired

EXECUTIVE SUMMARY

In 2017 South Korean Moon Jae-in, in response to North Korean ballistics testing, adopted a resolution to implement the THAAD missile interceptor system. Beijing had long been opposed to the system and as a result initiated a series of unofficial, punitive economic sanctions against South Korea which covered a range of industries. However, Beijing’s actions did little to alter Seoul’s decisions and have instead damaged China-South Korea relations. A similar paradigm has since appeared within China-Australia relations. How nations respond and adapt to such tactics in the future is a question of critical importance.

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About the Author

Daniel Mitchum (daniel@pacforum.org) has spent the last 12 years living and working in South Korea. He holds a dual BA in Global Politics and East Asian Studies from State University of New York, Albany and an MA in International Cooperation from Yonsei University’s Graduate School of International Studies, Seoul. The majority of Daniel’s master’s research was focused on North Korea, culminating in his thesis which explored the embeddedness of nuclear weapons within the DPRK regime. Daniel has previously worked with organizations such as Liberty in North Korea to aid North Korean refugees in acculturation, the North Korea Review academic journal as a blog writer and copy editor, as well as World Vision Korea as an assistant in HIV/AIDS awareness outreach. Beyond the Korean peninsula, Daniel’s research interests include East Asian geopolitics, the rise of China, and America’s East Asian alliance system.

 

PacNet #24 – Comparative Connections Summary: May 2021

REGIONAL OVERVIEW
CHANGE IN STYLE, CONTINUITY IN ASIA POLICY
BY RALPH COSSA, PACIFIC FORUM & BRAD GLOSSERMAN, TAMA UNIVERSITY CRS/PACIFIC FORUM
Quadrennially, we write to assure readers that there will be more continuity than change as a new foreign policy team takes office. Globally, this would not be the case this year. In its first few months, the Biden administration made 180-degree turns on issues such as climate change, World Health Organization membership, the role of science in the battle against COVID-19, immigration, and the Iran nuclear agreement. In our region, however, there has been more continuity. The Trump administration’s Indo-Pacific strategy focused on the Quad—the informal but increasingly structured grouping of Australia, India, Japan, and the US—and the Biden administration has doubled down on this effort, conducting the first (virtual) Quad summit. It has largely continued the “cooperate when we can but confront when we must” approach toward China. And while Trump appeared to have disdain for US alliances, every national security document from his administration underscored the central role US alliances played in its Asia strategy.

US-JAPAN RELATIONS
SUGA AND BIDEN OFF TO A GOOD START
BY SHEILA A. SMITH, COUNCIL ON FOREIGN RELATIONS & CHARLES MCCLEAN, HARVARD UNIVERSITY
The early months of 2021 offered a full diplomatic agenda for US-Japan relations as a new US administration took office. Joe Biden was sworn in as the 46th president of the United States amid considerable contention. Former President Donald Trump refused to concede defeat, and on Jan. 6, a crowd of his supporters stormed the US Capitol where Congressional representatives were certifying the results of the presidential election. The breach of the US Capitol shocked the nation and the world. Yet after his inauguration on Jan. 20, Biden and his foreign policy team soon got to work on implementing policies that emphasized on US allies and sought to restore US engagement in multilateral coalitions around the globe. The day after the inauguration, National Security Advisor Jake Sullivan reached out to his counterpart in Japan, National Security Secretariat Secretary General Kitamura Shigeru, to assure him of the importance the new administration placed on its allies. The COVID-19 pandemic continued to focus the attention of leaders in the United States and Japan, however.

US-CHINA RELATIONS 
CONTINUITY PREVAILS IN BIDEN’S FIRST 100 DAYS
BY BONNIE GLASER, GERMAN MARSHALL FUND OF THE US & HANNAH PRICE, CSIS
In its final days, the Trump administration took more actions to impose costs on China for its objectionable policies and to tie the hands of the incoming Biden team. The first 100 days of President Biden’s administration revealed substantial continuity in policy toward Beijing, with strategic competition remaining the dominant feature of the US-China relationship. Senior Chinese officials delivered speeches that pinned blame entirely on the US for the deterioration in bilateral ties. A round of combative, yet serious, talks took place between senior US and Chinese officials in Anchorage, Alaska. The US added new sanctions on Beijing for undermining Hong Kong’s autonomy. In coordination with its allies, Washington imposed sanctions on Chinese individuals deemed responsible for carrying out genocide and crimes against humanity in Xinjiang. Steps were taken by the US to demonstrate “rock-solid” support for Taiwan in the face of stepped-up Chinese coercion. Cooperation on climate change was launched with John Kerry’s visit to Shanghai to meet with his counterpart Xie Zhenhua, and Xi Jinping’s participation in the US-led Leaders Summit on Climate.

US-KOREA RELATIONS
HOPE SPRINGS ETERNAL
BY MASON RICHEY, HANKUK UNIVERSITY & ROB YORK, PACIFIC FORUM
In the first four months of 2021—the first three and a half of a Biden administration focused on domestic progress and COVID-19 vaccinations—US relations with the Korean Peninsula assumed familiar contours after four years of an unorthodox Trump administration. The US and South Korea quickly reached a military burden-sharing agreement and pledged cooperation in a variety of areas, although the regular differences of opinion lurk under the surface regarding how closely Seoul should work with both North Korea and Japan. The US-China rivalry remains a shadow over the Asia-Pacific security and political economy situation, complicating South Korea’s regional hedging strategy. Finally, North Korea’s nuclear program advanced apace, US and South Korean attempts to open dialogue were rebuffed, and the Biden team’s North Korea policy review will not endear it to Pyongyang.

US-SOUTHEAST ASIA RELATIONS
ASEAN CONFRONTS DUAL CRISES  
BY CATHARIN DALPINO, GEORGETOWN UNIVERSITY
The Feb. 1 coup in Myanmar dealt a serious blow to the ASEAN diplomatic order and presented the incoming Biden administration with its first major policy challenge in Southeast Asia. More profoundly, the coup set into motion a political and humanitarian crisis that has pushed Myanmar into an economic free fall. The imposition of Western sanctions gave China and Russia an opening to strengthen ties with the Tatmadaw. Myanmar was an extreme example of political turmoil, but the instability surrounding Thailand’s anti-regime and anti-monarchy movement persisted into the new year. In January, Vietnam embarked upon a more orderly political transition through the 13th National Party Congress, resulting in a leadership structure focused on ensuring stability, both external and internal.

CHINA-SOUTHEAST ASIA RELATIONS
BEIJING’S ADVANCES COMPLICATED BY MYANMAR COUP AND US RESOLVE
BY ROBERT SUTTER, GEORGE WASHINGTON UNIVERSITY & CHIN-HAO HUANG, YALE-NUS COLLEGE
Beijing confidently forecast continued advances in high-priority efforts promoting regional economic integration, ASEAN’s prominence as China’s leading trade partner, as well as strengthening supply chain connections disrupted by the pandemic and US trade and economic restrictions. Ever-closer cooperation to counter COVID-19 saw Chinese pledges add to its leading position providing more than 60% of international vaccines to Southeast Asian countries. Nevertheless, the unexpected coup and protracted crisis in Myanmar headed the list of important complications. The incoming Biden administration showed no letup in US-led military challenges to China’s expansionism in the South China Sea, while strong high-level US government support for the Philippines in the face of China’s latest coercive moves supported Manila’s unusually vocal protests against the Chinese actions. Beijing also had difficulty countering Biden’s strong emphasis on close collaboration with allies and partners, seen notably in the first QUAD summit resulting in a major initiative to provide 1 billion doses of COVID vaccines for Southeast Asia and nearby areas. The effectiveness of Chinese vaccines was now questioned by Chinese as well as foreign specialists and Beijing’s domestic demand was growing strongly, slowing donations and sales abroad.

CHINA-TAIWAN RELATIONS
TAIWAN PROSPERS, CHINA RATCHETS UP COERCION, AND US SUPPORT REMAINS “ROCK-SOLID”
BY DAVID KEEGAN, JOHNS HOPKINS SCHOOL OF ADVANCED INTERNATIONAL STUDIES & KYLE CHURCHMAN, JOHNS HOPKINS UNIVERSITY
For the leadership of Taiwan, the significance for Taiwan’s relationships with the US and China of the end of the Trump administration and the arrival of the Biden administration formed the defining concern as 2021 began. Taiwan welcomed two steps that the Trump administration took in its waning days: announcing a visit to Taiwan by the US ambassador to the UN (even though it was later cancelled) and repudiating the longstanding Taiwan Contact Guidelines, which was widely seen in Taiwan as overly restrictive. Taiwan’s anxieties regarding the Biden administration were quickly allayed, as incoming senior officials repeatedly called US support for Taiwan “rock solid” and issued new far less restrictive Guidelines. Taiwan also benefited from unusually direct expressions of support from Japan and other international partners.

NORTH KOREA-SOUTH KOREA RELATIONS
THE SOUND OF ONE HAND GIVING
BY AIDAN FOSTER-CARTER, LEEDS UNIVERSITY, UK
As in 2019-20, inter-Korean ties remained frozen, other than a rare lawsuit. Revelations that in 2018 Moon Jae-in’s government had pondered building the North a nuclear power plant caused a brief furor. Seoul’s propaganda balloon ban backfired, prompting widespread criticism—but no thanks from Pyongyang, which was also unimpressed by scaled-down US-ROK war games. North Korea tested its first ballistic missile in nearly a year, amid concerns of a new arms race; some analysts deemed the South culpable, too. Kim Jong Un’s sister Kim Yo Jong fired four verbal volleys, mostly insults. Another undetected defector highlighted failings in ROK border security. MOU Lee In-young was ubiquitous and loquacious, but scattergun in the causes he championed. Moon’s government remained reticent, or worse, regarding DPRK human rights abuses. With just a year left in office, and notwithstanding rare criticism of the North by ministers, Moon was expected to double down on engagement despite Pyongyang’s lack of reciprocity.

CHINA-KOREA RELATIONS
CHINA-KOREA RELATIONS POISED FOR RECOVERY DESPITE INTENSIFIED CONFLICT ON SOCIAL MEDIA
SCOTT SNYDER, COUNCIL ON FOREIGN RELATIONS & SEE-WON BYUN, SAN FRANCISCO STATE UNIVERSITY
China’s relations with North and South Korea gained momentum in the first four months of 2021. China-North Korea relations were propelled by an exchange of messages between North Korean leader Kim Jong Un and Chinese President Xi Jinping around North Korea’s successful convening of the Worker’s Party of Korea’s (WPK) Eighth Party Congress, the appointment of former North Korean Trade Minister Ri Ryong Nam as North Korea’s new ambassador to China, and another round of messages in March that emphasized the importance of close relations. In a Jan. 21 Cabinet meeting, South Korean President Moon Jae-in pledged to develop relations with China to new heights, and in a Jan. 26 telephone call with Moon, Xi expressed support for Korean denuclearization and joint development of China-South Korea relations. China and South Korea held consultations on maritime enforcement cooperation, defense lines of communication, health security, and free trade negotiations.

JAPAN-CHINA RELATIONS
THE GLOVES COME OFF
BY JUNE TEUFEL DREYER, UNIVERSITY OF MIAMI
After several years of seeking to counter each other while insisting that their relations were at a recent best, Tokyo and Beijing became overtly contentious. A major event of the reporting period was China’s passage, and subsequent enforcement, of a law empowering its coast guard to take action, including through the use of force, to defend China’s self-proclaimed sovereignty over the Japanese administered Diaoyu/Senkaku Islands in the East China Sea. Heretofore reluctant to criticize Beijing over its actions in Xinjiang and Hong Kong, Japanese Foreign Minister Motegi Toshimitsu finally did so in April, and pledged to work with the United States to resolve China-Taiwan tensions. Chinese Foreign Minister Wang Yi warned that a continuation of such moves would cause Chinese-Japanese ties to hit bottom and threatened retaliation for any interference on Taiwan. No more was heard about a long-postponed Xi Jinping visit to Japan.

JAPAN-KOREA RELATIONS
DIFFICULT TO DISENTANGLE: HISTORY AND FOREIGN POLICY
JI-YOUNG LEE, AMERICAN UNIVERSITY
Unsurprisingly, historical issues proved difficult to disentangle from other foreign policy issues in Japan-South Korea relations, which remained at the “worst level since the normalization” in the first four months of 2021. The Seoul Central District Court’s ruling on Jan. 8 that the Japanese government should pay damages to victims of sexual slavery during World War II set the tone for contentious relations at the beginning of the year. While the Moon Jae-in administration made gestures to mend ties, the Suga administration maintained that South Korea should take concrete measures to roll back the 2018 South Korean Supreme Court ruling on Japanese companies requiring them to compensate wartime forced laborers. Export restrictions levied by Japan against South Korean companies in 2019 remain in place, while the case is with the World Trade Organization after South Korea reopened a complaint in 2020 that was filed and then suspended in 2019.

CHINA-RUSSIA RELATIONS
EMPIRE STRIKES BACK AT MOSCOW AND BEIJING
BY YU BIN, WITTENBERG UNIVERSITY
For Moscow and Beijing, the changing of the guard in the White House in January 2021 meant no reset of ties with Washington. Instead, the newly inaugurated Biden administration turned the screws on both China and Russia by reinvigorating alliances, firming up sanctions, and prioritizing force deployment, particularly to the Indo-Pacific region. In contrast to Biden’s multifaceted diplomatic offensive, China and Russia seemed passive, if not inactive, both in terms of their bilateral ties and their respective relations with the US. Top Russian and Chinese diplomats met in person just once in the first four months of 2021 in the middle of sharply escalated tensions across the Taiwan Strait and in East Ukraine. Meanwhile, Beijing and Moscow waited to see if the transition from Trumpism would lead to a brave new world (“new concert of powers”), a grave new world of Kissingerian “great games” in the era of WMD plus AI, or something in between.

JAPAN-SOUTHEAST ASIA RELATIONS
A DIPLOMATIC “NEW NORMAL” IN THE INDO-PACIFIC REGION?
BY KEI KOGA, NANYANG TECHNOLOGICAL UNIVERSITY
Japan-Southeast Asia relations were relatively stable, despite COVID-19, as summarized by three trends: emphasizing multilateral actors; prioritizing enhancement of bilateral relations with two countries (Indonesia and Vietnam); and the synthesis of Japan’s Free and Open Indo Pacific “vision” (FOIP) and ASEAN’s ASEAN Outlook on the Indo-Pacific (AOIP). Japan and Southeast Asian states managed to achieve tangible cooperation, as illustrated by the establishment of the ASEAN Centre for Public Health Emergencies and Emerging Diseases (ACPHEED). Yet, strategic dynamics among Southeast Asia, Japan, and the United States are shifting because of changes in Japanese and US political leadership. Japan, the most reliable partner for Southeast Asia in the Trump era, seemingly faced a relative decline in the importance attached by Southeast Asia because of the United States’ renewed commitment to the region. In the context of this new diplomatic reality, the foremost challenges that Japan and Southeast Asia will likely face in 2021-2022 are Myanmar and ASEAN Centrality in the Indo-Pacific.

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PacNet #5 – North Korea Doubles Down on a Dead End

The views expressed in this article are those of the authors alone and do not necessarily represent the views of the Korea Society.  

“If something cannot go on forever, it will stop.” The American economist, Herbert Stein, chairman of the Council of Economic Advisors under the Nixon and Ford administrations, made this observation. However, the fundamentally unreformed, immutable North Korea continues to test the limits of Stein’s principle as it enters its eighth decade of what has become a no-exit political and economic drama.

In his report to the Eighth Korean Worker’s Party Congress this past week, North Korean leader Kim Jong Un admitted the country’s previous five-year plan (2016-2020) had failed and laid out a new five-year economic plan. (North Korean economic plans have had a checkered and blurry history. We tally the new plan as the country’s 11th.)

Unfortunately for the people of North Korea, the new plan does not offer a credible framework for overcoming the gale-force headwinds howling down on the North Korean economy. Most likely, North Korea’s economy contracted in 2020 more than any time since the collapse of the Soviet Union in 1991. Sanctions and the COVID border closure with China have sharply cut back both state-led and non-state trade and have crimped the inflow of renminbi. That, coupled with Pyongyang’s measures to wring hard currency from the special donju class of entrepreneurs and financiers, have dried up sources of domestic hard-currency investment, as seen in the shutdown of the informal foreign exchange market. Under these circumstances, the North Korean economy has been pushed to the brink, again.

Overall, the policy emphasis of the Party Congress report highlights the importance of strengthening centralized control and autonomy. Chairman Kim pointed out that “a precious foundation for making sustained economic development by our own efforts was provided.” The focus on self-reliance, self-sufficiency, and self-supported development are refrains that echo juche concepts championed by Kim’s father and grandfather.

Yet Kim admitted to setbacks in the past plan. He said “economic construction failed to hit the expected strategic goals,” growth objectives from that plan “fell a long way short” and the standard of living “could not be improved remarkably.” He admitted to internal problems and that “serious mistakes” were made in economic management. Technology was insufficiently utilized, and labor operated in an “irrational work system” with “incompetent” and “obsolete” working methods. Yet he insisted that such shortcomings and mistakes were forced by undisciplined deviations from an intrinsically good plan and by external factors.

In the deeper analysis of the shortcomings of the plan, the first factor mentioned is the allegedly “most barbarous sanctions and blockade by the US and other hostile forces.” Next, the report says the economy was hampered by natural disasters and the coronavirus pandemic. International sanctions in the face of an unpersuaded regime and the health environment have certainly had major impacts, and the latter has been an unprecedented global shock for North Korea and for every other country. But few countries face as bleak a future as North Korea.

In response, the Party Central Committee will strengthen unified guidance and strategic management over the economy. This involves a policy of micromanagement in various sectors, such as mining, machinery, chemical industries, and power. The invisible hand of Adam Smith will have no place in the new plan, albeit with some market activity likely to be tolerated at times.

But reconsolidating central control is short sighted and unsustainable. Whatever the near-term gains, over the long run, centralization will suffocate the nascent incentives that motivate donju trade and investment activities. Quasi-market activity has likely been the only source of growth in the North Korean economy in the past five years since international sanctions were ratcheted up.

Yet the plan leaves unanswered the question of the sources of financing. North Korea has scant domestic savings, no access to international credit and has squeezed the foreign currency savings of the donju entrepreneurs and financiers. At least, unless it changes course, it will not finance state investment and economic activity over the next five years through inflationary money creation as countries with recent episodes of hyperinflation have done—namely Zimbabwe and Venezuela.

Kim Jong Un’s doubling down on self-reliance and shunning external financial assistance is in reality making a virtue out of necessity. North Korea is the only country bordering China that is not receiving Belt and Road (BRI) infrastructure investment. This is probably due to two reasons. One, North Korea is not creditworthy. It has yet to completely restructure its debt arrears to foreign governments and banks incurred in the 1970s, and is thus a very poor credit risk for China’s development banks that finance BRI projects. Moreover, North Korea is likely wary of becoming too dependent on China, even if Chinese investment would boost national income.

Furthermore, because it is blocked by UN Security Council sanctions, Seoul cannot move forward on its offers of new economic cooperation projects for rail and road infrastructure, let alone revive the two Sunshine Policy era projects—the Kaesong Industrial Complex and Kumgangsan Tourism Zone. But even if it could, the lack of economic policy conditionality in the financing of infrastructure and industrial projects will not create the conditions in which reforms could be institutionalized and economic growth sustained. This is also a fundamental flaw in China’s BRI initiative—debt accumulation that does not enhance productivity and growth ultimately destabilizes an economy. The BRI and North-South economic cooperation projects are not a variant of the Marshall Plan, and North Korea would need a true Marshall Plan for sustainable development.

A curious aspect of the Party Congress report is that Kim Jong Un’s analysis of the current state of the North Korean economy is reminiscent of that made by his father, Kim Jong Il, in 1997. At that time, the centrally planned North Korean economy had collapsed from the delayed effects of the dissolution of the Soviet Union’s Council of Mutual Economic Assistance trade network, in which North Korea had participated. That shock was interwoven with natural disasters. In September of that year the International Monetary Fund (IMF) sent staff to Pyongyang on their first, and only, fact-finding trip. Data provided by North Korea painted a dire picture—North Korea’s economy was in crisis, with output cut in half inside four years. North Korean officials blamed “natural disasters.” The IMF staff disagreed, laying the blame on North Korean policy makers, citing the need for “a fundamental change in policies” and increase in transparency.

Back in 1997, North Korea had the option of taking a path to economic reform, there was an exit from economic destitution. But in turning its back on the IMF, the leadership showed that it was unwilling to open up the economy and reform. Arguably, in 1997, Pyongyang also had the political ability to do so. Its first nuclear test would take place almost a decade in the future and it therefore did not face the harsh regime of UN and US sanctions that now hobble its economy. Not possessing nuclear weapons in 1997, Pyongyang had not shut the door and bricked up the windows on a possible diplomatic opening which would set the stage for economic engagement with international financial institutions and the US. So now, North Korea has neither the willingness nor the ability to pursue systematic and sustainable economic development.

Because the Party Congress report and new five-year plan do not even hint at a fundamental shift in strategic and economic policy, North Korea is destined to remain in the same situation as the characters in Jean Paul Sartre’s existentialist play—locked up in a room in the netherworld, the windows all bricked up, and there is “No Exit.”

Thomas Byrne (thomas.byrne@koreasociety.org) is president and CEO of the New York-based Korea Society and former Asia-Pacific manager for Moody’s Sovereign Risk Group.  

Jonathan Corrado (jonathan.corrado@koreasociety.org) is policy director at the Korea Society, a contributor to NK Pro, and a former Korean-English translator for Daily NK.

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.