East Asia

North Korea and the Olympics Curse

Countries, or even entire regions, sometimes change dramatically soon after hosting major sports events like the Olympics or World Cup. For the next five years, these events will all be held in countries surrounding North Korea. The 2018 Winter Olympics will be in Pyeongchang, South Korea, the 2018 World Cup in Russia, the 2020 Summer Olympics in Tokyo, and the 2022 Winter Olympics in Bejing. This could, maybe, foreshadow a coming political change.

 

The Olympics Curse 

In the relatively common phenomenon known as the “Olympics Curse”, countries or even entire regions change dramatically soon after hosting major sports events like the Olympics or World Cup. Sometimes this change is for the better, but often it is for the worse. It is, typically, the result of boom-bust economic cycles: countries bid for the tournaments during periods of growth but, by the time the tournaments finally take place, leaner years have set in. 

The BRICS 

During the past decade the curse of the Olympics has been especially striking. It was felt most recently in the aftermath of the “BRICS” economic cycle, which had led to Olympics in Rio de Janeiro in 2016, Sochi in 2014, and Beijing in 2008, and to World Cups in Brazil in 2014, South Africa in 2010 and (for cricket) Mumbai in 2011. 

The BRICS boom first began to waver in 2008, the year of the Beijing Olympics, as the global financial crisis began and called China’s exports to the US and Europe into question. This forced the Chinese to rely instead on growing debt — and then on a new cult of personality, that of Xi Jinping —to keep their boom going. 

The slowing economic growth in Europe and China also took a toll on commodity prices, which in turn crushed the Russian, Brazilian, and South African economies. Russia responded to this economic threat by going to war with its neighbours, first in Georgia in 2008 (the day before the Beijing Olympics), then in Ukraine in 2014 (three days before the end of the Sochi Olympics).

Brazil, meanwhile, entered what has been perhaps the worst recession in the country’s modern history; its president, Dilma Rousseff, ended up being impeached last summer (ten days after the Rio Olympics) in a political scandal that just won’t end

While India escaped the BRICS slowdown relatively unscathed (and also never hosted the Olympics), it too has undergone a political shift in recent years, with the defeat of the Congress Party and success of Hindu-nationalist figures like Narendra Modi and, recently, Modi’s chosen leader for Uttar Pradesh, Yogi Adityanath

Even the Olympics in Vancouver in 2010 and London in 2012 were, in effect, extensions of the BRICS boom. Both cities are hubs of activity and investment for persons originating from China (in Vancouver’s case) or emerging markets in general (in London’s). Both have also experienced some trouble of late. Vancouver is experiencing a housing affordability crisis partly as a result of capital flight from China, while London — where housing prices are not exactly affordable either— suffered a harsh defeat in its country’s Brexit vote last year. 

The Eurozone 

Before the BRICS sports spree began in 2008, there was Europe’s. Athens hosted in 2004, Turin in 2006. Berlin too played host in 2006, to the World Cup. It was the year before the 2007-2008 financial crisis, which led to a “lost decade” in Europe that has, among other things, wrecked Greece, weakened Italy, and brought Germany nearer than it would like to becoming again the most decisive but reviled country in the region. 

South Korea

For South Korea, which will be hosting the first-ever Winter Olympics in continental Asia at the beginning of 2018, in a city less that is than 100 km from the DMZ, the hope is that the worst of the curse has already taken place in the past year. South Korea’s economy grew more slowly in 2015 and 2016 than in any year since 1998 (with the exception of 2009, the year of a global recession), and its president was impeached in the closing days of 2016. 

Yet if the effect of the Olympics truly is a consistent phenomenon, then there is no reason to expect that Korea won’t continue to change. Not only is South Korea hosting in the winter of 2018, but all of the major sports events in the near future are going to be held in countries that surround the Korean peninsula. The 2018 World Cup will be in Russia, the 2020 Summer Olympics in Tokyo, and the 2022 Winter Olympics in Beijing.

Even the host of the 2022 World Cup, Qatar, has Korean connections: South Korea is the number one destination for Qatar’s exports. 

North Korea 

For North Korea, the changes in the region that these upcoming sports tournaments may foreshadow are, if anything, only one more indication that the status quo on the peninsula is becoming less and less likely to hold. 

Whether through rapprochement, reunification, or regime change, it seems that the country and the region are headed for a significant change in political conditions.

It is possible that sports will play even a direct role in this change. Sports diplomacy, after all, has a long history in the region. The US and China played ping-pong in 1971, just months before Nixon’s infamous trip to Beijing; the ping-pong players were at the time among the first Americans to officially visit China since the end of the Korean War two decades earlier. 

More recently — just this past week, in fact — South Korea’s Chung Mong-gyu, the first Korean to hold a seat on FIFA’s council since 2001, announced that he and FIFA’s president Gianni Infantino both support the idea of a proposal for South Korea, North Korea, China, and Japan to co-host the football World Cup in 2030.

Even Dennis Rodman, who played on the 1990’s Chicago Bulls (Kim Jong Un’s favourite basketball team), used a sport trip to North Korea in 2014 as an opportunity to reach out to the isolated, tyrannical regime.

If war is to be averted, we can hope that Rodman’s Celebrity Apprentice co-star, Donald Trump, will now follow suit.

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East Asia

Oil and the Ouroboros

Today, at $45-50 a barrel, the price of crude oil has risen significantly from the $30 lows it reached around the start of 2016. Still, it remains quite far below the $80-110 range in which it resided during most of the past decade, prior to its crash in mid-2014. Gas and coal prices, meanwhile, have in most areas of the world fallen even more than those of oil has. China, because it is the world’s largest net importer of oil and of fossil fuels in general, has often been viewed as a country that is likely to benefit from these cheaper prices.

This view may be incorrect. Not only do China’s energy imports not equal a large share of its GDP, but the growth of China’s energy imports going forward may be slower than many predict. Moreover, there is an enormous discrepancy in the amount of fossil fuels produced by various regions and provinces within China. As such, the crash in energy prices may excacerbate, or at least influence, some of China’s preexisting geo-political divisions.

Energy Imports

China may be the world’s largest energy importer, but it is has also become its second largest energy producer, and as such only relies on energy imports for an estimated 15% of its total energy consumption, in contrast to 94% in Japan, 83% in South Korea, 33% in India, 40% in Thailand, and 43% in the Philippines. In 2014 imports of oil were equal in value to just around 2.4 % of China’s GDP, according to the Wall Street Journal, compared to 3.6% in Japan, 6.9% in Korea, 5.3% in India, 5.4% in Thailand, 4% in the Philippines, and 3.3% in Indonesia.

South Korea and Japan also imported more than two and four times more liquified natural gas, respectively – the prices of which tend to track oil prices more closely than conventional natural gas prices do – than China did. China’s LNG imports barely even surpassed India’s or Taiwan’s. China’s imports of natural gas in general, meanwhile, were less than half as large as Japan’s and only around 20% percent greater than South Korea’s.

China, furthermore, tends to import energy from the most commercially uncompetitive, politically fragile, or American-hated oil-exporting states, such as Iran, Russia, Iraq, Angola, and other African states like Congo and South Sudan. In contrast, Japan and South Korea get their crude from places that will, perhaps, be better at weathering today’s low prices, namely from Kuwait, Qatar, the UAE, and Saudi Arabia. (Granted, China gets an enormous amount of oil from Saudi Arabia too; however, Saudi oil does not count for nearly as large as share of China’s oil imports as it does for Japanese or South Korean oil imports). Similarly, China gets much of its natural gas from Turkmenistan, Uzbekistan, and Myanmar, whereas Japan imports gas from Australia and Qatar and South Korea imports gas from Qatar and Indonesia. China’s top source for imports of high-grade anthracite coal, and its third largest source for coal in general, is North Korea.

China has, in addition, invested capital all over the world in areas hurt by falling energy and other commodity prices, both in developed countries like Australia and developing economic regions like Africa. With energy prices cheap, it may get low returns on these expenditures.

Energy, History, and Politics

Another mistake the financial media makes is looking at China as if it were a country, rather than what it really is: both a country and a continent. Continents contain deeply-rooted divisions along regional, linguistic, and ethnic lines. China is no exception. China’s main division, roughly speaking, is between  areas south of the Yangtze River, which tend to be mountainous, sub-tropical, and dependent upon importing fossil fuels, and areas north of the Yangtze, which tend to be flat, more temperate, and rich in fossil fuels.

China’s Physical Topography                     China’s Population Density

Northern China, stretching over 1000 km from Beijing southward to Shanghai on the Yangtze, is the country’s political heartland. It is densely populated and home to most of China’s natively Mandarin-speaking, ethnically Han citizens. When compared to southern China, the north has historically been somewhat insulated from foreigners like the Europeans, Americans, and even Japanese. Beijing’s nearest port is roughly 5000 km away from Singapore and the Strait of Malacca; Hong Kong, in contrast, is only around 2500 km from Singapore and Malacca. Beijing is rougly 2600 km from Tokyo by ship, whereas Shanghai is 1900 km from Tokyo and Taipei (in Taiwan) is 2100 km from Tokyo.

Japan’s Ryukyu island chain and the Kuroshio ocean currents historically allowed for direct transport from Japan to Taiwan and the rest of China’s southeastern coast; the Japanese controlled Taiwan for more than three and a half decades before they first ventured into other areas of China in a serious way during the 1930s. Even today, Japan accounts for a larger share of goods exports to Taiwan than do either China or the US.

Southern China has often depended on foreign trade, since much of its population lives in areas that are sandwiched narrowly between Pacific harbours on one side and coastal subtropical mountain ranges on the other. In northern and central China, in contrast, most people live in interior areas rather than directly alongside the Pacific coast.

People in the northern interior often did not engage in as much foreign trade as those on the coast, as, in the past, transportation in the interior was often limited by the fact that northern China’s chief river, the Huang-he, is generally unnavigable and prone to flooding northern China’s flat river plains, destroying or damaging roads and bridges in the process. In southern or central China, by comparison, even people living far inland could engage with the coast by way of the commercially navigable Yangtze and Pearl Rivers, which meet the Pacific where cities like Shanghai, Guangzhou, and Hong Kong are located.

Northern China, however, was most directly exposed to the land-based Mongol and Manchu invaders who ruled over the Chinese for most of the past half-millenium or so, prior to the overthrow of the Manchu-led Qing Emperor in 1912. Today, of course, the north continues to retain China’s political capital, Beijing, and a disproportionally large majority of Chinese leaders were born in northern China — including Beijing-born Xi Jinping and Shandong-born Wang Qishan, a former mayor of Beijing). This is in spite of the fact that most of China’s leading political revolutionaries in the twentieth century, including Mao Zedong, Deng Xiaoping, Sun Yat Sen, Chang Kai-Shek, Zhu De, Ye Jianying, Hong Xiuquan, and the writer Lu Xun, hailed from southern or south-central China.

At present, out of China’s seven Standing Comittee top leaders, only seventh-ranked Zhang Gaoli was born in southern China; whereas five of the seven were born in northern China and one, Premier Li Keqiang, was born in central China. Zhang Gaoli may in fact be the first person born outside of northern or central China in thirty years to have made it to the Standing Committee. He is also the only person currently in the 25-member Politburo born outside of northern or central China. Meanwhile, among the 11-man Central Military Commission, seven were born in northern China, while two were born in north-central China and two in south-central China. By my count, out of the 205 active members of the Party Central Committee, fewer than 15 seem to have been born south of central China.

Indeed, the southern half of China, stretching from islands in Taiwan, Hainan, Hong Kong, Xiamen, and Macau in the east to the plateaus of Yunnan, Sichuan, and Tibet in the west, seems to be politically peripheral. It is home to a majority of China’s 120 million or so non-Han citizens (most of whom are not Tibetan or Uyghur, though those two groups recieve almost all of the West’s attention), as well as home to China’s 200-400 million speakers of languages other than Mandarin, and to China’s tens of millions of speakers of dialects of Mandarin that are relatively dissimilar to the Beijing-based standardized version of Mandarin, and to most of China’s 50-100 million recent adopters of Christianity, and, finally, to most of China’s millions of family members of the enormous worldwide Chinese diaspora.

Southern China is closer to Southeast Asia, a region with an enormous, economically active Chinese population (many of whom speak southern Chinese languages like Cantonese), than is northern China. Southern China’s Fujian province, in particular, is both linguistically and economically close to Taiwan, and southern China’s Guangdong province—the largest province in China—to Hong Kong. A large share of China’s GDP comes from the coastal areas of China from around Shanghai south to Guangdong, particularly if you include Taiwan as part of the country. Guangdong alone accounts for an estimated 10% of mainland China’s GDP and over 25% of its exports. This creates, arguably, an unbalanced dynamic: China’s political periphery is also its main economic engine.

Fossil Fuels

As it happens, northern China produces almost all of China’s fossil fuels. Most Chinese energy is, in fact, produced in and around the province of Shanxi, 300 km or so west of Beijing, where a tremendous share of China’s (and, indeed, the world’s) coal is mined. Shanxi has also seen the biggest political shakeup of any province from Xi Jinping’s anti-corruption campaign thus far. When combined with the northern “Autonomous Regions” of Inner Mongolia and Xinjiang, as well as China’s north-easternmost province Heilongjiang, Shanxi produces a gigantic of China’s fossil fuels in general. Other northern areas, such as Shandong, Liaoning, and Tianjin, are also significant oil producers.

Southern and central China, in contrast, account for most of China’s imports of fossil fuels—especially if you include the economy of Taiwan as being part of southern China. Taiwan, in fact, may be more dependent on oil imports than any other significant economy in the world, according to data from the Wall Street Journal. Falling energy prices may weaken the historical political heartland of China relative to its periphery, in that case. Whether or not this will generate political instability going forward remains to be seen.

Looking Ahead

If (a big if) energy prices remain low for a sustained period, then the question of China’s future dependence on imported energy also becomes relevant, as does the question of the future dependence on imported energy of China’s most important neighbours. In that case, how dependent on energy imports will countries like China, Japan, and India be in a decade or two from now?

While it is impossible to know what the future will be like, it is not difficult to imagine that China will remain less dependent on energy imports than India and/or Japan during the years or decades ahead, as a result of India’s still-emerging economy and Japan’s still-roboticizing economy.

China is not likely to be a major adopter of energy-intensive robots, in per capita terms, because China has a far larger cheap labour force than any country in the world apart from India. Japan, in contrast, will likely help lead the robot revolution, as its labour force is expensive and aging rapidly. This could make Japan even more dependent on importing energy, as machines that are both highly mobile and capable of sophisticated computation require an enormous amount of energy to run — and indeed, one of their main advantages over human labour is that they can and frequently will be tasked to run 24-7, without even taking any time off for holidays or sick days.

China is not certain to increase its energy imports nearly as much as less-developed economies like India, meanwhile, as the Chinese inudstrial sector is facing challenges as a result of its past generation of energy-intensive growth. China faces rising labour costs in many of its cities; a pollution problem; a US that is concerned with Chinese industrial power; and countries throughout the world afraid of China’s world-leading carbon emissions.

In addition, China is located much further away from the Persian Gulf and Caspian Sea oil and gas fields than the Indians and other South Asians are, and so might have difficulty accessing them in a pinch.

China may also, for the first time, have to face industrial competition from resource-rich economies such as Australia, Norway, Canada, Texas, or even the Gulf Arab states,which may be able to use energy-intensive robots of various kinds to build up their manufacturing sectors in spite of their small, expensive domestic labour forces.

All this could make China’s industrial growth rate slip, which in turn might reduce China’s resource imports and thus prevent China from becoming the leading beneficiary of low energy and commodity prices.

Such a shift will be especially likely if the United States or European economies decide to enact tariffs on goods coming from places that generate power by using coal in inefficient ways, a prospect that has become increasingly likely as a result of America’s triple-alliance between environmentalists opposed to coal consumption, shale gas producers competing with coal miners, and energy companies trying to pioneer more expensive but cleaner ways of consuming coal and other fossil fuels. China may then have to focus on growing its service sectors instead of its energy-intensive industrial sectors.

China, Japan, and Siberia 

Japan, lastly, might benefit from Russia’s energy-related woes more than China will. This is not only because the Chinese have to a certain extent often looked to Russia as an ally against the West, but also because the areas of Russia that China is close to are mostly irrelevant to China: they are landlocked, Siberian, and for the most part located far from China’s population centres.

Pacific Russia, in contrast, which is located next to the Sea of Japan on the East Asian side of Russia’s Pacific mountain ranges, has a far more liveable climate than does most of the continental Siberian interior. It is home to several small or medium-sized port cities, such as Vladivostok and Petrapavlovsk-Kamchatsky, which are very, very far away from Moscow. This region accounts for much of the oil and nearly all of the Russian gas exports to Asia—especially energy-rich Sakhalin Island, which is just 40 km away from Japan and was half-owned and inhabited by the Japanese prior to the Second World War.

Russia may, in fact, be somewhat better prepared to fight another border war with China like it did in 1969—which might not be too different than the many other wars Russia has fought within or near its borders both prior to or since then—than it would be to face off against Japan again within the far-eastern, mountainous, archipelagic and peninsular Pacific Russian region, as it did in 1905 and then again during the 1930s and WW2. Of course this does not mean Japan will attack Russia — though it has certainly toyed with the idea of eventually making some bolder moves in the Southern Kuril Islands, which both countries claim as their own. Even the remote, unstated possibility of conflict, however, may help grant Japan leverage in any negotiations with Russia regarding commercial or political issues.

Conclusion

All of this is not to be bearish on China’s future. Energy-intensive industrial growth, after all, woud not necessarily mean an improved quality of life for Chinese citizens. Ideally Chinese standards of living will rise at a considerably faster pace than its energy usage. It does seem, though, that China’s economy may not turn out to be a major beneficiary of the fall in energy prices. The PRC’s neighbours on the other hand, such as Japan and Taiwan, which are less rich in fossil fuels or in labour, may benefit greatly. So too might the poorer countries that depend on energy imports, like India and the Philippines. Just as important, however, yet often overlooked, are China’s domestic geopolitics. Internal Chinese divisions—including along north-south and east-west lines—have been, and might remain, of paramount importance. Energy prices could impact them too.

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East Asia

Expect the Unexpected: 10 Reasons North Korea Could Soon Change Course

1. Russia’s economy is currently in disarray as a result of falling natural resource prices, slow economic growth in Europe, and its rivalry with the United States. Russia has been an ally of North Korea because it sees North Korea as a counterweight to the Chinese, Japanese, and US-backed South Koreans, the other powers in Northeast Asia. If Russia’s economy does not bounce back, North Korea will need to adapt to the weakening of one of its only friends in the world.

2. Russia has been looking to export commodities to South Korea, as Russia worries that Europe and Japan will reduce their imports of Russian oil and gas as a result of the Ukraine conflict, the American fracking boom, the end of Western sanctions on Iran, and the possibility of Japan turning its nuclear power plants back on. Though Russia is obviously not thrilled about South Korea’s close relationship with the United States, it might nevertheless be happy to see a more united Korea serve as a counterweight to China and Japan in the Pacific.

In addition, the most direct way for Russia and South Korea to trade with one another is via the 800 km of North Korean territory that separates Seoul from Vladivostok. This is particularly true of gas exports, which travel cheapest through overland pipelines rather than by undersea pipelines or LNG ships. It is also true of many other types of goods, however. Politics aside, it would often make more sense to cross North Korea rather than to load and unload ships in order to sail the 600 km of sea between Russia and eastern South Korean ports (which are themselves 150 km or so from Seoul).

map_vostok_eng.jpg

 

3. The youngest generation of the North Korean leadership, embodied by 33-year old Kim Jong Un, was raised during the 1990s, after the Soviet Union had fallen, after China’s economic miracle had begun, and after the Internet and satellite television had become common. Kim Jong Un himself went to school in Switzerland, a stark contrast to his father Kim Jong Il who may have been educated in China during the Maoist era.

Today Kim must be looking at Bashar al-Assad with fear. Like Kim, Assad took over at a fairly young age from a father who had been a larger than life figure. Assad lasted for one decade before the Syrian Civil War got underway; Lil’ Kim is now in the middle of his fifth year in office. Meanwhile, the number of North Koreans living today who were alive during the reign of the first Kim, Il Sung, is quickly falling.

4. Unlike most other poor countries, North Korea’s population is not young. Its population pyramid has two main bulges: one between 40-50 years old, the other between 15-25 years old. A decade from now, then, much of the older bulge will have become too old for manual labour, while the number of young people entering the workforce for the first time will have begun to drop off. At this point, North Korea may be more inclined to move away from a labour-based economy, which in turn will require it to import capital from abroad, perhaps from the South Koreans.

north-korea-population-pyramid-2014.gif

This aging also raises Korea’s family reunification issue: North Korea’s 40-50 year old cohort are in many cases the children of families who were divided by the peninsula’s split in the Korean War. The coming decade will be the last chance for many of these sundered families to get back in touch before their elderly parents pass away — and before this generation becomes old itself.

5. Back when China was run by committee, consensus, compromise, etc.,
it liked being compared to North Korea because it could say, in effect, “we may not have a liberal democratic political system, but at least we’re nothing like the government in North Korea”. Today, though, as China has been moving back in the direction of a more traditional persona-led dicatorship embodied by Xi Jinping, the last thing that the Chinese leadership wants is for Xi to be compared with Kim Jong Un.

Xi has yet to visit North Korea, even though Xi has been perhaps the most well-travelled leader in Chinese history, and the first ever to visit South Korea before North Korea. Kim Jong Un, in turn, has not yet travelled the 800 km from Pyongyang to Beijing. (In fact, Kim Jong Un has never officially left North Korea since taking over as its leader in 2012). This may soon change, however: Kim Jong Un may finally visit Beijing in the next few months.

6.  Japan could be coming back in a big way: Shinzo Abe’s revivalism – including the end of formal military pacifism and the symbolic 2020 Tokyo Olympics may just be the start. The Japanese economy is far less exposed to the Chinese economic slowdown than are those of South Korea and Taiwan. Japan might benefit more from Russia’s troubles than China will, given that China has often allied itself with Russia. Japan is also more dependent on energy imports than China, and so may be more likely to benefit from the fall in energy prices than China will.

Japan may benefit more than any other country from the coming era of robots, given its uniquely aged workforce and technological expertise — and given that robots might make China’s enormous human workforce less of an economic advantage over other countries than it is today. Whether Japan addresses its aging workforce dilemma by importing more energy to power robots or by continuing to outsource more of its industrial activity to countries like Thailand and Taiwan, however, it will have to become more active in the region, and thus potentially more aggressive in the region, in order to ensure its access to foreign markets.

If Japan’s reemergence causes the Chinese to want to create a rift in the US-Japan alliance, Korea is the best place for China to try to do so. The US loves its alliance with Korea, while Japan does not. The Japanese and Koreans have quite a tortured relationship, a legacy of Japan’s historical domination of the peninsula. The US would be thrilled by a more unified Korea, whereas the Japanese might be wary of one even in spite of their current rivalry with the North.

Consider the context for the Korean War (1950-1953): Japanese power had just been decimated in World War Two, so China helped to divide the Korean peninsula because it feared the American-allied unified Korea that had emerged at Beijing’s doorstep following the invasion of the North by America and the South. China did not have to consider using Korea to create a rift between the US and Japan, since Japan was not a player at the time. A somewhat similar situation occurred in 1990, when American power surged again as the Soviet Union fell and as Japan’s economy suddenly began its “lost decades” of slowing growth.

If Japanese power grows, however, China may want a more unified Korea as a buffer against the Japanese and as a prime way of splitting the American-Japanese alliance. Alternatively, if China and Japan can finally mend fences with one another politically, it may cause the United States (and/or Russia) to want a more unified Korea to serve as a counterweight to both China and Japan.

7. More so than during the 1990s,
when Russia and China were weaker than they are now and 9-11 had not yet occurred, the US has a lot to worry about today other than North Korea’s military programs. North Korea’s first nuclear tests were in 2005, possibly in order to win back American attention that had shifted to the Greater Middle East. Now, though, with the US still worried about the Muslim world and also concerned with Russia and China, there may be diminishing returns to this strategy of gaining aid and prestige by nuclear saber-rattling.

The move by North Korea in 2010 to kill 46 South Korean navy soldiers in the Cheonan ship attack, which was by far the most casualties the South’s military has experienced in decades, suggests that the North Korean leadership may be aware of these diminishing returns. More recently, so does the announcement by North Korea this past winter that it has successfully developed a hydrogen bomb.

8. South Korea’s economy is slowing because of China’s economic slowdown and because South Korea has now basically become a “developed” economy (its per capita income is estimated to be $28,000, in nominal terms). While South Korea does not want to pay the financial burden of resuscitating theNorth Korean economy, it could nevertheless see some opportunities for itself in engaging the North in trade.

North Korea, for example, has one of the world’s largest reserves of high-quality anthracite coal, while South Korea is one of the world’s leading importers of coal and of fossil fuels in general. And of course, North Korea has a cheap, Korean labour pool (and potential consumer base), at a time when South Korea’s workforce is no longer cheap or youthful by global standards.

relative trade northeast asia.png

Trade figures, adjusted for overall GDP size

9. Coal prices have plunged of late in China and in most of the rest of the world. This could put a lot of pressure on the North Korean economy, which has become the third largest supplier of coal to China in recent years. China accounts for more than 90 percent of all North Korean international trade. According to Reuters, “last year, North Korean coal deliveries to China surged 26.9 percent, making North Korea China’s biggest supplier behind Australia and Indonesia. Coal deliveries from Australia plunged 25 percent, indicating the increase in [Korean] imports may have been to help support this”.

10. With China and the wider Northeast Asian economy struggling after years of rapid expansion, ending North Korea’s isolation could be a good last-ditch attempt to stimulate regional growth. China, for instance, could try to use its position as the North Korea whisperer in order to gain economic favours from the United States. China also has an incentive to engage North Korea — and to have South Korea engage North Korea — because the last thing the Chinese want to deal with right now is a refugee crisis emerging on their border with North Korea in the unlikely but not impossible event of a state collapse occuring there. A few million Koreans already live in China near the North Korean border.

korea north.png

Finally, North Korea could benefit the regional economy by serving as a land route between China and South Korea. Seoul is just 500-600 km from significant Chinese cities like Shenyang and Dalian by way of the North, and 1150 km from Beijing. In the longer-term, the North Korean trade route could become even more commercially important if fixed links are built across the Yellow Sea between North Korea and China, across the Gulf of Bohai between the Chinese provinces of Liaoning and Shandong, or across the Korea Strait from Japan to the Korean peninsula.

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So, could the era of extreme North Korean isolation from the world be reaching its final days? Certainly, from the US point of view, North Korea is something of a last man standing these days: of the six countries that the Bush government named as the “axis of evil” – Iraq, Iran, Syria, Libya, Cuba, and North Korea – Kim is now the only leader not to have been either toppled (Iraq and Libya), besieged (Syria), or moving towards warmer relations with the US (Cuba and Iran). Given the changes occurring all around it in Asia and the world, North Korea’s position no longer seems like an easily sustainable one. Reunification with the South or not, it still makes sense to guess that North Korea under Kim Jong Un will end up being very different from that of his father.

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East Asia, Images, North America

East Asian Trade – Image of the Day

From Finally Passing Gas: 10 Winners and Losers of the Panama Canal Expansion:

trade asia

A typical assumption has been that China and Japan will be the primary beneficiaries of the canal. China, after all, leads the world in importing commodities and exporting bulk goods, and Japan has accounted for 40% of the world’s LNG imports – far more than any other country – in recent years.

Yet while China and Japan lead the pack in terms of the value of their absolute trade, they lag far behind both South Korea and Taiwan in the more relevant category of relative trade; that is, the value of their trade relative to the overall size of their economies. As can be seen in the chart above, the economies of China and Japan are generally not as trade-oriented as those of South Korea and Taiwan. As such, they might not benefit as much from the canal, which is intended to ease trade — in particular LNG trade, which the pre-expansion canal could not facilitate.

Of course, none of this means that South Korea and Taiwan are risk-free investments. They are not. Both, for example, have significantly more exposure to China’s economy, which has been struggling of late, than Japan does. All else being held equal, though, South Korea and Taiwan appear likely to be two of the greatest beneficiaries of the new canal.

 

 

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East Asia, Europe, Images, North America

Image of the Day – December 2, 2015 – Motor Vehicle Production

Motor Vehicle Production

The non-per capita vehicle production stats came from wikipedia: https://en.wikipedia.org/wiki/List_of_countries_by_motor_vehicle_production

Note: there are countries which have higher per capita motor vehicle production than some of the countries on this list. Belgium, for example, which is not shown on this list, has a much higher per capita motor vehicle production than many of the countries that are shown on this list. The countries on this list were simply the ones with the highest overall motor vehicle production as of 2013, according to the source above.

 

 

 

 

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East Asia, Europe, India, North America

The 10 Largest “Relative” Trade Networks

If you follow the financial news media, you will frequently hear of countries’ largest trade partners being either the United States, the European Union, or China. As a result, it can often seem like the US, EU, and China are at the centre of massive global networks of international trade. In a certain sense, of course, they are: the combined external merchandise trade of the US, EU, and China is equal to an estimated 11 trillion dollars a year. And yet, relative to the enormous size of their GDPs, the US, EU, and to a lesser degree China do not actually trade very much compared to most other countries.

North America and Europe are in fact relatively insular in their international commercial relations. The US and the EU, for instance, trade an amount of goods estimated at around 25 percent of their GDPs; by comparison, Germany trades an amount equal to an estimated 70 percent of its GDP, South Korea trades an amount equal to roughly 80 percent of its GDP, and the Netherlands trades an amount equal to roughly 150 percent of its GDP. Even China, which is generally viewed as a highly trade-dependent economy, trades an amount that is equal to only an estimated 45 percent of its GDP, which is lower than most of the countries in the world.

In other words, the economies of the US, EU, and China only seem so trade-oriented because their massive economic size makes them the largest trade partners of a large majority of the world’s countries.  This confusion stems from the fact that the media tends to view the size of international trade values in absolute terms only, rather than by looking at the size of those trade values relative to some other relevant factor, such as the size of the GDP’s of the countries involved in the trade. By looking only at absolute trade values, the huge economies of the US, EU, and China end up getting almost all of the public attention, even though their “relative” trade with most other countries actually tends to be relatively insignificant.

In this article, therefore, we have tried to quantify the international trade networks of the world’s major economies in relative terms; specifically, by dividing the absolute value of their trade by the size of their trade partners’ respective GDP sizes. We already did this with Ukraine and Canada in previous articles, and found some interesting results in both cases. In this article, we will try to make similar graphs for the trade networks of China, the United States, Germany, Japan, Britain, Brazil, Russia, India, Australia, and Turkey.

Before we begin, however, it is important to note that measuring trade values is not always a simple process. There are a number of reasons why the following graphs should be viewed with a grain of salt. For example, the data they were made with may be inaccurate in some cases (the absolute trade values in  data was taken from the MIT’s Observatory of Economic Complexity; the GDP data was taken from the World Bank). It also only includes trade in goods, ignoring trade in services, international investment flows, illegal smuggling, or tourism.

Arguably, the data can also be misleading in some instances, because it over-emphasizes trade hubs like Singapore, Hong Kong, Belgium, and the Netherlands (and, as a result, perhaps under-emphasizes the trade of countries that are closely commercially integrated with these trade hubs, such as Germany or China). It also treats Hong Kong as an independent economy rather than as part of China, which it probably should not do. Finally, since the Observatory of Economic Complexity only gives data for countries’ top 20 absolute trade partners, in most cases these graphs will still ignore some small countries. For example, the Bahamas probably has a huge relative trade relationship with the US, but it was still too small in absolute terms to be included.

All that being said, I think these graphs might be interesting and instructive. So, here they are:

China – Exports: $2.1 trillion, Imports:$1.4 trillion

China's Absolute Export PartnersIn the graph above we see China’s “absolute” export patterns – in other words, the type of trade patterns we would normally hear about in the media. The US buys an estimated 19 percent of China’s exports, Hong Kong buys an estimated 11 percent of China’s exports, Japan buys 8 percent, and so on. In the graph below, however, we see China’s “relative” export patterns, which tell a very different story:

China's relative exportsAs you can see, in relative terms (i.e. relative to GDP size), Hong Kong buys way more of China’s exports than any other economy does. (And of course, as we said earlier, Hong Kong should actually probably be considered part of China). Singapore and Malaysia, both of which are partially Chinese-inhabited, are next after Hong Kong, followed by Thailand, Taiwan, and South Korea. The US, meanwhile, which had a strong lead in China’s “absolute trade” export patterns, scores very low in this relative trade graph.

China relative and absolute importsHere we see China’s import patterns, both relative and absolute.  The US, though it supplies China with an estimated 8 percent of its overall imports, scores at the very bottom of China’s relative imports list, far behind every other country apart from France. Hong Kong again scores number one in terms of relative trade, but its dominance on relative imports is not nearly as high as it was with exports (this is because most of China’s imports from Hong Kong’s are of services, rather than goods, and the data here does not include services). Taiwan, conversely, is much higher on this imports graph than on the exports graph above. Angola, which was not even on the exports list, scores extremely high in terms of relative imports, because of the oil it supplies China with. Other resource suppliers like Chile, Saudi Arabia, Iran, and Australia also have higher scores on this relative imports list.

USA – Exports: $1.3 trillion, Imports: $1.8 trillion

us relative and absolute exportsHere we see that Mexico is higher than Canada in relative terms, even though Canada is higher in absolute terms. We see that Hong Kong is very high in relative terms, more than 7 times higher than China is (though perhaps most of the US’s exports to Hong Kong are really going to China anyway), as is Singapore. Latin American countries like Chile and Colombia score high in relative terms, as do Belgium, the Netherlands (though both may be trade hubs for US exports to other European countries), and Switzerland. US allies South Korea and Taiwan also score high in relative terms. Major economies like Britain, Germany, France, Japan, China, India, and Italy all score very low in relative terms.

us relative and absolute importsFor US imports, Mexico actually scores almost twice as high as Canada in relative terms (and this does not even include massive narcotics imports from Mexico). Ireland and Vietnam both score very high (higher even than Canada), followed by Colombia, Thailand, South Korea, Taiwan, and China. China scores much higher here than it did in terms of US exports. Nigeria also scores highly, since it sells oil to the US. For the US’s absolute imports, four countries dominate: China, Mexico, Canada, and Japan.

Germany – Exports: 1.32 trillion, Imports: $1.09 trillion

Germany relative and absolute exportsIt is interesting to note that France, which buys more of Germany’s exports than any other country does in absolute terms, scores far lower in relative terms than most of the countries in Central and Eastern Europe. Given that most Eastern European countries are still developing, the fact that their relative imports from Germany are so high could be especially significant. Also notable is how tiny the relative exports of Germany to countries like China, the US, and Japan are. Germany is in general the most export-dependent of any economy we will look at in this article.

Germany relative and absolute importsIn terms of Germany’s relative imports, the Czech Republic and Hungary are again at the top of the list, this time joined by Slovakia. Britain scores lower on this list than it did in the exports list. Norway, which sells oil and gas to Germany, scores much higher. Russia, which also sells oil and gas to Germany, does not score higher, however (though it may be that much of this oil flows through the Netherlands, and is counted as a German import from the Netherlands instead of from Russia). The US scores extremely low.

Japan – Exports: $794 billion, Imports: $793 billion

japan relative and avsolute exportsjapan relative and absolute imports

Britain – Exports: $434 billion, Imports: $615 billion

Britain relative and absolute exportsbritain relative and absolute imports

India – exports: $275 billion, imports: $ 448 billion

india relative and absolute exportsIndia relative and absolute imports

Brazil – exports $247 billion, imports $223 billion

brazil relative and absolute exportsbrazil relative and absolute imports

Russia – exports $470 billion, imports $324 billion

russia relative and absolute exportsrussia relative and absolute imports

Apart from the countries we have looked at so far, France and Italy are the two largest economies in the world in terms of nominal GDP, according to the World Bank. However, since we have already looked at two European countries (namely, Germany and Britain), I made graphs for Australia and Turkey instead. Australia and Turkey are listed as the world’s 12th and 17th largest economies in terms of nominal GDP.

Australia – exports: $249 billion, imports: $240 billion

Australia relative and absolute exports Australia relative and absolute imports

Turkey – exports: $161 billion, imports: $205 billion

Turkey relative and absolute exports Turkey relative and absolute imports

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