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China Goes Public on North Korea

There's a lot going down in the world this week -- unpopular government shutdowns, popular negotiation preliminaries with Iran, ongoing terrorism in Africa, United Nations action on Syria, damaging intelligence leaks by Edward Snowden U.S. intelligence officials

In this kind of current events overload, it would be easy for North Korea to get lost in the shuffle.  This would be a shame, because China has done something rather extraordinary over the past week.  Jane Perlez explains in the New York Times:

longtime patron, produced a list of equipment and chemical substances it banned for export to North Korea, fearing that the North would use the items to speed development of an intercontinental ballistic missile with a nuclear bomb on top.

The publication of the 236-page list of banned items came as a surprise to many who follow North Korea and China, given China’s longstanding reluctance to do anything that might destabilize the North and allow the United States any more power on the Korean Peninsula.

Both Chinese and Western analysts called the export ban an important development — if it is implemented fully — especially since the list appeared to have been approved at the highest levels of the Chinese government. Either the Politburo, or the group’s seven-member Standing Committee, the apex of Chinese power, gave the green light, they said.

The compilation of the items, down to their measurements in both inches and millimeters, was probably months in the making, and almost certainly involved the expertise of China’s nuclear and military bureaucracies, they said. The export ban would give a boost to United Nations sanctions imposed this year that were meant to starve the North’s increasingly sophisticated nuclear programs. The North gets many important materials from China, and American officials had long said sanctions would not work without more Chinese cooperation.

Why is this a big deal?  Well, based on what I know about this topic, I'd say there are two reasons these sanctions matter.  The first and more obvious reason is that China is doing the sanctioning, which counts for one hell of a lot more than the United States doing it.  The odds of economic coercion yielding actual concessions goes up when it's an ally rather than an adversary doing the sanctioning. 

The second a less obvious reason is that China is implementing these sanctions very, very publicly.  This is more unusual.  Allies usually don't like to talk about sanctions, because it acknowledges a rift in bilateral relations.  It also elevates audience costs on both sides, which makes it harder to negotiate concessions.  In this case, even the publication of the sanctions list itself is something of an intelligence find for the United States -- as Perlez notes:

“The list gives a good insight into what China knows about the missile and bomb development of North Korea,” said [Roger] Cavazos, the former Army intelligence officer who now works as an analyst at the Nautilus Institute, which studies international security issues. “From what I can tell, it lays out almost all China knows about North Korea’s missile and nuclear program.”

Now it's possible that these two effects cancel each other out, and Beijing decided to go public with sanctions in part to signal exasperation with its troublesome ally.  Still, this appears to be yet another data point suggesting that on North Korea, Xi Jinping has shifted China to a policy position closer to the United States.   

One last note -- Perlez hints that the U.S. opening to Iran could have a bank shot effect in Pyongyang:

The diplomatic opening between the United States and Iran on Friday would give China another opportunity to “put the squeeze” on North Korea, said Zhu Feng, the deputy director of the Center for International and Strategic Studies at Beijing University. “Now Beijing can say to North Korea: ‘If you want to breach your isolation, you should do more.’”

Hmmm...... maybe

What do you think?

Daniel W. Drezner

The Apocalyptic Sweet Spot for Gold Bugs

Your humble blogger occasionally likes to poke some fun at "gold bugs" -- those actors that decide to hoard gold and the commentators who misperceive the situation

I see I have some company this a.m., as the Guardian's Suzanne McGee puzzles out why people are continuing to hoard/buy gold despite its falling price: 

For centuries – even millennia – people have turned to gold in times of trouble. Its advantages remain numerous: it's ultra-portable (no matter how far they roamed, Marco Polo or famed Moroccan traveller Ibn Battutah could use gold to buy food and shelter for themselves and their camels); it's fairly lightweight relative to its value; it doesn't spoil over time. Heck, it doesn't even tarnish.

But gold is very different from other commodities in which people can invest. You can use corn to feed livestock or make Corn Flakes; copper has countless industrial applications, from power transmission wires to building material; and many of us rely on coffee to jump-start our working day.

Gold, however, doesn't have this kind of "fundamental" demand. Sure, die-hard fans of the precious metal will argue that the transformation of gold into jewelry represents a kind of end-user demand, especially in countries like India. The problem with that argument is that, for the most part, jewelry is simply a decorative form of gold coins and bars. It's still serving the same role: preserving wealth.…

So why own gold at all?

It boils down to fear – or at least, to emotion. After all these centuries, gold's price still depends largely on how people feel about other investments, wether [sic] they be stocks, bonds, real estate or industrial commodities – and how they feel about the broader economic environment. "Gold is a place where people go when they are scared of other assets," says Uri Landesman, president of the hedge fund Platinum Partners.

I'd even push back on the portability point somewhat -- below a certain level of value, the portability argument seems valid, but as any devotee of the fake game show Gold Case knows, "gold is heavy." The point is, if a real apocalypse happens -- the kind where law and order break down and cats and dogs start living together -- having a giant cache of gold won't do the owner much good. It's still pretty heavy and, to get all Marxist, has very little "use-value." 

Indeed, if you think about it, for gold to be a smart large-scale investment, you need a kinda sorta apocalyptic sweet spot. On the one hand, there has to be sufficient levels of discord and inflation fears for a non-interest-bearing asset to look attractive. On the other hand, there has to be sufficient levels of stability such that the gold can still be protected and used as a medium of exchange and store of value.

And looking at the last five years, one can see when exactly that sweet spot appeared to be met. 

I LOVE GOLD!!!!

So it looks like the immediate post-2008 years were the one time when it really made sense to invest in gold. There was just enough economic uncertainty and wildly exaggerated fears of inflation that it seemed worth it! 

The thing is, gold bugs tend to hold that precious metal for way too long … whereas sensible investors find interest-bearing assets that, over the long run, vastly outperform gold. 

Still, as talk of U.S. government default re-enters the lexicon, I'll tip my cap to the gold-buggers who, in October, might experience a brief uptick in their portfolio. But no matter what Glenn Beck tells you, remember -- for large caches of gold to be useful, the apocalypse can't go too far.