Kim health rumours highlight underrated risk factor

Subject The threat to North Korea's political stability were supreme leader Kim Jong-un to die. Significance Seoul and Beijing both insist all is normal in North Korea, contrary to unattributed news reports -- which the United States and others are monitoring -- that supreme leader Kim Jong-un is gravely ill after heart surgery. Last seen on April 11, Kim missed a key anniversary on April 15. Impacts March was a record month for missile tests, but all were small; intercontinental ballistic missile or nuclear tests are too risky for now. A COVID-19 epidemic would dent lingering hopes of life improving under Kim. New prestige projects with tight deadlines will impose additional hardship. Despite sharply reduced bilateral trade, China will use back channels to ward off risk of regime collapse.

Significance The outcome comes as little surprise, given the repressive tactics used by the Ortega administration in the run-up to the vote, which included the disqualification or imprisonment of numerous opposition candidates. The United States and other international actors are now poised to put increased pressure on the re-elected government. Impacts The prospect of extended sanctions will act as a further disincentive to foreign investment. Ortega’s efforts to boost regional support through increased alignment with Honduras may lead to greater bilateral trade. More undocumented Nicaraguan migration looks inevitable, whether due to continuing political repression or worsening economic hardship.


Significance It had threatened to do so during a fortnight of ever more violent rhetoric against South Korea and its president, spearheaded by supreme leader Kim Jong-un’s sister, Kim Yo-jong. Pyongyang now threatens to nullify the 2018 peace accord by reactivating vacant border guard posts and holding military exercises near the Demilitarised Zone. Impacts President Donald Trump’s impulsiveness and a live dispute over history between Seoul and Tokyo hamper a coordinated response. Trump is unlikely to perceive yielding to pressure from Kim as something that will boost his chances of re-election. Tokyo’s recent suspension of a new missile defence project will reduce its ability to protect the United States from North Korean missiles. Increasing hostility between Washington and Beijing may reduce the latter’s willingness to put pressure on Pyongyang.


Subject The outlook for political stability. Significance Arrests in an alleged coup plot, deepening tensions with the United States and street skirmishes marked the first anniversary of the February 12, 2014 riots. Nevertheless, there appears to be no recurrence of last year's upheavals, and the government has laid the ground for modest economic adjustments. The announcement of pending changes to the domestic fuel subsidy did not galvanise popular protest while the introduction of a free-floating exchange rate was well received by markets and bondholders. Impacts The muted response to renewed calls for regime change underscores negligible popular enthusiasm for violent exit solutions. US statements critical of the Maduro government further isolate Washington from regional sentiment. Although angered by recent US pronouncements, the Maduro government will persist with informal diplomatic overtures.


Significance US-China trade frictions, centring chiefly on disagreements over technology, intellectual property and the bilateral trade balance, are causing international market uncertainty. One US response to concerns about trading with China has been to expand the remit of the Committee on Foreign Investment in the United States (CFIUS), which evaluates investments into the United States from abroad. Impacts CFIUS expansion has bipartisan support and will continue regardless of the winner of the 2020 presidential election. The CFIUS intervened when a Chinese firm bought a US dating app, perhaps a precedent for seemingly non-security related investments. The CFIUS does not cover non-acquiring business partnerships or joint ventures, but general political pressure could curtail these.


Significance After years of being on the losing end of an electoral system crafted by ruling Fidesz to favour large, unitary blocs, the opposition is marching towards unity. Although Fidesz’s path to victory in 2022 is still wider than that of the opposition, whoever wins, the era of stability that began in 2010 will end next year. Impacts A sharp fall in political stability and predictability will put strong downward pressure on the forint and raise borrowing costs from 2022. Orban’s weakening would spell the end of Central Europe’s Eurosceptic pole, and reduce opposition to Franco-German EU integration efforts. The United States and Western Europe will ramp up criticism of Orban and indirect support for the opposition.


Subject The first summit between Chinese President Xi Jinping and North Korean supreme leader Kim Jong-un. Significance On March 26-27 Kim Jong-un, North Korea's supreme leader, paid an unexpected two-day visit to Beijing for a summit with Chinese President Xi Jinping. The visit's goal was to secure Chinese support for the coming summits with the presidents of South Korea and the United States and to soften up the hard-line stance China has taken towards North Korea over the past year. Impacts Pyongyang will pay lip service to eventual denuclearisation, but keep at least some of its arsenal under any conditions. Pyongyang's rejection of US demands for immediate and complete denuclearisation could lead to a new, more dangerous, nuclear crisis. Trade-related tensions between Washington and Beijing work in Pyongyang's favour.


Subject Trade in pharmaceuticals and narcotics between China and the United States. Significance The flow of drugs between China and the United States -- both legal and illegal -- has a huge impact on each society, especially those going from China to the United States. Leaders in both countries have consciously sought to separate the bilateral trade and trafficking of drugs from their trade war. Impacts Although US pharmaceuticals firms should avoid tariffs on their products, tariffs may affect other areas of their supply chain. Other producers of pharmaceutical products, such as India, could benefit from any active US effort to diversify sources. If China were successfully to curb fentanyl production, production would probably shift to another country with lighter regulation.


Subject The implications for China of Donald Trump's election as US president. Significance Donald Trump was elected president of the United States on November 8, after a campaign in which he blamed China's trade policy for damaging US industry. He threatened trade sanctions on China, but also questioned the value of US military alliances with countries on its periphery. Impacts Beijing's first priority will be preventing a showdown on bilateral trade. Isolationism in the United States would free China's hand in dealing with maritime disputes. Climate change 'denial' is not an issue in China, so here Washington will vacate the moral high ground to Beijing. Stalled progress in the Trans-Pacific Partnership leaves the China-backed Regional Comprehensive Economic Partnership as the alternative.


Subject Japan-US trade negotiations. Significance Japan and the United States have agreed the core principles of a bilateral trade deal covering agriculture, industrial tariffs and digital trade. Impacts Agricultural exporters in the Trans-Pacific Partnership may lose their current advantages over the United States in the Japanese market. A Japan-US trade agreement could increase the pressure on Beijing to reach a trade deal with Washington. The digital component could help the United States and Japan together shape rules and standards in WTO negotiations.


Significance Supreme leader Kim Jong-un’s nine-hour Party speech was unyielding on all fronts. A new Five-Year Plan is to be achieved by increasing state control and self-reliance. The United States remains the “biggest enemy”. Kim pledged to expand Pyongyang’s nuclear arsenal further. Impacts Much of Kim’s new weapons wish-list appears hypothetical; January’s parade, unlike one in October, revealed little that was new. Economic renewal using old, failed methods will not work; North Korea will grow yet more dependent on China, uncomfortably. Seoul’s hopes of renewing ties are wishful thinking; Kim will await a new South Korean president, to be elected in March 2022.


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