Xi Jinping and the Korean Spring

Not to pat myself on the back, but the latest analysis of the breakthrough on the Korean peninsula affirms what I have been saying. The key players in this negotiation are President Donald Trump and Chinese President Xi Jinping.

Evidently, the Trump-hating left believes that the credit belongs to South Korean president Moon, but the truth is, the current thaw was engineered by Trump and Xi. Kim Jong-un did not have an epiphany and suddenly decide to trade his nuclear weapons for peace and prosperity. Not at all. He recently had a very public meeting with President Xi in Beijing. At that point, I have surmised the Chinese president told Kim what to do. Naturally, the players have to hide the fact that Xi is pulling the strings— in order to allow  Kim to save face—but the reality is the reality.

Anyone who thinks that China has been sidelined, is missing the point… bigly. You need but notice Trump’s highly respectful tweets about the role that Xi has played in the current events.

First, for the first time, China did not just vote for economic sanctions in the United Nations. As was reported in the Wall Street Journal, it has enforced them.

CNBC reports:

Beijing appears to have gone well beyond U.N. sanctions on its unruly neighbor, reducing its total imports from North Korea in the first two months this year by 78.5 and 86.1 percent in value — a decline that began in late 2017, according to the latest trade data from China. Its exports to the North also dropped by 33 percent to 34 percent both months.

The figures suggest that instead of being sidelined while North Korean leader Kim Jong Un made his surprising diplomatic overtures to Seoul and Washington, China's sustained game of hardball on trade with Pyongyang going back at least five months may have been the decisive factor in forcing Kim's hand.

With China enforcing sanctions, North Korea’s economy cannot survive:

Trade with China is absolutely crucial to North Korea's survival.

It accounts for the largest share of the North's dealings with the outside world and provides a lifeline to many of the necessities Pyongyang relies on to keep its nation fed and its economy from breaking down. Estimates vary, but it is believed that roughly half of all transactions in the North Korean economy are made in foreign currencies, with the Chinese yuan being the most common.

That gives Beijing tremendous leverage, though for political and national security reasons it has generally been reluctant to exert too much pressure on Pyongyang.

Alex Wolf, an economist with Aberdeen Standard Investments, offers his analysis:

— China's exports of refined petroleum have collapsed over the past five months — to an annual rate of less than 4 percent of what it exported last year. With the pace on a downward trend, he believes, total exports could actually fall further.

— North Korean steel imports from China have also collapsed in 2018, and the same goes for cars. Wolf notes that it's unclear if China is blocking such exports or North Korea simply can't afford them. But either one, he wrote in a recent report for the company, would be a clear signal the North's economy is "under a great deal of stress."

Wolf concludes that China wants to play a central, albeit behind-the-scenes role in resolving the crisis:

"While China's role over the past few months has often been overlooked or little understood, it appears a strategy could be emerging: China wants to play a central role in 'resolving' this crisis, but wants to do it on its own terms," he wrote. "It's increasingly clear that Chinese pressure is a driving force and China will play a central role in any future talks."

Georgetown economist William Brown concurs:

Georgetown University economist William Brown said he believes the North's current account deficit has risen dramatically since the strengthening last November of sanctions on North Korean exports by China, which he said are by now "certainly biting."

"Why is Kim venturing his offer now? My impression is he is feeling very strong pressure from China's virtual embargo on North Korea's exports, and what he must see as a gradual ratcheting down of needed imports, even petroleum," Brown wrote in a recent blog post. "This is an enormous economic hit of a sort the country has never had to deal with on this scale."

As mentioned in a prior post, the question remaining is: what does Xi want in return for his cooperation? I suspect that he made a deal with Trump. And I suspect that it had something to do with Taiwan. Time will tell.