As observers closely watch Kim Jong Il’s funeral, China and South Korea have held strategy talks to improve communication aimed at ensuring the stability of the Korean peninsula. Meanwhile, Japan and China have also held talks to improved bilateral ties and agreed on a new currency pact. Separately, Japan has eased its decades-old ban on military exports.
Kim Jong Il’s funeral to take place Wednesday
North Korea is beginning two days of funeral services for Kim Jong Il, with hundreds of thousands expected to attend in Pyongyang. The reclusive state has released few details, although it is known that no foreign delegations will attend the funeral and a procession is expected to take place on Wednesday, similar to the one for previous leader Kim Il Sung in 1994. It is also expected that the funeral will be used to consolidate the succession of Kim Jong Il’s son, Jong Un.
Mr. Kim Jong Il’s funeral will be closely watched by observers to see how significant a role Mr. Kim Jong Un will play. Mr. Kim Jong Un's name is first on the list of members of the "national funeral committee" published by the North Korean state media, a committee which took part in Kim Il Sung’s funeral. Mr. Kim Jong Il’s two other sons are not members of the committee and have not been seen during the mourning period.
State media have portrayed Mr. Kim Jong Un, who has little political or military experience, as leader of the country, describing him as the head of the Korean Workers' Party Central Committee as well as the "supreme commander" of the armed forces, along with a countless other accolades.
Analysts say he will be surrounded by a group of experienced military insiders and relatives, as the Pyongyang elite attempts to hold on to power. Observing how people are positioned around Mr. Kim Jong Un “we can have a clue on the power dynamic in the North Korean leadership,” said Paik Hak Soon, a director of inter-Korean relations at the Sejong Institute research group.
However, Brian Myers, a professor of international studies at Dongseo University, cautioned that the funeral propaganda is unlikely to show how much power Mr Kim Jong Un possesses. “Whether or not he’s really in control of the military or whether the military is really pulling the strings is not something we are going to be finding out,” he said. “To convey to the North Korean public that the country is being de facto run by a group of old generals would not be in their interest.”
Report: North Korea holds two-day state funeral for Kim Jong-il (BBC, 28 Dec 2011)
Report: N. Korea May Fete ‘Touching Drama’ for Kim Jong Il Funeral (Bloomberg Businessweek, 27 Dec 2011)
Chinese and South Korean representatives meet in Seoul
Zhang Zhijun, China's Vice Foreign Minister met his South Korean counterpart First Vice Foreign Minister Park Suk-hwan in Seoul on Tuesday for the first round of official strategy talks between the two sides since Kim Jong Il’s death.
Mr. Park said there had been a phone call between the foreign ministers of China and South Korea with discussions have been taking place among the six-party talks countries, and added the talks were “very timely and significantly meaningful”. Mr. Park affirmed that maintaining stability on the Korean peninsula is in the "common interest" of both South Korea and China, and hoped the talks would give the two nations an opportunity to widen their "consensus on achieving that strategic target."
Mr. Zhang said China and South Korea have been exchanging candid views about regional affairs for years, and believes that is very useful. He said China and South Korea are "on the cusp of a new historic starting point."
The talks came after South Korean media criticized China for distancing itself from the South to deepen its influence in the North after Mr. Kim’s death. South Korean President Lee Myung Bak supposedly denied this claim, saying that South Korea's relations with China "is doing better than reported."
Report: China, South Korea Hold Talks on North (Voice of America, 27 Dec 2011)
Report: S. Korea, China put top priority on stability in N. Korea (Yonhap, 27 Dec 2011)
Japanese PM Noda visits Beijing; talks focus on bilateral ties and North Korea
Meanwhile, discussions took place Monday between Chinese President Hu Jintao and Japanese Prime Minister Yoshihiko Noda in Beijing. The talks focused on two issues: bilateral relations and the situation on the Korean peninsula.
China’s official Xinhua news agency quoted President Hu as saying there has been positive movement in the past year for Sino-Japanese relations. At the same time, he called for the improvement of political mutual trust and the expansion of exchanges and cooperation.
Chinese Foreign Ministry spokesman Hong Lei gave no specifics, but said only that China is ready to work with Japan to maintain peace on the Korean peninsula and ensure the long-term security of Northeast Asia. When asked about whether the two sides discussed territorial disputes, he merely replied that the two sides should “properly handle differences and problems” so as to ensure what he called “a long-term, steady and healthy development of bilateral relations.”
Mr. Noda indicated the two sides also discussed concerns over the situation on the Korean peninsula, and said Japan and China share a common interest in a peaceful and stable Korean peninsula.
China is one of North Korea's closest diplomatic allies, and Tokyo is calling on Beijing to share information about developments in North Korea.
Report: China, Japan Urge Stability on Korean Peninsula (Voice of America, 27 Dec 2011)
China, Japan agree on currency pact
The two countries also agreed to start direct trading of their currencies for trade and investment, in what is seen by some as an incremental step towards the internationalisation of the renminbi.
The two Asian economies said that they wanted to decrease costs and risks for their companies, an implicit call for less reliance on the dollar, which is currently their predominant medium of exchange. Japan also confirmed a plan to buy Chinese government bonds, which would mark the first time it has added renminbi-denominated debt to its foreign exchange reserves.
Chinese officials have said they would like to widen the global use of the renminbi and want to see more countries move away from relying on dollars as the worldwide currency. Charles A. Kupchan, a professor of international affairs at Georgetown University and a senior fellow at the Council on Foreign Relations, said, “Chinese officials have made it clear that they believe the international economy is too heavily dominated by the dollar… They believe, as part of China’s rise, that the international system should move to a more balanced structure.”
However, other analysts said that while the agreement could help boost the renminbi’s role in Asia and internationally, it was only one of the many small steps that Beijing has taken to boost its currency’s status and that the dollar’s position as the world’s main reserve currency would still be safe for now. Shen Jianguang, an economist with Mizuho Securities, called the agreement “a symbolic move.” Professor Kupchan reaffirmed that the renminbi would not compete as a global currency soon as it is not fully convertible.
Professor Kupchan said that practically speaking, both China and Japan want to reduce the transaction costs of direct bilateral trade and the risks of exchange rate volatility.
Jeffrey H. Bergstrand, a professor of finance at Mendoza College of Business at the University of Notre Dame, said given the proximity of China and Japan, along with the likelihood that the two countries will serve as each other’s biggest trading partners over the next century, it is logical for them to trade directly without using dollars.
And as China loosens its control on the renminbi, it would help to correct the currency’s supposed undervaluation. This will strengthen its purchasing power, allowing it to import more. For Japan, this is significant as it has been reeling as the dollar has weakened, making American consumers unable to spend as much on Japanese exports as they used to. The correction of the renminbi would give Japan an alternative market for its exports as Chinese purchasing power improves.
Professor Bergstrand said in the short term, the agreement is likely to lead to continued weakening of the dollar against the renminbi, helping to reduce the US trade deficit with China by increasing American imports while weakening imports from China. However, the Sino-Japanese currency agreement is likely to erode the dominance of the dollar in global trade. In the long run, however, analysts said it was difficult to forecast the future impacts of the agreement.
China and Japan have seen mutual bilateral trade boom, but political relations have been hampered by tensions arising from territorial disputes and historical disagreements. Both countries said that the financial agreement was intended to foster greater co-operation and stability.
Separately, the US Treasury on Tuesday again refrained from formally naming China as a currency manipulator, though it said that the pace of appreciation of the renminbi was insufficient. The Treasury in a currency report continued to urge Beijing to allow more flexibility in the renminbi but said China’s currency regime did not meet the formal definition of manipulation.
Report: China and Japan agree currency push (Financial Times, 27 Dec 2011)
Report: Currency Agreement for Japan and China (NYT, 26 Dec 2011)
Japan relaxes ban on weapons exports
Meanwhile, Japan has relaxed a ban on arms exports, paving the way for Japanese companies to participate in the international development and manufacture of advanced weapon systems. Osamu Fujimura, Japan’s chief cabinet secretary, announced on Tuesday rules allowing the transfer of jointly-developed defence equipment overseas.
The easing of the ban could have far reaching implications for Japan’s struggling domestic defence sector and western contractors hoping to share the increasing costs and technical requirements of developing military systems. The Keidanren, Japan’s biggest business lobby, welcomed the relaxation as an “epoch-making” development.
The move is also expected help Japan make more effective use of its increasingly tight defence budget, a political priority among policymakers worried by China’s rapidly expanding military power.
Tokyo defence officials have for some time opposed limits on weapons exports, announced in 1967, which were considered part of the nation’s constitutional repudiation of militarism after World War II.
The curbs prevented Japanese contractors from participating in international projects that are increasingly common for sophisticated weapons systems such as the F-35 Joint Strike Fighter, which was developed by the US in partnership with eight other countries.
While Tokyo chose the F-35 as its new mainstay fighter earlier this month, domestic contractors are expected to have limited involvement in the aircraft’s manufacture and previously seemed unlikely to contribute to its future development.
The easing of the ban could fuel concerns of Tokyo’s intentions in neighbouring nations such as China, although Mr. Fujimura emphasised that Tokyo would adhere to its pacifistic principles, only permitting military exports where they would not “foster international conflict”. He added that Tokyo would also reserve the right to block transfers of exported defence equipment to third countries.
The move encountered domestic resistance, with left-leaning politicians, including some in the ruling Democratic Party, viewing the move as going against Japan’s commitment to pacifism.
Report: Japan relaxes weapons export ban (Financial Times, 27 Dec 2011)