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The de-dollarization in China

Giancarlo Elia Valori

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The US dollar is so important in today’s economy for three main reasons: the huge amount of petrodollars; the use of the dollar as the world’s reserve currency and the decision taken by US President Nixon in 1971 to end the dollar convertibility into gold.

The US currency is still a large part of the Special Drawing Rights (SDR), the IMF’s “paper money”.

A share ranging between 41% and 46% depending on the periods.

Petrodollarsemerged when Henry Kissinger dealt with King Fahd of Saudi Arabia, after “Black September” in Jordan.

The agreement was simple. Saudi Arabia had to accept only dollars as payments for the oil it sold, but was forced to invest that huge amount of US currency only in the US financial channels while, in return, the United States placed Saudi Arabia and the other OPEC neighbouring countries under its own military protection.

Hence the turning of the dollar into a world currency, considering the importance and extent of the oil market. Not to mention that this large amount of dollars circulating in the world definitely marginalized gold and later convinced the FED that the demand for dollars in the world washuge and unstoppable.

An unlimited amount of liquidity that kept various US industrial sectors alive but, above all, guaranteed huge financial markets such as the derivatives – markets based on the structural surplus of US liquidity.

After the Soviet Union’s collapse, the United States always thought about world’s hegemony and, above all, imagined to oppose the already active Eurasian union between China, Iran and Russia – the worst nightmare for US decision-makers – both at military and financial levels.

As early as those years, following Brzezinsky’s policy line, the US analysts warned against the unification of Eurasia – to be absolutely prevented – and against the subsequent reunification of Eurasia with the Eurasian peninsula, to be avoided even with a war.

At that time, the three aforementioned Statesstill conducted their business in dollars: China wanted to keep on becoming the “world factory”; Russia had run out of steam and wasnear breaking point; Iran had to inevitably adapt to the rest of Sunni OPEC.

With Putin’s rise to power, Russia’s de-dollarization began immediately.

The share of dollar reserves declinedyear after year, while Putin proposed new oil contracts.

Since last year, for example, dollars cannot be used in ports.

In the case of Iran, the sanction regime – in particular – has favoured the discovery of means other than the dollar for international settlements.

The operations and signs of the de-dollarization continued.

The war in Iraq against Saddam Hussein was also a fight against the Rais who wanted to start selling his oil barrels in euros, while the war in Afghanistan wasviewed by China as part of the ongoing overall encirclement of its territory.

Hence the importance of the Belt and Road Initiative. Also the war in Afghanistan was an attempt to stop the Eurasian project of economic and commercial (as well as political) union between Russia, Iran and China.

As further sanction, the EU required EU designated Iranian banks to be removed from the SWIFT network, which is also a private company.

Iran, however, has immediately joined the Chinese CIPS, a recent network, similar to SWIFT, with which it is already fully connected.

Basically China’s idea is to create an international currency based on the IMF’s Special Drawing Rights and freely expendable on world markets, in lieu of the US dollar, so as to avoid “the dangerous fluctuations stemming from the US  currency and the uncertainties on its real value “- just to quote the Governor of the Chinese central bank, Zhou Xiaochuan, who will soon be replaced by Yi Gang.

In the meantime, Russia and China are acquiring significant amounts of gold.

In recent years China has bought gold to the tune of at least 1842.6 tons, but the international index could be distorted, as many transactions on the Shanghai Gold Exchange are Over the Counter (OTC) and hence are not reported.

Again according to official data, so far Russia is supposed to have reached 1857.7 tons.

Both countries have so far bought 10% of the gold available in the world.

Meanwhile, Saudi Arabia has already accepted payments in yuan for the oil sold to China, which is its largest customer. This is a turning point. If Saudi Arabia gives in, sooner or later all OPEC countries will follow suit.

In many cases, India and Russia have already traded with Iran by accepting oil in exchange for primary goods and commodities.

China has also opened a credit line with Iran amounting to as many as 10 billion euros, with a view to gettingaround sanctions.

It is also assumed that North Korea uses cryptocurrencies to buy oil from China.

As devastated as its economy is, Venezuela no longer sells its oil in dollars – and it is worth recalling it can boast the largest world reserves known to date.

Furthermore, China will buy gas and oil from Russia in yuan, with Russia being able to convert yuan into gold directly on the Shanghai International Energy Exchange.

Keynes’ “tribal residue” takes its revenge.

So far the agreements for trade in their respective currencies were signed between China and Kazakhstan (on December 14, 2014),between China and South Africa (on April 10, 2015) and between Russia and India (on May 26, 2015) while, at the end of November 2015, the Russian central bank included the yuan into the list of currencies that can be accepted as reserves. On November 3, 2016 an agreement was signed between Turkey and Russia for the exchange of their currencies and in October 2017 a similar agreement was reached between Turkey and Iran.

For financial institutions, the de-dollarization continued with the establishment of the BRICS Fund worth 100 billion dollars (on July 16, 2014) and with the establishment – on January 16, 2016 – of the Asian Infrastructure Investment Bank (AIIB), made up of 57 member countries, including Italy, which automatically caused the US anger.

In May 2015 the Russian-Chinese Investment Bank was created, followed in July 2015 by the opening of the new bank for the development of BRICS, based in Shanghai. In November 2015, however, Iran approved the establishment of a bank together with Russia.

It is worth underlining that in April 2015 the Russian national credit card system was opened, dealing also with small currency transfers.

It is also worth recalling the Duma law on de-offshorization of November 18, 2014, i.e. the legislation obliging the Russian companiesresident abroad to pay taxes directly to the Russian Treasury.

The above mentioned Chinese CIPS started operating in October 2015, while in March 2017 Russia implemented a system similar to SWIFT (interacting with the Chinese one).

The issue is complex because with fracking, the United States has become the first oil producer – hence there is less need to keep the huge amount of petrodollars. This happens while a natural oil and gas shale deposit has just been discovered, off the coast of Bahrain, with reserves of 80 billion oil barrels and 4 trillion cubic meters of gas.

The United States does no longer buy oil and gas because it does not need them, but China is increasingly the best global buyer.

Apart from the stability of gas and oil prices, which should be guaranteed in the coming years, China and its allies should be ever more able to select between the supply and, certainly, between the countries which accept the non-oil bilateral exchange with China and payments in yuan or gold.

Still today, the US GDP accounts for 22% of world’s GDP, while 80% of international payments are made in dollars.

Hence the United States receives goods from abroad always at comparatively very low prices, while the massive demand for dollars from the rest of the world allows to refinance the US public debt at very low costs.

This is the economic and political core of the issue.

In fact, the Russian government held a specific meeting on de-dollarization in spring 2014.

This is another fact to be highlighted. It is a political operation that appears to be a financial one, often in contrast with the “volatility” of current markets, but its core is strategic and geopolitical.

In theory, the de-dollarization regards three specific issues: payments, the real economy issue and ultimately the financial issue, namely the financial contracts denominated in dollars.

In the first case, China will tend to eliminate every transaction denominated in US dollars by third countries and to removesettlement mechanisms involving the dollar and operating in its neighbouring areas.

In the second case, the dollar transactions will be – and are already – largely prohibited for individuals.

In the third case, the share of foreign contracts denominated in yuan is now equal to 40% and strong acceleration will be recorded in 2018.

The oil futures denominated in yuan are now booming. The first attempt was made in 1993, when China opened its stock exchanges in Beijing and Shanghai.

China itself closed operations two years later, due to market instability and to the yuan weakness.

Two other things have changed since then: in 2016 the yuan was admitted as a currency making up the IMF Special Drawing Rights and in 2017 China overtook the United States as the world’s largest oil importer.

Hence, thanks to the oil futures denominated in yuan, China is reducing its dependence on the dollar and, in the meantime, it is supporting its oil imports, as well as promoting the use of the yuan globally and expanding its presence in the world.

Russia has done the same.

Therefore the United States is about to be ousted as world’s currency due to its continuous series of wars and military failures (former President Cossiga always told me: “The United States is always on the warpath and up in arms, but then it is not able to get out of it”) and, like everyone else, it shall pay for its public debt, which is huge and will be ever more its problem, not ours.

Here it is worth recalling what the US Treasury Secretary,John Connally, said to his European counterparts during a meeting in 1971: “The dollar is our currency, but your problem”.

Obviously, in relation to all these issues which also concern primarily the euro, the European Union is silent and sleepy.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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East Asia

Tension in Hong Kong

Giancarlo Elia Valori

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After about three months of riots, often particularly violent and destructive, on October 23, 2019 the Chief Executive of Hong Kong, Carrie Lam, aliasChen Yuet-Ngor, withdrew the bill on mandatory extradition to China, which had sparked protests in the former British colony.

 Never evaluate a mass protest on the basis of the reason triggering it, which can often be irrelevant.

 The extradition bill, announced in September, was withdrawn a few days after the resumption of works in Hong Kong’s Parliament.

With a view to partially repressing the insurgency, the now former Chief Executive of the city-state resorted to emergency legislation, by mainly using the colonial law of 1922, which prohibits the use of masks and disguises during public demonstrations.

 The protesters were and still are approximately one million, out of about eight million inhabitants.

 The subsequent riots, designed to last well beyond the bill withdrawal, strained the always tense relations between the former British colony and China, with the result of throwing into crisis also the Chinese governance of the city-State and, in particular, the traditional Chinese model of “One Nation, Two Systems”.

 If this model fails, the formula devised by Deng Xiaoping will not even apply to Taiwan, or possibly to the North Pacific islands, and it will anyway undermine the current Chinese idea of peaceful expansion and win-win collaboration between the Chinese motherland and all the bordering areas both in the Pacific and in Central Asia.

Since 1977 – when the Fragrant Harbour came under Chinese control – all riots in Hong Kong have been triggered by strong dissatisfaction with the Chinese motherland.

The deep economic and social dissatisfaction has always been targeted against China and never towards local power elites. In psychoanalysis, this phenomenon is called transference.

 In 2003 many thousands of people living in the former British colony had protested against a law that, in their opinion, would make it difficult to express opinions and feelings defined as “anti-Chinese” and the law was postponed indefinitely.

Further riots broke out in 2012, when a clearly pro-Chinese school program was proposed and once again the local authorities (upon direct instructions from the national government) avoided implementing that law.

In 2014, there were the sit-in street protests of the Occupy Central movement, the so-called “Umbrella Revolution”, which lasted three months to ask – this time unsuccessfully – for the Chief Executive of Hong Kong to be elected by universal suffrage.

Currently, however, the real reason underlying the protests in Hong Kong is not so much the request for implementing – in the former British colony – democratic mechanisms typical of the Western culture, but rather the tension resulting from great economic inequalities.

 Not to mention the broken social elevator, which is  probably the real trigger of the youth rebellion in the Fragrant Harbour.

 People, especially the skilled workers, cannot be ensured acceptable wages and salaries. This is the reason why many inhabitants of the old city-state migrate to Canada or Taiwan. Another blow to China.

Young graduates’ wages and salaries have dropped by at least 10% compared to 25 years ago. There is a very severe housing crisis, but anyway the choice to create a local oligarchy that tries to convince the other inhabitants is an old British idea.

 In Hong Kong an oligarchy of very few families dominates the local economic system, which is worth a GDP of 343.5 billion US dollars.

 The five most powerful families are still those led by Li Ka-shing, Kwong Siu-hing, Lee Shau-kee, Henry Cheng and Joseph Lau.

 These five families alone control 70% of the entire Hong Kong market, including real estate and telecommunications, as well as TV channels.

 The 21 leading families in Hong Kong control a wealth equal to 1,893 billion US dollars.

Obviously in China no family controls such a huge amount of wealth. In the People’s Republic of China the five major real estate operators put together control only 9% of the entire Chinese construction market.

China, however, has tried to gain support in Hong Kong,  especially among entrepreneurs, with the Greater Bay Area plan, i.e. the new megalopolis on the Pearl River Delta between Hong Kong, Guangdong and Macao.

This is, in fact, Hong Kong’s infrastructure aggregation to the  Autonomous Economic Zone of the Pearl River Delta, between Guangzou, Shenzhen, Zhuhai, Foshan, Zhongshan amd Jiangmen, which are the most dynamic economic areas in China.

Taxes are very low in Hong Kong, as in all business-friendly countries but, coincidentally, there is no inheritance tax.

 The administrative machinery is therefore very simple: Hong Kong’sgovernment does not gain sufficient revenue from taxation and hence has no funds to invest in schools, hospitals and infrastructure.

 A city like Hong Kong, with over seven million inhabitants, provides for a statutory minimum wage of 4.82 US dollars per hour. Almost all flats are illegal and, considering the cost of rents and properties, they are so small that they are about half of the “tiny apartments” in large U.S. cities, which are already very small.

 The average size of Hong Kong flats per inhabitant is 16 square metres, while in Shanghai the average size per inhabitant is 36 square metres.

 45% of Hong Kong’s inhabitants live in state-owned or subsidised apartments, while 90% of the Chinese people own at least their own houses.

 Hong Kong’s tax reserves are at least 147 billion US dollars, but the local political system is too fragmented – even from the viewpoint of the complex electoral system – to mediate between different interests and to really solve the main problems of the city-state, namely housing, health and education costs.

 Those who are ill must wait an average of 150 weeks before being examined, with 43 public hospitals that, however, employ  40% of the doctors available, since the private sector attracts many of the best professionals.

 The solution of employing doctors from abroad is not very practicable, considering the low attractiveness of Hong Kong’s wages and salaries and the poor quality of health facilities.

 One in six people living in Hong Kong suffers from mental disorders due to social, economic and health conditions.

 The graduates’ average wages and salaries in the former British colony have fallen by over 10% compared to a decade ago. Nowadays graduates are easily paid the best salaries and wages of workers without university qualifications.

As already said, there is no social elevator.

 The cost per square metre is much higher in Hong Kong than the average price in a central neighbourhood of  New York.

 As happens also in the West, the career prospects of young graduates in Hong Kong are very limited. They never have a house of their own and their prospects are much worse than those of their colleagues who lived in Hong Kong a few decades ago.

In Hong Kong the Gini Index, which is used as a gauge of economic inequality, is 5+, one of the highest and most unequal indexes in the world.

 This is the real political core of the issue: for those who protested in Hong Kong – as currently happens everywhere in the world – “democracy” in the Euro-American sense means above all greater social equality, many opportunities and efficient public services.

 This is obviously not true, but it is the model that took to the streets the crowds of the Arab Spring, the Euromaidan citizens in Ukraine and the “colourful” rebellions in Georgia.

 Paradoxically, just when Western democracies are turned into  States based on unearned income and the extent and quality of their Welfare diminish, they are mythicized as efficient and open.

In this case, Vilfredo Pareto would have spoken of “residues”, i.e. memories of a time that no longer exists, but that are still in action in the crowds’ deep psyche.

 In 1997, at the time of unification based on the “One Country, Two Systems” model, Hong Kong’s GDP accounted for 18% of  whole China’s GDP.

Currently, after China’s fast growth, the importance of the Fragrant Harbour is the same as the relevance of Guangdong or Shenzhen.

 The current protests, however, have also put Hong Kong’s business community in severe difficulty.

The majority of Hong Kong’s leading companies do most of their  business with China. It is not by chance that last August the Chinese authorities gathered 500 of the most important businessmen and political leaders in Shenzen to support the Hong Kong government and, possibly, sufficiently improve the social situation of the city-state, which, however, remains explosive.

 Hong Kong’s financial market has suffered the greatest damage.

The Chinese company Alibaba has postponed its listing on the local Stock Exchange until the uprising has finally abated, while Fitch has lowered Hong Kong’s rating.

Pending a systemic integration with the regulatory network of  mainland China.

 Another problem that the riots in the Flagrant Harbour may cause  is migration.

 Last year 24,300 highly-skilled young people left the country and the rate of  migration requests has risen by 15% per year.

Where do they go? To Canada, Australia, New Zealand and Taiwan.

 On the other hand, the number of Chinese people migrating to Hong Kong has decreased by 14,000 per year.

Furthermore, this November there will be the Hong Kong District Council elections and it is very likely that youth discontent will find a way to assert itself in the polls.

 A fragmented society under crisis creates many problems for those planning business cycles and Hong Kong is likely to see its growth rate decrease by at least 3%.

Where will capital go? Obviously in the Chinese area bordering on Hong Kong, with an expected investment growth of almost 6.5%, largely consisting of capital outflows from Hong Kong.

 The differences between Hong Kong and China, however, are much wider than those shown with violence during the recent long protests, which often followed the same tactics of the color revolutions organized by the US Services, according to the old model developed by the Einstein Institute.

 For China, Deng Xiaoping’s criterion “One Country, Two Systems” means that China takes over Hong Kong despite the differences in political and economic systems, which will eventually tend to overlap. Conversely, for Hong Kong leaders the “Country” is just lip service paid in view of maintaining the separation from China, both from a cultural as well as an economic and political viewpoint.

 China has so far controlled Hong Kong with the same logic with which it has supervised its “dangerous” territories, namely Tibet, Xinjiang and Manchuria.

 The current Chinese centralization stems from the analysis of the inglorious collapse of the almost federalist Soviet Union. In this regard, suffice to recall the ironic smiles that welcomed Gorbachev on his visit to China, just when the Tiananmen Square protests had reached their climax.

 It does not matter that the right to secession was established in Lenin’s Sacred Texts. The fact is that, for the Chinese leadership, the unity of the Country and the repression of every regionalist secession is fundamental to the permanence of the State – and of  the Party.

 China, however, still depends on the financial hub of Hong Kong, the only one completely open to the world capital flows.

According to 2018 data, the Hong Kong Stock Exchange capitalizes 29.9 trillion local dollars.

 Shenzhen and Shanghai cannot replace Hong Kong in this respect.

 Therefore, China could not intervene in Hong Kong because otherwise it would have destroyed on its own the way connecting China to international capital flows.

 Furthermore, the repression of the Hong Kong movements would have destroyed the model “One Country, Two Systems”, which is exactly the one that will be applied to Taiwan, at the right time.

 Nor should we forget that, pending the New Silk Road promoted by China, the Western Powers are conceiving political mechanisms for disrupting and possibly stopping the “Road”, by organizing rebellions and anti-Chinese parties and movements in the various countries where the passage of the Chinese One Belt One Road (OBOR) is planned.

Obviously China does not stand by and wait to see.

From this viewpoint, the Hong Kong uprising is a model that will soon be imitated and that China will oppose exactly with the same political tactics.

As is recommended in the Thirty-Six Stratagems, “Befriend a distant State and strikes a neighbouring one”.

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The final front in the South China Sea: Vietnam against China

Sisir Devkota

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A few years back, political tensions in the South China Sea was rife. China was seen as the main aggressor in trying to claim island areas for resource extraction. Now, the political climate in the rich region is changing at the expense of Vietnam’s interest. More so, in the legitimate interest of Vietnam. In the past few years, Chinese diplomacy has managed to take both Malaysia and the Philippines into its plans. Both the nations are on the verge of sanctioning new energy deals with China. On the other hand, Vietnam is resisting. In the midst of Chinese bullying, it is standing alone.

The South China Sea is making news again for a good reason. In what would best describe an economic proxy tool, foreign companies from the USA and Spain are investing on Vietnam’s share of resources, in the sea. China asserts itself with its self-designed nine-dash line, which separates its sphere of influence along the coastal borders, circling all three nations. Because of foreign interests in the region, it is not nations themselves, indulging into a confrontation. Exxon Mobil, which is the world’s largest energy enterprise, has entered into the picture. While Exxon’s initial plans were backed up by America’s political meddling; now, the multinational is facing a crisis that does not seem to escape from the China-Vietnam row.

Legitimately, the blue whale oil block, is a region inside the Vietnamese jurisdiction. As much as the oceanic geography is tricky to comprehend, China is closely monitoring Vietnam’s deal with Exxon, in order to extract natural gas reserves. Scientifically, the resources belong to Vietnam, but there could be possible twists in the favour of China. For instance, oceanic topographies have a history of breeding territorial tussle between coastal nations. Turkey and Greece are yet to settle their own set of similar crisis. The point of the matter is that Vietnam’s gas rich rocks might emanate inside the seabed leading to or from the Chinese territory. The Chinese government is not protesting the Exxon deal, but there is no prize for an obvious guess. They are saving the topographic argument for and if the need arises.

In fact, China is keeping peace under Exxon’s own credit problems. There are reports of the company facing capital crunches to fund similar projects in South America. A couple of years after it signed a deal with the Vietnamese government, the energy giant is looking to exit the troubled high seas. Exxon will also be looking to avoid the kind of embarrassment that PetroVietnam forced upon RepsolSA, a Spanish energy giant. While the Chinese started cruising their military vessels around the area, Vietnam succumbed to pressure and decided to end their extraction plans. Although the exact trade-offs cannot be accrued, the Spanish company incurred losses of more than $200 million after the exit. These events will be playing on the minds of Exxon hierarchy. A similar fate is possible in the face of Chinese intimidation. Exxon is also not sure if the Trump administration would come for a rescue; if things go horribly wrong.

Nevertheless, Vietnam is resisting. With more than $2.5 trillion at stake, China is succeeding in its pursuit to persuade both Malaysia and the Philippines for joint benefits. The Blue Whale project is important to Vietnam, as it would meet energy demands for the next twenty years. Amid its own financial problems and geopolitical standoff, Exxon will also be considering selling the project. The South China Sea is inviting another international standoff in the coming time. This time, the stakes are high. China is on the verge of controlling the waters, on its will.

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Sanctions against North Korea make no sense in denuclearization of the Peninsula

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Internationally, sanctions are part and parcel of diplomacy which are usually used for coercing target governments into particular avenues of response as required by the sender state or international organization, like former the League of Nations or the United Nations today. In theory and practice, sanctions require the sender state’s willingness to interfere in the decision-making process of another sovereign state, but in a measured way that supplements diplomatic leverage without immediately using force. Even though it is legally accepted by the international society, it must be admitted that sanctions work less effectively in foreign affairs.

So far, the United States is one of few, if not only, countries in the world which is most frequently and even provocatively using the sanctions against one country or another. The reasons are different, but as Gary Hufbauer put it, demonstration of resolve has often been the driving force behind the imposition of sanctions from the United States. As the only superpower of the world today, the United States has consistently aimed to deploy the sanctions to assert its leadership in the world affairs. Equally Washington is willing or compelled to demonstrate moral courage and reassure its alliances that it will stand by its treaties’ commitments.

Yet to that end, the United States has also frequently demonizing the target countries’ misdeed, even when the likelihood of changing their behaviour is remote. In light of this, the article likes to discuss the case study of the U.S. sanctions against the Democratic People’s Republic of Korea (North Korea) from three aspects as follows.

First, North Korea has steadily worked on its own nuclear plan since 1993 when it withdrew from the treaty on the non-proliferation of nuclear weapons (NPT). Since then, the United Nations has passed several resolutions to impose economic sanctions against the decisions of North Korea. But due to the diverse interests of the major powers on this issue, the sanctions are not effective as expected. China and Russia, while supporting the UN-endorsed resolutions, have stressed that any positive engagement with Pyongyang serves to soften what North Koreans perceive as existential threat to their security and core interests; and in so doing slow down the progress of its nuclear program at its root, like the case of the Iran nuclear deal which was struck in Vienna following two-year intensive talks orchestrated by the Obama administration and finally was signed by Iran and six other nations in 2015. It stipulated that in return for its compliance, all nuclear-related sanctions on Iran were lifted in early 2016 with reconnecting the country’s stagnating economy with international markets. Yet, in 2018 President Trump just walked away from the Iran nuclear deal, breaking with allies in Europe and leaving the future of the agreement in doubt. The consequences are self-evident to all the countries, in particular North Korea.

Second, under such circumstances, North Korea has sped up its efforts in enhancing its nuclear capability. From 2016-2018 Pyongyang repeatedly demonstrated its resolve and ability to test more than six nuclear and hydrogen bomb test alongside its projecting technology. Understandably the United States and its allies Japan and Republic of Korea (South Korea) have showed their strong denial to the DPRK’s nuclear tests, as U.S. national security council announced that Washington and its allies would have more military cooperation and deployment in the region because North Korea’s tests were seriously viewed as a provocation which would initiate the next arms race in East Asia. As always, China and Russia called on all sides concerned to preserve the maximum restraint. This call led to the detente between the United States and North Korea, such as the summits between Trump and Kim.

Third, frankly speaking, Pyongyang’ tensions with Washington has escalated sharply since the Trump administration adopted a much sterner policy towards North Korea and his unwise decision to withdraw from the Iran nuclear deal later. Following the exit from the nuclear deal, the U.S. returned the sanctions, mainly on North Korea and Iran’s energy and financial sectors, which had previously been removed under the agreement (JCPOA). As a reaction to Washington’s hostility and in particular its subsequent sanctions, North Korea and Iran have taken the necessary measures to deal with the United States and other major powers, arguing that the U.S. can sanction every man, woman, and child but we will never submit to bullying and threats. Given this, the U.S. should abandon its failed policies and return to negotiations with the two countries involved.

For sure, in the reality of international affairs, sanctions do not often succeed in changing or even coercing the behavior of target countries. First, the sanctions imposed may simply be inadequate for the task to the countries, for example, like DPRK or Iran. The goals may be clear enough, but the means in their use are elusive, such as cooperation from other major powers, though needed badly, are often too tepid. In addition, Iran and North Korea have strong support from one or another or two major powers. And they have had their industrial systems backed up by a relatively strong technology and manufacturing capacities. It tells us that either North Korea or Iran is able to find commercial and industrial alternatives.

Second, China and Russia have supported only the U.N.-endorsed sanctions against North Korea, and thus they have opposed to any attempt on the part of the United States and its allies to change the regime of the target countries regardless of the dire consequences. As the close neighbor of North Korea, China or Russia has vowed their determination not allow the chaos occurred in the Korean peninsula. Given this, Pyongyang has substantially the room to negotiation with the United States and its brotherly counterpart South Korea. In addition, China and Russia have provided North Korea the huge and necessary humanitarian aid. As history reveals that in fact economic sanctions often prompt wealthy and powerful allies or friendly neighbors of the target country to “assume the role of ‘black knights’, whose help can largely offset whatever deprivation results from sanctions themselves.”

Finally, it is true that sometimes the errant aim of the sender countries would have wounded target country and its national feelings and even their own domestic businesses. It means if economic sanctions are existent too long, it is possible to alienate allies abroad and business interests at home as well. In the case of North Korea, South Korea does not support all kinds of sanctions imposed by the U.S. and Japan, though they are the allies, on their own brothers and sisters in the north.

In light of what has been discussed above, it is sure that economic sanctions against North Korea are doomed to fail. Actually, since last year when Kim travelled to China in meetings with his Chinese counterpart–President Xi, Pyongyang has dedicated most efforts to economic reconstructions at home and to hold talks with the United States and South Korea, involving all the talks on pulling all guard posts and heavy weapons out of the DMZ, possible denuclearization and all missile programs, and inter-Korean economic cooperation. Despite some obstacles ahead, it is a reasonable requirement to resolve the legitimate security concerns of DPRK. Therefore, it is politically and morally righteous to achieve the final end of the denuclearization through diplomacy rather than any sanctions. That is exactly China’s proposed “dual-track approach”—the realization of the denuclearization of the Korean Peninsula and the establishment of a peaceful mechanism on the Korean Peninsula.

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