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Gawain

North Korea Says It Will Conduct a Nuclear Weapon Test

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China, despite its market reforms, is an authoritarian communist state.


China has very little left of the communist doctrine. It is indeed an authoritarian state, albeit a fairly "enlighten" one, and changing rapidly. Not withstanding all the sad effects an authoritarian regime can have on some of its people, China has the advantage of not doing what Russia is, and is in a period of transition.
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Its currency is tightly controlled


Indeed it is, as it is only very slightly floated on the markets. However, both China and THE REST OF THE WORLD would fear an overnight re-evaluation of the Yuan. The Chinese economy would collapse, and so would many other foreign economies. The Yuan currently stands at around $1=¥7.9. It real value is probably around 1 to 5. It will probably be fully tradable within 7 years or so, which will enable China to control the re-evaluation of the currency.
Also, the Chinese government is trying to ensure the country does not get raped by foreign investors (although Taiwanese and Hong Kongeses are already getting a pretty nice part of the loot).
And yes, Tiananmaen was a tragedy. However, in a very ironic way, it probably enabled China to pursue its economic and political reforms. By acting on the events the way Deng Xia Ping did, he kept the hard liners from regaining control of the regime. But that's a subject for another thread I guess...

"For once you have tasted Absinthe you will walk the earth with your eyes turned towards the gutter, for there you have been and there you will long to return."

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Let me clarify -- the market cannot determine its own valuation of the Yuan. It is always 7.90:1.00.


Just to clarify: the Yuan IS floated, but only ever slightly. The first time I came to China, it was $1=¥8.32
When I moved to China less than a year ago, it was around 1=8.05

"For once you have tasted Absinthe you will walk the earth with your eyes turned towards the gutter, for there you have been and there you will long to return."

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Okay, so in a certain respect, perhaps some hairs are getting split here. No big deal.

However, I have yet to find a single paper, article, or essay which cites it in the light you're portraying, "The Yuan is floated". (Actually, I think it's funny, you also say, "not too far off from strict peg" :S)

If anything, it's a loose peg, as it is not allowed to vary in value by more than 0.3% in any given day, and these variances are not allowed to compound.

Anyhoooooo........
I don't think they're going to side with the west if DPRK does the unthinkable and executes a nuclear weapon test.
So I try and I scream and I beg and I sigh
Just to prove I'm alive, and it's alright
'Cause tonight there's a way I'll make light of my treacherous life
Make light!

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I don't think they're going to side with the west if DPRK does the unthinkable and executes a nuclear weapon test.


They won't. Nor will they side with the DPRK. They will do what is in China's interest. Which is certainly NOT having the DPRK have nuclear power. They will put pressure on their own term, and at the end, will probably have KJI renounce on nuclear power.
My guess is that within12 to 15 months, the DPRK will announce that it has shelved its nuclear ambition. It will coincide with China, the US and the EU announcing a loan package to the fine people of North Korea.
We are still at the positioning stage, albeit advanced.

"For once you have tasted Absinthe you will walk the earth with your eyes turned towards the gutter, for there you have been and there you will long to return."

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so what , let them test it. Soon everybody will have them. i find it ridiculos that countries with thousands of them pointed at other countries ( with somebody like Bush in charge ) tell those same countries .. In the name of peace and good livin you cant have them.

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Frenchy got it wrong too, the Yuan is not directly floated.

The nominal value of the yuan is determined by a loose formula administered by China. Since all the prices are visible, it just takes a little math to figure out what the formula is, plus or minus a little wiggle room that's built in:
http://www.rieti.go.jp/jp/publications/dp/06e019.pdf#search=%22yuan%20basket%20formula%22

I remembered wrong, btw, it was in 2005 that the formula was introduced, not earlier this year.

Anyway, since the yuan is set to almost a fixed number of dollars, whichever way the dollar fluctuates (in real terms) is transmuted onto the yuan. The exchange rate stays put but the amount of homogeneous goo that each will buy travels together.

That's exactly what it means to say that the two are pegged, or nearly pegged.

The dollar is floated, but it is not totally free since our central bank workalike, the Fed, actively manipulates it (to good ends). Since the dollar is floated, the yuan is thus indirectly floated. The issue with China's currency is not whether the yuan is floated or not, but how the yuan is manipulated. Right now the yuan can't be manipulated independently from the dollar, it can only be manipulated simultaneously with the dollar (by the Fed) because they are pegged. Economic pressures are pushing the yuan and the dollar differently, and the result is economic inefficiency and effectively various subsidies and penalties throughout both markets, and indirectly thus to their respective trading partners.

What it would mean for a currency to not be floated at all would be Soviet style price controls: X kopeks buys a loaf of bread, Y rubles buys a quart of oil, Z rubles buys a car. That's not China. North Korea and Cuba are the only parts of the world that do that. IIRC some Arab states and Venezuela get into the act a bit with local fuel prices, and of course the US and the EU with farm subsidies, but certainly no other whole economies.
My advice is to do what your parents did; get a job, sir. The bums will always lose. Do you hear me, Lebowski?

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OK, wrong terminology, my mistake. The Yuan is "allowed" a daily of fluctuation of +/- 0.3% per day to the US Dollar. In that regards, the Yuan has been constantly gaining strength compared to the Dollar, which does not mean it does towards other currencies (if the US$ goes down compared to other currencies, so does the value of the CN¥ with it).
However, there has been months where the CN¥ has gained over 1% on the US$, which is not neglectable.

"For once you have tasted Absinthe you will walk the earth with your eyes turned towards the gutter, for there you have been and there you will long to return."

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Whereas, the Japanese Yen is 119.00:1.00, and tomorrow, that will change.



Funny you should mention the yen, btw.

Total aside, but while we're on an economics roll, there's an article in the Economist last week that purports the yen to be even more undervalued than the yuan. Due to subtler market manipulations or conditions (depending on who you ask, according to the article) than a fixed exchange rate.

edit: garr, fudged the url
My advice is to do what your parents did; get a job, sir. The bums will always lose. Do you hear me, Lebowski?

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I don't think they're going to side with the west if DPRK does the unthinkable and executes a nuclear weapon test.


They won't. Nor will they side with the DPRK. They will do what is in China's interest. Which is certainly NOT having the DPRK have nuclear power. They will put pressure on their own term, and at the end, will probably have KJI renounce on nuclear power.
My guess is that within12 to 15 months, the DPRK will announce that it has shelved its nuclear ambition. It will coincide with China, the US and the EU announcing a loan package to the fine people of North Korea.
We are still at the positioning stage, albeit advanced.



I think you are pretty close to the mark on this. The sole purpose of the DPRK is to remain in power. The Chinese, however you describe their currency and system of government, are noted for their pragmatism and will at some point, sooner than later, begin to pressure the N. Koreans to rethink their ambitions.

What Kim and his generals need most right now is the continuing flow of food and fuel. Outside of the capital, as best as anyone can tell, the country is in a continual state of starvation.

Selling nuclear technology to the highest bidder would likely not raise enough ready capital to maintain the N Korean gov. It would also not be likely to go unnoticed.
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As far as I have been able to research, Iran and North Korea combined have invaded far fewer other nations in the last 50 years than has the USA. So how come we're so afraid of them?
...

The only sure way to survive a canopy collision is not to have one.

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As far as I have been able to research, Iran and North Korea combined have invaded far fewer other nations in the last 50 years than has the USA. So how come we're so afraid of them?



Come on John....historically I think you can trace some of the Koreans to the Mongul Hordes... and we all know how the Persian Empire has invaded hundreds of kingdoms/countries thru the millenia.

We wouldnt want them to do that sort of stuff again now would we.:D

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Darn it you beat me to it. I get your rib, but I was going to mention the Persian Empire and the Three Kingdoms of Korea. :P

edit: even though that wouldn't account the last fifty years. Either way, to compare the three in the same context is narrow minded in my view.
So I try and I scream and I beg and I sigh
Just to prove I'm alive, and it's alright
'Cause tonight there's a way I'll make light of my treacherous life
Make light!

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I don't think they're going to side with the west if DPRK does the unthinkable and executes a nuclear weapon test.


They won't. Nor will they side with the DPRK. They will do what is in China's interest. Which is certainly NOT having the DPRK have nuclear power. They will put pressure on their own term, and at the end, will probably have KJI renounce on nuclear power.
My guess is that within12 to 15 months, the DPRK will announce that it has shelved its nuclear ambition. It will coincide with China, the US and the EU announcing a loan package to the fine people of North Korea.
We are still at the positioning stage, albeit advanced.



Spot on.

***China tells North Korea to step back from brink
By Times Online and Richard Beeston, Diplomatic Editor





China has urged North Korea not to destabilise the Korean peninsula by testing a nuclear weapon.



The only ally of Kim Jong Il's increasingly paranoid regime advised Pyongyang today to negotiate with the international community rather than "take actions that escalate tensions".

"We hope that North Korea will exercise necessary calm and restraint over the nuclear test issue," said Liu Jianchao, the chief spokesman for the Chinese Foreign Ministry, in a short statement.

Beijing remained conspicuous by its silence yesterday when North Korea said for the first time that it was planning to test a nuclear bomb.

The threat, coming after months of sabre-rattling and a series of conventional missile tests in July, provoked an international outcry, with South Korea, Japan, Russia, France, Britain and Russia all expressing their concern.

The fallout continued today. Condoleezza Rice, the US Secretary of State who is visiting the Middle East, said a test "would be a very provocative act by the North Koreans" while South Korea, officially still at war with the North, warned that the move could lead to an arms race in Asia.

Even as aid lorries carrying cement continued to flow across the border from the South into the impoverished North, which maintains a functioning nuclear programme despite years of famine and isolation from international trade, the South Korean Deputy Foreign Minister, Yu Myung Hwan, warned parliament that the danger from Pyongyang could remake the region.

Mr Yu prophesised that an atomic test "could provide a pretext for Japan’s nuclear armament... This will prompt countermoves by China or Russia and lead to a change in the balance of power in the Northeast Asia".

Australia, one of the few countries in the world to maintain economic and diplomatic relations with North Korea, summoned the country's ambassador in Canberra today to warn him "in the strongest possible terms of the severe consequences" that Pyongyang would face if a test was carried out.

"I am outraged that a country that has to rely on the international community to feed its own people devotes so many of its scarce resources to missile and nuclear weapons programs," said the Australian Foreign Minister, Alexander Downer.

But North Korean diplomats sounded a note of anxiety rather than calm: "Now the situation around the Korean peninsula is very tense, it may be breaking out a war at any time I think," a spokesman for the Embassy in Canberra told Reuters.

Kim Jong Il’s isolated and paranoid regime is highly unpredictable and some will dismiss the latest threats as the rantings of an eccentric dictator.

But since Pyongyang withdrew from peace talks a year ago, the regime does appear to have hardened its stand. In July it test fired a Taepodong-2 missile, which could one day have the range to hit America. The test failed after 40 seconds, but the North Koreans then fired five shorter range ballistic missiles to prove that they could still hit targets in the region.

"Pyongyang has been increasingly controlled by hardliners in the past months and its policies and words have become more and more extreme," said Shi Yinhong, a Chinese foreign policy expert. "The situation is really dangerous."

The North Koreans are particularly frustrated by American financial sanctions. By playing its nuclear card now, Pyongyang may hope to put pressure on America and its neighbours to ease its isolation.

http://www.timesonline.co.uk/article/0,,3-2388222,00.html

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