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| Tensions With North Korea Unsettle South’s Economy | Tensions With North Korea Unsettle South’s Economy |
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| SEOUL — North Korea’s torrent of threats — and the matching show of military power and political resolve from the United States and South Korea — began showing signs of unsettling foreign investors’ confidence Friday. | |
| The development magnified the challenge Seoul and Washington face. The two powers are trying to show the North’s novice leader, Kim Jong-un, that they will not be blackmailed by his bluff and bluster. But at the same time, they do not want to escalate the tensions to an extent that they hurt the South Korean economy, the pride of the local population here, and Park Geun-hye’s political standing at home. | |
| “In the past, North Korea-related events had little impact or the markets recovered quickly,” the South’s vice finance minister, Choo Kyung-ho, told a meeting of top finance officials on Friday. “But recent threats from North Korea are stronger and the impact may therefore not disappear quickly.” | “In the past, North Korea-related events had little impact or the markets recovered quickly,” the South’s vice finance minister, Choo Kyung-ho, told a meeting of top finance officials on Friday. “But recent threats from North Korea are stronger and the impact may therefore not disappear quickly.” |
| His comment came hours after General Motors’ chief executive, Dan Akerson, underscored the increased worry by saying that his company was making contingency plans for employee safety at its South Korean plants and that further increases in tensions would even prompt GM to look at moving production elsewhere long term. In an interview with CNBC, he said, “If there were something to happen in Korea, it’s going to affect our entire industry, not just General Motors.” | His comment came hours after General Motors’ chief executive, Dan Akerson, underscored the increased worry by saying that his company was making contingency plans for employee safety at its South Korean plants and that further increases in tensions would even prompt GM to look at moving production elsewhere long term. In an interview with CNBC, he said, “If there were something to happen in Korea, it’s going to affect our entire industry, not just General Motors.” |
| South Korean stocks slumped 1.64 percent on Friday in a selling spree among foreign investors that analysts attributed to jitters over North Korea. The Korean won also sank against the U.S. dollar. | South Korean stocks slumped 1.64 percent on Friday in a selling spree among foreign investors that analysts attributed to jitters over North Korea. The Korean won also sank against the U.S. dollar. |
| Although South Koreans have become almost nonchalant after decades of on-and-off threats from North Korea, they believe that when things get ugly with the North, their globalized economy has much more to lose than the North’s isolated and already highly sanctioned economy. | Although South Koreans have become almost nonchalant after decades of on-and-off threats from North Korea, they believe that when things get ugly with the North, their globalized economy has much more to lose than the North’s isolated and already highly sanctioned economy. |
| “The North Koreans are now using the propaganda in an extreme form to try to damage foreign direct investments into South Korea,” said Tom Coyner, a member of the American Chamber of Commerce in Korea and author of “Doing Business in Korea.” “They are in a sense at this point winning in an asymmetrical psychological warfare, attacking the economic strength of South Korea.” | “The North Koreans are now using the propaganda in an extreme form to try to damage foreign direct investments into South Korea,” said Tom Coyner, a member of the American Chamber of Commerce in Korea and author of “Doing Business in Korea.” “They are in a sense at this point winning in an asymmetrical psychological warfare, attacking the economic strength of South Korea.” |
| War cries from North Korea have been factored into the stock market for decades. Still its threats have grown in their intensity and frequency since the country upheld Mr. Kim as its top leader in late 2011, and especially after the United Nations imposed sanctions against the North following its nuclear test in February. The sanctions took direct aim at North Korea’s Achilles’ heel by targeting cash transfers and luxury items which the Kim regime uses to buy the loyalty of the elite. | War cries from North Korea have been factored into the stock market for decades. Still its threats have grown in their intensity and frequency since the country upheld Mr. Kim as its top leader in late 2011, and especially after the United Nations imposed sanctions against the North following its nuclear test in February. The sanctions took direct aim at North Korea’s Achilles’ heel by targeting cash transfers and luxury items which the Kim regime uses to buy the loyalty of the elite. |
| North Korea has since called the Korean Peninsula “back to a state of war” and declared that it would launch “pre-emptive nuclear strikes” at the United States and its allies. It also said it would never bargain away its nuclear arsenal but rather expand it. | North Korea has since called the Korean Peninsula “back to a state of war” and declared that it would launch “pre-emptive nuclear strikes” at the United States and its allies. It also said it would never bargain away its nuclear arsenal but rather expand it. |
| What made the situation different too was the way Washington and Seoul responded. South Korea matched the tone by declaring that if provoked, it would target the North Korean military leadership, and revised the rules of engagement to let its military respond more swiftly, forcefully and “without political consideration.” Meanwhile, the United States flew nuclear-capable bombers over the peninsula on training sorties and signed an agreement with Seoul to respond jointly to any North Korean provocation. | What made the situation different too was the way Washington and Seoul responded. South Korea matched the tone by declaring that if provoked, it would target the North Korean military leadership, and revised the rules of engagement to let its military respond more swiftly, forcefully and “without political consideration.” Meanwhile, the United States flew nuclear-capable bombers over the peninsula on training sorties and signed an agreement with Seoul to respond jointly to any North Korean provocation. |
| “The relentless show of force on a daily basis by not just North Korea, but also the U.S. and South Korea as part of their annual military exercises has captured the attention of the world, and made the Korean Peninsula a place associated not with ‘Gangnam Style’ but with nuclear weapons and stealth bombers,” said John Delury, an American scholar who teaches at Yonsei University in Seoul. | “The relentless show of force on a daily basis by not just North Korea, but also the U.S. and South Korea as part of their annual military exercises has captured the attention of the world, and made the Korean Peninsula a place associated not with ‘Gangnam Style’ but with nuclear weapons and stealth bombers,” said John Delury, an American scholar who teaches at Yonsei University in Seoul. |
| “Markets hate risk, even if it is the perception rather than reality of risk,” he added. “This poses a serious challenge to President Park, who was elected on the basis of promises to keep growing the South Korean economy and improve relations with the North.” | |
| Government officials said that the military tensions have so far had only limited impact on the markets. But for the South Korean economy, the North Korean imbroglio is an additional drag that comes at an inopportune time. In the face of the weakening Japanese yen, which hurts South Korean exporters, South Korea recently announced a sharp cut in growth forecasts. | Government officials said that the military tensions have so far had only limited impact on the markets. But for the South Korean economy, the North Korean imbroglio is an additional drag that comes at an inopportune time. In the face of the weakening Japanese yen, which hurts South Korean exporters, South Korea recently announced a sharp cut in growth forecasts. |
| Officials vowed to ensure stability if the situation worsens. | Officials vowed to ensure stability if the situation worsens. |
| A key test is whether North Korea would go so far as to close down a joint industrial park in the North Korean town of Kaesong. The complex, where South Korean factories use cheap North Korean labor, is a key source of hard currency for Pyongyang and stands as the last major symbol of inter-Korean cooperation. Seoul officials have cited the project when they wanted to show foreign investors that North Korean harsh rhetoric is not always matched by action. | A key test is whether North Korea would go so far as to close down a joint industrial park in the North Korean town of Kaesong. The complex, where South Korean factories use cheap North Korean labor, is a key source of hard currency for Pyongyang and stands as the last major symbol of inter-Korean cooperation. Seoul officials have cited the project when they wanted to show foreign investors that North Korean harsh rhetoric is not always matched by action. |
| In a “Global Political Insights” report on Friday, Citi Research said that “barring an outbreak of wide-scale military conflict, we think North Korean brinksmanship will not impact the South Korean economic fundamentals.” In a report earlier this week, Thomas J. Byrne and Steffen Dyck at Moody’s Investors Service expressed similar views but also mentioned “a heightened risk of military adventurism or miscalculation by the 30-something Kim Jong-un.” | In a “Global Political Insights” report on Friday, Citi Research said that “barring an outbreak of wide-scale military conflict, we think North Korean brinksmanship will not impact the South Korean economic fundamentals.” In a report earlier this week, Thomas J. Byrne and Steffen Dyck at Moody’s Investors Service expressed similar views but also mentioned “a heightened risk of military adventurism or miscalculation by the 30-something Kim Jong-un.” |
| Lee Beom-ho, an analyst at Shinhan Investment Corp., said that markets had traditionally tended to dismiss North Korean brinkmanship. | Lee Beom-ho, an analyst at Shinhan Investment Corp., said that markets had traditionally tended to dismiss North Korean brinkmanship. |
| But this time, “the targets of North Korean threat have expanded and the international community has become more sensitive,” he said, referring to the North’s growing nuclear and missile capabilities and American plans to deploy more interceptor missiles to the region. “At the same time, there is doubt over the abilities of those who are supposed to deter North Korea, especially China.” | But this time, “the targets of North Korean threat have expanded and the international community has become more sensitive,” he said, referring to the North’s growing nuclear and missile capabilities and American plans to deploy more interceptor missiles to the region. “At the same time, there is doubt over the abilities of those who are supposed to deter North Korea, especially China.” |
| Millions of South Koreans live within the range of North Korean artillery, with the area between Seoul and the border with North Korea developed into forests of high-rise apartments in recent decades for people commuting to the metropolis. Yet, previous provocation by North Korea have usually had an ephemeral effect on South Korea’s equity and foreign exchange markets, occasionally even presenting buying opportunities. | Millions of South Koreans live within the range of North Korean artillery, with the area between Seoul and the border with North Korea developed into forests of high-rise apartments in recent decades for people commuting to the metropolis. Yet, previous provocation by North Korea have usually had an ephemeral effect on South Korea’s equity and foreign exchange markets, occasionally even presenting buying opportunities. |
| In a sign of how accustomed South Korea has grown to the security provided by the military alliance with the United States, people here have shown few signs of agitation in recent weeks, even as North Korea was bombarding their country almost daily with apocalyptic threats of “final destruction.” | In a sign of how accustomed South Korea has grown to the security provided by the military alliance with the United States, people here have shown few signs of agitation in recent weeks, even as North Korea was bombarding their country almost daily with apocalyptic threats of “final destruction.” |
| South Koreans remain more sensitive about foreign investors’ moves. | South Koreans remain more sensitive about foreign investors’ moves. |
| During a previous North Korean nuclear crisis in 1994, the market proved resilient when a video-taped threat by a North Korean official to turn Seoul into “a sea of fire” was leaked to the media. But later that year, when Washington drew up plans to evacuate Americans from South Korea ahead of a planned surgical strike at the North Korean nuclear facilities, South Koreans rushed to supermarkets, hoarding up goods, and the stock market took a dive. | |
| Officials and analysts here suspect that North Korea, no longer able to fight a conventional war or even launch a major skirmish against the South without suffering a humiliating strike-back, was increasingly resorting to other forms of warfare, like hacking South Korean banks and broadcasters. | Officials and analysts here suspect that North Korea, no longer able to fight a conventional war or even launch a major skirmish against the South without suffering a humiliating strike-back, was increasingly resorting to other forms of warfare, like hacking South Korean banks and broadcasters. |
| “Most people say they are used to a lot of blustering and posturing by North Korea and we should not take it too seriously,” said Mr. Coyner. “But it needs to be taken seriously in the sense that it is already proving to be effective where foreign multinationals are looking at political risk contingency option.” | “Most people say they are used to a lot of blustering and posturing by North Korea and we should not take it too seriously,” said Mr. Coyner. “But it needs to be taken seriously in the sense that it is already proving to be effective where foreign multinationals are looking at political risk contingency option.” |