Friday, January 11, 2008

China, U.S. Make Plans for North Korea Collapse, Reports Say

(Bloomberg) -- China and the U.S.-South Korean alliance have begun planning for military intervention in case the Kim Jong Il regime in North Korea collapses, according to two newly published studies -- one of which foresees a race to occupy and control the impoverished communist country.

``If the international community did not react in a timely manner as internal order in North Korea deteriorated rapidly, China would seek to take the initiative in restoring stability,'' says a Jan. 3 report by Washington's Center for Strategic and International Studies and the U.S. Institute of Peace.

The report says its unnamed Chinese sources see North Korea as stable for the moment, ``but they worry that the potential for instability may grow.''

Meanwhile, U.S. and South Korean military planners were scheduled to complete by the end of 2007 a contingency plan for controlling the spread of weapons of mass destruction and dealing with refugees fleeing North Korea in the event of a collapse, according to an article in the January/February issue of the U.S. Army journal Military Review.

To beat China to the punch, joint planners should go farther and prepare for a South Korean occupation of the North, argues the author, Army Capt. Jonathan Stafford.

``A failure to prepare for this monumental task risks losing the Korean dream of reunification to Chinese hegemony,'' he writes. ``If South Korea cannot occupy the DPRK immediately and effectively, China will.''

DPRK stands for Democratic People's Republic of Korea, North Korea's official name.

Multilateral Approach

The authors of the CSIS-USIP report said Chinese specialists in North Korean affairs they interviewed hoped for a multilateral approach to North Korea rather than a contest for hegemony.

``In the event of instability in North Korea, China's priority will be to prevent refugees from flooding across the border,'' says the report, entitled ``Keeping an Eye on an Unruly Neighbor.'' If Chinese troops need to go into North Korea, ``China's strong preference is to receive formal authorization and coordinate closely with the United Nations,'' it says.

China's People's Liberation Army has contingency plans for at least three possible missions in the country, the report says. One is humanitarian: refugee assistance, or helping with the aftermath of a natural disaster. The second is policing the country to maintain order. The third is to secure North Korea's nuclear weapons and fissile material, or clean up nuclear contamination in the event of a strike -- the report does not specify by whom -- on North Korean nuclear facilities near the border.

China's Reaction

A Chinese foreign ministry spokeswoman on Jan. 8 denied knowledge of the plan, according to Agence France Press. ``I have never heard of nor seen the so-called plan mentioned in the report,'' AFP cited the spokeswoman saying.

Regarding nuclear-related contingencies, ``some Chinese experts say explicitly that they favor holding a discussion on stability in North Korea in official channels with the United States,'' the report says.

China is the organizer and host of ongoing talks with the U.S., North and South Korea, Japan and Russia on denuclearizing the North.

Stafford in his article argues that ``the Chinese have been busy laying the political, diplomatic and historical foundations for an occupation and perhaps even an annexation of North Korea.''
 

Gold Futures Rise to Record $900.10 on Interest-Rate Outlook

(Bloomberg) -- Gold futures rose to a record $900.10 an ounce on speculation the Federal Reserve will further cut U.S. interest rates, weakening the dollar and boosting the investment appeal of the precious metal. Silver also climbed.

Interest-rate futures show a 68 percent chance the Fed will lower borrowing costs 0.5 percentage point to 3.75 percent by Jan. 30 after Fed Chairman Ben S. Bernanke suggested cuts may be necessary to guard against an economic slowdown. Gold rose 31 percent last year when the Fed slashed rates 1 percentage point, sending the dollar 9.5 percent lower against the euro.

``If the Fed drops rates, a lower dollar will propel gold higher,'' said Leonard Kaplan, president of Prospector Asset Management in Chicago. ``Everything we buy is going to be more expensive. Any raw material will go through the roof. The smart people see inflation.''

Gold futures for February delivery rose $4.70, or 0.5 percent, to $898.30 an ounce at 11:55 a.m. on the Comex division of the New York Mercantile Exchange. The price reached the record at 10:40 a.m. The record level was confirmed by Nymex.

Silver futures for March delivery rose 2 cents, or 0.1 percent, to $16.295 an ounce. The price earlier reached $16.415, the highest since January 1981. The metal gained 15 percent last year.

HSBC Securities USA Inc. and Morgan Stanley predicted the Fed will reduce its benchmark rate by half a percentage point this month after Bernanke's comments, up from their previous forecast of a quarter point.