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Tougher North Korea sanctions could hit home, analysts say ahead of U.N. vote

People look toward the north through a barbed-wire fence near the militarized zone separating the two Koreas, in Paju, South Korea, December 21, 2017.

By Hyonhee Shin and Heekyong Yang

SEOUL (Reuters) – Newly proposed sanctions on North Korea could have a significant effect on the isolated country’s already struggling economy, analysts said ahead of an expected U.N. Security Council vote on Friday, which will hinge on support from China and Russia.

Tensions have been rising over North Korea’s nuclear and missile programs, which it pursues in defiance of years of different U.N. Security Council resolutions, with bellicose rhetoric from the North and the White House.

But U.S. diplomats have made clear they are seeking a diplomatic solution and have proposed a number of new, tougher sanctions designed to ratchet up pressure on North Korean leader Kim Jong Un.

North Korea regularly threatens to destroy South Korea, the United States and Japan and says its weapons programs are necessary to counter U.S. aggression. The United States stations 28,500 troops in the South, a legacy of the 1950-53 Korean War.

On Friday, a spokesperson for North Korea’s foreign ministry called U.S. President Donald Trump’s recently released national security strategy the latest American policy seeking to “stifle our country and turn the entire Korean peninsula” into an outpost of American hegemony.

He said Trump was seeking “total subordination of the whole world”.

INCREASING PRESSURE

The draft U.N. resolution, seen by Reuters on Thursday, seeks to ban nearly 90 percent of refined petroleum product exports to North Korea by capping them at 500,000 barrels a year and demand the repatriation of North Koreans working abroad within 12 months.

It would also cap crude oil supplies to North Korea at 4 million barrels a year, as well as ban a number of North Korean exports such as machinery, lumber, and other products and resources.

“If they were enforced, the cap on oil would be devastating for North Korea’s haulage industry, for North Koreans who use generators at home or for productive activities, and for (state-owned enterprises) that do the same,” said Peter Ward, a columnist for NK News, a website that tracks North Korea.

The forced repatriation of foreign workers would also cut off vital sources of foreign currency and investment not only for the government but also for North Korea’s emerging market economy, he said.

“If such sanctions were enforced, they would thus impede and endanger North Korea’s economic development.”

Asked about the effects of sanctions before these latest proposals were announced, Michael Kirby, who led a U.N. inquiry into human rights abuses in North Korea, said cutting off fuel imports would be “a very serious step”.

“Cutting off oil, petroleum supplies would obviously have a very big impact on the ordinary population,” he said.

EYES ON CHINA, RUSSIA

China, which supplies most of North Korea’s oil, has backed successive rounds of U.N. sanctions but has resisted past U.S. calls to cut off supplies to its neighbor.

Asked about the proposed new resolution on North Korea, Chinese Foreign Ministry spokeswoman Hua Chunying called on all sides to exercise restraint and to “strictly implement the current relevant U.N. Security Council resolutions”.

While not directly addressing the new proposals, Hua said that China would maintain communications with all sides and supports measures to “quickly create the necessary conditions to peacefully resolve the Korean Peninsula nuclear issue through talks”.

Any move to curb exports of Chinese fuel to North Korea may have limited impact after China National Petroleum Corp suspended diesel and gasoline sales to its northern neighbor in June over concerns the state-owned company would not get paid.

Business has slowed steadily since then, with zero shipments of diesel, gasoline and other fuel from China in October. November data will be released on Monday.

Russia quietly boosted economic support for North Korea earlier this year, and last week Russian Deputy Foreign Minister Igor Morgulov said that Moscow was not ready to sign up to new sanctions that would strangle the country economically.

China and Russia on Thursday asked for more time to consider a U.S. proposal to blacklist 10 ships for transporting banned items from North Korea, diplomats said. It was unclear how much more time would be given.

Even if the proposed sanctions have an economic effect, it’s not clear whether that would push Pyongyang to negotiate or stop its weapons development, said Kim Sung-han, a former South Korean vice foreign minister.

“We have had numerous – sometimes so-called toughest – sanctions against North Korea over the past 25 years,” he said. “Almost none have worked effectively to halt the regime’s military and nuclear ambitions.”

OLYMPIC DREAMS

The additional sanctions would come as South Korean President Moon Jae-in seeks to ease tensions ahead of the 2018 Pyeongchang Winter Olympics in February. He has proposed delaying annual joint military drills with the United States, which North Korea sees as a preparation for invasion, until after the Games.

A foreign ministry spokesperson declined to comment until after the Security Council vote on the resolution on Friday, but an official at South Korea’s Unification Ministry said Seoul supported global efforts to rein in North Korea even as it tries to use the Olympics as a catalyst for peace negotiations.

“The North should have its own thinking about whether or not to participate in the Olympics (regardless of sanctions),” the Unification Ministry official told Reuters. “If it were to come, it would make a decision at the last minute. Until then we will continue to wait and see.”

Seoul has also sought to repair relations with China, which were damaged when Beijing complained over the deployment of an American anti-missile system in South Korea.

Officials at foreign ministries in both Seoul and Beijing have denied reports by travel agents that some Chinese tour groups are still begin blocked from traveling to South Korea.

“As far as I am aware, according to the information I have before me, these reports are not in accord with the facts,” Hua said on Friday.

While Trump and North Korean leader Kim have publicly derided negotiations as useless without major policy shifts by the other side, Seoul has continued a slightly softer approach, while still supporting international pressure.

“If we get to meet the North side, we are willing to have frank, active discussions on various issues that are of North Korea’s interest, without any preconditions,” South Korean Unification Minister Cho Myoung-gyon told reporters in Seoul.

“Next year, we would pursue our policy in a more proactive manner than this year, making use of various opportunities, including the Pyeongchang Olympics.”

(Additional reporting by Christian Shepherd in BEIJING; Writing by Josh Smith; Editing by Nick Macfie)

South Korea says delay in military drills aimed only at ensuring peaceful Olympics

South Korean and U.S. Marines take part in a winter military drill in Pyeongchang, South Korea, December 19, 2017. REUTERS/Kim Hong-Ji

By Josh Smith

SEOUL (Reuters) – South Korean officials said on Wednesday a proposed delay in military drills with the United States was aimed at ensuring a peaceful 2018 Winter Olympics, not ending the North Korean missile crisis, as relations with China suffered new setbacks.

South Korean President Moon Jae-in is seeking to soothe relations with North Korea, which is pursuing nuclear and missile programmes in defiance of U.N. sanctions, and with China, the North’s lone major ally, before the Games begin in South Korea in February.

China, which hosted years of on-again-off-again six-party talks to try to end the North Korea standoff, resumed some blocks on group tours to South Korea, industry sources said, and rebuked Seoul for firing warning shots at Chinese fishing boats

On Tuesday, Moon, who visited China last week, said he had proposed postponing major military drills with the United States until after the Games, a move his office said was designed to reassure athletes and spectators.

“This is confined to our efforts to host a peaceful Olympics,” an official from the presidential Blue House said. “We are only talking about the exercises which are supposed to take place during the Olympics and Paralympics.”

North Korea sees the regular joint exercises as preparation for war, while China is still angry about the deployment of a U.S. anti-missile system, commonly known as THAAD, by South Korea, whose powerful radar it fears could see deep inside its territory.

The South argues it needs THAAD to guard against the threat posed by North Korea, which regularly threatens to destroy South Korea, Japan and the United States.

For a graphic on North Korea’s missile launches, click http://tmsnrt.rs/2j2S5T3

The proposed delay in drills was discussed during a summit last week between Moon and Chinese President Xi Jinping, after the proposal had already been submitted to the Americans, the Blue House official said.

China and Russia have proposed a “freeze for freeze” arrangement under which North Korea would stop its nuclear and missile tests in exchange for a halt to the exercises. However, the official denied the proposed delay had anything to do with the freeze idea.

U.S. Secretary of State Rex Tillerson said in Ottawa on Tuesday he was unaware of any plans to “alter longstanding and scheduled and regular military exercises”.

North Korea has stepped up its missile and nuclear tests at an unprecedented rate this year, and any new provocation from the North would “inevitably have an impact” on the exercises, the Blue House official said.

“It is a display of the president’s strong message that North Korea must not conduct any provocation (during the Olympics),” the official told reporters.

South Korean and U.S. Marines take part in a winter military drill in Pyeongchang, South Korea, December 19, 2017. REUTERS/Kim Hong-Ji

South Korean and U.S. Marines take part in a winter military drill in Pyeongchang, South Korea, December 19, 2017. REUTERS/Kim Hong-Ji

“BIOLOGICAL EXPERIMENTS”

Japan’s Asahi newspaper reported on Wednesday, citing an unidentified person connected to South Korean intelligence, that North Korea was conducting biological experiments to test the possibility of loading anthrax-laden warheads on its intercontinental ballistic missiles.

The Asahi report said the U.S. government was aware of the tests, which were meant to ascertain whether the anthrax bacteria could survive the high temperatures that occur during warheads’ re-entry from space.

Reuters was unable to verify the report independently.

In a statement released by state media, North Korea’s Ministry of Foreign Affairs called reports it was developing biological weapons “nonsense” designed to provoke nuclear war.

The United States has given China a draft resolution for tougher U.N. sanctions on North Korea and is hoping for a quick vote on it by the U.N. Security Council, a Western diplomat said on Tuesday, however Beijing has yet to sign on.

When asked about the U.S. resolution at a press briefing on Wednesday, Chinese Foreign Ministry spokeswoman Hua Chunying would only say that China always takes a responsible and constructive attitude towards Security Council talks on North Korea.

The United States has also called on the Security Council to blacklist 10 ships for circumventing sanctions on North Korea. Hua said China had received the proposal from the United States.

WARNING SHOTS

China has resumed at least some restrictions on group tours into the South, South Korea’s inbound travel agency said. The restrictions were first in place last year as part of China’s retaliation over THAAD deployment.

“I was told from my boss this morning that our Chinese partners (based in Beijing and Shandong) said they won’t send group tourists to South Korea as of January,” the official from Naeil Tour Agency told Reuters by phone.

One source in China said the reason for reinstating the ban was to rein in overly aggressive tour operators who had been rolling out package deals to South Korea too quickly in the eyes of authorities.

Foreign ministry spokeswoman Hua told reporters she had not heard of a tourism ban, but she reiterated that Moon’s visit to Beijing was successful and that China has an open attitude towards exchanges and cooperation in all areas.

Beijing has never officially confirmed restrictions on tourism.

Three representatives at Beijing travel agencies told Reuters that they were not currently organising group tours to South Korea. One confirmed that the tourism administration had issued the notice, while a third said: “At the moment we have no group trips to South Korea.”

A travel agency in the northern province of Shandong also said it could not organise group trips. Three others said they could, but with restrictions such as on the number of people.

South Korea’s coast guard said on Wednesday it had fired around 250 warning shots on Tuesday to chase away a fleet of 44 Chinese boats fortified with iron bars and steel mesh that were fishing illegally in South Korean waters.

“The Chinese fishing boats sought to swarm around and collide with our patrol ship, ignoring the broadcast warnings,” the coast guard said in a statement.

China, which has in the past lodged diplomatic protests to South Korea over the use of force by its coast guard, expressed “serious concern” about the latest clash.

(For a graphic on rocket science, click http://tmsnrt.rs/2t6WEPL)

(Reporting by Dahee Kim, Hyonhee Shin, Heekyong Yang and Yuna Park in SEOUL, Tim Kelly in TOKYO, Adam Jourdan in SHANGHAI, and Pei Li, Gao Liangping and Ben Blanchard in BEIJING; Editing by Paul Tait and Nick Macfie)

Japan, South Korea urge China to do more to halt North Korea’s weapons programs

Japan, South Korea urge China to do more to halt North Korea's weapons programs

By Kiyoshi Takenaka

TOKYO (Reuters) – U.S. allies Japan and South Korea urged China to do more to get North Korea to end its nuclear and missile programmes, Japanese Foreign Minister Taro Kono said on Tuesday amid a tense standoff between North Korea and the United States.

Reclusive North Korea has boasted of developing a missile capable of carrying a nuclear warhead and reaching the mainland United States in defiance of U.N. Security Council resolutions and international condemnation, including from its lone major ally, China.

“We agreed that it is necessary to ask China to play even more of a role,” Kono said after talks with South Korean Foreign Minister Kang Kyung-wha.

Kono said China was implementing Security Council resolutions on North Korea but said it could do more, including adding “pressure” on Pyongyang.

North Korea has regularly threatened to destroy the United States, Japan and South Korea and has fired missiles over Japan in recent tests. China routinely says it is meeting its Security Council obligations on North Korea and urges “all sides” in the dispute to pursue dialogue.

The United States has also pressured China and other nations to cut trade and diplomatic ties with North Korea as part of international efforts to dry up Pyongyang’s illegal cash flows that could fund its weapons programmes.

The U.S. Navy’s top officer said on Tuesday said that vessels from eastern Pacific could be brought forward to reinforce U.S. naval power in Asia as Washington contends with increased threats in the region.

North Korea has defended its weapons programmes as necessary to counter U.S. aggression and sees the military drills the United States holds with South Korea and Japan as preludes to invasion. The United States stations 28,500 troops in the South, a legacy of the 1950-53 Korean War.

China and Russia have proposed that the United States and South Korea stop major military exercises in exchange for North Korea halting its weapons programmes.

U.S. President Donald Trump and North Korean leader Kim Jong Un have exchanged bellicose rhetoric in recent weeks, with Trump threatening to destroy North Korea if provoked, while U.S. diplomats have stressed the importance of diplomacy.

Trump on Monday unveiled a new national security strategy, again saying Washington had to deal with the challenge posed by North Korea.

Japan and South Korea are seeking to boost cooperation over North Korea, despite lingering tension between them over the issue of “comfort women”, a Japanese euphemism for women – many of them Korean – forced to work in Japanese military brothels before and during World War Two.

Researchers say a series of recent cyber attacks has netted North Korean hackers millions of dollars in virtual currencies like bitcoin, with more attacks expected as international sanctions drive the country to seek new sources of cash.

North Korea’s government-backed hackers have been blamed for a rising number of cyber attacks, including the so-called WannaCry cyber attack that crippled hospitals, banks and other companies across the globe this year.

(Additional reporting by Josh Smith in Seoul and Jeremy Wagstaff in Singapore; Writing by Linda Sieg and Nick Macfie)

While focus is on North Korea, China continues South China Sea buildup: think tank

While focus is on North Korea, China continues South China Sea buildup: think tank

By David Brunnstrom

WASHINGTON (Reuters) – While attention in Asia has been distracted by the North Korean nuclear crisis in the past year, China has continued to install high-frequency radar and other facilities that can be used for military purposes on its man-made islands in the South China Sea, a U.S. think tank said on Thursday.

Chinese activity has involved work on facilities covering 72 acres (29 hectares) of the Spratly and Paracel islands, territory contested with several other Asian nations, according to the Asia Maritime Transparency Initiative of Washington’s Center for Strategic and International Studies. The report cited satellite images.

The United States and its allies oppose China’s building of artificial islands in the South China Sea and their militarization, given concerns Beijing plans to use them to deny access to strategic routes.

“It’s completely normal for China to conduct peaceful construction and build essential defense equipment on its own sovereign territory,” China’s foreign ministry spokesman Lu Kang told a regular press briefing on Friday, in response to a question about the report.

“We believe certain people who have ulterior motives are making mountains out of molehills and stirring up trouble.”

The report said that in the last several months China had constructed what appeared to be a new high-frequency radar array at the northern end of Fiery Cross Reef in the Spratlys.

Subi Reef had seen tunnels completed that were likely for ammunition storage and another radar antenna array and radar domes, the report said.

Construction on Mischief Reef included underground storage for ammunition and hangars, missile shelters and radar arrays.

Smaller-scale work had continued in the Paracel Islands, including a new helipad and wind turbines on Tree Island and two large radar towers on Triton Island.

It said the latter were especially important as waters around Triton had been the scene of recent incidents between China and Vietnam and multiple U.S. freedom-of-navigation operations, which the U.S. navy has used to assert what it sees as its right to free passage in international waters.

Woody Island, China’s military and administrative headquarters in the South China Sea, saw two first-time air deployments “that hint at things to come at the three Spratly Island air bases farther south,” the report said.

At the end of October, the Chinese military released images showing J-11B fighters at Woody Island for exercises, while on Nov. 15, AMTI spotted what appeared to be Y-8 transport planes, a type that can be configured for electronic surveillance.

The Pentagon has conducted several patrols near Chinese-held South China Sea territory this year, even as it has sought China’s help in northeast Asia to press North Korea to give up its nuclear weapons program.

On Tuesday, U.S. Secretary of State Rex Tillerson reiterated a call for a “freeze” in China’s island building and said it was unacceptable to continue their militarization.

(Reporting by David Brunnstrom; Additional reporting by Sue-Lin Wong in BEIJING; Editing by James Dalgleish)

China says war must not be allowed on Korean peninsula

China says war must not be allowed on Korean peninsula

By Ben Blanchard

BEIJING (Reuters) – War must not be allowed to break out on the Korean peninsula and the issue must be resolved through talks, Chinese President Xi Jinping said on Thursday, while U.N. Secretary-General Antonio Guterres warned of the danger of “sleepwalking” into conflict.

Xi made his comments to visiting South Korean President Moon Jae-in just days after U.S. Secretary of State Rex Tillerson offered to begin direct talks with North Korea without pre-conditions.

But the White House said on Wednesday that no negotiations could be held with North Korea until it improved its behavior. The White House has declined to say whether President Donald Trump, who has taken a tougher rhetorical line toward North Korea, approved Tillerson’s overture.

Russian President Vladimir Putin said Tillerson’s offer of direct contacts with North Korea was “a very good signal”, while warning that a U.S. strike on the North would have catastrophic consequences.

North Korea tested its most advanced intercontinental ballistic missile on Nov. 29, which it said could put all of the United States within range, in defiance of international pressure and U.N. sanctions.

While South Korea and China share the goal of getting North Korea to give up its nuclear weapons and stop testing increasingly sophisticated long-range missiles, the two have not seen eye-to-eye on how to achieve this.

Meeting in Beijing’s Great Hall of the People, Xi told Moon that the goal of denuclearising the Korean peninsula must be stuck to, and that war and chaos cannot be allowed to happen, state media said.

“The peninsula issue must in the end be resolved via dialogue and consultation,” Xi was cited as saying.

China and South Korea have an important shared interest in maintaining peace and stability, and China is willing to work with South Korea to prevent war and promote talks, Xi added.

China would support North and South Korea to improve relations as this was good for easing tension, he said.

Xi’s warm tone followed nearly a year of tense relations between the two countries.

‘DRAMATIC CIRCUMSTANCES’

China has been furious about the deployment of the U.S.-made Terminal High Altitude Area Defence (THAAD) anti-missile system in South Korea, saying its powerful radar can see far into China and will do nothing to ease tension with North Korea.

China and South Korea agreed in late October that they would normalize exchanges and move past the dispute over THAAD, which froze trade and business exchanges, and Moon has been keen to put the dispute behind them.

Xi reiterated China’s position on THAAD and said he hoped South Korea would continue to “appropriately handle” the issue.

Guterres, speaking to reporters in Tokyo after meeting Japanese Prime Minister Shinzo Abe, said Security Council resolutions on North Korea’s nuclear and missile programs must be fully implemented by Pyongyang and other countries.

“It is very clear that the Security Council resolutions must be fully implemented, first of all by North Korea, but by all other countries whose role is crucial to … achieve the result we all aim at, which is the denuclearization of the Korean peninsula,” Guterres said.

He added that Security Council unity was also vital “to allow for the possibility of diplomatic engagement” that would allow denuclearization to take place.

“The worst possible thing that could happen is for us all to sleepwalk into a war that might have very dramatic circumstances,” Guterres said.

He said he expected a meeting of the U.N. Security Council on Friday would deliver a strong expression of unity and the need for diplomacy to resolve the issue.

Japan says now is the time to keep up maximum pressure on North Korea, not start talks on its missile and nuclear programs.

China and Russia, however, have welcomed Tillerson’s overture.

Russian President Vladimir Putin said a strike on North Korea by the United States would have catastrophic consequences and that he hoped to work with Washington eventually to resolve the crisis on the Korean peninsula.

Russia does not accept North Korea’s nuclear status, Putin told an annual news conference. But he also said that some of Washington’s past actions had provoked North Korea into violating a 2005 pact to curb its nuclear program.

“We believe the two sides should now stop aggravating the situation,” Putin said.

North Korea justifies its weapons programs as necessary defense against U.S. plans to invade. The United States, which has 28,500 troops in South Korea, a legacy of the 1950-53 Korean war, denies any such intention.

(Additional reporting by Linda Sieg in TOKYO,; Denis Pinchuk in MOSCOW and Christine Kim in SEOUL; Writing by Robert Birsel; Editing by Clarence Fernandez)

China warns of imminent attacks by “terrorists” in Pakistan

China warns of imminent attacks by "terrorists" in Pakistan

BEIJING (Reuters) – China on Friday warned its nationals in Pakistan of plans for a series of imminent “terrorist attacks” on Chinese targets there, an unusual alert as it pours funds into infrastructure projects into a country plagued by militancy.

Thousands of Chinese workers have gone to Pakistan following Beijing’s pledge to spend $57 billion there on projects in President Xi Jinping’s signature “Belt and Road” development plan, which aims to link China with the Middle East and Europe.

Protecting employees of Chinese companies, as well as individual entrepreneurs who have followed the investment wave along what is known as the China-Pakistan Economic Corridor, has been a concern for Chinese officials.

“It is understood that terrorists plan in the near term to launch a series of attacks against Chinese organizations and personnel in Pakistan,” the Chinese embassy in Pakistan said in a statement on its website.

The embassy warned all “Chinese-invested organizations and Chinese citizens to increase security awareness, strengthen internal precautions, reduce trips outside as much as possible, and avoid crowded public spaces”.

It also asked Chinese nationals to cooperate with Pakistan’s police and the military, and to alert the embassy in the event of an emergency.

It did not give any further details.

Pakistan’s foreign ministry could not be reached immediately for comment.

China has long worried about disaffected members of its Uighur Muslim minority in its far western region of Xinjiang linking up with militants in Pakistan and Afghanistan.

At the same time, violence in Pakistan’s southwestern Baluchistan province has fueled concern about security for planned transport and energy links from western China to Pakistan’s deepwater port of Gwadar.

The Taliban, sectarian groups linked to al Qaeda and the Islamic State all operate in Baluchistan, which borders Iran and Afghanistan and is at the center of the “Belt and Road” initiative.

In addition, separatists there have long battled the government for a greater share of gas and mineral resources, and have a long record of attacking energy and other infrastructure projects.

Islamic State claimed responsibility for killing two kidnapped Chinese teachers in Baluchistan in June, prompting the government in Islamabad to pledge to beef up security for Chinese nationals.

It had already promised a 15,000-strong army division to safeguard projects along the economic corridor.

China’s security concerns abroad have grown along with its global commercial footprint.

In 2016, a suspected suicide car bomber rammed the gates of the Chinese embassy in the Kyrgyz capital Bishkek, killing the attacker and wounding at least three people.

(Reporting by Michael Martina; Editing by Robert Birsel)

North Korea says U.S. threats make war unavoidable as China urges calm

North Korea says U.S. threats make war unavoidable as China urges calm

By Soyoung Kim and Heekyong Yang

SEOUL (Reuters) – Two American B-1B heavy bombers joined large-scale combat drills over South Korea on Thursday amid warnings from North Korea that the exercises and U.S. threats have made the outbreak of war “an established fact”.

The annual U.S.-South Korean “Vigilant Ace” exercises feature 230 aircraft, including a range of the U.S. military’s most advanced stealth warplanes, and come a week after North Korea tested its most powerful intercontinental ballistic missile (ICBM) to date which it says can reach the mainland United States.

A spokesman for the North’s foreign ministry blamed the drills and “confrontational warmongering” by U.S. officials for making war inevitable.

“The remaining question now is: when will the war break out?” the spokesman said late on Wednesday in a statement carried by North Korea’s official KCNA news agency.

“We do not wish for a war but shall not hide from it.”

China, North Korea’s neighbor and lone major ally, again urged calm and said war was not the answer.

“We hope all relevant parties can maintain calm and restraint and take steps to alleviate tensions and not provoke each other,” Chinese Foreign Ministry spokesman Geng Shuang said in a statement.

“The outbreak of war is not in any side’s interest. The ones that will suffer the most are ordinary people.”

Tensions on the Korean peninsula have risen markedly in recent months after North Korea’s latest missile and nuclear tests, conducted in defiance of U.N. Security Council resolutions and international condemnation.

STRATEGIC BOMBERS

On Wednesday, a U.S. B-1B bomber flew from the Pacific U.S.-administered territory of Guam to join the exercises, which will run until Friday.

The flights by the B-1B, one of America’s largest strike aircraft, have played a leading role in Washington’s attempts to increase pressure on North Korea to abandon its weapons program.

In September, B-1Bs were among a formation of U.S. military aircraft that flew further north up North Korea’s coast than at any time in the past 17 years, according to the U.S. Pacific Command.

That prompted North Korea’s foreign minister, Ri Yong Ho, to warn that the North could shoot down the U.S. bombers even if they did not enter North Korean airspace.

“B1-B bombers have been regularly dispatched to the Korean peninsula over the past years; however, it seems that the U.S. Air Force might have enhanced its training to better prepare for actual warfare,” said Yang Uk, a senior fellow at the Korea Defence and Security Forum.

While B-1Bs are no longer equipped to carry nuclear weapons of their own, they would be key to any strike targeting major North Korean facilities, he said.

“That’s why North Korea has been making such a big deal when B1-B bombers are flying overhead.”

ESCALATING TENSIONS

Both sides insist they don’t want war, but blame each other for provocations while saying they will act to defend themselves.

White House national security adviser H.R. McMaster said over the weekend that the possibility of war with North Korea was “increasing every day”.

U.S. Republican Senator Lindsey Graham urged the Pentagon on Sunday to start moving U.S. military dependants, such as spouses and children, out of South Korea, saying conflict with North Korea was getting close.

The Pentagon said it has “no intent” to move any dependants out of the country.

North Korea regularly threatens to destroy South Korea and the United States and says its weapons program are necessary to counter U.S. aggression. The United States stations 28,500 troops in the South, a legacy of the 1950-53 Korean War.

“Recently, as the U.S. is conducting the largest-ever joint aerial drill on the Korean peninsula targeting the Democratic People’s Republic of Korea, its high-level politicians are showing alarming signs by making bellicose remarks one after another,” the North’s foreign ministry spokesman said, using North Korea’s official name.

“These confrontational war-mongering remarks cannot be interpreted in any other way but as a warning to us to be prepared for a war on the Korean peninsula,” he said.

North Korea’s latest missile test prompted a warning from the United States that North Korea’s leadership would be “utterly destroyed” if war were to break out, a statement that drew sharp criticism from Russia.

U.S. President Donald Trump has said the whole of North Korea would be destroyed in the event of war.

The rising tensions coincide with a rare visit to the isolated North by United Nations political affairs chief Jeffrey Feltman this week, the highest-level U.N. official to visit North Korea since 2012.

Feltman met North Korean Foreign Minister Ri on Thursday, following his meeting with the vice foreign minister a day earlier, KCNA said.

(Additional reporting by Hyonhee Shin and Josh Smith in Seoul and Christian Shepherd in Beijing; Editing by Nick Macfie)

U.S. trade hits nine-month high; oil prices lift imports

U.S. trade hits nine-month high; oil prices lift imports

By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. trade deficit increased to a nine-month high in October due to rising oil prices and the widening of America’s long-standing deficits with China and Mexico.

The worsening trade deficit came even as exports to China and Mexico were the strongest in more than three years, which some economists said challenged the Trump administration’s argument that the United States was being disadvantaged in its dealings with trade partners.

“This leaves the Trump economics team empty handed when it comes to its mission to improve the unfair terms of trade which sent factories offshore starting a couple of decades ago,” said Chris Rupkey, chief economist at MUFG in New York.

The Commerce Department said on Tuesday the trade gap widened 8.6 percent to $48.7 billion, the highest level since January. The politically sensitive U.S.-China trade deficit increased 1.7 percent to $35.2 billion and the deficit with Mexico surged 15.9 percent to $6.6 billion.

Economists polled by Reuters had forecast the overall trade deficit rising to $47.5 billion in October. U.S. financial markets were little moved by the large trade shortfall, which was flagged in an advance report last week.

Republican President Donald Trump has blamed the trade deficit for the massive loss of U.S. manufacturing jobs as well as moderate economic growth. Trump has ordered the renegotiation of the North American Free Trade Agreement (NAFTA), which was signed in 1994 by the United States, Canada and Mexico.

He told a group of pro-NAFTA Republican senators during lunch on Tuesday that the United States had trade deficits with “everybody.”

“And that’s going to be changing – it’s already changing – but it’s going to be changing fast,” Trump said, adding that NAFTA negotiations were “going to be very successful.”

NAFTA talks have stalled, with Mexico and Canada rejecting a U.S. proposal to raise the minimum threshold for autos to 85 percent North American content from 62.5 percent as well as to require half of vehicle content to be from the United States.

TRADE DRAG

When adjusted for inflation, the trade deficit increased to $65.3 billion, also the largest since January, from $62.2 billion in September. The so-called real trade deficit in October was above the third-quarter average of $62.0 billion, suggesting that trade could subtract from gross domestic product in the October-December quarter.

The government reported last month that trade contributed 0.43 percentage point to the economy’s 3.3 percent annualized growth pace in the third quarter. The Trump administration believes a smaller trade deficit, together with deeper tax cuts could boost annual GDP growth to 3 percent on a sustained basis.

Republicans in the U.S. Congress have approved a broad package of tax cuts, including slashing the corporate income tax rate to 20 percent from 35 percent. But the planned fiscal stimulus will come at a time when the economy is at full employment, which will boost imports and widen the trade gap.

“While U.S. domestic demand will strengthen, foreign producers will supply an increased share,” said Mickey Levy, chief economist Americas and Asia at Berenberg Capital Markets in New York. “We project the U.S. trade and current account deficits will widen.”

Imports of goods and services increased 1.6 percent to a record $244.6 billion in October. Goods imports were the highest since May 2014 amid a $1.5 billion increase in crude oil imports. Imported oil prices averaged $47.26 per barrel in October, the highest since August 2015.

The country’s import bill was also boosted by food imports, which were the highest on record. There were also increases in imports of cellphones and other goods. Imports from China and Mexico were the highest on record in October.

Exports of goods and services were unchanged at $195.9 billion in October as a surge in shipments of industrial supplies and petroleum was offset by sharp declines in and civilian aircraft exports.

Exports to China hit their highest level since December 2013, while those to Mexico were the highest in three years.

A separate report on Tuesday showed activity in the services sector slowed in November amid a sharp moderation in both new and export orders.

The Institute for Supply Management (ISM) said its non-manufacturing index fell to a reading of 57.4 last month from 60.1 in October. A reading above 50 in the ISM index indicates an expansion in the services sector, which accounts for more than two-thirds of the U.S. economy.

Last month, a gauge of new orders received by services industries dropped to 58.7 from a reading of 62.8 in October. A measure of new export orders fell 3.0 points while imports rose 0.5 point.

(Reporting By Lucia Mutikani; additional reporting by Roberta Rampton; Editing by Andrea Ricci)

South Korea, U.S. launch aerial drills amid North Korean warnings of nuclear war

The South Korean army's K-55 self-propelled artillery vehicles take part in a military exercise near the demilitarised zone separating the two Koreas in Paju, South Korea, November 29, 2017.

By Christine Kim and Philip Wen

SEOUL/BEIJING (Reuters) – The United States and South Korea went ahead with large-scale joint aerial drills on Monday, a move North Korea had said would push the Korean peninsula to “the brink of nuclear war”, ignoring calls from Russia and China to call them off.

The drills come a week after North Korea said it had tested its most advanced intercontinental ballistic missile capable of reaching the United States as part of a weapons program that it has conducted in defiance of international sanctions and condemnation.

Chinese Foreign Minister Wang Yi said it was “regrettable” that all parties had not “grasped the window of opportunity” presented by two months of relative calm before the North’s most recent test.

China and Russia had proposed that the United States and South Korea stop major military exercises in exchange for North Korea halting its weapons programs. Beijing formally calls the idea the “dual suspension” proposal.

The annual U.S.-South Korean drill, called Vigilant Ace, will run until Friday, with six F-22 Raptor stealth fighters to be deployed among the more than 230 aircraft taking part.

North Korea’s Committee for the Peaceful Reunification of the Country called U.S. President Donald Trump “insane” on Sunday and said the drills would “push the already acute situation on the Korean peninsula to the brink of nuclear war”.

F-35 fighters will also join the drills, which will include the largest number of 5th generation fighters ever to have taken part, according to a South Korea-based U.S. Air Force spokesman.

Around 12,000 U.S. service members, including from the Marines and Navy, will join South Korean troops. Aircraft taking part will be flown from eight U.S. and South Korean military installations.

South Korean media reports said B-1B Lancer bombers could join the exercise this week. The U.S. Air Force spokesman could not confirm the reports.

Trump said last week that additional major sanctions would be imposed on North Korea after Pyongyang’s intercontinental ballistic missile test.

Earlier last month, Trump put North Korea back on a list of state sponsors of terrorism, a designation that allows the United States to impose more sanctions.

Russia has accused the United States of trying to provoke North Korean leader Kim Jong Un into “flying off the handle” over his missile program to hand Washington a pretext to destroy his country.

Speaking at a news briefing in Beijing, Wang said China consistently opposed any behavior that elevated tensions.

“And measures that don’t abide by or are outside the UN Security Council resolutions lack basis in international law and damage the rights of United Nations members,” Wang said when asked about the prospect of further U.S. sanctions against North Korea.

China’s Air Force said on Monday that its surveillance aircraft had in recent days conducted drills in the Yellow Sea and East China Sea to “improve combat-readiness and safeguard the country’s strategic interests”.

The aircraft took a flight path not previously flown to regions they had never previously operated in, and coordinated with fighter jets, alert aircraft and guided missile forces, spokesman Shen Jinke said, according to a post on the Air Force’s official microblog.

The joint exercises between South Korea and United States are designed to enhance readiness and operational capability and to ensure peace and security on the Korean peninsula, the U.S. military had said before the drills began.

The North’s KCNA state news agency, citing a foreign ministry spokesman, said on Saturday the Trump administration was “begging for nuclear war by staging an extremely dangerous nuclear gamble on the Korean peninsula”.

North Korea regularly uses its state media to threaten the United States and its allies.

North Korea has tested dozens of ballistic missiles and conducted its sixth and largest nuclear bomb test in September, in violation of U.N. Security Council resolutions.

It has said its weapons programs are a necessary defense against U.S. plans to invade. The United States, which has 28,500 troops stationed in South Korea, a legacy of the 1950-53 Korean War, denies any such intention.

 

 

(Reporting by Christine Kim in SEOUL and Philip Wen in BEIJING; Additional reporting by Michael Martina in BEIJING; Editing by Nick Macfie)

 

China pushing billions into Iranian economy as Western firms stall

China pushing billions into Iranian economy as Western firms stall

By Mark Bendeich and Parisa Hafezi

ROME/ANKARA (Reuters) – China is financing billions of dollars worth of Chinese-led projects in Iran, making deep inroads into the economy while European competitors struggle to find banks willing to fund their ambitions, Iranian government and industry officials said.

Freed from crippling nuclear sanctions two years ago, Iran is drawing unprecedented Chinese funding for everything from railways to hospitals, they said. State-owned investment arm CITIC Group recently established a $10 billion credit line and China Development Bank is considering $15 billion more.

“They (Western firms) had better come quickly to Iran otherwise China will take over,” said Ferial Mostofi, head of the Iran Chamber of Commerce’s investment commission, speaking on the sidelines of an Iran-Italy investment meeting in Rome.

The Chinese funding, by far the largest statement of investment intent of any country in Iran, is in stark contrast with the drought facing Western investors since U.S. President Donald Trump disavowed the 2015 pact agreed by major powers, raising the threat sanctions could be reimposed.

Iranian officials say the deals are part of Beijing’s $124 billion Belt and Road initiative, which aims to build new infrastructure – from highways and railways to ports and power plants – between China and Europe to pave the way for an expansion of trade.

A source in China familiar with the CITIC credit line, which was agreed in September, called it “an agreement of strategic intent”. The source declined to give details on projects to be financed, but Iranian media reports have said they would include water management, energy, environment and transport projects.

An Iranian central bank source said loans under the credit line would be primarily extended in euros and yuan.

The China Development Bank signed a memorandum of understanding for $15 billion, Iranian state news agency IRNA said on Sept. 15.

The bank itself declined to comment, in line with many foreign investors and banks, including from China, who were reluctant to discuss their activities in Iran for this story. The web sites of banks and companies often carry little or no information on their Iran operations.

POWERHOUSE

With a population of 80 million and a large, sophisticated middle class, Iran has the potential to be a regional economic powerhouse. But with the risk of sanctions hanging in the air, more and more foreign investors want Tehran to issue sovereign guarantees to protect them in case the projects are halted.

Economic ties between Iran and Italy, its biggest European trade partner, have been affected.

Italy’s state-owned rail company, Ferrovie dello Stato, is a consultant in the building of a 415-km (260-mile) high-speed north-south rail line between Tehran to Isfahan via Qom by state-owned China Railway Engineering Corp.

The Italian firm is separately contracted to build a line from Qom west to Arak, but it needs 1.2 billion euros in financing. Though backed by the state’s export insurance agency, it says it needs a sovereign guarantee.

“We are finalizing the negotiations and we are optimistic about moving forward,” said Riccardo Monti, chairman of Italferr, the state firm’s engineering unit, adding that the financing should be finalised by March next year.

Prime Minister Matteo Renzi’s promise in Tehran last year to oil the wheels of trade with a 4 billion euro credit line from Italy’s state investment vehicle is effectively dead, a source in Italy familiar with the matter said.

Cassa Depositi e Prestiti (CDP) risked losing the confidence of its many U.S. bond-holders who could sell down their holdings if the credit line went ahead, the source said.

A few European banks have deepened trade ties with Iran this year — Austria’s Oberbank <OBER.VI> inked a financing deal with Iran in September.

South Korea has also proved a willing investor, with Seoul’s Eximbank signing an 8 billion euros credit line for projects in Iran in August, according to Chinese state news agency Xinhua.

But China is the standout.

Valerio de Molli, head of Italian think tank European House Ambrosetti, reckons China now accounts for more than double the EU’s share of Iran’s total trade.

“The time to act is now, otherwise opportunities nurtured so far will be lost,” de Molli said.

A MOVING TRAIN

Iranian officials attending this week’s meeting in Rome sought to goad European firms and their bankers into action by talking up the Chinese financing and investments.

“The train is going forward,” said Fereidun Haghbin, director general of economic affairs at Iran’s foreign ministry. “The world is a lot greater than the United States.”

Some Iranian officials remain concerned that investment could become lop-sided and are looking at creative ways to maintain investment links with the West, however.

The Iran chamber is encouraging Western firms to consider transferring technology as a way of earning equity in Iranian projects rather than focusing on capital.

It was also seeking approval to set up a 2.5-billion-euro offshore fund, perhaps in Luxembourg, as an indirect way for foreigners to invest in Iran, especially small and medium-sized Iranian enterprises, Mostofi said.

The fund would issue the financial guarantees that foreigners want in return for a fee, effectively stepping in where banks now fear to tread. Most of the fund’s capital would come from Iran, Mostofi said.

For now, however, big Western firms remain stuck.

Italian power engineering firm Ansaldo Energia, controlled by state investor CDP and part-owned by Shanghai Electric Group <601727.SS>, has been in Iran for 70 years.

Its chairman, Giuseppe Zampini, told Reuters at the Rome conference there were many opportunities for new contracts but his hands were tied for now, partly because Ansaldo bonds were also in the hands of U.S. investors.

“My heart says that we are losing something,” Zampini said.

(Additional reporting by Shu Zhang in BEIJING, Stefano Bernabei in ROME, Parisa Hafezi in ANKARA and Jonathan Saul in LONDON; Editing by Sonya Hepinstall)