N Korea nuke test could chill investment in Asia

06 October 2006 18:32  [Source: ICIS news]

WASHINGTON (ICIS news)--Foreign investment in China and other East Asian countries may be jeopardized if North Korea detonates its first nuclear weapon this weekend as expected, US financial authorities said on Friday.

 

China has become a hotbed of foreign investment for chemicals manufacturing and a broad array of other industries, activity which could be chilled by a North Korean nuclear weapon test, according to Marcus Noland, a senior economist at the Institute for International Economics.

 

Earlier this week the Pyongyang government for the first time announced that it plans to conduct a nuclear weapons test.  It has often declared its right to conduct such tests, but it has not previously said it plans to detonate a nuclear bomb.

 

Combined with Pyongyang’s multiple tests earlier this year of long-range ballistic missiles, the prospect of North Korea becoming a nuclear power has prompted stern warnings from the US and other governments.

 

Noland said in an analysis issued Friday that North Korea’s test of a nuclear weapon would not have much direct effect on the economies of its East Asian neighbours, but it could have significant indirect impact. 

 

He argues that the nuclear threat posed by an unstable government such as Pyongyang would undermine financial markets throughout the region.

 

Direct financial links between North Korea and the rest of East Asia are not many, but that is not necessary for what Noland called “cross-border financial contagion.”

 

“Despite the weak trade links between North Korea and its neighbours, an argument could be made that events in North Korea could have a significant impact on the economies of the region by adversely affected financial markets,” he said. 

 

He suggested that risk factors and consequently the cost of financial underwriting and insurance for foreign capital investments and partnerships in East Asia likely would rise in the wake of a North Korean nuke test and could make the economics of particular projects less attractive or even unsustainable.

 

In addition, the emergence of North Korea as a nuclear power could, he said, further aggravate anti-Chinese sentiment in the US Congress and build support for trade sanctions that could impact US private sector investments in Asia.

By: Joe Kamalick
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