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GAP said:... By reuniting the two countries, China is seen as a benefactor that can make things happen when America couldn't. It lessens the American strength in the area and brings the Korea's under the Chinese umbrella if only for trade and regional influence.
Yes, indeed. But the Chinese are cautious and they observed how much trouble the digestion of East Germany posed for the West German economy. The social and economic gulfs between NK and SK are, I think, far greater than was the case between EG and WG. The reconstruction of NK will consume much, maybe too much for China's taste, of SK and Japanese capital.
Money will cost more, something - someone? - will have to give. The US dollar is a weak reserve currency and it is not clear to me that the US Federal Reserve bank has full control over it so may not be able to 'back-stop' the reunification of Korea circa 2010 as it did the reunification of Germany circa 1990. The Euro is not ready for prime time and Asia's economy, alone, is not up to the costs of full-scale, à la Germany, reunification of Korea, so: who pays?
The answer is: China.
If reunification is the chosen path then there can be little hope of telling the NK people to “wait a while longer, starve a little more,” etc. As with Germany, once political integration is in place the people are entitled to share the wealth.
China holds a significant portion of US debt – in essence it props up the US dollar with its own growth. China needs, desperately needs, continued, high US consumption to finance Chinese expansion. It does that by, essentially, providing an import subsidy to the US in the form of artificially low prices. It will, soon, need to divert some of its reserves (US debt) to Korea. It will want SK and Japanese help – with their hard currencies. China will need to find new investments to offset SK and Japanese money diverted, for a generation or two, to Korea, because China needs to sustain its own growth – see my conversation with Echo-9 about a week ago.
It gives me a headache, but I still suspect that China will try for some, quite limited, reunification so that it can try to restrain the rate at which NK will consume the available capital.