TOKYO – First to recover, first to overheat? South Korea is suddenly grappling with this most dreaded of economic questions as inflation accelerates to the fastest pace since 2017.
Korea’s 2.3% consumer price jump, year-on-year, may be the vanguard of Asian economies suffering side effects from ultra-low interest rates prevailing from Washington to Frankfurt to Tokyo as they return to post-Covid-crisis growth.
Asian markets entered the week sensing the rubber hitting the road on a threat that has been months in the making. Along with China, which is sure to grow economically north of 6% this year, the US is offering upside growth surprises.
Case in point: IHS Markit’s manufacturing purchasing managers index rose to 60.5 in March, well above the 50-level denoting expansion. This suggests a widening gap between supply and demand of the kind that often fuels inflation.
In March, the US consumer price index rose 0.6% from the previous month and 2.6% from a year ago, the highest since August 2018.
Surging container shipping rates validate the trend and the risks.
Resurgent consumer demand in the US and parts of Europe is straining the global economy’s capacity to get goods across oceans fast enough. The Drewry World Container Index, for example, is registering the highest rate – US$4,403 last week – for a 40-foot container from Shanghai to California in a decade.
That line of ships is the physical embodiment of what many investors feared as they watched governments throw trillions of dollars of stimulus at economies.
Not only is recovering demand restoring pricing power, but scarcity dynamics afflicting several key commodities have producer costs spiking, too.
More? There is the softening US dollar, a harbinger of higher global inflation all its own.
All this means both “cost-push” and “demand-pull” pressures are beginning to stir simultaneously, complicating official response options.
Economic fragilities after 15 months of pandemic-related lockdowns, meantime, limit central banks’ ability to respond quickly and assertively.
It’s a balancing act sure to dominate markets for the remainder of 2021. And it coincides dangerously with Covid-era government debt buildups becoming more expensive by the day as yields rise.
Granted, some hyperbole may be at play here.
The shock to living standards since early 2020 continues to traumatize consumer sectors, limiting room to hike prices.
Korea shows why. It might be that “Korea is just experiencing the same base-comparison effects as countless other economies around the world when comparing today’s price level with the bombed-out price level in the early stages of the Covid-19 pandemic last year,” says Robert Carnell at Dutch bank ING.
With its sizable, open, trade-reliant economy, Korea is often a reliable weathervane for where global demand is headed. And, Carnell notes, the context of rising global commodity prices, higher electronics parts costs, myriad global supply chain interruptions and a recovering Korean service sector means 0.2% month-on-month increase in costs isn’t disastrous.
“We thought it could have been a little higher,” he says.
Still, markets are taking few chances amid signs of life in US pricing trends. However, there is no consensus view.
Markets on edge
Berkshire Hathaway billionaire Warren Buffett warns that the world’s largest economy is in “super high gear” thanks to massive government support, which is coming on the back of years of aggressive Federal Reserve easing.
“People,” the Sage of Omaha told shareholders over the weekend, “have money in their pocket and they’re paying higher prices.” So, it is no surprise that inflation is perking up faster than expected six months ago.
Lawrence Summers is even more worked up, citing what he calls the “least responsible” fiscal policy in 40 years. Summers, a former US Treasury secretary, warns that President Joe Biden is playing with fire by planning another $2 trillion of infrastructure spending on top of a recent $1.9 trillion Covid rescue package.
Hence Summers’ warning of a “pretty dramatic fiscal-monetary collision.”
Janet Yellen, the current Treasury chief, and Fed Chairman Jerome Powell think the US has the opposite problem. They argue that the costs of inflation flaring up pale in comparison to the risk of a prolonged, Japan-like funk.
Others aren’t so sanguine.
Dallas Fed president Robert Kaplan suggests the central bank could soon consider tapering. “We’re now at a point where I’m observing excesses and imbalances in financial markets. I’m very attentive to that, and that’s why I do think at the earliest opportunity I think will be appropriate for us to start talking about adjusting those purchases.”
Such tension at Fed central, says National Australia Bank economist Ray Attrill, is sure to keep markets on edge from data report to data report.
“The main overarching rationale remains on the pace of the recovery,” Attrill says. That now looks “much faster” than previously expected, with unemployment forecasts being “4% by year’s end.”
If that scenario plays out, it is also conceivable rate rises may start earlier, with Kaplan stating the Fed may need to raise rates next year.
Asian fragilities to the fore
Though Asia has come a long way since the 1997-1998 crises, it remains more “dollarized” than governments admit. Most currency pegs are gone, but central banks go to great pains to keep exchange rates from rising versus the dollar.
And though East Asia generally handled Covid-19 better than the EU and US, public debt levels have soared in the 15 months since the pandemic hit, leaving finances highly vulnerable to spikes in borrowing costs.
There’s also more than $3 trillion in reserves sitting on East Asian central bank balance sheets.
“In the aftermath of the global pandemic, a number of countries will have to contend with debt burdens, possibly too large for them to manage,” notes Chang Yong Rhee, the International Monetary Fund’s (IMF) director of the Asia-Pacific region.
The pandemic savaged fiscal accounts. The combination of slower growth, lower tax and commodity revenues and increased spending to support growth widened deficits markedly. According to ING data, emerging economies ran an aggregated fiscal deficit of 9.5% GDP in 2020, with general government gross debt/GDP surging by 9 percentage points to 63%.
In Thailand, another economy upended by the 1997-98 Asian crisis, household debt is now at the highest since the central bank started tracking it in 2003. Economist Yunyong Thaicharoen at Siam Commercial Bank says household debt ratios may have hit 91% of GDP in the January-March quarter, a “level that has quite an impact on GDP and household spending.”
Korea had record-high household debt even before Covid-19 hit. Over-indebted consumers pose a clear and present danger not just to household spending, but financial stability if inflation worries drive up borrowing costs.
What’s more, Asian governments may have little choice but to continue adding stimuli, even as inflation risks increase. That puts policymakers in quite a bind.
“Growth is gaining momentum across developing Asia, but renewed Covid-19 outbreaks show the pandemic is still a threat,” says economist Yasuyuki Sawada at the Asian Development Bank.
He notes that 2021 is a spectacularly complicated year. Economic push-and-pull factors include: geopolitical tensions; far-reaching production bottlenecks; jittery markets; and the ways in which 15 months of millions of people were working and schooling at home impacts consumption, productivity and innovation. On top of that, new Covid-19 variants could flare up at any moment.
The jittery dollar
So could the dollar’s troubles.
Gold prices bounced this week as the US currency hit a nine-week low and without much of a fight from Yellen or Powell. Though neither the Fed nor Treasury officials are talking down exchange rates, they’ve also avoided formally restoring the decades-old “strong dollar” policy that Biden’s predecessor scrapped.
As such, notes strategist Chang Wei-Liang at DBS Bank, Asia currencies have seen “relief gains on the back of” Powell’s “sanguine outlook on inflation, which implies that US monetary policy is likely to remain accommodative and supportive of inflows into Asia.” Yet that could mean inflation continues heating up.
Here, Korea’s zigs and zags could prove instructive in the months ahead – and how the Bank of Korea responds.
Last month, Bank of Korea Governor Lee Ju-yeol said inflation will likely fluctuate around 2% – Seoul’s target – this quarter before moderating. Rather than hiking rates, Lee tried to conduct what economists call “open-mouth operations” – ie counseling caution while leaving rates alone.
As of now, says ING’s Carnell, the “rate of headline inflation has picked up, but from around zero at the beginning of the year.” This rate, he adds, “will have to pick up a lot further and then stay elevated to cause the BOK any concern about its current policy stance.”
But given the ultralow levels of global bond yields, the fast-widening supply-demand gap and all those export-laden ships setting a Westward course, an inflation surge can’t be ruled out.
South Korea takes aim at microchip supremacy
South Korea aims to be “a semiconductor powerhouse” and is planning to spend US$450 billion through 2030 to achieve global chip dominance.
These companies are expected to drive the semiconductor industry forward, securing South Korea’s relevance in the global market.
South Korea builds more memory than any other nation on Earth, but not much logic (CPUs, GPUs, other types of microprocessors), the report said.
Taiwan holds the largest share of the logic market by far thanks to TSMC, while companies like Intel and Micron account for large shares of the US’ manufacturing capacity.
“Our government will unite with companies to form a semiconductor powerhouse,” said President Moon Jae-in of South Korea. “We will support companies concretely.
“Major global competitors are pressing ahead with massive investment to be the first to take the future market,” he added.
“Our companies have been taking risks and innovating as well and have completed preparations for tumultuous times.”
In the future, manufacturers will also be able to deduct more of their R&D expenses from their taxes, freeing up additional funds for investment, the report said.
Samsung has announced it’s increasing its foundry investments by 38 trillion won, or US$33.7 billion through 2030, with the funds being split between ongoing process technology research and building new foundries.
The company also said it has broken ground on a new manufacturing line in Pyeongtaek.
The facility will have 2.1 million square feet of floor space and be capable of manufacturing both 14nm DRAM and 5nm logic with EUV, the report said.
Samsung had originally announced a plan to invest US$117 billion by 2030, so this represents a considerable increase over the company’s original plan.
“The entire semiconductor industry is facing a watershed moment and now is the time to chart out a plan for long-term strategy and investment,” Kim Ki-nam, Samsung vice chairman and head of the Device Solutions Division, said.
“For the memory business, where Samsung has maintained its undisputed leadership position, the company will continue to make preemptive investments to lead the industry.”
SK Hynix already had plans to build four new plants in Yongin at an estimated cost of US$106 billion, but the company announced that it would pour an additional US$97 billion into capacity expansions at existing facilities, the report said.
The South Korean government has pledged to incentivize semiconductor manufacturing with lower tax rates, better infrastructure, and a secure water supply. Chip manufacturing, particularly EUV manufacturing, is water-intensive.
Semiconductor research is increasingly viewed as a matter of national security, and multi-national organizations like the EU have expressed greater interest in rejoining the leading edge.
Many countries are working to bolster local chip supply chains as the severe shortage affects production in industries such as autos, and in March US President Joe Biden flagged plans to invest US$50 billion in semiconductor manufacturing and research.
Sources: Bloomberg, ExtremeTech.com, Slashdot.org, Automotive News
Taiwan tightens curbs after surge in domestic COVID-19 cases
Taipei – Taiwan raised its coronavirus alert level on Saturday in Taipei and the city around it, bringing curbs for a period of two weeks that will shut many venues and restrict gatherings in the wake of 180 new domestic infections.
The new rules will not mean offices, schools or restaurants have to close, but will cause the shutdown of cinemas and other entertainment spots, while limiting family get-togethers to five people indoors and 10 outdoors.
Taipei’s government has already ordered bars, nightclubs and similar venues to shut.
Since the pandemic began, Taiwan has reported fewer than 1,500 cases out of a population of about 24 million, most of them imported from abroad, but a recent rise in community transmissions has spooked residents.
The island has never gone into a full lockdown and its people are used to life carrying on near normal, despite the pandemic raging in many other parts of the world.
Late on Friday, several universities, including the elite National Taiwan University, said they would immediately switch to remote learning, telling students to stay away from campuses.
“As COVID-19 is still wreaking havoc, please be reminded to wear a mask at all times when you go out, wash hands frequently, and keep appropriate social distancing,” National Taiwan University said in a statement.
The Taipei Fine Arts Museum, outside which people have queued for a hugely popular exhibition by Japanese artist Shiota Chiharu that opened this month, said it would close from Saturday to comply with the city’s prevention rules.
“The re-opening date will be announced according to the epidemic situation and city regulations,” it said.
Taipei’s National Palace Museum, home to one of the world’s best and most extensive collections of Chinese art, said it too would close from Saturday.
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Faith in the magic of capitalism fueled India’s Covid crisis
While the incompetence of the Indian government is starkly visible in its handling of the second wave of the Covid-19 crisis, its performance has been far worse on the vaccine front.
The government led by the Bharatiya Janata Party (BJP) under Prime Minister Narendra Modi, which seems to believe in the ideology of free-market capitalism, thinks that the market will magically produce the number of vaccines the country needs.
This would explain why it has starved seven public-sector vaccine manufacturing units – according to an April 17 article in Down to Earth – of any support instead of ramping up much-needed vaccine production.
The rights to produce the public-sector vaccine Covaxin, which has been developed by the Indian Council of Medical Research (ICMR) and National Institute of Virology (NIV), in collaboration with Bharat Biotech, have been given to the private-company partner on an exclusive basis.
The government also believed that the Serum Institute of India, another private-sector company and the world’s largest vaccine manufacturer, which has tied up with AstraZeneca to produce Covishield, would make vaccines according to the country’s requirements without any prior orders or capital support.
The government did not even see the necessity to intervene and prevent India’s new Quad ally, the US, from stopping sending India supplies of the raw materials needed by India for manufacturing vaccines.
The sheer negligence by the government is further highlighted by the fact that even though India has about 20 licensed manufacturing facilities for vaccines and 30 biologic manufacturers, all of which could have been harnessed for vaccine manufacturing, only two companies are currently producing vaccines. That too is at a pace completely inadequate for India’s needs.
India has a long history of vaccine development, which can be traced back to the Haffkine Institute for Training, Research and Testing, in Mumbai, in the 1920s. With the Patents Act of 1970 and the reverse engineering of drugs by the Council of Scientific and Industrial Research (CSIR) laboratories, the country also broke the monopoly of global multinationals.
It is this change, fought for by the left, that led to India emerging as the largest generic supplier of drugs and vaccines in the world and becoming the global pharmacy of the poor.
The Bill Gates model
Bill Gates recently spoke to Sky News in the UK regarding India’s and South Africa’s proposal to the World Trade Organization on the need to lift intellectual property protection for Covid-19 vaccines and medicines during the pandemic.
Gates claimed that IP is not the issue and that “moving a vaccine … into a factory in India … it’s only because of our grants and our expertise that can happen at all.”
In other words, without the white man coming in to tell India and other middle-income countries how to make vaccines and provide them with his money, these countries would not be able to make vaccines on their own.
This is a rehash of the AIDS debate, when the Western governments and Big Pharma argued that developing generic AIDS drugs would lead to the manufacturing of poor-quality medicines and theft of Western intellectual property.
Bill Gates, who built his fortune on Microsoft’s IP, is the leading defender of patent rights in the world. With his newfound halo as a great philanthropist, he is leading Big Pharma’s charge against the weakening of patents on the global stage.
Indian companies are the largest manufacturers of existing vaccines by volume in the world, according to the WHO’s Global Vaccine Market Report 2020. When it comes to measuring vaccine manufacturing by value, however, the global share held by multinational corporations or Big Pharma is much bigger than that of India.
For example, according to the WHO report, GlaxoSmithKline, with 11% of the global market by volume, generates 40% of the market by value, while the Serum Institute with 28% of the market by volume has only 3% of the market by value. This shows that the patent-protected vaccines with monopoly pricing get much higher prices.
This is the model that Bill Gates and his ilk are selling. Let Big Pharma make the big bucks even if it bankrupts the poorer countries. The Western philanthropic money of Gates and Warren Buffett will “help” the poor Third World to get some vaccines, albeit slowly. As long as they get to call the shots.
RSS and the fear of ‘socialism’
The Modi government’s approach to vaccines is based on the central pillar of Rashtriya Swayamsevak Sangh (RSS) ideology – which serves as the ideological parent of the ruling BJP – that the task of the state is only to help big capital. Anything else including planning is seen by the right wing as socialism.
In the case of vaccines, it means not to make any attempt to get the companies, both in the public and private sectors, to make necessary preparations for a quick vaccination program: to put in the money and provide the necessary supply chain. Instead, the government believed that India’s private pharmaceutical industry would do all of this on its own.
It forgot that the Indian pharmaceutical industry was the product of public-domain science – the CSIR institutions – the public sector and nationalist companies such as Cipla. They all came out of the national movement and built India’s pharmaceutical industry.
It is institutions like the Haffkine Institute under Sahib Sokhey’s leadership and the Center for Cellular and Molecular Biology (CCMB) built under the leadership of Dr Pushpa Bhargava that led to India’s vaccine and biologics capacity. It is on this base that India’s vaccine manufacturing capacity rests.
It is not niji (private) companies that built the vaccine capacity in India, as Modi claims. The private-sector companies rode on the back of public-sector science and technology that was built in the country between the 1950s and the 1990s.
The Indian government opened up vaccinations for all adults in the country on May 1. To vaccinate all the eligible population – above 18 years of age – India would require about 2 billion doses of the vaccine in order to give the required two shots per person.
To plan for the production of an order of this size, apart from technology and capital support, India also needs to plan for the complex supply chain that is required for production. This includes raw materials and intermediate supplies such as filters and special bags.
There are at least 37 “critical items” that are currently embargoed by the US from exports under the Defense Production Act of 1950, a relic of the US involvement in the Korean War.
On April 16, Adar Poonawalla, head of the Serum Institute of India, took to Twitter to ask US President Joe Biden “to lift the embargo of raw-material exports out of the US so that vaccine production can ramp up.”
If India had put together the production capacity of the Serum Institute, Bharat Biotech, Biological E, and Haffkine Bio-Pharmaceutical Corporation Ltd, and the five other companies that have signed up to manufacture Sputnik V, developed by the Gamaleya National Center of Epidemiology, India could have planned for an annual production capacity of more than 3 billion doses.
If it also included the public-sector units idling under the Modi government, India could have easily boosted its vaccine manufacturing capacity to 4 billion doses and produced the necessary 2 billion doses and more in 2021.
It would then have made it possible for India to completely vaccinate its target population and yet have enough left to meet its export commitments including for the WHO’s Access to Covid-19 Tools (ACT) Accelerator program and its vaccines pillar of COVAX.
What is missing is a commission that could plan this exercise and create the political will to carry it forward. Not a vacuous Niti Ayog – the public policy think-tank of the Indian government – and an incompetent administration in New Delhi.
Instead, the Modi government did not even bother to place an order with the Serum Institute until January 11, and that too for a measly 11 million doses. The next order of 120 million Covishield and Covaxin doses was placed only in the third week of March when the daily caseload had approached 40,000, and India was well into its second wave.
The government seemed to bank on its belief in the magic of the capitalist market, which it thought would solve all its problems, without any real effort on New Delhi’s part.
India and South Africa have asked the World Trade Organization to consider waiving the rules relating to intellectual property during the pandemic, and further sought that knowledge, including patents and know-how, should be shared without restrictions. This proposal has been backed by the WHO and has huge support among most countries in Asia, Africa and Latin America.
The holdouts predictably are the rich countries that want to protect the global vaccine market for their Big Pharma companies.
Under pressure from the global community and the bad optics of the US hoarding vaccines, the Biden administration has finally decided to accept South Africa’s and India’s initiative of a temporary patent waiver, after stonewalling it in the WTO until now. But this waiver is restricted to vaccine patents only and does not extend to other patents or associated intellectual property as South Africa and India’s proposal had suggested.
This is still a victory for the global public health community, though only a first step.
While India is spearheading the need to share know-how with all companies capable of manufacturing vaccines, it still has explaining to do as to why it has given an exclusive license to Bharat Biotech to manufacture a vaccine developed with public money and in public institutions such as ICMR and NIV. Why is it not being shared under a non-exclusive license with both Indian companies and firms outside India?
Instead, ICMR is receiving royalties from sharing its know-how exclusively with Bharat Biotech. Under public pressure, ICMR is now sharing its know-how with the Maharashtra state government’s public-sector Haffkine Bio-Pharmaceutical Corp, while giving Bharat Biotech six months’ lead time with financial support money from the central government.
Modi had dreamed that India would be the vaccine arm of the Quad. He forgot that in order to compete with China, India needs a vaccine production base that not only takes care of its own needs but also fulfills all its external commitments.
China can do this because it has developed at least three vaccines already – from Sinopharm, Sinovac and CanSino – that have been licensed to others. Their production is now being ramped up, and China is the largest supplier of vaccines to countries in Asia, Africa and Latin America. And it has also managed to control the spread of the virus that causes Covid-19, unlike India.
This is where the Modi government has failed. and failed badly. An incompetent, vainglorious leadership, combined with the RSS belief in magical capitalism, has led to the disaster that we are now facing.
Prabir Purkayastha is the founding editor of Newsclick.in, a digital media platform. He is an activist for science and the free software movement.
China lands on Mars, closing gap with U.S. in space exploration
Beijing – China’s probe to Mars touched down on the Red Planet early Saturday to deploy its Zhurong rover, state media reported, a triumph for Beijing’s increasingly bold space ambitions and a history-making feat for a nation on its first-ever Martian mission.
The lander carrying Zhurong completed the treacherous descent through the Martian atmosphere using a parachute to navigate the “seven minutes of terror” as it is known, aiming for a vast northern lava plain known as the Utopia Planitia.
The mission “successfully landed in the pre-selected area,” state broadcaster CCTV said, launching a special TV program dedicated to the mission called “Nihao Mars.”
The official Xinhua News Agency cited the China National Space Administration (CNSA) in confirming the touchdown.
It makes China the first country to carry out an orbiting, landing and roving operation during its first mission to Mars — a feat unmatched by the only other two nations to reach the Red Planet so far, the U.S. and Russia.
China has now sent astronauts into space, powered probes to the moon and landed a rover on Mars, the most prestigious of all prizes in the competition for dominion of space.
Chinese President Xi Jinping issued a message of congratulations to all the people involved in the mission.
“You were brave enough for the challenge, pursued excellence and placed our country in the advanced ranks of planetary exploration,” he said. “Your outstanding achievement will forever be etched in the memories of the motherland and the people.”
Zhurong, named after a Chinese mythical fire god, arrives a few months behind America’s latest probe to Mars — Perseverance — as the show of technological might between the two superpowers plays out beyond the bounds of Earth.
Six-wheeled, solar-powered and roughly 240 kilograms, the Chinese rover is on a quest to collect and analyze rock samples from Mars’ surface.
The launch of China’s Tianwen-1 Mars probe which carried the rover last July marked a major milestone in China’s space program.
The spacecraft entered Mars’ orbit in February and after a prolonged silence state media announced it had reached the “crucial touchdown stage” on Friday.
The landing was set to be a nail-biter for the CNSA, with state media describing the process of using a parachute, rocket to slow descent and buffer legs as “the most challenging part of the mission.”
It is expected to spend around three months there taking photos and harvesting geographical data.
The complicated landing process is called the “seven minutes of terror” because it happens faster than radio signals can reach Earth from Mars, meaning communications are limited.
Several U.S., Russian and European attempts to land rovers on Mars have failed in the past, most recently in 2016 with the crash-landing of the Schiaparelli joint Russian-European spacecraft.
The latest successful arrival came in February, when U.S. space agency NASA landed its rover Perseverance, which has since been exploring the planet.
The U.S. rover launched a small robotic helicopter on Mars which was the first ever powered flight on another planet.
The country has come a long way in its race to catch up with the United States and Russia, whose astronauts and cosmonauts have decades of experience in space exploration.
China successfully launched the first module of its new space station last month with hopes of having it crewed by 2022 and eventually sending humans to the Moon.
Last week a segment of the Chinese Long March 5B rocket disintegrated over the Indian Ocean in an uncontrolled landing back to Earth.
That drew criticism from the United States and other nations for a breach of etiquette governing the return of space debris to earth, with officials saying the remnants had the potential to endanger life and property.
In a commentary published on Saturday, Xinhua said China was “not looking to compete for leadership in space” but was committed to “unveiling the secrets of the universe and contributing to humanity’s peaceful use of space.”
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Deep inside China’s Big Tech data caves
A remote, underdeveloped agrarian province in southwestern China is now a testing ground for Beijing’s new tech and data regulatory regime.
A state-owned entity has transformed paddy fields and karst caves into state-of-the-art data centers where racks of servers are leased to tech giants ranging from Alibaba to Apple.
The massive amounts of data from Chinese citizens as they chat, browse and shop online are kept and crunched in the mountain reaches in Guizhou.
The ethnically mixed western province, still among China’s least-developed regions and a big recipient of poverty alleviation funds, ticks all the right boxes to host such data centers, despite lagging behind better-off provinces in internet and smartphone penetration.
Tech firms looking for secure locations for their vital storage and backup systems say Guizhou’s cool climate, clean air and abundance of hydropower appeal. Guizhou’s combination of natural advantages can help lower operating costs and energy use since storage devices on an industrial scale can use as much electricity as a small city.
Beijing’s regulatory drive in recent years, seen in the enactment of a cybersecurity law in 2017 mandating local data storage and management for all businesses collecting information from Chinese customers and recent data squeeze of Alibaba and its Ant Financial, are pulling Guizhou into the technological age.
The law and other related bills say sensitive data concerning privacy, proprietary information and China’s national security must not be sent or shared beyond China’s borders. Government agencies can take “discretionary actions” to intercept and retrieve data from business entities including foreign-invested ones.
Anticipating Beijing’s new legal regime, Guizhou’s provincial authorities pooled capital and founded Guizhou-Cloud Big Data Corp in 2014.
According to Guizhou Daily, the state-owned enterprise was tasked with building and running “big data parks” across the province, with part of the hefty outlays on infrastructure and connectivity footed by Alibaba.
The province’s then-party chief Chen Miner was a big supporter of the Chinese e-commerce behemoth when he served as deputy governor of Zhejiang, Alibaba’s home province.
Tencent, owner of China’s ubiquitous app WeChat, also later chipped in with investments. Tencent founder Pony Ma once told Chen that the firm’s 300,000 servers, routers and hard-disk drives housing some tens of petabytes in storage capacity would enjoy “natural air-conditioning” in a 470,000-square-meter cavernous facility built on a concrete slab deep underneath mountains.
Ma also said that its data centers would be “nuclear attack-proof” in the province’s mountainous setting.
The “data parks” were brought together in a 15 billion yuan (US$2.33 billion) national pilot zone for Guizhou in 2016, with the express purpose of implementing Beijing’s laws and policy initiatives to retain online data, regulate its use and presumably centrally analyze it.
That designation has brought nearly all of China’s tech giants to the province, including Huawei, Foxconn and the “big three” SOE telecoms carriers, China Mobile, China Telecom and China Unicom.
Guizhou’s data center building spree was under the news radar until Guizhou-Cloud’s servers and Apple’s iCloud storage and computing platform were hooked together in a deal announced in 2017. The hook-up had many users of Apple’s hit products wondering if Beijing sought to surveil their online communications and activities.
Apple was adamant that its partnership with the Guizhou SOE was aimed at complying with Chinese laws and that no compromises would be made on its rigorous encryption and privacy protection protocols.
The iPhone-maker, which champions privacy protection in its local commercials, has spent $1 billion and commissioned Guizhou-Cloud to operate dedicated data centers for its iCloud services for mainland Chinese users. Users, nonetheless, have also been given the option to close their iCloud accounts so no data will be backed or synced to servers in Guizhou.
Although Apple has vowed full compliance with local laws and regulations, it is still not allowed to take full ownership of the data centers in Guizhou due to Chinese laws that require a local joint venture partner. In comparison, Apple’s backbone data nodes in America and Europe are all wholly owned and operated by the company.
Guizhou says it has passed by-laws to uphold privacy. A senior executive of Guizhou-Cloud once told reporters that the government had never asked him to disclose data. Guizhou-Cloud has also appointed a “chief privacy officer” in a bid to assure some skeptical Apple users in China.
Indeed, there have been no reports of privacy breaches by Apple’s iCloud partners in China. Apple revealed in its latest report on government requests for customer data and how it responded that in the first half of 2020 it received 1,022 such data requests from mainland Chinese government departments and that it had met 935 of them.
Apple said in its report that government and private entities would be required to follow applicable laws and statutes when requesting customer information and data.
The digital detectives searching for North Korea’s disappeared
Lee Han-byeol has a favourite memory of her elder brother.
They were both teenagers in the 1990s, during the famine that devastated North Korea and is estimated to have killed hundreds of thousands of people. Impoverished, tired and hungry, the pair were travelling to pick up rice from relatives. They had been on the road overnight.
Lee’s eyes mist when she recalls how, as they walked through the darkness, Lee Se-il had swung her on to his back. As dawn broke, she clung wearily to his bony shoulders. “He really adored me,” she whispers, clutching a small black-and-white photo of him. By now, the tears are flowing steadily. “I hope I can see his face again.”
Lee, who fled North Korea through China in 1999, is now 38. Speaking in her small office in the northern outskirts of Seoul, South Korea’s capital, she says the last clear sighting of her brother was in 2009, when he was in the custody of the Kim regime after attempting to escape.
China’s security forces had apprehended him in the borderlands and he was transported back to North Korea. The owner of a guesthouse who had briefly harboured him relayed that he was beaten savagely, and that his hands and feet were wrapped in bandages because of acute frostbite.
A few years ago Lee attempted to find out more. She made phone calls and sent messages through a network of middlemen in China, and her family still inside North Korea bribed officials for information. The only result was a second-hand glimpse: he was apparently still in a prison camp in North Hamgyong province, near the country’s borders with China and Russia. Since then, no word. If her brother is still alive, he would be in his mid-forties.
As a statistic, Lee Se-il fits into a number of classifications. He is one of thousands of refugees who have escaped from North Korea into China only to be arrested and returned. He is one of hundreds of thousands to be detained in the kwanliso, the Kim regime’s political prison camps. And he is one of an unknown number, possibly millions, who have disappeared inside North Korea and who are feared lost to their families, and to history, for ever.
“There is no way to truly know whether they are alive or not,” Lee says. “I feel so heartbroken.”
Now entering its eighth decade, the “hermit kingdom” of North Korea remains heavily guarded from international observers; even western intelligence agencies struggle to acquire reliable information. Defectors such as Lee Han-byeol, who now spends much of her time working to bring other North Koreans safely to South Korea, are often the best sources, though details are scarce.
But just as North Korea’s disappeared seem on the point of vanishing from memory altogether, technology and the determination of a tireless group of activists are providing something that has evaded the families for years: hope.
In a small, bright office a few hundred metres from the presidential Blue House in Seoul, the Transitional Justice Working Group (TJWG) is building a digital database. The ambition of this group of mostly South Korean academics, lawyers, cyber experts and human rights activists is to create an archive of every single person thought to have been detained, abducted or disappeared in North Korea since the 1950s.
The effort involves bringing together tens of thousands of documents, records, images and more. Working slowly and painstakingly, the group is also compiling and mapping other lists: the secret prisons, the execution sites, the mass graves, the identities of perpetrators. The project has been going for three years now; almost 20,000 files are already online and freely available, with an estimated 100,000 more waiting to be processed. It is named Footprints.
One of the early batches of documents loaded into the system included a UN Human Rights Council report that mentioned Lee Se-il. It noted that he had allegedly been “arrested by members of the national security service” after his repatriation. Lee Han-byeol’s hope is that, as the database expands and is used by others, more and more will be revealed. “Anyone can check the database. Someone might know about my brother’s situation,” she says. “It does give me a glimmer of hope.”
The story of North Korea’s mass disappearances dates back to the country’s beginnings. In early August 1945, Tokyo was on the point of surrendering to Allied forces and the question of what to do with Japan’s colonial empire loomed large. Korea had been occupied by the Japanese since 1910; the Americans’ fear was that, once Japanese forces departed, the Soviets would “occupy the entire peninsula and move quickly toward Japan”, as historian Don Oberdorfer has written.
Working late into the evening on August 10, just a day after the bombing of Nagasaki, two young US army officers, using a National Geographic map, proposed a solution: dividing Korea along the 38th parallel, about halfway down the peninsula. The southern zone would be controlled by Washington, the north by Moscow.
For their puppet, the Russians chose a jowly 33-year-old guerrilla fighter who had waged war against the occupying Japanese forces in Manchuria. His name was Kim Song Ju, but he styled himself Kim Il Sung.
It was always Kim’s ambition to take back control of the peninsula. In June 1950, Soviet-built tanks stormed across the border, through Seoul and further south, igniting the Korean war. The surprise attack was almost successful, driving ill-prepared South Korean and US troops to a small enclave. It was only the bravery of South Korean suicide squads and US general Douglas MacArthur’s daring landing in September that forced a North Korean retreat.
During that months-long occupation by the north, about 90,000 South Koreans are estimated to have been abducted, remaining in enemy hands as they moved back towards Pyongyang. While many were taken as slave labour, others were also targeted for specialist skills and experience.
One of those taken was Lee Seong-hwan, a young factory manager and army interpreter with a wife and two young children, who was snatched from the family home in eastern Seoul by North Korean soldiers. His daughter, Lee Mi-il, was just 18 months old when he was kidnapped; now 72, she still lives in the same neighbourhood and has dedicated her life to finding him and others. “My mother talked about my father a lot,” says Lee Mi-il in a thin rasp. “She believed that he was the greatest person in the world.”
The conflict became a brutal war of attrition; about three million Koreans on both sides — one in 10 — were killed, injured or went missing. When an armistice was finally signed in July 1953, the two sides were essentially back where they started, on the 38th parallel, with a demilitarised border zone between them. The agreement included provisions for the repatriation of prisoners of war, but 50,000 South Koreans were never released. Over the years, a small fraction of these PoWs and their families have made successful defections, carrying with them stories of slavery, torture and summary executions.
North Korea has remained in the grip of the Kim dynasty ever since. In 1994 Kim Il Sung was succeeded as supreme leader by his son Kim Jong Il, who in turn handed over to his son, Kim Jong Un, who has ruled for the past decade. An obsession with control and an intense fear of foreign influence have been hallmarks of the Kim ideology.
As Jung Pak, a former CIA officer and now a top adviser to US president Joe Biden, notes, Kim Il Sung began indoctrinating the North Korean people as early as 1955 with the doctrine of juche, or self-reliance, and his position as the suryong, sole leader. Pak writes that “the regime’s opaqueness, self-imposed isolation, robust counter-intelligence practices, and culture of fear and paranoia” make even “some of the most mundane pieces of information” difficult to obtain. International observers’ hopes that Kim Il Sung’s Swiss-educated grandson would prove a reformer have so far proved unfounded.
From the 1960s to the 1980s, hundreds more foreigners, mostly South Korean and Japanese citizens, were seized, often by North Korean agents. Some were abducted for particular skills: to teach foreign languages to North Korean spies, for instance. Among the most notorious cases was the 1969 hijacking of a South Korean passenger plane with 50 people on board; 11 never returned and their fate remains mysterious.
Others were abducted as brides for the few foreign men in the country; local women, raised on a diet of xenophobic propaganda, were repelled by foreigners. Charles Robert Jenkins, an American soldier detained in North Korea for four decades after drunkenly crossing the demilitarised zone in a brazen attempt to desert in 1965, was required to live with a Japanese woman who had herself been snatched while walking with her mother near her home. Women abducted from Thailand and Romania were forced into marriage with detained American soldiers.
There is also a third class of abductees: North Koreans who have disappeared inside the country into a vast system of labour and prison camps, usually sent there for committing crimes against the regime. Although the precise number is unclear, it is likely to be enormous: of more than 33,000 North Koreans who have managed to defect to South Korea since the late 1990s, nearly one in three has an immediate family member who has suffered this fate, according to surveys.
The void left by these disappearances is stark, and families often spend decades attempting to find some form of closure. Son Myung-hwa was born in North Korea in 1962 to a father who had been abducted by North Korean forces as a prisoner of war and spent his life as a forced labourer in a coal mine near Musan by the Chinese border, eventually dying in his fifties.
When Son succeeded in escaping to South Korea in 2005, she spent eight years attempting to get hold of her father’s remains — in the end making a risky trip to China to meet North Korean brokers who had promised to transport them. On July 4 2015, his bones were finally buried in a national cemetery in South Korea. “I had to restore my father’s honour,” she says.
For other families, getting hold of the most basic scraps of information — names, dates, details of disappearances, where bodies are buried — is as much as they can hope for. This is where the Footprints database comes in.
The TJWG, a non-governmental organisation, was set up after a 2014 special inquiry by the UN, which declared that the “gravity, scale and nature” of North Korea’s crimes against humanity “does not have any parallel in the contemporary world”.
With funding from the US government, and other private and public sources, plus technological support from a Geneva-based NGO, the group began by attempting to locate execution and burial sites in North Korea using a combination of eyewitness interviews and satellite imagery. It now employs digital tools including data visualisation and geolocation software, as well as providing secure storage for legal documents (in the hope of future trials) and photos of those who have disappeared. Sources range from public and private archives to new interviews and testimonials from defectors, including former North Korean officials.
A search for “Lee Se-il”, Lee Han-byeol’s brother, produces data such as the date and location of his disappearance, and which victim “type” he falls into: “Forced repatriation of escapee. Current status: unknown.” Another search tells a different story, equally threadbare. “Name: Lee Seong-hwan. Victim type: Korean war abductee. Current status: unknown.”
Lee Soon-geum, 59, an advocate for the families of those taken as prisoners of war, was among the first to record a video testimony for the archive. She says her father, a South Korean soldier, was sentenced to a life spent shovelling coal in mines at Aoji near the Chinese border.
As a child growing up in the mining town, she hated her father for having served in America’s “puppet army”; guilty by association, the family were constantly monitored. “We resented him,” she says. “I thought he should have died in the war.”
His fate was grim: in 1996, he was executed along with her younger brother. Labelled “spies and reactionary scum”, the pair were tortured, possibly for months, before being displayed to relatives, bound and gagged, then shot. Their crime, she believes, was speaking out against the regime. Lee Soon-geum was forced to watch.
“My brother looked down at me and looked into my eyes, and I saw him shedding tears,” she says, her words punctuated by pain-filled sobs. She eventually managed to flee to South Korea in 2004.
First-hand evidence such as this, researchers hope, is a means of pressuring Pyongyang to address human rights issues thought still to be widespread in the country of 26 million people.
By obtaining GPS co-ordinates of hundreds of sites where they believe bodies have been disposed of, and linking them with documents, researchers now think they can track where some kwanliso prison camps are located, as well torture and execution facilities. (For fear of tipping off the authorities in Pyongyang, many of the details they have acquired have not been made public.)
The database also has another purpose: to draw international attention to the plight of the Korean missing. When it comes to writing about North Korea, argue activists, the global media all too often prefer to focus on rocket launches and nuclear tests, oddball haircuts and militaristic parades, rather than the human stories of those who have disappeared. “No one listens to us, no matter how much we shout about it,” says Lee Soon-geum.
Even people in South Korea often have little inkling of their close connection to events. When Daye Yoon, an IT expert, was hired by the TJWG in 2018 to help with data security (including threats from North Korean hackers), she knew little about her own family history — just sketchy details of her paternal grandfather, who died in an incident somehow related to the north. Her parents wouldn’t be drawn on the details.
After chatting in the office, her colleague looked up a list of South Korean fishermen abducted in 1968: among them was her grandfather.
The discovery has persuaded her of the value of the work the TJWG is doing, she explains, but she still can’t bring herself to discuss what happened with her parents. “I don’t want to make them sad,” she says. “But when I started working here, my mother told me that this was probably my destiny.”
As the Footprints database reveals more and more of the internal architecture of North Korea’s shadowy apparatus of repression, activists hope that it can help prepare for a future in which the country is no longer a dictatorship but some form of democracy, and in which there might finally be a legal reckoning.
“We are sending a signal to the North Korean elites,” says Ethan Hee-Seok Shin, one of the TJWG’s co-founders. The message is that “one should tread carefully, otherwise you can be subject to a criminal-justice mechanism after the transition”.
The team in Seoul are following in the footsteps of transitional justice researchers in places such as the former East Germany, where archivists have spent years reconstructing and combing through Stasi files — sometimes piecing together shredded documents by hand — to track the activities of the communist regime and help Germans come to terms with the past.
Another inspiration for Footprints was research done in Guatemala after its civil war, which ended in 1996. Tracking down people who had perpetrated killings, disappearances and other war crimes was difficult: high-ranking officers’ names had often been left off authorisation documents. But researchers were ultimately able to use government records of promotions to ascertain who had been in charge. TJWG interviewers make sure to ask every defector questions about official records, in the hope that one day their locations might be accessed.
Scott Stevens, a Canadian who co-founded the TJWG and is now its communications director, found himself in the field after moving to Seoul in 2012 and working in education. After volunteering with defectors and activists, and visiting North Korea as a tourist in 2013, he became fascinated by the country and its people. Even apparently innocuous pieces of information can be precious, he explains: “Everything from chain of command to responsibility or who’s making these decisions at what level. All of that can be really useful for accountability processes down the line.”
Again, Stevens draws lessons from history: people who worked in Cambodia in the 1990s after the fall of the Khmer Rouge learnt how important it was to locate grave sites as early as possible “so that investigations can proceed more quickly when the opportunity comes”. In the end, more than 20,000 grave sites were uncovered there after the regime’s collapse.
Not everyone believes the TJWG’s approach is the right one. By publicising individual families and stories, there are real dangers that people still living in North Korea might suffer reprisals, say experts.
Figures in South Korea’s foreign policy establishment instead advocate a “trade-off”: try to improve the lives of ordinary North Koreans through engagement and economic interaction, rather than by advocating for human rights. “Once we raised the human rights issues up-front, then North Korea regarded it as a hostile effort to undermine the regime,” says one former senior official in Seoul who has dealt with North Korea. (They asked not to be named.) “I can tell you one thing for sure: ‘megaphone diplomacy’ for human rights will never improve human rights conditions in North Korea.”
There is also a risk that identifying perpetrators and apportioning blame at this stage might undermine efforts from within to encourage reform, says Sokeel Park, a Seoul-based activist who leads a group called Liberty in North Korea that has helped many people escape and build lives elsewhere. Efforts should focus on how, in places such as Egypt under Hosni Mubarak or communist Europe, the wider world signalled to people within those societies that it was in their interests for regime change to happen.
Powerful people in North Korea must be won over to the cause of change, says Park: “We need to try and make sure that we don’t unwittingly persuade the relevant people inside the country that that transition would be very bad for them.”
Shin isn’t convinced. Activists such as TJWG can’t afford to wait until after the regime collapses, he says, as happened in other countries. Moreover, many people with first-hand knowledge of atrocities are in their final years. “People weren’t ready. Everything was happening so fast and nobody was really prepared in advance,” he says of post-war Germany and Japan. “We want to avoid that kind of scenario by having these records, having the personnel files of the victims and perpetrators ready,” he says, adding, “It is a race against time.”
When South Korea’s national assembly building was constructed in the early 1970s, the architects were given a unique instruction for the fan-shaped debating chamber: leave space so that representatives from the north might one day be included.
These dreams have faded for many: the two countries have travelled such different paths since 1945 that it is hard to see how they might one day be united. But over the past four years, South Korean president Moon Jae-in, a former human rights lawyer and the child of North Korean refugees, has staked his legacy on making reunification a priority.
With the unlikely support of US president Donald Trump, the two sides edged closer. In late April 2018, Moon hosted Kim at a lavish summit at Panmunjom, where the armistice was signed in 1953, and the two leaders embraced. As well as voicing lofty commitments to disarm and denuclearise the Korean peninsula, they agreed to “solve” the reunion of separated families and relatives.
But there has been little practical progress, with Seoul’s Ministry of Unification struggling to negotiate with its counterparts in Pyongyang. In the past 20 years, only about 60 families have participated in brief, temporary state-organised reunions. Now, as Moon reaches the final months of his presidency, reunification appears as far away as ever.
Meanwhile, international attention has waxed and waned. Neither admonishments by the US government nor frequent calls by the UN for North Korea to address the situation of those in prison camps or who have suffered torture have resulted in significant change. Biden has signalled North Korean human rights will be given more prominence under his administration. But analysts expect Kim’s nuclear weapons to remain his focus.
Time is of the essence, and not just politically. In the aftermath of the Korean war, the search for those abducted was led by parents looking for lost children and wives for husbands; later the task was taken on by grown-up children hoping to one day meet parents they never knew. But memories of that era are disappearing fast. South Korean cities are unrecognisable even to those who grew up there in the 1960s and 1970s; young people feel more remote from the past, and from family connections they once had to North Korea.
According to a survey that tracks South Korean attitudes towards “peace and reconciliation” run by the state-backed Korea Institute for National Unification, it is not just interest in the idea of reunification that is fading, but in the topic of the split altogether. People in their twenties and thirties ranked highest on “the division not affecting their lives”.
Leighanne Yuh at Korea University in Seoul says she has been “genuinely surprised” by the pace at which disconnection from North Korea has become mainstream. “There was this affinity with North Korea, and this general sense that we’re all the same people,” she says. “But as more and more time has progressed, that feeling has waned. My students have even expressed that they feel like North Koreans are a different ethnicity — which I found pretty shocking — and the cultural differences, they feel, are also too great.”
The TJWG is under no illusions about how hard it is to remind people of the past. But the group insists there is progress. Its data have already been deployed in direct questions to the North Korean government at the UN, for example probing Pyongyang’s use of the death penalty. Publicising testimonials from escapees has helped rekindle public attention.
Possibly the most tangible impact is memorialisation, argues Stevens: allowing families the opportunity to mark what has happened to loved ones. Many relatives no longer hope for a family member to be returned or even that they’ll be able to exhume a body, he says: it’s enough for a disappearance to be officially noted. “They were just happy to tell someone and if they’re going to pass away, then maybe this information will be recorded.”
Recording and reminding are Lee Han-byeol’s tasks too. Holding the photograph of Lee Se-il, her lost brother, and talking of the countless others who have gone, she says: “I just hope people remember them by their name, not just as numbers.”
Edward White is the FT’s Seoul correspondent and Kang Buseong is an FT reporter in Seoul
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