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S T R AT E G I C F O R E C A S T I N G , I N C .STRATFOR is the world’s leading private intelligence firm providing corporations, governments and individuals with intelligence and analysis to anticipate the political, economic, and security issues vital to their interests. Armed with powerful intelligence-gathering capabilities and working in close collaboration with STRATFOR’s experienced team of professionals, our clients are better able to protect their assets, diminish risk, and increase opportunities to compete in the global market.

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ii© 2005 Strategic Forecasting, Inc.

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A b o u t S t r at f o r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i i i

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E x e c u t i v e S u m m a r y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 M a y : T h e M o n t h i n R e v i e w . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 K e y I s s u e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 T h e M o n t h A h e a d : F o r e c a s t s f o r J u n e . . . . . . . . . . . . . . . . . . . . . 1 1 T r e n d s , S t a t s a n d I n d i c a t o r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6 N o t e w o r t h y E v e n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9

S t r at f o r S e r v i c e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2

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STRATFOR is the world’s leading private intelligence firm providing corporations, governments and indi-viduals with geopolitical intelligence and analysis to manage risk and anticipate the political, economic and security issues vital to their interests. Armed with powerful intelligence-gathering capabilities and work-ing in close collaboration with STRATFOR’s expert team of analysts, clients are better able to protect their assets, diminish risk, compete in the global market and increase opportunities. STRATFOR has an unparal-leled record for accuracy and clarity in its forecasts and has been called “the Shadow CIA” by Barron’s.

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hinese tensions dominated a tense region. Beijing argued with the United States about the valuation of the yuan and with the United States and the European Union over Chinese textile exports. Beijing also continued its long-time sparring with Taiwan and Japan. On the Korean Peninsula, South Korea cooled toward Japan

and the United States but warmed toward North Korea, which rang alarm bells throughout the region when North Korea tested a ballistic missile and reportedly prepared to test a nuclear bomb. And in Southeast Asia, Thailand and Myanmar struggled with militants while Indonesia saw its fortunes improve.

T h i s M o n t h ’ s H i g h l i g h t s : I n E v e r y I s s u e : • North Korean Provocations • Trends, Stats and Indicators • Dispute Over the Chinese Yuan • Noteworthy Events • Political War Against Taiwan and Japan • Mixed Fortunes in Southeast Asia • A Banking Crisis and Textile War

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ay was marked by military, economic and political tensions.

North Korea tested a short-range surface-to-surface missile and finished removing some 8,000 fuel rods from its nuclear reactor at Yongbyon, a step toward the production of nuclear weapons. Myanmar experienced bombings

and an escalation of militant activity by ethnic minority armies. Thailand saw a continuation of a bombing and shooting campaign in its southern provinces.

On the economic front, Beijing faced dual pressures from the European Union and the United States over the issue of textile exports and the value of the yuan. This confrontation has moved from the economic realm to the political realm, making a common resolution more difficult. And Beijing continues to play up the issue of textile tariffs domestically, tapping into populist sentiments.

Beijing also is facing off with Japan in a political battle of wills, arguing publicly over issues of historical interpretation and visits to war shrines. Underlying the public, popular rhetoric, however, lies a deeper concern — economic and military competition.

Japan is stepping up ties with Taiwan and tightening its defense links with the United States, all while readdressing constitutional constraints on its armed forces and while seeking a permanent seat on the U.N. Security Council. Tokyo and Beijing also are facing off over territorial claims, which are becoming increasingly relevant as China begins exploring for potential oil and gas reserves.

South Korea, too, faces political pressures. It feels ignored, and even betrayed, by the United States. Tokyo said Washington shares intelligence with it that it does not share with Seoul; Tokyo claims Washington does not trust Seoul, and such comments are stirring resentment. Thisresentment is fueling Seoul’s moves toward a more independent policy on North Korea. To this end, South Korea continues to accelerate political and economic ties with the North to reduce tensions and prepare the North for the eventual reunification of the two Koreas. And South Korea feels the United States is doing little to help the situation, but instead is responsible for keeping North Korean tensions high.

Moving into June, the North Korean issue will come to a head, with Washington and Tokyo hinting of a deadline for progress, rumors of a North Korean nuclear test, meetings between North and South Korea and meetings between South Korean President Roh Moo Hyun and his counterparts in the United States and Japan.

ME x e c u t i v e S u m m a r y


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M a y : T h e M o n t h I n R e v i e w

N o r t h K o r e a n P r o v o c a t i o n sMay began with a North Korean missile test, setting the tone for another month of contentious accusations and actions as Pyongyang sought to leverage its position for talks with the United States. The May Day launch of a KN-02 short-range ballistic missile constituted just one in a series of provocative North Korean moves. Pyongyang announced May 11 that it had completed the removal of 8,000 fuel rods from the Yongbyon nuclear reactor — sending the clear message that it could spin down the used fuel rods to extract weapons-grade plutonium for its nuclear program.

Pyongyang’s actions came amid a growing clamor from the United States and Japan warning of an imminent North Korean nuclear test. In accounts apparently first leaked by Tokyo, the United States reportedly spotted possible preparations for an underground nuclear test near the North Korean city of Kilju, including the movement of materials into an old mine and the erection of a reviewing stand, perhaps built to provide North Korea’s leaders and visiting dignitaries a vantage point for an upcoming test. South Korea and China disputed the suggestion that North Korea was preparing a nuclear test, and North Korea denied preparing or planning to test a nuclear device.

Pyongyang did, however, take advantage of the growing rift between Seoul and Washington over proper policy toward North Korea, and Pyongyang invited South Korean officials to Kaesong to restart stalled inter-Korean talks. This further encouraged Seoul to pursue a soft policy of reconciliation and economic assistance and integration — something that left Washington and Tokyo less than pleased. The American and Japanese displeasure became obvious after reports emerged that Japanese Vice Foreign Minister Shotaro Yachi told a group of South Korean lawmakers that Tokyo had plenty of intelligence from Washington on North Korea it could not share with Seoul because Washington did not trust South Korea.

The United States reportedly spo�ed possible preparations for an underground nuclear test near the North Korean city of Kilju.


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D i s p u t e O v e r t h e C h i n e s e Y u a nBut North Korea was not the only point of contention in the region. China faced increasing pressure from the United States over the value of the yuan and from the United States and the European Union over Chinese textile exports. China made several contradictory remarks regarding the yuan’s valuation amid growing rhetoric from members of the U.S. Congress that Beijing was taking an unfair trade advantage by keeping the yuan pegged artificially low.

Chinese officials alternately claimed Beijing would and would not alter the yuan peg, maintaining that foreign countries should not interfere in this matter. China’s state-run People’s Daily even issued an article — later revoked on grounds of “mistranslation” — reporting that Beijing was preparing to change the yuan peg. Foreign media talked of a May 18 adjustment, leading the Chinese press to gloat May 19 when no change occurred.

Partially related to the yuan issue were increased warnings from Washington and Brussels for China to rectify the growing textile trade imbalance, or face punitive damages including high tariffs. Beijing responded by reminding its accusers that the change resulted from World Trade Organization (WTO) regulations, and so represented a consequence of the free market. In a display of cooperation, Beijing announced new export tariffs for certain goods, but the move clearly fell well below Western expectations, and failed to budge Washington or Brussels. In response, as the month’s end approached and the EU deadline for action neared, Beijing announced the removal of numerous textile export tariffs, including the new tariffs — effectively declaring the trade war open.

P o l i t i c a l W a r A g a i n s t Ta i w a n a n d J a p a nWhile China battled on the economic front with the United States and the European Union, it waged political war with Taiwan – or, more accurately, with Taiwanese President Chen Shui-bian. As May opened, Taiwan’s Nationalist Party (Kuomintang, or KMT) Chairman Lien Chan wrapped up a visit to China that came at the invitation of Chinese President Hu Jintao (in his role as chairman of the Communist Party of China). Soon thereafter, James Soong, chairman of the opposition People First Party, a breakaway faction of the KMT, also visited China and met with Hu.

Chinese officials alternately claimed Beĳing would and would not alter the yuan peg.


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The visits represented Beijing’s way of exploiting political rifts in Taiwan and left Chen scrambling to regain control over the direction of cross-strait ties. Chen’s Democratic Progressive Party still took the majority in May 14 National Assembly elections, but this mainly resulted from low voter turnout and Chen’s pro-independence backers’ superior ability to get their supporters to the ballot box. For his part, Chen tried to counter China’s political jousting by paying an unannounced visit to Fiji, one of the Pacific island nations currently recognizing Beijing instead of Taipei.

While China and Taiwan battled on the political playing field, Beijing sparred with Tokyo. Building on anti-Japanese demonstrations earlier in the year, China’s leadership sought a less internally destabilizing way to demonstrate disdain for Japanese Prime Minister Junichiro Koizumi. Beijing dispatched Vice Premier Wu Yi to Japan to mend fences with Tokyo. But just before her planned meeting with Koizumi, Wu said something had come up back home, and abruptly departed Japan — leaving Japanese politicians fuming at her rudeness. Exacerbating matters, Wu’s emergency apparently ended by the next day, and she traveled to Mongolia.

M i x e d F o r t u n e s i n S o u t h e a s t A s i a In Southeast Asia, a series of explosions in Yangon came at a time of renewed political focus on Myanmar’s military regime. Myanmar’s planned chairmanship of the Association of Southeast Asian Nations (ASEAN) had drawn criticism from the United States and European nations and also resulted in threats of ASEAN meeting boycotts. The bombings underscored ongoing troubles inside Myanmar, and Yangon quickly blamed the attacks on foreign-backed militants operating from neighboring Thailand.

Thailand already had enough troubles of its own, with continued militancy in the south. Prime Minister Thaksin Shinawatra’s policies have thus far failed to stem attacks, which continue to rock Thailand’s southern provinces.

In nearby Indonesia, on the other hand, things are looking up. Jakarta ended its state of emergency in its semiautonomous Aceh province, reopened peace

While China and Taiwan ba�led on the political playing field, Beĳing sparred with Tokyo.

The bombings underscored ongoing troubles inside Myanmar.


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talks with the separatist Free Aceh Movement, and garnered expanded political and military ties with Australia and the United States. Indonesian President Susilo Bambang Yudhoyono traveled to the United States to meet U.S. President George W. Bush and was promised increased military assistance — something Jakarta desperately needs.

Finally, U.N. peacekeepers left Southeast Asia’s youngest nation, East Timor. But Dili found its economic condition little improved, as Australia has devised an energy-resources-rights deal that will leave East Timor dependent on Australian aid, security and assistance for years to come.

K e y I s s u e s

T h e M i d d l e K i n g d o m Ta k e s C e n t e r S t a g eChina, the Middle Kingdom, occupies the epicenter of some of Asia’s most pressing issues — from its domestic economic growing pains to the confrontation over trade and currency issues with the United States and Europe, from the North Korean nuclear crisis to the Taiwan Strait tensions, and from the readjustment of regional political and security ties to the looming question of the “China threat” posited by the United States.

China’s economic troubles are twofold. Internally, Beijing is presiding over an inefficient economic system it is changing in fits and starts in a cautious attempt to maintain economic growth and social stability — all while preserving the political elite. Externally, Beijing has competed with its Asian neighbors, gained accession into the WTO, and now faces strong pressure from the United States and the European Union over its textile exports and the value of the yuan.

A n U n s u s t a i n a b l e E c o n o m i c M o d e lSince the launch of economic reforms more than two decades ago, China has run its economy on two of the least accountable or sustainable economic models — the East Asian model and the communist model. The East Asian economic model, followed early on by Japan, South Korea and the Southeast Asian “tigers” of the early 1990s, is based on the idea of growth for growth’s sake. Growth serves as the primary measure of success, with profitability coming in a distant second. Large, family-based, government-linked conglomerates dominate the landscape, creating such odd mergers as shipbuilding, instant food production and banking.


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In China, this model was only slightly modified with the formation of the state-owned enterprises (SOEs) based on regions and towns, with Communist Party officials at the various SOEs’ helms. Filial piety was replaced by Party loyalty, or more accurately, by loyalty to a specific Party boss. The SOEs created a redundant, unprofitable system of businesses and enterprises supporting entire villages while avoiding competition with other similar industries in other parts of China.

The communist economic model brought two key aspects — strong centralized planning, which undermined creativity and entrepreneurship, and a culture of avoiding the truth. Under this system, the central government handed down quotas, and each successive layer of bureaucracy claimed ever more exaggerated achievements. The factory manager would tell his superior he had met or exceeded quotas, regardless of whether he had. These assurances snowballed up the chain like the whisper game, yielding totally inaccurate figures at the top. This left the central government at first feeling proud and confident, later perturbed with the obvious obsequiousness, and finally frustrated by the lack of any reliable information on which to assess the economy or plan for the future.

Combined, these two systems allowed China to break rapidly into the international marketplace, grow at unnaturally high rates for years (even when Beijing tried to slow things down), suck up foreign investment and blind prospective investors and businesses into believing the miracle was unstoppable. All that is starting to change. Now, the debate has largely shifted from whether the Chinese economy is in trouble to whether the Chinese economy will have a hard or soft landing.

Growth only compounded existing inefficiencies, and by the time the Chinese government started to get a grip on the actual economic condition, massive restructuring clearly was necessary to bring about a more sustainable economic system. Entrenched corruption turned an economic issue into a political one, weakening the already diminished public perception of the Communist Party and its legitimacy. Deng Xiaoping had traded ideology for washing machines and refrigerators, and Jiang Zemin added cars, education abroad and the prospect for entrepreneurs to actually join the Party of the proletariat.

Hu and his premier, Wen Jiabao, face the daunting task of trying to maintain


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the Party’s legitimacy while undercutting economic growth, smashing the “iron ricebowls” of lifetime state support and throwing the entrenched politico-economic elite out on its ear. Hu’s room to maneuver is limited, however, as social unrest is a very real prospect in China, often triggered by economic and social issues. Further complicating matters, Jiang’s claim to fame — China’s WTO entry — limits Hu’s options. Jiang did the easy part — negotiating agreements. Hu has the difficult challenge — putting them into effect.

A B a n k i n g C r i s i s a n d Te x t i l e W a rBeijing already seeks a way out of its commitment to banking reform — even as it seeks foreign investors and partners for its state banks. The WTO regulation requiring China to open its banking system to foreign competition takes effect at the end of this year, but China is nowhere near ready. Foreign banks would undercut the Chinese banks’ ability to attract depositors — thus cutting off the money supply for semiofficial low-cost loans to Chinese SOEs, which prop up the social system — guaranteeing workers redundant jobs to keep them employed and off the streets. If Beijing reneges on its WTO commitments — a very real possibility — it risks bursting the bubble of optimism surrounding Chinese economic prospects — and undercutting the flow of investments and technology into China.


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Beijing is trying to clean out its banks, firing high-ranking banking officials for corruption in an attempt to make things look better for foreign investments and partnerships. It is slowly (and more and more reticently) preparing some of the largest state banks for initial public offerings. And it is looking for loopholes to avoid its WTO deadlines.

At the same time, the United States and the European Union have stepped up pressure on China to reduce textile exports and to revalue the yuan, which is viewed as being some 10 percent to 27 percent too low. Social and political priorities in China, Europe and the United States, however, make any rapid and mutually agreeable solution highly unlikely.

On Jan. 1, quotas on textile imports were lifted after a 10-year waiting period as agreed upon in the Uruguayan round of WTO discussions in 1995. This led to a surge of Chinese textile exports in the first quarter of 2005 — some 19.1 percent year on year. Beijing has argued that several factors caused the spurt in exports, including orders placed in November and December 2004, and the fact that the United States and Europe failed to phase out import quotas over the 10 years granted by the WTO, instead of lifting most of those quotas at once.

Whatever reasons China may have offered, Europe and the United States responded with their own actions. On April 4, Washington announced a 90-day investigation into three categories of Chinese textiles — a move followed two days later by the European Union’s announcement of plans for trade protection measures on a dozen categories of Chinese textiles. On May 13, Washington imposed quotas on three categories of Chinese textile products and said May 18 it would enact more.

On May 20, China responded by raising export tariffs on some 74 products. But as the European Union held out a final chance for informal negotiations with China before starting formal negotiations — which would allow the imposition of new quotas — Beijing reversed course. On May 30, Beijing revoked tariffs on 84 goods, declaring it was safeguarding some 100,000 Chinese jobs and that it was not fair for Chinese companies to be punished twice.

Criticizing the protectionist moves by the leaders of the global free market economy, China responded to the complaints by opening the cheap textile taps. This puts China on a direct course for conflict with Washington and


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Brussels, something Beijing sees as its best option. Beijing sees the European Union entering a serious internal crisis given France’s rejection of the EU constitution. It sees the United States as dependent on Chinese assistance to solve the North Korean nuclear crisis and to maintain stability in the Taiwan Strait. And it sees itself as Asia’s rising political star — the great power to challenge the United States, at least in one region. Whether these perceptions are accurate remains to be seen, but this is the core of the Chinese situation — and the core of Asia’s situation.

China’s spat with Japan over history, its nurturing of economic and defense ties with previous South China Sea rivals such as the Philippines and Indonesia, its growing economic ties to Latin America and expanding relations in Central Asia and India all represent manifestations of Beijing’s attempts to reclaim its Middle Kingdom status. They also represent manifestations of Beijing’s attempts to hold external pressures at bay and to find some way to restructure its domestic social and economic situation without triggering the massive upheaval that often heralds Chinese dynastic changes.

T h e M o n t h A h e a d : F o r e c a s t s f o r J u n e

H i g h l i g h t s : • Quarrels over Territory and Textiles • Warming to the North, Cooling to the East and West • China’s Southeast Asian Charm Offensive • Resurgence of the North Korean Nuke

While May began with a North Korean missile launch, June will begin with fireworks of its own — this time political in nature. Relations between Northeast Asian countries are at a low ebb, with Japan facing the ire of China and the Koreas. Several issues between these nations will come to a head in June. China and Japan continue to bicker over territorial issues, particularly as both nations seek to explore and exploit natural gas and oil deposits in the South China Sea. Seoul has territorial disputes with Tokyo, as well as lingering anger over a Japanese statement that Washington and Tokyo do not trust Seoul with intelligence on North

Given China’s ever-growing need for energy resources, it will not halt exploration activities.


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Korea. And North Korea remains an unsettled issue — one that Washington and Tokyo hinted would come to a head in June.

Q u a r r e l s o v e r Te r r i t o r y a n d Te x t i l e sAs May drew to a close, Beijing and Tokyo agreed the best way to solve their dispute over territorial maritime rights was through dialogue, but that is about as far as they got. Beijing will continue to explore the seabed for oil and gas deposits, and Tokyo will continue to call for China to suspend such activity. More talks can be expected in June, but after the Chinese vice premier left Tokyo abruptly in May, China does not appear ready to give in. Further, given China’s ever-growing need for energy resources, it will not halt exploration activities. Beijing already has struck a deal with the Philippines for joint exploration and will feel out other South China Sea nations in June and beyond for further cooperative deals.

The political bickering between Beijing and Tokyo will not be limited to the maritime border issue, however. Japan continues to increase economic and defense ties with Taiwan — something that infuriates Beijing. Beijing will respond by actively blocking Japan’s expected June bid for a permanent seat on the U.N. Security Council — even as China supports some other nations in their bids for a bigger council.

For Beijing, diatribes against Japan and snubs like the Chinese vice premier’s sud-den departure represent a low-cost mea-sure that stirs populism at home and keeps China’s citizens focused on phantom crises, rather than looking deeply at China’s domestic problems. China will follow this path regarding the EU and U.S. textile issue during June as well. On June 1, Beijing removes export tariffs on several textile products, and has played this up domestically as a way to protect Chinese workers targeted unfairly (and illegally, at least according to Beijing’s reading of WTO accords) by Western nations intent on keeping China down.

While Beijing will play up the textile issue at home, it also will seek a negotiated solution from Brussels and Washington. More talks can be expected in June, though little progress will come of them initially, given the

Snubs like the Chinese vice premier’s sudden departure represent a low-cost measure that stirs populism at home and keeps China’s citizens focused on phantom crises.


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political atmosphere surrounding the issue. A perceived confrontation is fine, but Beijing really wants to keep pressure at a minimum to devote its full attention to the delicate domestic tinkering that is supposed to bring it through its economic troubles without triggering new crises.

Washington has hinted at a six-month delay in truly pressing China, but the U.S. Congress seems intent on pushing a domestically popular China-bashing campaign. And Bush, already the target of media questions regarding his “lame duck” status, also might need to rally behind the populist movement at home.

Wa r m i n g t o t h e N o r t h , C o o l i n g t o t h e E a s t a n d We s tElsewhere, South Korea faces its own problems. Seoul will continue working for closer cooperation and integration with Pyongyang, sending a high-level delegation to Pyongyang in mid-June for the fifth anniversary of the inter-Korean summit and continuing ministerial talks with the North later in June. At the same time, South Korean President Roh Moo Hyun is preparing for a June 9-10 trip to Washington to meet with Bush — a meeting that will be anything but friendly.

Seoul and Washington stand miles apart on the North Korean question and on U.S. military base reform issues, and recent comments from Japan regarding U.S. distrust of Seoul will only fuel the fire. Rather than a meeting of minds, the visit is shaping up to be Roh giving Bush a piece of his mind, and Bush reciprocating. South Korea is anxious to see the six-party talks restart, and reports that investment into South Korea is flagging because of the nuclear crisis only add impetus to a South Korean government already downgrading growth prospects for the year.

Roh also is expected to face off with Koizumi in June to discuss the intelligence-sharing comments and disagreements on border issues (namely, over Dokdo/Takeshima Island), North Korea and divergent interpretations of history. Though Roh seeks to make Korea Asia’s hub, his troubles with Japan are growing. Moreover, as Japanese and U.S. defense ties tighten, South Korean defense ties with the United States are not yet on shaky ground, but certainly face a period of review and massive restructuring.


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C h i n a ’ s S o u t h e a s t A s i a n C h a r m O f f e n s i v eElsewhere in the region, China is set to step up its bilateral economic, political and security relations with various Southeast Asian nations. China long pursued a Pacific policy, buying off the loyalty of various South Pacific nations both to deny Taiwan potential diplomatic recognition and to have, at minimum, an early warning system to better watch the sea lanes from the United States to the Asia-Pacific rim. Beijing recently shifted to a closer ring of nations around the South China Sea, establishing or strengthening economic and military ties with Cambodia, Indonesia, Laos, Myanmar, Papua New Guinea and the Philippines, among others. This process will continue in June, as new frameworks for joint military training are established.

At the same time, Southeast Asian nations will continue to seek strengthened ties not only with China, but with the United States. Few are willing to put their full trust in either nation, as China is a powerful neighbor, while the United States remains the major economic, military and political force worldwide. In late June, Vietnamese Prime Minister Phan Van Khai plans to meet Bush in Washington. It would be the first visit by a Vietnamese prime minister since Vietnam’s reunification, and represents part of Hanoi’s second coming out party, after the first economic opening really failed to take foot.

Indonesia’s president, too, will seek to shore up ties with Washington after a fairly successful visit to the United States in late May. Yudhoyono wants to build on the summit with Bush and have complete military ties restored. But in the meantime, he will also look elsewhere for technology and support. To this end, he will continue looking into missile development with China and naval improvements with South Korea, among others. At the same time, domestically, Jakarta will step up the operations to hunt down foreign militants, particularly those related to the old Hambali cell of Jemaah Islamiyah. Jakarta also will focus on cleaning up the semiautonomous province of Aceh, both from the ravages of the tsunami and from the remnants of the Free Aceh Movement militants — the latter through negotiations and military action.

Southeast Asian nations will continue to seek strengthened ties not only with China, but with the United States.


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R e s u r g e n c e o f t h e N o r t h K o r e a n N u k eAnd finally, June will see a resurgence of diplomacy, warnings and threats surrounding the North Korean nuclear issue. With Washington and Tokyo hinting at a June deadline for North Korean action (and suggesting a North Korean nuclear test is imminent in June), Pyongyang again will rise to the top of the media headlines. Watch for developments on the issue when Roh visits Washington on June 10, at the June 15 inter-Korean summit and at the June 21-24 Korean ministerial meetings. Pyongyang will continue to seek to exploit rifts between Seoul and Washington, and will simultaneously use its burgeoning economic ties with Seoul to leverage its relations with Beijing.

While Pyongyang is eager for a solution to the crisis, it also is learning to live in its new space. As long as the ally system in Northeast Asia is off balance, North Korea can manipulate tense relations between Beijing, Seoul, Tokyo and Washington to its own best advantage. And while another missile test in June is not out of the question, a significant military showdown is unlikely.

Chinese goods by value as they export to China. In short, if China does not play ball by American and European rules, Washington and Brussels would have little trouble launching — and winning — a trade war.

The question, therefore, is how much will the Europeans move? On that issue, they are likely to take their cue from the Bush administration. Europe knows full well it is in a position of strength. It also knows the White House is facing similar pressure from Congress, which has attached an amendment to the Foreign Affairs Authorization Act that charges the executive branch to levy a 27.5 percent tariff on all Chinese imports. The Bush administration is trying to get the Chinese to fix the trade imbalance without trade sanctions by leaking that it wants to see Beijing unilaterally revalue the yuan upward from its current peg by at least 10 percent.

Such an amount would not satisfy Congress, or Europe, but would be a step in the right direction that would buy all parties a bit more time. For now, the issue is in Beijing’s hands and Brussels is content to take a backseat, playing less-bad cop to Washington’s bad cop, and U.S. Congress’ extremely bad cop. Ideally, Brussels would like to see the Chinese unilaterally alter their policies, but it will not shy away from strong action once the United States is on board as well.


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T r e n d s , S tat s a n d I n d i c at o r s

Brunei

Cambodia

China

Indonesia

Japan

Laos

Malaysia

Myanmar

North Korea

Philippines

Singapore

South Korea

Taiwan

Thailand

Vietnam

n/a = not available

All data are provided by the governments of respective countries, unless otherwise noted.

1 2003 from NIS 13 IMF 2004 25 UNCTAD 2003 2 2002 Mekong Capital Ltd. 14 Q1 2005 The Edge Daily 26 Deutsche Bank 2004 estimate 3 April 2005 from Xinhua 15 Q1 2005 National Statistics Coordination Board 27 CIA World Factbook 2004 estimate4 Q1 2005 (NBS) 16 Q1 2005 Phil. National Statistics Coordination Board 28 Asian Development Bank 2004 5 Bank of Korea 17 Jan. 2005 from NEDA 29 AT Kearny Consulting 2003 6 As percentage of 2004 Gross National Income - Bank of Korea 18 April 2005 NEDA 7 Yonhap News (May 31, 2005) 19 2003 SDS 8 2002 World Bank 20 2004 Xinhua 9 Korean Statistical Information System 2005 estimate 21 Jan.- May 2005 10 Q1 2005 MIAC 22 Asian Development Bank 2005 estimate 11 2003 World Bank 23 CIA World Factbook 2005 estimate 12 1997 CIA workbook 24 Q1 2005 year on year

1.5

4.1 1

578.9 4

224.4

5800

2.1

117.7 13

5.1

208 5

22.3 15

109.05

680 5

326

160 26

39.2 11

0.356

13

1.3 bn

211.7

127.7 ‘05 est.

5.7 2003

25.99

48.8

22.7 5

84 22

4 Jun ’04

48.4 6

22.7

65 23

81.3 11

n/a

311

1200

1059

45520

1759 11

4528

105

914 6

975

25,718

14,049

14356

2490

480

n/a

5.3

9.4 4

3.7

5.3 24

5 2003

5.7 14

5.3

2.2 7

4.6 16

3.2 24

4.6 5

3.63 ‘05 est.

5.1 Q4

7.2

2.0 25

87 mn 25

60.628

145.09 mn8

6.325

19.5 mn11

4.728

128.1 mn28

59 mn

57 mn28

11.429

3.829

n/a

1.726

2.1

n/a

2.5

4.2 2004

2.7 2003

4.4 Apr ‘05

5

3.413

4.2 2004

n/a

11.317

3.9

3.9

4.04

1.828

5.628

n/a

1.728

155.94

59.5

138.5 mn

540.8 mn11

143.4

2.5

n/a

34.8 2003

17.7Apr ‘05

23.15

49.4

96.426

20.111

n/a

2.312

139.3

48

116.3

579.5 mn‘04

118.213

1.9

n/a

36.1

15

21.18

47.7

84.9

25.211

n/a

5.9418

1.8 Apr ‘05

6.2

-0.2

10.628

2.7 Q1 ‘05

17.227

n/a

8.518

0.4

3.1

1.61

3.6

7.7

n/a

365 mn

659.1Mar ‘05

n/a

843.6

n/a

74.8

n/a

n/a

16.618

116

37.1

2.526

47.3 mn

n/a

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us

Brunei

Cambodia

China

Indonesia

Japan

Laos

Malaysia

Myanmar

North Korea

Philippines

Singapore

South Korea

Taiwan

Thailand

Vietnam

n/a = not available



1.5

4.1 1

578.9 4

224.4

5800

2.1

117.7 13

5.1

208 5

22.3 15

109.05

680 5

326

160 26

39.2 11

0.356

13

1.3 bn

211.7

127.7 ‘05 est.

5.7 2003

25.99

48.8

22.7 5

84 22

4 Jun ’04

48.4 6

22.7

65 23

81.3 11

n/a

311

1200

1059

45520

1759 11

4528

105

914 6

975

25,718

14,049

14356

2490

480

n/a

5.3

9.4 4

3.7

5.3 24

5 2003

5.7 14

5.3

2.2 7

4.6 16

3.2 24

4.6 5

3.63 ‘05 est.

5.1 Q4

7.2

2.0 25

87 mn 25

60.628

145.09 mn8

6.325

19.5 mn11

4.728

128.1 mn28

59 mn

57 mn28

11.429

3.829

n/a

1.726

2.1

n/a

2.5

4.2 2004

2.7 2003

4.4 Apr ‘05

5

3.413

4.2 2004

n/a

11.317

3.9

3.9

4.04

1.828

5.628

n/a

1.728

155.94

59.5

138.5 mn

540.8 mn11

143.4

2.5

n/a

34.8 2003

17.7Apr ‘05

23.15

49.4

96.426

20.111

n/a

2.312

139.3

48

116.3

579.5 mn‘04

118.213

1.9

n/a

36.1

15

21.18

47.7

84.9

25.211

n/a

5.9418

1.8 Apr ‘05

6.2

-0.2

10.628

2.7 Q1 ‘05

17.227

n/a

8.518

0.4

3.1

1.61

3.6

7.7

n/a

365 mn

659.1Mar ‘05

n/a

843.6

n/a

74.8

n/a

n/a

16.618

116

37.1

2.526

47.3 mn

n/a

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us


J U N E 2 0 0 5

Brunei

Cambodia

China

Indonesia

Japan

Laos

Malaysia

Myanmar

North Korea

Philippines

Singapore

South Korea

Taiwan

Thailand

Vietnam

n/a = not available



1.5

4.1 1

578.9 4

224.4

5800

2.1

117.7 13

5.1

208 5

22.3 15

109.05

680 5

326

160 26

39.2 11

0.356

13

1.3 bn

211.7

127.7 ‘05 est.

5.7 2003

25.99

48.8

22.7 5

84 22

4 Jun ’04

48.4 6

22.7

65 23

81.3 11

n/a

311

1200

1059

45520

1759 11

4528

105

914 6

975

25,718

14,049

14356

2490

480

n/a

5.3

9.4 4

3.7

5.3 24

5 2003

5.7 14

5.3

2.2 7

4.6 16

3.2 24

4.6 5

3.63 ‘05 est.

5.1 Q4

7.2

2.0 25

87 mn 25

60.628

145.09 mn8

6.325

19.5 mn11

4.728

128.1 mn28

59 mn

57 mn28

11.429

3.829

n/a

1.726

2.1

n/a

2.5

4.2 2004

2.7 2003

4.4 Apr ‘05

5

3.413

4.2 2004

n/a

11.317

3.9

3.9

4.04

1.828

5.628

n/a

1.728

155.94

59.5

138.5 mn

540.8 mn11

143.4

2.5

n/a

34.8 2003

17.7Apr ‘05

23.15

49.4

96.426

20.111

n/a

2.312

139.3

48

116.3

579.5 mn‘04

118.213

1.9

n/a

36.1

15

21.18

47.7

84.9

25.211

n/a

5.9418

1.8 Apr ‘05

6.2

-0.2

10.628

2.7 Q1 ‘05

17.227

n/a

8.518

0.4

3.1

1.61

3.6

7.7

n/a

365 mn

659.1Mar ‘05

n/a

843.6

n/a

74.8

n/a

n/a

16.618

116

37.1

2.526

47.3 mn

n/a

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us

Brunei

Cambodia

China

Indonesia

Japan

Laos

Malaysia

Myanmar

North Korea

Philippines

Singapore

South Korea

Taiwan

Thailand

Vietnam

n/a = not available



1.5

4.1 1

578.9 4

224.4

5800

2.1

117.7 13

5.1

208 5

22.3 15

109.05

680 5

326

160 26

39.2 11

0.356

13

1.3 bn

211.7

127.7 ‘05 est.

5.7 2003

25.99

48.8

22.7 5

84 22

4 Jun ’04

48.4 6

22.7

65 23

81.3 11

n/a

311

1200

1059

45520

1759 11

4528

105

914 6

975

25,718

14,049

14356

2490

480

n/a

5.3

9.4 4

3.7

5.3 24

5 2003

5.7 14

5.3

2.2 7

4.6 16

3.2 24

4.6 5

3.63 ‘05 est.

5.1 Q4

7.2

2.0 25

87 mn 25

60.628

145.09 mn8

6.325

19.5 mn11

4.728

128.1 mn28

59 mn

57 mn28

11.429

3.829

n/a

1.726

2.1

n/a

2.5

4.2 2004

2.7 2003

4.4 Apr ‘05

5

3.413

4.2 2004

n/a

11.317

3.9

3.9

4.04

1.828

5.628

n/a

1.728

155.94

59.5

138.5 mn

540.8 mn11

143.4

2.5

n/a

34.8 2003

17.7Apr ‘05

23.15

49.4

96.426

20.111

n/a

2.312

139.3

48

116.3

579.5 mn‘04

118.213

1.9

n/a

36.1

15

21.18

47.7

84.9

25.211

n/a

5.9418

1.8 Apr ‘05

6.2

-0.2

10.628

2.7 Q1 ‘05

17.227

n/a

8.518

0.4

3.1

1.61

3.6

7.7

n/a

365 mn

659.1Mar ‘05

n/a

843.6

n/a

74.8

n/a

n/a

16.618

116

37.1

2.526

47.3 mn

n/a

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us



J U N E 2 0 0 5

Brunei

Cambodia

China

Indonesia

Japan

Laos

Malaysia

Myanmar

North Korea

Philipines

Singapore

South Korea

Taiwan

Thailand

Vietnam

*Closing Rates

Beginning

1.6376

3839.6

8.2762

9511.4

105.06

7613.5

3.7999

5.6033

2.1969

54.445

1.6375

1001.2

31.356

39.531

14051.1

Low

1.6638

3839.6

8.2789

9513.6

108.18

7613.5

3.8004

5.6033

2.1969

54.688

1.6637

1009.9

31.475

40.630

14051.1

High

1.6368

3839.6

8.2738

9416.4

104.42

7613.5

3.7995

5.6033

2.1969

53.982

1.6367

995.70

31.002

39.440

14051.1

End

1.6596

3839.6

8.2738

9477.3

107.99

7613.5

3.8001

5.6033

2.1969

54.486

1.6636

1005.6

31.181

40.630

14051.1

Regional Currency Rates



J U N E 2 0 0 5

N o t e w o r t h y E v e n t s

May 1: North Korea test fires a KN-02 short-range ballistic missile.

May 1: Japanese Prime Minister Junichiro Koizumi announces the end of a seven-year freeze on Japanese loans to Pakistan at the end of a two-day trip to Islamabad.

May 1: Chinese computer manufacturer Lenovo completes an agreement to purchase the personal computer unit of IBM.

May 1: South Korea’s main opposition, the Grand National Party, takes five of six contested National Assembly seats in by-elections, increasing its number of seats to 125 in the 299-member assembly.

May 1: Taiwanese Nationalist Party Chairman Lien Chan visits Xian and Shanghai, China, before returning to Taiwan on May 3. China offers to lift the ban on Chinese travel to Taiwan.

May 1: China celebrates “Golden Week” holiday through May 7.

May 2: Philippine Defense Secretary Avelino Cruz meets with Japanese Self-Defense Forces Chief Yoshinori Ono to increase security cooperation and dialogue between the two countries.

May 3: South Korean media repeat stories that the United States and Japan see signs of a potential North Korean nuclear test as early as June.

May 3: Australian Defense Minister Robert Hill meets the Japanese minister of state for defense in Sydney, Australia, to discuss regional security and possible missile defense collaboration.

May 4: Taiwanese President Chen Shui-bian pays an unannounced visit to Fiji.

May 4: U.S. Deputy Secretary of State Robert Zoellick meets with Thai Foreign Minister Kantathi Suphamongkhon to discuss the Association of Southeast Asian Nations (ASEAN) and Myanmar, among other issues.

May 5: James Soong, chairman of the Taiwanese opposition People First


J U N E 2 0 0 5

Party (PFP), begins a nine-day visit to China at the invitation of Hu Jintao, chairman of the Communist Party and president of China. The PFP visit begins two days after the end of a mainland visit by the chairman of Taiwan’s Nationalist Party.

May 5: Chinese President Hu Jintao and U.S. President George W. Bush hold a telephone discussion on bilateral ties between their two countries and Chinese-Taiwanese relations.

May 5: Pakistani Prime Minister Shaukat Aziz visits Brunei, Malaysia, Singapore and Thailand on a one-week trip ending May 12 to promote Pakistani relations.

May 6: Indonesian Vice President Jusuf Kalla and Malaysian Deputy Prime Minister Najib Razak say that neither of the countries will withdraw its navy patrol ships from a standoff over a petroleum-rich area of the Celebes Sea but that they will negotiate disagreements and ensure the patrols do not create conflict.

May 6: Chinese Deputy Finance Minister Li Yong says Beijing is working hard to revise its exchange-rate system.

May 6: South Korean Foreign Minister Ban Ki-moon meets with Japanese Foreign Minister Nobutaka Machimura on the sidelines of the Asia-Europe Forum.

May 6: The Asia-Europe Forum is held through May 7 in Kyoto, Japan.

May 7: Chinese Foreign Minister Li Zhaoxing and Japanese Foreign Minister Nobutaka Machimura meet in Kyoto, Japan, on the sidelines of the Asia-Europe Forum.

May 7: Explosions at two supermarkets and a Thai trade fair shake Yangon, Myanmar. Eleven people die and 162 more are injured. State television blames the explosion on several ethnic militant groups, including the Karen National Union and the Shan State Army. May 7: An article in the online edition of China’s People’s Daily reports that Beijing will change the yuan-dollar peg in a week. The story is later retracted.


J U N E 2 0 0 5

May 7: South Korea and Russia seek to arrange a meeting between the leaders of each in Moscow within the week to discuss the issue of nuclear weapons on the Korean Peninsula.

May 8: South Korean President Roh Moo Hyun meets Chinese President Hu Jintao in Moscow on the sidelines of the celebration to commemorate the 60th anniversary of the Allied victory in Europe during World War II. The two discuss bilateral relations and the North Korean nuclear weapons issue.

May 8: Chinese President Hu Jintao meets Turkmen President Saparmurat Niyazov in Moscow on the sidelines of the celebration to commemorate the 60th anniversary of the Allied victory in Europe during World War II.

May 8: Pakistani Prime Minister Shaukat Aziz travels to Bangkok, Thailand, to begin a three-day visit. During the visit, Thai Prime Minister Thaksin Shinawatra and Aziz agree to step up economic cooperation, and Thaksin pledges Thailand’s support for Pakistan’s entry into Association of Southeast Asian Nations.

May 8: The State-Owned Assets Supervision and Administration Commission announces 25 state-owned enterprises in China will recruit foreigners and domestic entrepreneurs as senior managerial personnel.

May 8: South Korea’s maritime police will conduct a defense drill May 17 for the eastern islets of Dokdo, the ownership of which is contested with Japan.

May 8-14: Samoan Prime Minister Tuilaepa Sailele Malielegaoi and Chinese Premier Wen Jiabao meet and sign cooperation accords between Samoa and China.

May 9: South Korean President Roh Moo Hyun and Russian President Vladimir Putin meet in Moscow on the sidelines of the celebration to commemorate the 60th anniversary of the Allied victory in Europe during World War II.

May 9: Chinese President Hu Jintao meets with French President Jacques Chirac and Russian President Vladimir Putin in Moscow to commemorate the 60th anniversary of the Allied victory in Europe during World War II.


J U N E 2 0 0 5

May 9: The United States and Malaysia sign the 10-year Acquisition and Cross-Servicing Agreement in Kuala Lumpur, Malaysia.

May 9: Militant group Ansar al-Sunnah Army claims it took a Japanese contractor working in Iraq hostage. Tokyo confirms the kidnapping of a Japanese citizen employed in Iraq by a Cypriot security firm.

May 9: Pakistan confirms a deal with China for the joint production of JF-17 Thunder fighters, with the first four slated for delivery in 2006.

May 9: Indonesian and U.S. officials confirm that U.S. Navy SEALs and Indonesian forces are practicing anti-terrorism drills on islands near Jakarta, Indonesia.

May 9: The Asia-Pacific Economic Cooperation (APEC) forum opens a session in Lima, Peru, which will conclude June 3.

May 11: North Korea finishes removing 8,000 spent nuclear fuel rods from its Yongbyon reactor.

May 11: China’s People’s Daily online edition pulls a May 7 story on the future change of the yuan peg, saying it resulted from erroneous translation.

May 11: Chinese Foreign Minister Li Zhaoxing holds talks with Kyrgyz acting Foreign Minister Roza Otunbayeva during Otunbayeva’s four-day visit to Beijing.

May 12: Three bombs explode in southern Thailand, injuring at least five policemen.

May 12: Six Chinese airlines announce they have ordered 60 Boeing 787 Dreamliners.

May 12: China Southern Airlines agreed to buy 12 Boeing 737-700 aircraft and 33 Boeing 737-800 aircraft in a deal worth up to $3 billion.

May 13: Senior U.S. State Department officials visit North Korea’s U.N. office in New York to discuss the nuclear issue.

May 13: Governor of the Central Bank of China Zhou Xiaochuan denies reports the yuan peg will be appreciated May 18.


J U N E 2 0 0 5

May 13: The Committee for the Implementation of Textile Agreements, chaired by the U.S. Commerce Department, invokes safeguards on the growth of Chinese imports of cotton shirts, cotton trousers and cotton underwear to limit import growth to 7.5 percent per year.

May 14: Taiwan’s ruling Democratic Progressive Party wins 42.52 percent of the vote in National Assembly elections. The opposition KMT wins 38.92 percent, the Taiwan Solidarity Union takes 7.05 percent and the PFP wins 7.05 percent.

May 14: North Korea proposes a meeting with South Korea to discuss Pyongyang’s request for fertilizer supplies.

May 15: Myanmar alleges that militants attacking from Thailand allegedly sponsored by U.S. intelligence are responsible for several bomb attacks in Myanmar.

May 16: FORTUNE Global Forum, a three-day event, opens in Beijing, China.

May 16: Chinese Premier Wen Jiabao tells a U.S. Chamber of Commerce delegation that only China can reform its currency.

May 16-19: North and South Korean officials meet in Kaesong, North Korea.

May 17: The European Union demands that China take immediate action to curb exports of T-shirts and flax yarn to EU countries to an annual rate of 7.5 percent.

May 17: Chinese Vice Premier Wu Yi arrives in Japan for a week-long visit to improve relations between the two countries. Wu later abruptly ends the visit, canceling a planned meeting with Japanese Prime Minister Junichiro Koi-zumi.

May 17: The U.S. Treasury Department, as part of its twice-annual report to Congress, warns China that it could be accused of manipulating its currency to gain an unfair trade advantage over the United States unless Beijing acts swiftly to overhaul its currency system.


J U N E 2 0 0 5

May 17: Japanese Foreign Minister Nobutaka Machimura and Palestinian National Authority (PNA) President Mahmoud Abbas agree to hold bilateral meetings regarding Japanese aid to the Palestinians after PNA parliamentary elections in summer 2005.

May 18: The state of emergency in Indonesia’s semi-autonomous Aceh province is lifted.

May 18: Palestinian National Authority President Mahmoud Abbas meets with Chinese President Hu Jintao and Premier Wen Jiabao during a three-day visit to Beijing.

May 19: China launches a feasibility study regarding a free trade agreement with Iceland — its first such study with a European country.

May 20: China’s Customs Tariff Commission says it will raise export tariffs on 74 kinds of textile products, with a 400-percent increase on most of the products to go into effect June 1.

May 20: The last U.N. peacekeepers withdraw from East Timor. The mission is replaced with the U.N. Office in Timor-Leste, which will operate until May 20, 2006.

May 20: The Duma, Russia’s lower house of parliament, ratifies an agreement signed in October 2004 regarding the eastern border between Russia and China.

May 22: China orders emergency measures to block the spread of bird flu after the discovery that some migratory birds in the western province of Qinghai died from the virus.

May 22: Representatives of Japan and Malaysia reach an in-principle agreement on a free trade agreement.

May 22: Chinese President Hu Jintao meets with Takebe Tsutomu of the Japanese Liberal Democratic Party and Fuyushiba Tetsuzo of the Japanese Komei Party. The three discuss long-term bilateral relations between their two countries.

May 22: Thousands of Indonesian Muslims from 31 Islamic organizations


J U N E 2 0 0 5

protest outside the U.S. Embassy in Jakarta, Indonesia, against the alleged desecration of the Koran by U.S. personnel in Guantanamo Bay, Cuba.

May 22: The chairman of the National Committee of the Chinese People’s Political Consultative Conference meets the Fijian prime minister in Fiji to promote bilateral ties.

May 23: Chinese Defense Vice Minister Gen. Xiong Guangkai and Philippine Defense Undersecretary Antonio Santos meet in Manila. Beijing agrees to transfer $1.2 million of engineering equipment to the Philippines, exchange five military cadets for training and reduce tensions in the South China Sea.

May 23: Chinese Vice Premier Wu Yi cancels a planned meeting with Japanese Prime Minister Junichiro Koizumi.

May 23: Malaysian and Indonesian troops begin joint military exercises in eastern Malaysia.

May 23: The Mongolian prime minister says his country will increase cooperation with China on “quality supervision issues.”

May 23: Philippine President Gloria Macapagal Arroyo meets with Deputy Chief of the General Staff of the People’s Liberation Army of China Xiong Guangkai.

May 24: The U.S. Treasury Department leaks a report that the department has told China to revalue the yuan by at least 10 percent to prevent the passage of protectionist legislation by the U.S. Congress.

May 24: Chinese and European officials meet in Brussels to discuss curbing Chinese textile exports to the European Union.

May 24: Chinese President Hu Jintao meets in Beijing with Park Geun-hye, chairwoman of the South Korean opposition Grand National Party. The two discuss increasing exchanges between their countries and parties to further cooperation between their nations.

May 24: Chinese Vice Premier Wu Yi arrives in Ulan Bator, Mongolia, for a three-day visit to meet with the Mongolian President Nachagyn Bagabandy.


J U N E 2 0 0 5

May 24: Indonesian President Susilo Bambang Yudhoyono travels to the United States where he will meet U.S. President George W. Bush at the beginning of an international tour that will take him to Japan, the United States and Vietnam by June 3.

May 25: Interim Hong Kong Chief Executive Donald Tsang resigns to seek the office of chief executive of Hong Kong in the July 10 elections. Financial Secretary Henry Tang is appointed interim chief executive.

May 25: The European Union warns China that it has until May 31 to reduce surging textile exports of T-shirts and flax yarn before the EU imposes restrictions.

May 25: A spokesman for the Taiwanese Nationalist Party says party Chairman Lien Chan, scheduled to relinquish his post in July, will not seek another term.

May 25: Uzbek President Islam Karimov visits China until May 27. The two nations sign a Treaty on Friendly and Cooperative Partnership.

May 26: Plans for joint counterterrorism and peacekeeping-training programs between the armies of India and China are announced.

May 26: The United States announces renewal of the government sale of some non-lethal defense equipment and services to Indonesia. The U.S. arms embargo against Indonesia is not entirely lifted.

May 26: The U.S. Embassy in Jakarta, along with other U.S government facilities in Indonesia, closes for two days because of an unspecified security threat.

May 26: Talks between Indonesian government negotiators and representatives of the Free Aceh Movement enter a fourth round in Helsinki, Finland.

May 26: The People’s Bank of China says it will maintain the yuan’s stability and will continue gradually to reform China’s exchange rate mechanism.

May 26: U.S. Treasury Secretary John Snow says China needs to move “without delay” to reform its currency system.


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May 26: South Korea urges Japan to take disciplinary measures against Japanese Vice Foreign Minister Shotaro Yachi for remarks he made regarding ties between Seoul and Washington.

May 26: Indonesian police announce they are searching on the island of Borneo for wanted Malaysian militants Azhari bin Husin and Noordin Mohammad Top after receiving tips the two are hiding there.

May 27: North Korea calls U.S. warnings that Pyongyang is preparing to test a nuclear bomb a “fabrication.”

May 27: An Indonesian court sentences a 27-year-old Australian to 20 years of prison on drug charges.

May 27: China announces the decision of its top legislature, the Standing Committee of the National People’s Congress, to ratify the supplementary agreement on a section of China’s eastern border with Russia left unsettled since 1991, when the two sides signed a border treaty. The section under discussion constitutes less than 2 percent of the Chinese-Russian border.

May 27: China grants permission to private- and foreign-funded enterprises to participate in the development and production of Chinese weapons.

May 28: Two improvised explosive devices detonate in a market in the Christian-dominated town of Tentena, on Indonesia’s Sulawesi Island, leaving at least 21 people dead and injuring more than 30.

May 28: China Construction Bank approves the resignation of its two provincial branch heads in Shanxi and Hunan provinces after irregularities in the branches’ books are discovered.

May 28: Militant group Ansar al-Sunnah Army claims it killed a Japanese contractor working in Iraq that the group said it held hostage.

May 29: New Zealand Prime Minister Helen Elizabeth Clark arrives in Beijing to begin her three-day visit to China. Clark is expected to meet with Chinese President Hu Jintao and hold talks with Chinese Premier Wen Jiabao to discuss, among other things, enhancing bilateral ties and a Sino-New Zealand free trade area.


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May 30: China and Japan start a second round of consultations on the East China Sea question in Beijing. They held a first round of consultations in October 2004, when they agreed to resolve disputes over the East China Sea through negotiations.

May 30: China announces it will no longer impose export tariffs on 81 categories of textile products as of June 1 following an EU decision to impose quotas on imports of Chinese textiles and the recent U.S. decision to re-impose restrictions on seven kinds of Chinese textile and clothing imports.

May 30: Japanese Prime Minister Junichiro Koizumi pays tribute at Chidorigafuchi, the Japanese memorial to its unknown soldiers from World War II, without prompting complaints from other Asian countries. Koizumi’s visits to Yasukuni, a Shinto shrine that commemorates Japanese war criminals executed at the end of World War II, have sparked a bitter row with China.

May 31: Japanese and Chinese officials fail to reach an agreement regarding gas exploration in the East China Sea after two days of talks after the Chinese reportedly refuse to halt their exploration of the gas fields and the Japanese reject a Chinese proposal for joint exploration.

May 31: A Chinese Foreign Ministry spokesman said China is considering the possibility of deploying a military base in Kyrgyzstan, saying such a base would help fight three threats — terrorism, separatism and extremism. Kyrgyz Foreign Minister Roza Otunbayeva denies Kyrgyzstan has considered a Chinese base in Kyrgyzstan and says Kyrgyzstan will not become a hub of foreign military bases for various countries.

May 31: Indonesia’s government and the rebel group Free Aceh Movement ended peace talks and scheduled a fifth round of peace talks for July.

May 31: The Chinese government establishes a new national energy office, headed by Ma Kai, minister of the State Development and Reform Commission, to better deal with its energy shortage.

May 31: Thailand opens its national disaster warning center even though the center is still not fully complete, making it the first country to launch such an early warning system following the Dec. 26 tsunami disaster. About 50 stations are expected to be set up in at-risk coastal areas of Thailand.


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May 31: Romanian President Traian Basescu begins a visit to Japan.

J u n e a n d B e y o n d

June 1: Indonesian President Susilo Bambang Yudhoyono to meet, among others, leaders of the Japan International Cooperation Agency and the Japan External Trade Organization, on a trip to Japan. June 1-3: Asia-Pacific Economic Cooperation trade ministers to meet on the South Korean island of Cheju to discuss various trade issues.

June 2: Indonesian President Susilo Bambang Yudhoyono to meet Japanese Prime Minister Junichiro Koizumi to discuss bilateral relations.

June 2: Chinese Foreign Minister Li Zhaoxing, Russian Foreign Minister Sergei Lavrov and Indian External Affairs Minister Natwar Singh to meet informally in Vladivostok, Russia.

June 2-6: Peruvian President Alejandro Toledo Manrique to meet Chinese President Hu Jintao in China.

June 4: Chinese Foreign Minister Li Zhaoxing to attend a summit of the Shanghai Cooperation Organization in Astana, Kazakhstan.

June 9-10: South Korean President Roh Moo Hyun to meet with U.S. President George W. Bush in Washington.

June 15: A South Korean delegation to travel to Pyongyang, North Korea, to celebrate a five-year inter-Korean summit.

June 19-25: Vietnamese Prime Minister Phan Van Khai to visit the United States at the invitation of U.S. President George W. Bush.

June 20: Japanese Prime Minister Junichiro Koizumi and South Korean President Roh Moo Hyun to meet in Seoul.

June 21-24: Cabinet-level meetings to be held in North Korea and South Korea.

June 26: Asian, EU and various European nations’ ministers, among others, to gather in Japan to introduce a bill for the expansion of the U.N. Security Council.


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TBD: Chinese Foreign Minister Li Zhaoxing to visit the Middle East, probably in late June.

C h a n g e s

BruneiPrime Minister, Defense Minister, Finance Minister and Sultan Haji Hassanal Bolkiah announced a major reshuffle of his Cabinet in a televised address May 25, sacking four ministers and creating the post of minister of energy.

New second foreign affairs minister Lim Jock Seng, ethnically Chinese, is a career foreign-service worker and the first non-Muslim to serve in Brunei’s Cabinet. Yahya Bakar will head the newly created Energy Ministry. Since 2001, he served as both deputy secretary and permanent secretary in the Prime Minister’s Office. He is thought to be one of Sultan Bolkiah’s close ad-visers.

New Education Minister Haji Abdul Rahman has previously served as minis-ter for industry and primary resources.

New Communications Minister Abu Bakar bin Haji Apong has previously held several positions in the Education Ministry, including the office of perma-nent secretary since May 1999.

Crown Prince Gen. Haji Al-Muhtadee Billah, 31, was named senior minister in the Prime Minister’s Office, a position second only to the prime minister. He became crown prince in August 1998, putting him in line to succeed his father as sultan. The crown prince was named senior minister just eight months after marrying half-Swiss teenager Sarah Pengiran Salleh in September 2004.

Aside from the military, the background of the new minister of culture, youth and sports, retired Maj. Gen. Dato Seri Pahlawan Awang Haji Mohammad bin Haji Daud, is mainly in the business sector. He previously served as chair-man of the Brunei Economic Development Board.

Hong KongInterim Hong Kong Chief Executive Donald Tsang resigned May 25 to be-come a candidate in the July 10 chief executive elections. Hong Kong Finan-cial Secretary Henry Tang assumes his duties until the elections.


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North KoreaThe North Korean Presidium of the Supreme People’s Assembly issued a de-cree May 30 dividing the Ministry of Metal and Machine-Building Industries into two separate ministries.

South KoreaResults of April 30 South Korean by-elections for six seats in Parliament were announced May 1, when President Roh Moo Hyun’s Uri Party lost its majority in the 299-member National Assembly. The Uri Party now holds 146 seats in the assembly. The opposition Grand National Party won five of the races and now holds 125 seats. An independent candidate won the remaining seat.

TaiwanElections to the 300-seat Taiwanese National Assembly — the body that votes on constitutional changes already approved by the Parliament — were held May 14. The Democratic Progressive Party of President Chen Shui-bian won 127 seats in the assembly, followed by the National Party, which won 117 seats. The Taiwan Solidarity Union won 21 seats, while the PFP took 18 seats. Voter turnout for the election was a record low 25 percent.


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