Korea: New Wrinkle in SED

The compelling evidence that North Korea sank the South Korean vessel that killed 46 sailors has added an extra wrinkle into the US-Chinese Special Economic Dialogue that are underway.

Some 200 US policy makers and advisors have made the trip, including companies who are hoping to export more clean energy technology. There are unlikely to be significant developments on the yuan exchange rate mechanism. In fact the 12-month non-deliverable forwards imply the lowest rate (smallest revaluation of the yuan) in nearly 8 months. China exports more to Europe than it does the US and this is as good of a reason as any to maintain the status quo. Note that the yuan has appreciated by more than 14% against the euro this year.

Separately, there does appear to have been some developments on easing US high tech export restrictions. Before the weekend, US Senator Schumer and 9 other Senators have lobbied the Obama Administration to force China to allow an IMF report that accuses it of currency manipulation to be published. However, politics may trump economics. China’s cooperation on isolating North Korea has become more significant.