N. Korea may turn more menacing, but options limited

“Its motivation to survive could lead it to engage in more dangerous proliferation activities when other sources of foreign exchange are no longer available,” the nongovernmental International Crisis Group said in a report this week.

Regional investors have become largely inured to the North's violent gestures, as long as they have been contained to saber-rattling and not full scale armed confrontation.

“If North Korea takes unpredicted, negative actions, such as nuclear tests, stock markets will be dealt a blow. But this will probably be short-lived and investors will eventually return,” said Han Beom-ho, a market analyst at Shinhan Investment Corp.

Of more concern to many is the possible collapse of the mercurial North if Kim's already doubtful health worsens or the economy's troubles deepen so seriously that the tightly controlled society turns unruly.

South Korea's government, mindful of the massive risk to its own economy, has been offering major, long-term investment to the North to prepare it gradually for eventual reunification.

That, say analysts, is something Kim sees as too big a threat to his own grip on power — he would not dare to be seen at home as treating the South as his savior.

By some estimates, South Korea could face a bill of US$1 trillion or more — about the size of its annual economic output — if it suddenly had to absorb its destitute neighbor.

While the parlous state of his economy may give Kim the incentive to rally support with some military muscle-flexing, it also limits his options, if he wants to avoid even more punishing U.N. sanctions and a U.S. Treasury crackdown on his finances.

“The North Korean regime cannot risk any further destruction of the economy at this point,” Myers said.

China, the North's only major benefactor, offers Kim one of his few ways out.

Beijing fears a collapse of his government would bring chaos to its border and has blocked any global economic push that would significantly destabilize Pyongyang. It has also supplied food, oil and money to keep his government afloat.

China appears to want to augment social stability along its three provinces that border North Korea by increasing investment with the state, according to John Park, an expert on the region with the United States Institute of Peace.

“China is helping facilitate localized development needs to boost its broader geopolitical needs,” Park said.

That relationship may help to temper any provocations by Kim who does not want to put China in the position of having to fend off global criticism for propping up Pyongyang.

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