Two Koreas snarl at each other as tensions rise

By Jack Kim and Arshad Mohammed

SEOUL/BEIJING (BestGrowthStock) – South Korea on Monday announced steps to tighten the vice on the North’s already stumbling economy in punishment for sinking one of its navy ships, with both sides stepping up their war-like rhetoric.

The United States, which backs Seoul, warned that the situation was “highly precarious.

China, the North’s only major ally, urged calm.

The mounting tension follows last week’s report by international investigators accusing the North of torpedoing the Cheonan corvette in March, killing 46 sailors in one of the deadliest clashes between the two since the 1950-53 Korean War.

The United States, which has 28,000 troops on the peninsula, threw its full support behind South Korea and said it was working hard to stop the situation from escalating.

With U.S. Secretary of State Hillary Clinton in Beijing, Washington pressed China to rein in the hermit state.

China has avoided taking sides in the issue. Analysts say it is fearful of destabilizing the grip of North Korean leader Kim Jong-il, who is looking increasingly frail as he tries to secure the position of his youngest son as successor to the family dynasty that has ruled the state for more than 60 years.

The vitriolic comments across the heavily defended Cold War border are rattling investors and niggling at diplomatic relations in the economically powerful region.

Few analysts believe either Korea would dare go to war. The North’s military is no match for the technically superior South Korean and U.S. forces. And for the South, conflict would put investors to flight.

“I solemnly urge the authorities of North Korea … to apologize immediately to the Republic of Korea (South Korea) and the international community,” South Korean President Lee Myung-bak said in a nationally televised address.

Lee said he would take the issue to the U.N. Security Council, whose past sanctions are already sapping what little energy North Korea’s economy has left.

His government also banned all trade, investment and visits with North Korea and stopped its commercial shipping using a cheaper route through its waters.

WHITE HOUSE BACKING

The White House called South Korea’s measures to punish the North entirely appropriate and told Pyongyang to stop its “belligerent and threatening behavior” as tensions on the peninsula escalated to their highest in years.

But Clinton avoided answering a question on whether Washington would support additional U.N. sanctions against North Korea. China is very unlikely to support more U.N. sanctions.

Japan’s prime minister instructed his cabinet to consider what form of sanctions could be taken against North Korea over the sinking.

An angry North Korea threatened to fire at equipment the South said it would put up to broadcast anti-Pyongyang messages and was ready to take stronger measures if the South escalated tension.

It also issued a statement repeating its position that it had the right to expand its nuclear deterrent.

“North Korea’s goal is to instigate division and conflict,” said Lee, speaking from the country’s war memorial in the capital Seoul. “It is now time for the North Korean regime to change.”

In what may alarm Pyongyang as much as anything, its wealthy neighbor said it plans to reduce the number of workers in a joint factory park just inside the North which has long been an important source of income for the North Korean leadership.

FOCUS ON CHINA

Much of the diplomatic focus will be on China, the only major power to support North Korea and which earlier this month — to the annoyance of the South — hosted a rare overseas visit by the North’s sickly looking leader Kim Jong-il.

Analysts say China’s leaders are terrified that if North Korea’s government collapses, it will send chaos across into its territory and, perhaps more worrying, lead to U.S. troops moving up the peninsula right to its border.

A South Korean government report said the North’s foreign sanctions-hit trade fell 10 percent last year and could fall further this year, forcing it to depend even more on China to prop up its economy.

Lee said the South reserved the right to defend itself if Pyongyang wages aggression. The North said much the same to its neighbor last week when it denied involvement in the sinking.

Local financial markets took some relief from Lee’s comments which steered clear of any suggestion of military retaliation.

“South, North tension is certainly not positive, but given historical trends, losses that markets suffer over this will be brief, unless a drastic situation takes hold. By drastic, I mean war. I do not think war is likely though,” said Kwak Joong-bo, a market analyst at Hana Daetoo Securities.

Stock Market Today

(Additional reporting by Jungyoun Park and Yoo Choonsik in Seoul, Jeff Mason in Washington; Writing by Jonathan Thatcher; Editing by Jeremy Laurence)

Two Koreas snarl at each other as tensions rise