Goldman Gets Attacked by Chinese Media

By Financial Times 06/07/10 – 04:03 AM EDT

Public criticism of Goldman Sachs (GS) has come to China, where the investment bank has been lambasted in articles in state-controlled media.
Parts of the media, apparently emboldened by congressional inquiries and public fury anger in the West, have openly slated Goldman, arguably the most successful foreign investment bank in China.
“Many people believe Goldman Sachs, which goes around the Chinese market slurping gold and sucking silver, may have, using all kinds of deals, created even bigger losses for Chinese companies and investors than it did with its fraudulent actions in the U.S.,” read the opening lines of an article in the China Youth Daily, a state-owned daily newspaper, last week.
The article was widely distributed through commercial news portals and the Web sites of government mouthpiece Xinhua News and the People’s Daily, the Communist Party publication.
Referring to Goldman as a “black hand” that “played little tricks carefully designed to gamble with Chinese enterprises”, the article made few specific accusations of wrongdoing by the bank.
The report followed similar commentary and articles published in publications including the 21st Century Business Herald, one of the largest financial newspapers in the country, and New Century Weekly, a liberal magazine.
The reports were highly critical of Goldman for designing and selling oil hedging contracts to state-owned Chinese companies that then lost billions of dollars when oil prices plunged, contrary to Goldman analysts’ predictions, in 2008 and 2009.
Probably the most telling assertion in all of the articles is the complaint that Goldman has been too successful in China, that it has made too much money from underwriting initial public offerings, arranging deals and making its own private-equity investments.
Goldman saw a 2007 investment in a small pharmaceuticals export company of less than $5 million rise to nearly $1billion at the company’s IPO, a gain of 20,000%.
The bank has a lead role in the IPO of Agricultural Bank of China.
“Goldman has just been so successful in China, but this is one of the perils of success here,” said a senior banker at one rival in China.
“Many of its domestic competitors and some in the government are very unhappy that they have been doing so well lately.”
Chinese business reporters are rarely allowed to criticize powerful state enterprises, but foreign companies are often regarded as fair game.
“We’ve a very strong track record in China and onewe’re proud of, but weneed to help people better understand our business,” Edward Naylor, a spokesman for Goldman, said.

North Korea still has a friend in China

Taiwan Sun
Friday 28th May, 2010

China has chosen not to join the US and its allies in condemning North Korea for sinking a South Korean warship on Thursday.

The US had been hoping that China, a key North Korean ally, would also hold the North Korean government accountable for the March 26th torpedo attack.

The Chinese Foreign Ministry has released a statement to say the issue still remains complicated and not yet proven enough for a rebuke in the UN Security Council.

Foreign Ministry spokesman Ma Zhaoxu told reporters at a scheduled news conference: “The issue is highly complicated. China does not have firsthand information. We are looking at the information from all sides in a prudent manner.”

The sinking of the South Korean naval vessel, Cheonan, in which 46 sailors died, has been blamed on North Korea by international investigators.

North Korea has denied involvement in the sinking and warned any retaliation would mean war.

Beijing has been put in an uncomfortable position with calls for it to back measures against Pyongyang at the UN, showing its reluctance to choose between traditional communist ally North Korea and close trading partner South Korea.

The incident will next be taken up at weekend summit in South Korea involving Chinese Premier Wen Jiabao and his South Korean and Japanese counterparts

China’s support on Cheonan uncertain: experts

The following are excerpts from expert opinions on likely responses from China and North Korea – Ed.

Baek Seung-joo
North Korean specialist, Korea Institute for Defense Analyses

China unlikely to strongly support Seoul

China appears very cautious in choosing its stance between North Korea, the United States and South Korea.
It will be difficult for China to openly support our investigation results, as that would mean giving up its leverage over North Korea.
The most we can look forward to is getting a blank ballot from the country in the move to impose international sanctions against North Korea.
We will not be able to look forward to full support from Russia, either, in this case.

N. Korea anxious about future sanctions

North Korea appears to be very anxious about what sanctions we could push to impose. The state will likely try to change the situation by evading the point, rather than risk aggravating the circumstances via an additional atomic test.
It will also likely attempt increasing accusations (over the reliability of Seoul’s investigation) by highlighting our refusal to accept its team of investigators.

Bruce Klingner
Senior research fellow for Northeast Asia, The Heritage Foundation’s Asian Studies Center

Washington must act to convince Beijing

Beijing will react with its customary call for caution and restraint.
In order to prop up Pyongyang, China is willing to hinder the effectiveness of international sanctions by providing economic benefits to North Korea outside of the conditionality of the six-party talks. By not fully implementing sanctions and by offering alternative sources of revenue, Beijing reduces the likelihood that North Korea will return to the talks.
However, China can be moved beyond its comfort zone, albeit grudgingly and not as far as Washington would prefer. A blatant North Korean provocation — such as the sinking of the Cheonan — could provide South Korea and the U.S. with sufficient leverage to get Beijing to agree to some stronger measures against North Korea. Washington and Seoul should press Beijing strongly in the U.N. Security Council to impose a suitable punishment on North Korea.

Pyongyang to further raise tension

It is likely that the Cheonan sinking is not a singular event, but rather the beginning of a North Korean campaign to raise tensions on the Korean Peninsula.
It can be expected that North Korea will react strongly to any international effort to punish it. It could even be looking for a strong international response to justify additional belligerent behavior. If that is the case, North Korea will engage in additional provocative behavior, particularly in the run-up to Seoul’s hosting of the G20 summit in November.

Yang Moo-jin
Professor, University of North Korean Studies

China unlikely to help impose sanctions

China is likely to attempt using the incident to increase its influence over North Korea by acting as its sole benefactor.
So naturally, there is little possibility that China will participate in imposing U.N. sanctions upon North Korea. Because China will also continue to financially support North Korea, we will have a hard time coming up with measures that will have an actual negative impact upon the North.
This incident could also change the dynamics on the Korean Peninsula, with the international community lining up either behind Seoul and Washington, or Beijing and Pyongyang. Sometime later in the future, the United States and China could become the center of the peninsula instead of the two Koreas.

Pyongyang to continue in denial

North Korea will likely continue emphasizing its willingness to send its own investigators (to South Korea), a strategy aimed at the international community rather than Seoul. Even if South Korea does not accept the offer, it still has a propaganda effect over the U.N. and the international community, and it knows it.
This incident, if North Korea is really behind it, is entirely different from the country firing missiles and conducting nuclear tests within its own territory. Thus, there is a need to see if the Kim Jong-il regime is still going strong. If this is not the case, we should prepare ourselves for (North Korea’s) positioning that may be completely different from the past. I just hope the North does not make extreme decisions like firing missiles.

Kim Sung-han
Professor of international studies, Korea University

China pressured to act responsibly

China is pressured to remember that this will serve as a test for it to show the international community whether it is ready to serve its role as a responsible leader. If it keeps on siding with North Korea, it will lose reliability among other countries.

North Korea may react with missiles, nuke test

North Korea could react to our stern measures by firing missiles or conducting atomic tests. Via such a move, it will try to reverse the focus from the sinking of Cheonan to its nuclear program, emphasizing that the six-party talks are being delayed due to Seoul. There is a need for us to secure diplomatic cooperation from the international community to make sure North Korea feels the heat and realizes the importance of its relations with Seoul.

North Korea gets blamed; China, South Korea get the mess

(Reuters) – The North Korean torpedo that killed 46 South Korean sailors is rupturing ties across the peninsula, but it is also damaging China’s regional standing and its self-portrayal as a helpful broker between its neighbors.

South Korea said on Thursday international investigators had shown it was a North Korean submarine that sank its navy corvette near the disputed sea border with the North in March.

Isolated, sanctioned and heavily armed, North Korea has for years used apocalyptic threats, a nuclear program and occasional firefights as a means to keep its dynastic ruler in power despite deepening economic misery.

An international storm of condemnation has broken out over the sinking, but the tight lipped-response of China, North Korea’s sole supporter, looks to some like a snub to a worried region and a lost opportunity to assert influence.

“The North Korea issue is an absolutely crucial test of whether China has what it takes to be a world leader,” said Lee Jung-hoon, a Yonsei University professor of international relations.

“Depending on how it handles it, it can demonstrate itself as a true global leader or otherwise it will simply remain a socialist giant.”

Beijing has called the ship sinking “unfortunate” and refused to be drawn into the condemnation of Pyongyang and its leader Kim Jong-il, whom it hosted earlier this month on a rare trip abroad, to the irritation of South Korea.

For China, say some analysts, the priority is to prop up Kim rather than risk the North imploding in chaos that would spill into its territory and, perhaps, lead to South Korea and its ally the United States moving right up to its border.

But that risks undermining Beijing attempts to play more of a role as a great power in the region and is already hurting ties with South Korea, one of its leading trade partners.

“This is a big dilemma for China, but it would be unrealistic to expect China to line up behind South Korea so soon after Kim Jong-il’s visit,” said Shi Yinhong, a professor of international security at Renmin University who follows Korean affairs.

“The price that China will pay will be its regional influence, especially over South Korea. It will have some impact on that influence … now regional governments may feel that Chinese foreign policy is out of balance.”

INTENSE EFFORTS

For more than a decade, China has devoted intense diplomatic efforts to cultivating its Asian neighbors — assiduously attending an endless round of summits, sending top leaders on regular bilateral trips, and presenting its idea of a “harmonious world” as a cure for all ills.

Now that harmony has taken a blow.

One early victim could be attempts by Beijing to resume North Korea denuclearization talks among regional powers which it has long hosted but which Pyongyang has boycotted for over a year.

South Korea, Japan and the United States have all made clear that they see little point in resuming talks and effectively helping the North.

South Korea itself is mindful that however angry it may feel, it cannot afford to strike back at the North. Investors, vital to Asia’s fourth largest economy, have long tolerated the animosity between the Koreas but only as long as they feel the threat of actual war is remote.

Indeed, President Lee Myung-bak refused to blame the North in the aftermath of the attack on the corvette and waited for the report by an international team of investigators, despite widespread anger in the South.

And although it feels justified now to step up the rhetoric against Pyongyang, the prosperous South has reason to be terrified of a collapse of the North.

Sudden, and forced, unification would force it to bear the cost of absorbing 23 million North Koreans who have little idea of how modern business works and whose own economy barely functions.

It is also painfully aware that its very open economy can quickly see investors flee at the sight of major risk.

The South is offering major investment across the border to reduce the pain of what it believes will be eventual unification.

But for the North’s leadership that would require what analysts say would be unacceptable acquiescence to Seoul and put at risk its own legitimacy, based largely on its perceived ability to fend off a hostile world even it means abject poverty for the masses.

Ultimately, Seoul may have miscalculated the propensity of Pyongyang to take differences to the brink.

“It shows that we failed to manage the way North Korea inherently is … it is in their nature to wage provocations,” said Cho Min of the Korea Institute for National Unification

Torpedo accusation raises Korean security stakes

South Korean Rear Adm. Park Jung-Soo talks in front of the wreckage of the naval vessel Cheonan on May 20 in Pyeongtaek, South Korea. (Song Kyung-seok / Getty Images)

After weeks of investigation and leaks, the announcement that North Korea killed 46 South Korean sailors sets the stage for more hostile relations.

By John M. Glionna Los Angeles Times

May 19, 2010 | 11:54 p.m.

Reporting from Seoul

Following weeks of investigation, leaked evidence and diplomatic huddles, South Korea on Thursday publicly accused North Korea of firing a torpedo that sank a naval patrol ship and killed 46 crewmen in March, significantly raising the security stakes on an already tense Korean Peninsula.

The international community responded with concern and condemnation for Kim Jong Il’s isolationist regime. United Nations Secretary-General Ban Ki-moon called the case “deeply troubling,” and Australian Prime Minister Kevin Rudd insisted that the North’s “hostile and unprovoked act” should be met with swift and immediate retaliation.

Yet troublesome questions remain: What response can the South and its allies, including the U.S., give to warn North Korea against further provocations without inciting continued violence? Denying culpability, Pyongyang has already rattled its sabers, warning that any retaliation would lead to “all-out war.”

The U.S Thursday stood behind South Korea, with the White House issuing a statement that said the “act of aggression is one more instance of North Korea’s unacceptable behavior and defiance of international law.”

Citing what it called overwhelming evidence, a joint civilian-military multinational team determined that fragments and markings from a torpedo found amid the wreckage of the downed naval vessel matched that of a North Korean-made weapon already in the South’s possession.

The report concluded that “there is no other plausible explanation” than the North’s involvement.

North Korea on Thursday called the probe’s findings a “fabrication” and said it would send its own inspection team to the South to consider the evidence, according to a statement released through the North’s state-run Korean Central News Agency. It wasn’t clear whether the South would allow such a trip.

Analysts predict that the cold war between North and South is about to get a lot colder.

SIXX: SORRY PROFESSOR YIN-HAY, THIS MEANS WAR.

AMERICA, AUSTRAILLA, JAPAN, AND SOUTH KOREA

AGAINST CHINA AND NORTH KOREA.

“While a military war is less likely, I think an all-out economic war is certain,” said Ahn Yin-hay, an international studies professor at Korea University in Seoul. “Relations between North and South will reach a stalemate. The U.S. may even put North Korea on its terrorist list again. But all this means that relations between the U.S. and South Korea with be strengthened.”

South Korean President Lee Myung-bak has vowed to take “stern action,” including severing most or all economic aid to the North. Lee called an emergency security meeting for Friday, pledging to augment naval forces and sensors along the disputed maritime boundary between North and South where the sinking occurred.

South Korea said it would also ask the U.N. Security Council to issue a strong rebuke and impose financial penalties against Pyongyang.

Still, there remains no worldwide consensus on how or even whether to punish North Korea, with China seemingly unwilling to fully commit to sanctions.

Cui Tiankai, China’s vice minister of foreign affairs, on Thursday called the Cheonan sinking “unfortunate,” but stopped short of backing Seoul in the dispute. He instead reiterated the need to maintain peace on the Korean Peninsula.

Fearing that a collapse of the neighboring regime would wreak havoc along its border, China has walked a delicate line with the North, refusing to turn its back on a longtime ally, analysts say.

“China has always been the weak link in punishing Pyongyang, and Beijing will react with its customary call for caution and restraint,” said Bruce Klingner, a northeast Asia expert at the Heritage Foundation think tank in Washington. “But a blatant North Korean provocation such as the sinking of the Cheonan could provide South Korea and the U.S. with sufficient leverage to get Beijing to agree to some stronger measures against North Korea.”

During a trip to Beijing earlier this month, Kim reportedly failed to receive the customary assurances of continued economic aid, a sign that China’s unconditional support for its neighbor may be weakening.

South Korean scholars say the hard evidence of a North Korean torpedo may force China’s hand.

“It will be very hard for China to oppose [punishing the North] because of the smoking gun,” said Yun Duk-min, a professor at the Institute of Foreign Affairs and National Security in Seoul. “China is now puzzled and in an awkward situation.”

Korea University’s Ahn said China has to be sensitive to North Korea’s needs.

“China is the only country that can support North Korea from collapse,” she said. “And Beijing officials know that in order to maintain its influence on the Korean Peninsula, they have to hear out North Korea’s demands.”

Analysts say the stormy political waters stirred up by the Cheonan controversy will delay any restart of the six-nation talks to disarm North Korea’s nuclear arsenal. North Korea abandoned the talks in late 2008 and has since conducted at least one underground nuclear test.

“The six-party talks have gone down the drain,” said Kim Keun-sik, a political science professor at Kyungnam University outside Seoul. “China will not support South Korea on [the Cheonan] matter. So, we’re back to North Korea and China versus South Korea and the U.S.

“The landscape of confrontation during the Cold War era is expected to appear again.”

john.glionna@latimes.com

Ju-min Park, a researcher in the Times’ Seoul Bureau, contributed to this report.

Copyright © 2010, The Los Angeles Times

South Korean official says ‘it’s obvious’ North Korea sank ship

SEOUL, South Korea — The foreign minister of South Korea said Wednesday that “it’s obvious” that one of its warships was sunk by a North Korean torpedo, adding that his country now has enough evidence of a military strike to seek action by the U.N. Security Council.

Foreign Minister Yu Myung-hwan’s remarks were the first by a South Korean official to pin definitive blame on the government of Kim Jong Il for the March incident, which killed 46 sailors and sharply escalated tensions on the Korean Peninsula.

Yu spoke out a day before his government was to release the results of an investigation that U.S. and East Asian officials say has uncovered evidence that North Korea launched a torpedo that ripped apart the 1,200-ton Cheonan near a disputed sea border between the two nations.

Details of the investigation have dribbled out this week in government leaks to U.S. and South Korean media. It was reported Wednesday that investigators have concluded that North Korea attacked the warship with a Chinese-made torpedo. North Korea imported the weapon — a heavy acoustic-homing torpedo known as a Yu-3G — from China in the 1980s, government officials told Yonhap, the South Korean news agency.

When the investigation’s findings are released today, there will be a computer simulation of a 550-pound warhead striking the Cheonan, Yonhap said.

North Korea denied this week that it had any involvement in sinking the

ship and warned that it would not tolerate “warmongering schemes of the puppet regime of South Korea.”

South Korea briefs China on ship sinking blamed on North

South Korea’s foreign minister says it is “obvious” that North Korea sank a South Korean naval ship in March

(Reuters) – South Korea has briefed the Chinese ambassador on its findings on the sinking of a navy ship widely believed to be the work of North Korea, an issue that has created tension between the two major Asian trading partners.

World |  South Korea |  North Korea

South Korea is certain to formally lay the blame on the North on Thursday when it announces the findings by a team of experts that includes investigators from Sweden, Australia and the United States.

China, host of on-again, off-again six-party talks aimed at reining in North Korea’s nuclear weapons program, is the reclusive state’s only major ally and is loath to penalize it for wrongs perceived in South Korea and the West.

China irritated South Korea earlier this month by hosting the North Korean leader Kim Jong-il on a rare trip abroad before the outcome of the investigation was announced.

Chinese Ambassador to South Korea Zhang Xinsen has been quoted as saying in local media that there did not appear to be clear evidence the North was the culprit in the March 26 attack off the Korean peninsula’s west coast that killed 26 sailors. Zhang was among a small group of ambassadors who were briefed on the outcome of the probe on Tuesday, before a larger group is invited on Wednesday to receive the information, the Foreign Ministry said.It did not provide details on Zhang’s response. There was no answer to calls made to the Chinese Embassy in Seoul.

South Korean Foreign Minister Yu Myung-hwan told a group of European businessmen that the government had concluded that a torpedo sunk the ship.

“Assessments of the (investigators) indicates a strong underwater explosion generated by the detonation of a torpedo caused the Korean battle ship to split apart and sink,” he said.

When asked by reporters if the North had sunk the ship, Yonhap news agency quoted Yu as saying: “I believe that’s certainly the case.”

South Korea’s Defense Ministry on Wednesday was taking a group of journalists to a navy port to display the wreckage of the 1,200-tonne corvette Cheonan.

Chinese Foreign Minister Yang Jiechi told the foreign ministers of South Korea and Japan at the weekend that any conclusions must be based on scientific and objective evidence, in contrast to a more sympathetic response by Japan’s Katsuya Okada who expressed his support for Seoul’s efforts to probe the sinking.

U.S. Secretary of State Hillary Clinton will visit Seoul on May 26 in what analysts view as a show of solidarity with the long-time U.S. ally.

A group of defectors from the North is planning to drop 200,000 leaflets from a remote island bordering the North on Thursday, with details of the Cheonan sinking incident, a leader of the group said.

(Additional reporting by Christine Kim; Editing by Nick Macfie)

Time to rethink U.S.-China trade relations

By James McGregor

Wednesday, May 19, 2010

The U.S. government and the business community need to rethink our China strategy and retool our trade bureaucracy to face the tangled web of emerging Chinese policies. Otherwise, American technology companies could be coerced to plant the seeds of their destruction in the fertile China market.

With nearly half of his Cabinet heading to Beijing for the May 24-25 bilateral “strategic and economic dialogue,” President Obama should launch such a strategic economic dialogue among ourselves. The time has come for a White House-led, public-private, comprehensive examination of American competitiveness against a clear-eyed view of China’s very smart and comprehensive industrial development policies and plans.

What technology do we protect? What do we share? What are our commercial strategic imperatives as a nation? How do we retool the U.S. government’s inadequate and outdated trade bureaucracy to provide thoughtful strategic focus and interagency coordination? How do we overcome the fundamental disconnect between our system of scattered bureaucratic responsibilities and almost no national economic planning vs. China’s top-down, disciplined and aggressive national economic development planning machine?

At issue is an array of Chinese policies and initiatives aimed at building “national champion” companies through subsidies and preferential policies while using China’s market power to appropriate foreign technology, tweak it and create Chinese “indigenous innovations” that will come back at us globally.

China has long been a “pay-to-play” market for foreigners, with mandated joint ventures in key industries, local manufacturing requirements and forced technology transfers as the price of market admission. Its entry into the World Trade Organization in 2001 was supposed to do away with the bulk of those barriers — and many were eliminated on paper.

But long gone are the days of China acting as a supplicant to gain access to foreign markets or obtain foreign investment. China now funds the U.S. budget deficit. Its rapidly developing domestic markets are expected to lead global growth for decades. The quarterly earnings of the world’s biggest multinational companies increasingly depend on their China business.

Chinese leaders — shrewd students of political and economic leverage — are shifting their focus from global trade and investment principles to the creation of their own rules and a “China model” of economic development that is difficult to challenge in international courts. Chinese policymakers are masters of creative initiatives that slide through the loopholes of WTO and other international trade rules. Facing off against this are 30 lawyers in the U.S. trade representative’s office of general counsel — only one of whom can read Chinese. This small cadre handles all WTO cases and supports all our trade negotiations globally. Only a half-dozen people in the office focus on China.

As part of their “China model,” that country’s leaders have decided that key sectors of the economy will remain “state dominated,” including automotive, chemical, construction, electronic information, equipment manufacturing, iron and steel, non-ferrous metals, and science and technology. Others will stay “largely in state hands,” including aviation, coal, defense, electric power and grid, oil and petrochemicals, shipping and telecommunications. State-owned companies in these industries are thriving in their protected home market. They have buckets of cash and easy access to state bank loans to carry out government directives to pursue overseas acquisitions and “go global.”

Most worrisome is the Chinese government mandate to replace core foreign technology in critical infrastructure — such as chips, software and communications hardware — with Chinese technology within a decade. The tools to accomplish this include a foreign-focused anti-monopoly law, mandatory technology transfers, compulsory technology licensing, rigged Chinese standards and testing rules, local content requirements, mandates to reveal encryption codes, excessive disclosure for scientific permits and technology patents, discriminatory government procurement policies, and the continued failure to adequately protect intellectual property rights. The poster child is the evolving “indigenous innovation” policy, which appears aimed at using China’s market power to coerce foreign companies to transfer and license their latest technology for “co-innovation” and “re-innovation” by Chinese companies.

American business has to figure out how to balance out today’s profits with tomorrow’s threat. This dilemma is causing a split between U.S.-based chief executives who sing China’s praises based on current growth and profits, and their China-based executives who see the self-destructive results of blindly following the new initiatives.

As the recent Wall Street scandals have made clear, we can’t always depend on private industry and profit-driven executives to focus on doing what is best for the country. It is clear, however, that the Chinese government is very focused on doing what it believes is best for China.

James McGregor is a former chairman of the nonprofit American Chamber of Commerce in the People’s Republic of China (AmCham-China) and the author of “One Billion Customers: Lessons From the Front Lines of Doing Business in China.”

SKorea ship sinking may be perfect crime for North

SEOUL, South Korea – For North Korea, the deadly sinking of a South Korean warship a month ago may end up being the perfect crime.

Investigators have yet to produce proof that North Korea engineered the ship’s demise, but analysts say even if they do, Seoul won’t risk triggering another costly war by striking back militarily.

And if there’s no evidence pointing to North Korea, its government may still quietly claim it as a victory to bolster support at home.

As South Korea honored the 46 dead sailors in an emotional farewell Thursday, the question of what struck the Cheonan remained unsolved, casting a pall over North Korea’s relationships with Seoul and Washington and calling into question the future of stalled six-nation nuclear disarmament talks.

The 1,200-ton Cheonan was on a routine patrol mission in the waters near the Koreas’ maritime border when an explosion ripped the sturdy frigate in two. Fifty-eight sailors were rescued; 46 others perished.

The South Korean military was careful early on not to cast suspicion on North Korea, even though the Yellow Sea has been the site of three bloody skirmishes between the two countries, most recently in November. One North Korean was killed in that clash, South Korea said.

Military experts laid out the possibilities: a weapon stored on board? Collision with a rock, a mine left over from the Korean War? Or was it a torpedo fired from a submarine that went undetected by the ship’s sophisticated radars?

Defectors claiming knowledge of North Korean military operations called it sabotage, describing naval squads in slow-moving submarines outfitted with torpedoes. North Korea denied involvement.

The day the ship’s damaged stern was raised from the waters, the chief investigator offered a damaging initial assessment: an underwater explosion.

The investigation still under way, the defense minister said Sunday that an outside explosion — probably created by a torpedo blast near the ship — appeared probable.

The next morning, President Lee Myung-bak vowed tearfully that Seoul would respond “resolutely and unwaveringly” against the perpetrators.

South Koreans are demanding retaliation if North Korea was the culprit.

North Korean leader Kim Jong Il “will pay for what he’s done,” one person wrote on an unsigned note posted on a mourning wall in Seoul. “The blood of the Cheonan warriors stains your hands,” read another addressed to Kim.

Sirens wailed at the start of the funeral south of Seoul on Thursday. The president, his lips pursed, held a fist to his chest during the national anthem. Mothers dropped to their knees in grief before their sons’ portraits.

“We cannot forgive this, must not forgive it and must not forget it,” said Navy Adm. Kim Sung-chan. “We will never sit by idly as this kind of pain is inflicted on our people. We will track them down to the end and make them pay.”

But military officials and experts say the investigation could take weeks, months, even years.

“Investigators don’t want to make any mistakes, especially in such a politically charged atmosphere,” said Joseph S. Bermudez Jr., a senior analyst for London-based Jane’s Information Group. He said experts would need to examine the wreckage for chemical residue and fragments, and analyze the local tides and currents for the previous 30 days — a time-consuming process.

And even if investigators find a smoking gun — a fragment of a North Korean torpedo, for example — Seoul has few good options for retaliation.

“Nonmilitary responses might lead the North to conclude that it could kill South Koreans with impunity,” said John Pike, director of the GlobalSecurity.org defense website based in Alexandria, Virginia. “And the military responses run the risk of further escalation.”

No one wants full-scale war on the Korean peninsula, not even the North Koreans, who know their outdated equipment is no match against state-of-the-art U.S. and South Korean artillery.

Launching a military attack wouldn’t even be up to the South Korean military; they must defer to the U.S.-led United Nations Command, the force monitoring the Korean armistice signed in 1953.

Lee’s only recourse: to squeeze and punish North Korea with sanctions, pressing the U.S. and the U.N. Security Council to follow suit, said Yang Moo-jin of the University of North Korean Studies in Seoul.

North Korea has struck repeatedly over the years. In 1967, it bombarded a naval ship with artillery, killing 39 South Korean sailors. In 1968, commandos stormed the presidential mansion in a failed bid to assassinate the president; seven South Koreans died.

In 1983, a bombing in Burma that killed 21 people but narrowly missed the South Korean president was blamed on North Korea, and in 1987, explosives blew up an airliner with 115 people on board — the worst attack on South Korea since the war and allegedly masterminded by Kim Jong Il himself.

Analysts say if North Korea did wage an attack, it may be part of a political campaign for Kim Jong Il’s successor.

Now 68 and reportedly ailing, Kim is believed to be grooming his son Jong Un to take the communist dynasty into a third generation. Very little is known about the son, both inside and outside Pyongyang, and the regime’s PR machine is likely working overtime to build up his reputation as well as consolidate loyalty for the Kim family.

There are hints of unrest in the notoriously reclusive nation. Millions are going hungry, and sweeping reforms meant to clamp down on private commerce reportedly sparked rare protests. Even the relatively well-fed military is suffering from malnutrition, defector Im Chen-young, a former People’s Army officer, told reporters this week.

If Seoul finds no evidence, North Korean military leaders could still use the sinking to boost troops’ morale by quietly calling it retaliation for the November naval skirmish; credit for the surreptitious mission would go to the heir-to-be, analysts said.

“Factors like Kim Jong Il aging, the economic crisis and internal power struggles intensifying within the government — they’ve put the North Korean regime at the risk of collapse,” the Rev. Kim Sin-jo told the Dong-a Ilbo newspaper while visiting a memorial for the sailors. “In such a situation, an incident like this (the ship sinking) is necessary to ensure power.”

Kim should know. He was one of 31 North Korean commandos who infiltrated the South and stormed the presidential mansion in 1968, one of the most brazen and notorious attacks on Seoul. Kim, now 68 and a naturalized South Korean, was the only commando taken alive.

China concerned about ROK warship sinking issue: FM spokeswoman

BEIJING, April 27 (Xinhua) — China on Tuesday said it was very concerned about the sinking of a ROK warship, and again believed that the issue could be properly handled.

Foreign Ministry spokeswoman Jiang Yu made the comment at a regular press conference here.

She said China had noted that the Republic of Korea (ROK) said it would carry out an investigation into the issue.

A 1,200-ton corvette Cheonan with 104 crew members aboard sank late last month off the west coast of the Korean peninsula, after an unexplained blast split the ship in two.

Last week, Jiang said that China believed issues concerning the sinking would be properly handled.

As to the upcoming Shanghai World Expo, Jiang said China welcomed the ROK President Lee Myung-bak to attend the event’s opening ceremony. She said Chinese President Hu Jintao will meet with Lee in Shanghai.