Korean Central Television has confirmed that the "earthquake" that everybody was reporting on Wednesday morning was indeed its 4th nuclear test. What does this mean for North Korea's economic growth and business environment?
It will probably mean business as usual, with new sanctions creating a slightly more inconvenient environment, but with Koreans and their Chinese (and other) partners finding ways to evade enforcement. The most significant effect may well be the death of potential North Korea-Russia-South Korea cooperation on major economic development projects.
Certainly, new UN sanctions seem inevitable, designating more companies, individuals and industries as out of bounds, while also reaffirming everybody's frustrations.
As usual, China will be the pivot. Beijing has shown a willingness to pass resolutions after each nuclear test, but has been less interested in enforcement than Washington would like it to be. How much pressure can the US apply to have China tighten up on transactions and trade of sensitive or luxury goods? China is frustrated with the DPRK's nuclear program, for sure, but they still want to see Pyongyang experiment with economic policy and integrate its economy with the Chinese northeast.
China's frustrations with Pyongyang and a desire to signal cooperation to the US in 2013 led to the Bank of China closing the DPRK Foreign Trade Bank's accounts. This in turn made smaller banks more wary of dealing with North Korea. Still, North Koreans and their Chinese partners seem to find ways around this, having steadily learned to deal with financial isolation ever since the shock of 2005's Banco Delta Asia freeze by the US Treasury.
The appetite for non-UN sanctions in the US will expand, of course. Indeed, with no nuclear or missile tests to be seen in 2015, the US legislature was working on three separate sanctions bills, linked to human rights. As one DC-based Korea-watcher told me: "the North Koreans don't understand that DC doesn't have a spectrum on NK-policy, like Seoul. Here there are hardliners and more hardliners." In an election year, there is no cost to acting tough on North Korea.
The US Treasury Department could more aggressively target banks or companies that deal with the DPRK. Some in DC have concluded that the 2011 designation of Iran as a a “primary money laundering concern” under the patriot act and Tehran's subsequent willingness to negotiate over its nuclear program are strongly linked. We may therefore see a push for the patriot act to be used against not only certain banks or companies, but the entire DPRK. (Only four countries have been so designated.)
Again, this would make life more difficult for North Korean businesses and their foreign partners, but it would not create paradigms that they are not already adapted to. It's the same old game, rather than a game changer.
The new game that this test will likely stop before its even really began is the one in which North and South Korea cooperate on infrastructure and trade projects, using Russia as sort of an honest broker. A Russia-DPRK joint venture has already refurbished a rail line and pier in the Rason SEZ and has tried to woo South Korean investors into purchasing a stake in the JV. in 2014 and 2015 South Korean delegations with representatives from steelmaker POSCO, Hyundai Merchant Marine Company, Korail Corporation and the South Korean government observed three test runs of Russian coal being shipped through the port. Rumours have it that despite a slow, cautious approach, South Korean investment in the project was likely.
Indeed, 2015 was a year that saw South Korean companies and politicians finally getting uncomfortable at how much economic influence has been ceded to China since sanctions banned new investment in 2010, after the sinking of the Cheonan. A big investment into Rason would signal that the Park Geun-hye administration would be willing to explore some kind of exemption program to the 2010 sanctions and would spur South Korean corporations to begin seeking opportunities in the North. Moscow had hoped that Rason could provide a template for other projects in the the DPRK.
It is hard to see how this investment could get approval from Seoul now. At the very least, some kind of interlude will be necessary before the project can proceed. By the time this test is forgotten, Park will be almost out of office, if not gone already, and who knows what the next government's approach to its northern neighbour will be? Or who will be in the White House and how high a priority Korea would be.
Indeed, if its Donald Trump, that might be the biggest earthquake of all.