So You’re Interested in Korean Startups?

The one I think most VCs outside Korea might start looking into might be Crunchbase— like this site here on VCs. It shows some acquisition history and the overall landscape, but not much.

Where Korean VCs and startups look into who invested into where is called thevc.kr. Yes, it is in Korean, but with a Korean speaker, you can look up any fund, who invested into where, and who are the hottest VCs are, and even filter by the technology, geography, and the stage of startups to get the latest funding round news. This is the site I recommend. This is a nice map to view the listings of angel clubs, communities, and foundations. Another place you can view a list of recent funding investing news is at Venture Square, run by a media startup.

To look other thematic funds in Korea, check out FundFinder. If you need contact information to the fund managers, here is a list of directory on KVCA. In Korea though, cold call or messaging almost never works. It is usually done through mutual connections or introductions.

Okay, now you need some templates and forms to begin.

  1. Korean Venture Capital Association guidebook for both startups and VCs. It’s an amazing resource. Definitely bookmark it.
  2. START Docs for early-stage Korean startups. Co-written by 500 Startups. You can log in your numbers, and you’re good to go. It’s been reused and vetted many times, so they’re pretty standard.
  3. ModuSign These are docs for between investors, MOUs, you name it. It also has a quick explanation next to it, so it’s quite good.

Bon Voyage.

Thoughts on the Korean VC Ecosystem

I’m learning quite a lot since moving to South Korea and working within its startup ecosystem. I’m learning from the feedback and conversations about the ecosystem by thinking through how Koreans are positioning their market pivoting into Asia and beyond.

I had not realized when I was in the States or perhaps in DC that I was getting spoiled. I was spoiled with the sheer market size, scale, and the global scope of the work we could accomplish. Being in America meant you are able to scale to global operations with a very friendly operational and regulatory environment and being at the State Department meant you are going to work with the top talent and industry leaders at the forefront of global issues.

I’m learning though about opportunities here in Korea, and there is a lot to be catalyzed and leveraged here —

Korea as a bedrock for innovation

South Korea’s total GDP is listed 14th globally by the World Bank, and comes in 5th in Asia. In the last fifty years, the manufacturing, electronics, semi-conductor and cars, etc. have spurred the growth of its economy.

Korea is renowned for its rapid economic and social development. Korea’s growth
initially depended on a low wage, educated and disciplined labor force to produce
goods for exports from its predominantly agricultural state possessing few natural
resources. When the state prioritized economic development with a combination of
state planning and entrepreneurship, South Korea had set forth on a trajectory into a
prosperous, industrial society it is today.

A combined effort of state and entrepreneurs later became family-owned conglomerates, capital-intensive in manufacturing, construction, and steel. The conglomerates today including Samsung, POSCO, LG, and others became the foundation for the innovation and IT entrants.

$$$ Let’s talk about cash.

Korean government well understands the importance of investing into R&D for global competitiveness. It led to the incubation and concentration of money and talent in Korea.

South Korea is one of the most business-friendly environments to foster entrepreneurship. There exists government support with incubation, procurement, funding, policies, and incubation expertise with government grants on public-private partnership investments.

Korea Venture Capital Associations projected that venture investment would hit 5 trillion won ($4.28 billion) over the next two years. And in January, the Ministry of Science and ICT set a record-high budget of KRW 24.2 trillion for R&D, upping the 18% from last year’s amount, for “domestic production of core materials and components necessary for R&D projects,” said Choi Do-young, director of the ministry’s R&D Investment Coordination Bureau. He also mentions the R&D projects will increase to about KRW 31 trillion by 2023.”

High amount of government funding is not always rainbows and butterflies. One of the biggest problems is that Korea has not fully embraced the venture capital culture of high risks and high returns.

The onset of investing from government funding has led to investments are thus defined by the social and local needs identified by the government. Venture capital funding also initially developed by the government as policy tools to promote small and medium companies. Therefore, when members of the public hear about failed investment attempts, they can be quick to criticize.

Korea as a testbed for new technologies

Here’s what I know to be true of the American market. America is a melting pot. It has a mix of demographics and consumer tastes and preferences. Tailoring a marketing strategy often entails to zero-nailing down on a specific race/age/and other varying degree of tastes.

Korea’s high population density further propels adoption of new products and services. The growth of ICT infrastructure over the past ten years also significantly expanded South Korea’s capacity for the digital underpinnings of the economy. The foundations laid the backbone for the advent of new technologies, such as mobile, internet, and platform-centered services. Korea enjoys the world’s fastest broadband internet speed and highest smartphone penetration rate. It naturally birthed its massive consumer base highly versatile with new technologies, media content, and digital technologies.

South Korea is also a relatively homogenous society. It is an incredibly communal and collective. People tend to be relatively on top of trends, so it is a wonderful market to test out new products and services for a specific segment of a population.

Korea as a content powerhouse

South Korea’s content market is incredibly strong as the fourth largest mobile gaming market in the world and a country fueled with a K pop craze from an international audience. 

The content industry is nonetheless backed with strong government support, as in September of 2019 announced a “content venture investment fund” for the country’s entertainment and content industry via an investment-loan guarantee project worth more than 1 trillion won, an equivalent of $841 million USD. It is aimed to provide loans for developers and producers of content in “K-pop, K-dramas, animation, online games and other digital media contents.”

Korea was the first country to introduce eSports on TV, and the top game players are Korean. With over 35 million smartphone users, the size of the Korean gaming industry exceeds 12 trillion won in total. Korea’s largest game companies, Nexon, Netmarble, and NC Soft generate more than 1 trillion won in sales; and ten leading Korean game companies generate more than 400 billion won in sales each year. The e-Sports market size is also rapidly growing, currently accounting for 13.1 percent of the global industry’s size.

Korean entertainment is a global sensation today, producing massive amounts of content, and the industry is quick to adapt technology to its playground. The K Pop sensation, BTS, continues to expand its global influence after toppling down the 1st spot on the Billboard charts in 2018. SM Entertainment, an entertainment talent agency embraced blockchain technology and released its own coin. The token economy backed with cryptocurrencies would allow artists to network into the ecosystem, allowing fans to invest in the artwork, and engage with the ecosystem.

The competition is hot here.

South Korea is also a very competitive market. Even in the F&B business where I’m starting to develop some market knowledge is that general baseline of product prices like how much a tomato or whatnot costs is well-known. The consumer competitiveness for Korea for F&B restaurants is 1:7 compared to Japan and 1:15 compared to the States.

The upside is that with the competitiveness, you learn how to do things right and well here. You often develop in-house expertise to build things and compete and do well here. To succeed in the Korean market, you learn how to brand yourself, stand out from the heavy competition and to be on top of your stuff. Because the market is small, your reputation will matter.

Should we pivot to Asia?

Due to Korea’s positive regulatory policy, or an environment where new businesses and services must comply with regulations listed in the system, venture builders or investors are increasingly establishing branches in San Francisco or in Singapore, where the investment rules are a lot more flexible. A market under a negative system minimizes pre-regulations but can penalize startups longer down the road. Startups and investors often experience many preconditions for financial companies in launching products and services that is new and unique. Take for example, think about the credit card/financing options in Silicon Valley for napkin-stage startups.

There is an increasing momentum to create a a regulatory “sandbox,” but it is going to take a complete and whole regulatory overhaul. The importance lies in the small wins and victories for types of investment/innovation rules.

It’s hard to say. The Korean market is small and saturated. Perhaps it is prudent for companies with unicorn potential to leverage each country’s competitive advantages – for instance, Korean startups can leverage hardware talent in China to build a model with global competitiveness. They can also register in Singapore and/or Hong Kong, maybe obtain a license or an approval as a launchpad to get into the China market. But this is a big step and also depends on each startup’s journey.

Korean startups will have to prove themselves in the market here domestically. A lot of good startups in Korea have parallel or similar startups in Taiwan, etc. At the same time, it is difficult for a startup to grow beyond the single market or a niche market to become a unicorn, so it makes sense that so many startups say they’d like to enter Asia/global markets.

Where we are and where are heading next.

True, South Korea is well behind United States and China in the number of unicorn companies in other words, unlisted startups valued at over US$1 billion. The United States and China have 201 and 101 unicorns, respectively, while Korea has only nine.

Foreign unicorn companies are showing tremendous growth in such areas as sharing economies, cloud computing, and artificial intelligence, while Korean unicorn companies invest mainly in independent business models such as cosmetics and games that are not subject to regulations and face less conflict with interest groups.

The emergence of various investment mechanisms such as venture capital, accelerator, and micro VCs is noteworthy. The influx of capital and the supply of money to the extent is slowly fixing the problem of information asymmetry and lack of deal sharing in the market.

It is also notable to look over the demographic shift that will happen over the next generation. There will be another billion people moving into the middle class According to Bernard Moon, about three times of 350 billion, the population of the U.S. will be moving toward Asia.

If we’re looking at Asia as a market, it is also important to look at geopolitical/external risks – like to corona virus presently or even Korean-Japan relations. There are many complications to be looking out for, and Asia is a complicated market to be working in.

Softbank Korea rebranded themselves and became Softbank Asia. Though now stationed in Singapore, they are equipped with a dedicated team for China as well.

Korea sits at the center of the Asian market. There are pockets of leadership around the world, but the level of competitiveness, talent, funding, and the trends in Korea are leading Asia. South Korea is an ideal testbed for technologies, as a rare global market with high digital penetration and an equally concentrated tech-friendly consumer base. Korea’s tech-friendly consumer market on mainstream platforms and acquired massive user base offers an opportunity for domestic companies to realize their synergistic potential.

Surveying Korea’s Impact Ecosystem

Korea’s growth initially depended on a low wage, educated and disciplined labor force to produce goods for exports from its predominantly agricultural state possessing few natural resources. When the state prioritized economic development with a combination of state planning and entrepreneurship, South Korea had set forth on a trajectory into a prosperous, industrial society.

A combined effort of state and entrepreneurs later became family-owned conglomerates, capital-intensive in manufacturing, construction, and steel industries. The conglomerates today including Samsung, POSCO, LG, and others became the foundation for the social innovation and IT entrants.

The government followed suit to ascertain its policy framework. The Social Enterprise Promotion Act (SEPA), which became effective in 2017, resulted in the establishment of the Korea Social Enterprise Promotion Agency (KoSEA), a state-run incubator for SEs. It followed suit with the establishment of the Korean Social Investment Fund (KSIF), a social consulting organization which promotes sustainability amongst businesses, the Seoul Social Economy Support Centre, as well as a range of SME financing products and preferential access to public procurement bidding.27

Areas of investments are thus defined by the social and local needs identified by the government. Social enterprises are defined as those that perform business activities of producing and selling products and services while pursuing such social purposes as providing vulnerable social groups with social services or jobs to improve the quality of life of the local residents.

Korean governments have made efforts to mobilize participation of the private sector and civil society in furthering social development. However, actual contribution of business and financial communities has been slow compared to other advanced countries.

In Korea, social investment has an impact-first orientation than as mechanisms for financial returns. Ventures that became interested in investing in social enterprises with social and financial returns came about with leading enterprise ecosystem with incubators and accelerators. Venture groups like D3 Jubilee and Crevisse Partners built awareness around impact investment opportunities by accelerating the operations, equity investing, and building capacities for shared learning. Social venture acceleration and incubation are also done by other institutions like MYSC, HGI, and SK Happiness Foundation.28 These incubators act as intermediaries for social entrepreneurs to build operations and secure external partnerships.

These incubators act as intermediaries for social entrepreneurs to build operations and secure external partnerships. Sopoong, which was launched by the founder of Daum, is an impact investing venture group. It invested in SoCar, a car-sharing company based in Seoul. SoCar obtained public parking spaces with the government support and then it obtained funding from the Seoul Social Investment Fund. And subsequently, the business secured funding from private investors Bain Capital and SK Group to exit.[9]

South Korea is one of the most business-friendly environments to foster entrepreneurship. There exists sufficient government support with incubation, procurement, funding, policies, and incubation expertise with government grants on public-private partnership investments, such as green finance, SIBs, and other investment mechanisms. However, despite the many approaches and investment opportunities, impact investing is still not as active in South Korea. There is a limited impact investment opportunities in public and real estate markets that would have competitive financial returns with impact. There is also general skepticism that impact investment could have high returns. The domestic laws also are not conducive for a more flexible impact investment approaches. For instance, nonprofits cannot keep more than five percent of its own equities.

Here are the recommendations for each stated industry.

Government

The idea of social innovation is considered as derived from the political left. This is due to the forefront advocate of social innovation was from Park Wonsoon, the Mayor of Seoul City.[10]

Social innovation is seen as a partisan. The main point of criticism is that a social innovation budget will be used to support many activists and practitioners, mainly from the civil society. Civil society organizations are seen as more progressive and often in opposition to those with conservative perspectives.

The word “social” is misunderstood, as traditionally, South Korea has been a government and corporation driven society. When the Korean government’s social innovation task force first talked about social economy, they found that the general public were uncomfortable with the word ‘social’ and asked “if it meant socialist.”[11]  

The most effective way to address these challenges is to create a public consensus and influence policy. By pursuing a blended finance model or large government-led funds, they can spread awareness of social investment opportunities and also pursue a mechanism where it shares risk with the other stakeholders.

From the government arm, it needs to lay the groundwork for the agenda to be embraced and embedded across the funders – institutional and venture capital. The momentum needs to also be balanced with political commitment, alignment with local cities, and the existing infrastructure to allow for the legal framework for impact investors and social innovators to flourish. 

Asset Management Funds

A well-constructed impact portfolio is globally diversified with multiple asset class and sub‐asset class allocations. The primary difference between an impact portfolio and a traditional portfolio involves the investment philosophy and process of the underlying managers and funds the portfolio invests with; asset managers that are integrating environmental, social and governance (“ESG”) criteria into their investment process and are transparently monitoring the impact of their efforts are preferred when constructing an impact portfolio. Furthermore, although portfolio risks and returns are compared against traditional benchmarks, impact metrics are also tracked.

However, challenges persist for social innovation sectors to participate in the global economy in South Korea, as there is simply a lack of public equity listed companies with competitive financial and impact returns.

In the United States, asset management solutions pursue a blended finance model with social goals integrated into the investment process. Adoption of corporate shared values, sustainable development goals, and global agendas are still nascent in the Korean social venture scene. For large asset management institutions in Korea without blended social objectives, there is a niche to invest in risk or growth capital for social enterprises. An impact-based portfolio could invest in market‐rate and/or below‐market‐rate investments, depending on the investor’s risk‐ return profile and impact intent.

Across geographies, sectors, or stages of market or company development, over-investment in impact practices may create a drag on financial returns. Whether this drag is an acceptable “tradeoff” for the level of impact return and/or level of evidence of impact is a choice each investor will need to make. It may be possible to surmise that certain investments with particular impact goals and standards for impact evidence are likely to have a wider range of potential deviations from “market-rate” returns.

Impact Enterprises

In South Korea, the idea of social innovation focuses on citizens leading the ideation, planning as well as implementation of projects. One of the existing obstacles is that there is simply a lack of social enterprises capitalizing on financial returns or have strong operational resilience. Korean institutional frameworks separate strictly the planning and implementation stage when funding social enterprises. Impact enterprises should be diligent to carve out a unique competitive differentiation in their respective markets to ensure sustainable financial viability. Similarly, they should be diligent to seek out collaboration opportunities to achieve the benefits that derive from size and scale.

For these social enterprises, they should proactively measure the social and environmental objectives as directly tied to the business model. Therefore, the measurement of these indicators may be no different from measurement of the business indicators. In addition, reporting of the impact and financial metrics will help to drive further accountability and transparency among organizations.

These organizations can also enroll in approval processes that help promote sector accountability and transparency. B Corp that evaluates the social and environmental impact of companies and funds and assigns them a score based on certain criteria. GIIRS measures the social and environmental impact of funds and companies and provides comparable and verified metrics and ratings. These ratings in such approval processes can help legitimize social enterprises and further its global potential applications.

A common language around social metrics and standards allows stakeholders to communicate more effectively, benchmark and compare investments, and evaluate social and environmental performance. Comparable metrics like using SDGs allow investors to employ different strategies on the social bottom line, and thus are important for mainstreaming impact investing. Intermediaries can play a key role in advancing this common language. South Korea can maximize its competitive edge in technologies and entrepreneurship, have them adaptable for SDGs to extend its global reach.

The funders generally are left to government, a program introduced by institutional investors, nonprofits, and other accelerators than from its value-driven institutional asset management model.

What South Korean ecosystem currently lacks is a mechanism to import knowledge of overseas impact investing trends. With strategic partnerships with global fund managers, the incubated companies can extend their reach and learn from best practices. Multi-stakeholder partnerships and collaborations will become increasingly important in realizing these shared value opportunities.


[1] AVPN, Social Investment Lanscape in Asia – South Korea

[2] Inter-American Development Bank, 2016, Study of Social Entrepreneurship and Innovation Ecosystem in South East and East Asian Countries: Final Reflections

[3] 뉴스프리존, 부산시, ‘CCVC 코리아임팩트 펀드’ 195 조성, http://www.newsfreezone.co.kr/news/articleView.html?idxno=88223   

[4] Ibid.

[5] Global Innovation Exchange, KOICA, https://www.globalinnovationexchange.org/organizations/korea-international-cooperation-agency

[6] KOICA, Guideline for KOICA to Utilize Impact Investment and Blended Finance, https://www.koica.go.kr/bbs/koica_en/717/317815/download.do 

[7] Ibid.

[8] 이철영, 임창규, 임팩트 투자, 투자의 미래,

[9] Ibid.

[10] Social Innovation Exchange, Conversation with the Social Innovation Task Force, https://socialinnovationexchange.org/insights/conversation-social-innovation-task-force-government-south-korea

[11] Ibid.

Bumpy Roads of China Ahead: Domestic Agenda and Financial Realities

Introduction

China today is the second largest global economy, the largest exporter and has the largest exchange reserves in the world.

Chinese reforms for its economy began with Deng Xiaoping’s opening agriculture, defense, industry, science, and technology for development with state-led macoeconomic policies. The economic reforms under Deng’s era increased its role of capitalism and the market with less government control over the economy. This opened up China to overseas investment and introduced market incentives to foster entrepreneurship and state-owned companies and allowed China to become the world’s second largest economy with manufacturing and construction might.

When President Xi Jinping and Premier Li Keqiang stepped in on 2012, the administration unveiled new economic measures some bold and some aimed at promoting a more balanced domestic economic model. It can be divided into three issues: Comprehensively Deepening Reform, which gives a decisive role to the market economy; Promotion of New Type of Urbanization, which aims to give an urban family registry to farmers for families who have moved from rural to the urban, and Macro-Control, which aims to specify a reasonable range for economic management through fiscal measures.

China has been encouraging domestic and foreign investments to support its economic recovery with a fiscal monetary policy for a more market-driven economy to strengthen the resilience of global trade and investment flows. It also sought to reduce reliance on American industrial imports, such as semiconductors, and advance its own competitive advantages in technologies like artificial intelligence.

President Xi’s new vision of development also sought to build partnerships with countries of geopolitical implications for China to jointly develop third-country markets and locate more investable opportunities. This ambitious outward foreign direct investment strategy has been called the Belt and Road Initiative.

Concerns remain about Chinese domestic political stability with regard to its suppression of minorities in furthering the domestic agenda and its potential spillover in countries of investment and trade relations. China’s relatively slow economic growth in the recent years, existing financial risk with increasing debt, and a trade war with the United States question whether it can maintain competitiveness in an economy dependent on high capital spending and the expansion of credit.

There are diverging and opposing arguments about Chinese financial outlook as well as its political ambitions. Experts attempt at dissecting China’s growing power and influence, as they are reshaping the Asian security landscape, global economy, and the dynamism of global governance.

This report is an attempt to examine the risks and opportunities for China in context of its domestic social challenges, strategic technology development trends, and investment opportunities in the increasingly multipolar international systems.

Disclaimer: This report is intended solely for internal purposes and is not to be distributed publicly under any circumstance. Any views expressed or implied contained within the report are those of the writer’s. A deeper subject-level understanding and examination of the topic is needed for a full analysis of the subject concerned.

1.    Slowdown of Economic Performance

The 2018 for China was a slow year comparative to the past twenty years. Its economic growth came at 6.6 percent in 2018, the slowest since 1990, and slower than the 9.5 percent average of the past 40 years.

Its rate of economic growth has raised questions on the role of its excessive debt in the country, the impact of its trade war with the U.S. and the general trajectory of regime given its overseas ambitions over the state control of the economy. The cited reasons for its slow growth is multifold – one including that the growing export-led economy has now reached its point of diminishing returns. Some point at Chinese fueling of the economy in the latest financial crisis and the underlying currents in the Chinese economy as the main reasons.

When the financial crisis had hit in 2007, China released an ambitious CNY 4.0 trillion (USD 585 billion) stimulus package. It was launched with massive investment to fuel economic growth, causing concerns that it could be building up asset bubbles, overinvestment, and overly capacitate the account surplus.

Xi’s policies are fiscal than monetary in nature. China is looking to put a floor on growth than on the credit-fueled economy to balance its bottom-line economic growth of at least 6 percent for the next foreseeable years, for the income levels to rise, and to meet the target of creating 11 million jobs a year. Xi also aims to curb excesses in dividends in productivity growth that has risen about 2.4 percent from the annual 1.9 percent. It forecasts debt will be flat at the ratio of 276 percent of the GDP and to rise about three percentage points in 2019 than the average annual 15-point increase for the past eight years.

With China set the inflation rate goal as the upper limit and the growth rate and employment goals as the lower limit; if the economy is within the range, short-term economic stimulus measures will not be taken with economic system reform and economic structural adjustment given priority.

Xi’s approach which gives the role of the market force to allocate its resources, retreats from its role in allocating the resources and limited to basic functions like the macroeconomic management, market regulation, public service delivery, and supervision of society.

2.    Debt of China

Debt exploded in China over the past decade after the stimulus used in the 2008 financial crisis. The rating agency, Standard & Poor’s, reported that China has “huge hidden debt” of between $5.5 trillion and $6 trillion as of 2018.

The debt at the local government level is “not very good debt…. [Historically,] the Chinese government has had to write down debts like this a lot in the past.” China’s local governments have established so-called “local government financing vehicles” that fund projects with debt raised from the China Development Bank against mostly land as collateral. “The question is how deeply involved are the local government financing vehicles in this type of borrowing, and with what risks.”

Country’s economic challenges withstand, as banks are forced by the government to continue to lend to companies struggling with debt. Xi’s focus on the supply-side of the economy has channeled its resources towards state-owned firms, less efficient than private sector economies and its causing the Chinese yuan to weaken with interest rates rising.

China has another plan to pump in spending into the economy, but its payoff may not be very effective. “Banks do not want to lend, so the government is forcing them to lend. The idea is to put money where it is more productive, in the private sector,” said Alicia García-Herrero, the chief Asia-Pacific economist at the French bank Natixis.

Chinese companies own a striking number of international assets, and financial difficulties can create international pressures. Many Chinese companies with western assets have taken out unsustainable debts.

The government policy to growth also seems misguided as its injection of cash into the economy with unmatched productivity growth. The idea is to get banks to force more loans to companies that may default and to flourish the role of the private sector and ultimately to shed debt. The goal for China is to rebalance for sustainable growth away from manufacturing and cheap export-led industry sector and government spending towards a more sustainable growth.

3.    China’s Tech Nationalist Agenda

To counteract the slumping economy and to rein in the escalating debt levels, Chinese policymakers have called for a more “proactive fiscal policy” that include tax cuts and introduced its “Made in China 2025” policy. It is a techno-nationalist agenda calling for Chinese global leadership in various technological sectors by 2025, with value-add from predominantly foreign intellectual property.

The goal for China is to de-risk its supply chain by reducing reliance on US imports in key areas such as semiconductors and have supremacy in tech sectors such as artificial intelligence, 5G telecoms, internet of things, self-driving cars, and battery technologies.

Chinese intend to reduce imports from the U.S. and not components made by US companies in China. The value of products that US companies made and sold in China was about $250 billion last year, almost double the $130 billion in products imported from America.

The area where U.S. and China conflicts the most significantly is in semiconductors. This industry is where American industrial leadership and China clash significantly. China seeks to ramp up availabilities of alternatives to US semiconductors. The semiconductor industry is one of Chinese clear ambitions, as out of $300bn committed to help deliver “Made in China 2025,” some $150bn is earmarked to upgrade China’s capacity in semiconductors.

Computer chips are the foundation of today’s digital economy and national security. China is currently reliant on semiconductor imports, therefore China blends its state and corporate resources in pursuit of its chip ambitions. It has incentive programs to attract engineering talent from elsewhere, notably Taiwan. Firms like Huawei have a proven ability to innovate and is well on its way to develop its domestic supercomputing industry.

Huawei’s new computing chips are aimed at powering artificial-intelligence applications. The line of semiconductors includes a chip that is installed on servers and performs complex AI tasks like programming algorithms, as well as a second chip for more routine functions on smartphones and other devices.

China is well-positioned to compete in the consumer economy especially in the field of artificial intelligence. Its tech platforms like Alibaba, Xiaomi, Baidu growth trajectories puts them at growth levels that will eventually surpass Microsoft, Facebook, Google, Apple and even Amazon. This is because China has more consumers than North America with capital, people, and computing power, therefore more data for how AI can scale without interference. The platforms have enormous consumer base, generating more data than any other nation, given its 750+ million daily Internet users. Chinese lack of privacy protection makes it a lot easier to openly collecting data as well.

With the development of domestic semiconductors, China can simultaneously upgrade Chinese industry achieving self-sufficiency and paving the way for artificial intelligence supremacy.

Chinese quest has been undoubtedly coupled with going after US technology and intellectual property. America has legitimate concerns about the national-security implications of being dependent on Chinese chips and vulnerable to Chinese hacking.

4.    U.S.-China Trade Tensions

Thus, China’s response to the trade war is set to be carefully calibrated. Chinese companies are being told by Beijing to cut reliance on US technology and intellectual property in their supply chains, replacing them where possible with alternatives from Europe, Japan, Korea, Taiwan and elsewhere.

The US-China trade started with the US disapproval over China’s technology appropriation policy. US began its levies on tariffs on the promise that Beijing would follow through on protecting IP rights and to buying American products.

The U.S. began three rounds of tariffs on Chinese products, a total of $50 billion worth of goods. The first two rounds put in 25% tariffs on $50 billion worth of imports, and Beijing had retaliated putting $90 billion of tariffs on imports to China. The U.S. met with another set of tariffs on a total of $200 billion at 10% threatening to increase to 25% unless the countries come to a deal. The latest levies would put all of Chinese exports under US duties.

Ultimately, both countries would be hurt from the trade wars in the short-term, but China would be significantly more hurt by the trade war. China is more vulnerable to US control of exports of goods than in the U.S. Tariffs making Chinese exports more expensive and punishes the Chinese economy. China responded with tariffs on American exports on US like soybean.

China is at disadvantage – the total share of trade of Chinese GDP is much higher, and Chinese exporting industry employs a massive number of people. In a slowing down economy, China cannot afford to lose its competitive advantage. Also raising tariffs would mean the global value supply chain would be affected. Other countries would be more reluctant to work with China. Its most vulnerable sectors on consumer goods or finished or intermediate goods would be affected.

China also cannot afford to dump its holding of US debt, which is more than a trillion-dollar worth, the US treasury holding will decrease in value. The US would have to offer higher interest to lure interest to keep covering its federal debt, but there still will be buyers.

For Trump, the U.S.-China trade talks has political repercussions. Trump faces voters next year. Xi’s public persona is affected by the trade war, but it will not face voters. Trump needs a verdict that he is tough on China for the 2020 run.

Trump recently delayed a planned increase of tariffs on Chinese imports to 25 percent, from 10 percent, that was scheduled to take effect March 1st. China has offered to lower tariffs on U.S. farm, chemical, auto and other products and offer to buy natural gas from the U.S. and reduce tariffs on imported vehicles. A decision has yet to be made over lifting of the existing U.S. tariffs. They are scheduled to meet again on March 27th.

5.    Belt and Silk Road Initiative

The effects of trade disputes with the United States has led to Chinese ambition to balance its economic growth and financial risks by revamping its investment opportunities overseas. Chinese manufacturing capacities are now challenged by a lower cost emerging market, like Vietnam, and therefore, China is now pursuing a strategy where it invests in infrastructure to reroute the global trade.

Belt and Silk Road Initiative (BRI) is an ambitious plan modeled after the Ancient Silk Road. It would ultimately be a 21st economic belt connecting China to leverage its routes and take advantage of the global trade in areas like industrial parks, mines, fiber optic cables – making it easy to trade with China.

The domestic consequences of China’s initiative are ramping up. Officially China states its five major goals for the purpose of BRI – policy coordination, facilities connectivity, unimpeded trade, financial integration and people to people bonds.

China wants to sign economic agreements with the Belt and Road countries to access new markets; to promote Chinese investment; to secure its supplies of food, resources and energy; to export Chinese products and services; to enhance the yuan’s role as a global currency; and to increase its soft power.

China calls it a “win-win” strategy. For instance in Pakistan, China offered to build a brand new port a corridor, which would effectively connect an economic belt, an alternative route for oil. This led to a huge boost of domestic construction companies in China, increases manufacturing capacities in lower cost areas, and gradually optimize its geostrategic ambitions based on today’s global order.

China claims its competitive advantage is that it claims a far fewer demands offering billions of dollars to corrupt countries and authoritarian regimes with the promise that eventually these countries will have to pay China back.

6.    Domestic Social Challenges

Countries Beijing is making alliances with sometimes wrought with terrorism and otherwise other authoritarian traits. As a frontier of the hub of the one Belt, Beijing has promised its internal dissenters to bring prosperity and stability to the Xinjiang Uyghur Autonomous Region. In some ways, the GDP growth has been achieved, however the national minorities in the region may not share the sentiment.

The Chinese Communist Party (CCP) declared in 2014 that the government would launch a “counter-terrorism campaign” that focused geographically on China’s western regions. The thesis was to “construct walls built with copper, iron, knits, and by boosting police readiness through mass surveillance and mass management.”

As a result, without any evidence of an organized threat, Xinjiang saw an emergence of authorities stepping up mass surveillance programs and security presence. Xinjiang is a region with 11 million Turkic Muslim Uyghurs, and regional stability and State control in Xinjiang is critically important for the success of Xi’s “Belt Road Initiative,” for which it is the primary land route for trade and investment in Central and South Asia, Europe, and the Middle East.

Recently, the Office of the United Nations High Commissioner for Human Rights (OHCHR) examined a report submitted by human rights organizations, and accused China of holding as many as a million Muslims in concentration camps. According to this report, “…The government has implemented militarized security measures, invasive policing, and community surveillance, including through “big data analytics”; forced hundreds of thousands of people into “re-education” camps; and drastically restricted ethnic language, culture, and religion…”

Millions of ethnic Uyghurs and Kazakhs have been imprisoned just due to their ethnicity, culture, and religion to assimilate them into the Han culture. The security threats used in Tibet are used also in Xinjiang, for instance, the installing of QR codes in the homes of the Uyghur Muslim community to get instant access to the residents of the Muslim community.

Beyond the surveillance technologies, Uyghurs have also experienced forms of torture and are currently facing massive imprisonment in re-education camps.

Xinjiang is situated in the border and are points of stability and security for the Chinese interests. Its threats in the social cohesion and stability can also threaten its national security priorities.

Just due to the ethnic distinction, Uyghur ethnicity have accelerated an assimilation process and to build a security framework to reinforce the process through its surveillance, control, and coercion mechanism. It ultimately breaks its ethnic lineages and its unique practices.

7.    Pulse Check: BRI and Sustainability Question

The Chinese state is willing to easily overlook human rights violations and sacrifice its citizens for the larger goals of the Belt and Road Initiative. Although there are a lot of countries as investment cases to examine, this scope examines Pakistan and Sri Lanka to glean into the sustainability of the initative.

The adoption of the Belt and Road Initiative, which was formed to connect China’s trade routes in Central and Southeast Asia with ports, roads, and other infrastructure lines, has also been criticized for lacking transparency, its questionable adoption methodologies, and its debt burden to the nations. The nations’ environmental and social conditions are not often taken into account in the infrastructure process.

It’s become the thorny patch for the U.S. allies as they voice concern over the BRI adoption mechanisms. The Australian government was one of the fifteen countries to sign a letter expressing concern over the treatment of Muslims and demanding Beijing to respond to its human rights concerns. Australia has also refused to sign up for the BRI despite its geopolitical significance.

The BRI has already made significant strides with countries signing up to the treaties, cooperation, and other funds. However, hard data on the benefit to the domestic economy, increase in the number of jobs, or even foreign exchange reserves is unclear.

The sources of funding are the following: The China Development Bank and the Export–Import Bank of China would grant a special loan of $250 billion yuan and reached an additional 830 billion yuan by 2018. The Chinese government itself pledged USD $15.5 for the creation of the state-owned fund devoted to BRI, and the Asian Infrastructure Investment Bank (AIIB) is also expected to provide funds as well with a capital of $100 billion. The Bank of China has also issued four rounds of international bonds for OBOR with a total value of more than USD $10 billion.


In July 2018, a total of 234 out of 1,674 Chinese-invested infrastructure projects in 66 Belt and Road countries since 2013 have encountered enormous difficulties. Scandals related to the projects are multifold – both domestic and abroad presenting clear challenges ahead for Xi’s ambitious global agenda.

The corruption scandals run rampant as the grant is initially given to the Chinese officials. It is rather easier for Chinese officials to obtain a greenlight and a large amount of money, and without a clear anticorruption mechanism, tracking the use of money can be difficult. The Supreme People’s Procuratorate of China’s website states corruption occurs in the processes of decision making, examination and approval, land acquisition, and material procurement of the projects.

“…After terms are reached with a host country, funds are transferred directly into the Beijing-based bank accounts of China’s state-owned enterprises, which build the project often with Chinese materials. This is a model Beijing has employed extensively in Africa. Once Beijing’s political blessing for a project is communicated via funding from its policy banks, China’s national- or provincial-level state-owned enterprises build it, often with little or no political or financial risk assessment or market research.”

The investments also come with a price tag on the domestic economy. Local governments are suffering from lack of funding in areas of education, medical care and social welfare. Students in Leiyang broke out in protest as the lack of resources in public schools led to the government cutting its class sizes and transferring students from public school to a private school with much more expensive fees and problematic dormitories. The provincial city has racked up 2.464 billion yuan of outstanding debt at the end of 2017, or 111% of revenue.

A success case seen with the Chinese overseas investment is Pakistan. For Pakistan, its rural fishing village in Gwadar is now undergoing construction to transform into an urban port city. China signed a plan known as the China-Pakistan Economic Corridor, or CPEC. China has pledged to spend $63 billion toward Pakistani initiative with more than 1,000 people, half of them Chinese, now working to complete a 660-meter container terminal. The strategic advantage is clear for China – it could allow all ships carrying goods from the Persian Gulf to directly move through its port. Pakistani faces both peril and promise, as its ambitious undertaking would mean: “ten years’ tax concessions, 90-year leases for Chinese companies and cheap imports will impact the competitiveness of existing domestic industries.” Pakistan would also have to potentially be laden with a huge debt burden with an already increasing trade deficit with China.

For China, its “primary interest in Pakistan is geopolitical rather than strictly economic, and therefore, for China, repayment of the debt burden will be secondary to maintaining a good political and economic relationship with Pakistan,” said Mushtaq Khan, an economist and former chief economic adviser at the State Bank of Pakistan.

The U.S. Department of State has its suspension of security assistance to Pakistan, but Pakistan has seen a growth despite its rampant terrorism and poor governance infrastructure of 5.4% in 2017, a fastest rate in 10 years. Some concerns over Pakistani port becoming a military base lingers.

Other countries have not been so lucky. Sri Lanka, when China began operating the port of Hambantota, the construction began with an ambitious stride under President Rajapaksa’s looming election. However, now the Mattala Rajapaksa International Airport is cited as “the world’s emptiest international airport” with only four regular flights in use per week. Sri Lanka also had to grant over a 99-year lease of its port to China to cut its overwhelming debt, an external of $48.3 billion. Sri Lanka is a strategic point for the BRI as a main oil shipping route. China could foreseeably takeover the territory as Sri Lanka’s sovereignty has been compromised in the region.

The mega construction and infrastructure projects also require the Chinese state to make considerable efforts to protect its assets and potential external threats. The military-build up is essential to securing Chinese geopolitical interests to balance against the U.S. administration and also for its capitalist development. However, in the current economic situation, further increasing military spending means cuts to education, social welfare or other public spending, which will eventually cause more mass incidents like the one in Leiyang.

Conclusion

The Western globalization model has not lead all countries into prosperity.

The U.S. offers an option in a sea of debt that compromises independence, whereas Beijing’s broader ambition for a global scenario may work. While some countries became the emblem of “Asian Tigers,” China, Central Asia, or North Africa were left behind. There was a governance deficit for many countries that it developed without a proper institutional infrastructure.

If the BRI were to be moderately successful then institutional governance and the way the government is conceived will be profoundly different from the western era of globalization, which had stemmed from the 1980s. Chinese cultural, educational, and political models would stream down without a governance deficit. Countries would model themselves on China, as Japan and Korea have in their stages of development.

China, a country with an exponent experience in development and in export-led manufacturing with a fifth of the world’s population would transform the world economy by shifting the Eurasian landscape. It is an extremely large-scale infrastructure investment that produced the rapid economic growth in its own domestic history.

Chinese model is a successor model of globalization for the developing world, where the growth is a bit faster than of the developed world. The developing world now provides 51-52% of the wealth and it will two-thirds the global GDP.

Chinese communist party state would effectively lattice the continent with fluidity as a dominant and hegemonic superpower with its neocolonial approach of seeking control of ports. It is expected the Eurasian landscape can be developed like China, as China has the experience in economic development, the financial means, and a vision to create a sub global system in its own.

However, the question is really in how these would be financed. Currently in observing the investment trends in the BRI projects at the expense of its domestic economy, it is extremely reminiscent of its own domestic strategy – which is to pump in stimulus without an unmatched sustainable growth in the domestic jobs and at rote suppression of the potential dissenters.

It is skeptical that the Chinese public funding would be ultimately matched with its market principles and its regulatory political character. These countries would develop its trading capacities, upsetting the U.S. uphold in its trade pressures with China.

Observing the trade-conflict and its fiscal outlook and the domestic challenges would be crucial for the emerging economies when they would engage in the large trading opportunity in China. All investment should support the domestic economy and a sustainable, balanced growth grounded in its sociocultural roots.

The ambition in the amount of money is enormous, and there is a real risk in local governments not being able to withstand the Chinese pressure to adopt the Chinese sociopolitical models. For countries like Hong Kong, it is easy to replicate the story with its language and cultural ties. For other countries, its traditional and legal systems may have to be substantially affected.

Countries receiving massive investment to fuel economic growth could also experience similar financial domestic issues, such as asset bubbles, overinvestment, and an account surplus along with its social structures.

The alternative is a comprehensive strategy led by world’s democracies to project values of freedom, democracy, personal autonomy, innovation, and information to counter the Chinese narrative. However, with an unmatched domestic infrastructure and governance systems, it may be difficult to attract the emerging markets excluded in the Western globalization systems.

An ideal trade relation is the one in which it exposes the country to a global competition by reducing barriers to foreign goods. Trump’s America First policy and its pulling out of the multilateral negotiations, such as the Trans Pacific Partnership ultimately has allowed Chinese an increased role in the Asia. It was an ideal platform for China to land on a more ambitious economic trading system where the U.S. is less involved and for an expanded influence for overseas investments.

The financial outlook for China is that the economy may continue to decelerate, as Chinese economy is trying to squeeze debts. Chinese economy is patiently waiting for the stimulus driven recovery to take hold. China needs to be more comfortable with slower growth and also working the economy through the transition from an export – to a consumer led economy. With Chinese motives under increasing scrutiny, China also needs to build upon its public diplomatic instruments that Chinese economic development efforts are less hostile, but a more harmonious attempt for a mutual long-term growth. Only then China can overcome international scrutiny of its political legitimacy balanced with economic stability and achieve its long-term global governance agenda.

References

KPMG, China Outlook, https://home.kpmg/xx/en/home/insights/2018/03/china-outlook-2018.html

Financial Times, The U.S. cannot halt China’s march to global tech supremacy, https://www.ft.com/content/cd681f3e-a5ff-11e8-926a-7342fe5e173f

International Policy Agenda, China’s Quest for AI Supremacy, https://intpolicydigest.org/2018/08/11/china-s-quest-for-ai-supremacy/  

Financial Times, Xi Jinping has changed China’s winning formula,  https://www.ft.com/content/b4032534-0446-11e9-9d01-cd4d49afbbe3

The Asean Post, China’s economy under Xi Jinping,  https://theaseanpost.com/article/chinas-economy-under-xi-jinping

The National Interest, China’s Economic Slowdown is Inevitable, https://nationalinterest.org/feature/chinas-economic-slowdown-inevitable-39992

K@W, Why China’s Economic Troubles Run Deep, http://knowledge.wharton.upenn.edu/article/chinas-slowing-growth/

NPR, Trump Sets Tariffs on $200 Billion in Imports from China,  https://www.npr.org/2018/09/17/648845578/trump-sets-tariffs-on-200-billion-in-imports-from-china

Bloomberg, U.S. and China Near Deal That Could End Most U.S. Tariffs, https://www.bloomberg.com/news/articles/2019-03-03/u-s-and-china-in-final-stages-of-completing-trade-deal-wsj

Asia Policy, The Belt and Road Initiative: China’s New Grand Strategy? https://www.researchgate.net/publication/319100054_The_Belt_and_Road_Initiative_China’s_New_Grand_Strategy

Channel News Asia, Beijing hopes ‘One Belt, One Road’ will deliver peace, prosperity to Xinjiang, https://www.channelnewsasia.com/news/videos/beijing-hopes-one-belt-one-road-will-deliver-peace-prosperity-to-8942156

Joint Civil Society Report Submitted to The Committee on the Elimination of Racial Discrimination for its Review at the 96th Session of the combined fourteenth to seventeenth periodic report of the People’s Republic of China (CERD/C/CHN/14-17) on its Implementation of the Convention on the Elimination of All Forms of Racial Discrimination https://tbinternet.ohchr.org/Treaties/CERD/Shared%20Documents/CHN/INT_CERD_NGO_CHN_31915_E.pdf

CFR, Conversation with Wang Yi, https://www.cfr.org/event/conversation-wang-yi

China Daily, Multination Asian bank plans capital of $100 billion, http://www.chinanews.com/fortune/2018/06-14/8538239.shtml

Economic Times, China’s China’s BRI comes under severe criticism on its fifth anniversary, https://economictimes.indiatimes.com/news/international/world-news/chinas-bri-comes-under-severe-criticism-on-its-fifth-anniversary/articleshow/67384058.cms  

Foreign Policy, China’s New Silk Road Is Getting Muddy, https://foreignpolicy.com/2017/01/09/chinas-new-silk-road-is-getting-muddy/ 

The Wall Street Journal, A Broke Chinese City Is Raked Over the Coals by Furious Citizens,  https://www.wsj.com/articles/how-a-chinese-citys-debt-woes-sparked-local-outrage-1535999473

Nikkei Asian Review, China’s Belt and Road working? A progress report from eight countries, https://asia.nikkei.com/Spotlight/Cover-Story/Is-China-s-Belt-and-Road-working-A-progress-report-from-eight-countries

Impact Investing in Asia

Asia has felt so far away but is less new to me now. With the help of family, friends, and gracious hosts, I learned tremendously. I breathed in secondhand smoking, met my mentors at the Asia Venture Philanthropy Network (AVPN), ate Ya Kun Kaya Toast, met with friends from Temasek a sustainability fund, and went surfing with family friends. Here is what I learned:

Asia is complex. The impact investing ecosystem is still at its early stage. The government is allocating capital through green bonds or lending mechanisms, but there are only a handful of investors or family offices devoted to the field. Korea has an advantage of its thriving entrepreneurial ecosystem and growing corporate and government initiatives, but from what I learned, Hong Kong and Singapore may need more pioneers to build upon the existing ecosystem and contribute to a cultural shift.

I thought I could be helpful with my experiences in the U.S., but I ultimately felt like taking language from the States perhaps is not the most effective, as they reflect a more Western mainstream attitudinal approach. Network or platform based country-specific initiatives were more effective in attracting private investors, banks, and policymakers for long-term sectoral engagement.

With the protest happening, I kept thinking these populist trends in ethnic, political, or religious divides draw parallel to other countries and trickle down to the Southeast Asian market. Impact investing began after the financial crises that it did not ride with the plunge. Institutionalizing impact investing across asset classes also translate to asset diversification effectively hedging geopolitical and environmental risk for long-term value creation. I’m so grateful for the insight and advice and for new friends who fiercely pioneered through the Asian market.

Leveraging Contemporary Technologies to Denuclearize North Korea

*This is an exploratory research paper submitted to the Bureau of Arms Control Verification and Compliance for how can Blockchain be used as a solution for achieving peace in the peninsula.

The successful inter-Korean dialogues continue, as they pledged together in the historic Panmunjon Declaration for “no more war on the Korean Peninsula” and declaration for a “new era of peace.” The mood was described as hopeful and optimistic, as Kim announced that he is suspending ballistic missile and nuclear testing, closing the Punggyeri-nuclear test site to “join the international desire and efforts for the total halt” to nuclear tests. 

 However, “complete denuclearization” in the Declaration remains ambitious and vague, leaving room for interpretation on both sides. In the much anticipated U.S.-DPRK bilateral, success of the talks will depend on each party’s definition of extensive disarmament. 

Washington is looking for a comprehensive “all-in-one” approach on “complete and verifiable” denuclearization, whereas North Korea is looking for an incremental, synchronized nuclear disarmament. 

 Previous agreements have fallen through in the stages of implementation. To take the steps toward the long-term goal of complete denuclearization, the Trump administration will have to design a long-term balanced framework where both parties are comfortable with the level of transparency and security in designing a verifiable dismantlement process. 

 Verified dismantlement in a nutshell is to obtain high confidence that the program no longer exists and that reconstitution will be difficult and likely to be detected relatively quickly or at least long before significant quantities of banned items are produced. In this sense, the dismantlement is called irreversible. 

Verifying North Korean for nuclear disarmament may be historic – in calling for an unprecedented extensive inspection campaign miles across industrial sites and hidden tunnels with clandestine labs and facilities from 40 to 100. The International Atomic Emergency Agency (IAEA) estimates around 300 inspectors to keep track of uranium and plutonium flows through factories and equipment of potentially 20 to 60 nuclear weapons. 

It would be very difficult to find military specialists trained to prevent arms from detonating along with multilateral oversight with China and Russia. The paper surveys methodologies and synergism of technologies available as a baseline for what it means to have a complete denuclearization ensuring security, transparency, and irreversibility to accommodate political climate and the North Korea’s sprawling nuclear complex. 

 Data Sources 

 The Comprehensive Nuclear Test Ban Treaty Organisation (CTBTO), a central authority in nuclear proliferation, immediately called for North Korea to consider signing and ratifying the 1996 Comprehensive Nuclear-Test-Ban Treaty (CTBT). It is a “legally binding in force CTBT” as the only way to solidify the moratorium on nuclear testing, which was an essential step towards the “ultimate goal: a world free from nuclear weapons.”

CTBTO collects, processes, and analyses data from the 337 facilities of the International Monitoring System, such as the Global Alarm System to detect all nuclear explosions and 80 extremely sensitive sensors to detect radioactivity. It also registers dispersion of radioactivity stemming from all other sources anywhere in the world, in particular to nuclear accidents. 

Verification, or measurements and procedures that the negotiated activity is taking place, are often done through the traditional systems, but there is a serious need to utilize full range of technologies to detect and characterize nuclear activity, equipment, and materials. One being, to be able to use various sensor detection radars to differentiate between the accidental nuclear activities or elicit, and also to be able to examine its ending of production in the full lifecycle – in substantive, verifiable, and secure ways. 

Open source data, seismic technology, and geospatial information analysis are used as well as other mediums to mitigate challenges in detecting nuclear activities. A method on the horizon is the public technical means, one where concerned citizens and the public participate in the process of arms control using smart phones or citizen sensors to collect and analyze data and information. Social media is also cited as a tool, to examine the field verification activities. However, this methodology also must accompany a larger public campaign about data privacy and mitigate potential deception and falsification, and in a country like North Korea, where ICT infrastructure is seriously constrained, the option to use public technical means to monitor verifiable denuclearization are not available. 

There are audio-visual tools, to evaluate the completeness and correctness of information. Multimedia data, such as photographs, videos, and audio recordings at nuclear facilities, it may be used to enhance preparation for in-field verification by helping to visualize physical attributes of facilities and equipment, thus aiding in such safeguards activities as design information verification and environmental sampling. 

 Another emerging source is the emerging earth observation tools such as satellite imagery equipped with high-definition videos, and emerging synthetic aperture radar systems, and thermal infrared. The deployment of high-definition (HD) video cameras on small satellites could facilitate close monitoring of motion, short-lived, or quickly changing phenomena to detect fissile materials in distance. The denuclearization of North Korea means securing international and regional security. 

Multilateral agreements between nuclear weapon possessing states – developing variety of options to meet the diversity of possible scenarios, including optimizing technologies to maximize their robustness, minimize intrusiveness as well as building cohesive configurations of approaches to cover the diverse set of facilities and objectives. 

Data Fusion Model 

Making sense out of the disparate data source is not in the future. The heterogenous data streams can be integrated through validation algorithms and systems. 

Voluminous amounts of data are being generated on a daily basis from a multiple data streams. The most effective way to monitor verification of nuclear facilities is for the data to proceed in real-time and stored persistently. 

We can detect anomalies in the data, such as unusual nuclear activities or potential elicit activities in pattern of behavior or what constitutes nuclear weapons development activity prohibited under the treaty, drawing a line between activities exclusively weapons-oriented and those peaceful or for dual use those that can serve both military and/or civilian purposes. This would help clarify whether an application other than nuclear weapons development is plausible, such as a firewall to look at presence and absence of activities and their evolution over time. 

There exist many approaches today, but one this paper will explore is the method of efficiently fusing heterogenous data streams by gathering a network of dependencies within a dataset and compare the different networks to quantify the similarities. A mathematical proof based deductive process can be hard to scale due to the exact modeling of the programming language; therefore, the paper will opt to fusing an algorithm to create a normative pattern. 

First of all, the data has to be collected in a standardized matter and cleaned-up so each dataset contains similar fields. For the data be digestible and to be able to be interpreted, the model can use APIs, or a systems integration application layer that can interface with different systems into the data fusion model. 

Data fusion can be modeled with different methods and techniques based on the relations of the data source. For instance, two sensors monitoring the same site could be considered as redundant to increment the confidence of the data. If it is of two different viewpoints, it could be complimentary. When fusing original information to the new, such as additional audiovisual tools, it could be considered as cooperative. 

This pattern-based vulnerability discovery graph would essentially be a data governance model, acting as a meta data layer as a single version of the truth. It acts as a data validation layer providing integration access through the data fusion running the anomaly detection software among distributed sources. 

As participation allows, using novel open data, multimedia or geospatial can be used as synthetic data to ensure we are able to detect the anomalies with minimal false positives. Later, injecting real data into the dataset can validate the algorithm for no false positives. 

The data fusion model and its overlapping interface would allow analysts to detect unusual patterns of events and activities that support attribution of the source of illicit activity. 

Blockchain+AI 

U.S. officials worry that DPRK would hide key nuclear materials or facilities. Now, how can we ensure no entity purposefully tempers with the data?

In North Korea, Blockchain has been used in illicit procurement networks as a means of avoiding sanctions, but its applications, such as storing records, clearing and settling accounts, and ensuring validity and execution of contractual arrangement, could allow us to also view when a data has been viewed or modified. It would ensure data integrity in nuclear, satellite command, and control to permanently log crucial intelligence on whether a hacker had modified something in a database. 

The spread of nuclear weapons technology consist of a rainbow of decentralized, sometimes overlapping and sometimes fragmented systems of international agreements, informal arrangements, and national legislation. Not surprisingly, differences in national implementation and enforcement continue to frustrate efforts to keep dual-use goods and technologies out of proliferator hands. These implementation gaps, coupled with the sheer volume of global trade and commerce, have reduced the barriers to entry for intermediaries and created pathways for illicit procurement networks to exploit. 

Any measurement system in such a regime necessarily requires tamperproof certification and authentication. As is easily imagined, the security system is what assures the integrity of the process to prevent both cheating or leakage of military secrets. The DPRK leadership likely suspects the other parties’ commitment to rewards and their motivations for conducting certain verification activities. This dismantlement model recognizes the initial lack of trust among the parties and allows confidence building through the successful implementation of initial cooperative steps towards verified dismantlement. 

Verification would occur throughout the process, and incentives and security guarantees would be implemented in stages linked to the dismantlement and verification steps. 

AI is concerned with building algorithms which are capable of working with (processing, or operating with) data while it is still in an encrypted state. As any part of a data process which involves exposing unencrypted data represents a security risk, reducing these incidents could help to make things much safer. The AI data fusion model could help make decision about whether the transactions should be investigated. Having each decision recorded on a datapoint by datapoint on a blockchain to be audited with the various stakeholders, would ultimately be a machine learning-powered algorithm with a decision making process.

The way we could achieve this is by integrating the data fusion model into an encrypted ledger, the segmented verified databases built and implemented only upon databases have been verified can reduce the stress of troubleshooting and finding abnormal datasets. 

The data quality assurance or maintenance of the server can be offloaded onto a Cloud, potentially maintained by the CTBTO to have a third party all stakeholders are politically comfortable with. 

The Blockchain model would be in a permissioned ledger to only allow a few selected members could access it, and distribute the files across the network to have files available even if part of the network is broken. This would ensure the file would not be tempered, a highly robust database that can only be read and updated only with this with permission. 

When a data has been created for the purpose of model building, licenses which cause restriction or permission can be specified by the party. Blockchain technology then makes the process of doing this relatively easier. 

A centralized, or permissionable,  Blockchain model, where roles are granted to certain users to interact with the ledger for a trusted set of users would only allow for the IAEA Member States or selected parties to view the data. For instance, when a report is transmitted into the data, it would be distributed across separate entities. They would be able to view when and if the data is valid, unique, and authenticated, as verified by the data fusion model. Using private key encryption, IAEA could also only share the meta data only deem suitable for sharing, and only allow certain entities with permission to view more sensitive information. 

Supply-Chain model 

Blockchain has been discussed as a method in the supply-side controls, but there remains discussion on whether blockchain-based systems will help or hinder monitoring for illicit transactions and fraud. It opens up possibilities for transactional monitoring, as it could help ensure transparent and real-time monitoring across all transactions. Moreover, trade and finance systems based on blockchain mean that financial transactions need not be conceptually separate from trade-related transactions (i.e., shipping and insurance), thereby increasing the granularity of information available to regulators, enforcement, and intelligence agencies. 

The Trump administration is now looking for ways to continue to peaceful talks to sustain the momentum to pursue a creative, realistic, and conciliatory way to move forward with credible steps toward disarmament of North Korea. The task has been accomplished by states willing to make the necessary political commitment and resources- with detailed models and verifiable dismantlement of gas centrifuge and nuclear weaponization programs for application in North Korea. 

While the weight of that demand is heavy on any verification system, the certain consequences of failure require no less. To that end, we will have to close disparities between treaty compliance and the existing verification means available to serve that function. Otherwise, the imbalance will continually jeopardize the shared nonproliferation and disarmament aspirations of this century. Strengthening verification standards and practice through modern technology will ultimately strengthen transparency and security inherent in the verification model and renew commitment to compliance. It will then serve not only as a catalyst to future agreement, but also enhance the certainty that those security challenges that nations choose to meet by agreement will not be illusory.