Although there's still uncertainty over prospects for peace on the Korean Peninsula, it seems that South Korea is highly optimistic about the economic aspect of its cooperation with North Korea.
North Korea has a population of about 25 million. The largest city, the capital of Pyongyang, has about 3.2 million people and other cities generally have populations of about 300,000. The country's per capita GDP is a mere $530.
By comparison, with a population of 51 million, South Korea boosts per capita GDP of more than $27,500. But South Korea's economic growth is believed to have peaked, and its export-oriented growth model has run into trade protectionism.
If the hypothesis of merging and unifying North and South Korea were true, South Korea's population would increase by 50 percent. In light of this, although North Korea's GDP is a negligible fraction of that of South Korea, there is a chance that South Korea could see a 50 percent rise in its GDP that now adds up to $1.4 trillion. With a GDP of more than $2.1 trillion, a unified Korea would have an economy half the size of Japan's, or larger than the economies of Brazil, Italy or Canada.
South Korea's economy is dominated by family-owned conglomerates known as chaebol, with the top 10 chaebol accounting for a hefty part of GDP. Economic growth is seen mainly benefitting big chaebol such as Samsung and Hyundai, which in theory would have the opportunity of maintaining a fairly high rate of wealth growth over the next 10 years.
An assessment of Asia's economic future based upon the hypothesis of Korean unification indicates that it would be hard for Japan, China and even the US to derive any meaningful economic benefit from such an outcome.
North Korea's abundant pool of cheap labor and its market eager to see wealth growth will mostly benefit South Korea. In the past, China used to host a certain number of North Korean workers, but that was during an era when North Korea was blockaded by the outside world and could only rely on China for foreign-currency earnings.
If Korean unification, or to be exact the two nations' economic unification, becomes a reality, the situation will change. In this case, China or Japan will be just onlookers.
China might even find itself challenged by a unified Korea with lower costs in the world market. Japan might fare slightly better, considering its technological advantages and traditional partnerships with South Korean business groups. The benefits the US would get from unification would be limited or nil, taking into account uncertainties about its geopolitical interests.
For the world economy with total GDP of more than $70 trillion, Korean unification is likely to boost global growth by 1 percent. But much is still uncertain if this scenario is to play out.
North and South Korea still face tough obstacles including ideology, capital, nuclear weapons and internal political stability on the path toward genuine unification. The outcome also depends particularly on US political moves. Nevertheless, amid uncertainties there seems to be one certainty: The only way to avoid risk is to have the foresight to make future-proof plans.
By Chen Gong Source:Global Time
The author is the chief research fellow with Beijing-based private strategic think tank Anbound. bizopinion@globaltimes.com.cn
Chinese President Xi Jinping met North Korean leader Kim
Jong-un in Beijing on Tuesday, and the two leaders discussed topics
including the US-North Korea summit in Singapore.
Source: Global Times | 2018/6/19 22:53:39
China will impose 25 percent in tariffs on 659 US goods worth $50 billion, including soybeans, cars and seafood.
The move came as a tit-for-tat response to the tariffs announced by the Trump administration Friday morning. An expert said the US decision does not aim to tackle the trade deficit with China but to block the Chinese government's efforts in high-tech development.
Tariffs on 545 US goods worth $34 billion will take effect on July 6, involving agricultural products, car parts and seafood, according to a statement released by China's Ministry of Commerce (MOFCOM) on Saturday morning. Soybeans, which are China's biggest import from the US in value, are on the list.
Chemicals, medical equipment and energy products from the US will also be subject to 25 percent tariffs, which will be announced at a later date.
The revised list is longer and involves more categories of products than a preliminary list of 106 US goods published by the ministry in April, but the total value of the products remains at $50 billion.
A Chinese commerce expert found that aircraft were removed from China's new list, which is noteworthy.
"We need aircraft [from the US]. We have to consider the costs of the countermeasures we plan to take," Bai Ming, deputy director of the Ministry of Commerce's International Market Research Institute, said on Saturday soon after the Chinese tariffs were announced.
It's like acting as a soccer referee who will not call out the offenses and let the play continue when the game still benefits the attacking team even though an attacking player is fouled, Bai further explained.
China is one of the fastest-growing civil aviation markets in the world, and 15 to 20 percent of Boeing's aircraft deliveries are projected to end in the Chinese market over the next two decades, according to Morgan Stanley.
The US has kept changing their mind and ignited a trade war, which China does not want and will firmly oppose, a spokesperson of the MOFCOM said immediately after US took trade measures on China. "This move not only hurts bilateral interests, but also undermines the world trade order."
"China and the US still have hopes of negotiating and reaching an agreement, as both the tariffs announced by the two countries will not take into effect until next month," said Wang Jun, deputy director of the Department of Information at the China Center for International Economic Exchanges.
Wang told the Global Times that the removal of aircraft from the new list can be a signal that China still wants to talk, and also aircraft can be a valuable chip in the next round of trade negotiations.
Meanwhile, Wang said the Trump administration's newly published list is not so much a solution for the trade deficit problem with China as efforts to hinder China's technology development.
US President Donald Trump on Friday announced 25 percent tariffs on $50 billion in Chinese goods, containing industrially significant technologies related to China's "Made In China 2025" strategy.
According to a list published by the office of the US Trade Representative, the tariffs will be applied on more than 1,000 types of Chinese goods, including aircraft engine parts, bulldozers, nuclear reactors and industrial and agricultural machinery.
American industry also opposed Trump's decision.
"Imposing tariffs places the cost of China's unfair trade practices squarely on the shoulders of American consumers, manufacturers, farmers, and ranchers. This is not the right approach," US Chamber of Commerce President and CEO Thomas J. Donohue said in a statement posted on the chamber's website on Friday.
China on Tuesday launched a swift and sharp response to
the latest trade provocations from the US, which threatened to slap
tariffs on almost all Chinese exports to the US, calling the US move
"blackmail" and vowing to respond with strength to protect its own and
the world's interests.
Dealing with the US is difficult, but China can easily
refuse theft and coercion. China will remain with the US through
negotiations and war. If a trade war between the two becomes fierce, the
result will not provide a favorable political environment for President
Trump.
China will launch an immediate, powerful response to US
tariffs on billions of dollars' worth of Chinese goods, threatening to
target US goods on the same scale and intensity, a spokesperson for the
Chinese Ministry of Commerce (MOFCOM) said on Friday.
US President Donald Trump's trade and fiscal policies are
likely to increase the risks to the US and global economy, the
International Monetary Fund (IMF) said Thursday.
China has unveiled a list of products from the United
States that will be subject to additional tariffs in response to US
announcement to impose additional duties on Chinese imports.
Japan may have led Malaysia's Look East policy of yore, but the stakes are heavily tipped in China's favour now as the leader of the new world order.
PRIME Minister Tun Dr Mahathir Mohamad (pic) has announced that Malaysia is renewing, or to be more precise, upgrading the Look East policy he adopted as a foreign policy 30 years ago.
It was unveiled after he came to power in 1981 and now, as the premier for the second time, he has picked up the pieces of his past and repackaged it.
His inclination to Japan then was understandable since the country was the rising star of Asia.
Although Look East included South Korea and Taiwan, it basically meant Japan.
There were sound reasons to why Dr Mahathir wanted Malaysia to emulate some of the East Asian characteristics, both economically and ethically.
I think any Malaysian who has visited Japan can vouch for the people’s work ethic, honesty, orderliness, politeness, punctuality, cleanliness, precision, dedication to excellence, innovation and good manners.
Malaysians in Japan feel safe – they rarely get cheated despite being tourists, which is more than can be said for many countries.
Personally, Japan remains my No. 1 holiday destination. Like Dr Mahathir, I have the highest admiration for the Japanese. They are certainly exemplary, and that is indisputable.
Dr Mahathir has continued to have high regard for the Japanese and history seems to be repeating itself.
His Look East Policy shocked and confused the Malaysian foreign ministry, with many officials viewing it as undefined and vague.
The Ministry being left in the dark about the Prime Minister’s move led to it being unaware of how to implement the policy.
Fast forward to 2018. It’s likely that his new batch of ministers were also caught off guard with the revival of the Look East policy, more so when the Foreign Minister has yet to be installed.
Without doubt, Japan is an important partner to Malaysia because we have more than six decades’ ties with the country.
In 2016, Japan ranked Malaysia as its fourth-largest trading partner with bilateral trade standing at RM120bil.The strong trade and investment relations between the nations are also underpinned by the Malaysia-Japan Economic Partnership Agreement.
The latest Malaysia-Japan collaboration includes the Bukit Bintang City Centre project, which has managed to attract the leading real estate group in the Land of the Rising Sun, Mitsui Fudisan Co Ltd, to invest in what will be the mega project’s RM1.6bil retail mall.
But Dr Mahathir’s choice of his first foreign visit to Japan as PM has raised many eyebrows. Perhaps it was just the coincidental timing of the annual Nikkei Conference, which he attends without fail.
I was told that his office had informed the Chinese Embassy here, as a matter of courtesy, to avoid reading into the matter, given the long, bitter rivalry between the two nations.
Dr Mahathir was also visiting Japan after a series of announcements, calling for the review, if not cancellation or postponement, of several mega Chinese-driven projects in Malaysia.
The method of repayments with China, involving huge amounts of money, has, of course, been called into question and condemned. One critic even described the terms as “strange.”
It’s apparent the situation is delicate now, and we need to tread carefully because we are dealing with a global leader.
Powerful alliance
The PM admitted that his government was “dealing with a very powerful country. As such, matters affecting both parties will require friendly discussions”.
Former finance minister Tun Daim Zainuddin also said that Malaysia will carefully handle business contracts with China made by the previous administration.
In an interview with The Star, Daim admitted that the economic superpower is a friend to Malaysia.
“China is very important to us,” the Council of Eminent Persons spokesman said.
“We enjoy very close relations, but unfortunately, under the previous administration, a lot of China contracts are tainted, difficult to understand and the terms are one-sided,” said Daim.
There is plenty at stake here. The world has also changed, and Malaysia needs to be mindful of its diplomatic move. These are sensitive times, and to the Chinese, the issue of “face” is an important one.
Whether we like it or not, the whole world is looking towards China because this is where the fundamental building blocks of a future global digital economic model is being curated and built.
Japan’s economy, on the other hand, has been in regression over the last two decades, and open data is easily available to prove this point. Just google it.
That aside, China is Malaysia’s largest trading partner in Asean, especially after Malaysia-China bilateral transactions rose as much as 28% to RM139.2bil in 2017’s first half.
The Chinese government has been very positive with bilateral relations with Malaysia over the years, and this great foundation is what we must build on. It doesn’t matter who the Malaysian Prime Minister is now.
With Ali Baba and Tencent coming to Malaysia, SMEs – which comprise more than 95% of Malaysian business entities – exporting to China will be a huge foreign trade opportunity.
Of all the Asean nations, Malaysia has the largest pool of businessmen who speak the relevant Chinese dialects and understand the culture. But it’s not just the Malaysian Chinese businessmen who stand to benefit, but other races too.
Let’s not forget that China will be under steady stewardship for the coming decade since Xi Jinping has strengthened his position as the premier. And with Dr Mahathir rightfully announcing that Malaysia will be a neutral country, this will mean a stable foreign policy which is crucial for the rules of engagement.
The same can’t be said of Japan, though, as it has a history of turbulent domestic politics, with frequent changes in leadership.
Truth be told, China has outperformed Japan. The republic has become a model of socio-economic reform that connects, not only the past with the present, but more importantly, can rewrite the history of human development into our common future.
The One Belt, One Road initiative is the future. It was also reported that China has overtaken Japan in global patent applications filed in 2017 and is closing in on the United States, the long-standing leader, the World Intellectual Property Organization said in a report.
With 48,882 filings, up 13.4% from a year earlier, Chinese entities came closer to their American counterparts, which filed 56,624 applications. Japanese applicants ranked third with 48,208 demands for patents, up 6.6% from a year ago, the report, released Wednesday, revealed. According to the Geneva-based institution, China will likely overtake the US as the world’s largest patent applicant within three years.
“This rapid rise in Chinese use of the international patent system shows that innovators there are increasingly looking outward, seeking to spread their original ideas into new markets as the Chinese economy continues its rapid transformation,” WIPO director-general Francis Gurry said.
The overall filings in 2017 were 243,500, up 4.5% from a year earlier.
Data indicates that China and Japan were key drivers of the surge in applications.
“This is part of a larger shift in the geography of innovation, with half of all international patent applications now originating in East Asia,” Gurry reportedly said.
Two Chinese firms topped the list, led by Huawei Technologies Co with 4,024 patent applications and ZTE Corp with 2,965 submissions. Intel Corp of the United States is placed third with 2,637 filings, followed by Mitsubishi Electric Corp with 2,521.
China has also declared its ambition to equal the US in its AI capability by 2020 and to be number one in the world by 2030.
If there is a single country to take a cue from, then it can only be China. Look at its growth since 1957, 1967, 1987, 1997 and 2017, and see the strides it has made in the shortest time. Remember, China was once poor and backwards. Many Malaysian Chinese used to send money back to their families in China, especially in 1950s and 1960s, and even 1970s. But look where the country is now.
Malaysia is in pole position to take advantage since our neighbour Singapore has always been perceived to be too US-centric. It will be a waste if we let politics get in the way, as no one can dispute that China now plays a respected and vital role.
Anyone can tell that China will reshape the new world order. It is the new Middle Kingdom and is the country to look to.
And Dr Mahathir should pick up on this because at the end of his trip to Japan, the press bombarded him with the predictable and nagging question – when will he be visiting China?
By Wong Chun Wai On The Beat
Wong Chun Wai began his career as a journalist in Penang, and has served The Star for over 27 years in various capacities and roles. He is now the group's managing director/chief executive officer and formerly the group chief editor.
On The Beat made its debut on Feb 23 1997 and Chun Wai has penned the column weekly without a break, except for the occasional press holiday when the paper was not published. In May 2011, a compilation of selected articles of On The Beat was published as a book and launched in conjunction with his 50th birthday. Chun Wai also comments on current issues in The Star.
KUALA
LUMPUR: The Multimedia Super Corridor (MSC) programme, mooted by Prime
Minister Tun Dr Mahathir Mohamad some 20 years ago, has been
instrumental in inspiring the establishment of Alibaba Group, Jack Ma
said.
Fed’s big balance-sheet unwind could be coming to an early end
NEW YORK: The Federal Reserve’s balance sheet may not have that much further to shrink.
An unexpected rise in overnight interest rates is pulling forward a key debate among US central bankers over how much liquidity they should keep in the financial system. The outcome will determine the ultimate size of the balance sheet, which they are slowly winding down, with key implications for US monetary policy.
One consequence was visible on Wednesday. The Fed raised the target range for its benchmark rate by a quarter point to 1.75% to 2%, but only increased the rate it pays banks on cash held with it overnight to 1.95%. The step was designed to keep the federal funds rate from rising above the target range. Previously, the Fed set the rate of interest on reserves at the top of the target range.
Shrinking the balance sheet effectively constitutes a form of policy tightening by putting upward pressure on long-term borrowing costs, just as expanding it via bond purchases during the financial crisis made financial conditions easier. Since beginning the shrinking process in October, the Fed has trimmed its bond portfolio by around US$150bil to US$4.3 trillion, while remaining vague on how small it could become.
This reticence is partly because the Fed doesn’t know how much cash banks will want to hold at the central bank, which they need to do in order to satisfy post-crisis regulatory requirements.
Officials have said that, as they drain cash from the system by shrinking the balance sheet, a rise in the federal funds rate within their target range would be an important sign that liquidity is becoming scarce.
Now that the benchmark rate is rising, there is some skepticism. The increase appears to be mainly driven by another factor: the US Treasury ramped up issuance of short-term US government bills, which drove up yields on those and other competing assets, including in the overnight market.
“We are looking carefully at that, and the truth is, we don’t know with any precision,” Fed chairman Jerome Powell told reporters on Wednesday when asked about the increase. “Really, no one does. You can’t run experiments with one effect and not the other.”
“We’re just going to have to be watching and learning. And, frankly, we don’t have to know today,” he added.
But many also see increasingly scarce cash balances as at least a partial explanation for the upward drift of the funds rate, and as a result, several analysts are pulling forward their estimates of when the balance sheet shrinkage will end.
Mark Cabana, a Bank of America rates strategist, said in a report published June 5 that Fed officials may stop draining liquidity from the system in late 2019 or early 2020, leaving US$1 trillion of cash on bank balance sheets. That compares with an average of around US$2.1 trillion held in reserves at the Fed so far this year.
Cabana, who from 2007 to 2015 worked in the New York Fed’s markets group responsible for managing the balance sheet, even sees a risk that the unwind ends this year.
One reason why people may have underestimated bank demand for cash to meet the new rules is that Fed supervisors have been quietly telling banks they need more of it, according to William Nelson, chief economist at The Clearing House Association, a banking industry group.
The requirement, known as the Liquidity Coverage Ratio, says banks must hold a certain percentage of their assets either in the form of cash deposited at the Fed or in US Treasury securities, to ensure they have enough liquidity to deal with deposit outflows.
The Fed flooded the banking system with reserves as a byproduct of its crisis-era bond-buying programs, known as quantitative easing, to stimulate the economy. The money it paid investors to buy their bonds was deposited in banks, which the banks in turn hold as cash in reserve accounts at the Fed.
In theory, the unwind of the bond portfolio, which involves the reverse swap of assets between the Fed and investors, shouldn’t affect the total amount of Treasuries and reserves available to meet the requirement. The Fed destroys reserves by unwinding the portfolio, but releases an equivalent amount of Treasuries to the market in the process.
But if Fed supervisors are telling banks to prioritise reserves, that logic no longer applies. Nelson asked Randal Quarles, the Fed’s vice-chairman for supervision, if this was the Fed’s new policy. Quarles, who was taking part in a May 4 conference at Stanford University, said he knew that message had been communicated and is “being rethought”.
If Fed officials do opt for a bigger balance sheet and decide to continue telling banks to prioritise cash over Treasuries, it may mean lower long-term interest rates, according to Seth Carpenter, the New York-based chief US economist at UBS Securities.
“If reserves are scarce right now, and if the Fed does stop unwinding its balance sheet, the market is going to react to that, a lot,” said Carpenter, a former Fed economist. “Everyone anticipates a certain amount of extra Treasury supply coming to the market, and this would tell people, ‘Nope, it’s going to be less than you thought’.” — Bloomberg
Malaysia and regional equity markets in the red
In Malaysia, the selling streak has been
ongoing for almost a month. As of June 8, the year to date outflow
stands at RM3.02bil, which is still one of the lowest among its Asean
peers. The FBM KLCI was down 1.79 points yesterday to 1,761.
PETALING JAYA: It was a sea of red for equity markets across the region after the Federal Reserve raised interest rates by a quarter percentage point to a range of 1.75% to 2% on Wednesday, and funds continued to move their money back to the US. This is the second time the Fed has raised interest rates this year.
In general, markets weren’t down by much, probably because the rate hike had mostly been anticipated. Furthermore for Asia, the withdrawal of funds has been taking place over the last 11 weeks, hence, the pace of selling was slowing.
The Nikkei 225 was down 0.99% to 22,738, the Hang Seng Index was down 0.93% to 30,440, the Shanghai Composite Index was down 0.08% to 3,047.34 while the Singapore Straits Times Index was down 1.05% to 3,356.73.
In Malaysia, the selling streak has been ongoing for almost a month. As of June 8, the year to date outflow stands at RM3.02bil, which is still one of the lowest among its Asean peers. The FBM KLCI was down 1.79 points yesterday to 1,761.
Meanwhile, the Fed is nine months into its plan to shrink its balance sheet which consists some US$4.5 trillion of bonds. The Fed has begun unwinding its balance sheet slowly by selling off US$10bil in assets a month. Eventually, it plans to increase sales to US$50bil per month.
With the economy of the United States showing it was strong enough to grow with higher borrowing costs, the Federal Reserve raised interest rates on Wednesday and signalled that two additional increases would be made this year.
Fed chairman Jerome H. Powell in a news conference on Wednesday said the economy had strengthened significantly since the 2008 financial crisis and was approaching a “normal” level that could allow the Fed to soon step back and play less of a hands-on role in encouraging economic activity.
Rate hikes basically mean higher borrowing costs for cars, home mortgages and credit cards over the years to come.
Wednesday’s rate increase was the second this year and the seventh since the end of the Great Recession and brings the Fed’s benchmark rate to a range of 1.75% to 2%. The last time the rate reached 2% was in late 2008, when the economy was contracting.
“With a slightly more aggressive plan to tighten monetary policy this year than had previously been projected by the Fed, it will narrow our closely watched gap between the yield rates of two-year and 10-year Treasury notes, which has recently been one of a strong predictor of recessions,” said Anthony Dass, chief economist in AmBank.
Dass expects the policy rate to normalise at 2.75% to 3%.
“Thus, we should potentially see the yield curve invert in the first half of 2019,” he said.
So what does higher interest rates mean for emerging markets?
It means a flight of capital back to the US, and many Asian countries will be forced to increase interest rates to defend their respective currencies.
Certainly, capital has been exiting emerging market economies. Data from the Institute of International Finance for May showed that emerging markets experienced a combined US$12.3bil of outflows from bonds and stocks last month.
With that sort of global capital outflow, countries such as India, Indonesia, the Philippines and Turkey, have hiked their domestic rates recently.
Data from Lipper, a unit of Thomson Reuters, shows that for the week ending June 6, US-based money market funds saw inflows of nearly US$34.9bil.
It makes sense for investors to be drawn to the US, where the economy is increasingly solid, coupled with higher yields and lower perceived risks.
Hong Kong for example is fighting an intense battle to fend off currency traders. Since April, Hong Kong has spent at least US$9bil defending its peg to the US dollar. Judging by the fact that two more rate hikes are on the way this year, more ammunition is going to be needed.
Hong Kong has the world’s largest per capita foreign exchange reserves – US$434bil more in firepower.
By right, the Hong Kong dollar should be surging. Nonetheless, the currency is sliding because of a massive “carry trade.”
Investors are borrowing cheaply in Hong Kong to buy higher-yielding assets in the US, where 10-year Treasury yields are near 3%.
From a contrarian’s perspective, global funds are now massively under-weighted Asia.
With Asian markets currently trading at 12.3 times forward price earnings ratio, this is a reasonable valuation at this matured stage of the market.
China Air carried Kim to Singapore talks with Trump
https://youtu.be/V3PbgGb8zIE
The historic meeting on Tuesday between North Korean leader Kim Jong-un and US President Donald Trump began with a handshake at the Capella hotel, Singapore.
The handshake lasted about 20 seconds before the two leaders walked to the meeting room accompanied by their interpreters.
Trump and Kim sat next to each other and answered a few questions from the media. Trump said he hopes the historic summit would be "tremendously successful,” adding, "We will have a terrific relationship ahead" as he faced Kim.
Kim said there were a number of “obstacles” and “prejudices” which made today’s meeting more difficult. “We overcame all of them and we are here today,” he told reporters through a translator.
Of particular note is the display of the two countries’ flags at the hotel, which is unusual between two countries with no formal diplomatic ties. Observers believe that this is a positive sign.
Trump arrived at the hotel about 8:30am, with Kim arriving five minutes after.
Displaying the national flag of North Korea shows that the US wants to express its sincerity and kindness to North Korea, Cheng Xiaohe, an associate professor at the Renmin University of China's School of International Studies, told the Global Times on Tuesday.
“The move toward establishing formal diplomatic ties could be an achievement of the summit,” Cheng said.
Hundreds of journalists are gathered at the Press Filing Center of the JW Marriott Hotel Singapore, where they can watch the livestream of the historic moment. Dozens of photographers attempted to get closer to Sentosa Island in the morning to film and take photos for the two leaders’ motorcades.
Trump and Kim met alone at 9:15 am and held an expanded bilateral meeting 45 minutes after. At 11:00, the two leaders are scheduled to have a working luncheon. Trump will leave Singapore at 7pm on Tuesday, the White House said.
Trump says summit with North Korea's Kim is 'very, very good'
SINGAPORE: U.S. President Donald Trump said he had forged a "good relationship" with North Korean leader Kim Jong Un at the start of a historic summit in Singapore on Tuesday, as the two men sought ways to end a nuclear standoff on the Korean peninsula.
Should they succeed in making a diplomatic breakthrough, it could bring lasting change to the security landscape of Northeast Asia, like the visit of former U.S. President Richard Nixon to China in 1972 led to the transformation of China.
"There will be challenges ahead," Kim said, but he vowed to work with Trump. Both men sat against in the hotel's library against a backdrop of North Korean and U.S. flags, with Kim beaming broadly as the U.S. president gave him a thumbs up.
With cameras of the world's press trained on them, Trump and Kim displayed an initial atmosphere of bonhomie.
Both men had looked serious as they got out of their limousines for the summit at the Capella hotel on Singapore's Sentosa, a resort island with luxury hotels, a casino, manmade beaches and a Universal Studios theme park.
But they were soon smiling and holding each other by the arm, before Trump guided Kim to the library where they held a meeting with only their interpreters. Trump had said on Saturday he would know within a minute of meeting Kim whether he would reach a deal.
After some initial exchanges lasting around 40 minutes, Trump and Kim emerged, walking side-by-side through the colonnaded hotel before re-entering the meeting room, where they were joined by their most senior officials.
Kim was heard telling Trump through a translator: "I think the entire world is watching this moment. Many people in the world will think of this as a scene from a fantasy...science fiction movie."
Asked by a reporter how the meeting was going, Trump said: "Very good. Very, very good. Good relationship."
Kim also sounded positive about the prospects.
"We overcame all kinds of scepticism and speculations about this summit and I believe that this is good for the peace," he said.
Trump was joined by Secretary of State Mike Pompeo, National Security Adviser John Bolton, and John Kelly, White House Chief of Staff, for the expanded talks, while Kim's team included former military intelligence chief Kim Yong Chol, foreign minister Ri Yong Ho and Ri Su Yong, vice chairman of the ruling Workers' Party.
MARKETS CALM
As the two leaders met, Singapore navy vessels, and air force Apache helicopters patrolled, while fighter jets and an Gulfstream 550 early warning aircraft circled.
Financial markets were largely steady in Asia and did not show any noticeable reaction to the start of the summit. The dollar was at a three-week high and the MSCI index of Asia-Pacific shares was largely unchanged from Monday.
While Trump and Kim search each other’s eyes and words for signs of trust or deceit, the rest of the world will be watching, hoping that somehow these two unpredictable leaders can find a way to defuse one of the planet's most dangerous flashpoints.
A body language expert said both men tried to project command as they met, but also displayed signs of nerves.
In the hours before the summit began, Trump expressed optimism about prospects for the first-ever meeting of sitting U.S. and North Korean leaders, while Pompeo injected a note of caution whether Kim would prove to be sincere about his willingness to denuclearise.
Officials of the two sides held last-minute talks to lay the groundwork for the summit of the old foes, an event almost unthinkable just months ago, when they were exchanging insults and threats that raised fears of war.
Staff-level meetings between the United States and North Korea were going "well and quickly," Trump said in a message on Twitter on Tuesday.
But he added: "In the end, that doesn't matter. We will all know soon whether or not a real deal, unlike those of the past, can happen!"
The combatants of the 1950-53 Korean War are technically still at war, as the conflict, in which millions of people died, was concluded only with a truce.
On Tuesday morning, Pompeo fed the mounting anticipation of diplomatic breakthrough, saying: "We're ready for today."
He earlier said the event should set the framework for "the hard work that will follow", insisting that North Korea had to move toward complete, verifiable and irreversible denuclearisation.
North Korea, however, has shown little appetite for surrendering nuclear weapons it considers vital to the survival of Kim's dynastic rule.
Sanctions on North Korea would remain in place until that happened, Pompeo said on Monday. "If diplomacy does not move in the right direction ... those measures will increase."
He added: "North Korea has previously confirmed to us its willingness to denuclearise and we are eager to see if those words prove sincere."
The White House said later that discussions with North Korea had moved "more quickly than expected" and Trump would leave Singapore on Tuesday night after the summit, rather than Wednesday, as scheduled earlier.
Kim is due to leave on Tuesday afternoon, a source involved in the planning of his visit has said.
One of the world's most reclusive leaders, Kim visited Singapore's waterfront on Monday, smiling and waving to onlookers, adding to a more affable image that has emerged since his April summit with South Korean leader Moon Jae-in.
'CHANGED ERA'
Just a few months ago, Kim was an international pariah accused of ordering the killing of his uncle, a half-brother and scores of officials suspected of disloyalty.
The summit was part of a "changed era", North Korea's state-run KCNA news agency said in its first comments on the event.
Talks would focus on "the issue of building a permanent and durable peace-keeping mechanism on the Korean peninsula, the issue of realising the denuclearisation of the Korean peninsula and other issues of mutual concern", it added.
Ahead of the summit, North Korea rejected unilateral nuclear disarmament, and KCNA's reference to denuclearisation of the peninsula has historically meant it wants the United States to remove a "nuclear umbrella" protecting South Korea and Japan.
Trump spoke to both South Korea's Moon and Japan's Prime Minister Shinzo Abe on Monday to discuss developments ahead of the summit.
"I too, got little sleep last night," Moon told his cabinet in Seoul as the summit began in Singapore.
"I truly hope it will be a successful summit that will open a new age for the two Koreas and the United States and bring us complete denuclearisation and peace." - REUTERS
Chinese President Xi Jinping met North Korean leader Kim
Jong-un in Beijing on Tuesday, and the two leaders discussed topics
including the US-North Korea summit in Singapore.
