China is telling North Korean leaders to deal with their economic problems, before they have to confront a widespread rebellion. China apparently sees North Korea's best hope is to cut a deal with the West, to disarm and get massive food and economic aid. If North Korea does not listen to China, the Chinese are apparently not willing to come up with the needed aid themselves, but will tighten border controls, and hope for the best if North Korea collapses into disorder and civil war.
The currency exchange two months ago did a great deal of economic and political damage. The value of the North Korea currency, even adjusting for the 100:1 exchange rate, has declined against foreign currencies. A large chunk of capital (cash held by entrepreneurs for investment) has been wiped out, and what little economic growth there has been, has disappeared. Even the old school communists in the government have noted the public anger, and drop in economic activity. The officials who backed and carried out the currency reform are being removed, one by one. There is no agreement on how to deal with the economic damage. The communist hard liners in the government wanted to rein in the growing private economy, and they did, only to discover how important that part of the economy was. While the security services say they have the unrest under control, the unofficial news coming out of North Korea tells a different story, one of areas where the police fear to enter, and civilians who fearlessly attack secret police, and other security forces. It's not just the starving population that is pushing back, but members of the government. South Koreans and foreigners have been shocked of late, to hear North Korea government workers express contempt and disrespect for Kim Jong Il and other senior officials. Even Kim Jong Il has publically expressed regret over the poor diet of his people. Along with that disrespect comes a growing disregard for the recent orders to shut down public markets and stop using foreign currency. The government has been forced to backtrack on the markets and foreign currency. The people are ignoring their government up north, which is bad news for a police state.
The North Korean military has ordered many more civil defense drills recently, apparently in an effort to find out how much control they still have over their civilian backups (military reservists, security units and civil defense workers). The civilians are showing up mainly because the military is often offering food. But the civilians and reservists are not enthusiastic, and the generals are being told to not rely on these civilians too much in an emergency.
The North Korean government is, despite the rhetoric and publicity stunts (like firing all that artillery into fishing areas), eager to do more joint economic ventures with the south. The market economy may be taboo to individual North Koreans, but not to the North Korean government. Inside North Korea, the government is trying to control spiraling food prices with price controls. But these are circumvented, as traders cannot afford to sell at a loss. More and more northern officials are realizing that, and joining the merchants in going through the motions of trying to exercise state control over the economy.
South Korea regained its top position as the world's biggest shipbuilder. For a year, China took the lead, much to the chagrin of South Koreans. Scoring points on the Chinese is a big deal for the Koreans (who the Chinese consider "little brothers.")
January 29, 2010: After firing about 350 shells and rockets into coastal waters (first warning all aircraft and mariners to stay clear) during the last three days, North Korea ceased fire and declared the coastal waters safe once more. The target area was near the "Northern Limit Line", a maritime border that separates north and south Korea, as well as dividing valuable fishing areas. North Korea has tried to force the south to let the line move south (meaning more valuable seafood for the north), but the south has refused, and has a larger navy to make that work. This latest stunt didn't change any minds down south.
January 28, 2010: Thailand had concluded that the Il-76 it seized in December, and found to be full of North Korean military gear, was actually headed for Iran. South Korean officials believe that the latest round of arms sanctions against North Korea (which led to the inspection and seizure of the Il-76) has cut North Korea arms exports by more than half, and put a serious dent into the norths' fragile finances.
January 25, 2010: North Korea reacted angrily to the South Korean announcement that is might attack first if there seemed to be a threat of North Korea use of nuclear weapons. While North Korea denounced this new policy, it did so in the realization that the North Korean armed forces were falling apart, while those in the south had become far more powerful in the last two decades.