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North Korea sanctions and trade between North Korea and China

“Economic interchange between North Korea and China isn’t a matter of lopsided support from China to North Korea, but something taking place in an expanded form as mutual interests coincide.”

This was the key message in “North Korea-China Economic Interchange and the North Korean Economy as Seen from the Border,” a report published on Aug. 22 by Sejong Institute senior research fellow and Roh Moo-hyun administration-era (2003-2008) Unification Minister Lee Jong-seok. According to Lee, bilateral trade with China, which accounts for over 90% of North Korea’s foreign trade, has not been shrinking amid international coordination on sanctions in the wake of Pyongyang’s fourth nuclear test on Jan. 6 and the adoption of United Nations Security Council Resolution 2270 - called the toughest ever by many - on Mar. 2. If anything, it has been growing. Lee visited the North Korea-China border region in early and mid-August to investigate.

The situation is easily visible in trade figures. For the first half of 2016, North Korea-China trade was up 2.1% from the same period in 2015. While it did drop by 9.1% in April and 8.2% in May in the immediate wake of UNSCR 2270’s adoption, it increased for all four remaining months.

The recovery is fast even when compared to the 3.1% decline in North Korea-China trade between the first halves of 2012 and 2013 after the North‘s third nuclear test on Feb. 12, 2013, and the UNSC’s adoption of Resolution 2094 the following Mar. 7.

“Local sources have said passage through Chinese customs has become much easier since the [South Korean] government announced its decision [on July 8] to deploy THAAD [a Terminal High Altitude Area Defense antimissile system],” Lee said.

“Seoul’s THAAD deployment decision appears to have relieved some of the psychological burden from the UN’s sanctions against North Korea among Chinese people involved in economic relations with the North,” he added.

“While North Korea-China trade figures haven’t been released for July, they are expected to be substantially higher,” he continued.

The expansion of economic interchange stems from factors in both North Korea and China. First, the Chinese government has come out with a number of development plans with the North Korean border region even after the fourth nuclear test and adoption of UNSCR 2270. Its State Council, under Premier Li Keqiang, announced results from the selection of “border regions targeted for development and openness” on Jan. 7, the day after the nuclear test. Twenty-seven border cities were chosen, seven of them - Hunchun, Tumen, Longjing, Helong, Linjiang, Ji’an, and Dandong - on the North Korean border. Seventy-two state-level kouans (border crossing sites with customs facilities) were also chosen as target regions for development and openness. Fifteen of them were on the North Korean border, including Hunchun, Tumen, Ji‘an, Dandong, Quanhe, Shatezi, Nanping, and Changbai. State-level border economic cooperation zones at three sites - Hunchun, Helong, and Dandong - were selected as well. The same day, the State Council announced plans to establish border-area international tourism cooperation zones, with Yanbian Korean Autonomous Prefecture and Dandong selected from the North Korean border region.

“Central government support is provided for regions selected by the State Council,” Lee explained.

Local government in China’s three Northeast Provinces, where economic growth has dropped off notably in the last three years, are also looking to economic interchange with North Korea as a way forward. The governments of Jilin Province and Yanbian Korean Autonomous Prefecture announced their own major plans for relations with North Korea on Mar. 24 and Apr. 29 for the central government’s thirteenth five-year-plan. They include construction of an international tourism cooperation zone at the Tumen River delta; the building of mutual trade zones at Tumen, Longjing, Helong, and Ji’an; new facilities for the Helong state-level border economic cooperation zone; and efforts to promote cooperation at the China-North Korea border.

North Korea has been making a concerted push for economic openness in recent years. It has established economic development zones at 21 locations since 2013, while the five-year strategy for national economic development adopted at its Korean Workers‘ Party congress on May 6-9 listed expansion and development of external economic relations as a major component.

A particularly noteworthy trend has been an attempt to stimulate cross-border processing along the lines of the (now closed) Kaesong Industrial Complex, with China supplying raw materials for North Korean workers to make finished products. A number of textile and garment factories in Hunchun have crossed the border to establish 15 processing factories in North Korea. Exports of coal, North Korea’s top item for export to China, fell by 14.6% between the first half of 2015 and 2016, but double-digit increases were observed for the items ranked second to fifth, including men’s and women’s jackets, women’s coats, and T-shirts. The growing presence of artificial fibers - an intermediate good - among items imported from China by North Korea is closely tied to the new attempts at bilateral economic cooperation along the Kaesong model.

While South Korea tourist visits to Mt. Baekdu have been on the decline since the North’s fourth nuclear test, new efforts are also being made at trilateral tourism involving China and Russia: half-day trips between Sinuiju and Dandong; day trips between Ji‘an, Manpo, and Kosanjin; and connections between Hunchun, Rason, and Vladivostok using the Man Gyong Bong ferry.

While inter-Korean relations remain dead in the water after Seoul’s decision to shut down Kaesong, North Korea’s ties with China and Russia have only grown stronger.

“We need to come up with a new strategy for encouraging and assisting North Korea’s expansions in outward economic openness so it can locate a definite survival pattern in lives of mutual dependence with the outside,” Lee advised.

By Lee Je-hun, staff reporter

Please direct questions or comments to [english@hani.co.kr]