North Korean Economy Watch

Stephan Haggard and Marcus Noland
East-West Center Working Papers
Economics Series, No. 104
Download paper here (PDF)

Abstract:
Despite North Korea’s turn away from economic reform and the constraints of the second nuclear crisis, the country has in fact become more economically open. But it has emphasized closer economic relations with China and other trading partners that show little interest in political quid-pro-quos, let alone sanctions. Yet the U.S. can still exercise economic leverage by going aggressively after third-party financial intermediaries. This particular form of sanction does not require multilateral coordination, since foreign banking institutions that conduct significant business in the United States have a strong interest in avoiding institutions that the United States Treasury has identified as money laundering or proliferation concerns.

There is some evidence that North Korea moderated its missile proliferation activities during periods when rapprochement with the United States, and to a lesser extent Japan, was a priority, but in the absence of such interest and as legitimate trade, investment, and aid dry up, the incentives to intensify proliferation activities increase.

The internal organization of the North Korean economy has important implications for any policy seeking transformation via engagement. The economy is structured in such a way that outside economic ties are still largely monopolized by stateowned enterprises and other gatekeepers, such as the military. Under such circumstances, the precise design of engagement policies requires very close scrutiny. Even nominally commercial relations can be exploited if the North Korean counterparties believe that they are ultimately political in nature, subsidized and thus vulnerable to blackmail. If economic ties are truly commercial in nature, those choosing to trade and invest with North Korea do so at their own risk. Under these circumstances, private actors will make economic decisions fully factoring in political risk, and North Korea will bear the costs if it chooses to renege on commitments or fails to provide a supportive policy environment.

Paper prepared for the conference on “North Korean Nuclear Politics: Constructing a New Northeast Asian Order in the 21st Century,” University of Washington, June 4-5, 2009. We would like to thank the Smith Richardson, MacArthur, and Korea Foundations for financial support and Jennifer Lee for research assistance.

UPDATE: A shorter version of this paper can be found here.

UPDATE: In response to the resolution, the DPRK has made some serious threats.  According to the Telegraph:

A commentary in the North’s state-run Rodong Sinmun newspaper claimed the US had 1,000 nuclear weapons in South Korea ready to strike. 

Meanwhile, the Tongbil Sinbo newspaper said that North Korea is “completely within the range of US nuclear attack and the Korean peninsula is becoming an area where the chances of nuclear war are the highest in the world.” 

Over the weekend, North Korea angrily responded to fresh United Nations sanctions by threatening to build as many nuclear weapons as possible. 

Until now, it said, it had only reprocessed one-third of its spent fuel rods into weapons-grade plutonium. Analysts believe the rogue state could end up with enough plutonium to make eight to nine bombs. 

The rogue state also claimed to have a uranium-enrichment programme, the first time it has admitted to one. The claim is alarming, said Professor Yang Moo-Jin, of Seoul’s University of North Korean Studies. 

“The North has abundant natural uranium of good quality, which, if combined with technology and facilities, would result in a great nuclear arsenal,” he said.  

UPDATE:  The United Naitons Security Council (UNSC) has passed a new resolution in response to the DPRK’s second nuclear test.  Althought the text of the resolution has been posted to the UNSC web page (here), below are the economically significant excerpts (taken from Reuters).  The resolution…

1. Calls upon all States to inspect, in accordance with their national authorities and legislation, and consistent with international law, all cargo to and from the DPRK, in their territory, including seaports and airports, if the State concerned has information that provides reasonable grounds to believe the cargo contains items the supply, sale, transfer, or export of which is prohibited;

2. Calls upon all Member States to inspect vessels, with the consent of the flag State, on the high seas, if they have information that provides reasonable grounds to believe that the cargo of such vessels contains items the supply, sale, transfer, or export of which is prohibited;

3. Calls upon all States to cooperate with inspections pursuant to paragraphs 11 and 12, and, if the flag State does not consent to inspection on the high seas, decides that the flag State shall direct the vessel to proceed to an appropriate and convenient port for the required inspection by the local authorities pursuant to paragraph 11;

4. Decides that Member States shall prohibit the provision by their nationals or from their territory of bunkering services, such as provision of fuel or supplies, or other servicing of vessels, to DPRK vessels if they have information that provides reasonable grounds to believe they are carrying items the supply, sale, transfer, or export of which is prohibited … unless provision of such services is necessary for humanitarian purposes;

5. Calls upon Member States … to prevent the provision of financial services … that could contribute to the DPRK’s nuclear-related, ballistic missile-related, or other weapons of mass destruction-related programs or activities;

6. Calls upon all Member States and international financial and credit institutions not to enter into new commitments for grants, financial assistance, or concessional loans to the DPRK, except for humanitarian and developmental purposes;

7. Calls upon all Member States not to provide public financial support for trade with the DPRK … where such financial support could contribute to the DPRK’s nuclear-related or ballistic missile-related or other WMD-related programs or activities;

In the Washington Post, Marcus Noland asserts that this sanctions plan is “clever”. Instead of a “crime and punishment” approach to North Korea, he said, the proposed sanctions are “basically defensive,” relying on interdiction of ships and global financial restrictions. He also went on to say, “The North Koreans will be down to whatever China gives them and whatever they can get from their subterranean customers in the Middle East.”

The Washington Post also states:

But there is little chance that these tougher sanctions will limit the ability of Kim Jong Il’s government to profit from more conventional overseas trade, said Lim Eul-chul, a researcher who specializes in North Korean trade for the Seoul-based Institute for Far Eastern Studies.

“The sanctions will not have much effect on what North Korea trades with China,” he said.

North Korea consistently fails to grow enough food to feed its 23 million people, and its state-controlled economy is moribund, but it does have mineral resources that are coveted by many industrialized countries.

The estimated value of its reserves — including coal, iron ore, zinc, uranium and the world’s largest known deposit of magnesite, which is essential for making lightweight metal for airplanes and electronics — is more than $2 trillion, according to the Korea Chamber of Commerce and Industry.

The manufacturing boom in neighboring China has dovetailed with North Korea’s acute need for hard currency and has accelerated Chinese access to the North’s resources, according to Lim, Chinese mining experts and South Korean government officials. There is, however, a significant new wrinkle in the North’s trade with China, Lim said. “The military is taking control of export sales,” he said, citing informants inside North Korea.

Other branches of the North Korean government, such as the Workers’ Party and the cabinet, have been forced to relinquish their interest in these sales to the military, Lim said. The military has grabbed greater control of export revenue, he said, as it has provoked the outside world with missile launches and the nuclear test.

Based on the recent growth of North Korean-Chinese trade, Lim said he does not believe that China wants to “take any strong measures to crush the North Korean economy.”

An article in the New York Times expresses sckepticism that these new sanctions will deter North Korea’s nuclear ambitions:

This time, in addition to financial sanctions, the proposed Security Council resolution calls for a tighter arms embargo, possible interdiction of North Korean vessels. But most analysts say that none of the threats are large enough to stop a regime that sees nuclear weapons as the key to its survival, and that has endured decades of economic sanctions and hardships, including even starvation, rather than capitulate to outside pressure.

“These are people who didn’t flinch even when 2 million of their own people died of hunger,” said Lee Ji-sue, a North Korea specialist at Myongji University.

And that is assuming that the sanctions are fully enforced. While many of these same measures have been included in previous U.N. resolutions, nations like China and Russia were reluctant to enforce them to avoid antagonizing the North.

Critics and proponents alike agree that the linchpin in making any sanctions work is China, North Korea’s primary aid and trade partner. China shares an 850-mile border with North Korea, and its $2 billion annual trade with the North accounts for over 40 percent of Pyongyang’s entire external trade, according to South Korean government estimates. North Korea’s trade with China expanded by 23 percent just last year, the South Korean government said.

Both United States and South Korean officials fear that although Beijing was disappointed by the North’s continued tests, it remains reluctant to push too hard. They say China fears causing a collapse by the Pyongyang regime that could flood it with refugees and create a newly unified, pro-American Korea on its border.

Finally, The Economist weighs in with some critical analysis:

It is hard to envision that the new sanctions will bring North Korea back to the negotiating table. With few exceptions, previous rounds of economic sanctions have had little impact. In the present case, unanimity was achieved at the price of watering down the provisions that require other countries to search North Korean vessels. The final compromise—that North Korean ships are required to undergo searches but cannot be forced to do so—is hardly a recipe for effective enforcement.

As in the past, China—and Russia, to a lesser extent—may have supported the new sanctions primarily to send North Korea a message of unified international condemnation. But North Korea will hardly infer from the passage of a murkily worded, patchily enforced resolution that it has exhausted its ability to wring concessions from its neighbours and exploit their differences. Moreover, even if the new measures are consistently enforced, it’s not clear that punishments designed to put economic and diplomatic pressure on North Korea will change the regime’s behaviour. North Korea is already one of the most isolated and desperately poor countries in the world.

Divergent interests
A lasting solution to the North Korea problem will require more than just agreeing a common approach and collectively enforcing sanctions. The main problem is not just North Korea’s unpredictability, which is, after all, predictable. It is that there are also major differences between the various interested powers in terms of how they assess the threat and what they view as the optimal outcome.

Although China’s influence over North Korea is often overstated, China alone has the economic leverage to force the regime back to the bargaining table. China’s dilemma, however, is that there may be a fine line between the amount of pressure sufficient to force the stubborn regime to make concessions and the amount that would precipitate its collapse. The fall of the current regime would almost certainly result in a massive humanitarian crisis (more accurately, China would suddenly bear the brunt of the crisis already wracking its chronically famine-stricken neighbour). For China (and Russia) the collapse of North Korea would also be a big strategic setback. The bonds of communist solidarity may have faded since Mao Zedong sent hundreds of thousands of soldiers to fight US-led UN forces during the Korean war—but North Korea remains a buffer state, the loss of which could result in a united, US-allied Korean peninsula. 

Read the full articles below:
Key excerpts from U.N. North Korea resolution
Reuters
Claudia Parsons
6/12/2009

Value of N. Korea Sanctions Disputed
Washington Post
Blaine Harden
6/12/2009

Will sanctions ever work on North Korea?
New York Times
Martin Fackler and Choe Sang-hun
6/12/2009

Punishing North Korea
The Economist
6/17/2009

ORIGINAL POST: The DPRK has historically faced few substantive repercussions from its missile and nuclear tests due to roles that Russia and China occupy both in the UN Security Council and in their status as North Korea’s neighbors, trading partners, and investors. Russia is developing the DPRK’s Rason Port and seeks to build a natural gas pipeline through the DPRK to South Korea.  China is the DPRK’s largest trading partner. And of course, hundreds (maybe thousands?) of  North Koreans work in both China and Russia to earn foreign currency for their government.

So how have China and Russia responded to the most recent nuclear test and missile launches? China has issued some tough language condeming the test and supposedly canceled some cultural exchanges, and  Russian President Medviev has also expressed concern in the

Western business media:

We have always had good relations with the North Korean leadership. But what has happened raises great alarm and concern. I have had quite a number of telephone talks with the Prime Minister of Japan and the President of South Korea. We need to think about some measures to deter those programs that are being conducted. We hope the North Korean leadership will get back to the negotiating table, because there is no other solution to this problem. The world is so tiny—as we see from the economic problems common to all of us. But indeed, WMD development or [nuclear] proliferation is a danger that is even higher than that. I’m prepared to discuss this matter in more detail during our meeting with President Obama in Moscow in early July. And we’re going to discuss this in other forums also.

As the UN Security Council debates a resolution in response to the DPRK’s recent nuclear test and missile launches, China appears to be the DPRK’s strongest partner.  According to the New York Times:

Negotiations over toughening sanctions against North Korea in the wake of its underground nuclear test last month have stalled over the issue of inspecting cargo ships on the high seas, according to two Security Council diplomats. China has yet to sign off on the idea that North Korean vessels could be stopped and searched, the diplomats said. Ambassadors from the five permanent members of the Security Council — the United States, Russia, China, Britain and France — plus Japan and South Korea, locked in intensive bargaining sessions all week, have agreed on other issues, including widening an arms embargo and financial restrictions, the diplomats said. North Korea has declared cargo inspections an act of war.

So it looks like Russia is “ok” with searching the DPRK’s cargo ships?  That is surprising.

Aside from inspecting cargo ships, the US is pushing for the UNSC resolution to restrict the DPRK from the global financial system (a la Banco Delta Asia).  According to the Washington Post:

State Department spokesman P.J. Crowley confirmed yesterday that the United States was considering targeting North Korea’s access to financial markets. A draft of the resolution urges U.N. member states to cut loans, financial assistance and grants to North Korea and its suppliers for programs linked to its military program. The draft also expands an asset freeze and travel ban.

The Bush administration applied similar financial pressure in 2005, infuriating Pyongyang. Crowley noted that, during a tour of Asian capitals this week, Deputy Secretary of State James B. Steinberg was accompanied by Treasury Undersecretary Stuart A. Levey, the architect of the Bush-era sanctions.

“Obviously, Stuart Levey’s presence on this team would indicate that we’re . . . looking at other ways that we can bilaterally put pressure on North Korea to return to the negotiating process,” Crowley said.

Additionally, the Obama administration has signaled that it might take the advice of John Bolton, former President Bush’s UN ambassador.  According to the Washington Post:

The United States will consider reinstating North Korea to a list of state sponsors of terrorism, Secretary of State Hillary Rodham Clinton said in an interview broadcast yesterday as the Obama administration looks for ways to ratchet up pressure on Pyongyang after recent nuclear and missile tests.

 “We’re going to look at it,” Clinton said on ABC’s “This Week” when asked about a letter last week from Republican senators demanding that North Korea be put back on the list. “There’s a process for it. Obviously we would want to see recent evidence of their support for international terrorism.” 

Secretary of State Clinton’s comment “we would want to see more evidence of their support for international terrorism” refers to a legal requirement for any nation to be added to the list.

Here is the press release on the nuclear test by the US Director of National Intelligence.

Read more here:
Medvedev’s Strong Words for North Korea
Business Week
Maria Bartiromo
6/3/2009

Talks on North Korea Sanctions Stall Over Inspections
New York Times
Neil MacFarquhar
6/5/2009

U.S. Pushes U.N. Draft on N. Korea
Washington Post
Colum Lynch and Glenn Kessler
6/6/2009

U.S. to Weigh Returning North Korea to Terror List
Washington Post
Peter Finn
6/8/2009

U.S. Weighs Intercepting North Korean Shipments
New York Times
David E. Sanger
7/7/2009

According to Bloomberg:

China suspended government exchanges with North Korea after Kim Jong-Il’s regime last week tested a nuclear device and fired short-range missiles, Yonhap News said.

China has halted plans to send officials to North Korea and won’t accept visits from Kim’s government either, the Korean- language news agency said today, citing unidentified diplomatic sources in Beijing.

China’s foreign ministry has said the country “resolutely opposes” North Korea’s nuclear test. China on May 25 agreed with the U.S., Japan and Russia to work toward a United Nations Security Council resolution censuring North Korea. The U.S. and Japan want the statement to call for cutting the communist country’s global financial ties, UN diplomats said.

This is slightly more significant than the “tough talk” Beijing is dishing out to the DPRK in the Chinese press. According to Voice of America:

China’s state-run media these days are running stories bluntly criticizing North Korea.  

Tuesday’s English edition of the Global Timesnewspaper quotes Chinese North Korea analyst, Zhang Lianggui, as saying the catastrophe of a mishandled North Korean nuclear test is “an unprecedented threat” to China.

Monday, the paper quoted Tsinghua University professor Sun Zhe as saying North Korea’s nuclear test has apparently spoiled the traditional bonds between the two countries, saying Pyongyang no longer follows Beijing.

 And according to Reuters:

The top item on the Chinese website of Beijing’s embassy in Pyongyang is a condemnation of North Korea’s nuclear test.

That, and a recent blast of blunt criticism of North Korea in China’s state-run press, suggest the rancor that officials feel toward their communist neighbor — anger likely to bring Beijing behind a U.N. resolution condemning the May 25 test and threatening fresh sanctions.

North Korea’s second nuclear test took place 85 km (53 miles) from China’s border, and the tremors from the blast forced many schools on the Chinese side to evacuate, wrote Zhang Lianggui, a prominent Chinese expert on the North.

He warned of catastrophe if Pyongyang mishandles a nuclear test.

“Future generations of the Korean people will have no place of their own, and China’s reviving northeast will burst like a bubble,” Zhang wrote in the Global Times, a popular tabloid, on Tuesday.

“This is an unprecedented threat that China has never faced in its thousands of years.”

The web page of the PRC embassy in Pyongyang is here.  I do not see any of this language on their page.  The top line states “DPRK top leader inspects industrial, farm facilities” and the main story says “Year of China-DPRK friendship aims at enhancing bilateral ties.”  Additionally, in the section devoted to Chinese media on the DPRK, the last story was posted on July 4, 2007.

Read the full story here:
China Suspends North Korea Exchanges, Yonhap Reports
Bloomberg
Kyung Bok Cho and Dune Lawrence
5/31/2009

China Withholds Talk Tough Toward North Korea 
VOA News
6/2/2009

China anger with North Korea echoes in the press
Reuters
6/2/2009

by Michael Rank

Chinese traders are using fake documents to export goods to North Korea, the Chinese embassy in Pyongyang warns on its website.

The terse, two-sentence statement dated April 4 gives no details of the forged “[North] Korea export licences” scam, but says the North Korean authorities have confirmed the documents are fake and urges “relevant companies not to be easily deceived.”

Perhaps the biggest surprise is that the Chinese embassy in Pyongyang has a website at all, and a fairly active one at that. It has plenty of links, on Chinese-North Korean economic, cultural and educational ties, speeches by the ambassador and that sort of thing but not a lot of hard news or useful information.

There is no Chinese comment on the recent North Korean missile test, which is perhaps eloquent in itself, though there is a profile of the current ambassador, Liu Xiaoming, who spent much of the 1990s in the Chinese embassy in Washington (he was minister counsellor 1998-2001) and also in the North American section of the Chinese Foreign Ministry.

There’s also a list of all Chinese ambassadors to the DPRK since 1950, with photographs and brief biographies.

The Chinese website is here and there’s even an English version though it hasn’t been updated since February.

Irish Times
Clifford Conan
5/5/2009

Long-term allies China and North Korea have signed an agreement to set up a rail route between the two countries to encourage tourism, the latest sign of lively cross-border trade between the two neighbours.

The line will run between Tumen City in China’s Jilin province and North Hamgyong province in North Korea, Chinese state media reported yesterday. The route will be operated by two travel agencies, one from China and the other from North Korea. Both sides plan to hold an inauguration ceremony for the route’s trial operations later this month.

Writing in Reuters, Lucy Hornby and Tom Miles point out that the DPRK faces greater economic uncertainty from falling commodity prices than from new sanctions.  Below I have posted excerpts and charts:

Lower commodity prices may prove more painful to North Korea than the tightened sanctions, which will likely blacklist certain firms known to deal in military goods.

“Sanctions won’t have a big effect, they won’t change their actions,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing.

“There will be no impact on trade with China, which is mostly grains and basic materials … Sanctions may have some influence on luxury goods, but only a weak effect on overall trade volume.”

The isolated country’s $2 billion annual trade with China, equal to about 10 percent of the North’s annual GDP, is its most important economic relationship.

North Korea profited from strong prices for minerals and ores over the last few years, ramping up exports of zinc, lead and iron ore to resource-hungry China.

Most of those exports have dropped again since last summer, in line with sharp decreases in metals prices buffeted by the global economic crisis.

The North’s mineral deposits could be worth $2 trillion, according to an estimate by the South’s Korea Resources Corporation. But dilapidated infrastructure and a broken power grid hinder mining and the transport of minerals out of the country.

The irregular pattern of North Korea’s alumina imports implies that its smelter only runs in fits and starts. Other ore exports are equally ragged, possibly indicating that North Koreans are only digging the easily accessible ores.

Chinese companies that have tried to invest in North Korean mines complain of constant changes in regulations and report that the North tries to tie mining access to commitments to build mills and other industrial projects.

“China and North Korea are friendly neighbors and we will continue to develop friendly cooperative relations with North Korea,” Chinese foreign ministry spokeswoman Jiang Yu said on Tuesday after the North’s withdrawal from the six-party talks.

Diplomats’ expectations that China might use trade to influence its prickly neighbor rose when China cut off crude oil shipments in September of 2006, as North Korea prepared to test a nuclear bomb. It had tested ballistic missiles that July.

In fact, energy trade data shows that China is reluctant to apply trade pressure. Increased oil products shipments offset the brief cut in crude supplies in 2006.

“The imposition of these sanctions (in 2006) has had no perceptible effect on North Korea’s trade with the country’s two largest partners, China and South Korea,” wrote Marcus Noland, of the Washington-based Peterson Institute for International Economics.

Data since early 2006 show that Chinese crude shipments have in fact been overwhelmingly consistent, at 50,000 tons a month.

North Korea has imported very little Chinese grain since the 2008 harvest, reflecting the better harvest. Flooding and a disastrous harvest in 2006 and 2007 required heavy imports of grains from China in those years.

Chinese corn shipments to North Korea since August have dropped to 2,670 tons, from 136,595 tons in the previous twelve months and 32,186 tons in the year before that.

Rice and soybean shipments show a similar pattern.

Read the full story below:
Little leverage left for North Korea sanctions
Reuters
4/14/2009
Lucy Hornby and Tom Miles

Lankov writes in the Financial Times:

The US and its allies have almost no leverage when it comes to dealing with North Korea. There is much talk about sanctions, but, to be effective, they must be upheld by all major states, and this is not going to happen. China and Russia, driven by their own agendas, have already made clear that they would not support a tougher approach. These two states have veto power in the Security Council, and are major trade partners of North Korea (slightly more than half of Pyongyang’s entire trade is with them).

The ineffectiveness of sanctions has been demonstrated before. In 2006 when Kim Jong-il’s regime conducted its first nuclear test, even China was outraged and supported UN sanctions. However, it soon became clear that the sanctions were not working, since not only China, but also the US chose to return to business as usual. As a result from 2006 the North Korean government, despite theoretically being subjected to sanctions, felt more secure domestically and internationally than at any time since the early 1990s. This time, however, even the chance of passing a resolution is slim.

What else can be done? Military actions are unthinkable. Unilateral economic pressure will not work since neither the US nor its major allies have significant trade with North Korea. Financial sanctions, imposed on the foreign banks serving the regime, would probably deliver a blow, but it is unlikely that this would lead to a serious crisis in Pyongyang.

Indeed, even if an efficient sanctions regime were imposed, its only victims would be common people in North Korea. In the late 1990s, about 5 per cent of the entire population starved to death, but there were no signs of discontent: terrified, isolated and unaware of any alternative to their system, North Korean farmers did not rebel, but died quietly.

This means that diplomatic condemnation will have no consequences, and North Korean dictators understand this. If anything, the excessive noise is harmful: the sharp contrast between bellicose statements and lack of real action will again demonstrate to North Korean leaders that their opponents are powerless.

However, there is something even worse than empty threats, and this is empty threats followed by generous concessions. If history is a guide, this is likely to happen. In 2002-06 the US took a very harsh approach to the North, but everything changed in October 2006 when North Korea conducted a partially successful nuclear test. In merely four months, US policy was dramatically reversed, negotiations were restarted, and aid delivery resumed. Perhaps this change of policy was wise in itself (isolation would not work anyway), but its timing was bad. It once again confirmed to North Koreans that blackmail works.

The recent launch confirmed they had learnt the lesson. Since the regime was afraid the US was not paying enough attention to it, it was deliberately provocative, in the hope that the US, after a short outburst of militant rhetoric, would rush back to the negotiating table ready to make more concessions. It might be right.

—

There is no alternative to negotiations with Mr Kim’s clique. But Pyongyang dictators should be taught that provocations do not pay (or, at least, do not pay handsomely and immediately). This is especially important now, when Mr Obama’s administration has its first encounter with North Korean brinkmanship.

Read the full article here:
Sanctions will have no effect on North Korea
Financial Times
Andrei Lankov
4/12/2009

Writing in the Wall Street Journal, Evan Ramstad offers some information on China’s investments in North Korea:

The diplomatic minuet is taking place after China increased trade with North Korea over the past four years. Last year, trade between China and North Korea jumped 41% to $2.79 billion, with most of that coming from increased exports by China.

 On Tuesday, truck traffic between the two countries resumed after a break Monday for a Chinese holiday. Dozens of trucks made the crossing in Dandong, a major city along the North Korean border.

China has been North Korea’s chief political and economic sponsor since the Soviet Union collapsed nearly 20 years ago. For much of that time, it served as donor of last resort, making up the difference when energy, food and donations to North Korea dropped off from other countries. That often amounted to $100 million to $200 million in aid.

China broke from that pattern in 2005 by boosting its exports and widening its trade surplus with North Korea. Outside experts view China’s trade surplus as the chief measure of its economic aid to North Korea because North Korea has no measurable debt instrument and little ability to narrow the trade gap.

Chinese companies, sometimes with help from the Chinese government, are investing heavily in North Korea’s mining industry, construction and light manufacturing such as textiles. Chinese consumer goods line store shelves and market stalls in North Korea.

Many executives of Chinese companies in North Korea say it’s a difficult place to operate. Among the challenges: getting money out of the country. China helped Panda Electronics Group, based in Nanjing, start a computer assembly factory with Taedong River Computer Corp. in North Korea five years ago.

North Korea’s currency, the won, can’t be converted. To move money out of the country, Panda must buy commodities in North Korea and sell them in China for cash, an executive said.

The increased business activity in North Korea reflects China’s desire to treat North Korea more as a “normal country” rather than a socialist brother entitled to unlimited assistance, scholars and analysts in China say. They say China also hopes its companies in North Korea will encourage the North’s government to open its economy as China began to do in the 1980s.

Wang Kai, a manager of Liaoning Fuxin Tianxin Technology and Development Co., says the company decided to build a pipe-making factory in North Korea because the country’s economy has few places to go but up.

“North Korea’s situation and economic status are pretty similar to China’s before the start of the opening up and reform policy,” Mr. Wang said in an interview before the rocket launch.

Others note China’s desire is to prevent North Korea’s collapse, which might pour refugees into China’s northeast.

The increased business is yielding a payoff in political influence for China in Pyongyang that’s become more important since North Korean dictator Kim Jong Il was incapacitated by illness in August. One signal that Mr. Kim was back in control came when he met in late January with a delegation of visiting diplomats from Beijing.

Read the full story here:
Economic interests shape Beijing’s Pyongyang Policy
Wall Street Journal Online
Evan Romstad
4/8/2009

From the Wilson Center’s North Korea International Documentation Project:

The North Korea International Documentation Project is pleased to announce the publication of the latest addition to NKIDP Document Reader Series, Limits of the “Lips and Teeth” Alliance: New Evidence on Sino-DPRK Relations, 1955-1984.

The collection was specially prepared for the joint NKIDP-United States Institute of Peace conference, North Korean Attitudes Toward China: A Historical View of Contemporary Difficulties, and contains newly obtained documentary evidence on North Korea’s relations with China throughout the Cold War from Russian, (East) German, Albanian, and Hungarian archives. The 24 documents contained in the reader shed new and invaluable light on Pyongyang’s perspective of the Sino-DPRK relationship, and may force a reevaluation of the U.S. strategy of relying on China’s political leverage over North Korea to resolve contemporary disputes over North Korea’s nuclear weapons and ballistic missile programs.

Limits of the “Lips and Teeth” Alliance: New Evidence on Sino-DPRK Relations, 1955-1984 was edited by NKIDP Coordinator James Person with indispensable assistance from Tim McDonnell. NKIDP is part of the Center’s History and Public Policy Program directed by Dr. Christian Ostermann. This publication, like all NKIDP publications, was made possible by a generous grant from the Korea Foundation and is available for download free of charge from the NKIDP website.  

Download a PDF of the NKIDP reader here.

By Michael Rank

China has exported 5.014 tonnes of beef, worth $77,174, to North Korea via the northern port of Dalian (Chinese source here) and has also agreed to ship 60,000 tonnes of flour (Chinese source here), according to brief reports on Chinese websites.

The export of beef, in 485 containers via the border city of Dongdan in February, was the first of its kind from Dalian, the report said, adding that Dalian is China’s second biggest beef-exporting port after Hong Kong.

The flour will be supplied under an international aid agreement in the period June-August and is being supplied by Jinyuan Flour, a company based in Zhengzhou, capital of the northern province of Henan, and is guaranteed to be of export quality and free of additives, while the beef was supplied by Dalian company Jiansong Xuelong Foods Co Ltd. The report gave no value for the flour.

Another report (Chinese source here) said Chinese-North Korean trade grew by 41.3% last year to $2.793 billion. Chinese exports grew 30.2% to $2.032 billion while North Korean exports to China were up 30.2% at $760.07 million, the report said, quoting Chinese customs statistics.