A year after the death of North Korean founder Kim Il-sung in 1994, North Korea suffered a severe food shortage. The reclusive state’s economy and food distribution system collapsed and a large number of North Koreans died of starvation.
The tragedy resulted from the North’s isolation from the international community following discord between North Korea and China caused by the establishment of formal ties between South Korea and China in 1992. At that time, Beijing’s corn shipments to Pyongyang were suspended.
It is premature to predict the future of the North Korean economy. But many agree that unlike in the mid-1990s after the death of Kim Il-sung, the North Korean economy’s dependence on China will increase, in addition to the expansion of economic ties between North Korea and China, its traditional ally.
Such a prediction comes as Kim Jong-un could not complete the power succession process from the late North Korean leader Kim Jong-il, his father, in a smooth manner unless China supports it, whereas Beijing does not want Pyongyang to collapse.
Dr. Hong Ik-pyo of the Korea Institute for International Economic Policy said, “As inter-Korean economic cooperation has virtually been suspended since May 2010, North Korea has had no choice but to expand cooperation with China. Kim Jong-un is expected to seek to maximize cooperation with China, while pursuing his father’s policies for the time being.”
For the past five years, inter-Korean cooperation has come to a standstill, while North Korea-China cooperation has greatly increased.
In 2007, trade between North Korea and China amounted to $1.97 billion, compared with $17.9 billion between South and North Korea. But the situation has changed. In 2010, trade between North Korea and China jumped to $3.46 billion. The comparable figure stood at $1.91 billion between the two Koreas.
In addition to the expansion of trade with North Korea, China has been making investments in border areas since the late 2000s. Previously, Pyongyang-Beijing economic ties focused on processing industries and humanitarian aids.
A major Chinese automaker plans to build production lines in the Naseon special economic zone. In addition, China’s investments in North Korea in the heavy and chemical industries have been on track. In early December before the death of Kim Jong-il, Pyongyang enacted legislation to build another economic zone in Hwanggeunpyeong-Wihwa Island bordering China.
As power has been transferred to Kim Il-sung, his son Kim Jong-il and grandson Kim Jong-un, nationalism in North Korea has waned, an indication that its economic dependence on China will deepen further.
An official of a state-funded think tank said that in the North, nationalistic elders are retiring and those close to China are replacing them. This could prompt the North to open its doors wider to China.
A drastic change of the Chinese economic structure is one of reasons that China will increase pressure on North Korea to accelerate openness. According to the World Bank, Chinese salaries have increased by 15-20 percent per year. The Chinese government can no longer ask people to be paid less at a time when the income gap between the haves and have-nots is widening.
According to Lee Yong-cheol, chief of inter-Korean economic cooperation at the Ministry of Knowledge Economy, China’s labor costs have soared to a monthly $400 per head, compared with less than $150 for North Korea. As a result, the Beijing government will be under pressure to buy cheaper North Korean labor to ensure competitiveness in textiles and other labor-intensive industries, Lee said.