China-N. Korea economic ties

In late August, a high level North Korean delegation went to China. The country was represented by none other than Jang Song-thaek, the uncle of “Supreme Leader” Marshall Kim Jong-un. While the inner structure of the North Korean leadership remains obscure to outside observers, it seems plausible that Chang is the chief advisor to Kim Jong-un. Therefore, his trip to China is bound to have been highly significant.

By Andrei Lankov

In late August, a high level North Korean delegation went to China. The country was represented by none other than Jang Song-thaek, the uncle of “Supreme Leader” Marshall Kim Jong-un. While the inner structure of the North Korean leadership remains obscure to outside observers, it seems plausible that Chang is the chief advisor to Kim Jong-un. Therefore, his trip to China is bound to have been highly significant.

From what is known it seems that Jang’s trip was not particularly successful. The Chinese did not give him much in terms of financial aid and their investment, real or promised, was much more modest than what their opposite numbers must have hoped for.

Nonetheless, the near failure of Jang’s mission once again emphasizes the importance of China for the North’s economy. For a decade China has been the largest trade partner of North Korea and now it controls some three quarters of the small nation’s foreign trade.

While talking about economic relations between the two countries, it always makes sense to keep in mind that for China strategic considerations take priority over economic ones, which constitute a rather distant second. In 2011, trade between China and North Korea amounted to $5.6 billion. This might appear impressive, but one should keep in mind that trade between China and South Korea was $220 billion ― some 40 times more. Many things that the Chinese do in North Korea are successful only as long as the Chinese government is prepared to back private investment projects with a multitude of direct and indirect subsidies.

Nonetheless, in spite of the primacy of geopolitical concerns, China does have some economic interests in North Korea. Broadly speaking most of its economic interests fall into one of the following groups: cheap labor, abundant mineral resources and conveniently located seaport facilities.

Port facilities are important because the three northeastern provinces of China are landlocked. In 1860, Russian diplomats forced China to accept a border treaty which deprived China of access to the sea. In practice this has meant that in order to export a Chinese factory in one of the three northeastern provinces (in the past the area was known as Manchuria) had to send their produce first by train or truck to the nearest seaport up to 1,609 kilometers from the northern parts of former Manchuria.

This is why China would like to have unlimited and unobstructed access to port facilities on the eastern coast of the Korean Peninsula. Some of the largest ports, like Rason, are a short drive from the Chinese border, some 20 kilometers away. Access to them will allow Chinese manufacturers to save on shipping.

Another potential area in which China is interested is cheap labor. Its economic model is based to a large extent on the use of cheap labor in manufacturing. However the continued economic growth of China means that its own workforce is no longer as cheap as it used to be. This makes North Korea relatively attractive for Chinese business. A North Korean girl is willing to work for $25-30 a month, while her Chinese peer is likely to demand at least $100 for the same work. This is a large difference for many small companies and therefore Chinese investors may be interested in dealing with North Korea.

As a matter of fact, small scale outsourcing already happens in some borderland areas. Recently, North Koreans have begun to promote a special economic zone on Hwanggeumpyeong Island, a river inlet right next to Dandong (a Chinese city that borders North Korea). It is imagined that the special economic zone will one day be filled with Chinese workshops where North Korean workers will manufacture shirts, bags and running shoes for sale internationally.

And of course, China is very interested in gaining privileged access to the North’s mineral resources.

It is often stated that North Korea is rich with minerals. This is certainly true if we compare the North with South Korea, since there are virtually no mineral resources to speak of in the South. By broader international standards, however, North Korea is less remarkable. Nevertheless, for resource-hungry China, North Korean iron ore, coal, lead, copper and the like are sufficiently attractive. Over the last few years, most significant Chinese investment in North Korea has been related to mineral resource extraction, and minerals constitute about half of all North Korean exports to China.

All of these areas of potential interest though, are rather limited in scale. North Korea is no economic giant and for China, it can at best be a marginal partner ― but for North Korea, China is really big.

Professor Andrei Lankov was born in St. Petersburg, Russia, and now teaches at Kookmin University in Seoul. You can reach him at anlankov@yahoo.com.