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On the other hand, the pro-North Korea faction still dominates China’s diplomatic establishment and military forces. This group holds that China cannot abandon North Korea, as this relationship provides leverage with Japan and the United States – North Korea’s open and direct enemies.
This faction thinks China should not abandon North Korea in the international diplomatic arena, nor should it do so economically. Therefore, China has no choice but to maintain its current lukewarm ties with Pyongyang.
Even after North Korea tested its second underground nuclear device in 2009, trade continued as usual on the railway line that runs from the Chinese city of Dandong into North Korea. At Dandong and Sinuiju, along the China-North Korea border, consumer goods were unloaded from Chinese trucks and reloaded onto second-hand Japanese trucks from North Korea. This despite China’s claims that trade at the border gates fell more than 50 percent after the test due to stricter trade restrictions.
In fact, when the United Nations announced economic sanctions against North Korea in 2006, China-North Korea bilateral trade reached a record high of 197 billion Japanese yen (US$2.1 billion), a 7.5 percent rise over 2005, according to the Korean Trade Association. It appears that international sanctions against North Korea have boosted its trade with China.
Bilateral trade in 2001 was US$740 million, which grew to US$1.58 billion in 2005. Trade between China and North Korea has been growing at an average annual rate of 21.1 percent, according to China’s customs figures. But North Korea enjoys a deficit, which was as high as 29.9 percent in 2005, the Korean Trade Association reports.
The Hong Kong-based newspaper Wenhui Pao reported on June 17, 2008 that the overall value of trade between China and North Korea in 2007 was close to US$1.97 billion. In 2008, trade continued to grow. According to South Korea’s Central Daily, bilateral trade between China and North Korea increased by 41 percent that year.
Why can’t China abandon North Korea economically? North Korea has become an important source of resources for China. A report published by the Korean Industrial and Financial Research Institute reveals that China has a near monopoly over North Korea’s mineral resources, both through direct purchases and by obtaining development rights. All major contracts were signed around 2005, including 50-year rights to develop Musan Iron Ore, the largest iron ore mine in East Asia, and 25-year rights to exploit the Hyesan copper mine.
The Musan mine has confirmed reserves of 1 billion tons of iron ore, with an annual output of 8 million tons. A truck driver who transports iron ore from Musan to China says that an average of 6,000 tons of iron ore is shipped each day. China’s investment in the above mine resources accounts for 70 percent of the total.
A Chinese official in charge of trade with North Korea recently disclosed some background information about the deals mentioned above. Musan Iron Ore’s development contract was signed with China’s Jilin Provincial Department of Commerce, with a total investment of 7 billion yuan. As for the right to exploit North Korea’s copper mines, the same source said that Guoda Gold Corporation had purchased a 25-year license to mine copper at Hyesan, with each side holding a 50 percent stake in the project. The Chinese side reportedly invested 8 million euros.
Currently, China purchases 10 million tons of iron ore from North Korea’s Musan Iron Ore, and also has purchased 50 percent of the right to develop its Lundung coal mine. Moreover, China was also involved in the development of the West Sea oilfield.
Since 2003 the “socialist ration system” through which the government provided food and daily necessities to the North Korean people has been gradually collapsing. A large number of “free markets” have emerged in major cities such as Pyongyang and Wonsan; 99% of the commodities sold at these markets are from China. This in fact means the end of the socialist rationing system.
For these reasons, even if North Korea suffers a grain shortage due to international economic sanctions, the kind of widespread starvation that led to the deaths of large numbers of people in the 1990s is unlikely. The people now live under what could be called a “market economy with North Korean characteristics.”
The free markets have to be stocked, and this has opened the door to cross-border smuggling. Both Chinese and North Korean officials go about their smuggling activities quite casually. As a result, a new class has begun to emerge in North Korea, comprised of cadres who are involved in smuggling and have acquired a degree of wealth.
China’s experts on North Korea refer to this smuggling as “small quantity border trade.” They claim that such activities have helped stabilize border trade and lubricate relations between the two peoples. The smuggling of rice into North Korea has been a steady business, for example, allowing rice prices in the free markets to remain stable for the past two years, at 2,000 to 3,000 won (US$14-$21) per kilogram.
In fact, North Korea’s “free market economy” has been improving steadily, with border smuggling from China a key factor.
The economic relationship between China and North Korea has shifted over the past five years or so, from North Korea being a recipient of Chinese arms and food aid, to a more mutually beneficial pattern. Although China agreed to U.N. sanctions against North Korea following its nuclear test last May, this does not seem to have changed its trade policies with Pyongyang.
With China’s demand for energy increasing steadily, its investment in North Korea will surely rise even further, as there are virtually no competitors for the country’s resources. Just as international sanctions against Sudan gave China almost exclusive access to that country’s resources, the same thing is happening in North Korea.
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(Andrei Chang is editor-in-chief of Kanwa Defense Review Monthly, registered in Toronto, Canada.)
