Implications of China’s Economic Penetration of North Korea

Publication: China Brief Volume: 11 Issue: 13
July 15, 2011 04:40 PM Age: 3 yrs
Category: China Brief, Home Page, Economics, Military/Security, Foreign Policy, China and the Asia-Pacific

Kim Jong Il (L) and Hu Jintao (R)

Three days after leaving China—where he pledged to work for peace—Kim Jong Il threatened to wage war against South Korea (Yonhap News Agency, May 30). The highly provocative comments from the North Korean regime at the end of May were interpreted as a sign of Chairman Kim’s defiance of Beijing, after a week-long visit that Korea watchers termed “disastrous.” Indeed, there are moments when Beijing and Pyongyang do not see eye to eye—such as this May during Kim Jong Il’s trip—but in essence the North Koreans know that the Chinese have to support them. That is why Kim felt confident enough to threaten South Korea so soon after returning from his most recent excursion to China. Increasingly over time, China and North Korea have been forging a tight economic partnership, which makes Mr. Kim more indebted to Beijing. The relationship appears headed toward greater strategic convergence as a result of China’s unprecedented economic penetration of the North.

During the May trip, Kim and his Chinese hosts rarely found themselves on the same page. The North Korean, for instance, wanted to talk aid, while Chinese leaders spoke of economic development. When both sides discussed economic development, China’s officials took positions that displeased the easily irritated Kim. Premier Wen Jiabao, for instance, rejected the notion that the Chinese central government would come to his assistance by getting directly involved in development projects in the North. “China hopes that economic cooperation is achieved through normal business processes and we believe provinces and businesses need to become more proactive,” he said (Chosun Ilbo, May 27).

Kim was so upset after talking with Mr. Wen that he reportedly ordered his economic advisors to boycott his subsequent meeting with Chinese leader Hu Jintao. As a result, the Chinese delegation at the meeting was three times larger than the North Korean one although protocol usually requires them to be of equal size (Chosun Ilbo, May 27).

After Chairman Kim’s visit to China—the third in 13 months—Chinese interlocutors are telling their American counterparts that they are increasingly frustrated with him. Those who accept Beijing’s line always point to Chinese displeasure with North Korea’s October 2006 detonation of a small atomic device, its first known test of a nuclear weapon. They invariably note that China voted for U.N. Security Council sanctions on the North that October, and again in June 2009. Yet, Beijing’s assertions are belied by its increasing economic interaction with the destitute Democratic People’s Republic of Korea.

The DPRK, as the Kim regime calls itself, launched a charm offensive to obtain aid from the United States, South Korea, Japan, and the rest of the international community to weather global condemnation of its 2006 nuclear test. Pyongyang abruptly ended that campaign three years later in late 2009 after the passage of additional sanctions imposed by Security Council Resolution 1874.

Why was Pyongyang no longer concerned by sanctions after the enactment of a second set of them? Because the North Koreans knew that the Chinese had their back. Wen Jiabao traveled to Pyongyang in October 2009 to mark 60 years of diplomatic ties between China and North Korea. During the visit, the Chinese premier inked commercial pacts, pledged additional assistance, and announced construction of “a new highway bridge over the Yalu River.” As a Chinese netizen noted soon after the crucial announcements, “It must be a huge encouragement for North Korea that, when the whole world is isolating them, our premier is there to give them hope” (Al Jazeera, October 5, 2009). Moreover, the extensive investments also sent a message to the international community that Beijing was willing to undercut U.N. sanctions through its economic relations with Pyongyang.

Security Council Resolution 1874 prohibits most commercial contacts with the North. Paragraph 19 of the Resolution calls on U.N. member states “not to enter into new commitments for grants, financial assistance, or concessional loans to the DPRK, except for humanitarian and developmental purposes directly addressing the needs of the civilian population, or the promotion of denuclearization.” Paragraph 20 calls on members “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.”

The deals announced by Wen in October 2009 were so far-reaching that, in all probability, they violated Resolution 1874, and Chinese investment into the North has grown since then from most indicators. Last December, for instance, a Chinese enterprise signed a $2 billion investment pact to build, in its first phase, three piers in the northeastern port of Rason (Korea Times, February 1). That is on top of a highway and railroad from neighboring Jilin province in China to the Rajin-Sonbong economic zone in that city. The announcement followed a series of disclosures about increasing Chinese involvement there, where a Chinese enterprise has already built a pier and is about to begin work on a second one. China also leased, for 10 years, another port facility in strategically located Rason.

Furthermore, at the western end of the 850-mile border, Chinese enterprises are planning to develop special zones on two islands in the Yalu near the Chinese border city of Dandong, the heart of one of the fastest growing areas in China. The Chinese, according to an announcement in June, will get a 100-year lease to Hwanggumpyong Island. Eventually, there will be another zone on nearby Wihwa Island. Local boosters are surely exaggerating when they say that Dandong and Hwanggumpyong will be “the hot ground for investors worldwide,” and reports of an $800 million project seem fanciful at this stage, but there will eventually be Chinese money flowing into North Korea near the mouth of the Yalu (China Daily, June 25; Global Times, October 29).

Trade between the two nations, a vital barometer of that relationship, increased from $370 million in 1999 to $3.47 billion last year. At this point, more than half of the North’s international commerce is with China, up from 25 percent in 1999. Last year, trade between China and North Korea increased 29 percent from 2009 (Yonhap News Agency, May 27). North Korea’s exports to China rose 51 percent, and China’s exports to the North were up 21 percent (Telegraph [London], February 16) .

Chinese aid soared from $400 million in 2004 to $1.5 billion in 2009 and apparently continued the upward trend in 2010, in part because Beijing took up the slack as Seoul cut off food assistance to its northern neighbor. At least half of China’s foreign aid now goes to the DPRK [1].

China invested $3.5 million in the North in 2003. Five years later, China supplied $41.2 million of the $44.0 million in foreign direct investment into Kim’s Korea, according to United Nations statistics. Today, annual investment, in light of the money pouring into Rason, is undoubtedly many times larger.

The two economies are now so connected that Jeremy Paltiel of Carleton University observes that the increasing interaction between China and the North is falling into “a pattern not seen since the 1950s” [2]. The South Koreans fear that Chinese leaders want to make the DPRK their “fourth northeast province” (Foreign Policy, December 30, 2010), which would mean the end of the dream of a united Korean nation.

Nothing says “colony” more than the presence of foreign forces. In January, Beijing repeatedly denied rumors, surfacing in the South Korean media, that it was planning to base troops in the DPRK. “China will not send a single soldier to other countries without the approval of the UN,” the Defense Ministry said to the Global Times, a Communist Party–run tabloid (Global Times, January 17).

South Korea’s main papers had carried stories that Beijing was negotiating the entry of Chinese troops. In a sensational article, the Chosun Ilbo reported in mid-January that sources said Chinese forces were already on North Korean territory. In the east, some 50 armored vehicles and tanks had crossed the Tumen River at night, about 30 miles from Rason in the middle of December. At about the same moment in the west, jeeps of the People’s Liberation Army were seen in Dandong heading to the North Korean city of Sinuiju, just south of the Yalu River (Chosun Ilbo, January 17). If these reports were accurate, China’s troops were back in the North for the first time since they withdrew from the Demilitarized Zone in 1994.

Furthermore, last October, Beijing, through the Global Times, denied another South Korean article stating that up to 3,000 Chinese troops would help modernize Pyongyang’s forces (Global Times, October 21, 2010). Some speculated that the soldiers were supposed to seize defectors and “suppress public disturbances.” An unnamed South Korean official, quoted in Chosun Ilbo, said that “they’re apparently there to protect either facilities or Chinese residents rather than for political or military reasons” (Chosun Ilbo, January 17).

So far, no one has confirmed the presence of PLA elements in North Korea, an indication that the newspaper reports may be untrue. Yet, even as Chinese security analysts professed surprise at the articles in the Seoul papers, it is common knowledge in Beijing that China’s officials have had discussions with their North Korean counterparts about this matter for some time. For decades, the Chinese have wanted to control the mouth of the Tumen, now held by Russia and North Korea.

If there is any indication that the Kim regime is failing, it is its willingness to talk to the Chinese about allowing their troops into the DPRK. After all, Kim Jong Il bases the legitimacy of his rule on Juche. “Juche” literally means “master of one’s self” or self-reliance. Nations without Juche were said to be colonies; so South Korea, for instance, was branded a puppet of the United States. North Korea is now becoming China’s puppet.

Yet, does economic heft give Beijing leverage over North Korea’s increasingly dangerous foreign policy? “Yes, China is taking over the North Korean economy, but that does not mean they are going to take over politics,” argues noted Korea watcher Andrei Lankov. “The reason is the North Korean elite do not take care of the well-being of the people, so economic growth is not as important as in other countries” (South China Morning Post, December 12, 2010).

There is some measure of truth in Lankov’s assertion, and there are many reasons why the North Koreans often resist Beijing. They believe, for instance, that the Chinese fear what might happen if their regime falls. They also realize North Korea furthers many of China’s objectives, and they know there is no consensus in Beijing to change its decades-old policy of supporting them.

Yet, ultimately the Chinese can demand obedience from the Kim regime. How can they do that? China can bring down Kim Jong Il by turning off the tap, literally. Beijing provides an estimated 90 percent of North Korea’s energy. In addition to that, the Chinese are the source of 80 percent of the North’s consumer goods and 45 percent of its food [3].

Moreover, China’s relative leverage over North Korea has grown because South Korea’s has diminished. Seoul, under President Lee Myung-bak, has cut off most contacts with Kim’s regime especially after the two belligerent acts last year—the March sinking of the Cheonan and the November shelling of Yeonpyeong Island. South Korea still permits its companies to operate in the Kaesong Industrial Complex, but inter-Korean trade has fallen off due to restrictions put in place by Seoul last year (Yonhap News Agency, July 3). The unintended—but inevitable—result is that the South Koreans are ceding influence to the Chinese.

The Chinese continually tell the international community that they do not have much pull in Pyongyang, but by now that contention is wearing thin. Beijing is using its cash to dominate the North Korean economy, and as it does so it is seeking to exert real control over the Kim family’s state. Yet, as China gains influence, one sees no improvement in North Korea’s external behavior, as would be expected if Beijing were truly upset with its ally.

By bolstering Kim Jong Il’s economy, China is giving the diminutive dictator the resources to build his nuclear arsenal. As he does so, the North is destabilizing South Korea, bedeviling Japan and keeping the United States off balance. Decade in and decade out, Chinese officials continue high level exchanges with their North Korean counterparts (Wen Wei Po [Hong Kong], July 8), permit oil to flow to the North, and insist on protecting Pyongyong in international forums. Now, China is clearly acquiring real clout in the DPRK. Soon, we should see a moderation in the North’s behavior if Chinese officials are telling us the truth.

Notes:

1.    The Congressional Research Service reports “about half” of Beijing’s aid goes to its North Korean ally, but it appears that China provides additional assistance through back channels. For the CRS report, see Dick K. Nanto and Mark E. Manyin, “China-North Korea Relations,” Congressional Research Service, December 28, 2010, www.fas.org/sgp/crs/row/R41043.pdf
2.    Jeremy Paltiel, “What Is Going on Between China and North Korea?” CanKor Report, October 27, 2010, www.cankor.ca/index.php
3.    Jayshree Bajoria, “The China-North Korea Relationship,” Council on Foreign Relations, October 7, 2010, www.cfr.org/china/china-north-korea-relationship/p11097


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