July 2013
This international relationship once involved China providing one-sided economic support to North Korea. But, since 2000, the relationship has shifted towards more mutual cooperation. This has been reflected by the fact the relationship is now driven more by economic interests, and not just by political alliances.
The 21st century relationship between North Korea and China has developed partly as a result of China’s increasing investment in and trade with North Korea, as well as being due to shared regional development strategies in Northeast Asia.
This article focuses on three ways in which China-North Korea relations are being strengthened:
This summary is based on research by Seung-Hyun Yoon and Seung-Ook Lee.
China is developing into one of the world’s superpowers and it is expected that China will become the world’s largest economy by 2020. Many people see it taking on global power and responsibilities at least as great as the USA has experienced throughout the last 100 years.
It is generally agreed that China’s cooperation with North Korea reflects its ambition to build a broader Northeast Asian economic community. This may not be as formal as a trade bloc, but it is an important regional alliance nonetheless.
Whilst much media attention has focused on North Korea’s geopolitical relations, this research looks for answers in terms geoeconomics. This suggests that international conflict and cooperation is now driven more by trade and investment than it is by war. To understand China-North Korea cooperation we therefore need to understand trade and investment between the two nations.
Since the early 1990s (when the Soviet Bloc collapsed) China has become North Korea's biggest trading partner. Trade between the two countries has increased from $0.49 billion in 2000 to $3.46 billion in 2010, growing by more than 600% over a decade.
The rapid growth in China-North Korea trade has resulted in the North Korean economy being highly dependent on China. For example, China accounted for 24.8% of North Korea’s foreign trade (excluding trade with South Korea) in 2000. By 2010, this figure had increased to 83%.
This increased dependency on China has coincided with worsening political and economic relations with South Korea. In 2002, two Special Economic Zones (SEZs) were established at Mount Kumgang and Gaeseong – both on the North Korea-South Korea border. An SEZ is area that is generally exempt from national tariffs, taxes and laws. This allows goods to be manufactured at a competitive cost. SEZs are created with the aim of attracting foreign investment and providing local employment. However, in 2007, South Korea elected the Conservative Party and trade between the two Koreas stagnated, causing the SEZs to close.
North Korean trade with Japan has also decreased considerable. In 2000, Japan traded with North Korea as much as China did. However, North Korea’s kidnapping of 13 Japanese citizens sparked a public uproar in Japan, which led to strong economic sanctions on trade with North Korea in 2002.
In light of worsening regional relations with both South Korea and Japan, North Korea now relies heavily on trade with and investment from China to find a route to economic recovery.
However, North Korea suffers from a trade defict, which has been increasing since 2005. It exports mineral resources (e.g. iron ore) to China and imports a range of goods (e.g. oil, household items, machinery) in return. Since North Korean industry is geared towards lower-value-added products, higher-value-added products have to be imported. This creates a trade imbalance, whereby the North Korean economy may struggle to develop and the development gap will widen.
North Korea's low wages could lead to a division of labour between China and North Korea, whereby North Koreans become employed by Chinese firms producing high-value-added goods. However, North Korea’s dependence on the Chinese economy could create a vicious circle, whereby: importing of consumer goods → weakening industrial production → decreasing national income → failing to secure investment for domestic industrial production → continuing struggle to feed the population.
Chinese investment in North Korea is mostly through mutual cooperation. This involves the two governments working together, rather than Chinese companies independently investing.
Both the Chinese and North Korean governments benefit from this bilateral relationship. North Korea can address problems such as outdated industrial facilities, insufficient power, and poor infrastructure with Chinese investment. Meanwhile, China can use North Korea's cheap labour and the exploitation of abundant mineral resources. In fact, resource development now accounts for more than 70% of Chinese total investment in North Korea. This helps to fulfill China’s need for resources to continue economic growth.
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February 2004: China established consultant companies to supervise investment in North Korea
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April 2004: Chinese head of state Wen Jiabao ‘actively encourages’ mutual cooperation
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October 2005: Both governments sign ‘Agreement on Economic and Technological Cooperation’
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October 2009: Chinese head of state Wen Jiabao agrees to construction of the new Yalu River Bridge, development of Rajin Port and cooperation in development of software, tourism and education
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May 2010: North Korean head of state visits Beijing. It is suggested that economic cooperation, strategic communication and cultural exchanges should be strengthened
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June 2011: Both countries agree to create economic zones in the border region of North Korea
The new Yalu river bridge development was agreed in October 2009. It is both a symbolic and practical development. The bridge crosses the river Yalu, which runs east to west, to form the border between the two countries. The bridge is part of a larger investment in transport infrastructure (including roads and railways) in the region.
It is hoped that the economic cooperation in the region can help revive stagnant development programmes and create a transport hub for the whole of Northeast Asia. It is believed that Chinese infrastructure investment in North Korea can attract foreign investment and increase North Korea's engagement in the international sphere.
This research has focused on three dimensions of bilateral economic relations: trade, investment and trans-border development projects. By looking at these three dimensions we can move away from thinking just about the aid that China provides North Korea with. Instead, it is helpful to think about mutual economic cooperation between the two countries.
Economic cooperation is therefore a long-term policy developing through close political connections. However, the impacts of this international partnership are not expected to have many immediate impacts due to the lag time involved in agreeing policies and then implementing them.
Northeast Asia is of significance on a global scale. But it is not yet known whether this region will be the site of a new Cold War – between Chinese-North Korean allies and US-South Korean-Japanese allies. Alternatively, the development of North Korea may lead to increased security, stability and peace in the region.
Bilateral: A term used to describe something involving two sides. It can be used to describe the involvement of two nations in developing a strategy for development.
Dependency (theory): Dependency theory argues that poor, underdeveloped nations can come to rely (or ‘depend’) on wealthier, more developed nations. A dependent country will become increasingly poor, whilst the rich country becomes increases prosperous. This can occur through uneven trade flows or through debt.
Geoeconomics: The relationship between economics and geographical space. This involves understanding how trade operates spatially. Trade flows often follow particular patterns and can be blocked or diverted by national or regional borders.
Geopolitics: The relationship between politics and geographical space. Geopolitics can play out through international conflict and cooperation, which often have spatial dimensions and consequences.
Special Export Zone (SEZ): An area that is generally exempt from national tariffs, taxes and laws. This allows goods to be manufactured at a competitive cost. SEZs are created with the aim of attracting foreign investment and providing local employment.