China’s influence over the North rapidly gaining economic weight

North Korea, whose tattered economy has been partly sustained by trade with and aid from South Korea and imports from China, is now increasingly seeing its economy influenced by China. With China now rapidly beefing up its economic leverage over the North, Seoul is feeling pressured to deepen its economic ties with Pyongyang in order to cut the costs of eventual reunification, no matter how far in the future it may be.

According to data from the Korea Trade-Investment Promotion Agency, North Korea’s trade with the South amounted to $6.4 million in 2002, slightly short of the $7.4 million worth of trade the North did with China during the same period. But the gap has rapidly widened in the following four years. Inter-Korean trade in 2006 stood at $1.4 billion, far short of the $1.7 billion between the North and China.

Inter-Korean trade is not considered international trade in either of the two Koreas, and is excluded from North Korea’s official international trade data. With the South not figured in, 56.7 percent of the North’s total international trade in 2006 was with China, a sharp increase from 32.7 percent in 2002.

“The North’s economic reliance on China is intensifying more than ever,” said Kotra in a report called “North Korea’s 2006 Trade Trends,” published last July.

Jo Dong-ho, a North Korean studies professor at Ewha Womans University, also raised the same concern, pointing out that cheap, made-in-China products are the most affordable for impoverished North Koreans.

“North Korea, because of international sanctions on the country, can hardly conduct any trade with Japan or the United States, and the North Koreans, given their current purchasing power, can hardly afford South Korean products,” he said. “China is in the most favorable position to access the North Korean market given price levels and political ties.”

According to Kotra, North Korea mostly exports raw materials like steel and limestone to China and largely imports industrial equipment, household items and food products like grain and meat.

“About 90 percent of industrial goods circulating in North Korea are believed to be from China, and made-in-China machinery is making rapid inroads into the market,” said Yang Moon-soo, a professor at the University of North Korean Studies. As more and more North Koreans get caught up in the flurry of Chinese food and household products, the country’s trade deficit with China surged from $196 million in 2002 to $764 million in 2006.

Experts expressed mixed views on the North’s increasing reliance on Chinese imports.

“You don’t really have to consider it a bad thing, since China can play a role in spreading a market economy to the North,” said Kim Heung-kyu, a professor at the Institute of Foreign Affairs and National Security.

But others raised concerns that the North’s increasing reliance on retail products will eventually lead to further dependence in other sectors, including infrastructure.

“If China in the future happens to dominate standards of basic infrastructure like telecommunications or energy, we may experience considerable difficulties in switching them to South Korean standards once we are reunified,” said Kim Yeon-chul, a professor at Korea University’s Asiatic Research Center.

By Chae Byeong-gun JoongAng Ilbo [hawon@joongang.co.kr]