A new challenge for China

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A new challenge for China

North Korea’s fourth nuclear test presented China with a new challenge. The first concerns trust. If China continues to show a tolerant attitude toward the North’s nuclear test, the international community will doubt if China can be trusted as one of two superpowers when it can’t even hold back its neighboring ally’s nuclear armament.

The event has also tested Xi Jinping’s anti-corruption policy. North Korea’s trade and foreign monetary earnings with China are thriving because Chinese officials have tolerated so many irregularities. If China’s sanctions on North Korea are ineffective, it is because China is perpetuating corruption. This will, again, lead to a confidence issue.

China can torment North Korea. When North Korea’s economy was closed, China had to choose between two extremes - diplomatic condemnation, or closing the pipeline into North Korea altogether.

But now, North Korean economic trade dependency is over 50 percent, and most trade comes from China. Without separate sanctions, Beijing can exert considerable economic pressure by properly executing existing laws and regulations. It will considerably decrease the cash flow for the regime.

First of all, China can stop importing underground resources from North Korea, which make up more than 40 percent of the isolated state’s exports.

It will be a challenge for the Chinese government to ban trade exchanges. Instead, authorities could strengthen environmental regulations on thermoelectric power plants using anthracite imported from the North and carry out quality inspections on imported underground resources. These policies can also help China’s efforts to reduce air pollution.

The Chinese government can also prevent the illegal employment of North Korean workers. Currently, tens of thousands of North Korean workers are employed in China.

According to a recent publication, most of the North Korean workers in the city of Dandong have a border pass, issued to the residents of the border region, instead of an official work permit.

Chinese companies pay North Korean managers $300 per worker, and the workers receive $60 to $70 from that fee.

If the illegal employment of North Korean workers is controlled, tens of billions won in foreign exchange income will cease to flow into North Korea.

The Chinese government needs to reinforce border control on cash flow to North Korea. In order to send money earned in China to North Korea, it has to be delivered by means of people crossing the border. Due to financial sanctions, bank transfers between China and North Korea are prohibited. China’s foreign currency regulation requires any person coming in and out of the country to report whether he or she possesses an amount over $5,000; however, the people entering North Korea often violate this law.

If China strictly monitors cash deliveries, North Korea’s foreign currency earnings will be significantly hurt.

China also has the power to affect the livelihoods of ordinary North Koreans. Peddlers bribe Chinese customs agents to take three times the amount of allowed goods. But when customs controls are more strict, unaccounted peddler trade will significantly decrease, reducing the North Korean market.

Most North Korean residents engaged in market activities will likely want to organize anti-nuclear protests.

There are also sanctions that the United States can consider. A secondary boycott on the companies using underground resources imported from North Korea is one of them. That’s similar to the sanctions by the United States on Iran’s petroleum exports. All North Korean companies are state-owned, and the export of underground resources is a lifeline for powerful North Korean agencies like the Workers’ Party and the military.

If U.S. sanctions are used in combination with China strengthening its relevant laws, North Korea’s foreign currency earnings will drastically decrease by more than 100 billion won ($82.3 million) annually.

Depending on China’s decision, this nuclear test could be an important breakthrough for the North Korean regime and its economy. The regime wants to boast that North Korean leader Kim Jong-un has attained both nuclear and economic development, in time for the Workers’ Party convention in May.

The test may have been to attract Washington’s attention. Or it could have been Kim’s way of protesting China’s reception to Pyongyang’s Moranbong Band. While the underlying motivations aren’t clear, one thing is for certain: The time has come for China to deal with North Korea in its own way.

It’s unfortunate for Korea that this crisis has escalated. Until now, Seoul has maintained a passive stance, relying on the United States and pleading for China to help. Korea’s denuclearization policy is ambiguous, and Washington’s “strategic patience” has also turned out to be a strategic failure.

If these outdated policies continue, South Korea will fail again. All of Korea’s expertise and creativity should be put toward changing North Korea’s structure and separating the North Korean regime, its elites and people. We must not let our children live with North Korea’s nuclear weapons.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Jan. 14, Page 31

*The author is a professor of economics at Seoul National University.

by Kim Byung-yeon

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