The China trap

Kim Byung-yeon
The author is an economics professor of Seoul National University.

Having a reliable friend can be comforting. The same goes for countries. South Korea must thank the United States for its staggering economic advances. A war should not have happened. But it had the silver lining of connecting one of the poorest countries with the richest and most powerful in the world. South Korea started humbly by exporting mining products, fish and then apparel and shoes. It used the income to invest in chemicals. From 1986, South Korea was able to ship cars to the United States.

A recent study showed that Korean components made up 27 percent of the production cost of Apple’s iPhone 12, exceeding the cost of parts from the United States and Japan. The Korean film “Parasite” won Best Picture earlier this year and K-pop group BTS has been nominated for a Grammy Award. A country that used to envy anything from America has become its equal in the IT and pop culture fields.

North Korea cannot pull itself out of isolation and poverty without America’s help. It should be able to produce and export high-value products to become a formidable trading country. That calls for technology, capital and markets. As it had been to South Koreans, America can provide excellent secondary education to North Korean pupils. North Korea needs to improve ties with America to join the International Finance Corporation of the World Bank to attract large-scale private investment. It must be able to compete in the world’s most competitive market to join the developed ranks. Under U.S-led sanctions, North Korea has little to export. Vietnam is now running at an annualized growth of 10 percent after normalizing ties with the United States. There’s a big lesson there.

North Korea must realize that China won’t bring it a bright future. There is a limit to which China can satisfy North Korea’s needs. Beijing won’t be happy with its ally’s per capita income exceeding its own. Beijing would want to keep Pyongyang under its influence. But once North Korea is better off, it would not want China to keep on meddling.

Chinese enterprises won’t likely agree to share or transfer quality technologies to North Korea. China needs cheap labor and minerals from North Korea, and its capital will only go after them. Before sanctions, China imported mostly minerals and fish products. North Korea must find a way to escape the poverty of trading its natural resources.

Recent research pointed out that North Korea’s trade with China could actually hamper with its long-term growth. Research conducted by economists Kim Kyoo-chul and Jung Yeon-ha from the Korea Development Institute and Lee Jong-min of the Bank of Korea showed that the more North Korea exported to China, the worse the quality of the trade turned from the late 2000s. The North’s over-reliance on minerals and China for exports hampered its advance in exports and accumulation of human and capital resources, distorting its industrial structure. Moreover, China’s imports from North Korea were 30 percent cheaper than the same commodities imported from other countries. Beijing basically exploited its monopolistic influence on North Korea to buy imports cheaply from it. Beijing ripped off Pyongyang.

Pyongyang should be well aware of the problem with its dependence on China. Stories are often told about government officials or merchants complaining of China exploiting North Korea and treating it as a subjugated economy. North Korea earned more money selling a greater variety of goods when it traded with South Korea and Japan. North Korea’s outlook was brighter when it assembled electronics and machinery parts at the inter-Korean industrial park in Kaesong. The dependency theory over the imbalances between poor economies and developed capitalist economies during the 1960s and 1970s needs to be applied to socialist economies.

There is hope yet for North Korea to connect with America. North Korea can capitalize on the turning point of the launch of a new administration in the United States for economic and diplomatic normalization. If North Korea chooses military provocations during this critical time, sanctions will only be toughened or extended. Its self-sufficiency slogan is suicidal. Washington could put North Korean issues on the back burner by saying the Pyongyang regime has no real will to denuclearize. The economic conditions would only worsen. Without a better economy, North Korean leader Kim Jong-un could lose governing power.

Kim must make a decision. He must wake up from the delusion that he could win in both nuclear development and economic development to prolong his reign. He must surrender his nuclear weapons and choose the economy instead. He must declare a commitment to denuclearization talks with the United States at the next Workers’ Party assembly.

Kim must give hope to his people through promises of reform. That is the only way he can reach Washington. On that path, North Korea can co-exist with South Korea and keep balanced relations with China. Otherwise, it is headed for doom. Kim must stake his last opportunity for progress for his country. The North Korean leader must see his country’s future through the eyes of the children. He must not steal their chance to become the generation instrumental to an economic miracle.