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Despite North Korean Political Risks, Sino-DPRK Trade Shows Stable Growth

by Scott A. Snyder
March 26, 2014

sinuiju-trade North Koreans sit beside bags of chemical fertilizer in Sinuiju, opposite the Chinese border city of Dandong, in March 2013. In 2013, China stepped up checks on shipments to and from North Korea almost two months after agreeing to new U.N. sanctions that demand greater scrutiny of trade, but the flow of goods in and out of the reclusive state appears largely unaffected. Picture taken March 29, 2013 (Jacky Chen/Courtesy: Reuters).

North Korea’s dependency on China for energy and food has long been cited as a source of Chinese political leverage and a primary factor that could influence North Korean stability.  But if North Korea depends on China for the bulk of its food and fuel, why does China not punish tiny North Korea for biting the hands that feed it?  On the contrary, underlying trends run in the opposite direction, possibly due in part to China’s energy demand and in part to North Korea’s growing foreign currency need.

The traditional explanation for steady growth in China-DPRK trade is that China wants stability, and the steady, dependable growth of China’s trade with North Korea underscores the importance of stability as Beijing’s overarching policy objective.  China’s 2013 (recorded) trade with North Korea grew by over ten percent from that recorded in 2012 to $6.5 billion, following modest but steady growth in 2012 over 2011.  This steady growth in Sino-DPRK trade relations occurred despite rising political risks arising from North Korea’s political succession from Kim Jong-il to Kim Jong-un in 2011-2012 and its nuclear and long-range missile tests in 2012-2013.  It has weathered the shock of Jang Song-taek’s execution last December as well.  The graph below shows the seasonal trends in China-DPRK trade relations and the steadily rise in trade year-by-year.

sino-nk trade graph

Sino-NK Trade for 2011-2014. The data for individual months from June 2013 through August 2013 was not available. The dotted line on the graph marks the average for the total trade between June to August 2013.

Foreign analysts watched the China-DPRK trade balance closely in response to Kim Jong-un’s succession in the winter of 2012 and North Korea’s third nuclear test in February of 2013, but the apparent downturn in economic relations during winter could be explained as a regular seasonal phenomenon, not evidence of China’s efforts to punish North Korea or shape politics in Pyongyang.

North Korea has long taken for granted China’s need for a buffer on its border.  A recent report from the Chinese Academy of Social Sciences that questions this conventional wisdom in Beijing, but the steady growth of China-DPRK trade relations despite volatility and heightened North Korea-induced political risk at first glance suggests that North Korea has been right to take China for granted, regardless of whether North Korea’s political risks comes from its own domestic politics or from continued tests of North Korean missiles and nuclear bombs. 

Digging deeper, a double-digit rise in North Korean export of coal exports was the main driver of growth in Sino-DPRK trade in 2011 and coal exports have continued to grow in 2012 and 2013, but why?  There are several equally plausible explanations:  1) Uncle Jang’s effort to sell out the country’s national resources to China at low prices was in overdrive, producing profits but leading to his demise, 2) North Korea’s energy export drive could be indicative of a cash crunch, suggesting that Kim Jong-un’s demand for financing to pay off elite supporters is reaching critical levels, or 3) China’s all-in effort to meet growing energy demand has become an economic opportunity even for energy-poor North Korea.  There is also the possibility that North Korea’s increased exports may offset the effects of recent reports that China has begun to implement UN sanctions by reining in selected exports to North Korea through tougher administrative guidance to firms that do business with North Korea.

Second, the drop in the relative importance of Chinese grain exports to North Korea coincides with more effective internal food production in North Korea.  Although North Korea is systemically incapable of meeting its food need solely through production, international assessments of the level of food need inside North Korea have dropped from over one million tons annually to around 300,000 tons per year in recent years, suggesting that North Korea’s economy is stable and less dependent on Chinese inputs, at least for now, than generally thought.

Even if North Korea’s economy is showing overall improvement, there is no reason to think that political risks emanating from North Korea will lead China to withdraw its economic safety net for North Korea any time soon.

Post a Comment 1 Comment

  • Posted by Richard

    There are many reasons why China would continue maintaining its economic safety net for North Korea.

    Do we have a breakdown of the trade statistics by imports and exports? Has the balance of trade been shifting?

    You also mentioned possible enforcement of sanctions by China on certain products and improvements in food production in North Korea. Have there been any noticeable shifts in type of products being imported or exported?

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