Weighing data: Will North Korea’s nuke test impact trade with China?

By Qin Xuan, Initium Media

DANDONG, CHINA–North Korea’s fourth nuclear test has struck another blow to Beijing-Pyongyang relations. Political shock waves from the nuke test follow on the heels of another diplomatic flap — the cancellation of the North’s Moranbong Band K-Pop band concert in China.

However, it’s not clear how much political fallout from the test has affected bilateral trade. According to Initium reporters,  two-way trade in Dandong,  a prefecture-level city China’s  southeastern Liaoning province that sits astride the Chinese-North Korean border, hasn’t been affected. Merchants in the key trade hub told Initium that fewer North Korean merchants had been seen in Dandong recently, but they said this could be tied to a change in procedures with the possibility of a rebound in trade in February.

As a critical Chinese port for the Democratic People’s Republic of North Korea (DPRK), the trade situation in Dandong offers a window on the state of relations between North Korea and China.

The North needs plenty of foreign exchange to purchase technology and resources used in developing nuclear weapons. UN sanctions have put curbs on its ability to secure foreign exchange. This, in turn, has affected the communist nation’s overseas finance and business activities. However, China-North Korea trade takes up 90% of the North’s total foreign trade, which means China plays a crucial role in offsetting the economic impact of the sanctions.

At the same time, past statistics show that North Korea’s decision to begin nuclear testing in  2006 has exerted only a limited impact on bilateral trade relationships. Trade, with only a few exceptions, has steadily surged since the North exploded its first small nuclear device on Oct. 9, 2006.

Changes in China-DPRK trade volumes between 2006-2014

	2006	2009	2010	2011	2013	2014
Trade volumes($)	1.7 billion	2.681 billion	3.466 billion	5.629 billion	6.545 billion	> 6.3 billion
Annual percentage increase	7	-8.9	29	62.4	10.4	– 3

Source: Sarene Chan/Initium (Note 2006-2009, 2011-2013 gaps)

According to research by economists Lin Jinshu and Jin Meihua at Yanbian University, China strongly denounced this first nuclear test in 2006. But trade between the two nations still topped $1.7 billion that year. This was 7% higher than the previous year. The upsurge continued until 2009.

The North’s second nuke test in 2009 had the gravest impact on bilateral trade. The trade volume decreased by 8.9%. In October of that same year, then Chinese Premier Wen Jiabao visited the North and crafted a set of bilateral cooperation agreements, including the development of special border zones and the construction of the new cross-border Dandong-Yalu River bridge. These efforts led to the best 2 years for the China-DPRK relationships since the end of the Cold War, with then DPRK leader Kim Jong-il visiting China twice. Trade also surged.

After Kim Jong-il’s death in December 2011, bilateral trade lost some steam. But overall volume remained stable. Good times returned and continued until 2013, when the trade volume between the two countries reached $6.545 billion, which was 77% of the DPRK’s total foreign trade.

North Korea carried out its third nuke test in 2013 and bilateral relations again hit a snag. At the end of that same year, a high-ranking North Korean official, Jang Sung-taek, was executed. The China-DPRK border development project he was in charge of was also suspended.

Since then, the DPRK has been trying to decrease its dependence on China, for example by introducing Russian investments. But the volume of the China-DPRK trade remained large in 2014, and fell by less than 3%. The number of North Koreans travelling to China in recent years has also remained high vs. 2012.

The bottom line is that it’s hard for the DPRK to downsize its dependence on China over the short term. And despite its increasing isolation, North Korea’s economy is growing.

According to South Korea’s Kookmin Bank, the North’s GDP was was on a downtrend from 2006 to 2010, with the exception of 2008. However, its economy began to grow after 2011. The economy has continually grown at an annual rate of 1%, since Kim Jong-un took power, and big cities are a lot more prosperous than during the time of his father Kim Jong-il.

Such ever-growing foreign trade has been essential to the DPRK’s economy. Since 2000, foreign trade has grown at an annual rate of more than 18%. The total volume is now 3 times higher than in 2000, reflecting the substantial contribution of the China-DPRK trade relationship.

North Korea is now expanding the scale of its trade relations and this is improving the livelihoods of ordinary citizens in the communist country. It also offsets the impact of international sanctions.

Many foreign experts had expected expanding trade ties to alter social values in North Korean society, leading to bottom-up reforms. But the reality is that the fruits of such economic growth have been tapped by the government in Pyongyang to bolster its political position and to invest heavily in nuclear projects.

This article was first published in Chinese on Jan. 10, 2016 by The Initium Media, a Hong Kong-based digital media company. Asia Times has translated it with permission with editing for brevity and clarity.

Translated for Asia Times by Jiawen Guo.