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China Trade Helps Shield N. Korea
Cash Aids Military, May Offset Sanctions

By Blaine Harden
Washington Post Foreign Service
Saturday, June 27, 2009

SEOUL -- Behaving badly hasn't hurt the bottom line in North Korea.

Thanks to China, foreign trade has soared since Kim Jong Il's government began detonating nuclear bombs nearly three years ago.

As U.N. sanctions mount and business between the two Koreas fizzles, North Korea's trade with China is setting new records. It rose 41 percent last year, while China's share of the North's overseas trade mushroomed to 73 percent.

In recent months, exceptional eruptions of North Korean belligerence have been attributed to the murky logic of hereditary succession as Kim, ailing since he had a stroke last year, positions his third son to take command of the communist country.

Kim Jong Un is just 26, and many analysts have explained the North's missile launches, a second nuclear test in May and repeated threats of "merciless war" as a way of cementing the young man's credibility as a fearsome and deserving heir.

While that may be true -- and few outsiders really know what's up in Pyongyang -- there is another way to understand the North's willingness to antagonize much of the world: Chinese buyers of North Korean minerals don't seem to mind.

Increasingly, revenue from these buyers is going directly to the North Korean military, which has taken control of exports of coal, metals and other key economic sectors, according to the Seoul-based Institute for Far Eastern Studies.

By funneling hard currency to the military, Chinese enterprises seem to be insulating the confrontational core of Kim's government from the international consequences of its behavior. "To the extent that these transactions are increasingly controlled by government entities, particularly the military, North Korea's response to sanctions and diplomatic concerns are almost surely diminished," said Marcus Noland, a North Korea expert at the Washington-based Peterson Institute for International Economics.

Japan, South Korea and the United States, the most outspoken champions of using sanctions to change North Korean behavior, are painfully aware of China's growing trade. "If China continues business as usual with the North Koreans, they won't feel any pain," said a senior official in Japan's Foreign Ministry.

U.S. leverage with China is complicated by its own money problems. While China is North Korea's main patron, it is also the U.S. government's largest creditor, holding as much as $800 billion in U.S. Treasury bonds.

In Pyongyang, meanwhile, the metals industry has become "the mainstay of our independent socialist economy," Kim's government declared in a New Year's Day statement, which also emphasized the "military first" priority of all government actions.

According to the U.S. Geological Survey, North Korea's primary mineral exports to China are coal for smelting, iron ore, zinc, lead and magnesite, which is essential for making lightweight metals for electronics.

As North Korea's trade with China grows, so does the hostility of Kim's government toward homegrown free-market reform.

"The leadership has reverted to a more control-oriented -- even Stalinist -- approach to economic policy," Nolan and Stephan Haggard wrote in a paper published this month.

In the aftermath of a famine in the 1990s that killed perhaps a million people, the number and importance of private markets rose in North Korea. The government, overwhelmed and substantially crippled by the famine, had no choice but to allow markets to replace its collapsed food distribution system. By some outside estimates, markets now account for about 80 percent of household income and have become the primary means for most people to obtain food.

But since 2005, as trade with China has revived the state's capacity for control, the government has imposed increasing restrictions on what can be sold in private markets and who can sell it. It has also cracked down on border crossings into China, dramatically reducing the number of small traders who can move between the two countries, according to human rights groups.

Since North Korea detonated its second nuclear bomb in May, China has been unusually critical of the North. It joined other members of the U.N. Security Council in approving sanctions that for the first time call on states to seize banned weapons and technology from the North found aboard ships on the high seas. But China, along with Russia, insisted that the sanctions could not authorize the use of military action to enforce any seizure that a North Korean vessel might resist. It also insisted on a continued right to sell small arms to North Korea.

After a meeting in Beijing on Wednesday with visiting Pentagon officials, a senior Chinese military officer said North Korea is a "serious concern" for China. But Lt. Gen. Ma Xiaotian announced no new measures to change the North's behavior.

China's economic influence over North Korea has probably never been greater. It has increased with China's growing share of overall trade and with a sharp rise in the North's trade deficit with China, which has jumped nearly sixfold since 2004. In addition, about 90 percent of North Korea's energy imports come from China.

"China could close down North Korea's formal economy," said Lim Eul-chul, a researcher who specializes in North Korean trade for the Institute for Far Eastern Studies.

Still, China, at least publicly, has shown little interest in using its trading leverage to rein in North Korea's behavior.

As China's economic tentacles inside North Korea grow, those of South Korea, Japan and the United States are fast withering.

After declining throughout last year, South Korea's trade with the North fell 25 percent in the first four months of this year. Japan has imposed new sanctions that will cut its already minimal trade to nearly zero. The United States has been the single largest donor of food aid to North Korea since the famine years, and last year it signed an agreement with Pyongyang to supply 500,000 tons of food aid. But North Korea later canceled the aid agreement, in part because it did not want foreign-born Korean speakers to supervise where the food was distributed.

Widespread food shortages, however, have not gone away.

About 37 percent of the population will require food assistance this year, according to a U.N. assessment. Aid officials agree that North Korea's trade with China has done little to alleviate chronic hunger, especially among those considered disloyal to the government.

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