North Korea’s Domestic and External Policy Outlook and Assessment in the Second Half of 2025

Eunju Choi

ej0717@sejong.org

Research Fellow

Sejong Institute

The situation on the Korean Peninsula in the second half of 2025 unfolds at a moment when North Korea is simultaneously concluding its five-year national economic development plan (2021–2025) and preparing a new medium-term strategy for the period after 2026, producing a phase marked by a distinctive mix of tension and accelerated policy execution. Within a long-term vision of building a "socialist powerhouse" by 2035, Chairman Kim Jong Un has prioritized improving internal conditions while advancing a dual-track policy of regime stabilization and enhanced external standing. This strategy has been showcased in major political events such as the 80th anniversary of the Workers' Party of Korea in the second half of 2025, following his December 2023 declaration redefining inter-Korean relations as relations between "two hostile states." In this process, three axes—“stabilization of people’s livelihoods and enhancement of governance capacity,” “institutional consolidation of regime resilience,” and “diversification of external strategy and elevation of international standing”—define the overall policy direction. Efforts to normalize nuclear possession and the “two-state doctrine” are pursued in parallel with attempts to secure improvements in residents’ living conditions and diplomatic pragmatism, with these objectives mutually reinforcing one another.

Externally, North Korea is deepening a northern alignment built around relations with China and Russia, while at the same time restoring and expanding a southern diplomatic track with ASEAN countries, thus putting a dual-track strategy into practice. In relations with China, exchanges at the leader and prime minister levels resumed in connection with China’s 80th anniversary of Victory Day and North Korea’s 80th anniversary of the founding of the Party in 2025, including Chairman Kim Jong Un’s visit to China and summit talks, as well as Chinese Premier Li Qiang’s visit to Pyongyang and meeting with Kim. These meetings confirmed shared concerns about a U.S.-centered international order and a mutual understanding on managing the situation on the Korean Peninsula, while notably excluding the term “denuclearization” from official readouts. China has focused on maintaining the status quo and crisis management on the peninsula, refraining from publicly challenging North Korea’s de facto nuclear status, while emphasizing North Korean support for China’s core interests such as Taiwan and Xinjiang to demonstrate strategic solidarity. North Korea has reciprocated while selectively omitting sensitive China-related issues from its domestic reporting, maintaining an ambivalent posture that relies on China without projecting excessive dependence. Relations with Russia, grounded in a comprehensive strategic partnership treaty, have advanced toward intensified military and security cooperation centered on manpower deployment and a narrative of “shared sacrifice,” while also expanding practical cooperation in energy, forestry, electricity, healthcare, and tourism, thereby seeking new supply chains and strategic space under sanctions. North Korea functionally differentiates Russia as a military-security partner and China as a diplomatic-economic partner, pursuing balanced diplomacy that leverages both simultaneously, though the pace and scope of cooperation remain adjustable depending on each country’s strategic calculations and the sanctions environment.

At the same time, North Korea is restoring relations with ASEAN countries such as Vietnam, Laos, and Indonesia, thereby giving real substance to its diplomatic diversification. Renewed engagement with traditional anchor states rooted in the Non-Aligned Movement and socialist solidarity serves both to mitigate overdependence on China and Russia and to broaden diplomatic horizons, functioning as a stepping stone toward wider engagement with the Global South. Scenes from the 80th anniversary celebrations of the Party’s founding, in which the leaders of Vietnam and Laos received the highest level of protocol treatment, and discussions on restoring bilateral diplomatic channels with Indonesia’s foreign minister, symbolically illustrate this trend. In particular, with Vietnam, North Korea declared a “Year of Friendship” marking the 75th anniversary of diplomatic relations and agreed to expand cooperation across economic management, external economic relations, trade, society, culture, education, healthcare, and information and communications, as well as to share Vietnam’s experience with economic reform. This reflects an openness to adopting another pragmatic reference model beyond China. Nevertheless, given the sanctions environment, partner countries’ obligations to comply with sanctions, and calculations of tangible benefit, such diplomatic diversification is likely to remain limited to symbolic gestures and localized projects rather than translating into large-scale economic cooperation in the short term.

Domestically, a livelihood and economic strategy combining “state-mobilization-type growth” with a “healthcare revolution” has become prominent. The construction of the Rakwon County aquaculture complex, promoted under the 20×10 regional development policy, has been publicized as a composite development model linking marine aquaculture with regional construction, with emphasis on its completion within six months through concentrated central mobilization of labor and materials as a symbolic achievement of regional development capacity. However, this speed-driven approach also highlights structural weaknesses in local self-financing and operational capacity, and carries the risk that centrally driven projects will yield only temporary results. The Sinuiju greenhouse complex, envisioned as a large-scale project transforming a flood-prone area into a new agricultural, residential, research, and cultural economic zone, has exposed persistent deficiencies in local construction capacity and quality control systems through repeated design and construction problems and reliance on unskilled labor. Chairman Kim Jong Un’s public criticism at the Supreme People’s Assembly of the low qualitative level of city and county construction capacity, along with his emphasis on training technical personnel, expanding equipment and materials production bases, and institutionalizing standard designs and supervision, amounts to an acknowledgment that regional development policies must overcome these challenges to evolve beyond political events into a sustainable, institutionalized development model.

In highlighting the achievements of the five-year economic development plan, North Korea has placed particular emphasis on expanding wheat cultivation and restructuring the food system. Under an agricultural restructuring policy shifting toward a rice-and-wheat-centered food structure, wheat production, cultivation area, and processing capacity have been widely publicized as having increased significantly, targeting not only food security but also a broader transformation of dietary patterns toward wheat-based consumption. External trade has shown a clear recovery trend in 2025, centered on China–North Korea trade, while international events such as the Pyongyang Autumn International Trade Fair have seen participation by companies from multiple countries, reflecting continued efforts to diversify trade channels and attract external resources despite sanctions. In tourism, the completion of the Wonsan–Kalma coastal tourist zone, attraction of Russian tourists, and hosting of festivals and exhibitions aim simultaneously at earning foreign currency and creating regional commercial and cultural spaces, while the construction of tourism infrastructure such as the Baekebong Hotel in Samjiyon is positioned as preparatory investment for future expansion of external tourism. Nonetheless, it remains uncertain whether these state-led megaprojects can deliver structural growth sufficient to offset constraints in energy, capital, components, and equipment under sanctions, and the level of ambition and pace presented at the Ninth Party Congress in 2026 will be a key benchmark for assessing the realism of North Korea’s future economic line.

The “healthcare revolution,” which has emerged as a core keyword of livelihood policy, is being advanced as an initiative to improve everyday infrastructure in ways that residents can tangibly experience. Healthcare has long been one of North Korea’s most underdeveloped sectors, with hospital construction concentrated in Pyongyang, but this year the leadership publicly announced plans to expand healthcare improvement projects into regional areas. Following the completion of the Pyongyang General Hospital, Chairman Kim Jong Un sharply criticized bureaucratism and incompetence within the Ministry of Public Health, ordered a comprehensive overhaul of the health administration system, and called for the establishment of specialized design institutions. He presented a nationwide medical infrastructure restructuring plan that positions Pyongyang as the base for healthcare modernization, including construction of a second general hospital, provincial hub hospitals, and 20 city and county hospitals annually. This initiative aligns with an effort to elevate healthcare, alongside housing and food, as a flagship indicator of regime performance, and reflects an intent to simultaneously upgrade production and living foundations by linking regional development projects with hospital construction. The Pyongyang General Hospital, which opened in November 2025, symbolizes this vision, and North Korea has used it to send a strong domestic and international message about modernizing its backward healthcare system. At the same time, the country has strengthened external cooperation in healthcare through agreements with Vietnam and discussions with Russia following visits by the Russian health minister, covering exchanges in medical equipment, pharmaceuticals, and medical personnel. These efforts seek to secure necessary technologies and materials and expand international networks despite sanctions. The healthcare sector is likely to grow in strategic importance as a core livelihood indicator symbolizing the “people-first” principle and as a representative non-political field that can justify cooperation with the outside world.

Behind these livelihood and construction achievements, however, the North Korean economy has entered a phase of adapting to a “new normal” of high exchange rates and high prices. After remaining stable in the 8,000-won range during the pandemic due to border closures and trade disruptions, the dollar exchange rate surged beyond 30,000 won and into the 40,000-won range by the summer of 2025, driven by a sharp rise in foreign currency demand and monetary expansion following border reopening, large-scale state projects, wage increases, and distribution system reforms. Rice prices have likewise exhibited synchronized volatility with the exchange rate, fluctuating at elevated levels rather than reverting to past lows, suggesting the formation of a “new equilibrium.” This trend is less a sign of acute market instability or imminent regime collapse than an indication of a structural "new normal" created by the interaction between sanctions and state-led mobilization policies. At the same time, it heightens risks of social polarization and instability by eroding real incomes of vulnerable groups and encouraging adaptive behaviors such as reduced consumption, preference for low-cost substitutes, and expansion of informal transactions. How clearly the authorities recognize these structural factors, and whether they can devise compensatory measures to stabilize livelihoods under conditions of high exchange rates and high prices, will be a critical variable for internal stability going forward.

In its strategy toward the United States and South Korea, North Korea is moving to institutionalize nuclear possession and the two-state doctrine, thereby reshaping the very premises of negotiation. In a September address to the Supreme People’s Assembly, Chairman Kim Jong Un characterized denuclearization as an unconstitutional demand that negates the constitutional order, and firmly positioned “peace through strength centered on nuclear force” as a core element of national identity, making clear that denuclearization will be excluded from any future dialogue agenda. Regarding inter-Korean relations, he reiterated the “two hostile states” formulation, using strong language to declare that there is nothing to sit down over or pursue together with South Korea, thereby discarding ethnic and unification narratives and seeking to render the two-state reality irreversible. A series of statements by Kim Yo Jong has framed South Korean government conciliatory measures as “deceptive appeasement” linked to ROK–U.S. joint exercises, and has openly conveyed the perception that South Korea’s North Korea policy represents a continuation of absorption-oriented unification attempts, alliance dependence, and confrontation. As long as this structural perception persists, North Korea is likely to dismiss policy changes in South Korea as declarative gestures rather than evaluating them in terms of tangible risk reduction or regime security.

By contrast, North Korea has adopted a markedly different approach toward the United States. While showcasing military capabilities such as ICBMs and hypersonic missiles, it has simultaneously left open the possibility of conditional dialogue by referencing “good memories” with former President Donald Trump. The premise, however, is no longer bargaining over denuclearization, but acceptance of North Korea’s nuclear possession as a “changed reality” and recognition of a balance of power. North Korea has made clear that denuclearization will no longer serve as the starting point for negotiations, proposing a new framework in which talks are possible only if the United States abandons denuclearization demands and seeks peaceful coexistence. This signals a fundamental shift in North Korea’s negotiating strategy, indicating that any resumption of discussions on improved relations and a peace regime, as envisioned during the 2018–2019 summits, would occur only under conditions acknowledging the “changed reality.” The collapse of speculation about a U.S.–North Korea summit on the margins of the 2025 APEC meeting hosted by South Korea holds symbolic significance, demonstrating through action North Korea’s refusal to engage in meetings premised on denuclearization. North Korea neither openly rejected Trump’s overtures nor accepted them, instead conducting strategic cruise missile tests, engaging Russia, and pursuing multilateral diplomacy during the same period, thereby avoiding the political burden of premature talks under mismatched preconditions and reaffirming its principle of direct U.S.–North Korea engagement without South Korean mediation.

Given these domestic and external policy orientations and realities, adjustments to South Korea’s North Korea strategy are unavoidable. While maintaining denuclearization as the ultimate objective, a more realistic approach would shift the entry point of negotiations from “complete denuclearization” to the phased management of concrete threats such as long-range and regional missile activities, nuclear testing, and nuclear material risks. This would prioritize the construction of a risk-reduction-centered management framework, while relegating full denuclearization to a long-term objective. With North Korea defining denuclearization as an unconstitutional demand, insisting on it as a precondition risks closing the door to dialogue altogether, as seen in the APEC case. A multilayered strategy is therefore required, prioritizing the construction of a risk-reduction-centered management framework while positioning denuclearization as a long-term goal. In inter-Korean relations, while upholding the constitutional principle of a special intra-national relationship, actual policy implementation should take into account North Korea’s two-state perception by separating political authority-level dialogue from non-political working-level contacts. Securing indirect and multilateral cooperation channels through third countries and international organizations in relatively low-politics areas such as healthcare, disaster prevention, and disaster response—fields that affect residents on both sides—could provide a minimum safety valve for managing contingencies even when official intergovernmental dialogue is blocked.

In relations with China, a shift toward pragmatic diplomacy centered on shared interests in strategic stability and crisis management on the peninsula is required. Given the reality that closer North Korea–Russia ties and expanded North Korea–China economic cooperation weaken the effectiveness of sanctions, it is important to encourage China to maintain a “fair” position rather than tilting unilaterally toward North Korea, which in turn necessitates improvement of ROK–China relations and expanded mutual understanding. With Russia, where official government channels remain limited, a long-term approach is needed that regularizes policy dialogue through Track 1.5 and multilateral channels and restores and expands practical cooperation in non-political fields, thereby encouraging Russian interest not only in North Korea but also in improving ROK–Russia relations. In response to North Korea’s outreach to ASEAN and the Global South, South Korea should likewise strengthen strategic dialogue with countries such as Vietnam and expand development and infrastructure cooperation, broadening the space for these states to serve as indirect mediators for easing tensions and improving inter-Korean relations. At the same time, rather than viewing North Korea’s high-exchange-rate, high-price new normal simply as a sign of collapse, it is necessary to closely analyze how the economy is adapting and transforming under sanctions, and to pre-design cooperation models aligned with international standards and North Korea’s actual needs in areas such as healthcare infrastructure, agriculture, regional construction standardization, and tourism. Finally, major North Korea policy directions—such as operationalizing denuclearization goals and responding to the two-state framework—must be pursued with public consensus and international cooperation. By transparently presenting policy principles, objectives, and strategies, engaging in social dialogue, and coordinating with allies, neighboring countries, and international organizations while simultaneously advancing tangible cooperation projects that improve the living conditions of North Korean residents, the government can secure both the sustainability and legitimacy of its policy approach.