Constraints and Prospects of North Korea-China Economic Cooperation

GyuBeom Kim

Visiting Research Fellow, Sejong Institute

Summary

■ Raising the Issue

  ❍ Economic cooperation between China and North Korea has experienced frequent fluctuations, mirroring the recurring cycles of conflict and reconciliation in their bilateral relations. Particularly, the confrontational dynamics formed after North Korea's nuclear and missile tests, and China's sanctions in response, have acted as a persistent limiting factor for economic cooperation between the two countries.

  ❍ From 2012 to 2017, during the early years of leadership under Chairman Kim Jong-un and President Xi Jinping, this confrontational structure continued. However, in early 2018, when Kim Jong-un initiated denuclearization talks, the bilateral relationship dramatically improved. This shift peaked during President Xi Jinping's visit to Pyongyang in June 2019, where he pledged to strengthen traditional friendly ties, enhance strategic cooperation, and deepen economic and cultural collaboration. Although the implementation of these agreements was delayed due to the COVID-19 pandemic, it was widely anticipated that economic cooperation between the two countries would significantly expand after the pandemic ended.

  ❍ However, even two years after the end of the pandemic and the reopening of borders, economic cooperation between China and North Korea has yet to show significant progress. The recovery of human exchanges and trade volumes has been slow, and this has led to discussions about the possibility of a "North Korea-China relationship anomaly," especially when compared to the rapidly developing North Korea-Russia relations.

  ❍ The causes of the sluggish North Korea-China economic cooperation are primarily attributed to the differences in the two countries' strategies in response to the U.S.-China competition and their differing positions on the implementation of UN sanctions against North Korea. In the context of the U.S.-China strategic rivalry, China cannot afford to ignore the scrutiny of the U.S. and the international community, while North Korea, which views the current situation as a "new Cold War," seeks to leverage the conflicts between major powers. These differing stances have been reflected in the disagreements between the two countries regarding the level of UN sanctions enforcement and the scope of economic cooperation.

  ❍ While this analysis is useful for understanding North Korea-China relations on a macro level, it overlooks the specific context of their economic interests. Therefore, this study aims to examine the context of the development of North Korea-China economic cooperation and conduct an in-depth analysis of the strategic and economic positions and interests of both countries, focusing on recent key issues in their economic collaboration.

  ❍ The scope of North Korea-China economic cooperation is extensive, but recent attention has focused on specific issues, particularly in the border regions. This study will conduct case analyses centered on the following issues: 1) the border region along the Yalu River and the opening of the new Yalu River Bridge, 2) the joint development of the lower Tumen River, 3) the resumption of Chinese tourism to North Korea, and 4) the repatriation and employment of North Korean workers in China. Through these cases, the study seeks to provide a more concrete understanding of the particularities and structural limitations of North Korea-China economic cooperation.

■ The Ups and Downs of North Korea-China Economic Cooperation

  ❍ The end of the Cold War in the 1990s and the establishment of diplomatic relations between South Korea and China brought about a significant shift in North Korea-China relations, leading to a new phase in their economic ties. In particular, the one-sided, aid-based nature of assistance and loans began to decline, and the barter trade and friendly pricing systems were gradually abolished, making way for more conventional trade relations between sovereign nations.

  ❍ In May 2000, Kim Jong-il, the Supreme Leader of North Korea, visited China and resumed direct communication between the two heads of state. In 2002, North Korea announced the "7.1 Economic Management Improvement Measures," signaling a commitment to reform. Against this backdrop, discussions on North Korea-China economic cooperation began in earnest. In the latter half of 2009, under Chinese President Hu Jintao and the 4th generation leadership, China began unprecedented levels of economic cooperation with North Korea, marking a major turning point in their economic relationship. In 2009, Chinese Premier Wen Jiabao visited Pyongyang and signed agreements on "economic and technical cooperation" and "economic assistance exchange documents."

  ❍ In May 2010, Kim Jong-il visited Beijing, where he and President Hu Jintao agreed to jointly develop the Hwanggumpyong-Wihwado and Rason-Sonbong regions as special economic zones. This agreement represented the most extensive economic cooperation between the two countries since the end of the Cold War. In particular, in the latter years of his leadership, Kim Jong-il expressed a strong commitment to the "reform" and "openness" of North Korea's economy, and through three visits to China, he toured China's northeastern regions and coastal cities to observe the results of China's reform and opening-up.

  ❍ However, after Kim Jong-il's death, the trend in North Korea-China economic cooperation began to slow down. In February 2013, Kim Jong-un conducted North Korea's third nuclear test despite opposition from China and the international community, and as a result, relations between Kim Jong-un and Chinese President Xi Jinping entered a period of tension from the outset. Particularly after North Korea's fourth nuclear test in 2016, the UN Security Council moved beyond military-related sanctions, transitioning to comprehensive sanctions that could severely impact the North Korean economy, which dealt a major blow to North Korea-China economic cooperation.

  ❍ The UN sanctions resolutions against North Korea mandate that all UN member states fully prohibit existing and new joint investments with North Korean individuals or entities. As a result, China-North Korea economic special zones and other investment development plans have effectively been put on indefinite hold. Additionally, the export of North Korea's major products, including coal, iron ore, textiles, and clothing, was banned, and the import of refined petroleum products was limited to 500,000 barrels annually. As a consequence, the total trade volume between China and North Korea, which had averaged over $6 billion annually until 2016, decreased to $4.97 billion in 2017 and plummeted to $2.43 billion in 2018. In particular, North Korea’s exports to China dropped sharply from $1.73 billion in 2017 to just $210 million in 2018.

  ❍ However, even in the context of worsening North Korea-China relations and the imposition of the toughest sanctions, China’s share of North Korea’s foreign trade remained remarkably stable. Although trade volume between China and North Korea sharply decreased after the intense sanctions were imposed in 2018, the share of China in North Korea's total trade consistently remained above 90%. This underscores China’s significant influence over North Korea’s economy and the growing dependence of North Korea on China.

  ❍ The tense situation, however, was dramatically alleviated when Kim Jong-un’s regime shifted its strategic course in early 2018. Notably, in June 2019, President Xi Jinping's visit to Pyongyang greatly heightened expectations for bilateral cooperation. Xi Jinping expressed support for Kim Jong-un's new strategic direction and emphasized strengthening North Korea-China friendly relations and strategic communication. He also announced plans to expand economic exchanges and cooperation in various fields, including education, culture, sports, tourism, youth, local governments, and people's livelihoods.

  ❍ Reflecting this positive atmosphere, Chinese tourism to North Korea, which was not affected by sanctions, saw a significant increase. The number of Chinese tourists in 2019 was estimated at around 260,000 to 300,000, surpassing the previous peak of 237,000 in 2012. However, in early 2020, the global spread of the COVID-19 pandemic dampened the momentum of the newly revived North Korea-China economic cooperation. In the second half of 2022, both countries officially declared the end of the pandemic, but trade and human exchanges did not normalize until the first half of 2023, due to the residual effects of pandemic control policies. By 2023, total trade had risen to $2.31 billion, reaching 83% of the 2019 level and nearly recovering to pre-pandemic trade levels.

  ❍ Despite periodic expressions of intent to deepen North Korea-China relations and economic cooperation through celebratory messages on major bilateral anniversaries, little tangible progress has been made thus far. As of now, North Korea-China economic cooperation is considered to be at yet another critical juncture.

■ Case Analysis of Economic Cooperation in the North Korea-China Border Region

A, Passage on the Yalu River border and the issue of the opening of the New Yalu River Bridge

  ❍ The Yalu River border region is a key area for North Korea-China economic cooperation, with the majority of North Korea-China land trade—about 70%—occurring in the largest border cities, Dandong and Sinuiju. Both countries have long recognized the potential of the border region and have pursued various development and investment plans from an early stage.

  ❍ In 2002, Kim Jong-il initiated the "Sinuiju Special Administrative Region," which was viewed as North Korea’s version of Hong Kong, and in 2010, the North Korean and Chinese leaders agreed to establish the Hwanggumpyong-Wihwado Economic Zone. Following this momentum, from the 2010s onward, significant investments from domestic Chinese capital flowed into Dandong, while in the Sinuiju area, numerous high-rise buildings began to be constructed after 2014. Notably, the designation of the Dandong Border Economic Joint Zone and the construction of the New Yalu River Bridge led to the development of a large residential and commercial district in Langtou Town, Dandong.

  ❍ However, after 2016, the passage of UN Security Council sanctions resolutions banning joint ventures and investments with North Korea resulted in the suspension of economic zones and development plans, leaving major facilities and sites abandoned. Currently, the region functions primarily as a trade outlet.

  ❍ On the other hand, the opening of the New Yalu River Bridge, which connects Dandong’s Langtou area with the southern part of Sinuiju, has become an important indicator for evaluating North Korea-China relations. Completed at the end of 2014 with full investment from the Chinese government, the bridge has still not opened, raising many questions even after a decade.

  ❍ China has indirectly urged for the expansion of trade by emphasizing its capital and technical contributions, suggesting replacing the existing bridge with the new one to boost North Korea-China trade. In contrast, North Korea has shown a passive and lukewarm attitude towards the opening of the bridge. Considering that the new bridge offers significant infrastructural advantages, such as increased cargo flow and logistics efficiency, the divergent priorities between China, which seeks to increase trade and improve efficiency, and North Korea, for which these concerns may not be a priority, are clear.

  ❍ From North Korea's perspective, while trade with China is essential, it often results in a significant trade deficit, which may make North Korea cautious about expanding trade. Additionally, North Korea has sought qualitative economic growth through external economic cooperation, including technological advancement, meaning it is likely to be wary of North Korea-China trade focusing only on quantitative expansion.

  ❍ While it is difficult to pinpoint the exact reasons due to limited data, if the opening of the New Yalu River Bridge is indeed related to the direction of North Korea-China economic cooperation and trade development, the issue of opening the bridge may not be resolved in the short term. However, given the international attention surrounding the New Yalu River Bridge, it is possible that the leaders of both countries may use this issue as a political event at a time when substantial development in North Korea-China relations is needed.

B. Issues on Joint Development of the Lower Tumen River

  ❍ The lower Tumen River border region, which forms part of the eastern land border between China and North Korea, is adjacent to Russia and connects by sea to South Korea and Japan, making it an area with significant potential for development. In the early 1990s, the United Nations Development Programme (UNDP) proposed the Tumen River Area Development Program (TRADP), outlining multilateral economic cooperation and development plans for the region.

  ❍ China has been actively involved in the development of the Tumen River area, believing that international-level development in this region could contribute to peace in Northeast Asia and stimulate economic activity in its own northeastern provinces, particularly Jilin and Heilongjiang. North Korea, for its part, viewed the development of the lower Tumen River as a crucial way to overcome its economic isolation. In December 1991, in line with international development trends, North Korea designated the Rajin-Sonbong region (located in the Tumen River delta) as a "special economic zone" and sought to integrate this into international development initiatives.

  ❍ Although the development of the Tumen River region attracted attention from both North Korea and China, as well as the international community, it ultimately failed to yield significant results. Like other economic cooperation initiatives involving North Korea, the region's development was hindered by the North Korean nuclear issue and related sanctions. Additionally, beyond the UN sanctions prohibiting joint ventures with North Korea, factors such as reduced investment demand due to unstable international conditions, complex geopolitical interests, and competition between regional powers further delayed or obstructed progress.

  ❍ Recently, joint development and expansion of distribution infrastructure in the lower Tumen River region have been discussed again, following talks between China, Russia, and North Korea. In May 2024, during a China-Russia summit, the two countries' leaders agreed on the joint development and utilization of the lower Tumen River, and committed to further consultations with North Korea. In the following month, at the June 2024 North Korea-Russia summit, Kim Jong-un and Russian President Vladimir Putin agreed to build a new automobile bridge crossing the Tumen River, and signed related agreements.

  ❍ The issue of accessing the East Sea (Sea of Japan) is of strategic importance to China, both for economic revitalization in its northeastern regions and for expanding its maritime influence. Resolving this issue would be seen as a historic achievement for China, making it a very attractive matter for Beijing. Moving forward, China is likely to pursue active communication and cooperation to address this issue. However, if Kim Jong-un, as widely expected, uses the Tumen River access issue as a strategic leverage in broader economic negotiations with China, it is likely that the negotiation process will be lengthy and difficult.

C. Resumption of Tourism between North Korea and China

  ❍ The tourism industry, being unaffected by UN sanctions on North Korea, has attracted attention for its relatively low investment requirements and the potential for high returns. Kim Jong-un has prioritized tourism as one of the key policies for economic development, spearheading the development of major tourist destinations such as the Masikryong Ski Resort, the Wonsan-Kalma Coastal Tourist Zone, and the Samjiyon Tourist Special Zone since the early years of his rule.

  ❍ Among inbound tourism to North Korea, Chinese tourists have historically made up the largest share, and Chinese tourism plays a significant role in North Korea-China economic cooperation. With the improvement in bilateral relations between the two countries in 2018-2019, the number of tourists increased, and in 2019, between 260,000 to 300,000 Chinese tourists visited North Korea, accounting for about 90% of all foreign visitors.

  ❍ However, in January 2020, North Korea closed its borders as part of its COVID-19 prevention measures, and as a result, Chinese tourism to North Korea was completely suspended. To date, tourism has not resumed, and some interpret this as a sign of deteriorating North Korea-China relations.

  ❍ Nevertheless, attributing the delay in the resumption of North Korea-China tourism to the deterioration of bilateral ties may be somewhat premature. Considering that, even during the height of North Korea-China tensions in 2016-2017 due to North Korea’s nuclear and missile tests, tourism only saw a slight decrease but was not entirely halted, it appears that North Korea-China tourism tends to persist, even amid political tensions.

  ❍ Therefore, the delay in the reopening of tourism is more likely related to North Korea’s internal tourism policies than to a direct consequence of strained North Korea-China relations. Since the COVID-19 pandemic, North Korea has not reopened its tourism to foreign visitors, including Chinese tourists. The recent acceptance of a small number of Russian tourists can be seen as an exception linked to the strengthening of North Korea-Russia relations and as a special event.

  ❍ Given the current circumstances, it is highly likely that North Korea will resume foreign tourism early next year. Kim Jong-un has ordered the completion of major tourist facilities by May 2024, and foreign travel agencies specializing in North Korea tourism are planning to release travel packages by early next year. While it is not explicitly stated that the reopening will target Chinese tourists, considering the historically significant share of Chinese visitors and the public commitment made by President Xi Jinping during his 2019 visit to North Korea to cooperate on tourism, it is highly probable that North Korea-China tourism will soon reopen and recover.

D. Issues of North Korean Workers In China

  ❍ North Korean labor exports are known to be one of North Korea's major sources of foreign currency. Recent UN reports and South Korean media estimate that the number of North Korean workers in China is around 100,000, and these workers are said to generate more than $300 million in foreign currency annually.

  ❍ Following North Korea's fourth nuclear test, the UN Security Council adopted a resolution banning the hiring of North Korean workers abroad. Specifically, UN Security Council Resolution 2397, adopted in 2017, mandated the repatriation of all North Korean workers within 24 months. As a result, North Korean workers were supposed to return home by early 2020, but many were unable to do so due to the impact of the COVID-19 pandemic and remained in China.

  ❍ In July 2024, several South Korean media outlets reported, citing "government sources," that a conflict had arisen between North Korea, which demanded the re-deployment of new workers to replace those whose visas had expired, and China, which was concerned about violating sanctions. The issue of the repatriation of North Korean workers from China has become an urgent matter since the lifting of the border lockdown in the first half of 2023, and recent developments suggest that this issue could come to the forefront. However, it is still uncertain whether China will strictly enforce the UN sanctions and prohibit North Korean workers from being employed in the long term.

  ❍ China has shown a pragmatic stance in balancing its commitments to the international community and its relations with North Korea when it comes to enforcing sanctions. After the adoption of Resolution 2397, in its interim report, China did not specify the number of workers repatriated but only mentioned that "more than half of the repatriates have been returned." It also submitted a one-page report privately, showing a rather passive approach.

  ❍ Moreover, the employment of North Korean workers in China benefits both countries. North Korea can earn foreign currency, while China receives relatively inexpensive and stable labor. Given that North Korea runs an annual trade deficit of about $2 billion with China, China may find it burdensome to strictly prohibit the employment of North Korean workers.

  ❍ It is highly likely that China will maintain the current situation regarding the employment of North Korean workers, without yielding to international pressure for full compliance with the sanctions. This issue could be used by China as a negotiation card in its relationship with North Korea in various ways. Therefore, while this matter may have short-term negative effects on North Korea-China relations, its long-term impact is expected to be limited.

■ Conclusion

  ❍ At this juncture, China and North Korea hold differing positions and response strategies regarding the trend of a multipolar international order and the U.S.-China strategic competition. These strategic differences are expected to continue acting as factors that limit the scope and level of China-North Korea cooperation for some time to come.

  ❍ However, despite these challenges, economic cooperation and trade are likely to gradually recover or, at the very least, continue at levels slightly above the current state. While China will continue to emphasize its compliance with UN sanctions, there is also the possibility that the two countries will seek diversification in their methods of cooperation and pursue new forms of exchange.

  ❍ The current slow-moving cooperation between China and North Korea is largely due to the impact of high-intensity UN sanctions and the strategic differences between the two countries, but these are not the only factors at play. The two countries have shown differences not only in terms of foreign strategy but also in their economic interests, leading to a prolonged tug-of-war over time. Therefore, to fully understand the current situation, it is essential to continuously focus on the economic interests of each side in various cooperation areas and how these interests evolve.

  ❍ Issues like the opening of the New Yalu River Bridge and the joint development of the lower Tumen River are closely tied to the overall atmosphere of China-North Korea relations as well as political and diplomatic negotiations. As such, significant changes in these areas in the short term are relatively unlikely. On the other hand, the repatriation and re-deployment of North Korean workers in China, as well as the resumption of tourism from China to North Korea, are issues that could potentially be resolved in the short term, provided there is detailed coordination. These issues have historically been used by China as a tool to manage and control North Korea, though they have never been completely suspended. Despite some ups and downs, these issues are likely to continue and be maintained at a certain level.

  ❍ It is crucial to analyze specific phenomena within China-North Korea relations and the texts emitted by both countries in detail. However, for a balanced analysis, it is essential to understand the development of the bilateral relationship over time as the foundation of such an analysis.

  ❍ Compared to the conflict period from 2012 to 2017, current China-North Korea relations are still managed within the framework of strategic communication and cooperation. Therefore, it is important to be cautious about assuming the deterioration of China-North Korea relations as a given and using it as a premise for policymaking.

  ❍ Since the second half of 2023, the rapid development of North Korea-Russia relations has emerged as a crucial variable affecting China-North Korea ties. It is important to examine both the negative and positive impacts of North Korea-Russia closeness on China-North Korea relations in a balanced manner. There is a tendency to highlight the negative impact, which is that the strengthening of North Korea-Russia ties could escalate tensions in the Northeast Asian region, conflicting with China’s efforts to maintain regional stability and potentially leading to friction.

  ❍ However, there is also a possibility that North Korea-Russia closeness could have a positive impact on China-North Korea relations or cooperation. For example, if Russia provides support and cooperation that exceeds the scope of UN sanctions, it could alleviate some of China's burdens. In the case of North Korean labor exports, if a significant number of workers are sent to Russia, expanding North Korea’s foreign currency sources, this could soften the negotiation positions of both North Korea and China regarding labor trade conditions. Additionally, within the framework of growing China-Russia and North Korea-Russia trade, the methods and pathways of China-North Korea trade and cooperation could also become more diversified.​