Understanding the China-North Korea Trade Equation

North Korea has always been perceived by the world as a rogue nation. Their aggressiveness became even more apparent when North Korea threatened President Donald Trump and America with a nuclear war. The standoff has led to another round of economic sanctions by the United States. The North Korean dictator has called these sanctions an “act of war”. The situation seems to be getting worse day by day. This makes many people wonder, what would an amicable end to this situation be? How can a rogue nation like North Korea be persuaded to be peaceful?

Often, experts suggest that China is the only nation that can assist in this regard. Many in the Chinese Communist Party do not agree to this. They believe that Washington is vastly overestimating their ability. The facts suggest otherwise. China is the only major ally that North Korea has and this gives China the leverage it needs to convince North Korea.

In this article, we will understand the China-North Korea economic equation in greater detail. The details should provide an indication about the degree of dependency that North Korean economy has on the Chinese economy.

The Largest Trade Partner

It is no surprise that most of the world does not trade with North Korea. China is the immediate neighbor of North Korea and also an economic powerhouse. Hence, there are some trade relationships between the two countries. Because of the size and stature of China, these trade relationships are insignificant to them. This means China could easily thrive and survive even in the absence of this trade. However, North Korea’s economy would cease to exist, if not for bilateral trade with China.

Consider the fact that North Korea sends two thirds of its exports to China. Also, North Korea imports most of their essential commodities from China. Hence, China can deliver the fatal blow to North Korea’s economy if they really want to. Earlier North Korea had major trade relations with both China and Russia. However, of late, Russia has stopped supporting them. Hence, the reliance on China has grown manifold.

Absence of Reliable Data

There is very little data available to make inferences about the extent of relationship between the two countries. China is notorious for releasing statistics which are opaque and inaccurate. At the same time, North Korea does not release any data. Hence, there is no data to corroborate what China says.

China has a vested interest in understating the extent of its trade with North Korea.

The conflict between North Korea and United States is in the interest of China. The reality is that China indulges in a lot of trade with North Korea despite the economic sanctions. Many experts estimate that 100% of the oil that finds its way into North Korea goes via China. Hence, if China stopped supplying oil, it could simply turn the power off in North Korea.

Access to Banking System

The United States repeatedly levies sanction on North Korea trying to prevent them from accessing the banking system. However, agents of North Korea create fake firms and set up offices in Hong Kong. These offices are where majority of the financial transactions undertaken by North Korea happen. This is why North Korea seems to be unaffected by any sanctions issues by United States and the western world at large.

If China were to take stricter measures and stop the activities of these shell companies in Hong Kong, the North Korean economy would be severely hit.

China’s Explanation

China does agree that it exerts a lot of economic influence over North Korea. However, the Communist party believes that this economic support is necessary and in China’s best interest. If China were to not provide this relief to North Korea, the country would face an economic collapse. This outcome may seem beneficial to the western world. However, from China’s point of view this will be an economic disaster.

Since, China is the closest neighbor North Korea has, a large part of the population is likely to flee the dictatorship and take refuge in China. This would create a humanitarian crisis, the price of which will have to be paid by China.

Hence, to prevent infiltration of refugees and the economic losses associated with it, China does business with North Korea. However, China only ensures survival of North Korea. They do not help the rogue nation achieve any sort of economic growth or power.

The world does not seem to agree with China on this. As a result, they have been pressurizing China to enact harsher measures against the Koreans. As a result, China has stopped the import of steel, seafood and coal from North Korea. Also, they are no longer allowing North Korean nationals to freely work in their country. On paper, these measures should have a significant impact on North Korea’s economy.

However, it is likely that China will make backroom deals and ensure the survival of this rogue nation.

The aggression from North Korea diverts the resources of United States. In the meanwhile, China is not getting involved in any war and focusing on economic growth. This conflict furthers their ambition of becoming the biggest economic superpower. Hence, it is in China’s interest to not resolve this dispute.