• <div class="header-image" style="background-image: url(/live/image/gid/4/2611_Header_V6N2_web_4.rev.1518551584.jpg);">​</div><div class="header-background-color"/>

North Korea’s Complicated Relationship With China

April 04, 2017

Recently, eyes have been turned towards North Korea, especially in light of recent actions taken by its closest ally; China. Following a series of weapons testing throughout 2016 and early 2017, many nations issued sanctions on North Korea. [1] However, it remained unclear whether the Chinese authorities, who enjoy a close relationship with Pyongyang, would follow suit. By banning the importation of North Korean coal in March 2017, Beijing made a decision that indicates a radical change in its attitude towards North Korea. [2] China’s previous ambivalence and hesitance to act has morphed into increased support for the UN’s position on North Korea and a stricter response towards North Korean aggression. 

China’s Role in the North Korean Economy

For decades China has been providing North Korea with foreign aid and diplomatic support. China has continually argued on behalf of North Korea against harsh international sanctions, presumably to prevent a regime collapse and the subsequent refugee influx that would flood China. [3] In 2014, China backed North Korea by criticizing a UN report detailing the poor human rights conditions across North Korea and stood by its decision to continue providing aid with food and energy resources. [3]

Moreover, China is responsible for around 90% of North Korea’s imports and exports, making it an indispensable economic partner for North Korea. [2] It is, therefore, no surprise that following the sanctions, North Korea accused their neighboring country of “dancing to the tune of the US.” [4] Furthermore, in 2016 the net worth of North Korean coal imported by China amounted to US $1.2 billion [2] , accounting for around 5% of the country’s GDP. [5] Immediately after the sanctions were implemented, the price of one kilogram of rice in Pyongyang was 5160 Korean People’s Won (KPW), however, after China’s decision to ban coal imports, the price has since risen to 5400 KPW. [6] Prices in other regions of North Korea vary, but all have experienced an upward trend in the last few weeks. 

<a href="http://english.hani.co.kr/arti/english_edition/e_national/772806.html" target="_blank">Source</a>Source

North Korean Economic History and Present Structure

The North Korean economy has experienced problems in the past, which culminated in a famine that wiped out around 5% of the population in the 1990s. [4] During this time, the authorities’ success in establishing state control of the market and eliminating the private sector served to amplify the detrimental effects of the devastating famine. [4] Many people in despair defied the government’s orders and began to trade, once again developing a private market. This private market has persisted until today and consists largely of smuggling goods across the border with China. Nowadays, established firms that do business with China must give over half of their profits to the government as a show of loyalty. [8] Improvements in mortality rate and life expectancy are just some of the induced benefits of the private market. [4] Professor Hazel Smith, director of the International Institute of Korean Studies at the University of Lancashire and Korean expert on the UN Panel of Experts, claims that “on average, children in North Korea today are significantly better off than if they lived in India or Pakistan.” [4] Despite the emergence of the private market, the coal industry is still firmly under state control. Therefore, it is the North Korean government, rather than the people, that will be directly affected by the latest sanctions imposed by China.

<p>Source:<a href="http://www.telegraph.co.uk/business/2017/02/26/secretive-north-korea-edging-towards-new-crisis/" target="_blank"> Telegraph UK</a></p>

Source: Telegraph UK

 

A Review of the Economic Effects of Previous Sanctions

On July 15th, 2006, the first UN-imposed sanctions on North Korea were implemented in response to the firing of ballistic missiles. Later in 2009, North Korea detonated its first underground nuclear device, instigating a tightening of sanctions. Further sanctions were implemented in both 2013 and 2016 in response to North Korea’s transgressions. [9]

The long sequence of sanctions indicates that they were unsuccessful in their bid to deter North Korea from continuing to develop nuclear arms. The 2006 sanctions targeted weapons, nuclear-related materials, and luxury goods, while the 2009 sanctions extended the previous sanctions to include any financial transactions relating to arms. In 2013, specific individuals in the regime began to be targeted through the freezing of financial assets. The list of targeted individuals includes Paek Chang-ho, head of the North Korean satellite control center, Chang Myong-chin, head of the launch center at which the 2012 missiles launch took place, and Ra Ky’ong-su, high ranking officer at the Tanchon Commercial Bank who facilitated sales of missiles and related material. Finally, the 2016 sanctions stretched to encompass any object that could be deemed as contributing to the development of North Korea’s armed forces. [9]

Throughout the duration of this timeline, one of the few indications of economic distress was Pyongyang’s agreement in March 2012 to pause its nuclear tests in exchange for US humanitarian aid in the form of food. From this uncharacteristic plea for help, it can be surmised that the sanctions had taken a large toll on the economic conditions within the country. However, this agreement was short-lived, with the announcement of another rocket test being announced within the span of a month. [8]

Implications of the Sanctions

The sanctions were implemented with the goal of curbing North Korea’s nuclear program. By economically paralyzing North Korea, other countries could gain the leverage that they need to formulate deals with Pyongyang regarding the dismantling of their existing nuclear weapons and the halting of further advances. [2] Unfortunately, North Korea has issued a statement in response to the sanctions where it said it was “utterly childish to assume that it would discontinue its nuclear weapons program for a few pennies.” [2]

Instead, two potential alternatives present themselves. On one hand, the sanctions could present too great an economic strain and lead the despaired North Korean government to respond with even greater aggression. Alternately, the new middle class that formed as a result of the private market activity may refuse to support a government that does nothing to alleviate their hardship. [4]

The effectiveness of the sanctions is largely dependent upon China’s willingness to abide by and enforce their terms. As the hermit kingdom’s largest trading partner, China bears the burden of holding economic leverage allowing it to negotiate and bargain with North Korea. The largest portion of trade between North Korea and China is arms trade, so while coal sanctions are a step in the right direction, if China were to cease trading arms, perhaps North Korea would be more willing to adhere to the demands of the UN. [8]

 References 

  [1] https://www.bloomberg.com/news/articles/2017-03-06/north-korea-missile-launches-nuclear-detonations-timeline

  [2] http://www.dw.com/en/china-is-getting-tough-on-north-korea-with-coal-embargo/a-37708015

  [3]http://www.cfr.org/china/china-north-korea-relationship/p11097

  [4] http://www.telegraph.co.uk/business/2017/02/26/secretive-north-korea-edging-towards-new-crisis/

  [5] https://www.ft.com/content/266a1c02-f8cf-11e6-9516-2d969e0d3b65

  [6] http://www.dailynk.com/english/read.php?num=14270&cataId=nk02900

  [7] http://www.scmp.com/news/asia/east-asia/article/2078187/life-shadows-how-kim-jong-nam-assassination-sheds-light

  [8] http://www.cnn.com/2013/04/09/business/north-korea-economy-explainer/

  [9] https://www.treasury.gov/resource-center/sanctions/Programs/pages/nkorea.aspx

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

PENN WHARTON PPI
RESOURCE SPOTLIGHT:

  • <h3>National Bureau of Economic Research (Public Use Data Archive)</h3><p><img width="180" height="43" alt="" src="/live/image/gid/4/width/180/height/43/478_nber.rev.1407530465.jpg" class="lw_image lw_image478 lw_align_right" data-max-w="329" data-max-h="79"/>Founded in 1920, the <strong>National Bureau of Economic Research</strong> is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works. The NBER is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.</p><p> Quick Link to <strong>Public Use Data Archive</strong>: <a href="http://www.nber.org/data/" target="_blank">http://www.nber.org/data/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Center for Education Statistics</h3><p><strong><img width="400" height="80" alt="" src="/live/image/gid/4/width/400/height/80/479_nces.rev.1407787656.jpg" class="lw_image lw_image479 lw_align_right" data-max-w="400" data-max-h="80"/>The National Center for Education Statistics (NCES) is the primary federal entity for collecting and analyzing data related to education in the U.S. and other nations.</strong> NCES is located within the U.S. Department of Education and the Institute of Education Sciences. NCES has an extensive Statistical Standards Program that consults and advises on methodological and statistical aspects involved in the design, collection, and analysis of data collections in the Center. To learn more about the NCES, <a href="http://nces.ed.gov/about/" target="_blank">click here</a>.</p><p> Quick link to NCES Data Tools: <a href="http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4" target="_blank">http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4</a></p><p> Quick link to Quick Tables and Figures: <a href="http://nces.ed.gov/quicktables/" target="_blank">http://nces.ed.gov/quicktables/</a></p><p> Quick link to NCES Fast Facts (Note: The primary purpose of the Fast Facts website is to provide users with concise information on a range of educational issues, from early childhood to adult learning.): <a href="http://nces.ed.gov/fastfacts/" target="_blank">http://nces.ed.gov/fastfacts/#</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Congressional Budget Office</h3><p><img width="180" height="180" alt="" src="/live/image/gid/4/width/180/height/180/380_cbo-logo.rev.1406822035.jpg" class="lw_image lw_image380 lw_align_right" data-max-w="180" data-max-h="180"/>Since its founding in 1974, the Congressional Budget Office (CBO) has produced independent analyses of budgetary and economic issues to support the Congressional budget process.</p><p> The agency is strictly nonpartisan and conducts objective, impartial analysis, which is evident in each of the dozens of reports and hundreds of cost estimates that its economists and policy analysts produce each year. CBO does not make policy recommendations, and each report and cost estimate discloses the agency’s assumptions and methodologies. <strong>CBO provides budgetary and economic information in a variety of ways and at various points in the legislative process.</strong> Products include baseline budget projections and economic forecasts, analysis of the President’s budget, cost estimates, analysis of federal mandates, working papers, and more.</p><p> Quick link to Products page: <a href="http://www.cbo.gov/about/our-products" target="_blank">http://www.cbo.gov/about/our-products</a></p><p> Quick link to Topics: <a href="http://www.cbo.gov/topics" target="_blank">http://www.cbo.gov/topics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Aviation Administration: Accident & Incident Data</h3><p><img width="100" height="100" alt="" src="/live/image/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg" class="lw_image lw_image80 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 2x, /live/image/scale/3x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 3x" data-max-w="550" data-max-h="550"/>The NTSB issues an accident report following each investigation. These reports are available online for reports issued since 1996, with older reports coming online soon. The reports listing is sortable by the event date, report date, city, and state.</p><p> Quick link: <a href="http://www.faa.gov/data_research/accident_incident/" target="_blank">http://www.faa.gov/data_research/accident_incident/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>MapStats</h3><p> A feature of FedStats, MapStats allows users to search for <strong>state, county, city, congressional district, or Federal judicial district data</strong> (demographic, economic, and geographic).</p><p> Quick link: <a href="http://www.fedstats.gov/mapstats/" target="_blank">http://www.fedstats.gov/mapstats/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>HUD State of the Cities Data Systems</h3><p><strong><img width="200" height="200" alt="" src="/live/image/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg" class="lw_image lw_image482 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 3x" data-max-w="612" data-max-h="613"/>The SOCDS provides data for individual Metropolitan Areas, Central Cities, and Suburbs.</strong> It is a portal for non-national data made available through a number of outside institutions (e.g. Census, BLS, FBI and others).</p><p> Quick link: <a href="http://www.huduser.org/portal/datasets/socds.html" target="_blank">http://www.huduser.org/portal/datasets/socds.html</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The Penn World Table</h3><p> The Penn World Table provides purchasing power parity and national income accounts converted to international prices for 189 countries/territories for some or all of the years 1950-2010.</p><p><a href="https://pwt.sas.upenn.edu/php_site/pwt71/pwt71_form.php" target="_blank">Quick link.</a> </p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>NOAA National Climatic Data Center</h3><p><img width="200" height="198" alt="" src="/live/image/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg" class="lw_image lw_image483 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 3x" data-max-w="954" data-max-h="945"/>NOAA’s National Climatic Data Center (NCDC) is responsible for preserving, monitoring, assessing, and providing public access to the Nation’s treasure of <strong>climate and historical weather data and information</strong>.</p><p> Quick link to home page: <a href="http://www.ncdc.noaa.gov/" target="_blank">http://www.ncdc.noaa.gov/</a></p><p> Quick link to NCDC’s climate and weather datasets, products, and various web pages and resources: <a href="http://www.ncdc.noaa.gov/data-access/quick-links" target="_blank">http://www.ncdc.noaa.gov/data-access/quick-links</a></p><p> Quick link to Text & Map Search: <a href="http://www.ncdc.noaa.gov/cdo-web/" target="_blank">http://www.ncdc.noaa.gov/cdo-web/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The World Bank Data (U.S.)</h3><p><img width="130" height="118" alt="" src="/live/image/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg" class="lw_image lw_image484 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 2x, /live/image/scale/3x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 3x" data-max-w="1406" data-max-h="1275"/>The <strong>World Bank</strong> provides World Development Indicators, Surveys, and data on Finances and Climate Change.</p><p> Quick link: <a href="http://data.worldbank.org/country/united-states" target="_blank">http://data.worldbank.org/country/united-states</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>USDA Nutrition Assistance Data</h3><p><img width="180" height="124" alt="" src="/live/image/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg" class="lw_image lw_image485 lw_align_right" srcset="/live/image/scale/2x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 2x, /live/image/scale/3x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 3x" data-max-w="1233" data-max-h="850"/>Data and research regarding the following <strong>USDA Nutrition Assistance</strong> programs are available through this site:</p><ul><li>Supplemental Nutrition Assistance Program (SNAP) </li><li>Food Distribution Programs </li><li>School Meals </li><li>Women, Infants and Children </li></ul><p> Quick link: <a href="http://www.fns.usda.gov/data-and-statistics" target="_blank">http://www.fns.usda.gov/data-and-statistics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Reserve Economic Data (FRED®)</h3><p><strong><img width="180" height="79" alt="" src="/live/image/gid/4/width/180/height/79/481_fred-logo.rev.1407788243.jpg" class="lw_image lw_image481 lw_align_right" data-max-w="222" data-max-h="97"/>An online database consisting of more than 72,000 economic data time series from 54 national, international, public, and private sources.</strong> FRED®, created and maintained by Research Department at the Federal Reserve Bank of St. Louis, goes far beyond simply providing data: It combines data with a powerful mix of tools that help the user understand, interact with, display, and disseminate the data.</p><p> Quick link to data page: <a href="http://research.stlouisfed.org/fred2/tags/series" target="_blank">http://research.stlouisfed.org/fred2/tags/series</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Internal Revenue Service: Tax Statistics</h3><p><img width="155" height="200" alt="" src="/live/image/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg" class="lw_image lw_image486 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg 2x" data-max-w="463" data-max-h="596"/>Find statistics on business tax, individual tax, charitable and exempt organizations, IRS operations and budget, and income (SOI), as well as statistics by form, products, publications, papers, and other IRS data.</p><p> Quick link to <strong>Tax Statistics, where you will find a wide range of tables, articles, and data</strong> that describe and measure elements of the U.S. tax system: <a href="http://www.irs.gov/uac/Tax-Stats-2" target="_blank">http://www.irs.gov/uac/Tax-Stats-2</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>