Pritish Gupta, Research Intern, ICS
In wake of the COVID-19 pandemic, economic dependency of North Korea on Beijing is set to increase as the country faces an unprecedented economic crisis. The Democratic People’s Republic of Korea is in the midst of a critical phase where the effort to manage the economy while facing crippling sanctions is impeded with the consequences of the pandemic impacting the overall performance of the economy.
With limited access to the information inside the country and despite Pyongyang’s efforts to cover itself from the spread of the pandemic, the impact on the economic activity in the country is foreseeable. The strict measures undertaken by the regime are having side-effects on its already vulnerable economy. After the closure of borders, trade with Beijing came to a halt, resulting in shortage of supplies and leading to a surge in prices. The situation is much worse in the rural areas. Last year, the North Korean leader Kim Jong-un said that the country was struggling to meet its economic objectives. It was a blow to the dual policy of nuclear weapons development and economic growth known as “byungjin line”.
The punishing sanctions
The sanctions have been progressively expanded by the UN Security Council and US government over the years given the nuclear ambitions of the DPRK, aiming to suppress the ability of the economy aiding its nuclear program. Though, over the last few years, the sanctions have had a negative effect on the internal economic activity, crucial to support the basic needs in health and food security. The sanctions have been partly responsible to the vulnerable state of the economy too. The restrictions on the inflow in the country, while restricting its ability to export to generate foreign exchange to import further has impacted the GDP of the country.
As North Korea found itself cornered on the international stage, Beijing was the only reliable partner for Pyongyang both economically and strategically. In terms of international trade, China accounts for North Korea’s largest trade partner. North Korea’s trade dependence on China has increased over the last few years. One of the most important reason why China is North Korea’s leading trade partner is the increase of Chinese imports of North Korean natural resources such as minerals in the last few years, leading up to 300 percent.
No change in economic policy
North Korean leader Kim Jong-Un’s response to the situation is certainly not laudable. Lately, the regime has emphasized more on central planning and rather discouraging the private sector, an important element in country’s quest for a mixed economy. It is not keen on the economic and market reforms that could revive the domestic economic activity and prove instrumental on the road towards improving the situation. In the speeches at the party meeting, Kim stressed on the restoration and reinforcing the system whereby the economy runs under the management of the state. His unwillingness to reform the state- controlled system has exacerbated the economic situation in the country. The state control of the economy is also driven by insecurity in the regime. The rising scarcity of goods in Pyongyang and discontent among the elites has concerned Kim Jong-Un lately. The juche ideology that the leader is trying to implement in wake of the crisis stemming out of sanctions may worsen the economic situation in the country.
The consequences of the pandemic on the North Korean economy may further complicate the crisis. The slump in global economic activity would also impact the country’s overseas business interests in China as well as the workers in Russia. Travel restrictions have made it difficult for Pyongyang to send the workers overseas. North Korea’s reluctance to publish the economic data also makes it difficult to understand the impact on the country’s economy. The effect on small and medium sized enterprises (SMEs) in China are indicative that the North Korean SMEs would be facing challenges with labor shortages, supply chain issues etc. But, with Chinese economy recovering well from the slowdown, it is predicted that with the easing of the border controls, trade with China would be normalized. Though, with prolonged restrictions, the negative impact on the economy may expand widely and last long enough to a full blown economic crisis accelerated by the pandemic.
Economic Dependence on China to stay?
North Korea prefers the Chinese system for banking, trade and business with no alternative in sight. Both the countries are willing to expand these exchanges in the near future. Economic independence and diversification in trade relations for Pyongyang may be beneficial in the long run but given the crisis on the peninsula, it seems a distant possibility. Chinese dominance also remains strong given the close connections between the business communities, despite the sanctions. For China, the bordering provinces with North Korea are the poorest in the country therefore trade and economic exchange is crucial for economic activity. Pyongyang understands the massive advantages of maintain robust economic ties with Beijing. If negotiations with the new US administration in terms of the denuclearization of the peninsula and regime stability are successful in the near future, the sustained economic ties with Beijing would prove to be an important catalyst for opening up of the economy for Pyongyang.
With the pandemic curtailing the economic activity globally and the stalled talks on the Korean Peninsula, it is imperative for Pyongyang to depend on the economic benevolence of Beijing. Economically, North Korea is likely to remain in China’s economic sphere for a foreseeable future until the international sanctions are eased and the relationship with the West is normalized. Pyongyang also understands the consequences of overdependence on China in economic terms, but given the uncertainty on the peninsula it has to sustain its enduring alliance with Beijing.