The Peninsula

Two Koreas and the Growing China Factor: Opportunity for a New Model?

By Sarah K. Yun

On Tuesday, September 20, KEI hosted a discussion on China’s changing relations with the two Koreas as part of a book launch for the 2011 edition of Korea’s Economy.  The event featured two of the book’s authors, Forbes.com columnist Gordon Chang and Senior Congressional Research Service Analyst Dick Nanto. While both authors discussed their contributions to Korea’s Economy, much of the discussion focused on the potential dangers of the two Koreas’ growing dependence on China.

In recent years we have seen North Korea’s trade become increasingly dominated by China rather than South Korea. While the future of inter-Korean cooperation projects such as Mount Kumgang remains clouded, China continues to pursue joint projects in the Rason and Sinuiju special economic zones, leading some scholars to conclude that we are witnessing the development of Juche with Chinese characteristics.

Even military relations between North Korea and China have strengthened through economic means.  For example, the People’s Liberation Army of China and the Korean People’s Army have become increasingly involved in economic affairs such as mineral trading.  China’s ambition is to penetrate the North Korean economy, while the project at Rason will provide access to a warm water port that will benefit the development of Northeastern China.

All of this activity raises concerns that North Korea could become a Chinese protectorate.  Making this more complicated for policy makers in Seoul is the fact that the South Korean economy is becoming ever more reliant on China, which also happens to be the North’s closest ally.

With such bleak outlook, are there any positive outcomes from North Korea’s reliance on China?  After all, moments of danger can turn into opportunities.  In the aftermath of the unsuccessful currency reform and the reemergence of markets, Pyongyang cannot turn back the clock on reforms.  As long as the North Koreans are slowly accepting terms to open up its economy to China and others, opportunities may exist to entice North Korea away from its dependence on China.  Perhaps now is the time to explore new models of cooperation to create an entry point into North Korea.

There are largely two options for a new model.  One possibility is to utilize non-traditional players such as Egypt, India and Russia who have already existing ventures in North Korea to diversify North Korea’s interests and trading partners.  This may create pressure points inside North Korea from non-aligned nations that do not have historically antagonistic relations with the Kim regime.  Another possibility is to encourage non-traditional players and South Korea to use China as a platform for small and medium enterprises to invest in China’s Northeastern provinces to build greater ties with North Korea.  Such projects would take place in anticipation of Rason’s rapid development upon completion of the Chinese-made road.

Whether we like it or not, North Korea is changing, while Rason and other areas are on the road to development with the help of China.  The question is, will the international community choose to be bystanders or will it seek creative ways to leverage the changing circumstances in North Korea?

Sarah K. Yun is the Director for Business Issues and Regional Affairs at the Korea Economic Institute. The views expressed here are the author’s alone.