Nuclear Economics: China and the Koreas

Posted in China | 15-May-05 | Author: Erik Quam

A South Korean soldier, left, passes his North Korean counterpart at the truce village of Panmunjom in the demilitarized zone 30 miles north of Seoul, South Korea.

The pursuit of nuclear weapons in North Korea has made the future of the Peninsula uncertain as the world works to find a solution. China has a long standing alliance with North Korea and an ever increasing economic partnership with South Korea putting China in a difficult position in the current nuclear crisis. China continues to create economic and political policy supporting North Korea to ensure regime change there is postponed, while it enhances economic and political ties with South Korea in preparation for its vision of a future Korean Peninsula.

The Sino-North Korea alliance was forged in the name of the global Communist revolution. At the height of the Cold War North Korea also served as a buffer for China from possible U.S. aggressions on the Korean Peninsula. The Cold War has ended but the North Korean role as a buffer state remains the same. According to Charles Pritchard, “China also has little or no incentive to push for near-term reunification because, in Beijing’s view, North Korea serves as a convenient strategic buffer between China and its potential adversaries in the region.”[1] Further complicating China’s position on North Korea is a very real fear of refugees fleeing into China in the event of a North Korean collapse, a situation Beijing adamantly wants to prevent. The policy of isolation, enforced by the United States, has threatened the survival of the North Korean government by cutting North Korea off from most of its energy suppliers in retaliation to North Korea’s nuclear ambitions. China, however, has continued to feed North Korean energy needs.

Chinese energy support has thus far helped North Korea avoid an ever looming energy crisis. Chinese aid to North Korea is “estimated in the range of 70 to 90 percent of the North’s annual energy needs; one third of its total outside assistance (thus making China’s contribution nearly one-half billion dollars annually) and one quarter of its total trade.”[2] Chinese fuel aid has helped North Korea avoid energy shortfalls, while Chinese grain has been critical to North Korea’s population.

North Korea suffered a tremendous famine in the late 1990s, but China offered aid to help shore up North Korean shortfalls on both grain and energy. In 1996 “then Chinese Premier Li Peng and North Korean Vice Premier Hong Song Nam signed an agreement reportedly specifying that Beijing would provide Pyongyang with five hundred thousand tons of grain annually (half gratis and half at a “friendship” price) 1.3 million tons of petroleum, and 2.5 million tons of coal for the next five years. (1996 to 2000).”[4] These actions were taken to manipulate North Korea back to the table for nuclear talks as well as foster regime change through social upheaval from within.

China continues to do what it can, however, to help North Korea survive as Sino-North Korean economic ties are still strong. According to Samuel Kim and Tai Hwan Lee, “China remained North Korea’s principal trading partner: due to strong exports China accounts for approximately 30 percent of North Korea’s annual trade volume. China has provided more than a billion dollars in food and fuel aid annually.”[6] China is clearly losing economically in its trade with North Korea, as their trade is essentially Chinese donations. This signifies that China’s agenda in supporting the Kim Regime is more political than economical.

While China is delaying a complete collapse of the North Korean economy, it is also working to improve economic and political ties with South Korea. Sino-South Korean cooperation is still relatively new, as the two were essentially enemies from the end of the Korean War until the end of the Cold War. In recent years, however, Sino-South Korean cooperation has intensified. Those efforts, as is the case with North Korea, are most notable on the economic front. According to David Shambaugh:

“In 2001, China became South Korea’s largest trading partner, surpassing the United States; South Korea is China’s third largest trade partner. Two-way trade in 2001 was approximately $40 billion and probably grew by 30 percent in 2002. The ROK is now the fifth-largest foreign investor in China, investing $830 million in 2001 and a projected $1 billion in 2002, and more than 8,000 South Korean companies now operate in China and employ hundreds of thousands of Chinese workers.”[7]

Sino-South Korean economic ties are playing a more prominent role in Chinese policy on the Korean Peninsula. The more heavily invested China becomes in South Korea, the less willing China will be to offer North Korean military assistance in a campaign south of the 38th parallel, despite its military alliance with North Korea. Furthermore, despite Chinese aid, North Korea still may collapse.

By investing so heavily in South Korea, China is not only forging a strong economic alliance, but attempting to create a Sino-South Korean economic partnership that is more important to South Korea than South Korean alliances with the U.S. and Japan. China is trying to ensure that, if the Korean Peninsula is reunified under South Korean leadership, South Korea and China have an economic partnership that will continue to flourish. If a South Korea type of government ever does control a reunified Peninsula, China wants to be the primary ally of that regime. According to Suisheng Zhao “It (China) hopes to see that the reunified Korea will take a position that is pro-China rather than pro-Japan.”[8] Despite its longstanding alliance with North Korea, China must build strong economic ties that South Korea and China would each seek to maintain in the event of a North Korean collapse.

The U.S. position on the Korean Peninsula has not changed that much in the course of the past ten years, or even the course of the past fifty years. The U.S. has continued its military and economic alliance with South Korea while remaining hostile towards North Korea. For decades the U.S. was willing to accept a weak, isolated North Korea. However, now that North Korea is potentially nuclear, regime change is the only suitable outcome for the U.S.[9] Chinese policy in both North and South Korea has been much more fluid. China has longstanding alliances with North Korea, alliances that it does not yet intend to abandon. Political agendas in relation to U.S. presence in Asia have made the Sino-North Korean relationship remain important to China, thus far important enough for China to support North Korea with very little returns economically.

At the same time China and South Korea have normalized diplomatic relations and intensified mutual investment that is making their economies increasingly intertwined. Chinese policy on the Korean Peninsula is setting China up to gain as much as any other nation in the event of reunification. At the same time, China continues to support North Korea to ensure that a potential collapse does not occur before the Chinese are ready for that. When Sino-South Korean economic and political ties are strong enough for China to be confident with a South Korean led reunification, maybe China will finally pull the plug on North Korean economic aid. Regardless, China currently has dual economic and political policies in place as it seeks position itself to benefit from any eventualities on the Korean Peninsula.

[1] Pritchard, Charles L. “Korean Reunification: Implications for the United States and Northeast Asia.” (The Brookings Institute, Washington, DC. January 2005. Pg. 8.

[2] Cha, Victor D., Kang, David C. Nuclear North Korea: A Debate on Engagement Strategies (Columbia University Press. New York. Pg. 165)

[3] Kim, Samuel S., Lee, Tai Hwan, NORTH KOREA AND NORTHEAST ASIA. (Rowman & Littlefield Publisher, INC. New York. 2002. Pg. 127.)

[4] Kile, Shanon L. SIPRI Yearbook 2003: Armaments, Disarmaments and International Security. (Oxford University Press. 2003. Pg. 597.)

[5] Kim, Samuel S., Lee, Tai Hwang, NORTH KOREA AND NORTHEAST ASIA. (Rowman & Littlefield Publisher, INC. New York. 2002. Pg. 156.)

[6] Ibid. (Pg. 167)

[7] Shambaugh, David. “China and the Korean Peninsula: Playing for the Long Term.” (The Washington Quarterly, Spring 2003. Pg. 7.

[8] Suisheng, Zhao Ed. Chinese Foreign Policy: Pragmatism and Strategic Behavior. (East Gate. New York. 2004. Pg. 262.)

[9] Wit, Joel S., Poneman, Daniel B., Galluci, Robert L. Going Critical: The First North Korean Nuclear Crisis. (The Brookings Institute. Washington, DC. 2004. Pg. 405.)