North Korean Dependence on China Trade Rises as Sanctions Worsen Isolation

North Korea’s dependence on China deepened last year as exports of coal and other minerals to its main ally jumped and global sanctions left Kim Jong Il’s regime increasingly isolated.

China accounted for 83 percent of North Korea’s $4.2 billion of international commerce in 2010, the Seoul-based Korea Trade-Investment Promotion Agency said today in an e-mailed statement. China made up 79 percent of trade in 2009, and 53 percent in 2005, according to the statement.

The U.S. and its allies repeatedly criticized China last year for failing to restrain North Korea from provocative acts, including its pursuit of nuclear weapons and attacks on South Korea. Yesterday, Kim returned from his third trip to China in a year, highlighting the growing importance of ties to the Beijing government as well as his possible failure to win the money he needs to prop up North Korea’s faltering economy.

“Even as the two nations move ahead with economic cooperation, they seem to differ over how they go about doing it,” said Kim Yong Hyun, professor of North Korean studies at Seoul-based Dongguk University. “Kim Jong Il would have wanted the Chinese central government’s pledge of investment, and there is little evidence to suggest this has materialized.”

China’s President Hu Jintao and Premier Wen Jiabao both vowed to strengthen ties with North Korea in their May 25 meetings in Beijing with Kim, according to reports by Xinhua News Agency and the Korean Central News Agency. Wen told Kim that China is ready to “further encourage the initiatives of localities and enterprises” in joining economic projects, Xinhua reported last night, a reference that wasn’t mentioned in a report by North Korea’s KCNA.

China Model

Wen’s comments signal China’s reluctance to provide economic assistance to North Korea at the state level, Dongguk’s Kim said. China would instead focus on projects promoted by private companies based on business interest, he said. Wen told South Korean President Lee Myung Bak last week in a meeting in Tokyo that China wants North Korea to learn and apply the lessons of its own market-oriented reforms.

Kim Jong Il last year ordered the northeastern city of Rason to be developed into a center for foreign trade. Rason, which was named a free economic zone in 1991, lies on the east coast and includes ports facing the Pacific Ocean.

North Korea in April announced plans to develop Rason to raise port capacity and modernize railways. The city has drawn many businesses from countries including China, Hong Kong, Thailand and Australia, KCNA said April 6.

Prisoner Freed

Kim’s trip to China came as U.S. envoy Robert King was visiting North Korea to assess the country’s food needs. Following requests by King and others, North Korea decided to release U.S. citizen Jun Young Su, who had been held in the country since November, KCNA said today.

North Korea’s requests for international donations of food may be “politically motivated” as this year’s shortages aren’t more severe than in previous years, South Korean Unification Minister Hyun In Taek said April 25 in Seoul.

Kim has pledged to build North Korea into a “strong and prosperous nation” next year, which marks the centennial of the birth of his late father and the country’s founder, Kim Il Sung.

“North Korea’s dependence on China will further grow as global sanctions and suspension of inter-Korean trade continue to be in place,” the South Korean agency, known as Kotra, said.

South Korea’s Lee cut off most trade with North Korea in May last year, accusing Kim’s regime of torpedoing a naval warship, killing 46 South Korean sailors. An industrial complex in North Korea, where South Korean firms operate using local workers, is the only joint project currently in operation.

UN Sanctions

Kim’s government was also put under tougher United Nations sanctions banning weapons trade and restricting financial transactions after its second nuclear test in May 2009. That was followed last year by further U.S. trade restrictions aimed at cutting off money to key figures in the regime and military.

The 2010 trade value represented a 22 percent jump from a year earlier and was the highest recorded since Kotra started compiling data on North Korea in 1990, the statement said. The country doesn’t release its own economic figures.

North Korea’s overseas sales of coal, its No. 1 export item, jumped 50 percent in value from a year earlier, while exports of steel grew 59 percent, Kotra said. Exports of other mineral resources gained 80 percent.

Fuel including crude oil was the biggest import, increasing 52 percent from a year earlier. Machinery purchases rose 38 percent, while imports of electrical appliances gained 43 percent.

North Korea’s trade with South Korea, which isn’t included in total figures, increased 14 percent to $1.9 billion in 2010, as South Korean firms at the Gaeseong complex increased production, the agency said. Products made at the complex are shipped across the border to South Korea and counted as trade.

Countries trading with North Korea included Russia, Germany, India, Thailand, Singapore, Bangladesh, Italy and Mexico, according to Kotra.

To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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