Senior Fellow for Korea Studies and Director of the Program on U.S.-Korea policy
at the Council on Foreign Relations
Dr. Stephen Noerper, Senior Vice President of The Korea Society, welcomed the guests, and Scott Snyder. Dr. Noerper noted this session as the third in a popular series on China-North Korea relations and suggested downloading videos and transcripts of the past two programs of the series. He announced Scott Snyder’s new capacity as senior fellow for Korea Studies and Director of the Program on U.S.-Korea policy at the Council on Foreign Relations noting that this marked an elevation for Korea within the CFR structure and congratulating Scott in his appointment of this very distinguished post. In introducing Scott Snyder, he noted Scott’s past experience and his past positions at The Asia Foundation and the Pacific Forum Center for Strategic and International Studies (CSIS). Further noting that he was a Pantech Fellow at the Shorenstein Center of Stanford University and a country representative in Korea for The Asia Foundation. Scott’s experience also extends to The U.S. Institute of Peace and The Asia Society. He has also held the Abe Fellowship and the Thomas G. Watson Fellowship.
Dr. Noerper noted Scott’s latest publication, China’s Rise and the Two Koreas: Politics, Economics, Security and his feature article in The Routledge Handbook for Security Studies, “The Korean Peninsula: On the Brink?.” In closing the introduction, Dr. Noerper informed the audience of Dr. Snyder’s experience visiting the border area between China and North Korea over two decades and in 1998, Scott along with Dr. Noerper founded a Sino-U.S. working group on North Korea held in Hawaii which brought China Scholars from Shenyang, Beijing and Shanghai for discussion about their perceptions of the changes in North Korea.
Thank you, Steve, for that extraordinarily warm introduction. It is my pleasure to be here at The Korea Society. I have had a number of chances to come up here, and I am anticipating I may have even more opportunities now that I'm working with the Council on Foreign Relations. Although I'll be primarily based in D.C., the headquarters is here in New York, so I anticipate having the chance to see many of you more frequently as a result.
The title on this slide presentation is "Trends in China-North Korea Economic Relations," but I'm going to attempt to cover a broader range of issues and not just focus on the economy. Although I usually shy away from PowerPoint presentations, they are a good way to visually present economic relationships and allow for a clearer picture of trade and investment trends as well as the situation that has developed in terms of this economic relationship.
Of more importance is the extent to which the economic relationship has been an effective tool (or an ineffective tool) for China to perceive some of its strategic objectives as it relates to North Korea. That issue has been an area of interest for me for quite a while. In my book, which Steve mentioned, China's Rise and the Two Koreas, I basically tried to explore this issue of the extent to which economic dependency on China (in both North and South Korea) might lead to China having the political leverage to gain traction in terms of its own strategic interests. Some of these graphs come from the work I've done on that book.
What I'd like to do today is raise some questions related to that, and also to talk about some of the developments in the China-DPRK strategic relationship over the course of the past few years from a political perspective. I know that my predecessors in this series have also addressed this to a certain extent. That puts more pressure on me as a third speaker to try to add value, and I will attempt to do so.
I want to talk a little bit about my perceptions of contradictions in China's approach to North Korea, especially as it relates to economic statecraft as a tool for achieving strategic objectives. I will then also touch upon developments in the China-South Korea relationship, and make some recommendations related to U.S.-China engagement in connection with the Peninsula.
I want to begin by giving a picture of some of the developments from a slightly longer-term perspective of the China-North Korea relationship.
As we look over the past two decades, a couple of key developments or tipping points in terms of influences on the economic relationship include both the normalization decision with South Korea in the early 1990s and North Korea's nuclear tests. Both of these factors are significant as influences on China's view of how it relates with North Korea economically.
This first chart shows quite graphically how China has become engaged economically with South Korea versus North Korea. We can see that trend just beginning back in the early 1990s. It really illustrates how one of the primary drivers for the development of the China-South Korea relationship has been economic. Clearly there has been a great deal of benefit from political normalization and how it has opened up opportunities for trade and investment between China and South Korea. Of course, the other aspect of this is that the China-North Korea economic relationship has remained stagnant.
Another point related to this graph is about the provocations of Ch'ŏnan as well as the Yŏnpyŏng shelling incident, and the expectations South Korea had for China's response. A lot of those expectations from the South Korean side were essentially driven by this graph. The South Koreans were thinking about their significant business relationship with China, the huge economic stakes, and how that was bound to influence China's dealings with North Korea. Of course, we know that proved not to be a major factor in terms of China's thinking about how to approach the political and security issues and their own interests in response to those provocations.
This graph also illustrates in an excellent way some of the phases that have occurred in the China-DPRK economic relationship. I particularly like to view the economic relationship in terms of the trend towards high-level visits between China and North Korea, because it really shows the effect of China-South Korea normalization in the early 1990s. Essentially the China-North Korea relationship was close to dead in the early nineties and mid-nineties, and actually extended up to the point of the famine.
I know that the other speakers have talked about the fact that the Chinese, post-Cold War, really wanted to move from this dependency relationship between China and North Korea to one that would be based more on market principles. They wanted to get rid of friendship prices and they wanted to get rid of free aid to North Korea. The effect of that was stagnancy in both the economic and political relationship.
At what point in time did that cause a shift? It was really the beginning of the Six-Party Talks and the advent of the second nuclear crisis in 2003, where China was engaged by the United States and others. They became involved in playing the role of host and facilitator for the Six-Party process. In that context, they realized they needed both a relationship and leverage with North Korea. They tried to build both of those through developing a more active high-level relationship in terms of leadership visits and by expanding the trade relationship as a means to gain political leverage with the North.
In a way, this is part of an old story as it relates to North Korea. From the U.S. perspective, you could make the argument that we already had that experience in the mid-1990s in the context of the famine, at which time the U.S. wanted to get the Four-Party Talks going. Aid became a vehicle to try to promote engagement with North Korea. The only problem, in both the case of Four-Party Talks and Six-Party Talks, was that providing economic benefits to North Korea had been enough to get them to the table, but it wasn't necessarily enough to get them to agree to anything once they got to the table.
This particular chart also reveals something I think is particularly notable, and that is the impact of the first and second North Korean nuclear tests on the China-North Korea relationship. In my mind, the China-North Korea economic relationship was not necessarily affected in a big way by either of those two tests. In fact, you could make the argument that North Korea benefitted economically from the nuclear tests because, in fact, the China-North Korea economic relationship grew.
We saw a very striking difference in approach between China and North Korea politically following the first and second nuclear tests, especially in terms of high-level visits. You can see that in 2007, because the Chinese leadership essentially went along with the United States in condemning the first North Korean nuclear test, they were basically shut out of some of the high-level exchanges. It's actually hard to say whether they were shut out or whether they set themselves up to be shut out. I think part of this was by design, an attempt to withhold an exchange with North Korea both politically and economically as a means by which to push North Korea along in the Six-Party Talks.
In fact, you could argue that 2007-2008 was a relatively productive period in the Six-Party process compared to other periods, in large part because during that time frame there was greater cohesion in terms of the multilateral response to North Korea. This was particularly the case in early 2007. Chris Hill's efforts resulted in a reengagement that attempted to address and encourage North Korea to shut down its program at Yŏnpyŏng.
Then in 2009, we see a very different response by China to North Korea. Although a little bit of a hit economically, there was a real ramping up in terms of the China-North Korea political relationship. During 2006-2007, I heard Chinese analysts talking privately about the North Korean economy being on life support. These analysts were concerned about what would happen if the plug was pulled and similar issues. The Chinese were really grappling with their relationship with North Korea as a strategic burden during that phase.
Another facet in Chinese foreign policy circles at that time was a current of thought that by siding with the United States, China had lost all their leverage. Chris Hill was more actively engaging directly with P'yŏngyang and there was concern about China's relevancy in that process. To a certain extent, the effect of that debate was felt in 2009 following the second North Korean nuclear test, as the Chinese took a very different attitude and essentially elevated the relationship with North Korea to one that had a strategic component. We'll come back to that a little bit later.
This is a picture of the China-North Korea trade relationship as it has developed over the course of the past two decades. What is significant to note here is the greater emphasis on China-DPRK trade that has occurred in the context of engagement while, at the same time as the Six-Party Talks, we also see a larger and larger gap between imports and exports in the China-DPRK relationship.
I think the easiest way to interpret this is that, to a certain extent, that gap represents a kind of subsidy that China has been providing to North Korea in that trade relationship. This really goes along with the view that the priority is on maintaining stability in North Korea, and so we see that kind of development in terms of the extent to which the Chinese are willing to run a deficit in their relationship with North Korea.
I will run through the rest of these relatively quickly. I would like to highlight the subject that always comes up in terms of North Korea's trade dependency on China, and that is the issue of food and fuel. I find it very interesting that the Chinese were actually the first responders to the North Korean famine of 1996 and 1997. This is represented very clearly in terms of grain exports to North Korea. The Six-Party process had begun and was focused more on oil, petroleum and coal. That is not shown here, but there was obviously an issue of dependency
I've recently seen some figures in Chinese literature from one analyst (there's other figures that are constantly bouncing around in the international media, and of course these figures are not accompanied by substantiation) that 80 percent of North Korea's fuel is coming from China as is 40 percent of its food. It just underscores, from a Western perspective, that this dependency exists. The question remains why China can't use that more effectively, and I want to come back to that in a little bit, as well.
Another facet of this relationship that I find particularly interesting, especially from 2003 to 2007, is what I perceive as a bit of competition between South Korea and China for economic influence in the North during the No Muhyŏn administration. You see that both China-DPRK trade and inter-Korean trade grew very rapidly during that period. Under the Yi Myŏngbak administration, it appears the South Koreans decided not to compete with China anymore for economic influence in the North.
The other facet of this particular graph I find fascinating is that despite all the talk post-Ch'ŏnan and Yŏnpyŏng about prohibitions on an inter-Korean economic relationship, what we see is that it has, in fact, been quite stable. It has neither been growing nor necessarily declining. There are certain aspects of the trade relationship (especially direct interaction) that have decreased, but the existence and continuation of Kaesŏng, in effect, has put a floor on what might happen to the inter-Korean relationship.
This is another picture of the relative proportions China and South Korea maintain as a piece of the overall trade relationship. This also shows the extent to which South Korea is not competing with China in terms of grabbing a proportion of North Korea's overall trade. One result of that has been that over half of North Korea's external trade is now with China.
In terms of investment in South Korea, there's both concern and an active debate, especially among progressives of the Yi Myŏngbak administration, that South Korea is losing its leverage (and China gaining the capacity to prevent reunification) as its economic relationship with North Korea stagnates. A lot of that, I think, was stirred up particularly in 2007-2008 by an increase in Chinese investment in North Korea. I know that John Park talked a fair amount about that in one of the previous meetings.
What I find interesting is that it's true that Chinese outbound investment to North Korea has increased, but I don't necessarily see that driven by strategic considerations as much as energy security considerations. One way to get a picture of that is to look at China-DPRK investment compared with other neighboring countries like Vietnam, Mongolia and Myanmar in Thailand which are on this particular graph.
What we see is some other energy-rich countries where Chinese investment has been much stronger. In fact, even though it's significant that there is a great amount of Chinese investment in North Korea (and it's risen from virtually nothing to something more) one would be wrong to say that China is necessarily using investment as the way to fully pursue its economic interests in North Korea.
I also find this picture to be interesting in terms of looking at South Korean and North Korean exchanges with China, and as I mentioned earlier, what we see is a stronger emphasis by China on engaging with the North Korean leadership, especially over the course of the past year. That is also very much reflected by what we have seen in terms of Kim Chŏngil's travel. As we all know, he's visited China four times in the past two years. The last visit in August was really more a transit visit from Russia, but it's notable that Dai Bingguo went and met with him as he came through China.
Another measure of how the Chinese have pursued this political engagement strategy is to look at the objectives the Chinese government laid out in the context of these visits. I find the August, 2010 visit by Kim Chŏngil to Changchun to meet with Hu Jintao particularly significant, because at that time it was emphasized very clearly by Hu Jintao that he had three goals. One was to maintain high-level contacts and regular communication with the North Korean leadership, a second was to advance trade and economic cooperation, and a third was to strengthen strategic communication.
The first and the third are the same, really, with the Chinese saying they wanted to continue talking and they wanted the North Koreans to continue telling the Chinese what they were doing. That was in August of 2010. We know that in November of 2010, there was another provocation by the North, and so we can't necessarily say that, that strategy by the Chinese has borne early fruit. I think we do see a definite strengthening in terms of activity in the China-DPRK relationship that has also been fed by the normalization of the party apparatus that occurred last year in September.
Just as a comparison, I also looked at what Hu Jintao said last May on the occasion of Kim Chŏngil's visit to Beijing. At that time, the three points had expanded to five points, showing the Chinese may have felt they were making some progress in building or rebuilding the relationship. At that time, Hu Jintao talked about the importance of strengthening high-level visits and friendship; secondly, of sharing experience on party-building and state governance while promoting economic and social development, i.e., greater efforts to strengthen institutional integration between China and North Korea; third, of improving mutually beneficial cooperation; fourth, of deepening youth-oriented cultural education and sports exchanges; and fifth of maintaining coordination on international and regional issues.
I think we can definitely see that the Chinese, as a result of North Korean provocative behavior, want to try to hold the North Koreans closer by using both political and economic means. I think that there still is sort of a mismatch in the China-North Korea relationship in terms of structurally how it should be done.
The North Koreans had been very comfortable with a state-to-state relationship, essentially a centrally planned and guided relationship that had existed from the nineties onward. The Chinese, as a function of their central budget planning process, had told the North Koreans they could count on the Chinese to give them a certain amount of food and oil. That would last for five years, and then there would be a renewed agreement or understanding.
More recently, the Chinese have suggested the planning be done not at the state level, but at the provincial level, and to let the private sector take the lead. I think it's safe to say that the North Koreans aren't fully comfortable with that as an approach, but you can make an argument that, to a certain extent, that approach is taking hold.
I think the areas to watch, as it relates to that, are the Najin-Sunbong area in the northeastern part of North Korea, which is adjacent to Jilin Province. It clearly has a strategic significance from the point of view of Jilin provincial officials who are essentially landlocked but can use that port for external access.
We've also seen Kim Chŏngil visiting Najin-Sunbong twice in the last two-and-a-half years (December of 2009 and earlier this year). Then there has been a kind of reshuffling in terms of senior central level economic officials who have been appointed there. One aspect of the Najin-Sunbong area that makes it complicated to look at right now is that about five or six years ago, in 2005-2006, we saw a lot of stories about how that was going to be an area with a lot of investment. Subsequently, nothing has happened.
The other area where we are seeing movement (although it's hard to know what to make of it yet) is the Hwanggumpyong Island area in between Sinŭiju-si and Dandong, the potential rebuilding of the bridge, etc. I believe those are the areas to watch as it relates to the economic relationship between China and North Korea.
There was an exchange of visits at that time between Hu Jintao and Kim Chŏngil, including a Southern tour by Kim Chŏngil in early 2006. There were lots of stories about how North Korea was on the brink of reform, following in Deng Xiaoping's footsteps. I just mention that because we saw the same kind of reporting in China earlier this summer following the May visit of Kim Chŏngil. I guess what I would say is don't hold your breath, but at the same time these are developments that bear watching.
If we look at China's approach to North Korea over the course of these two decades, there are three characteristics to be noted. One is some movement from humanitarian aid and gratis aid to "win-win" aid. The example Chinese analysts cite relates to a Chinese decision to invest in a glass factory in P'yŏngyang back in 2005-2006. According to one analyst, some of that glass product is being made in North Korea and exported to China. So, they are seeing that as a win-win.
The second characteristic to note are government gifts to multiple channels (and this is really related to China's effort to include the private sector as part of the relationship). The third characteristic is from single assistance to joint assistance, and I am still trying to figure out exactly what that means. One way of thinking about it is that as China moves from an aid paradigm to a "development" paradigm, they're actually closer to where the international community might be, if only the North Korea nuclear issue becomes resolved.
As I look at this relationship, I see five essential contradictions in China's approach to North Korea. Some of these are internal contradictions. They also reflect the way in which China's North Korea policy contradicts its overall foreign policy objectives.
China, over the course of the past decade, has emphasized greater regional economic integration. At an earlier stage, they tried to use North Korea as a vehicle for cooperation with the United States, and they've emphasized, at least in their own broader themes, the idea of peaceful development.
North Korea repeatedly has challenged these themes, and yet we haven't seen China's policy shift. And so in a way, I think North Korea is a big policy problem for the Chinese. The problems have the same character that we face, but I think the Chinese have a bit of a blind spot as it relates to being willing to actually address some of these contradictions. The first contradiction that I want to flag is basically the emphasis by the U.S. and South Korea on sanctions versus the Chinese approach, which emphasizes engagement. That's obviously a gaping gap in terms of economic statecraft.
A second contradiction I believe China faces is that China's underlying motivation for promoting the relationship economically with North Korea, especially in the past two years, has been driven by its interest in regional stability. And yet, arguably, the most recent engagement could be a vehicle by which to also promote reform in North Korea. One way of saying it in terms of Hu Jintao's conversations with Kim Chŏngil from August of last year and earlier this year is that the Chinese have tired of bringing the horse to water (taking Kim Chŏngil all around the country and showing him the benefits of reform) and they're basically ready to make the horse drink.
The problem, of course, is that Kim Chŏngil is not Deng Xiaoping, and so there's an inherent tension and resistance to that, that is playing out. It also plays out in terms of the extent to which China can pursue both reform and stability at the same time. The really interesting question here is related to the extent to which those two objectives actually might be a reason or pretext for North Korean provocation, because essentially China is always going to promote stability over reform. To the extent that they see instability, they're going to take the pressure off in terms of any prospect for reform. Another related area to that is China's traditional set of principles related to noninterference, and the fact that regional stability objectives are driving a much more intrusive engagement between China and North Korea.
A fourth contradiction is the fact that China's been able to create economic dependency by North Korea, but it hasn't been able to find leverage. The core of that is that North Korea just doesn't see these economic interactions as a basis for offering a quid pro quo. What they see is China is doing this in its own interest. We don't need to do anything in return.
A fifth contradiction that is very interesting to focus on, as we look at this relationship, is the question of whose side time is on. China has the incentive to try to draw this out and to keep North Korea going as long as possible. The longer that the North Korean regime can survive, the stronger China will be and the greater capacity China will have to influence the ultimate process in terms of moving toward something different.
There's several other lenses through which we can look at whose side time is on. China is concerned with the impact Kim Chŏngil's health may have on regional stability as they continue to have economic engagement with North Korea. There is also the question of how much time North Korea has to develop its enriched uranium program. I think that these differing views of whose side time is on contradict each other in various forms.
In conclusion, the other aspect related to the China-DPRK relationship that is interesting to watch is China-South Korea relations. I think that the difficulties in terms of dealing with the response to North Korea's provocations have revealed an underlying weakness in China-South Korea relations overall. At the same time, I think it has sent to both sides a signal that there are needs in the relationship that should be addressed.
The core of some of those issues are probably going to play out as we move into the next administration in South Korea, because the Chinese also have had a real hard time with the extent to which Yi Myŏngbak has embraced the alliance with the U.S. as a cornerstone of South Korean foreign policy versus the experience they had under No Muhyŏn.
Finally, what does all this mean in terms of the U.S.-China relationship? Well, one of the dynamics that I think has existed over the course of the past year is in the context of provocation, and when China thinks about instability on the Peninsula, they look past South Korea towards the U.S. That, in and of itself, I think is a problem that needs to be addressed, but there are ways in which the U.S., China and South Korea can work together.
One is with joint cooperation on humanitarian response. A second is on counter proliferation issues. A third is on understanding better how to avoid the effects of North Korea's provocations. The Chinese and the United States, earlier this year, worked together in some very interesting ways to put a lid on escalation for the time being in the context of the Hu-Obama summit. I think it's worth thinking about how that can be sustained.
The final area I would flag is that as China engages with North Korea, the question of economic governance becomes more important, and I think that actually is a shared interest. The challenge is that it's really at the private level. I agree with the approach that the Chinese have been taking in terms of promoting private level exchanges with the North, but I think they're going to run into the same problem that everybody else runs into as you deal economically with North Korea, and that is that there's just not any rules in the game or rules of the road that you can count on.
We know that Chinese firms have been frustrated by that. We know that there's essentially a need to establish some rules of the road at all levels, primarily in order to help blunt the effects of predation by the state on ordinary people who are trying to make a living essentially through economic exchange. In my view North Korea, in many respects, is fully capitalist. It's just really a wild kingdom; a parasitical and predatory sort of capitalism.
The question to ask is while every trader is trying to make a transaction in order to survive, how many people in the system is he carrying on his back in order to do business? I don't necessarily have specific suggestions in this area yet, but it's an area that I would really like to see developed in a much more active way, and one that I think is primary in terms of the potential for China-U.S.-South Korea cooperation.
I apologize if I have spoken beyond my allotted time. I very much look forward to the Q&As. Having looked at the transcripts from the previous sessions, I know I'm likely to learn and be challenged as much as I can offer further illumination. Let me stop here. Thank you.