Influence of North Korean overseas trade: Rising China, Falling Japan

As a result of North Korea’s comments on nuclear possession and non-participation in the six-party talks, Japan has put restrictions on North Korean ships entering Japanese ports starting March 1. Japan intends to stop any ships from North Korea coming into Japan, and is trying to cut North Korean exports to Japan.

However, it is doubtful how effective their independent sanctions against North Korea will be. As a matter of fact, the sanctions could result in China gaining much more influence over North Korea.

Japan drifting away-

The Compensation for Sea Pollution Law, which prohibits the entrance of ships over 100 tons that have not registered for sea pollution insurance into Japanese ports, started on March 1. Currently, only 2.5 percent of North Korean ships entering Japan have registered for this type of liability insurance, so enforcement of this law will likely strike a blow to North Korean exports to Japan.

The Japanese Liberal Democratic Party (LDP), which is inspecting ways to impose sanctions on North Korea, announced on February 14 that when Japan independently imposes economic sanctions on North Korea, it will decrease North Korean GDP by 1.3~7.0 percent. If one calculates North Korean GDP to be 10.9~16.9 billion dollars, the suspension of North Korean exports to Japan could result in a loss of up to a billion dollars for North Korea and have far-reaching effects on the North Korean economy.

Japan is trying to press North Korea with “quiet” sanctions by applying existing laws to minimize North Korean opposition.

However, voices concerned over Japan’s weakened influence over North Korea are getting loud.

Up until 2000, the percentages of North Korean overseas trade accounted for by Japan and China were about the same, but the discrepancy has increased 5.5 times in five years. In 2004, trade volume between North Korea and Japan was 251.87 million dollars, while the trade volume between North Korea and China reached a whopping 1.385 billion dollars.

Furthermore, if Japan imposes sanctions on North Korea, they have no choice but to rely more on China. Japan may be relieved at this point right now if such an action takes place, but a few years down the road, Japan may lose all influence over North Korea’s economy.

Getting closer to China-

It is calculated that China comprised more than 50 percent of North Korea’s overseas trade in 2004. Considering that China made up 24.7 percent of North Korea’s overseas trade in 2000, the number has more than doubled in five years.

The volume of trade between North Korea and China has increased 35.4 percent compared to last year, and there are signs that similar increases will continue for some time.

KOTRA has published a report stating that it estimates China’s North Korean investments to be over 200 million dollars, including promised investments by Chinese corporations to North Korea last year.

One can see how strong the North Korean investment trend has grown since last year, considering that China’s investment in North Korea was merely 1.3 million dollars in 2003.

The thing that is most noticeable is that North Korean investment from China is changing from areas of restaurant businesses and service businesses to the development of strategic resources and selection of main markets.

As North Korea’s dependency on China grows, it is likely that China will able to gain influence over North Korea.

zsh75@donga.com