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Fluctuations in North Korea‘s China imports and exports

North Korean external trade shrank substantially last year amid the effects of sanctions, but no major shocks were yet observed with the internal economic situation, an analysis shows. While different interpretations were offered for the findings, analysts agreed that the second North Korea-US summit will represent a major turning point for the North Korean economy.

According to the February edition of the Korea Development Institute (KDI) “Review of the North Korean Economy” published on Feb. 27, 2018 exports to China – which North Korea relies more or less exclusively upon – were down 87% from the previous year. North Korea’s imports from China, which had not typically been affected by past sanctions, were also down by 33% from 2017.

“The four UN Security Council resolutions [for sanctions against North Korea] approved in 2017 included content that stood to directly impact the 2018 North Korean economy and were different from past resolutions in that they applied restrictions that affected livelihood areas,” said KDI research fellow Lee Jong-gyu.

While external trade has reached a state of near-collapse, however, no obvious signs were detected of a shock to North Korea’s internal economy. In the same publication, KDI senior research fellow Lee Seok said, “The food situation in North Korea last year did not appear to have declined greatly from past years, and relatively positive performance may have occurred in some industries including electricity generation.”

“Most notably, market prices in North Korea remained highly stable,” he noted.

Experts offered differing analyses on the contrast between the external trade and internal situations. On one side, some argue that North Korea has been holding out, with the external shock having yet to manifest in the internal sector. On the other, some analysts are claiming the North Korean economy is already in crisis. The claims that North Korea is holding out are based on speculation that it still possesses enough US dollars to maintain a minimal economic situation as it carries on with unofficial trade. Additionally, the North Korean government’s current focus on policies of import substitution and domestic production may have gone some way in making up for the supply shortage and stabilizing prices.

In contrast, other analysts claim that intensifying sanctions have left North Korea with fewer options for procuring foreign currency even unofficially. In other words, while the nature of the North Korean system is such that the internal situation does not manifest outwardly, actual foreign currency supplies have dropped substantially, which has already had a major effect on the internal economy in forms such as declining asset prices.

In either case, North Korea appears unlikely to maintain domestic demand going ahead amid the external shock from sanctions.

“The year 2019 appears poised to be a turning point for North Korean industry and the real sector,” said Lee Seok-ki, research fellow at the Korea Institute for Industrial Economics & Trade (KIET).

“If the second North Korea-US summit fails to produce visible results and the chances of economic sanctions being lifted fades, we cannot rule out the possibility of North Korea’s industry and real sector being plunged into chaos,” Lee said.

Commenting on the second North Korea-US summit in a meeting with reporters on Feb. 27, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki predicted, “South and North will begin full-scale economic cooperation if there is good progress at the summit and the conditions are formed for relieving sanctions.”

“Inter-Korean economic cooperation is being examined behind the scenes,” he added.

By Bang Jun-ho, staff reporter

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