Key Points

Current Situation in North Korea: Views from China

Chinese Views of the Food and Economic Crisis in North Korea

North Korean Responses to Crisis

Implications for North Korea's Political Stability

Implications for Northeastern China

The Growing Influence of South Korea

Impact of North Korea's Crisis on Northeastern China

China's Strategic Options toward the Korean Peninsula

Views of North and South Korea

U.S.-China Relations and the Korean Peninsula

About the Trip

SPECIAL REPORT 27

North Korea's Decline and China's Strategic Dilemmas

Scott Snyder

Key Points

• For the first time, Chinese analysts are conceding that the sudden end of North Korea's political system is conceivable, even if they doubt that it is imminent. Chinese analysts cite long-standing historical, psychological, and structural factors as obstacles to a near-term collapse. They do not view the food crisis as an immediate threat to Kim Jong Il's consolidation of authority and continued political control.
• Chinese analysts recognize that if North Korea is to survive, its economic system must undergo fundamental reforms. So far, North Korea has resisted China's coaxing to adopt economic reforms. The food crisis, however, has induced at least temporary toleration by North Korean authorities of limited reforms-by-necessity from which some Chinese analysts take heart.
• North Korea's failing food distribution system has had several effects on the Chinese border region: 1) North Korea's fiscal instability has bankrupted some Chinese companies that have traded with North Korean counterparts, 2) North Korea is a source of refugees, because some North Korean nationals have been crossing the border in search of food, 3) the emergence of refugee flows has presented China with the dilemma of balancing its humanitarian and treaty obligations while maintaining stability.
• The rapidly growing presence of South Koreans in large numbers in the Yanbian Korean Autonomous Prefecture and as major investors in Shandong, Liaoning, and Jilin Provinces is a potentially significant new trend that has accelerated within the past two years. In 1996, Sino-South Korean trade grew 25 percent to US$20 billion, and over 700,000 people traveled between China and South Korea, marking a rapid strengthening of ties between South Korea and China.
• China has instituted a pragmatic policy of reinforcing economic relations with South Korea while maintaining vestigial political ties with North Korea. While strengthening its official ties to South Korea, China is approving governmental assistance, de facto subsidies through cross-border trade, and private barter transactions with North Korea as a way to extend Chinese influence into the northern part of the Korean Peninsula and to forestall the possibility of North Korea's collapse for as long as possible.
• The issue of foreign influence on the Korean Peninsula has historically been a source of competition among China, Japan, and the Soviet Union, and between the United States and China--the latter two countries carrying historical and psychological baggage from the Korean War. Today, however, the United States and China share the fundamental objectives of maintaining stability and preventing the outbreak of violence on the Korean Peninsula. The extent to which the United States and China cooperate or compete in managing the Korean issue will have a significant impact on the future of Korea and Northeast Asia.

Current Situation in North Korea: Views from China

Although China's diplomatic relationship with its socialist comrades in North Korea can no longer be described as one of "lips and teeth," Chinese scholars looking across the border at the plight of their neighbors in North Korea still share a special understanding of the difficulties of North Korea's political struggle and its failure to adapt to new circumstances following the end of the cold war. Chinese scholars also have the advantage of geography and an intricate web of exchange relationships--including among members of China's ethnic Korean community and relatives across the border in North Korea. These circumstances provide Chinese observers with a unique vantage point from which to analyze factors contributing to North Korea's decline and the potential for instability that could spill over the border into China itself.

Chinese Views of the Food and Economic Crisis in North Korea

Reports from Chinese scholars, ethnic Korean-Chinese citizens who visit relatives in North Korea, and North Korean refugees who have fled North Korea's crisis suggest that a major humanitarian disaster has already occurred, with tens of thousands of people already dead from starvation and starvation-related illnesses. International aid organizations, which had no access to remote northern parts of the country until April 1997, have until recently underestimated the extent of North Korea's food problems.

Interviews with North Korean refugees suggest that over 25 percent of the population in many northern villages--which were cut off from the central distribution system for years--have died, with the height of the crisis occurring in fall 1996, when people were "dropping like flies," according to a seventeen-year-old refugee from Musan, North Hamgyong Province, near the border with Jilin Province. This was also the period when the flow of refugees to Jilin Province was highest. Reports of desperation behavior, including foraging for wild plants, tree bark, or anything else that might be edible, the selling of family members into servitude for food, and even isolated instances of cannibalism are simply too widespread and too specific to be dismissed. Comparisons with China's food crisis in the 1950s during the Great Leap Forward may not prove unwarranted.

Chinese scholars view the three major bottlenecks of North Korea's failed system of central planning--a lack of food, energy, and capital--as the core problems facing the North Korean government. However, North Korea's political leadership has resisted Chinese pressure to accept the obvious path of economic reform--except when forced by absolute necessity to abandon the economic inefficiencies of central planning.

Some Chinese observers place the origins of North Korea's economic failure as far back as North Korea's decision following the Korean War in the 1950s to favor heavy industry over light industry, a fatal mistake that subsequent economic plans have never been able to fully rectify. The recent cause of North Korea's precipitous economic decline is linked directly to the evaporation of decades of food and energy support from long-standing allies in Beijing and Moscow, which began as early as 1990. The situation was worsened by severe flooding in 1995 and 1996. Even from the early 1990s, Chinese observers recall that restaurants in Pyongyang were reported to ration patrons' portions.

Without subsidies in grain, energy, and fertilizer, North Korea's agricultural production has dropped by almost 50 percent from the late 1980s to a low of 2.5 to 2.6 million tons in 1995, according to one veteran Chinese analyst of North Korea's food production. This estimate is significantly lower than South Korean estimates of 3.69 million tons of North Korean food production for the same year. Inadequate technology or access to fertilizer, lack of mechanization, and a progressive weakening of North Korea's labor force have been primary causes for the decline.

Distortions in the centralized distribution system and successive reductions in grain rations have facilitated the emergence since the early 1990s of illegal black markets (now tolerated by the central government), where rationing coupons for material goods such as TVs or other household goods were traded for grain. Even before the flooding began in 1995 and 1996, citizens of outlying areas such as the city of Chongjin in North Hamgyong and other northern provinces were no longer receiving rations through North Korea's public food distribution system.

The extent of depreciation of the won on the black market is an important indicator of the severity of economic distress in North Korea, and it is monitored by Chinese scholars and in the Chinese- Korean community. The unofficial black market exchange rate soared as the food crisis worsened--from about 90 won per dollar in the early 1990s to over 220 won per dollar in June 1997 (the official exchange rate is 2.2 won=1 dollar, and average salaries in North Korea range from 100 to 350 won per month). The won/dollar exchange rate in black markets along the Chinese border reached its peak in late fall 1996, at 250 to 280 won per dollar, coinciding with anecdotal reports of the height of the crisis thus far. The black market price of one kilogram of rice has quadrupled during the same time frame to 80 to 90 won per kilogram, and was as high as 150 won per kilogram in October 1996.

The food crisis is only one symptom of the broader economic decline North Korea has faced in the 1990s. While South Korean estimates are that North Korea's economy has declined by about 5 percent per year since 1990, some Chinese estimates of the decline in North Korea's industrial production are as high as 10 percent per year, paralleling the rapid drop in agricultural production during the same period. North Korea's oil consumption trend shows a similar pattern, as Russia no longer provides oil subsidies and China has attempted with only partial success to convert its oil provisions from "friendship prices" (approximately one-third of the market price) to international market rates.

North Korean Responses to Crisis

With the possible exception of North Korea's efforts to promote the Rajin-Sonbong Economic Zone, Chinese sources suggest that North Korean officials have been slow to react to its economic crisis, applying reluctant "Band-Aid" fixes that have tended more to recognize the reality of coping strategies beyond the control of the central government than to outline fundamental reforms necessary to halt such a decline.

The most significant coping development during the past two years may be the devolution of economic authority from the central government to provincial and local authorities. In the absence of goods received through the public distribution system, local officials must now engage in the truly self-reliant task of procuring resources to meet their own immediate needs. One result of assuming such responsibility is that hundreds of newly established North Korean trading interests representing local and provincial authorities have joined a small number of representatives of central government authorities in Dandong and other cities bordering North Korea.

These groups are authorized to conduct barter trade deals and to procure other resources on behalf of local authorities. For instance, a representative of the Hwanghae provincial government may be authorized to sell scrap metal or timber resources in return for wheat flour, which will then be delivered to provincial authorities for local distribution. Chinese scholars report that at one point in 1995 there may have been as many as 800 such trading representatives, but the number has since dropped to approximately 200 representatives, as many representatives failed to gain necessary resources and were forced to give up their efforts.

One unanticipated result of the devolution of economic authority may be the withering of the political influence of the central government over provincial and local authorities. If the observation of one Chinese scholar--that in North Korea "grain is power"--is correct, the central government may have been forced to give up the considerable leverage it had when all grain and all control flowed from the center to the provinces. The development of new economic relationships with outside partners--even on a temporary basis-- may influence local authorities sufficiently that even if the central government is able to restore its power and authority over the grain distribution process in the future, the nature of the relationship between central and local authorities may be different. It may be impossible for the central government simply to return to the old structure of monolithic, top-down control exercised by Kim Il Sung under the new leadership of his son, Kim Jong Il.

Another potential effect of the decentralization of economic responsibility and redistribution of power between central and local governing authorities may accrue to entities that are able to establish direct economic relationships with those authorities. It may be possible for external forces to influence North Korea at a local level by establishing economic relationships under conditions that allow unprecedented external access to and cooperation with local responsible officials in key areas. Desperate local authorities may be willing to allow de facto experimentation, foreign access, and structural economic reforms to proceed as the price for gaining the resources necessary to feed their local communities, despite official concerns about or prohibitions against such activities expressed by the central government.

Another example of such a reform-by-necessity is the gradual acceptance of private market activity throughout the country. The emergence of these markets in the early 1990s coincided with early signs of economic distress, but authorities still actively opposed and prosecuted as illegal such nonsanctioned trading activities. When the food crisis reached its height following the 1995 and 1996 floods, the population had no recourse but to seek daily necessities through private market activity, as the central government's public distribution system began to wither and was no longer adequate to meet the needs of an increasing number of citizens.

Another reform measure emphasized by Chinese scholars is the selected implementation of the "household responsibility system" in agriculture, replacing North Korea's collective-style agricultural system. The household responsibility system gives responsibility to smaller groups of families than in collectives to work together to manage agricultural tasks, although strictly private management of agricultural plots continues to be discouraged. Chinese analysts hail the adoption of the household responsibility system as a first step toward Chinese-style agricultural reforms, and even suggest the unlikely possibility that such reforms may enable North Korea to farm its way out of the current crisis.

Perhaps the only long-term response by North Korean officials toward seeking a resolution to North Korea's structural reforms has been North Korea's efforts to attract foreign trade and investment in the Rajin-Sonbong Economic Zone. Chinese scholars and officials have supported such steps toward opening this market, which parallel the Chinese path to economic reform. North Korean officials have inched their way toward such reform, beginning with foreign investment laws passed in 1984, but have been reluctant to fully embrace the steps necessary to reassure foreign investors. The Rajin-Sonbong Investment Forum held in September 1996 and efforts by Vice Chairman of External Economic Affairs Commission Kim Jong U to sell the zone at international gatherings were sufficient to attract initial promises of over $265 million of investment from five companies. Almost all the investors have close connections with China, demonstrating some level of Chinese government support for North Korea's economic reform efforts. However, given the lead time required to make investments and get projects up and running, North Korea's continued weakening may prove such efforts to be too little, too late.

Implications for North Korea's Political Stability

For the first time, Chinese scholars are openly considering the possibility that North Korea's long-term survival is questionable, and some scholars are analyzing the factors that will either prolong the regime or hasten its fall, rather than simply assuming that North Korea's political leadership is sufficiently stable to ensure long- term survival. Despite this poor assessment of North Korea's survivability, Chinese scholars point to a host of indicators that suggest that political change in North Korea may not occur suddenly or easily, and that it is still possible for North Korea's current political leadership to remain in power for some time if it is willing to follow the Chinese path of controlled but steady economic reforms.

Chinese scholars site the following factors favoring stability or slow rather than sudden change:

• Ideological indoctrination and isolation of the general population. Chinese scholars point out that the average North Korean has been trained from birth to serve the North Korean leadership and has no concrete access to the outside world with which to make an informed judgment about how bad the situation in North Korea really is. One piece of evidence consistent with this view comes from a Korean-Chinese hotel worker in Yanji, who reported that "Even though they go hungry, North Korean refugees continue to praise their Great Leader and say that they live in the best country in the world."
• Absence of capacity to organize dissent. Because the people still believe in the system as a result of lifelong indoctrination and zero tolerance for political dissent, no organization exists through which political reforms can be pursued. Kim Jong Il's consolidation of control over the military ensures the perpetuation of his political control. As one Chinese scholar put it, "One million soldiers (in the Korean People's Army) are still eating, and the people cannot fight back."
• Structure of the distribution of goods and privileges. When faced with extreme shortages, individuals have only two choices: either to use connections within the political structure to gain the resources necessary for survival or to die outside the system. Thus, the likelihood of political challenge to the leadership is slight.

One Chinese scholar provided the following assessment of factors that will affect the longevity of North Korea's system. First, the amount of international food aid North Korea receives may help it to overcome its immediate crises, perpetuating the North Korean leadership's political control. Second, the political environment within North Korea, including whether it is possible to settle political struggles in favor of opening to the international community, will have an impact on North Korea's future course. Finally, the attitude and character of Kim Jong Il himself is a critical factor in determining the fate of the regime.

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See the complete list of Institute reports. The views expressed in this report do not necessarily reflect those of the United States Institute of Peace, which does not advocate specific policies.