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Commentary

Unveiling North Korea: A Balancing Act for Economic Prosperity

By Karanina Bhattacharjee, Meg Kurdys & Hongbo Xu

July 16, 2018

Source: UnSplash

Articles and Analysis

The Belt and Road Initiative: A Road to China’s World Cup Dreams?
Emily Weinstein
Jamestown Foundation, July 15

“Sports tourism, especially that surrounding soccer, has been an important albeit lesser-known component of BRI. Chinese media have argued that the sports industry is growing into one of China’s most dynamic sectors, as Chinese entities have begun to invest heavily in international teams, arenas, and events.”

“China saw opportunity, and has treated the World Cup as one of the most significant marketing opportunities for Chinese brands this year, with a diversity of Chinese firms supporting this year’s Cup. While commercial rationales are undoubtedly at work, Chinese firms’ eagerness to demonstrate their support also underscores their support for Xi Jinping’s World Cup and BRI aspirations, thus demonstrating China’s understanding that soccer—in addition to cultural exchanges, loans and infrastructure projects—may be another way to win hearts and minds in other countries.”

How the Trade War with China Will Affect the U.S.
The Atlantic, July 12

“With the onset of Trump’s trade war, diplomatic relations between the U.S. and China—the world’s largest and second-largest economies, respectively—have reached a crisis point. Yasheng Huang, a political economist, MIT professor, and the author of Capitalism with Chinese Characteristics, argues that ‘a trade war would negatively affect the interest of U.S. consumers, companies, and the financial system of the United States.’”

“Speaking at the 2018 Aspen Ideas Festival, Huang goes on to explain how the newly-imposed tariffs on Chinese goods will raise domestic prices. He also reveals how the U.S. and China can coexist ‘peacefully and profitably’—and why the onus is on America to bring that to fruition.”

Crisis in U.S. Nuclear Talks With Pyongyang Not China’s Doing, Experts Say
Keith Johnson
Foreign Policy, July 10

“President Donald Trump has suggested that China might be to blame for an apparent crisis in nuclear talks between the United States and North Korea — arguing that Beijing could be undermining the agreement because of anger over the escalating trade war with the United States. But experts believe it’s Trump’s own mishandling of the talks that has caused the disarray.”

U.S.-China Trade War: How We Got Here
Brade W. Setser
Council on Foreign Relations, July 9

“A trade war is, among other things, a legal process—at least in the United States. Congress has delegated a lot of authority over the regulation of international commerce to the executive branch, which has given the Trump Administration a lot of latitude. But Trump and his team are still working within the framework of U.S. trade law (“232s”, “301s,” “201s,” etc.).”

“I also wanted to gather together, for my own use if nothing else, a set of references to the specific policies that China has pursued that have given rise to a set of serious complaints about China’s commercial policies. Set aside the “original sin” of ignoring China’s massive foreign exchange intervention from 2003 to 2008—and still large intervention in the years immediately after the global crisis. The core of the current complaint is that:

  1. China has made it hard to produce abroad and sell to China and,
  2. China has made it hard to invest in China in order to produce and sell in China if your firm isn’t Chinese.”

Trump Tweets Again, Giving North Korea Chance to Take Advantage of U.S.-China Divide
Tom O’Connor
Newsweek, July 9

“President Donald Trump took to social media Monday to defend North Korean supreme leader Kim Jong Un over concerns that he was not living up to his end of a denuclearization deal struck by the two men last month. In doing so, he also criticized China and gave what experts called a potential advantage to Pyongyang, which has for decades played off the rivalries of major powers.”

“Despite the North Korean Foreign Ministry’s attack on ‘gangster-like’ demands— following Secretary of State Mike Pompeo’s recent visit to Pyongyang and reports suggesting Kim may be continuing to improve a key nuclear research facility—Trump tweeted, ‘I have confidence that Kim Jong Un will honor the contract we signed &, even more importantly, our handshake. We agreed to the denuclearization of North Korea.'”

What the North Koreans Really Said On July 7
Robert Carlin
38 North, July 9

“The July 7 DPRK Foreign Ministry spokesman’s statement appears to be a warning message to the US, carefully tinged with a tone more in sorrow than in anger. Overall, the key formulations are carefully balanced (e.g., frequently noting the task or dangers ahead for “both sides”) and buffered to leave the way open for further engagement.”

“Most important, instead of any hint of criticism of President Trump, the statement ends on a positive note: “We still cherish our good faith in President Trump,” underlining that the problem is not the President but rather “headwind against the wills of the two top leaders…” The point is not whether the North Koreans actually believe this, but that they are crafting their public position to leave the door open to future dealings between the two leaders.”

The U.S. Can’t Afford to Demonize China
Michael D. Swaine
Foreign Policy, June 29

“The United States and China’s lengthy track record of constructive engagement is disintegrating at an alarming rate, requiring a major correction by both sides. Despite U.S. President Donald Trump’s occasional talk of his “truly great” connection with Chinese President Xi Jinping, and Xi’s constant references to “win-win” outcomes all round, recent policies and actions — especially on the U.S. side — have created an enormously destructive dynamic in the relationship.”

Trump’s weak case against China
Yu Yongding
Nikkei Asian Review, June 29

“No one wins in a trade war. Yet U.S. President Donald Trump seems determined to pursue one with China, which he accuses of causing America’s trade deficit, violating World Trade Organization rules, and using unfair practices to acquire foreign technology. While most economists marvel at Trump’s ignorance of how trade balances work, many broadly agree with his charges regarding intellectual property (IP). But the evidence supporting these claims is also weak, at best.”

Past Events

Korean Peninsula Security Challenges: The First Year under President’s Moon and Trump
Event hosted by Council on Korea-U.S. Security Studies and The Institute of World Politics, June 28

This two-day event featured panel discussions and paper presentations on denuclearization of the Korean Peninsula, ROK-U.S. Alliance issues under Moon and Trump, deterring and defending against the North Korean threat, and a speech from the ROK Ambassador to the U.S.

Beheading Dragons: Streamlining China’s Environmental Governance
Event hosted by The Wilson Center’s China Environment Forum, July 12

The Wilson Center’s China Economic Forum invited three speakers to unpack the drivers and impacts of this major reform in China. They discussed how legal and regulatory authorities around pollution and climate issues are changing; the hurdles Chinese government faces to expand reforms at the subnational level; how the new MEE could act more holistically to manage complex pollution issues; and the implication of China’s recent governance reforms on efforts to create a national carbon emissions trading systems and what other policies and institutional changes are needed to make it succeed.

Upcoming Events

The Human Rights Factor in the US-China Trade War
Event hosted by Dialogue China 对话中国, July 17

America’s Generational Challenge: China
Event hosted by The Institute of World Politics, July 18

Taiwan Strait 2018
Event Hosted by Global Taiwan Institute, July 19

Eighth Annual South China Sea Conference
Event Hosted by Center for Strategic and International Studies, July 26

Commentary

Unveiling North Korea: A Balancing Act for Economic Prosperity

By Karanina Bhattacharjee, Meg Kurdys & Hongbo Xu

The past few months have seen one of the most interesting and politically active periods in recent North Korean history. Just months ago, the world was bracing for what seemed like an inevitable war between the United States and North Korea. Now we are a month out from a historic summit between the two countries in which they reportedly agreed on a pathway to denuclearize the Korean Peninsula. Whether or not that promise will be kept remains an open-ended question.

U.S. Secretary of State Mike Pompeo says that the most recent meeting with Pyongyang on July 7 went well; North Korea says otherwise. In North Korea’s view, if the United States doesn’t hold up its end of the bargain, it won’t be satisfied and will continue to use its nuclear capabilities as leverage.

If the peace process isn’t derailed, there will likely be significant political and economic changes within North Korea. The country will almost certainly deepen its trading relationship with China, which has been hampered by UN sanctions, but still accounts for roughly 90 percent of all trade with North Korea. This comes with a caveat. Because of simmering distrust between Beijing and Pyongyang, Kim will also seek out new partners and foreign investors, enabling his country to have more connections to the international community and lessen its excessive reliance on China.

Although the past three decades of negotiations seeking to eliminate North Korea’s nuclear weapons program have been fraught with broken promises, there is reason to be hopeful that maybe, just maybe, this time is different. Since his ascendance to power in 2011, Kim Jong-un has shifted from his father’s military-first policy to a dual-track policy, referred to in Korean as “byungjin,” that pushes for both economic and nuclear weapons development. Now that this policy has been successfully carried out in Kim Jong-un’s view, the regime has resolved to place sole attention on economic construction. The significance of this change is often underestimated by external observers. To quote former South Korean national security adviser, Chun Yungwoo, “[Kim Jong-un is] thinking in terms of 40 years, 50 years from now, where he will be. Nuclear weapons are useful in holding on to power for 5 years or 10 years, but that’s not enough if he’s going to be in a stable position. He needs economic development.”

Should negotiations continue smoothly, the opening-up of one of the most isolated countries in the world is a real possibility, and both Eastern and Western investors are eager to get their foot in the door. South Korean President Moon Jae-in presented Kim with a USB flash drive containing blueprints for economic cooperation between North and South Korea. Likewise, the North is a favorable location for transportation (railway) and energy corridors, given that it is a potential hub for connecting China, Russia and South Korea. North Korea is also abundant with coal, iron, metals, and limestone, which are already its primary exports to China. Other foreign investments will likely be in the area of light manufacturing, such as textiles and apparel production as well as the production of labor-intensive and export-oriented electronics goods. This pattern of opening-up will bear resemblance to that of its fellow East and Southeast Asian partners, notably China and Vietnam.  

Most recently, Kim’s focus on agriculture has gained momentum. Earlier this week he visited a potato farm and reports have shown his eagerness to learn from China’s agrarian achievements. These achievements were instrumental in jump-starting that country’s remarkable four-decade long run of growth – hence, Kim’s visit to an agricultural science center during his latest China trip. Assignment of de facto individually-held, long-term rights to land was a key technique used by China to generate surpluses in the countryside, which thereafter provided the foundation for the development of small and medium industries in rural and urban areas. A similar pattern of development is readily replicable in North Korea. This, coupled with foreign investments, are critical measures to build up the country’s economy in the coming decades.

The lifting of UN sanctions would almost certainly facilitate trade with regional players and see it expand significantly. However, China’s share of trade with North Korea would likely decline. In his public statements, Kim Jong-un has expressed concerned about China’s economic leverage over North Korea. He has encouraged his people to produce more local goods, thereby lessening North Korea’s dependence on China. This is also a powerful incentive to negotiate an end to international sanctions and expand North Korea’s portfolio of trading partners.

The political intricacies of Kim’s dealings with China reveal that North Korean economic development is contingent upon international trust that North Korea will denuclearize. Pledges by the United States, South Korea, Japan and Russia to engage with North Korea only after the denuclearization process has begun, reflect the level of distrust that world leaders feel towards Kim, and yet they are aware that investing in North Korea could present significant economic opportunities. Kim will use his political leverage to gauge possible roles that his country could play in future economic schemes; smooth negotiations, as such, will lead to a rise in North Korea’s GDP and a more normalized relationship with the world. The tides are turning and North Korea, primed and keen for an economic boom, may well come to replicate the “Miracle on the Han River” that his countrymen and women south of the 38th parallel fashioned fifty years ago.

 

Karanina Bhattacharjee, Meg Kurdys and Hongbo Xu are research assistants at the Institute for China-America Studies.