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

China's Strategic Options toward the Korean Peninsula

Chinese scholars describe a pragmatic policy approach to the Korean Peninsula that accepts the possibility that the status quo may be unsustainable. Indeed, there is a clear recognition that the balance of power on the Korean Peninsula has shifted toward Seoul, although scholars in Beijing retain a rhetorical emphasis on China's policy of equidistance between Seoul and Pyongyang. The primary concern of Chinese observers is that Seoul's increased importance in the Korean Peninsula may signal a broader shift in the balance of power in Northeast Asia in favor of the United States and to the detriment of China.

Views of North and South Korea

Following normalization of relations with South Korea in 1992, Beijing steadily pursued a policy of equidistance between the two Koreas. In recognition of Seoul's preeminent role on the Korean Peninsula and the benefits of a rapidly expanding trade and investment relationship with South Korea, China's equidistance policy is now being effectively discarded in favor of a more pragmatic approach that reflects its own interest in stability and in the promotion of economic development.

China's official relationship with North Korea has been limited primarily to ceremonial exchanges and celebration of key anniversaries in the absence of direct personal ties formerly enjoyed by first-generation revolutionary comrades such as Kim Il Sung and Deng Xiaoping. In contrast, Jiang Zemin's week-long visit to South Korea in late 1995 focused on the future, including the fostering of economic relations. Chinese provincial officials in northeastern China--saddled with the burden of a high share of bankrupt state-owned enterprises but eager to join in the benefits of economic reform--are eager for South Korean investment regardless of political considerations.

While China cultivates an official relationship with Seoul, it has continued to encourage North Korea to follow the path of economic reform, particularly by providing economic support through unofficial channels. Limited oil subsidies continue on an official level, despite efforts to place such transactions on a hard-currency basis. In addition, the Chinese government provides indirect subsidies to North Korea by continuing to allow trade transactions between North Korean and Chinese companies on the border despite North Korea's mounting debt and the fact that many Chinese companies have gone bankrupt as a result of North Korean defaults on debts. There are also reports of expanded opportunities for Chinese-run foreign goods stores in Pyongyang, another way to extend economic leverage while making a profit from the business of prominent North Korean party cadres. Such transactions--combined with China's flexible policy of allowing sizable grain transfers through barter trade on the border--amount to informal subsidies to North Korea that are intended to foster North Korean survival and enhance its economic dependence on China.

Despite the costs of maintaining Pyongyang's economic dependence on China, some scholars hint that such dependence may be used to China's advantage regardless of whether North Korea finally pursues a path of economic reform. Jilin provincial scholars emphasize not only the importance of investment from Seoul, but also the importance of investment in North Korea's Rajin-Sonbong Economic Zone. In fact, Jilin provincial officials have been among the biggest supporters of the UN's efforts to create a regional development zone focused on the Tumen River area.

To promote its own economic reform effort, Jilin provincial officials have actively sought to encourage a channel of trade and investment that provides access to a northern seaport, and Yanji has grown rapidly as a beachhead and headquarters for a small number of companies investing in the zone, including the Hong Kong-based Emperor Group project to build a casino and hotel complex in the zone. If landlocked Jilin provincial officials cannot persuade North Korean and Russian authorities to provide China with access to the open sea by dredging the Tumen River several miles to the Chinese border town of Hunchun--as proposed several years ago--the second-best option might be for China to "buy" port access through sizable investment in the Rajin-Sonbong Economic Zone. Jilin Province's own economic self-interest supports investment in the Rajin-Sonbong Economic Zone, with some scholars suggesting that the Hong Kong turnover may free additional investment by Chinese companies interested in extending additional capital for China's stake in the Rajin-Sonbong area.

There is a strong political rationale for China to extend its economic support to North Korea, even if such investment proves unable to extend the life of the regime in Pyongyang. If China loses its political buffer on the Korean Peninsula, it may still be able to preserve an economic buffer in a reunited Korea by establishing strong trade and investment relationships with North Korean counterparts, many of whom will still be in a position to play critical roles in economic affairs even after reunification occurs.

U.S.-China Relations and the Korean Peninsula

Although the United States and China share common interests in preserving stability and preserving nuclear nonproliferation on the Korean Peninsula, the historical legacy of cold war confrontation and concerns about a possible shift in the balance of power in Northeast Asia that might accompany Korean reunification have inhibited frank consultations and coordination of policy toward Korea. At the same time, it has become conventional wisdom among Korea specialists that good U.S.-China relations are necessary to reduce tensions between the two Koreas.

The legacy of the Korean War and the sensitivity of the Korea question within China itself are major influences on Chinese perceptions of U.S. intentions toward Korea. First, senior members of the People's Liberation Army fought in Korea against the United States. Although the reestablishment of the 38th parallel as the border between North and South Korea may be seen as a victory, the possibility of North Korea's demise would be seen as a psychological defeat, despite the political differences that have grown between the two countries. Second, the Korean War shaped the context for many of the core problems that remain sources of tension in U.S.- China relations, including the perception that the Korean War and U.S. involvement in it may have helped solidify the division between mainland China and Taiwan. Third, reunification on South Korean terms might also mean the extension of U.S. alliances in Asia to the Chinese border, an unacceptable development that was a primary cause for China's original involvement in the Korean War. Finally, the situation in Korea and possible contingencies have a direct impact on many of the most sensitive domestic issues China faces, including the financial impact of North Korea's problems and management of state-owned enterprises in the northeast, dealing with China's "floating population" of unemployed citizens, issues related to ethnic autonomy, and management of foreign investment and trade relationships to support continued economic growth.

One result of such a legacy is that Chinese scholars maintain a cautious and mixed view of U.S. intentions on the Korean Peninsula. On the one hand, China has encouraged normalization of relations between the United States and North Korea as a step toward stabilization of tensions and reduction of confrontation. On the other hand, some Chinese scholars are well aware of the limits of Chinese leverage over North Korea and recognize that Washington may now have greater opportunities than Beijing to influence Pyongyang. Although the promotion of dialogue and reconciliation between North and South Korea is in Beijing's interests, many observers in China distrust Washington's motives in encouraging such a process and are worried that the process might develop at the expense of China's own national security interests. China's support for Four Party Talks may be primarily motivated by a desire not to be left out of the process, which may have a direct effect on China's own security interests.

The shift in the balance of power on the Korean Peninsula itself will require stepped-up policy coordination among all the parties involved, including a much more frank dialogue than currently exists, particularly among the United States, China, South Korea, and Japan. Formal consultations on Korea were initiated in June 1997 between Acting Assistant Secretary of State for East Asia and the Pacific Charles Kartman and his Chinese counterpart, Vice Foreign Minister Wang Yi. In addition, China's involvement in the Four Party Talks may be seen as another step toward establishing official subregional consultations in Northeast Asia, although such a process remains incomplete in the absence of a formalized regional structure for discussing security issues. It might also be useful to extend the dialogue to include private discussions at the Track Two level among Americans, Chinese, and South Koreans regarding various contingencies on the Korean Peninsula and their impact on respective national interests and security perceptions. In addition, consideration should be given to the influence of changes on the Korean Peninsula on the balance of power in Northeast Asia, including the impact and influence of U.S.-China relations on the Korean Peninsula.

About the Trip

Past meetings of the Institute's senior-level working group on Korea, established in fall 1993, have highlighted the need for better understanding of conditions on the Chinese border with North Korea.

To initiate contacts with local Chinese analysts of North Korea, Institute Program Officer Scott Snyder traveled in June 1997 with Mr. Wu Baiyi, deputy director of research at the Beijing-based Foundation of International and Strategic Studies, to Shenyang, Yanji, and Changchun. This research was greatly assisted by the hospitality of the Liaoning and Jilin Academies of Social Science, and the assistance of representatives from a variety of individuals from the Korean-Chinese community in Yanji--including the local institute for the Study of Overseas Issues and the Yanbian University of Science and Technology--for which the author of this report offers his thanks.

The author met with three types of individuals: Chinese specialists on North Korea, members of the ethnic Korean community in the Yanbian Korean Autonomous Prefecture, and refugees from North Korea currently in Yanbian. This report draws extensively on discussions held during the visit and on additional information gathered in South Korea; however, the result and any misinterpretations presented herein are the responsibility of the author alone.

Other recent Special Reports of the Institute's Korea Working Group include "A Coming Crisis on the Korean Peninsula? Economic Decline, the Food Crisis, and Political Considerations" (October 1996) and "The North Korean Nuclear Challenge: The Post-Kim Il Sung Phase Begins" (November 1994). For further information, please contact Scott Snyder at 202-429-3808.

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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.