When asking how China arrives at its North Korea policy, perhaps we should ask: which China? And which policy?

Kevin Gray of the University of Sussex treats China’s approach to North Korea not simply as one originating in Beijing – though the distinct opinions of the Communist Party heads in the capital certainly play a role – but also factors in the regional interests of those areas that border the North.

The provinces of Liaoning and Jilin, for instance, have struggled to keep up with the development of the rest of the country, and their regional positioning means that the economic benefits they glean from interaction with the North have to be considered, no matter how irritated Beijing may be with the North’s nuclear proliferation.

Then there is the private sector to consider, as profit-driven actors also pursue North Korean markets. This is not altogether different from the case of South Korea, as Gray writes that a loss of cheap labor in South Korea’s modernized, developed economy in the late-’90s may have contributed to its rapprochement with the North in that timeframe.

However, Gray told NK News that China’s cooperation with the North has ultimately been less “politicized” than the South’s, and therefore more effective. 

And despite concerns that helping the North Korean economy ultimately helps the Pyongyang government, he argues that these interactions have resulted in greater wealth and quality of life for North Koreans.

NK News: In what ways is the state an inadequate framework for analyzing relations between China and the North?

Gray: The majority of attempts at examining Sino-North Korean relations adopt a state-centric perspective. 

Divergences of interests have also emerged as a result of the fact that the main agents of Sino-North Korean economic exchange are private profit-oriented actors

The problem with such approaches is that they fail to take into account the profound transformations in the nature of the Chinese state since the late 1970s, and particularly, how market reform, political decentralization, and uneven globalization have led to a diversification of actors involved in Sino-North Korean relations.

It is not, therefore, that the state is in itself an inadequate conceptual category but that the nature of the state has changed through a form of spatial restructuring, and as a result, the state-centric conceptual lens is no longer appropriate.  

NK News: What are some of the contradictions that you refer to when speaking of China since its economic reformation? How do these impact its relations with North Korea?

Gray: Political decentralization in China has led to different emphases in interests on the part of central and local governments. For Beijing, the nuclear issue is obviously of great concern, and there is also much international pressure on Beijing to sign up to UN Security Council Resolutions condemning North Korea’s nuclear program.

For provincial, municipal and regional governments, economic cooperation with North Korea is seen as essential to the northeast’s economic revitalization. Beijing is also unable to ignore such concerns given that the northeast has fallen behind the rapid economic growth seen in the eastern and southern coastal provinces and thereby poses broader security challenges.

Beijing sees economic growth in the border regions as essential for national security as a whole so cannot afford to ignore such concerns. Liaoning Province has, since the onset of reforms, become a key locus of social unrest, particularly among laid-off workers.

The loyalties of the ethnic Korean regions in is also a latent yet important concern for the central government. While Chinese policy towards North Korea is often labeled “duplicitous” by its critics, it is, in fact, the product of a set of diverse and contradictory imperatives that are closely related to the pattern of political decentralization and uneven development in China.

Divergences of interests have also emerged as a result of the fact that the main agents of Sino-North Korean economic exchange are private profit-oriented actors. Such actors engage in widespread smuggling and informal methods of trade settlement in order to escape the supervisory reach of the customs authorities.

…the economy of the northeast is not so different to that of North Korea

The Chinese authorities, in partnership with the North Korean government, have tried to establish a formalized cross-border financial system for settling trade transactions, but these efforts have come into conflict with increased financial sanctions since the mid-2000s. My basic argument is that the multiple actors and diverse interests involved in Sino-North Korean relations are not well-captured by the notion of a singular state pursuing a “grand strategy.”    

NK News: Could you explain the problem of “uneven development” and how it impacts the northeastern provinces of China and their interactions with North Korea?

Gray: A crucial component of economic reforms since the late 1970s was the decentralization of political authority to the provincial level. With more rights to retain revenue, provinces had added incentives to attract foreign investment and promote economic activity. This created inequalities of opportunity, whereby the well-placed coastal provinces were more easily ably to integrate themselves into global production networks.

As such, this political decentralization formed the basis for China’s increasingly uneven development in the post-1978 era. Landlocked provinces such as Jilin and were much less able to take advantage of the new opportunities related to globalization in the reform era.

While Liaoning province is not landlocked, it is dominated by uncompetitive state-owned enterprises (in this respect, the economy of the northeast is not so different to that of North Korea – i.e. memories of Japanese colonialism and the domination of unprofitable SOEs creates an inbuilt conservatism and suspicion of foreign investment).

This means that North Korea is to some extent seen by the northeastern regional governments as an economic opportunity itself. But for the landlocked regions, the role of North Korea as a route to the outside world is crucial (e.g. access to Rajin Harbour, northeast Asia’s northernmost warm water port, not just for China’s northeast but for the Russian Far East and Mongolia).

The enthusiasm of local governments for economic cooperation with North Korea seems to follow these interests. Jilian and Yanbian governments are visibly more enthusiastic than the Liaoning government, for example, though for obvious reasons, Dandong city has strong motivation to promote economic engagement with North Korea.

NK News: You’ve previously written about the role of South Korean capital and the need for cheap labor as a motivation behind the Sunshine Policy. What are the key differences in South Korea’s economic motivations toward the North and China’s?

Gray: I do not think it a coincidence that economic cooperation with North Korea was first promoted in the South at a time when the latter’s reserves of cheap labor had run out and rising wages, particularly in the late 1980s, had undermined many of the comparative advantages held by South Korean SMEs.

North Korea is to some extent seen by the northeastern regional governments as an economic opportunity itself

The reality is, however, that North-South economic cooperation was highly politicized, as could be seen in the closure of the Kaesong Industrial Complex this year. Although interactions between North and South Korean people did take place, interactions between the North and South were highly constrained and did little to transform North Korea’s overall political economy.

In this sense, China can be viewed as pursuing a much more effective engagement strategy. Chinese trade and investment with North Korea is conducted on a profit-oriented basis whereby private enterprises shoulder the risks. The fact that Chinese traders and investors can interact more freely with North Koreans also suggests a greater transformative potential in terms of the introduction of market practices and business knowledge.

Furthermore, Sino-North Korean economic relations are not politicized in the sense of being subject to the whims of domestic politics within China. Indeed, Sino-North Korean economic relations seem to continue regardless of negative public opinion in China (though the recent launching of an investigation into Hongxiang Industrial Development is an interesting development).

NK News: Do you see any evidence of Chinese commercial activity leading to reforms, or at least improvements in quality of life, among North Koreans?

Gray: As is well known, a key trend in the North Korean economy for at least two decades has been the expansion of consumer markets. Any visit to these markets makes it immediately clear the extent to which Chinese-sourced goods supply the daily needs of North Koreans. Those Koreans who have opportunities to earn foreign exchange have also seen a considerably improvement in life quality and this trade has contributed to the emergence of a new entrepreneurial class in North Korea.

The existing debate, however, is about the extent to which such processes are also supporting the North Korean regime. Given the involvement of North Korean trading companies in the cross-border, this is obviously the case. The state is closely involved in ongoing processes of marketization, and indeed, the notion of a clear separation between the state and the economy in any country is something of a liberal myth. However, it is also the case that marketization is leading to a process of social differentiation within North Korea and that these processes mean the state does not have dominance it once had.

Criticisms of Chinese engagement are also premised on the problematic assumption that China’s economic engagement with North Korea is prolonging the life of the regime. However, as the 1990s have shown, the North Korean system is surprisingly resilient even in the face of widespread social hardship. On balance, the improvement of people’s livelihoods brought about by economic relations with China is a positive development.

As to whether the economic activity is leading to reforms, I think it is important not to assume that North Korea has made no efforts to emulate Chinese-style reforms. Under the Kim Jong Un government, there have for example been attempts to emulate both China’s agricultural reforms and its reforms to the governance of state-owned enterprises.

There has also been a massive push to establish special economic zones, which in numerical terms surpasses what China had achieved in the 1980s. There are numerous external and issues why these have not had the same effects. One is the obvious issue of international sanctions and a hostile external environment, which China did not have to deal with at the time of its initial reforms.

On balance, the improvement of people’s livelihoods brought about by economic relations with China is a positive development

In a context where it has become almost impossible to transfer funds to North Korea through the official banking system, there is a clear disincentive towards foreign investment. It is also important to remember that China’s reform policy was subject to resistance (e.g. the anti-spiritual pollution campaign and the conservative reaction to the Tiananmen Square incident).

As such, I think North Korea may be at a crossroads similar to that of China in the early 1980s. The problem is that North Korea’s hostile external environment both strengthens and is strengthened by conservative factions within the North Korean state. I think the poor internal investment climate is a broader cultural issue that stems from some key differences between China and North Korea.

At the time of China’s economic reforms, China still had a massive rural population that could be mobilized first into the town and village enterprises and into the coastal export-oriented sectors. North Korea is already an urbanized industrial society and the space for a rural-based second economy to emerge is much more limited.

With parallels to my point above about the northeast in the early stages of reform, while the central government may seek to put certain policies in place, bureaucratic resistance means that these policies do not have the same impact.