China’s influence on North Korea is more than it is willing to admit but far less than outsiders tend to believe. Although it shares the international community’s denuclearisation goal, it has its own concept of how to achieve it. It will not tolerate erratic and dangerous behaviour if it poses a risk of conflict but neither will it endorse or implement policies that it believes will create instability or threaten its influence in both Pyongyang and Seoul. The advantages afforded by China’s close relationship with the North can only be harnessed if better assessments of its priorities and limitations are integrated into international strategies. Waiting for China to compel North Korean compliance will only give Pyongyang more time to develop its nuclear arsenal.

China’s priorities with regard to North Korea are:

• avoiding the economic costs of an explosion on the Korean Peninsula;
   
• preventing the U.S. from dominating a unified Korea;
   
• securing the stability of its three economically weak north eastern provinces by incorporating North Korea into their development plans;
   
• reducing the financial burden of the bilateral relationship by replacing aid with trade and investment;
   
• winning credit at home, in the region and in the U.S. for being engaged in achieving denuclearisation;
   
• sustaining the two-Korea status quo so long as it can maintain influence in both and use the North as leverage with Washington on the Taiwan issue; and
   
• avoiding a situation where a nuclear North Korea leads Japan and/or Taiwan to become nuclear powers.

China’s roughly two-billion-dollar annual bilateral trade and investment with North Korea is still the most visible form of leverage for ending deadlock and expediting the nuclear negotiations. However, there is virtually no circumstance under which China would use it to force North Korea’s compliance on the nuclear issue. Even though the crackdown on North Korea’s banking activities in Macao in September 2005 demonstrated that China is not completely immune to outside pressures to rein in bad behaviour, Beijing is unlikely to shut down the North’s remaining banking activities in the country.

China opposes sanctions on North Korea because it believes they would lead to instability, would not dislodge the regime but would damage the nascent process of market reforms and harm the most vulnerable. It also has reasons related to its own quest for reunification with Taiwan – not to mention human rights issues in Xinjiang and Tibet, and its own economic interests in Sudan and elsewhere – for opposing aid conditionality and infringements on sovereignty and being generally reluctant to embrace sanctions.

The bilateral relationship affords China little non-coercive influence over Pyongyang. Viewing it as one sustained by history and ideology ignores powerful dynamics of strategic mistrust, fractured leadership ties and ideological differences. Pyongyang knows Beijing might not come to its defence again in war and fears that it would trade it off if it felt its national interest could benefit.

One factor shaping China’s preference for the status quo in North Korea is the presence of two million ethnic Koreans in the country including an estimated 10,000 to 100,000 refugees and migrants at any one time. Although refugee flows are perceived to present one of the greatest threats to China in case of political or economic collapse in the North, most Chinese analysts and officials are unconcerned about the short-term threat posed by border crossers. Meanwhile, genuine political refugees are now quietly leaving China and being resettled in South Korea without Chinese opposition – sometimes even with its assistance – so long as they depart without causing embarrassment.

Chinese President Hu Jintao’s visit to Pyongyang in October 2005 and Kim Jong-il’s return visit in January 2006 underscored deepening economic relations. China is undertaking a range of infrastructure projects in and around North Korea and now accounts for 40 per cent of its foreign trade. Since 2003, over 150 Chinese firms have begun operating in or trading with North Korea. As much as 80 per cent of the consumer goods found in the country’s markets are made in China, which will keep trying gradually to normalise the economy, with the long-term goal of a reformed, China-friendly North Korea.

Although it cannot deliver a rapid end to Pyongyang’s weapons program, China must still be an integral component of any strategy with a chance of reducing the threat of a nuclear North Korea. No other country has the interest and political position in North Korea to facilitate and mediate negotiations. It is also the key to preventing transfers of the North’s nuclear materials and other illicit goods, although its ability to do this is limited by logistical and intelligence weaknesses, and unwillingness to curb border trade. Over the long-term, Chinese economic interaction with the North may be the best hope for sparking deeper systemic reform and liberalisation there.

Seoul/Brussels, 1 February 2006