Body
As Kevin Stahler observed in an earlier post, bilateral trade between China and North Korea in textiles and apparel has been growing for several years. When Kevin showed me a draft of the post, I questioned how much of this was truly Chinese trade, and how much was accounted for by South Korean processing on commission transactions “re-flagged” as Chinese to avoid the 24 May sanctions. And while I suspect that sanctions evasion accounts for some of the growth in this “Chinese” trade the trade volumes have continued to grow suggesting that circumventing sanctions is unlikely to be the whole story. The share of bilateral trade in these product categories has been further reinforced by the slump in North Korean exports of mineral products to China.
Choi Jangho at KIEP recently put out a short piece examining this bilateral textiles and apparel trade in greater detail. He argues that its growth is real, reflecting both rising wage rates in China, and a variety of measures that have reduced transactions costs between China and North Korea. The latter includes eased North Korean restrictions on foreign investment (undertaken in his telling in response to the country’s deteriorating balance of payments situation), some expanded duty exemptions on the Chinese side, and more relaxed North Korean attitudes about the use of Chinese smartphones and apps.
That’s the good news. The bad news is that much of this textiles and apparel trade growth is in intermediates (the global supply chain comes to North Korea!) and as a consequence the growth of trade overstates the true growth of value-added, income, or development.
Choi argues that the increased integration between the two economies might stabilize the North Korean economy making it less sensitive to domestic shocks. True. But by the same token it makes North Korea more vulnerable to negative shocks originating from China. And with due respect to my colleague Nick Lardy, China’s economy is looking increasingly wobbly.
