North Korea-China Trade Declines for Third Straight Month Amid Deepening Ties with Russia: The Future of Pyongyang's Economic Dependence on China

Executive Summary

According to data from China's General Administration of Customs, North Korea-China trade volume declined for the third consecutive month through July. However, the figure remains high compared to the same period last year, and the margin of decrease in June and July was not significant. Despite deepening ties between Pyongyang and Moscow, official North Korea-Russia trade amounted to only $34.4 million, a stark contrast to the over $200 million in monthly trade between North Korea and China. EAI assesses that the consumption boom among Pyongyang's elite is merely a lopsided benefit of cooperation with Russia, and that the true engine of North Korea's real GDP growth remains the resumption of trade with China. However, the possibility that the entire structure of dependence on China could be shaken cannot be ruled out if Beijing translates its perceived need to check expanding North Korea-Russia ties into actual customs and financial practices. This calls for constant cross-verification of North Korea-China and North Korea-Russia trade statistics and the establishment of a scenario-based response framework to prepare for potential shifts in China's North Korea policy.

I. Situational Analysis

Three-Month Decline in North Korea-China Trade: A Situational Analysis

Background and Developments

The North Korean economy contracted in stages following the strengthening of UN Security Council sanctions in 2017 and the COVID-19 border lockdown in 2020 [5]. According to the Bank of Korea's real GDP estimates, the North Korean economy experienced a clear downturn during this period [5]. The COVID-19 border closure caused North Korea-China trade to plummet by over 80% at one point [9]. However, this lockdown was a measure that North Korean authorities repeatedly tightened and eased based on their own judgment, not China's [9].

The turning point was the resumption of trade with China, which began in the second half of 2022 [5]. Imports nearly recovered to pre-COVID levels. Exports, driven by an expansion in processing trade and non-sanctioned mineral exports, reached their highest level since the strengthening of sanctions against North Korea [5]. With existing key export items banned by Security Council resolutions, products like processed human hair, watches, tungsten, and molybdenum emerged as substitutes [5]. According to Bank of Korea data, North Korea's imports in 2023 reached $2.7 billion, a 13.9% increase from the previous year, and China remained its largest trading partner [6].

During the same period, North Korea-Russia relations also deepened rapidly. Early in the war, North Korea took a clear pro-Russian stance, which was rare in the international community, by recognizing the Donetsk and Luhansk People's Republics as independent states [2][7]. In March 2024, Russia vetoed the extension of the mandate for the UN Security Council's Panel of Experts on North Korea sanctions, creating a gap in the sanctions monitoring regime [2][7]. In June of the same year, North Korea and Russia signed a treaty that effectively elevated their relationship to an alliance level [2][7]. Subsequently, North Korea has provided conventional weapons and troops to Russia. Russia has reciprocated by turning a blind eye to the import of items that could violate sanctions [2][7].

Current Situation

According to data from China's General Administration of Customs (GAC), North Korea's imports from China have shown a downward trend for three consecutive months [1]. In July, North Korea-China trade volume was $229.4 million, down from about $252 million in June [1]. Although this is higher than the same period last year, the proximity of the June and July figures is seen as an indication that the downward trend is continuing [1]. However, exports rebounded slightly, reversing the previous downward trend [1].

At the same time, a consumption boom is being observed in Pyongyang, primarily among the upper class [4]. The Financial Times cited Chanel boutiques in department stores and a construction boom of high-rise apartments in the city, reporting a scene markedly different from that during President Xi Jinping's visit in 2019 [4]. However, EAI's analysis concludes that this consumption pattern is not a sign of a broader recovery in the North Korean economy but rather the result of benefits from dispatching troops and exporting munitions to Russia being concentrated in a specific class [2]. It is also pointed out that the official North Korea-Russia trade volume of only $34.4 million is insufficient to explain the current consumption behavior [2]. Thus, EAI's assessment is that "the real driver of North Korea's real GDP growth, based on Bank of Korea standards, is not cooperation with Russia but the resumption of trade with China" [2].

Key Actors and Interests

Chinamaintains its status as North Korea's traditional patron and largest trading partner. However, as North Korea's ties with Russia deepen, there are concerns that China's influence on the Korean Peninsula may be waning [6]. The NZZ, while referring to China as a "Schutzmacht" (protecting power), also highlighted Beijing's wariness about the expansion of North Korea's connections with Russia [6]. The three-month consecutive decline in imports could be interpreted as a partial reflection of this wariness in actual trade flows.

North Koreais improving its supply conditions for essential goods like food and refined oil through military cooperation with Russia, while simultaneously managing its existing economic recovery axis of trade with China [5][7]. There are also signs that its export items to Russia are gradually diversifying from military supplies to consumer goods, as seen in the case of the Choson Cosmetics Trading Company in Sinuiju agreeing to export ginseng cream to Russia [15].

Russiahas created a gap in the sanctions monitoring regime by vetoing the extension of the Panel of Experts' mandate. In return for securing North Korean munitions, it is turning a blind eye to the import of items that could violate sanctions and the export of petroleum products exceeding the UN cap [2][7].

South Koreais both an observer of these structural changes and the entity responsible for policy responses. The Bank of Korea's statistics are used as a key basis for tracking the real drivers of North Korea's economic growth, serving as foundational data for designing policies toward North Korea and Russia [5][2].

Key Issues

The first issue is identifying the real driver of North Korea's economic recovery. While the deepening ties between North Korea and Russia are prominent on the surface, the prevailing analysis is that the main axis of statistical growth is the resumption of trade with China [5][2]. The discrepancy between the volume of official North Korea-Russia trade and the level of consumption among Pyongyang's elite supports this judgment [2].

The second issue is whether the three-month decline in imports from China is a temporary adjustment or a sign of a structural shift. The asymmetrical trend of a continuous decline in imports, in contrast to a rebound in exports, could suggest North Korea's priorities for securing foreign currency or the possibility of supply adjustments from the Chinese side [1].

The third issue is the sustainability of the gap in sanctions monitoring. With the functions of the Security Council's Panel of Experts suspended, the reliability of North Korea-Russia trade statistics is limited, which increases the need for cross-verification with official North Korea-China statistics [2][7]. It is difficult to determine at this stage whether North Korea-China trade will rebound again or if North Korea-Russia economic cooperation will expand into the consumer goods sector and substantively erode the structure of dependence on China.

II. In-Depth Analysis

Three-Month Decline in North Korea-China Trade: An In-Depth Analysis

Analysis of Root Causes

The primary cause of the decline in North Korea-China trade is weak demand on the Chinese side. Given that North Korea's exports to China actually rebounded slightly, the main factor behind the three-month decline is the decrease in North Korea's imports from China [1]. Goldman Sachs assessed that China's growth rate at the beginning of the third quarter slowed to 4% from 4.3% in the previous quarter [13]. It is noteworthy that the sluggish economic activity in China in July was characterized as "demand-driven" [13]. The possibility that a contraction in China's domestic demand has partially affected the supply of consumer and capital goods to North Korea cannot be ruled out.

However, this explanation alone is insufficient. Internal factors within North Korea must also be considered to be at play. There is the possibility that essential goods such as refined oil and food, secured through closer ties with Russia, have partially substituted for import demand from China [7]. Russia is supporting North Korea by turning a blind eye to the import of sanctioned items or allowing the export of petroleum products exceeding the UN cap [7]. The correlation between the decrease in imports from China and the increase in inflows from Russia is difficult to prove precisely with currently available statistics alone. A counterargument can also be made that this substitution effect is too small in scale to explain the entire decline in North Korea-China trade, given that official North Korea-Russia trade volume is only around $34.4 million [2].

Structural Context

Economic Structure: Continued Dependence on a Single Market

The structural vulnerability of North Korea's economic recovery lies in its dependence on the single market of China. EAI's analysis points out that "the core driver of the economic recovery is excessively dependent on the single market of China and concentrated on the temporary demand of war" [5]. This vulnerability is even more apparent when looking at the composition of export items. After key exports were banned by Security Council resolutions, a few items such as processed human hair products, watches, tungsten, and molybdenum filled the gap [5]. This is a structure where North Korean exports are directly exposed to short-term demand fluctuations in the Chinese market. The fact that a three-month consecutive decline in imports has been observed can be interpreted as an indicator that North Korea remains substantively subordinate to the business cycles of the Chinese market [1].

Political Structure: Sanctions Monitoring Gap and China's Ambivalent Position

With the dissolution of the UN Security Council's Panel of Experts on North Korea sanctions in March 2024 due to Russia's veto, the sanctions implementation monitoring system itself is in a state of vacuum [2][7]. This gap has significant structural implications, as it has not only facilitated bilateral sanctions evasion by North Korea and Russia but also weakened the channels for verifying the reliability of North Korea-China trade statistics. China is in an ambivalent position in this situation. While continuing to act as North Korea's largest trading partner and de facto safety net, it also harbors concerns that its traditional influence on the Korean Peninsula could be eroded if North Korea's tilt toward Russia intensifies [6]. The Swiss newspaper NZZ, while describing China as North Korea's "protecting power (Schutzmacht)," also noted that China fears losing influence due to the expansion of North Korea's connections with Russia [6]. If the decline in North Korea-China trade is not a statistical coincidence but a reflection of these dynamics, it can be seen that China has an incentive to steer its economic relationship with North Korea into an adjustment phase.

Security Structure: Income Concentration and the Regime's Negotiating Leverage

EAI's assessment is that the consumption boom among Pyongyang's elite is not a sign of a broader economic recovery but a phenomenon limited to a specific class [2]. "This structure of income concentration is being maintained on top of the sanctions monitoring gap created by the expiration of the UN Security Council Panel of Experts' mandate in March 2024, and there are semi-publicly confirmed signs of North Korean laborers being dispatched to Russia" [2]. This income concentration structure is not merely an economic phenomenon. EAI assesses that this trend "is providing the Kim Jong Un regime with different negotiating leverage than it had at the time of the 2019 Hanoi Summit" [2]. A dual structure seems to have formed, where trade with China is the underlying factor supporting the economy from below, while military-industrial cooperation with Russia serves as a separate channel bolstering the political autonomy of the regime's upper echelons.

Historical Precedents and Comparative Cases

The experience during the COVID-19 border lockdown serves as a useful reference point for interpreting the current decline. At that time, North Korea-China trade plummeted by over 80%, but this was due to the North Korean authorities' own judgment, not China's pandemic policies [9]. The timing of easing and tightening the border lockdown also tended to be linked more to North Korea's internal political schedule than to the pandemic situation in China [9]. This precedent suggests that a significant portion of fluctuations in North Korea-China trade can be determined by the policy choices of the North Korean authorities rather than factors on the Chinese side. However, the current situation is different in nature, as it is a gradual decline rather than a comprehensive measure like a border lockdown. It is difficult to determine with current data alone whether this is an intentional adjustment timed with political events, as was the case during the COVID-19 period, or a pure fluctuation in market demand.

A comparison with the period before and after the breakdown of the 2019 Hanoi US-North Korea Summit is also possible. At that time, the Kim Jong Un regime came to the negotiating table without clear economic achievements, and there was a lack of notable accomplishments to present even during President Xi Jinping's visit to Pyongyang [1][4]. The situation has now reversed. EAI's assessment is that the resources secured through military-industrial cooperation with Russia are providing the regime with new negotiating cards [2]. This suggests that the stance North Korea will take in future negotiations with the US and South Korea may differ from its approach in 2019.

Key Variables Shaping Future Developments

The first variable is the trajectory of the Russia-Ukraine war. If the war ends or enters a truce phase, the demand for North Korean munitions exports and dispatched labor could plummet. In this case, as the financial resources supporting the consumption of the upper class dwindle, the North Korean economy is highly likely to revert to increasing its dependence on trade with China.

The second variable is whether there is a shift in China's policy toward North Korea. It is necessary to distinguish between the possibility that China might intentionally adjust its trade with North Korea as a check on the deepening North Korea-Russia ties, and the possibility that the decline is simply a continuation of weak demand due to its own domestic economic slowdown. At present, there is insufficient evidence to clearly separate and judge these two factors.

The third variable is whether the UN Security Council's sanctions monitoring regime will be restored. As long as the vacuum left by the Panel of Experts continues, the possibility of distorted statistics for both North Korea-China and North Korea-Russia trade will persist. The longer this vacuum is maintained, the greater the potential for a widening gap between official statistics and the actual economic situation.

The fourth variable is North Korea's internal political schedule. In light of the precedent from the COVID-19 period, the possibility that North Korean authorities may adjust the opening of trade with China on their own accord based on specific political events or domestic needs cannot be ruled out [9]. Whether the goal of increasing industrial production by 1.5 times, presented at the 8th Party Congress in January 2021, is achieved could also act as a variable putting pressure on expanding imports from China in the future [5].