[Global NK Special Report] ③ The Structural Vulnerabilities Behind the Recent Recovery of the North Korean Economy and Policy Implications

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Chapter 1. Introduction

1.1. Background and Problem Statement of the Study

Recently, the North Korean economy has shown a recovery that exceeds expectations. The Bank of Korea estimated that North Korea's real GDP experienced a stepwise decline during the period from 2017 to 2022 due to the intensification of sanctions and the COVID-19 border closures, but rebounded with positive growth of 3.1% in 2023 and 3.7% in 2024. The North Korean authorities themselves have also expressed confidence in their economic performance. At the 13th Plenary Meeting of the 8th Central Committee of the Workers' Party held at the end of 2025, they showcased the completion of the "Five-Year National Economic Development Plan (2021-2025)" and the recent achievements of local development policies, followed by the presentation of a challenging industrial goal to achieve 1.5 times the industrial production value over the next five years at the 9th Party Congress held in February 2026 (Rodong Sinmun, December 12, 2025; February 26, 2026).

Two main drivers are at play behind this recovery. First, the resumption of trade with China following the lifting of COVID-19 quarantine measures. Starting in the second half of 2022, imports have nearly recovered to pre-COVID-19 levels, and exports have reached their highest levels since the intensification of sanctions, thanks to the expansion of processing trade and non-sanctioned mineral exports. In a situation where existing main export products are prohibited by UN Security Council resolutions, processed human hair products, watches, tungsten, and molybdenum have emerged as alternative export items. Second, the war special circumstances resulting from the Russia-Ukraine conflict that broke out in 2022. North Korea's supply of conventional military materials such as shells and ballistic missiles to Russia has improved the supply conditions for essential goods such as food and refined oil, and military cooperation is gradually expanding into the economic sector (Kim Gyu-cheol & Nam Jin-wook, 2025; Park Yong-han, 2025).

However, underlying these recovery indicators are inherent structural vulnerabilities. The key driving force behind the economic recovery is an excessive dependence on a single market, namely China, and a temporary demand due to war. In particular, while exports are quantitatively increasing, the concentration on a few sectors driven by short-term demand from China and Russia raises doubts about the sustainability of the current recovery. Therefore, this study aims to critically examine the recovery of the North Korean economy in light of recent favorable changes in the external environment through a structural analysis of North Korea's foreign trade, and to assess whether North Korea can achieve long-term economic growth led by trade. Furthermore, based on the analysis results, the study seeks to provide insights into the structural limitations and potential for change in current North Korean economic policies.

1.2. Scope and Structure of the Study

This report sheds light on the current state of the North Korean economy through an analysis of the qualitative level of its trade structure. By comprehensively considering not only simple trade volume statistics but also the qualitative advancement of exports, the diversification level of trading partners, and changes in price competitiveness and bargaining power, the study aims to determine whether the current economic recovery is a short-term rebound or an entry into a structural growth path.

To this end, the report unfolds the discussion in the following order. Chapter 2 examines how Kim Jong-un's economic policies shifted around the time of the failed Hanoi North-U.S. summit in 2019. By contrasting the limited opening and decentralization policies of the early years of his rule with the self-reliance and re-centralization trends following the Hanoi failure, the chapter lays the groundwork for understanding the current policy context of the North Korean economy. Chapter 3 evaluates the quantitative growth and qualitative level of trade with China through three indicators: export item diversity, export industry advancement, and relative prices, while also reviewing the significance and structural limitations of the expanded economic cooperation with Russia. Finally, Chapter 4 comprehensively assesses the sustainability of the current strategy and forecasts future changes in North Korea centered on four key variables that could promote policy changes, providing policy recommendations based on this analysis.

Chapter 2. Trends in North Korea's Economic Policy: Directional Shift Before and After 2019

2.1. Market Acceptance and Limited Opening Policies in the Early Years of Kim Jong-un's Rule

From the early years of his rule (2012-2016), Kim Jong-un adopted a dual-track policy of simultaneously pursuing economic development and nuclear weapons development, taking a practical approach that significantly embraced market mechanisms internally. The economic policies of this period were characterized by limited reforms and openings centered on decentralization and the introduction of incentives internally, and external joint ventures and foreign investment attraction. This represented a step forward from the economic management methods of his predecessor Kim Jong-il, as it was an attempt to officially recognize and utilize the reality of marketization that had spontaneously spread within North Korea (Lee Seok-ki et al., 2018; Hong Je-hwan & Kim Seok-jin, 2021).

In the industrial sector, the introduction of the "Socialist Enterprise Responsibility Management System" granted enterprises management autonomy and profit-seeking incentives, allowing them to establish part of their production and sales plans independently. This effectively permitted an independent accounting system at the enterprise level, representing a compromise aimed at increasing micro-level efficiency while maintaining the framework of a centrally planned economy. In the agricultural sector, the implementation of the "Farm Responsibility Management System" (household responsibility system) divided existing production teams into small working groups of 3-5 households, transitioning to a structure where excess national purchase quotas could be distributed within those working groups, thereby inducing an increase in agricultural productivity. While this measure does not reach the level of China's late 1970s agricultural reform, it bears structural similarities in that it introduced individual cultivation incentives while maintaining the collective farm system. In the external economic sector, numerous "Economic Development Zones" were newly designated in addition to existing special economic zones such as Rason and Hwanggumphyong-Wihwa Island to attract foreign investment (Yang Mun-soo et al., 2015). However, there were no active institutional improvements related to foreign investment, and since 2016, the international community's sanctions against North Korea have gradually intensified, resulting in a lack of substantial achievements.

Another characteristic of the external economic policy during this period was the relative diversification of trading partners. Although dependence on China was increasing, inter-Korean cooperation projects maintained a foothold through the Kaesong Industrial Complex, and the possibility of cooperation with other neighboring countries was not completely blocked. However, this diversified structure gradually collapsed due to the successive adoption of UN Security Council resolutions in response to nuclear tests and missile provocations. Following the high-intensity sanctions phase of 2016-2017, North Korea's external economic relations effectively converged into a single channel with China.

2.2. After the Failed Hanoi Summit in 2019: Strengthening Self-Reliance and Central Control

The failure of the Hanoi North-U.S. summit in February 2019 marked a significant turning point in North Korea's economic policy. During this summit, North Korea proposed the dismantling of the Yongbyon nuclear facility in exchange for a significant easing of five core sectors of UN Security Council sanctions, including coal exports, but the U.S. rejected this, leading to the collapse of negotiations. The reality recognized by the North Korean leadership through this collapse was that it would be difficult to expect a quick improvement in external relations to ease sanctions. Consequently, North Korea shifted its strategic focus to "self-reliance" and "frontline breakthrough," aiming to create its own economic breakthrough under the conditions of continued sanctions rather than waiting for improvements in the external environment (Cho Tae-hyung et al., 2022).

This shift involved a regression from the decentralization trend of the early years of his rule to a re-strengthening of central control in internal economic policy. In the enterprise management sector, the revision of the "Enterprise Law" in 2020 strengthened the central management and supervision functions and reduced the scope of independent management for enterprises (Yang Mun-soo, 2023). This choice stemmed from the judgment that the autonomous profit-seeking actions of enterprises, which arose from market diffusion, weakened the control of central planning, prioritizing controllability over efficiency. In the external trade sector, the revision of the Trade Law in January 2022 restored and strengthened the "State Monopoly Trade System," limiting trade entities to those designated by the state, revealing an intention to suppress informal and personal trade once again (Yonhap News, 2022). In the commercial distribution sector, a unified commercial management system was emphasized, and the state-run commercial network was expanded, with attempts made in 2023 to unify grain transactions through the Grain Management Office. In the financial sector, regulations on the use of foreign currency and currency exchange were strengthened to suppress dollarization.

A clear transition is also evident in the external strategy. Strengthening economic and military cooperation with authoritarian states (China, Russia) has emerged as a core axis of the strategy, while relations with South Korea have been effectively blocked. Following Kim Jong-un's designation of inter-Korean relations as a "hostile relationship between two states" at the 9th Plenary Meeting of the 8th Central Committee of the Workers' Party in December 2023, he announced a revised constitution in March 2026 that established territorial provisions and removed unification, thereby initiating the process of abolishing the discourse on unification (Oh Kyung-seop, 2026). Furthermore, the changes in the international order, such as the Russia-Ukraine war and U.S.-China hegemonic competition, have been actively recognized as strategic opportunities to utilize the "new Cold War" framework. As fissures emerge in the free trade system and the global value chain structure is restructured, North Korea is seeking a new role as a supplier within the authoritarian bloc.

The background to North Korea's worsening relations with South Korea is also influenced by cold economic calculations. The potential benefits that North Korea could gain from relations with South Korea include profits from cooperation projects, international aid, and the facilitation of attracting foreign investment. However, these remain elusive under the current sanctions environment. In contrast, the costs of relations with South Korea include the infiltration of South Korean culture and the spread of residents' admiration for South Korean society due to economic disparities, which leads to a relaxation of social control, occurring even in the absence of special exchanges. As evidenced by the enactment of the "Anti-Reactionary Thought and Culture Exclusion Law" in 2020 and the strengthening of penalties, the North Korean authorities are acutely aware of the threat posed by the influx of external culture and information to regime stability. In other words, while the benefits of improving relations with South Korea are uncertain, the costs are clear, which is judged to be the fundamental reason why North Korea seeks to strengthen ties with authoritarian states while excluding relations with South Korea.

Chapter 3. Structural Limitations of Dependence on Trade with China: Quantitative Recovery and Qualitative Decline

3.1. Trends of Quantitative Recovery in Trade with China and Characteristics of Export Structure

Since the second half of 2022, North Korea's trade with China has shown a rapid recovery. Imports have nearly returned to pre-COVID-19 levels, and exports have reached their highest levels since the intensification of sanctions. This resumption of trade is attributed to the release of pent-up demand during the lockdown period and the expansion of processing production lines that began operating after reopening. However, examining the composition of export items reveals that it has maintained a form that is essentially similar to that before the sanctions.

Existing main export products such as minerals (coal, iron ore), clothing, and seafood are prohibited by UN Security Council resolutions, while non-sanctioned minerals such as processed human hair products (wigs, eyelashes), watches, tungsten, and molybdenum have taken their place. North Korea's export structure has been entrenched since the late 2000s, already concentrated on a few processing products and mineral products. Although the quantitative scale of exports has expanded, diversification in the composition of items has not occurred, and this structure has persisted even after the existing main export products were completely blocked due to the intensification of sanctions. Even in the recent recovery phase, the increase in exports has been concentrated on specific items, and the dependence on a single market, with exports to China consistently exceeding 90% of total exports, has deepened.

The historical context in which this structure was formed is also important. During the rapid growth of China in the late 2000s, the demand for coal, steel, and construction surged, leading to an explosive increase in demand for North Korean coal, while international coal prices rose 2-3 times, resulting in substantial foreign exchange earnings for North Korea. Simultaneously, as labor costs in China rose, North Korea, capable of low-wage production, took on the subcontracting role for Chinese companies in processing trade, further activating processing exports. In this process, while North Korea's exports grew significantly in quantity, the specialization deepened in a way that depended on China's demand structure, failing to achieve diversification and advancement of the export base.

3.2. Evaluation of the Qualitative Level of Exports: Three Indicators

For export-led economic growth to be sustainable, qualitative improvement must accompany quantitative growth. Existing trade literature has revealed that qualitative factors of exports, such as diversification of traded items, advancement of export item composition, and relative prices, are related to the economic growth and productivity of exporting countries (Hummels and Klenow, 2005; Hausmann et al., 2007; Feenstra and Kee, 2008; Schott, 2004). In successful export-led economic growth cases such as South Korea, Vietnam, and China, which can serve as benchmarks for North Korea's future economic growth, simultaneous occurrences of quantitative growth in exports, item diversification, movement up the value chain, and improvement in trade conditions have been observed. Below, the qualitative level of North Korean exports will be evaluated in these three dimensions.

3.2.1. Diversity of Export Items

The export diversity indicator measures how widely the types of export items are distributed, i.e., whether external expansion (Extensive Margin of Trade) is taking place. The more concentrated a country's exports are on a few items, the more vulnerable it becomes to changes in demand or price shocks in specific markets, while a diversified export structure increases resilience to external shocks. Theoretically, as an economy develops, the diversity of export items increases, and upon reaching a certain income level, a reverse U-shaped pattern emerges where it re-concentrates on high-value-added items (Imbs and Wacziarg, 2003; Cadot et al., 2011).

According to recent research that decomposed the long-term trend of North Korea-China trade into external expansion (Extensive margin)-relative price (P)-quantity (Q) (Lee, 2026), the diversity indicator of export items during the period of rapid growth in North Korea's exports from the late 2000s to the mid-2010s remained stagnant or even declined. This sharply contrasts with the steady diversification achieved by comparison countries such as Vietnam, Myanmar, and Cambodia during the same period. In particular, Vietnam rapidly established an export base centered on light industry following the Doi Moi reforms in the 1990s, continuously increasing its export diversity index, and subsequently expanding into medium-high technology items such as electronics and machinery parts, leading to export advancement. In contrast, North Korea's exports have become concentrated according to specific demand items from China, structurally blocking the very expansion of item diversity. This is not merely a statistical phenomenon but demonstrates that the China-dependent export structure operates as a mechanism that suppresses economic diversity.

Figure 1. International Comparison of the Level of External Expansion in North Korean Exports

Source: Author's calculations based on the methodology of Lee (2026) and UN Comtrade data.

Since the sequential lifting of COVID-19 border closures in 2022, North Korea's exports to China have also shown signs of recovery, but this recovery phase indicates that most of the increase in exports to China is due to internal growth. In other words, even in the recovery process after trade with China was severely impacted by sanctions and COVID-19, the increase in exports has not been evenly distributed across various items but rather concentrated on a few items.

Note: This table decomposes North Korea's growth rate of exports to China by the expansion of item diversity (extensive margin) and internal growth (intensive margin), with each value representing the average annual growth rate. All values indicate North Korea's excess growth rate compared to the growth rate of each item in China's total imports, i.e., from all countries' exports to China.

Source: Lee, Jong-min, 2026. Decomposing North Korea’s trade with China and revisiting the effects of sanctions. Asia and the Global Economy. 6, 100143. p. 6.

3.2.2. Advancement of Export Industries: Revealed Factor Intensity (RFI)

Revealed Factor Intensity (RFI) is an indicator that measures the qualitative level of North Korea's export structure by weighting the levels of physical and human capital inputs required for each export item (Shirotori et al., 2010). Specifically, the average capital input level of countries that globally export each item is defined as the revealed factor intensity of that item, and this is weighted according to North Korea's export item composition to derive the overall factor intensity of North Korean exports. A higher value of this indicator indicates a structure that requires high levels of human and physical capital, while a lower value indicates a structure that does not require special technology and capital.

Analysis applying this indicator to North Korean exports shows that the levels of physical and human capital inputs in North Korean exports have recorded a long-term decline since the 2000s, with this decline being particularly concentrated in the late 2000s when the proportion of exports to China surged (Kim Gyu-cheol, 2018). In contrast, this phenomenon is not observed in exports to countries other than China. This strongly suggests that the China-dependent export structure itself functions as a mechanism that induces qualitative deterioration.

The mechanism of this decline can be understood as follows. As dependence on exports to China deepened, North Korea's exports became specialized in simple and repetitive labor and the utilization of underground resources, such as coal, iron ore, and processing trade. Since the demand for these low-tech items from China has been continuously maintained, North Korea is structurally blocked from investing in the development of technology-intensive export products. In other words, while the China-dependent structure provides stable export revenues in the short term, it possesses the characteristics of a 'low-technology trap' that hinders technological advancement in the long term.

Source: Author's calculations based on the methodology of Kim Gyu-cheol (2018) and UN Comtrade data.

3.2.3. Advancement of Export Industries: Export Sophistication Index

The Export Sophistication Index is an indicator that estimates how similar a country's export item composition is to that of high-income countries. The logic behind this index calculation is as follows. By weighting the income levels of countries that concentrate on exporting specific items, one can estimate the 'productivity level' embedded in those items, and applying this to each country's export composition allows for the expression of how sophisticated and high-value-added a country's exports are as a single index. This approach is based on the calculation method of the 'EXPY index' developed by Hausmann et al. (2007), which is grounded in the theoretical assumption that export structure reflects economic complexity.

The analysis results indicate that North Korea's export sophistication index fluctuated in the early to mid-2000s but shifted to a downward trend after the late 2000s. Considering that it is generally common for this index to rise naturally with GDP growth in most countries, the decline in North Korea's sophistication index is an unusual phenomenon. Furthermore, this indicates that North Korea's export structure is gradually approaching the export patterns of low-income countries rather than high-income countries (Jung, 2024). It is theoretically paradoxical for the sophistication index to decline as exports from developing countries grow, suggesting that in North Korea's case, the increase in exports is accompanied by a regression towards simple labor and resource-intensive items rather than an improvement in economic complexity.

Figure 3. International Comparison of the Level of Sophistication in North Korean Exports

Source: Author's calculations based on the methodology of Jung (2024) and UN Comtrade data.

3.2.4. Relative Prices of Exports to China

The relative price index compares the unit price of North Korean exports of specific items to the unit prices that China pays for similar items imported from other countries. The closer this index is to 1, the closer the quality and price competitiveness of North Korean export items are to the global average, while a value below 1 indicates inferior quality or unfavorable trade conditions. This index serves as a tool to indirectly measure the implicit quality of export items and their price negotiation power through the relative level of export unit prices.

The analysis results show that North Korea's relative price index for exports to China began to decline sharply from the early 2000s, coinciding with the onset of trade conflicts with Japan, and subsequently stabilized at an average level of 60-70%. This indicates that North Korean export items are supplied at prices 30-40% lower than similar products from other countries, reflecting a decline in quality or structural deterioration in trade conditions. Further declines were observed during the mid-2010s, coinciding with the closure of the Kaesong Industrial Complex and the intensification of sanctions against North Korea.

Figure 4. Trend of North Korea's Relative Price Index for Exports to China

Source: Author's calculations based on the methodology of Lee (2026) and data from the Korea International Trade Association (KITA).

The key reason for this decline in relative prices is the formation of a monopsony structure. Following the trade disruptions with Japan in the early 2000s and the trade disruptions with South Korea in the mid-2010s (closure of the Kaesong Industrial Complex and intensification of sanctions), China has emerged as the de facto sole buyer of North Korean export items. In a monopsony structure where a single buyer monopolizes the market, sellers lose price negotiation power and are placed in a structurally disadvantaged position where they must accept the prices offered by the buyer or forgo the transaction altogether. In North Korea's case, lacking alternative export markets, it has no choice but to accept the low prices offered by China, which has resulted in the continuous decline in relative prices. This indicates a structural problem where even if sanctions against North Korea are eased in the future, improving trade conditions will be difficult without diversification of trading partners.

In summary, the three indicators collectively show that while North Korea's exports have grown significantly in quantity since the late 2000s, qualitative indicators have stagnated or regressed. The diversity of export items has not expanded, the factor intensity and export sophistication index have declined, and export unit prices have stabilized at a 30-40% discount level. All three phenomena stem from a single structural cause: deepening dependence on China. Considering previous studies that have identified a strong positive correlation between the qualitative advancement of exports and long-term economic growth, as long as the current structure of dependence on trade with China persists, the potential for North Korea's economic development is likely to be structurally constrained.

3.3. Expansion of Economic Cooperation with Russia: Opportunities and Structural Limitations

3.3.1. Background and Economic Significance of North-Russia Military and Economic Closeness

Since Russia's invasion of Ukraine in February 2022, the North-Russia relationship has expanded beyond military closeness to economic cooperation. This cooperation is based on the alignment of North Korea's strategic interests with Russia's need to sustain its war efforts, and it is assessed as an unprecedented level of closeness in North-Russia relations since the Cold War. For North Korea, it presents an opportunity to convert its conventional weapons production capabilities into economic resources despite its economic difficulties, while for Russia, it provides a realistic source to replenish ammunition and weapons depleted by Western sanctions.

Specifically, regarding the scale and content of military cooperation, it is reported that North Korea has been supplying Russia with hundreds of thousands of 155mm shells and conventional ballistic missiles annually since 2023, with the monetary value estimated to range from several billion to over ten billion dollars (Park Yong-han, 2025; Lim Soo-ho, 2026). In October 2024, the deployment of North Korean troops to Russia was officially confirmed, with approximately 15,000 troops reportedly deployed in two batches (Ha Chae-rim, 2025). This indicates that the cooperation has deepened significantly by providing not only weapons but also human assets in the form of troops. In return, Russia is providing food, refined oil, air defense technology, and anti-aircraft missiles, and the transfer of military technology is also gradually expanding.

Source: Harvard Growth Lab, Atlas of Economic Complexity. (Cited in: Jung and Lee, 2024)

In terms of economic implications, Russia is a major supplier of essential goods that North Korea needs. Russia is the world's largest exporter of wheat and the second-largest exporter of crude oil, refined oil, nitrogen fertilizer, and potassium fertilizer, possessing the potential to supply the energy, food, and agricultural inputs that North Korea desperately requires (Jung and Lee, 2024). North Korea's calculation is to enhance the stability of its strategic material supply and demand by moving away from its dependence on China and utilizing Russia as a complementary supply channel. Furthermore, workers dispatched to Russia are known to earn higher incomes than those sent to China, and it is estimated that thousands are currently working there, with additional dispatches occurring after 2024. Labor dispatch not only serves as a means of foreign currency acquisition for North Korea but also has the ancillary effect of exposing its workforce to Russian technology and management know-how.

3.3.2. Structural Limitations of North Korea-Russia Economic Cooperation (Jung and Lee, 2024)

However, North Korea-Russia economic cooperation faces structural limitations on multiple levels. The most fundamental constraint is the lack of economic complementarity in terms of general trade. While Russia can supply goods that North Korea needs (food, energy, fertilizer), the civilian goods that North Korea can export to Russia are extremely limited. In the mineral sector, Russia itself is one of the world's largest resource exporters, leading to overlapping comparative advantages and making North Korean minerals uncompetitive in the Russian market. For light industrial products, the long transportation distances to Siberia and the Russian Far East result in excessive logistics costs and significantly reduced price competitiveness. Consequently, general trade between North Korea and Russia is structurally constrained, making it difficult to generate balanced mutual benefits.

The feasibility of infrastructure development projects in the Far East, such as transportation and logistics, also carries significant uncertainty. Infrastructure cooperation, including the connection of the Hassan-Rason railway and the development of Rason Port, presupposes potential for material and human exchange. However, clear pathways for Russia to invest capital in the North Korean economy and recoup substantial profits are not evident. Russia's fundamental interest lies in trilateral South-North-Russia connections, including gas pipelines, power grids, and railways (TSR-TKR connection) traversing the Korean Peninsula. These are conditional projects that cannot be realized without improved inter-Korean relations and South Korean participation, presenting a fundamental constraint.

Labor dispatch for post-war reconstruction is the most promising area of cooperation in the short term, but it carries inherent risks for both parties. For North Korea, as the scale and duration of dispatch increase, it faces the dilemma of losing control over its workforce, as laborers who experience the outside world could become a factor pressuring regime stability upon their return. For Russia, upon the cessation of the war, it may seek to improve relations with Western countries, potentially facing diplomatic pressure to cease employing North Korean laborers, which would violate UN Security Council resolutions. In essence, the economic benefits of North Korea-Russia cooperation are heavily dependent on the temporary condition of the ongoing war, and there are fundamental limitations to its development into a sustainable structural and long-term economic partnership after the war ends.

Economic cooperation with Russia is positively contributing to the North Korean economy in terms of short-term foreign currency revenue and supply of goods, and it also has the effect of partially mitigating excessive dependence on China. However, considering the structural insufficiency of economic complementarity between the two countries, geopolitical risks, and the dependence on the temporary condition of war, it is unlikely that cooperation with Russia can develop to a level that replaces dependence on China or becomes an independent driver of long-term growth.

Chapter 4. Accumulation of Economic Contradictions and Inflection Point Scenarios

4.1. Assessment of the Sustainability of Current Strategies

North Korea's current economic strategy centers on three pillars: export expansion based on trade with China, improved supply of goods through military and economic cooperation with Russia, and maintaining regime stability through internal centralization. This strategy has yielded short-term economic recovery gains. However, an analysis of its trade structure suggests that this strategy harbors vulnerabilities that make it difficult to drive long-term economic growth.

The three qualitative trade indicators examined in this paper collectively indicate that North Korea's export structure is trapped in a structural pitfall of low value-added, low technology, and single-market dependence. In terms of export product diversity, unlike competitor nations, there has been no outward expansion. The factor intensity and export sophistication indices show a long-term declining trend, and relative prices have become fixed at a 30-40% discount, perpetuating a structural disadvantage in bargaining power. This strongly suggests that even if sanctions on North Korea are partially eased in the future, the path of sustained economic growth through trade will not automatically open without an improvement in the qualitative structure of exports.

Furthermore, the fact that cooperation with Russia is heavily dependent on the temporary condition of war, and that economic cooperation with Russia is unlikely to develop into a level of cooperation that structurally replaces dependence on China, further exacerbates the limitations of the current strategy. In other words, both external economic drivers on which North Korea currently relies (trade with China, cooperation with Russia) face distinct limitations.

The problem is that, given the nature of the North Korean regime, the accumulation of these economic contradictions does not necessarily lead to policy shifts. Authoritarian political systems do not always translate economic difficulties into policy changes; rather, North Korea has repeatedly shown a pattern of responding to increased external pressure by further strengthening its self-reliance drive under the guise of internal cohesion. Nevertheless, variables that could promote policy change, either internally or due to rapid changes in the external environment, clearly exist. It is strategically important to recognize these variables in advance and prepare for them.

4.2. Key Variables Promoting Change

Analysis of Key Variables for North Korea's Change Scenarios

The first variable is the end of the Russia-Ukraine war. The current war-driven benefits North Korea is enjoying are only valid as long as the war continues. If the war ends, the most significant driver of North Korea-Russia economic cooperation, namely Russia's demand for military supplies and labor, will sharply decline. In the aftermath, as Russia seeks to mend relations with the West, it is highly likely to face international pressure to cease employing North Korean laborers and supplying goods that violate UN resolutions. In this scenario, North Korea could face significantly increased economic pressure by losing both its foreign currency income and its key supply channels for essential goods secured through cooperation with Russia. Paradoxically, this economic pressure could serve as a catalyst for North Korea to reconsider its current diplomatic trajectory.

The second variable is the change in North Korea's position within China's global strategy. Currently, China values North Korea as a strategic buffer zone on the Korean Peninsula in the context of US-China hegemony competition and maintains its relationship with Pyongyang accordingly. However, this strategic value is not immutable. If China adjusts its diplomatic course towards re-establishing relations with the United States or participating in multilateral consultations for Korean Peninsula stabilization, the rationale for supporting North Korea could weaken. Furthermore, if China's own economic structural transformation accelerates, leading to reduced demand for North Korea's low-tech processing products and raw materials, the current export base with China itself could be shaken. Changes in China's strategic calculations thus represent a variable that could undermine the most crucial external support base for the North Korean economy.

The third variable is livelihood instability caused by soaring market prices. While recentralization and strengthened foreign currency controls may enhance state control in the short term, they create side effects such as supply shortages and price instability in the markets that serve as the residents' livelihoods. In a situation where residents' price expectations and livelihood strategies have shifted to rely on markets through the organic spread of market economic experiences since the 2010s, price surges and restrictions on foreign currency use directly translate into a decline in real living standards. Although the North Korean authorities are focusing their political efforts on pacifying public discontent stemming from economic problems through hostile rhetoric towards the outside world and politics of fear, if residents' dissatisfaction exceeds a critical point, it cannot be ruled out that this could become a driver of political change.

The fourth variable is the advent of the AI era and the weakening of North Korea's national competitiveness. The rapid advancement of artificial intelligence (AI) and automation technologies is fundamentally transforming the global productivity paradigm. In this process, North Korea's industrial competitiveness, lagging behind the wave of technological innovation, is at risk of structural weakening. In particular, low-wage processing trade, a key export driver for the North Korean economy, is likely to lose its competitiveness due to the spread of AI and automation. As Chinese companies increase investment in automation equipment domestically, demand for North Korea's low-wage labor will inevitably decrease. This is a structural risk that erodes even the current export base in the medium to long term and clearly reveals the limitations of an open strategy without technological innovation. The risk of falling behind in AI-related technological competition is particularly noteworthy, not only because it hinders economic development but also because its impact is likely to extend to the political and military spheres.

If any one of these four variables, or a combination of multiple variables acting as a complex shock, materializes, there is a possibility that the sustainability of North Korea's current self-reliance path could be fractured. Of course, the adaptability and resilience of the North Korean regime should not be underestimated. However, it is important to recognize that at the point when these variables come into play, the possibility of external involvement may open up, and to maintain policy flexibility and preparedness accordingly. ■

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■ Lee, Jong-min_Professor, Department of National Security and Strategy, National Defense University.

■ Responsible for and Edited by: Lee, Sang-jun_EAI Research Fellow
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