Gao Xinli

Editor's Note:

Isolated from the rest of the world, North Korea has become increasingly dependent on trade with China. What's the history of Sino-North Korean trade? Are smuggling and grey market trades common between the two countries? Global Times (GT) reporter Li Yanjie talked with Gao Xinli (Gao), a professor of inter-national economy and trade at Eastern Liaoning University, on these issues.

GT: What's the history of the trade relationship between the PRC and North Korea?

Gao: The official cross-border trade between China and North Korea began in 1954.

In that year, China's Ministry of Foreign Trade, as it was then known, approved Sino-North Korean cross-border trade, taking into account local residents' demands for seafood.

The China National Foodstuffs Corporation, set up in 1954, signed a letter of agreement on trade with what was then the Korea Trading Corporation, stipulating that Sino-North Korean cross-border trade was limited to Yanbian, Jilin Province, and that the Chinese yuan should be used to value the goods.

At that time, China's main exports to North Korea were clothes, paper, textile pigments and other light industry products, and China imported seafood and fruit from North Korea.

From 1971 to 1981, due to the Cultural Revolution (1966-76), Sino- North Korean cross-border trade largely ceased.

It resumed in 1982 and China's State Council issued Interim Measures for the Administration of Petty Trade in the Border Areas in 1984 and other related regulations later to protect cross-border trade and provide supporting policies, such as tax remittances.

Since that, Dandong in Liaoning Province, which mainly dealt with Sino- North Korean trade at the national level in the 1950s and the 1960s, Yanbian Korean Autonomous Prefecture and Ji'an and Changbai counties in Jilin Province have grown to be China's major border trade areas with North Korea.

Since China adopted the reform and opening-up policy, the country's light industry has been developing swiftly and the commodity economy in border areas has been flourishing.

Thanks to the shortage of light industrial products in North Korea, the Sino-North Korean cross-border trade had been very lively.

The cross-border trade volume in Yanbian increased from $540,000 in 1982 to $52.08 million in 1989. In the 1980s, North Korea also used timber and rolled steel it got from the Soviet Union to exchange for food from China.

At the beginning of the 1990s, Sino- North Korean cross-border trade kept growing.

During that period, China's foreign trading companies exported food to Cuba, and imported tin from Cuba, as well as cars from the Czech Republic, all through North Korea.

I joined the Dandong Import and Export Corporation in 1988 and left in 2003.

During the time I worked there, we mainly imported coal, iron and steel scrap and iron ores from North Korea, while what North Korea wanted most was always food and light industrial products.

At that time, not just State-owned companies, but some other companies and individuals also got the qualification to conduct foreign trade. And we usually use US dollars as the pricing currency.

From 1990 to 2004, the trade volume between Dandong and North Korea increased from $15.39 million to $314 million, according to the Dandong statistics department.

There was also direct trade between people living in the border areas. This kind of trade was limited to special spots within 20 kilometers of the border.

Residents living in the area could barter commodities for daily use, but the goods each could exchange should be worth less than 3,000 yuan ($423).

In 1997, a market was built in Wonjong-ri, North Korea, just opposite Hunchun, Jilin Province.

This has benefited both peoples. But due to North Korea's control on foreign currency and shortage of goods, the market was closed in 1999.

A bus line between Dandong and Pyongyang was opened in 2004. And now passengers can carry goods of up to 25 kilograms freely.

GT: How much of North Korea's total foreign trade goes through China?

Gao: In the 1990s, after the former Soviet Union and other Eastern European countries adopted market economies, China became North Korea's biggest trade partner.

At the beginning of the 1990s, Sino-North Korean trade accounted for only 11.6 percent of North Korea's total foreign trade volume.

By mid-1990s, Sino-North Korean trade reached around 30 percent of North Korea's total foreign trade volume. But North Korea's economy went through a recession during the later half of 1990s, so Sino-North Korean trade dipped.

Since 2001, Sino-North Korean trade volume has grown quickly due to two reasons. One is the increasingly complementary nature of the trade between the two countries, as North Korea is rich in mineral resources, such as magnesite and bronze, but poor in energy, food and raw materials, while China needs a big volume of minerals to develop its growing economy and has products at competitive prices.

The other is the international community's economic sanction on North Korea. As a result North Korea has to depend on China.

By 2007, Sino-North Korean trade had reached 41.71 percent of North Korea's total foreign trade volume, according to the statistics from China's Ministry of Commerce.

GT: Last month, a case where North Korean border guards killed three Chinese caused public outrage. Is this a special case or an ordinary one? Why did it cause such a widespread public reaction?

Gao: I would say it's a special case. The relationships between the two peoples living in the border areas are generally normal and friendly.

I think due to the Cheonan incident, the North Korean border guards were very nervous and believed the four people were sneaking into North Korea, so they opened fire. In fact, many local Chinese sneak across the Yalu River to pick oysters.

Some of them are caught and were sent back to China through diplomatic channels. I doubt the current report on the case very much.

Local residents aren't taking this as a big case, but I don't know why people from other parts of China have such a strong reaction. Maybe they are unfamiliar with Dandong's social situation.

GT: What about the grey market? What's the official attitude of both countries toward it?

Gao: I don't think there is a big volume of trade that both peoples exchange goods.

If the trade volume is quite big, that's smuggling and clearly illegal. Smuggled goods, as far as I know, include cigarettes and cars from other countries brought in through North Korea, and North Korean antiques.

As for resources, they're really hard to smuggle due to the difficulty in finding Chinese buyers, plus China offers a discounted tariff on these commodities.

If the transaction value is very small, such as residents exchanging goods for daily use and food, both the Chinese and North Korean governments acquiesce in it.

GT: What is the investment environment in North Korea like?

Gao: North Korea has low credibility. Many Chinese companies have lost money when trading with them or investing in North Korea. North Korea often changes its policies.

In the short term there is a high level of risk, but in the long term Chinese companies benefit from investing there.