North Korea Economy Shows Surprising Strength

On Saturday, the Bank of Korea, the South Korean central bank, reported that last year North Korea’s gross domestic product grew 3.9 percent. That is the highest growth rate since 1999.

The 3.9 percent figure was, for most observers, unexpected. In the previous half decade, the North managed only an average of about one percent growth. It appears, therefore, that last year the regime managed to break out of a long period of stagnation.

The surprisingly strong result will lead some to suspect the Bank of Korea’s figure. Observers, however, have relied on the bank’s estimates since the early 1990s because Pyongyang stopped reporting data in the 1960s after the regime began to fail to meet its publicly announced development goals. The bank’s estimates have their obvious limitations because of the opaqueness of the North Korean system, but they show trends.

Before the Bank of Korea’s announcement Saturday, observers were already arguing about how well the North’s economy was performing. That debate will continue, but it does appear that some level of economic stability and development has been achieved by Pyongyang. And, that will enable Kim Jong Un, the North’s dictator, to claim that he has made good on his byungjin promise to simultaneously develop the civilian economy and a fearsome arsenal.

The regime seems eager to make the point that new construction projects illustrate improving economic conditions. In April, a government tour for foreign journalists through the Ryomyong Street Project, a residential development in Pyongyang, was billed by officials as a “big and important” event.  

The military also has benefitted nicely in these times of improved economic conditions, as demonstrated by the accelerated pace of weapons development this year—12 tests of 18 missiles so far. Although, the country remains poor by global standards, the North seems to have enough cash to build ballistic missiles and nukes.

And that brings us back to the economy. To engineer the uptick, Kim has had outside help. As Dong Yong-Sueng of the Samsung Economic Research Institute has said “Without foreign exchange, the economy would stop functioning.”

The North Korean economy is still functioning—and parts of it look like they are doing well—so we should ask where the cash is coming from. This is not rocket science. The answer is the People’s Republic of China. Through state institutions and private channels, China looks like it provides substantially more than half of the regime’s foreign currency.

Last year, the Korea Trade-Investment Promotion Agency, a South Korean government-funded organization, reported that China accounted for more than 92 percent of the North’s trade. The North’s two-way trade last year was up 4.7 percent.

Much of North Korea’s “imports” are, in reality, Chinese aid, particularly crude oil. China sells some oil to the North, but most of it is thought to be provided on concessionary terms.

And all this means that sanctions on North Korea are not nearly strict enough or that those sanctions are not being enforced, most likely both.

The Bank of Korea’s surprisingly strong estimate of the North’s 2016 GDP more than anything highlights the failure of the US and the international community to deny Kim Jong Un the resources to continue his horrific regime and build weapons of mass destruction.

The House of Representatives has adopted new sanctions, and the matter is now before the Senate. Senate passage is likely.

That’s a good move, and North Korea’s robust growth’s last year is a sure sign that time is of the essence. Pyongyang and Beijing have outfoxed the international community for too long.

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