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North feels the pain of sanctions, says report

Jan 31,2018
Global sanctions are expected to take a toll on the North Korean economy, particularly since China has been more strict, which could lead to political unrest, according to a South Korean state-run think tank.

Pressure from global sanctions is being felt in businesses closely connected to North Korea, particularly businesses that involve daily necessities, according to experts quoted in a report by the Korea Development Institute.

Kim Byung-yeon, a Seoul National University economics professor, said North Korea’s exports to China last year were believed to have shrunk 37 percent. On this data point alone, North Korea’s economy may have shrunk 1.8 percent last year.

“If trade has fallen 37 percent, it is likely that [local] market transactions have also shrunk and therefore it could be worse than a 2 percent decline,” Kim was quoted as saying in the report.

The situation could worsen this year as there’s a possibility that North Korea’s exports could see a drop of more than 90 percent compared to 2016, when its economy saw the greatest growth rate in 17 years, 3.9 percent.

A businessman using the pseudonym Choi Hae-jin was quoted in the report as saying last year the global sanctions were particularly effective with the Chinese government more actively participating.

“The items that have been sanctioned have become more specific,” Choi said, “and the items that are under sanctions are directly connected to daily lives such as textiles and fishery goods.”

The businessman said the attitudes of Chinese custom agents were much tougher and Chinese and South Korean businesses indirectly connected to North Korea have been feeling the changes.

“Textiles have felt a huge impact. By value natural resources and marine goods are larger, but the textile business is directly connected to jobs and the livelihood of North Korean workers. Also these businesses by their very nature are small, and involve many different companies.”

Another South Korean witness, given the pseudonym, Baek Doo-won, was quoted in the report as saying the Chinese government has been pulling private Chinese companies out of North Korea’s Rajin special economic zone, which was established in 1991.

Kim Suk-jin, a researcher at the Korea Institute for National Unification, said if the sanctions against North Korea continue for a long period, it could lead to political instability.

“While there is a need to adhere to the UN Security Council decisions, there is also the need to push forward with exchanges between the two Koreas within a range of possibility [that do not violates the sanctions] in order to create an atmosphere for dialogue.”

Taking a contrary view, Zang Hyoung-soo, an economics and finance professor at Hanyang University, said the economic impact wouldn’t be as large as many presume as has been shown from North Korea’s imports of Chinese goods.

“The overall impact of the sanctions is likely to be felt by the North Korean economy in the second half,” said Zang. “But the level of impact will likely be determined by the decisions of North Korean authorities.”

He said that despite a significant drop in exports in 2017, North Korean has continued to bring in imports as planned.


BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]