In North Korea, Coronavirus hurts like no sanctions could
By Choe Sang-Hun
On New Year’s Day, North Korea’s leader, Kim Jong Un, called for a “frontal breakthrough to foil the enemies’ sanctions.” The strategy meant finding new sources of income, legal or illegal, and mainly from China.
Sending North Korean workers to China. Bringing more tourists from there. Smuggling banned cargo, like coal or oil, across the border at night or between ships on high seas.
But there was one thing Kim did not foresee: the coronavirus.
Barely three weeks after Kim unveiled his New Year’s resolution, North Korea shut down its border with China to protect itself against the emerging outbreak in the city of Wuhan. It was no ordinary border closure.
China accounted for 95% of the North’s trade. Consumer goods, raw materials, fuel and machine parts smuggled into the North across their 870-mile border kept North Korean markets and factories sputtering along, despite United Nations sanctions designed to curb the Kim regime’s nuclear ambitions.
With the border sealed, the North’s official exports to China, already hobbled by the sanctions, have crashed even further. In March, they were worth just $610,000, according to Chinese customs data — down 96% from a year earlier. The North’s newly opened ski and spa resorts are empty of Chinese tourists, and its smuggling ships sit idle in their ports.
The virus has isolated the North Korean economy as no sanctions could. It has devastated the regime’s ability to bring in money through legal and illegal trade, leaving it scrambling to protect the country’s diminishing foreign currency reserves.
“To North Korea, COVID-19 is a black swan. None of its policymakers saw it coming,” said Go Myong-Hyun, an analyst at the Asan Institute for Policy Studies in Seoul, South Korea.
North Korea claims it has had no coronavirus cases. But it was one of the first countries to shut its border, aware that its woefully underequipped public health system made it particularly vulnerable to mass infection.
The pandemic could hardly have come at a worse time for Kim, whose attempts to win sanctions relief in talks with President Donald Trump have been fruitless. North Korea’s recent acts of hostility toward South Korea, including the destruction of the inter-Korean liaison office in the North, have been seen in part as acts of economic desperation.
“If you peel North Korea’s problem like an onion, at the core is its economy, and its economic trouble comes down to whether it can lift sanctions,” said Kim Yong-hyun, a professor of North Korean studies at Dongguk University in Seoul.
The North Korean economy has languished for decades, hobbled by communist mismanagement, a famine in the late 1990s and the gradually tougher sanctions imposed by the U.N. since 2006, when the North carried out its first nuclear test.
Kim has tried to boost the economy with domestic reforms aimed at creating a “socialist system of responsible business operation.” Factories and collective farms were given more incentives to increase productivity, including the right to keep surpluses.
Kim also ramped up exports of coal, iron ore, textiles and seafood to China, achieving economic growth of 3.9% in 2016, the highest since the late 1990s, according to South Korea’s central bank.
But the North also rapidly expanded its weapons programs, testing three intercontinental ballistic missiles in 2017 as well as what it said was a hydrogen bomb. In response, the U.N.
Security Council tightened the noose around the North’s economy by banning all of its major exports.
The economy shrank by 3.5% in 2017. It contracted by 4.1% the following year, with its exports to China plummeting 86%.
Since 2017, North Korea has reported a trade deficit of more than $2 billion every year. In comparison, the North’s total exports last year were $260 million.
“The clock is ticking, and the bomb could explode any time,” Kim Byung-yeon, a Seoul National University economist, wrote in December, predicting that the North’s foreign currency reserves would shrink by $1 billion a year, leading inexorably to a crisis.
North Korea has tried to replenish its coffers with revenues from illegal smuggling and cybertheft as well as “loyalty donations” from what are known as donju — tradespeople with political connections who have hoarded foreign currency obtained through smuggling and other enterprises.
Kim’s government also runs shops in Pyongyang, the capital, where the moneyed class spends foreign currency on imported goods. And it has profited by selling Chinese smartphones to an estimated 6 million cellphone subscribers in the country.
“The debate has been about how quickly or slowly the North’s foreign currency would diminish,” Go said. “But there is no doubt now that COVID-19 has accelerated the speed.”
Recently, signs have emerged of growing stress on the North’s economy, especially its foreign currency reserves.
The government recently issued public bonds for the first time in 17 years, reported Daily NK, a Seoul-based website that uses informants inside the North. Kim tested the elites’ loyalty by asking them to buy bonds with foreign currency, it said.
Authorities have also cracked down harder on the use of foreign currency in markets in an effort to shore up the won, the local currency, said Jiro Ishimaru, a chief editor at Asia Press International in Japan, who has monitored the North Korean economy for years with the help of correspondents there.
To save on foreign currency, Kim has encouraged his people to produce more goods at home, like snacks, cosmetics and beverages. But COVID-19 has hit those sectors as well because they depended on Chinese raw materials to produce the goods.
“Kim Jong Un thought he could survive with tourism revenues, smuggling and Chinese help, but his plans have crumbled because of the coronavirus,” Ishimaru said. “If the virus has taught him anything, it is how dependent his economy is on China.”