New strategic challenges have emerged in recent months that will influence China’s relations with both Koreas into the New Year.  China’s declaration of an ADIZ that overlaps South Korean jurisdictional claims and developments inside North Korea emerged in November as two priority concerns in Sino-South Korean relations, obscuring more mundane areas of progress in implementing the June 2013 Park-Xi summit statement. Meanwhile, Sino-DPRK relations appeared to suffer a setback following the Dec. 13 execution of Jang Song Thaek, raising concern about policy changes that might result. Kim Jong Un’s strategy of simultaneous nuclear and economic development remains in conflict with Beijing’s priorities, reinforcing widespread pessimism over prospects for the renewal of talks on Korean denuclearization.

New strategic challenges have emerged in recent months that will influence China’s relations with both Koreas into the New Year.  China’s declaration of an air defense identification zone (ADIZ) that overlaps South Korean jurisdictional claims and developments inside North Korea emerged in November as two priority concerns in Sino-South Korean relations, obscuring more mundane areas of progress in implementing the June 2013 Park-Xi summit statement. The ADIZ issue dominated the third China-ROK vice defense ministerial-level strategic talks in Seoul and became the centerpiece for diplomatic discussions during US Vice President Biden’s visit to China, South Korea, and Japan in early December.

Sino-DPRK relations appeared to suffer a setback following the Dec. 13 execution of Jang Song Thaek, who was vice chairman of the National Defense Commission and secretary of the Workers’ Party of Korea (WPK) Administration Department. The execution has raised concern about policy changes that might result. Pyongyang’s unpredictability and seeming internal instability have frustrated months of Chinese diplomatic efforts on resuming multilateral denuclearization talks.  Kim Jong Un’s strategy of simultaneous nuclear and economic development remains in conflict with Beijing’s priorities, reinforcing widespread pessimism over prospects for the renewal of talks on Korean denuclearization.

Chinese nuclear diplomacy, DPRK resistance, and ROK pessimism

China convened an international workshop on the 10^th anniversary of the Six-Party Talks in mid-September that featured presentations by DPRK nuclear envoy Kim Kye Gwan and PRC Foreign Minister Wang Yi.  Beijing stepped up calls for the resumption of Six-Party Talks through a series of exchanges between Wu Dawei and US counterpart Glyn Davies in Beijing and Washington from September through November, noting North Korea’s activities at its Yongbyon nuclear facility.  Following three months of intensive diplomatic consultations between Wu and US, DPRK, and ROK counterparts, DPRK envoy to the United Nations Sin Son Ho in an interview with Yonhap on Nov. 12 suggested that prospects were good for multilateral denuclearization talks.  Conversely, at an Asan Institute forum in Beijing on Nov. 14, South Korea’s former national security advisor and nuclear envoy Chun Yung-woo argued that the possibility of DPRK denuclearization is “close to zero even under the best of circumstances,” illustrating a sizable difference in perception regarding the likelihood and potential outcome of  multilateral diplomacy with North Korea.  The Obama administration has also shown skepticism over the potential for such talks in the absence of actions by North Korea regarded as necessary to provide evidence that it is prepared to change course and pursue “credible” and “authentic” denuclearization negotiations.

Without a more forthcoming attitude from North Korea, South Korea and the US have renewed their calls for decisive action by Beijing.  According to ROK Ambassador to China Kwon Young-se, “China’s constructive role is more important than ever” as “the only country that can exert its influence on North Korea.”  At a conference hosted by the Korea National Diplomatic Academy in Seoul on Nov. 14, former US Secretary of State Madeline Albright similarly stated that “the Chinese in many ways have more leverage against North Koreans.… Powers that have influence should use them in a particular time.”  Chair of China’s National People’s Congress Foreign Affairs Committee Fu Ying challenged such claims, arguing that “when parties have a particular demand, there is no use disagreeing or rejecting it.”  On the sidelines of the UN General Assembly in New York on Sept. 27, PRC Foreign Minister Wang Yi told ROK counterpart Yun Byung-se that managing the nuclear issue also requires addressing Pyongyang’s security concerns, a position that was also stated by Chairman of China’s Atomic Energy Authority Ma Xingrui at the IAEA General Conference in Vienna on Sept. 16.

China and South Korea mark air defense identification zones

Concerns over North Korea have mounted alongside new tensions in China-ROK security relations over air defense identification zones.  China’s unilateral Nov. 23 declaration occurred days after State Councilor Yang Jiechi’s Nov. 17-19 visit to South Korea, partially obscuring the establishment of a new high-level strategic dialogue channel between Beijing and Seoul.  Following up on the Xi-Park summit in June, Yang drew attention to enhanced prospects for bilateral cooperation given Beijing’s new national reform plans, an outcome of the Third Plenary Session of the 18^th Chinese Communist Party Central Committee on Nov. 9-12. President Park Geun-hye thanked Yang for China’s cooperation to build a memorial in honor of Ahn Jung-geun, a Korean patriot who assassinated then Japanese Governor-general Ito Hirobumi in 1909 in Harbin.  Although China has sought a much wider and more public joint stance with South Korea opposing Japanese Prime Minister Abe Shinzo’s approach to history or pursuit of collective self-defense, South Korea has thus far limited policy coordination against Japan to this single project.  At the same time, following ROK Air Force Chief of Staff Gen. Sung Il-hwan’s visit to Beijing on Nov. 19-21 to meet counterpart Ma Xiaotian, Defense Minister Chang Wanquan, and other military officials, both sides expressed hopes for improving the bilateral military relationship.

The Nov. 23 ADIZ declaration covering much of the East China Sea ignited strong reactions from South Korea, Japan, and the US.  South Korea’s Foreign Ministry expressed its immediate disappointment to Beijing, and South Korea immediately prepared to announce the southward expansion of its ADIZ (KADIZ).  This announcement was delayed to consult closely with the US and Japan given Vice President Joe Biden’s visit to Tokyo, Beijing, and Seoul.  When it was finally announced, the KADIZ expansion drew criticism from Chinese counterparts but was not criticized by Japan.  The expansion, the first such change since the Korean War, includes the disputed submerged rock Ieodo/Suyan located in China’s and South Korea’s overlapping exclusive economic zones (EEZs). The Chinese ADIZ announcement muted a strong South Korean response to Japan’s pursuit of collective self-defense, which South Korea and China jointly oppose.

The ADIZ issue dominated the third China-ROK strategic dialogue in Seoul on Nov. 28, led by ROK Vice Defense Minister Baek Seung-joo and Deputy Chief of the PLA General Staff Wang Guanzhong, who also held talks with Defense Minister Kim Kwan-jin during his five-day visit to South Korea.  During these consultations, South Korea reportedly requested that China revise the scope of its declared zone so as not to infringe on South Korean interests, but that request was summarily rejected.  At a defense forum in Seoul on Nov. 27, ROK Foreign Minister Yun cautioned that the ADIZ controversy would heighten nationalism among Northeast Asian neighbors and exacerbate regional territorial and historical disputes.  In response to the southward expansion of KADIZ, a Dec. 10 Xinhua editorial called the decision “grounded more on emotional impulse than on strategic thinking.”  However, the Chinese commentator also called for closer China-ROK coordination given South Korea’s role as both “a strategic cooperative partner of China and a traditional ally of the United States,” highlighting instead Japan’s “rapid slide to the right” and the “so-called rebalancing” by the US as the primary sources of Chinese concern.

Jang Song Thaek’s execution fuels concern over DPRK direction

Beijing responded to Jang Song Thaek’s ouster by calling for North Korea’s “national stability and economic development,” while referring to the incident as an “internal affair” of the DPRK.  ROK Defense Minister Kim Kwan-jin, on the other hand, drew attention to Kim Jong Un’s leadership restructuring based on National Intelligence Service (NIS) reports, issuing public warnings on a potential new round of military provocations from the North.  On Dec. 13, the Unification Ministry expressed “deep concerns” over the North’s internal political developments after emergency meetings between chief national security advisor Kim Jang-soo, defense and unification ministers, and the NIS.

In response to new threats from Pyongyang, Beijing has reasserted its firm position on denuclearization while sending clear messages opposing provocation.  A Dec. 17 Rodong Sinmun editorial on North Korea’s rise as a “full-fledged nuclear weapons state” led China’s Foreign Ministry to reaffirm its policy of denuclearization, stability, and dialogue.  Pyongyang’s threats to attack the South two days later prompted the PRC Foreign Ministry to reassert its opposition to any acts undermining peninsular stability.  Beijing has called for inter-Korean reconciliation since September, when Pyongyang withdrew its agreement on the resumption of family reunions.  Following US Assistant Secretary of State Daniel Russel’s visit to China on Sept. 13-14, the Chinese Foreign Ministry also pledged that denuclearization and stability of the Korean Peninsula serve US and Chinese common interests.  Chinese leaders extended their calls for resolving the DPRK nuclear issue at international venues in September, including the IAEA General Conference in Vienna and UN General Assembly in New York.

Recent actions from Pyongyang, however, pose a direct challenge to China’s core objectives of denuclearization, stability, and reconvening multilateral dialogue.  At an international conference in Tianjin hosted by the China Foundation for International Studies and China International Institute for Strategic Studies on Nov. 12, a senior DPRK official from the Disarmament and Peace Institute threatened a “nuclear catastrophe” against the United States, South Korea, and Japan, reiterating that “the DPRK insists on resuming the Six-Party Talks without any preconditions.”

China-DPRK economic engagement under Xi Jinping and Kim Jong Un

The Dec. 13 execution of Jang Song Thaek has created grave doubts among Chinese analysts about North Korea’s willingness to adopt the Chinese model since he had been the main face of reform and a primary interlocutor in the DPRK’s economic relationship with China.  Cheng Xiaohe of Renmin University said that “Jang has been one of China’s best friends … I perceive his downfall as a loss to the [China-DPRK] relationship.”  China’s state media on Dec. 16 conveyed hopes for continued economic engagement, quoting affirmations by a senior DPRK official of the State Economic Development Committee, Yun Yong Sok, on Pyongyang’s commitment to reform and opening “in accordance with our national conditions.”  The PRC Foreign Ministry in the immediate aftermath of Jang’s execution similarly reaffirmed China’s policy of pragmatic cooperation with the North.

Trade statistics indicate improved trade ties between China and North Korea this year despite tensions since the February nuclear test.   According to the Korea Institute for National Unification (KINU), China-DPRK trade reached $4.69 billion in January-September 2013, reflecting a 4.4 percent increase year-on-year and a notable 9.4 percent increase in DPRK exports to China, mainly in raw minerals.  In mid-October, Dandong Mayor Shi Guang announced that a new bridge and border trade facility costing 2 billion RMB ($325.8 million) will begin operations by 2014.  Launched under a bilateral agreement in early 2010, the new trade complex is projected to account for 60 percent of China-DPRK trade according to Dandong officials.  The border city also hosted the second China-DPRK Economic, Trade, Culture, and Tourism Expo on Oct. 10-14, reportedly bringing in a 500-member DPRK delegation representing more than 90 percent of the North’s foreign trade companies, and generating cooperation agreements worth $1.6 billion.

Another focal point for China-DPRK economic cooperation is the Rajin-Sonbong (Rason) free trade zone. It was included as part of Kim Jong Un’s national development strategy of creating 14 special economic zones nationwide, which was announced in October.  At a conference in Tianjin on Nov. 13, Hwang Ik Hwan of the DPRK Institute for Disarmament and Peace reported on significant progress in the joint development of Rason, where China has reportedly agreed to invest $3 billion.  Pyongyang introduced several measures this year to promote foreign investment in the zones, including a revamping of its National Economic Development Committee, creation of the independent Chosun Economic Development Federation, legal and regulatory reforms, and investment protection safeguards.  Despite the expansion in Sino-DPRK economic ties from 2009, however, Chinese analysts recognize that differences over the nuclear issue, approaches to bilateral trade and investment, and North Korea’s lack of understanding of the market economy impeded progress in 2013. Fudan University’s Shen Dingli has argued that China refuses to respond to most of North Korea’s economic demands until it shows greater restraint in its nuclear development.  Piao Dongxun of Yanbian University notes a divergence in goals for economic cooperation – North Korea is seeking investment in primarily infrastructure and industrial zones and Chinese companies are focused more on natural resources and immediate, high returns.

Prospects for China-ROK economic cooperation on North Korea

Kim Jong Un’s pursuit of both nuclear and economic development raises questions about prospects for Sino-South Korean cooperation on North Korea’s reform and opening.  First, South Korean experts point to Kim Jong Un’s SEZ initiatives and related reform measures as a major departure from policy under Kim Jong Il, whose priority on political stability in his later years cast much doubt on North Korea’s willingness to open the economy.  According to Unification Ministry officials, the solidification of Kim Jong Un’s internal power base remained a priority in 2013, but his second year in power saw an increase in economic outreach to not just traditional partners China and Russia but also ASEAN members. Some Chinese observers have drawn parallels with China in not just Pyongyang’s opening of SEZs but also the recent strengthening of sports and cultural exchanges suggestive of China’s “ping-pong diplomacy” with the United States in the early 1970s.

North Korea’s SEZ efforts may rekindle longstanding visions of a new economic bloc that would integrate the Korean Peninsula and parts of China and Russia while easing security tensions on the peninsula.  South Korea’s Nov. 13 agreement with Russia to join a $340 million Rajin-Khasan rail and port development project under President Park’s “Eurasian Initiative” was one of the major announcements at Park’s summit with President Putin that gained some traction in light of the reopening of the Rajin-Khasan rail link in September.  Jin Jingyi of Peking University argues that North Korea’s economic development through cross-border cooperation is a key to the success of Park’s policy of trust-building and peaceful unification.  The possible opening of Kaesong to foreign investment was also included in the inter-Korean agreement to reopen the zone on Sept. 16, raising debate on the prospects for cooperation with China based on common goals of reform and opening.

Others emphasize the nuclear issue, international sanctions, North Korea’s inconsistent approach to market liberalization, and past record of failed foreign investment as hurdles to economic engagement.  Most importantly, as Unification Minister Ryoo Kihl-jae stated at a Seoul forum on Nov. 20, South Korean support for North Korea’s international economic integration remains premised on Pyongyang’s “right choice” toward denuclearization.  According to KINU, there are no clear indications of Pyongyang’s channeling public resources into economic development despite its rhetoric, which has also emphasized self-reliance and the consolidation of North Korea’s status as a nuclear power.  Piao Dongxun of Yanbian University further asserts that the joint economic engagement of the North will first require Sino-South Korean agreement on common goals, principles, and approaches given the risk that Pyongyang will exploit competition between Chinese and South Korean investors.

China-ROK FTA negotiations and the regional economic order

China-ROK free trade agreement (FTA) talks have reportedly advanced to a new stage with the holding of the eighth round of negotiations in Incheon on Nov. 18-22.  The first phase of talks was completed in early September, with a tentative agreement to remove tariffs on 90 percent of items or 85 percent of the value of imports.  Although trade officials in Seoul acknowledged substantial challenges since the onset of the talks, Assistant ROK Trade Minister and lead negotiator Woo Tae-hee refers to the China-ROK FTA as the highest-level among China’s existing free trade deals, if realized.  China and South Korea also held their third round of trilateral FTA talks with Japan on Nov. 26-29 in Tokyo, marking a year since the formal launch of talks.  Despite heightened political tensions, the three sides have maintained other exchanges between foreign ministry, culture, and environment officials, although the higher-level trilateral summit has yet to resume.

China’s economic restructuring plans under Xi Jinping have forced attention on the long-term implications for the China-ROK FTA.  The Global Times on Nov. 20 warned of “fierce competition” in major export markets as China moves closer to high-end manufacturing, urging South Korea to further open its market to Chinese agricultural and textile products.  During a November visit to Seoul, China’s Vice Commerce Minister Gao Yan identified service outsourcing as a new driver of Chinese growth and key potential area for expanding Sino-South Korean trade.  On the South Korean side, the Fair Trade Commission (FTC) is pushing for Chinese reforms to prevent discrimination against Korean firms, which have complained about regulatory uncertainty as the primary challenge to foreign businesses in China. According to a Korea Chamber of Commerce and Industry (KCCI) survey on Nov. 19, increasing labor costs have further undermined the competitiveness of South Korean companies.  The slowing growth of Chinese GDP – 7.7 percent in 2012, the lowest in 13 years – is also a source of concern over a potential stagnation in ROK exports.  South Korea’s central bank policymaker Chung Soon-won projects a dampening of ROK export growth following Xi Jinping’s reforms, which emphasize domestic demand and balanced development among provinces rather than state investment and export-led growth.  Advisor to the Chinese central bank Song Guoqing, however, maintains that China’s economic growth is likely to remain dependent on investment despite Beijing’s recent plans for restructuring.  On Dec. 30, in their first meeting since Xi and Park took office,  ROK Finance Minister Hyun Oh-seok and PRC counterpart Xu Shaoshi, head of the National Development and Reform Commission, agreed to broaden bilateral cooperation on macro-economic issues and the service sector in particular.

China and South Korea reaffirmed their commitment to realization of an FTA in high-level talks on the sidelines of regional meetings in October, including between Presidents Xi and Park ahead of the 21^st APEC Economic Leaders Meeting in Bali on Oct. 7, and between Park and Premier Li Keqiang during the 16^th ASEAN+3 Summit and 8^th East Asia Summit in Brunei on Oct. 10.  Both sides’ participation in the ASEAN-centered Regional Comprehensive Economic Partnership talks has continued amid rising speculation over the possibility that South Korea will join the US-led Trans-Pacific Partnership (TPP), especially since ROK Finance Minister Hyun’s Nov. 29 Wall Street Journal interview expressing Seoul’s interest in joining. A significant factor enabling South Korea to move forward has been a shift in China’s attitude toward the TPP from skepticism to possible interest in joining the multilateral trade regime.  A Ministry of Trade, Industry and Energy report on Nov. 15 projected that South Korea’s TPP entry would raise economic growth by up to 2.6 percent within 10 years after implementation.

China-ROK strategic cooperative partnership under the June 2013 Xi-Park agreement

China and South Korea are moving forward in implementing the June 2013 Xi-Park joint statement, in particular the expansion of dialogue mechanisms to enhance political trust and coordination.  To this end, the two foreign and defense ministries launched a working-level bilateral dialogue on regional and international security issues in Beijing on Dec. 24. ROK National Assembly Speaker Kang Chang-hee visited China on Dec. 4-7, holding talks with President Xi and top Chinese legislator Zhang Dejiang.  Vice Foreign Ministers Liu Zhenmin and Kim Kyou-hyun on Nov. 19 established a new joint committee on academic, youth, sports, and media exchanges tasked with promoting non-governmental and people-to-people exchanges, after which the ROK Foreign Ministry on Dec. 24 released Seoul’s proposal on new academic and youth programs with China for 2014.  PRC and ROK culture ministries also signed a memorandum of understanding on Nov. 15 on strengthening cooperation on marketing cultural products abroad, and launched a new forum between cultural content industry experts.  Beijing and Seoul celebrated their 20^th anniversary of sister city ties in October, for which Beijing Vice Mayor Yang Xiaochao led a 300-member delegation to Seoul.

On the other hand, South Korea’s Justice Ministry from Nov. 11 tightened its screening of Chinese cruise ship tourists amid concerns over the rising number of illegal immigrants entering South Korea through Seoul’s visa-free system introduced in May.  The number of Chinese cruise tourists visiting South Korea has almost tripled since 2012, while the total number of Chinese visitors to South Korea reached 3 million in January-September this year.  Two ongoing areas of political friction are EEZ-related fishing disputes and the handling of North Korean refugees.  A clash between two Chinese fishing boats suspected of illegal fishing and the ROK Coast Guard on Oct. 7 led to a series of consultations by the PRC Foreign Ministry and Consulate General in Kwangju.  On Nov. 18, a DPRK human rights group reported that Chinese authorities in Kunming, Yunnan, had arrested a dozen North Korean refugees, another incident requiring Seoul’s diplomatic intervention according to Unification Ministry officials.  China (as well as Russia, Cuba, Iran, and Venezuela) did not endorse the UN’s 9^th annual resolution on DPRK human rights violations adopted on Nov. 19.  South Korea’s Foreign Ministry has referred to the EU and Japanese-led resolution as an indication of growing international consensus on the North Korean human rights issue.

Conclusion: prospects for 2014

The domestic and foreign policy priorities of Xi Jinping, Park Geun-hye, and Kim Jong Un present a mix of challenges and opportunities.  Kim’s current strategy of simultaneous nuclear and economic development directly undermines Sino-South Korean goals of denuclearization and stability on the peninsula, and reinforces the current deadlock in multilateral talks.  Underlying Kim’s recent pledges to build a “prosperous socialist country” is a continued commitment to the DPRK’s military-first policy rather than to market-oriented reforms.  Kim’s first public appearance since Jang Song Thaek’s execution according to the state media was a visit to a military institute, where he reasserted the WPK’s goal of building “Songun Korea.”  His pursuit of nuclear and economic development has raised doubts even in China, where Cao Shigong of the Chinese Association of Asia-Pacific Studies appears to represent a growing consensus that “North Korea must give up its nuclear ambition in order to enhance economic development.”  Meanwhile, South Korean figures such as former Foreign Minister Han Sung-joo continue to push China further to “make a decision as to whether it wishes to tolerate North Korea” regarding its nuclear ambitions.

The logical consequence of North Korean nuclear recalcitrance and open evidence of internal divisions may be a deepening convergence of aims among the US, South Korea, and China, but there remains a stark difference over preferred outcomes.  Moreover, to the extent that Kim’s decision to execute his own uncle further diminishes perceptions of North Korea’s legitimacy, China’s support for North Korea will have higher international political costs in at least two areas.  First, China’s policy justification that North Korean refugees are economic migrants can no longer stand:  if Kim Jong Un’s uncle can be executed for political crimes, what North Korean traveling in China does not risk political retribution upon return to his homeland?  Second, as North Korea’s internal political divisions become more apparent, the ability of the PRC to legitimize economic or political intervention into North Korea’s internal affairs becomes more remote.  As a result, China’s policy toward the North is increasingly paralyzed and its remaining strategic options will play out in the context of the China-South Korea relationship.

While the CPC seeks to loosen the state’s grip over the economy, the creation of a new National Security Commission was another outcome of the November Plenary Session that is expected to strengthen President Xi’s power over international security affairs.  Foreign Minister Wang Yi identified Korean Peninsula denuclearization and territorial issues as the two most important regional concerns among Beijing’s diplomatic priorities for 2014, which included three areas: major power relations, regional relations, and trade.  Although the recent ADIZ controversy exposed Sino-South Korean strategic differences, it also revealed that China’s regional concerns remain heavily focused on Japanese policy and the US response; on this issue, China continues to seek convergence with South Korea.  While Park Geun-hye’s trust-building initiative has drawn Chinese support, domestic criticism has emerged in South Korea over the extent to which Park’s policy has reverted to a hardline policy consistent with the previous Lee Myung-bak administration.  Finally, on the economic front, tensions appear to have been reduced, as progress in Sino-ROK FTA negotiations and South Korea’s membership in the TPP are no longer perceived as diametrically opposed strategic and economic choices.