Building on the first Xi-Kim summit held in March, Kim Jong Un visited China twice on May 7-8 and June 19-20 for talks with President Xi Jinping, before and after the Trump-Kim summit on June 12.  The Xi-Kim meetings affirmed Pyongyang’s commitments to peninsular peace and denuclearization embodied in the April 27 Panmunjom Declaration, but also raised South Korean uncertainties over China’s role and intentions.  Although North Korea took its first step toward denuclearization by destroying its Punggye-ri atomic bomb test site, skeptics questioned the significance of the move.  Beijing and Seoul forged a favorable environment for regional security cooperation by resuming working-level defense talks. Trilateral talks with Japan also resumed after a three-year deadlock.  Despite indications of improving economic and cultural ties, the China-ROK security relationship remains constrained by strategic differences regarding implementation of the peace and denuclearization process.

The revival of a Sino-North Korean special relationship?

While the climactic event of the year thus far was undoubtedly the June 12 Singapore summit between Donald Trump and Kim Jong Un, China’s rapid revival of its traditional role as North Korea’s staunchest supporter may prove to be the more strategically significant development. Following their first meeting in over six years since the two took their respective positions as leaders, Xi and Kim met on May 7-8 in Dalian, following the April 27 inter-Korean summit and again on June 19-20 in Beijing following the Singapore summit.  These two meetings signified the reinvigoration of Sino-North Korean relations and underscored the necessity of respecting China’s interests in and role vis-à-vis the Korean Peninsula despite the rush toward an historic Singapore summit between Trump and Kim.  The Trump-Kim meeting could not have taken place without Xi’s willingness to lend Kim an Air China 747 airplane for his trip from Pyongyang to Singapore.

Xinhua reported that PRC Foreign Minister Wang Yi visited Pyongyang on May 2-3, less than a week after the April 27 inter-Korean summit at Panmunjom, as part of China’s efforts to “strengthen communication . . . with North Korea and continue to play a positive role in seeking a political solution to the Korean peninsula issue.” Wang’s conversations with his counterpart Ri Yong Ho and other members of the North Korean leadership provided support for Kim Jong Un’s visit the following week to Dalian for his second meeting with Xi in the space of 40 days.

The Dalian meeting projected an image of consolidation of the Xi-Kim relationship in preparation for the Trump-Kim meeting.  Chinese reports quoted Kim as reiterating North Korea’s longstanding position that “As long as relevant parties abolish their hostile policies and remove security threats against the DPRK, there is no need for the DPRK to be a nuclear state and denuclearization can be realized.” But Kim was also quoted as referring to “phased and synchronous measures” to “eventually achieve” a formal peace treaty, suggesting a process more drawn out than US officials were hoping for.

Chinese media coverage of the Dalian meeting featured a walk on the beach by the two leaders.  Xinhua reported that Xi emphasized the restoration of “traditional friendship” as fellow socialist countries, underscored the “irreplaceably significant” role of high-level exchanges to the development of strategic communication, mutual trust, and the safeguarding of common interests, and pledged to strengthen people-to-people exchanges between the two countries:  “China is willing to continue to work with all relevant parties and play an active role in comprehensively advancing the process of peaceful resolution of the peninsula issue through dialogue, and realizing long-term peace and stability in the region.”

Xi Jinping holds talks with Kim Jong Un in Dalian, northeast China’s Liaoning Province, on May 7-8. Photo: Xinhua

But the main message of the Dalian meeting, especially following the Panmunjom Declaration referencing a peace treaty among three or four parties, was that Beijing would not be excluded from any process designed to pave the way for new political arrangements on the peninsula. Xi emphasized the geostrategic importance of renewed China-North Korea ties more than he emphasized denuclearization.  The change in tone surrounding the Dalian summit did not escape the notice of President Trump, who complained about a change in attitude by the North Koreans after the summit during his May 20 White House meeting with President Moon Jae-in to discuss preparations for Trump’s June 12 summit with Kim in Singapore.

China proved to be the biggest winner of the Singapore summit in the eyes of many international observers. Trump and Kim adopted a peace and denuclearization agreement framed by a de facto dual suspension of North Korean tests and US-ROK joint military exercises similar to proposals that China had promoted for months. Trump also provided public assurance that China would be included in the formal replacement of the armistice with a Korean peace treaty.

Following the Singapore summit, Kim returned to Beijing on June 19-20 for a “candid and in-depth exchange of views” with President Xi. Xinhua reported that the two leaders “agreed to safeguard, consolidate and develop China-DPRK relations, and jointly push forward the sound momentum of peace and stability of the Korean Peninsula to make a positive contribution to safeguarding world and regional peace, stability, prosperity, and development.” But there was scarcely a mention of denuclearization. The next step in the consolidation of Sino-North Korean strategic ties involves the high-level representation of China by third-ranking Li Zhanshi, who is expected to attend the 70^th anniversary celebration of the DPRK’s founding in Pyongyang in September, after Xi pulled back from what would have been the first visit by a Chinese leader to North Korea in over a decade.

Shifting Sino-North Korean Economic relationship

Following reports that China-North Korea trade dropped by as much as 90 percent in the first quarter of 2018, the spring summitry provided a basis for a dramatic recovery in bilateral economic relations.  This should help North Korea respond to the apparent economic distress reflected in the Bank of Korea report of an economic contraction of North Korean GDP by 3.5 percent in 2017, following a 3.9 percent expansion the previous year. China-North Korea trade data for the first half of 2018 show a 59 percent decline in value to 7 million RMB and a 10-month consecutive decline in Chinese imports from North Korea since 2017.

While China remains officially committed to enforcement of UN Security Council sanctions resolutions, a shift in attitude was apparent after the Singapore summit as the PRC immediately advocated for easing of sanctions and worked with Russia to oppose US efforts to tighten petroleum sanctions against the North.  A North Korean economic delegation led by Pak Thae Song, a close aide to Kim Jong Un, visited Xian in May and Air Koryo has reportedly expanded service to include a Xian-Pyongyang route from July.

On the China-North Korea border, anecdotal reports following the Singapore summit suggested that the severity of Chinese Customs inspections at the Dandong-Sinuiju crossing had eased greatly and that strict x-ray inspections of each item had given way to selective scans, that punishments for smuggling restricted goods had eased, and that enforcement of Customs violations had relaxed significantly.  In addition, Chinese authorities expanded availability of air and rail routes between China and North Korea and expanded availability of Chinese tour packages to North Korea in measures that would greatly boost foreign exchange flows into North Korea.  Finally, China appears to have relaxed restrictions on the flow of North Korean labor into China, enhancing opportunities for North Korea to expand foreign currency earnings. A renewed China-North Korea strategic relationship has opened the door to expanded consultations between senior North Korean economic officials and Chinese counterparts. All these signs suggest that while the US continues to emphasize the need for international enforcement of sanctions against North Korea pending tangible steps toward denuclearization, China has effectively reopened a back door to China-North Korea trade and has eased the unprecedented pressure that accompanied strict Chinese enforcement of sanctions at the start of 2018.

China-ROK coordination on North Korea

A week after issuing the Panmunjom Declaration with Kim Jong-un on April 27, President Moon telephoned Xi Jinping on May 4 to secure China’s cooperation on two priorities: establishing a peace treaty to formally end the Korean War, and “complete denuclearization.”  Moon, Premier Li Keqiang, and Prime Minister Abe Shinzo supplemented their trilateral Joint Declaration on May 9 with a special joint statement supporting the outcome of the inter-Korean summit and signaling positive expectations for the US-DPRK summit.  In bilateral talks with Li, Moon praised China’s role in facilitating inter-Korean reconciliation.  The Chinese Foreign Ministry continued to back Pyongyang’s engagement with Seoul and Washington as the two Korean leaders met again on May 27 to reaffirm commitments amid fears that Trump might cancel his June 12 summit with Kim.

The Blue House claimed that the Xi-Kim summit in June “moved the denuclearization process a step further,” and urged China to play a “positive role.”  Seoul’s support for China-DPRK engagement, however, masks enduring concerns about China’s willingness to pressure Pyongyang toward complete denuclearization, and its long-term strategy on the peninsula.  Such concerns surfaced after Xi and Kim’s surprise talks in Dalian in May, when the PRC Foreign Ministry dismissed Trump’s claim that Xi “could be influencing” Kim Jong Un’s hostile response to US-ROK military exercises and preconditions for denuclearization.

The issue of reaching a political agreement ending the Korean War was raised during talks between PRC and ROK nuclear envoys Kong Xuanyou and Lee Do-hoon in Beijing on Aug. 6.  Although Lee expressed optimism over a “convergence of views on Korean Peninsula issues,” the meeting provided no indication of whether the inter-Korean peace process will proceed trilaterally with the United States or also involve China’s participation.  In recent exchanges with visiting South Korean lawmakers, China has emphasized the importance of China’s role in concluding a peace treaty.

While Beijing has emphasized inter-Korean and US-DPRK engagement as preconditions for achieving permanent peace, South Korea and the US continue to seek substantive progress on denuclearization.  Skeptics dismissed Pyongyang’s dismantling of its Punggye-ri test site on May 24 for having limited impact on its nuclear program.  Presidents Trump and Xi in telephone talks on May 8 agreed to maintain sanctions on the North “until it permanently dismantles its nuclear and missile programs,” but on the sidelines of ASEAN meetings in Singapore on Aug. 3, Foreign Ministers Wang Yi and Kang Kyung-wha did not elaborate on implementation of international sanctions.  The Voice of America in July raised suspicion over China’s role in the illegal shipment of North Korean coal to South Korea via Russia in October 2017 through Panama and Sierra Leone-registered ships, a violation of UN Resolution 2371 adopted last August.

China-ROK security: THAAD, territorial frictions, and history

China has also sought to reestablish strategic communication with South Korea to recover from the damage caused by the Terminal High-Altitude Area Defense (THAAD) impasse.  South Korean media reported in July the secret visit of Yang Jiechi, a senior member of the Political Bureau of the Central Committee of the Communist Party of China, for discussions with South Korean National Security Advisor Chung Eui-yong on steps to remove unofficial sanctions imposed on Korean companies in retaliation for South Korea’s deployment of THAAD, among other issues.

China-ROK coordination on North Korea has been accompanied by the resumption of bilateral security exchanges that were put on hold more than two years ago.  Hu Changming, head of the Central Military Commission Office for International Military Cooperation, and Yeo Suk-joo, ROK counterpart at the Ministry of National Defense, led defense talks in Seoul on May 7, the first since the suspension of such exchanges in January 2016.  Despite their normalization agreement in October 2017 and recent regional coordination on peninsula security, THAAD remains unresolved between Beijing and Seoul.  In talks with Foreign Minister Kang in Singapore in August, Foreign Minister Wang renewed China’s calls for a “complete resolution” on the THAAD issue.

Efforts by Beijing and Seoul to move forward in addressing exclusive economic zone (EEZ) encroachments have also produced mixed results.  Fisheries authorities agreed in August to resume joint inspections of illegal fishing in the Yellow Sea from October.  Following fatal clashes between the ROK Coast Guard and Chinese fishermen in September 2016, the number of South Korean crackdowns on illegal Chinese fishing fell below the annual average of 400-500 last year, according to South Korea’s Ministry of Oceans and Fisheries.  At the regional level, Chinese and ROK coast guard officials participated in joint maritime security exercises led by the North Pacific Coast Guard Forum (including China, South Korea, United States, Japan, Russia, and Canada) on June 7 in waters off South Korea’s coastal city of Busan.  The fourth round of EEZ talks between China and South Korea’s foreign ministries in Gyeongju on July 5-6, however, did not make any concrete progress on the demarcation of maritime boundaries.  In addition to continued clashes at sea, the entry of Chinese military planes into the Korean air defense identification zone (KADIZ) remains a point of South Korean concern.  Renewed bilateral defense talks in May did not address incursions that occurred on Jan. 29, Feb. 27, and April 28. The ROK Joint Chiefs of Staff reported another incident on July 27.  On Aug. 29, the ROK Defense Ministry called in the defense attaché at the PRC Embassy after the ROK Air Force countered a Chinese military plane that entered the KADIZ.

South Korean Foreign Minister Kang Kyung-wha  holds talks with her Chinese counterpart Wang Yi in Singapore on Aug. 3, 2018. Photo: Yonhap

One area of tangible progress is history cooperation.  South Korea’s Defense Ministry in May highlighted the March 28 repatriation of the remains of Chinese soldiers killed in the Korean War as a foundation for promoting defense cooperation.  South Korea’s Wan Island municipality in August announced plans to invest 2 billion won ($1.7 million) to rebuild a shrine honoring two Ming Dynasty Chinese admirals who fought Japanese invaders alongside Korea’s national war hero Yi Sun-shin, which local officials hope will also attract Chinese tourists.  In his address at Peking University last December, President Moon stressed Chinese and South Korean cultural ties by telling Chinese students that Adm. Chen Lin’s descendants live in South Korea, reiterating Xi’s similar anecdote during his visit to Seoul National University in July 2014.

Revival of China-South Korea commerce and tourism

China-South Korea economic cooperation since the THAAD deployment remains centered on expanding the scope of the bilateral free trade agreement (FTA) to the service and investment sectors, and creating a favorable investment environment for each other’s businesses.  Both issues were prioritized in talks between PRC Commerce Minister Zhong Shan and ROK counterpart Kim Hyun-chong in Beijing on June 27, and Finance ministers Liu Kun and Kim Dong-yeon on the sidelines of G20 meetings in Buenos Aires on July 23.  The ROK Finance Ministry has further sought to promote South Korean business participation in regional infrastructure projects through the Asian Infrastructure and Investment Bank (AIIB), as raised during bilateral meetings with AIIB executives, including Bank President Jin Liqun in Mumbai on June 25-26.

Recent trends in trade, investment, and financial cooperation suggest a continued revival of commercial ties since President Moon’s state visit to Beijing in December. According to the Ministry of Agriculture, Food and Rural Affairs, South Korean exports of agricultural products and food to China jumped by 87 percent on-year in May to $98 million amid improved diplomatic relations and consumer attitudes.  China replaced the US in the first half of 2018 as the biggest market for Samsung Electronics, accounting for more than 30 percent of the tech giant’s total sales.  After declining by 61 percent in 2016-2017 to $810 million, Chinese investment in South Korea appeared to regain momentum with Seoul’s active campaign to promote partnerships in advanced industrial sectors.  ROK Minister of Trade, Industry and Energy Paik Un-gyu’s June 5 meeting with Chinese investors from high-tech industries produced investment pledges totaling $500 million in such sectors as semiconductors and renewable energy.  Under the Xi-Moon agreements reached in December, China’s National Energy Administration and the ROK Trade Ministry launched working-level consultations in May focused on renewable energy cooperation.  In the financial sector, the state-owned Industrial and Commercial Bank of China (ICBC) and Korea Development Bank (KDB) on May 16 signed a liquidity swap agreement establishing a reciprocal funding line of $200 million, following talks between ICBC President Gu Shu and KDB CEO Lee Dong-gull in Beijing last December on the sidelines of the Xi-Moon summit.

Such indications of recovery, however, confront longer-term challenges arising from China’s economic reforms.  A Bank of Korea report in August pointed to a 15 percent decline in South Korean exports to China between 2013 and 2016 despite GDP growth in both countries, citing the effects of Beijing’s industrial restructuring on a consumer-driven economy.  Since the implementation of the China-ROK FTA three years ago, China’s priority interests have shifted increasingly from manufacturing to services: in 2016, China was the world’s biggest services market, worth $5.6 trillion.  Although bilateral trade in services grew four times faster than global services trade from 1998-2016 (from $2.7 billion to $36.7 billion according to the ROK Trade Ministry), South Korea’s exports to China remain concentrated in intermediate and capital goods.  Prospects for advancing cooperation in services and high-tech investment will depend on the success of China’s economic restructuring under Xi.

Immediate signs of recovery are evident in the tourism sector with the lifting of travel restrictions that crippled the South Korean tourism industry from 2016.  According to the Korea Tourism Organization (KTO), the number of Chinese visitors increased by 61 percent in April and drove an overall increase in the number of foreign visitors to South Korea.  China’s Ministry of Culture and Tourism approved the resumption of package tours to South Korea by Wuhan and Chongqing in May, unleashing marketing efforts by South Korea’s Ministry of Culture, Sports and Tourism.  The KTO led Seoul’s first official promotional event since China’s group travel ban, through a series of exhibitions in Guangzhou, Beijing, and Shenyang in late June engaging tourism agencies and local government partners.  Similarly, the Ministry of Health and Welfare announced plans to launch a new center in Shanghai in September to promote medical tourism. Meanwhile, Chinese tourists to South Korea, who account for more than 30 percent of total foreigners visiting the country for medical purposes, declined by 22 percent in 2017.

Regional dimensions of China-ROK trade

The China-ROK-Japan summit in May was a major opportunity for business interest groups to advocate further economic integration through a trilateral FTA and the Regional Comprehensive Economic Partnership.  Leaders of the China Council for the Promotion of International Trade, Korea Chamber of Commerce and Industry, and Japan Business Federation released a joint statement on May 9 on the sidelines of the summit highlighting mutual interests in energy, infrastructure, and high-end sectors.  China’s Minister of Industry and Information Technology Miao Wei, ROK Minister of Information and Communication Technology Yoo Young-min, and Japan’s Minister for Internal Affairs and Communications Noda Seiko resumed trilateral talks on information technology cooperation, the first such meeting since 2011.

The resumption of China-ROK-Japan high-level engagement contrasted sharply with rising uncertainties over US protectionism and its regional repercussions.  As Beijing and Washington exchanged tariff threats in July, South Korea’s Trade Ministry warned against the potential costs of escalating trade tensions between China and the US, its two biggest trade partners, to South Korea’s export sectors.  Based on estimates by the Korea Institute for Industrial Economics and Trade, a full-blown US-China trade war could cut South Korea’s exports to China and the US by 0.19 percent and 0.09 percent, respectively, from 2017 levels, undermining exports of intermediary products like memory chips, chemical products, and auto parts in particular.  LG Electronics is one case demonstrating the costs of tariffs for foreign investors in the US: the US government’s refusal to exempt Chinese parts needed for a new solar module factory has threatened LG’s plans to build a $28 million production line in Alabama.  The Korea International Trade Association projects that mutual US-China tariffs could reduce South Korea’s GDP by 0.018 percent over a year, making South Korea the most affected country after Taiwan.  As North Korea’s Rodong Sinmun, the Workers Party of Korea’s official mouthpiece, cautioned on Aug. 31, the costs of US-China trade retaliation have even spilled over into the security domain.  In addition to uncertainty over Pyongyang’s progress on denuclearization, Trump attacked China’s trade actions as a source of diplomatic strain after Washington canceled Secretary of State Mike Pompeo’s planned visit to Pyongyang.

Conclusion: China’s multiple roles on the Peninsula

China has played several critical on- and off-stage roles in the unfolding North Korean nuclear drama.  As a US supporting partner, China imposed crippling sanctions on trade with North Korea in the first quarter of the year, sending a clear message to the North Korean leadership that its prosperity is at risk if it continues to provoke.  In response to the announcement of the Singapore summit, China revived its role as a strategic ally of North Korea by reestablishing top-level contacts between Xi Jinping and Kim Jong Un with the aim of restoring historic Sino-North Korean geostrategic relations. China was also a principal beneficiary of North Korean efforts to persuade President Trump to cancel US-ROK joint military exercises and declare an end to conflict on the Korean Peninsula.  It further benefited from the framing of the Singapore summit to include the parallel objectives of peace and denuclearization that China had formally advocated.  Additionally, there is a fourth role that China could play but has not yet embraced: that of spoiler in blocking denuclearization by prioritizing geopolitics and using the Korean conflict to maximize its influence at the expense of the US.

In his assessment of the third Xi-Kim summit in June, ROK Ambassador to China Noh Young-min noted favorable trends in China-Korea relations, including Seoul and Beijing’s coordination on North Korea, and the revival of China-ROK economic and cultural exchanges.  China’s multiple and shifting approaches to security on the Peninsula, however, challenge regional efforts to coordinate steps toward peace and denuclearization in line with the April inter-Korean Declaration. Although the decision to lay aside THAAD has facilitated the revival of economic interactions, renewed debate on the peninsula’s future has amplified unresolved differences between China and South Korea on core security issues. The revival of China’s traditional geopolitical relationship with Pyongyang may generate further complications for Seoul in two related ways.  First, China’s influence over North Korea as its key strategic ally may relieve pressure on North Korea to denuclearize, a prospect that is likely to interact negatively with a potential breakdown in the US-China partnership.  Second, China’s reorientation toward the North may generate competition for economic influence as President Moon pursues his vision of a revitalized inter-Korean economic relationship, reliant on a tangible commitment by North Korea to denuclearization.