"Firms under Fire: Market Liberalization, Commercial Interests, and China's Economic Statecraft toward North Korea"
Presenter: Xiaojun Li, Assistant Professor of Political Science, University of British Columbia
Abstract: Years of isolation have left North Korea economically reliant on China. Today, diplomatic efforts to contain North Korea's nuclear ambitions and avert crisis depend on China's ability and willingness to sever trade between the two nations. As an authoritarian state, the Chinese government is assumed to be able to control the pricing and quantities of imports and exports to North Korea via its state-owned enterprises (SOEs). After three decades of market reform, however, less than 20% of China's trade with North Korea is now in the hands of SOEs. The role of private firms raises the question of whether China's (un)willingness to exert leverage is affected by the political-economic interests of these firms. In this paper, we investigate this question using a unique dataset that covers the universe of every firm-level transaction of imports and exports between China and North Korea from 2000-2007. In doing so, we take an important stride forward from prior research, which has had to infer from aggregate trade data. Preliminary analysis shows that SOEs and private firms follow different logics in their trade with North Korea, with the former unfazed and the latter adjusting their trade in response to the ups and downs in the bilateral relations between the two countries. These findings cast doubt on the popular belief that China’s trade with North Korea is politically driven and will have important policy implications for the international community, especially the United States, who hopes to enlist Beijing's support to compel Kim Jong-un to give up his nuclear arsenal.
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