Dandong and Sinuiju: The Sino-North Korean Border Shadow Economy

Abstract

There has been a sharp divergence in the economic performance of China and North Korea since the Deng Xiaoping government introduced its first economic reforms in 1978. This divergence became accentuated following the final collapse of the Communist bloc in the early 1990s. China has enjoyed decades of uninterrupted high growth, surpassing Japan to officially become the world’s second largest economy in 2010. In contrast, North Korea’s economy has barely grown in size since Soviet economic support ended in 1991 and China stopped subsidized trade in 1994. China is the largest exporter in the world, the second largest importer and an increasingly large recipient and source of FDI. The government has embarked in a process of financial liberalization bound to attract increasing portfolio investment to three of the largest stock exchanges in the world by volume — Hong Kong, Shanghai and Shenzhen. Meanwhile, North Korea’s annual trade volume is matched by China’s in a few hours, with the two countries’ FDI flows being similarly skewed. There is no hint of financial liberalization in North Korea, one of the few remaining countries in East Asia with no stock exchange.