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Pyongyang finds few alternatives as China ties fray

Friday, January 2, 2015

Subject

The outlook for China-North Korea foreign relations.

Significance

A ceremony in Pyongyang on December 17 marked the third anniversary of the death of Kim Jong-il. Unlike on previous occasions, no Chinese delegation was invited. Official exchanges between North Korea and its sole ally have slowed to a trickle. Beijing has frozen investment in North Korean infrastructure. Chinese and North Korean state media exchange critical remarks. Frustrated with Pyongyang's snubs and its perseverance with its nuclear weapons programme, Beijing is putting more pressure on North Korea than ever before -- while Pyongyang attempts to reduce China's ability to do this and retaliates in kind.

Impacts

  • North Korea's dire track record vis-a-vis foreign investors will hamstring its attempts to drum up investor interest more widely.
  • Despite China's presumed influence, Chinese investors are far from immune to political risk.
  • Political risk has increased for Chinese investors in North Korea, but has not fallen for non-Chinese investors.
  • Russia will be offered investment opportunities in North Korea, but will accept only projects viable on purely commercial grounds.
  • Though disappointment has repeatedly followed promising signs, South Korea offers the highest-potential alternative to Chinese investment.
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