Too close to fail
Conventional thinking has it that South Korea will one day absorb its impoverished cousin. But if the North collapses, it could be Beijing that has more interest in propping it back up. Like bailing out a bank, doing so would require China to inject liquidity and capital in return for more accountable management in Pyongyang.
The death of the North’s leader, Kim Jong-il, on Dec. 17 leaves the country in a dire situation. Kim had more than a decade to cement control before his father, Kim Il-sung, died in 1994. His son, Kim Jong-un, was named successor less than a year ago. Crippled by six decades of Stalinist rule and international sanctions, North Korea’s population faces chronic food shortages.
South Korea has less of a vested interest than many believe. Despite a shared history and language, fewer young South Koreans identify the North as anything more than a troublesome neighbour. Those willing to pay the immense cost of reunification may be more interested in removing a nuclear menace than creating national unity.
China would be uncomfortable with a unified Korea, particularly given South Korea’s closeness to the United States. China is North Korea’s largest trading partner and shares a border that is already the preferred route for defectors. It has good reason to want Pyongyang to copy its capitalism with socialist characteristics, which partly explains Kim Jong-il’s four visits to China in the 18 months before his death.
Beijing might already be drawing up plans for a theoretical bailout. North Korea’s foreign debt is roughly estimated at six times GDP. If it failed, it would need hard currency and humanitarian aid to prevent famine and a wave of refugees. It would need low-interest loans to bolster reserves, and credit and investment to fill budget deficits.
But the biggest challenge might be working out who would run the place. The Kims and their military backers would need to go, as would their nuclear weapons. That might be the trickiest part of any North Korean rescue. For now both neighbours will be hoping that moment is a long way out.