North Korea’s De-risking Strategy and Its Implications

The Democratic People’s Republic of Korea (DPRK or North Korea) has been closing several of its embassies in 2023, reducing the total number of its diplomatic missions to 46.[1] One frequently cited reason is the country’s “dire economy.” However, economic problems have persisted for a long time and are therefore not sufficient to explain the recent series of embassy closures. Instead, they are an indicator of Pyongyang’s long-term strategy of de-risking: a shift from managing risk to avoiding it.[2]

The geopolitical return to a “new Cold War,” catalyzed by the Russian invasion of Ukraine, forms the backdrop for this strategy. The North Korean leadership seems to have adjusted its risk-benefit analysis to the new geopolitical environment. Changes in economic and foreign policy, which had been actively made or passively permitted since the mid-1990s, have been re-evaluated, with the COVID-19 pandemic being a unique, low-key opportunity to undo many of these changes. The membership in a new and firm alliance with Moscow and Beijing helps to offset the economic and political costs of the return to a conservative state-centered economic policy and international isolationism.

This article will discuss the following issues:

• What are these risks from the perspective of the North Korean leadership?
• Why has Pyongyang ever taken these risks?
• Why is it now reconsidering these risks?
• What are the implications of this new strategy?

De-risking What?

The North Korean leadership has taken many risks in the past decades. Even though it has done so half-heartedly and reluctantly, it permitted a marketization of the domestic economy, an expansion of foreign trade, and more active external relations.

The role of markets and of quasi-private economic activity has been substantially strengthened, special economic zones have been established, nongovernmental organizations (NGOs) have been allowed to operate in North Korea, and diplomatic relations have been intensified or newly established.

Admittedly, none of this went as far as similar developments in other state socialist countries, such as China or Vietnam. Neither the US nor Japan ever established diplomatic relations with the DPRK. Some risk reduction happened because of external action, for example, when NGOs left North Korea because of unacceptable restrictions on their operations.[3] The economy remained under tight state control, the Workers’ Party of Korea (WPK) did not give up its power monopoly, collective leadership was not introduced, religious freedom could still only be found in the constitution, and heavy domestic travel restrictions remained in place.

Nevertheless, a new middle class emerged, entrepreneurship developed, individualism became more pronounced, and companies like Air Koryo and Korea Kumgang Group (KKG) started looking like North Korean versions of South Korean conglomerates (chaebol). Ideologically, a weakening of the isolation of North Korea and its citizens from the rest of the world could be observed. In general terms, a limited transfer of power from the state to individuals occurred.

Internationally, North Korea exposed itself to the risks of intensified interaction with its adversaries. This includes economic dependency through trade, with the annual volume growing to over 7 billion USD in 2013. In line with the tightening of sanctions due to the developing nuclear weapons program, this dependency has changed from being multilateral to being unilaterally focused on China, with over 96 percent of North Korea’s trade in 2022 being with the big neighbor.[4] To illustrate the huge transition that has taken place in the last two decades, it is noteworthy that in 2001, the main recipient of North Korean exports had been Japan.

Last but not least, North Korea has a regime that prefers to be enigmatic and closely guards against information leaking to the outside world. From that perspective, high-level defections pose a substantial risk. Prominent cases in the past decade include Thae Yong Ho, former DPRK deputy ambassador to the United Kingdom, who left in 2016, and Jo Song Gil, former acting ambassador to Italy, who reportedly defected in 2018. Apart from the reputational damage, such high-ranking insiders are a rare and valuable source of information about the status of the North Korean regime, which has otherwise been very successful in defending against the collection of human intelligence.[5] A growing number of citizens traveling or staying abroad increased the risk of exposing North Koreans to external information and subsequent defections, to potential attempts by hostile intelligence services to recruit them as sources, or to other forms of intelligence leaks.[6]

Why Take These Risks?

The North Korean leadership can be assumed to act rationally, at least from their own perspective. Risks will, therefore, only be taken if there is no other option or if the expected benefits are higher than the perceived costs. In that sense, there are at least two narratives concerning the causes of these risky measures. Spontaneous grassroots changes might have happened as a result of individual survival strategies due to the disastrous economic conditions since the mid-1990s, leading Pyongyang to passively accept them ex-post. A different narrative would assign more agency especially to the new North Korean leadership under Kim Jong Il since 1994, who had experimented with economic reforms since the early 1980s.[7] Both narratives imply an alignment of policy with reality—which, to use North Korean terms, closely reminds us of the “creative principle” of the state ideology of self-reliance (juche). As Kim Jong Il put it in January 2001, if the environment changes, policies must change, too.[8]

The environment for North Korea had indeed changed dramatically since the 1980s, reaching a major final accord in 1991 with the dissolution of the Soviet Union. Since its foundation, the DPRK had been part of a larger camp, usually called the socialist or Eastern bloc. Bilateral relations within this group were often less than harmonious, but the alliance as such existed and worked despite sharp ideological differences and nationalist egoisms. China did intervene to support North Korea during the Korean War, the Soviet Union and its allies did rebuild North Korea in the 1950s, and trade with socialist countries did take place under very favorable conditions, including barter trade, long-term loans and low, so-called friendship prices.

The end of the socialist bloc meant the end of North Korea’s place in that alliance and of the benefits it had been able to reap. Almost overnight, North Korea lost its key military ally, nuclear umbrella and main economic partner. Russia and the former socialist satellite states were only ready to keep trading with North Korea at world market prices and in hard currency. The leadership in Pyongyang was either not willing or not able to adjust its foreign trade regime to the new conditions. One of the consequences was a sudden drop in the imports of oil, and thus also in the availability of fuel, fertilizer and other crucial inputs for North Korea’s agriculture.[9] The result was a major economic crisis, including a famine called the “Arduous March” in North Korea.

At this point, whether by acknowledging grassroots changes or pursuing a more top-down reform policy, North Korea started taking the risks mentioned above. Specific examples include inter-Korean economic projects such as Mt. Kumgang tourism or the Kaesong Industrial Complex, special economic zones such as Rason, marketization policies like the July 2002 measures, various attempts to give farming collectives and enterprises more autonomy, and ideological adjustments such as the military first policy (songun or sŏn’gun) or the policy of a parallel development of the military and the economy (byungjin or pyŏngjin).

Putting the Genie Back in the Bottle

We know embarrassingly little about the internal dynamics of decision making in the North Korean leadership. But facts suggest that its willingness to risk true reforms of the economic system was relatively short-lived—if such an intention ever existed at all. For the sake of fairness, it should be noted that external support of North Korean reforms was limited as well.

In hindsight, it seems that the summit meeting between Kim Jong Il and Koizumi Junichiro in September 2002 was the peak of North Korea’s risk affinity. After the beginning of the second nuclear crisis in October 2002 and the subsequent gradual withdrawal of the West from economic cooperation with the DPRK, a few projects were continued, but Pyongyang was increasingly reluctant to take new and greater risks. Witnessing how the “Axis of Evil” turned from mere rhetoric into an actual list of targets for an invasion by the world’s strongest military certainly contributed to a growing risk aversion.

In 2005, the North Korean state decided that the era of post-Arduous March humanitarian aid was over and insisted on a shift to developmental assistance. This collided with Western sanctions and either ended or limited international partnerships. Depending on perspective, the timing of the measures against Banco Delta Asia in 2005 undermined, or offered a convenient excuse not to proceed with, North Korean denuclearization. But at that time, this process had not been a realistic option anyway, considering North Korea’s perception of being surrounded by hostile and powerful forces without any reliable nuclear-armed ally by its side.

The regime’s occasional attempts to crack down on the consequences of its earlier risk-taking, such as the 2009 currency reform, were further testament to a decision against reforms that had already been made. In this context, it is useful to note the absence, at any time, of a strong and paradigmatic official endorsement of a reform policy by the leadership.

But in the real world, it can be difficult to abruptly stop a process once it has been set in motion. Therefore, the outcomes of post-Arduous March risk-taking could still be observed for many years. Markets, restaurants, cafés, gas stations, car wash services, small logistics companies, etc., continued to rival and outperform the once only available option for such services—the state. The new middle class was still visible in the capital and in major provincial cities, and even socialist capitalists, often dubbed donju (masters of money), emerged in the grey area between private and state ownership.

External relations had been in decline, especially since North Korea’s first nuclear test in 2006, followed by five more such tests until 2017. A brief but short-lived reversal happened in 2018, with a series of high-level summits between Kim Jong Un and the leaders of China, South Korea, Russia and, most surprisingly, the United States. This unseen diplomatic activity by the North Korean leader fueled hopes that the stalled reform process would be lifted to a higher level. But the failed Hanoi Summit in 2019 and the outbreak of the COVID-19 pandemic in early 2020 put a sudden end to these expectations.

It is difficult to say at what point the North Korean leader realized that the combination of sanctions and COVID-19 presented a “golden opportunity,” as he called it, during the Eighth Party Congress of the WPK in January 2021. In any case, what had started as another drastic reaction to a pandemic turned into a prolonged and extreme state of self-isolation. The borders were de facto closed. To illustrate this: while in 2018, 1,137 North Koreans managed to reach South Korea; in 2022, that number went down to 67.

Opportunities for entering the country were severely limited as well. As of December 2023, no tourist entries have taken place since the beginning of the pandemic. DPRK citizens have only been allowed to return to their home country since late August 2023. The travel ban on foreign nationals was lifted in late September 2023, although quarantine requirements remain in place. And while the embassies of China and Russia have been able to send new staff to Pyongyang since March 2023, most other representations remain closed. One effect of this drastic reduction of “eyes on the ground” is that North Korea has become more enigmatic again, which is very much in the regime’s interest.

The Future of Pyongyang’s De-risking

If we indeed witness the unfolding of a long-term de-risking strategy by the North Korean leadership, then a return to pre-pandemic levels of interaction with the outside world and, particularly with the West, is not to be expected.

We can only expect the bare minimum of regular Western diplomatic presence in North Korea to be restored. Apart from a possible lack of enthusiasm by the sending countries, doing so will often require the renovation of facilities that have not been in use for years, which offers Pyongyang many opportunities for delaying the process.

The presence of non-diplomatic missions in the DPRK is likely to be reduced or not to be restored. Many of these post-Arduous March efforts of humanitarian aid and assistance had become necessary due to a lack of such support by North Korea’s former allies. China and Russia are now more likely to provide support again, making the risk of hosting organizations like the Food and Agriculture Organization, United Nations Development Programme, World Food Programme, and World Health Organization, harder to justify.

Some of the DPRK diplomatic missions abroad are beneficial from Pyongyang’s perspective and will be maintained. Opening new missions in line with new geopolitical dynamics can be expected. At the same time, it is possible that future reevaluations of the risk-benefit balance of diplomatic missions will take place, resulting in more closures.

The DPRK can be expected to maintain and even enlarge its presence in international organizations that experience an internal shift of power in favor of China and Russia.

It can be expected that in due course, tourism from China will resume, and tourism from Russia will be expanded compared to pre-pandemic levels. Apart from the standard tours to the capital, the DMZ, and scenic mountains, large-scale projects such as the Wonsan-Kalma coastal tourist area on the east coast will be made operational for these tourists.

Considering the comparatively low number of Western tourists, the relatively small income from this group, and the high risk of granting access to journalists and intelligence collectors, it is unlikely that Western tourism to North Korea will reach its peak levels of about 5,000 annually anytime soon. It is even possible that a resumption of regular Western tourism will not take place at all.

Turning to domestic affairs, the pressure for economic reforms has substantially decreased. This leaves more room for implementation of the announcements by Kim Jong Un at the Eighth Party Congress in 2021, namely a more inward-oriented economic development strategy with a strengthened role of the state.

In terms of regional security, there is a possibility that the leadership in Pyongyang will be less inclined to take the risk of aggressively developing its nuclear arsenal. We do not know how Kim Jong Un assesses his related capabilities. He might conclude that the current level of his own WMD program, in combination with the increased likelihood of military support from Russia and China, will suffice as a deterrent. The absence of a nuclear test since 2017 points in that direction.

Implications for North Korea Policy

Developing an appropriate concept for dealing with the North Korean shift towards de-risking would begin by acknowledging such a shift is taking place, and that it is of a long-term strategic nature.

This will impact mainly two fields of North Korea policy: the stick of pressure through economic sanctions, and the carrot of political dialogue.

Sanctions have had limited effects even during the past decades when Pyongyang was not part of a new Cold War alliance. Now that votes at the United Nations Security Council reflect growing camp antagonism again, sanctions are unlikely to become more effective, or to pass the hurdle of a veto. However, some existing sanctions can probably be used as negotiating mass.

Talks, including summits, have in the past taken place due to North Korea’s interest in buying time, reducing the risk of further sanctions or military attacks, or in the hope of extracting resources from their negotiating partners. Under its new strategy, North Korea will still be interested in talks but for different reasons. The key goals of meetings with the West will be to drive a wedge through the Western alliances and keep its own allies sufficiently nervous to ensure and maximize their continued support.

Not least, caution is recommended concerning offering the North Korean leadership excuses to further reduce external interaction. Pyongyang has been quick to take advantage of such opportunities in the past, and it might be even more willing to do so under its new de-risking strategy.

1. [1]

   As of December 2023, DPRK embassies in Angola, Bangladesh, Congo, Guinea, Hong Kong, Nepal, Senegal, Spain and Uganda have been closed.

2. [2]

   The term “de-risking” is often used in an economic or financial context, but the concept can also be applied to other areas including international relations, economic liberalization, or market reforms. In that sense, according to the U.S. Department of State, “de-risking refers to the phenomenon of… terminating or restricting… relationships with clients or categories of clients to avoid, rather than manage, risk.”

3. [3]

   The closure of the Goethe-Institute’s library in Pyongyang in 2009 by the German side is one example (https://www.dw.com/en/goethe-institut-to-close-center-in-north-korea-on-censorship-claim/a-4928516).

4. [4]

   KOTRA (2023). 2022년 북한의 대외무역 동향 (Trends in North Korean Trade 2022). KOTRA 자료 23-052, https://dream.kotra.or.kr/.

5. [5]

   Donald Gregg, former CIA Chief of Station and later US Ambassador in South Korea, called North Korea the “longest-running intelligence failure in the history of US espionage.” See: https://www.pbs.org/wgbh/pages/frontline/shows/kim/interviews/gregg.html.

6. [6]

   An extreme case has been the raid on the DPRK’s embassy in Madrid in February 2019 during which mobile phones and computers containing potentially sensitive data had been stolen by the attackers. See: https://www.bbc.com/news/world-europe-47553804.

7. [7]

   Cautious innovations such as the introduction of “August 3rd goods” (a focus on consumer goods production) in 1983 and the Joint Venture Law of 1984 came after Kim Jong Il’s visit to China in 1983. See Kihl, Y. W. (1984). North Korea in 1983: Transforming “The Hermit Kingdom”? Asian Survey, 24(1), 100–111. https://doi.org/10.2307/2644170.

8. [8]

   Kim, Jong-il, “The 21st Century is a Century of Great Change and Creation.” January 4, 2001.

9. [9]

   Smith, Hazel (2005). Hungry for Peace: International Security, Humanitarian Assistance, and Social Change in North Korea. Washington, DC: United States Institute of Peace Press.