Wednesday, 13 December 2017 10:14

What Happens To China's Economy If A Conflict Breaks Out Between The U.S. And North Korea?

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This undated picture released from North Korea's official Korean Central News Agency (KCNA) on December 09, 2017 shows North Korean leader Kim Jong-Un visiting Mount Paektu in Ryanggang Province. This undated picture released from North Korea's official Korean Central News Agency (KCNA) on December 09, 2017 shows North Korean leader Kim Jong-Un visiting Mount Paektu in Ryanggang Province. AFP PHOTO / KCNA VIS KNS

War exercises are afoot, just in case war breaks out, with North Korea and the U.S. at its center. China and Russia are stepping up preparations for potential North Korean

conflict with the U.S. Both nations have embarked upon computer simulated anti-missile exercises as top North Korean officials meet at Mount Paektu to discuss the situation. The United States, Japan and South Korea are embarking upon missile tracking drills to prepare for potential North Korean submarine-launched ballistic missiles.

All of these actions should be taken extremely seriously, and the ramifications of such a war should be considered both by governments as well as by citizens. The impact of a U.S.-North Korean war on nations not directly participating in the conflict may be most dramatic for China’s economy, since it is economically tied to both nations, and since it is dangerously close to North Korea’s missile range.

China’s economic ties to the U.S. and North Korea

China is not highly dependent on North Korea economically, but the reverse is certainly true. China has been loath to impose strong economic sanctions on North Korea due to the hardship this would impose on North Korean citizens, depriving them of much-needed goods and income. Squeezing this economic relationship would produce instability in North Korea, which would send refugees heading into China.

China relies upon this stability at the North Korean border and beyond. At present, China is constructing refugee camps along the North Korean border in order to contain an overflow of North Korean citizens seeking to escape deteriorating conditions and potential war. Not only does this social instability pose a threat to China, but heightening perceived physical insecurity is also becoming problematic. A Chinese province close to the border, Jilin province, is experiencing increasing fear of nuclear war and radioactive fallout.

More on Forbes: Russia Is Now Providing North Korea With Internet: What That Could Mean For Cyber Warfare

In the case of war, China would take the brunt of North Korea’s socioeconomic repercussions. As North Koreans moved into China and northern residents potentially moved southward, this would increase the burden on China’s resources. Already strained local government funds would become even tighter. Growth would likely decline in the affected areas as well, as investment slowed amid rising uncertainty.

China also has close economic ties to the U.S. The United States is a large consumer of Chinese goods, comprising 18% of Chinese exports. If the U.S. enters into war with North Korea, demand for consumer goods is likely to be negatively impacted, as this is a common phenomenon during wartime. This means that China’s export sector will experience a contraction.

A strike either way will seriously harm China’s economy

In a hypothetical conflict where North Korean missiles are effective and strike their targets, which some experts argue is entirely possible, this will lengthen the period of conflict between the U.S. and North Korea, and greatly worsen the economic situation of their allies. The situation may, indeed, become “catastrophic,” as Defense Secretary James Mattis stated in May.

In this case, China’s economy would suffer greatly as the crisis grows. A prolonged war would impact China via falling foreign investment and demand, dramatically reduced domestic consumer confidence, declining production, and increased government expenditures at both the local and national levels.

If the U.S. were to strike North Korea first, the North Korean capital of Pyongyang could be destroyed along with about 6 million people could be killed or injured, according to Nukemap by Alex Wellerstein, Assistant Professor at the Stevens Institute of Technology.

This would devastate North Korea, wiping out about a quarter of its population. Undoubtedly, the refugee crisis in China would only expand, directly placing enormous pressure on China’s hospitals, infrastructure including housing and water and sanitation services, and government administrative services.

A more detailed analysis would include knock-on effects of refugee migration, trade, investment, and consumption impacts on other areas of China's economy. It suffices to say that whether the U.S. strikes North Korea or whether North Korea strikes the U.S., China will suffer serious economic consequences.

Read 35 times Last modified on Wednesday, 13 December 2017 10:42

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