Cross-border trade between China and North Korea is rising quickly in the frontier town of Dandong, despite the political and diplomatic problems that Pyongyang's erratic behaviour has created for Beijing, a long-time ally.

"Border trade has been really good. I make a run into North Korea every day now," said one driver surnamed Wang, who delivers goods for a Dandong trading company.

"Mostly I'm delivering everyday items, such as food, clothes and household products. These things are in high demand."

In recent years, North Korea's acts of brinkmanship -- including a nuclear test in 2006 and now the launch of a long-distance rocket -- have put China in an increasingly awkward position as the secretive regime's main ally.

Nonetheless, trade between the two has kept growing and hit a record 2.79 billion dollars in 2008, up 41 percent from the year before. Chinese exports made up two billion dollars, according to Beijing's figures.

Businessmen and analysts say that much of the trade is funded by a Chinese government hoping to push forward economic reforms in the isolated and hardline communist nation.

Traders here doubted that North Korea's satellite launch Sunday, viewed by the United States and others as a ballistic missile test, would create much of an impact.

"Japanese and South Korean business in Dandong is already falling sharply due to the global economic crisis," said Zeng Fei, who helps register Chinese firms for the twice-yearly Pyongyang Trade Fair.

"But we don't think the global economic crisis or North Korea's satellite launch will influence China-North Korean trade."

Zeng said up to 100 Chinese companies have already registered to exhibit at the fair in May, with business volume expected to rise.

"There is good demand for consumer goods in North Korea, especially among the upper classes in Pyongyang," Zeng told AFP from a modern office tower in downtown Dandong.

Although bilateral trade between the two made up only a fraction of China's overall 2.56 trillion dollars in foreign trade last year, much of North Korea's purchases were made through credit from Beijing.

"The North Koreans pay with some money, but they have a very short money supply, so credit is very important," Shi Yinhong, an international relations expert at Beijing's People's University, told AFP.

"The Chinese government has never said how much it gives in either credit or aid. This is a secret, but it is in China's interest to maintain a stable North Korea."

China has sought to boost trade so as to encourage North Korea to embark on market-oriented economic reforms, but now fears the isolated nation is growing too dependent on Beijing's aid and credit, Shi said.

"The situation has become very complicated, China's assistance has increased their resistance to reform. Now that they have rice to eat, they think they don't need economic reform," he said.

According to Selig Harrison, a North Korea expert with the Washington-based Center for International Policy, Beijing's real concern is that North Korea's economy will collapse and China will be inundated with refugees.

"China is indeed very concerned that if North Korea implodes it will be awash with refugees and is clearly doing all it can to help North Korea economically," Harrison told AFP.

"This is primarily on long-term credit."

Other traders in Dandong said trade would increase if North Korea takes on economic reforms and normalises its relations with the United States, Japan and South Korea under six-nation talks on ending Pyongyang's nuclear programmes.

The on-again, off-again talks, which also include hosts China as well as Russia, began in 2003 with the promise of aid and diplomatic recognition in exchange for an end to the North's nuclear ambitions.

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