North Korea has been increasingly dependent on China for its economic survival, which could weaken inter-Korean cooperation, the central Bank of Korea said in a report. The North's trade with another major partner, Japan, has consistently diminished, further deepening Pyongyang's economic reliance on China, the BOK report added.

Two-way trade between North Korea and China has been rising by an average 30 percent annually since 2000, boosting North Korea's economic growth by 3.5 percentage points every year, the bank said.

According to South Korea's trade body, the Korea International Trade Association, North Korea's trade with China increased 14.8 percent to $1.58 billion last year.

That figure accounts for some 50 percent of North Korea's total trade volume. The North's trade with China was $1.39 billion in 2004, or 48.5 percent of its total 2004 trade volume, up 42.8 percent from a year earlier when it posted $1.02 billion, according to officials in Seoul.

North Korea's exports to China last year consisted mainly of coal and iron ore. The North's imports from China outpaced the growth of its exports, widening its trade deficit with the world's most populous country to a record $1.08 billion last year.

"Some 80 percent of items appearing in North Korea's markets are from China," said Lee Young-hoon, an economist at the BOK-run Institute for Monetary and Economic Research. South Korean officials believe China provides between 70 and 90 percent of North Korea's oil and more than one-third of its imports and food aid.

The sharp increase in bilateral trade between the two communist neighbors is the result of North Korea's lower production capacity and the cheap price of Chinese goods, said Lee, a main researcher for the BOK report.

"The North Korean economy would have posted minus growth if it had not been for its rapidly growing trade with China," he said.

The North Korean economy had shrunk for a decade before swinging into positive growth in 1999 when its gross national product surged 6.2 percent. It grew 1.3 percent in 2000, 3.7 percent in 2001, 1.2 percent in 2002, 1.8 percent in 2003, and 2.2 percent in 2004.

Seoul's Unification Minister predicts the North Korean economy will post economic growth for last year on the back of industry and agriculture, saying the country's grain production rose 5.3 percent to 4.54 million tons in 2005.

China's economic aid and investment in North Korea is rapidly growing, paving the way for the Red Capitalists' race to exploit developing the impoverished North, officials say. North Korea and China recently agreed to the joint exploitation of offshore oil fields.

Chinese oil authorities said in October that they had found new oil reserves in Bohai Bay, which lies between North Korea and China, and assume the reserve will reach up to 5 billion barrels. North Korea said in 1997 that it had found oil reserves of around 5 to 40 billion barrels in the offshore area.

The BOK said North Korea's economic reliance on China would deepen in the future due to China's fast economic growth and the North's move to induce more market elements.

In contrast, North Korea's trade with Japan, its third-largest partner after South Korea, has steadily decreased in recent years. Bilateral trade posted $190 million last year, marking the lowest level since 1977, according to the KITA. The North's exports to Japan amounted to $130 million in 2005, while its imports from Japan totaled $60 million.

The trade body attributed the fall to a boycott of North Korean goods by the Japanese and to Tokyo's economic sanctions against the North, including its restrictions on North Korean ships calling at Japanese ports.

South Korean analysts also said the North's deepening economic ties with China would hinder possible U.S.-led financial sanctions from operating effectively.

The U.S. has begun imposing economic sanctions on North Korea to punish its financial illegalities and is considering expanding them to force the defiant country to give up its nuclear weapons program.

"Considering North Korea's economic reliance on China, U.S.-led sanctions without Beijing's participation can hardly bear fruits and would only lead to North Korea's [increased] dependence on China," Lee said.

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