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A central hope of the strategy of engagement is that increased cross-border exchanges with North Korea will have the effect of encouraging the process of marketization and ultimately contribute to a moderation of the country's foreign policy. Results from a unique survey of Chinese enterprises operating in North Korea reveal that trade is still largely dominated by state entities on the North Korean side, although we cannot rule out de facto privatization of exchange. However little trust is evident beyond the relationships among Chinese and North Korean state-owned enterprises. Formal networks and institutions-including dispute settlement mechanisms-are weak and do not appear to have consequences for relational contracting. Rather, firms rely on personal ties for identifying counterparties and resolving disputes. The weakness of formal institutions implies that the rapid growth in exchange does not conform with the expectations of the engagement model and may prove self-limiting. The results also cast doubt that engagement between China and North Korea, at least as it is currently proceeding, will foster reform and opening in the country. [ABSTRACT FROM AUTHOR]

North Korea has pursued a nuclear weapons capability for about two decades. Many different diplomatic efforts have been made to convince or cajole the Northern regime to give up this quest-and all have so far failed. Since 2003, a new multilateral approach-the Six-Party Talks involving the Koreas, China, Japan, Russia, and the United States-has raised hopes anew. These hopes are based largely on China's active role. China has the potential both to guarantee North Korea's security, and to impose and enforce a denuclearization agreement. We analyze China's changing grand strategy and its implications for China's Korea goals and policies. This discussion indicates that China is more concerned to preserve the North Korean regime and prevent a second Korean War than to eliminate the North's nuclear capability. Therefore, the Six-Party Talks are unlikely to succeed. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]