The North eventually captures Pusan, and the Incheon landing is either called off or is a total failure. The UN and the DPRK sign a peace treaty recognizing the entire Korean Peninsula as red.
Kim Il Sung, now more confident than in OTL, charts a more independent path, especially after de-Stalinization. He condemns both the Soviet Union and Mao and becomes Tito's Asian ally. He always allows a degree of market economy and private enterprise, so that buying basic goods won't involve long lines. This fact is exploited for propaganda purposes. From the early 1980s, Kim Il Sung purges the remaining Stalinists from the Party and permits foreign private investment in a consumer goods export industry and local private enterprises. While he's in fact inspired by Deng's initiative, the propaganda machine claims precisely the reverse to preserve Kim's face. By 1985, the reforms are solidified by the first Japanese private investment in Korea, made possible after the last of the hardliners (who had opposed any relationships with Japan) are sent into retirement.
Kim is still respected as a fatherly figure, but more along the lines of LKY in Singapore than with the bizarre personality cult of OTL. This means the death of Kim Sr. and Kim Jr.'s ascendance is more institutional as a new generation of technocrats continues the pace of economic reforms while managing the social problems which come with them. Per Capita GDP is $10000 and grows steadily at 6-7%. Korea is still a repressive one party state, though with reasonable personal freedoms similar to the PRC. Chinese state-owned companies wield large economic influence, but Kim appeals to nationalism to save his face.