China-DPRK: US Rains on Islands in the Stream

June 13, 2011 7:15 AM

In the aftermath of Kim Jong-il’s trip to China the spin coming from the usual suspects in the South has been that the trip was a less than complete success—Kim failed to meet with Jiang Zemin and brought home fewer goodies than expected. But on Thursday, Chen Deming, China's commerce minister, and Jang Song-taek, Kim’s brother-in-law and thought-to-be regent to Kim Jong-un, participated in the unveiling of two new “government-led, enterprise-based, and market-oriented” economic zones, one initiative in the Rason (nee Rajin-Sonbong) area and the other development  on the undeveloped islands of Hwanggumpyong and Wihwa.

Such projects have a long and uneven history.  Recently I came across something that Gordon Flake and I wrote about Rajin-Sonbong in 1997:

In response to its economic crisis, North Korea has intensified efforts to attract investment to its Rajin-Sonbong Free Economic and Trade Zone. While this effort to promote the zone represents an important start, the zone clearly has a long way to go before it will be able to attract the type of investment envisioned by its supporters. Lack of infrastructure appears to be a severe impediment to the development of the zone. If the infrastructural hurdle is to be surmounted, it will likely to be due to Chinese interest in developing the zone for transshipment trade associated with the economic development of its Jilin Province which borders the Rajin-Sonbong Free Economic and Trade Zone. Small scale investors in light industry might also be possible. With the development of these two areas relatively small investment in service industries such as hotels and entertainment might also be feasible. Large scale investment, however, will likely remain elusive. If the Rajin-Sonbong Free Economic and Trade Zone ultimately is a success, this is more likely to be due to its demonstration effect and encouragement of further economic opening, than to its direct impact on the North Korean economy. 

Unfortunately, not much has changed in the intervening 14 years. In a bizarre episode North Korea in 2002 tried to set up a zone in Sinuiju which was to be run by a Chinese fraudster named Yang Bin. The Chinese jailed him on unrelated tax evasion charges before the project became operational.  These latest initiatives basically consist of doing the obvious things such as paving the road from China to Rason and refurbishing the ports, that Gordon and I, not exactly visionaries, identified late in the last century.

This time the venture has official Chinese backing. What is undeniable is that China-DPRK trade is up: first quarter trade more than doubled from its level the previous year. What is striking is that crude oil and gasoline were the top two import items.  Although there has been a lot of speculation that North Korea is looking for food aid to build up stocks in anticipation of Kim Il-sung centennial partying next year, if they are stockpiling, I suspect that the motivation is more likely to be anticipation of negative international fall-out from some new provocation under consideration. The high levels of fuel imports would be more consistent with the latter interpretation.

Overlooked in all of this was the recent trip to NE China of SK Group Chairman Chey Tae-won who seemed to be shadowing Kim Jong-il as he traveled around the region last month. The South Korean chaebol want a piece of the action; whether Seoul will support or oppose is an open question. 

The US stance is clear. After the DPRK-China announcement the State Department urged UN members—this includes China—to fully implement UNSC sanctions. “We urge transparency, extreme caution and vigilance in business dealings with North Korea.”

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Marcus Noland Senior Research Staff

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