Hubs for Radical Change? North Korea’s SEZs under Kim Jong-un

By | January 11, 2013 | 6 Comments

Holding high the banner of partisan struggle, not economic reform.  Image courtesy Sabine Van Ameidjen

Holding high the banner of partisan struggle, not economic reform. Image taken by the author in Pyongyang.

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Having emerged from the Department of War Studies at King’s College London with an M.A. and interned subsequently with the Global Policy Forum in New York, Sabine van Ameijden returns to SinoNK with a well-documented overview of  North Korean SEZs. Her research is especially apropos for analysts who are seeking to determine if the words Kim Jong-un uttered in his New Year’s speech — and at the Supreme People’s Assembly — about focusing on economics as the next step in the North Korea’s journey are, in fact, consonant. –Roger Cavazos, Coordinator

Hubs for Radical Change? North Korea’s SEZs under Kim Jong-un

by Sabine van Ameijden

Kim Jong-un’s New Year’s address sparked much excitement about a “radical policy change” in the world’s most isolated country, but we at SinoNK have not yet been convinced that the North Korean economic tides are turning under the leadership of “the Marshal.”  Christopher Green and Steven Denney have already pointed out the strategic fog swirling around Kim’s speech: there have previously been too many false economic dawns in North Korea as it is. Thus, when it comes to policy change, the simple proposition put forth in 2013 by the German Foreign Ministry is correct: The present moment is one where North Korean actions will speak louder than words.

The logical vehicles for any reforms in North Korea are the country’s special economic zones (SEZs). Reminiscent of of Deng Xiaoping’s strategy to open up the Chinese economy, these are experimental hubs for capitalist reform, yet, somehow, are too rarely sidelined in mainstream discussion about the prospects for economic change in North Korea. How significant are these special administered entities for national policy reform? Analysing movement (as a surrogate for notoriously unreliable trade figures) in North Korea’s SEZs can provide us with actual data, rather than raw speculation based only on rhetoric from Kim Jong-un and his subordinates, about Pyongyang’s commitment to address its basket-case economy.

A Tourist's View from the Steps of the Emperor Casino; click image for the reverse // via Leonid Petrov

A Tourist’s View from the Steps of the Emperor Casino in Rason; click image for the reverse view // via Leonid Petrov

Hardscrabble Model: Rason | In the past year, developments in Rason (罗先/라선  -short for Rajin-Sonbong) have hinted towards the DPRK government’s willingness to economically reform without concomitant political reform. Rason, which relatively speaking is the most vibrant of the current SEZs,  has a unique location in the DPRK’s northeast, bordering Russia and blocking China’s Jilin province from the sea. The zone was established in 1991, but only came to the attention of mainstream Western media in 2009 when Chinese investment in infrastructure and business finally moved Rason forward in spite of the PRC’s expressed anger over North Korea’s second nuclear test.

Last May, in my overview of Rason’s trade environment, I weighed the opportunities and challenges that the SEZ offers for North Korea. Looking back now at the second half of 2012, progress has been made in Rason, but the overall picture is not one  to be excited about. The second annual Rason International Trade Fair took place in August, but the event did not attract many more visitors than its first edition.

Infrastructure, however, has advanced considerably, and the highway to the Chinese border city of Wonjong and the railway to the Russian town of Khassan have now been completed.

North Korea map showing basic geography - and destiny.

North Korea map showing basic geography – and destiny.

The amended law of Rason transferred more power and discretion from Pyongyang to the local authorities. And, Western tourist tours to Rason are starting to pick up, illustrating foreign attraction to the zone – and providing some hard cash to the region, although most of the cash is likely funneled back to Pyongyang.

Besides extensive Chinese and Russian investment in Rason, new partnerships are on the horizon. The zone’s convenient geographic location sparked Mongolia’s interest to use Rason’s port to export its natural resources. Mongolia is landlocked and trading through the North Korean port city would significantly reduce its shipping costs. In addition to the Mongolian angle, South Korea’s Korail has been invited by the Russians to join the rail project connecting Rason with Russia.

A rail project through North Korean territory also provides legitimate rent-seeking opportunities to a North Korean regime willing to at least play by minimal internationally accepted standards.  However, strained relations over the recent missile launch and the foreign policy transitional stasis that has followed the South Korean presidential elections have postponed a definite answer to this invitation.

Cheap North Korean labor, strong South Korean chaebols make the Kaesong industrial an odd mix and sometimes uncomfortable relations.   Are South Korean industrial sewing machines and South Korean labor rights a start toward a secular awakening of the economic sense of valuing individuals? Image courtesy Wall Street Journal Korea Realtime blog

Cheap North Korean labor and strong South Korean chaebols make the Kaesong industrial an odd and sometimes uncomfortable mix. Are South Korean industrial sewing machines and South Korean labor rights a start toward a secular awakening of the economic sense of valuing individuals? Image courtesy Wall Street Journal Korea Realtime blog.

Suspension Act: Mt. Kumgang and Kaesong | Following North Korea’s famine in the 1990s, the North Korean government implemented a set of mostly unsuccessful capitalist reform measures. As part of this package, SEZs were opened in Mt. Kumgang (金刚山/금강산) , Kaesong (开成 / 개성) and Sinuiju (新义州/신의주).

Established in 2002, the Mt. Kumgang Tourist Region is a special administrative region (SAR, but with none of the freedoms enjoyed in the Hong Kong SAR), which welcomed South Korean tourism to the mountain. The site has also hosted numerous inter-Korean family reunions. The resort closed in 2008 after a North Korean soldier, who remains unpunished, shot and killed a South Korean tourist. Today, South Korean tourist traffic to Mt. Kumgang remains suspended and South Korean investment expropriated.

The Kaesong Industrial Complex officially opened in 2004 as an economic collaboration between North and South Korea. This zone thrives on cheap North Korean labour and plentiful South Korean capital, technology and managerial expertise. Under South Korean President Roh Moo-hyun’s friendly policy towards North Korea, Kaesong Industrial Complex made a promising start. Unfortunately, advancement in Kaesong is subject to the ups and downs  of inter-Korean politics. As the Lee Myung-bak administration prioritized progress on nuclear negotiations, cutbacks on inter-Korean economic cooperation put Kaesong’s second construction phase on hold. In 2011, 119 of the 123 South Korean firms in Kaesong registered an annual net loss, according to the South Korean Ministry of Unification.

Bordering China’s Dandong on the Yalu river, Sinuiju was envisioned as a North Korean version of Shenzhen on the Yalu, and Pyongyang appointed the Chinese-Dutch billionaire Yang Bin as governor of the zone. However, this project failed to launch when its Chinese “governor” was arrested for tax evasion by the Chinese authorities, and it was mothballed for nearly a decade.

Kim Jong-un surveys his (static) people and economy from a dais in Pyongyang, North Korea.

On the banks of the tamed Taedong River, Kim Jong-un surveys the flood of adulation in Pyongyang. Image via Time.

Mud Flats: Hwanggumpyeong and Wihwa | Formally belonging to Sinuiju city, Hwanggumpyeong Island (黄金平/황금평) and Wihwa Island (威化岛/위화도) are the next two economic experiments on the Yalu river, and represent the revival of the Sinuiju SEZ idea which Kim Jong-il had indicated momentary excitement about in 2002. No less a personage than Jang Song-taek, uncle of Kim Jong-un and Vice Chairman of the National Defence Commission, attended the opening ceremony of the SEZs in June 2011 after lobbying hard for Chinese political and financial support in the zones. Reports that the huge new bridge to North Pyong’an province will be completed in 2014 could be taken as a good sign, but in fact they indicate a rather slow pace of construction (by Chinese standards). Sadly, neither one of these zones near Sinuiju appears ready to open for business anytime soon.  The fact that the Chinese are much more interested in Rason than in Sinuiju’s SEZs could be because the Hwanggumpyeong and Wihwa are extremely vulnerable to flooding and their geographical location is not as attractive or strategic as Rason.

Irrespective of the developments and the open questions set out above, in a charismatic political system such as the DPRK, the key question is one of willpower and intent of the leadership.  If Kim Jong-un and the competing bureaucracies which he manipulates wish to transform the SEZs into the next Shenzhen and Zhuhai, or to transfer these capitalist experiments outside of their contained entities, that could surely be accomplished (and done so with no small help and little hesitation from the PRC). Developments in Rason remain most promising, but the past year has not demonstrated extra attention for this experiment under Kim Jong-un. Perhaps Kim is, as the German press recently reported, considering a different economic development model such as a Vietnamese “doi moi” or a Mongolian style economic reform, although there are no indicators at present he is moving in that direction, either.  However, as much as some would like to believe that this new leader is North Korea’s Deng Xiaoping, he has failed to fulfill the role of the country’s Great Reformer.

Kim Jong-un and coterie, but mainly Kim wants to raise some green in a sheltered, compartmentalized fashion, but the SEZs don’t appear to be that venue.

Kim Jong-un and his coterie wants to raise some green in a sheltered, compartmentalized fashion. Thus far, the SEZs don’t appear to be that venue. Picture via National Public Radio.

6 Comments

  1. thanks for this report – I go to Rason this spring on an investors trip

  2. Glad to put it out there, and Sabine’s done some excellent work before on this site that you might find useful, as well as Alan Ferrie. https://sinonk.com/?s=alan+ferrie

    BTW have really enjoyed your own site! We’re in the process of re-shaping our links bar, so I can only apologize for not linking to you sooner! Very happy to see you here, let us know if there is more we can do to make your reading experience more useful.

  3. Hi Joe – that’s great news. Wish we were going with you! Be safe and no stinking hard drives, ok?

    Seriously, We always love your pictures and the many ways you humanize your many ventures in North Korea.

    Are there any areas you’d like to see us write about or research and you can tell us what it actually looks like on the ground?

    What investment areas are you all looking at?

  4. Hi Adam and Roger, thanks for the nice words about my work.

    My company (Young Pioneer Tours) was approached by the North Koreans on a project in Rason, unfortunately I cant really talk about it at this time, but if things move forward I’m looking at spending some time up there.

    Just a few months ago we opened up a new Rason tour route, our co-owner being the first westerner to cross the border at Tumen and overland to Namyang and Hyeryong – I’m scheduled to be the first American to do this – definitely not bringing any hard drives 🙂

    Photography is going to be pretty tough up there too, but please email me at joseph@youngpioneertours.com, perhaps we can work together and show some exclusive pics.

    I will put you guys up on my links too.

  5. Where did you get this information from? It is totally wrong. I know many Westerners who crossed that border since 2003. There is even a CCTV report from 2006 which documented such a crossing…

  6. NGOs or food aid workers? My company just opened this route for tourism…

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