Recent Developments on the SEZ Battlefront: Mubong and Kyongwon

By | November 09, 2015 | No Comments

Heaven Lake | Image: Kayla Iacavino/Sino-NK

Heaven Lake (천지), nestled snuggly within the confines of Mt. Baekdu, the scene of much SEZ activity of late. | Image: Kayla Iacavino/Sino-NK

Does North Korea’s approach to Special Economic Zones on its frontier with China represent real substance and momentum, or just smoke, mirrors and more stagnation? In part, the answer depends on which part of the border one is looking at. In a recent assessment of the Sinuiju-Dandong hub, for instance, Marcus Noland cautioned against overly-high expectations for the North Korean side’s ability to follow through — ever — on the promise and potential of the Hwanggeumpyeong SEZ. Elsewhere, Rason is said not to be doing terribly well in the wake of flooding and questions over genuine openness to Chinese investment. Since Sinuiju and Rason are big targets and already pegged as SEZs, foreign observers tend to focus there. That is, after all, where the North Korean state has for so long encouraged us to look. 

As he showed in his debut essay for Sino-NK in July this year, Théo Clément has a habit of looking around and beyond the obvious toward locations of real development. In a fascinating and strongly-contextualized essay, the PhD candidate in both Lyon and Vienna describes how two areas on the North Korean side of the northeasternmost frontier of the DPRK may point to slim but strengthening strands of cooperation with Chinese partners. He now proceeds to widen the lens. — Adam Cathcart, Editor-in-Chief  

Recent Developments on the SEZ Battlefront: Mubong and Kyongwan

by Théo Clément

When considering Special Economic Zones (SEZ) in the DPRK, the example that people most often have in mind is the successful Kaesong Industrial Complex (개성공업지구), a project that recently passed the impressive threshold of three billion USD in cumulative output value. Somewhat less spectacularly, the other popular example is Rason (라선; 라진-선봉), the oldest DPRK Special Economic Zone and a project long thought to harbor high potential. Besides these, sporadic media reports have covered the opening of the Masikryeong Ski Resort, which is part of another SEZ, the Wonsan-Kumgang International Tourism Zone (원산-금강산국제관광지구). Masikryeong has been subjected to the slings and arrows of Western internet mockery, but local commentators and bureaucrats insist that the much-publicized resort is part of a coherent plan to develop the Wonsan area, including the renovation of the resort at Songdowon, the opening of the Kalma Peninsula to foreign tourists, and the opening of a new international airport. But beyond these “big three,” the remaining other 22 zones around North Korea have attracted little attention from experts and media, a lacuna due in large part to short institutional life spans and a lack of available information.1)There is a debate on the exact number of SEZs, since they do not all have the same status.

However, though very little concrete information has appeared concerning these brand new economic zones, developments in 2015 provide a more holistic understanding of the DPRK’s SEZ strategy more generally.

After the opening of the seemingly ill-fated Hwanggeumpyeong (황금평경제특구) and Wiwha Island [위화도; facing Dandong in Liaoning Province, east of the as-yet unopened New Yalu River Bridge (신압록강대교)] in 2011, the number of SEZs skyrocketed. This occurred in two waves, first in 2013 (14 new SEZs), then in 2014 (6 new SEZs). Most of these SEZs were criticized both for their “isolation from prospective foreign partners (particularly with China)” and lack of basic infrastructure. However, two, the tourism-focused Mubong International Travel Zone (무봉국제관광지구), which opened in April 2015, and the Kyongwon Economic Zone (경원경제특구), which opened in October 2015, were, it seems, accompanied by both infrastructure spending and discussion with the Chinese side. This essay focuses in on these two new zones.

wiwon-sez-snk

The Wiwon SEZ (2013), facing Liaoning Province. The nearest bridge to China, in Manpo, is about 80 km of bad roads upstream. | Image: Théo Clément/Sino-NK

The Mubong International Travel Zone | On April 23, 2015, Korean Central News Agency released a short statement on the opening of a new SEZ at Mubong Workers’ District in Samjiyeon County, on the slopes of Mt. Baekdu.

Since the opening of Rason to tourism in 1991, numerous other SEZs have been opened for the explicit purpose of attracting foreign tourists.2)Tsuji Hisako, “The Tumen River Area Development Programme: Its History and Current Status as of 2004,” Economic Research Institute for North East Asia Discussion Papers N°0404 (2004). Initial objectives of the zone were threefold: to improve transit trade, export processing activities and to attract more foreign tourists. At least nominally, these have included Hwanggeumpyeong-Wiwha, Wonsan-Kumgang, Sinpyong, Chongsu, and Onsong. They have met with only moderate success: Mount Kumgang, for example, has had few visitors since it was closed off to South Korean tourists in 2008, the SEZs bordering Sinuiju have been slow to “take off,” and the initial hopes raised by Onsong SEZ in North Hamgyong Province remain unfulfilled.

The approximate location of the Mubong International Travel Zone. | Image: Théo Clément/Sino-NK

The approximate location of the Mubong International Travel Zone. | Image: Théo Clément/Sino-NK

In this context, Mubong has several unique cards to play. First and foremost, it is located at the foot of Mt. Baekdu, the sacred mountain considered as the cradle of both the Korean and Manchu peoples. The Chinese side of the volcano (known in the PRC as Changbaishan) is a very popular tourist attraction for Chinese from the north and northeast. For the Yanbian Autonomous Korean Prefecture, promoting tourism in Changbaishan was one of the highlights of the “YanLongTu” segment of the Chinese ChangJiTu Project.3)The plan is divided in two segments based on geographic divisions: the first one “ChangJi” (Changchun-Jilin) is supposed to host high added value activities (scientific research, R&D); the second one, “YanLongTu” (Yanji, Lonjing, Tumen) is based on manufacturing and processing industries, tourism, transit trade and trade related services. The Mubong SEZ has several sporting facilities, including a ski resort and an ice rink built two decades ago in preparation for the 3rd Asian Winter Games in 1995. It is also home to extensive production of Baekdu blueberries and a special species of ginseng, both of which are used in the production of liquor.

While it is certainly too early to draw conclusions as to the potential success of this SEZ, its basic infrastructural difference with other zones is immediately apparent. It has infrastructure to manage the flow of foreign tourists; using satellite imagery, we can see that what seems to be a customs facility has indeed been built on the DPRK side of the border in order to allow foreign tourists to enter (most likely without a full visa, just as in Rason or Sinuiju). This links the Korean border to the northern gate of the PRC’s Changbai Scenic Area and, further afield, the Chinese town of Songjianghezhen, a base for exploration of the peak.

The border in June 2009 (left) at approx.42°01’26 - 128°16’11, and the same border in 2015 (right) | Image: Théo Clément/Sino-NK

The border in June 2009 (left) and in 2015 (right). At 42°01’26 – 128°16’11.| Image: Théo Clément/Sino-NK

The Kyongwon Economic Zone | Further north and east of Mt. Baekdu, another new development became apparent about a month ago. On October 8, 2015, KCNA released a statement introducing another brand new SEZ: the Kyongwon Economic Zone, located in North Hamgyong Province. The addition makes North Hamgyong the province with the greatest number of SEZs overall; a total of four (Orang, Onsong, Chongjin, and Kyongwon) plus Rajin-Sonbong, which was administratively hived off from North Hamgyong upon its formation in 1991. Similar to Mubong, there is very little information available, except for the obvious point that Kyongwon SEZ could benefit from its proximity to the Chinese city of Hunchun, the “tip of the Chinese spear” in the Tumen River Region and a place that imagines a future economic model based on high integration with the DPRK and Rason in particular. The landlocked Chinese city borders both Russia and the DPRK, but is very remote from the port of Dalian (on the Liaodong Peninsula) and very close to Rajin-Sonbong and its three fully equipped wharves. Shipping locally-manufactured goods through Rason instead of Dalian would dramatically reduce both shipping costs and time and eventually result in price competitive gains in foreign markets. Several elements suggest that North Korean planners may regard Kyongwon as something more than yet another SEZ.

Kyongwon SEZ, facing the Chinese city of Hunchun | Image: Théo Clément/Sino-NK

Kyongwon SEZ, facing the Chinese city of Hunchun | Image: Théo Clément/Sino-NK

Lack of information, as always, makes it hard to read the North Korean crystal ball. The locational advantages of Rason and North Hamgyong Province, providing the Chinese hinterland with much-needed access to the East Sea (and the foreign markets beyond) are among the most crucial assets that the DPRK’s northeastern SEZs possess. Kyongwon, like the nearby SEZ at Onsong, is located on a strategically vital railroad linking the Chinese city of Tumen to the port (via Namyang). Currently unable to handle large volumes of freight, the upgrading of this railroad could help create an economic corridor from the Chinese Northeast to Asian or even, in the future, European markets.4)Numerous projects for new shorter Asia-Europe commercial routes have been considered, including the Russian supported “Iron Silk Road” project or the future arctic routes. Both go through Rason and the northeastern tip of the DPRK. At the end of the 1990s, the United Nations Development Program (UNDP) made clear that transportation of commodities by rail was much cheaper ($.011 per ton per km against $.085 to $.023 by road) and more reliable.5)“D.P.R. Korea’s Rajin-Sonbong Economic Trade Zone, Investment and Business Guide,” United Nations Development Program (1998), 14. But the railroad also needs to be developed. After Kim Jong-il’s visit to the zone in 2009 a call for tenders for the renovation of the Tumen-Rajin railway was published, but with a total cost estimated at $54 million, there were, to our knowledge, no takers.6)“Invest feasibility report for the Railway Renovation between Rajin and Namyang,” Economic Cooperation Bureau of Rason People’s Committee of DPR Korea (2010).

Since the announcement of the global framework of the “One Belt, One Road (OBOR)” initiative in Beijing, Hunchun development has been given yet more impetus. In June this year, the Chinese local press announced that the local authorities in Hunchun were to transform (改造) the existing road bridge linking Shuaiwanzi village (甩湾子) on the Chinese shore to Hunyung village (훈융리) on the North Korean side into a railroad bridge. The effects and goals, of course, went well beyond the two small villages on the Tumen River banks: The purpose would be to connect Rajin harbor to Tumen (and Hunchun), not via Namyang but via Hunyung, about 5 km north of Kyongwon.

Red is the Namyang-Rajin railroad; blue is the Makhalino (Russia)-Hunchun-Tumen Railroad | Image: Théo Clément/Sino-NK

Red is the Namyang-Rajin railroad; blue is the Makhalino (Russia)-Hunchun-Tumen Railroad | Image: Théo Clément/Sino-NK

Green is the newly announced bridge connecting both blue and red railroads | Image: Théo Clément/Sino-NK

Green is the newly announced bridge connecting both blue and red railroads | Image: Théo Clément/Sino-NK

Important breakthroughs have been made in the upgrading of transportation networks linking the Chinese hinterland, Russian ports (Zarubino, Pozyet, etc.) and the North Korean coastline, especially on the Chinese side. However, on the other side of the border, developments have been much slower, except for the recent Wonjong-Rajin road and cross-border bridge. Assuming it is successfully carried through, the linking of the Chinese and Korean railroads at Shuaiwanzi-Hunyung could bring a number of outcomes for the North Hamgyong SEZs and Rason; and, thereby, the DPRK’s wider strategy regarding economic zones.

First, the announced transformation of the bridge a few months before the opening of the Kyongwon SEZ strongly suggests that parties on both sides of the Sino-Korean border are coordinating their efforts. This was not the case in 2002 when the DPRK attempted to open the Sinuiju SAR7)Funabashi Yoichi, The Peninsula Question: A Chronicle of the Second Korean Nuclear Crisis (Brookings Institution Press, Washington DC, 2007), 443., for instance.

The new railroad route could have further substantial consequences for the future of the Tumen River delta. Cutting out a quarter of the Namyang-Rajin railroad, the new route would make it easier for the authorities in Rason to have the railroad renovated by foreign partners, as it would reduce the total cost of the project. Using the 2009 estimates as a baseline, of the estimated 55 million USD needed, more than half (34 million) is for the railway itself; the rest is for bridge and tunnel upgrading, telecommunications networks, trains, and wagons. This “green line scenario” would thus, (very) roughly speaking, diminish the total bill to approximately 46 million USD, still a large amount for any foreign investor to consider, but evidence perhaps that the North Korean side is mindful of the need to cut costs and optimize logistics around Rason.

In due course, the Onsong SEZ would be cut out of the “new” Tumen-Rajin route, in this case confirming8)Andray Abrahamian has already pointed out the fact that some SEZ are in direct competition with one another. See: Andray Abrahamian, Geoffrey K. See, and Xinyu Wang, “The ABCs of North Korea’s SEZ,” US Korea Institute at SAIS (2014). that SEZs in the DPRK are competing against each other. While this would mean that Onsong would not be the first to benefit from increased economic integration with China, the building of a fully functioning economic corridor from the Chinese Northeast hinterland to Rajin would certainly bring important opportunities for SEZs located in the northeast of the peninsula, and also for the Tumen River delta in general.

To Take Off, Or Not: Concluding Thoughts | While many DPRK watchers are skeptical of SEZs in North Korea, the dramatic increase of different types of “development zones” in every single province of the country over the last three years has raised eyebrows. The point here is not to be able to “predict” if these SEZs will eventually “take off” or not; rather, from our perspective, SEZs in different parts of the country provide clues on how opening policies are implemented in the DPRK more generally. The successive openings of the Mubong and Kyongwon SEZs, for example, were most likely coordinated with the Chinese authorities on the other side of the border, hinting that there are discussions going on between the DPRK and PRC on how to make the best of what can sometimes be antagonistic views on the development of the Tumen River.

The rapid development of SEZ projects in North Hamgyong Province also seem to reveal changing mindsets among local authorities: since the adoption of the DPRK Law on Economic Development Parks in May 2013, provincial and municipal people’s committees have been in charge of applying for the establishment of local-level SEZs (Article 14). The fact that strategically-located North Hamgyong Province has the largest number of local-level zones hints that local people’s committees there are aware of their potential in the regional economic environment and are committed to wringing some benefits from it.

Given that there is interest in boosting cooperation with China and Russia, the behavior of less strategically advantageous regions of North Korea will be interesting to observe in the coming years, as will the attitude of the central state regarding the divergence in economic development levels that might result.

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1. There is a debate on the exact number of SEZs, since they do not all have the same status.
2. Tsuji Hisako, “The Tumen River Area Development Programme: Its History and Current Status as of 2004,” Economic Research Institute for North East Asia Discussion Papers N°0404 (2004). Initial objectives of the zone were threefold: to improve transit trade, export processing activities and to attract more foreign tourists.
3. The plan is divided in two segments based on geographic divisions: the first one “ChangJi” (Changchun-Jilin) is supposed to host high added value activities (scientific research, R&D); the second one, “YanLongTu” (Yanji, Lonjing, Tumen) is based on manufacturing and processing industries, tourism, transit trade and trade related services.
4. Numerous projects for new shorter Asia-Europe commercial routes have been considered, including the Russian supported “Iron Silk Road” project or the future arctic routes. Both go through Rason and the northeastern tip of the DPRK.
5. “D.P.R. Korea’s Rajin-Sonbong Economic Trade Zone, Investment and Business Guide,” United Nations Development Program (1998), 14.
6. “Invest feasibility report for the Railway Renovation between Rajin and Namyang,” Economic Cooperation Bureau of Rason People’s Committee of DPR Korea (2010).
7. Funabashi Yoichi, The Peninsula Question: A Chronicle of the Second Korean Nuclear Crisis (Brookings Institution Press, Washington DC, 2007), 443.
8. Andray Abrahamian has already pointed out the fact that some SEZ are in direct competition with one another. See: Andray Abrahamian, Geoffrey K. See, and Xinyu Wang, “The ABCs of North Korea’s SEZ,” US Korea Institute at SAIS (2014).

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