One More for the Road? New Masterplan for the Sinuiju Special Economic Zone

By | February 11, 2016 | No Comments

Yalu-bridge-old

Yalu Bridge under construction during the early 20th century. | Image: Lafayette College Digital Archive

North Korea is promoting a new investment effort for the Sinuiju International Economic Zone (신의주국제경제지대). Reading the promotional document, Stephan Haggard notes, “The tin ear elements in the document are jarring. One of the ‘five charms’ of investing in the zone is a ‘positive foreign policy and the stable political environment.’” The latest North-South cross-border brouhaha over Seoul’s decision to halt production at the Kaesong Industrial Complex shows just how thick the North’s tin ear might be. The shutdown — the second in three years — of North Korea’s most (and arguably only) successful special economic zone (which is basically South Korean anyway) does not bode well for Pyongyang’s international reputation — a vital factor in attracting international investment. Unlike in 2013, the last time Kaesong factories went idle, North Korea did not order the shutdown, but the response is not likely to assuage investment uncertainty. 

Nevertheless, the law of unintended consequences is in effect, and there might be a silver lining to an otherwise dark cloud. Seoul’s decision to sever the only substantive bilateral economic tie remaining since the implementation of the 5.24 Measures in 2010 might open up an interesting opportunity for North Korea to turn definitively north to a somewhat less hostile China. With cross border trade via Dandong-Sinuiju as strong as ever, and no fewer than 20,000 North Korean workers in Dandong already, the allure and incentives are clear. Will North Korea take the opportunity to redirect capital and labor to the Sino-North Korea border city of Sinuiju? The 54,000+ strong Kaesong workforce, as Sejong Institute’s Cheong Seong-chang notes, may be sent straight to China, but what about other resources? Fresh from the borderlands, Sino-NK border analyst Théo Clément adds to the emerging reading list on economic zones in North Korea, this time focusing on the plans for the Sinuiju Special Economic Zone. — Steven Denney, Managing Editor

One More for the Road? New Masterplan for the Sinuiju Special Economic Zone

by Théo Clément

Fifteen years ago, in January 2001, the late General Kim Jong-il went on an official visit to Shanghai, where he toured spots of economic interest including the skyscraper jungle of the Pudong Special Economic Zone (SEZ), a few successful Joint Venture (JV) companies, and the Shanghai Stock Exchange (allegedly twice). During the visit, Kim also took time to visit a farm on the outskirts of Shanghai managed by the 39-year-old Chinese-turned-Dutch businessman Yang Bin, who happened then to rank second in Forbes’ list of the richest people in China. Kim Jong-il invited Yang to Pyongyang, and they designed together a new project, the “Kaesong of the North,” the Sinuiju Special Administrative Region (Sinuiju SAR).

The Sinuiju SAR was going to be more than just a Special Economic and Trade zone like the one that already existed in the northeastern corner of the DPRK, Rajin-Sonbong. Sinuiju was a political project, whose goal was to establish a “Hong-Kong of Northeast Asia” based on the “one country, two systems” (一国两制) concept. The fifth biggest city of the DPRK was to be walled-off from the rest of the state, get its own flag, and issue its own passports. What is more, the SAR was to be governed by Yang Bin himself, meaning that the Central State was prepared in principle to transfer some political power to the hands of a foreigner, a concept that was, and still is, unheard of in the DPRK. The rest of the story is well-known to North Korea watchers: just after the SAR was announced, Shenyang police arrested Yang Bin for fraud and illegal economic activities, and sentenced him to 18 years in jail.

Dynamic DPRK: Where Cooperative Projects Come to Die | While it may have looked at face value like a bold idea, the Sinuiju SAR was an ill-prepared, unilateral decision from the DPRK leader that resulted in abject failure. But the collapse of Kim Jong-il’s temporary consensus on Sinuiju did not prevent the two sides from taking the initiative in trying to generate other economic synergies across the Yalu. The Dandong–Sinuiju region has always been the most important China-DPRK economic interface; it is home to the famous Sino-Korean Friendship Bridge, which sees about 70 percent of the total Sino-DPRK trade volumes cross its concrete slabs. There are about 600 trade companies headquartered in Dandong, with some (often the most experienced ones) only focusing on Sino-DPRK trade. The city also hosts several factories where cheap and reliable North Korean labor is used by Chinese (and to not a small extent, South Korean) companies.

On the other hand, economic cooperation in the area is not always easy, and Chinese businessmen in Dandong often explain that the city economy will only really take off when the DPRK “finally opens up.” Based on the historical parallel with China itself, Chinese business owners often define their work today as securing a good contact network inside the country in preparation for tomorrow’s eventual “reform and opening” process launched by Pyongyang. There are indeed clear economic complementarities between the DPRK and China, but while Pyongyang never actually aimed at complete autarky, its juche perspective does put de facto limits on economic interactions with the outside world — an obviously frustrating reality for Northeast China (and Dandong in particular), which has been the biggest loser in Chinese economic reform.1)Nicholas Lardy, Foreign Trade and Economic Reform in China, 1978-1990 (Cambridge: Cambridge University Press, 1992). See also: Chin Kwan Lee, Against the Law: Labor Protests in China’s Rustbelt and Sunbelt (Berkeley: University of California Press, 2007).

Both China and North Korea have tried several times to bolster cross-border economic interactions, with little success to date but signs of an ongoing willingness to try: after the 2002 Sinuiju SAR cold shower, bilateral cooperation restarted in 2011, when the Hwanggeumpyeong and Wiwha SEZs were officially established under bilateral agreements. While business activity in these areas is still basically nonexistent, the recent announcement of a brand-new master plan for the development of the Sinuiju Special Economic Zone indicates that not all is lost. Even if economic cooperation is limited by strongly diverging attitudes on both sides of the Yalu, interests still partially overlap and there is a willingness to engage in closer economic cooperation.

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Hwanggeumpyeong in December 2015 | Image: Théo Clément/Sino-NK

Along with North Hamgyong Province — North Korea’s other “natural” interface with China — North Pyongan Province (of which Sinuiju is the capital) is the most “open” province of the DPRK. In addition to Hwanggeumpyeong and Wiwha, there are three additional Special Economic Zones there: one in Chongsu (near the Shuifeng/Supung dam), another at Uiju (Amnokgang Special Economic Zone, facing the tourist city of Hushan in China), and finally the Sinuiju Special Economic Zone (to be discussed later). Since the China-DPRK exhibition of October 2015, there is also a China-Korea trade zone located in the “New City” (新城; 신성) of Dandong, where Chinese and North Koreans traders can benefit from tax cuts for transactions under 8,000 RMB/day. Despite high hopes, actual trade activity there seems to be extremely low, if not non-existent, especially in the Korean/foreign part. To put it bluntly, the newly opened trade zone is a quasi-empty zone in a quasi-empty city, a typical example of Chinese “ghost town” (鬼城) development: a sparsely or only semi-inhabited jungle of high-rise luxurious buildings. During our visit there in December 2015, local businessmen and employees explained that the final opening of the “bridge to nowhere” (the New Yalu River Bridge, or 신압록강대교) would trigger economic activity in the zone. It might be too soon to tell, but in addition to low levels of activity in the trade zone, its future might also be threatened by the ongoing construction of another trade and service zone in Dandong (albeit not one focused wholly on China-DPRK trade), which is currently under construction by the Chinese group Defeng, as advertised during the 2015 Pyongyang trade fair.

While it is too soon to assess the success of the China-Korea Trade Zone in Dandong, Hwanggeumpyeong and Wiwha islets were opened to foreign investment five years ago, and benefited from extensive support from both the Chinese and the DPRK government. Assessment is possible. As of today there is still no visible economic activity in these zones; like most of the DPRK’s SEZs, they lack even the most basic infrastructure and consist mostly of farms and rural areas. Trying to attract investment in various sectors like information technology, light-industry, etc. has basically been a non-starter. In addition, Wiwha and (to a lesser extent, according to locals) Hwanggeumpyeong islets suffer from flooding almost every year, thus necessitating even more infrastructure investment for them to take off.

The Sinuiju Special Economic Zone: A New Hope? | However, officially opened as the Sinuiju Special Economic Zone in 2013 and renamed the Sinuiju International Economic Zone in 2014, the DPRK’s fifth largest city may have something to offer just yet. Infrastructure, although in disrepair, does exist, and local authorities from both sides of the border seem to be eager to make the synergy finally work, especially in the tourism sector. According to Chinese press releases, the State-led China Dandong International Tourism Agency invested 50 million RMB to develop tourism-related infrastructure (maybe spent on a new complex under the bridge), and the zone is now preparing to hosts Chinese tourists on a visa-free regime. As things now stand, four days are necessary for Chinese citizens to acquire a DPRK visa to go to Sinuiju. But if local governments eventually find agreement, locals would be able to enter the zone with only their ID Cards and an Exit-Entry permit from the Dandong Public Security Bureau (issued the very same day), as long as they plan to stay within the limits of the tourism area and return to Dandong within five hours.

Tourism is only one aspect of the development. Contrary to most DPRK SEZs that have sprung up since 2013, the Sinuiju International Economic Zone is not a sector-focused SEZ but rather aims at becoming a multi-faceted, comprehensive one. This is certainly an audacious objective, but it does at least make sense given the zone’s strategic location. In October 2015, South Korean press reports leaked partial information on a new agreement between Liaoning province and local authorities for the joint development of Sinuiju, a project that was considered “more concrete” and “more precise” than previous development plans by Lu Chao, director of the Borderland Studies Institute of the Liaoning Academy of Science. Available information offered at the time was nothing short of mind-boggling: Planned investments worth an optimistic $40 billion over 10 years, which is quite hard to believe given that several existing bilateral projects (like Hwanggeumpyeong and Wiwha) clearly lack funding already, and the empty bridge still embodies the mishaps of cross-border dialogue. In addition, the project encompasses rather mysterious side-projects, including a canal between Sinuiju-North and Sinuiju-South, and no less than ten additional bridges (including a railway one) to cross it.

As some DPRK watchers have already pointed out, the DPRK has progressively released information on new developments in Sinuiju, including an article in the latest issue of Foreign Trade and, more recently, a fairly detailed development master plan.  To wit: Sinuiju International Economic Zone is a 38km² area that stretches from the New Yalu River Bridge to Wiwha Islet in the North. The basic idea is to develop various sectors like finance, processing (cars and machinery as well as garments), high-tech, and also international logistics and trade-related services. Sinuiju would need an almost complete makeover to turn the existing city into an “international level city,” but this is a stated objective of the plan. As ever with the DPRK, precise but mostly useless information is made available, while questions that actually matter for the development of the zone and potential investors are left unanswered.

We know that the Sinuiju SEZ is about 68 percent rural land, 19 percent residential and only eight percent industry. Whilst the rural areas are expected to disappear and residential districts to shrink slightly (to 16 percent), industry is expected to eventually occupy 28 percent of the zone. The plan also necessitates a new thermal power plant and a comprehensive waste water treatment system, bearing a striking resemblance to Rason SEZ and others in the country. International telecommunication networks are also to be developed, with the creation of ten communications centers in Sinuiju as well as access to satellite broadcasts from the foreigner residential areas (which, unfortunately, do not appear on the map). The mysterious North-South canal also turns out to be a real part of the plan: its role would be to divert about 10 percent of the mighty Yalu river to prevent flooding, which could potentially benefit Hwanggeumpyeong and Wiwha in the long run, given that the three SEZs are supposed to be linked by road in the future. Interestingly, the New Yalu River Bridge terminates right inside the zone, and while its connection with the rest of the DPRK transportation network still needs to be completed, it is part of the development plan. The zone can currently be accessed by road and train from Dandong, Pyongyang, Yomju, or Uiju (near the Amnok River Economic Development Zone), but, interestingly, the blueprint for the development of the zone also mentions the old project of a Dandong-Pyongyang (-Kaesong?) high-speed train, which was on the table in 2013-2014 but has not been heard of since.

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The Hwanggeumpyeong SEZ development outline, as seen from Dandong, China. | Image: Théo Clément/Sino-NK

Infrastructure Development Is Crucial for SEZs: Conclusion | North Korea watchers interested in Rason know very well that plans often widely differ from reality. Similarly, visitors to the Sino-Korean border at Hwanggeumpyeong can bear witness to a huge billboard displaying the development plan. From that point on, though, is a virtual no man’s land stretching to the horizon.

In addition to the potential political and geopolitical tensions that can impact, on different levels, the development of DPRK SEZs, one key hurdle is the lack of reliable infrastructure that this expanse of farmland intimates. Either obsolete, insufficient, or sometimes simply nonexistent, infrastructure in Special Economic Zones is rarely built by North Koreans, and China, the partner with the resources and wherewithal to literally move mountains for developmental purposes, also tends to be quite reluctant when it comes to funding such things inside sovereign North Korean territory. Given the history of Dandong-Sinuiju, especially after the bridge to nowhere episode, one can hardly blame them.

As a consequence, even with China’s ostensible commitment to the project, the current master plan for the development of Sinuiju seems highly optimistic. On the other hand, the fact that plans for the Sinuiju International Economic Zone seem to be designed jointly is a good sign. All in all, Sinuiju might be an interesting trial of the SEZ concept in the Sino-Korean borderland. While there is reason to be doubtful about the future of most of the other zones, Sinuiju is already a relatively developed city and, contrary to Rason, can tap directly into the mainstream of Sino-Korean trade. If one Special Economic Zone in the DPRK is going to work properly, it might just as well be here.

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1. Nicholas Lardy, Foreign Trade and Economic Reform in China, 1978-1990 (Cambridge: Cambridge University Press, 1992). See also: Chin Kwan Lee, Against the Law: Labor Protests in China’s Rustbelt and Sunbelt (Berkeley: University of California Press, 2007).

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