border review | 3 September 2011, by JJ

Curious case of the China-North Korea special zones

The Dear Leader Kim Jong-il concluded his week long visit to Russia and China on 29 Aug 2011. Upon his return, Kim spoke highly of China’s economic development and mentioned that bilateral exchanges and cooperation should be enhanced between different departments and localities between these two countries, according to a Xinhua report.

Kim visited China in May this year, and this subsequent visit in August has been interpreted as a positive sign that North Korea is eager to gain prosperity by opening its borders for more trade and aid.

Indeed, in June this year, China and N. Korea launched two economic development zones along the border: one in Rason at the far end of  north-east N. Korea, and the other on the islets of Hwanggumpyong and Wihwa just across the border from Dandong. Within these two zones, both governments will re-build roads, a new cement factory, electricity infrastructure and develop Rason’s port.

But Jamil Anderlini of the Financial Timesreportedthat the establishment of these zones has led to nothing:

Even though Chinese entrepreneurs are being encouraged and supported by China to invest there, they are still very cautious about considering the Hwanggumphyong Island Economic Zone, and investors from other countries will be even more circumspect…

So says Zhang Liangui, a professor of international strategic research at China’s Central Communist Party School.

North Korea’s past experience of working with other countries has left it with a serious credibility problem and this will stop a lot of foreign investment from even considering these new zones.

Moreover, similar initiatives in the past have not yet come to fruition. The Rason zone is in fact based on an investment zone designated in the early 1990s but never attracted any interest. In Hwanggumpyong, according to the FT report, there is no indication that

any companies have signed up to invest in the new economic zone, despite the imprimatur of China’s central government. The economic zone is still a swampy patch of grassland and mudflats, with nothing but a Chinese propaganda poster to mark the spot where officials broke ground on the project nearly three months ago.

The North Korean city Sinuiju (bordering Dandong) was planned to become a SAR with its own legal and economic system (using US dollars and Chinese yuan) in 2002. But when Kim Jong-il picked a successful Chinese businessman Yang Bin (who held a Dutch passport after 1989) to be in charge of the SAR in 2002, Yang was swiftly arrested by the Chinese police for economic crimes (fraud, false accounting, bribery and illegal use of agriculture land) and was sentenced to 18 years in prison (for detailed stories of Yang’s appointment and arrest, see this special report in TIME and another one in the Economist).

A Dandong-based Chinese trader who travels to Sinuiju regularly on business described the Sinuiju SAR in this way:

Nowadays there’s almost nothing there. There are barely any factories and everything they have is imported from China, even the food and medicine.

The China-North Korea economic zone business is really a curious case, it seems. On the one hand, China is extremely enthusiastic about establishing these zones as they prove to be models of success, not only in terms of financial gains, but also in terms of expanding its “soft power” in the adjacent territories. On the other hand, if the cross-border economic zones prove to spin out of China’s controls (e.g. Yang’s appointment was declared without consulting China first), it does not hesitate to pull the plug. It is therefore interesting to see how the newly launched economic zones can be developed and managed in the years to come. If N. Korea shows disobdience again,will China abandon the new zones as a punitive measure and turn them into no man’s land?