An opening for Chinese investment in a benighted country

Exogenous zones

North Korea's economy - Exogenous zones | Asia | The Economist

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NORTH KOREA aims to become a Gangseong Daeguk—a strong and prosperous nation—by 2012, the 100th anniversary of the reclusive state's founder, the late Kim Il Sung. With just half a year to go, it will be a stretch for the near-bankrupt dictatorship to overcome the misrule continuing under his son, Kim Jong Il. All the same, the recent announcement that two special economic zones will be developed with the co-operation of China might just signal the start of a big change for the stricken country.

NORTH KOREA aims to become a Gangseong Daeguk—a strong and prosperous nation—by 2012, the 100th anniversary of the reclusive state's founder, the late Kim Il Sung. With just half a year to go, it will be a stretch for the near-bankrupt dictatorship to overcome the misrule continuing under his son, Kim Jong Il. All the same, the recent announcement that two special economic zones will be developed with the co-operation of China might just signal the start of a big change for the stricken country.

 Rajin-Sonbong (or Rason, for short) lies by the Sea of Japan in the country's north-east, near the border with Russia. Hwanggumpyong is a sandy island at the mouth of the Yalu river that divides North Korea from China. Both are to be developed with Chinese support and then run along broadly market-driven lines. The focus appears to be on logistics, raw materials and manufacturing. At the moment even the most basic infrastructure is lacking. A groundbreaking ceremony for Hwanggumpyong has just taken place, attended by China's commerce minister, Chen Deming, and the most powerful non-Kim in the North Korean regime, Jang Song Taek.

 Hopes that North Korea was about to change have been raised before, only to be dashed. Rajin-Sonbong itself was originally declared a special zone in 1991, and had lavish backing from the United Nations Development Programme. Then mismanagement and poor infrastructure put paid to early hopes. A casino financed by Hong Kong investors was shut down when hordes of Chinese officials went to gamble away public funds. In 2002 North Korea chose a tycoon, Yang Bin, then China's second-richest man, to develop a special zone by the Yalu. It too came to naught, when Mr Yang was arrested in China for tax evasion. Special zones apart, traders and investors from China were badly burned by the regime's sudden and disastrous confiscation of the old currency in 2009.

 China, the regime's last protector, has long been frustrated by North Korean intransigence, not least over economic reform. Mr Kim has often visited China and praised the development model there, only to do nothing when he got home. Liberalisation has never come at the expense of the regime's grip on power, however impoverished it renders ordinary folk.

 Perhaps this time might be different. Last year's rehabilitation of a reform-minded former prime minister, Pak Pong Ju, hints at leanings toward economic change. International sanctions over its nuclear programmes have left North Korea more dependent than ever on China, with which it conducts four-fifths of its trade. With greater leverage, China might now be getting its way. Rason offers a port on the Sea of Japan, something denied China since it ceded Outer Manchuria to Russia in the mid-19th century.

 Despite the two countries' professed fraternal love, Mr Kim will resent greater Chinese influence. But should Chinese-style capitalism gain greater traction in North Korea, the consequences are hard to predict. It might provide Mr Kim with the money for clinging to power. Or else it might expose the country's economic failings, bringing in an unbiddable tidal wave of change from outside.

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Exogenous zones

An opening for Chinese investment in a benighted country

Asia June 18th 2011

From the June 18th 2011 edition

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