hankyoreh

professor at Peking University

Recently, North Korea held a briefing in Shenyang, China, on a development plan for a Wonsan-Mt. Kumgang International Tourism Zone. Its idea involved developing a single belt encompassing the city of Wonsan, the Masikryong Ski Resort, Ullim Falls, Sokwang Temple, Tongchon, and Mt. Keumgang. An explanation of the legal context was also provided, with a goal of attracting one million foreign tourists a year. North Korean leader Kim Jong-un also hinted in his 2015 New Year‘s address that the Wonsan-Mt. Keumgang zone would have to play a leading role for other development zones.

Will the plan succeed?

The first special zone established by North Korea is Rason (Rajin-Sonbong). It was created in 1991, just ten years behind China’s Shenzhen Special Economic Zone. In the years since, Shenzhen has burgeoned from an outlying fishing village into a global metropolis playing a leading role in China‘s international opening. Rason, in contrast, has precious little rainfall to show for all the thunder. Indeed, it could fairly be called undeveloped even today.

Was there some crucial difference? Did the world of difference emerge out of some difference in early conditions?

In 1984, around the same time the Shenzhen Special Economic Zone was being established, North Korea had already enacted its Equity Joint Venture Law. The early 1990s, when the special zone at Rason was first announced, also saw an outpouring of legislation: a Foreign Investment Law, a Joint Venture Law, a Foreign Enterprise Law, a Foreign Exchange Management Law, and a Foreign Taxation Law. Indeed, the laws outnumbered those created when the Shenzhen zone was established.

But there was a pivotal difference in the early environments for Shenzhen and Rason. China met the necessary internal conditions for outward openness as domestic reforms shifted it from a planned economy to a market economy system.

In other words, outward openness moved in tandem with internal reforms. North Korea, in contrast, attempted outward openness without domestic reforms - a “tree without roots,” as some have described it. The lesson from more than two decades of effort is clear: a market economy cannot be grafted onto a planned economy. North Korea’s intense aversion to reforms and openness resulted in difficulties attracting foreign investment. It‘s an internal factor to explain why the Rason Special Economic Zone has yet to bear much fruit twenty-odd years later.

Now North Korea is attempting to add Wonsan to the list of special economic zones it started with Rason. If Rason was a testing ground for outward openness in the Kim Il-sung (North Korea’s foundation until his death in 1994) and Kim Jong-il (1994 until his death in 2011) eras, then Wonsan may be poised to serve as its counterpart under Kim Jong-un. Of course, there is a difference from Rason in the early conditions, namely the “North Korean model of economic management,” which amounts to a form of domestic reforms. The North Korea of today has incomparably more developed market economy elements than that of 20 years ago -- far more, indeed, than were present in China at the time the Shenzhen Special Economic Zone was established.

The question, then, is whether North Korea now has the internal reform prerequisites for developing the Wonsan-Mt. Kumgang International Tourism Zone. In an ironic twist, the past 20 years of Rason’s development are now acting as a bottleneck on Wonsan.

China’s reforms and openness operated on a top-down model, while North Korea’s changes have followed a bottom-up approach. The former is more autonomous; the latter is heavily dictated from above. Differences lie in the leaders’ philosophies, convictions, and commitment toward reform and openness. North Korea’s change began when the Kim Jong-un regime took power. Economic reforms introduced by Kim Jong-un, called the May 30 Measures, stressed a shift away from old frameworks and formalities in favor of decisive innovations in economic management methods at North Korea’s factories, businesses, and collective farms. But signs of a firm commitment to and belief in outward openness have been less clear. Without a positive feedback loop between internal reforms and external openness, the changes could end up a mere tempest in a teapot.

External openness poses a much tougher task on North Korea than internal reforms, with many more hurdles to clear. The surrounding environment is at an all-time low, with international sanctions brought on by nuclear testing, inter-Korean relations choked off by the May 24 Measures imposed by Seoul in 2010, and relations with Beijing left chilly after a third nuclear test. The situation is draining energy without putting anything back in. There’s also a limit to the potential to be extracted from internal reforms. Whispers about depleted funds have already begun to go around. Could this explain the re-emergence of slogans in North Korea like “a battle to achieve home production” and “the only way to survive is through self-renewal”? What is clear, at any rate, is that no new energy can come from self-renewal without external openness.

Perhaps the biggest hurdle North Korea has to clear is itself. Most of all, it has to transcend its own past two decades. In that sense, the most crucial investment environment of all will be the leaders’ own firm conviction, commitment, and philosophy toward openness. It wouldn’t be going too far to say the fate of the Wonsan Special Economic Zone depends on this.

By Jin Jingyi, professor at Peking University

Please direct questions or comments to [english@hani.co.kr]