In economic development, will N. Korea choose China or S. Korea?

Posted on : 2014-02-19 15:28 KST Modified on : 2014-02-19 15:28 KST
Official materials show North Korea seeking foreign investment at a time when Seoul is reluctant to work for so-called ‘unification jackpot’

By Kim Bo-geun, director of the Hankyoreh Unification Institute

Which of the two will North Korea choose as its partner for economic cooperation: China or South Korea?

If the administration of President Park Geun-hye is to move beyond the slogan and actually achieve the “unification jackpot,” this is the question that it must confront. Considering that Pyongyang has been showing considerable interest in foreign investment recently, there is a good chance that it will choose China as its partner for long-term development if the South Korean government hesitates or fails to take action. If this happens, it is very likely that South Korea will have to watch China win the jackpot instead.

The fact that a district of Pyongyang has been designated as an economic zone illustrates just how eager North Korea is to attract foreign capital. According to a promotional video for investment produced by North Korea’s joint-venture investment committee - recently acquired by the Hankyoreh - the North designated the Eunjong district of Pyongyang as a high-tech development zone.

In the video, a North Korean official said that the government was planning to set up an industrial complex focused on high-tech industry in the Eunjong Science Cluster in north Pyongyang, one of the best-known science and technology clusters in the North.

The video is believed to have been produced in 2013, when North Korea was actively working to attract foreign capital. While Radio Free Asia reported in Jan. 2013 that the North was planning a high-tech industrial complex in Pyongyang, this is the first time that the details have been confirmed through a video. North Korea was planning to create a high-tech complex on 300 hectares in the Eunjong district of Pyongyang for data processing technology, nanotechnology, new materials, high-tech industrial equipment, and biotech, Radio Free Asia said in its report.

“The economic development zone law became law in May 2013, and North Korea officially announced its detailed plans in Nov. 2013,” said a businessperson who has been trading with North Korea for a long time on condition of anonymity. “These movements move well beyond the point->line->plane principle that the Chinese used in its reform and liberalization program.” The businessperson said that North Korea appears to be pursuing “line” and “plane” liberalization at the same time as “point” liberalization. This is evidence that the North Korean authorities desperately want to attract foreign capital to boost its economy.

However, analysts argue that the South Korean government needs to recognize that it is very likely that this plan targets investment from China - not South Korea.

“Most of the thirteen economic development zones and the new special economic zones are concentrated on the coast and on the border between North Korea and China,” said a North Korea researcher who works at the institute of a company. “In contrast, virtually the only one that we could say was made with South Korea in mind is the Kaesong high-tech development zone, which is located next to the Kaesong Complex.”

In fact, North Korea appears to see little chance of attracting South Korean investment to its special economic and development zones. This becomes clearer when we look at how investors are defined in laws made public recently. the Rason Economic Zone Act and the Hwanggumpyong Island Economic Zone Act, both enacted on Dec. 3, 2011, and the Economic Development Zone Act, enacted on May. 29, 2013, define investors as “corporations from other countries, individuals, economic organizations, and ethnic Koreans living overseas.” “South Korean capital” is not included in the list of investors.

In contrast with this, the Kaesong Industrial Complex Act nd the Mt. Keumgang Special Zone for International Tourism Act specify “South Korea” as possible investors. This has raised concerns that North Korea is already thinking of China as its long-term partner for economic development.

Another fact that cannot be ignored is that economic cooperation between North Korea and China coincides with the interests of China. Economic cooperation with North Korea is indispensable for the economic development of China’s three northeastern provinces.

“North Korea is essential as a source of cheap labor and resources for the three northeastern provinces of China, which are experiencing more than 10% of economic growth each year, and investment is already brisk there,” said Kim Jin-hyang, director of the Korean Peninsula Peace and Economy Research Institute. One good example is how China invested in Rajin Harbor to gain rights to use wharf no. 1 and also received the right to construct wharves no. 4, no. 5, and no. 6.

Taking these points into consideration, North Korea looks less like a region that will be subjected to unification and more like a master that will decide who gets to win the jackpot. Naturally, with UN sanctions and the hostile relationship between North Korea and the US continuing, the fact is that the North does not currently have much room to maneuver. In addition, it is unclear whether Pyongyang will be able to meet its foreign investment targets in the short term.

But it is precisely at such a time when it is important for South Korea to take action. “If the South Korean government does not take action now, China, which is increasing its investment little by little, will ultimately win the lottery. South Korea may find itself watching this happen and unable to stop it,” said Kim Gyeong-seong, chairman of the Inter-Korean Sports Exchange Association and operator of a handmade football shoe factory in Dandong, China, that employees North Korean workers.

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