Three Questions on Dandong and Chinese-North Korean Economic Relations

As the third China-North Korea Trade Fair continues, a few questions (modified from those posed by a stalwart reporter from a northern European news magazine roaming Liaoning province) and tentative answers seem appropriate.

Q.: There is a great deal of new construction in Dandong and Chinese real estate companies are clearly trying to attract buyers — including possibly wealthy North Koreans. 

I have been going to the ‘Xinchengqu’ (or New City district) every year since that project began, and have yet to see the area really start to fill up with residents. People appear to be buying apartments as speculation properties and then not living there; this is hardly a phenomenon isolated to the border with North Korea, however. Public transportation to the area is still relatively poor and the government buildings –not bilateral trade — are the main anchor for the community to actually function. The bridge has taken nearly five years to build (an eternity by Chinese standards) and is still shut, whatever the propaganda says about its promised transformational effect.

It is certainly possible that a small number of North Koreans with the necessary connections in the Korean Workers’ Party could afford more substantial residential real estate in the city. As my own recent fieldwork has indicated, Kim Jong-un is allowing more loyal North Koreans to live in Manchuria and stay for longer periods of time, with their nuclear families, than his predecessor. He has also allowed overseas Chinese (hwagyo) in the DPRK to have easier phone access and cross-border access to China, surely aware that remittances are important and that small-scale business ties are good for North Korea, so long as they do not cross into the formation of anti-Kim groups, in which case they will be rapidly destroyed. (See the currency revaluation of November 2009, which China is still angry about and which is a good example of how the regime occasionally will move to cut off the nascent capitalists at the knees.)  

Q. North Korea is touting plans to build six more special economic zones, bringing the total number to 19. How successful would you say they have been in attracting investors?

A. When it comes to the zones, I think you have to draw a firm line between Kaesong and Rason — zones that are functioning, with relatively stable investment — and zones that are merely existing on paper or are dormant, like Hwanggumpyeong. The vast majority of the new zones just exist on paper. This is true up and down the border with China, again with the exception of Rason.

There is also the matter of North Korea announcing ‘Economic Development Zones’ which would be subject only to North Korean law. The main one deep within North Korea is in Unjong, a suburb of Pyongyang focused on high-tech. I haven’t been there myself, but Chinese media has carried a couple of long stories about it and Chosun Exchange (Geoffrey See and Andray Abrahamian, two young entrepreneurs) had good things to say about their recent visit there. But of course the location of it makes it possible to have basic infrastructure set up in the first place, which is a major failing of the more peripheral zones.

My working paper for Korean Economic Institute, in part, argues the following: Essentially, North Korea has mothballed the two SEZs that had full Chinese financial backing –Hwanggumpyeong and Wihwa. In spite of the fact that the PRC central government was out beating the drum consistently for investors, North Korea has replaced these zones (directly, in the case of Sinuiju) with totally new plans on different territory in the same region with no infrastructural development or preparation, or apparent external investment.

Yet somehow, these zones are always mentioned when it comes to Western media predicting or attempting to locate the roots of possible economic change in North Korea. The new zones have thus been much more successful as an instrument of external propaganda than as an instrument of channeling investment into the country, much less cultivation of a new entrepreneurial class. Don’t mistake activity for economic effectiveness or an actual plan to achieve more tangible foreign direct investment.

Q. According to media reports, trade between China and North Korea declined in the first half of the year. How much do you think the execution of Jang Song-taek has hurt the trade?

When I spoke with Chinese experts in Yanbian about this, their feelings and their anecdotes were uniformly negative. There was a feeling that the Jang execution had fundamentally set things back and that it might take years for China to rebuild trust and relationships with North Korea. But, in fact, after a relatively brief hiatus of a few months, starting in spring 2014 bilateral trade appears to have come back more vigorously than before. The customs houses on the eastern edge of Yanbian Korean Autonomous Region have seen trade volumes increase over 65% from the prior year (according to Yanbian Chenbao, a CCP newspaper).

Of course this is all relative — North Korean business presence in Northeast China is still rather limited and does not look poised to make huge progress in the year ahead. Without fundamental economic restructuring within North Korea, the activities of North Korean businesses in Manchuria will remain limited and peripheral — still important to the central government as a means of gaining hard currency legally, but nothing at all like the scale of money the DRPK could make if it were able to successfully experiment with attracting large-scale foreign investment on the scale of, say, Shenzhen.

Image by Matthew Bates, courtesy of Sino-NK.

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