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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.

Insights into North Korea’s Internationalization

Readers/viewers may also be interested in this related video session about the same book at the Foreign Correspondents’ Club in Tokyo with Jiro Ishimaru and Bradley Martin; the Wall Street Journal breaks down Rimjingang‘s mission and personnel.

Sinuiju Updates / North Korean News from China

Good Friends reports that swine flu has broken out in the northwestern border city of Sinuiju.  In addition to testimony from a mother, including rumors of a quarantine of Kaesong, the report describes that medicine sales have been halted on account of the recent currency revaluation.

This report from Daily NK describes how piles of the old currency were being used by arsonists to light up old buildings in an unspecified North Korean city.

The same report describes the anxiety of woman traders in Sinuiju distraught by the currency revaluation:

According to another source in North Pyongan Province, one Ms. Jang, a woman in her 40s living in Yeokjeon-dong, Shinuiju who lives by trading cosmetic products, got such a shock from the news of the redenomination that she became delirious and started yelling criticisms of the authorities, so officials from the National Security Agency had to arrest [her].

The major Chinese news outlets have been quieter today on the currency front, having expressed some disapproval already.  However, there has been some interest by Chinese press and readers in a South Korean television series that depicts North Korean spies.

via Huanqiu Shibao -- anti-North aspects of the "Korean Wave"

The series has come in for incredible mockery in China because the attire of the agents resembles that precisely of Keanu Reeves in “The Matrix” (talk about dilemmas of globalization!) and, more to the point, because the height of the actors portraying the agents. Quoting the unnamed masses in South Korea, the Huanqiu Shibao states that “Everyone knows that North Korean men are 10cm shorter than South Koreans.”   It’s bad enough to be North Korean in China, but this kind of thing adds insult to injury, which I’m quite certain continues on this comments board.

Of course, Chinese opinion on North Korea is anything but monolithic, and the CCP’s lightening of restrictions on Chinese scholars does not axiomatically mean that Chinese scholars will now stand up and condemn North Korean dictatorship.  And Chinese scholars can always publish outside of China.  Thus we have Qiao Yuchi [乔禹智], director of Korean economic research at Peking University, writing in the Chinese version of Chosun Ilbo of his optimism for North Korean economic reform.

Qiao Yuchi -- 北京大学朝鲜经济研究室主任 乔禹智

Qiao scrolls through a number of ideas, including the notion that North Korea “possesses the advantage of the late comer” to socialist economic reform and can benefit from the wisdom of Eastern Europe, Mongolia, Vietnam, and China in this regard.

Some new information is also included:

温家宝访北时随行的中国发改委主任和商务部长完全可以决定几十亿美元的投资,但实际上却没有签署一项对北投资协定。双方只是公布签署了没有太大意义的观光协定和IT协定。笔者认为,很有可能是因为北韩没有适当的人可以同中国进行谈判,所以双方没有进行对话。

When Wen Jiabao visited Pyongyang, he was accompanied by the North China Development and Reform Commission and the Secretary of Commerce, people who had the ability to  decide to complete the investments worth several billion American dollars, but in fact, they did not sign any investment agreements with the North. The two sides announced just something that doesn’t make much sense: agreements on tourism and IT. In this writer’s opinion, it is very likely that North Korea had no person who could properly engage with negotiations along with China, so the two sides did not engage in dialogue.

That’s awfully interesting, isn’t it?

In conclusion, Qiao presents a new metaphor:

可以将北韩比作漂浮在水上的冰山,如果一次性融化太快(改革开放),就很难维持冰山的形态(体制),如果一次性冻得太硬(对北经济制裁),下次让其融化时就会更加费力,甚至使冰山下面流动的水(地方居民的生活)也冻僵。现在似乎需要道教所说的“太极”。

It can be said that North Korea is like an iceberg above water; if the initial economic change is too fast (reform and opening up), it becomes very difficult for the iceberg to maintain its shape (political system); if the initial changes melt too slowly (economic sanctions on North Korea), the next time the economic reforms will need even greater efforts, and moreover the submerged part of the iceberg (the lives of the local residents) will also remain frozen.  Presently what is needed is what the Daoists call “Tai chi.”

Perhaps Tai chi is needed, but the people on the bottom of that iceberg would probably settle for more protein and a stable currency.

Finally, the Dandong newsline on China’s northeastern border doesn’t appear to have any comment yet on the swine flu in neighboring Sinuiju, but there is this summary from the city’s United Front work bureau on the struggle against counterfeit currency.  This kind of thing is only going to get worse, it seems, on account of the North Korean revaluation.  As always, the winds from North Korea remain cold, but this time, they bring waves of fluttering and useless blue bills.

Currency Vortex: China Blasts North Korea for Mercantile Chaos

Recent days have been bleeding into one another, swiftly, with a kind of inexorable momentum that allows for little reflection of the past.   Nowhere does this seem more true than in recent news about North Korea, and the Chinese view of the DPRK.

Just when China seems to have settled things down and made nice with the North, to the apparent disappointment of Washington, Pyongyang up and revalues its currency, apparently with no forewarning given to Beijing.

You can typically tell when China is upset about a given North Korean policy, because they quote South Korean or Japanese newsmedia like crazy, or, if the Chinese are really displeased, the Daily NK and Good Friends reports.  Which is exactly what they do in this article from the Huanqiu Shibao on the currency revaluation.

via Huanqiu Shibao

Commentary from Chinese netizens seems fairly slow on this issue at the moment, although Juchechosunmanse may end up hauling up a cache from some BBS I’ve not beheld on Sina.com or another Chinese portal.  One comment here on the Huanqiu board is that “[North Korea] studied this policy from the old Chinese Nationalist government.  Truly, they’re just printing money.”  The Korean Workers’ Party as the Guomindang!  That’s fresh.  Other comments brush aside the currency change and mock North Korea for its barter economy.

Some excellent analysis on the currency question is tendered in English posts (here and here) by Joshua Stanton who digests and links to the relevant Daily NK and South Korean press articles.

On the same story, Curtis Melvin of North Korean Economy Watch offers extensive extracts from NYT, WaPo, Wall Street Journal, AFP, and Yonhap.

In this story from December 1, Huanqiu Shibao offers a disapproving headline on the currency story, noting that it “caused huge chaos in markets” [朝鲜停止使用原有货币引发市场大混乱].  In post-Deng China, that’s a sin!

Not that this news is causing huge waves in areas of China more distant from North Korea.  Not when that dashing Canadian Prime Minister is in town to get some action on the Albertan tar sands project…

Things have been pretty slow over at the Chinese embassy in Pyongyang’s website since the PLA generals left town.  (Some netizen mockery of North Korean military attire and the staged embraces can be accessed here.)  However, I did learn that Liu Xiaoming, the dapper Chinese ambassador to the DPRK, is fluent in English and has a master’s degree from Tufts University in Boston.  I can’t imagine he is doing anything but clucking his tongue at these latest moves in the North.