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North Korea’s Economy: The View From China

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North Korea’s Economy: The View From China

Sanctions aside, many Chinese businesspeople are willing to invest across the border. Is North Korea ready to open its doors for them?

North Korea’s Economy: The View From China
Credit: Wikimedia Commons/ Prince Roy

Since Donald Trump was elected president of the United States, he has held several rare meetings with North Korean leader Kim Jong Un, bringing global attention to the North Korean issue. However, even while Trump has engaged North Korea, sanctions against North Korea have not been relaxed. It’s this fact that most bothers North Koreas, and is also likely the reason why U.S.-North Korea relations haven’t had a true breakthrough.

In fact, the United States is not acting alone in the sanctions against North Korea. The United Nations, including China, implemented sanctions as well. North Korea cannot publicly complain about China, however, so it criticizes the United States as a way to air its grievances against U.N. sanctions.

How serious is the impact of sanctions on North Korea? A friend of mine has recently been doing business with North Koreans and made several trips to North Korea. His observations help paint a picture of North Korea’s business environment and economy.

Sanctions have, of course, had a fairly large impact on North Korea, leading the country’s industrial development to be stuck at a relatively low level. For example, my friend led a group of Chinese entrepreneurs to see local North Korean factories. He reported that these factories are very small in scale and produce low-quality goods. The quality of the soap, furniture, and other household goods being made is similar to that of Chinese goods 40 years ago. Not only that, but supply can’t keep up with demand, leaving many local North Koreans without essential goods.

What does this mean? It shows that North Korea has development needs that are not being met. Sanctions have led to a serious lack of funds and there is no way for North Korean companies to expand production.

As a result, North Koreans hope that Chinese entrepreneurs will step in to provide funds and use the cheap labor available in North Korea to create a win-win situation. After all, enterprises focused on people’s livelihoods are not included in the U.N. sanctions, which is one of the reasons why Chinese entrepreneurs dare to get involved.

In fact, what Chinese entrepreneurs are most worried about is not the question of sanctions but the issue of legal protection. In the past there have been many instances of Chinese people doing business in the country only to see their agreements torn up by North Korea in the end, leading to major financial losses.

Still, don’t think that Chinese entrepreneurs won’t invest in North Korea because of those concerns. In fact, there are many people bold enough to do so, especially those from places like Zhejiang province in southern China. It was pioneering businesspeople from this same region who, 40 years ago in the early days of China’s reform and opening up, were the most willing to invest in new enterprises.

Now they look at North Korea and see the China of 40 years ago, stoking strong expectations for the future opening of North Korea.

My friend said that the North Koreans he has contacted are looking for Chinese partners and are especially willing to engage with Chinese southerners. Perhaps that’s because businesspeople from China’s south, though geographically far from North Korea, are more willing to make high-risk, high-reward investments.

There are basically two models for Chinese people to invest in North Korea.

The first is to directly invest in light assets in North Korea. For example, say North Korea owns a hotel in a tourist area. Chinese companies could invest in the hotel renovation and secure the management rights. Then the income from the hotel would be divided with the North Korean side.

Recently, Kim Jong Un inspected North Korea’s Mount Kumgang resort area and lambasted the tourist facilities previously built by South Korean companies. Kim called for these buildings to be dismantled, with North Korea planning and constructing its own replacements. As this process unfolds, Chinese companies may have increased opportunities to participate in the development of Mount Kumgang tourism.

The second model for Chinese investment in North Korea is less direct: taking part in border trade from inside China itself.

Certain border cities in China have become important areas for North Korean businesses. For example, Dandong and Yanji are both frequent destinations for North Koreans. Some high-ranking North Korean officials have even come to China’s border cities to discuss cooperation, although this has not been reported in the media.

At the same time, China’s border cities hope to take advantage of North Korea’s desire to develop its economy in order to develop themselves at the same time.

One example of this type of investment cooperation would be the establishment of a North Korean industrial zone in a city on the Chinese side of the border. North Korea would provide the labor; China the land, capital, production materials and production materials. Then the products produced would be sold to North Korea.

This model avoids the risks of North Korea’s flawed legal system, while still providing goods for North Korea and improving the lives of North Koreans. At the same time, the Chinese partners would also make money and develop the Chinese economy. Some local governments in China are already seriously considering this option, and it may be implemented soon.

From China’s perspective, North Korea’s economic development is good for everyone. It brings not only economic benefits but also security advantages. As North Korea becomes more open, the thinking goes, it will depend less and less on the threat of its nuclear weapons.

North Korea is indeed slowly opening up, and there have already been many social changes.

Many people assume, for example, that it’s impossible to take a casual picture inside North Korea. On the contrary, there’s no problem in using a mobile phone to snap a photograph (although the same phone will have no signal and can’t access the internet). Chinese people have no problem photographing North Korea’s daily life and street scenery, as long as they steer clear of sensitive locations like military facilities. If a Chinese visitor is at a North Korean business or university to consider a potential investment, taking photos is even easier. But even then, ordinary North Koreans are generally unwilling to have their photos taken by foreigners. Many will dodge when they see phones raised to snap a picture.

This photography example proves that even though change is evident, North Korea still needs to be further open. China’s policy of promoting North Korea’s economic development is in line with North Korea’s own wishes. Trump’s policy of engagement with North Korea is also conducive to easing tensions, but progress has been slow. Washington needs to move more quickly.

Both the United States and China have the idea of ​​promoting North Korea’s integration into the international community. This is fertile ground for pursuing common interests in their diplomacy toward North Korea.