31 October 2007

DPRK Looks for Advice and Economics

North Korea’s two Kim Yong Il’s (Premier and Vice-Foreign Minister) have been rather active recently in Southeast and South Asian diplomacy. Kim Yong Il (the premier) is currently on a four nation trip to Vietnam, Malaysia, Cambodia and Laos. Earlier this month, he met with a visiting business delegation from Singapore, and joined Kim Jong Il in greeting visiting Vietnam Communist party secretary general Nong Duc Manh. Kim Yong Il (the premier) also met with Chinese ambassador Liu Xiaoming in June.

Meanwhile Kim Yong Il (the vice-foreign minister) and Kim Yong Il (the premier) jointly met with visiting Chinese Foreign Minister Yang Jiechi in July. Kim Yong Il (the vice-foreign minister) went to Myanmar in April to pave the way for the re-establishment of diplomatic ties, traveled to Indonesia in April, Iran in May and China in September, and met with visiting Philippine Foreign Secretary Alberto Gatmaitan Romulo in June.

Rounding out all the various meetings and visits, Kim Yong Nam (Chairman of the Presidium of the SPA) visited Singapore in August and Mongolia in September, while Foreign Minister Pak Ui Chun visited the Philippines in July. Oh, and there WAS that inter-Korean summit as well, and Kim Jong Il is meeting with Liu Yunshan, a member of the politburo of the Communist Party of China.

All in all, it has been a busy few months, with North Korea ramping up regional diplomacy, focusing intensely on Southeast Asia (the ASEAN nations). The re-establishing of diplomatic ties with Myanmar gave Pyongyang normalized relations with all of the ASEAN countries, and North Korea is looking to find some common economic interests with these states. The diplomatic offensive also matches that carried out by the DPRK in association with its 2000 inter-Korean summit – part of Pyongyang’s attempt to break free from the constraints of its relationship with the United States.

With Vietnam, Pyongyang has said Doi Moi is its economic model of choice, beating out the economic opening and reform of China and Russia’s Glasnost and Perestroika. The reason is simple. Russian economic reform led to political and social upheaval and the collapse of the state. China’s economic reform is leading to too many social instabilities and ever-more-vocal calls for political reform. Both Russia and China were unable to keep economic reform isolated from social and political reform. Vietnam’s Doi Moi is supposed to do just that.

Of course North Korea is not planning to imitate Vietnam’s experience exactly, nor could it. North Korea’s population is just a third the size of Vietnam’s, it doesn’t have the domestic energy resources (though there is some promise in the Bohai Bay area), and its location is all wrong – at least as far as Southeast Asian trade and flow between the United States and the Indian Ocean Basin is concerned. Instead, North Korea looks to Vietnam for some advice, some capital, and some hope that economic change can come with minimal political change.

North Korea will have its own economic model, but it is always looking for advice. The number one issue for North Korea is to have an economic change that doesn’t bring "evil" social influences or political change. They REALLY didn’t like what happened with Russia's economic model. They have been nervous about the Chinese model since the 1980s. Doi Moi offers a model that doesn’t expect social or political change, at least not for a very long time.

The current DPRK model is based on establishing special economic zones. The RaSon zone in the northeast was the first, but proved a big flop. Who wants to be up on the Tumen river isolated and only hanging out with a select few Chinese and Russian businessmen? It turned temporarily into a casino haven, but was pretty much shut down.

The second attempt was to be in Sinuiju, on the Chinese border at the mouth of the Yalu river. This was a good location, easy access to the Chinese markets, and a relatively good transportation infrastructure by rail or ship. But the Chinese didn’t like it one bit. The DPRK's chosen manager, the Dutch-Chinese entrepreneur Yang Bin (the “tulip king” of north China) was arrested and imprisoned, bringing an end to the DPRK's attempt at the SEZ and leading to a precipitous decline in DPRK-China relations that continues to color ties between Pyongyang and Beijing and shape Pyongyang’s search for independence form China’s economic tether.

The third and current zone is in Kaesong. Mostly it is underwritten by the South Koreans, who have political reasons to see it successful. But aside from the politically motivated South Koreans, most others view the location as pretty useless. Kaesong is stuck inland, it can mostly only service the ROK.

The new locations being discussed are in port cities like Wonson, Chinnampo and Haeju. These are industrial cities with deep water ports, places where goods can be quickly shipped to China or Japan or beyond. South Korea is considering shipbuilding and auto manufacturing there to start. The DPRK is looking for more tech investment (as it already does low end consumer electronics in Kaesong).

The purpose of these SEZs is to bring in investment and technology and training without exposing the population to western influences. They are walled off from the neighboring cities. The workers are selected just for work in the SEZ, given their own isolated housing in government work facilities, and in general are kept isolated from the “regular” population. They are also paid by the DPRK government, not he foreign company they work for. They work for the DPRK, which then is paid by the foreign company and supplies workers. Those who learn new skills in efficiency or manufacturing design or methods and who are politically reliable will be transferred either to North Korean facilities elsewhere, to bring about "indigenous" improvements, or to training facilities to train DPRK managers and workers. This is economic growth carefully controlled, isolated from the population, and with all the money directly to the government, so the workers allegiance remains to the DPRK, not their foreign company.

This is slow going, but it is their current model. They also want to expand foreign involvement in the mining sector (coal, uranium, molybdenum, gold, etc), but these, too, will be set up in the controlled conditions, all workers coming from a government contractor, rather than hired directly.

For DPRK, the US is a hindrance on economic change. Not necessarily because they lack US investment or the US as a market - those are nice but not necessary. Rather, because the US-DPRK ... situation ... discourages Europeans and other Asians from investing in DPRK. The political risk is high - not only the chances for conflict, but also for being randomly punished by the US when it gets frustrated with the DPRK. The return on investment isn’t there until the US-DPRK situation stabilizes. This doesn’t require normalization of relations, but it does at least require North Korea’s removal from the terrorism list and the associated sanctions against DPRK. The US is already planning, perhaps by the end of this year, but definitely by the end of next year, to establish an economic liaison office in DPRK. Just that move alone significantly reduces the political risk of investing in DPRK.

What the DPRK counts on, then, is the following image. Consider a labor force that is disciplined, industrious, always on time, and works for pennies a day - making products right next door to the consumer markets of some of the world's largest economies – China (number 4 and soon to be number 3), Japan (number 2) and South Korea (number 12). Products made in DPRK have very easy transportation routes to these neighboring states, by road, rail or ship. Labor costs are rising in China. But the consumer market is also growing. So why not build it in North Korea, and sell in to the neighbors?

If Southeast Asia can cooperate on low-end goods – and maybe even be an early market for DPRK goods – and the Europeans can supply the capital and technology, then the DPRK thinks it may have a chance to start to reverse the economic decline and not have to have a too immediate social or political consequence.

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