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DPRK brinkmanship damages (non-Chinese) long-term economic investment

If the North Korean government is given to casually breaching its economic, political, and military contracts and agreements, the prospects of serious foreign direct investment in the country look increasingly grim.

Last week the North Koreans canceled their agreements and contracts with the South Korean government which laid the ground rules for the most significant joint-economic project, the Kaesong Industrial Zone.

This week they surprisingly announced that they are no longer bound to the 1953 armistice! According to the Washington Post:

North Korea announced Wednesday that it is no longer bound by the 1953 armistice that halted the Korean War, the latest and most profound diplomatic aftershock from the country’s latest nuclear test two days earlier.

North Korea also warned that it would respond “with a powerful military strike” should its ships be stopped by international forces trying to stop the export of missiles and weapons of mass destruction.

This is bad news for ordinary North Koreans as it will only serve to increase the risks and costs of investing in the DPRK…or at least this is what a simple analysis would predict.

As we have seen recently, however, North Korea has received significant investment in the last few years.  Additionally, the DPRK’s international trade volume (excluding South Korea) continues to grow.

How is this possible?  The North Koreans are not canceling any agreements and contracts with China or Chinese companies (as far as we can tell).

UPDATE: Chinese fishermen seem to have been affected:

“Chinese fishing vessels have begun retreating from NLL (northern limit line) waters since yesterday. We are working to find out if this is based on North Korea’s request,” Yonhap news agency quoted an unnamed South Korean army source as saying.

Read the full stories here:
North Korea Issues Heated Warning to South
Washignton Post
Blaine Harden
5/27/2009

Chinese ships quit North-South Korea border: report
Reuters (via the Boston Globe)
Lee Jin-woo
5/28/2009

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This entry was posted on Wednesday, May 27th, 2009 at 10:27 am and is filed under Foreign direct investment, International trade. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

  • Observer42

    Is it possible that DPRK brinkmanship is a result of new China strategy of solidifying its Super Power position in Asia using DPRK as a proxy?

    DPRK is receiving all the economic support it needs from China, that became an economic power, while adopting China economic model at its own pace.

    Any military moves by China would have put at risk China’s newly acquired world respect.

    This is a China way of playing it both ways.

    The economic stats you presented here show DPRK growing reliance on China and some real growth in DPRK!

    If this is the case – the party to pressure needs to be China, not DPRK!
    Does the West have the guts to do it in today economic crisis environment and expectations that China will lead the world out of recession?

  • HMS Nerd

    Sounds like DPRK is shopping for a better economic role in the region. An industrial park would have exposed DPRK’rs to the relative poverty they are stuck with in at least the short term. It would have been politically destabilizing in the eyes of the north’s regime. The threat of ‘force’ in response to interdiction of shipping is likely a signal that unless some power offers an alternative mode of development, the DPRK is going into the missile delivery system business. Which is, of course, a lesser geo-political nightmare of most of the western world: http://www.newsy.com/videos/northern_exposure_the_korean_threat

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