North Korean Economy Watch

According to Yonhap:

North Korea has informed South Korea of its plan to look into all of the real estate owned by South Koreans inside the scenic mountain resort along its east coast, the South’s government confirmed Thursday, as Pyongyang apparently grows impatient with Seoul’s refusal to allow its citizens to travel there.

In a recently faxed message to the South Korean government, the North’s Asia-Pacific Peace Committee, a state agency in charge of cross-border exchanges, said, “South Korean figures who possess real estate in the Mount Kumgang district should come to Mount Kumgang by March 25,” according to the Unification Ministry, which deals with inter-Korean affairs.

The North went on to say, “All assets of those who do not meet the deadline will be confiscated and they won’t be able to visit Mount Kumgang again.”

An inter-Korean tourism program to the mountain, once a cash cow for the impoverished North, has been suspended since the summer of 2008, when a female South Korean tourist was shot dead by a North Korean soldier while traveling there. A luxury hotel, a golf course, and other facilities built by the South Korean conglomerate Hyundai there have since remained idle. A similar joint tour business to the ancient city of Kaesong, just north of the two Koreas’ border, has been also halted.

North Korea, feeling the pinch of U.N. sanctions imposed for its missile and nuclear tests, has called for the South to immediately resume the tours.

In its statement issued March 4, the North Korean committee said, “We would open the door to the tour of the Kaesong area from March and that of Mount Kumgang from April.”

It said it may revoke all accords and contracts on the business unless the South stops blocking the resumption of the joint ventures.

South Korea has urged the North to first fully guarantee the safety of South Korean tourists. Related working-level talks between the two sides last month failed to yield a deal due to differences over details on a security guarantee.

The Unification Ministry expressed regret over the North’s latest threat.

“North Korea’s measure violates agreements between South and North Korean authorities, as well as between their tourism business operators,” the ministry said in a press release. “It also goes against international practice.”

It stressed the North should abide by accords with the South, and all pending issues should be resolved through dialogue.

“As the tours to Mount Kumgang and Kaesong are issues directly related with our people’s safety, there is no change in the government’s existing position that it will resume them only after the matters are settled,” it added.

Meanwhile, the head of the South Korean operator of the tours offered to resign to take responsibility for snowballing losses from the suspended businesses.

Cho Gun-shik, president of Hyundai Asan Corp., expressed his intent to step down in a statement emailed to all staff earlier Thursday, company officials said.

The Choson Ilbo has more:

In the message, North Korea said, “From March 25, North Korean authorities and experts will conduct a survey of all South Korean assets in the presence of South Korean officials concerned,” including Hyundai Asan staffers, who have assets in the area. “All South Koreans with real estate in the Mt. Kumgang area must report to the mountain by March 25,” it added.

According to the ministry, Hyundai Asan signed a lease with the North for a plot of land in Mt. Kumgang until 2052. South Korean firms have invested a total of W359.2 billion (US$1=W1,134), including W226.3 billion from Asan, in a hotel, a hot spring spa, a golf course, and a sushi restaurant there. The South Korean government owns a meeting hall for separated families opened in 2008 that cost more than W60 billion to build.

Nonetheless the threat is likely to fall on deaf ears. A South Korean security official said, “The North apparently wants South Korean firms that are in danger of losing their assets in the North to put pressure on the government, but the government won’t back down.”

A South Korean businessman operating in the Mt. Kumgang region said, “The North is threatening to seize our firms’ real estate there while talking about attracting large amounts of foreign investment. What South Korean or foreign business will make new investments in the North under these circumstances?”

Read the full stories here:
N. Korea threatens to seize S. Korean assets at Mount Kumgang
Yonhap
3/18/2010

N.Korea Ramps Up Threats Over Mt. Kumgang Tours
Choson Ilbo
3/19/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-03-17-1
2010-03-17

Following North Korea’s decision to raise the status of the Rajin-Sonbong region to the ‘Rason Special City’, it has revised the ‘Law on the Rajin-Sonbong Trade Zone’, considerably boosting the likelihood that the region will attract the foreign investment necessary to develop the free trade zone, as the revised law further protects investor activities in Rason.

The Rajin-Sonbong region was designated a ‘Free Economic and Trade Zone’ in 1991, but had very little economic impact. Over the years, North Korean authorities have enacted a few measures to try to keep the project alive, but there has been no significant turnaround. With the revision of the law on Rason, North Korean authorities are again focusing their attention on the region, with the goal of ‘opening the door to a strong and prosperous nation’ by 2012. It is also possible that the regime is eyeing the development of the region as a tool to solidify the transfer of power to yet a third Kim.

In December, 2009, after designating the special economic and trade zone, Kim Jong Il traveled to ‘Rason City’ for the first time in 18 years. Jang Song Thaek, director of the administrative bureau of the (North) Korean Workers’ Party, has also visited the area, leading observers to believe that even working-level preparations are being made following the policy decision to highlight the area.

The law on Rason, revised on January 27, is now made up of 5 chapters and 45 articles. 6 of those articles specifically concern promotion of the investment area and trade with overseas Koreans.

The most eye-catching article is no. 8, which addresses economic and trade activities by overseas Koreans. This type of activity was already protected by the existing law, but the revision reiterates that Koreans living outside of the North are allowed to carry out economic activities and trade in an attempt to snare investments from North Koreans living in China and Japan, as well as other diasporas.

In addition, Article 21 addresses the economic dealings of enterprises, groups and organizations outside of the zone, and stipulates that these groups operating within the Rason Special City would be able to engage in business activities with North Korean businesses in other regions. This essentially legalizes the sale of goods produced in the zone throughout the country.

Article 3, addressing investment opportunities, stipulates that investors are allowed to engage in business regarding manufacturing, farming, construction, transportation, communications, science and technology, tourism, distribution, and finance.

By revising the existing law, North Korean authorities have strengthened incentives for investors.

The latest revision also set the basic income tax of enterprises at 14 percent, while stating that enterprises specifically designated by the government would be taxed at a rate of 10 percent.

Furthermore, Article 2 of the revision emphasizes the tourism and investment roles of the special zone, referring to the zone as one for ‘investment, a transport hub, finance, tourism, and public service,” adding ‘investment’ and ‘tourism’ to those activities stipulated in the original law. The Rason Zone Law has been revised five times since its passing in 1993, undergoing change in 1999, 2002, 2005, 2007 and now 2010.

Authorities also revised the law on coal, which now legally regulates the exploration, distribution and use of coal, by the addition of Chapter 6 Article 76 of the ‘Coal Law’. Article 1 lays out the basis of the North’s law on coal, while Article 2 covers exploration, Article 3, ‘mine development,’ Article 4, ‘coal production,’ Article 5, ‘coal distribution and use,’ and Article 6, ‘management structure regarding the coal industry.’ The new law advocates “expansion of cooperation and exchange with other countries and international organizations on the exploration and mining development, as well as production and use.”

According to Yonhap:

North Korea has recently revised a law governing its Rason free trade zone in a bid to speed up its development and attract more foreign investment, including from South Korea, officials in Seoul said Sunday.

According to the South Korean officials, a clause allowing “Korean compatriots living outside the Democratic People’s Republic of Korea (North Korea)” to engage in economic and trade activities in Rason has been newly included in the legal code.

The Korea Times has some more information:

The North had banned South Korean investors from Rason in a 1999 revision.

Under the latest revision, the reclusive state will lower tax rates and simplify administrative procedures for foreign investors who want to establish branch and agent offices there, the official said.

The revision took effect Jan. 22 when Pyongyang upgraded the status of Rason to a special city, he said.

The official anticipated that South Korean firms would do business in the zone, saying the latest revision is a positive sign of North Korea opening its doors to outside world.

The North designated Rason and nearby Sonbong, located on the country’s northernmost coast close to both China and Russia, as an economic free trade zone in 1991. The zone was renamed Rason later.

But efforts to attract foreign investment and capital have failed. North Korea aimed to attract $7 billion worth of foreign investment into Rason, but actual investment amounted to only $140 million.

There are an estimated 400 foreign businesses operating in North Korea, but most of them are small businesses run by Chinese or North Korean residents of Japan.

The Choson Ilbo adds more:

Article 8 of the revised law makes it possible for “Koreans” living outside North Korea to do business in the special zone, apparently with a view to attracting South Korean investors.

It also removes a clause requiring foreign companies to obtain government approval when they open sales offices or branches in the zone, making it easier to enter the North Korean market.

Instead, approval is with a new agency overseeing the Rajin-Sonbong zone.

But foreign firms and their staff are explicitly under North Korean jurisdiction, including all the draconian laws that apply to North Koreans.

The previous law permitted foreign investors unconditional no-visa entry and stay in North Korea, but under the new rules they are restricted to the zone.

Corporate income tax is reduced from 14 percent to 10 percent “in sectors particularly promoted by the state.” But other terms related to customs, land lease and bank loans remain unchanged.

One former investor is shouting caveat emptor.  According to the Choson Ilbo:

“I blew $500,000 on Rajin-Sonbong 15 years ago,” recalls Roh Jeong-ho, who headed the first South Korean business to set up operations in North Korea’s Rajin-Sonbong Economic Special Zone in 1995.

Roh (46) is scathing about North Korea’s latest attempts to woo investment to the impoverished Stalinist nation. “It’ll be a repeat of the 1990s, which ended in a belly-flop,” he said. “Nothing has changed in North Korea.”

Roh was once touted by the South Korean media as one of the young leaders in his early 30s who were expected to lead the post-unification era when he exported 44 km of barbed-wire fences to Rajin-Sonbong in 1995. North Korea had asked Roh to supply the fences to isolate the area from ordinary North Koreans. In return, the North offered him the use of 33,000 sq. m of land in the free zone for 50 years.

But there was a catch. The problem was a clause in the contract stipulating that the groundwork on facilities to be built within the leased land must be completed within two years. North Korea continued to make unreasonable demands regarding construction when the area was devoid of crucial infrastructure like roads, running water and electricity, and construction had to be delayed.

At first, the North threatened to scrap the barbed-wire order, complaining that the deal was revealed to South Korean media. Roh managed to calm the North Koreans, but then they started making new demands. They even told Roh to supply equipment to guards who were posted along the fence, including tazers and high-voltage current generators.

“North Korean government workers operate under a bizarre, performance-based system,” Roh said. “Their performance is gauged based on how much they are able to extort from South Korean businesses.”

Roh said his North Korean business partners often changed as they were either promoted or demoted based on their performance, requiring negotiations to start from scratch every time. After two years passed without Roh being able to complete groundwork on his allotted land, the right was revoked. He ended up wasting close to US$1 million, including expenses on top of the $500,000 cost of producing the barbed wire.

“If you’re not careful, you could end up losing everything,” he warned. He added that the business prospects are riddled with traps. “We tend to believe that the North Koreans would be accommodating since we are ‘compatriots,’ but that’s a big mistake,” Roh said. “North Korea extends its invitation to South Korean businesses in order to use them as window dressing to attract Chinese and Russian investors.”

Additional information:

1. At least one South Korean company is making the move to Rason.

2. China now has a 10-year lease in Rason.

3. I mapped out the fence built with Mr. Roh’s wire.

Institute for Far Eastern Studies (IFES)
NK Brief No.10-03-11-1
3/11/2010

North Korea is actively looking into further development of Rajin Port by extending China’s lease on port facilities for another decade, and granting Russia 50-year rights to Rajin port facilities, as well. Li Longxi, a deputy of the National People’s Congress and head of Jilin Province’s Yanbian Korean Autonomous Prefecture, revealed to a Yonhap News reporter in Beijing on March 8, “The North gave Russia the right to use Pier 3 for 50 years, and is actively looking into extending the right to use Pier 1 granted to China in 2008 for another 10 years.”

Rajin Port has five piers, with Pier 3 being larger than Pier 1. The rights to Pier 1 were granted to the Changli Group, which specializes in the manufacture of environmental materials in Dalian. 10-year use and development rights had already been granted to this company. Deputy Li explained, “China gained rights to Pier 1 in 2008, and is now in negotiations with North Korea over extending those rights for 10 years.” Therefore, if this agreement is reached, China will have exclusive rights to the pier until 2028.

Li added, “Currently, China is in the process of constructing the facilities necessary to use the pier, and will begin to move goods through the port when construction is complete.” It appears China has invested tens of millions of Yuan into this project. Li also pointed out that by being able to use Rajin Port, Yanbian, currently lacking export avenues, will be able to transport Jilin Province’s abundant coal resources, not only through the Yellow Sea to Shanghai and other domestic cities, but to Japan and other countries in the Asia Pacific region.

On February 28, Sun Zhengcai, CCP Secretary of Jilin Province met with North Korean Kim Yong Il, head of the Korean Workers’ Party International Department, and introduced to him China’s ‘Greater Tumen Initiative’ development project. At the time, it was reported that Sun explained to Kim that Jilin provincial authorities had reached an agreement with North Korea for joint venture to construct a network of roads and basic infrastructure facilities. Jilin provincial and city officials, as well as Changchun city representatives, are involved in the project. China is focused on the Tumen river basin and Rajin Port because of their strategically valuable economic role in developing the country’s straggling northeast region.

Russia is also eyeing Rajin Port, because if the port is developed, it could serve as an outlet to export Sakhalin and Siberian crude oil and natural gas to neighboring countries. In July of last year, Russia and North Korea reached an agreement to repair the rail connection between Rajin and Hasan and to improve Rajin Port facilities, investing 1.4 billion Euros. Japanese newspaper Sankei Sinbun quoted a source within North Korea as reporting that Jang Song Thaek, Party administrative chief and brother-in-law of Kim Jong Il, had recently travelled to Rasun (Rajin + Sunbong) and declared that the area would be fully developed within the next 6 months.

The Korea Daepung International Group, serving as North Korea’s window to foreign capital, is said to have a plan to entice international investment in order to support the Tumen river development plan, and plans to develop Rasun Special City and Chongjin Port into key outlets for DPRK-PRC-Russian trade and commerce in Northeast Asia. However, the participation, and investment, of private-sector enterprises will likely depend on the success of the Rajin Port development.

UPDATE:  According to Defense News:

Fears that China will establish a naval presence at a port facility at North Korea’s Rajin Port appear unfounded.

An agreement with a Chinese company to lease a pier at Rajin for 10 years was reported by the Chinese state-controlled Global Times on March 10.

The Chuangli Group, based at Dalian in China’s Liaoning province, invested $3.6 million in 2009 to rebuild Pier No. 1 and is constructing a 40,000-square-meter warehouse at the port. The leasing agreement has given way to suggestions China could be attempting to establish its first naval base with access to the Sea of Japan.

The North Korean Navy does use Rajin as a base for smaller vessels, such as mine warfare and patrol vessels, but for the time being, it appears economics are the primary motivation for the Chinese company’s presence there, said Bruce Bechtol, author of the book “Red Rogue: The Persistent Challenge of North Korea.”

“Chinese investment has increased a great deal in North Korea in the past five years,” he said. “It would not be a military port for the Chinese - as the North Koreans would be unlikely to ever allow such a thing.” He noted there are no Chinese military installations in North Korea.

The Rajin facility will give Chinese importers and exporters direct access to the Sea of Japan for the first time. “It is the country’s first access to the maritime space in its northeast since it was blocked over a century ago,” the Global Times reported.

China lost access to the Sea of Japan during the Qing Dynasty in the 19th century after signing treaties under duress from Japan and Russia.

Various media in Japan and South Korea have suggested the lease might give China an opportunity to place a naval base at Rajin, but Bruce Klingner of the Heritage Foundation in Washington, D.C., also downplayed the notion, saying North Korea’s negative attitudes toward China and a fear of excessive Chinese influence would negate any chance Beijing could establish a naval presence there.

Klingner also said he doubts North Korea would make a success out of the agreement. “Pyongyang’s aversion to implementing necessary economic reform and its ham-fisted treatment of investors suggests the new effort to turn Rajin into an investment hub will be as much a failure as the first attempt in the 1990s.”

ORIGINAL POST: According to the Choson Ilbo:

China has gained the use of a pier at North Korea’s Rajin Port for 10 years to help development of the bordering region and establish a logistics network there.

Lee Yong-hee, the governor of the Yanbian Korean Autonomous Prefecture in China’s Jilin province, made the announcement to reporters after the opening of the People’s Congress at the Great Hall of People in Beijing on Sunday.

He was quoted by the semi-official China News on Monday as saying, “In order for Jilin Province to gain access to the East Sea, a private company in China in 2008 obtained the right to use Pier No. 1 at Rajin Port for 10 years. Infrastructure renovation is currently underway there.”

In an interview with Yonhap News on Monday, Lee said, “We’re considering extending the contract by another 10 years afterward.”

Jilin abuts the mouth of the Duman (Tumen) River in the southeast but its access to the East Sea is blocked by Russia and North Korea. “We hope that an international route to the East Sea will be opened via Rajin Port,” he added.

Lee did not specify which Chinese company obtained the right and which North Korean agency awarded the concession. The Chinese Foreign Ministry on Feb. 25 said business investment in the North Korea-China border area is a normal business deal and does not therefore run counter to UN sanctions against the North.

According to Yonhap:

South Korea is keeping a close watch over North Korea’s efforts to draw greater foreign investment to one of its ports, as the move might indicate Pyongyang is opening up to the outside world and signal its return to stalled international nuclear talks, officials said Tuesday.

The North has agreed to give a 50-year lease on its Rajin port to Russia, and the country is also in talks with a Chinese company on extending its 10-year lease by another decade, according to an official from China’s Jilian Province, currently in Beijing for the National People’s Congress.

The North’s opening of the port on its east coast has a significant meaning for China as it will give the latter a direct access to the Pacific, but it also means millions of dollars, at the minimum, in investment for the cash-strapped North.

Officials at Seoul’s foreign ministry said the North’s opening of its port or its economy was a positive sign, but that it was too early to determine whether the move will also have a positive effect on international efforts to bring North Korea back to the nuclear negotiations.

“We are trying to confirm the reports, though they appear to be true because they were based on China’s official announcement,” an official said, asking not to be identified due to the sensitivity of the issue.

“We are trying to find out the exact details of the contracts (between North Korea and Russia and China),” the official added.

Additional information 

1. A previous report indcated that there were 250 Chinese companies registered in Rason.  The North Koreans reportedly closed out the insolvent and inoperable businesses. I do not know how many are there now. Read more here.

2. The Russian government recently built a Russian-gauge railway line from Kashan to Rason. Read more here.  It will be interesting to see if China upgrades roads and railways which could connect Rason to China.

3. Rason is sealed off by an electric fence. Read more here.

4. Many other stories about Rason here.

Read the full stories here:
China’s Jilin Wins Use of N.Korean Sea Port
Choson Ilbo
3/9/2010

Seoul closely watching N. Korea’s opening of port to China: officials
Yonhap
Byun Duk-kun
3/9/2010

According to Yonhap:

North Korea threatened Thursday to revoke its contracts with [Hyundai Asan] for tours to its Mount Kumgang unless the Seoul government agrees to quickly resume the tourism program that was suspended two years ago, following the shooting death of a South Korean tourist.

Officials from South and North Korea held a fresh round of talks early last month, but failed to reach an agreement on measures that will ensure the safety of South Korean tourists traveling to the communist nation.

…

“If the South Korean government continues to block the travel route while making false accusations, we will be left with no choice but to take extreme measures,” an unidentified spokesman for the North’s Asia-Pacific Peace Committee said in a statement carried by the country’s official (North) Korean Central News Agency.

The spokesman added such measures will include the nullification of contracts with South Korea’s Hyundai Asan for the mountain tour program.

Yonhap notes that Seoul is demanding an official apology for the death of the female South Korean tourist in 2008.  In the past, however, Seoul has made multiple demands to the DPRK for resumption of Kumgang Tours. The South Korean government does not plan to allow tourists to return to Mt. Kumgang until the DPRK:

1. Cooperates in an investigation of the shooting of a South Korean tourist last year.

2. Implements measures to prevent a recurrence.

3. Guarantees tourist safety.

4. Provides more transparency about how it spends the money it receives from the Kumgang resort.

Accordong to Yonhap, the DPRK is willing to implement No. 3.

In September 2002 the North Korean government announced the Siuiju Special Administrative Region/ Special Economic Zone.  It did not end well.  The idea of implementing a Sinuiju SAR/SEZ, however, has never faded away–though it has taken different forms.

Sunuiju Take 1: The initial vision of the city, under a Yang Bin administration, was the creation of a very liberal and independent territory which would supposedly be free of Pyongyang’s dictates in exchange for tax revenue.  The Hong Kong-style “Basic Law” can be found here.

Sinuiju Take 2: In March of 2003 the North Koreans decided to move the SAR/SEZ territory out of the Sinuiju city center on two Islands in the Tumen River:  Bidan and Wihwa.

Sinuiju Take 3: In August 2007 creation of the zone had reportedly already started, and it was reported to be located back in the city center again.

Sinuiju Take 4: In January 2009 the Yomiuri Shimbum reported that the SAR/SEZ had once again moved out to  Wihwa Island.

Today Adam Cathcart emailed me a report in the Huanqiu Shibao featuring the following statement by a PRC foreign ministry spokesman :

环球时报记者段聪聪报道 2月25日，中国外交部发言人秦刚在例行记者会上就中国企业有可能获准开发两个朝鲜岛屿的事情表态：“不要混淆联合国制裁和两国正常的经贸往来。” Global Times reporter Duan Congcong reports on Feb. 25: Chinese Foreign Ministry Spokesperson Qin Gang, at a press conference, stated [the Ministry’s] position on the situation of the possibility of Chinese enterprises obtaining permission to start business on two Korean islands : “Don’t confuse U.N. Sanctions with normal bilateral trade dealings.”

据报道，朝鲜为了吸引外国投资，决定将位于中朝边境临近辽宁丹东市的威化岛和黄金屏岛定为自由贸易区域，交由中国企业进行开发。两岛的投资规模分别为5亿和3亿美元。秦刚表示，不要混淆联合国制裁和两国之间正常的经贸往来与合作。对朝鲜实施制裁，联合国的有关决议有明确的规定，规定了制裁的项目。而报道中提到的 项目属于中朝之间正常的经贸往来，并不违反联合国规定. According to the report, North Korea is attracting foreign investment, and has decided to establish a free trade zone on the islands of  Weihua [威化岛] and Huangjinbing [黄金屏岛] in the Sino-Korean border area of Liaoning’s Dandong city.  The dimensions of the two islands’ total investment will total 500 and 300 million U.S. dollars, respectively.  Qin Gang stated that it wasn’t necessary to confuse UN sanctions with normal bilateral economic dealings and cooperation.  Regarding the implementation of sanctions on North Korea, the related United Nations resolutions are very clear in their stipulations of the project.  But, the report noted, projects referring to inclusion of normal bilateral trade between China and North Korea are not forbidden by the UN stipulations.

据报道，朝鲜政府高层就比邻中国丹东的边境地区建立特别经济区方案正在进一步细化过程当中。参与此次朝鲜岛屿开发的中国丹东华商海外投资公司将组团赴朝就具体合作意向进行最后敲定。 According to the report, high officials in North Korea’s government nieghboring China’s Dandong border area are currently moving in a detailed way with establishing this special economic zone.  Participating in the development of this North Korean islands are Dandong Huashang Overseas Investment Corp. which will organize and send a delegation to North Korea in order to cooperate and move forward with final resolution.

I will call this “Sinuiju SAR: Version 5.” Wihwa Island is back, but Bidan Island has been replaced by Huangjinbing Island.  Since I am not sure if this is the Chinese name of Bidan Island or if it is a different island entirely, I cannot say anything about the move.  Mike Madden and I speculate that Wihwa Island is here.

The Dandong Huashang Overseas Investment Corp. web page is here. (again, h/t Adam)

China has also reportedly approved the creation of a trade zone on its side of the North Korean border.

According to the AFP:

A South Korean company said Tuesday it is planning a joint-venture factory in a free-trade zone in northeastern North Korea, the first such investment by Seoul in the faltering project.

Food processor Merry Co said Pyongyang last month approved its partnership with state-run Korea Gaeson General Trading Corp in the Rason zone near the North’s border with China and Russia.

“We’re going to have a first joint venture between the two Koreas in Rason,” Merry president Chung Han-Gi told AFP.

The North this month upgraded the status of the zone in an attempt to invigorate anaemic foreign investment there.

Chung said his company would invest 60 percent of the 7.5 million dollar cost of the new plant while its North Korean partner would put in 40 percent.

He said he would this week ask the South’s unification ministry, which must authorise all cross-border contacts, to approve the joint venture.

The communist state designated the Rajin-Sonbong Economic Special Zone — later renamed Rason — in 1991, its first such project. But little foreign investment materialised and senior officials who headed the project were reportedly sacked.

In recent years the North has begun trying to revive it, signing an accord with Russia to rebuild railways and the port there. China has also been exploring investment opportunities in the city.

The North’s leader Kim Jong-Il paid his first visit to the zone last month and state media said later that parliament has designated Rason as a municipality to upgrade its status.

South and North Korea have a joint-venture industrial estate at Kaesong near their border. Its operations have often been hit by political tensions, but the two sides were to start talks Tuesday on ways to develop it.

Chung said his firm’s joint venture at Rason, which would have some 200 North Korean employees, plans to produce canned and processed food including tuna for exports.

Merry, which also has a factory in Shanghai, will send Chinese engineers to Rason next month to install production facilities.

The Choson Ilbo adds some interesting details:

This is the first time that Pyongyang has allowed for direct business collaboration, set to take place between North Korea’s Gaeson General Company and the South’s Chilbosan Merry Joint Venture.

The firms are slated to split investment 60/40 and will work together to process and export canned marine and agricultural products starting in March.

UPDATE 1: As reader Gag Halfron points out, this is not the first DPRK-RoK joint Venture. Remember Pyonghwa Motors and Pyongyang’s fried chicken restaurant?

UPDATE 2: In the comments, Werner notes the following: http://www1.korea-np.co.jp/pk/149th_issue/2000101405.htm

Read the full articles below:
N.Korea OKs joint venture with South in trade zone
AFP
1/18/2009

First Inter-Korean Joint Venture to Be Established
Choson Ilbo
1/20/2010

UPDATE:   In addition to the information below, the Choson Ilbo reports that  the DPRK’s former trade minister has been appointed mayor of Rason.  According to the article:

The North Korean regime has appointed former foreign trade minister Rim Kyong-man as the mayor of the Rajin-Sonbong Economic Special Zone, which was promoted to a special city in January. A source said Rim was appointed as part of a reshuffle and new regulations for the city.

Rim is known as an expert in trade who served as the minister for foreign trade from April 2004 to March 2008, and headed the North Korean trade representatives to Dalian in China. He also toured Africa (June 2005), Latin America (November 2005), Libya and Malaysia (June 2006) and Russia (March 2007) as the leader of the North Korean economic delegation.

“It seems that North Korea appointed Rim, who is very experienced in trade with foreign countries, with an aim to further open Rajin-Sonbong as a free trade area,” the source added.

ORIGINAL POST: The designation of Rason as a “special city” this week left me a bit confused, but I believe I have sorted it out.

This week, Reuters reported:

“The city of Rason has become a special city,” the North’s KCNA news agency said in a brief dispatch on Monday.

And Yonhap reported:

North Korea designated Rason, the country’s first free trade zone, as a “special city” on Monday, the North’s official news media reported.

North Korea designated Rason and nearby Sonbong, located on the country’s northernmost coast close to both China and Russia, as an economic free trade zone in 1991, though foreign investment has never materialized.

According to the Korean Central News Agency (KCNA) monitored here, the Standing Committee of the North’s Supreme People’s Assembly designated Rason as a special city in a decree.

So aside from the fact that Rason was named “special” there were no other details given.  What does it mean to be a “special city”?

Well, today the nice Chongryun individual in Japan who updates the KCNA web page finally came back from vacation and posted the story to the official KCNA web page.  Here is what it says:

Rason City Designated as Municipality
Pyongyang, January 5 (KCNA) — Rason City was designated as a municipality.

The Presidium of the Supreme People’s Assembly of the DPRK said in its decree promulgated on Jan. 4:

1. Rason City shall become a municipality.

2. The DPRK Cabinet and relevant organs shall take practical measures to implement the decree.

Without seeing any additional information it seems that what has actually happened is that the municipalities of Rajin and Songbon have been dissolved, merged, or been made subject to a newly created Rason municipal government which controls both cities.  So Rajin-Songbon is dead.  Long live Rason.

So why would the North Korean government do this?  Here is one theory: Since the district was under the direct control of Pyongyang (not the provincial government of North Hamgyong), the DPRK government simply thought that two municipal governments in the special economic zone were one more than was necessary.  So this could mean something significant–in terms of the DPRK’s intent to increase foreign trade–or it may not.

If anyone else has a better idea please let me know in the comments.

UPDATE:

1. Here is a decent story in the AFP which interprets the change as a significant policy signal.

2. Here is a decent story in the Daily NK which offers lots of additional information.

According to the Associated Press:

Military officials from the two Koreas communicated through new fiber-optic cables to help facilitate the travel of 330 South Koreans heading to an industrial complex in the North on Wednesday, Unification Ministry spokeswoman Lee Jong-joo said.

South Korea has sent fiber-optic cables and other equipment to the North to help its communist neighbour modernize its military hot lines with the South, she said.

The new hot lines replaced outdated copper cable hot lines that will remain as spare lines, said Lee, the spokeswoman.

The new hot lines will serve as a key mode of communication for border crossings for people travelling to and from the joint industrial complex at the North Korean border town of Kaesong, she added.

I assume the upgrade to fiber optic means that the bureaucracy of border crossing has been computerized.  Rather than reading information across the phone line border officials can now send it electronically (including photos) to speed up processing on the North Korean side of the border.

Read the full story here:
Divided Koreas open new, updated military hot lines to facilitate border crossings
Associated Press (via Winnipeg Free Press)
12/29/2009