North Korean Economy Watch

By Michael Rank

A Chinese report has highlighted how villagers on the North Korean border live in fear of desperate North Korean refugees who rob and steal from them.

The villagers have launched a new internet monitoring system to guard against the refugees who frequently escape across the Tumen river, according to the Chinese-language report.

Inhabitants of Sanhe, near the town of Longjing in Jilin province, were in constant fear of “illegal border-crossers who would rob, steal and cause disturbances” until, in cooperation with the police, they installed an alarm system to warn each other of possible infiltrators.

Local police chief Wang Zeqiang is quoted as saying the system was “rather primitive” when it was first launched in 2003, consisting of a red light that people would raise in front of their houses when illegal border-crossers were detected, but three years later it was upgraded to a more sophisticated alarm system. Last month it was upgraded further, involving the internet and mobile phones. The report gives no details although it says that apart from increasing border security the internet also gives the villagers access to farming and scientific information.

The Sanhe area, which covers 182 sq km, has only 1,600 inhabitants, 90% of whom are ethnic Korean, and most young people have left the area to seek work elsewhere, including South Korea and Japan. (A separate report shows photos of another border village, Nanping near Helong, which has similarly been blighted by young people leaving the area. Only 1,700 people still live there out of an original population of 4,000, while the primary school has five teachers and only three children).

“This journalist walked around [Sanhe] for over 10 minutes and only saw old people, women and children. But the Sanhe area faces danger from across the river,” the report says.

To illustrate the threat posed by refugees, it tells how in spring 2003 a North Korean woman in her 70s and her son in his 40s were killed in a border incident in Sanhe, and also mentions how in 2004, after the red light system had been installed, villagers seized a North Korean border guard who had crossed the river and begged for food from a farmer who had just slaughtered some animals.

The report says the river is only 50 metres wide at Sanhe and is shallow enough to be crossed by children.

It notes that borders “are not only a geographical concept, but also involve extremely complex [matters of] security and struggle.”

The police chief said that after the monitoring system was launched, “there have basically been no more cases of illegal border-crossers entering the village to take part in illegal activities.” However, he added, “But border security must not be relaxed because ordinary people are the most direct victims” [if it were relaxed].

China rarely reports on incidents on the North Korean border, but in 2009 NKEW told how the bodies of 56 North Koreans attempting to flee to China, including seven children, were found floating in the Yalu river in 2003.

The information came from a notice issued by police in Baishan in Jilin province which said that postmortems showed that all the people had been shot. “The evidence suggests that they had been shot by Korean armed border guards when attempting to cross illicitly into China,” it added. The notice, which could not be authenticated, was found on an unnamed Chinese blog which had apparently reposted it from bbs.163.com.

UPDATE: Adam Cathcart provides some interesting context to this story.

Nicholas Eberstadt offers some stark economic data on the DPRK.  According to his article:

While it is true that the DPRK suffered a severe economic shock from the collapse of the Soviet Bloc, this unexpected economic dislocation did not automatically presage log-term economic failure, much less famine. The counterexample of Vietnam–another socialist Asian economy heavily dependent on Soviet subsidies in the late 1980s–proves as much. According to the World Bank, Vietnam’s per capita income rose by over 150% between 1990 and 2007, and its per nominal per capita exports (in US dollars) rose by a factor of over 7 times during those same years, whereas North Korea’s nominal per capita exports slumped by over 25% between 1990 and 2007.

Further, it is of course true that the US–and in more recent years, Japan and South Korea–have imposed a plethora of economic sanctions on North Korea (America alone has over 30 such legal and administrative strictures in force today). But these penalties cannot explain North Korea’s miserable economic performance with the rest of the OECD countries, most of which are in principle open to commerce with the DPRK.

Let’s exclude Japan, South Korea, and America from OECD trade for the moment. Between 1980 and 2007, the import market for these other OECD countries expanded in nominal US dollars from just over $1 trillion to nearly $7 trillion–but according to the UN COMTRADE database, North Korea’s exports to those same countries collapsed: plummeting from $330 million to $177 million. When one takes inflation and population growth into account, this means the DPRK’s per capita exports to the rest of the OECD fell by almost 80% over those 27 years–and since these same export markets were growing all the while, North Korea’s share was twelve times smaller in 2007 than it had been in 1980.

What then is the problem? Closer inspection strongly suggests that North Korea’s long-term economic failure is directly related to the policies and practices embraced and championed by the Pyongyang government. North Korea’s current “own style of socialism” [or Urisik Sahoejuui] is a grotesquely deformed mutation of the initial DPRK command planning system, from which it fatefully and increasingly devolved over time.

North Korea is still in principle a planned Soviet-type economy: but for almost two decades it has in reality been engaged in “planning without facts”, and even in “planning without plans” (in the memorable phrase of Japanese economist Kimura Mitsuhiko). In and of itself, this would be enough to consign the North Korean economy to trouble. But to make matters worse, North Korean leadership has insisted on saddling the economy with a monstrous military burden under its campaign of “military-first politics” [Songun Chongchi]. Further, in contradistinction to virtually all other contemporary economies, North Korean trade policy for almost two generations has systematically throttled the import of productive and relatively inexpensive foreign machinery and equipment, thereby guaranteeing that the national economy would be saddled with a low-productivity, high-cost industrial infrastructure of its own making.

Add to this North Korea’s unrelenting war against its own consumers (no other modern economy has ever seen such a low ratio of consumer spending to national income, even at the height of Maoism or Stalinism) and Pyongyang’s stubborn, longstanding policy of “reverse comparative advantage” via a juche food policy that attempts to devote no more funds to overseas cereal purchases than foreigners pay for North Korean agricultural products in a country where cropland is scarce and growing seasons are short, and one begins to see how North Korean leadership engineered the country’s remarkable Great Leap Backward–and eventually, even a famine.

There is, to be sure, a grim logic to the DPRK’s destructive policies: for the same strategy that has ruined the country’s economy has also served to sustain its peculiar political system and ruling elite. In fact, given Pyongyang’s narrowly racialist ideology, its now-improbable but continuing quest for absolute mastery of the entire Korean peninsula and its undisguised fear that “ideological and cultural infiltration” will subvert the DPRK’s political order, the policies that the North Korean government pursues today may be regarded as careful, deliberate and faithful representations of the state’s overarching priorities.

Unfortunately, Pyongyang’s official policies and practices just happen to make the North Korean economy incapable of anything like genuine self-reliance, juche slogans notwithstanding, So DPRK state survival depends upon successfully generating a steady stream of subventions and concessional transfers from abroad.

Even so: the North Korean economy is so dysfunctional that it a positive net flow of foreign subsidies is not always enough to prevent calamity. After all: the Great North Korean Famine of the 1990s took place when the country (to judge by the import and export figures of its international trading partners) was receiving hundreds of millions of US dollars a year more in merchandise for abroad than it was shipping out. Quite obviously, that surplus was too small to overcome the grave built-in defects of the modern North Korean economy, or to forestall mass hunger.

So to continue its very existence, the North Korean system must commit itself to a permanent, predatory hunt for life-giving foreign funds: monies that it extracts from abroad by stratagems of military extortion, humanitarian hostage-negotiations (for the external feeding of its own population), and what might be called “guerilla commerce” (i.e., duping credulous foreigners who think there is money to be made from the DPRK by any but the country’s own elite).

North Korea, incidentally, seems to make it a point of honor not to repay its foreign creditors–and although “imperialist” banks and businesses from the West have learned this fact to their sorrow in abortive attempts to do commerce with Pyongyang, this is a bad habit that goes back to the early years of the Cold War, when the DPRK’s routinely reneged on loans from its “socialist comrades” in Beijing and Moscow.

North Korea has honed impressive skills in separating foreign governments from their own money. According to the US Congressional Research Service (CRS), for example, the USA transferred for than $1 billion in humanitarian, economic and security assistance to North Korea between 1995 and 2009: this despite a supposed “hostile US policy”. By the CRS’ reckoning, North Korea obtained over $4 billion from South Korea over those same years–and those were only the officially acknowledged payments by Seoul.

But China’s aid to North Korea puts all these Western subsidies in the shade. Beijing is almost completely opaque about its economic relations with Pyongyang–yet Chinese trade statistics suggest that North Korea has enjoyed a net resource transfer from China of over $9 billion since 1995, and the annual transfers look to have jumped markedly after 2004 (although China has never offered any sort of public explanation for why it would have increased its economic assistance to Pyongyang so significantly in recent years).

Earlier this year, North Korea announced a new “Ten Year State Strategy Plan for Economic Development” designed to lift the DPRK into the ranks of “the advanced countries by 2020”. Although the details of the plan have not yet been revealed, we can be sure it has enormous investment requirements–running into the tens or even hundreds of billions of dollars. It is also a safe bet that Kim Jong Il’s visit to China in May 2011 was a sort of fundraising tour aimed at securing some of the many billions of dollars envisioned by this ambitious plan.

After Kim Jong Il’s return from China, Pyongyang unveiled a new “joint economic zone” with China on two border islands in the Yalu rive–a projectr meant to underscore a new direction for the North Korean economy, and to jumpstart the new development campaign. But haven’t we seen this movie before? Ever since Kim Jong Il’s highly publicized visit to China in the early 1980s, there has been recurrent foreign speculation that would “inevitably” have to embrace economic reform. Yet all North Korean efforts at “opening” and “reform” to date have been confused and half-hearted, and every one of these initiatives has ultimately ended in failure.

Will this latest plan mark a decisive break from decades of ever more wayward North Korean economic policy? Some in China clearly believe that the DPRK can be gradually coaxed onto a path of pragmatic economic policymaking. To judge by Beijing’s swelling economic subsidies for North Korea, Chinese leadership may be banking on as much. The results of any such wagers, however, remain to be seen.

In China and other socialist countries, big changes in economic policy have typically followed, and depended upon, big changes in national leadership–but Pyongyang appears absolutely intent upon carrying the Kim family’s dynastic rule into its third generation. North Korean policymakers may genuinely want the DPRK to be what they call a “prosperous and powerful state” [Kangsong Taeguk]–but at the same time they have been totally unwilling to risk the sorts of steps that could actually generate such prosperity. Until this contradiction is resolved, North Korea is most likely to remain the black hole in the Northeast Asian economy.

Read the full story here:
What Is Wrong with the North Korean Economy
American Enterprise Institute
2011-7-1

Anju’s outdoor market

Voice of America published a series of photos from inside the DPRK. Many of the pictures are from Anju. Looking through them, I saw this outdoor market of which I was unaware.  It did not, however, take too long to find it on Google Earth. The coordinates of the outdoor market are 39.623199°, 125.680848°. Anju and nearby Sinanju both also have one covered market each.  Lots of shoes for sale.

UN Conference on Disarmament
The winner of the “rolling eyes” award this week goes to the announcement that the DPRK has been named to the presidency of the United Nations Conference on Disarmament.  According to the official press release:

In his initial address to the Conference as president, So Se Pyong of the Democratic People’s Republic of Korea said that he was very much committed to the Conference and during his presidency he welcomed any sort of constructive proposals that strengthened the work and credibility of the body. He was ready to work closely with all members to provide the grounds for strengthening their work. As president, he would be guided by the Rules of Procedure and take into account the position of each delegation to find common ground on substantive issues and procedural matters as well. With their support and cooperation, he would do everything in his capacity to move the Conference on Disarmament forward.

I am sure you can think of some recommendations for him!

Canada has since boycotted the committee (2011-7-11).

How to Generate Good Press: Write it
This week the Wall Street Journal’s Korea Real Time had a great post about the North Korean proclivity to purchase advert space in foreign publications and then report “favorable coverage” to the people back home.  “See how much foreigners envy us and out leader[s]”?!

Paying for space in Blitz actually represents something of an economy drive for the Pyongyang publicity machine. Back in 1997, as famine gripped the land, the regime shelled out for some pricier real estate: a full page in the New York Times. That allowed the KCNA to boast that the U.S. newspaper of record had “dedicated one whole page to a special writeup under the title ‘Kim Jong Il Emerges As Lodestar For Sailing the 21st Century’”—with, as the KCNA noted, a large color picture.

Here are five stories from KCNA citing praise in the New York Times: KCNA 1, KCNA 2, KCNA 3, KCNA 4, KCNA 5.  As far as I can tell, the DPRK has never advertised in the Wall Street Journal.  Wouldn’t that be something.

DPRK: There’s an app for that
Martyn Williams writes about Eric Lafforgue’s new iPhone app featuring his pics of the DPRK.  His photo set is here.  Now all we need is a Kernbeisser iPhone app.

Institute for Far Eastern Studies (IFES)
2011-6-25

Since the June 8 and 9 groundbreaking ceremonies for joint development projects between North Korea and China were held, attention has been directed toward North Korea’s international economic activities. The Japan-based newspaper, Chosun Shinbo, featured an interview article regarding these collective projects, including the areas of Hwanggumpyong and Wiwha Islands and the Rason Economic and Trade Zone.

According to North Korea’s Committee of Investment and Joint Venture, Rason Economic and Trade Zone is, “an important national undertaking following the teachings of Kim Il Sung. . . . Rason will soon become the entrepot port like Singapore, enhancing the lives of North Korean people.”

In addition, it was mentioned that the development of economic zones in Hwanggumpyong and Wiwha Islands will solidify the already strong DPRK-China friendship and expand the boundaries of international economic relations.

According to North Korea’s Committee of Investment and Joint Venture, politically, “Stable political atmosphere allow investors to engage freely in investment activities and necessary legal measures were taken creating favorable legal conditions for foreign investments. This includes the establishment of Joint Venture Law (of 1984) and other related laws.” Economically, “All the necessary substructures supporting the business operation are set. Workers will all be provided free 11-year education and tax rates are the lowest in the region and for those investors investing in sectors that the DPRK is promoting, will be provided with preferential treatment.”

North Korea is encouraging foreign investments especially in the industrial, agricultural, transportation, construction, financial, and tourism sectors. In particular, adopting state-of-the-art production technology is considered most important. This is to increase the area’s competitiveness in the international market through the production of items that have high export value. However, investment restrictions are placed preventing exports on natural resources like ore and coal.

The Committee also stressed the accomplishments of economic cooperation with China and Egypt and revealed plans of passing a double tax avoidance agreement with China, who is the largest foreign investment for North Korea.

The Egyptian company Orascom Telecom has invested in telecommunications, construction, and financial sectors in North Korea. The president of Orascom is said to have met with Kim Jong Il early this year, announcing his plans of expanding investment in the country.

In addition, the Committee reiterated building an independent national economy does not exclude international economic relations. It explained, “We are trying to resolve our shortcomings through international economic activities while maximizing our domestic technology and resources. This is the principle of socialist economic construction.

The Committee of Investment and Joint Venture was established last July, which is a central state organization under the Cabinet overseeing joint ventures and investments. It is in charge of guiding, supervising and administering the inducement of investments from abroad. It is a government body on the level of the Ministry of Trade, which it has close affiliations with. The Ministry is a central organization controlling general trade activities while the Committee is mostly responsible for attracting foreign investment, joint investment, and ventures.

According to Yonhap:

North Korea began discharging water from a dam near the border earlier this week without notifying South Korea, officials here said Wednesday.

Officials here in this Gyeonggi Province town, north of Seoul, said the North earlier this week opened the Hwanggang Dam near the Imjin River, which flows out to South Korea’s west coast, and has kept it open since.

“No damage has been reported around the Imjin River,” an official said. “We’re not concerned about (the water level of the river) yet.”

Officials said the water level on the Pilseung Bridge near the border, which serves as a gauge of North Korea’s water discharge, reached 4.49 meters as of 8 a.m. Tuesday, well over the warning level of 3 meters, and then fell to 4.03 meters at 4:20 p.m. Wednesday before inching back up to 4.04 meters by 5 p.m.

Officials said it usually takes 10 hours for water from the Hwanggang Dam to reach the Pilseung Bridge.

After the North Korean discharge, South Korea opened its Gunnam Dam to control the water level. The dam, which began operations last July, was specifically designed to capture flash floods from North Korea.

North Korea was hit by Typhoon Meari this week, officials added, suggesting that a sudden rise of the water level there might have forced the discharge.

It is the same dam that North Korea opened without prior notice in September 2009. The ensuing flash flood claimed six South Korean lives. At a later inter-Korean meeting on flood control, North Korea expressed regret over the incident and vowed to give prior notice before future discharges.

Last year, North Korea also sent water from the Hwanggang Dam and did notify officials here through the military communication line. The water near the Pilseung Bridge rose to 8.67 meters, but the Gunnam Dam helped prevent damage along the Imjin River.

An official said the local authorities were remaining on guard.

“The water level can surge suddenly,” a local official said. “In 2009, when six South Koreans were killed, the level on the Pilseung Bridge was 4.69 meters. So we’re closely monitoring the situation.”

Additional Information:
1. The South Korean government has also warned its people to be on the lookout for land mines that wash downstream from the DPRK.  See here and here.

2. Read about the 2009 Hwanggang Dam incident here.

3. Here is an older satellite image of the dam (Google Maps).

…by expanding the capacities of Hanawon.

According to Yonhap:

South Korea will build a new facility to accommodate a growing number of North Koreans fleeing poverty and political oppression from their communist homeland, an official said Wednesday.

The move is the latest reminder that the flow of North Korean defectors isn’t letting up despite Pyongyang’s harsh crackdown on escapees. Seoul is now home to more than 21,700 North Koreans.

South Korea has already been running two other resettlement centers, known as Hanawon near Seoul to help the defectors better adjust to life in the capitalist South.

Still, the government will break ground for another resettlement center in Hwacheon on July 7 as the two current facilities are running at full capacity, Unification Ministry spokeswoman Lee Jong-joo told reporters.

The area is about 118 kilometers northeast of Seoul.

She also said the government is planning to offer re-education for former North Korean teachers, doctors and other experts in the new resettlement center to be built by the end of 2012.

The announcement comes amid the latest dispute between the two Koreas over nine North Koreans who defected to the South earlier this month.

Seoul has indicated it will not return the North Korean defectors despite the North’s request for repatriation. The North usually claims South Korea kidnaps its citizens, charges that Seoul denies.

Some defectors have criticized Hanawon.

Read the full story here:
S. Korea to build new resettlement facility for N. Korean defectors
Yonhap
2011-6-22

Here is the statement from the US Treasury Department:

​On June 20, 2011, the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”) amended the North Korea Sanctions Regulations, 31 C.F.R. part 510 (the “NKSR”), to implement Executive Order 13570 of April 18, 2011.  OFAC also removed from 31 C.F.R. chapter V the Foreign Assets Control Regulations, 31 C.F.R. part 500 (the “FACR”), and the Regulations Prohibiting Transactions Involving the Shipment of Certain Merchandise between Foreign Countries (Transaction Control Regulations), 31 C.F.R. part 505 (the “TCR”).  The final rule containing the NKSR amendments was published at 76 FR 35740 (June 20, 2011); the final rule removing the FACR and TCR was published at 76 FR 35739 (June 20, 2011).

Here and here are the links to the final rules (PDF).

Here is a link to the Treasury Department’s DPRK information resource page.

Pictured above (Google Earth): Rason’s three ports: Rajin, Sonbong, Ungsang

Institute for Far Eastern Studies (IFES)
2011-6-21

North Korea and China hosted a groundbreaking ceremony on June 8 for the launch of the joint development project in Hwanggumpyong Island near the DPRK-China border. On the next day, the launching ceremony for the Rason Economic and Trade Zone took place.

The KCNA reported on April 27 that the modernization projects for the Rajin, Sonbong, and Ungsang Ports are to take place. According to the report, “These three ports in Rason City have the geographical advantage for maritime transportation. . . . Rajin Port, surrounded by Daecho and Socho Islands, is an ideal harbor that provides security and excellent marine conditions for docking ships.”

Currently at the Rajin Port, a number of equipment, fishery products, and processed foods are handled. An official from the Rason City People’s Committee stated, “There are plans of advancing Rajin, Sonbong, and Ungsang Ports even further to double the capacity and cargo.”

Recently, news on the Rason Economic and Trade Zone by the KCNA can be heard more frequently as North Korea is making an effort to advertise the development of this area. Recent reports covered news on the preferential tariff system, development program, and light industry zone.

The preferential tariff system of the Rason Economic and Trade Zone was adopted as means to lure more foreign investment into the area and improve the North Korea’s image as being more cooperative and supportive toward foreign businesses. Preferential treatment is being granted to foreign investors in order to turn the area into a major entrepot, export producer, and financial and tourist hub of Northeast Asia. One North Korean official stated, “Rason Economic and Trade Zone has favorable conditions to grow as a major trade zone. There are plans of constructing state-of-the-art equipment, facilities, and light industry factories to develop the area as a major export base.”

China and Russia are said to be paying special attention to the Rason Port development. China is already known to have invested in Pier 1 at Rajin Port and Russia in Pier 3.

North Korea has taken various legal measures to develop the area since Kim Jong Il’s field guidance visit to Rason City in December 2009. Rason City was designated as a “special city” in January 4, 2010 and the Rason Economic and Trade Zone Law was passed on January 27, 2010.

Additional Information:
1. A Swiss firm is alleged to have rented Rajin’s Pier No. 2, but it has not.

2. Here and here is some background information on the new Hwanggumphyon SEZ.  Here is some more information on the Rason ground-breaking and Chinese investment tour.

Lankov writes in the Korea Times about the DPRK’s various Special Economic Zones:

In early June, the governments of China and North Korea declared that they would work to develop two new special economic zones (SEZs). One zone is to be situated in the small port city of Raseon, on the eastern coast of South Korea, just 20 kilometers from the nearest crossing to China. Another zone will be developed on the unremarkable sandy island of Hwanggumpyong, in the vicinity of Sinuiju, the largest city on the border (some three quarters of trade between the two countries pass through this city).

One cannot be surprised by this initiative as talk of new SEZs “soon to be established” has been around for over a decade. There is little doubt that the North Korean government is very interested in the idea of SEZs. Unfortunately, this interest does not necessary mean that the North Korean authorities are willing to make the concessions that would allow the SEZs to operate efficiently.

The history of North Korean SEZs is essentially the history of frequent failures and occasional partial successes. The first attempt to create a SEZ took place in 1991, when the North Korean government established a SEZ in the remote northwestern corner of the country. The Raseon SEZ, as it has now become known, is located where the borders of China, Russia and North Korea meet.

Read the remainder of the story below:
(more…)

The Global Times (PR of China) has posted a very interesting and blunt assessment of the DPRK’s newly announced Special Economic Zone by Zhang Liangui (张连瑰), a specialist in Korean issues and professor at the International Strategic Research Bureau at the Party School of the Central Committee of CPC.  The article is posted below:

After drawing up a 10-Year Economic Development Plan at the beginning of this year, North Korea has announced several measures to readjust its ties with China from an aid-dependent relationship to an economic partnership. Will North Korea switch from its militaristic focus to economic development? What are the implications of the recently announced Hwanggumpyong island project in the middle of the Yalu River? Nanfang People Weekly magazine talked to Zhang Liangui (Zhang), a specialist in Korean issues and professor at the International Strategic Research Bureau at the Party School of the Central Committee of CPC, on these issues.

Q: What is the rationale behind North Korea’s efforts to facilitate the joint development of Hwanggumpyong with China?

Zhang: There are several reasons. The most straightforward motive is obviously to ameliorate the shortage of foreign money, since North Korea is suffering from international sanctions as a result of its nuclear weapon development.

Beyond that, North Korea wants to strengthen its economic ties with China, avoiding a hopeless isolation from the international community. Third, this move also reflects North Korea’s territorial concerns.

Q: Why do you think the cooperation has something to do with territorial issues?

Zhang: Because of the border on the Yalu River. Usually rivers on the border between two sovereign nations are demarcated on a half-to-half basis, which means there’s a middle line of control accepted by both sides.

However, the Yalu River is jointly held by both China and North Korea, while the latter has exclusive possession of Hwanggumpyong island.

For years due to alluvial deposition, the island has continued to expand. It now has abutted on the Chinese side, and local government has to build a fence along the border.

Under this circumstance, North Korea has de facto control over the part of Yalu River to the east of Hwanggumpyong island.

Thus the development on Hwanggumpyong island may help North Korea secure its territorial and river possession.

With the erection of buildings and infrastructure, North Korea expects Chinese developers to build the ground base, cement the foundations and free the island from the threat of alluvial erosion. If there’re many buildings, North Korea will have safe and unchallenged control over the island.

After acquiring Hwanggumpyong, North Korea asked farmers to plant trees and develop farmland. This caused the island to expand as well as causing disputes between the two sides. China should be fully aware of these concerns if it is looking for long-term cooperation over Hwanggumpyong.

Q: Why China is willing to cooperate and provide 80 percent of the funds?

Zhang: Many Chinese believe the US will try to contain China, especially at a time of tension among Northeastern Asian countries. The security concerns may give China and North Korea impetus for cooperation.

China also perceives North Korea’s instability, both economically and politically. China’s aid to North Korea is understandable and necessary in pursuing its goal of regional stability.

But China should be clear that its aid doesn’t serve the purpose of saving a specific government. The survival of any particular government is up to North Korea’s domestic will. And China doesn’t need to intervene in everything.

Q: Why did North Korea grant the opportunity to a Hong Kong enterprise? Will Hwanggumpyong become another Hong Kong, as North Korea wishes?

Zhang: It seems that North Korea is particularly enthusiastic about cooperating with Hong Kong firms. The precedent is the casino in Rason. A casino managed by Hong Kong executives can better woo Chinese tourists, as well as corrupt officials and outlaws.

However, Hong Kong’s prosperity is based on its transparent government, advanced legal system, high credibility, well-established infrastructure and financial markets, and in particular, stability.

It remains a difficult mission for today’s North Korea to build another Hong Kong.

Q: Will the Hwanggumpyong project attract more Chinese business people in the future?

Zhang: North Korea has reason to expect more investors to come. But I think there are several reasons preventing a great number of investors from going to Hwanggumpyong. According to my experience in dealing with Chinese business people, many of them complain of a lack of lawful regulations and the capricious North Korean economic policies.

Besides, many countries including China don’t accept credit cards issued by North Korea. Understandably, much of China’s national investment in North Korea comes out of political reasons rather than economic motivations. Unless North Korea has a stable and predictable government as well as international credibility, the prospect of foreign investment in North Korea is bleak。

Q: What do you think of the 10-Year Economic Development Plan, announced recently by the North Korean government?

Zhang: It seems 10 years is a bit long for North Korea’s management habits. So far, North Korea hasn’t been able to follow through on many of its long-term economic projects.

For example, the Kaesong Industrial Park was once planned to be a lucrative business produced by North-South Korean cooperation.

In May 2009, North Korea unilaterally announced a demand for wage and rent rises and scrapped the agreement they had signed up to. In 2010, the sinking of the Cheonan warship further hampered industrial activities in the region. Thus I think the 10-Year Economic Development Plan remains provisional and is intended more or less for propaganda purpose.

Q: Why does North Korea stress that its 10-Year Economic Development Plan “isn’t a reform and opening-up policy?”

Zhang: This is obviously aimed at China. Many Chinese media are under the delusion that North Korea is emulating China’s example to get rid of poverty and develop its country. In fact, North Korea is very unhappy about this claim.

North Korea is still against the idea of “reform and opening-up,” albeit now inexplicitly. It once equated “reform and opening-up policy” with revisionism and imperialists’ supposed conspiracy to topple socialist regimes.

During Kim Jong-il’s visit on June 5, while the Chinese media speculated about North Korea going through “reform and opening-up policy,” the North Korean media never used this phrase.