Analysis: North Korea on capitalist path?

By JONG-HEON LEE, UPI Business Correspondent  |  Sept. 23, 2002 at 6:45 PM
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SEOUL, Sept. 23 (UPI) -- Is North Korea finally following in China's footsteps by gradually introducing market forces into its economy, ruined by decades of adherence to central planning and rigid Stalinist principles?

Less than three months after embracing unprecedented market reforms, the long-isolated communist state opened up one of its major cities to international investment and technology.

The surprising moves are widely interpreted as a strong indication that North Korea -- the world's last bastion of strict communist orthodoxy -- is at last moving towards reforms and door opening, as China did 20 years ago.

Many analysts here say North Korea's designation of Sinuiju, a northwestern city bordering China, as "a miniature state" free from communist rules will be a litmus test for the country's transition to a free-market economy.

"The opening of the city is the crucial test of North Korea's adventurous attempts toward a market economy," said Suh Dong-man, a North Korea specialist at Sangji University.

North Korea announced it had created an autonomous enclave in Sinuiju and its neighboring coastal area, which will be "turned into an international financial, trade, commercial, industrial, up-to-date science, amusement and tourist center."

The "special administrative region" will have its own legislative, judicial and executive powers, the state-run Central Broadcasting Station said on Monday.

"The state shall give the region to develop, use and manage the land and encourage the businesses in the region to hire manpower from the DPRK (North Korea)," it stated, quoting from a recent decree by the North's highest decision-making body, the Presidium of the Supreme People's Assembly.

The decree also promised no discrimination on the basis of "sex, country, nationality, race, language, property status, knowledge, political view and religious belief" in the region. Foreigners would have equal rights and could even run for office, it said.

"DPRK citizens of the region can become deputies to the legislative council, and foreigners with the right to reside in the region can also hold the same post," the decree said.

In a bid for investors' confidence, North Korea pledged to keep its laws covering the Sinuiju zone unchanged over the next 50 years. "The period of leasing the land of the region shall last until Dec. 31, 2052," the decree said.

In another measure aimed at promoting confidence, North Korea will reportedly appoint a Chinese business tycoon as the chief executive of the Sinuiju special administrative region. Yang Bin, chairman of the Euro-Asia Group, who had been staying in Pyongyang, will soon be named as the first leader of the zone, a North Korean consulate-general in Hong Kong was quoted as saying.

Analysts believe that North Korea is trying to emulate China's early '80s economic reforms, when it set up economic development areas in coastal regions. One of these -- Shenzhen, China's first special economic zone -- was created in 1980 and developed from a tiny fishing village into one of the country's richest cities.

North Korea's decree and laws indicate that the country aims to transform Sinuiju into another Hong Kong, characterized by "one state, two systems."

"Institutions of the Sinuiju zone resemble those of Hong Kong," said Cho Myong-chol, who taught economics at North Korea's Kim Il Sung University before his defection to the South in 1994.

"Sinuiju's openness is broader than that of Shenzhen," he said, because it includes the sectors of entertainment and tourism.

Some analysts say North Korea's fresh efforts could pay off as Sinuiju has geographical advantages. The country's biggest border city is located on the western edge of a river flowing between China and North Korea into the Yellow Sea. Linked to Dandong, China by bridge, Sinuiju has served as the North's main outlet for foreign trade.

In Dandong, some 200 South Korean enterprises are already doing business and seeking to make inroads into North Korea, according to trade officials here.

"The North's border city could be a gateway to North Korea, one of the world's last great unexploited markets," said Dong Yong-sung, a researcher at the private Samsung Economic Research Institute.

"With the measure, foreigners can freely travel to Sinuiju without visas," he said. "Sinuiju can easily learn capitalist lessons from China."

The North Korean city can also be a logistics hub in Northeast Asia after reconnection of inter-Korean rail line, which is to occur in December. The cross-border railway will reconnect the two Koreas' capitals and proceed on to Sinuiju. It will link up to China, Mongolia and eventually Russia's trans-Siberian railway.

Government officials said North Korea has been preparing for these door-opening measure for two or three years. In October 1999, North Korean leader Kim Jong Il proposed that South Korea's Hyundai business conglomerate develop Sinuiju into an industrial park, they said.

In January last year, Kim traveled to the border city as part of a visit to Shanghai, the symbol of China's economic reform and openness, which has been transformed by massive foreign investment.

North Korea has also sent about 750 economic technocrats to the United States, Australia, Singapore and other capitalist countries to learn the ways of market economies during the past three years, officials said.

But many analysts said they remain skeptical about the North's overtures. Without substantial liberalization to attract foreign capital, Sinuiju would be another Rajin-Sonbong area, the North's showcase special economic zone established in 1991, they say.

The North merged its northern tip areas of Rajin and Sonbong into a free trade zone and unveiled an ambitious development program to make the area into a base for high technology, export processing and the transit of international freight and tourists.

But the region remains bleak, having failed to attract significant foreign investment due to poor infrastructure, rigid management and central government interference.

"Unless North Korea lifts the shackles placed on its economy and moves toward wholesale reform and opening-up policies, its fresh efforts cannot bear fruit," said Jhe Sung-ho, a ChungAng University professor.

"Also at stake is South Korean investors like the overseas Chinese who invested in Hong Kong and Shenzhen," said Hun Moon-young of the Korea Institute of National Unification.

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