North Korea’s Economic Zones: Where Will Investments Come From?

A commentary by Andrei Lankov
nk-rajin-rail-sept-2013.jpg Participants attend the opening ceremony of a rail link to Russia from the North Korean port city of Rajin near the Rason Special Economic Zone, Sept. 22, 2013.

Some time ago the North Korean government announced that it would establish 14 economic development zones to promote foreign investment. The basic North Korean aim here is to develop its economy rapidly by bringing in large amounts of foreign investment.

Establishing economic development zones can be considered a very good policy. In the late 1970s when China began its economic reforms, the country established many economic development zones and was able to bring in considerable foreign capital and technological investment as a result. This capital and investment allowed China to achieve rapid economic development. North Korea may also be able to achieve similar development. However, there are several stumbling blocks that may make the North Korean case more difficult. Simply speaking, there are no foreign businesspeople who are willing to invest in North Korea at this point in time.

There were several reasons why China in the late 1970s was able to obtain considerable amounts of investment from the U.S., Japan, and Europe. First of all, many foreign governments, including the U.S., believed that they needed to support China. At the time, Chinese and Soviet relations were so bad that China had something close to an alliance with the U.S. in order to keep the Soviets in check. From the perspective of the U.S. and Europe, supporting China meant supporting a powerful ally.

Second, the development potential for the Chinese domestic market was enormous.  The foreign companies that invested in China’s special development zones at the time believed that they could exploit a new market of more than one billion people.  From the capitalist perspective, such an enormous market was almost too good to be true.

Third, China had a high degree of credibility within the global market.  Politically speaking, China loudly criticized capitalism and imperialism; in reality, however, the country thoroughly guaranteed and preserved the assets and capital of foreign investors.

North Korea, however, is a far different case.  From the U.S. and European perspective, North Korea is both a useless ally and a very dangerous and unconventional country. North Korea’s domestic market is also very small.  North Korea lacks any credibility because it has repeatedly refused to return money lent to it by foreign countries.

An objective review of North Korea’s situation makes it clear that it will be very difficult for the country to receive investment from the Western world.  It appears that the only country willing to invest in North Korea is China.  The Chinese government may invest in North Korea in order to increase its influence and control in the Korean Peninsula.  However, the North Korean government must engage in more proactive economic diplomacy towards China if it wants more investment from its northern neighbor.  In other words, North Korea must yield more on the diplomatic front if it desires more Chinese investment.

The North Korean leadership does not believe that yielding to China is desirable at this time because they hold considerable distrust and animosity toward the country.  As a result, it appears that North Korea will have difficulty in acquiring the investment it needs.  That being said, the North Korean leadership’s policy to establish special economic zones is a good idea.  While it is unclear whether this policy will be fully implemented, the success of the zones could go a long way to improve North Korea’s difficult economic situation.

Andrei Lankov, a professor at Kookmin University in Seoul, is a Russian historian, North Korea expert, and regular RFA contributor.

Translated by Robert Lauler.


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