North Korea Takes Risks Expandings Economic Zones With China

In September of 2011, an old clunky rusted Cold War-era cargo freighter set out for the first time to take Chinese tourists from the North Korean border port of Rajin south to the mountain resort area of Kumgangsan, near the eastern end of the De-Militarized Zone separating the two countries.

Not exactly the most luxurious of travel accommodations, but North Korean officials are now willing to bet that even more Chinese will make the tourist trip into North Korea.

And on Friday in Beijing, North Korean and Chinese leaders agreed to deepen economic cooperation with a series of initiatives including expanding economic development zones and tourism.

The endeavor will be a double-edged sword for the North Korean regime: more money but also more exposure to the outside world as well.

Suffering after a series of droughts and floods earlier this year, the North Korean regime is reaching out again to its northern neighbor and longtime supporter China to get much-needed economic backing.

But things this time are different. While the regime of the late Kim Jong-il favored cash, fuel, and food -- over whose use and distribution it had close control -- the government of his son Kim Jong-un looks more interested in developing economic initiatives that could further open up the country, albeit in a controlled and limited way.

Long pressured by China to follow its example in economic reform, Pyongyang has now finalized two major agreements with Beijing to expand economic development zones along the border. One located in the West near the estuary of the Yalu River will be established on the islands of Hwanggumphyong and Wihwa to facilitate cross-border trade and transportation. The other, located at Rason in the northeast (which includes the port of Rajin), will also support tourism and travel.

The two locations would also serve to attract investment from Chinese companies and state-owned enterprises, similar to the pilot zones China itself once built near its coastal cities to attract foreign capital and outsourcing. Some of those, like Shenzhen, are now glitzy metropolises that are regional and global hubs for manufacturing and commerce.

No one is holding their breath to see if the same will happen in North Korea, but the push to create similar economic areas could reveal a change in national policy and philosophy in Pyongyang.

Kim Jong-un has already shown a different brand of leadership than his father. His uncle, Jang Sung-taek, leading the DPRK delegation in Beijing, is thought by many North Korea watchers to favor economic reform. Once purged by his brother-in-law, Jang has emerged as a major political ally of his nephew.

Chief of Central Administration Department of the Korean Workers' Party, Jang Sung-taek, meets with Chinese President Hu Jintao in Beijing. Photo: Reuters

Even if not the true power in the regime, as numerous South Korean media groups suggest, Jang may now be a powerful force in directing the country's economy and officials. He serves as Chief of the Central Administrative Department of the Korean Workers' Party and Vice-Chairman of the influential National Defense Commission, positions only nominally inferior to those of Kim Jong-un.

Jang's meetings with high-level Chinese leaders, including the president and premier, have the hallmarks of a visit by a head of state. The visit is thought by North Korean analysts to lay foundational work for a formal visit by Kim Jong-un -- the first official state visit the young supreme leader would make to a foreign country.

Work on improving travel and exchanges between the North and China has been going on for some time. In July 2012, China started its first charter flights to Pyongyang. North Koreans living and working in China are thought to serve as a major conduit for information and products from the outside world. Roads and rail networks from China to the DPRK have been extended over the past year, including those to Rason. Chinese are now allowed their own self-driving tours through the North, although unlikely to be with any significant freedom to travel to destinations that were not prearranged.

The New York Times estimated that more than 24,000 foreign tourists visited North Korea in 2010, the predominant number from China.

Referring to the two new economic development areas, the Ministry of Commerce said on Thursday that "Construction of the two economic zones has entered the stage of introducing enterprises to invest in the zones."

Chinese President Hu Jintao met with Jang on Friday, noting that "China and the DPRK are friendly neighbors linked with waters and mountains, and their two peoples share a time-honored friendship."

Jang replied that the DPRK-China friendship was one that had "withstood the test of time."

Chinese Premier Wen Jiabao noted that a lot of work remained to be done in the economic zones. Chinese state media corporation Xinhua noted that the Premier's remarks included attention to "strengthen[ing] the leadership and planning of the cooperation on the zones, improving laws and regulations; encourage relevant regions for active participation with close coordination; and [letting] the market play its role creating favorable conditions for land and tax."

No doubt Chinese leaders and businesses are also mindful of the risks of doing business with North Korea, even if they are being pushed to do so to help an old friend.