Bloomberg News

N. Korea’s New Economic Zone Signals Deepening Ties With China

June 06, 2011

June 7 (Bloomberg) -- North Korea said it will set up a new economic zone near its border with China, signaling the nation’s deepening dependence on its economic benefactor after leader Kim Jong Il’s three visits there in the past year.

The Hwanggumphyong and Wihwa Islands Economic Zone will be set up to “boost friendship with China and expand and develop external economic relations,” North Korea’s state-run Korean Central News Agency said late yesterday, citing a parliamentary decree. The report didn’t elaborate on the development plans.

The announcement is the clearest sign yet that Kim may have won China’s pledge for further economic cooperation during his last trip in May, according to analysts including Cho Bong Hyun of the Seoul-based IBK Economic Research Institute. China last year accounted for 83 percent of North Korea’s $4.2 billion of trade as global sanctions left the regime increasingly isolated.

“It appears Kim has succeeded in winning support from Chinese authorities for developing the area, even though the zone seems to have few immediate investment merits for China,” Cho said today by phone. “Economic cooperation between the two countries will further accelerate.”

North Korea could develop Hwanggumphyong, near its western border with China, into an industrial complex for Chinese companies, similar to the one in Gaeseong where South Korean firms operate using North Korean labor, Cho said. North Korea is also developing the city of Rason on the east coast into a “center for foreign trade.”

‘Strong as Ever’

China would be much more interested in investing in Rason, which has ports facing the Pacific Ocean, said Kim Yong Hyun, a professor of North Korean studies at Seoul-based Dongguk University. It may take a long time until China starts investing in Hwanggumphyong, he said.

“North Korea wants to show off to the world that its ties with China are as strong as ever,” Dongguk’s Kim said. “China has nothing to lose at this point for pledging investment that won’t happen for a long time.”

The Gaeseong industrial complex is the only project South Korea runs with North Korea after President Lee Myung Bak in May last year cut off trade, accusing Kim’s regime of torpedoing a warship that claimed the lives of 46 sailors. The North was also put under tougher United Nations sanctions banning arms trade and restricting financial transactions after its second nuclear test in May 2009.

North Korean dependence on China will increase as long as global sanctions are in place, the Seoul-based Korea Trade- Investment Promotion Agency, or Kotra, said on May 27 in releasing the figures. North Korea doesn’t release its own data.

Overseas sales of coal, North Korea’s No. 1 export item jumped 50 percent in value from a year earlier, while exports of steel grew 59 percent, Kotra said. Exports of other mineral resources gained 80 percent.

Fuel including crude oil was the biggest import, increasing 52 percent from a year earlier. North Korean machinery purchases rose 38 percent, while imports of electrical appliances gained 43 percent, the agency said.

--Editor: Patrick Harrington, John Brinsley

To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg in Hong Kong at phirschberg@bloomberg.net


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