China and the World

Investing in Mr Kim

China is taking advantage of trade opportunities with North Korea

Investing in Mr Kim

The risks include – mostly him

For a stark reminder of the land that time forgot, it’s hard to do better than catch the train from Pyongyang to Beijing.

The last leg of the journey out of North Korea, after a final farewell from taciturn customs officials in the city of Sinŭiju, involves crossing the railway bridge over the Yalu River.

Suddenly, the train reaches the border town of Dandong, not a leading city in any respect within China (and even ranking rather poorly in provincial terms).

But for the traveller it feels like arriving in Manhattan after a long slog through the boondocks, with the sudden proliferation of tall buildings, neon signs and residents in colourful clothes.

Separated by just a few hundred metres, the two cities are worlds apart. But there are signs that developments in Dandong might just benefit its North Korean neighbour too. The city will receive investment worth Rmb45 billion ($7.1 billion) over the next five years to expand its port, reported Xinhua last week – with annual capacity to increase to 100 million tonnes from the current 60 million. And the move is being made in anticipation of burgeoning trade ties between the two countries.

Trade between China and North Korea is already on an upswing, up 87% in the first seven months of 2011, compared to the same period last year, and reaching $3.1 billion, reports Reuters.

As the main border settlement, Dandong is well-placed to take advantage of the deepening ties, with plans drawn up for new economic zones on islands in the Yalu near Dandong.

The North Korean regime is desperate for foreign currency, and with Pyongyang isolated diplomatically, it has been forced to turn more towards its old Cold War partner for commercial sustenance.

The change has been rapid: in 2010, China accounted for 57% of North Korea’s external trade, up from 39% in 2006, according to the Korea Trade Investment Promotion Agency.

Recognising this dependency, Kim Jong-il has even overcome his dislike of overseas travel to make four visits to China over the last 18 months, resulting in a series of trade deals. Many relate to areas close to Dandong, including mining rights and proposed manufacturing zones in border areas. Another project – in Rajin-Sonbong (or Rason) to the east – is also slated for development. In both, Chinese companies are to be enticed with offers of cheap North Korean labour, as well as hints from the regime that it might experiment further with economic reform.

Cynics doubt whether the plans will come to much. The northern city of Rason was also designated a special economic zone 20 years ago. Kim has spent much of the subsequent period apparently indifferent to Rason’s potential.

Similar efforts to establish a zone near Sinŭiju were also abandoned, when Yang Bin, the Chinese businessman from Shenyang who hatched the project (see WiC16), was arrested.

Will it be different this time? Reports from the areas in question say roads and other infrastructure is being built, usually by Chinese workers. And as Chinese businessmen continue to talk about the potential for profit in North Korea, there is anxiety in Seoul that it is losing further influence over its neighbour.

“China is quietly achieving the economic colonisation of the North, thereby undermining the long-term aspiration for Korean unification and cutting Southern companies out of the long-term profits to be made in North Korea,” John Delury, a lecturer at Seoul’s Yonsei University, told the International Herald Tribune.

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