Pyongyang’s Path to Prosperity

By SHI YONGMING

Pyongyang’s Path to Prosperity

By SHI YONGMING

North Korea ponders a shift of strategic focus to economic development

North Korean leader Kim Jong Il visited China together with a group of economic and technological experts on May 20-26. The focus was on the economy as Kim visited a number of Chinese businesses.South Korean scholars said the visit was an educational project for North Korean officials to experience China’s achievements in opening up, which will offer points of reference for North Korea’s future reforms.

The situation on the Korean Peninsula remains tense, and the six-party talks on the nuclear issue on the peninsula are still in the air. Now the question is whether or not North Korea can shift its strategic focus to economic development.

Making a choice

North Korea has three interconnected problems: security, power transition and challenges related to economic development.The complicated situation leaves developing the economy the only workable option for North Korea to break the current stalemate.

After the sinking of the South Korean warshipCheonanin March 2010 and the exchange of fi re near the Yeonpyeong Island in November the same year, the Pyongyang-Seoul relationship has remained in deadlock.South Korea demands an apology as a precondition of improving bilateral relationship and restarting the six-party talks, but North Korea repeatedly denied involvement in sinking the warship.

South Korea and the United States are unlikely to introduce major changes to their policies before their presidential elections next year. Besides, North Korea has no effective tactics to force them to do so. The peninsula’s political standoff will not be solved in the near future.

North Korea’s fragile domestic situation is another reason for South Korea and the United States’ tough attitudes. As Kim Jong Il’s health problems suddenly became an issue in 2008,transferring power was put on the country’s agenda, but North Korea’s future is still uncertain. Apparently, South Korea and the United States would rather wait.

At a time when North Korea faces a harsh external security environment, domestic support is crucial for a smooth transfer of power. If North Korea can develop its economy and improve its people’s livelihoods, its new leader’s political power will be further cemented.

Therefore, focusing on economic development—whether of active or passive choice—is essential for North Korea to solve its internal and external problems.

Exploring a path

North Korea’s economy started sliding downward since the end of the Cold War when support from the previous socialist bloc became unavailable. In the mid-1990s,a series of natural disasters sharpened the deterioration. Its economy shrank continuously,resulting in severe shortages of foreign exchanges, energy and food.

At the beginning of the 21st century,North Korea’s economy began healing.Since its original economic development mode was no longer as vigorous because of long-term economic difficulties, North Korean leaders began to seek a new path to reinvigorate its economy under changing circumstances.

In 2001, Kim Jong Il called on North Korea to get rid of old concepts and embrace a “new thinking.” The country put forwardreform measures aimed at improving economic efficiency on July 1, 2002. These measures included delegating administrative authority to lower levels and reforming exchange rate and price. As a result, market forces began to play a role in the North Korean economy.

JOINT VENTURE: Workers pack foodstuffs at a China-North Korea joint animal feed company in Pyongyang on May 27

But these measures aimed only to test the waters, rather than substantial reforms. North Korean leaders faced too many theoretical and practical problems, such as how to deal with the relationship between economic development and thesongun(military- fi rst)policy when the country’s external security environment is extremely uncertain; how to deal with the relationship between opening up and maintaining independence; and how to strike a balance between market forces and state planning.

Their efforts to explore a new development path were disrupted when North Korea’s external security environment deteriorated in 2003, forcing the government to give priority to national defense in keeping with itssongunpolicy.

In 2008, economic development once again became the country’s focus. North Korea hopes to open a door to a more prosperous, powerful country by 2012, a year marking the 100th anniversary of late leader Kim Il Sung’s birth.

Shaping development

North Korea’s market-oriented reforms of 2002 resulted in inflation and widening social disparities. In 2009, it tried to solve complicated economic problems through currency reform.The reform, which took a heavy toll on the North Korean economy, prompted the country’s leaders to look for more effective approaches to economic development.

For instance, North Korea has recently accelerated its opening up. After the Cold War ended in 1991, it started to build special economic zones, such as the Rason special economic zone and the Kaesong industrial complex. In February 2010, the country invited Chinese enterprises to develop the Hwanggumphyong and Wihwa islands in the Yalu River on the border between China and North Korea. It later set up a free trade zone on the two islands, allowing free entry and exit of foreigners. Last March, it designated eight cities including Pyongyang as new special economic zones, where preferential tax policies are implemented to attract foreign investors.

In 2010, it established the Korea Taepung International Investment Group to attract foreign investment. It also set up the State Development Bank to invest in major projects. But the bank needs to develop a modern management system before it can engage in international fi nance.

Earlier this year, Pyongyang presented a 10-year strategic plan for economic development,which set development targets for 12 key sectors including infrastructure and energy.

Although the path ahead is long and difficult, there are still reasons to wait for big changes to happen in the North Korean economy.

The author is an associate research fellow with the China Institute of International Studies