Agenda: North Korean Free-Trade Zones
Video Transcript:
Vice President of Strategic Intelligence Rodger Baker discusses the implications of the recently announced free-trade zones in North Korea near the Chinese border.
Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.
Enterprise and market-based trade zones are being established by North Korea, close to the Chinese border. Announcing this, Jang Song Thaek, administrative director of the Korean Workers' Party and incidentally the brother-in-law of Kim Jong Il, said they would provide a platform for trade and economic cooperation with the rest of the world. China is to build a new highway to the North Korean city of Rason, modernizing the city's port and also providing other infrastructure improvements, including electricity. So is this the beginning of Chinese-style reform in the reclusive state?
Welcome to Agenda and with me today is Rodger Baker. Rodger, is this a significant shift in North Korea's policy?
Rodger: Well, we see two things going on in North Korea right now. On the one hand we see the changes in the economic relations with the Chinese -- the sudden discussions and opening of new free-trade zones or reopening of old free-trade zones and expanding the Chinese influence into there. On the other hand we see the North Koreans kind of up to their old tricks. They're now really close to having discussions with the South Koreans, have secret talks in Beijing with the South Koreans and suddenly come out and say "Oh, these secrets of horrible, the South Koreans are lying to us and we're never going to talk to them again."
Colin: And what's the Chinese strategy here?
Rodger: The Chinese have been working slowly but steadily to really take control of the North Korean economy. On the one hand, they don't mind North Korea being dependent upon China -- that gives them some leverage and North Korea has always been a tool of the Chinese arsenal in dealing with the United States, the South Koreans, the Japanese and others. On the other hand, the Chinese are always afraid of the concept of a North Korean collapse, a true collapse. There is a fairly large number of ethnic Koreans along the border region inside China, the Chinese are worried both about a potential flood of refugees coming into China but also a question -- if you had a collapsed North Korean situation -- either would the military weapons and things of that sort start to be smuggled to China or the second instance, if you actually had a U.S. intervention or a war would it push the U.S. right up against the Chinese border. So they want to balance and maintain the North Korean economy and they see the best way to do this now is for them to be the ones who invest in control.
Colin: Who persuaded whom to do this? Was it a Chinese initiative or was it Pyongyang saying that "We need something like this to get our economy going?"
Rodger: I think there has been a combination. The North Koreans have certainly been looking at alternative ways to deal with their economy. For the longest time they been trying to find a way to get the Europeans or other countries in there -- a few months back they had the head of Mittal Steel from India come in, they've tried to bring the Europeans to develop. The Europeans and other countries are really cautious about that because, in the end, there's always the threat of the U.S. cutting them off, the U.S. putting sanctions on them, U.S. military action, things of that sort. So the Chinese are really the only ones left for the North Koreans. At the same time the Chinese have seen this leadership transition under way in North Korea and they feel that now is the time for them to really increase their grasp, increase their reach into North Korea and increasing in some ways their control over the future of North Korea.
Colin: Ironically, about 10 years ago there was another attempt to get something like this on the move. A rich Chinese industrialist I believe, and the Chinese put it down.
Rodger: In 2001-2002, the North Koreans had come up with a plan for a new special economic zone om Sinuiju and this was going to be up along the North Korean-Chinese border along the western edge of the Yalu River. This was going to be a really experimental-type place. They got a guy named Yang Bin who was a Dutch Chinese citizen. He was going to be the head of the special economic zone. He was going to bring in European judges and a legal system. Basically what the North Koreans were going to do was wall off this zone completely from the rest of North Korea, bring in politically correct North Koreans to work in it and keep it isolated. They would gain the money but not have the political influence come back in. At the time China was undergoing a restructuring of their own northeast -- the old Rust Belt -- and they didn't want to see this type of competition right on their border. They also didn't necessarily want to see this sort of free-flow European style unregulated economic activity taking place in North Korea that possibly could've pulled away from investments into China and so they just simply threw Yang Bin in prison.
Colin: A 12-year sentence I believe. But doesn't this now present a bit of a problem for Beijing as they seek to expand westwards by creating jobs to those living in poor conditions. Won't they be disappointed with this focus on neighboring Korea?
Rodger: I think it doesn't actually necessarily hit at their domestic investments in the interior. We saw particularly after the global economic downturn that the Chinese pumped a lot more infrastructure development into the interior, really accelerated the urbanization process, things of that sort. We've seen huge buildings being built, massive construction projects going on, but ultimately not a fundamental change in the standard of living in the interior. I don't think the people in the interior are necessarily seeing what's going on in these development zones -- they are small by comparison for the Chinese, the North Korean zones -- they put a lot of money into Africa, they're working on putting a lot of into Latin America so they really got to balance out their foreign interests, their imports and their consumption of commodities and these domestic problems that they have at home with how do they keep funding and keep stability in their large interior.
Colin: Rodger, we'll leave it there. Rodger Baker, ending Agenda for this week. I'm Colin Chapman, thanks for your time today.
