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Rajin-Sonbong: North Korea’s (New?) Strategy to Attract Foreign Investment

by Scott A. Snyder
March 11, 2010

I’ve been watching North Korea ramp up efforts to attract foreign investment since Jack Pritchard and I heard last November in Pyongyang from the chairman of Pyongyang’s Foreign Investment Advisory Board a presentation of new laws that provide for repatriation of investments, tax benefits, and wages of 30 Euros/month that undercut the $57/month wage rate at the Kaesong Industrial Zone.

Although catastrophic failure of currency revaluation implemented from late November of last year has severely eroded the credibility of the government’s economic policies, there are serious efforts underway to realize new foreign investment at Rajin-Sonbong port at the northeastern tip of North Korea. The location is significant because Rajin-Sonbong has been the focus of similar past failed efforts in 1991 (when the area was first announced as a free trade zone at the time of the launch of the UN-sponsored Tumen River Area Development Project) and 1996 (when North Korea held an international investment forum that was subsequently eclipsed by the famine). 

Following a rare visit by Kim Jong Il to Rajin-Sonbong in January, the local leadership has been replaced with cadres who have prior international experience at the central government level, led by former minister of foreign trade Rim Kyung-man. Reported investments include a 50-year lease of one pier to the Russians and a 10-year lease of a second pier to the Chinese. The pro-North Korean Chosun Sinbo reports that a new company, Taepung International Investment Group, has been set up with initial capital of $10 billion to finance investments in sectors including food supply, railways, roads, harbors, electricity, and other energy supplies. North Korea has also set up a new State Development Bank to support this effort. Given the strategic importance of Rajin port as a year-round ice-free port with the capacity to service both landlocked Jilin province and the Russian Far East, the North Koreans are offering opportunities at Rajin that the Chinese and Russians have long coveted.

Although there were false reports in late 2005 that the dirt road inside North Korea between Quanhe-Wonjong border crossing and Rajin might be paved in a deal with the Hunchun local government, preparations to improve the road are now underway and the North Koreans have built a large customs facility at Wonjong designed to handle goods coming to and from Rajin port to China.

All these activities beg the question of why now? North Korea’s internal economic policies in recent years have focused on reassertion of state control over economic activities. Marcus Noland and Stephan Haggard describe the November 2009 currency revaluation as a confiscatory measure designed to attack the markets. North Korea faces stricter international economic sanctions on suspected shipments of fissile materials under UN Security Council Resolution 1874. 

Is the effort to attract new foreign investment a measure designed to circumvent the pressure from international economic sanctions? Could the promise of new investment by the Chinese be part of a deal whereby China provides cash necessary for the stability and survival of North Korea’s leadership in exchange for a return to the Six Party Talks and to denuclearization? Was North Korea’s currency revaluation such a big failure that Kim Jong Il has finally realized he has no choice but to follow the Chinese model? Or is the push for foreign investment just another phase following previous phases of apparent economic opening in the 1970s and 1980s through which the North induces foreign investment, but international investors are left holding the bag? Is the Kim regime selling off rights to a part of the family estate in order to earn the cash flow necessary to survive? I have my own admittedly jaded views on these questions, but I invite Asia Unbound readers to weigh in with their own interpretations.

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  • Posted by dwoolley

    Rajin is potentially a big deal — for Harbin, Northern Manchuria and the rare earth mines in Mongolia.

    China imports coal from Australia for its power stations. Coal is best carried in ships, with rail as a secondary, short-term means. (Slurry pipelines are better than rail.) Discharge of Australian coal at Rajin would increase the availability to all Manchuria, and especially Harbin. This would avoid the nationalistic problems that are developing in Mongolia over open field coal mining.

    The Chinese are trying to limit their monopoly of rare earth mineral exports to processed or partially processed material — but that is likely to be unsuccessful. So they need a way to export the ores — and Rajin is desirable, again because rail lines can be shortened.

    As a general export port, Rajin would be about three days, 900 nautical miles and many tens of thousands of dollars of marine fuel oil closer to Vancouver and the US West Coast than any of the Northern Chinese ports from Qingdao around to Lushun. If some way to solve the boycott of North Korea could be found, Rajin as a container export port for Northern Manchuria would be dynamite.

    Rajin has been a pipe-dream for twenty years. The key activity will be the laying of a major new rail line, or even a pipeline for slurry, (not roads which are only for infrastructure development at the port.) The next thing to watch for is major new development of Russian Vladivostok as a competitor. There are severe political pressures on Vladivostok because it feels that it is a carbuncle on the backside of European Russia — but a real threat of exports from Rajin would actually be good for its own prospects.

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