North and South Korea seem to be moving farther apart, both politically and economically.
Although North Korea was embarking on a quest to bring in outside investment and appeared to be strengthening its economic ties with China, news of the execution of Jang Song Thaek, the second most powerful man in North Korea, have called all that into question.
Jang had been North Korea’s man in charge when it came to economic relations with China. He had also overseen the special economic zones that were North Korea’s declared means of bringing foreign investment into a country that sorely needs outside funds simply to keep its people fed, much less grow its military-starved economy.
But in December, Jang was publicly hauled out of a Politburo meeting and accused of numerous instances of wrongdoing. Put on trial, he was executed immediately after being convicted of charges that included everything from economic corruption and financial mismanagement to planning a coup to seize the government from his nephew by marriage, Kim Jong Un.
The execution was more typical of 1950s North Korea, leading to speculation that instability is brewing in the government and that Jang’s purge was a means for Kim to tighten his hold on power. Talk is also surfacing that Jang was too cozy with the Chinese, and that the prospect of Chinese-style economic reforms might have threatened Kim’s supremacy. Jang’s death certainly has done nothing to improve relations with North Korea’s closest business partner, already uneasy over the North’s nuclear tests.
Kim should be wary of angering China, considering that, according to the Korean Development Institute in South Korea, 70% of the North’s $8.8 billion in international trade last year was made up of coal and timber that flow to Beijing. And, since China is sending in its own China State Grid Corp. and China Railway Construction Group, among others, to build infrastructure in North Korea’s Rason free trade zone, Kim may find his actions could cost him dearly.
In a Korea Economic Institute research paper in February of 2012, just a couple of months after Kim Jong Il’s death and Kim Jong Un’s succession, Andray Abrahamian said of Rason that, despite the special economic zone’s relatively ignored existence for 20 years, “amid political transition in North Korea, reform and reorganization has taken place in the SEZ, while at the same time China has included Rason in its ambitious plans to develop its Northeastern province of Jilin. These changes demonstrate Pyongyang’s increasing need to reach out to foreign investors to reinvigorate its economy. They also point toward China’s desire to develop its Northeast region and promote stability while increasing its leverage over North Korea’s economic growth.”
“While still unwilling to truly open the economy, it seems apparent that North Korea’s elites are turning to economic development, growth in light industry and trade and investment to define the new era of governance. The creation of investment organs and national laws relating to corporate activity attest to this and coincide with material and legal changes in Rason as well,” according to Abrahamian. That could change, however, in light of Jang’s execution, which many Korea-watchers say was intended to send a very clear message.
Kim has said Jang’s execution “will not alter trade goals” and the country announced that new enterprise zones will be set up for tourism and investment. But both the execution and the economic sanctions that North Korea faces for nuclear weapons tests could, and likely should, make investors think twice about any potential deals.