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China's flagging economic aid to North Korea
Publication Date : 24-08-2012
North Korea's new leader, Kim Jong-un, has ambitions to revive the country's collapsed economy as it is the only way to preserve his family's control over the country.
He has taken an important preliminary step by reducing the military's control of the economy. But his ambitions may backfire as the country has been under a military dictatorship for a very long time and the regime has little knowledge about market-based development, the key to China's economic might today.
In a meeting with Kim's special envoy last Friday, Chinese President Hu Jintao and Premier Wen Jiabao delivered a clear message urging the North Korean leader to prioritise efforts to reviving the country's frail economy.
Perhaps this is an indication of Beijing’s growing concern about Pyongyang's dependence on Chinese economic assistance, and the little gratitude it has received in return for its extreme generosity.
Pyongyang's stubbornness to go ahead with its nuclear weapon development programme is alarming, not just for its neighbours such as Japan and South Korea, but eventually also for China.
North Korea has little experience in opening its market to foreign investors and the few foreign companies allowed in, including those from China, have complained they were cheated.
The continuously increasing number of starving people represents a major potential threat to China’s national security in the event of a regime collapse and a subsequent flood of refugees spilling over the border.
The failure to achieve food security in North Korea could destabilise the already fragile Korean Peninsula and the broader East Asia region.
During Friday's meeting, the two Chinese leaders emphasised the strategic importance of North Korea as they sat down with Jang Song-thaek, Kim Jong-un's uncle and chief of the central administrative department of the Workers' Party of Korea (WPK), but also underlined the need to follow in China's footsteps in developing the North Korean economy.
According to China Daily, President Hu reiterated Beijing's full support for Pyongyang's economic development. "The President expressed a wish for both sides to […] explore new ways of cooperation and advance key projects including cooperation and development of economic zones," the official newspaper reported on the meeting.
Meanwhile, Premier Jiabao assured Jang Song-thaek that China "resolutely supports the DPRK [North Korea] developing its economy and improving people’s livelihoods".
Jong-un himself has recently told a Chinese official that "developing the economy and improving people's livelihoods so that the Korean people can lead happy and civilised lives is the goal that the Korean Workers' Party is working toward."
While military tensions escalate between its three powerful neighbours — China, Japan and South Korea — with Japan moving closer to direct confrontation with China and South Korea over territorial claims, North Korea's Kim Jong-un is focusing on how to salvage his nation from bankruptcy.
The young leader has apparently realised that he has no choice but to take quick action to rebuild the economy, as it is only a matter of several years before his regime will collapse if nothing is done to get the military-controlled economy back on track.
North Korea is now totally isolated following the decision of fellow dictator state Myanmar to drastically distance itself from Chinese economic backing and begin a series of political reforms.
The two countries were allies in terms of their isolation from the outside world at the expense of starving millions of their own citizens and forcing millions of others to endure extreme poverty.
Just days after the meeting in Beijing, The Associated Press (AP) had a rare economic report from Rason, North Korea, located near the Chinese city of Yanji, on Tuesday.
The American news agency was invited to cover a trade fair in Rason, one of the country's special economic zones. Local officials boasted that foreign investment would receive maximum facilities and incentives. They also promised to amend more restrictive laws to ensure the comfort of foreign investors, mainly from China.
North Korea has created special economic zones since 1991. In 2004, it opened a similar facility near the Demilitarised Zone (DMZ) for South Korean companies.
But trading with North Korea is not easy, as Indonesia already knows. While Soeharto was in power, he wanted to boost trade ties with Pyongyang as part of his strategy to boost his international stature.
However, he soon realised that Pyongyang's limited foreign exchange reserves made it difficult to continue his plan. Until today, Indonesian companies remain reluctant to make major deals with the communist country.
South Korean conglomerate Hyundai also had a bitter experience there, although it continues to maintain a presence for long-term purposes.
Likewise, Chinese companies have experienced difficulties in dealing with the North Korean bureaucracy. Xiyang Group complained via a website that "investment in North Korea was a nightmare. Business with North Koreans over the past four years has taught us that they are swindlers and robbers."
The company lost its US$37 million investment there. Last year, Chinese trading authorities reportedly cautioned private companies to be extra wary about investing in North Korea.
Indonesia has always had a strong interest in playing a prominent role in bringing peace to the Korean Peninsula, and it has maintained good relations with North Korea for decades, which has in turn built Pyongyang's confidence in Jakarta.
President Susilo Bambang Yudhoyono, with the help of the Foreign Ministry, needs to launch a new mission to share its experience with North Korea in dealing with foreign investment.
Indonesia's experience shows that cheating foreign investors will only benefit a few government officials and private companies, while the costs have to be paid by the whole nation.
The writer is Senior Managing Editor at The Jakarta Post.