North Korea: Open For Business?
North Korea: Open For Business?
North Korea Plots a Course of “Heavy Agony” for 2022
North Korea Plots a Course of “Heavy Agony” for 2022
Op-Ed / Asia

North Korea: Open For Business?

“You won’t believe this is North Korea,” said our local guide during a trip to Rason three months before the death of Kim Jong-Il.

We were standing in the lobby of the city’s prize tourist attraction, the Hong Kong-invested Emperor Hotel & Casino, a stunning five-star seaside resort where guests pay a minimum of $500 to gamble. The opulently decorated rooms with 30+ TV channels are rented only to the Chinese, who are whisked directly in and out of the hotel from the Chinese border by a crimson Humvee. Later, we visited the Rason Bazaar, full of locals haggling animatedly for Chinese goods that ranged from clothes to bicycles to DVDs to washing machines–all at black-market prices. Markets are illegal in North Korea and the regime episodically cracks down on those that have sprung up to compensate for the country’s failing food distribution system.

Yet beyond the sparkle of the Emperor Hotel, the majority of Rason’s approximately 200,000 residents still live in dire poverty. Vehicles with huge speakers still blare sŏn'gun("military first") propaganda throughout the city. North Korea has prioritized the Rason Special Economic Zone primarily to generate much-needed foreign capital ahead of the Kim Il Sung centenary celebration this April. Some of this cash is funding a construction boom in Pyongyang to give the city a facelift before the celebration.

But the presence of cell phones, Coca Cola and taxis in Rason are signs of a superficial economic opening rather than evidence of systemic reform in the country. Kim Jong-Il never embraced economic reform and opening advocated by China, and his successor, Kim Jong-Un is very unlikely to do so.

According to my hosts, Kim Jong-Il was personally overseeing Rason’s development, bypassing Pyongyang’s central administration. Local officials boasted of labor costs of $80 per month and a revised trade law allowing significantly reduced income taxes on foreign investors and full repatriation of generated profits. Officials told us there was a strict prohibition on seizure and nationalization of foreign assets, though they had recently confiscated $450 million in a tourism project by South Korean company Hyundai. We were also told that there would be no “rioting for higher salaries” in Rason.

At the same time, officials were honest about their daunting to-do list. Rason has weak infrastructure and regular power blackouts. Local officials lamented that the bordering three Chinese provinces were not interested in providing power, but they had some interest from Yunnan, Taiwan, and a Korean-American company; the latter would sell second-hand wind power through Russia.

Beijing’s economic push

Throughout 2011 Pyongyang turned to Beijing for increased support as it faced a food shortage and preparations for succession. According to one Chinese analyst, “The North is using us. They know they will need some support for the succession, and the support could only come from China.” In return, China asked that the authoritarian state make progress in the economic arena and refrain from deadly provocations, such as the 2010 sinking of the Ch’ŏnan and the shelling of a South Korean island. A better economic situation in North Korea would ensure China a more stable neighbor and fewer refugees while facilitating China’s plans for developing its northeastern provinces through access to Rajin’s ice-free port and North Korea’s raw materials.

Low prospects of reform

But Kim Jong-Il feared that instead of leading to Chinese-style economic growth, reform in North Korea would engender an East German-style collapse. While the regime has dabbled with economic openings to try to attract foreign capital, there are no signs that it has been willing to undertake any of the long-term structural reforms that would be needed to spur genuine national economic growth. While an increasing number of North Koreans know that they are significantly behind the rest of the world, a sudden, significant inflow of outside commercialism and information would risk destabilizing the regime, which is built on propaganda and lies.

Thus, instead of genuinely opening up its system, North Korea has engaged in “mosquito net reform” such as that in Rason: maintaining an overall web of tight control while selectively allowing in pockets of foreign investment under controlled circumstances. Projects are fashioned so that elites continue to capture the rents with little meaningful transfer to the rest of the economy. Electric fences and tight internal security around North Korean workers in Rason ensure that the zone is well separated from the rest of the country.

Kim Jong-Un is as unlikely to engage in reform and opening as his father. Kim Jong-Un took over leadership of the reclusive nation at the tender age of 29 without having consolidated his power. He will be unlikely to rock the boat with bold moves. In the current political context, even if he were inclined towards reform – and there are no signs that he is -- he would find it almost impossible to deliver the successful economic reform-based growth necessary to compensate for the legitimacy lost by exposing the propaganda. Reforms would require the young leader to abandon the command economy and renounce the very same state ideologies and political legacies of his father and grandfather which form the basis of his own legitimacy. Experiments like Rason are therefore likely to remain the exception rather than harbingers of wider North Korean reform and opening.
 

Workers plant rice at the Chongsan Cooperative Farm in the Kangso district of Nampho City on 12 May 2020. KIM Won Jin / AFP
Q&A / Asia

North Korea Plots a Course of “Heavy Agony” for 2022

The latest five-day plenum of North Korea’s ruling party focused on food insecurity, chief among the nation’s challenges. With the pandemic not yet tamed and other uncertainty on the international scene, Pyongyang may continue refraining from major provocations into 2022, but for how long is unclear.

North Korea has just completed its annual review of its own performance at the fourth plenum of the Eighth Congress of the Workers’ Party, held from 27-31 December 2021. What can we learn from this exercise about the state of the country?

Under Kim Jong-un, Pyongyang politics tick along on a system of five-year “congresses”, the most recent of which was held in January 2021 (and should run to 2026). These five-year cycles are then punctuated by fairly regular plenums, including the one that ended on 31 December. What we got in a lengthy article on 1 January was a report on that plenum, which amounts to a kind of annual review of the party’s performance, and an indicator of the challenges it has identified for the year ahead.

What happened this time is a little different from the usual modus operandi. Under previous chiefs and in Kim Jong-un’s pre-pandemic era, the North Korean leader would deliver a new year’s address either on television or via an editorial in state-run newspapers, and these would mark a waypoint in the country’s politics. In 2022, all we got was a report on Kim Jong-un’s contribution to the plenum; it was a comma compared to the full stops of years past.

The report gave little hope for immediate improvement ... as Kim [Jong-un] mentioned a ‘heavy yet responsible agony’ for the period to come.

It’s difficult to interpret exactly what this means and what new, if anything, has been decided by the five-day plenum. For one thing, the full text of Kim’s speech was not published, and for another, the signals it gave were rather mixed. There was abundant rhetoric about successes and breakthroughs as usual, but all suffused with a sense of insufficiency. Of one thing we can be relatively certain: 2021 was another tough year, in particular due to the COVID-19 pandemic’s impact. Perhaps not quite as tough as 2020, when the coronavirus first triggered fear, border closings and a steep economic downturn, but still very challenging. The report gave little hope for immediate improvement, either, as Kim mentioned a “heavy yet responsible agony” for the period to come.

From what was revealed, it appears the party hasn’t been able to make much progress toward the goals of the five-year economic plan outlined in January 2021. Although it is impossible to conclusively verify from the outside what is happening on the ground, the lack of progress must be clearly visible to the citizenry, many of whom will have seen no sign of promised improvements to “food, clothing, and housing” in a year during which COVID-19 containment measures have suffocated economic activity. But, as discussed below, it’s hard to tell exactly how much the country is suffering or, indeed, upon whom the burden is mainly falling.

Given the concern expressed in the plenum report about farming, we can assume a degree of difficulty for many North Koreans in getting food – either because it is in short supply or because market prices are out of reach for people who have seen their incomes fall. Kim delivered a long speech on what he called “our-style socialist rural development”, or in other words, what needs to be done to improve the agricultural system and bring North Korea closer to meeting the population’s food requirements. As always, the reported speech included a large measure of ideological conditioning of farmers and no shortage of exhortations for agricultural labourers to work harder. But it also touched upon agricultural modernisation and policies to remedy the worst effects of climate change, notably on production of North Korea’s staple crop, rice. It all indicates considerable concern for the state of the country’s agricultural performance.

How bad is the situation for ordinary people in North Korea?

From border regions – which are more accessible to outsiders thanks to cross-border cellular communications, and which we use as a rough proxy for other parts of the country outside Pyongyang – there is plentiful evidence of people facing difficulties in their daily lives. Because of a de facto zero-COVID-19 policy, the country’s border with China has been closed since January 2020, meaning large-scale cross-border trade and flows of people have stopped almost completely. The little reporting that has emerged from the North suggests that the closure has affected incomes, and thus demand seems to have switched from relatively costly rice to the cheaper alternative, corn, while market prices for manufactured goods have risen markedly as supplies dwindle. These phenomena have led to rising levels of poverty and food insecurity. North Korea’s northern neighbour and ally China may well already be sending humanitarian supplies, but if so, it is doing so (as ever) without fanfare, and it is impossible to identify who the beneficiaries are. Whatever the case, humanitarian assistance is no substitute for the restoration of cross-border trade.

North Korea is, however, nowhere near the famine that struck in the period 1995-1997, when as many as a million people may have perished. Back then, Pyongyang was forced to beg for international aid and had to open up its borders to deliveries of food and observers. Under Kim Jong-un since 2011, Pyongyang has taken significant steps toward deepening existing market mechanisms in the economy, even if in recent years it has sought to restore more state controls. The market economy as it is now constituted makes outright famine much less likely than it was in the 1990s, when the population’s reliance on the state’s rapidly disintegrating rationing system left millions at risk of starvation.

What have we learned about how Kim Jong-un has consolidated power over the last ten years?

Before Kim’s father, Kim Jong-il, suffered a stroke in the summer of 2008, he had greatly enfeebled the ruling party. In his heyday, the elder Kim ran an autocratic dictatorship in which the executive implemented decisions and the party rubber-stamped them, at best. When he took power in 2011 after a period of co-rule, Kim Jong-un didn’t have the authority to do that, and therefore needed to bring existing elites along with him in a way that his father did not. As a result, he emphasised the role of the party as the organ of decision-making and administration, with the cabinet as the overseer of the economy. By regularising the role of party congresses and plenums, he seems to have invited a measure of collective, if mostly top-down, discussion among officials at the national, regional and local levels, as well as among those working in industry. In a recent visual indication of this institutionalising trend, Kim Jong-un has overseen the removal of some images of his father and grandfather from public spaces, replacing them with party symbols.

But this modest commitment to collective rule doesn’t make much difference to the governing system’s coherence: Kim Jong-un remains supreme leader, and he has now placed faithful lieutenants in all the key party and cabinet positions, freeing him from having to rely excessively on members of his father’s team to rule. In other words, there is still no sign of change in North Korea’s underlying personalist power structure, and since the brutal elimination of Kim’s uncle Jang Song-thaek in December 2013, also no indication of the emergence of anyone with an independent power base or the potential to construct one. If the regime can survive COVID-19 – which it has done so far, at least – it’s hard to see what could trip it up in the short to medium term.

Does the plenum report mean that North Korea will be focused on its internal problems in the coming year, and not on provoking the outside world?

It seems clear that North Korea plans to be internally focused in 2022. The plenum report didn’t mention military or foreign policy matters in any detail. Instead, it focused on the domestic economy, particularly agriculture. This is not, in all likelihood, because the leader wants to focus on agriculture, but because he has to: ensuring the country’s food security remains a major challenge. There’s also much uncertainty in the outside world, which could counsel a wait-and-see approach before Kim makes any major moves. South Korean elections in early March will result in a new leader for North Korea’s most direct rival. COVID-19 could wane, but it could also become an even bigger distraction.

Kim [Jong-un] continues to build and improve Pyongyang’s arsenal.

In any event, Kim continues to build and improve Pyongyang’s arsenal. He laid out the party’s priorities for military strengthening a year ago at the Eighth Congress, when launching the current planning cycle. These priorities, which continue to guide North Korea, were listed as: to keep developing nuclear technology, including tactical and “super-sized” warheads; to achieve accurate delivery of missiles within a radius of 15,000km (that is, the whole territory of the United States); to design hypersonic gliding flight warheads; to advance plans for solid-fuel intercontinental missiles; to possess a nuclear submarine and underwater-launch strategic nuclear weapon; to launch a military reconnaissance satellite; and to build reconnaissance drones with a 500km range (that is, the whole territory of South Korea).

Some of these goals are still remote. But in pursuit of others, North Korea has already done some new, high-profile military testing in 2021 and now also in 2022, including a launch on 5 January of what it claims was a hypersonic missile (possibly of the same make that was shown off at the country’s Self-Defence 2021 exhibition in October). There will certainly be more testing in the year to come, though the tempo and intensity could be affected by what happens with the pandemic and, correspondingly, the country’s economic health.

Does the plenum report suggest more of the same on the Korean peninsula for 2022?

On the whole, yes. But it is noteworthy that the plenum report quotes Kim Jong-un as saying that, as North Korea enters 2022, “we came to know what we can do”. This sentence seems to indicate he feels the country enjoys a degree of stability that was not there at the end of 2020, and that it is now a bit easier for North Korea to plan its international strategy. But it is not a statement of outright confidence, particularly given the unpredictable progress of the pandemic, which overshadows everything.

As best we can tell, North Korea's zero-COVID-19 policy has so far done a reasonably good job of controlling the virus. But the cornerstone of this strategy was sealing off its land borders. The closures have led not just to food insecurity and precipitously declining trade volumes, but also to the departure of much of Pyongyang’s diplomatic and NGO community, which opted to withdraw staff rather than operate under unworkable restrictions on freedom of movement into, out of and inside the country. Repeatedly, North Korea has seemed on the verge of reopening its borders to overland trade, but resurgences of the virus appear to have forced it to delay the measure and rely instead on modest volumes of goods coming into the west coast port of Nampo. There is now talk of a fresh attempt, but that seems unlikely in light of the omicron variant. Each new iteration of the pandemic poses potentially huge risks to a country that has rejected all attempts to supply it with effective vaccines.

The border closure will necessarily continue to affect all North Korea’s economic plans. Indeed, even the modest goal of upgrading the agricultural sector will involve imports of machinery, parts and chemical fertilisers. Any concerted new program of military testing will need hard currency, for which the only good source is trade with China.

What do current conditions mean for our understanding of North Korea?

Due to the pandemic and border closure, we presently know even less about what’s happening inside North Korea than usual. There are few diplomats, businesspeople, tourists or aid workers left. Organisations that maintain networks of citizen journalists inside North Korea or who rely on networks of resettled North Koreans in Seoul have less reporting to work with. These gaps directly affect how much information we have about the situation in the country, and the capacity to cross-reference anecdotal reports coming from the ground. The reopening of overland trade is a classic example. There are a handful of superficially plausible reports that the borders are going to reopen in January, but they’re very hard to cross-check.

For now, it seems likely that because of COVID-19, North Korea has for some time not been in a strong position to “provoke” the outside world as it has often done in the past. There is little to indicate that it has really wanted to, either, though that may be more a consequence of the pandemic forcing the state to review its priorities than its leadership’s tactical preferences. But the 5 January missile test is a reminder that we will be hearing from Pyongyang again.

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