Rason Needs Big Changes to Succeed

[imText1]The unexpected elevation of Rason to the status of “special city” at the beginning of 2010 is focusing international attention on the North’s future approach to foreign trade.

Following the New Year’s Statement, the Presidium of the Supreme People’s Assembly designated Rason a “special city,” presumably as a precursor to efforts at expanding and strengthening foreign trade.

According to Rodong Shinmun, Kim Jong Il visited Rason for an onsite inspection at the Rason Daeheung Trade Company last month, and among his comments said that foreign trade “is an important economic space in which to solidify the foundations of the self-supporting national economy and encourage the construction of socialism and develop cooperation with foreign countries.”

Rason was in the spotlight as a possible “flare for North Korean reform and opening” while Kim Il Sung was alive, but it has turned into a dead city since then. Kim Jong Il’s words above all imply that North Korea has the will to develop Rason as a foothold for foreign trade once again.

In December 1991, during the third seven-year economic development plan from 1987-1993, North Korea designated Rajin and Sonbong in its far north-east as the “Rajin-Sonbong Free Economic Trade Zone.” In September, 1993, the two cities were merged into one, Rajin-Sonbong City, and it was designated a “directly governed city.” Eventually, after a new reorganization of administration districts in 2004, the whole was named Rason and its status changed to that of a “special-level city” along, eventually, with Kaesong and Nampo.

Meanwhile, Pyongyang had been a special city since the foundation of the regime, but in 1952, became a directly governed city. Therefore, as a “special city,” Rason now nominally holds a dominant position over the capital.

Rason emerged as an economic free zone among Chinese and Russian investors in the mid-1990s, but ultimately due to a lack of the basic measures required for a successful free trade zone such as liberalization of passage of foreigners and foreign money, not to mention reliable energy and infrastructure provision, it never really took off. In addition, it was hampered by its location, far from any major markets.

To make things worse, in an attempt to limit overseas gambling by Chinese citizens, Beijing banned its people from visiting Rason in 2004. Therefore, the Emperor Hotel, constructed with investment from Hong Kong, closed its doors.

After two nuclear tests, which strained relations between the North and China, last year North Korea finally made an agreement with a Chinese enterprise, the Chuangli Group, to develop the No. 1 dock at Rajin port.

From Kim Jong Il’s standpoint, the political assignment is to realize Kim Il Sung’s intention when he designated the economic special zone back in 1991. Of course, reinvigorating Rason could be one good way to improve the North’s economy and establish the third generation succession as well.

A researcher with the Korea Institute for International Economic Policy, Cho Myung Cheol told The Daily NK, “There must be some kind of an agreement with China regarding the designation of Rason as a special city.”

He emphasized, “Without any assistance from China it would be impossible to develop it as a true economic special zone.”

He predicted, “North Korea may have decided to focus on attracting South Korean, Japanese and Russian business to Rason, relying on the wave of Chinese development in its northeast provinces.”

However, in order to produce practical results, North Korea needs to set up more attractive investment surroundings in the area.

The head of the Korea Institute for National Unification’s North Korean Study Center, Im Kang Taek said, “The reasons why the past achievements at Rajin were not noteworthy were that there were lots of restraints over free management, the flow of money and migration of foreigners.”

He additionally explained that, “One other problem is that there is no market surrounding Rajin, while Kaesong has a big market nearby.”

“Essentially, the unstable North Korean social situation makes foreign investors reluctant to invest in Rason. North Korea will try to change the surroundings, but we will have to wait and see the results.”