As the prospect of a political deal over North Korea starts to look tantalizingly real, the question naturally arises: what next? The lifting of economic sanctions by itself won’t transform the North Korean economy. But in the best case scenario, sanctions relief could be the first step in a wider process of opening and reform. And when it comes to economic reform, one model looms large: China’s.
Deng Xiaoping opened his bid to reform the Chinese economy at a plenary meeting of the Communist Party central committee in December, 1978. Nothing happened overnight–except the airlifting of Coca-Cola from Hong Kong to Beijing to celebrate the successful conclusion of the meeting. But just nine days later the PRC established formal diplomatic relations with the United States. And on May 1, 1979, Shenzhen was born.
The city of Shenzhen on the border with (then British) Hong Kong already existed, but the Shenzhen Special Economic Zone (SEZ) was something new. At first it was a distinctive, secluded place where Chinese people could learn about capitalism–again. At the time, China had only been communist for thirty years, but it had been a long thirty years. Shenzhen gave Chinese capitalism the chance to start over.
Shenzhen was chosen because it was as far away from the political center of the country as you could possibly get and still hope to build a commercially viable export hub. Shenzhen was also chosen to benefit from its proximity to Hong Kong, its entrepreneurs and its capital. If the experiment failed, Shenzhen could be quarantined. If it succeeded, lessons learned in Shenzhen could be exported to the rest of the country.
Unknown to most outsiders, North Korea already has its own Shenzhen. It’s called Rason , a portmanteau of the names of the twin port cities of Rajin and Sonbong. Located in the far northeastern corner of the country, Rason is as far away as you can get from the capital Pyongyang and still be in North Korea. Designated a special economic zone in 1991, not much has happened there yet. But that may be about to change.
Lying on the border with Russia and just downriver from China’s inland port of Hunchun, Rason has a rail link across the Russian border, a 12-hour passenger ferry service from Vladivostok, and a moribund Chinese-built container port that is deep enough to be ice-free throughout the winter.
Forget the rail link and the passenger ferry. Focus on the port. Rason has the potential to link China’s landlocked northeastern provinces directly to markets in Japan and the United States.
China’s chronically depressed Dongbei region, consisting of the three northeastern provinces of Liaoning, Jilin, and Heilongjiang, has long been held back by the poverty of its neighbors. Surrounded by North Korea, Mongolia and the Russian far east, it has long suffered from a lack of foreign investment. Even Chinese private-sector companies have proven reluctant to invest in the region.
Enter Rason. Right now it’s not much more than an underdeveloped fishing port. But it could become the Dongbei region’s lifeline to the world. To date, Chinese investment in Rason has been held back by international sanctions and China’s own troubled relations with North Korea. But China is deeply (if somewhat mysteriously) involved in bringing North Korea and its leader Kim Jong-un in from the cold. The payoff for China would be a reduction of tensions on the Korean peninsula–and a new outlet to the sea.
Rason could in theory act as the saltwater terminus of a 50 mile (80 km.) trimodal transport corridor from Jilin province’s Hunchun inland port to the wide Pacific Ocean. River, road and rail connections are all viable. The Tumen River that forms the border between North Korea and Russia/China is, in principle, navigable, and Hunchun was in fact the Dongbei region’s window on the world until the Japanese occupation of Korea in 1910. An existing road link from Hunchun to Rason could be upgraded, and a rail link wouldn’t be far behind.
North Korea’s price for access would likely be the establishment of export processing industries in the Rason SEZ–and for China to pick up the tab for the necessary infrastructure. Given China’s penchant for big infrastructure projects, that shouldn’t pose much of a problem. South Korean firms might even be tempted to relocate some of their own export processing facilities from increasingly expensive areas near Shanghai to this cheaper location close to home.
If North Korea really does go down the route of economic reform, don’t expect much action in the capital Pyongyang or in the Kaesong industrial park on the South Korean border. These sites are politically significant but economically irrational. If North Korea liberalizes, the big investor will be China, and China will opt for Rason.