North Korea eyes new factory zone near Chinese border to save virus-hit economy
- The announcement came about a month after Xi pledged to ‘provide the peoples of the two countries with better lives’ when he exchanged messages with Kim
- Observers say the ‘export processing zone’ could be used to make products using materials from China that will then be exported back to the larger neighbour
North Korea on Thursday said it would build an “export processing zone” near the border with China, in an apparent bid to recover trade with its ally following a year-long border closure that hurt an economy already reeling from US-led sanctions.
The announcement came about a month after Chinese President Xi Jinping promised to “provide the peoples of the two countries with better lives” when he exchanged messages with the North’s leader Kim Jong-un.
In his message to Xi, Kim called for stronger cooperation with China in the face of challenges posed by “hostile forces”, the North’s state media said.
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South Korea’s spy agency told lawmakers late last year that the North’s trade volume with China fell by 75 per cent during the first 10 months of 2020.
That led to a shortage of raw materials that plunged North Korean factory operations to their lowest level since Kim took power in late 2011, and a jump in the prices of imported foods like sugar and seasonings.
The North’s economic woes were also compounded by devastating natural disasters that wiped out crops last summer.
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On Thursday, the state Korean Central News Agency (KCNA) said senior officials had “decided to establish the Musan Export Processing Zone in some areas of Saegol-ri, Musan County”, a border town where one of North Korea’s biggest iron mines is located.
“The sovereignty of the DPRK will be exercised in the zone,” it said, adding that decree by the standing committee of the Supreme People’s Assembly was issued on April 24.
The KCNA did not specify what items the envisioned export zone would produce or when it would open.
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Observers said it could be used to manufacture products using materials from China that will then be exported back to the larger neighbour.
“This move is part of the North’s efforts to bolster exports as its trade has contracted to almost nil due to the pandemic lockdown on top of the existing sanctions,” said Cho Tae-hyung, a North Korea expert at the Bank of Korea.
North Korea has been under multiple layers of US-led sanctions over its missile and nuclear tests, under which trade has been strictly restricted, including key exports such as natural resources, fishery products, textiles as well as labour force.
While China cannot engage in any projects linked to Musan’s mining sector due to the sanctions, it could be interested in taking advantage of North Korean workers’ low wages and hand skills for processing jobs, said Professor Yang Moo-jin of the University of North Korean Studies in Seoul.
When Xi visited Pyongyang in 2019, he agreed to support the North with food, fertiliser, oil and tour earnings. Last year, China also sent some 430,000 tons of food aid, Yang said.
“China also wants to keep the North firmly to its side through aid, amid the deepening Cold War-style confrontation with the US,” he said.
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Since taking power in 2011, Kim has designated some 20 special economic zones across the country for agriculture, manufacturing and tours, in which foreigners and Koreans living abroad may invest, according to a 2013 law.
But these zones have made little impact due to the biting sanctions.
Kim made a rare admission that the North’s economic policy was falling short when he replaced his point man last summer.
The North’s economy shrank 8.5 per cent last year when the pandemic battered trade with China and led to strict regulations on public activity, according to Fitch Solutions.
In its latest report, Fitch slashed its economic growth forecast for North Korea for this year to 0.5 per cent from an earlier projection of 2.5 per cent. Shortages of basic necessities, including rice, have added to the country’s economic woes recently, prompting some Russian diplomats to leave.
The North has so far ignored the Biden’s administration’s efforts to reach out, saying it will not engage in meaningful talks with the United States unless Washington abandons what Pyongyang sees as “hostile” policies, which clearly refers to the US-led sanctions and pressure over its nuclear programme.
At a ruling party congress in January, Kim vowed to further expand the North’s nuclear programme and urged his people to be resilient in the struggle for economic self-reliance.
Additional reporting by the Associated Press and Bloomberg
