How China Could Help North Korea Out of Poverty

by Yiping Duan

As the Trump-Kim summit has concluded, it looks as if the denuclearization of North Korea is not a so distant opportunity anymore. And while the world has focused on the meeting in Singapore, China is already rattling its sabres to exploit this big potential but uncertain market if an opening of North Korea could actually happen.

The Korean peninsula has been divided for almost seventy years after World War II. And while the South flourished, the North developed into an authoritarian system. Last week, when I chatted with my friends in China through a WeChat group (think WhatsApp in China), it became a hot topic to talk about the possible business opportunities in North Korea, if it opens its door to the world. The bold momentum that is observable in China reminds me of the 1980s when China started its own opening policy. At that time, everyone was seeking opportunities to become rich, since China almost developed from nothing. Everyone expects to draw something on this white board now again, despite a would-be agreement which includes a complete dismantlement of North Korea’s nuclear program possibly taking up to one decade.

Low-cost manufacturing has played an important role in making China the second largest economy in the world. But average manufacturing wages in China have increased by 80 percent since 2010. The tide is changing now. Some labor-dependent, low-cost manufacturing is moving from China towards East Asian countries, for instance to Vietnam, Cambodia, Myanmar, Indonesia and the Philippines. The motivation to make the adventurous journey to the outside world came into being because of the fierce competition inside China and the saturated market.

According to the report of China’s Overseas Investment in 2017, the main overseas investors are still state-owned companies. But private enterprises, which are investing overseas, comprise sixty percent of all enterprises. Even though the biggest share of overseas investment are still in the hand of the government, more and more private enterprises seek to share the pie. This report also indicated the trend that private enterprises are catching up.

The report of the Top 10 Trends in China’s Outbound Investment in 2016 also pointed out that Chinese outbound investors are becoming more diversified, and privately-owned small and medium sized companies in particular are increasingly active abroad. Therefore, we can anticipate that if North Korea opens its door to the world, Chinese small private enterprises will play a crucial role in this development.

If North Korea were to start denuclearization and open itself to the world, this will be a big opportunity for Chinese investors. China is not only the closest ally of North Korea, but also the largest trade partner and provider of food, fuel, and industrial machinery. The Rason Special Economic Zone and Sinŭiju Special Administrative Region, which are the two special economic zones in North Korea, have been the test grounds for a possible (slow) turn to a somewhat market economy. If the North Korean governments were to enact any market policies, private SMEs from China will be the frontrunners to develop that market. This would undoubtedly be a win-win situation – with more trade to the outside world, the North Korean people would benefit immensely as well.

Yiping Duan is an intern at the Austrian Economics Center and a student at the University of Groningen.