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The Kim Jong-Un Regime Heralds Changes in North Korea-China Relations

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The Kim Jong-Un Regime Heralds Changes in North Korea-China Relations :: Issue Analyses The Kim Jong-un regime heralds changes in North Korea-China relations Cho Bong-hyun Business Analyst, IBK Economic Research Institute hat has been happening in North Korea since the death of Kim Jong-il? The world is paying keen attention to North Korea. A few months ago, North Korea said that it would W make an “important announcement” through the state-run media, including the Chosun Central News Agency. After the dismissal of Lee Young-ho, the North Korean Army General Counsel, many people waited for this important announcement, wondering what it would be. At noon on July 18, an announcement was made that North Korean leader Kim Jong-un had been given the title of Marshal. The news seemed rather insignificant. In addition to the titles of Supreme Commander of the North Korean People’s Army, First Secretary of the Workers’ Party, and First Chairman of the National Defense Commission, Kim Jong-un had been given the title of Marshal. North Korea was quick in completing the succession of power. As Kim has come to control the Party, the military, and politics, he has become North Korea’s undisputed leader. The era of Kim Jong-un has come. 97 Autumn 2012�POSRI Chindia Quarterly ○● Increasing dependence on China to solve economic problems Since Kim Jong-un took power, he has drawn global attention for his unconventional behavior. Unprecedentedly, North Korea has revealed the first lady. Mickey Mouse and Winnie the Pooh appeared at a performance by Moranbong Band. The performance was quite different from those of the Kim Jong-il era, which were as dull as a black and white photograph. Kim’s experience studying in Switzerland as a teen might have influenced his sensibilities. Mere gestures of change, without solutions to economic problems, will not guarantee a firm foothold for Kim Jong-un’s regime. Kim’s biggest challenge is solving his country’s economic problems. North Korea has limitations in its ability to solve these problems on its own. North Korea’s natural and financial resources are nearly depleted. As the international community has tightened economic sanctions against North Korea, and inter-Korean Economic Cooperation has deteriorated, North Korea has lost its means of earning dollars. North Korea’s economy is besieged by hardships. North Korea has little choice but to turn to his best ally, China. North Korea’s trade with China hit an all-time high of USD 5.63 billion last year, and increased by a further 30% in the first half of this year. The increase was attributed to the fact that North Korea sold mineral resources, such as anthracite coal, in order to reduce foreign currency shortages. Between January and May of 2012, North Korea’s exports to China totaled USD 1.05 billion, a 29% increase year-on-year, while North Korea’s imports from China were USD 1.46 billion, up 27.1% year-on-year. North Korea’s total trade volume with China was up 27.9% year-on-year. Last year, China accounted for 89.1% of North Korea’s total trade, excluding inter-Korean trade. 98 POSRI Chindia Quarterly�Autumn 2012 :: Issue Analyses ○● China demands North Korea change its market system From August 13 to 18, Jang Sung-taek, Chief of the Central Administrative Department of the Workers’ Party, visited China to attend the Third Meeting of the DPRK-China Joint Steering Committee for the Development of the Hwanggumpyong and Wihwado Economic Zone and the Rason Economic Zone. He also met with President Hu Jintao and Premier Wen Jiabao in Beijing. Both countries agreed to establish their own management committees for joint development of the two economic zones. They were able to narrow their differences on the development of the economic zones North Korea and China will likely reach consensus by the end of regarding power supply, this year. After 2013, the two construction of infrastructure in nations are expected to accelerate Hwanggumpyong, and the start bilateral economic cooperation. of the development of the Wihwado Economic Zone. Jang visited Jilin and Liaoning Provinces in an effort to secure investment in North Korea. His visit built momentum for the revival of the project, which had been stalled despite several visits by the late North Korean leader Kim Jong-il before his death, to settle agreements on joint development, and for the ground-breaking ceremony in June of 2011. North Korea-China relations, which became rather icy after North Korea’s failed launch of a long-range missile earlier this year, seemed to melt thanks to Jang’s visit to China. A visit to China by Kim Jong-un is imminent. After China’s upcoming change in leadership, relations between the two countries will become even closer. The Kim Jong-un regime is in desperate need of China’s cooperation and support in order to address the country’s financial distress and achieve regime stability, while China needs to utilize its relationship with North Korea if it is to succeed in the development of its three northeastern provinces under its long-term strategy 99 Autumn 2012�POSRI Chindia Quarterly for expanding its influence over North Korea. However, daunting tasks lie ahead before bilateral economic cooperation can be achieved. China’s leadership has demanded North Korea transform its existing framework. President Hu Jintao proposed to Jang Sung-taek during his visit to China that both countries find new methods of cooperation, based on their own strengths. By doing this, Hu implied that the existing cooperation system no longer works, and North Korea should boldly alter its legislative and institutional foundations. In a meeting with Jang, Premier Wen Jiabao said, “China should encourage its companies to invest in North Korea, but China should first solve the practical problems and difficulties they face.” He added, “North Korea should create favorable conditions with regard to land acquisition, taxation, and various support measures by promoting the role of market mechanisms.” After returning to Pyongyang, Jang likely reported to Kim. Although the details of this report have not been revealed, one can assume it included the following: The trip to China was successful; North Korea and China agreed to pursue closer economic cooperation; it is time for North Korea to seek its own style of economic growth with help from China. Kim probably instructed Jang to carry out his vision for economic growth, expecting results. ○● The presumed details of Kim’s 6.28 Policy Kim Jong-un heralds a new era. In his first public speech in April of 2012, he vowed that he would not make his people tighten their belts again. On June 28, he reportedly ordered the Workers’ Party and the Cabinet to devise a plan for new and concrete economic policies. The North Korean Cabinet is presumed to be at the center of this new plan. This is Kim Jong- un’s so-called 6.28 Policy. The new economic management system can be interpreted as an attempt to improve the lives of the North Korean people. It is based on the 7.1 Economic Reform Measures, released on July 1, 2012, which North Korea boldly implemented. The new policy will likely be an 100 POSRI Chindia Quarterly�Autumn 2012 :: Issue Analyses Presumed details of North Korea’s new economic management policy Details �Reduction of the size of farm units at collective farms from 10-24 people to 4-6 people Agriculture �Nurturing of family farms (7:3) and corporate farms �Ensuring of market sales and consumption �Initial supply of seeds, fertilizers, and agricultural machinery by the State �Autonomy to procure raw materials, decide production and sales, and set Corporations prices �Independent profit making �Autonomy in hiring and firing of employees �Formulation and institutionalization of the markets, including the black market Market �Free market trade among residents �Setting of proper market prices: commodity price control �Establishment of banks that offer international finance and banking �Deposits and loans Finance �Partial permission to use foreign currency �Establishment of a computerized financial network �Preferential treatment for foreign companies (taxation, etc.) Foreign �Application of market principles to the management of foreign companies investment �Liberalization of profit remittance and protection of investment assets Source: Author improvement on those measures. The focus of the policy is to amend North Korea’s existing economic system so as to institutionalize and legalize elements of a market economy. In its details, the 6.28 Policy is expected to include agricultural reform that will solve food problems. A representative idea is to change some collective farms to family unit farming, giving autonomy to corporate management in order to help farms independently plan, produce, and sell agricultural products for profit. The policy will also 101 Autumn 2012�POSRI Chindia Quarterly likely contain details on curbing inflation by legalizing or normalizing the market. North Korea might be pondering how to circulate money and stabilize exchange rates through financial reform. ○● Building consensus between China and North Korea It is too early to jump to the conclusion that North Korea under the control of Kim Jong-un will move toward reform and opening up in earnest. His father, Kim Jong-il, introduced the Economic Management Improvement Measures to expand the role of the market, but these measures soon failed as he could not give up the planned economic system and the court economy, the foundations for maintaining his regime. The Kim Jong-un regime has many obstacles to overcome. Kim must stifle complaints from the military and political bigwigs, while gaining their support. In order to address shortages of natural and financial resources, he must strengthen his country’s supply capacity. He must regain trust from the international community to elicit support and cooperation.
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