China Boosts North Korean Export Zone

The Rajin-Sonbong Free Trade Zone in the extreme northeast corner of North Korea was always something of a joke. The zone was created in 1991 by the late North Korean dictator Kim Il-sung when the North was in one of its periodic flirtations with Chinese-style free markets. But nothing much came of it.

That may be changing as a Chinese state-run investment firm has signed a deal with Pyongyang to pump big money into the enclave to develop infrastructure, coal-fired power plants, oil refineries and other projects to help exploit the natural resources in this corner of the country.

The original zone was obviously modeled on China’s pioneering free trade zones, in which certain communist export restrictions were relaxed in a bid to attract foreign investment. The zone’s prime location, close to where the Chinese, Russian and North Korean borders come together was assumed to be a draw.

It is also about as far away from Pyongyang as one can get in North Korea, thus keeping any capitalist contamination isolated in one remote corner of the country far from the rest of the population as one can get and still be in the Stalinist country.

In the two decades of its existence, however, Rajin-Sonbong languished, neglected by the impoverished government in Pyongyang and generally ignored by potential foreign investors. Michael Rank of the British Guardian newspaper visited the site only last September and described it as being “desolate.”

“The main square turns into a sea of mud when it rains . . . there are no street lights”. The only connection with the nearest Chinese city is over a winding, mountainous gravel road, offering little incentive to turn the grubby little town (Rajin and Sonbong were merged into one city, renamed Rason) into an export entrepot.

The only real foreign investment that the zone ever attracted was a casino-hotel called the Emperor, funded by a Hong Kong gambling magnate and evidently designed to attract Chinese punters from the Northeast, who may not have the wherewithal to go to Macau.

The Emperor Hotel supposedly closed in 2005 in the aftermath of a scandal involving a senior Chinese cadre, who gambled away about 3 million yuan in public money, but the Guardian’s reporter, visiting Rason in September, saw a couple dozen Chinese punters still playing in what must be the world’s most forlorn gambling establishment.

There are multiple signs, however, that Pyongyang is getting serious about making something of Rason. One important sign of things to some was a personal visit a year ago by Kim Jong-il, the first time he had toured this remote corner of his bailiwick.

Possibly tied in to this was Kim’s several visits last year to China, including the city of Dalian, Northeast China’s main export portal. The Chinese would like to see Rason turned into a serious competitor for Chinese exports and imports because they are putting a strain on Dalian’s facilities.

Shortly after Kim’s tour, the local leadership was replaced with cadres with more experience in international trade, headed by no less than by a former minister of foreign trade, Rim Kyung-man, by far the senior most communist official to take charge of the zone and municipality.

There are reports too that work is finally getting underway to improve and pave the gravel highway that connects between Rason and the Chinese border about 50 km away. It is assumed that the Chinese are paying for this and a new customs facility on the North Korean side of the border at the Tumen River.

Of course, the most significant sign came earlier this month (January) when the Chinese state-run Shangdi Guanqun Investment Co. Ltd, signed a memorandum of understanding with Pyongyang’s Investment and Development Group to invest $2 billion in the zone to turn it into “the biggest industrial zone in Northeast Asia,” as the MOU reportedly stated.

The project calls for basic infrastructure such as roads, modern piers, coal-fired electric power plants and oil refineries, using Rason as an export base for China, Japan and Southeast Asia. The first project apparently will be the coal plant plus ancillary roads, rail and piers.

Shangdi Guanqun Investment was founded in 1995as a government-owned trading arm specializing in oil processing, and natural resources development. An official was quoted in the South Korean press as saying that the company will build a plant to refine crude imported from the Middle East and Russia to sell to China and other customers.

The revival of investment interest the free trade zone appears to be one with other Chinese moves to help develop North Korea’s abundant natural resources to feed its economy. North Korea has considerable amounts of coal, gold, iron ore, copper, zinc and other minerals which China needs to feed its economy and which it is actively helping develop.

The Rason zone is close by the huge Musan Iron ore mine, which is is said to have seven billion tons of iron ore reserves, making it potentially one of the world’s largest iron mines. It has attracted Chinese interest as well as some other foreign investment such as India’s Global Steel.

Russia reportedly has also invested some $200 million equivalent in Rason, mainly in infrastructure. It would seem, however, that Russia has less interest in the zone as it already has ice-free major ports at nearby at Nadhodka and Vladivostok.

On the other hand, the Chinese Northeast is landlocked to the east and has to send its goods by rail and truck overland to the port of Dalian. Development of the Rason free trade zone would effectively give the Chinese an outlet on the Sea of Japan that they presently lack.

It is just another sign of China’s growing economic ties with its neighbor. The two sides signed an economic cooperation treaty in Pyongyang on Nov. 23, the very day the north bombarded the South Korean island of Yeonpyeong. The value of two-way trade increased more than 30 percent in 2010.

The Chinese have long advised Pyongyang to embrace its market-oriented measures, including free trade zones, with the aim of improving North Korea economy and thus reducing the potential for instability. Until now Pyongyang’s response has been half hearted at best –witness how Rason languished for so many years. It may be that now it is taking things to heart..

Toward a Triple Alliance

Is it time to junk the security architecture of Northeast Asia, which has been in place for nearly 60 years, with a new and genuinely mutual “triple alliance” between Japan, South Korea and the United States? The three nations have been making tentative but unmistakable steps in that direction.

Last month, for the first time, South Korea sent military observers to take part in joint U.S.-Japan military exercises held at several places off Japan’s coast. Earlier, members of Japan’s Self Defense Forces observed similar exercises between the South Korean and U.S. Navies held in response to the sinking of a Korean naval corvette.

Adm. Mike Mullen, Chairman of the U.S. Joint Chiefs, has called on the two Asian nations to take things farther by hosting three-nation exercises in the future with the United States. Japan’s hawkish foreign minister Seiji Maehara has said that his nation’s military ties with South Korea will slowly increase in response to provocations from North Korea.

The first concrete steps were taken in early July when Tokyo and Seoul negotiated their first military agreement following talks between the two nation’s defense ministers. The accords covered mutual cooperation and assistance in gathering intelligence, especially on North Korea, and sharing supplies on peacekeeping missions abroad.

These steps are far, far from being a mutual defense alliance, but they show the direction things are moving and how concerned the three potential “allies” are about the provocations by North Korea last year, including November’s murderous shelling of an offshore island, not to mention North’s growing nuclear arsenal. Add to that, growing concerns about the expanding and modernizing Chinese navy.

But one might ask: are not South Korea and Japan already allies of the U.S.? The answer would be yes and no. Washington has formal security arrangements with both countries on a bilateral basis, but a closer look shows that the two arrangements are very different, reflecting the security situations as they have developed since the end of World War II.

The Treaty of Mutual Defense between South Korea and the U.S. was signed in 1953 only a few months after the end of the Korean War when the northern invasion was fresh in everybody’s minds. It is a true alliance in that both sides promise to come to the aid of the other in the event of an attack.

The U.S. still bases approximately 28,000 troops and other military assets in Korea. An American four-star general heads the Combined Forces Command and would, in an attack, assume direct command of both the American and Korean forces (this is set to change in 2012 after which a Korean general would be placed in charge.)

Since 2005 the official mission of American forces based in Korea has changed. The forces are no longer there just to serve as a “trip-wire” in the event of a North Korean invasion (in other words, ensuring American help as they would be in the thick of fighting from the beginning). Under a policy known as “strategic flexibility,” they could be deployed outside of Korea to meet other contingencies – such as a Chinese invasion of Taiwan.

The so-called alliance with Japan is not really an alliance at all; it is basically a deal: the U.S promises to defend Japan if attacked, with nuclear weapons if necessary (the so-called nuclear umbrella); in return Japan grants American forces bases on its territory to use pretty much as Washington sees fit in advancing U.S. national interests.

One could see how this works this last fall when the aircraft carrier George Washington and its escorts, based at Yokosuka near Tokyo, deployed in the Yellow Sea for joint exercises with South Korea, showing that, unlike Japan’s indigenous “Self-Defense” forces, the American forces are not deployed strictly to defend Japan.

On the other hand, Japan has no treaty obligation to help the U.S. defend itself. Thus should North Korea launch a ballistic missile over Japan toward the U.S., as it has done twice in the recent past, the Japanese would not be obliged to try to shoot it down. Indeed, it would be technically illegal under its constitution.

This scenario is not just a theory. Secretary of Defense Robert Gates himself has warned that North Korea could possess a ballistic missile capable of reaching Alaska in the next five years. It is not clear whether the North has the technical ability to fashion nuclear war heads on them as opposed to exploding bombs in simple underground tests.

Japan’s pacifistic constitution (written by American occupiers) has been interpreted to preclude “collective defense.” That means the document would have to be amended or reinterpreted in for Japan to enter into a full-fledged alliance with either South Korea, the U.S. or both..

Far from being integrated into a single command as in Korea (or Europe under NATO), the Americans in Japan and the Japanese armed forces might as well have inhabited different planets for most of the past 50 years. It is only recently that the two countries have gradually moved to integrate their forces and hold exercises together.

There are obvious barriers in Japan allying itself with South Korea, not the least being lingering memories Koreans have of Japan’s long occupation of the Korean peninsula. The two countries also dispute ownership of a small group of rocky islets in the Sea of Japan (East Sea to Koreans) called the Dokdo by Koreas and Takeshima by the Japanese.

The Japanese too are puzzled and vaguely threatened by South Korea’s apparent desire to build a “blue-water” navy. In 2007 South Korea commissioned its largest warship, a helicopter amphibious assault ship with the pregnant name of Dokdo. What use are these amphibious ships in defending against a northern invasion, they wonder? (The Koreans say they are useful in peace-keeping and disaster relief).

Shortly after assuming office last June Japan’s prime minister Naoto Kan, issued a formal Japanese apology on the 100th anniversary of Japan’s annexation of Korea in 1910, which may help ease Korean suspicions. It may be his most useful foreign policy initiative since taking office to date.

The American-backed defense and security architecture of Northeast Asia is now more than 50 years old and was conceived in a different time for different contingencies. Then the main threat, obviously, was the Soviet Union and a fear of a conventional invasion by North Korea.

The threat from Russia has receded while worries over China’s rapidly modernizing military have accelerated, especially in the past year. Meanwhile, North Korea has acquired the ability to build atomic bombs and is working on the means to deliver them.



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The Party Means to Stay

It is easy to forget that China is a communist country. The leaders wear business suits instead of Mao jackets and give speeches at Davos. The business pages of newspapers are full of admiring stories about initial public offerings of giant conglomerates. People seem to go about their business making money without interference from the state.

Of course, everyone knows that China is some kind of an authoritarian, “one-party” state, and we’re reminded from time to time of the state’s ability to repress dissident voices, such as its behavior after the imprisoned dissident Liu Xiaobo won the Nobel Prize for Peace last year. There is a vague notion that Deng Xiaoping with his market opening moves set the communist party on the road to history.

Every few years when the Chinese Communist Party holds its regular congress in Beijing’s Great Hall of the People, it is almost a shock to see the vivid backdrop of massed red flags and a huge hammer and cycle emblem looming over the proceedings, but it is easy to dismiss it as meaningless stagecraft.

I’ve found myself falling into this trap, blithely writing about China as being “nominally” communist. I was quickly and firmly disabused of that comforting notion by reading Richard McGregor’s new book: The Party: The Secret World of China’s Communist Rulers (HarperCollins, 302 pages).


McGregor, formerly the Financial Times bureau chief in Beijing, couldn’t put his basic thesis more baldly than this: “If Vladimir Lenin were reincarnated in the 21st century Beijing . . . he would instantly recognize in the ruling Chinese Communist Party a replica of a system he designed nearly a century ago.”

China’s leaders are happy enough to play this down, both to the world at large and, to a lesser degree, to its own people. The principal means of communist control fall under such shadowy groups as the Central Organization Department headquartered in anonymous building with no name over the entrance, not even a listed telephone number.

Yet it is largely through this bureau, which has its tentacles spread throughout the country down to the smallest village, that the party extends its control. This is true even in nominally capitalist enterprises, where somebody, not usually the CEO, is answerable to the party and ultimately the party headquarters. Another element of party control is through the more aptly named Propaganda Department, which issues daily directives to the country’s media on what to cover and what not to cover.



Of course, McGregor would concede the contemporary Chinese Communist Party does not function as it did in the bad old days of the cult of Mao Zedong, the Cultural Revolution or the Great Leap Forward (dark episodes that the party is happy to ignore or white wash in approved history texts). Deng’s market reforms are not a figment of imagination; the command economy has been dismantled and replaced with a kind of state-guided capitalism.

The author is also happy to concede that the party has retreated in significant ways from its almost total supervision of individual lives. As many have noted, the average Chinese has more personal freedom in his private life than ever before – so long as he keeps out of politics and doesn’t directly challenge the levers of the communist state.

The party has also found it convenient, for example, to allow relatively uninhibited reporting in certain spheres such as natural disasters or exposes into corruption (particularly of foreign-owned firms). But nothing that transpires behind the walls of the Zhongnanhai government compound in Beijing is ever reported that the party doesn’t want reported.

Many in the West have been seduced by the comforting notion that as China prospers, it will become even more liberal and eventually evolve into a democracy. There is such a thing as an Asian path to democracy which goes like this: As a country prospers, and as more people enter the middle class, they will press for greater freedom and democracy. Not gonna happen in China, says McGregor.

That seems to be the path followed in such former military dictatorships as Taiwan, South Korea, and perhaps Indonesia. Many of these elements are in place in China. The country is undeniably prospering and creating an incipient middle class, although, because of its sheer size, the average per capita income is still low.

In point of fact, this new emerging “middle class” is, for the moment, highly supportive of the communist party. After all, it created the conditions on which they built their prosperity. None of the dictatorships in South Korea Taiwan or Suharto’s Indonesia had anything like the institutional architecture, going back 60 years and farther, that China’s communist party leaders have to support their rule.

One of those instruments of power, of course, is the People’s Liberation Army, which in 1989 showed that when push comes to shove the army will defend the party. That should not be a surprise, as McGregor reminds us, China’s armed forces are an instrument of the party, not of the state, in keeping with Mao’s maxim that the party commands the gun.

In 2008, the year America was holding its presidential primaries, China held its own “presidential primary” and elevated Xi Jinping to the inner sanctum of party the Politburo Standing Committee and signaled that he is the likely successor to President Hu Jintau, though he won’t take office until Hu’s second five-year term expires in 2012.

One of Deng Xiaoping’s reform goals was to inculcate the notion of term limits for China’s leaders, so that China’s rulers did not cling to power to their death beds (like Deng). This has generally been followed for the past two decades. Assuming things run according to plan, China’s leadership is already set until 2022, or after Barack Obama leaves office in America and after his successor leaves office.

So while it is true that the Chinese Communist party has evolved in many ways since Liberation in 1949 and especially since the market opening reforms of the late 1970s, it still remains all powerful. In Marxist terms, the party is not going to wither away.

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Asia, an Oasis of Peace?

In late December Foreign Policy magazine published a slide show listing of “Next Year’s Wars” laying out the conflicts that it sees coming in 2011. The magazine listed 16 possible trouble spots, seven in Africa, five in Central and South America and four in the Middle East – none in Asia.

How is that again? Has Asia suddenly become an oasis of peace? Are there no potential conflicts in the region to worry about? Indeed, in an earlier listing published in the February issue called “Planet Wars” the magazine had a more expanded list of 33 conflicts around the globe, a half dozen or so in the region.

In some ways it is true that peace has broken out in Asia. In the past couple years the long Sri Lankan civil war came to a bloody conclusion, but a conclusion nonetheless. Mediation pushed along by a tsunami helped to finally end the insurgency in Indonesia’s province of Aceh, both showing that “intractable” conflicts sometimes are tractable.

Some of the conflicts in Asia are old stories, very old stories. The communist New People’s Army has been waging an insurgency on the northern island of Luzon for more than 50 years. Of similar vintage are the various separatist movements and wars in Myanmar. India has a deadly Maoist insurgency still running.

There is no reason to believe that 2011 will alter this picture very much. It is unlikely that the Philippines or Myanmar will score any significant victories in the coming year; it is equally unlikely that any of these movements will threaten to bring down the current regimes. That may be why they are not on FP list.

But while these local conflicts mainly concern the host countries, they do have some geopolitical implications. The communist insurgency may not impact any but the Philippines, but this year Manila turned to China for the first time for military aid, which might be considered a point for China in its rivalry with the U.S. for influence in Southeast Asia.

Similarly, as separatist movements peter out in Indonesia (save for a low key insurgency in Papua), memories of the atrocities that the army committed in putting them are fading. This means that Indonesia has become a more acceptable partner for the U.S in balancing against China expansion. The fact that it is a democracy now helps too.

It is not impossible that civil war could break out in Thailand this year. Last year’s bloody crackdown on “red shirt” demonstrators in Bangkok could be a curtain riser for even bloodier confrontation this year. Elections will likely be held this year. What happens if the “red shirt” faction regains a majority in parliament? Will the “yellow shirts” gracefully accept the verdict of the voters? They haven’t in the past.

Adding to this is one eventuality that nobody wants to think about, the royal succession. King Bhumibol, now 83, is living more or less permanently in a Bangkok hospital. He could die this year, and the succession is not so clear cut as it is in other monarchies. There could be rival claimants, especially as the Crown Prince is unpopular.

For a moment after the murderous shelling of a South Korean island off the coast of North Korea in November one might have thought that the two Koreas were on the verge of Korean War II. At year’s end, however, Pyongyang had ramped down the strident rhetoric.

So was FP wise to exclude the Koreas from its list of Next Year’s Wars? Perhaps. There is always a considerable amount of bluffing on the peninsula. North Korea has been threatening to turn Seoul into a “sea of fire” for so long that the words, as opposed to the reality of massed artillery across the border, no longer raise many fears.

If it is impossible to predict what might take place this year with the two Koreas, one can forecast with almost absolute certainty that there will be one or more clashes in the East and South China Seas. There are too many big power interests in this region to predict any serious warfare breaking out, but the potential for “incidents” is very high.

The East China Sea is an area where the Chinese, American and Japanese navies grind together, sometimes literally as in the case last September when a Chinese fishing boat rammed a Japanese coast guard vessel. The Chinese are reinforcing their paramilitary fishery patrol boats around disputed islands and increasing the number of military over flights along the periphery, so the potential for more such incidents is very high.

These incidents may not develop into full scale clashes much less all out war, but they do involve considerable diplomatic wear and tear. Rookie Japanese Prime Minister Naoto Kan has never really recovered politically from the island dispute, which took place when he was fighting for his political life in a party election. It also shows that “incidents” don’t happen at convenient times.