Investing in North Korea? For Kim, economic opening is a double-edged sword

China and South Korea hope the summit will lead to an economic windfall for North Korea, but that also poses risks for Pyongyang.

China and South Korea are gearing up to pour investments into North Korea — a prospect that presents benefits and risks for Pyongyang — should leader Kim Jong-Un strike a deal with President Donald Trump on giving up his nuclear arms.

With bilateral ties thawing in recent weeks, China has been expressing support for Kim’s calls to prioritise economic development and stepping up official exchanges on industrial cooperation.

Some Chinese businesspeople are betting on a boost in two-way trade that has been crimped by Beijing’s enforcement of international sanctions against its neighbour.

South Korean President Moon Jae-in, meanwhile, has been pushing plans to knit the two Koreas’ economies closer together as a way to foster political cooperation. They include proposals for opening air, road and rail links, and reviving inter-Korean industrial projects that could provide a boost to the North, whose moribund economy is dwarfed by the South’s.

“I think of it as a horse race. The gates for most investors have been closed for years, but the prospect that they could soon open has many anxious to be the first ones out,” said Kyle Ferrier, director of academic affairs and research at the Korea Economic Institute of America.

Much depends on the outcome of today’s summit between the North Korean leader and Mr Trump, who has insisted on maintaining pressure on Pyongyang while denuclearisation talks unfold.

In the event of a deal that lifts sanctions on North Korea, however, Mr Trump and his Secretary of State Mike Pompeo have pledged economic assistance that would allow the North to develop its economy.

For South Korea and China, even a more modest outcome at the Trump-Kim summit could give Beijing and Seoul enough political cover to crack open the door to Pyongyang, while making it harder for the US to sustain support for sanctions pressure.

“For China’s part, I think any diplomatic success should be enough for them to let up on the sanctions enforcement somewhat, since the international pressure won’t be the same,” said Benjamin Silberstein, an associate scholar at the Foreign Policy Research Institute, a Pennsylvania-based think tank.

Mr Pompeo said last month that, should Pyongyang agree to a deal to give up its nuclear weapons, a flood of private-sector US investment would help North Korea build out its energy grid and modernise its agriculture. “We’re happy to share with them technology, knowledge, entrepreneurship, efforts to build systems,” he added last week.

Still, it is unclear if the North even wants those things.

“The US is trumpeting as if it would offer economic compensation and benefit in case we abandon nuke,” Kim Kye Gwan, a senior North Korean diplomat, said in a sharply worded statement last month. “We have never had any expectation of US support in carrying out our economic construction and will not at all make such a deal in future, too.”

An economic opening could be risky for Kim, whose family regime has maintained a tight grip over North Koreans for decades.

In recent weeks, North Korea’s state media has ramped up its bluster against capitalism and outside influences. Last week, North Korea’s main party newspaper said in an article that capitalist society, which “mercilessly infringes upon the freedom and democratic rights” of the people, was “doomed to come to an end.” But China and South Korea have pushed ahead, hoping for a deal with economic benefits for Pyongyang, in large part because both see economic potential in a more open and integrated North Korea.

Beijing and Seoul have different strategic goals, however.

China’s main worry is that economic collapse in the North or reunification with the South might create a single, democratic and US-allied Korea, enhancing America’s strategic position in Asia. Concerned that it was being marginalised by recent talks between Washington, Seoul and Pyongyang, Beijing sees economic assistance as a way to secure a role in negotiations on the Korean Peninsula’s future.

At two meetings in China, in late March and early May, Chinese President Xi Jinping told Kim that Beijing supports Pyongyang’s plans to develop its economy and expressed willingness to step up bilateral exchanges and cooperation.

Days after their second meeting, Pyongyang dispatched a large delegation — comprising top officials from every province and major city — to tour industrial facilities in Beijing, Shanghai and the provinces of Shaanxi and Zhejiang, according to Chinese state media.

The delegation leader Pak Thae Song, the vice chairman of the Central Committee of North Korea’s ruling party, told a senior Chinese official that his team “looks forward to observing and studying China’s experiences and achievements in economic construction as well as reforming and opening up,” according to the Chinese Communist Party’s International Department.

Meantime, during their summit meeting at the inter-Korean demilitarised zone in April, Mr Moon, the South Korean leader, handed Kim a thumb drive. On it was a blueprint for economic cooperation that would transform the relationship between the Koreas after decades of confrontation.

The idea harks back to the “sunshine policy” toward the North that Mr Moon’s liberal predecessors championed between 1998 and 2008. At the height of that era, 50,000 North Korean laborers worked for South Korean companies at a joint industrial park in North Korea, while South Korean tourists traveled to a mountain resort in the North.

A revival of the sunshine policy would be difficult due to the far more stringent sanctions that the North is under compared with last decade.

But Mr Moon, who has advocated for years for more engagement with the North, isn’t deterred. In May, he ordered his cabinet to find ways to boost cooperation with North Korea and finance inter-Korean projects.

The joint industrial park in the city of Kaesong provided the regime with $120 million in workers’ wages in 2015, the last full year it was in operation, according to the South’s Unification Ministry, which said Pyongyang had used the money to advance its nuclear and long-range missile programs. The then-conservative government in Seoul halted the South’s involvement in early 2016.

One substantial new proposal in the Korean leaders’ joint declaration in April was for the opening of an inter-Korean liaison office in Kaesong, sparking speculation that they were taking a step to restarting the industrial park. Last week, Mr Moon sent his deputy unification minister to the shuttered industrial park to check the electricity and water supply.

The South Korean leader has envisaged an inter-Korean economic union encompassing dozens of joint projects, betting that such cooperation might create the conditions for eventual political unification.

In some ways, Mr Moon’s vision meshes with the current aims of Kim, whose signiature policy is byungjin, or “dual advance” — simultaneously developing nuclear weapons and the economy. In April, Kim declared his nuclear weapons program a success and said he would turn his attention to the economy.

The economic projects that Mr Moon has floated would be attractive to North Korea because they offer a steady source of income, particularly after a year in which the international community, including its ally China, has clamped down on inflows of hard currency.

That may be about to change. Near North Korea’s border with China, property prices in the Chinese cities of Dandong and Hunchun have swelled in recent months, as investors bet that improving bilateral ties will boost housing demand.

Liu Qinggang, a seafood trader in Hunchun, hasn’t imported any North Korean seafood since trade restrictions were imposed last August. He now imports seafood from Russia, a more expensive option, and his business is losing money, according to his wife, Ms Wang. “We watch international news on TV everyday, looking forward to the day when the customs agencies would open up,” she said.

Chinese tourism to North Korea has not been subject to sanctions. By some accounts, the industry is growing quickly. Officials in Hunchun, for instance, are streamlining immigration procedures.

Chinese entrepreneur Che Yinghe launched last year a Dandong-based travel agency running tours to North Korea, after his previous venture trading North Korean coal collapsed under Beijing’s sanctions enforcement.

“There are quite a few people inquiring about business and investment opportunities in North Korea,” said Mr. Che, whose company INDPRK organizes tours to places including Pyongyang and the truce village of Panmunjom. “I see trains full of North Korea-bound tourists, and tickets are hard to get.”

Jeremy Page, Kersten Zhang and Xiao Xiao in Beijing contributed to this article.

With Chun Han Wong

Wall Street Journal