In Pyongyang, Gangnam-style development
With the American and North Korean leaders set to meet on June 12, anticipation for economic development in the reclusive state is building, especially after U.S. Secretary of State Mike Pompeo suggested that the United States might exchange aid for denuclearization. “If North Korea takes bold action to quickly denuclearize,” Pompeo told reporters on May 17, “the United States is prepared to work with North Korea to achieve prosperity on par with our South Korean friends.”
If that happens, one of the largest beneficiaries will undoubtedly be the capital of Pyongyang. An estimated three million people, around a tenth of the North Korean population, live in the city, which the regime calls the “capital of revolution.” The residents are political elites - party cadres and their families in a nation stratified by loyalty to the Workers’ Party. Compared to other North Koreans, Pyongyang denizens have a higher standard of living, making residency in the capital a mark of distinction.
Although Pyongyang is far larger than Seoul, most of the land outside the urban center, which sits on the northern bank of the Taedong River, remains sparsely populated and industrialized. The area south of the river, Kangnam County, comprises farmland that grows produce for the city’s metropolitan residents. The area shares the same Korean name as the most prosperous district in South Korea’s capital, a district that once, too, was home to mostly rice paddies.
Indeed, Pyongyang’s Kangnam is reminiscent of Seoul’s Gangnam in the 1970s before the development boom took off. Under the directive of then-President Park Chung Hee, urban planners transformed the rural landscape south of the Han River, which runs through the city of Seoul, into South Korea’s economic center. The area today houses the headquarters of the country’s largest conglomerates.
Gangnam’s economic miracle appears to have inspired officials in Pyongyang. In December, the North Korean government named Kangnam an economic development zone, the 22nd area to receive the designation since leader Kim Jong-un enacted the policy in May 2013. But unlike other economic development zones, such as Kaesong, which borders South Korea, and Sinuiju, which faces China, Kangnam is unique for its location within the capital.
The establishment of economic development zones, which are open to foreign investment and subject to certain economic privileges such as tax exemptions, signals that the North Korean government intends to embark on a nationwide construction spree by attracting foreign investment once sanctions on the country are lifted. The policy dovetails with leader Kim Jong-un’s emphasis on the construction of a beach resort in Wonsan, a city on North Korea’s eastern coast, in his New Year’s address in January.
The economic development zones are one of three pillars of Kim’s economic policies. The other two are agricultural reforms enacted on June 28, 2014, which allow farmers to sell their excess production after allocating some to the state, and measures enacted on May 30, 2014, that give greater freedom to industrial managers and workers in controlling production.
So far, 27 regions, including five special economic zones and 19 provincial development zones, have been designated as economic development zones. Port cities and logistics centers crucial to the North’s economy were selected, including Sinuiju; Hyesan, on the Chinese border; Chongjin and Rason, close to the border with China and Russia; and Hungnam on the eastern coast. However, the areas still lack specific strategies on how to attract investment from abroad.
Pompeo, the secretary of state, has suggested that Americans could invest in North Korea’s infrastructure if the country gives up its nuclear weapons. “This will be Americans coming in - private-sector Americans, not the U.S. taxpayer - helping build the energy grid,” he said in a Fox News interview on May 13. “They need enormous amounts of electricity in North Korea, to work with them to develop infrastructure.”
Cho Jin-hee, a researcher at the North Korea Business Support Center of accounting firm Samjong KPMG, predicts that, if this happens, Pyongyang’s Kangnam County could be a suitable site for foreign ventures. The capital’s existing urban center is already occupied by high-rise apartments and a shopping mall.
And given Kangnam’s designation as an economic development zone, the central government would be able to exert more control over the process and the level of contact that North Koreans have with foreign influence. Within the capital, some residential complexes are starting to allot apartments using private-sector models. According to Samjong KPMG, newer buildings are popping up near shopping centers, and the housing allotment appears to follow Western models rather than being state-led. Renting is becoming an increasingly common practice. The firm’s new book, “North Korea Business Investment Strategy Guide,” likened the construction boom to New York City’s Manhattan and called it “Pyonghattan.”
The projects could be a boon for South Korean companies, which have seen the domestic industry fall into a slump. The share of construction in South Korea’s gross domestic product is currently 14 percent and set to decrease to 11 percent by 2020 and 9 percent by 2030, according to the Korean Statistical Information Service. Working on the North’s infrastructure may be a way to save the industry and foster inter-Korean relations.
But while Pyongyang has pledged to work toward denuclearization and hopes are mounting for the U.S.-North summit in June, the road toward implementing any denuclearization plan remains uncertain. Until its arsenal is decommissioned and shipped abroad, North Korea is likely to remain subject to international sanctions.
And risks are high for any investment in North Korea. As was the case with the abrupt shutdown of the Kaesong Industrial Complex, when it was closed in February 2016 amid high tensions between the two countries, there is always the possibility that the regime in Pyongyang could seize foreign-owned assets, equipment and infrastructure if relations go sour again.
BY LEE YOUNG-JONG, SHIM KYU-SEOK [email@example.com]
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