1、1Restraining Factors and Future Advantages of the Development in North Korea Special Economic Zones（School of Foreign Languages, Jilin University of Finance and Economics, Changchun, Jilin 130117） Abstract. Since 2011, two special economic zones have been commonly developed and managed by China and
2、North Korea, promoting the development in North Korea Special Economic Zones to step into a new phase, and simultaneously bringing about new overseas investment opportunities for Chinese investors. Since the first free trade zone was established by North Korea in 1991, five special economic zones ha
3、ve been set up one after another. However, these special economic zones are highly different in the development degrees, and are with obvious limitations at the same time. In this paper, the restraining factors and future advantages of the development in North Korea special economic zones are analyz
4、ed by the author, thus providing a judgment reference for Chinese enterprises to place investments in North Korea. Key words: North Korea, Special Economic Zones, Investment, Future Advantages 21 Introduction North Korea is a planned economy country, which is alienated from economic globalization an
5、d integration and still keeps the single public ownership structure. After 1980s, North Korea began to attach higher importance to the foreign trades. Hence, it announced the Law of Joint Venture in 1984. Then, it announced to set up the RAJIN-SONBONG Free Economic and Trade Zone in December 1991, a
6、nd also began to seek a model of improving its economy with caution. This zone was established based on the imitation of the free trade zones in Chinas special economic areas, and subsequently give five special economic zones were set up one after another in North Korea. 2 North Koreas Special Econo
7、mic Zones and Their Development Situations 2.1 RASON Economic Trade Zone The predecessor of RASON Economic Trade Zone was the RAJIN-SONBONG Free Economic and Trade Zone, which was established in 1991. It is located in the junction between China and Russia. The government of North Korea issued the ba
8、sic laws and regulations for RASON Economic Trade Zone in 1993, and had promoted them to be more conducive to foreign investments after three times of revision up to 2010. At the present time, both 3domestic and international calls have been implemented in RASON, and simultaneously there have been m
9、ore than 100 foreign-funded enterprises and 14 foreign corporate offices having started to manage business in this area 1. 2.2 Mount KUMGANG International Tourism Zone Mount KUMGANG is located in the south of North Koreas east coastal harbor city. The length of the tourism zone is 60 kilometers from
10、 north to south. It is a mount with innumerable mountains and valleys, which have been reputable all over the world. In April 2011, the government of North Korea set the Mount KUMGANG as “Mount KUMGANG International Tourism Zone“ of North Korea. However, this project used to be open to South Korea a
11、s early as 1998. At that time, the Hyundai Group of South Korea had acquired the monopoly right for managing the project with an investment of $942 million before 2005. In February 2008, the number of tourists from South Korea to Mount KUMGANG had exceeded more than 1.86 million. However, after the
12、tourists from South Korea were shot by the guards of North Korea due to mistakenly entering the military restricted area in 2008, the project of Mount KUMGANG tourism zone was discontinued by South Korea. Then, the government of North Korea announced to attract business investment from the outside w
13、orld again in 2011. 42.3 Kaesong Industrial Park Kaesong industrial park is the most successful economic zone in contrast to five special economic zones. Kaesong industrial park is located 1 kilometer to the south of Kaesong of North Korea. In other words, it is only 1kilometer away from the militar
14、y division between North Korea and South Korea. In November 2002, the government of North Korea issued the Law of Kaesong Industrial Park, for the purpose of opening the industrial park to the legal persons, individuals and economic organizations of South Korea, overseas Koreans and other foreign co
15、untries. In fact, the Hyundai Group and LH of South Korean were mainly in charge of the construction and business investment promotion of Kaesong Industrial Park. By the end of 2011, there had been 123 enterprises from South Korean to establish business in the industrial park, providing employment p
16、ositions for 48,000 people of North Korea. From January 2005 to December 2010, the accumulative total production in Kaesong Industrial Park had reached $1.10464 billion, and simultaneously an export of $161.48 million was complete 2. 2.4 Sinuiju Special Administrative Region Sinuiju of North Korea i
17、s located on the east coast of the YALU River, and also is one of the most important windows of 5foreign trade between North Korea and China. In September 2002, the government of North Korea decided to set up the Sinuiju Special Administrative Region with an area of 132 square kilometers. However, t
18、he construction of Sinuiju Special Administrative Region could not put into implementation because of Yang Bin event. The government of North Korea designated Sinuiju as a special economic zone again in 2008, and planned to construct a logistics park (with an area of 837721 square meters), which int
19、egrates trade center, necessaries of life, industrial products wholesale warehouse, enterprise halls, logistics centers and all sorts of supporting facilities together. 2.5 HUANGJINPING Island and WIHWA Island Economic Zones HUANGJINPING Island and WIHWA Island of North Korea are located in the down
20、stream islands of the YALU River, and also are not far away from Sinuiju and Danton. HUANGJINPING Island is with an area of 11.45 square kilometers, and WIHWA Island is with an area of 11.2 square kilometers. In 2010, the governments of North Korea and China commonly signed the Agreement about Commo
21、nly Developing and Managing RASON Economic Trade Zone, and HUANGJINPING Island and WIHWA Island Economic Zones of North Korea, and also four major industrial parks (i.e. 6business and information industry, tourism culture industry, modern facilities industry, and processing industry) will be constru
22、cted in HUANGJINPING Island Economic Zone. 3 Factors Restraining the Development in North Korea Special Economic Zones Although the special economic zones have been established for not a long time, their developments are far from being optimistic. For RASON Economic Trade Zone, it was originally pla
23、nned to introduce foreign investments of $4.7 billion by the end of 2010, but only less than $100 million had been introduced by 2004 3. The construction of Sinuiju special economic zone ended up with nothing definite in the beginning because of Yang Bin Event. The constructions of HUANGJINPING Isla
24、nd and WIHWA Island Economic Zones have been just started. In addition, the Mount KUMGANG International Tourism Zone, which was supposed to attain a prosperous development, was discontinued for more than three years. Moreover, Kaesong Industrial Park, which is the only economic with a relatively goo
25、d development, is still far away from the expectation goals. 3.1 Development Funds cant be provided by the Government, making Hard Environment Construction Restricted The majority of the special economic zones are supported by 7the government with funds during the initial development period for cons
26、tructing the hard environments such as infrastructure in the planned areas. However, North Korea had continuously undergone a negative economic growth of nine years from 1990. From January 1995, the government of North Korea began to put the “military first“ political strategy into implementation. S
27、ince, top priority has been given military undertakings in North Korea, and the government primarily places a large amount of funds in construction of military teams, followed by the construction of economy. Therefore, the special economic zones are unable to enjoy the fund supports from the governm
28、ent of North Korea. 3.2 Domestic Economic System Has Nothing Changed, Affecting the Stability of Soft Environments of Special Economic Zones The establishment of the special economic zones in North Korea is a choice, which is influenced by the international environment and the shortage of its domest
29、ic foreign exchanges. It has no relationship with the economic system reform and opening-up of North Korea, and also the government of North Korea still pursues the planned economy with high centralization. Therefore, although there were a great number of laws and regulations issued for the special
30、economic zones, 8the government of North Korea will certainly expel foreign personnel out of the special economic zones, or forbid the foreign investors to enter the country, or suspend the operation strategies once there are significant domestic and foreign events to occur. 3.3 Consumption at the D
31、omestic Market is Insufficient and Export is restricted by International Environment The special economic zones in North Korea are still less than satisfactory in the aspects of domestic market and exports. First, although cheap and high quality workforce can be provided by the special economic zone
32、s in North Korea, an effective consumer market cant be formed because of the lagging-behind economic development of the country. Second, the export of products of North Korea receives the restrictions from the foreign countries. Because the government of the United States imposes the economic sancti
33、ons on North Korea, the products of North Korea are unable to enter many countries. The government of Japan does not implement an import restriction from North Korea, but raises the import threshold relying on high tariffs. 4 Future Advantages in North Korea Special Economic Zones 9Although there ar
34、e still a great number of factors imposing constraints on the development of the special economic zones in North Korea at present, future advantages such as location advantage, factor price advantage and the governmental behaviors of China and North China are in existence. 4.1 Location and Logistica
35、l Advantages of North Korea Special Economic Zones Future location and logistical advantages of RASON Economic Trade Zone has been greatly improved by the national Changjitu Pilot Zone strategy, which was proposed by Chinese government for developing the contiguous areas between China and North Kore
36、a. RASON Economic Trade Zone is an important hub of the international transportation channel in the TUMEN River area, but also the nearest point for China to the east coast of South Korea and the west coast of Japan and even North America and North Europe by waterway, and the gate from South Korea t
37、o Europe by land route. According to the external channel construction project of Chinas Changjitu Pilot Zone, the Hunchun-North Korea highway is hopeful to be open in 2015, from which there will exist a highway from North Korea to the mainland of China, and simultaneously the speed of logistics bet
38、ween China and North Korea will be greatly increased. This 10means that the geographical possibilities for the products in RASON Economic Trade Zone, Japan and South Korea are transported to Europe by rail will be larger. Hopefully, the switch trade in this area will be greatly improved in the futur
39、e. 4.2 Price Advantage of North Korea Special Economic Zones When the first free trade zone was established by the government of North Korea in 1991, China also owned very abundant and cheap labors. Therefore, it was difficult for the land and labor price advantages of the free trade zone of North K
40、orea to be reflected at that time. After 20 years of development, Chinas economy has been improved rapidly at present, and also the income of people has been increased sharply, and therefore China begins to loss the original labor price advantage with a gradual step. For this reason, the price advan
41、tage of production factor in the special economic zones of North Korean can just play its role. First of all, the minimum compensation, which is stipulated in RASON Economic Trade Zone for the employees in foreign invested enterprises, is $ 80 per a month. Secondly, from the perspective of land factor, the price for the downtown land of RASON city is $ 50 per 3.33 m2; the price for surrounding areas
