During his unofficial visit to China January 10-18, North Korean leader Kim Jong Il traveled extensively in the country, touring about a dozen enterprises and institutes in the fields of industry, agriculture, science and technology, and education. While congratulating China on its achievements, Kim sent an encouraging signal: North Korea also attaches great importance to economic expansion and is ready to enhance its exchanges and cooperation with China so as to explore a development path in line with North Korea’s national situation, the official Xinhua News Agency reported.
　　Kim’s vows to focus on economic development have provoked widespread interest in the prospects for the North Korean economy, something that not only affects the stability of the Korean Peninsula but also bears on Northeast Asian economic cooperation.
　　
　　Continued reform
　　
　　Despite the unrelenting security pressure it has faced since the end of the Cold War, Pyongyang keeps cautiously exploring an economic path under the new circumstances. Its efforts in this regard are likely to last well into the future, partly because it has to adapt to the changing international economic landscape and partly because its policy makers have demonstrated the will to do so.
　　In the 1960s, North Korea’s Soviet mode of economic structure and management played a significant role. However, after that, especially since the end of the Cold War, it has been found lacking in the context of the rapid development of the high technology and information industries today and the overwhelming trend toward globalization.
　　Drawbacks, such as an unbalanced economic structure, inefficient resource allocation, limited agricultural production and weak innovation capacity, have become evident. Given these severe bottlenecks, Pyongyang has no choice but to readjust its economic mode toward greater openness.
　　Pyongyang has to adopt some elements of a market economy in order to have economic cooperation with other countries, as almost all countries, including China, have embraced the market concept. During Chinese Vice Premier Wu Yi’s visit to North Korea last October, China and North Korea reached a consensus on respecting “market principles.”
　　The practical economic measures Pyongyang has taken fully demonstrate the will of the North Korean leader to continue improving the country’s economy.
　　North Korea adopted the Law on Equity Joint Ventures as early as 1984 with a view to inviting foreign investment. After the Cold War, it took a series of positive steps, such as the establishment of the first special administrative region in 1991, the amendment of its Constitution and the adoption of over 20 economic laws and regulations in 1998, enterprise restructuring in 2000 and the nationwide campaign to improve the economic management system in 2002. Although they did not break the basic framework of a planned economy, these measures were a testament to Pyongyang’s pragmatism and partial openness.
　　First, the ban on foreign-invested enterprises was lifted. Private enterprises were eliminated in North Korea in 1958 in the wake of the socialist transformation of the country’s industry and commerce. However, when the Rason Economic and Trade Zone was created in 1991, the government began to allow foreign investors to start businesses in North Korea and to operate wholly foreign-invested enterprises.
　　The North Korean Government designated Mount Kumgang as an international tourist zone in October 2002 and Kaesong as an industrial park in November of that year, ruling that investors can invest freely in these two regions with their assets protected by law.
　　Second, formerly restricted rural markets were officially legalized. Rural markets have been in existence in North Korea under the name of “farmers’ markets” for over 50 years under severe restrictions. In September 2003, the government turned them into “comprehensive markets” and recognized their complementary role in promoting socialist commodity distribution.
　　In addition, factories were given the nod to sell their products above the production target in the market. People have many more channels to get what they need than before. Their attitudes toward market and business activities are changing, with the stigma on businesspeople being washed off.
　　Fourth, the ban on land and real estate leasing was scrapped. The government designated Sinuiju as a special administrative region in September 2002. According to its basic law, the region has the right to land development, and the rental period can be as long as 50 years. Moreover, wealthy North Koreans are allowed to operate beer bars and karaoke venues rented from government institutions and state-owned enterprises.
　　Fifth, the management of North Korea’s cooperative farms was reformed. Since a major reform initiated in 1996, the size of “sub-work teams,” the lowest farming units, has been further reduced to enhance efficiency. Also, the official position on issuing bonds was shifted. They are said to be a “means of mobilizing public funds,” instead of “elements of capitalism.”
　　These top-to-bottom initiatives speak of North Korean leadership’s determination to improve the country’s economy, indicating that more pragmatic economic policies may be pending.
　　
　　Cautious opening
　　
　　INDUSTRIAL URGE: Some 6,000 North Korean workers like this one are currently employed in Kaesong industrial park along the border between North Korea and South Korea
　　North Korea is expected to open up to the outside world in a gradual manner. Pyongyang definitely rejects a complete denial of the past. It will therefore take a long time to come up with a new economic theory based on the thoughts of its previous leader. Given its complicated surrounding situation, radical reforms may lead to grave risks that can endanger its fundamental national interests. In light of these, Pyongyang will adjust the scope and pace of its economic opening only gradually in accordance with the changing security situation.
　　While adhering to its socialist principles, North Korea is likely to lay greater emphasis on practical economic benefits. The priority on military industry will not be lessened, though. In the joint New Year editorial published by official newspapers, national defense is hailed as “the most important matter in building a great, prosperous, powerful nation. Top priority should be given to ensuring everything necessary for the national defense industry as required by the line of economic construction in the Songun (military first) era,” the article said.
　　North Korea will draw on the experiences of other countries. For example, China’s economic developments offer a good reference. China suffered from starvation and poverty in the 1960s. However, the reform and opening-up policy adopted by the Communist Party of China in the late 1970s has not only enabled China to feed its huge population, but has also seen the country rise to become the world’s sixth largest economy. After visiting Chinese provinces and cities in January, Kim recognized China’s distinctive achievements, while expressing the willingness to cooperate with China to pursue a North Korean-style path of development.
　　However, North Korea’s economic reforms will be conducted in a “spiral manner.” Cautious pilot reforms will be implemented before they are carried out widely, and Pyongyang will be poised to readjust strategies as reforms go ahead. Temporary setbacks are possible as well. For instance, the government allowed the selling of rice and other grain products in rural markets several years ago, but abolished the policy last October.
　　North Korea will also strengthen economic cooperation with South Korea. Pyongyang will forge ahead with absorbing investment and technology from South Korea, provided that these exchanges do not put its national interests in jeopardy. The scope of their cooperation is expected to expand from tourism to industry, agriculture, transportation and the information industry.
　　Ever since the 2000 summit meeting between Kim Jong Il and South Korean former President Kim Dae Jung, the two countries’ economic cooperation has made strides. Progress was made on all three major cooperation projects: the Mount Kumgang tourist resort, Kaesong industrial park and the connection of inter-Korean railroads and roads. More importantly, Koreans share an ethnic identity and the common aspiration for peaceful reunification. These special bonds give the two countries a comparative advantage that is unparalleled by any other pair of economic partners.
　　North Korea will steadily develop its economic ties with China. Bilateral trade volume exceeded $1.385 billion in 2004, accounting for 42 percent of North Korea’s total foreign trade. China’s investment in North Korea totaled some $50 million that year, taking up 85 percent of all foreign investment North Korea received.
　　Beijing-Pyongyang trade further expanded in 2005, with the trade volume from January to November amounting to $1.46 billion. In December, the two countries signed an agreement on joint undersea oil exploration, broadening the scope of bilateral cooperation. Although trade between China and North Korea is not large, it is of strategic importance to North Korea, a country mired in economic difficulties.
　　During President Hu Jintao’s visit to North Korea last October, leaders of the two countries reached a new consensus on promoting economic and trade cooperation and accelerating common development. Kim Jong Il also underscored bilateral cooperation. While in China in January, he promised to further explore the bilateral cooperative potential in various fields, especially in the economic field. The leaders’ initiatives provide fresh impetus to the future economic cooperation between China and North Korea.
　　
　　Lingering nuclear crisis
　　
　　To date, five rounds of six-party talks have been held to resolve the nuclear issue on the Korean Peninsula. While some progress was made in each round, the joint statement of the fourth round last September in particular afforded Pyongyang an opportunity to seek a peaceful environment and lighten up its economy.
　　The statement includes a commitment to resolve the problem peacefully, which morally constrains a military clash between North Korea and the United States. It begins with the announcement that “the goal of the six-party talks is the verifiable denuclearization of the Korean Peninsula in a peaceful manner.” The United States stated that “it has no intention to attack or invade the Democratic People’s Republic of Korea with nuclear or conventional weapons,” the first time it has declared that it will not invade the country with conventional weapons.
　　Both North Korea and the United States promised to “respect each other’s sovereignty.” These commitments, if honored, will lessen or eliminate Pyongyang’s security concerns, enabling the country to focus its attention on economic development.
　　The statement affirmed that the United States and Japan would improve their relations with North Korea. Normalization of Pyongyang-Washington relations will end their half-century hostility, opening the door for North Korea’s economic cooperation with the Western countries. With a thaw in Pyongyang-Tokyo relations, North Korea will hopefully receive a considerable amount of economic support from Japan.
　　In the joint statement, the six parties undertook to promote economic cooperation in the fields of energy, trade and investment. If bilateral or multilateral cooperation can materialize, North Korea will be able to accelerate its opening process, creating favorable conditions for the Northeast Asia region to achieve regional economic cooperation.
　　However, judging from the recent reactions of North Korea and the United States, the nuclear issue is unlikely to be settled over a short period of time. As a result, Pyongyang’s efforts to explore a new economic mode will be adversely affected.
　　There are several reasons why the nuclear issue cannot be resolved immediately. First of all, the United States has no real eagerness to resolve the problem quickly. It does not concentrate on the nuclear issue, as evidenced by its raising of other problems such as human rights, financial sanctions and money laundering on the eve of the fourth and fifth rounds of the six-party talks.
　　The reasons are three-fold. Hardliners in Washington are opposed to further concessions to Pyongyang. Northeast Asia is not the Bush administration’s diplomatic focus, which lies in the Middle East. The United States is not well prepared to end the Cold War situation on the Korean Peninsula, worrying about the risks of losing its foothold there in the wake of a thorough implementation of the joint statement.
　　Moreover, there are technical barriers hindering the implementation of the joint statement. The statement crystallizes only the commitments of the parties, but gives short shrift to the preconditions the parties demand to honor their commitments, leaving room for delaying and bargaining. Involving the interests of many parties, the nuclear issue can hardly be resolved at one go through a package solution.
　　In addition, Pyongyang has reaffirmed that it will not renounce nuclear weapons unless the U.S. nuclear threat is eliminated with the establishment of diplomatic relations between the two countries. This could be a lesson it has drawn from Iraq. North Korea always sees nuclear weapons as of vital significance to its national security. It is therefore almost impossible for Pyongyang to give up nuclear weapons, if it has them, before it gets a security guarantee.
　　Although the economy is high on the government’s agenda, security lies at the core of North Korea’s national interests. When the two run into conflict, Pyongyang tends to prioritize the latter. The persistent nuclear issue will hold back North Korea’s exploration of a new economic mode, if not completely halt it.

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