Of course, North Korea seeks to duplicate this kind of success. But there are important distinctions to be made between the situations of Shenzhen and Sinuiju. The first distinction is geographical. Shenzhen, as well the four other zones, is located in the south of China in close proximity to Hong Kong. Already a bustling and successful metropolis, Hong Kong became Shenzhen’s primary trading partner. Sinuiju, on the other hand, has no immediate neighbors, aside from South Korea, with the wealth to invest heavily in the region. However, South Koreans are skeptical of investment because of horror stories about bureaucratic inertia in the North as well as weariness of risky investments since the 1997 Asian financial crisis.

Underlying most Western investment in Shenzhen was the hope of using the SEZ as a gateway to the gigantic consumer market in China. No such motive exists in the case of Sinuiju. Instead of one billion potential Coca-Cola drinkers in North Korea, there are closer to 22 million. This number is probably not large enough to persuade Western businesses to invest in Sinuiju, especially considering the country’s atrocious record of entrepreneurial ventures.

Former Failures

The 1990s featured two spectacular failures of private enterprise and entrepreneurship in North Korea. In fact, the Sinuiju project would not be the first time that the North Korean government has established a special economic zone. In 1996, it created the Rajin-Sonbong Economic and Trade Zone (RSETZ) on the northeastern tip of the peninsula. Surrounded by barbed wire in order to shut out North Korean citizens, the RSETZ occupied a seemingly promising location. The disconnected Sino-Mongolian railroad, if completed, would have made the RSETZ the terminus of a trans-Eurasian railroad. Moreover, the cost of labor in the RSETZ was appreciably lower than in the Chinese coastal cities. Also, it was perennially free of ice and very close to Japan. All that was lacking was additional infrastructure, a problem that was overcome at Shenzhen. To this day, however, Rajin-Sonbong remains a desolate place. The fact that nothing became of the RSETZ suggests that there are inherent problems with North Korea’s ability to attract investment. The potential benefits to international investors of expanding to the general North Korean public do not outweigh the risks of investing in an unpredictable international pariah.

While the RSETZ was a solely North Korean venture, there also have been joint attempts to open North Korea to the world. In 1998, the Hyundai Corporation of South Korea cooperated with Pyongyang on an ambitious plan to make North Korea’s scenic Mount Kumgang a tourist attraction. Located on the eastern Korean coast just north of the DMZ, Mount Kumgang was originally viewed as a beacon of hope in the otherwise dark prospects of reunification.

Unfortunately, the project has been a commercial calamity. The six missile launchers, searchlights, and armed guards littering the mountain hardly make the resort an ideal place to relax. Hyundai reduced the number of ferries to the resort from four per week to one per week, and even that single boat is not filled to capacity. The resort is in such dire straits that Hyundai’s hopes of profit have vanished, and the South Korean government must subsidize it in order to keep alive this meager step toward reunification.

Strained Relations

Pyongyang has also emerged from its typical isolationism to engage diplomatically with its neighbors. This newfound openness in diplomacy comes, perhaps not coincidentally, at a time of crippling economic hardship and consequent reform. Indeed, the North Korean government seems to believe that admitting past transgressions gives them some leverage to force concessions to aid its ailing economy. The 1994 nuclear crisis reinforced this pattern of behavior. Pyongyang openly declared that it was in violation of the 1968 Treaty on the Non-Proliferation of Nuclear Weapons and agreed to weapons inspections that have never taken place. In return, they were promised shipments of fuel oil and US assistance in the construction of two light-water nuclear reactors. Thus, when North Korean officials admitted in fall 2002 to a revived nuclear program, they may have been simply repeating previous tactics. However, the adverse Western reaction to that revelation indicates the strong possibility of a diplomatic miscalculation on the part of President Kim Jong-Il.

A similar line of thought can be applied to Pyongyang’s surprising approach to Japan. Meeting with Japanese Prime Minister Junichiro Koizumi in September 2002, Kim conceded that a government agency had abducted 13 Japanese citizens during the 1970s and 1980s and subsequently refused to return the children of some of the Japanese nationals. Naturally, the Japanese government was outraged by the news and has ruled out any economic aid so long as the children remain in North Korea.

One can easily understand the deterioration of relations between North Korea and its rivals. However, relations with its ally China have also been tried recently. First and foremost, Pyongyang never consulted China about the special economic zone in Sinuiju, which lies on the Sino-Korean border. Apparently, the Chinese government is concerned that residents of Dandong, China, which is connected by bridge to Sinuiju, will flock to the new capitalist enclave in order to gamble. Furthermore, a statement by China’s Foreign Ministry was coldly diplomatic in commenting on the Sinuiju experiment. “We have followed a path of socialism with Chinese characteristics,” the Ministry reported. “Such a road is not necessarily suited to other countries’ conditions.”

But the most cogent evidence that China disapproves of Sinuiju lies in its arrest of Yang Bin, the man hired to govern Sinuiju, just one week after the government announced his appointment. Yang, whose net worth was estimated at US$900 million by Forbes magazine, made his fortune in horticulture and took advantage of relaxed immigration laws in the wake of the 1989 student demonstrations of Tiananmen Square in order to gain Dutch citizenship. Although he has confessed to owing US$1.2 million in back taxes to a Chinese provincial government, the timing of his arrest warrants interest. Beijing could have brought the evidence of Yang’s criminal activities to Pyongyang’s attention before taking action. Instead, his arrest took place just as North Korea was basking in the limelight of attention from the international media. Clearly, there is friction between North Korea and one of its few remaining allies.