Tuesday, September 04, 2007

A different sort of revolution.

One of North Korea's neighbors is introducing it to capitalism, and it's not South Korea:
Not only does North Korea appear to be becoming more dependent on conventional exports but it is more and more reliant on just two countries: China and South Korea. The nature of economic integration with its two neighbours is, however, markedly different. "Enterprises from communist China appear to be behaving like capitalists, while capitalist South Korea is using economic integration like a socialist tool of foreign policy," says Mr Noland. "North Koreans are more likely to learn about the functioning of a market economy through the Chinese than from the South Koreans."

Beijing's approach to Pyongyang is shifting from aid to trade - it is now the North's largest trading partner. Commodity-hungry China is swapping second-hand goods such as televisions and bicycles for access to North Korea's mineral resources.

Unlike South Korean enterprises such as Hyundai Asan, which has endured massive losses but continues operating in North Korea out of concern for its people, Chinese companies simply pull out if they cannot make money. One regular visitor to Pyongyang tells the FT that he frequently hears reports of disinvestment as Chinese companies become frustrated with problems such as a lack of transport links to mines and barriers to expatriating profits.

At the insistence of China, its largest benefactor, North Korea reluctantly embarked on tentative economic reforms in 2002 by liberalising some prices and wages. There have since been smaller changes - for example, finance ministry officials told visiting western diplomats that markets, permitted as a temporary solution to food shortages - would now be allowed permanently. Mr Haggard and Mr Noland conclude that Chinese engagement is having a transformative effect but that South Korea's is not.

. . . South Korea seems to have lost sight of its goal of bringing about change in the North, analysts say. Instead it is simply concerned with preventing a catastrophic collapse - lavishing North Korea with aid, goods and even cash without conditions, in order to keep its neighbour afloat.

Anna Fifield, "Destination Pyongyang," Financial Times 9 (Sep. 4, 2007).

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