Investment stimulus introduced for DPRK zones

17  January 2013

China and the Democratic People’s Republic of Korea are to encourage investment into two special economic zones established to stimulate economic ties between the countries, using a range of preferential policies concerning tax, land, labor and visas.

The zones in Rason, on the DPRK’s east coast and the Hwanggumpyong and Wihwa islands, on the border with China, are the result of an agreement struck between President Hu Jintao and then DPRK leader Kim Jong-il during Kim’s visit to Beijing in 2010.

At a meeting on Wednesday in Beijing, officials from both China and the DPRK announced the special zones’ stimulus plan and called on Chinese companies to invest there.

“The two economic zones are entering a substantive stage of attracting foreign investment,” said Chen Jian, vice-minister of commerce.

“There is no example to follow. Both China and the DPRK should explore ways to cooperate.”

The meeting came two months after high-level officials from both countries met in Beijing for a third conference of the joint committee in charge of the special economic zones.

The conference was part of a six-day visit to China by a DPRK delegation led by Jang Song-thaek, director of the central administrative department of the Workers’ Party of Korea, amid reports that the DPRK was poised to experiment with agricultural and economic initiatives.

During the conference the two sides agreed to develop the Rason zone into one of the DPRK’s most advanced manufacturing and logistics hubs, as well as a regional tourism center. The Hwanggumpyong and Wihwa islands zone will concentrate on finance and information technology.

A decision was also made to accelerate infrastructure development in and around the zones and to implement policies to attract foreign investment.

“We aim to build the Rason zone into an important platform for the ‘new silk road’ between countries in the Northeast Asian region and establish it as an engine for regional economic prosperity,” said Wang Yonggang, director of the Administration Committee of the China-DPRK Rason Economic and Trade Zone.

Chinese investment in non-financial sectors in the DPRK reached $300 million at the end of last year, and the flow of investment is expected to continue with the special economic zones acting as a stimulus.

Among the Chinese companies looking at the DPRK is Dalian Dayang Group, a major garment processing company based in Liaoning province.

Li Guilian, chairman of the company, said: “We believe the Hwanggumpyong and Wihwa islands zone is a good place to invest and plan to enter the zone, but we still have concerns about issues such as foreign exchange.”

Other companies have been more critical of DPRK business conditions. The Liaoning-based metals company, Xiyang Group, has said Chinese companies should not invest in the DPRK. The company, which held a 75 percent stake valued at $45 million in a DPRK iron ore processing plant with an annual capacity of 10 million metric tons, recently aired its grievances over the DPRK on the Internet.

The company’s management claimed to have been cheated by their DPRK partners, who they said violated a contract by raising land, power, water and labor costs.