North Korea happy after China just bailed them out, say analysts

After recent meetings with China, North Korea seems to have its own version of trickle-down economics and emerging markets.

North Korea’s small ruling class probably has reason to rejoice even if no one seems to know if the Workers’ Party is about to name new leaders, which presumably would include Kim Jong-il’s third son and heir apparent, Kim Jung-un.

Long-time Korea watchers offer that view after recent uncertainty as to whether the party is staging its long-awaited “conference of delegates,” the first such gathering in more than 40 years.

“I don’t think it’s hunkering down,” says John Park at the US Institute of Peace in Washington. “It’s a celebration, and the celebration is well founded.”

Mr. Park, who directs the institute’s Korea working group, believes Kim Jong-il solidified deals with China’s President Hu Jintao during visits to China this spring and again last month that are buoying the country’s devastated economy and bolstering the tight-knit circle around him.

“Hu Jintao has just bailed out North Korea,” says Park, citing deals in economic development, tourism, and education that manage to circumvent the resolution adopted by the United Nations Security Council after North Korea’s second underground nuclear test in May 2009.

Although the relatively small number of people who run the country and control the economy are the main beneficiaries, he says, “the market benefits from cooperation with the Chinese side.”

Trickle-down economics, North Korea-style

In a North Korean version of trickle-down economics, Park finds “formal and nonformal trade” going on in a system in which free markets are inevitable regardless of regulations banning or highly limiting their activities.

“Markets are opening up,” he says. “It looks like the Chinese are moving in,” exporting a wide range of items, providing food, fertilizer and other necessities and investing in distant mountainous regions rich in coal and other minerals.

Ha Tae-keung, president of Open Radio for North Korea, which broadcasts news and views into the North for two hours every day, credits the deals struck by Kim Jong-il with forcing the North to ease up on customs control.

“That’s why businessmen feel it’s easier to trade with China,” says Mr. Ha, whose station picks up information from cellphone contacts inside the North, “Because of loose customs control, the markets are more open.”

Food shortages still abound

The image of somewhat improving conditions, however, is highly anecdotal, say analysts, and does not reflect the suffering of a majority of the country’s 24 million people, always short on food, medicine, and other daily necessities. Life inside North Korea differs widely depending on the geographical setting as well as the social and economic class.

“There’s a lot of conflicting information coming out of Pyongyang,” says L. Gordon Flake, executive director of the Mansfield Foundation in Washington. “You have a sense the government is reining in a lot of individuals in preparation for the succession.” – that is, the presumed eventual takeover by Kim Jong-un of the power held by his father.

Motorcycles are replacing bicycles inside the capital, inhabited mostly by privileged people who owe their livelihoods to one of the three central power groupings – the Workers’ Party, the government, or the armed forces. Kim Jong-il dominates the power structure as chairman of the national defense commission – and also is general secretary of the party.

Officially, says Mr. Flake, a long-time analyst of events and trends in North Korea, the North has reverted to the economic policies of the 1960s when Kim Jong-il’s father, the long-ruling Kim Il-sung, who died in 1994, was holding sway. A number of ministers, now in their 80s, he says, have been making “old school socialist moves,” since the failure of a plan to revalue the currency that was introduced late last year.

Still, he says, inside Pyongyang cellphones have become a common sight since Orascom, the big Egyptian company, got the contract two years ago to introduce mobile telephone service. By now, 250,000 North Koreans are said to have cellphones.

Talk of economic change

“Recent videos show they’ve eased up considerably,” says David Straub, associate director of Korean studies at Stanford’s Shorenstein Asia-Pacific research center. “They are at least talking more about trade and investment.” Still, says Mr. Straub, a former U.S. diplomat in Seoul, “I don’t see any fundamental change in North Korea’s economic policies.”

David Kang, professor of international relations at the University of Southern California, sees the people living in provinces along the Chinese border as benefiting the most from shifting policies. “If you are caught in illegal trading, you can bribe your way out,” says Mr. Kang. “There’s an active black market.”

The cross-border trade is vital to the two Chinese provinces across the Yalu River border on the west and the Tumen River border on the east. “The Chinese are queuing up for hundreds of millions of dollars in investment,” he says.

'Rising generation' of leaders

In the bargain with China, Kang is confident that Kim Jong-il has won Chinese approval of Kim Jong-un as his heir. The evidence, he says, is that Kim Jong-il and Hu Jintao agreed on a statement referring to “the rising generation of the Workers’ Party.”

That phrase echoes similar wording that’s been appearing on billboards and in the North Korean media. With delegates to the conference of the Workers’ Party believed to have already arrived in Pyongyang, the delay in staging the event has set off endless speculation, none of it substantiated, as to the reasons.

Among other theories is that Kim Jong-il is recovering from medical setbacks suffered during his recent visit to northeastern China, that flooding has prevented delegates from getting to Pyongyang and that Kim Jong-il is fending off grumbling within the party ranks about his choice of his third son as his successor.

“The temptation is for everyone to lead to conclusions as to what’s going on,” says David Straub. “I take all these unsourced media reports very gingerly.”

From what he’s read in the North Korean media, Park senses “a great deal of disappointment that the party conference is delayed.” Still, “the conference is going to happen,” he says, citing the presence for the past two or three weeks of military units outside the city waiting to parade in celebration.

If North Korea is in a mood for celebrating, however, one aspect of life there has not changed – the draconian system in which thousands are sent to prison for political crimes and public executions are commonplace.

“There have been more public executions than before,” says Ha Tae-keung. “That’s because, before the succession, they’re afraid an antisocial situation will break out.” Most recently, he says, ”We got news of the execution of one person trading in South Korean CDs, and some woman was executed for using a Chinese cellphone.”

IN PICTURES: Cult of Personality: Inside North Korea