Understanding Kim Jong Un’s Economic Policymaking: Rolling Out Economic Development Zones
Continuing our study of North Korean economic policies under Kim Jong Un, this article is focused on the North’s thinking about economic development zones (EDZs). The country’s premier economic journals, Kyo’ngje Yo’ngu and the Journal of Kim Il Sung University, also known as Hakpo, continued to guide our research on how the concept of EDZs was viewed and discussed by various stakeholders in the Democratic People’s Republic of Korea’s (DPRK) economic policymaking circles and possibly by the leadership itself, rather than how EDZ policies were implemented.
These journals provide a window into the regime’s thinking and a sense of the scope of allowable internal discussion. No single article or topic can be interpreted in isolation from the others. Rather, the breadth of articles should be read longitudinally, across the spectrum of policy developments, since that is undoubtedly how the authors themselves saw the world. How EDZs were covered followed a well-established pattern in all of the key economic reform themes that Pyongyang rolled out under Kim Jong Un, from commercial banking and economic management methods to tourism. The journals would typically start by publishing articles that simply introduced concepts or foreign practices. Later articles would then step things up a notch by exploring the various aspects of a theme in-depth and examining how certain concepts or foreign practices could (or should) be applied in North Korea.
A review of how EDZs were treated within these two journals suggests that the North clearly welcomed an influx of external ideas and actively solicited discussions about establishing and operating these zones, although some articles also warned against the potential side effects of these zones. The positions and emphasis between 2013-2018 tended to be forward-leaning, and many were in line with the trends in reformist policies being considered more broadly at the time. The warning signs were more subtle during these years, but became more pronounced in 2019. In 2022, some discussion of EDZs has resurfaced, although not in the journals as much as in other outlets such as the website Naenara. Where it goes from here, post-pandemic, is still unclear.
EDZs, as defined by the North Korean law on EDZs adopted in May 2013, are: “special economic areas [zones] where preferential treatment is accorded to economic activities pursuant to the special laws and regulations enacted by the State.” They were not new to the North when Kim Jong Un pressed for their development in his March 2013 party plenum speech. For example, Kim Il Sung created the Rason Economic and Trade Zone in the early 1990s, and Kim Jong Il followed suit with the Kaesong Industrial Zone and the Sinuiju Special Administrative Zone in the early 2000s. Even the KEDO project (1994-2005) was a sort of development zone as it carved out a geographic area that was not bound to DPRK laws, and where foreign economic and construction practices could be observed by North Korean citizens.
At the very end of Kim Jong Il’s time, the North revised a string of EDZ-related laws between November and December 2011, which was well after Kim Jong Un’s public debut in the fall of 2010. The speed with which the younger Kim picked up and added to the concept of EDZs upon assuming power after his father’s death suggests he may have played a role in jump starting the EDZ initiatives. In Kim’s March 2013 speech, when he called for developing EDZs in every province, Kim was doing more than simply reviving them. He was deliberately opening the door of reconsideration to a range of sensitive economic and social policies, in some cases well beyond what had been normal or comfortable for the regime up to that point. In short, the real issue was not just about the zones. In fact, almost in the same breath, Kim mentioned zones, tourism and management—each part of what was likely a single economic reform measure package.
What Kim had in mind in 2013 was dotting the entire country with special economic zones of different sizes and different purposes. These zones were meant to economically lift local areas while exposing the population to international economic practices and new approaches to management. Doing so also addressed the need for local provinces to assume responsibility of management that was relatively free from direct state control. Apparently, the operation of these multiple zones did not raise the overwhelming problems of “contagion” in Kim’s mind. If there were ideological and security concerns expressed within the leadership about the danger such an expansion of EDZs posed in terms of exposure to new ideas from the outside, Kim must have overridden them.
Perhaps more than on any of the other issues this series has tackled, when it comes to EDZs, the North clearly welcomed an influx of ideas from the outside and actively solicited in discussions about establishing and operating these zones. Special economic zones (SEZs) were the subject of international conferences in Pyongyang in October 2013 and again in May 2014. In June 2015, North Korean experts took a study tour to Indonesia. Indeed, the effort to learn from the outside appears to have been wide-ranging. According to the DPRK government website Naenara in August 2016:
Since one of the most important tasks for the development of SEZs is to train a lot of competent zone development experts, the government of the Republic is establishing and implementing an education system to nurture experts in this field.
Various universities, including Kim Il Sung University, University of National Economy, and the Wonsan Jong Jun Thaek University of Economics have started regular education for training SEZ development experts.
The Naenara piece described how the universities created “new courses related to SEZ development, EDZ management, real estate management, tourism, and international investment” and “wrote the necessary textbooks and reference books and published a lot of papers, too.” Universities trained experts on:
…theoretical issues like the economic principles and effects of SEZ development and the forms and development methods of zones, as well as methodological issues like the establishment of development strategies, formulation of general development plans, selection of development enterprises, conclusion of development contracts, granting of development rights, conclusion of land use contracts, sale of land use rights, operation of infrastructure, and management of foreign-invested enterprises’ economic activities.
Taken together, this was an extraordinary effort by the DPRK to reach out for international advice while exploring—sometimes gingerly, sometimes boldly—how to adapt EDZs to the North’s realities and policy boundaries. The Naenara piece was no doubt meant in part to sell foreigners on the idea of investing in North Korea. The breadth and depth of the effort to study the complex issues involved in establishing and operating economic zones is reflected in over 30 articles in Hakpo and Kyo’ngje Yo’ngu from 2013-2020, when the latter ceased publication. It can be assumed that at least some of the authors of these journal articles were part of the state-sponsored effort to stimulate thinking on the various aspects of EDZs. More than other issues we’ve studied in this series of reports, most of the journal articles on EDZs seem to explore and exchange ideas rather than advocate for specific policies.
In these journal articles, there was a wide range of issues that were considered important to address, including the purpose and scope of the zones; national versus provincial roles; the involvement of non-zone players; the management, speed, and sequence of development; taxation; currency regulation; and land use. Given Kim’s instructions and several laws promulgated at the time, it might seem that the boundaries for these discussions would have been clear. In reality, the complexity of introducing the wide range of EDZ-related issues instead focused on the details, implementation, sequence and meaning of specific terms.
In a handful of articles, the authors seemed to feel the need to justify the new EDZ policies as a way to “break the blockade” or “crush the US imperialists.” Interestingly, it was mainly in Hakpo articles from 2015-2017 that this sort of language appeared. In Kyo’ngje Yo’ngu, only one article on EDZs, published at the end of 2015, mentioned the blockade-busting justification. The fact that this line of argument got such little attention may be due to the general understanding that the image of fighting the imperialists did not jibe well with one of the main themes in the overall approach to EDZs: that capitalists were welcomed and needed to feel “comfortable” if they were to invest in the North.
In order to expand the countries and regions from which to accept investment, we should accept investment from the capitalist countries that treat our country in a friendly manner.
The important thing about accepting investment from capitalist countries is to actively go out to capitalist countries and boldly wage investment attraction activities. In particular, we need to strengthen economic exchanges and cooperation with the European Union and actively wage investment attraction activities in European countries.
Similarly, two years later:
Under the condition where socialist markets are gone, it is important to expand and develop economic relations with capitalist countries as well as developing countries to increase foreign markets.
From the beginning, there was a general understanding expressed in the journals that within the zones, normal rules and procedures had to be massively overhauled in order to attract foreign investors. Two 2015 Kyo’ngje Yo’ngu articles put it bluntly:
If the laws and regulations that apply to all regions of the country are applied exactly as they are to an EDZ, foreign investors will not invest in it, and thus it will have no significance as an EDZ.
Fifthly, the characteristic of the contract-based production and management method is that our side, party to the contract-based production and management contract, does not interfere with the production and management activities of the developer, the investor.
In a practical vein, several articles mentioned the need for customs and immigration authorities to understand they were there to facilitate and not impede people and goods coming in and going out. Cooperation on that level may have been a continuing problem as such organizations do not dance to the tune of more enlightened policies.
The system of guaranteeing convenient economic activities includes more favorable and convenient measures for economic activities such as the entry and exit of personnel, taking in and taking out of goods, customs payment, finance and accounting, loan and foreign currency use, advertisement, insurance, agency and consignment, auction and bidding, and trust. What is important here are the conditions related to the entry and exit of personnel, the taking in and out of goods, and trade activities of enterprises.
In order to guarantee well the conditions related to the construction of the infrastructure, we should also guarantee to the maximum the convenience of investors entering and exiting EDZs.
Perhaps one of the most consequential aspects of the new policy on economic zones was the idea that, unlike Rason and Kaesong, the provincial zones would not be isolated from the rest of the country.
The latest technologies and management methods used in EDZs can also affect economic sectors outside of a region and can be introduced and used according to actual circumstances…
A characteristic of EDZs is also that production and consumption ties to domestic enterprises outside of development zones arise as an essential requirement…However, due to their functional characteristics and limited development area, EDZs cannot solve on their own many of the problems raised within the zones, and in many cases, they require connection with the outside of the zones. In other words, many of the problems raised in the course of management and operation in EDZs require connection with the outside of the development zones, and [EDZs] develop based on that. An important feature of EDZs indeed is that their production and consumption dependence on domestic enterprises outside EDZs is very high, and thus production and consumption ties with the outside of the zones are an essential requirement.
A later Kyo’ngje Yo’ngu article made the same point:
One of the important tasks of a management institution is to enable enterprises in EDZs to smoothly forge mutual economic ties with other regions of the country. In the process of conducting various types of transactions, such as accepting labor required for corporate business activities, borrowing monetary funds, purchasing raw and other materials, or selling manufactured products, economic links with other regions of the country are inevitably raised. In order for enterprises to resolve the [issue of] necessary economic resources and gradually expand the scope of sales and volunteer activities, they need to establish more economic connections with domestic regions and expand the breadth of business activities.
In our view, the links and openness of the zones to the rest of the country are key to understanding that the zones were meant, in part, to be teaching models and test beds for new policies. Walling them off would have defeated that purpose, as they could not serve as training grounds for achieving a wider understanding of international practices–perhaps none so important as foreign styles of management. It was no accident that in March 2013, at exactly the same time he publicly endorsed EDZs, Kim Jong Un launched the effort to develop a new managerial approach (SERMS) throughout the country. Combined with the imperative to keep the zones open to interchange with the surrounding regions, the benefits of deliberate exposure to new managerial styles are not hard to see.
Finally, congruent with Kim Jong Un’s overall efforts at the time to devolve decision-making and responsibility to lower levels throughout the country, one of the primary themes in the EDZ articles was that the heavy hand of central authority needed to be eased in the zones. Early on, a Kyo’ngje Yo’ngu author began with a Kim Il Sung citation in order to suggest that his article’s advocating less central interference was consistent with the highest authority:
The government sector, as the owner and organizer of SEZs, takes two methods in the development and construction of SEZs: a direct method and an indirect method. The direct method is a method in which the government directly organizes and guides the development and construction of SEZs, and this method is typically used a lot in developing countries. The indirect method is a method in which non-governmental organizations, such as public organizations, local self-governing organizations, universities, and businesses, carry out the development and construction of SEZs, and the government provides only indirect guidance and support in various ways.
The next year, an article explored the concept of a particular development method, citing numerous ways this approach relieved the state of a number of its normal functions in an economic zone:
Foreign investment constructs the target of development with its own funds and bank loan funds, and even after the project has been completed, the business management of the target is conducted independently without the participation of the government of the capital-importing country.
As late as 2019, Kyo’ngje Yo’ngu was warning of the danger of excessive control of foreign enterprises operating in the zones.
If an EDZ management institution fails to manage the business activities and transactions of foreign-invested enterprises so that they can act independently in accordance with the characteristics of the development zones and international customs, and excessively controls and shackles them, the enterprises cannot avoid losses in the course of operation, and they will give up their investment or take the invested property and move to a more advantageous area…As for in-company business activities such as control and distribution of production plans and production factors, conduct of production activities, handling of products, and the distribution and use of profits, it is important to grant management independence so that enterprises take due responsibility and handle them on their own.
The positions and emphasis between 2013-2018 tended to be forward-leaning, and many were in line with the trends in reformist policies being considered more broadly at the time. But all along, there were warning signs.
A sense of pulling back became much more evident in Kyo’ngje Yo’ngu, suggesting there was a stream of thought emerging that things needed to be tightened. This was a difficult moment, and there appears to have been some effort to deal with both impulses at the same time. The state’s interest and control had to be more carefully considered, rules needed to be enforced and taxes needed to be collected.
In an economic and trade zone, no financial management method or order that could damage the political and economic interests of the state should be allowed, and capitalist elements that could damage the image of the socialist system should not infiltrate into the financial sector.
In keeping with the standard form of argumentation presented in these journals—protecting oneself by stating a conservative position and then suggesting a forward-leaning workaround—the author went on to suggest that one way to achieve this goal was not by tightening central control but rather by changing central guidance:
The third general principle of organizing financial businesses in economic and trade zones is to allow foreign-invested financial institutions a certain degree of economic independence and freedom in financial transactions. Under the condition where different ownerships and types of financial institutions exist in economic and trade zones, and the monetary funds they have invested, too, are composed of various types of foreign currency, we cannot mechanically bind them to one centralized administrative system. In particular, foreign financial institutions, which carried out financial transactions in capitalist economic environments, do not want to be enlisted in a centralized financial system. It is necessary, therefore, to research and perfect a method of enlisting foreign financial institutions in one financial system monetarily and financially while giving them certain independence in terms of their management activities.
Several months later, another article also sounded a cautious note:
As EDZs are being set up in each province, there should be no phenomenon in which each region impedes national economic development by pursuing only its own economic development. To that end, it is important to carry out practical work related to the establishment and operation of EDZs under the unified guidance of the Central Special Economic Zone Guidance Organ.
An article in 2017, while generally positive on the question of foreign direct investment in the zones, did warn:
The use of foreign direct investment may also have a negative impact on the industrial structure of SEZs.
Direct investment transactions between countries are generally conducted based on the superior funding and technological power of the investing country compared to the country accepting investment, and foreign investors usually try to invest in industries where they can achieve a market monopoly in the investment destination. For this reason, the use of foreign direct investment in an SEZ with a relatively small economy could give rise to certain foreign-invested enterprises having a market monopoly. If a market monopoly occurs in an SEZ by one or several foreign-invested enterprises with superior funding and technological power, it will produce monopolistic high-interest profits in the SEZ, lowering the income of enterprises and residents and causing bankruptcies of enterprises. This will hinder the modernization of an SEZ’s industrial structure by weakening the investment capacity within the SEZ and suppressing economic development…
This shows that, for the development of the industrial structure in an SEZ, it is necessary to direct due attention to the effective use of foreign direct investment and strategically formulate measures to thoroughly prevent the negative effects that could arise in the process.
Another article later the same year tried to strike a balance by warning against too little and too much control:
In many cases, foreign-invested enterprises or foreigners enter and work in EDZs, so special attention should be paid to guaranteeing the country’s security.
What is important in the enactment of laws and regulations related to guaranteeing the safety of the country is to stipulate contents that can restrict and control all the factors that are unfavorable to economic activities in an EDZ.
EDZs should draw up laws and regulations with which to find, restrain, and punish all factors in foreign investors’ economic activities that infringe on the security and interests of the country, including the entry and exit of personnel, the taking in and out of goods, residence, advertisement, and tax payments.
By 2019, the warnings took on the patina of a more orthodox approach, as if an undercurrent of restraint had entered the internal discussions.
The third important issue arising in the infrastructure construction of an EDZ is to strengthen national guidance and control in this work…
EDZ guidance organs should systematically, routinely, and deeply research and study the behest of the great leaders and the words of the respected and beloved Comrade Supreme Leader in relation to EDZ development and infrastructure construction, and organize and carry out all the work according to their demands.
In late 2019, land use in the zones was singled out for a lengthy warning.
The scope of land use should be clearly defined on how [those who have obtained the right of land use in an EDZ] do not have any right to extract, possess, or use underground or underwater natural resources or valuable objects such as buried or hidden cultural relics and precious metals, nor should they misuse land or exceed the designated land area…
In EDZs, enterprises may engage in activities that violate laws and regulations related to real estate development and transactions and environmental protection while developing land or conducting business activities. EDZ management organs, therefore, should thoroughly command and control in order for enterprises to use the land in accordance with the requirements of the laws and regulations of the state.
For example, [EDZ management organs] should exercise strict control so as to prevent violations of the land use order, such as developing and using without the state’s approval, moving the approved location as one likes or increasing the area, changing the purpose of development and use arbitrarily and handing it over to other enterprises, polluting the leased construction site and its surrounding areas with industrial waste, and a failure to properly take measures to prevent damage caused by natural disasters and toxic substances…
Of course, strict legal punishments should be imposed where enterprises interpret laws and regulations in their own way or intentionally engage in various illegal activities while infringing on the interests of the state for the interests of their enterprises.
However, the author somewhat softens her tough tone by placing some of the burden on local authorities to not undermine the “investment environment.”
State management of land use in EDZs should be project management work for all investment enterprises that use land to develop and protect land more rationally and effectively. It should not be supervision and control for the sake of supervision and control. Enterprises entering an EDZ to develop land and conduct production and management activities may, in the beginning, commit negligence as a result of not being accustomed to the local legal environment…
However, if [EDZ management organs], in the name of managing and controlling land use, attempt to solve a problem by way of punishment only after there has been an illegal act, it will not only hinder the land protection work but also have that much of a negative impact on EDZ development and the investment environment. Therefore, state management of the land use process of corporations should also be management work to prevent and eradicate in advance impediments to land protection and the effective use [of land]. To do so, management methods should be improved and implemented in a rational manner accordingly.
North Korean print media, both internal and external, ceased reporting on EDZs after the externally oriented news agency KCNA, in late 2019, reported on North Korea’s efforts to expand EDZs and revise some EDZ regulations. However, North Korea’s external propaganda website Naenara in May 2022 began running a series on the country’s EDZs by introducing their key features and longer-term goals. At this point, the notion of EDZs may be dormant or simply moving ahead in North Korean provinces behind closed doors. The extent to which they have been activated will be more apparent if and when the DPRK eases its COVID travel restrictions and normal air and rail transportation routes are resumed. This may provide some clues as to the direction the North plans to go in joint ventures—the subject of the next paper in this series.
This paper is the second in the “Understanding Kim Jong Un’s Economic Policymaking,” Part 2 series, which focuses on the external elements of North Korea’s economic policy. The first installment of Part 2 was on Kim Jong Un’s tourism policy. This series uses a modified version of the McCune-Reischauer romanization system for North Korean text. Diacritics are replaced with apostrophes. Some proper nouns follow internationally recognized spellings or North Korean transliterations instead.
“DPRK Law on Economic Development Parks,” Korean Central News Agency (KCNA), January 16, 2014. This paper translates kyo’ngje kaebal ku (경제개발구) as “economic development zone (EDZ)” for consistency with North Korean English outlets’ most widely accepted rendering of the term (they have also used “economic development parks” but more rarely). Technically, “district” would be the better translation for ku (구), while “zone” would be more appropriate for the term chidae (지대) in Korean.
Quote translated from 조창준,”특수경제지대와 개발전문가양성사업,” Naenara, August 1, 2016.
김영철, “경제개발구개발사업을 적극 밀고나가는것은 경제강국건설의 중요요구,” Kyo’ngje Yo’ngu 4, (2015).
Quote translated from 로명성, “경제개발구들의 창설운영은 대외경제관계발전의 중요방도,” Kyo’ngje Yo’ngu 3, (2018).
Quote translated from 강원우, “《BOT》개발방식의 본질적특징,” Kyo’ngje Yo’ngu 2, (2013).
Quote translated from 리영수, “투자봉사를 위한 경제개발구관리기관의 기능과 역할을 높이는데서 나서는 몇가지 문제,” Kyo’ngje Yo’ngu 3, (2019).
Quote translated from 유철남, “경제무역지대에서 금융업조직의 일반적원칙,” Kyo’ngje Yo’ngu 4, (2014).
Quote translated from 로명성, “각 도들의 실정에 맞게 경제개발구들을 창설운영하는데서 나서는 몇가지 문제,” Kyo’ngje Yo’ngu 2, (2015).
Quote translated from 한철룡, “특수경제지대의 산업구조발전에 미치는 외국직접투자리용의 영향,” Kyo’ngje Yo’ngu 2, (2017).