Sunday, August 22, 2010

Following the money to find China's real opposition to a unified Korea?

This post on Chinese-Korean "connection" at Ask A Korean turned into an interesting discussion on what would happen with North Korea were it to collapse: Would it join China or South Korea or stay independent, and what would be the social, economic, or political forces behind whatever outcome occurred.

Bucking a major national trend in South Korea, I am cautiously optimistic about reunification of the two Koreas. That is, as long as there are legal mechanisms and economic incentives to keep North Koreans from flooding the South and also to keep southern entities from exploiting them (e.g., buying up naïve North Koreans' valuable land at lowball prices).

And my relatively cheery outlook has foundation. For example, I think President Lee has gone a step in the right direction by finding an initial mechanism for paying the bills to successfully rehabilitate Seven of Nine from her decades in the Borg. I wrote this at One Free Korea:
I applaud the tax — better to get people used to the idea of unification happening and not dreading how it will be paid for, among other reasons — but I share the concern of some at The Marmot’s Hole that the revenues for this tax might end up spent as Social Security is in the US or that there would be a temptation to apply it to cross-DMZ “enhancements” before reunification actually occurs.

Still, I’m cautiously optimistic when it comes to ROK economics and long-view projects. President Park did a lot with the money he was supposed to give to the victims of Japanese colonial aggression. What would have been a paltry per-capita sum for each victim or their family turned out to be a boon for the entire country.
There's that "cautiously optimistic" phrase again. Anyway, secondly, I think the availability of a cheap and fairly well disciplined (and not necessarily poorly educated) workforce up in northern Korea will lead many southern chaebol and smaller companies to look to the former DPRK as a source of labor. As I wrote at Ask A Korean:
... though some southern factories may be relocated to the north, what's more likely is that South Korean factories already in China or elsewhere in East Asia will be moved to the former DPRK, or factories once planned for those countries will instead be built in what had been North Korea.

Though I expect the road to be rocky, I think reunification presents great opportunities for both sides of the DMZ.
When "question" echoed my point, I decided to seek some hard numbers for a response. A cursory search reveals that forty thousand South Korean companies have an "accumulated investment" of about $100 billion. Those aren't trade numbers (which are also significant); rather, that's investment, and South Korea is one of China's largest foreign investors (occasionally clocking in at #1, I believe).

And this got me to to thinking: Could this be the real reason China is trying to block reunification (which it does, by propping up a belligerent and antagonistic regime whose leader feels animosity toward Seoul and its closest political and economic partners)?

Sure, we all know that China wants friendly buffer states surrounding its traditional Han-indigenous lands, which is why half of Mongolia is the Chinese territory called the "Inner Mongolia Autonomous Region" and Tibet is gripped in the loving embrace of Beijing. The thought of a US-friendly state on their border scares the bejeezus out of them. Aware of that, I've long espoused Washington making a grand bargain with Beijing (with the consent of Seoul, of course) that no US military bases would be placed in former DPRK territory following reunification, except possibly a small naval port in Wonsan (which is on the East Sea/Sea of Japan, which doesn't touch China) and previous PRC-DPRK agreements will be honored for at least the next ten years. Something like that; Secretary Clinton could hammer out the details with Hu.

But what if the depletion of a major source of foreign direct investment is the real reason, or at least a major factor, in Beijing blocking the two Koreas from rejoining? Does Beijing fear that many South Korean companies would close up shop and move to the former DPRK, or not even show up on Chinese shores altogether?

Have I followed the money to the smoking gun? Before you scoff at how ridiculous that sounds, please remember that Beijing deliberately skewered a nascent plan of Pyongyang's, back in 2002, for what would have been North Korea's first serious attempt at copying China's SAR (special administrative region) model:
As to the exact details of how the new zone will be established, Li says, "I am not clear." And in this case, the devil is definitely in the detail. The government plans to deport Li, his factory, and the 500,000 residents of Sinuiju to other parts of the communist country to make way for a capitalist paradise as ambitious as it is bizarre. Li and his neighbors will be replaced by 200,000 model workers, hand-picked for their technical skills, who will populate a city encircled by a yet-to-be-built wall erected to keep illegal migrants out.

Within the city limits, a kind of anti-North Korea with its own laws and elected officials will be created from scratch. Private enterprise, not state socialism, will guide the economy. A legal code enforced by imported European judges, not Kim's fiats, will regulate the community. Most of the drab, dilapidated buildings that line Sinuiju's quiet streets will be flattened, modern offices and factories built in their place.
They skewered it by quickly arresting Yang Bin, the Dutch-Chinese businessman (second richest in China back then) who'd been handpicked by Pyongyang to run the bizarre project. According to Wikipedia, he hass been sentenced to eighteen years in jail and is serving that time (unlike South Korea or the US, time in jail means time in jail).

Now we could get into a whole argument about whether turning Shinŭiju into North Korea's Hong Kong was a workable idea, but the point is that China certainly thought it might be. Perhaps (a) Yang's arrest was because L'il Kim hadn't gotten permission from Big Brother China for this major change, or (b) China didn't want the competition from this and future North Korean SARs (heh heh), or (c) China was worried that this would put North Korea on a path toward reform and perhaps eventual unification, or (d) the arrest if Mr Yang was one big frickin' coincidence... I don't know. But it does appear that they have tried to block North Korean reform in the past for some reason or another, and I think it's not unreasonable to think that just as (b) and (c) were factors in 2002, they might be in the future as well.


  1. China is more devious that you or I can imagine though. Quite recently Beijing bought $4bn of Korean government bonds. If it holds enough of them essentially it starts to control the government via covert means. Bond auctions and absence from is a biggie...

    The point is I believe your anologies regarding reunification are incorrect.

    I.e. Well when we reunifiy the north and south as well as 22million more workers, we'll have 22 million more consumers. This doesn't always work out.

    For instance the US and UK are outsourcing jobs to China and India like crazy, in the short term it makes $$$ sense but they are cutting their own legs off. If they outsource then where will American consumers find money to buy the products they could before?

    It is like the old joke...

    A car factory owner is proud of his new completely robot car factory. Smugly he approaches the union rep...

    "I'd like to see a robot go on strike."
    The union rep responds with:
    "I'd like to see a roboto buy a car"

    Same principle, upon reunification the NK people aren't going to have any money. When all the factories of the South vanish off to the North the South won't have any money either!

    Who will you export them to also if you've just fired millions of people in China?

  2. The Chinese guy wrote:
    Same principle, upon reunification the NK people aren't going to have any money. When all the factories of the South vanish off to the North the South won't have any money either!

    That's quite a few assumptions there. First, it assumes that the North Korean people never get money, even after they supposedly snag South Korean and Chinese jobs. Second, you've got one North Korean getting two jobs, one from SK and the from China. Then you also assume that the South Korean and Chinese guy won't be able to buy any goods because they won't pick up other (possibly better) jobs as the North Korean workers suddenly demand products.

    Anyway, my key point is that rather than existing jobs in South Korea moving up north, what will happen is that jobs that might have opened up in South Korea will open up in the north, with the same thing happening with what would have been jobs set up in China.

    Additionally, though, existing Chinese jobs at South Korean companies will be considerably more vulnerable because (a) these types of jobs are already the types that can be easily shipped overseas, unlike the South Korean company work that has stayed in South Korea; (b) the cheap and Korean-speaking labor force in the former North Korea will make that place more competitive than a Chinese-speaking labor force; and (c) the Korean government will be poised, as part of reconstruction, to offer incentives for South Korean companies to relocate their overseas operations to this area.

  3. Glad I could contribute to your blog, but before you start welcoming all those gulag prisoners into the a new unified Korea, you might want to check this out. I don't think those from the North will care to be treated as second/third class citizens in their own country. Not being allowed into the big three Southern universities on an equal (percentage of the population) level will just be one in an ongoing series of indignities that they will be thrust upon them if they ever agree to join with the South again.

    If they are smart, they will go it alone if they can ever get up of under the ‘lil dud’s thumb and can somehow avoid a military coup from taking over.

  4. I always appreciate your well thought-out contributions, John.

    I'm not so sure, though, if the growing rural-urban wage gap in China highlighted in your link is an apt comparison, though. China has focused development on the SARs and urban areas, at the expense of the "rural" areas where half or more of the population lives. And this is not just in terms of money pouring in but also property rights and other things that have been highlights of the SARs.

    But in the "absorb the North" model, it is the former DPRK that becomes the giant SAR. The former DPRK would not not the neglected countryside of the Chinese model.

    At any rate, any "segregation" model would not necessarily involve keeping northerners out of South Korea's top schools. Or any schools for that matter. In fact, an influx of students could be a boon for some of the South's struggling schools, with the state agreeing to pay for schooling for those who later got work back home (à la the rural island development plans in places like Hawaii).

    Don't forget also that public universities in Korea employ a form of region-based affirmative action that encourages enrollment by qualified people from rural areas and under-represented municipalities across the country. There'd be every expectation of extending that to northerners as well.

    The segregation model (which is essentially what the oft-mentioned "confederation" model is) is not just a way to keep 'em down on the farm, figuratively, but also a way to protect the northerners from southern carpetbaggers of an economic opportunist sort. Assuming that northerners are suddenly property owners, they would potentially be (on paper at least) fairly well off, the envy of many southerners, in fact. In short, they would be naïve targets for the unscrupulous, and that would require some protection provided by the state, at least for a few years.

  5. I have nothing to add to the discussion, but I'd like to say how much I enjoyed reading this one. You might want to add it to your "world famous posts" list.


Share your thoughts, but please be kind and respectful. My mom reads this blog.