Business, Economics and Jobs

Borderland: China's trade gamble with North Korea


HUNCHUN, China — In 2003, Fan Yingsheng bet his fortune on a 30-mile stretch of highway. Seven years later, his life’s work sits two-thirds finished and going nowhere.

With North Korea’s future engagement with the world ever in question, even China, its only friend, has blocked the road to trade and potential economic development for the time being. Fan’s fortune hangs on what happens next.

Fan is an ambitious businessman from Hunan province who moved 3,000 miles north to China’s border with North Korea nearly a decade ago, when it seemed the reclusive country was about to open up more widely to Chinese, and possibly, international trade. He was full of optimism about the border region’s potential — largely untouched, untapped and ripe for development.

So Fan, along with his lifelong friend, set out to build a highway from Hunchun into North Korea, blasting tunnels and laying pavement for a road that would be the main thoroughfare for trade between the two countries.

Their plan hit a roadblock in October of 2006, when North Korea announced it had launched its first nuclear test. Until then, China’s cross-border trade with North Korea was increasing by about 20 percent a year. The highway, winding through untouched mountains along the Tumen River border, seemed like a natural investment that would get Fan and his colleagues in on the ground floor of what looked like a trade boom.

“We had prepared all the plans and the construction materials and we had to stop everything,” said Fan. “North Korea still welcomed the investment, but the Chinese government stopped it.”

He’s been waiting nearly five years, having invested all his money in the venture and banking on the idea that eventually geopolitics will change and North Korea will open up. In the meantime, Fan’s Louxian International Logistics Co. has diversified. Besides trading North Korean fish and other products to South Korea, Japan and elsewhere, they’ve started built a cement factory inside North Korea to earn cash. In other words, the Hunanese entrepreneurs are intent on bringing China’s economic development to the border.

Their efforts are at odds with the ongoing struggle to protect a fragile local environment. The government here has been tasked with protecting the country’s last remaining wild Siberian tigers, the perilously endangered Amur leopard and a raft of rare bird species. Because the Tumen River area has been somewhat untouched by massive development, it remains a haven for China’s wildlife on the brink of extinction.

The government has initiated economic development efforts in the Hunchun area in the past year, but it remains unclear if the remote region can thrive.

This delicate balance between cross-border trade and environmental issues can be seen in China’s other border areas as well. In Yunnan province on the Burmese border, illegal timber still rumbles into China by the truckload, rare teak and redwood available for order. Endangered animals are no different, smuggled in by the truckload.

Beyond the environmental issues, even China’s legitimate cross-border trade (minus the illicit items) draws international disapproval. The Chinese government has been criticized for fueling repressive regimes in North Korea and Myanmar, and of taking advantage of U.S. military protection in neighboring Afghanistan for business purposes — without pitching in on the security effort.

China’s trade with North Korea is a decidedly touchy subject amid the ongoing multi-country talks to end North Korea’s nuclear weapons program. Though nuclear talks made some headway in recent years, the North Korean regime restarted its aggressive program in 2009, launching a failed satellite and an underground nuclear test in the spring. After last year's test, China, which bristled at calls for global sanctions against North Korea, signaled increased weariness with the regime’s refusal to cooperate. China then agreed for the first time to some limited trade sanctions.

Yet China remains North Korea’s lifeline, its primary trade partner and link to the rest of the world.

“China is North Korea's most important ally, biggest trading partner and main source of food, arms and fuel,” said a 2009 report from the Council on Foreign Relations.

“China has helped sustain Kim Jong Il's regime and opposed harsh international economic sanctions in the hope of avoiding regime collapse and an uncontrolled influx of refugees across its 800-mile border with North Korea,” the report said.

Chinese experts on cross-border trade say little is likely to change, especially with the establishment of a new free trade zone in the Yanbian Korean Autonomous Region, where Hunchun is located. The exact details of the zone are unclear, but the local government is poised to offer incentives to businesses for border-area investments that will benefit bilateral trade with North Korea.

“At present, the economic and technical conditions in North Korea are very limited, and the new economic zone will bring in more foreign capital,” said Jin Hualin, a professor at Yanbian University in Yanji, capital of the Korean area.

Still, limitations and U.N. sanctions from other countries don’t appear to be taking a big bite out of China’s continuing trade with North Korea. According to the Council on Foreign Relations, bilateral trade between the two countries increased 41 percent from 2007 to 2008, reaching $2.79 billion.

For Fan, the brisk business in seafood and other products is enough for now. Eventually, though, there has to be a higher payoff for his investment. There’s no going back, but his financial fortune depends on the political will of another country and the geopolitics surrounding its drive to develop nuclear weapons. That’s something he didn’t expect when he moved here.

“If North Korea doesn’t give up the political program, we give up and move to other ports,” he said. “Right now I don’t have any choice. I’ve invested too much money to go elsewhere.”

Still, he believes in the promise of the border region and the need to develop.

“The future of this region will be important to all of Asia,” Fan said. “The development of this area is an international affair, not just a Chinese problem.”