North Korea Lures Rajin Investment as It Threatens to Confiscate Kumgang

If you want to understand precisely how Kim Jong Il has managed to lure billions of dollars into a money pit that has delivered little discernible return on billions of dollars in investment, look no further than Kim Young Yun’s recent op-ed in the Joongang Ilbo for an object lesson in how incapable of learning some people are, particularly while under the influence of nationalism:

Should we just sit back and watch the port of Rajin being handed over to China and Russia? A North Korean project under China’s initiative that excludes the participation of the South would be contrary to the development of inter-Korean economic integration.

Losing an important logistics center means giving up a potential economic gain. North Korea, which already relies greatly on China, would become even more dependent on the giant. We need to extend the pan-East Sea route connecting Sokcho, Zarubino and Niigata into Rajin. The overland route between Wonjong and Rajin should function as a main artery, making sure South Korea has as much influence as possible. [Kim Young Yun, Joongang Ilbo]

What? Us? Sit back and watch the Chinese cut in front of us in the rip-off line? Yes! For one thing, the Chinese have been ahead of the South Koreans in Rajin for a long time, although their investment strategy was clearly more cautious than the South Koreans’ approach to, say, Kumgang or Kaesong, as the Daily NK explains:

[D]ue to irrational investment conditions, [Rajin] did not attract much foreign capital. As a result, it was neglected; not functioning as an open special economic zone and all but deserted for a long time. The original plan was to attract $4.7 billion dollars of foreign capital in total, but the actual amount invested was just $60 million.

Sitting back and learning some good sense from the Chinese certainly seems like a more sensible plan than racing trainloads of money into an isolated, erratic rogue state whose economic philosophy begins and ends with confiscation. And I can hardly imagine a more fitting lesson than this:

North Korea on Thursday threatened to confiscate South Korean property in the Mt. Kumgang area in an increasingly frantic campaign to bully and cajole the South into resuming lucrative package tours to the resort.

The North’s Asia-Pacific Peace Committee, which deals with cross-border exchanges, made the threat in a message to the Unification Ministry and the tour operator Hyundai Asan. The committee warned it will “conduct a survey of South Korean property in the Mt. Kumgang area from March 25, and all assets of those who fail to cooperate with the measure will be confiscated and they will be unable to visit Mt. Kumgang again.”

The North threatened to work with a new operator to continue package tours to Mt. Kumgang and Kaesong unless South Korea resumes them by April. [Chosun Ilbo]

I can’t imagine anyone looking at Kumgang from an objective, business-minded point of view and looking upon the last sucker’s confiscated investment as a attractive investment opportunity. Arguably, only South Korea’s ethnic nationalism could have influenced its government and investors to embark on such a colossal folly, and South Korea’s present government is striking a more sensible tone than its predecessors:

A South Korean security official said, “The North apparently wants South Korean firms that are in danger of losing their assets in the North to put pressure on the government, but the government won’t back down.”

A South Korean businessman operating in the Mt. Kumgang region said, “The North is threatening to seize our firms’ real estate there while talking about attracting large amounts of foreign investment. What South Korean or foreign business will make new investments in the North under these circumstances?”

The very threat of confiscation will only depress investors’ willingness to take a chance on a market as risky and marginal as North Korea. But then, that presumes that the global supply of fools with money has been exhausted. Sadly, it never really is.