The Hermit Kingdom's Chinese Reforms: The North Korean Foreign Investment Regime

Abstract

North Korea reveals a surprising openness to capitalism in its foreign investment laws. This understudied aspect of the country could carry decisive policy implications for sustainably ending the Korean War and the Korean nuclear crisis. There are nevertheless doubts on whether these laws truly signal that the “hermit kingdom” wants to integrate the “global village.” This is where a comparison with the pioneer in communist opening-up, China, can provide key insights into North Korean legal and economic strategy. The paper compares how the two countries designed the general conditions for investment, the framework of their special economic zones, the property rights they promise investors, and the options for settling disputes. It demonstrates that North Korea has closely followed the Chinese model on all of these issues. A neoliberal model would have aimed to maximize inbound foreign investment flows by removing barriers to investment as quickly as possible. China’s developmental model, by contrast, only lifts those barriers incrementally in a bid to nurture local industries and to protect the country’s economic, legislative, territorial and judicial sovereignty. The paper demonstrates that North Korea’s current reluctance to remove certain barriers to investment is not conclusive evidence that it does not intend to further open up. On the contrary, the parallels with China suggest the North Korean foreign investment regime can be leveraged for integration into the global economy. This would give North Korea a stake in the current world order and hence an incentive to follow its rules.