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Two Koreas need to learn from China’s ‘one country, two systems’

North Korea economy expert says developing special economic zones with foreign investment is key to North Korea’s economic growth.

 The Korea Herald is publishing a series of articles featuring inter-Korean relations to mark the paper’s 65th anniversary that falls on Aug. 15. Following is the last installment. -- Ed

SEJONG -- With the two Koreas working to reduce cross-border tensions and enhance ties through socio-economic exchanges, the prospect of reunification is being debated anew in the South.

During the Cold War, the reunification narrative was mostly about achieving a crushing victory over North Korea. The concept of reunification by force shifted when liberal presidents advocated gradual engagement. Subsequent conservative governments have taken a more proactive approach, viewing the reunification as a business “bonanza.”

Jeong Hyung-gon, an economist studying reunification and North Korea, said the Moon Jae-in administration should approach reunification with caution. Given the two Koreas’ widening economic gap, South Korea should refrain from reckless integration and begin with the Chinese one-country, two-system model, he said. 

“We have to allow for economic independence in North Korea until it narrows gaps with South Korea. … Without such efforts, sudden political integration is a dangerous and reckless idea,” said Jeong, a senior research fellow at the Korea Institute for International Economic Policy.

“We have to change how we think about reunification. If the people of the two Koreas can engage with each other freely, similar to what the Chinese do (with Hong Kong and Macau), I think we can call it reunification.”

Jeong Hyung-gon, a senior researcher fellow at the Korea Institute for International Economic Policy. Korea Institute for International Economic Policy.
Jeong Hyung-gon, a senior researcher fellow at the Korea Institute for International Economic Policy. Korea Institute for International Economic Policy.

Under the principle of “one-country, two-systems,” Hong Kong and Macau retain their own economic and administrative systems, while mainland China uses socialism for its governing ideology. 

Similar ideas were proposed by North Korea and China as a reunification model. Pyongyang has advocated establishing a confederation of two systems within one country. China has promoted a gradual unification under one central government.  

In Jeong’s opinion, pursuing reckless political integration with North Korea is a dangerous idea. Without sufficient social and economic integration, uniting the two Koreas under one centralized government could be disadvantageous to South Korea. 

“Imagine there would be an election between the two Koreas to establish one centralized government. What if the 25 million indoctrinated North Koreans unite and demand their own political system? Can a democratic, diverse South Korean society hold back against them?”

The biggest risk of sudden integration is the economic burden that would have to be borne by South Koreans to support their northern neighbor, Jeong said, considering the population ratio of the two countries.

According to 2016 statistics from the International Labor Organization, the ratio of the North Korean population to the South Korean population is about 1:2, as North Korea’s population totals some 25 million. The ratio of East Germans to West Germans was considered to be at about 1:5.

Such statistics illustrate the dangers of reckless economic integration, said Jeong. Without narrowing the economic gaps, the population ratio would leave South Korea’s future generations with the burden of supporting their underdeveloped northern neighbor.

“It is simple mathematics. Five West Germans had to provide for one East German after the 1990 reunification. If the two Koreas were to be reunified, two South Koreans would need to provide for one North Korean.

“In addition, West Germany is one of the most advanced economies, and East Germany was also a leading economy in the communist bloc at the time. I don’t think that is the case with both Koreas.”

To ensure smooth social and political integration, Jeong said North Korea’s income level should amount to 60 percent of that from South Korea. According to 2018 statistics from the Bank of Korea, North Korea’s gross national income per capita is about 1.46 million won ($1,289), while South Korea’s GNI per capita is 33.63 million won.

Without reducing the income gaps, reunification could result in a massive exodus from impoverished North Korea, Jeong predicted. A simulation by Jeong and his team showed that if the two Koreas were to be reunified right now, about 7 percent of the North Korean population would leave their homes and head for the South.

According to Jeong, it would take at least a couple of decades for North Korea to reach 60 percent of the South Korean economy. The length of time could be shortened if North Korea were to receive massive foreign investment, he added.

“In South Korea, South Chungcheong Province has the lowest income level, about 60 percent of the national average. But we don’t see any massive population movement in South Korea. That’s how I came up with the number 60 percent,” Jeong said.

“If the two Koreas were to reunify now, and one integrated economy was created, North Koreans would not be able to compete with South Koreans. We have to delay the market integration as much as possible before reducing economic gaps between the two Koreas.”  

From Jeong’s point of view, North Korea is undergoing transition from a socialist economy to a market economy -- something similar to what China witnessed after opening up its economy in the late 1970s.

There are growing signs of a market economy in North Korea. Despite the government’s heavy regulations, the North Koreans trade their goods at informal, black markets known as Jangmadang.

“I think North Korea is in the initial stage of transition into a market economy. While the North Korean government did not officially endorse a free price system, most goods are traded at prices set by markets.”

The expert said the key to success of North Korea’s economic reform is developing border towns with South Korea and China, such as the Kaesong industrial park, Sinuijiu Special Administrative Region and Rason Special Economic Zone.

To spearhead the reform, these economic special zones need to be exempt from local laws, exercise autonomy on economic policies and eventually attract investments from foreign countries, Jeong noted.

If money begins to flow into North Korea, it should be invested into industries in which the communist state has a comparative advantage -- such as the information technology and aerospace industries. 

“For a less-developed country like North Korea, foreign investment is crucial to developing the economy. Since there is little domestic demand, North Korea needs to attract money from foreign countries to improve production facilities, learn foreign technology, and pioneer foreign markets.”

“North Korea needs to come up with the best way to use its limited resources efficiently. It needs to focus on building the foundation for economic growth. Foreign investment in special economic zones is the most efficient way to achieve it.”

By Yeo Jun-suk(