Sat, Mar 18, 2006 - Page 9 News List

Beijing outpaces Seoul with North Korean influence

South Korea wants to lay the groundwork for reunification with the North, but that plan may be complicated by Beijing's growing economic and diplomatic clout in the region

AP , KAESONG, NORTH KOREA

Thousands of communist laborers toil under the supervision of capitalist managers in this fenced-in special zone, South Korea's economic beachhead in North Korea just beyond the border.

The Kaesong Industrial Complex is a key part of Seoul's strategy to engage the impoverished yet militarily potent North, reduce their economic gap and prepare for the day -- South Koreans hope -- they unite as one.

But at the same time, China is carving out a bigger role in North Korea's economic life, raising concerns in South Korea that greater Chinese involvement could hinder that vision of a unified Korean Peninsula.

Chinese companies and entrepreneurs are investing in North Korean ventures including glassmaking, bicycle manufacturing and a department store, and are developing mineral and fisheries resources and even prospecting for oil.

Over the last five years, China has become North Korea's largest trading partner, providing at least 80 percent of the North's consumer goods, ranging from electronics to shoes, according to South Korean central bank economist Lee Young-hoon.

China has been an off-and-on ally of North Korea for decades. Now it wants "gradually to normalize the North's economy, with the long-term goal of a reformed, pro-Beijing state," the Brussels-based International Crisis Group wrote in an analysis.

Beijing's paramount aim, according to the conflict prevention think tank, is ensuring stability in an impoverished, unpredictable country on its border that may have nuclear weapons.

South Koreans are worried that "China's going to be economically dominant in the North," said Peter Beck, director of the group's Northeast Asia Project in Seoul.

Chinese-North Korean trade totaled US$1.6 billion last year, outpacing exchange between the two Koreas, which reached a record US$1.1 billion boosted by activity at Kaesong.

Trade with China increased an average of 30 percent annually from 2000-2004 and accounted for 40 percent of the North's total in 2004, says the Bank of Korea's Lee.

"North Korea's economy would collapse" if it weren't for China, he says.

Lee attributes the expansion in trade to China's rapid growth -- 9.9 percent last year -- and government tax breaks from Beijing for Chinese businesses operating in border areas, which have encouraged them to venture into even high-risk North Korea.

Kaesong isn't South Korea's only project. Hyundai Asan Corp, the Seoul-based company spearheading business in the North, also operates tours from the South to scenic Diamond Mountain. More than a million people have visited since 1998.

Separately, Pyeonghwa Motors Corp, with ties to the Unification Church, opened North Korea's first car-assembly plant in 2002. As of the end of last year, Pyeonghwa said it had sold about 1,000 cars, mostly to government officials.

Desperately poor and a geopolitical wild card with its nuclear programs, the North can offer China and South Korea an abundance of cheap labor and natural resources, while playing them off against each other.

China is working to extract iron ore. South Korea's state-run Korea Resources Corp says it will begin producing graphite this month, the first-ever inter-Korean joint mining development project.

North Korea and China signed an agreement in late December to jointly develop offshore oil reserves, their state-run news agencies reported, without offering details.

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