North Korea to taste free market in trade zone on border with China

With so much focus on China's economic travails, there has been little space for much else in the world's attention, even as one of the world's most unpredictable nuclear powers, North Korea, went head to head with its sworn enemy South Korea over some cross-border propaganda.

Although they are officially as "close as lips and teeth", relations between China and North Korea have been rather tense in recent years, since the Democratic People's Republic of Korea, as the North is officially known, went ahead with a nuclear test without giving neighbour and ally China much warning.

Wartime comrades in the Korean War (1950-1953), the two countries share ideologies, but China’s more pragmatic approach to communism has seen the two countries diverge in terms of growth and openness.

Aid and investment from China have been big factors in keeping the North afloat since the collapse of the Soviet Union in the early 1990s, but there have been regular reports of late that the North Koreans are keen for a taste of the material improvements that a more market-friendly approach can bring.

Last week saw the announcement on Chinese state media that China and North Korea will open a border trade zone in October, in the northeastern Chinese city of Dandong, in Liaoning province.

The city lies across the Yalu River from North Korea and its border crossing is one of the key access points to the North from China. The city of Sinuiju is the nearest city on the other side of the river from Dandong.

The Guomenwan trade zone will be opened during the grandly titled China-North Korean Economic, Trade, Cultural and Tourism Expo, the official Xinhua news agency reported, citing city officials, and Xinhua said the zone has a "total investment" of a billion yuan (€890 million).

There have been attempts to set up free-trade zones between the two countries before, but investors are wary of doing business with a country dealing with United Nations sanctions over its nuclear programme.

About 40 per cent of Dandong's trade already is tied up with North Korea, there are more than 600 border trade enterprises in the city, and there are North Korean waiters, bus drivers and other workers there. There are also North Koreans working in China doing various construction projects – a photographer from the New York Times who tried to photograph them recently was attacked there.

Residents living within 20km of the border will be allowed to trade with each other and get certain tax-free benefits, on condition they spend less than 8,000 yuan (€1,116) a day.

Recent years have seen China grow closer to South Korea, Asia’s fourth-largest economy and the North’s main rival. The Guomenwan trade zone may fare better than the Kaesong industrial park, which was set up as a collaboration between North and South in 2002 to allow South Korean companies access cheap labour from the North and in return providing Pyongyang with much-needed foreign currency.

By 2013 there were 53,000 North Koreans working there, but during times of tension – and they are regular – the park is forced to close. Earlier this month the two sides reached a deal at Kaesong about a pay rise for workers there that would increase the North Korean workers’ minimum wage to €65.84 per month.