JPRI Working Paper No. 53: January 1999
Economic Cooperation in the Region Where China, Russia, and North Korea Meet
by David Arase

From mid-August to mid-September, 1998, I toured Northeastern China and the Russian Far East conducting field research on how sub-national authorities (i.e., provincial and municipal governments) surrounding the Japan Sea are building networks of international cooperation. Behind this narrow-sounding research agenda, however, I had broader concerns. I wanted to use the cooperation process as a way of gauging the integrative forces of globalization, the difficulties of reform in China and Russia, and the divisive forces of nationalism and cultural enmity in an area renowned for its strategic fragility. What follows are some impressions of what I saw and a few of the conclusions I reached.

I started out as a member of a multi-national delegation travelling from Japan to attend a conference on Northeast Asian economic cooperation in Yanji, the capital of the Yanbian Korean Autonomous Prefecture in Jilin Province in northeastern China. This prefecture has the North Korean border (formed by the Tumen River) on the south, and the Russian border to the east. The conference was of particular interest to me because it would allow me to see key project sites of the Tumen River Area Development Program. This is a $20 billion proposal, not yet funded, by the United Nations Development Program to develop an international port in an open trade and investment zone in the Tumen River region where the borders of China, Russia and North Korea meet. Many observers see this as the key to Northeast Asian economic cooperation, but this trip brought me to conclude that it is sadly in need of re-thinking.

Figure 1. Tumen River Economic Development Area
Figure 2. Tumen River Area Railway and Road Map

Although I knew that about half of Yanji's population was ethnically Korean, I was still surprised to see shop signs written in Korean, and Korean spoken in the daily lives of the people. We stayed in the Daewoo Hotel, recently built and managed by the South Korean Daewoo chaebol. The elegant white hotel, floodlit at night, seemed like a miraculous vision of prosperity and cosmopolitanism amidst its surroundings of dusty brick and bare concrete. The hotel is a powerful symbol of South Korean progress. In dinner conversation it was said that North Korean refugees regularly show up at the hotel seeking passage to the South. Estimates of the number of North Koreans now living illegally in China range from several thousand to seventy thousand. The shallowness of the Tumen River makes illegal immigration as well as smuggling hard to control. One evening in July 1996, while staying at the Daewoo Hotel, Kim Ha-ki, a South Korean novelist pining for Korean reunification, took a taxi to the river and waded across it into North Korea. The Northern authorities wined and dined him and then sent him back into China. Kim was jailed for a week upon his return to South Korea for his unauthorized entry into the North, but his consolation was that his books sold well after his adventure.

To see what image the North had to offer in Yanji we went to dine at the Pyongyang, a drab North Korean owned restaurant where the staff all wore Kim Il Sung pins (which they were not allowed to trade away, I discovered). The main entertainment there seemed to be the staff singing along with North Korean produced karaoke videos showing bountiful harvests and sweet innocent youths holding hands. With their large modern investments in the region the South Koreans clearly outclassed their Northern brothers, but the North's smaller scale investments like the Pyongyang restaurant and over 200 others in this region (mostly in food production, processing, and trade) certainly still help North Korean interests.

After the formal conference program we went to see the city of Hunchun, roughly a 100-kilometer journey to the east, and points on the borders beyond it. The road to Hunchun follows the Tumen River for long stretches and on that sunny day the slow brown waters of the Tumen and the seemingly uninhabited green hills of North Korea rising from the opposite river bank made the border seem sleepy and peaceful. Discussion in our van among the North Korea watchers turned to how the North Korean border guards no longer shoot first and ask questions later. Instead, for 30 renminbi they supposedly will now let locals come or go across the border at will.

Hunchun is for these impoverished rural parts a veritable Emerald City of tall glass buildings and paved roads springing up from cabbage patch roots. The lack of previous industrial development here seems to have been a positive benefit for investors since building facilities and tax incentives are arranged more easily without having to deal with the competing demands of existing state-owned enterprises. After Jilin province constructed a railway and improved the highway to Hunchun in the early 1990s, South Korean and other Asian investors have been drawn to this strategically located town where hard-working ethnic Koreans can be hired cheaply. Railway container service between Hunchun and the North Korean port of Rajin is available via the Namyang Bridge at Tumen City.

Bulk cargo can also be shipped out via a concrete road or a new railway spur leading to Changlingzi on the Russian border. Trucks and trains continue from there to the Russian port of Zarubino. The distance between Zarubino and Hunchun is only 80 kilometers. Full capacity of the new Hunchun-Zarubino railway will be 3 million tons a year, and the four berths at Zarubino can currently handle 1.2 million tons a year. Present freight goes only by road and totalled 15,000 tons in 1997, more than double the 1996 figure. The biggest export item is wood chips destined for Japan (8,000 tons in 1997). Clearly, if the Russians can find the funds to build a proper customs inspection facility, complete preparations for regular rail service, and upgrade the road to Zarubino, investment and transit trade should continue to grow. New industrial park and bonded warehouse facilities have been completed in Hunchun, and Hyundai has led foreign firms in locating there. The $100 million of foreign investment in Hunchun so far is not significant by international standards, but the impact in this locality has been enormous.

From Hunchun we headed south some 75 kilometers down a potholed dirt road to view Fangchuan, where the U.N. is planning to build a deep water port and supporting infrastructure. Just two kilometers beyond Fangchuan is the point where Chinese territory meets the Russian and North Korea borders. Along the way we saw coal mines and stopped to view Wonjong Bridge, which cannot be found on any Chinese map, being used by heavy trucks as large as ten tons loaded with what looked like sacks of grain. Most of these shipments had already been paid for, but we were told that on the North Korean side there is also a market where sellers can offer goods for cash. Continuing past this bridge the dirt road got narrower and more difficult for a short stretch before becoming relatively flat and straight as we approached Fangchuan. A signpost next to a low bank on the river marked the spot but all we saw were two or three tiny shacks.

The Tumen Project

At the Sino-Russian border just two kilometers past Fangchuan and only 15 kilometers from the sea, the Chinese have erected an observation tower. However, the atmosphere is relaxed and the few guards are friendly. From the top one can survey the hilly North Korean side of the Tumen and the flat Russian terrain to the east. In the easterly direction a few kilometers distant at Khasan there is a quiet Russian rail yard. This railyard marshals the now-meager traffic across the Chinson Bridge that carries the Russian rail gauge across the Tumen into Rajin port. Beyond the bridge on the horizon one can see where the Tumen River meets the sea. Standing at this point one feels how tantalizingly close Jilin Province comes to the ocean highways of global commerce, but without the right of access you have to travel inside Chinese territory some 2000 kilometers to reach the Yellow Sea to the south. There is a metal plaque at the observation tower commemorating visits to this spot by President Jiang Zemin in 1991 and 1995. As he viewed this prospect Jiang Zemin must have had at least one dark thought about the 1860 Treaty of Peking that gave up this and other strategic coastal territories in return for Russian assistance in ending an Anglo-French occupation of Beijing. Nevertheless, it was hope for the future that brought Jiang to survey the world from this spot.

Because China's pre-reform development strategy for the northeast lacked an international trade dimension, Jilin Province and Heilongjiang Province remained for all intents and purposes poor inland regions. Today, however, China's reform strategy calls for opening to the outside and these northeastern provinces are eager to use their proximity to the Japan Sea to become faster growing trade-oriented regions. In 1990 a Jilin provincial official named Ding Shicheng stood up at an international conference on Northeast economic cooperation to make a carefully prepared proposal. He called for Chinese, Russian, and North Korean cooperation, assisted by external financing, to develop the lower reaches of the Tumen River and open Northeast China's access to the sea. The proposal was taken seriously because it had been reviewed and approved by China's State Council prior to the conference. The U.N. Development Program representative in Beijing subsequently expressed interest in this idea and it became the basis for the Tumen River Project announced by the U.N. in 1991.

By 1995 the governments of China, Russia, North Korea, South Korea, and Mongolia had signed an U.N.-drafted agreement. The basic Tumen River development concept was to have multilateral committees made up of the member countries supervise a cadre of international civil servants who would manage the building and operation of a $20 billion port and free economic zone centered at Fangchuan. One can only surmise that these developments explain the substance and timing of Jiang's two visits to this area. Regrettably, it is unlikely that anyone will be visiting this site again soon to view the completed project.

The plan to develop a seaport at Fangchuan, the centerpiece of the hardware aspects of the project, is simply too unrealistic to advance much further. At present Fangchuan is quite literally little more than a signpost on the riverbank of the Tumen. There is no improved land transportation leading to it, and dredging the Tumen River to permit seagoing vessels to dock at Fangchuan would be an expensive and continuous process since the river is shallow and heavily laden with silt. Also, the river is subject to freezing in winter. The expense of developing Fangchuan into a port appears all the greater when Russian and North Korean ports exist nearby that can be cheaply developed. For this reason the North Koreans and the Russians, not to mention the Japanese and South Koreans who are expected to finance the project, are not wild about the idea. The North Koreans would prefer the Chinese to use their port at Rajin. The Russians, behind a smokescreen of concern over the impact of Fangchuan's development on the environment, want transit trade to pass through underutilized Russian ports such as Zarubino, Vladivostok, and Nakhodka.

The political aspects of the project are equally problematic. The proposal to place the lower reaches of the Tumen under a joint international authority would give China a long desired northern access to the sea. It also promises technocratic management of infrastructure construction, trade and investment measures, and the distribution of costs and benefits. Nonetheless, it ignores the unwillingness of North Korea to cede even one inch of sovereign territorial rights. Russia tends in this direction, too, because a withdrawal of its sovereign rights over this corner of territory could make it difficult to recover them if it decided to pull out of the agreement, and meanwhile the benefits of such a concession are unclear. Together with the scarcity of foreign capital for infrastructure development due to the Asian financial crisis, not to mention the unpredictability of events in North Korea, these factors in all probability mean that further progress on the Tumen River development project is unlikely.

This is not to say that the project is pointless. The involved parties want to keep the idea of regional cooperation alive but the vehicle will have to be changed radically if it is to survive. Basically, there should be a shift from intensive development around Fangchuan to smaller scale, more geographically dispersed projects. For example, international resources could be devoted to upgrading the transportation, customs facilities, and telecommunications needed to activate such border crossings as Heihe, Suifenhe, Changlingzi, Tumen City, and Saeppyol, as well as the ports of Rajin, Zarubino, and the ports around Vladivostok. The idea would be to promote international trade via several routes rather than through a single mega-project. Technical studies should refocus on problems in the larger Northeast Asian transportation and telecommunications network, and the oversight committees established by the 1995 Tumen River agreement could work on coordinating liberalization measures and ensuring that national and sub-national needs and responsibilities were met in any projects that materialize.

The Yellow Sea Factor

Discussions regarding the Tumen project I had in Beijing only confirmed the impressions I had formed in the field. The political and fund-raising dead-ends of the current formula have caused the proposal to drop from the radar screens of the key ministries in Beijing, and researchers in the institutes of the Chinese Academy of Social Sciences have become bored and uninterested in the idea. Instead of revitalizing it, an ongoing turnover of staff at the U.N. Development Program's Tumen Secretariat in Beijing has created further disarray. The only enthusiasm for the project I detected in Beijing was at the Asia-Pacific Institute, a small group affiliated with the Science and Technology Committee of the State Council. This committee was chaired by Song Jiang when it originally sponsored the Tumen initiative in Beijing in the early 1990s, and Song Jiang's wife is currently one of The Asia-Pacific Institute's heads. I managed to find one academic in Beijing actively researching the Tumen project and he had come to the conclusion that it would be more practical to develop a second port for Northeast China on the Yellow Sea at Yingkou nestled in the bay just east of the Liaodong peninsula.

This academic's proposal points to the choice that Beijing faces in developing sea access for its northeast. China has limited resources for infrastructure construction and must concentrate them where the economic rate of return is highest. This means that if Beijing must choose between investing its own money in developing Yellow Sea access and Japan Sea access, it would choose the former and sacrifice the latter. As part of a national plan Dalian is being dramatically improved, and the master plan of the Dayao project in the port area calls for increasing the number of container berths from the present six to nearly 100. Expansion is needed since the port is already working at capacity and foreign investment is moving steadily northward toward Harbin.

It is worth recalling that Dalian and the strategic rail line stretching north from the port were originally developed by the Russians under concessions secured at the end of the 19th century. The Japanese took over the port and formed the South Manchurian Railway Company to manage the section between Dalian and Changchun after Japan's victory in the Russo-Japanese War (1905). After Japan gained control of northern Manchuria by creating the puppet state of Manchukuo in 1933, it took over the rest of the Russian railway concessions. This backward glance at history is useful as a reminder that an attempt to develop the inner Northeast Asian region previously called Manchuria and the adjoining Mongolian plateau and Amur River basin is not unprecedented. One lesson of this experience is that for whoever was in a position to use it, the port of Dalian became the key entrepot for the region.

For a number of reasons, however, it is not likely that the idea of developing outlets on the Japan Sea for Northeast Asia's interior region will disappear. The poorer interior provinces of Jilin and Heilongjiang in northeast China envy the prosperity of their southern neighbor, Liaoning Province, and have made it clear to Beijing that they, too, want the benefits of access to the sea. In fact, these provinces are using their own funds to improve this access; and despite serious infrastructure and procedural bottlenecks, exports from these provinces already use Rajin in North Korea as well as Zarubino and the Vladivostok area ports in Russia. It is also worth noting that when Japan controlled Korea and Manchuria in the 1930s it developed the ports of Rajin and Chongjin on the Japan Sea and ran regular shipping from Tsuruga and Osaka to these Korean ports. The Japanese also developed the railways that connect Rajin to northeastern Chinese cities such as Jilin, Harbin, and Mudanjiang to access resources in northern Korea and Manchuria.

The past and present point not only to the economic feasibility of a Japan Sea orientation for northeast China, but also to the complementary interests of Russia and North Korea in helping it materialize. In addition, South Korea would benefit by broadening its ability to engage North Korea and gaining new areas for investment. Mongolia would welcome diversified access to the sea because it currently relies almost exclusively on the congested port of Tanggu on the Yellow Sea. For its part, Japan would like to stimulate growth along its Japan Sea coastline and, as in the past, gain easier access to continental resources. It is precisely this mix of interests and actors that coalesced around the Tumen River project in the first place, and their underlying interests guarantee a continuing desire to cooperate. But for now regional cooperation is stuck in limbo in part due to the flaws of the project. None of the actors is willing to move forward on the plan for reasons described earlier. And for fear of poisoning the spirit of regional cooperation none is willing to pull out. Hence the need for a new initiative.

The Russian Factor

Aside from North Korea, whose commitment to regional cooperation is difficult to ascertain, the other weak link in regional cooperation is Russia. North Korea may be willing to provide carefully controlled transit rights for international passengers and freight in return for revenues, but even if it were not, Northeast Asian cooperation could still be meaningful if Russia participated. But whether Russia can or will do so is an open question.

My tour through the Russian Far East in September began in the gleaming new international terminal of Niigata airport, a far cry from the old facility one could have mistaken for a bus terminal that I used ten years ago. On my flight this time I sat next to a Russian buyer of Japanese used cars, a line of business everyone knows is dominated by the Russian underworld. In conversation he mentioned his dream of taking his family and emigrating to Australia or Canada. It made me uneasy that even the more affluent in today's Russia would want to leave, or perhaps more accurately, escape.

My aim on this trip was to get the Russian Far East perspective on the Tumen River project and on the larger question of foreign economic relations against the backdrop of strained relations with Moscow and distressed local conditions. The first stop was Vladivostok, like San Francisco a city situated on steep hills in a large bay area. The waterfront starting from the train station and extending down Svetlanskaya Avenue is lined with charming pre-Revolutionary buildings that are a reproachful contrast to the functional concrete Soviet-era architecture. The only architecturally interesting buildings from the Soviet era that I saw were the large ornamented apartment buildings on the hill overlooking the train station built by Japanese POW labor after World War II.

My first interviews were with provincial government officials inhabiting the monolithic white Primorsky Krai Administration Building. Locals have nicknamed it the wisdom tooth because it is big, white, and only noticed when it gives you pain. Actually, what I noticed was that the parking lot was crammed with an impressive collection of Lexus sedans, Land Rovers, and Toyota Landcruisers.

I met with officials involved in the Tumen River project deliberations but none were optimistic about the prospects for quick progress. Even with respect to the more incremental approach of upgrading existing ports and transportation links, thereby avoiding the difficult issues of multilateral authority and reduced sovereignty, the chaos inside Russian administration dampens expectations. In the wake of economic and political reforms, a lack of money and an unclear division of responsibilities between levels of government cripple even the simplest of initiatives.

To take a small example, the straightforward project of building a 33-kilometer rail link from an existing Russian line to Changlingzi to allow Hunchun to use the port of Zarubino is about two years behind schedule. After haggling over who would pay for railway construction a new issue between the federal, provincial, and local authorities are the customs facilities. The Federal government is obliged to provide customs services but there is a dispute over whether the Federal or Primorsky government should pay for the physical infrastructure. Pleading lack of resources both have pushed the burden onto the hapless Khasan local government, which has neither the resources nor the political leverage to move this issue forward. As a result underpaid Russian border guards continue their inefficient and unpredictable ways of enforcing customs regulations.

The Russians see the need for such projects, but between the dwindling tax base and the capriciousness of elected officials dancing to the tune of rapacious private interests, budgetary resources for serious purposes at all levels of government are evaporating. One situation in Vladivostok illustrates this point. Emergency ambulance workers there stopped receiving pay in the spring when the Primorsky governor cut subsidies for municipal health care. The mayor refused to make up the difference. By the time I visited in the fall there were only four ambulances left operating and the workers, who had not been paid for months, were fainting on the job from hunger. Meanwhile, the mayor decreed an end to public tram fares and a removal of restrictions on discos to boost his popularity before an upcoming election. The governor escaped media criticism for his role in causing this situation because those who criticize him somehow soon find themselves running afoul of the law. Only a year or two ago the governor even had the mayor, who had become too outspoken, jailed on trumped-up charges. President Yeltsin eventually intervened to free the hapless victim, but the governor escaped any untoward consequences.

The situation has deteriorated to such an extent that it is almost a joke to discuss long term development strategies even with academics trained to do so. When I visited the director and deputy director of the Far Eastern Center for Economic Development, the electricity failed soon after introductions were made, ending efforts to make tea. Soon afterward the director of a foundation funded by George Soros, which occupies a nearby suite of rooms, quietly entered, sat down, and began speaking Russian quickly in a gentle lecturing tone. A look of gloomy depression and anxiety spread over the previously amiable faces of my hosts and they asked several questions, listening carefully to the answers. My interpreter explained that this man brought news of bank closures that not only made it impossible for all of them to cash their salary checks tomorrow, but also wiped out their institutes' bank accounts. The man then quietly took his leave and in his awkward wake my hosts began joking about how they might show up at my hotel tomorrow to take tea with me. But their humor was tinged with hysteria and bitterness. It was pointless to continue discussing development strategies for the Russian Far East, and I departed.

After Vladivostok, I had an opportunity to visit the Nakhodka Free Economic Zone and view the ports of Nakhodka and Vostochny. I then traveled by train to Khabarovsk to visit the Institute for Economic Research of the Far Eastern Branch of the Russian Academy of Sciences. Next I flew to Yuzhno-Sakhalinsk to interview Russian and Japanese officials about the state of bilateral cooperation. In all these places I encountered the same lack of budgetary resources and poorly functioning political institutions, along with the serious social distress mentioned above. There are two important dilemmas that arise out these conditions.

One is a dilemma for Russia's foreign partners. It is clear that Russia requires external resources to support their participation in international cooperation activities. If these resources are withheld Russia will drop out and thereby hold back the development of the entire region. But if the existing Russian administrative and managerial structures are provided with external resources the risk of these resources being wasted is high.

The other dilemma is a psychological one for Russians in the Far East as they consider their development choices. On the one hand, if they continue their traditional reliance on Moscow to meet their needs they enjoy the psychic rewards of retaining a strong Russian identity and a European orientation, but the net material rewards of this strategy are nil. Moscow today is helpless to channel resources to the Far East, and instead seeks to draw resources from the peripheries to sustain itself. On the other hand, if the Russian Far East chooses the material rewards of economic integration with East Asia, the Russians fear losing their identity and making themselves vulnerable to the superior numbers and wealth of China and Japan. This fear is exacerbated by the influx of Chinese traders and workers seeking to escape from their own reform woes in Northeast China.

On top of this the Russians are aware that their population in the Far East is dwindling. They currently number a mere 7.2 million in the entire region east of Baikal, a decline of ten percent in this decade alone. This factor is also behind Russian resistance to closer cooperation with Asian neighbors, and is manifested in the adamant refusal of many even to consider joint development of the disputed Southern Kurile islands with Japan, and in recent calls for Cossacks to patrol the border with China.

Some Modest Suggestions

To help the Russian Far East participate in Northeast Asian cooperation, a few measures to improve the prospects can be suggested. One would be to strengthen U.S. participation in this process. Projects undertaken with joint U.S. sponsorship will help allay the 'yellow peril' fears of the Russians and promote the growth of desired links with North America even as cooperation with Asian countries opens up. Another desirable measure would be to fund projects that strengthen links between the Russian Far East and Europe, such as upgrading the Trans-Siberian railway. Such projects would be popular with Russians and could provide the Japanese, Chinese, and Koreans with rapid container service to the European market. Finally, the fractious and arbitrary political leadership in the Russian Far East needs incentives to learn acceptable standards of international conduct. Foreign investors and governments will have to make a concerted effort to focus their attention at the provincial level, signing aid and investment agreements only with those leaders who maintain standards and carry out commitments.

Japan has enough at stake in Northeast Asia to take the initiative in organizing cooperation, but it has been too passive and unimaginative. In Tokyo the economic ministries understandably refuse to finance the current Tumen plan simply because of how exposed the intensive development of Fangchuan would be to events in North Korea. But they have been unwilling to advance regional cooperation by offering an alternative plan that would be less expensive and less risky. The foreign ministry is overly preoccupied with bilateral approaches to China and Russia respectively, and it fails to appreciate the benefits of engaging these powers multilaterally. China is clearly interested in multilateral approaches in the region, but Beijing seems unwilling to divert much in the way of national budgetary resources to develop access to the Sea of Japan. What will require effort is eliminating barriers to Japanese-Russian economic cooperation. The centerpiece of Tokyo's approach to Russia is the Hashimoto-Yeltsin plan tcalling for a number of large joint development projects in the Russian Far East after there is agreement on the Northern Territories question. In rational terms, the deal should be attractive to Moscow. In return for a few specks of unimportant territory, Russia would gain a large injection of desperately needed development capital and, since a key project proposal is the renovation of the Trans-Siberian line, a stronger link between Moscow and the Far Eastern territories. But, as already pointed out, the Russian position is not determined by rational calculation, but by deep psychological needs and fears. Japan needs the disputed islands back for its own psychological reasons and is willing to pay handsomely for their return, but not in a coin that the Russians will accept. Perhaps if the Russians understood that a settlement of the Northern Territories dispute would lead to a multilateral Northeast Asian development effort that included the U.S., Japan might gain what it seeks even without having to pay as much as it is informally offering now. To be sure, this approach would require Tokyo to ask Washington to support this initiative, but this is not asking the impossible. Both Japan and the U.S. share a strong interest in strengthening peace and development in this region.

My tour through Northeast China and the Russian Far East certainly illustrated how the logic of economic development--driven by globalization and articulated within natural geographic settings--is leading to cooperation. The geography of the region makes the Mongolian plateau, northern Manchuria, and the Amur River basin a natural arena of economic development once easy access to the global economy can be provided. The logic of development suggests that the political authorities that have divided this region will have strong incentives both to lower barriers to economic exchange and to cooperate in creating assets that increase their individual shares of benefit. The case of the Tumen River project demonstrates that even among political actors who view each other with suspicion, if not outright hostility, the logic of development in the post-Cold War environment can lead to cooperation. Nonetheless, specific features of this case must be addressed if cooperation is to achieve any meaningful results. The present project's formula for opening Japan Sea access to the region needs to be revised. Even with a new and more feasible proposal, significant external financing will remain important and the U.S. will have to become more actively involved in order to make Northeast Asian economic cooperation a reality.

DAVID ARASE is an Associate Professor of Political Science at Pomona College and author of Buying Power: The Political Economy of Japan's Foreign Aid (Lynne Rienner, 1995). He spent the past year doing research in Japan on an Abe Foundation fellowship.

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