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Greater Tumen Area Economic Development Project: A Background

By Steve S. Sin
January 27, 2010

Introduction: Many in Northeast Asia wish to see the Tumen Basin develop into a place for
economic cooperation and competition. One such plan is the Greater Tumen Initiative (GTI),
formerly known as Tumen River Area Development Project (TRADP), being carried out under
the auspices of the United Nations Development Programme (UNDP). The 20-year 80 billion
USD plan calls for the creation of port facilities and transportation infrastructure in the region to
support a multinational trade entrepôt. Countries participating in the GTI are China, Mongolia,
North Korea, Russia and South Korea.

The goal of GTI is to make the area into a free economic zone for trade to prosper and attract
investment into the area. For China, the project would give traders in Northeast China easier
access to major international ports without having to circumnavigate the Korean Peninsula and
thus stimulating growth in China’s northeast rustbelt. For Russia, the project would give the
ability to better exploit resources in Siberia and allow easier access to North Korea’s resource-
rich hinterland; the area just to the south of the Tumen contains reserves of oil, minerals, coal,
timber, and abundant farmland.

Originating in Mount Baektu (Changbai),

the Tumen River is 505.4 kilometers long.
Its 488.4-kilometer upper and middle
reaches are the boundary between China
and North Korea, while its 17-kilometer
lower reaches is the boundary between
Russia and North Korea. In a broad
sense, the Tumen River area refers to
Yanbian Korean Autonomous Prefecture
in Jilin, China, the central and southern
part of the Primorsky Territory in the far
east of the Russian Federation and the
Rajin-Sonbong Area (recently renamed
Rason Area; hereafter referred to as

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Rason) in North Korea. This area is not only the contiguous area of China, Russia and North
Korea, but also the only direct thoroughfare to the East Sea (Sea of Japan) over land.

The Greater Tumen Region: The Changchun Agreement of 2005 heralded a geographical
expansion, extending the boundaries from the Tumen River Area to the Greater Tumen Area.
The geographical coverage of the Greater Tumen Region now involves the three Northeast
provinces and Inner
Mongolia of China, the
eastern provinces of
Mongolia, the ports of
Chongjin and Rason
Special Economic and
Trade Zone, a part of the
Primorsky Territory of
Russia, and the eastern
port cities of South Korea.

 China: Four provinces in China, Heilongjiang, Inner Mongolia, Jilin, and Liaoning, are
actively involved in the GTI. Together, these provinces have a population of over 131
million people and an area of nearly 2 million km2. They are rich in natural resources –
Inner Mongolia alone boasts 90% of the country’s proven rare earth oxides and five major
coalfields with reserves of over 10 million tons each, while Heilongjiang produces almost half
of the country’s oil and is a prime candidate for wind power development. Other resources
like timber in Jilin and iron in Liaoning also play a large role in the area. Recent policies
have emphasized the revitalization of traditional industrial bases. Changchun in Jilin is
home to one of the country’s most important auto manufacturers, First Automobile Works,
and Dalian in Liaoning is expected to not only become one of China’s five largest ports
(growing to a capacity of 8 million TEU/year) but also become a global player in software
and service outsourcing. In this environment of growth and development of industries and
markets, the Tumen transport corridor is a vital connection for Northeast China and its
neighbors.

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 Mongolia: The three aimags (provinces) of Hentii, Dornod, and Sukhbaatar make up the
Eastern Mongolian region involved in the GTI. This large (287,600 km2) but sparsely
populated area is relatively undeveloped. This is one of the largest (and last) undisturbed
steppe ecosystems in the world, and is the core habitat of the Mongolian gazelle. As such,
tourism is promising, thanks to the area’s unspoiled natural beauty, cultural traditions and
festivals. Currently, agriculture and forestry account for 33% of the country’s GDP, while
transport and communications account for 10%, mining and quarrying (especially of cooper,
fluorspar, and molybdenum) for 9%, and manufacturing for 6%. Mongolia’s radically
changing and privatizing economy means that the government is placing a high priority on
developing the country’s natural resource processing sector and also on accessing regional
transportation corridors.

 North Korea: The Rason Economic and Trade Zone (formerly the Rajin-Sonbong Economic
and Trade Zone) in the northeastern part of North Korea was established in December 1991
to stimulate international trade and investment. The Zone has rich deposits of natural
resources, fertile lands that can support a wide range of seasonal crops and livestock, and a
developing manufacturing sector focused in industries like port and shipping infrastructure,
seafood harvesting and processing, commercial services, telecommunications and tourism.
The Port of Rajin, an ice-free port with a capacity of over 3 million TEU/annum, is less than
10% utilized. Rail connections to China are also underutilized. Tax incentives and
relatively low land lease and labor costs make the zone an attractive place to invest, while
tourism development and continued government support contribute to the ongoing economic
stability in the area. The city of Hunchun, China, leased the right to use the Port of Rajin
for 50 years in 2005, giving the northeastern Chinese provinces direct access to the East
Sea (Sea of Japan). The agreement also provided for the construction of a 5-10 square
kilometer industrial zone and a 67 kilometer highway. China envisages that the Rajin area
will become a processing zone for Chinese goods which will then be re-exported to
southeast China. A Hunchun economic official stressed that the leasing of the port is "a
business deal and not a government deal". The South China Morning Post reported from
Hunchun that the man behind the deal is Fan Yingsheng, a property developer from Hunan
province who put up half the initial capital investment of 60 million euros (70 million USD).

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 Russia: Primorsky Territory, rich in natural resources and with a strong industrial and
transportation base, is the largest economy in the Russian Far East and the Tumen Region.
Formerly dominated by state-run enterprises, about 90% of the enterprises in Primorsky are
now privately owned. Coal and non-ferrous metals mining, ship repair, ship building and
food processing are the largest industrial employers. The overwhelmingly export based
transport industry is also well developed. Five of the ten major Russian shipping
companies are based in this area, and strong regional growth in recent years has resulted in
greater export volumes, especially for metals and other resources. In addition to the port at
Vladivostok, the termini of the Trans-Siberian Railway (TSR) in Nakhodka and Vostochny
are also in Primorsky. The TSR is one of the shortest routes between East Asia and
Europe and has been a major route for Japanese transit cargo.

 South Korea: The eastern ports of South Korea offer some of Northeast Asia’s most robust
transportation and shipping connections, as well as being significant tourist attractions in
their own right. Busan, a city of 3.7
million people, is the largest container
handling port in the world with capacity of
6.44 million TEU containers per year.
Sokcho, a major tourist gateway in
northeastern South Korea, offers ferry
and container transportation services to
both China and Russia. By 2008,
Northeast Asia Ferry Company, Ltd. was
established as a joint venture between
China, Japan, Russia and South Korea.
The ferry route connecting Sokcho
(South Korea), Nigata (Japan), and
Zarubino (Russia) began its full operation
in August 2009.

The Inception and Development of the Tumen River Area Development Program (TRADP):
The TRADP was first raised by Chinese experts and scholars in the 1990s. On 16-18 July
1990, jointly sponsored by the Chinese Association of Asia-Pacific Studies，East-West Center
and the UNDP, the Conference on Northeast Asia Economic and Technical Cooperation was

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held in Changchun, China. The central topic of this conference was the development of Tumen
River area and regional cooperation in Northeast Asia. In August 1991, the second conference
was held. At these two conferences, for the first time, Chinese experts advocated the idea of
developing a regional golden triangle by exploiting Northeast Asia's geographical advantages
and suggested international academic research. Henceforth, the development of Tumen River
area began to receive attention from the international community.

In 1991, the UNDP formally presented TRADP and placed it in the list of key projects of
promoting the cooperation between Northeast Asian countries. In October 1991, the UNDP
convened a conference on TRADP in Pyongyang, North Korea. At this conference, Northeast
Asian countries reached a basic consensus on this cooperative development program. Under
this premise, the Program Management Committee (PMC) of TRADP was established. In
February 1992, the UNDP convened the first PMC meeting, to which China, Mongolia, North
Korea and South Korea sent their representatives. Russia and Japan also attended the
meeting, though as observers. Subsequently, the UNDP formulated and promulgated Tumen
River Area Economic Development strategies, planning to attract an investment of 30 billion
USD (today, the investment amount is expected to be 80 billion USD) in 20 years and build the
Tumen River Delta into the “Hong Kong, Rotterdam and Singapore of Northeast Asia".
According to the specifications made by international experts in 1994, the Tumen River Area
covers an area of almost 70,000 square kilometers, including 42,700 square kilometers of
China's Yanbian Korean Autonomous Prefecture, 15,000 square kilometers of North Hamgyong
Province close to the Tumen River in North Korea and 10,000 square kilometers in the southern
part of Vladivostok, Russia.

By the end of 1995, the UNDP organized six PMC meetings and conferences of experts. It
also carried out various planning and research programs. In December 1995, at the sixth PMC
meeting, China, North Korea, and Russia signed Agreements on the Establishment of the
Coordination Committee for Tumen River Area Development; the aforementioned three
countries plus Mongolia and South Korea also signed the Memorandum of Understanding on
Environmental Problems Relating to the Tumen River Economic Development Area and
Northeast Asia and Agreements on the Establishment of the Consultative Commission for the
Development of the Tumen River Economic Development Area and Northeast Asia.

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These two agreements and the memorandum of understanding, which call for a change in
cooperation progress from research to actual development as the major task, are the milestone
in the international cooperation progress. According to these three documents, China,
Mongolia, North Korea, Russia and South Korea established a Consultative Commission for the
Development of the Tumen River Economic Development Area and Northeast Asia, which is in
charge of the cooperation between the five countries and sustainable development. The three
countries along the Tumen River---China, Russia and North Korea formed the Coordination
Committee for Tumen River Area Development, which mainly deals with economic development
affairs, especially the promotion of trade and investment. The UNDP also set up the Tumen
Secretariat in Beijing. From then on, the project started its operations and regional economic
cooperation entered a phase of substantive development.

Achievements of the Tumen River Area Regional Cooperation: TRADP is an international

medium- and long-term project. In line with UNDP's planning, this program will take at least 20
years from start-up to trade and investment liberalization, so the implementation of this program
will be phased over 20 years. TRADP received active responses from neighboring countries.
They took many concrete measures respectively in a bid to promote international cooperation.

TRADP was greatly valued and strongly supported

by the Chinese government since its deliberation.
As far as China is concerned, the development of
Tumen River Area is conducted with Hunchun as the
key and Yanbian Prefecture as the hinterland.
Through adopting a series of measures, the
construction of Tumen River Area has achieved
substantive progress. First, by signing agreements
on harbor-sharing with Russia and North Korea and
reaching agreements on opening sea-, air- and land-
coordinated transport routes for goods and
passengers, China has tentatively attained the goal
of going overseas via rented harbors in this area (China has a 50 year lease agreement with
North Korea for the use of Rajin [Najin] port). Second, as a state-level development zone, the
infrastructure construction of Hunchun Border Economic Cooperation Zone is improving day by
day. Noticeable results have been achieved in business and investments attraction; the total

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supply and demand has constantly expanded. Since the development program was
implemented, Hunchun conducted energy, transport, telecommunications network and other
infrastructure construction, whereby its investment environment has greatly improved. Lastly,
with the development of the Tumen River Delta, foreign trade and border tourism in the Tumen
River area are flourishing. Apart from the border trade with Russia and North Korea, the
volume of spot and transit trade with Japan and South Korea has increased constantly; the
trend of tourism development at Mount Baektu and the Hunchun area is also very vigorous.

Besides China, other countries concerned adopted a fairly active attitude toward the Tumen
River Area Development. To participate in the development of the Tumen River Area, North
Korea established a free trade zone in the Rajin-Sonbong area, now called Rason, which lies in
the lower reaches of Tumen River adjacent to China. This free trade zone is directly under the
administration of North Korea's central government and Chongjin, Rajin, Sonbong and other
harbors are opened to the outside world. Furthermore,
North Korea's government drew up an overall plan, laid
down various rules and regulations and formulated a
series of preferential policy for departure, exit, taxation,
land use, foreign investment and tariff. Moreover, North
Korean government has been increasing investment in
this area in order to strengthen the construction of railway,
highway, harbor, telecommunications network and other
infrastructure construction.

Russia, which seems less

enthusiastic than the other
governments about the
project, still seems interested
by the prospects of solving
one of its oldest problems:
how to finance and build the
infrastructure and technology
base to get Siberia's vast
mineral riches out of the
ground and to the global

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market. It drew up the Great Vladivostok Plan and a development plan for its Primorsky
Territory, ratified the establishment of Nakhodka and Vladivostok free economic zones and
opened harbors such as Vladivostok, Nakhodka, Zarubino and Posyet (Pos’et).

In order to step onto the world arena via the East Sea (Sea of Japan), Mongolia also took an
active attitude toward Northeast Asian cooperation. Mongolia plans to export raw materials
and other products via the proposed Tumen harbor. In recent years, to participate in the
TRADP, Mongolia has put forward measures of improving its eastern railway network.

In South Korea, where natural resources are in short supply, there is growing interest in
developing the mineral and energy resources of the Russian Far East. Also, with South
Korean labor-intensive industries facing severe manpower shortages, there is a coinciding
interest in transferring equipment, technology and funds to China and North Korea.

Birth of the Greater Tumen Initiative: In 2005, the member states of TRADP signed the
Changchun Agreement which validated TRADP’s direction and confirmed the desire for
continued regional cooperation. The member states of TRADP agreed to extend the period of
cooperation for ten more years (2015) and to take full ownership of the program through
increased contribution of financial and human resources, with the continued support of the
UNDP. The result was TRADP’s successor, the Greater Tumen Initiative (GTI), which called for
continued regional interaction, more cooperative projects in the region, and intensifying efforts to
involve the private sector in development issues.

Major GTI-related Activity 2005 - 2010:

 November 2005: City of Hunchun, China signs an agreement to develop the Port of Rajin
and secures the lease to use the port for 50 years.

 March 2006: China-North Korea Joint Development Project launched in earnest. The Joint
Development Project includes remodeling Quay No. 3 and building three additional quays (4,
5, and 6) – Rajin Port currently consists of three quays.

 October 2007: South Korea planned on discussing with North Korea development of the
Rajin Port with short- and medium-term investments of W150 billion, but the plan was

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delayed (most likely all but scrapped) due to the changes in the South Korean administration
and its new North Korea policies.

 October 2008: Russia and North Korea began reconstruction of a railroad from Russia's
Khasan to North Korea's Port of Rajin, a project estimated at 150 million euros (207 million
USD).

 August 2009: China approved development of Changchun-Jilin-Tumen River Pilot Zone

(reported in open media in November 2009).

 January 2010: Open media reported North Korea and China agreed to repair the railway
linking the City of Tumen with North Korea's Port of Chongjin. The source, requesting not
to be named due to the sensitivity of the issue, added Tumen would lend Pyongyang 10
million USD, which will partly fund the restoration of the 170-kilometer-long railroad.
Construction is reportedly due to begin in April this year.

 January 2010: North Korea announced establishment of a state development bank that will
be responsible for managing the investments from international financial organizations and
commercial banks.

Problems Associated with GTI: What has propelled the Tumen River dream along for the past
few years, besides the sheer determination of its promoters, are the rapid changes in the
political economic climate in Northeast Asia. China, Russia and North Korea are all keenly
aware of the vast natural wealth of the area that many consider the world’s last land resource
frontier. The hinterland beyond the Tumen contains rich reserves of oil, minerals, coal, timber,
and abundant farmland. These resources were the cause of hundreds of years of fierce and
bloody competition among Japan, China and Russia. The area around the Tumen Delta itself,
with an abundance of fresh water and cheap, flat land seems an ideal base from which to
exploit these riches. Cooperative development, unthinkable in the past, has become
conceivable since the new found development zeal of China, Russia and North Korea. The
enormous potential of the regional market also has played a significant role in the development
of the area. The regional market encompasses nearly 300 million people, has a collective GNP
of almost 3 trillion USD, and accounts for nearly one-third of world trade.

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Although great progress has been made in recent years, political differences among the players
dampen widespread enthusiasm over the success of the Tumen River project. North and
South Korea are still at loggerheads over some fundamental issues and relations between the
two remain unstable. At the same time, North Korea, while expressing keen interest in
developing its side of the Tumen River into a special economic zone, has voiced objection to
any economic activity which would imply a surrender of sovereignty over its territory. North
Korea also fears economic and political domination by China over the project and consequently
over other parts of North Korea’s internal development. Another major potential problem is the
lack of agreement on the overall goals of the Tumen River development.

The Tumen River Program has not gained very much interest in the US for several reasons.
First, the location of the project is quite unusual. North Korea has expanded its economic zone
hoping for promote investment, but without US participation, investment in the region is moving
slowly. Second, US investors are not able to invest in the North Korean region according to US
law. The restrictions not only limit US investors, but also the recent tensions with North Korea's
nuclear weapons create tension and unstable environment for investment. Investors are more
likely to invest in a worry-free area where they do not have to contend with the instability of the
country.
In Russia, while the Tumen River Program would be economically beneficial, many other
diplomatic issues are demanding government leaders’ attention. Furthermore, Moscow is the
main mecca for political activity, and Russia is not as active in the Tumen River area, so it has
not gained much attention. According to Matthew Nimetz, former special counsel to the UN for
the Tumen River Program, railways are currently being built, but the development is not heavily
publicized.

In short, the development projects of the Tumen River basin for Northeast Asian economies has
been described as economically very attractive and yet extremely complicated politically. Until
the region's political walls are broken down, the Tumen area seems destined to have a hard
time luring capital and multilateral cooperation. The biggest barrier is North Korea and its
intransigence regarding the nuclear issue and other agreements. Pyongyang claims to want
foreign investment, but only on its terms. Only the South Koreans seem willing to pay the price,
but the on-off relations between the two Koreas and the instability of the nuclear face-off have
blocked investments for now.

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Outlook for North Korea: Development of Tumen River area and North Korea’s participation in
this project means inflow of hard foreign currency, improvements in infrastructure and possible
increase in its industrial capacity. North Korea, with its bleak economy, therefore, will continue
to support the development of Tumen River area and most likely increase its future involvement
in the project (more than likely via additional joint projects with China and Russia in short- and
mid-term) as it seeks to break the economic isolation and hardship it has suffered since the
collapse of most of its communist allies and the implementation of international sanctions.

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