The Enlightened Leader of Asia?

In January, North Korean leader Kim Jong-Un hastily rode in his armored train to Beijing for a summit with Chinese leader Xi Jinping.

After six years of ex-communication, Xi has finally warmed up to Kim, conveniently at the time when the US and South Korea are actively seeking more normalized relations with the estranged regime.

As a road to peace and the resulting prosperity is becoming more clear, including denuclearization agreements in exchange for economic aid and the removal of various sanctions, it is worthwhile to explore the future of North Korea if they were to adopt China’s economic model.

The Turn-Around King


North Korea is currently one of the poorest and least developed countries in the world.

Unlike his father and grandfather, the Western-educated Kim Jong Un has a different outlook and goals for his country.

Since a young age, Kim was enamored with Western cultures, including his love of American sports and celebrities including Dennis Rodman and Jean-Claude Van Damme.

With an education in Switzerland, Kim gained an exposure to the West, a break from the local education earned by his predecessors.

Kim is like Peter the Great who brought European cultures and sophistications to the then-backward nation of Russia, lifting the country to a new era of greatness.

At 18 years-old, the young prince shared his personal ambitions with a personal chef of his father’s regime:

“We are here, playing basketball, riding horses, riding jet skis, having fun together. But what of the lives of the average people?”

Singapore had Lee Kuan Yew, China had Deng Xiaoping. North Korea could have Enlightened leader Kim Jong-Un.

China Ambition

As North Korea’s closest economic and political ally, China has been the hermit kingdom’s largest trading partner. Partially due to the numerous economic sanctions placed upon them, North Korea is increasingly reliant on China as its trading partner.

While China is not a fan of North Korea’s nuclear ambition, Trump and Moon’s initiative with Kim Jong Un has potentially opened an opportunity to create long-lasting stability in the region.

A prosperous and open North Korea is far more welcome for China than an isolated and nuclear armed nation. Hostility between the Koreas have given the US justification to station 30,000 troops, as well as continued naval and air power projection, only a few hours flight from the Chinese border.

So, getting North Korea to denuclearize and develop economically is a matter of Chinese national security.

As North Korea agrees to denuclearize in exchange for economic aid and sanction relief, China will be poised to escalate investment and cross-national business due to political and economic histories between the two countries.

North Korea’s Secret Blueprint


Most Asian economies follow a blueprint of development that I have discussed in our previous messages, called the Asia Capital Development Model (ACD) '

As China has been successful in their implementation of economic transitions in land reform -> agriculture -> manufacturing -> services, Kim Jong Un will undoubtedly try to copy the former communist country’s success.

That is, North Korea’s secret blueprint.

North Korea will implement land policy reforms and direct its state-controlled banks to inject massive amount of debts into strategic sectors including construction, agriculture, and industrial; all which are vital to the development of emerging economies.

As they have done many times before, the Chinese government will direct its banks to lend cheap credits to a group of selected Chinese corporations, who will in turn use these newly raised debts to pour money into North Korea’s massively underdeveloped infrastructure and other large-scale construction opportunities. This is a vital step in jump-starting an ailing economy.

Hence, China Railway Group (SSE: 601390), China Communications Construction Company (SSE: 601800) and Sinohydro Group (SSE: 601669) are a few construction companies who will likely benefit from these new infrastructure plans

Furthermore, South Korean firms like GS25 (KRX: 007070), a convenience store brand, will benefit from North Korean’s new purchasing power created from higher wages and better jobs as foreign companies enter North Korean looking for cheap laborers.

These are just a few examples of how the North Korean transformation will take place using the ACD model as a guidance to project future events.

The Bottom Line

As a second Trump-Kim summit is rumored to take place in Vietnam, it is possible that peace on the Korean peninsula will be finally achieved, ending the cycle of Korean sunshine periods.

If sanctions are lifted, there is a strong chance of Kim Jong Un following China and South Korea’s history of economic development, as both historical and economic ties between the nations provide the framework for by Kim to elevate his country. In this case, we will likely see rise of debt from companies belonging specific sectors like industrials, manufacturing and agriculture in neighboring China and South Korea as they begin investing in North Korea.

We will continue tracking US-North Korean relations in the future and get back to you with new and unique insights that you may use to enhance your portfolio.

Peter Pham