Dandong moves to curb potential home price surge amid speculation of economic boom

North Korean houses pictured from Dandong on the Chinese border. Photo: Simon Song

Fears of citizens in the northeastern Chinese city of Dandong bordering North Korea about effects of Pyongyang's nuclear tests have faded away after the Panmunjom Declaration which set the denuclearization of the Korean Peninsula as a goal. But now, they have a new worry: the home prices pushed up by speculators betting that Kim Jong-un's pledge of implementing economic reforms could bring prosperity to the border region.

Since Kim called for "concentrating an all-out effort on socialist economic construction" and his historic meeting in April with South Korean President Moon Jae-in that produced the peace and denuclearization-focused Panmunjom Declaration, the prices of residential properties in Dandong have seen a big jump, with the prices in the Dandong New District, an area that is built to promote border trade and economic exchanges between China and North Korea, seeing a prodigious 20 percent growth in May, showed statistics released by the official WeChat account of the Dandong municipal Party committee.

The home price hike in Dandong, which accounts for nearly 70 percent of China's trade with North Korea, is largely considered by domestic media as a result of the influx of property speculators mainly from bigger Chinese cities, who believe that the thawing of the relations between the two Koreas would enhance the economic status of the border city, which ranked ninth among 14 prefecture-level cities of Liaoning province in terms of gross domestic product in 2017.

The strong interest of property speculators in Dandong has brought the lesser-known Dandong New District, dubbed as "ghost city" because of its low residency rate and lack of infrastructure, into public vision, with some local people predicting that the prosperity of the Dandong New District would depend on the situation of the Korean Peninsula and whether the New Yalu River Bridge would be open to traffic soon.

The opening of the Bridge which connects the Dandong New District and the North Korean border city of Sinuiju was scheduled to take place in October 2014, but was delayed due to the cooling of the China-North Korea relations back then.

In order to curb a potential buying spree of residential properties in Dandong, like those in the Xiongan New Area and Hainan province after the two regions were identified as areas for increased investment and development by the Chinese government, the city's government last week released a purchase limitation policy for the Dandong New District, which bans non-local residents from re-selling newly built residential properties within two years of purchase. The policy, which is aimed at preventing real estate speculation, also requires buyers to pay down payment of at least 50 percent if they apply for loans through housing provident fund outside Dandong.

The confidence in the real estate market of Dandong has given birth to a public belief that the Chinese border city would become a "Shenzhen" in China's rust belt, referring to the country's northeastern part, amid speculations that a certain city in the region, possibly Dandong, would be picked as a new pilot special economic zone especially after the Chinese government announced plans to set up a pilot free trade zone in the southernmost island of Hainan in April.

Shenzhen spearheaded China's initiative to opening up to the outside world in the 1980s with its position as a special economic zone.

As early as 2010, Zhao Liansheng, the then mayor of Dandong, boasted in an interview with china.com.cn, a state-owned news portal, that "building Dandong into a second Shenzhen is well in sight". At the time, Zhao pinned a high hope on the New Yalu River Bridge, which he described as a new driving force for Liaoning province's efforts to deepen opening-up.

Some experts, however, have thrown a damp over the confidence reignited by the looming détente between Pyongyang and Seoul and Kim's commitment to economic reforms.

Ye Tan, a veteran financial commentator, likened the home price rise in Dandong to a short-term hype, saying that the idle capital has to seek a destination for returns after Hainan province placed tougher restrictions on property purchases in April, according to a report released on jiemian.com, a news provider in China.

In terms of aiding the growth of Dandong, North Korea cannot be compared with market-oriented Hong Kong and Macau, which are adjacent to Shenzhen and have played a vital role in promoting the development of the Shenzhen Special Economic Zone established in 1980, said Ye.

Seeing no real progress in North Korea's previous push for economic modernization, some international observers have said that the Kim regime does not take opening-up as seriously as outsiders expect, with some even thinking that its previous economic attempts were just a tool that the regime used to sustain its dictatorship.

In 2016, North Korea ordered a permanent shutdown of the Kaesong Industry Park, a joint North-South industrial complex, and incorporated it into the military control area, after South Korean protest against its missile and nuclear tests, leading to a loss of 50,000 South Korean jobs.

North Korea's political capriciousness is another variable that will affect Dandong's economic prospects.

Looking at it historically, North Korea has intermittently played fast and loose with China, which is described by Western media as a firm backer of Pyongyang. The escalation of North Korea's nuclear provocations irritated China in 2017, when Beijing changed its long-held stance by agreeing to participate in the United Nations' economic sanctions on Pyongyang. The sanctions, led by Washington, resulted in a sharp slump in China's imports from North Korea. North Korea sees Chinese imports as its biggest revenue stream.

And in the latest twist, US President Donald Trump has cancelled the planned summit with Kim largely due to North Korea's bravado of reconsidering the meeting and its angry words in the statements targeting a joint military drill conducted by the United States and South Korea.

But the hope for peace on the Korean Peninsula has not been stamped out with the softened rhetoric in a North Korean statement, in which Vice Foreign Minister Kim Kye-gwan said that his country is still willing to sit down for talks with the United States "at any time, at any format", in response to Trump's cancellation of the summit. And that might be a hope for the property speculators who are bullish on Dandong's economic future.

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