KIC was established in accordance with an agreement reached during the June inter-Korean summit and remains one of the few symbols of inter-Korean cooperation. It offered an opportunity for North Koreans to see the subversive reality of an alternative economic system; this was in turn expected to encourage reform and opening.
South Korea has supplied electricity, water and waste-water treatment, heating oil, construction materials, and components and material inputs for the manufactures. The only things North Korea has supplied are the land and labour.
Given that the North succeeded in sealing off KIC, why would the Pyongyang leadership now risk losing it? There are two possibilities, neither of which is reassuring for the future of the Korean peninsula. Risking something valuable is not irrational when used to signal the importance of what is at stake in a coercive bargaining game. The closing of KIC could be an indicator of how high Pyongyang really believes the stakes are in its confrontation with the rest of the world over possession of nuclear weapons.
The second possible reason could be internal regime stability. This would be even more ominous than the external coercive bargaining outlined above. All dictators must provide material incentives to build and maintain a coalition of supporters if they wish to remain in power. Kim Jong-un has been playing the dictator game by providing material rewards and rent-seeking opportunities over the last year; reports have circulated about property rights being wrested from the old guard and provided to the next generation of Kim supporters in a classic round of purges.
The North Korean leadership could be planning to expropriate KIC from South Korean firms and transfer the factories to a North Korean entity, providing new spoils for Kim to distribute to his loyalists. This second possibility is actually the more worrying one. In bargaining over nuclear weapons with the international community, Pyongyang would have an easier time backing down once the game runs its course. But if Pyongyang is expropriating KIC to maintain regime cohesion, it could be a sign that the leadership is taking a very risky move to head off potential internal instability.
