The International Herald Tribune October 12, 2011
Wednesday
BY EDWARD WONG
A whiff of
capitalism in N. Korea; China taps remote spots in a country opening up to
foreign investment
A main thrust of the government's strategy is to jump-start several "free trade and economic zones" (Rason) on the country's borders that have languished economically.
A seaside casino resort developed by a Hong Kong company picks Chinese officials and businesspeople up from the nearby border in a red Humvee.
A Chinese construction company is expanding a covered bazaar where North Korean entrepreneurs sell Chinese-made goods to their compatriots at market prices, a sign of nascent capitalism. Trucks bring coal from mines in northeastern China to a pier leased by the Chinese where the coal is then shipped to Shanghai, while a Russian company is leasing another pier.
Those are the just some of the seeds of foreign enterprise in this remote northern port town that North Korean officials are seeking to nurture into full-bloom economic growth. Grappling with an economy that has stagnated from decades of Communist central planning, North Korean leaders are slowly opening the doors of their isolated nation to foreign investment.
A main thrust of their strategy is to jump-start several ''free trade and economic zones'' on the country's borders that have languished. Here, about 50 kilometers, or 30 miles, from China, the twin towns of Rajin and Sonbong, called Rason, are at the vanguard of the new push. Since designating Rason a special zone in 1991, North Korean officials have occasionally tried to attract investment to it, but the results have been lackluster.
Some foreign analysts and businesspeople are skeptical about the current efforts, saying that the country's investment climate remains too unstable. But others argue that North Korea could be establishing here the kind of laboratory that the Chinese Communist Party set up in the fishing village of Shenzhen in 1980 to help move China toward a quasi-market economy.
Foreign journalists got a rare glimpse of Rason when they accompanied Chinese businesspeople on a recent investment tour. The area is an unlikely place for a boomtown. It takes three hours to drive to on a rutted dirt road from the Chinese border. In the surrounding countryside, green with cornfields and pine trees, men ride horses and drive oxcarts while women dry cuttlefish on rooftops. The area, home to 200,000 people, suffers from power blackouts. In the town center, people ride bicycles on dirt tracks. There are few cars, stores or restaurants.
But Rason has a port that remains ice-free the entire year, a rarity in Northeast Asia, and officials here see shipping as one of the pillars of economic growth, along with seafood processing and tourism. They say they also want foreign-run assembly plants and high-tech factories. The monthly minimum wage for such enterprises would be the equivalent of $80 per worker, lower than in China, officials say.
Another incentive is tax breaks. And Hwang Chol-nam, the vice mayor in charge of economic development, said that this was the only place in North Korea where enterprises could be fully foreign owned.
''The Rason government will do its best to provide favorable conditions for investment,'' Mr. Hwang said. ''Please tell the world.''
North Korean leaders have begun executing a 10-year development plan that aims for rapid economic growth through 2020. The central question is whether the ideologies of the country's leader, Kim Jong-il, and senior officials in the ruling Korean Workers' Party will allow the changes necessary to spur that growth. Some analysts say Mr. Kim's visit to Rason in December 2009 was a signal that this town, at least, should embrace experimentation.
More than any other country, North Korea runs on a command economy with limited input from market forces. Misguided policies led to mass starvation that killed millions in the 1990s, and a currency revaluation in 2009 wiped out savings. The nation's per capita gross domestic product is one of the world's lowest.
The country has also been hit by sanctions from the United Nations aimed at forcing Mr. Kim to abandon his nuclear weapons program. And South Korea, which was an important aid and trading partner throughout much of the last decade, has taken a hard line on North Korea since 2008, because of domestic politics there and violence by the North Korean military.
So Pyongyang is casting about for new sources of investment. The powerful National Defense Commission recently created both the State Development Bank and the Taepung International Investment Group, which is charged with, among other things, bringing in foreign investment. Park Chol-su, an ethnic Korean with Chinese citizenship, has top positions in both organizations.
Mr. Park has an office in Beijing and led the recent tour to Rason as well as a visit to the nature park of Mount Kumgang aboard a dilapidated cruise ship. ''It's the market that directs national development,'' Mr. Park said. ''We operate according to market economic principles.''
Mr. Park said North Korea welcomed investment from all countries, including the United States, but was looking closely at China, its longtime ally, because ''China has successfully opened and reformed. At this point, China has ample experience, so it's easier for Chinese enterprises to participate in the North Korean market.''
Some analysts ask how much the development push will help the people of Rason and how much of it will fill the coffers of Pyongyang. Bradley Babson, a former World Bank consultant who studies North Korea, said the leaders were putting ''a high priority and a high profile'' on the economic zones near China in order to ''re-establish central control over the significant potential for trade with China.''
Mr. Kim, the North Korean leader, has visited China four times since 2010. In June, Pyongyang approved a 50-year lease by China on two islands in the economic zone of Sinuiju, across the Yalu River from the Chinese city of Dandong. Mr. Hwang said North Korean officials had met with Chinese policy makers to get advice on writing a new investment law for the economic zones. Chinese businesspeople and other foreigners attended a trade fair in Rason in August.
A Chinese company that has been critical to Rason's development is Yanbian Tianyu International Trade, which got involved in the town 13 years ago. It began by erecting the covered bazaar, and went on to build the casino resort run by the Emperor Group, a hospital and adjoining bread factory, and a telecommunications building. It is now working on a cement factory and also has two iron mines in the country.
''The policy environment has been improving continuously,'' said Zheng Zhexi, 58, the company's vice president. ''It's moving toward a market economy.''
One example he pointed to is official tolerance of the sprawling bazaar. There, ordinary people rent stalls from the government to sell goods that they buy from Chinese traders. Prices fluctuate according to the market, and people haggle. The bazaar has proven so successful that Tianyu has been contracted to expand it to 30,000 square meters, or 320,000 square feet - six times its current size.
Such markets have sprung up all over North Korea because people cannot survive solely on subsidized rations from government food centers. Foreign journalists were allowed a 15-minute tour of the Rason market on the condition that they not bring in cameras or pull out notebooks.
The market, open just a few hours each day, was bustling, selling skinned rabbits and sofas, as well as Sony-brand headphones and Dell-brand computer mice. A soldier with a Kalashnikov slung over his back walked among the aisles, looking to buy. Women running stalls wore red vests, a sign they were officially registered.
In one corner was an office with the English words ''Foreign Exchange'' above the door. In Rason, currency is exchanged at the market rate - 1 Chinese renminbi to 350 North Korean won - rather than at the official rate, which values 1 renminbi at 15 won.
For Rason to really attract foreign investment, it has to solve the ''urgent problem'' of infrastructure, Mr. Hwang said. A Chinese company is building a paved road from the Chinese border that is expected to be completed by November. The town also plans to buy electricity from China and build a coal-fired power plant. Mr. Hwang said officials had signed a contract with a Thai company, the Roxley Group, to establish regular cellphone and Internet service in Rason, and had gotten agreements from the North Korean border guards not to confiscate foreigners' cellphones.
The Peterson Institute for International Economics, based in Washington, recently published conclusions from a 2007 survey of 250 Chinese companies doing business in North Korea. The authors found that while nearly 90 percent were profitable, the companies ''generally have a negative assessment of the business environment'' for reasons like poor infrastructure and lack of rule of law. Most Chinese companies sought to limit their activities to trade and export.
''In the future, of course I want to come here to invest,'' said Wang Zhijun, a Chinese businessman. ''For now, the conditions are not yet mature.''
