North Korea’s special economic zones show perils of change
Experts torn on whether North Korean leaders truly willing to expand foreign investment potential
RAJIN, North Korea—Many of the ways in which this dusty, windswept area differs from most of North Korea are easiest to see at night.
Although there are traffic lights in other cities, the ones in Rason actually light up.
The avenues are broad and paved, and along the main street, colourful, decorative lights outline the edges of buildings.
Foreign-owned or funded industries and businesses including a casino—one of only two in the whole country—have helped create an oasis of light in an otherwise inky black and largely empty countryside.
This special economic zone, some two decades old, is intended to be a petri dish of capitalism, and North Korea’s leaders plan to expand the experiment all over the country.
It isn’t the only one of its kind in North Korea, but it’s the oldest, most vibrant and, experts say, the most promising.
Last month, North Korea announced plans to create economic zones in every province.
The North also recently laid out new laws to facilitate foreign tourism and investment.
The laws provide investors with special incentives and guarantees, while giving local leaders greater autonomy to promote themselves and handle business decisions.
But it’s unclear how far Pyongyang is willing to go.
The North has shown no willingness to abandon its nuclear weapons program to get out from under international trade sanctions.
And the announcement that Jang Song Thaek, the country’s No. 2 leader and reportedly a supporter of Chinese-style economic reforms, has been purged for corruption adds uncertainty to its intentions.
A look at Rason suggests that, even with top-level support for the zone experiment, it is not so desperate to revive its moribund economy that it will risk major changes that might jeopardize the political status quo.
Officials allowed The Associated Press to visit the zone but denied access to some areas, including what might be the front line of North Korean grassroots capitalism: a bustling public bazaar where small-time entrepreneurs rent stalls from the government to hawk their wares in a decidedly free-market style.
In appearance, Rason remains in every way an outpost city—albeit one that is better off than most in the North.
Its showcase enterprises—the Sonbong Textile Factory, a seafood processing plant, a sprawling but seemingly yet-to-open chemical production complex—are hardly cutting-edge or transformative.
In room after room at the textile factory, row upon row of workers, almost all of them women, toil silently at sewing machines below plastic sunflowers and big blue posters that say simply, “Without a Rest.”
No words are spoken.
Rarely is an eye raised from the task at hand.
This year, the factory will produce one million pieces of clothing, twice its output just five years ago, said Pak Mi Kum, a no-nonsense woman who worked for 10 years as a seamstress before becoming manager.
Chinese contractors supply the raw materials, then take the finished goods home for sale or export, tagged “Made in China.”
“It’s hard work. So hard the Chinese don’t want to do it anymore,” Pak said. “But our workers do it for the country. They are efficient, cheap and they work hard.”
The Rason SEZ combines two small cities—Rajin and Sonbong—just a short hop from the Chinese and Russian borders.
It’s been around since the early 1990s, when international relations appeared to be improving slightly, but they have since sputtered over North Korea’s nuclear program.
Rason now hosts 150 foreign companies from 20 countries.
Experts say North Korea’s lack of commitment to establishing a legal framework and financial guarantees has discouraged more investment.
Some signs of foreign interest are easy to spot.
A Russian restaurant called New World opened in June, though cook Luboby Ebseyebna said the number of Russians has dropped dramatically since the completion of a railroad project in September.
Farther out along the coast sits the revamped five-star Emperor Hotel and casino, replete with blackjack tables, karaoke and massage rooms.
Hong Kong money is behind that one, and it is generally populated by Chinese gamblers.
But that isn’t the Rason officials want the world to see.
Requests to go inside the Emperor are denied.
Instead, they offer a grand, optimistic spiel in the conference room of the Pipa Tourist Hotel.
It begins with a short video presentation after Kim Yong Nam, the first vice-chairman of the Rason Economic and Trade Zone Administrative Committee, and Kim Hyong Pil, head of the Rason Investment Service Office, take their seats in large, overstuffed armchairs.
The video, shown in English on a large flat-screen TV, touts Rason’s port and rugged but scenic seashore.
It has a number to call at the end, although vice-chairman Kim acknowledges the number probably won’t work for international callers because North Korea tightly restricts outside communications.
Undaunted, he launches into his vision.
“Through Rason port we can reach any port in the world,” he says proudly. “We would like to develop Rason to be like the port of Singapore.”
He points to the completion of a railway linking the zone to the Russian town of Khasan.
A new bridge is going up over the border to China at Wonjong.
Rason’s port, he continues, can handle three million tons of cargo a year, which will go up to 20 million by 2020 and 100 million by 2030.
He predicts Rason’s population, now about 200,000, will more than quintuple in 20 years.
Like most of North Korea, Rason has a chronic shortage of energy.
But Kim says Chinese electricity and Russian coal should be coming soon.
His sales pitch concludes with what he sees as Rason’s—and North Korea’s—real ace in the hole: Labor is cheap, reliable and literate.
Crime is not an issue.
“Ours is the most stable country in the world,” he says. “The situation in our country is very safe and comfortable. More than you think. If you find any foreign investors, please ask them to come in. We will welcome them.”
North Korea has established the Korea Economic Development Association to provide information and advice to would-be investors.
It held a rare international symposium in Pyongyang last month to share ideas with experts and academics.
The success of the plan hinges on China, and there are reasons to believe Beijing wants to help.
China has begun an ambitious effort to develop its relatively poor northeastern provinces.
Using Rason more could reduce transport costs for exports and consumer goods headed down the Chinese coast.
Economic involvement in Rason has the added bonus for China of strengthening its influence over North Korea and—the Chinese hope—improving stability.
The purge of Jang, leader Kim Jong Un’s uncle, could have a chilling effect on the zones, since he had close ties to China and was seen as a moderate who supported the zoning concept.
In announcing his removal, the party slammed him for being overly influenced by capitalist ideas and “doing enormous harm to the efforts to build a thriving nation and improve the standard of people’s living.”
North Korea’s push to create more zones also comes as its Kaesong Industrial Complex, which opened in 2004 with heavy investment from Seoul, is still struggling back to life after the North pulled out all 53,000 of its workers for months over what it called political and military provocations.
The two sides agreed to reopen the park in September.
For investors from most of the global economy, including the United States and Japan, North Korea’s nuclear program could doom the zones from the start.
Connie Carter, a professor of law and international business at Royal Roads University in Victoria, B.C., who attended last month’s economic symposium, said that while special economic zones could be “powerful and potentially useful,” North Korea shows no sign of enacting the kind of broad reforms that have generated growth in countries such as China, Myanmar and Vietnam.
“I’m afraid that rather than being the golden goose, in its current form, the DPRK’s special economic zone idea might turn out to be a dead duck,” she said.
Mitsuhiro Mimura, a senior fellow at the Economic Research Institute of Northeast Asia, said the proposal for the zones reflects Pyongyang’s desire to appear in control of changes that are already well underway, including the expansion of trade with China along the border and the spread of marketplaces like the one in Rason where people can buy food and other goods to augment what the government gives them.
Mimura said he expects Jang’s purge to cause no more than short-term hiccups.
He said he believes the North’s leaders know they must improve quality of life and the efficiency of their centralized, command economy, but also fear that the creation of more wealth and a middle class could spawn demands for freedom.
“It’s a very dangerous gamble for the leadership,” he said. “They need to figure out how to hit the brakes if they need to. How will they lead if the market system succeeds?”