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Filling North Korea’s bare shelves

Wednesday, January 10th, 2007

Asia Times
1/10/2007
Ting-I Tsai

North Korea’s nuclear test has been a hot topic among analysts around the world. But inside the isolated Stalinist state, getting a hold of a pair of running shoes, a bicycle or a television set is still what most excites ordinary citizens.

And Chinese businesses continue to cash in on these material desires by selling goods manufactured at home or in North Korea at prices higher than their quality justifies, sparking much criticism.

When Pyongyang publicized its intention to initiate economic reforms in July 2002, most people had doubts about how far the policy would be taken. Four years later, the regime is still struggling to implement its reforms, but it has at least partly satisfied some of the daily demands of citizens by allowing more Chinese products to be manufactured in North Korea and more Chinese goods to be imported.

Shoes, bicycles, TV sets, beverages and clothes made in China or by Chinese companies in North Korea are helping to satisfy demand, but some disreputable Chinese companies are ruining their country’s reputation by dumping factory seconds and damaged goods on the market.

Over decades of isolation, North Koreans have been suffering not just from food shortages, but from a scarcity of basic consumer goods. In past years, Pyongyang has reportedly asked the South Korean government to donate thousands of tons of soap and clothes, as well as material for the production of 60 million pairs of shoes. In a visit to Pyongyang in November, products such as Colgate toothbrushes, toothpaste and a Japanese facial cleaner were carefully displayed in glass cases bearing price tags equivalent to US$2.60-$5.90, well beyond the financial reach of all but a few North Koreans.

After years of studying China’s experiences, Pyongyang is now gearing up to solicit foreign investment and advanced technologies to modernize its decades-old manufacturing base.

Supply and demand
“Because the supply can’t satisfy the demand, prices of most of the Chinese products simply soar in the North Korean market,” said Su Xiangzhong, chairman of a Tianjin company that founded a beverage-manufacturing joint venture, Lungjin, with a North Korean.

Trade between the two countries increased by 35.4% in 2004, followed by a 35.2% increase in 2005. By the end of October 2006, bilateral trade had reached $1.38 billion, a 4% increase over 2005.

Beijing-based Winner International Industries Ltd was one of the Chinese companies that foresaw North Korea’s consumption potential in 2000. By then, the company had co-founded a joint-venture running-shoe and clothing-manufacturing presence in North Korea. With advanced machinery from Taiwan, its shoe-manufacturing division is now capable of producing 8 million pairs of running shoes, according to an official from the company, who declined to identify himself. The clothing-manufacturing division, he said, has been a supplier to South Korean and Japanese companies. However, he added that orders from the two countries had recently decreased for unknown reasons.

Leather shoes for soldiers are of high quality, but they are not available to the average person. In Pyongyang shops catering exclusively to foreigners, a pair of leather shoes could cost as much as $326. The North Korean government is still soliciting foreign investment and purchasing shoemaking equipment via Chinese companies.

To get around in a country with underdeveloped public transportation, getting a pair of shoes is not enough. Taking advantage of that situation, Tianjin’s Digital Co started making bicycles in Pyongyang in October 2005, after the North Koreans agreed to let the Chinese take a 51% controlling share in the joint venture, virtually a monopoly, for 20 years.

It is estimated that the nation’s demand for bicycles is about 7 million, according to the Chinese media. The company now manufactures some 40 models and 60,000 bicycles annually, with the most popular model costing $26. In coming years, it plans to produce 300,000 bicycles annually and construct another three bicycle plants.

Aside from daily necessities, there are few entertainment options for North Koreans, which means there is a high demand for TV sets. Nanjing Panda, a TV maker, appeared to be the only Chinese company to foresee the emergence of the North Korean market when it invested $1.3 million there in 2002. After four years of operation, its 17-inch black-and-white and 21-inch color TV sets are reportedly the hottest items available in Pyongyang. With Panda products beginning to dominate the local market, it is becoming increasingly difficult for others to import TV sets into North Korea, according to Chinese business people.

The Panda joint venture is now digging up another potential gold mine by manufacturing personal computers (PCs) in North Korea.

In 2003, Chinese non-financial investments in North Korea amounted to just $1.12 million. That total, however, soared to $14.13 million in 2004, and reportedly reached $53.69 million in 2005. According to the Chinese media, there are now about 200 Chinese investment projects operating in North Korea. A Pyongyang-based foreign businessman described the Chinese investors as “by far the largest group by country doing business there, in all kinds of fields – plus they are from one of the few countries with the protection and representation of a big embassy”.

In March 2005, Chinese Premier Wen Jiabao signed an investment-protection agreement with his North Korean counterpart, and the two nations inked five bilateral economic-cooperation agreements between 2002 and 2005.

During North Korean leader Kim Jong-il’s visit to China last January, Wen introduced new economic-cooperation guidelines.

Despite these positive moves, controversy over the role of Chinese businesses has emerged. A Pyongyang-based Western businessman suggested that quite a few disreputable companies “go there with the intention of getting rid of old or damaged goods they can’t sell in China, and rip off North Koreans, who have no way to get their money back”.

“Also, a lot of fake goods come from China,” he added.

Still, more and more Chinese business people are rushing to Pyongyang. Su Xiangzhong, chairman of a Tianjin-based company, noted that his firm is creating a new beverage brand, like China’s Wahaha, in Pyongyang. North Koreans are also very interested in cooperating with Chinese enterprises in manufacturing and mining.

Chinese-made clothes for women and children, low-end and generic-brand household products and sundries, color TVs and PCs are popular products in North Korea.

Li Jingke, a Dandong-based Chinese businessman who runs the China-DPR Korea Small Investor Association, suggested that natural-resource exploitation and manufacturing are the best industries for foreigners to invest in, adding that more investment-friendly policies would likely be introduced in April. By then, he said, Chinese business people might need to become more concerned about unprofessional conduct.

“When North Korea introduces more liberalized policies, competent companies from everywhere will enter the market, which would likely eliminate the existence of those Chinese businessmen who don’t have modern commercial ideas in mind,” Li said.

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Posted in Bicycles, China, International trade, Television, Trade Statistics | Comments Closed

On your bike, Dongjie

Saturday, October 14th, 2006

bikes.jpgThere was a great picture in the New York Times today.  The article was about the politics of a UN trade embargo in response to the nuclear test.  I was disappointed that the article was not about the story of the bikes being exported from Japan.  Who is importing them into the DPRK?  How are the funds transferred?  Is there a title? How are they being distributed in the DPRK?  Who is insuring them?  Who is buying them and where did they get the money?  This would have been a far more interesting article.  

Although stories of counterfitting currency and cigarattes, or exporting missles and drugs dominate news headlines, one story that never gets covered in the media, probably because it is so mundane, is how thousands of traders, motivated by nothing but self-interest and survival, are undertaking significant risks which are easing the hardships of the poor citizens of North Korea.  Will stopping this sort of trade make anyone better off? 

Image caption: Bicycles being loaded Friday onto a North Korean ship in Maizuru, west of Tokyo. A proposed Security Council resolution would restrict cargo. 10/14/2006

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Posted in Bicycles, International trade | Comments Closed

North Korea’s Kim Allows Tentative Stirrings of Profit Motive

Wednesday, December 28th, 2005

Bloomberg
Bradley K. Martin
12/28/2005

A sign of North Korea’s fledgling moves toward a market economy can be found at the Pyongyang monument commemorating the 1945 founding of the Workers’ Party. Beneath a 50-meter-tall rendition of the party’s logo — a hammer, sickle and writing brush — sits a street photographer.

A handmade sign displays her price list and sample photos, mostly of groups of North Korean visitors, with the monument as background.

The photographer is one of countless sidewalk entrepreneurs – – most of them selling food and drink — who have set up shop in North Korea since 2002. Before that, they would have been hauled off to re-education camps for profiteering. In the late 1990s, North Korea’s Civil Law Dictionary described merchants as a class to be eradicated because they “buy goods from producers at a low price and sell them to consumers at a high price by way of fraud, deceit and spoils.”

Since then, the party newspaper, Rodong Shinmun, has quoted Kim Jong Il, who’s held supreme power since the 1994 death of his father, Kim Il Sung, as favoring profits under socialist economic management.

North Korea, one of the world’s last Stalinist regimes, has gradually begun permitting commerce. On a four-day visit to Pyongyang, the capital, in October — arranged and scripted by the government — a group of 17 Western journalists got a glimpse of the changes. Clean, new restaurants were packed with paying customers while the streets — almost empty in 1979 and only lightly traveled in ’89 and ’92 — bustled with bicycles, motorbikes and Japanese sedans.

Casino Pyongyang

In the state-owned Yanggakdo Hotel on an island in the Taedong River, a mostly Chinese clientele played slot machines, cards or roulette at the Casino Pyongyang. Since 1998, Macau billionaire Stanley Ho, through his Sociedade de Turismo e Diversoes de Macau SARL, has invested $30 million in the casino, whose staff is also Chinese.

Now some investors from farther afield are joining pioneering Chinese and South Koreans in plunging into a country once so isolated it was known as the Hermit Kingdom. In September, Anglo- Sino Capital Partners, a London-based fund manager, said it had formed the Chosun Development & Investment Fund, which plans to raise $50 million for investments in North Korea.

“It’s the last virgin economy,” says Colin McAskill, 65, a director of Anglo-Sino and chairman of Koryo Asia Ltd., which is investment adviser to the new fund.

Natural Resources

Besides recent changes in the economic system, a 99 percent literacy rate and a minimum wage for workers in foreign-invested ventures of only $35 a month, McAskill says, he was drawn by North Korea’s rich natural resources — including iron ore, copper, lead, zinc, molybdenum, gold, nickel, manganese, tungsten, anthracite and lignite.

The fund will concentrate on North Korean companies that have been active internationally in the past, with track records as foreign currency earners, says McAskill.

He negotiated on behalf of North Korea with foreign bank creditors in 1987, when the country was unable to repay some $900 million in balance-of-payment loans that had enabled the regime in the 1970s to purchase Western industrial technology — Swiss watch-making machinery, for example — as well as such non-capital goods as 1,000 Volvo sedans from Sweden.

Oil Potential

The country’s petroleum potential lured Dublin-based Aminex Plc and its Korea-focused subsidiary, Korex Ltd., which in August announced the signing of a nine-year production-sharing agreement to explore and develop 66,000 square kilometers (25,000 square miles) of North Korean territory. The agreement covers areas in the Yellow Sea’s West Korea Bay and in the Sea of Japan as well as onshore.

While North Korea lacks proven petroleum reserves, according to the U.S. Energy Information Agency, the West Korea Bay in particular may contain hydrocarbon reserves, as it’s considered to be a geological extension of China’s oil-rich Bohai Bay.

More foreign investment may come, says Tony Michell, a Seoul- based consultant on North Korea. Michell, a 58-year-old Briton, says he has recently shepherded 20 senior managers of international companies, representing seven nationalities, to Pyongyang.

“They’re big players,” says Michell, declining to identify his clients by name or company. “They’re looking at everything, from services to manufacturing. They want to get the measure of the North Koreans and be ready if the six-party talks succeed.”

Six-Party Talks

The so-called six-party talks — between North Korea and China, Japan, Russia, South Korea and the U.S. — are aimed at ending the country’s pursuit of nuclear weapons. In September, the six countries agreed on a statement of principles to govern further talks. It called for a nuclear-free Korean peninsula, a peace treaty and economic cooperation in energy, trade and investment.

Seoul-based Hyundai Research Institute, an affiliate of the Hyundai Group, projected in September that a successful outcome to the talks would be worth as much as $55 billion to the economy in the North — and more than twice that in the South.

Optimism about the economy has boosted the prices of defaulted North Korean debt originally owed to hundreds of creditors, mostly European banks, which in the 1970s began meeting as a London-based ad hoc group to discuss restructuring options. In the 1990s, that so-called London Club turned a portion of the debt into Euroclearable certificates, securities that were denominated in Swiss francs and German marks.

The certificates are trading at about 20-21 percent of face value, up from 12 percent in 2003, according to London-based Exotix Ltd., a unit of Icap Plc, one of a few financial firms that make an over-the-counter market in them.

Excessive Optimism

The debt’s price has risen in the past on excessive optimism about the country’s future. In early 1998, the debt was trading at nearly 60 percent of face value amid rumors that North Korea would collapse imminently and be absorbed by wealthy South Korea, which would then make good on the entire outstanding debt.

That had not happened by the time of the crash later that year in global emerging-market securities, when the North Korean debt price sank to about 25 percent of face value.

Exotix estimates that North Korea owes the equivalent of some $1.6 billion in principal and interest to banks out of a total $14 billion in principal and interest owed globally to mainly communist and formerly communist countries.

Although a cease-fire was declared in 1953 in the war between North Korea and China on one side and the United Nations — under whose flag the Americans, South Koreans and others had fought — on the other side, no peace treaty has ever been signed.

The U.S. maintains sanctions under the Trading with the Enemy Act that restrict trade and financial transactions with North Korea — and apply to Americans and permanent residents of the U.S. and to branches, subsidiaries and controlled affiliates of U.S. organizations throughout the world.

China, Russia

North Korea’s flirtations with capitalism are belated compared with those of China and the former Soviet Union, which began opening their economies in the 1970s.

North Korea did pass a law legalizing foreign investment in 1984. The law, which permitted equity joint ventures between state enterprises and foreigners, attracted only $150 million in investment during the following decade, largely because investors were put off by the country’s poor roads, railroads, power systems and phone networks and by official interference in joint ventures’ recruitment, dismissal and compensation of workers, according to a 2000 thesis by Pilho Park, a postgraduate student at the University of Wisconsin Law School in Madison.

Vietnam Example

In contrast, Vietnam lured $7.5 billion in investment in the first five years after it opened its economy to foreign capital in 1988, Park wrote.

Following the collapse of European communism in the early 1990s, North Korea opened the Rajin-Sonbong Free Economic and Trade Zone on the northeastern border with China and Russia. A brief flurry of investor interest ensued and then fizzled out when a crisis over the country’s nuclear weapons program took North Korea to the brink of war with the U.S. and South Korea in 1994.

In the mid ’90s, catastrophic floods, combined with the collapse of the global communist system of aid and preferential trade, caused a severe energy shortage that crippled the economy. As much as 70 percent of manufacturing capacity went idle, according to the South Korean central bank.

Also in the mid ’90s, famine killed as many as 2.5 million North Koreans, by the estimate of the U.S. Agency for International Development.

Food Insecurity

Since then, food aid from abroad, an absence of large-scale natural catastrophes and a 2005 harvest that was the biggest in 10 years have kept North Korea from the massive starvation that’s taken place elsewhere, including Niger, says Richard Ragan, North Korea director for the United Nations World Food Program.

Still, “the country faces chronic food insecurity,” Ragan says. “One of the things that happened with the food shortages is that marginal lands became less controlled. You see people trying to farm on some of the most inhospitable plots of land you could imagine.”

In October, steep, unterraced hillsides were plowed outside Pyongyang. The crops can then wash down, rocks and all, during rainstorms, harming water supplies and damaging farmland – fertility.

A second nuclear weapons crisis boiled up in 2002 when the U.S. accused the North of conducting a secret uranium enrichment program — to replace a plutonium program that it had frozen as part of a settlement of the earlier crisis.

Economic Rules

That same year, the regime proceeded with what then Prime Minister Hong Song Nam described as dramatic new economic measures, which helped bring arbitrarily set prices and foreign exchange rates closer to those prevailing on the black market.

The North Korean won consequently dropped to 150 won to the dollar in December 2002 from 2.15 to the dollar a year earlier. The official rate is currently about 170 won, while on the black market, one dollar can bring about 2,000 won.

The government also introduced pay incentives aimed at boosting worker productivity. The system is in operation at enterprises such as the Pyongyang Embroidery Institute, where some 400 women stitch elaborate pictures for framing and sale.

Employees who don’t perform up to expectations aren’t fired; they’re denied raises, says spokeswoman Woo Kum Suk. Unable to live on their minuscule basic salary, equivalent at black market rates to something over a dollar a month, non-performers eventually quit and go elsewhere, Woo says. Good workers can see their salaries raised as much as fivefold.

Consumers

“In my opinion, it’s good to have this system,” she says. “Although the government supplies things to us, sometimes there’s something more we want to buy.”

North Korea has some way to go before many investors rush in. According to a UN report, net investment inflow for 2003 — the most recent year for which statistics are available — was a negative figure: minus $5 million.

Currently the country is constructing a new special economic zone at Kaesong, just north of the South Korean border, where several small companies from the South already employ North Koreans to make clothing, footwear and household goods. Authorities declined to let Western reporters visit it, permitting only a glimpse from a highway bridge a mile away.

Those who are investing are taking a long-term view. Singaporean entrepreneur Richard Savage was looking at least five years into the future in 2001, when he formed a joint venture tree plantation with the Ministry of Foreign Trade. The company, Evergreen Kormax Paulownia Ltd., is 30 percent-owned by the government, which has assigned Savage 20,000 hectares (49,000 acres) on a 50-year lease with an option to extend for 20 more.

Timber Business

Savage, 58, says he, family members, friends and a few other investors have put $3 million into the project so far. Savage says he hopes that by the time the paulownia trees mature — they grow as fast as 7 centimeters (2.85 inches) a day on his farm, and some may be ready for harvesting five years after planting — he’ll be able to sell the wood in a unified Korean market.

When the Northern economy takes off, the first beneficiary will be the building industry, he says. “That’s why I’m in timber,” he says, adding that his fallback plan is to sell the wood to China, Japan and South Korea.

It’s not the first venture in North Korea for Savage, who wears a cowboy hat and whose e-mail moniker is WildRichSavage. In 1994, he introduced North Korean officials to Loxley Pcl, a Thai telecommunications company. In 1995, an affiliate formed for the purpose, Loxley Pacific Co., signed a joint venture agreement with North Korea’s post and telecommunications ministry to create modern telecommunications in the Rajin-Sonbong special economic zone. The venture earns about $1 million a year, Loxley Pacific Chief Financial Officer C.C. Kuei, 56, says.

Mining for Gold

North Korea’s 1992 Foreign Investment Law guaranteed that foreign investors’ shares of profits could be repatriated, a promise that’s now being tested by Kumsan Joint Venture Co., a gold mining concern that’s half owned by a Singapore-led group of Asian investors and half owned by Hungsong Economic Group, a large trading, mining and manufacturing group in Pyongyang that’s controlled by North Korea’s military.

Roger Barrett, a Beijing-based British consultant, has helped arrange financing and technology for Kumsan. Barrett, 50, introduced Kumsan to the foreign investors, whom he declined to identify.

The company used its investment to buy secondhand mining equipment from Australia in 2004 for the venture’s mine 2,000 meters (6,562 feet) above sea level near the city of Hamhung. In the first year the new equipment was used, Barrett says, the mine produced about 100 kilograms (220 pounds) of gold, half of which the foreign investors took out of the country. He says doing business with North Koreans has proved to be absolutely normal. “It’s working very well,” he says.

Foreign-Run Bank

The business environment in North Korea is surprisingly welcoming, says Nigel Cowie, 43, a former HSBC Holdings Plc banker who was hired a decade ago by Peregrine Investment Holdings Ltd. to start North Korea’s only foreign-run bank.

When Peregrine collapsed in 1998, Cowie and the North Korean joint venture partner kept the local unit operating. He and three other investors bought Peregrine’s 70 percent stake in it from the firm’s liquidators in 2000. Cowie, who’s general manager of what’s now called Daedong Credit Bank, says the bank has about $10 million in assets and has only foreigners as customers, mostly Chinese, Japanese and Western individuals and institutions. Only North Korean-owned banks can do business with state enterprises and North Korean individuals.

Better Living Conditions

Living conditions for expatriates have improved significantly in the past three or four years, Cowie says over a meal of Korean barbecue in the capital’s Koryo Hotel. “For me, personally, it’s things like creature comforts, more shops, Internet, e-mail,” he says. While the Internet is available to foreigners, it is forbidden to most North Koreans.

Cowie says his biggest challenge at the bank comes from outside North Korea. In September, the U.S. Treasury Department barred U.S. financial institutions from dealing with a Macau bank, Banco Delta Asia, that it said had been “a willing pawn” in corrupt North Korean activities and represented a risk for money laundering and other financial crimes.

The bank and North Korea both denied the charges, but the Macau government took over the bank and announced it would provide no services to North Korea in the future. Cowie says the action tied up a big chunk of Daedong Credit Bank’s customers’ assets because Banco Delta Asia had been a main correspondent bank for North Korean banks.

The Treasury Department in October broadened its dragnet by ordering a freeze of the assets, wherever in the world the U.S. could assert its jurisdiction, of eight North Korean companies it suspected of involvement in proliferating weapons of mass destruction.

`WMD Trafficking’

The department explained its action in an Oct. 21 statement on its Web site: “The designations announced today are part of the ongoing interagency effort by the United States Government to combat WMD trafficking by blocking the property of entities and individuals that engage in proliferation activities and their support networks.”

North Korea sought to connect the Treasury actions to Washington’s position in the six-party talks. The country’s Korean Central News Agency, using the acronym for the Democratic People’s Republic of Korea, said on Dec. 2 that “lifting the financial sanctions against the DPRK is essential for creating an atmosphere for implementing the joint statement and a prerequisite to the progress of the six-party talks.”

Assistant Secretary of State Christopher Hill, the chief U.S. envoy to the talks, had said in a Nov. 11 press conference that the asset freeze wasn’t directly related to the talks.

Money Laundering Banned

Cowie says he doubts the U.S. action was intended to harm Daedong, which had already issued a manual prohibiting money laundering. He says he fears such U.S. actions could damp investor enthusiasm for North Korea. “It can cause the people doing legitimate business to just give up,” he says.

Cowie isn’t packing up to leave, though. Neither is Felix Abt, a Swiss native who heads a new European Business Association in Pyongyang. “I am very busy with visiting foreign business delegations,” Abt, 50, says. “Take it as a sign that the economy is developing and that more foreign business activities are under way.”

Outsiders’ investment on capitalism’s farthest frontier is gradually bringing benefits to North Koreans, too, says Savage, the tree farmer. “I can’t convert the whole country, but for the people who work for me, I’m giving them a better standard of living,” he says. “Slowly, people will prefer not to work for the government.”

If Savage and his fellow pioneers have their way, it’s only a matter of time before capitalism takes root in North Korea.

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Posted in 1990s Famine, 2002 Economic reforms, Agriculture, Aminex, Arduous March, Arms shipment, Automobiles, Banking, Bicycles, Civil society, Communications, Counterfeiting, Daedong Credit Bank, Economic reform, Email, Energy, Euro-Asian Business Consultancy, Finance, Foreign direct investment, Forestry, Gambling, Gold, Hungsong Economic Group, Illicit activities, International trade, Internet, Kaesong Industrial Complex (KIC), Koryo Asia Ltd., Labor conditions/wages, Light Industry, Manufacturing, Mining/Minerals, Ministry of Foreign Trade, Ministry of Post and Telecommunications, Oil, Pyongyang Embroidery Institute, Rason Economic and Trade Zone (Rajin-Sonbong), Special Economic Zones (Established before 2013), Trade Statistics, Transportation | Comments Closed

North Koreans exposed to foreign masses

Wednesday, November 23rd, 2005

Asia Times
Andrei Lankov
11/23/2005

It was a fine night in Pyongyang in mid-October as I walked a deserted street under the unusually bright stars of the North Korean sky (no industry means no pollution), accompanied by a knowledgeable expert on North Korea.

“Well, I do not understand what the hell they are doing,” said the expert, a former student of mine. “You should not be here, frankly. And those South Koreans, they are even more dangerous. The commander-in-chief is making a mistake, but it will take months before they realize how destructive the impact of the Arirang Festival is for their regime.”

The North Korean capital from August to late October hosted the Arirang Mass Games, a pompous and kitschy Stalinist festival for which 50,000 participants (largely students) were trained for months. The festival was attended by an unprecedented number of foreigners and South Koreans.

Pyongyang’s international hotels, usually half-empty, were completely booked, and five or six flights left the city’s international airport every day. This might not appear a particularly large number, but in more ordinary times the airport, by far the least busy capital airport in East Asia, serves merely four to five flights a week.

There were many Westerners. But most unusual and striking, perhaps, was the powerful presence of South Koreans. For the first time since the division of the country in 1953, pretty much every South Korean who wished to do so could travel to Pyongyang for a short stay.

Seoul tourist companies widely advertised a two-day trip to Pyongyang for the equivalent of US$1,000. This is expensive for a two-day, one-night package. But in Seoul where the average monthly salary is about $2,500, it is certainly feasible. Hence, between 500 and 800 South Koreans flew to Pyongyang daily. In mid-November the South Korean unification minister proudly stated that “about 100,000” South Koreans visited the North this year, and it seems a large number consisted of short-time visitors to the Arirang festival.

North Korean leader Kim Jong-il personally approved admission of the unprecedented numbers of foreigners. Nothing like this has been seen since the World Youth Festival of 1989, and even then no South Koreans (and only a few citizens of developed Western countries) were allowed in.

The reason for this openness is clear: tourists bring money. Obviously, earnings from the Arirang festival were very good, and Kim decided to use the opportunity to fill state coffers. The foreigners were allowed in without too many questions being asked, and the show was extended for a few additional weeks. It looked like easy money; the grandiose show would have taken place with or without fee-paying foreigners.

It is possible that Kim Jong-il was persuaded to open the doors so wide by officials who might have had hidden vested interest in the matter: the days of religious devotion to the official ideology are long gone, and bureaucrats are learning fast how to make their jobs profitable.

It seems, however, that in the long run opening the door will have serious political consequences. For me, on my first visit to Pyongyang in 20 years, it was quite clear that life in North Korea has changed, even if on the surface everything appeared almost the same as in 1985.

My first impression was that Pyongyang was frozen in time, remaining unchanged from the mid-1980s. Very few new buildings, all very moderate in size and design, have appeared over those two decades. Pyongyang still reminds me of a relatively poor Soviet provincial city of the 1970s and presents a striking contrast with booming Beijing, let alone Seoul.

Even the street crowd has not changed that much. Many people are still dressed in Mao jackets or worn military outfits, and there seems to be even less traffic than in 1985. The veteran expats say nowadays there are far more vehicles than in the late 1990s when the famine reached its height, but for me the reference point is 1985, not 1999. All visible changes were minor, such as the introduction of bikes, which until the 1990s were banned from the “revolutionary capital”.

The much-discussed private business was nowhere to be seen, since municipal authorities “cleaned” the city on the eve of the festival, driving away all private vendors along with their stalls and canteens. This was a part of the new political line of re-imposing state controls and cracking down on the non-official economy, but it also destroyed what might be the only serious visual difference between Pyongyang of 1985 and today. Markets continued their activity, but behind high walls and strictly off limits to foreign visitors (but not for expats).

At the same time, Pyongyang does not look destitute. It is a poor city, but not more so than many towns in the less-successful Chinese provinces. This confirms what defectors from North Korea often say. However, the defectors see this “moderate poverty” in an altogether different light, as “great prosperity”. As one recently said, “Pyongyang people are rich, this city lives very well, almost as good as some cities in [Chinese] Manchuria.”

The gap between privileged Pyongyang and countryside is wide. This was clear from a short countryside trip even though our destination was the city of Kaesong, a semi-privileged location. We traveled about a 100 kilometers on a relatively good highway that connects the two major cities, but encountered no more than two dozen vehicles. A couple of decades ago one could see mechanization in the fields, but now all work is done manually.

However, the impression that Pyongyang is “unchanged and unchangeable” is completely wrong. The material environment has not changed much, but the spirit is very different from what it was in 1985.

The most remarkable aspect was the relative freedom with which North Koreans talked to foreigners, particularly about their great interest in everything that happens outside the state borders. This does not necessarily mean that my North Korean interlocutors rushed to say something critical about the authorities – on the contrary, from time to time most of them murmured the ritual phrases about superhuman wisdom and omniscience of the commander-in-chief.

However, back in the 1980s no North Korean dared talk to a foreigner for more than a few minutes, and under no circumstances could the topics stray from the weather and, sometimes, the greatness of the leader. My impression of North Korea in 1984-85 when I lived there was that of a country where not everybody supported the government, but where everyone was scared to death to say otherwise. It would be an overstatement to say that nowadays the fear has gone, but it has certainly waned.

It was important that my interlocutors were ready to ask thorny questions about life in other countries and in particular about South Korea. They asked about salaries in Seoul, about changes in the former Soviet Union after the collapse of communism (“Are people better off or not?”), about the fate of East German bureaucrats after the German unification (“They went to prison, did they?”), and about the reasons for Chinese success.

Sometimes it seemed some of my interlocutors suspected that the South was well ahead of the North in terms of living standards. This suspicion is dangerous to the regime whose claims of legitimacy are based on its alleged ability to deliver better standards of living. The actual gap between the two Koreas is huge. Still, North Koreans are told they are lucky to live in the North, in the prosperous state of juche (self-reliance), and not in the South, which is a destitute colony of the US imperialists.

Since the 1980s, an increasing number of better-informed North Koreans are uncertain about these official claims. However, in the past it would have been unthinkable to ask a stranger such dangerous questions after just a few minutes of conversation. It was also risky to demonstrate interest in the outside world, but this seems not to be the case any more.

One of the most unexpected and important encounters occurred when I was visiting the Chinese embassy. A small crowd attracted my attention. People were carefully studying something inside a large window on the wall; some finished and went away, only to be replaced by others. Of course, I went closer, only to discover that the people’s attention was attracted by pictures hanging in the embassy’s “information window”. The pictures were large and colorful, but otherwise absolutely unremarkable. The photos and captions were no different from the stuff cultural attaches across the globe put on the walls of their embassies – the usual boring fare about growth of shrimp production, new computer classes and state-of-the-art chicken farms. However, in North Korea of 2005 such mundane matters attract a crowd. Those pictures gave a glimpse of outside life.

This small episode was a sign of what now is in the air in North Korea: people are eager to learn more about the outside world. They are less afraid to show their interest in what once was forbidden knowledge, and they are increasingly uncertain about the future.

It seems the arrival of the foreigners has provided North Koreans with far more food for thought. Among the visitors there were younger South Koreans influenced by the left-wing nationalism, which has become increasingly popular in Seoul. These visitors were sometimes willing to cheer the anti-US slogans, and this was discussed in the right-wing South Korean media as yet another sign of North Korea’s ideological penetration. However, it seems that the actual influence is going the other way.

Obviously, the decision to open the doors wide was made suddenly, so North Korean police and security were caught unprepared by the sudden influx of South Koreans. I witnessed the arrival of a new South Korean group to the Yanggak Hotel, and could not help but be impressed by the scene. Remarkable was the lack of the usual North Korean regimentation and the absence of segregation, which is the basic principle in handing all foreigners, especially South Koreans. The unruly and noisy South Korean tourists, fresh from the airport, virtually stormed into the hotel where many North Korean guests (obviously of high social-standing) were staying as well. The chaos created manifold opportunities for short-time encounters. Such encounters likely took place with the North Koreans learning a thing or two about the South.

Most of the South Korean tourists were in their 50s and 60s, obviously many had some personal connection to the North. (Between 1945 and 1953 about 10% of entire North Korean population fled south, and a much smaller but still significant number of leftist South Koreans escaped to Kim Il-sung’s would-be socialist paradise, leaving family members back home). Those of that era are most likely to look for contacts, and also are far more realistic than the young intellectuals who have been brainwashed by the leftist-nationalist ideologues.

The scale of the tourist mini-boom meant that for the first time in their lives many thousand of North Koreans could observe South Koreans closely, even often getting the opportunity to talk to them. This might have grave consequences to the regime. In past it was possible to explain away the good dress and fat complexion of the few South Korean visitors by insisting that they came from the elite. But now North Koreans saw the well-dressed, well-fed, self-assured South Koreans coming to the festival in droves, day after day, week after week? This was what drivers, guides, sales clerks and other North Koreans saw. It was what participants in the Arirang festival saw as well when they had a few minutes to look at the audience.

North Koreans could not help but conclude that the South has an unusually large supply of rich capitalists. And their presence at the Arirang games obviously means that South Koreans cannot be badly off: after all, the “running dogs of the US imperialism” are not supposed to come to such events.

Of course, most encounters were necessarily short, but dress and looks speak volumes and sometimes a few casual words are enough to change a North Korean’s world view dramatically. It is easy to imagine a South Korean woman in her 50s, whose husband is a skilled worker, complaining that her family has been unable to change a car for more than six years – and even easier to imagine the impact such a matter-of-fact remark would have on a North Korean to whom private cars are a symbol of ultimate luxury, something akin to the role of private jets in Americans.

Of course, the people who interacted with the South Koreans and foreigners overwhelmingly came from the elite. Good examples were our three interpreters – the granddaughter of the founding father of the political police, the granddaughter of a prominent negotiator who dealt with the Americans, and a daughter of an ambassador.

However, the arrival of so many South Koreans meant that a large number of less-privileged North Koreans also had access to the visitors, and at least overheard them talk. By North Korean standards a bus driver working for a tourist company holds a good job. Such a man (women are never allowed to drive in North Korea as it is believed to be dangerous for the public) is by no means a member of the inner circle of power, but he has friends and relatives with whom he can share his experience.

So, was my former student right? Was opening the door so wide to foreigners a mistake by Dear Leader Kim Jong-il, a master of survival who felt the allure of easy money and forgot the number one rule of his own policy – “stability is more important than development”?

Or perhaps he was misled by some officials who pocketed some of the revenues? Only time will tell how dangerous the entire affair was for the regime, which survives on isolation and myth-making. It seems the first conclusions are an indication: North Korea decided in early November to close its borders to all tours from mid-December until probably mid-January.

One might assume that they will use this break from tourists to reeducate their tour drivers and explain to them that South Koreans only look rich while really they are poor. Will this work? I doubt it.

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Posted in Bicycles, Civil society, Mass games, Tourism | Comments Closed

Beyond a Wall of Secrecy, Devastation

Sunday, October 19th, 1997

By Keith B. Richburg
Washington Post Foreign Service
Sunday, October 19, 1997; A01

Rare Closeup Reveals a North Korea That No Longer Functions

HAMHUNG, North Korea — A visit to this remote and desolate city near North Korea’s eastern coast provides a rare glimpse of the country’s near-total economic collapse. The crisis is over food — or the lack of it — but the country’s problems run much deeper, to the core of a socialist system that simply has ceased to function.

You can start at Hamhung’s local hospital, a dilapidated, cavernous 1,000-bed facility without lights, where the stench of urine fills the dark corridors, and patients recovering from surgery writhe in pain on dirty sheets in unheated rooms. There are no antibiotics, no intravenous drips and no stretchers, so workers carry patients on their backs. There were only 250 patients during a recent visit; few sick people bother coming, since the hospital has no food and no medicine.

“We have a shortage of anesthesia, so the patients have to go through pain during surgery,” said Dr. Lee Huyn Myung, as he points to a man gripping his mattress after a colon operation. Most of the patients have rectal, stomach or liver problems, the result of slow starvation, he said. Almost all are malnourished.

From the hospital, travel across this city past gray cement buildings that look half-finished or simply abandoned, past lots strewed with broken-down Soviet-era trucks that cannot be started because there are no spare parts. Then drive down narrow, winding mud roads until you reach the Hamhung orphanage and talk to its director, Choi Kwang Oak.

The orphanage is divided into several small rooms, with playpens for the smallest infants. Almost all the children are malnourished, with browning hair, bald patches on their scalps and sores on their heads and faces. The most severely malnourished are listless and unresponsive.

There are 198 children under age 4 at the orphanage, and about 20 percent are expected to die because they arrived too late to be helped. About 70 percent of the children here were orphaned when their parents died of malnutrition or disease, Choi said. The other 30 percent simply were abandoned and left for dead by parents too poor and too hungry to feed them.

“Some parents just put them outside on the street and leave them to nature,” Choi said. “Sometimes people pick them up and bring them here.” And other times? “They just die.”

The orphanage is surrounded by high hills covered with graves and stone markers. It is an old burial ground, she said. But there are also many new graves.

The scenes of deprivation and hardship go on and on. There is a massive 1950s-era hotel in the town, but it is cold and apparently empty. Since power is rationed, the electricity has been turned off.

There are factories here, but they stand idle. No smoke comes from the chimneys; there is no activity inside the gates. Outside, people mill around, apparently with little to do. Nearly everyone here — hospital workers, hotel employees, even the official government guides — talked openly about the fuel shortage and lack of electricity.

And not even the capital, Pyongyang, about 120 miles to the southwest, is immune from the hardship, despite long being maintained as a showcase city for outsiders to witness the apparent success of the country’s socialist system. Diplomats and aid workers say some parts of the city have been without water for days. Electricity is strictly rationed, and floodlights are turned off at some of the towering monuments early in the evenings. By 10 p.m., the city is plunged into darkness, with no street lights on and no lights visible from the surrounding high-rise apartment buildings.

What you also see are bicycles. Visitors to North Korea before the famine marveled at the lack of bicycles on the streets, even as people walked for miles or waited endlessly for buses. Bicycles were officially discouraged, since they promoted individualism and could allow people to move more freely. But now that fuel imports from the former Soviet Union have stopped, and with North Korea lacking hard currency to buy what it needs on the world market, many people use bicycles since buses sometimes do not run.

Last week, U.S. Rep. Tony P. Hall (D-Ohio) and this correspondent were permitted an unusual look behind the regime’s wall of secrecy, traveling into areas rarely seen by outsiders, and never by an American journalist. In addition to Hamhung, which we reached in an old Soviet-made helicopter, we also took a 3 1/2-hour drive north from Pyongyang on the country’s main north-south highway into the rugged mountains of Chagang province to the small town of Tongsin, stopping briefly along the way in a slightly larger town, Huichon.

From the air, the extent of the drought damage was apparent — dry brown earth in many areas, as well as dried-up riverbeds and hills that had been cleared of all their trees. Years of overuse of petroleum-based fertilizers have destroyed much of the arable land, experts say, and hills have been stripped of their topsoil because farmers use it to cover paddy fields, causing increased flooding in the plain.

On the ground, the damage becomes more evident. Buildings look abandoned or unfinished until, on closer inspection, you see faces in the holes where the windows should be, and you realize the buildings are occupied. Huichon, particularly, looked like a ghost town — sprawling factories fallen into disuse, cement buildings missing large sections and darkness everywhere because there is no electricity.

In Tongsin, more a large village than a town, the local hospital was washed away in last year’s floods, and the makeshift one built on the same site from the debris has a few patients but no medicines, heat, or supplies. Three teenage girls were checked in because they were starving; from their body sizes, they looked more like 5- or 6-year-olds, with normal-sized heads for their age but tiny necks and limbs.

What emerged from the three-day trip, conducted mostly in the presence of government escorts, was a snapshot of a country in economic free fall and a surprising willingness on the part of the authorities to allow outsiders to see even the worst of the crisis — like the hospital in Hamhung.

“The most difficult part as a doctor is we could treat them well if we had food and medicine,” said Lee, the deputy director of the hospital in Hamhung. “We know how to treat them — but we can’t.” Many patients die here, but Lee says he cannot disclose the figure because death rates are kept secret in this strictly controlled society.

“What you saw is pretty widespread,” said O. Omawale, the special representative in North Korea for the United Nations Children’s Fund. “I have seen kids with IV drips, with tubing you wouldn’t put in your car, and the [fluid] reservoir is a bare bottle.”

North Korea’s predicament largely has been portrayed as a massive food shortage brought on by twin natural disasters — destructive floods last year followed by this year’s drought and record-high summer temperatures. But what was revealed on this trip is that the food crisis is just part of an overall breakdown of the country’s state-controlled and centrally planned system. It has been a long and painfully slow descent that began with the collapse of the Soviet Union in 1991 and the loss of invaluable subsidies, the major petroleum supplier, and the principal market for exports.

In Hamhung, Lee was asked how long the hospital had been in its state of collapse and shortages. The deputy director replied, “It started six or seven years ago, but it became worse this year.” Six or seven years ago would date the decline to the time the Soviet Union collapsed.

Relief workers in Pyongyang seem in agreement that the food crisis, reaching famine proportions in some areas of the remote and mountainous north-central provinces, is just one more tangible sign of a total systemic collapse. “It’s a large economic crisis, but it’s not being addressed,” said Christian C. Lemaire, the resident representative of the U.N. Development Program. “All we want to do is talk about the food problem.”

Neither, it seems, does the North Korean government have a strategy for what to do to stop the free fall.

One of the world’s last Marxist states, North Korea in many ways resembles a theocracy more than a doctrinaire socialist state, with the country’s late founder and revered “Great Leader,” Kim Il Sung, as its high priest. His portrait still hangs everywhere — even over the hospital in Hamhung — and the north-south highway is lined with billboards extolling his exploits.

Kim’s guiding philosophy is called juche, or self-reliance, and it propelled the country’s headlong rush to industrialize in the 1950s and ’60s. It also has made it more difficult for North Korea’s secretive rulers to admit to outsiders the extent of the crisis and to ask for outside help.

On Oct. 8, three years after the death of Kim Il Sung, his son, Kim Jong Il, officially took over leadership of the ruling Korean Workers’ Party. Now some analysts are wondering whether the younger Kim might be willing to break from some of the country’s socialist practices and adopt the kind of reforms needed for the country to survive.

Some relief workers here claim already to see some early, tentative signs of an opening. For one, they say, there are now six foreign relief agencies based in Pyongyang and the outlying provinces, while a year ago there were none. The workers’ movements are restricted but, they say, they are slowly making progress in persuading authorities to allow them access to more places.

John Prout, deputy director of the World Food Program in North Korea, said his group had been to 110 of the country’s 209 counties.

There are other small signs, relief workers say. Farmers in the hard-hit northern provinces, particularly near the Chinese border, have been told to fend for themselves, allowing them to trade privately with China. With help from the U.N. Development Program, there have been a few scattered experiments with “micro-credit,” providing money to individual households to buy chickens or goats and allowing them to sell the eggs or milk on the open market.

Some North Korean farmers are said to be “double-cropping,” or planting twice each year — a practice long forbidden by Kim Il Sung. And some North Korea analysts in the United States report that massive collective farms have been reduced in size.

On the helicopter trip across the northern mountains, a few small and scattered patches of green were spotted, suggesting that some farmers in remote areas were starting private plots. In some villages, beans were being grown on makeshift terraces in back yards.

“Living here you can really see things change,” said Lemaire, the UNDP representative. “But it’s not change that’s coming from the top. It’s coming from the base.”

A hint of the continued hard-line views of top North Korean officials came during the trip. In one meeting, last Tuesday evening, Deputy Foreign Minister Kim Gye Gwan warmly thanked Rep. Hall for U.S. food aid. “We are grateful to the United States government for the several tons of humanitarian food aid as well as the active efforts of the NGOs,” or nongovernmental organizations, Kim said. But a few minutes later, Kim told Hall that North Korea and the United States “are in a state of hostile relations.”

No one is predicting that the hardships will lead to any kind of popular disaffection with the regime — and in fact, many here believe attitudes will only harden.

The personality cult built up around Kim Il Sung remains deep and pervasive, and now officials seem to be trying to transfer some of the popular affection from father to son.

In a rare interview, Foreign Minister Kim Yong Nam referred to Kim Jong Il as “the people’s leader, who is acknowledged as a man of ability,” a man “who has produced immortal exploits,” a general who “enjoys the absolute trust and support of our people,” and who embodies “the destiny of our nation as well as the future of our country.”

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Posted in 1990s Famine, Arduous March, Bicycles, Disease prevention, Electricity, Energy, Health care, Manufacturing, Pediatrics | Comments Closed

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