http://www.asiasentinel.com/index.php?option=com_content&task=view&id=4349&Itemid=230
A Rare Look North Korea's Attempts at Capitalism
Written by Our Correspondent
Monday, 19 March 2012
The Emperor casino in Rason
Times, they say, are a-changing. But slowly
The “Special Economic Zone” at North Korea’s northeastern port city of
Rason on the borders of both Russia and China has long been seen as a shining
example of the country’s failure to attract even the most modest investment
from abroad. But times are changing.
Though designated an SEZ in 1991, what little investment there was has
been mainly consigned to a few opportunistic Chinese entrepreneurs, some of
whom then fell afoul of the law in China and pulled out.. However, in the last
year or so, big Chinese companies and the Chinese government have become more
proactively involved in the zone’s development. Russia too is cranking up its
interest and is in the process of constructing a through-train line between
Rason and the Russian border at Tumengang. The physical presence of both
neighbors in Rason is palpable, and the city has more hotels per capita than
anywhere in the country.
In February 2012, Yonhap news agency reported that Beijing agreed to
invest US$3 billion in the city’s infrastructure, including power plants and
even a possible direct railway line. While China’s Foreign Ministry refuted
certain “details” in the report, the extent of new business activity now
visibly taking place in Rason suggests that there are strong commercial and
strategic motives guiding the increased Chinese and Russian presence.
But while Rason’s purpose as an SEZ may appear on the cusp of renewal,
the scale of infrastructural challenges remain formidable, as is the highly
erratic nature of both central and local government policy, which pays lip
service to doing business but doesn’t always actually make it bureaucratically
easier to do so. Do not expect a budding Shenzhen, at least in the short run.
Even under the best of circumstances, Rason remains quite remote from large
markets in either of its neighbors, let alone overseas ones.
After crossing the Chinese border at Hunchun, Jilin province, a newly
paved road recently built by the Chinese takes visitors through the meandering
hillside towards Rason, cutting the journey from a previous three hours to one
(paved rural roads are a rarity in this part of the country). The road has
enabled a recent surge in the numbers of Chinese day trippers. Many are traders
who sell Chinese consumer goods in Rason’s bustling market at windfall profits,
returning to China by nightfall with crates of seafood caught in Rason’s clean
waters (hairy crabs, shellfish, and sea cucumbers). These can be sold at
restaurants in Jilin for over a dozen times the North Korea market price.
Other victors are gamblers who frequent the incongruously opulent Emperor
casino, owned by the notorious Hong Kong group of that name, situated
beautifully on the coast outside Rason city. While Rason is no Macau, the
casino, along with a number of other failed mimic Chinese resorts, is testament
to the area’s cavalier entrepreneurialism. Punters pay a minimum US$500 entry
fee to gamble in 5-star luxury.
Despite receiving hundreds of visitors each day, the casino’s operations
costs are high, requiring a fleet of private generators to keep it going. It
was forcibly shut down orders by the Chinese government between 2005-2008 after
corrupt local officials lost millions. Open again, it reportedly still
struggles to turn a profit perhaps because of poor credit control. The casino’s
parking lot has a few idle Hummers that big spenders were forced to leave as
security for their losses. Further along the coastline is the skeleton of
another Chinese “resort” which was nearing completion but was suddenly
abandoned without explanation.
However, the new road to Rason was not built primarily with the day
traders and gamblers in mind. More than 150 foreign companies are now said to
have a presence in Rason, making new, larger industrial investments and
employing local labor. About 80 percent of these companies are Chinese, such as
Jilin Yatai, a Shanghai-listed private conglomerate, which is currently
constructing a large cement factory. Others have established or are setting up
businesses in tobacco, textiles, seafood processing and chemicals.
More remarkably, some Chinese businesses are also beginning to see Rason
as a new private consumer market in an otherwise state-dominated economy. The
city is slowly making itself more foreign-friendly. Rason’s local bank, the
Rajin Triangle Bank, is one of the few places where foreigners can officially
exchange foreign currency at the true black market rate of Rmb580 per North
Korean won, compared to the official rate of Rmb15 in Pyongyang. This bank is
now constructing a sleek new glass and steel complex in the city center. Other
sweeteners the city is offering to entice foreign businesses include tax
breaks, full foreign ownership for JVs in some industries, and minimum monthly
wages set at US$80, roughly half that of China’s.
Indeed, Rason is beginning to display nascent capitalistic streaks, in
which a bottom-up market economy is supplementing the rigidities of centralized
economic planning. For most citizens, the state provides for most livelihoods,
including 90 percent of housing costs and the bulk of utility costs. Health and
education services are also largely free. However, income from employment by
foreign firms is providing a market for a wider range of Chinese-made utility
goods. A new if still small commercial class is emerging to intermediate in the
business.
At Rason’s bustling market, thousands of shoes, fresh and processed food
products, electronics and assorted accessories and appliances are on sale.
Merchants rent stalls from the local government but there is little direct
government involvement in the market, where prices are freely negotiated.
On the outskirts of Rason, rows of housing blocks are currently under
construction by a Chinese company, which was granted permission to sell each of
the building’s 80-sqm, three-bedroom flats at Rmb140,000 each. In downtown
Rason, two large plots of land have been cordoned off by wooden fencing, marked
by red flags, and dragon-festooned gates. Though construction has yet to
commence, Chinese companies are expected to build here a modern style
department store in one plot, and a swimming pool/gymnasium complex in the
other.
The bigger catch
But for the Chinese government, the main interest in developing Rason’s
infrastructure lies in its 400,000 sqm, ice-free port, providing year-round sea
access for China’s mineral-rich but landlocked northeastern provinces. This has
the potential to significantly lower logistical costs for Chinese companies.
One of the port’s three piers has been leased to China since 2005 and is now
shipping some 10,000 tons a month mainly Jilin-mined coal to China’s southeast
coast. The Chinese government recently offered to build an additional two piers
that could each accommodate vessels of up to 70,000 tons. Another pier has been
leased to the Russians for 50 years, though they have yet to start using it).
However, China will need to invest for the long term in order to make
Rason grow at a higher level. The city still requires massive upgrading to its
infrastructure in order to make it a more attractive place for private
investors and manufacturers on a larger scale. Rason still grapples with
frequent blackouts and scan tindoor heating during winters that go below -20C.
Some hotels have almost no regular hot water, and internet access is nowhere to
be found -- although officials claim this will change very soon).
China is now considering building direct power transmission lines from
China into Rason. However, even then the city would require substantial
upgrades to its antiquated electricity grid. A local coal power plant to be
built by Chinese companies is also under discussion but no decision has been
reached.
China’s increased activity in North Korea may have broader strategic
aims, too—China has an interest in increasing its economic leverage in North
Korea generally but the border regions in particular. This is ever more so now
given the nascence of Kim Jong-un’s regime and the perennial diplomatic
problems China has in dealing with North Korean defectors and refugees.
Helping North Korea develop during a period when it appears to want to
establish a stronger economic legacy could help Beijing win influence in
Pyongyang. China has recently been increasing substantially its direct aid to
the North and spending money at Rason may be seen as one way of enticing the
new leader to focus on economic development and follow China’s example. There
is still huge uncertainty as to whether even modest reform is likely under Kim
Jong-un. But if it is for real, expect to hear more about Rason.
(The foregoing was written by a western visitor who was allowed a rare
look at faltering attempts to create a market economy in the north.)
[Non-text portions of this message have been removed]
