Trade zone bustle exposes limits of North Korea sanctions

[chahlley]

(Inside Asia Today Saturday 17 September 2016)

Trade zone bustle exposes limits of North Korea sanctions

Siberian coal waiting to be loaded onto a ship bound for China

in the North Korean special economic zone of Rason.

Although the country is facing tough sanctions,

the zone is thriving, by North Korean standards. Photo: AP

Despite North Korea’s deepening isolation, along its border with China and Russia construction of tourist hotels is brisk and mountains of Siberian coal await shipment to Shanghai. A bustling bazaar-style market is overflowing with goods from Mickey Mouse baby shoes to bags of dried kiwi fruit.

The Rason Special Economic Zone, a North Korean experiment in limited capitalism, is not likely the next big thing in Asia that North Korean officials paint it to be. But even as the country is hunkering down under the toughest United Nations-backed sanctions in decades for its nuclear and long-range missile programmes, it is, by North Korean standards, thriving.

For the United States, South Korea and Japan, Rason is an irritating reminder that not everyone is on board with shutting off trade to Pyongyang, especially when there is money to be made. The three countries are spearheading efforts to impose even more punitive measures on North Korea for its fifth nuclear test, which was conducted last week and was the North’s most powerful to date.

North Korean officials in charge of trade promotion acknowledge that sanctions and fears of image problems resulting from doing business with the North have significantly slowed the expansion of new foreign businesses — from an average of more than a dozen each year over the past five years to exactly zero so far in 2016.

But they also note that thanks largely to China and Russia, the sanctions have hardly been a death knell. That holds for North Korea in general — its Gross national product (GNP) is believed to be growing slightly and signs of economic improvements such as more goods available, more taxis and traffic on the streets and more people frequenting markets, particularly in the capital, Pyongyang, are noticeable.

“The more sanctions we are subject to, the more powerful our country will become,” Mr Choe Sung-jin, an official in charge of trade promotion, told the Associated Press on a visit to the remote zone shortly before last Friday’s nuclear test. Clearly the sanctions hurt, but Mr Choe’s remark is something along the lines of the old adage, “what doesn’t kill you makes you stronger”.

Rason is as far from Pyongyang as a North Korean city could be, tucked into the country’s northeast corner. Its economic zone has been a mixed bag of success and failure, but that is only partially because of sanctions.

Unlike Kaesong, the nowclosed special industrial complex on the other end of the country near the Demilitarised Zone that was powered by South Korean investment, Rason still has the look of a haphazard attempt at squaring capitalist investment and management techniques with authoritarian socialist ideals.

Pyongyang is aware it needs to lure foreign investment to keep afloat — developing a nuclear arsenal while maintaining a mil
lion-man army and attempting to raise the nation’s standard of living is an expensive proposition.

But it is not so desperate to revive its moribund economy that it will risk major changes that might jeopardise its political status quo.

In May, leader Kim Jong-un stressed at a major party congress that expanding trade with foreign countries is a priority. At the same time, however, he stood by his nuclear weapons programme, which, because of the sanctions it brings, makes expanding trade exceedingly difficult.

Yet it is not impossible, judging by Wharf No 3 — the Russian wharf — of Rason’s Rajin port.

The wharf looked deserted when the AP visited three years ago, but on the latest trip, the loading area was piled high with mountains of Siberian coal brought in on Russian trains. The coal was to be transferred to large cargo vessels, either Russian or Chinese, for shipment southwards.

A Russian railway from Khassan in Siberia across the border to Rason began operations in 2014. Mr Kim Chol-ho, the port’s vice-manager, said shipments have been steadily increasing ever since.

“The Russians plan to bring more than one million tonnes of coal through here this year,” he said. “That’s a 300,000-tonne increase over last year.”

The appeal of Rason to the Russians is simple: It is a gateway to Chinese markets.

Transshipments of coal through the North are not banned under the UN sanctions, and it is far cheaper to transit Rason than to get coal to the Chinese using other routes or means. Russian and Chinese cargo ships are used because the North does not have any ships built for that purpose that are big enough.

Mr Kim noted, as officials here often do, that there is no other port this far north that can be used by ships in the 15,000 to 20,000-tonne class all year round. The others in the Russian far east freeze over.

Two other ports are located in the special zone: Sonbong moves about three million tonnes of petroleum and other cargo each year and Ungsang has an annual turnover of 500,000 tonnes, primarily of timber, according to statistics released for investors last year.

“We now have a regular cargo ship travelling between Rason and Shanghai,” Mr Kim said. A few hours later, a Russian train arrived with more coal. The next day, a huge Chinese ship was in port, ready to take it all away.

Officials claim total foreign investment in the zone is more than US$500 million (S$683 million). About 250 enterprises — local and foreign — are now operating here. Two of the biggest are the Suchaebong Fishery Enterprise, which processes seafood for domestic consumption and export to China, and the Sonbong Garment Factory, where clothing is stitched together and given a “Made in China” tag before being sent back across the border for sale abroad.

The rationale behind that — aside from China being a more palatable country of origin than the North in most markets — is that the materials and designs are provided by China, although the stitching is done in North Korea.

Roughly 80 percent of the 100 foreign trade enterprises, 21 joint ventures and six foreign representative offices in Rason are Chinese. Thailand, Japan, Dominica, Hong Kong, Italy and Russia are also doing business in Rason. Mr Choe said there are even some United States entrepreneurs — although he refused to name them and they could not be quickly confirmed.

“We welcome anyone,” he said after playing a promotional video that featured the song, Roll Out the Barrel.

Mr Choe said the opening of enterprises in Rason went from 70 over the past five years to zero this year because of sanctions announced after the North’s January nuclear test, which was followed the next month by a rocket launch that put a satellite into orbit.

Other signs of economic weakness in Rason predate sanctions. As is often the problem with major, large-scale projects in North Korea, there is no sign of activity at the sprawling Sungri Chemical Factory, an oil refinery built in 1973 under national founder and “Eternal President” Kim Il-sung, Kim Jong-un’s grandfather. The refinery, believed to be one of only two in the country, has been idle for years.

But, on the smaller scale, living standards do appear to be improving. Rason has one of North Korea’s biggest and best-stocked free markets and a new public gymnasium. A “children’s palace” for extracurricular activities is under construction and new hotels dot what was until recently a largely barren main street. After major floods last year, 1,800 new dwellings were erected, creating a residential area that is, by North Korean standards, quite livable and tidy.

“We have an indoor bathroom, that’s a big change,” Ms Ra Inhae, a 54-year-old housewife, said after turning off the one-channel radio attached to the wall of her new home, which Mr Kim himself visited just after her family moved in. “We even have a little garden to grow vegetables.” AP

Rason Special Economic Zone: An experiment in limited capitalism

The Rason Special Economic Zone is a North Korean experiment in limited capitalism tucked into the country’s northeast corner.

Rason’s Rajin port’s loading area stocks mountains of Siberian coal brought in on Russian trains which is then transferred to large cargo vessels, either Russian or Chinese, for shipment southwards.

Two other ports are in the special zone: Sonbong and Ungsang.
Total foreign investment in the zone is more than S$683 million. About 250 enterprises — local and foreign — operate there.

About 80 per cent of the 100 foreign trade enterprises, 21 joint ventures and six foreign representative offices in Rason are Chinese.  thailand, Japan, hong Kong, Italy, Russia and some entrepreneurs from the United States are also doing business in Rason.