Promises fail to revive North Korean economy

When the country’s new leader took the helm last year, he inspired hope that the nation’s dire standard of living would rise, yet observers say the only thing rising is inequality

By Ju-min Park  /  Reuters, DANDONG, China

Sun, Nov 11, 2012 - Page 14

A lonely farmer and his ox-cart are the only sign of activity on a dusty island meant to be an industrial hub that will raise North Korea’s wrecked economy.

Despite talk of reform by the secretive state after the third generation of the Kim family dynasty took over nearly a year ago, all that seems to be growing is the gap between the tiny population of rich and the already malnourished poor.

While the North Korean government is hoping to lure in foreign investment, more often the money, and tens of thousands of workers, are heading out of the impoverished North.

The 14 km2 Hwanggumphyong Island is one of four economic zones that were designed to be a magnet for Chinese capital and manufacturing.

It lies on the Yalu River, across from the Chinese city of Dandong and one of the few areas where North Korea allows its citizens contact with the outside world.

Chinese investors are showing little appetite for North Korea, whose economy is worse off than it was 20 years ago from a combination of sanctions over its nuclear weapons ambitions, famine and mismanagement.

“We Chinese would like to go to North Korea to invest because they have space for business, but policies are not stable, so we dare not invest there,” said trader Zheng Qiwei from the Chinese coastal province of Zhejiang, far from North Korea.

Zheng said an acquaintance of his, a businessman from China’s Liaoning Province that borders the North, had invested 240 million yuan (US$38.48 million) to sell machinery, but was “driven out,” an experience that is becoming increasingly common.

This year, a multimillion dollar deal to refine North Korean iron ore by China’s Xiyang Group (西洋集團) soured as officials shook down the Chinese investor. Xiyang went public with its complaints, triggering a furious response from the North.

Hwanggumphyong was launched with great fanfare by Jang Song-thaek, the uncle of North Korean leader Kim Jong-un, last year with a pledge of tax breaks and repatriation of dividends, hoping to emulate a formula that has worked for economic zones the world over.

However, for the moment, it remains little more than a small, boggy island.

Many analysts say the North Korean leadership is terrified that reforms could weaken its iron grip on the state and it has repeatedly baulked at any sweeping changes, ignoring pressure from sole ally China to emerge from a self-imposed cocoon.

China’s leverage is limited and its fear that North Korea could collapse appears to make it willing, albeit begrudgingly, to support the government of Kim Jong-un.

Any improvement in living standards in one of the world’s poorest countries — UN data shows a third of children are malnourished — looks to be almost entirely focused on the capital, Pyongyang, home to the elite which keeps the Kim family in power.

The rise in the standard of living in Pyongyang may also have something to do with the more open style of Kim Jong-un, a far cry from the dour image his father cultivated.

The young Kim, who took power in North Korea following the death of his father, former North Korean leader Kim Jong-il, in December last year, appears to have reinforced policies to bolster the fortunes of the capital, which is home to more than 3 million people, or about 12 percent of the population.

It has been dubbed the “Republic of Pyongyang” by outsiders thanks to the lavish perks given to its residents in the form of theme parks, new apartments and renovations, in stark contrast to the rest of the country.

A magazine on display in a North Korean restaurant in Shenyang, China, showed the third Kim to rule the North touring a new theme park and luxury 40-story apartments in Pyongyang.

Kim Jong-un has been shown on North Korean media riding a rollercoaster and eating popcorn at a high-end restaurant in Pyongyang.

His wife, Ri Sol-ju, has a penchant for Christian Dior designer bags, a sign that conspicuous consumption among the elite is growing, said people who have had contact with the North.

“In the past, people couldn’t feel the gap between the rich and the poor because of state control, but since that control is loosening up, the gap between those who have and don’t have is widening,” said a Chinese trader who sometimes sells clothes to North Koreans.

For those left out, options appear to be narrowing.

An estimated 60,000 to 70,000 North Koreans sell their labor outside the country, working in factories in China, logging camps in Siberia and construction sites in the Middle East, Seoul-based advocacy groups say.

Some choose a more direct route to escape the North’s poverty, where annual GDP per capita is estimated to be US$1,800 on a purchasing power parity basis, based on an independent analysis.

A middleman in Shenyang who says that he helps North Korean refugees escape to prosperous South Korea has seen women choosing to be sold into marriage in China, or to work in brothels.

“They want to flee home, but there’s no other way than to be sold in a form of marriage,” said the man, who requested anonymity because of his safety. “One person is worth 10,000 yuan to 2,000 yuan.”