The Hidden People of North Korea (17 page)

Foreign Trade and Investment

Given the dire straits into which the North Korean economy has fallen, it very much needs foreign trade and investment, neither of which directly affects the lives of most North Koreans, who rarely come into contact with foreigners and are unable to purchase foreign goods other than inexpensive Chinese products that are trucked across the border. Because the North Korean media have imposed an almost total blackout on foreign news, only party members who work for trade organizations know anything about the international market.

In 1984, as it became clear that the North Korean economy was faltering, the government promulgated the Foreign Joint Venture Law. Kim Il-sung had visited China in 1982 and made another visit the following year to observe the success the Chinese were having with their own Joint Venture Management Enterprise Law. However, North Korea’s law was not particularly successful in attracting investment for several reasons: its provisions were not detailed enough to satisfy skeptical foreign investors, the government had long since reneged on its foreign debt, and North Korea’s transportation, communication, and power infrastructures were grossly inadequate to support modern business ventures. Most of the foreign investors who took advantage of the joint venture opportunity were Chinese and pro-DPRK Koreans living in Japan, with the total amount of investment estimated to be only $150 million, not the billions being invested in China.

From the beginning, the Kim regime was wary about foreign investment because it would inevitably be accompanied by foreign influence, which would poison the artificial political culture of
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ideology and Kim cult worship. In China, foreign investment was initially concentrated in a few trade zones where the government could limit the impact of foreign culture and keep an eye on the foreigners, and following this conservative model, the North Korean government decided to funnel foreign investments into its own trade zone. To maximize the economic impact of investment, a trade zone would ideally be located near a big city or port, which would offer the best infrastructure and the most skilled workers. But because political considerations took priority in the North Korean case, the first trade zone was located as far from Pyongyang and other business centers as possible, over three hundred miles away as the crow flies, in the remote and undeveloped northeast corner of the country.

In December 1991, a 621-square-kilometer Najin-Sonbong foreign economic trade zone was created, encompassing the towns of Najin (Rajin) and Sonbong. After the two towns were merged in August 2000, the name of the trade zone was changed to Nason (Rason). The zone was within a larger area designated by the United Nations Development Program (UNDP) as an international development area, and the UNDP provided seed money for planning and research. The North Koreans initially had high hopes for the zone because their lack of economic sophistication caused them to think in terms of geography rather than economics. They saw the site as a slice of land advantageously situated at the junction of a navigable river (the Tumen River) along the border with China and Russia, affording the opportunity to become an international hub of economic activity. Add cheap labor and tax incentives, and the zone looked like a fair imitation of China’s successful trade zones set up in Zhuhai, Shenzhen, Shantou, and Xiamen in the late 1970s—with the important difference that China’s zones were located close to the thriving capitalist centers of Taiwan and Hong Kong. One of the first preparations for the Nason zone was to enclose it with barbed wire and replace those of its residents considered to be “politically unreliable” with former soldiers.

The zone was connected to Russia by a dirt road. On the dirt road to China, the bridge over the Tumen River had been built by the Japanese during the colonial period. A rail line ran into the Russian city of Khasan, but the Russians (like the Chinese) complained that the North Koreans tended not to return their railcars. Roads from Nason to Pyongyang and the more developed western region of North Korea were likewise unpaved, and a train ride to Pyongyang could take anywhere from twenty hours to several days. Nason lacked both an airport and a container cargo port.

The zone has had a rocky history, and almost twenty years later, little progress has been made in its development. The original plans were to develop—or, rather, to have foreign investors develop—the zone in three stages, with an investment of $1.3 billion by 1995, another $1 billion by 2000, and yet another $1 billion by 2010. In September 1996, the North Koreans convened a grand business forum to attract foreign interest. A few curious businesspeople came from the United States and Western Europe, but most of the prospective investors were Chinese and Korean Japanese. The South Korean government, angered by the North Koreans’ refusal to extend invitations to over half of the fifty-three South Korean applicants, kept its entire delegation at home.

In a case of extremely bad timing, just three days after the investment conference ended, a South Korean taxicab driver spotted what turned out to be a North Korean spy submarine that had run aground on a South Korean beach. Searchers discovered eleven members of the submarine crew nearby, shot dead in an apparent murder-suicide pact. Another crew member was found alive, and in the days to follow, thirteen commandos who had disem-barked from the submarine were hunted down and killed by thousands of South Korean forces, with one commando escaping back to North Korea. In the course of the manhunt, the commandos killed four South Korean civilians, eight soldiers, and two policemen. The incident reminded prospective investors of how unstable the political situation was on the Korean Peninsula and decisively turned South Korean president Kim Young Sam against reconciliation with the North. Investor confidence was further shaken when Kim Chong-u, the North Korean economic official who presided over the conference, abruptly and permanently disappeared from view along with several of his associates the following year. The best guess is that they were purged for taking financial advantage of their economic positions, something that virtually all North Koreans who travel overseas do.

Although contracts amounting to $286 million were signed at the conference, since then almost the only discernible development in the zone has been the 1999 construction of a Chinese-owned hotel and gambling casino, but even that investment ran into trouble when a Chinese government official who embezzled several million yuan was found to have gambled much of it away at the casino. The Chinese government thereupon pressured the hotel’s owners to close the casino down in 2005, virtually shutting down the hotel as well, although the hotel reopened two years later. In 2007, Nason still reportedly had no traffic lights, no billboards, and only one small market. A Chinese tourist describes his visit to Najin as “travel back in time.”
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On the other hand, as a remote tourist attraction, the zone has much to recommend it: the air is clean, the scenery beautiful, and the seafood delicious.

A more successful zone was established in the beautiful mountain region of Kumgang (Diamond Mountain), in the far southeast corner of the country along the border with South Korea. The North Koreans fenced the area off and opened it to foreign (mostly South Korean) tourists, who began arriving in November 1998. The North Koreans chose Hyundai Asan, the branch of the Hyundai conglomerate that undertook the project, because Hyundai’s chairman, Chung Ju-yung, had originally come from North Korea. Yet Hyundai encountered numerous problems along the way, and it is not clear that the investment will ever become profitable, although as a symbol of inter-Korean reconciliation, it has continued to receive a measure of support from the South Korean government.
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In 2004, tourists began traveling to Kum-gang by bus across the Demilitarized Zone rather than by ferry, and in 2008, visitors were permitted to make the four-hour drive in their own cars for a fee of $330. A new hotel and reunion center was built and paid for by the South Koreans. By the end of 2007, over 1.7 million tourists, mostly South Koreans, had visited the mountain resort, and the Kim regime had received over $1 billion from tourist fees and business rights for the project.

Unfortunately, the Kumgang project encountered the same sort of political problems that plagued the Nason project after the submarine incursion. In the early morning hours of July 11, 2008, a North Korean soldier shot and killed a female South Korean tourist who had wandered onto an off-limits beach adjoining the hotel. The South Korean government demanded a joint investigation, and when the North Korean government refused, the South Koreans shut down the tour pending an investigation, whereupon the North Korean military expelled most of the South Korean resort staff. When the tours might resume is hard to guess.

With the Nason industrial investment zone going nowhere, the Kim regime looked for another doorway through which to attract foreign capital. In this case, a bizarre twist of fate prevented the zone from even getting off the drawing board. Plans were announced in 2002 to make the border city of Sinuiju in the northwest corner of the country into a special trade zone. Sinuiju, with a population of six hundred thousand, lies across the Yalu River from the thriving Chinese city of Dandong, the gateway to most of China’s trade with North Korea. The two cities are connected by a single-track railway and a one-lane road that cross the Friendship Bridge, built by the Japanese colonial administration.

To make Sinuiju attractive to foreign investors, the DPRK adopted the Basic Law of the Sinuiju Special Administrative Region, which provided the city with the same kind of autonomy that Hong Kong enjoyed when it was under British jurisdiction.
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For the next fifty years, Sinuiju would have its own executive, legislative, and judicial systems, staffed by foreigners and North Koreans. The city’s top executive, holding the rank of governor, would be a foreigner

Pyongyang’s selection for Sinuiju’s first governor ultimately doomed the new trade zone. The North Koreans’ choice for this responsible position, Yang Bin, one of China’s wealthiest businessmen, had become known to Kim Jong-il during a visit to China in 2001, during which Kim observed greenhouses producing fruits and vegetables in the middle of winter. Yang Bin’s company had built these greenhouses as part of Yang’s extensive tulip-growing business, and Yang was invited to Pyongyang to discuss building greenhouses in North Korea. He signed a $20 million contract, making a very good impression on the North Koreans, and it was as a result of this investment, in addition to his great wealth, that he was invited to become the governor of Sinuiju.

Yang estimated it would cost between $50 and $100 billion over ten years to build the necessary infrastructure in Sinuiju. Once the zone was up and running, foreigners would be permitted to enter without a North Korean visa, but North Korean citizens would only be allowed in with special permission. Yang planned to relocate two-thirds of Sinuiju’s residents out of the zone (offering each of them $100 above anything their own government might provide them), then to sell the vacated land to investors. Sinuiju’s basic law stipulated that the zone would be turned into “an international financial, trade, commercial, industrial, up-to-date science, amusement, and tourist center,” but Yang reportedly decided to push tourism and entertainment, that is, gambling, in order to get a quick infusion of capital from China.
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Apparently, government officials in Beijing were not consulted about the plans to make Sinuiju into a gambling destination, and when they heard that a Chinese citizen would be heading up what could become a major gambling city just across from the Chinese border, they were miffed.
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On the day Yang was to travel to Sinuiju, he was arrested by Chinese police and subsequently charged with a variety of crimes related to his business activities in China, including illegal use of agricultural land, fraud, and bribery; that is, he was accused of the types of crimes that any Chinese citizen would have to commit in order to become fabulously wealthy. In 2003, he was sentenced to eighteen years in prison, and Kim Jong-il needed to find another governor for Sinuiju.

Chapter two of the Sinuiju saga opened in September 2004 with news reports that the front-runner to replace Yang Bin was a Chinese Korean American woman by the name of Sha Rixiang, with the American name of Julie Sa.
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Born of Chinese parents in South Korea (her father came from Dandong), Sa emigrated to the United States and made money in real estate and a chain of Chinese restaurants in California. In 1992, she was elected to the city council of Fullerton, one of the cities in the metropolitan Los Angeles area, and in 1994 she served briefly as the city’s mayor.
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As a successful Korean American businesswoman, she was introduced to Kim Il-sung and Kim Jong-il in 1993. Although the DPRK government never officially announced that Sa had been picked as the new governor of Sinuiju, in a South Korean television interview in September 2004, Sa said she had been offered the job right after Yang Bin’s arrest.
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What happened after that is not clear because little more was ever heard about the proposed Sinuiju zone. As China–North Korean trade has increased, business in Dandong is booming. Why the Chinese, who hate the rapacious North Korean customs inspectors, would want to promote Sinuiju as a competing business center is not clear.

What might be called North Korea’s four-corners investment-zone strategy was completed by another business zone, this one in the southwest corner of the country. Years ago, Hyundai’s chairman Chung Ju-yung discussed with Kim Il-sung the possibility of establishing a manufacturing zone in the North, with the preferred location being near Pyongyang. However, the closest the Kim regime would allow foreign businesses to get to Pyongyang was Kaesong, 160 kilometers south of Pyongyang and 70 kilometers north of Seoul. Before the division of the peninsula, Kaesong was famous as a city of businessmen. In the initial partition of the Korean Peninsula, it fell within South Korea’s borders, but it was lost to North Korea during the Korean War.