Foreign Minister Ri Su Yong's Southeast Asia Tour Roundup

Foreign Minister Ri Su Yong has a reputation among people who have worked with him, both Koreans and foreigners, as someone who is innovative, open-minded, and results-oriented. You can read his biography at NKleadershipwatch. FM Ri is now on a whirlwind tour of Southeast Asia with stops in Laos, Vietnam, Myanmar, Indonesia and finally Singapore. FM Ri seems to be getting high level access, especially with meetings with Thein Sein and Jokowi in Myanmar and Indonesia. 

Here is a quick roundup of headlines from FM Ri’s ASEAN tour.

Laos - Not much headlines from this leg except for the usual news about renewing fraternal ties. Its likely that the North Korean refugee issue was one of the bilateral concerns raised, as Laos is often a stopover point for North Koreans making their way out of China to the South. 

Vietnam - General talk of cooperation but Vietnamese press emphasizing a focus on economic cooperation and sharing of economic development experiences. North Korea had a few public delegations last year to Vietnam via groups such as Rodong Sinmun and the Agriculture Union. Vietnam’s Women Union also visited North Korea in October last year.

Myanmar - Seems to be a productive trip with FM Ri meeting the Foreign Ministers of China and Japan. South Korean press focused on the underreporting in China and North Korea of the meeting with China FM Wang Yi. They claim the China-DPRK relationship freeze continues.

Japanese news focused on Japan FM Kishida’s meeting with FM Ri at an informal level, and that reassurances were made that the reinvestigation into the abductee issue was making progress.

Some Western analysts focused on alleged continuing military ties between Myanmar and North Korea, as FM Ri met with Thein Sein and the Minister of Defence. 

Indonesia - Indonesia has been trying to play a role as a peace mediator for North Korea. President-elect Jokowi  and FM Marty both met with FM Ri and intriguingly, Indonesian press mentioned that FM Ri had proposed “concrete” proposals to advance peace in the region. We will see if these proposals are truly new and whether they will gain traction with the US and South Korea. 

Singapore - FM Ri is in Singapore now. Let’s see what the press comes up with. But generally, official Korean visits to Singapore tend to focus on investment attraction. 

Hwanggumpyong's Master Plan

Hwanggumpyong, an SEZ that was carved out with some fanfare in 2011, remains a placid, pastoral scene. When you approach its gates, over a portion of the Yalu that is no more than a trickle, you're met by a friendly guard who mostly keeps the kids of tourists from squeezing through gaps in the fence. You're also faced with signage explaining Hwanggumpyong's masterplan.

This is interesting information. One of the recurring takeaways from CE programs is the need for greater we connectivity and a greater web presence. I've spent some time now searching both the Korean and the English web and can't find this plan, but perhaps my google-fu/naver-do is weak. At any rate, one should be able to find this stuff more easily. 

Below is an English translation of the billboard followed by pictures.

Translations by Wang Xingyu and Alicia Bang.

Huangjinping Economic Zone Overall Planning 

Huangjinping is affiliated with Huangjinping, Ryongchon, North Pyongan Province in North Korea.  It is located in the lower reaches of Yalu River, the Northwestern North Korea, and connects with Dandong through a landway. Huangjinping is 10 km from Yalu River, and 20 km from Wihwa Island, 16 km from Sinuiju, 220 km from Pyongyang, 400 km from Seoul, 240 km from Shenyang and 300 km from Dalian. 20-kilometre radius around Huangjinping Economic Zone, the transportation infrastructure facilities are comprehensive, including a port (Dandong Port), three highways (Shenyang-Dandong, Dandong-Tonghua and Dandong-Dalian), one airport (Langtou Airport), two cross-boarder bridge (Yalu River Bridge and New Yalu River Road Bridge), and three railroads (Northeast eastern railroad, Shenyang-Dandong Passenger Transport Line, Dandong-Dalian express railroad).

The total area of Huangjinping Economic Zone is 14.49 km², which consists of the main island, inner island and upper island.

All planned out.

Map Key

Planning Huangjinping Economic Zone to build up “five main industries” development:

1.     Electronic Information Industry

Will mainly produce computers, communication equipment, instruments and apparatus, etc. Also will develop software outsourcing industry.

2.     Garment Processing Industry

Will mainly produce brand-name clothes and accessories, and also all kinds of clothes products that North Korea needs.

3.     Modern Efficient Agricultural Industry

Will mainly produce modern facility agriculture and food processing industry.

4.     Cultural Tourist Industry

Will focus on folk culture, business conferences, competitive athletics, agricultural tours and other tourist projects. Also will develop animation creations and tourist projects based on the theme of “Arirang”.

5.     Commercial Service Industry

Focuses on processing commerce and service commerce, and develops logistics, business, finance and other service industries. 

Meanwhile, the Chinese side of the border looks increasingly ready to handle heavier trade flows. A huge and mostly empty 'New Dandong' has been built, which looks like it has housing capacity to at least double the population of the city. It has a new immigration facility. The Yalu River bridge linking the two countries appears very near completion - the guard noted this would be a very quick way to link traffic to and from the island to the Korean 'mainland'. New Dandong has wide boulevards, easy for truckers to happily navigate and get quickly onto highways rather than lumber around central Dandong, where the old bridge is located.

Now, of course, a masterplan is just an idea. A quick review of this one suggest if not a degree of ambition, at least the sense that a wide variety of non-capital intensive industries might work. Textiles are an obvious one and it is nice to see a more pragmatic 'electronics' appear, rather than the elusive 'high-tech' that the DPRK so desires. Assembly of CD players or USB sticks is a more likely goal. Tourism is also included, which makes sense, given that millions of domestic tourists visit Dandong, mostly to gawk at North Korea.

Food processing is also a good idea, too, given the location: Hwanggumpyong is essentially in the heart of China's corn and soy belt and would have easy access to a growing Korean and Northeast Chinese market for the kind of crappy processed foods of which corn and soy are the foundations. But, like so many of these things, having a Korean company put down some roots to demonstrate viability would be good. Any large factory will need power, though.

That is where complications begin and where the masterplan remains silent. Any large investment on the island would require a lot of electricity, which will have to be supplied from China and would have to be timed to come online about the same as a factory or cluster of factories. That takes coordination, stability and...well...things that aren't quite there yet.

And just to play us out, a classic from the 1990s, whose lyrics are about masterplans and possibly accepting frustrating situations. (Though really, one has to think Noel Gallagher would just pick whatever rhymed.)

Chinese Media Suggests Rason is Rockin'

Two recent reports from China's Northeast suggest that fishing and tourism, two of Rason's important industries are having busy summers.

With regard to fishing, a profitable business long before there were fancy new roads, Russian train links or legal changes, the article below appears to suggest that Rason might be experiencing bumper seafood harvests this summer. A more pessimistic interpretation of the article might be that Chinese customs authorities haven't allocated enough staff for the amount of seafood coming across the border and so are scrambling to keep up by foisting overtime duties on the staff.

Tourism is a more recent growth industry in Rason: as tourism has increased in the DPRK generally, Rason seems to have discovered that they have beaches while 65 million Jiliners and Jeiliongjangians do not. This has led to some experiments that have not taken place anywhere else in North Korea, including self-drive and 'visa free' tourism and now the train trip referenced in the article below.

Research and translation by Wang Xingyu.

Import of Hunchun Quanhe River Port: marine products can enjoy "Private Tailor" service. 

(Note: "Private Tailor" is a Chinese recent movie talking about special service for the rich, and here it means marine products can have special and quicker access for import)

Date: 07/23

Link: http://www.shuichan.cc/news_view-198647.html

From: China Aquiculture Website

Recently, towards the end of the work day, seven trucks of frozen marine products crossed the border at Quanhe River Port, Jilin. Because of the hot weather, these products might not be able to stay fresh if not processed quickly. In order to reduce companies' losses, the Office of Export Processing Zone in Hunchun Customs, affiliated to Changchun Customs, left personnel in charge of inspection to work overtime in order to inspect and allow passage of products. The procedure took less then two hour.

Quanhe Customs, leading to Rason, in 2012

Since June, the Export Processing Zone Office of Hunchun Customs have worked overtime again and again for marine-products companies in order to inspect and allow the passage of products. The total number of trucks inspected is more than 60, carrying over 1240 tons of products.

From this year, in order to promote the billions-of-RMB-level marine product industry construction in Hunchun, Hunchun Customs has created a new service method that provides “Private Tailor” service to marine product companies. It is aimed at companies that have good credit and standing who can now enjoy the convenience of declaring all their goods together. And as frozen marine products are not easy to keep, a series of services tailored for the marine products processing industry have been created to limit the passage time of marine products, including centralized declaration, pre-appointment custom passage, regulation only after the goods arrive, prior inspection, prior passage, etc. At the same time, in order to improve the freshness of living marine products, companies are allowed to load and breed sea creatures in cultivation bases in the area and ship partially but declare fully.

Taehung Company in Rason does seafood processing and will grill you up a mean cuttlefish if you visit.

Since the educational and practical activity – the mass line of the Party – has been implemented, Hunchun Customs deeply developed refurbishment specifically for the “windows” – the customs office, by creating sunny windows, convenient windows, and brand windows, focuses on solving, communicating, and serving the masses of their “last one kilometer” problem, making sure to live up to the slogan: “all for people, be practical and honest”. The customs office also provides companies with declaration, taxation, inspection, clearance, and all other “one-stop” window service, which improve the efficiency of freight movements and clearance rate. Carrying out “5+2”, “24/7” all day appointment clearance for living and perishable sea products, the Office of Export Processing Zone in Hunchun Custom provides companies with “Upon Arrivial, Immediate Inspection and Release” service, which has been largely praised by companies.

Yanji China–Rason North Korea International Through Train for Travelling will be opened on August 2nd

Date: 07/29

Link: http://travel.sina.com.cn/china/2014-07-29/0916270908.shtml

From: Metro Evening News

On July 28th, the Yanji government held a press conference, declaring that a Yanji, China–Rason North Korea International Through Train for Traveling will begin on August 2nd.

In order to provide tourists with a convenient, fast and comfortable traveling environment, Yanbian transportation companies and the Rason Tourism Bureau negotiated and have decided that from August 2nd, 2014, the Yanji China–Rason North Korea International Through Train will be opened. Tourists may take this train to attend a two-day tour, and need not transfer to North Korean cars. 

Rason: quite lovely in the summer

According to the information provided, this train is a luxury through train and only runs once per day. After opening this line, Yanji will also provide tourism packages of two-days traveling in North Korea. Adult fare will be 799 RMB, though this is the special offer price during students’ holiday. The through train will start at six o’clock everyday from the gate of Yanji Northeast Passenger Station. Spots visited on the first day consist of Rajin Port, an Art Exhibit, Foreign Language Bookstore and the Kimilsungia (Kim Il Sung’s flower) and Kimjongilia (Kim Jong Il’s flower) Greenhouse. On the second day, tourists spend the whole day playing beside the sea or swimming in the sea, and then take train back to Yanji at three o’clock. 

It appears as if a bus service with a similar schedule has just been launched, also. One wonders if it augments or supplants the train trip.

Yet Another Taxi Post

Casual readers of this blog might assume that we have no interests beyond coffee and taxis. That image will not be dispelled by this post.

In the last year, we've twice noted the expansion of Pyongyang's taxi fleet on this blog (here and here). It's happened again, with a new company on the scene, sporting bigger cars and more obvious branding. The new fleet's classy crimson and gold is broken up by the white KKG logo on the side, the first taxi company to be branded so blatantly. KKG is the company that is supposedly developing a stretch of the Taedonggang waterfront.

vroom vroom.

The cars are Chinese-made Hawtai Lu Sheng E70s, a roomy sedan that is much bigger than the cars used by other taxi fleets. It appears as if the KKG taxis have literally crowded out other players: fewer of the green 'Beijing Taxis' seem to be on the streets and we were told that many had been sent to service markets in other, presumably less lucrative cities. Perhaps over the past year the limits of the Pyongyang market have been reached.

Oh...and we will post more about coffee soon, too.

China News Service on DPRK's new SEZs

Last week, the DPRK announced new special economic zones (6 appears to be the number reported, though we were told 7 last week by an official). It was widely covered in Chinese media, an example of which is below. Interestingly, the only commentary provided in this piece is from a South Korean scholar, who goes unnamed.

North Korea newly open up several economic zones to attract foreign investment and stimulate development

Link: http://www.chinanews.com/gj/2014/07-23/6418969.shtml

From: China News

Date: 07/23/14

According to various foreign media, on July 23th the DPRK Supreme People’s Assembly established a decree declaring that the decision to set up several economic zones in Pyongyang, South Hwanghae, Nampo, South Pyongan and North Pyongan has been made.

As reported, the DPRK plans to set up a high technology development zone in Pyongyang, a international green demonstration zone in South Hwanghae, a industrial and agriculture development zone in South Pyongan, a touristic zone in North Pyongan, and an export processing zone in Nampo. Thus, the number of North Korean economic zones will increase to 19.

Last year in November, the DPRK government designated 13 economic zones, including the Yalu River Economic Zone, Sinpyong Touristic Zone, Manpo Economic Zone, etc.

Furthermore, North Korea also decided to rename the “Sinuiju Special Economic Zone” in North Pyongan to the “Sinuiju International Economic Zone”. Last month, North Korea subsumed the Joint Venture and Investment Committee with National Economic Development Committee into the Ministry of Trade, and also renamed “the  Ministry of Trade” as “the Ministry of External Economy”, and thus achieved the integration of ways to attract foreign capitals.

A professor in the Institute of Far Eastern Studies from Kyungnam University said that North Korean actions reflect the purpose of using economic zones to develop economy, and renaming the Sinuiju Economic Zone means to give the initiative to foreign companies and improve the level of development.

Research and Translation by Wang Xing Yu

Not covered in recent SEZ news

Participants network at a program

KCNA and NKnews recently reported on the designation of six new special economic zones (SEZ) in North Korea. This brings the total to… a lot. We are not dwelling on the exact numbers as this policy is still evolving, and we are likely to see more zones spring up.

The article does not mention whether these are the ‘spot SEZs’ of 2-3 square kilometers or the larger ones of 200 square kilometers. We are leaning towards the ’spot SEZs’ guess, at least for some of these areas, as we had local officials from those places attend training earlier these year. It was clear at that point that some of these local zone requests were being processed.

Another positive news that may be coming up, which we recently heard about, is changes to the law that would allow wholly-owned foreign enterprises (WOFE) in the SEZs. Previously, only Rason allowed WOFE set-up. This has not prevented some enterprising service-focused firms to set up in Rason and operate outside of the area. 

Some things we would like to clarity if and when this law surfaces, include

a. How will WOFE in these zones interact with the economy outside of the zones?

Are there rules in place to allow interaction across boundaries? We were told that Rason has pioneered some of these rules, so we hope to see it rolled out across the other zones. As many observers have mentioned, self-contained zones are of limited interest to investors, and provide limited benefit (positive externalities) to the domestic economy.

b. Will enterprising locals “roundtrip”? 

That is, will they partner with foreign investors to set up their own companies in the zones using the foreigners’ name? This would allow individual North Koreans to own companies, potentially provide them with more security over their assets, and reduce their tax rates. While the state might frown on such an activity, one cannot help but sympathize with local entrepreneurs who face onerous and fluctuating calls for “donations”, and an uncertain legal framework. In China’s case, supporting local enterprise, and providing loopholes, apparently pays off for the economy in the long run.

c. Will the law eventually be extended to provide the same opportunities to enterprising locals, allowing them to (belatedly) own their own companies?

We believe that making the business environment more conductive for domestic entrepreneurs is important for reviving the economy and for creating domestic companies that can eventually be competitive regionally.

Financial Times Feature on CE's Business Training

At a simulation exercise involving resource purchases, snowflake making and snowflake selling.

The Financial Times has a piece in its management section on Choson Exchange's training programs in North Korea. It sits behind a paywall. Here is a small excerpt and I strongly recommend you subscribe to FT for its fine journalism, and not just on North Korea:

... More than 180 trainees took part in the first quarter of this year alone.

The courses are designed to support North Korea’s growing numbers of small-business owners, as the state shows increasing flexibility towards breaches of its collectivist official dog­ma in its efforts to revitalise a long-stagnant economy. Most Choson Exchange trainees work at state companies or institutions. But others are running small enterprises, typically restaurants or cafés, and the programme hopes to encourage more Koreans to follow suit.

The sessions in North Korea involve a foreign volunteer – usually an entrepreneur, or a marketing expert – giving a talk on western business practices, with the aid of an interpreter.

“There’s a broad set of vocabulary that is missing” where business is concerned, notes Andray Abrahamian, executive director of Choson Exchange. “When the workshop leader delivers a sentence, the translator might speak for a couple of minutes to make sure the message got through.”

....

But the full importance of Choson Exchange’s work may become clear only after a North Korean transition to a truly market-based economy, when it would be in dire need of people who understand modern business, says Andrei Lan­kov, a professor at Seoul’s Kookmin University. “They are one of a few groups doing something that makes sense,” he says. “The only way to change North Korea is to expose North Koreans – especially the elite – to some knowledge of the outside world.”

Choson Exchange tackles this in an unusually direct way: by taking its most promising trainees to Singapore to ex­pose them to the cutting edge of Asian capitalism. Permission – and resources – to travel abroad are hard to come by in North Korea, even for Pyongyang residents. Most of the trainees have never left the country, and even the exceptions have nearly always been only to northeast China...

Things Koreans Ask

North Korean conducts an orchestra in Singapore!

Bringing North Koreans abroad is never easy, especially for those with limited experience living abroad independently. They have so many questions. Their questions reflect the different system they come from, and the limited international immersion they have. Because of their ‘alien’ perspective, their questions force me to think deeply about why things are the way they are. Here is a small sample: 

1.     Why does your government allow all these shops to give discounts? How do they calculate the tax revenue if shops are giving all these discounts?

Because a Singapore without discounts is not Singapore?

2. How can the audit companies regulate their own industry?

Beats me! Ask Arthur Andersen?

3. Who does one go to to get permission to talk to foreigners in your country?

Yo mama!

4. I don’t understand how Singapore became a medical hub. Did you have to go to war to acquire the technology?

Paying your bills helps too.

5. Singaporeans are too international. They study abroad, travel everywhere and work overseas. Their relationship to their country is so weak. How does Singapore keep its people in Singapore?

Parental pressure.

Yanji News: Quanhe River Port Bridge One Step Closer

An article in the Yanji News reports that one step towards a new bridge linking Yanbian with Rason was taken last week:

 China-North Korea Border Ring River Port Bridge Construction Project approved by the Ministry of Environmental Protection

Date: 07/07/2014

Link: http://www.yanjinews.com/html/news/yanbiannews/2014/0707/47791.html

A billboard ad by Hunchun City, facing Korea, exhorting pushing forward together to open transportation routes.

The China-North Korea Border Quanhe River Port Bridge Construction is one of the most important construction projects in Hunchun. This project is located at the Hunchun Border Quanhe Port, at the intersection of the low reaches of Tumen River and Quanhe River. It connects Hunchun with the Won Jong Ri in North Korea. The bridge starts from the China Border Port, and ends at the south of the North Korean Joint Inspection Building. The building is still under construction. The bridge will be 920 meters long, and can satisfy the transportation needs between North Korea and China, and stimulate the development of international business between China and North Korea.

The approval of Environmental Impact Statement of this project will lay the foundation of future construction. 

Research and Translation by Wang Xing Yu

Marching towards modern banks or sliding towards 2009?

Visiting a bank to run a workshop on risk management in 2012

North Korean banks have limited lending function. They function as a service provider, catering to trading companies conducting foreign transactions. Consumer deposits are a small part of bank liabilities, and we have often urged bankers to focus on building a depositor-based banking system to enable a more efficient commercial lending market.

Former World Bank staff and North Korea watcher Brad Babson recently wrote at NKnews about the need for a properly functioning domestic banking system for North Korea to accelerate development. Financial sector development in North Korea is an area we have always been concerned with, not just because our very first in-country program in the country focused on this area, but because easier access to capital is one of the things that domestic entrepreneurs sorely need. We support the growth of the domestic entrepreneurial sector, and capital is something this sector sorely needs.

The most interesting piece of recent news concerning the financial sector was an article published in Kim Il Sung University Gazette about mobilizing ‘idle funds.’ It goes on to say (re-citing from IFES):

The article states the following: “Some of the funds that are being circulated in the market have strayed away from the normal production process and distribution passage and remain harbored in the hands of organizations, enterprises, and people. . . . Mobilization of idle funds shall meet the funding needs of the state and serve as a source of supplementary income to increase state revenue.”

The article adds that “The state should secure idle funds of institutions and enterprises through banks and mobilize idle cash kept by the people through savings and insurance,” and furthermore states that “Banks should concentrate to have control over idle funds.”

If this idea is followed by good policy, it could potentially become a catalyst to the growth of domestic enterprises by enabling savings to be more efficiently channeled into investments. A pessimistic reading of the idea is that this could end up being a confiscatory measure meant to force domestic companies and individuals to pour their foreign currency into state bonds or state banks lending on non-commercial terms. This brings echoes of the 2009 chaos when a currency revaluation accompanied by a cap on the amount of old currency one could exchange into the new one devastated the merchant class and confiscated their wealth.

Some of our team members have toyed with various small-scale ideas on providing capital to small businesses in the country. Bank lending, venture financing, cooperatives, insurance or microfinance are all needed. Greater transparency in the sector, better reporting standards, and access for foreign players can help bring down interest rates. Building confidence in banks among depositors will be a key challenge.

With this new financial system in place, the Central Bank will have to take on an enhanced role managing an unprecedentedly complex financial sector (by DPRK standards). Traditionally, North Korean banks operate with limited oversight from the Central Bank or the Ministry of Finance. Given the Central Bank’s limited experience managing the financial sector, it will have a steep learning curve ahead of it, and this is a curve it needs to climb with greater knowledge assistance.