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Russia: back

Russia, as we've noted, is back in business in the DPRK: months before being 'lumped together' by the Obama Administration in the wake of the Ukraine crisis, Russia's presence was being felt in Rason with infrastructure projects and across the country with cultural and entertainment products gaining prominence.

Last month, Russia and the DPRK announced a Ruble-trade agreement, under which Russian banks can finance North Korean trade in rubles. Earlier in the year, the process for writing off 90% of of a huge Soviet-era debt owed by Pyongyang was completed by Moscow.

And yesterday, it was announced that the first shipment of Russian coal to South Korea through Rason is going to take place. This is significant as it is a test, essentially, of how willing both Koreas are for Russia to act as guarantor and underwriter for inter-Korean economic projects. Russian dreams of a gas pipeline to the ROK. This is a tiny step in that direction and if coal shipments become regularized after this test, stakeholders in both Koreas could quickly become addicted to the easy cash and cheap fuel that comes out with it.

Pyongyang is pleased to have someone not-China step up as a trading and investment partner, while Seoul is looking for backdoor investment possibilities. It is early days, but this trilateral relationship is now worth keeping an eye on.

A Russian-made Antonov AN-148 on the tarmac at Sunan International Airport on a rainy day 

A Russian-made Antonov AN-148 on the tarmac at Sunan International Airport on a rainy day 

The ABCs of SEZs

Yesterday, Andray presented a paper on the Special Economic Zones of North Korea, highlighting their importance for a few reasons as well as making an Oprah joke that only two people really laughed at. The paper outlines some basic features of the new zones created in 2013 and 2014 and highlights four zones that have the best prospects.

Other takeaways on the SEZ policy include: 

•It’s Kim Jong Un’s most visible experiment with the economy and has changed expectations on the ground, creating a positive energy among local officials and businesspeople.

•It offers multiple platforms for further experiments - Rason has conducted a number of experiments over the years, including telecommunications and visa rules, and its possible that other zones will be able to act as platforms for tinkering with some of the rules that currently limit development in the DPRK.

•For Choson Exchange it has opened up new audiences in the provinces and allowed us to interact with a broader range of people.

The full paper is available here. It will make an excellent stocking stuffer for all the family.

 

Think Big, Focus Small

Workshop participants preparing for a presentation to invited guests

Workshop participants preparing for a presentation to invited guests

“Will there be special visa policies for Wonsan? … Is it possible to bring foreign workers in to work? … Can the lease of land be renewed after 50 years? …”

In October, Choson Exchange organized its first ever-training program for North Koreans in Vietnam. Participants spent a week in Vietnam learning about the land lease/sales issues and came to Singapore for another week to further study the issues in a different context.

The workshops concluded with vibrant discussions between our North Korean participants and invited guests, which included industry experts and seasoned investors. For over three hours, they exchanged opinions on the development of the Kangwon province on the East Coast, which includes Wonsan city, and sits on the border with South Korea and faces Japan. For those unfamiliar with this less-visited part of North Korea, this area also includes Masik Pass Ski Resort, the recently renovated Songdowon Children’s Camp, and the Kalma Beach Resort. 

Participants visit a masterplanning institute in Hanoi

Participants visit a masterplanning institute in Hanoi

With much media coverage on the feasibility of Wonsan’s ambitious plan to become a key tourist destination, we were fortunate to have a group of researchers and managers working on the region’s development, which gave us a more clarity on the status and outlook of the project. 

Calvin, the urban planner and architect who put together part of the program, had the following comments:

Think Big

For a start, the macro strategy seems to make sense. I think there are several broad strategic moves that are generally positive. From a planning perspective, the incorporation of Wonsan, Tongchon and Mount Kumgang into a single development area is a natural choice in terms of their complementary urban, geographical and natural landscape profiles. In fact, this regions development potential has already been identified by Hyundai Asan in 2007 and Kempinski Group in 2011.

Learning about land issues at the Urban Redevelopment Authorities gallery

Learning about land issues at the Urban Redevelopment Authorities gallery

In addition, the administration has been streamlined with the creation of the General Development Corporation for Wonsan Region under the purview of Ministry of External Economic Affairs, with the ability to bring in relevant local organisations and ministries to work on specific areas of the project. Such a move would provide clarity for investors in having to go to a single agency instead of negotiating the complicated web of local organisations. Also, it may deter unnecessary duplication of competing infrastructural and administrative functions in different cities within the zone. [Editor: It remains to be seen how stable this entity will be, as many investment agencies get folded into other organizations after failing to make progress]

Focus Small

Given the sheer size of the 430km2 zone, defining the right project to begin with can be challenging. In fact, one of the common discussions throughout the workshop was identifying the priorities for development where participants each echoed their rationale, with some prioritising the construction of new hotels to attract tourists and others prioritising the improvement of road infrastructure to allow better accessibility to the region. 

However, one workshop leader emphasized caution in equating the delivery of infrastructure to progress for the tourism zone. He mentioned that while it is easier to measure and track the development of physical infrastructure, it is more important and also more difficult in creating the right experience and environment to attract tourists. In addition, the success of expensive long-term infrastructure projects is highly susceptible to economic and political tides. PLT´s $200 million Korean-drum inspired airport terminal in Wonsan is a case in point. However, according to some of the participants, construction of an airport is currently underway with a simpler clam-shaped terminal.

In addition, some of the workshop leaders also emphasized the need for more creative ways in funding and implementing the projects. One of them explained that developing the tourism zone is not only about creating a unique product for visitors, but also in coming up with a unique strategy to deliver that product. 

However, participants often focus on solving technical problems in the most direct way without considering alternative indirect solutions. Take passenger rail infrastructure as an example. Attracting foreign funds to develop the capital-intensive project is a topic of interest. Two workshop leaders addressed this issue, but instead of talking about tax incentives, as participants expected, participants heard about an entirely different funding model. The first workshop leader suggested that apart from seeking funding through direct sources, the cost of transport infrastructure could be financed through the sale of adjacent real estate, while the second questioned the relevancy of developing expensive passenger rail infrastructure all together. He explained that at the current stage of development with low passenger demand, it will be wiser to use bus systems before scaling up to more sophisticated rail systems when demand picks up. It was helpful that the workshop leaders explain the concepts based on their own personal experiences in developing projects as a developer and planner respectively, which helped the participants better understand their rationale behind the suggestions. 

Therefore, for this land development workshop, we took a different approach focusing on business fundamentals. Instead of focusing on policy topics, we decided to expose participants to specific topics of real estate development, tourism development, land planning, financing mechanisms, taxation, regulations, etc. We hope that by letting them experience the ground and interact with respective industry experts in Vietnam and Singapore, they would observe and pick up specific best practices and stimulate discussions on concepts that may be foreign to them.

In short, although there are still many details that need to be ironed out, various workshop leaders agreed that the broad strategies are generally pointing in the right direction. The Wonsan tourism zone may not the next Ha Long Bay or Sentosa in the near future. But if they can secure a few early wins, such as proposed by one of the participants, through developing favourable visa policies and twinning tour packages with other tourist destinations in Asia coupled with the completion of the airport, we may see more flights heading towards Wonsan in the near future.


Internet rumormongering & Julian Assange

There has been a recent fake article going around in social media circles in Singapore falsely claiming that our Managing Director (i.e. me) has been arrested as the person behind a satire Facebook page active in Singapore (SMRT Ltd Feedback) that is behind a recent case of "internet vigilantism." SMRT Ltd Feedback has been posting personal details of the owner of a shop operating in IT shopping hub Sim Lim Square in Singapore. This shop owner has been in the media limelight for aggressive sales tactics that has shortchanged its customers (many of them foreign tourists unaware of what recourse they have). The fake article also links me to Wikileaks, and I can assure you, my alter ego is not Julian Assange, nor do I share his fondness for room rentals at Ecuadorian embassies.

This article was perpetrated using a web tool that allows people to fake news article, and in this case, the person perpetrating this defamation created fake articles on local papers Straits Times, The New Paper and Asia One illegally using a public photo taken by Straits Time for an interview in April related to the work of Choson Exchange.

We support entrepreneurship in North Korea through economics, business and legal training. We do not exist to troll errant shopowners, nor to shop for confidential documents to post online.

This is distressing news to family and friends, as well as to supporters of the good work our non-profit has been doing. It is also again a reminder that the internet and social media carries many manufactured rumors, that can come from any corners, and that one should be an informed and careful consumer of internet news, or any news and information for that matter.

Chinese Media Roundup: Ebola Edition

Choson Exchange has been speaking to people in both the PRC and the DPRK, trying to figure out exactly how far and wide the application of this Ebola travel ban and quarantine is. There has still been some confusion this week, with some claims that Chinese businesspeople can visit and avoid quarantine, while others note that "even guys who live in Yanji and go to Rason all the time cannot visit". One person we spoke with speculated that pre-existing multiple entry visas are being honored, without quarantine requirements, while any new visa holders would be subject to a 21-day isolation period, which essentially acts as a travel ban. 

We turned to the Chinese media to see what information is being promulgated publicly:

This article in Xinhua from the 31st of October notes that "the North Korean Non-permanent National Emergency Epidemic Prevention Committee spoke to diplomatic missions in North Korea at midnight, informing that in order to prevent the spread of Ebola virus, the Committee will take emergency measures and require all foreign citizens entering from other countries to receive a 21-day quarantine and medical observation from health officials." The article crucially notes that "all" (所有) foreigners are subject to the rule and mentions no exceptions for Chinese citizens.

blap blap blap blap blap!

blap blap blap blap blap!

Xinhua also ran this dandy image (http://news.xinhuanet.com/photo/ttgg/2014-10/27/c_127146437.htm) from earlier last week.

Then last weekend, the Chinese Ministry of Foreign Affairs published a "Reminder of Entry Requirements" notice that "the consular department reminds Chinese citizens who are heading to North Korea to pay attention to the entry requirements in North Korea, and arrange plans properly according to actual demands."

Not fantastically helpful and a week later, it's still not clear if exemptions have been made in the last week or who can get them. Trucks apparently still go back and forth across the PRC-DPRK border, however, so someone is making sure trade isn't completely choked off.

Translation and Research by Wang Xingyu.

CE Talks in the Bay Area

On the 12th of November at UC Berkeley, please join Andray for a chat about Choson Exchange and the DPRK: 

at http://events.berkeley.edu/index.php/calendar/sn/stafforg.html?event_ID=82360&date=2014-11-12

Also, on the evening of the 13th, Andray is leading a discussion at a tech company in San Francisco on the DPRK's tech industry. Email him at andray.abra@chosonexchange.org if interested in attending.

 

Another day, another disruption - Koreans make do with Ebola measures

We mentioned last week that North Korea’s Ebola response could be better communicated, in order to minimize disruptions to its stakeholders. Over the course of the last two weeks, there seems to be a herky-jerky response to Ebola from the country, with uncertainty over what kinds of travel would be restricted, and a rapid escalation of quarantine measures over a short span of a few days. Choe Sang Hun at the New York Times, Anna Fifeld at Washington Post and Eric Talmadge at Associated Press covered this sequence of events well

This episode tells us a lot about how policy is made in North Korea. Like many policies, decisions are made within a small circle of key decision-makers, with limited stakeholder consultation, then circulated to Ministries and middle-level officials to implement. Because of the limited information available to the middle management, many of them are left to guess how the policy will be implemented. The North Korean Ebola-related travel restriction reflects this, as North Koreans in-charge of overseas exchanges were themselves finding out more about what travel restrictions were in place each day. For certain policies, not including the Ebola prevention measures, this at times provides a degree of discretion to the people implementing the policy.

To give credit to the North Koreans working with foreign counterparts, many of them have been trying their best to be as responsive as they can be despite the limited information they were given on a rapidly changing policy. For example, shortly after hearing about bans on tourist visits because of Ebola, our partner made efforts to understand how this would affect a training program on tech entrepreneurship we were preparing to hold in Singapore. We were initially informed that the program had to be cancelled, as participants could not leave to attend the program. We requested that they check if a program later in November would work.

After further consultations with the relevant authorities, our partners indicated that permissions might be secured for travel for a mid-November program and requested a delay of the program. During this period, they have been actively communicating with us, despite the information silo they themselves operate in. For that, we have our partners to thank.

Money, Money, Money

The China-led $100 billion Asian Infrastructure Investment Bank (AIIB) has nearly come into existence just a year after Xi Jinping proposed it. Twenty one countries signed a memorandum of understanding Friday on establishing the new multilateral bank. China will have a stake of up to 50% in the AIIB, compared to just 6.5% in the Asian Development Bank (ADB). This has implications reaching far and wide, and has generally been viewed as a challenge to the US-dominated IMF/world bank complex and the Japan-led ADB.

It has caused some debate among US allies in the region, with Australia and South Korea notably prevaricating on joining and probably just delaying the inevitable. Less noted is that it has also added a carrot to China’s toolbox of vegetable inducement metaphors in dealing with North Korea.

North Korea is cut off from World Bank and ADB development funds and it is difficult to see anything other than a full denuclearization and a serious human-rights review leading to cooperation between the DPRK and those financial institutions, which are largely controlled by the US and its allies. China’s baseline for “good behavior” from North Korea is significantly lower than that of the US: it is not difficult to imagine a scenario in which North Korea could be rewarded for progress on the nuclear issue with AIIB loans for development. It certainly could be part of a package deal. Major development projects could help underwrite systemic legitimacy in some ways; that might very well be a pitch that the Chinese will make to the Korean side at some point.

Note, however, that the AIIB MOU is happening at the same time as the DPRK is making a curious choice regarding borders and ebola, while the nuclear issue remains a stagnant, long term problem. So let’s not assume that an AIIB-Pyongyang project will happen anytime soon.

What will be happening more immediately is that Russia’s role in North Korean financing is going to increase: Russia has started interbank transactions with North Korea in the ruble. This little-noted news item comes at a time when Russia is looking for friends, its banks are increasingly squeezed by sanctions and the DPRK is looking for additional channels to move funds in and out of the country. After all, North Koreans increasingly complain that Chinese banks won’t do business with them.

This is therefore potentially a lifeline for DPRK businesses. Even though the vast majority of trade will still have to go through China, the banking deal, Russia’s investment in Rason and the massive 2012 debt forgiveness of $11bln USD and now direct trade in rubles means that North Koreans will increasingly try to move funds through Russia to elsewhere. They will also see businesses in Russia’s Far East as increasingly easy trading partners. We will probably even start to see Russian middlemen selling Chinese goods to Koreans through Primosky Krai*.

For the DPRK, Russia can never balance China the way it could during the Cold War, but this will help. 

 

 

*Author would like to know if it is racist that he thinks “Primorsky Krai” sounds Klingon.

North Korea's Ebola Shutdown Widens

Is it just us or every fall is there some drama that shakes up North Korea’s relationships with its business partners? Last year, it was Jang Sung Taek’s sudden purge.  This year it’s the border shutdown due to Ebola. Last week, we found out that that tourists would not be able to enter the DPRK. Now it also seems that North Koreans are apparently not allowed abroad, at least to Singapore (and probably other countries), for training purposes.

We are still trying to find out more about these latest measures and when they will be reverted so that our programs can continue. But at least we now know that hyping up Ebola in the media is much more effective as a tool to isolate North Korea than anything else in the sanctions arsenal. Is this a misreading of the Ebola threat? Is it a genuine fear that they could not deal with a single case of Ebola? Is it a message for the domestic audience? Is it that North Korea’s underlying “fear of the foreign” is greater than their desire to be part of international society? As far as we're aware, at this point in time, North Korea is the only country to completely shut its border to all tourists, regardless of their travel history.

Expert Hyungchol Choi has this to say:  "No country was better prepared to repel the infestation than North Korea…" OK, so Cho may be the fictional director of the South Korean intelligence service in Max Brooks’s 2006 dystopian novel World War Z. And he was of course commenting on a zombie apocalypse outbreak, not Ebola. Foreshadowing real life, though, in the novel North Korea shuts its borders decisively when the outbreak happens*. 

While a complete shutdown of the borders to all travel, even to places with no record of Ebola or Zombieism, is completely within North Korea’s rights, the manner in which these measures were rolled out leaves much to be desired. For a start, it was poorly communicated. News came out of it not through official KCNA channels, but through North Korean tour guides in North Korea to their foreign counterparts. There was little information on what groups (e.g. tourists, business people, diplomats, NGOs) would be affected, whether outbound North Korean travel would be curtailed, how the shutdown would be rolled out, or under what conditions the shutdown would be relaxed.

In the run-up to the shutdown, there was also little communication that such measures were being considered. This didn’t allow stakeholders time to prepare for it. For Choson Exchange, we could be seeing potentially tens of thousands of dollars of losses as we delay training programs, and possibly even more as this drags on. For businesspeople, a shutdown will likely hurt their investment plans or transactions. Given the limited international telecommunications in North Korea and the lack of alternatives made available to locals to contact their counterparts, this shutdown seals North Koreans off more than it would any other country faced with a similar decision. 

Overall, this episode seems to reflect two things. First, a callous attitude towards stakeholders in the country’s development stemming from poor communications or the lack of will to communicate. Second, that North Korea’s “fear of the foreign” outweighs their interest in whatever benefits foreign investment brings. It is hard to blame ones’ partners, business or educational, as people who made this decision are important and adequately buffered enough that they can avoid the consequences of such disruptions.

 

 

*In the film version, Brad Pitt runs around while the Zombies prevent the screenwriters from finding a narrative

Sojunification

No doubt many perusers of this blog will have noted that one of the writers is into his coffee and beer. And indeed, the former beverage kicks tea's ass all over the place, while the latter is literally the bedrock of civilization.

Many readers may also have tasted mass produced South Korean sojus as has this same author. He would generally describe them as having notes of industrial cleaner, anti-freeze or grout. Often with a nose reminiscent of molotov cocktails, rat-poison or those urinal pucks. 

We're not great fans of most soju.

It was with typical trepidation that we were coaxed into a 'solidarity shot' recently. (Note that as a male in Asia, this happens.) Surprisingly, it was...pretty dang tasty. Dansamsul turns out to literally have a smooth, buttery taste with afternotes of vanilla and potpourri. Seriously. It's ingredients are just rice and ginseng, but the ginseng doesn't give that earthy bitterness that it often can.

Shot taken by Geoffrey (multiple meanings intended). Stopped for dinner at the highway back to Hanoi. North Koreans pulled out NK soju, Vietnamese waitress pulls out South Korea soju cups. Sojunification!

Shot taken by Geoffrey (multiple meanings intended). Stopped for dinner at the highway back to Hanoi. North Koreans pulled out NK soju, Vietnamese waitress pulls out South Korea soju cups. Sojunification!

It was in a restaurant in Vietnam that served a handful of South Korean products, so we had the chance to do unification shots: Dansamsul pours in Chamisul glasses.

With the craft beer revolution sweeping Asia and a consumer class that gets into artisanal products, one imagines more hand-made small batch sojus coming out of the South. Until such time, Dansamsul reigns as the best we have have tasted.

Note: Geoffrey K. See wants to trademark the term 'Sojunification'. Any counsel on how best to do this would be appreciated.