Rason in 2014

Up Next for Changjitu: Hunchun

The Changjitu (Changchun, Jilin city, Tumen) development plan continues to transform Jilin province. The Changjitu economic zone includes Yanbian Korean autonomous prefecture and parts of Changchun and Jilin, two major cities in the province. As we’ve previously argued, the logical end to export-industries in Jilin province is Rason port, with Jilin officials and industrialists looking over the border, waiting for political conditions to be right.

Last year in Yanbian, Yanji city underwent a building boom in anticipation of Wen Jiabao’s visit to commemorate 50 years of Yanbian’s ‘autonomous’ status.  Local ethnic Korean leaders fret that status may be in jeopardy as the region suffers from a brain-drain to not just one, but three metropolitan centers: Seoul, Beijing and Shanghai. The region’s development path will continue regardless of this local political issue, and this year the major construction projects seem to have shifted over to Hunchun, the nearest city to the border crossing into Rason. The familiar Chinese cityscape of a construction crane-forest greets visitors, with retail, industrial and residential projects populating the horizon. As the city grows, more small and medium sized businesses will be just an hour from Rason proper.

Even though it wasn’t the height of tourist season, there were long lines of cars at the border. In town, foreigners (at least some) appear to have more freedom than ever, with no trouble walking freely around town without guides.

Road to China, Train to Russia

The road to the border with China is now completed all the way to the port.

Choo Choo Trains

On September 22nd, the new Rason-Russia railway link opened. This takes a gauge train line all the way to Rajin port. The rather slow construction over the last several years – not Masikryong speed – can be explained by the complexities of the project, with four dual-gauge tracks along 54 kilometers, 18 bridges, 12 culverts and three tunnels with a combined length of more than 4·5 km. It was completed by a DPRK-Russian JV (Russian Railways Trading Company -70% - and the Port of Rason -30%.), which will continue to run the line. Further development of the port is reported to be underway.

Cranes

There are already “concrete plans” to export Mongolian coal via this train line and through Rajin port, though we haven’t heard anything more about the test-runs of Northeastern coal to Chinese ports via Rason..

Power

With Rason’s crumbling electrical infrastructure largely beyond repair, there have been rumors the last two years that the SEZ will be hooked up to Jilin province’s electrical grid. This plan is still not approved, however. Beijing’s Ministry of Commerce is supposedly sitting on it, offering the reason that they are working out proposals for how to construct the lines through protected habitats. Apparently, Siberian Tigers still roam the area, but with perhaps as few as 14 mating pairs in the whole China-Russia border region. China delaying development projects for the sake of environmental concerns doesn’t exactly ring true.

Building Projects

The major mixed-use retail/wholesale/residential projects is yet unfinished, but it is not alone, as several new apartment blocks are being constructed in Rason.  We were told that some of these are Chinese built and would be sold to locals for 200USD per square meter.

Construction in Rajin

Rason-Chilbo Link

Chilbo Mountain has apparently been designated a Special Economic Zone,  with locally issued travel permits for foreigners now possible through Rason. Rason administrators seemed aware of this in theory, but didn’t have experience arranging such travel. Choson Exchange intends to explore this passage next year as we turn to programs focused on SEZ development and management.

Management Structure

Management of the zone seems to have been experimented with fairly often in the last few years. In 2011, there was a great amount of positivity at how much autonomy had been granted the local Economic Cooperation Bureau. In 2012, we were told that Rason had come under the Joint Venture and Investment Commission and that key decisions were made in Pyongyang, though many decisions could be made locally. Now it appears that a Special Economic Zone Bureau has been split off from JVIC and will be managing all special economic zones, including Rason. There is talk of over a dozen, including those already in existence. Which they will choose to focus on and the degree of central control they will exert remains unknown.

Branding

Check out the following excerpt from “Industrial Art of Korea”, an article in this month’s “Foreign Trade”. Much of the text contains standard phrases that are commonly seen in other texts, but the second paragraph contains an interesting nugget:

Industrial art comprises a genre of fine arts that draws a design for making industrial goods and living environment beautiful, convenient and useful. It is represented in close combination of practical aspect with aesthetic one.

Today when production constantly increases along with the rapid development of science and technology, the issue of designing style, shape, colour, brand and package of commodities arises as a more urgent and essential demand.

In the DPRK industrial art has developed on a Juche-oriented stand and in a creative way in line with the socialist mode of life to serve as a powerful means that provides a great stimulus to improvement of the people’s living standards and the building of the independent national economy.

The aforementioned nugget is the concept of branding, the importance of which appears to be dawning on retailers and other businesses in the DPRK.

Marketing is very tough in North Korea, with no platforms for advertising available. TV is not an option, nor is radio. Other than the rare Pyonghwa Motors billboard, there are no ad boards – space that might be given over to advertising in other countries is essentially given over to advertising the fatherland, leadership, policies etc. etc. (This might be the most visually striking thing about visiting Pyongyang. When was the last time you went a day without seeing some product advertised?)

Businesses can have pages on the domestic intranet, Gwangmyong, but options for promotion are limited. This leaves word of mouth, the oldest form of viral marketing.

But as single companies branch out into different product lines or, for example, open shops and restaurants in more than one location, there is need to ensure that customers connect what they do beyond one place. To that end, for the first time in Pyongyang one can see logos cropping up on businesses. Most shops you see still simply call themselves simple “Clothes Shop” or “Vegetable Shop”, but increasing there are visible brands. Or, as one taxi company demonstrates, a unique paint job can act as form of branding. 

We recently held a workshop that introduced the concepts of PR (there isn't even a word for it in North Korea) and brand storytelling, a new but graspable concept. 

In case you’re interested, the Foreign Trade article later states:

The DPRK Trademark, Industrial Design and Geographical Indication Office takes charge of all affairs related to industrial art in the DPRK.

… 

The DPRK Trademark, Industrial Design and Geographical Indication Office is promoting exchange and cooperation with WIPO and different countries to render considerable services to economic development of the country and promotion of the well-being of the people.

So that's good.

North Korea Not A "Hermit Kingdom"

While we would quibble with some minor points in this Christian Science Monitor article about our Women in Business program, we think the article makes the good point that North Korea is not as isolated as we think. Some quotes from the article:

“The idea behind all of this,” says Geoffrey See, the founder of the program, “is that we would like to see North Korea integrate with the rest of the world.”

...

It’s also rare that North Koreans, even the elite few that are selected by the government to live in the model city of Pyongyang, are free to leave North Korea – let alone to visit a model economic hub such as Singapore.

Since See founded the group in 2008, workshops in North Korea have grown in frequency. So have overseas programs. In July, 10 young professionals – all women – traveled to Singapore to meet with peers and discuss management and business issues.

...

The culture gap was evident in more than working electricity, food, and the humming economy in Singapore. One woman had particular trouble grasping the concept of a women’s business network. “Is it approved by the government?” she asked in English, struck by the notion that entrepreneurs and managers would associate among themselves without government oversight.

...

Another North Korean, who made sure as many people in the room as possible got her business card, explained at great length North Korea’s attractive investment climate and investor protections. Left unsaid are the practical obstacles in trying to do business in a country where basic communications tools such as the Internet and international phone lines are unavailable to most people, and where there are widespread reports of bribery and corruption...

Today the group and its volunteer trainers make monthly trips to North Korea to organize or hold events, and expect to train some 200 North Koreans this year – double the number trained under the program from 2010, according to the group’s 2012 annual report...

Corporate Socially Responsible North Korea?

On top of the nice piece in the Economist demystifying (or mystifying, depending on your perspective) the workshops we do in North Korea, and blog posts by a workshop leader on the March Women in Business and fiscal policy training, Maaike has now weighed in with her perspectives. Maaike led a workshop for the Women in Business program in August, focusing on Corporate Social Responsibility and Business Ethics. Her workshop brought a new innovation: role-playing, which led to adult participants collapsing into giggles. Her topic also tied in well with another speaker's presentation on the Foreign Corrupt Practices Act. Some excerpts in her words...

The introduction to CSR and the Western perception of CSR was interesting for them, but as this was my first time teaching in North Korea I had only some ideas of what would be relevant for them to hear, and what to talk about, and based on their reactions I could divert from my topic if necessary. This was much to the frustration of my translator who had to improvise, sometimes would summarize or simply add material if I didn’t explain it well enough, and started asking me questions as well. Topics we all could relate to were; responsibility of the Manager for his/ her employees, a Caring attitude, a safe workplace, etc. . State Owned Enterprises in North Korea have quite good labor laws, their maternity law was better than that of the United States we all agreed. And that was interesting for them; I was a Westerner, teaching them Corporate Social Responsibility, but I would easily take a negative example from the West and tell them what I would think of it; I showed self-criticism and how this works in a training environment. I told them this was a conscious strategy: I wanted them to learn from this self-critical Teaching style, and apply this self-criticism to their own way of thinking and decision making...

The rest of the day I gave them three different Case studies with role plays to work on, it took some time to understand them, but then they greatly enjoyed the material. There was a lot of laughter and giggling going on, because the situations (which I had taken from real life situations from companies I talked to) were unusual to them; they had the opportunity to talk back to a superior, which was a very new situation, and it was a good session.

Sanctions and Dalian

Discussions on the future of the DPRK unavoidably must touch on sanctions. This just as inevitably leads to the question: “but are the Chinese implementing sanctions?” After all, when Chinese trade makes up approximately 70% of North Korea’s trade volume, China is the only country that truly matters in terms of economic influence. On the ground, evidence seems mixed. An interesting anecdote from shippers recently is that China is holding up overseas cargo of non-essential consumer goods at Dalian for extensive checking, leaving some North Koreans to wonder if these goods will be able to reach Pyongyang. Dalian is crucial to international shipping for North Korea: shipment volumes will not be large enough to justify running a route from say, Malaysia, to Nampo so they are sent to Dalian, consolidated and sent on to Korea from there.

While delays have been rumored since early this year post-UNSCR 2087, this is the first time we have heard of goods as mundane as the ubiquitous Pokka canned coffee being “impounded” for being "unnecessary items". Perhaps some crafty trader should hoard the popular Singaporean coffee in North Korea: it is after all synonomous with "iced coffee".

Thus, if the news emanating from Dalian have some truth, it could reflect a central directive to  reduce trade with North Korea from outside. It could also be local bureaucrats or shippers who have recognized that international conditions have become favorable to extract greater rents on the last portion of a product's journey to North Korea.

An interesting question, then, is whether this “impounding” of non-essential consumer goods only affects non-Chinese exporters shipping through Dalian or whether they also impact Chinese exporters to North Korea. Again anecdotally, it does not appear that Chinese businesses are much bothered by recent sanctions. New Chinese taxis have popped up all over Pyongyang in the last few months, and Chinese investors continue to do business at a healthy pace. On the ground, one sees Chinese businesspeople at every level of hotel, from the crappy one we stayed in last week to the swankiest places in town. (No word on how they feel about green tea lattes, though.)

There is also a question of how much impact sanctions on the banking sector have today. When the four main banks of China dropped North Korea’s Foreign Trade Bank as a partner, observers heralded a new age of Chinese support for sanctions. It is questionable how much actual business transactions take place through that channel.

North Koreans adjusted to the “new norm” post-2006 BDA sanctions by setting up systems to conduct banking through informal money transfers. One can easily “wire” money to China by contacting banks in Pyongyang whose agents in China can hand a businessperson his or her cash for a commission below 0.5%. The money can then be deposited in Chinese bank accounts. Again, this "banking" infrastructure benefits Chinese traders disproportionately at the expense of other foreign traders who face more complications and delays in paying their suppliers in their home country.

Bank of China's move in May to close the Foreign Trade Bank's accounts  (an important signal that BoC plays ball, to use the parlance of our times) also serves to drive organizations that were trying to move money through the most official and transparent channel possible into the hands of smaller financial actors. Meanwhile, FTB's 'Narae' debit card is becoming more and more ubiquitous domestically: it is accepted at more and more shops, taxi cabs and now the card can even be linked to one's phone number, allowing mobile cash-free payments to be made between individuals.

A smart Chinese strategy - and indeed, one they appear to be adopting - should involve encouraging sanctions by the international community, while resisting their implementation at home. Chinese businesses are the primary beneficiaries of sanctions as it forces North Korean businesses to rely more on their Chinese partners.

Yo! Cabbie!

So this is what happens when you sit on a blog post. NKnews goes and gets there first. Man, the internet moves fast these days. Anyway... Along with other forms of traffic in the capital, the number of taxis on the road has ballooned in the last few months.

There are now at least three companies competing to fulfill your individual transportation needs, one of which has seen a massive fleet expansion. Brand new Chinese-made BYD small sedans dominate the fleet. Rather than the subtle markings that marked taxis past in Pyongyang, these cars are an unambiguous bright yellow and green, with a larger rooftop sign than other taxis. This makes the fleet an extremely differentiated brand in an autoscape of black, white, grey and military green.

It appears all taxis from three companies now take the increasingly ubiquitous ‘narae card’ as payment so there is no need to fiddle with change – incidentally, the popularity of the narae card is in no small part due to the difficulty retail businesses have in providing hard currency change to customers.

Groups of taxis tend to cluster around the city’s hotels. Fares are usually one US dollar per kilometer, though there appears to be room for negotiation. Visiting foreigners are not yet allowed to ride taxis unaccompanied by a Korean guide. Resident expats are supposedly allowed, though we haven't met anyone who has taken a taxi and moreover, the taxis aren't allowed in the diplomatic compound where most westerners live.