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Rason Special Economic Zone: North Korea as It Could Be

By
16 December 2014


If you have ever been to North Korea, you might know that feeling: you are in the country, and at the same time, you are not. Foreign visitors usually stroll through the streets as if they are caught inside a huge transparent rubber sphere. They can see and hear, but most of the time there is this invisible but tangible wall between them and the world outside. Foreigners manage to break through that barrier only rarely, and if so, only for brief moments.

This is what visitors then speak about with excitement: how they could raise a shy smile from a child, how one of the assigned guides after a long night of drinking finally opened up and provided a glimpse into his personal desires and worries, how they made brief eye contact with a stranger on the street. In the end, this is why most travelers go to North Korea—to look behind the scenes. In addition to the standard images of goose-stepping soldiers on Kim Il Sung square, rising rockets, leaders-looking-at-things, starving children, and nuclear threats, there must be more. But the country does not easily show its real face; xenophobia, nationalist pride and the state’s information policy stand in the way.

My own experience during 23 years of researching and visiting North Korea has not been much different. I can count those few moments, when I did not feel like an isolated odd man out, on the fingers of my hands. But this changed dramatically in September 2014 when I travelled to the Northeast and visited the Special Economic Zone (SEZ) of Rason (formerly referred to as Rajin-Sonbong). To get straight to the point: Rason is simply mind-boggling.

But everything in turn now. Frankly, my expectations were not very high. I had been to the Industrial Zone near Kaesong in the southwest a couple of times. Whatever that is, it certainly has nothing to do with North Korea. Kaesong is a completely artificial world. South Korean factories, guaranteed free of communist propaganda, stand in a previously sparsely inhabited North Korean plain. About 50,000 selected North Korean women are brought in by buses every morning, work their shifts, and then return to their living quarters outside the zone. The area is off limits for ordinary North Koreans and for Western tourists alike. Call it a zoo or Disneyland.

Entering Rason coming from Chongjin feels a bit like leaving North Korea. Buses, guides and driver are changed, passports are requested. (Photo: Rüdiger Frank)

Entering Rason coming from Chongjin feels a bit like leaving North Korea. Buses, guides and driver are changed, passports are requested. (Photo: Rüdiger Frank)

With Rason however… if entering from North Korean territory via Chongjin, there is indeed the feeling of leaving the country. Buses are changed, drivers and guides too. A checkpoint is passed that reminds one strongly of a state border, although passports are only checked, not stamped. The zone is taboo for ordinary North Koreans. A friend told me how he was once able to bring in his Chongjin guides, thanks to the fact that it was his birthday and that he has very, very good contacts within the North Korean leadership. The guides had not been there for ten years although they live less than 80 kilometers away.

At first glance, there is not much to be seen—which, as odd as it may seem, makes Rason fascinating. Contrary to my expectations, it is not just another theme park. Even though Rason has been an SEZ since 1991, and despite travel restrictions for locals, it has remained a part of North Korea that looks, smells, and feels like the original. The roads are a bit bumpy, there are villages with the typical low white buildings, kitchen gardens, surrounding walls, unpaved roads and long wooden chimneys seen everywhere in the DPRK’s Northern provinces. Oxen charts pass by, children with red scarfs march to school, the city is covered with slogans glorifying the “Great Sun of the 21st century, comrade Kim Jong-un” or the Party’s Military First (songun) Policy. Public announcements on wallpapers, like everywhere in the country around this time of the year, remind people that September and October are “hygienic months” (wisaeng wolgan) and encourage them to pay extra attention to cleanliness. A gigantic mosaic mural with the faces of the two deceased leaders sits on a hill, right next to the international telecommunications center that was once built by Loxley of Thailand. Two bronze statues of the leaders are under construction. Many windows in the apartment blocks in Rason are equipped with solar panels, and the balconies are full of red Kimjongilias.[1] It is autumn. Long chains of red pepper dry in the warm September sun and wait to become a key ingredient of Korea’s typical fermented cabbage kimchi.

Rason’s Central Square is typical for a provincial city in North Korea. Slogans and daily life are like everywhere else. Except that foreigners are allowed a much closer interaction with locals. (Photo: Rüdiger Frank)

Rason’s Central Square is typical for a provincial city in North Korea. Slogans and daily life are like everywhere else. Except that foreigners are allowed a much closer interaction with locals. (Photo: Rüdiger Frank)

It is North Korea as usual even in our hotel, which was built in the mid-1930s by the Japanese and does not seem to have been renovated too extensively since then. Water is sometimes available, sometimes not. The same is true for electricity; the draught makes the operation of hydroelectric power stations difficult, say our guides. Hot water is provided upon request or twice a day for one hour each. During breakfast, entertainment is delivered on a huge video screen by an infinite loop of the newest performance of the short-skirted Moranbong Band, founded by the new leader in July 2012. With sweet voices and tough words, the band is praising his extraordinary personality and the heroic deeds of the armed forces.

Nothing new on the northeastern front? Not quite. After just five days in “ordinary” North Korea we got used to the fact that taking photos from the bus is deemed, well, not appropriate. Not that this would have prevented us from taking a snapshot once in a while, of course, but admonishment usually followed and made the experience a bit straining. Now in Rason, what is the guide saying? “Take photos as you wish, no problem, you are tourists—isn’t it natural for visitors to do that.” Exactly; this is what I have been preaching to dozens of DPRK guides over the years. But it was like talking to a brick wall. Now that we have official permission to take pictures, it is almost no fun anymore.

Things continue along these lines. In the middle of town, at the central square, stands a huge monitor. Like the one in front of Pyongyang railway station it shows the state TV news and occasionally a movie. In the evening, people sit on the ground and watch. Around them are little stalls selling food and drinks. Photos? Yes, of course. Don’t we also want a beer? Say that again? Go and sit there, right among ordinary people who have neither been briefed nor brought here for a “spontaneous” party with foreigner?

Sure we want to. I somehow expect that our little stall will soon be empty, but no, none of the locals escapes. On the contrary, I see curious looks, and then broad smiles and excited conversation after I tell the waitress in Korean that I have studied one semester at Kim Il Sung University in 1991. I sit among these North Koreans with a strange feeling of happiness, and I think how sad it is that I am so excited about something that would be normal in most other parts of the world.

Without exception, we eat quite well in different profit- and service-oriented restaurants operated as joint ventures with Chinese or Japanese-Koreans. Many such restaurants exist in Pyongyang too. But after lunch, an extended visit to the market—this is something the capital does not offer these days. I visited Pyongyang’s Tongil Market only once, in 2004, and at Chollima speed, for no more than 20 minutes. Here in Rason we get two hours. But as if to remind me that this is still North Korea: no photos please. I know that my explanations about how such pictures will actually improve the country’s image abroad might not be completely lost on the guide, but this will not change the rules that he has to enforce. I obey, grudgingly.

Disappointment quickly makes room for curiosity. At the entrance to the market is a group of women who obviously do not have a license; as soon as they spot a man in uniform, they quickly fold up their wooden boxes with cigarettes and get ready to run. After having passed their espalier, a huge area opens up in front of us, roughly the size of a soccer field, most of it indoors. The lanes of the market are closely packed with women of all ages who sell whatever you can imagine: from fresh fish to refrigerators. In the fruit corner almost anything is on offer: whole pineapples, bananas, nectarines, grapes, and more. The prices are hefty; all these goods are imported from China, as one of the women tells me. One Kilo of bananas costs 14 Chinese Yuan, or Renminbi. I ask for the price of a kilo of bananas in DPRK Won and get an answer only after some hesitation. A secret? No, she simply did not know and had to recalculate, as hardly anybody seems to use the domestic currency here. The Renminbi dominates. But then I get an answer, and my guide even helps me with the calculation—the market rate is about 1:1,300. How is it possible that people here are so frank about a piece of information that is usually hidden from foreigners in other parts of North Korea?

The mystery of this unusual openness gets resolved when I visit the Golden Triangle Bank the next morning. This is a regular bank, right at the main street: a huge building, all glass, steel, and granite. When you ask at any bank or hotel in Pyongyang about the exchange rate of the Euro to the local Won, the answer is usually without hesitation around 1:132. It is such misinformation that lead some of our media to report the nonsense that a small “Orion” choco pie—worth less than 15 cents at Amazon—costs 10 US$ in North Korea.

The official currency exchange rates in Rason are what elsewhere in the country would be called the black market rate. (Photo: Rüdiger Frank)

The official currency exchange rates in Rason are what elsewhere in the country would be called the black market rate. (Photo: Rüdiger Frank)

The Golden Triangle Bank is one of the major banks in Rason and even sells the local currency to foreigners, something that is unthinkable in the rest of North Korea so far. (Photo: Rüdiger Frank)

The Golden Triangle Bank is one of the major banks in Rason and even sells the local currency to foreigners, something that is unthinkable in the rest of North Korea so far. (Photo: Rüdiger Frank)

But here I see a list attached to the bank’s wall with the exchange rates of the day: 1 EUR is exchanged against 10,476 Won, 1 US$ is about 8,000 Won, one Renminbi is about 1,300. I must admit my jaw dropped. To make things even better, I can actually exchange Euros into domestic currency at that rate. I am not allowed to take those bills out of the country, but that is of secondary importance. Anywhere else in North Korea the domestic currency is taboo for foreigners, for whatever reason. Here, I can buy it—at a rate now difficult to call “black market rate.”

Chinese companies start outsourcing production to North Korea, since labor costs are rising sharply. (Photo: Rüdiger Frank)

Chinese companies start outsourcing production to North Korea, since labor costs are rising sharply. (Photo: Rüdiger Frank)

This openness continues. During a visit to a textile factory—again, a regular one, full of propaganda and quite similar to what I saw in the capital—the manager readily answers all my questions, including about the wages of his seamstresses. He pays them 500 Renminbi per month, depending on performance. Try that in Pyongyang—you will get numbers that just make no sense. And while I am still trying to get used to actually receiving real answers to my questions, he asks whether we noticed that the ski suits that are currently produced have a sign saying “made in China” sewn into them. We nod; he explains that this must be done so his client can sell them in South Korea, and shakes his head in a mix of amusement and frustration. Again this pragmatism is nothing new; I have seen suits “Made in Italy” produced in Pyongyang many years ago. What is different is that people in Rason are so open about it.

Our visit continues at the harbor. It has three piers; one leased to the Chinese, one to the Russians, and one left for the DPRK. The Russian pier has been upgraded recently, and huge brand-new cranes stretch into the sky. The Russians have renovated the about 50 kilometers of railway that lead to the harbor; the Chinese have completed a highway to their own territory. Is the history of the late 1950s repeating itself, with China and Russia competing on North Korean soil and Pyongyang pulling the strings?

The harbor of Rason will be used by Chinese and Russian businesses. So far, we could observe little activity. (Photo: Rüdiger Frank)

The harbor of Rason will be used by Chinese and Russian businesses. So far, we could observe little activity. (Photo: Rüdiger Frank)

So far, there is little activity. Road and railway are more or less empty, the tracks are rusty. A Russian fisherman from Sakhalin has quickly disappeared into his cabin as he saw our group approaching; he only comes back curiously after I shout a few words in Russian into his direction. Good to speak his native tongue, he says. It is boring here, he complains; nothing to do, no women, no Vodka. He wants to leave as soon as he can, and disappears with a grin.

But if you want to experience true drabness and tristesse, take the 20-minute ride to the Emperor Hotel. Built in 1999 by investors from Hong Kong, this five star hotel is located at a beautiful but deserted beach. Inside we only see Chinese who presumably never leave the building; all they do is sleep, eat, and gamble in the attached Casino.

The Emperor Hotel is a bizarre world, built mainly for Chinese gamblers. Chinese promises for major investment at a nearby beach were not kept. (Photo: Rüdiger Frank)

The Emperor Hotel is a bizarre world, built mainly for Chinese gamblers. Chinese promises for major investment at a nearby beach were not kept. (Photo: Rüdiger Frank)

Next to the hotel stretches a decaying hulk of an abandoned project. Five years ago, a Chinese investor bought this top location property at the East Sea beach for 30 US$ per square meter and promised to invest hundreds of millions more. But except a few smaller buildings, not much has happened. The Rason city administration finally lost patience a few weeks ago, paid the fraudster his money back and is now looking for a new, serious investor. I am sure we will soon hear the story of another poor Chinese businessman who was treated “unfairly” by the evil North Korean authorities. I admit: my sympathy for the speculator is limited.

This lack of serious foreign investment is the tragedy of Rason. Here, North Korea is what it could be without major reforms or effort: more open, more human, more approachable, more honest, and obviously very much more interested in business cooperation with the outside world. No insulating rubber sphere anymore for foreigners. The above is not much for us, but a lot by North Korean standards. And isn’t this what we keep asking for all the time? When they have the heart to do it, reduce the restrictions to a minimum, adjust laws and regulations repeatedly to fit the wishes of investors, what happens? Nothing. North Korea opens up and nobody cares.

I leave the Rason SEZ with excitement about what is possible in this isolated country, and full of hope that the reality as I see it in this enclave will sooner or later be extended to the rest of North Korea. After all, Kim Jong Un has announced the opening of 19 new SEZs. But in order for Rason to become a model, it has to overcome the ideological concerns of skeptical cadres. The only way to achieve this is economic success. I feel sorry for the factory manager who gives me the phone number of his sales representative in Yanji so that I can help him with the acquisition of new clients; and I pity our guide who full of pride and enthusiasm lists all the economic projects that have so far been started in the Rason SEZ. I do him the favor and am duly impressed.

However, it is obvious that all that investment into the “Golden Triangle of the Northeast” is mediocre in comparison to even the smallest Chinese city. The reason is clear: serious and well-founded concerns about the security threat posed by North Korea, and about human rights and humanitarian issues. But except for those who still believe in megaphone diplomacy, many observers agree that an economic opening of North Korea would help solve these problems in a more sustainable way, by making the country a stakeholder in peace and international recognition. Nonetheless, it seems that most of the Western world has decided to ignore Rason and rather still waits for an Eastern-Europe-type collapse of the North Korean system—a “strategy” pursued since 1990, with little success so far.

 

———-

[1] “Kimjongilia” is a special breed of begonia that was named after Kim Jong Il on his 46th birthday.

Reader Feedback

8 Responses to “Rason Special Economic Zone: North Korea as It Could Be”

  1. arend meerburg says:

    A slightly other issue. Has Sony invested in the Economic Zones of NK? If so, could that be an element in their decision to give in to NK?

  2. Paul Tjia says:

    I can agree with Rudiger Frank, that an economic opening of North Korea would help solve problems in a more sustainable way. I notice some similarities between the current opening of North Korea for foreign business, and the opening of China in the seventies. However, North Korea faces much more international competition than China did in those years. For example, North Korea might be one of the best destinations for the production of garments, but has fierce competition from Bangladesh, Vietnam and Myanmar. It is even possible to outsource software development and other ICT-work to North Korea, but this can be also be done in many other Asian countries. For this reason, North Korea should promote its business opportunities on a much larger scale. Perhaps a foreign donor is willing to initiate a training on export marketing (including the use of the Internet)? Note: some changes are visible; for the first time, I was recently invited to visit Pyongyang with a group of economy-related European journalists (see: http://www.gpic.nl/NKimpression2014.pdf)

  3. Rudiger Frank says:

    Thanks for all the valuable comments, on- and offline. Let me respond to some of them.
    (a) Photos: Absolutely true, in and around Pyongyang and generally in the Southwest and Southeast, it is more or less fine to take photos from the bus, with only a few exceptions (military etc.). But in North Hamgyong, there seems to be a different policy. Why? I guess that’s one of those questions… Another example for inconsistencies is that your cameras will be thoroughly (!) checked upon leaving the country by surface transportation, but no such check has ever been performed when I left by plane. And sometimes I am told that the No. 1 Department Store in PY is off limits for foreigners, but then others report that they were able to go there freely. And so on. Well, it’s North Korea, after all.
    (b) Exchange rate: I have meanwhile heard from a number of sources that foreigners (Chinese as well as Westerners) can exchange their currencies into KP Won, and that they can do so at the market rate, in the Kwangbok Supermarket in Pyongyang. This makes it all the harder to add “black” to the term “market rate”. We should consider, however, that the Kwangbok Shopping Center is a Joint Venture with the Chinese, as well as Rason’s Golden Triangle Bank, if my information is correct. Perhaps that plays some role. So we should wait and see whether that practice spreads to other, “purely Korean” banks and shops.
    (c) North Korea-China comparison: I don’t think that works too well, at least not in the details. In principle, yes, the “China model” means reforming the economy without (instantly) destroying the political system. In that sense, I think North Korea can follow China’s example. But everything else… Take the liberalization of agriculture. That’s how the reforms in 1979 started in China, and it made good sense because about 70% of the population were working there. In North Korea, it’s the other way round. The failure of the July 2002 reforms has been caused, among other things, by a hyperinflation triggered by a limited liberalization of prices for agricultural products – which benefited 30% (rural producers) but imposed higher costs on 70% of the Population (urban consumers). The Chinese government back then subsidized food consumption in the cities with the revenues from higher taxes paid by the liberalized and thus more productive farmers. In North Korea, due to a different economic structure, that equation did not and will not work. The only way forward is reform in industry. However, I don’t think the top leadership in NK has yet decided to embrace real reforms. They experiment a little with this and that, but so far expect to be able to make the system work by perfection measures. The day will come when they realize that this will not be enough; I do not believe it has come already. My personal guess is another three to five years.
    (d) I agree, the prospects for Rason and all the other zones are limited. A major factor is size, both of the zones themselves, but also of the North Korean market. However, Rason has a pretty good potential as a logistics hub, mainly for Chinese clients. China’s Northeast is lacking access to the Pacific, and Rason could be the solution to that problem. Given the fact that labor in China is becoming more and more expensive, some of the NK zones would benefit from China’s outsourcing of its labor-intensive light industry. Add Japan’s potential interest, which will turn into reality after the abduction issue is resolved, and add also the politically and economically motivated South Korean engagement, and you will have more than enough investment to make a huge difference for a country of 25 million (as opposed to 1+ billion in China).

  4. Liars N. Fools says:

    I have had the chance to spend a considerable amount of time in the original Chinese Special Economic Zones created under the aegis of Deng Xiaoping. They are: Shenzhen, Xiamen, Zhuhai, and Shantou, all in Guangdong with the exception of Xiamen, which is in Fujian.

    Shenzhen is pre-eminently the greatest success, and the factors were the “newness” (it was a fishing village and the other three established cities), its position next to Hong Kong, its population from all over China, and policies that attracted foreign investors (IBM, Gore-tex, Walmart) and nourished domestic enterprises like Huawei, Tencent, ZTE, China Merchants Bank. There was and still is a combination of foreign and Chinese capital, foreign and overwhelmingly Chinese human resources, and the ability to flow goods, people, and even ideas easily. The other three had similar combinations of factors, but the China story is that of the boom along the southern and eastern coasts even beyond the original for SEZs.

    North Korea could replicate some of this, but it will be extremely difficult. Chinese investment is about trade or extraction and not about cultivating North Korean human capital. Russia is a flirt but cannot deliver, and the Japanese undoubtedly include the northerners in their superiority complex over Koreans in general. The home grown talent is not in abundance either.

    I have met Professor Frank several times at conferences, and I have found him to be an excellent observer and insightful analyst, and this piece reflected those top notch traits. So I do not doubt that Rason is as Professor Frank described. But if I were anything other than the Chinese and Russians who want to gain a toe-hold presence or some Korean firms testing the waters of Rajin-Khasan perhaps under some Eurasianist idea, I would find much better settings elsewhere in Asia.

  5. Luca says:

    very interesting piece, but there is a (small) number of discrepancies with my experience in the DPRK that I had this summer. The first one is that nobody ever told us anything about taking pictures or filming from the bus. And each of us was doing this blatantly all of the time, whether in Pyongyang or in the countryside.

    Also, even in Pyongyang we were able to acquire KPW at the true (=black market) rate. We were brought to the Kwanbok shopping center and left there roam freely and shop whatever we wanted for about an hour. And we exchanged our money at a bank counter and paid with KPW. The rates were written on a paper sheet and are similar to those reported here. (IIRC we exchanged at 1 USD = 7200 KPW)

  6. Mark says:

    Felix I admire your work on your book. Your point is well taken. The economic noose on N Korea puts a constraints on development. It is though I agree a unique opportunity to bring the major Pacific powers, including Japan into an economic opportunity which is inclusive and rare for Asia. If a political solution were to be obtained on the peninsula which includes a moratorium on testing and development vis a vis the nuclear issue we have a real opportunity for some meaningful progress in Korea. Political differences with Russia on issues elsewhere have kept us from reaching a breakthrough. But I remain optimistic over the long term.

  7. Mark says:

    Fascinating have heard about Rason. There was an energy project that went through there I heard bringing coal or gas through to South korea in the works. It’s definitely a focal point for not only East West relations but also for Sino-Russian rapprochement. We should be watching this one closely.

  8. Felix Abt says:

    Is Kim Jong Un following Deng Xiaoping’s development model?

    Important parallels emerge:

    1. Deng’s first reforms began in agriculture by de-collectivizing agriculture.

    From 2015, North Korean farming households will be allocated 60 percent of the total harvest (currently 30 percent).

    2. Deng also created special economic zones for foreign investment with more freedom and few bureaucratic regulations which became sizable growth drivers for the country’s economy.

    “Rason which is simply mind-boggling” (Ruediger Frank) is the first similar special economic zone, and Kim Jong Un announced another 19 special economic zones.

    Felix Abt,
    author of “A Capitalist in North Korea: My Seven Years in the Hermit Kingdom”
    http://www.a-capitalist-in-north-korea.com

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Credit for photo of young North Korean girl: T.M. All rights reserved, used with permission.