A Roll of the Dice: North Korea’s Economic Reform Gamble

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A Roll of the Dice: North Korea’s Economic Reform Gamble

There are mixed signs change may lie ahead for North Korea’s troubled economy. While reform is possible, big challenges lie ahead.

For years, farm collectives across North Korea have been required to hand over almost all of their produce – well below the minimum needed to feed the country’s 24 million people – to the state.

In recent months though a growing number of reports have suggested the world’s last planned economy is about to initiate much-needed agricultural reforms.

The heads of local Cooperative Farm People’s Committees started to pass down orders from Pyongyang telling farmers they would start to work in smaller groups, from about ten to twenty-five collectives down to four to six. More importantly, the new reforms reportedly allow farmers to keep a surplus of about 30 percent of what they produce.

In almost every home and public building across the country, the 1984-style broadcasting systems – whose volume can be turned down but never off – started to speak of “improvements” to the economy, says Christopher Green of Daily NK, a Seoul-based news organization with sources inside North Korea.

But this week reports said farming reforms could be suspended even before they begin amid what is expected to be a disappointing harvest.

“If farmers are going to be keeping more of the harvest then the military is going to be getting less,” says Green.

With little in the way of reliable information, it remains to be seen whether North Korea’s young leader Kim Jong-un can go one step further than his father in implementing sustainable agrarian reform similar to China circa 1980.

Still, one thing appears to be clear. Having replaced key positions in the military and more recently the agriculture minister amid regular pronouncements on economic improvements, the young Kim appears determined to improve North Korea’s stunted economy.

But are reported reform efforts genuine? And where will much-needed investment actually come from?

“The problem for the North Koreans is that they have yet to develop a business environment that is attractive to most investors or business partners,” says Curtis Melvin, editor of North Korean Economy Watch, an online information source on the North Korean economy.

Attempts to attract investment from China, the North Korean economy’s main life-support system, have had mixed results.

Although Pyongyang has recently rejuvenated efforts to develop Chinese-style special economic zones on the border in places like Rason, in August, Zhou Furen, founder of mining company Haicheng Xiyang, said his company’s $45-million iron ore investment had been seized by North Korean police.

“Doing business in North Korea is a nightmare,” Zhou concluded on his verified Weibo account, a Chinese micro-blogging site.

Other recent efforts to generate much-needed investment interest and foreign exchange have had more success.

Output at the Kaesong Industrial Complex where South Korean investors employ cheap North Korean labor just north of the DMZ recorded a 23-percent rise in output in the first half of the year to more than $235 million.

Although the majority of South Korean firms continue to register net losses at the site, the North is reaping the rewards. North Korean workers at Kaesong climbed above 52,000 by the end of August, the same month Pyongyang initiated heavier taxes on South Korean companies operating there, according to Yonhap News Agency.

The salary of each North Korean worker at Kaesong is remitted to the North Korean state which takes a large cut for itself, a mechanism the Stalinist state is also employing in places like Siberia where workers are increasingly sent to generate rising inflows of foreign currency.

In a report due to be presented next week in Tokyo, Seoul-based NGO North Korea Strategy Center says as many as 65,000 North Koreans are currently working overseas – perhaps double the number compared to five years ago – generating between $1.5 billion and $2.3 billion for Kim’s regime this year.

Most workers are based on construction sites and on timber-felling operations with as much as 80 percent of their salaries retained by the North Korean state, according to Kang Chol-hwan, a defector who heads NKSC.

“Sometimes more money is taken out with the government saying it needs contributions for building better infrastructure and other needs for the country,” adds Kang, one of the few prisoners to escape Yodok concentration camp in North Korea.

As Kim’s regime sends ever larger numbers of people overseas to work, inbound tourism appears to be booming, at least by meager North Korean standards.

The China International Travel Service in the border city of Dandong said this week it expects to send 40,000 Chinese to North Korea this year, double the number of 2010. Dandong, which is separated from the North Korean town of Sinijiu by the Yalu River, is home to dozens of travel agencies advertising short trips across the border.

At a joint economic, culture and tourism exhibition in the city last week, the head of publicity at North Korea’s national tourism administration, Hong Yin-chel reportedly told delegates his country was trying to upgrade its tourism facilities.

“We welcome tourists from the whole world, and especially from China,” Hong was quoted as saying by China’s English-language news outlet, China Daily.

Meanwhile, bilateral trade is also accelerating.

South Korea’s Unification Ministry issued a report to the National Assembly last week showing a 14.5-percent surge in China-North Korean trade to $3.54 billion up to the end of July this year.

Still much of this represents Chinese exports, while overall trade with the world’s second-largest economy has made up an ever-growing share of North Korea’s overall trade, from 67 percent in 2007 to nearly 90 percent last year, amid UN-imposed economic sanctions made stricter in 2009 following a second nuclear test.

In Tumen, a small Chinese town in northeast Jilin Province which borders North Korea, a 66-year-old Chinese trader is an example of the rising dependence North Korea places on China to provide everyday necessities it cannot produce itself.

His warehouse this month was stacked with packets of chocolate biscuits and orange drinks he sells just a few hundred meters away across the Tumen River in North Korea.

“They don’t have anything [to trade],” he says. “They just give me money.”

The only North Korean products on sale in Tumen are souvenir bank notes, cigarettes and rice wine, a sign of the country’s limited production which agricultural reforms – if they happen – might hope to correct.

But Kim’s room to maneuver remains limited. If North Korea’s young leader recognizes reforms are needed, he also knows changes which reduce state control over the means of production create the possibility of severe instability, says Evans Revere, a former U.S. State Department North Korea negotiator.

“China managed to resolve this contradiction and succeeded in launching an era of phenomenal growth,” he adds. “Can the DPRK do the same? I have my doubts.”

Steve Finch is a freelance journalist based in Bangkok. His work has appeared in the Washington Post, Foreign Policy, TIME, The Independent, Toronto Star and Bangkok Post among others.