NKoreans talk shop with foreigners at trade fair

[August 21, 2012]  RASON, North Korea (AP) -- Fleets of shiny minivans, Chinese-made bulldozers and dump trucks festooned with red ribbons fill the plaza while toys, clothes and even probiotics digestive capsules are on display inside an exhibition hall.

Walking past the booths and examining the goods are Chinese, North Koreans and even some Europeans, who are exchanging business cards and sharing lively conversations -- North Korea is once again hosting an international trade fair, which opened Monday in Rason in the far northeast, a city seeking to sell itself as friendly to foreigners and a potential hub for international transportation, trade and tourism.

It's a scene not common in the rest of North Korea, where most business is state-run and interaction between foreigners and locals is strictly monitored.

The trade fair is an indication of how keen the insular nation is to attract foreign investment needed to reform its listless economy. Pyongyang has not publicly released detailed economic data for decades, but has made building the economy a focus of government policy since 2009. Rason, however, is one of North Korea's newly revamped special economic zones, governed by a separate set of laws and rules giving local officials more autonomy, and easier to access from the Chinese city of Yanji than from the North Korea capital of Pyongyang.

With its economy languishing in sharp contrast to the booming market economies of its neighbors in Northeast Asia, Pyongyang has turned in recent years to China to provide trade, investment and knowhow in exchange for access to its minerals and labor.

Last week, Jang Song Thaek, uncle of North Korea's new leader, forged deals with China on accelerating joint development of North Korea's special economic zones, including Rason and Hwanggumphyong Island, according to China's Ministry of Commerce.

"The timing (of Jang's visit) has got to be to try to make Chinese investors who are coming or thinking of coming (to Rason) feel more comfortable about the agreements they are about to or are considering signing," said Andray Abrahamian, executive director of Choson Exchange, a Singapore-based nonprofit group that provides business and legal training for North Korean government officials and students.

Doing business in North Korea, even as Pyongyang seeks to draw in foreign investment, remains a challenge. Travel to North Korea is carefully regulated, with foreigners requiring invitation letters from North Korean agencies or joining sanctioned tour groups. All interaction with locals is monitored. Use of personal cell phones, Internet access and transportation -- basics for conducting business anywhere else in the world -- require authorization. Even with their own cell phones, foreigners often cannot phone their local staff due to restrictions governing communication between North Koreans and outsiders.

Rules in Rason were loosened to make it easier for foreign businesses to set up shop, particularly regarding visas and entry. Still, though transport from China has improved, Rason officials must ensure steady electricity, broadband Internet, an international banking system and cellphone service for foreigners for foreign firms to operate, Abrahamian said.

Earlier this month, a Chinese firm, the Xiyang Group, warned other companies against investing in North Korea, calling its four-year experience trying to tap into North Korea's mining industry "a nightmare."

Xiyang said it invested $37.1 million to set up a joint venture to build a mining facility, and sent 100 workers to North Korea last year. However, North Korean officials demanded changes after the contract was signed, and when Xiyang refused, they cut off utilities to the plant and deported the workers, it said in a blog post.

A project manager who asked to be identified only by his surname, Wu, confirmed the post Tuesday.

On the other hand, the Yatai Group, a conglomerate based in China's Jilin Province, announced last week that it signed a 50-year contract with Rason officials to build a sprawling complex around Unsang Harbor to produce cement, concrete, mortar.

Rason, which encompasses the cities of Rajin and Sonbong, sits in the far northeastern tip of North Korea, with Russia on one side and China on the other.

It was earmarked in 1991 as a special economic zone, with officials seeing promise in building factories for manufacturing and expanding the Rajin port for shipping. However, little was done to develop Rason until North Korean authorities amended laws in 2010 to give the region some autonomy from Pyongyang, drafted new laws last year to make it easier for foreigners to conduct business and signed a pact with China to jointly develop the zone.

Abrahamian said Rason officials told him last year that 80 percent of decisions are made locally, 20 percent in Pyongyang, with North Korean firms given the latitude to negotiate and conclude deals with foreign partners on their own before seeking final approval from the government.

A joint economic zone was set up in 2004 in the city of Kaesong near the Demilitarized Zone to do business with South Korean firms. Seoul was a main trading partner for North Korea until the South Korean government forbade nearly all exchanges in 2010 following the deadly sinking of a ship that Seoul blames on Pyongyang. About 120 South Korean firms still operate in Kaesong.

There are signs of progress in construction in Rason. A year ago, exhibitors traveled to Rason along a dirt road from the Chinese city of Yanji. This year, the road to Rason is paved. A bus from Yanji takes four hours and costs just 80 yuan ($12), according to Chinese National Radio.

A model of the future Rason International Commercial Trade Center showed rows of modern buildings, sparkling with lights, cars parked under street lamps along tree-lined streets. But Rason has a long way to go, including providing such basics as international banking, Internet and even a reliable power supply.

"I'd like to see some concrete evidence of the deals to provide electricity from the Chinese side of the border," said Abrahamian, who spoke from Yanji on Sunday before heading to Rason. "They still apparently have power outages with some regularity. Getting a secure and steady supply of electricity is obviously huge."

Some 110 companies from 11 countries have booths at the four-day event, Rason's second international trade fair, organizers told The Associated Press. Chinese companies dominate the exhibition hall.

While the big goods are parked outside, exhibitors inside are showing off everything from toys to medicine, clothes to household appliances made in countries as far as the Czech Republic and France and as close as factories in Rason. One American is selling T-shirts not far from a North Korean clothing company, Rason Hyesong.

"All these products you see are made or manufactured by our company. And they now are exported to more than 13 countries around the world," said Pak Kyong Ok, a Rason Hyesong official. "Our products are popular."

Bob Granger, a British entrepreneur, had something else in mind: a coffee shop in Rason.

"We would like to open in this area, not in the capital, Pyongyang," said Granger, managing partner of the Green Apple cafe in Tumen, China. "We'd like to be bit out in the country meeting the people."

[Associated Press]

Associated Press photographer Kim Kwang Hyon in Rason, researcher Flora Ji in Beijing and business writer Youkyung Lee in Seoul, South Korea, contributed to this report. Follow Youkyung on Twitter at twitter.com/YKLeeAP.

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