The Washington PostDemocracy Dies in Darkness

Traders in China prepare for a rush into North Korea. But sanctions still stand in the way.

Pedestrians walk by a statue of former Chinese leader Mao Zedong outside the railway station in Dandong, a city bordering North Korea. (Dake Kang/AP)
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DANDONG, China — The signs in the real estate office make a wholehearted case for investing on the North Korean border.

“Peace and prosperity, an irresistible and irreversible trend,” one sign at the Dandong Zhongkai International development declares.

“North Korea is concentrating on building its socialist economy,” says another.

The ambitious complex — on the outskirts of Dandong, North Korea’s commercial point of entry to China and the outside world — is a bet that rapprochement between President Trump and North Korean leader Kim Jong Un will one day unleash a wave of investment. Perhaps one day soon.

A huge timeline in the exhibition center marks the key events of last year, notably Kim’s meetings with the South Korean, Chinese and U.S. presidents.

“Economic and trade cooperation between China and North Korea is expected to increase,” the advertising declares. “China can help North Korea build ports, piers, railways, roads and bridges.”

Such predictions of a boom in everything from consumer goods to construction may have seemed fanciful a few months ago, after the second summit between Kim and Trump collapsed. But now, after Chinese president Xi Jinping’s visit to Pyongyang in June and Kim and Trump’s meeting on the border between the Koreas, hope was rekindled for some kind of progress. Neither Beijing nor Washington seems to be letting the recent spate of North Korean missile tests get in the way of that.

Investors are betting that Trump may agree to ease sanctions imposed through the United Nations as punishment for the long-range missile launches and nuclear tests of 2016 and 2017.

By banning sales of coal, seafood and textiles, the United Nations hoped to cut off North Korea’s main sources of revenue — blocking about one-third of its annual $3 billion in trade — and force it back to the negotiating table. These are the sanctions that Kim wanted dropped when he met Trump in Hanoi in February.

Now that Kim is talking, China is pushing for a relaxation. When they met at the Group of 20 summit in Japan at the end of June, Xi urged Trump to “show flexibility” toward North Korea, advocating the “timely” easing of sanctions, China’s foreign minister said after the meeting.

As for North Korea’s recent short-range missile launches, one Chinese academic, speaking on the condition of anonymity to speak bluntly, put it this way: If the United States isn’t worrying about them, why should we?

Trump has repeatedly played down North Korea’s missile launches of the past month, saying the short-range missiles were “very standard” and had no impact on his desire to talk with the Kim regime. On Wednesday, Secretary of State Mike Pompeo sounded an optimistic note about talks, noting that North Korea had not returned to testing missiles that could reach the United States or carried out further nuclear tests.

“We are hopeful that in the coming weeks, we will get back to the negotiating table,” Pompeo told reporters.

He may be betting that Kim can still be enticed with economic incentives.

China's logic

Kim assured Xi during their meetings in Pyongyang in June that he was serious about economic development, Chinese officials say. The Chinese government is now eager to encourage Kim to embark on a “reform and opening” strategy like that which led to China’s transformation, and sees lifting sanctions imposed through the United Nations as a way to do that.

“China’s logic is this,” says Jia Qingguo, dean of international studies at Peking University and an influential foreign policy thinker in Beijing. “Since North Korea has not conducted tests, its behavior should be rewarded. It’s both a reward and encouragement. Encouraging North Korea to be more willing to compromise on denuclearization.”

Even if nuclear negotiations resume, however, the Trump administration has signaled that it is in no hurry to ease the sanctions, insisting they can be removed only with progress toward denuclearization.

The United States knows that if the U.N. sanctions are eased, it would be exceedingly difficult to get China and Russia, both permanent members of the Security Council, to agree to reimpose them if the nuclear talks get derailed.

These limitations are not, however, stopping potential investors from scoping out prospects inside North Korea — with the tacit approval and sometimes the encouragement of the Chinese government.

China’s Xi encourages North Korea to develop economically amid cheering crowds

“There are business opportunities everywhere in North Korea,” said one investor, who asked to be referred to only by his surname, Zhang, because he was speaking about sensitive commercial dealings. “They have no infrastructure or things to improve their living conditions. So anything that North Korean people need can be a business opportunity.”

Zhang went on an investment tour in May to Rajin-Sonbong, a commercial hub on the North Korean side of the border.

“Many people think that North Korea is backward, but those who don’t hold these prejudices can find a lot of opportunities in North Korea,” he said. “Their education level is high and their labor is very cheap.”

He opened a business importing ginseng and other medicinal herbs from North Korea, which are not prohibited under the sanctions and which he says sell well in China because of their purity. “North Koreans still use oxen to work the fields, and they have no fertilizer. That means their products are basically organic,” he said.

'Plan ahead'

Like others involved in trading on the border, Zhang said that all transactions are done in cash to avoid running afoul of banking sanctions. But he expects that to change soon. “I believe that the sanctions being lifted, along with the international environment changing, will create huge development opportunities in North Korea,” he said.

Investment promotion companies are urging potential business operators not to delay.

“The North Korean economy is going to take a great leap!” proclaims Dali Vision, a Chinese company that says it has been operating in North Korea for many years, in advertising tours to seafood companies, shoe factories and even a winery in North Korea. “If you don’t plan ahead and take beneficial positions, what opportunities will be left when the sanctions are lifted and loads of capital floods in?”

Kim’s declared quest for economic development — said to the North Korean people in his speeches and to Xi in private — provides an opportunity for diplomacy to work.

Having completed one part of the two-track strategy he set out in 2013 — the credible nuclear deterrent part — he has now turned to the economy as a way to ensure his continued leadership of his inherited totalitarian state.

But Kim can’t achieve the kind of growth he needs while the sanctions are in place, and trade and investment flows remain stifled, analysts say. 

North Korea has been assiduously lobbying diplomats, including from European and Southeast Asian countries. “They are specifically asking for sanctions relief,” said one, speaking on the customary condition of anonymity.

The rounds of sanctions imposed in 2016 and 2017 worked like never before because China, which had previously tended to pay lip service to implementation, imposed the blockade with unprecedented zeal.

Trump’s 2017 threats to rain down “fire and fury” on North Korea alarmed Beijing. Its long-standing concerns about creating instability next door were suddenly subsumed by the apparently real prospect of American military action on its borders.

So Xi’s government pulled out all the stops to show the Trump administration that sanctions could work and that there was no need for strikes on North Korea. 

Traders along the border in Dandong — the gateway for 90 percent of North Korea’s exports — said that commercial avenues were cut off. Humanitarian workers found that the prohibition on sending metal to North Korea was so strictly enforced that nail clippers were removed from their shipments.

Trump becomes first sitting president to set foot in North Korea

There are still obvious signs of the sanctions’ bite here. Several of the North Korean state-run restaurants are closed. The lines of cars available for export to North Korea, which once sat along the road to the bridge that links the two countries, are gone.

The industrial complexes that used to house thousands of North Korean workers have emptied out significantly. North Korean women in blue smocks can still be seen at sewing machines in one such complex, on the outskirts of Dandong, but they numbered a fraction of their peak, said one local businessman who gave three Washington Post journalists a tour of the facility.

Still, even before Xi and Trump held their most recent meetings with Kim, local authorities on the border were allowing low-level trade to continue.

At the seafood markets in Donggang, south of Dandong, the shops were full of North Korean seafood, sold as “border crabs” and “border clams.”

“All these clams are from North Korea. Their supply is steady and the price is stable,” said one store owner who was packing clams into bags. “The Chinese side is overfished so we need seafood from the other side,” he said, an assertion that was repeated by four other salesmen.

The seafood was generally transferred from North Korean ships to Chinese ones out at sea because this trade is still technically illegal, the local traders said, all of them declining to give their names to describe clandestine activities. 

“Supervision of North Korean seafood has been very light,” one said. “Otherwise, this stuff wouldn’t have been able to get in,” he said, pointing toward the long containers of live clams in his store.

Smugglers over the river

Trade, which has always been illegal, continues, too.

Smuggling remains rife on the border, said the local businessman who acted as The Post’s guide in this area, an ebullient Korean-Chinese trader with a spectacular perm and a tendency to talk at 100 mph. He took The Post reporters to two riverbanks that, he said, were smuggling points.

They are smuggling electronics from China to North Korea. LG washing machines, large TVs, kimchi fridges,” he said, implying that local authorities were much more lax about this than central ones. “It’s only illegal from Beijing’s perspective.”

There is also plenty of technically illegal trade in shipping industry goods, including GPS equipment, fish-detecting radars, and ship parts including pipes and electricity generators.

The sanctions have driven up prices for these goods, the guide said. Something that used to cost $200 would now cost $230, he said.

In Pyongyang, home to the coddled elite who keep Kim in power, there is no sense of any deprivation caused by sanctions.

“You can get everything you need for a comfortable life, except electricity,” said one recent visitor, speaking on the condition of anonymity to avoid jeopardizing future access. “If you are well connected and if you have the money, you can live a fairly comfortable life in Pyongyang.”

The main Unification Market, the hub for much of the private trading activity in the capital, is “packed with people and bursting with energy,” the visitor said, describing the “petit bourgeois” who shop there. “You can buy Johnnie Walker and Dyson vacuum cleaners and motherboards.”

At one complex on the outskirts of Pyongyang, a Japanese woman runs a large furniture store stacked to the rafters with “huge amounts” of goods from Ikea and Nitori, a Japanese furniture chain. There are wardrobes, sofas, desks and tea towels — everything that can be bought at Ikea and Nitori, but at higher prices.

“There is a large number of people who have the economic wherewithal to indulge in luxuries,” another recent visitor said.

A state-run department store in the center of Pyongyang even has concessions with real Rolex and Chanel, decked out to look like genuine outlets of the luxury brands. Although the stores have limited stock and even fewer customers, the sense of aspiration and indignation is evident, the visitors said, describing the stores as a “middle finger” to the notion that sanctions have had any impact on the capital.

'Multiple loopholes'

One obvious, if puzzling, sign that trade continues apace: North Korea ran a $2 billion trade deficit with China last year, according to Chinese customs data.

How North Korea is funding this deficit remains a mystery, leading analysts to suggest that China is either writing off the discrepancy or that North Korea is exporting goods that do not show up in the official statistics.

Is North Korea a player in the U.S.-China trade war?

“On the ground, the individual traders have found multiple loopholes, despite strict enforcement from the authorities,” said Joung Eun-lee, a specialist on the North Korean economy at the South’s Korea Institute for National Unification.

“Especially with the heightened interest in North Korea following major summit events over the past year, Dandong is bustling with Chinese tourists traveling to North Korea,” she said. 

Indeed, demand for tours to North Korea far outstrips the supply of hotel rooms across the border. North Korea has limited the number of Chinese tourists it can handle to 1,000 a day, and travel agencies in Dandong report a wait of two to three weeks to join the five-day-long tours across the border, which start at $400 per person. 

Older Chinese in particular have been enjoying going on nostalgia trips to North Korea, harking back to the days before capitalism arrived in China and turned life into a rat race. But these days, the trips are composed of both sightseers and potential investors.

Regardless of the ups and downs, China’s objectives have not changed, said Jia, the foreign policy expert at Peking University. China wants denuclearization, peace and stability, and dialogue.

“The U.S. probably doesn’t care about North Korea’s political stability, but China does,” he said. “China wants stability.”

Wang Yuan and Min Joo Kim contributed to this report.

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