Are North Korea’s Reform Bottles Half-Empty?

In the basement entertainment center of the luxurious Yanggakdo Hotel in Pyongyang, there is a bowling alley and a cocktail bar. A row of expensive liquor bottles stand reserved for their owners, their amber contents glowing in the light just as one would find in affluent Seoul or Tokyo.

But this is austere North Korea and the barkeeper, like nearly everyone here, insisted recently that nobody is allowed to be disproportionately wealthy in a socialist paradise. She was asked, so who drinks the expensive booze? The woman just fell silent.

At least somebody’s bottles are getting full on the half-hearted economic reforms North Korea began in 2002. And while they seem to have had little or no widespread impact on the country’s desperately sick economy, the minor changes that have appeared are said to be creating a small clique of privileged entrepreneurs, usually close to the governing elite, who enjoy trips abroad where they find unlimited food, resources, access to funds, even a measure of freedom – and maybe a coveted bottle of pricey scotch with a secret name plate attached.

Faced with a collapsing economy after its socialist brethren bit the dust and turned off the tap on subsidized fuel and other goods, North Korea finally ended wage and most price controls, which kicked off colossal inflation. The government also began to allow some private commerce. But, apparently alarmed by inflation, Pyongyang again banned the sale of grain on the open market and forced its starving population to turn back to the government system for most basic food needs. What reforms continued largely allowed a few budding government-connected capitalists to sprout.

At that, Pyongyang’s wealthiest men remain a mystery. On a recent visit here everyone from shopkeepers to tour guides denied the existence of any wealthy North Koreans at all. Hong Un Hui, a government minder on the trip, said, “Nobody can be too wealthy. The income gap isn’t that wide.”

In one of the poorest countries in the world, at least two of the favored ones Jon Sung Hun and his younger brother, Jon Yong Hun, both sons of a former North Korean ambassador appear to be doing quite nicely. Jon Sung Hun is president of the Korea Pugang Corporation, which claims to have a registered capital of 3 billion Korean won (some US$20 million) and annual revenues of 22.5 billion won (some US$150 million).

Founded in 1979, Korea Pugang is involved in pharmaceuticals, machinery, glass, chemistry manufacturing and mines. It also manufactures motorcycles. “The Corporation runs gold mines, mints, factory of alcohol, pharmaceutical plants, drinking water factories, and other large number of factories of various industries such as metallurgy, mining, machinery, chemicals, electric, electronic, glassware, and timber,” it boasts on its official website.

Photos of Jon Sung Hun, his factories, machinery, and motorcycles have been published in the nation’s magazines. On the other hand, young brother Jon Yon, seems to maintain a relatively low profile, probably because he holds a monopoly over vital diesel fuel imports into the country.

In an interview with the Financial Times, the elder Jon denied that he is a millionaire, claiming he merely receives a salary like anybody else. But according to those who know him, his life is vastly different. A Beijing-based businessman, who has dealt with North Korea for more than a decade, described the brothers’ lives as “incredibly luxurious.”

“They, especially the younger brother, would check in at Kempinski Hotel’s presidential suite when they visit Beijing.” the businessman told Asia Sentinel. “The younger brother enjoys speed driving with his latest Mercedes-Benz model and he would have a brand new one right after should the old one crash.” The luxuries also extend to expensive cognac, the man said, worth 350 Euros per bottle in Pyongyang.

The reforms suggest that more entrepreneurs like the Jon brothers, with close ties to government leaders, may begin to appear in Pyongyang, despite UN Security Council sanctions imposed after Pyongyang first nuclear tests in early October.

Four years after the nation began to relax its economic policies, the Communist Party is now encouraging government departments and state-run-enterprises to take a more aggressive approach to making money, according to Chinese entrepreneurs and academics who have visited the country.

A report released by Citigroup in July last year suggested that “most state-owned enterprises have (developed) profit-retention plans, which allow companies to retain 40-50 percent of total profits for their own development or compensation.”

Some of these efforts, though, are laughably small-scale. During a November visit, North Korean minders encouraged foreign tourists to attend events such as a Pyongyang circus performance for 50 Chinese Yuan (US$6.40) per person, or to buy a bowl of chicken soup for 260 Yuan (about US$38), at a government-owned souvenir shop.

Although more State-owned companies have begun to introduce on-line services hoping to solicit business via the Internet, doesn’t have to fear a North Korean threat anytime soon., for example, peddles products ranging from traditional medicine and gold chopsticks to Korean liquor and computer software. But the site offers few explanations and no prices are listed. No one ever seems to answer the telephone number given. Another website,, carries about 100 kinds of products including raw seafood, but also provides no explanations in either English or Chinese. As usual, calls and emails go unanswered.

In past years, investment projects soliciting foreign capital and technology have also appeared on the websites of Chinese trade and investment consulting companies. The semi-official Dandong Information Association alone posted 133 investment projects of 19 categories, ranging from candy and diapers to textiles, infrastructure and energy production. The project also pushed logistics management of the Pyongyang central wholesale market, with the municipal government offering land and demanding that that its Chinese business counterparts provide capital for construction and cash flow. Revenues for the 30-50 year cooperative plan are guaranteed to be wired out of the country, according to a website.

In 2005, China’s Tianjin Digital Company started manufacturing bicycles after Pyongyang agreed to grant the firm a 51 percent majority stake and a 20-year monopoly. The company now manufactures 60,000 bicycles annually and plans to produce 300,000 annually in three additional plants in coming years.

Jon Sun Hung’s Pugang Corporation says it has set up a joint venture with Chinese companies to manufacture motorcycles and hopes to export them internationally.

The reclusive Kim Jong-Il, Korea’s absolute dictator, has reportedly begun visiting manufacturing operations, which Korea-watchers interpret as a sign of economic reform promotion. The Pyongyang Times newspaper has begun highlighting news of new factories, such as a recent photo caption that read “Fashionable Clothes output goes up.”

A Pyongyang-based diplomat suggested that the trip Kim made to China in early 2006 gave him “lots of confidence” to move forward on economic reforms although conservative forces are said to be seeking to obstruct change. In any case, trade liberalization appears to be going slowly. As of October, China-North Korea trade hit a paltry US$1.38 billion, an increase of only four percent from the same period in 2005.

But statistics are probably unreliable. North Korea’s government economic data is opaque at best and it appears that the UN sanctions will damage economic progress. In addition, the country’s restrictive investment regulations are obviously a headache, with some foreign businessmen saying privately that they are not able to freely remit their money. Certainly Kim Jong-Il can’t be expected to do anything that would threaten his iron control and information, without which a financial industry simply cannot function, will continue to be assiduously rationed by the government.

But there are believers. Li Jingke, a China-based businessman who runs the Small China- DPR Korea Investor Association in Dandong, said that more investment-friendly policies, particularly those that would protect foreign investors’ rights, are expected in April. In addition, he said, merchant bureaus are to be set up under provincial governments.

And even Citigroup reports that “commitments to continuing economic reform and internationalization that began in July 2002 appear to be strong and broad-based.” The report concluded: “Economic engagement may increase the chances of continuous economic reforms in North Korea and, at the same time, reduce risks for everybody else.”

That sounds like wishful thinking.