N. Korea takes a stab at capitalism in remote area

Chinese workers camp out in tents on the side of a road under construction while Russians toil on a railway in a region of isolated North Korea opening up to foreign investors. Locals in the Communist state's northeastern area of Rason can buy Sunsilk shampoo and Colgate toothpaste at a bustling market, not far from a hotel where Chinese seafood workers drink beers at a bar -- despite regular power cuts. As the country grapples with a faltering economy, authorities in this special zone are making a push to attract foreign investment by flaunting their strategically-located port, tax perks and cheap labour. "When our general (leader Kim Jong-Il) visited in 2009, he urged us to revive the economy at the Rason economic trade zone with three industries as major pillars," said Hwang Chol-Nam, vice mayor of Rason. Speaking to reporters invited on a rare trip to the triangular coastal area that borders China and Russia, Hwang said authorities had decided to focus on developing manufacturing, logisitics and transportation, and tourism. "Currently, there is a lot of interest in investing in labour-intensive industries. For instance, a lot of Chinese textile companies -- even Taiwanese textile companies -- say they want to build plants in Rason," he said. He added authorities had even more ambitious plans to attract device and component makers, shipbuilders, carmakers and high-technology manufacturers in the economic zone, which was set up 20 years ago but never took off. The plans for Rason come as North Korea continues a push to open up small reform areas. The country already has a South Korean-financed industrial estate in the west at which some 46,000 North Koreans work for Seoul factories. One of the world's last remaining centrally-planned economies, North Korea is faltering under the weight of international sanctions imposed over the regime's pursuit of nuclear weapons. Desperately poor after decades of isolation and bungled economic policies, it is grappling with persistent food and power shortages. Rajin and Sonbong -- the two cities that make up the 470-square-kilometre (188-square-mile) economic zone of Rason -- suffer from electricity cuts, communication problems and poor infrastructure. There is no Internet connection in the area and phone lines are unreliable and expensive. Foreign mobile phones are confiscated when visitors enter North Korea, and at night, Rajin city is plunged into darkness. Undeterred, China and Russia -- both allies of North Korea -- are building a road and railway respectively, linking their borders to Rajin, lured by the potential benefits of the city's ageing port. China's 53.5-kilometre (33-mile), two-way road bumps and weaves through cornfields and white-walled houses with tiled roofs, and while it has yet to be paved, it is expected to be completed in November. Russia's railway from its own border city of Khasan to the economic zone is also due to be finished this year. The port has three piers but lies neglected, its dockside cranes rusting. When reporters visited, one ageing Russian ship was moored there, as were several rickety fishing boats. But Hwang said plans were afoot to modernise the complex, which would enable China to ship out goods from its landlocked northeastern region much faster than it is able to do now. China has reportedly leased one pier. Russia has signed a 50-year lease for another pier for $1 billion, said Andray Abrahamian, executive director of Chosun Exchange, which facilitates education exchanges with North Korea. Abrahamian visited Rason last month when authorities hosted the area's first international trade fair, attended mainly by Chinese companies but also by Australians and one US firm. According to Hwang, other projects for the zone include a Chinese-built coal-fired power plant, which would help ease power shortages in the area, as well as a big cement factory. A Thai firm is due to set up Internet in the area, although Hwang acknowledged non-business websites would likely be blocked. "This can all be seen as a way to experiment with reforms in an area that is not near the political heartland (of Pyongyang) and as a way of strategically strengthening their ties with China in particular, and Russia," Abrahamian said. But experts caution that this attempt at economic openness -- if successful -- may not filter down to the rest of the country. Hwang himself steered clear of comparing the situation to Chinese-style reforms enacted in the 1980s, which paved the way for growth that turned the Asian nation into the world's second largest economy. "The North Korean approach seems to keep these small, limited zones almost hermetically sealed away from the rest of the economy," said Brian Bridges, a political science professor at Hong Kong's Lingnan University. "So it?s seeing them in terms of perhaps export processing, possibly in terms of a port for exports, but not in terms of triggering off a wider change to the North Korean economy." Still, local people in Rason -- some of whom use mobile phones -- appear to have more spending power than they did several years ago, according to Abrahamian. At a restaurant in town, a few groups of friends were seen eating barbecued beef skewers at plastic tables, served by two women in a stand with a television broadcasting karaoke songs in the background. And at a market in Rajin -- one of the largest in the country -- locals come to buy anything from skinned rabbits and clothes to torches, loudspeakers, and beauty products -- most of which are imported from neighbouring China. Hwang acknowledged that sanctions -- while not covering the kind of textiles and other products that most companies would look to have assembled in Rason -- still exerted a big influence on whether firms invested or not. "Some investment deals, even after actual agreements are signed, end up falling apart due to UN and US sanctions," he said. He also said it was essential to establish a good legal foundation, amid general wariness about the safety of investments in North Korea. "We have revised laws on the Rason economic trade zone. These laws are special laws only for the Rason economic trade zone," he said.