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Li Hyok knows big changes are coming to this backward North Korean city situated on the banks of the Yalu River across from China. He has heard that Kim Jong Il, North Korea's enigmatic dictator, intends to turn Sinuiju into a special economic zone. Li and the 4,000 other employees of Sinuiju Shoe Factory are hopeful that the promised boost in commercial activity will improve their meager lot. "This is all for the Korean people," Li says, standing among middle-aged women piecing together black and white sneakers on noisy sewing machines. "It makes the Korean people richer, with more to eat, more to spend."
As to the exact details of how the new zone will be established, Li says, "I am not clear." And in this case, the devil is definitely in the detail. The government plans to deport Li, his factory, and the 500,000 residents of Sinuiju to other parts of the communist country to make way for a capitalist paradise as ambitious as it is bizarre. Li and his neighbors will be replaced by 200,000 model workers, hand-picked for their technical skills, who will populate a city encircled by a yet-to-be-built wall erected to keep illegal migrants out. Within the city limits, a kind of anti-North Korea with its own laws and elected officials will be created from scratch. Private enterprise, not state socialism, will guide the economy. A legal code enforced by imported European judges, not Kim's fiats, will regulate the community. Most of the drab, dilapidated buildings that line Sinuiju's quiet streets will be flattened, modern offices and factories built in their place. Pyongyang has even appointed a non-Korean—39-year-old Chinese entrepreneur Yang Bin, reportedly the second-richest man in China—to govern the new zone. Li, after being told that his role in the grand experiment involves packing his things and leaving, says impassively: "We must obey the higher authority of the country."
Kim Jong Il, the Dear Leader, is of course more experienced at emulating Stalin's gulags than Adam Smith's capitalism. Yet Kim Yong Sul, North Korea's vice-minister for foreign trade, called the Sinuiju Special Administrative Region "a new historical miracle" wrought by Kim Jong Il "in the hope of achieving prosperity for Korea." Not so long ago, U.S. President George W. Bush branded North Korea a member of the "Axis of Evil," along with Iraq and Iran. But the xenophobic Kim now seems increasingly frantic to mend relations with the outside world and leapfrog his poverty-stricken people into the modern era. After years of extreme isolationism, Kim is letting go of the ideology of Juche—Self-Reliance—and easing toward economic and political engagement. The zone could prove to be another of North Korea's grandiose white elephants, like the 105-story, pyramid-shaped Ryugyong Hotel that towers, unfinished, over the Pyongyang skyline. But if it works, new ideas and fresh money could spill over the city's whitewashed walls and cascade across the country's brainwashed citizens. "Once this succeeds," says a confident Yang, the new chief executive of the Sinuiju SAR, "the whole country may be open."
The Sinuiju gambit, however, is aimed at one of the country's few allies: China. The tightly controlled border crossing at Sinuiju will be thrown open to Chinese labor and business—which Yang's appointment is meant to entice. China offers not just investment capital. The country and its rising class of entrepreneurs can conceivably teach North Korea how to turn a crumbling communist state into an economic dynamo. After all, Beijing two decades ago launched free-trade zones to lure foreign investment as a prelude to transforming the whole country into a market economy.
A rare tour of Sinuiju highlights how badly the place needs China's example. In the spartan North Korean city, few cars motor on the wide streets, and the decaying department store has a meager selection of basic packaged food and dull clothing. At night, schoolchildren gather in the main square to read under the floodlights pointed at a statue of Kim Il Sung, the country's founder. It's the brightest spot in a city plagued by chronic electrical power shortages. Meanwhile, across the Yalu River in the Chinese city of Dandong, new, white buildings rise above the riverbank, traffic clogs the streets, and moving walkways roll through a local shopping mall past stores stuffed with Nike shoes and Coca-Cola.
With China as a role model, North Korea is adopting other market-oriented reforms. The government intends to stop subsidizing most companies, a crucial step toward less fettered enterprise, though the timetable is unclear. In July, central planners also instituted a new price control regime meant to spur North Koreans to be more productive. Wages jumped as much as 20-fold, while prices for electricity, housing and rice were sharply increased from levels that were so low, the services were virtually given away. Companies are also starting to introduce bonuses for the best workers. Kim Sung Gi, a staff member of Pyongyang's largest library, says his salary increased 20 times to about $100 a month, while his rent was raised only five times. "I feel more satisfied," he says.
Whether change will be deep or lasting remains unclear. The countryside of North Korea is a veneer of pastoral isolation masking severe poverty and privation. Small hamlets of white-washed cottages nestle between rice paddies and corn fields, where teams of farmers still work with hoes and sickles. Hardly a tractor can be found, though truckloads of soldiers ramble down the narrow roads. At the Grand People's Study House in Sinuiju, students stare at computers equipped with Microsoft Internet Explorer, but with no connection to the Web, they listlessly surf the library's own site. At one dimly lit lecture hall, students learn English by repeating phrases their teacher recites in praise of the Communist leadership. "All the people would unite single-handedly behind the great leader Kim Jong Il," they chant.
That Kim chose as his principal change-agent a mainland Chinese businessman with Dutch citizenship is, in itself, an acknowledgment that the North Koreans can't reform themselves. No less a figure than Kim Yong Nam, the second-most powerful man in North Korea, handed over the zone's authority to Yang in a ceremony last week, while other top comrades watched sullenly from armchairs. Yang, sporting a Kim Jong Il badge pinned next to the alligator on his Lacoste golf shirt, insists the new zone is a sincere effort. "General Kim wants to open a window to the world," he told TIME in an interview. "General Kim wants people to see the good side of capitalism."
Sincerity alone won't be enough to get the new zone off the ground. Sinuiju is short of everything an economic hub needs to operate, including decent roads, commercial transport and proper water facilities. Yang intends to woo international banks to finance infrastructure projects. Similar funding has been sought in the past without much success. In the mid-1990s, Pyongyang tried to lure capital to North Korea's Rajin-Sonbong free trade zone, which also has its own legal code, but little has been developed. In a black box of a state where assessing political risk is like reading chicken bones, how can investors be sure Kim won't just pull the plug on the whole experiment?
Yang insists that won't happen. His zone will succeed where others haven't, he declares, because it isn't North Korea. "There is no economic relationship between North Korea and the new region," he says. As chief executive, he is responsible for appointing a 15-member council—half of them non-Koreans—to draw up the new regulations for the zone. After two or three years, the council will supposedly be elected by the zone's residents. In a sign of just how desperate North Korea is for this venture to work, the central government has also agreed to take no revenues from the zone for 50 years. "Any minister in the central government cannot interfere in the affairs" of the special region, Yang promises. He also hopes businesses—from oil refineries to textile mills—will be attracted by low taxes, cheap labor, and the absence of trade duties. "North Korea," he says, "can't afford to lose the trust of the whole world."
Then again, Sinuiju's chief executive has credibility issues of his own. Yang, who says he has small agriculture-related holdings in North Korea, was told by government officials during a January business trip to Pyongyang that Kim had hand-picked him to run the SAR. On the mainland, Yang's fortune is rooted in an orchid seedling business he built into Euro-Asia Agricultural (Holdings) Co., which is listed on the Hong Kong Stock Exchange. A hardy perennial himself, Yang was orphaned at five, graduated from China's naval academy and, after winning a scholarship to study in the Netherlands, scored himself a Dutch passport. Last year, Forbes magazine named him the second richest man in China with an estimated worth of $900 million.
In the past year, however, Yang has had to defend himself against rumors of questionable business practices and tax evasion. Some of his bad publicity surrounds construction of a Dutch-style residential housing and theme park near Shenyang in northeast China. The massive project, which includes re-creations of Amsterdam streets, luxury apartments, botanical gardens and an indoor beach, reportedly will cost $360 million. The size of the project has raised concerns among investors that Euro-Asia's own financial standing might be undermined. Both Yang and the company say the two operations are totally separate.
China Premier Zhu Rongji complicated matters further by ordering a crackdown on tax evasion that targeted China's wealthiest citizens. Yang was investigated, but no wrongdoings were uncovered. To quell jitters, Yang called an extraordinary news conference in Hong Kong in July to deny a press report that he'd cheated on taxes or fled China to escape prosecution. "If I evade taxes, I can't leave China. So my presence in Hong Kong is the best proof," Yang said.
But for now, Yang has his mind on more grandiose matters—the biggest development project of his career, and what may prove to be an epochal experiment in social engineering. Yang says his goal in Sinuiju is "to merge the economy of North Korea into the world economy. That's the only way to eliminate hatred and bring peace to Northeast Asia." He compares North Korea to a miner climbing to the surface after a long day in the tunnels and finding the sun painful to his eyes. "North Korea has been closed for 50 years," he says. "You have to give them light bit by bit." China's Orchid King wants his drab new homeland to reach for the sun—and, for the first time, to flower.
- Michael Schuman/Sinuiju
- North Korea establishes its own special economic zone—and looks to a foreigner to rule it