A customer enters a store attached to a cosmetics factory in Pyongyang. A modest amount of economic liberalisation has taken place in North Korea in recent years (Ed JONES)

Sinuiju (North Korea) (AFP) – The manager of North Korea’s Sinuiju Cosmetics Factory clenches her fists when asked about a rival plant in Pyongyang, then bumps them together. “We compete,” Kim Hye Yong says firmly.

Throughout the plant, masked workers in white overalls, gloves and hairnets operate machines producing shampoos, creams, cleansers and other products.

Many are based on ginseng, a Korean root with a parsnip-like taste, with some packaging reminiscent of Western brands such as Pantene or Head and Shoulders.

“Many people must prefer products that we make,” Kim says.

Ahead of his second summit with North Korean leader Kim Jong Un, US President Donald Trump has claimed that if the isolated country gives up its nuclear weapons, it “could fast become one of the great economic powers anywhere in the world”.

The reality is both far more difficult and far more complicated than that — and the North is trying to get there on its own.

At the ruling party’s last congress Kim decried “the filthy wind of bourgeois liberty and ‘reform’ and ‘openness’ blowing in our neighbourhood”.

It was a clear reference to China, where the unleashing of capitalist market forces — dubbed “Socialism with Chinese characteristics” — transformed it into the world’s second-largest economy.

The North’s state media regularly carry commentaries decrying the evils of capitalism and predicting its inevitable demise.

But in practice, Kim has been quietly reforming the economy for several years.

The shackles of the state have been loosened to let private traders operate in informal markets, give state-owned enterprises some flexibility, and turn a blind eye to private company activities.

Competition between factories, corporate diversification and vertical integration are all encouraged.

Visiting the Sinuiju factory with his wife Ri Sol Ju in June, Kim lauded its innovation and consumer appeal, according to the official KCNA news agency.

He authorised it to open outlets across the country, says manager Kim, 54 — a new direct channel to shoppers.

“Because we manufacture products that meet their demand, it brings consumers and manufacturers closer together,” she told AFP. “Serve the people.”

The reforms’ effects are most visible in Pyongyang, where the city’s middle class patronise coffee shops and gyms and smartphones are increasingly common.

But commercial advertising and visible outdoor branding — such as named shop signs — remain rare, and the capital’s residents are a privileged elite, unrepresentative of the country as a whole.

Overall results are mixed — the North is subject to multiple sanctions over its nuclear weapons and ballistic missile programmes, and according to the South’s central bank its economy shrank 3.5 percent in 2017, the most recent figures available.

– Striking contrasts –

For a time after the 1950-53 Korean War the North was wealthier than the South, helped by its Soviet backers and a decision by its former Japanese colonisers to concentrate industrialisation amid its mineral resources and hydroelectric potential.

But that reversed as the North — long considered one of the most state-controlled economies in the world — suffered decades of economic mismanagement, worsened by the Soviet Union’s demise. 

Now average incomes are less than one-twentieth of the South’s, according to Seoul’s estimates — Pyongyang rarely publishes official statistics of its own, even for GDP growth.

Beijing, Pyongyang’s key diplomatic protector and main trading partner, has long pressed its ally to follow its economic example.

Sinuiju itself offers a striking contrast: the towers and bright lights of Dandong, the Chinese city on the border, line the Yalu river’s opposite bank. Just a few kilometres the other way, villagers use ox-drawn carts in the North Korean countryside.

Geography means that the North’s economy will always be intimately linked to China, estimated to account for more than 90 percent of its trade.

But Pyongyang is intensely nationalistic — its “Juche” ideology translates as “self-reliance” — and diplomats in the capital say it is wary of dependency on China. 

Nor would it want to rely on the US for future prosperity, whatever Trump might promise.

The North is most interested in the example of summit host Vietnam, the diplomats say — where the Communist government has profited from the market while retaining total political authority.

– ‘Utmost caution’ –

Kim declared last year that the North’s nuclear weapons development was complete and its new priority was “socialist economic construction”.

He devoted most of his key New Year speech to the economy, although analysts say there have been few new reforms in recent months as Pyongyang focuses on negotiations with Washington.

Kim “is not only committed to keeping control, but is genuinely concerned with the state of the North Korean economy and is at heart a pragmatist”, said Andray Abrahamian, Koret Fellow at Stanford University.

The North’s leaders know “they need to get rid of sanctions, not to mention some of their own internal limitations”, he added.

Even without sanctions, foreign investment in the North has proved fraught with difficulties.

Its infrastructure is decayed, electricity supplies are unreliable and transport links are poor.

Researchers say corruption is widespread and legal frameworks for business lacking.

Egyptian telecom firm Orascom poured hundreds of millions of dollars into setting up the North’s first mobile phone network, Koryolink, only for the government to set up a rival operator, and was unable to extract its money.

Construction giant LafargeHolcim exited in 2017 nursing significant losses.

Analysts warn that a Trump-Kim deal in which the North gives up the ICBMs that target the US in exchange for nuclear status would do little to stimulate business.

“A nuclear North Korea, even if sanctions are lifted, will fail to attract meaningful private investment due to the vulnerability of peaceful relations with its neighbours,” Paul Choi of brokerage CLSA warned investors.

“Utmost caution is required for the North Korea theme.”

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