INSIDE NORTH KOREA 2011

Reuters joins small group of foreign journalists on rare trip to far north China and Russia build road, rail to Rason Special Economic Zone Reporters shown inside giant market, hive of activity

Reuters team: o o o Text: Jeremy Laurence Photographer: Carlos Barria TV: Mark Chisholm

CHINA, RUSSIA RUSH TO REBUILD NORTH KOREA'S TRANSPORT LINKS

BY JEREMY LAURENCE RAJIN, North Korea - Destitute North Korea's push to breathe new life into economic relationships with its neighbours China and Russia appears to be bearing fruit in its far north of the country where foreigners are busy helping rebuild a crumbling infrastructure. A top local official told reporters on Tuesday that China and Russia had invested heavily in the region in order to gain access to its three east coast ports in the towns of Rajin and Songbon, which are the main centres for the secretive North's Rason Special Economic Zone. "Rason is situated well geographically, and provides favourable conditions for investment," the city's vice mayor Hwang Chol-nam said through an interpreter. The ports would more than halve the distance Chinese firms needed to ferry goods from landlocked Yanji in Jilin province to the major industrial centre of Dalian which is also a shipping hub for northeast China. Impoverished and squeezed by international sanctions for conducting a series of nuclear and missile tests from 2006, North Korea has reached out to Moscow and Beijing for help to fill the gap left by the drying up of South Korean and the U.S. economic assistance. VISIT TO RASON North Korean authorities this week escorted a group foreign journalists to the lush Rason area where they are hoping to secure foreign investment and raise much needed hard currency. lifeline of Over 100 Chinese bulldozers and diggers were seen working on a new mountain road connecting the Chinese border post of Jing Xin and the North Korean ports, while a new railway line linking the area with Russia is all but complete. Hwang said that the North had also agreed in principle with a Chinese company to build a coal-fired power plant in the so-called Rason Special Economic Zone, where like the rest of North Korea, there is little power.

Power is the

industry, that is the first urgent problem for developing the Rason Economic Development

Over the past 15 months leader Kim Zone" Jong-il, who in the past rarely travelled abroad, has visited China four times and last week made his first trip to Russia in nearly a decade. Kim's visits were mainly aimed at winning economic support, and have raised speculation he may finally be opening one of the world's most closed economies. The North announced in June it would work with Beijing to make the Rason zone work, along a similar zone in the west at Hwanggumpyong island near the Chinese city of Dandong.

"We have finished all the feasibility studies," he told reporters visiting the area, adding he hoped construction on the new thermal plant would start next year. Asked the name of the Chinese company, he said: "It's a secret".

Hwang said the power plant would be coal-fired with a maximum capacity of 600,000 kilowatts. "Power is the lifeline of industry, that is the first urgent problem for developing the Rason Economic Development Zone," he said, adding the zone had introduced new laws permitting international banking transactions, as well as tax incentives. The North faces acute energy shortages, and in Songbin a massive thermal coal-fired plant lies idle, while oil refinery, complete with 30 massive tanks, sits derelict. At night, Rajin is pitch black except for the few buildings with their own generators. Russian engineers were seen working on the new rail line just outside of Songbon, about 20 km north of Rajin. "The Russians have constructed the railroad from the border city of Khasan to Rajin port, and they are finishing the project this year," he said, adding Russia has leased one of the ports. The special economic zone near the border with Russia and China, was initially instigated in the early 1990s, but the project fell by the wayside due to lack of interest from foreign investors. Hwang said the country's leader Kim Jong-il visited the area in 2009, and issued a directive to push ahead with the plan to promote international trade in cargo, and to develop the local fishing and tourism industries. But even with the improved infrastructure, the twin ports still have a long way to go. A port meant

for timber appeared to be in ruins, while the ports in the Songbon were rundown. Rusted and hole-ridden giant water pipes ran along another port near the derelict thermal power plant. In the biggest port, Rajin, a 250-metre Russian transport vessel, named "Friendship", was moored with a trickle of smoke coming from its engines. It was unclear if it was operational. None of the 15 giant cranes cargo were operating on the any of the three piers. A few fishing trawlers and small boats were tied to the piers, the longest of which measured about 500 metres. Foreign experts say the North's plans to develop the port may just work given China's close involvement but doubt it will ever turn into major cargo hub. Hwang said there had been considerable interest, mostly from Chinese and Russian companies, but also from Thai and Swiss investors. He said China's biggest cement manufacturer, Jilin Yatai (Group) Co. had agreed to build a factory with a 1 million tonne per year capacity. Textile companies from China and Taiwan have also expressed their interest. Hwang also had his eyes on even bigger things -- shipbuilding, auto manufacture and the hi-tech industry. "I think one year after the completion of infrastructure we will be at a high stage."

A RARE GLIMPSE INSIDE A MARKET

RAJIN, North Korea - Foreign media were given a rare glimpse inside a North Korean marketplace on Friday, and witnessed thousands of people exchanging cash for a wide variety of goods, as the secretive state experiments with modest change. One of the world's most closed, centrally-planned economies, North Korea has embraced a semblance of free market trading in selected regions along its borders, including in the Rason Special Economic Zone in the far north at the China-Russia border. "They can buy as much as they want," a North Korean guide told a group of about a dozen international journalists as he led them through the Rajin market. "You can buy in either Korean won or Chinese yuan." The state's authoritarian leadership cracked down on market activity around the time of a failed currency reform about two years ago, but has since relaxed the ban, experts say, due to the strain on the moribund economy caused by international sanctions. In June, within days of North Korean leader Kim Jong-il's return from his third trip to China in a year, Beijing and Pyongyang declared they would work together to make two new special economic zones (SEZs) work. The second SEZ is in the west, at Hwanggumpyong island, near the Chinese city of Dandong. Last month Kim again visited China, on his return from his first visit to Russia in nearly a decade, also as part of his secretive state's push to secure economic aid and try to entice investment in the port of Rason. Chinese constructors are due to finish a new road from the border to the port this year, and Russia has nearly finished building a railway line to the port. Beijing has encouraged the North to follow its path of "socialism with Chinese characteristics", or controlled capitalism, but analysts say that replicating such reforms would be suicide for North Korea's leadership. BUSTLING MARKET The vast indoor-outdoor market in Rajin was built in 1997 by a Chinese company. Zheng Zhenxi, a top official of the Tianyu Group that built the market in the heart of port town of Rajin, told reporters by the dusty road after the visit that he wants to expand it next year. He could not say what stall holders were charged to lease a lot, or what commission was levied against their earnings. But he did say that haggling was allowed. Zheng runs the same group that escorted about 100 Chinese businessmen and a group of foreign journalists around the Rason Special Economic Zone this week in a bid to woo foreign capital into the area, where the government has embraced a more liberal economic policy. Diplomats say the markets are back up and running in the North but are strictly controlled. The Rajin market looked like many markets in the Western world, overflowing with goods from rice and other grains, to all kinds of meats and even items such as sofas and cabinets. The market was divided into different sections: food, clothing, home furnishings, electronics and children's toys. There was a foreign exchange office, but it was closed. Zheng said yuan and Russian roubles could be exchanged there at the official state rate. U.S. dollars cannot be converted. The market was a hive of activity, although the North Koreans were clearly surprised to see the chain of foreigners weaving through their stalls. The journalists were forbidden from taking any video or photographs, and from writing in notepads. The stall holders, all wearing official badges, and customers eagerly encouraged buyers to part with their cash. A pair of black shoes were being sold for 75 yuan ($11.75), traditional communist style caps 20 yuan, while 5 doughnuts cost 1 yuan. The traders cash bags were full of yuan currency, indicating they were doing brisk business.

READYING FOR HARVEST AS AID FLOWS IN

WONJONG BORDER POST, North Korea - Impoverished North Korea appears to have emerged from the depths of a bad winter and late spring in reasonable shape, at least in the far north and south, where a variety of crops are nearly ready for harvest. The North has pleaded for food aid this year due to bad weather and the impact of international sanctions imposed for its nuclear programme, winning donations in recent months from Russia, the European Union and U.N. organisations after sending in their own assessment teams. But South Korea and the United States have so far refused food aid, granting only emergency aid to help the impoverished state deal with flood damage from a series of bad storms in the middle of the year. Washington says it is still assessing the North's requests, while Seoul says it doubts Pyongyang's pleas are genuine. Until the imposition of sanctions, the two had been the biggest aid donors to the North, which has suffered chronic food shortages for years. During a five-day trip which started near the China-Russia border and ended at the South Korean border, foreign journalists saw that fields in the respective Rason and Kumgang zones were lush with crops, sometimes stretching over many acres . Korean capital, the area was lush with the same crops, as well as barley and cabbage. There were also some orchards, along green houses with vegetables. Men, women and children were working in the fields, along with a couple of ox-drawn ploughs. But, not one item of mechanised farm equipment was seen during the entire trip. An Australian tourist, who travelled in the centre of the country, driving two hours north of Pyongyang and five hours from the capital to the South Korean border, said he had seen acres and acres of crops ready for harvest. "I don't know about the politics of it all, but what I saw was plenty of crops that looked really good," said 51-year-old Max Ward, touring the country for a week with a friend. "And the kids all seemed happy and they certainly didn't look like they were starving. Sure, there is poverty, but no more than any other third world country."

We had bad winter, and late spring, but the crops look good now

"We had bad winter, and late spring, but the crops look good now," said a North Korean guide who escorted a group of foreign journalists on a rare trip through the areas this week. The harvest is due in October. From the North Korean border post of Wonjong to the port of Sonbong, about 70 km (43 miles) away, the area had many fields of corn and rice. Maize was growing over a metre high in small plots around many of the small bungalow style houses in village compounds while communal rice fields sometimes stretched for acres. Soybeans and potatoes are also grown in the area, the North Korean guide said. There was little livestock, but some healthylooking cows were seen grazing. Three people were seen riding horses. Western journalists have not been taken to the area before, at least in recent memory. Pyongyang, with China's backing, has this year broken ground on new infrastructure projects in the zone as it attempts to woo foreign investors to generate hard currency for the state's flailing economy. KUMGANG THRIVES In another special 'international' zone with more marketoriented rules, the resort of Kumgang which was built with South

A resident of the Rason area, who cannot be identified, said adults were entitled to 700 grams (1.54 pounds) of rice per day and children 300 grams under the socialist state's public distribution system. "Everyone uses the market to buy everything," he said. "This is allowed because we are in the Rason Special Economic Zone." The marketplace was a hive of activity when foreign journalists were shown around the complex which was the size of about four football fields. Bags of rice and other grains as well as meats and cooked foods were also for sale. But trading was not just restricted to the market. Vendors were sold juice and watermelon throughout the town. At the beach front, a few dozen people were seen having a picnic, and about a dozen people were swimming in the sea. Outside a tourist office in the town, a vendor was even selling icecream. Despite pleas for food aid, reclusive North Korea observes of policy of juche, or isolation, saying it can stand on its own without any outside help.

TALK OF SUCCESSION OFF LIMITS

RAJIN, North Korea - In North Korea, talk of succession and the third son of the secretive state's leader is strictly taboo. "Don't ever mention Kim Jong-un's name," whispered a source, glancing over his shoulder to check the conversation wasn't being overheard. "You'll get in very big trouble, it's just not talked about." The advice was delivered to a Reuters correspondent during a state-sanctioned visit to the far north, the first such escorted trip to that part of the country in living memory. Entering into a discussion about succession in North Korea is tantamount to accepting the mortality of the state's current leader Kim Jong-il who, like his father before him, is worshipped like a god by his people. Very little is known about Kim Jong-un, only that he is in his late 20s and was educated in Switzerland. Last year, the youngest son of the state's iron ruler was effectively anointed as the next leader when he was given prominent positions in both the military and ruling party. The state has fostered a personality cult for its leaders over the past 60 years. Experts say this is possible only in a country as totally isolated as North Korea. After his death in 1994, Kim Il-sung was proclaimed the eternal president and even his son did not dare lay claim to this title. Instead, Kim Jong Il erected so-called "eternal life towers" dedicated to his godly status, in all the cities, towns and villages. There are believed to be over 3,000 of these plinths around the country. NO AMATEUR PHOTOS The propaganda machine is constantly at work in the secretive North, idolising the leadership of what was communism's first dynastic succession, as well as broadcasting the virtues of its 'songun', or military-first policy. In every town and village a giant portrait of Kim Il-sung, known as the Great Leader, is on display in the main square. In Rajin, the main city of the Rason Special Economic Zone, the portrait is presented as

Don't ever mention Kim Jong-un's name," whispered a source, glancing over his shoulder to check the conversation wasn't being overheard. "You'll get in very big trouble, it's just not talked about."

an ornate work of mosaic tiles. A local woman sells plastic flowers to offer as a show of respect and place at the foot of the portrait. Visitors are told, when taking photos, to ensure the entire portrait is captured, because censors at the border will order the photo deleted if any part of it is missing. In all likelihood, the military guards will at the same time delete the entire collection of photos stored in the camera. It is not just incomplete images of the leader that are destroyed. Any "sensitive" images are removed as well. Sensitive is not strictly defined but loosely means photos of the military or any image casting the country in a bad or povertystricken light. KIM PINS NOT FOR SALE At the age of 17, North Koreans are given a small red badge of Kim Il-sung to wear over their heart. The pins come circular, rectangular or flag-shaped. "We get given them by the state, and I have five different ones to go with my shirts," a North Korean guide said, when asked about the pins. Asked if foreigners could buy them, he sharply replied they were strictly not for sale and were a symbol of national pride and not a commercial commodity. He said workers do not have to wear them while labouring in factories or on farms. As well as portraits of Kim Il-sung appearing in every main square, pictures of the two Kims hang side by side in the main room of every building -- home, hotel and public building -- with the elder Kim to the left. The portraits are treated as a sanctity in themselves, reportedly polished on a daily basis by state order. Kim Il-sung is usually wearing a dark jacket and tie, while his son favours communiststyle khaki attire. The ultimate accolade for every person in North Korea is to be on hand for a so-called "field guidance" visit by their leader. On board the Mangyongbong ship, which was used this

week for a 'test' cruise for Chinese travel industry representatives accompanied by foreign journalists off the east coast of the peninsula, a photo of Kim Il-sung visiting the boat in the 1970s hangs in the main meeting room. RESPECT At an art gallery in Rajin, paintings are mostly of the Kim family or of soldiers. A family painting shows the elder Kim, with a young boy of about 5 years of age sitting to his left. The child is in a military outfit. When asked the identity of the little boy, the North Korean guide replied, "that is not a little boy, that is General Kim Jong-il". Clearly offended by the perceived slight, he added, "You must respect our culture, it is General Kim Jong-il." The same rule applies for "Kim Il-sung". Even in an unofficial situation, one must say: "The Great Leader Kim Il-sung". Both Kims are also immortalised in verse, and North Koreans, who enjoy singing, know countless songs that worship the two leaders. When Kim Jong-il was visiting Russia last month, North Koreans sang a song longing for his safe return. Videos are also used to ram home the nationalistic message. The foreign visitors aboard a tour bus were shown patriotic videos of soldiers fighting the "imperialists" -- either Japanese or Americans. One showed a woman soldier with a grenade running toward a tank flying the U.S. flag. Seconds later it disappeared in a sea of flames.

GHOST TOWN REFLECTS DEEPER WOES

MOUNT KUMGANG, North Korea - Long grass grows around the idle hotels, stores are covered in cobwebs and a big padlock hangs off the front of the bank at the deserted shopping centre. This is a modern day ghost town in already poverty-stricken North Korea, even though it is funded by wealthy neighbour and rival South Korea. The east coast Mount Kumgang resort was once a symbol of cooperation. Now it's a stark reminder of the divide between the communist North and capitalist South, technically still at war having only signed an armistice, not a peace treaty, to the end their 1950-53 civil conflict. Three years ago, the shooting of a South Korean tourist by a North Korean soldier resulted in Seoul halting tours to the complex, effectively drying up a source of much needed hard currency for the reclusive North. The North said last month time had run out to resolve the row, expelling the South's remaining workers and saying it would start selling South Korean assets at the resort, valued at around $450 million. South Korea's Hyundai Asan is by far the biggest investor and has exclusive rights to run tours to the resort for the next few decades. The South Korean government has also invested heavily, building a meeting venue for Korean families separated during the Korean War, duty-free shops and a cultural hall. The North says that those contracts are now invalid. Seoul has countered that it will take political and diplomatic measures to ensure its assets are protected. NUCLEAR BACKDROP The resort row comes against a backdrop of the far bigger dispute over North Korea's nuclear weapons ambitions, the subject of on-again-off-again multilateral talks hosted by ally China which North Korea walked out of two years ago. Only on Tuesday, South Korean President Lee Myung-bak replaced his hardline minister in charge of policy on North Korea with a close political aide thought to advocate dialogue. Lee is under growing pressure to ease tensions with the North that are at their highest levels in decades. The two came to the brink of all-out war last year after North Korea, angered by livefire drills by the South in what it said was its territory, shelled a South Korean island, killing four people.

Lee has demanded the North end its nuclear arms pursuit as a condition for improved political and commercial ties and cut off financial and food aid provided by his liberal predecessors for ten years when he took office in 2008. North Korea, which blames the United States and its ally, the South, for almost all its woes, conducted its second nuclear test in 2009, after abandoning the "six-party" talks, triggering U.N. sanctions that cut off a lucrative arms trade, further squeezing its moribund economy. It has been asking for food aid around the world claiming dire shortages, but some sceptics say Pyongyang may be trying to stockpile food ahead of a big state anniversary next year. Officials in North Korea meanwhile say the secretive state's leader, Kim Jong-il, has issued a directive to breathe new life into the country's tourism industry. And on Wednesday, the North escorted a group of about 100 Chinese business people and guests to the sprawling Mount Kumgang complex. The Chinese delegation were taken on a three-hour trek in the craggy mountains, walking along a river of crystal clear water and ending at a stunning waterfall. But Chinese companies may be wary of buying assets over concerns that this could cause a diplomatic rift with the South and impact their strong bilateral trade.

One Chinese operator travelling with the group, who asked not to be identified, told Reuters: "We are not willing to get involved." An American businessman, however, has stated his interest in running tours to the resort. Reports also say the North has sought a new partner in Japan. In its heyday, the resort attracted 300,000 South Koreans a year, earning North Korea tens of millions of dollars in hard currency. A trickle of foreign tourists are still coming to the area, including Australians and Malaysians

who paid around $2,600 for their week-long visit to the North. "They treat us like kings here, the people and the food are excellent, and the scenery is amazing," said Max Ward, 51, of Melbourne. Ward, accompanied by three North Korean "guides", said he had come to North Korea because he wanted "to do something different", although he admitted his trip had not been completely worry-free. "A couple of times we got some grief from soldiers," he said. "But we'd just bag out (criticise) the Americans, and then everything would be okay."

ALL ABOARD FOR CRUISING

ABOARD THE MANGYONGBYONG, North Korea - When you think of taking a cruise, usually it's the Bahamas, Fiji or the Maldives that generally come to mind. How about North Korea? On Tuesday, the mysterious state launched itself into the glitzy world of cruise tourism when about 130 passengers set sail from the rundown port of Rajin, near the China-Russia border, for the scenic Mount Kumgang resort near the South Korean border. Isolated North Korea's "state tourism bureau" has teamed up with a Chinese travel company to run the country's first ever cruise aboard an ageing 9,700 tonne vessel which once plied the waters off the east coast of the divided peninsula shuttling passengers between North Korea and Japan. The ship was later used to transport cargo before Tokyo blocked its entry as part of economic sanctions over Pyongyang's missile and nuclear tests in 2006. Some 500 North Koreans, about half dressed in dark workers clothes and the others in office and traditional attire, waved off the ship in a strictly choreographed performance on the potholed dock. The spectators waved North Koreans flags and fake flowers, and let off a blast of paper fireworks to mark the occasion. Carnival music blared from two minivans with speakers on their roofs. Before the setting off, the vice mayor Hwang Chol-nam of Rason City, of which Rajin port is a part, gave a speech lauding the venture as part of the region's push to attract tourism. Hwang hailed what his city's rule which allows any nationality to visit the area visa-free. They must, however, arrange the trip through a designated tour companies. "Any country, people from America, Japanese, Singaporean can come to Rason, that's the reality today, and that's the same for the Kumgang special economic zone," he told reporters aboard the vessel. "If any foreign companies have an interest in conducting tours they just need to contact our companies." The region has this year stepped up its campaign to woo foreign capital and in June broke ground on joint project with China to develop the area as special economic zone in attempt to make much needed hard currency. The secretive North has been squeezed by international sanctions for its pursuit of nuclear weapons. The North's move to attract foreign tourists comes amid a dispute with South Korea over their stalled joint tour programme at Mount Kumgang, just north of the border with rival South Korea. Last week the North expelled the last remaining South Koreans at the resort and said it would now sell off South Korean assets valued at nearly $320 million in a move that prompted Seoul on Tuesday to ask others not to invest. Earlier this month, a New York-based company said it had signed a deal with North Korea to run tours to the Kumgang resort. The bizarre "test" sail was scheduled to take about 18 hours. A second trip is planned for businessmen next month. The cruise, which sails the length of North Korea's picturesque eastern coastline, will appeal not only to the adventurous seeking "something different", but also to gamblers wanting to try their luck at the North's casinos in Rason and Kumgang.

ANTLER APHRODISIAC LIVENS UP IMPROMPTU STREET MARKET

MOUNT KUMGANG, North Korea - A semblance of international free-market activity broke out on a dusty roadside in reclusive North Korea when about a dozen budding entrepreneurs from a struggling resort set up impromptu stalls. Spotting an opportunity to make some hard currency, the workers from the Mount Kumgang resort, now a ghost town, produced a range of wares from locally made wine, honey and jam to traditional dolls and a home-grown aphrodisiac. The North Koreans cheerfully encouraged buyers -- mostly Chinese travel industry representatives on a government-sponsored visit to promote tourism in the mysterious state -- to part with their U.S. dollars, Chinese yuan or euros. The east coast Mount Kumgang resort was once a symbol of cooperation between North and South Korea, technically still at war having only signed an armistice, not a peace treaty, to end their 1950-53 civil conflict. Three years ago, the shooting of a South Korean tourist by a North Korean soldier resulted in Seoul halting tours to the complex, effectively drying up a source of much-needed hard currency for the communist North. The North said last month time had run out to resolve the row, expelling the South's remaining workers and saying it would start selling South Korean assets at the resort, valued at around $450 million. North Korea, battling chronic food shortages, is known to have one of the world's most closed economies, a centrally planned

system in which the state is meant to provide everything for its 20-odd million nationals from food and shelter to education. North Koreans are taught that they have "nothing to envy" in the outside world. Yet the North is one the world's poorest countries and its economy is in ruins. It has experimented with the free market, mainly by allowing limited private markets to develop near the Chinese border. A currency revaluation in 2009 paralysed much of the nascent private business and triggered shivers of unrest and tighter controls. But markets are again gradually re-appearing, even though foreigners are not permitted to visit, let alone buy. "BETTER THAN VIAGRA" Above a pretty lake off the east coast of the peninsula, a variety of North Korean products was on sale at the market on Thursday. A couple of Westerners travelling on the tour bought a packet of 10 capsules of Yangchunsamnok, marketed as an "accelerator for erectility", for $10. "It's very good and more effective than Viagra made in the USA," said one of the North Korean guides in broken English. "It's also good for your health." The product is made of "various medicinal herbs in Korea on the basis of modern medicinal science and technology and the theories of traditional Korean medicine". Among the listed ingredients is antler.

A jar of jam sold for $5, and honey was going for $7 a pot. Traditional dolls were priced at around $25. As for the nearby resort, most of the North Korean employees are out of work, depriving the local population of a livelihood once made possible by hundreds of millions of dollars of South Korean money. In its heyday, the resort earned the North tens of millions of dollars a year. Then, some 300,000 South Koreans stayed annually at the complex's seven luxury hotels and played golf at its seaside 18-hole course. Now the two-storey clubhouse stands empty, a window smashed, while the hotels and villas are shuttered, with the exception of

the Kumgansan Hotel which welcomes the trickle of foreign tourists coming in from countries other than South Korea. About 100 Chinese travel industry representatives were taken on a guided tour of the resort this week as part of the North's push to market the complex. About 30 foreign journalists were also on the trip. "It's a misunderstanding that we are trying to attract Chinese investors to this area," said the head of tourism at the resort, Kim Kwan-un. The aim, he said, was merely to attract Chinese tourists.
Reuters 2011

FOR MORE INFORMATION, CONTACT Jeremy Laurence Chief Correspondent FOR A SLIDE SHOW OF THE VISIT, GO TO Political & General News Korea Thomson Reuters Phone: +82-2-3704 5510 Mobile: +82-10-4722 5510 jeremy.laurence@thomsonreuters.com

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