At North Korean hub in China, uncertainty looms for Pyongyang-backed

SHENYANG, China - 1 December 2017: North Korean-owned businesses such as the Chilbosan Hotel in Shenyang, the biggest city in northeastern China, face an uncertain future as United Nations sanctions against Pyongyang-owned overseas businesses loom.

For now, the hotel is a slice of North Korea: it is mostly staffed by North Koreans, some of whom perform songs and dances catering to their mostly Chinese customers, often in private rooms at the hotel restaurant.

Perched at a main intersection in Shenyang, a hub for North Korean businesses in China, the hotel is North Korea’s largest overseas investment, according to Lu Chao, an expert in China-North Korea relations at the Liaoning Academy of Social Sciences, a Chinese government think-tank in Shenyang.

The hotel rooms feel much like typical Chinese business hotels except that guests can watch North Korean television and anyone flying to North Korea on Air Koryo - the country’s national airline - can pick up their tickets at the airline’s office in the lobby. The building is clad in both Chinese and Korean name signs.

Shenyang, just over an hour by fast train from the North Korean border, is home to Xita, a district known as “Korea Town”, dotted with North Korean restaurants, hotels, shops and art galleries.

At Xita’s North Korean Department Store, North Koreans wander in small groups looking at clothes, toys and linen, mostly from South Korea, according to vendors and labels on products for sale.

On the top floor, Li Xinwei runs a nail salon where one third of her customers who have loyalty cards are big-spending North Koreans.

“Most of my Chinese customers chose the 100 yuan ($15) nail package but my North Korean customers often spend about 300 yuan to get their nails done,” said Li.

“Most North Koreans come to this department store to shop, the store owners get their clothes from South Korea. But they have to cut the labels off the clothes before they bring them back to North Korea,” she said, chuckling.

However, the number of North Korean shoppers has been declining, said Li, and local Chinese businessmen say the number of Pyongyang-owned businesses has shrunk in recent years as tensions between China and North Korea have grown.

“A lot of Chinese-North Korean trading companies have already closed shop,” said one Chinese businessman in Shenyang who used to trade North Korean coal until it was sanctioned by the United Nations.

“Now we’re extremely restricted by the types of trade we can do with North Korea. I’ve just purchased an order of cobblestones because they haven’t been sanctioned,” he said, speaking on condition of anonymity because of the sensitivity of the situation.

Two North Korean restaurants in Xita - Pyongyang Restaurant and Mudan Restaurant - serve North Korean cuisine and host nightly performances by North Koreans who sing mostly popular Chinese classics and double as waitresses.

But come early January, North Korean firms or joint ventures in China will be shut down in accordance with UN Security Council sanctions passed on Sept. 12, according to China’s commerce ministry.

A woman who answered the phone at the North Korean consulate in Shenyang said she didn’t know what would happen to North Korean businesses and joint ventures in China once UN sanctions kicked in. Everyone at the consulate who was in a position to know was away on business trips, she added, declining to give her name.

At the Pyongyang Restaurant, one North Korean waitress who had just finished performing and was helping pack up takeaway said she was just over one year into a three year internship, after graduating from university.

“We aren’t going back (to North Korea), business here is good,” she replied, when asked about whether they would leave soon because of UN sanctions.

Staff at the reception desk at the Chilbosan, who confirmed the hotel was North Korean-owned, said they had no plans to close because of the sanctions.

According to official Chinese company records, the hotel is 70 percent owned by North Korea’s Liujing Economic Exchange and 30 percent owned by Hongxiang, a Chinese industrial machinery company sanctioned by the U.S. last year for channeling U.S. dollars to North Korea for its nuclear weapons programme.

Liujing Economic Exchange and Hongxiang could not be reached for comment.

One option for North Korean partners of joint ventures in China is to sell out ahead of when sanctions take effect in January.

“The problem is that January isn’t that far away so it doesn’t give the North Korean partners much time to sell off their portion of the company,” said Cheng Xiaohe, a North Korea specialist at Beijing’s Renmin University.

Recent sanctions are squeezing North Korean businesses overseas which have to send some of their profits back to the state, according to Cheng.

If the businesses don’t achieve their targets, the head of the business in China gets sent back to North Korea and a new person is sent to replace them, Cheng said.

“The North Korean government has been upping the target payments because they have fewer ways to earn hard currency now,” said Cheng.