Thoughts on North Korea

The more I look into the changes occurring in North Korea in the past few years, the more exciting it looks. A lot of people on the internet are criticising the North Korean leader. But here's the problem. They make too many assumptions, as usual. They assume that the young leader is like his predecessors. They assume that he is evil and out of his mind. He is fat, dumb and is the son of a dictator.

He is the son of a dictator. But that does not make him the same as his father. I will list out some changes I am seeing in the country. But this is in no way my endorsement of the leader. I just LOVE to point out things that people miss. Smash their expectations and assumptions. It is fine to be ignorant of a subject. I am ignorant on things like sewing and golf too. But it is NOT fine to not question your assumptions. To not always look at BOTH sides of the argument. To not always look for other perspectives. It is fine to be ignorant about North Korea, but it is not fine to make assumptions about it. We know all about the negative stuff about North Korea, so I shall not mention them. I will point out other positive things that are not obvious. Ok, so here goes. I will summarise what I've found out from various sources. I may miss some things. There are just so many things I've learnt and I am trying to recall them off the cuff:

-The young leader grew up wanting to improve the lives of his people.
-He wanted to emulate Deng Xiaoping.
-He studied in Switzerland, studied western culture and democracy.
-Like Deng Xiaoping, he has loosened control on agriculture and created special economic zones. One of the first thing China did in agriculture was to lift controls on watermelon produce. Prices shot up right away, but this spurred enterprising farmers to produce more watermelon. The price fell and watermelon flooded the market. In North Korea, Kim Jong Un is allowing farmers to keep more of their produces, allowing them to sell them in the market.
-He has given managers more flexibility to control production, purchases and sales, wages, and the firing/hiring of workers. This is a big change in a communist state.
-There is a huge underground economy in the country that started in his father's era, and ever since he took office, he has left it untouched. Some estimates put this black market economy to be as large as 50% of the entire North Korean economy.
-There are markets with hundreds of stalls and thousands of visitors. You have sellers peddling their produces and wares, and buyers making bargains.
-There have been international trade shows in North Korea, and international marathons in North Korea.
-The leader is encouraging more tourists to visit the country, in part because the government needs more foreign currencies.
-Technically, foreign currencies are not allowed to be used in the country, but the government allows it to be used in some special economic zones.
-The Russians and Chinese are pouring into the country. The Chinese want their resources. The Russians are building railways and ports. North Korea has the northern-most ice-free port in Asia. This port will probably become very important in the near future. The Artic ice has been melting and shrinking in the past decade or two, and more and more ships are traversing it to get from Europe to Asia. It cuts down shipping time by a tremendous amount compared to if they were to go through the Malacca Straits.
-The leader is trying to bring technology into the country. Bring internet into the country. Internet is already allowed in some special economic zones.

Could the young leader have done more? Definitely. But one also has to consider the fact that there is politics involved. As a leader he must be concerned about his own life as well. He has to placate the powerful military. He has to make sure there is no peasant uprising against him. He has to make sure that he does not tarnish his predecessors' reputations. He has to get allies in politics. He has to do all these while being only in his late 20s.

Could the world have done more to open up North Korea? Definitely. For instance, what are the US and South Korea doing with their military drills each year? They know that this has always drawn a strong reaction from the north. Do they really need these drills after having done it for decades?

Could the media have done more? Most definitely. How much of the information shown here does one observe in the mainstream media? Almost ZERO. And unfortunately that is the place where most people get their information from, and make assumptions based on that. To be fair, there is some coverage recently about the "Choco Pie" phenomenon in North Korea. Choco pie originated from the South, and made its way into the Kaesong Industrial Zone, a joint project between the North and the South. The snack is rewarded to North Korean workers. These snacks fetch a high value in the black market, and enterprising workers have collected and snuck them out of the industrial zone to sell them in the market. The media did cover this story last year. But they were a few years late. Other than that, I don't see much coming from the media other than negative things. And as a long-term investor, this is great for me. I love to see things earlier than the market. But it frustrates me to read comments on the internet that are full of assumptions.

What's next? It looks like the young leader has been consolidating his power well. His generals have lived in Moscow and Beijing in the past. They too, knew what is going on in the outside world. They see the differences between other nations and theirs. They want a better standard of living. The leader is definitely trying to reform the economy, and he has some support from his close aides. Actions speak louder than words. Will he succeed? There are interest groups that don't want to see this happen. They want to protect their luxurious way of life. So it remains to be seen whether he succeeds or not.

But what excites me is the black market. As the great investor Jim Roger says, the black market provides a lot of information about the state of a country. As I've mentioned earlier, some estimates put this market at as high as 50% of the overall economy. As people get exposed to profits and better lives, they will demand for more. There will be more murmurs of unrest in the society. There had already been unrest in the society under the father's reign. Reportedly, there were a few assassination attempts on him. He had also made people really angry when he tried to control the black market through currency controls. People literally lost their life savings overnight. I even read about protests in a university, and about people creating demeaning graffiti against that leader.

Last year, I started placing my bet on the direction that the country will go. I bought some North Korean gold coins. I figure that North Korea will open up further economically. I figure that the two Koreans will finally unite, and these gold coins will become more valuable as a collectors' item. I am also looking to buy South Korean or Chinese companies that will benefit from this. South Korean airlines come to my mind, for example. Reunification seems almost impossible if we were to judge from the media's reports. Maybe I will be wrong. Maybe not. Who knows. We'll see.

The reunification of West and East Germany seems like a distant memory. But I will bet that one will be quite surprised when he/she learns that it happened as recent as 1990. As the East opens up its borders, more and more East Germans poured into the West. Similar things are happening in the Korean peninsula now. The East Germans saw that they had been living under a lie, that their neighbours were way more prosperous than they were. They admired the shiny Mercedes and BMWs driven by the West Germans into the territory. The North Koreans are getting more informed about the outside world as time goes on. They have an increasing awareness of how rich their neighbours are. Some are repulsed by the differences in values and moralities (for example, when North Koreans watch foreign movies, they are shocked by the use of guns and the seemingly lawlessness in foreign lands - in contrast to their relatively crime-free society). However, I think that the rising tide of expectations for better lives will prove too hard to stop.

If and when the Koreans finally unite, it will be one of the greatest economic stories of our time. The North has a cheap and relatively educated labour. The South has managerial experience and capital. Many analysts say that reunification will cost the South tons of money. Maybe that is true. But unlike the unification of the Germans, the North Koreans have already attracted a lot of investments from other nations. That will mitigate the costs for sure. I look forward to that day, both for the betterment of humanity and for my investment.