North Korea must open up to improve economy and living standards, but China also stands to gain
In North Korea, an unreported revolution has been taking place inside its struggling economy.
The on-again, off-again summit between North Korean leader Kim Jong-un and the US President appears to be back on track — at least for now.
Since coming to power in 2012, Kim Jong-un has rolled out the biggest economic reforms the country has seen.
He has handed back personal incentives to farmers and factory managers, allowed a cash economy to emerge and in the process averted mass famine.
It's something Kim Jong-un's father, Kim Jong-il refused to do and in the 1990's millions died of starvation. Now Kim Jong-un seems determined to finish the job.
The shift was officially sanctioned in April when Mr Kim announced the policy of "byungjin" — the simultaneous development of nuclear weapons and the economy — was finished and priority was improving the economy and people's standards of living.
It's what has brought the young dictator to the negotiating table and his commitment to "phased and synchronous" denuclearisation with economic incentives at each stage.
Kim Jong-un knows that for any meaningful development to take place, North Korea has to open to the world so capital and technology can flow in.
I witnessed the first signs of nascent capitalism when the ABC last visited North Korea in October 2015, at a model collective farm called Jang Chon on the outskirts of Pyongyang.
Of course, it was a carefully orchestrated trip to show foreign reporters that the 400 families living there were prosperous and happy under the guidance of their leader Kim Jong-un.
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But there were real changes, as farmers were given control over what they could produce and sell as long as they meet their state quotas first, in Chinese style reforms of the 1980s.
The deputy director of the farm Park Yong-ho told me "on average we produce 70 per cent for the state and take 30 per cent for ourselves and because of this our total output has increased by 15 per cent."
His candour, was a surprising departure from the rehearsed Kim Jong-un adulation a foreign reporter gets from interviewees.
Mr Park said farmers could sell their produce on the market and have been given control over plots of land up to 3 square kilometres to grow their own.
One farmer I interviewed at the time, Kim Myong-yon, said the new system "dramatically increased our living standards and gave us benefits like luxury goods and cash".
It's hard to judge how far and fast the reforms on the farms and factory floors have been rolled out — reliable data is hard to get — but economists estimate its given North Korea growth rates of between 1 to 2 per cent since Kim Jong-un came to power.
The Bank of Korea, the central bank in Seoul, estimated the North Korean economy had grown 1.24 per cent on average since Kim took power, expanding by 4 per cent to $SU28.5 billion in 2016, the fastest growth in 17 years.
Professor Byung-Yeon Kim from Seoul National University has authored the most comprehensive account of the North Korean economy, called Unveiling the North Korean Economy, says the reforms probably stopped total collapse of the economy.
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Professor Kim said China is the key to the health of North Korean economy, accounting for about 90 per cent of its trade, and he says sanctions really only began to bite when China decided to tighten the screws over the last year cutting coal, iron-ore and seafood imports.
"Last year North Korean exports to China declined by 40 per cent and that brought growth rates down by minus 2 per cent by my estimate," he said.
"It's a big impact and only set to get worse if sanctions continue.
"If exports declined by 90 per cent then growth will decline by minus 5 per cent so its brought them to the negotiating table."
Professor Kim says tougher sanctions are hurting Kim Jong-un and his ruling elite, limiting the hard cash they get to fund their nuclear and missile programs and importantly to buy loyalty.
"They make a lot of money by exporting minerals to China and part of money goes to government and Kim Jong-un and some goes into their pockets the top elites," Professor Kim said.
"Kim Jong-un has to try to make people happy just to keep himself in power for the long run, this is what he is going to do."
China stands to be the biggest winner in economic terms from the Trump-Kim summit in Singapore this week.
An easing of tensions and ultimately sanctions will bring bigger profits to China.
On the North Korea-China border, China has already spent millions on new bridges and free trade zones ready to take advantage of cheap North Korean labour.
China hopes to boost its economic growth in its "rust belt" areas in the north-east by deepening and expanding economic ties with North Korea.
And China is already well ahead in the planning. President Xi Jinping and Kim Jong-un have met twice and economic growth has been at the top of the agenda.
Last month, a delegation of North Korean mayors and governors were given the grand tour of Beijing, Shanghai and the central province of Shanxi.
Travelling in very fast trains, they were told how China could rebuild their industries, roads and trains.
China is keen to pull North Korea into its massive global "Belt and Road" infrastructure initiative.
And Mr Trump has already conceded that North Korea's economic future will be China's doing, telling reporters, "that's their neighbourhood, it's not our neighbourhood".
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