Signs of capitalism seen in North Korea

SEOUL, South Korea — Streets in Pyongyang, the North Korean capital, are lined with sidewalk stalls selling snacks and beer, the restaurant scene is growing and semi-liberalized markets are becoming centers of trade in imported food and clothes.

This is the new face of North Korea, say recent visitors, and the most visible result of changes to the communist state's economy that are starting to bear fruit — and potentially dim the prospects for an economic meltdown disrupting leader Kim Jong Il's hold on power.

It's hardly an economic boom, especially compared with rival South Korea, the world's 11th-largest economy. Still, it amounts to a sea change in a nation where all forms of capitalism previously were banned.

North Koreans perch in ground-floor apartment windows selling dumplings and cakes, smoked fish, beer and soft drinks, said Leonid Petrov, a fellow at the Korea Foundation in Seoul who visited Pyongyang in August. People sew or repair clothes from small workshops. At night, vendors set up small tents to sell street food.

People can buy secondhand computers and go online to chat on the country's internal version of the Internet that is blocked off from the outside world.

"Everything is on sale in North Korea," Petrov said.

New restaurants are springing up in Pyongyang, where business-savvy owners offer dishes on the house and discounts for return customers — part of a new sense of entrepreneurship that has emerged in the past year, said Kathi Zellweger of the Roman Catholic charity Caritas, who was in North Korea in September.

"Before, people had no idea about costs or prices. Now, it's dinner-table conversation," she said.

A new report by the South's Unification Ministry says there are 350 restaurants and 150 bars operating in Pyongyang.

However, U.N. agencies say that rising prices and harvest shortfalls mean foreign food aid still will be required for more than 6 million North Koreans this year. Also, government spending still is focused on the country's vast military, not economic development.

Analysts differ on whether the opening of North Korea's economy amounts to a real change in thinking or is just a reaction to people taking matters into their own hands to survive.

The government is moving slowly to avoid any instability, and so far the economic changes haven't weakened the regime, said Peter Beck of the International Crisis Group think tank.

But a recent report from Japan's intelligence agency warned the widening gap between rich and poor could lead to a shake-up, saying increasing theft and robbery show the regime's tight grip is being pried open.

The cautious growth in North Korea's economy was fostered by moves in July 2002 to scale back elements of the centrally planned economy and allow prices to be set by the market. The North also has been boosted by foreign aid that helped the country cope with disastrous floods and poor harvests in the 1990s.

"We believe that the North Korean economy is not getting worse," said Yang Jeong-hwa, a spokeswoman at South Korea's Unification Ministry, in charge of handling policy with the North.

The country's gross national income went from $15.7 billion in 2001 to $18.4 billion in 2003, Yang said. "There is some achievement."

Roger Barrett, managing director of Hong Kong-based Korea Business Consultants that advises companies seeking to enter the North Korean market, is bullish about opportunities there. His firm has helped foreign companies that do everything from mine for gold to work with textiles and consumer goods in the North.

"There is economic reform, and there's been significant shifts in thinking," Barrett said.

The lack of competition enables the few willing to work there to negotiate favorable deals, Barrett said. "Business is not as difficult as you might think," he said.

Joint economic projects between the Koreas also are starting to see results. In December, the first products — kitchen pots — were shipped from a special economic zone in Kaesong, just inside the North's border, and delivered to a Seoul department store, where they were snapped up by shoppers looking to own a piece of history.