The failure of the Hanoi Summit brought great disappointment to those who expected — and hoped — that in the near future economic cooperation between the two Koreas would restart on a large scale.
As recently as late February, many well-informed observers believed that in Hanoi, certain exemptions to the sanctions regime would be granted for some South Korean companies, and that South Korean businesses would soon be able to start working with, or even inside, North Korea.
Now, prospects of such a deal are unclear and, at least for the time being, remote.
Nonetheless, early this year, in the rosy days when the resumption of economic contacts was discussed in earnest and was expected to happen soon, it was the tourist industry which was seen as the most likely initial focal point of inter-Korean cooperation.
It was believed that it would be easier to negotiate exemptions for tourist enterprises, and the existence of some previous experience also looked encouraging.
Indeed, for nearly ten years, South Korean businesses operated the Kumgang tourist area on the eastern coast of North Korea, in famously-picturesque mountains which are also conveniently located right next to the DMZ. The project was closed in 2008, but the facilities still exist and can be made operational at any moment.
After Hanoi, this optimism has waned. Nonetheless, it makes sense to remember the story of the Kumgang tourist area, especially those parts of this story which were seldom emphasized at the time.
A better look at the Kumgang project, then, is a sobering reminder of the problems the pioneers are likely to encounter.
The story of the Kumgang project began in 1989, when a South Korean tycoon went to North Korea and met with the-then Great Leader Kim Il Sung. That billionaire’s name was Chung Ju-yung, he was CEO of Hyundai and also a native of North Korea.
In his teens, back in the 1930s, he left his village in search of fame, money, and adventure, succeeded beyond his wildest dreams, but still remained sentimentally attached to the native lands. Therefore, he, of all the South Korean chaebol leaders, was most eager to cooperate with the North.
The late 1980s, the time of perestroika and glasnost in the Soviet Union, were an era is which many people believed that big changes in North Korea were just around the corner.
It was widely expected around 1990 that in the very near future, Pyongyang, driven by obvious economic considerations, would join the world economy as China did, so one should rush to reserve a place in the soon-to-emerge market.
If this reasoning sounds too familiar to readers, do not worry: such outbursts of (largely unfounded) optimism have happened a number of times since then.
Among other things, in 1989, Chung Ju-yung and Kim Il Sung briefly discussed a plan for a joint tourism project. After the 1948 division, North Korea found itself in possession of many first-class tourist sites, including two significant sites in the popular Korean imagination – the Kumgang (‘Diamond’) mountains and Kaesong city, the capital of Korea in the 10th-14th centuries.
Both sites were conveniently located in the vicinity of the border with the South, so it was expected that tourists from the rich South would be willing to pay significant amounts of money to get the chance to climb Kumgang or wander the streets of Kaesong.
However, it took nearly a decade and a major shift in the political climate to get the program going. In 1997, Kim Dae-jung was elected South Korea’s President, and immediately initiated efforts aimed at improving the relations with North Korea – where necessary, supporting these efforts with cash.
The Kumgang project fit into his vision well, and, still backed by Chung Ju-yung, the super-rich, highly-influential and hard-working tycoon, easily got the approval of the Blue House. In 1998, the relevant papers were finally signed, and the Kumgang tours were ready to become operational.
The North Koreans welcomed the idea, too: they saw tourism as a politically-safe way to earn some much-needed cash.
But, needless to say, foreign, and especially South Korean tourists were politically dangerous to the regime: they know too much, they are dressed too well.
It took nearly a decade and a major change in the political climate to get the program going
Even short exposure to the tourists, it was feared, would demonstrate to North Korean commoners how much they are lagging behind their neighbors and, in particular, their South Korean brethren.
This is exactly what North Korean leaders were determined to prevent: they knew that in order to keep their realm stable, they have to keep their subjects ignorant about life outside their country’s borders (and this is, alas, not just paranoia).
However, from the North Korean leadership’s point of view, the Kumgang area had a number of important advantages which could reduce the political risk.
First, it is remote, and sparsely populated. It was possible to remove all non-essential locals from the area, and create a sterile isolated ghetto for the exclusive use of the South Korean visitors. Within easily patrollable fences, there would be no North Korean who would not be checked and trained to behave themselves.
Second, the area was located close to the border, so tourists could be shipped there easily, without encountering too many locals on their way.
So, the North Korean decision-makers obviously decided that economic gains would outweigh political risks, and gave a green light to the Kumgang project. In November 1998, the first South Korean tourists arrived in the area by ship.
Soon after the first papers were signed, in January 1999, Hyundai produced estimates of the project’s future. It was expected that by the end of 2004, the cumulative number of visitors would reach the 4.9 million mark – in other words, it was then expected that on average, about a million Southerners would purchase a tour to Kumgang yearly.
It was also claimed that in 2004 alone some 1.2 million tourists would visit the area. As we will see, these sanguine estimates were well off the mark.
In the early stages, until late 2002, no land link existed, so the visitors took a cruise ship which arrived in the area and served as a floating hotel during the tour. Hyundai had three ships which were used for this purpose.
All development in the area was paid for by the South Koreans. Hyundai also agreed to pay a fixed fee of $12 million per month for the right to use the area.
Within the fenced space, there was some Korean service personnel, and a number of fit male “guides,” but typically it was ethnic Koreans from China who worked at the Kumgang tourist zone as drivers, cooks, and assistants.
The South Korean side liked the low wages the Korean-Chinese were willing to work for, while the North Korean side saw their presence as a good way to minimize the exposure of the North Korean commoners to the seductive allure of South Korean life.
In 2000, the average traveler paid some KRW800,000 (some $600 at the-then current rate) for a trip
However, by late 2000 it was clear that things were not going as expected. Contrary to the initial expectations, rich Southerners did not rush to enjoy the Kumgang scenery. The reason was simple: the trip was too expensive, and the conditions were too restrictive.
In 2000, the average traveler paid some KRW800,000 (some $600 at the-then current rate) for a trip. For the same price, a Korean could travel to Thailand or Vietnam, or, for that matter, Guam.
Some early visitors were attracted by the allure of the “forbidden fruit,” while some others had a sentimental attachment to the North, but Hyundai – and other champions of the Kumgang project – miscalculated when they believed that all South Koreans would be moved by the idea of visiting the North.
For the average visitor, Kumgang was too restrictive. No interaction with the locals was allowed. The “guides” and other personnel had no choice but to give scripted answers to the questions. The mountains were beautiful indeed, but there was nothing else to be seen.
Additionally, the Seorak mountains on the southern side of the DMZ, while somewhat less picturesque, were almost as good – and much, much cheaper.
It did not help that tourists were expected to behave themselves. In June 1999 a Seoul housewife, while talking to a “guide” (in all probability, a junior secret police staff) told him that defectors got good treatment in the South. Correctly or not, her remark was interpreted as an attempt to encourage defection, so she was detained for a week.
Obviously, the North Korean side wanted to remind the visitors that there were political boundaries not to be crossed. They clearly succeeded, but this success hardly made the project more attractive to the South Koreans.
Facing mounting losses, August 2001 saw Hyundai Asan (a newly established subsidiary of the Hyundai Group, responsible for all dealings with North Korea) half the number of trips and warned that in the near future the project would be discontinued.
TOO BIG TO FAIL?
However, this came at a time when the Kim Dae-jung administration began to accelerate its sunshine policy of engagement and aid to the North. Since the Kumgang project was a highly-visible symbol of this policy, the government could not allow this flagship to capsize in plain view and rushed to the rescue.
First of all, money was pumped into the project via the National Tourist Organization. Additionally, a large range of discounts, for which a significant part of South Korea’s entire population was eligible, were introduced, allowing Hyundai to lower their tour prices.
The North Koreans were uncharacteristically flexible, too. While the 1998 model implied that the Hyundai Group would pay $12 million monthly for access to the territory, the North Koreans agreed to revise the payments and accepted per capita payments between $25 and $50 per visitor, depending on the package he or she used.
Last but not least, in late 2002 the land route became operational, and this greatly helped to reduce the cost. Under the new model, visitors took a short bus ride and checked into local hotels within the fenced-off area. Some restaurants and entertainment centers were opened there too, catering to the tastes, habits, and stereotypes of the Southerners.
The government could not allow this flagship to capsize in plain view and rushed to the rescue
These measures allowed to cut down prices: in 2003-2008 the average visitor would spend some 350 thousand won during a trip which usually lasted ‘three days and two nights’.
It was, however, still double the price of a roughly-similar domestic trip, and was only marginally cheaper than a trip to China of the same duration. Thus, only the continuous and politically-motivated support of the government allowed the Kumgang project to stay afloat.
And what about visitor numbers? As we remember, in early 1999, it was confidently predicted that in 2004 some 1.2 million South Koreans and foreigners would visit the project.
The actual figure was 268,000: merely 22% of the estimate. The numbers continued to grow, but until its collapse in 2008, the project never even approached the early expectations. The record year was 2007, when 346,000 visitors came to Kumgang.
Throughout the ten years of operation, from November 1998 to July 2008, a total of 1.96 million South Korean visitors went to the Kumgang area.
Attempts to market the tours to foreigners ended in naught. While some South Koreans were motivated by curiosity, nationalism or a nostalgic “search for their roots,” foreigners were not impressed by what they saw as yet another overpriced environmental tourism package.
So, the numbers of foreign visitors remained small: those few foreigners who wanted to go to North Korea at all would definitely prefer Pyongyang.
THINGS FALL APART
The project came to an end in 2008 after a dramatic incident which, however, was almost bound to happen sooner or later. Early in the morning on July 11, a middle-aged tourist named Pak Wan-ja went for a lonely walk on the sea coast.
The exact circumstances of what happened next are unclear. It seems that Ms. Pak crossed the poorly-marked border of the tourist area while walking on a beach where fences were absent (or rather located at some distance).
Then, she unsuspectedly ventured into regular North Korean territory and was immediately discovered by one of the numerous guards. The guard opened fire, and she was killed on the spot.
It has been sometimes suggested that the Pak Wan-ja shooting incident was a deliberate provocation staged by the North, but this does not appear likely.
The subsequent events showed that Pyongyang saw the Kumgang tourist area as a major cash cow, and wanted it to remain in good health. However, the very model of a tourist ghetto, guarded by overzealous and over-vigilant soldiers, was bound to produce such incidents (not necessarily of lethal nature, though) from time to time.
Under a different political climate, the entire affair would likely have been somehow sorted out
To be frank and somewhat cynical, the objective risk is not that high: the chances of being killed by an over-vigilant sentry in North Korea are much lower than, say, chances of falling victim to a reckless driver while on a trip in Thailand.
However, public perceptions matter, so news about a tourist shot by a guard had a much more negative impact than news about a tourist hit by a speeding delivery vehicle.
One suspects that under a different political climate, the entire affair would likely have been somehow sorted out.
However, that time the conservative right, staunch believers in sanctions and pressure, were again in control of the South Korean state, so the Lee Myung-bak administration immediately stopped the project. Subsequent negotiations failed to yield any result, and in a few years’ time, it became clear that the project had collapsed.
For a while, the North Koreans also hoped to market the project to the Chinese tourists, but the offer found few takers. In 2011 the North Koreans declared the Hyundai Asan assets confiscated, even though this claim was largely of a symbolical nature, since this decision is easily reversible, and everybody understands it.
The Hyundai Group invested some $680 million into the Kumgang project. Roughly one-third of this amount were investments into the hotels, piers, roads and other equipment, and the remaining were payments made to the North Korean side for the usage rights of the territory.
After the project was discontinued, the North Koreans have been doing what they can to maintain the remaining infrastructure – obviously in the hope that the tourists would eventually come back.
I visited this area a year ago and even spent a night in one of the empty hotels, where the staff seemingly outnumbered the guests. The former tourist ghetto is a ghost town nowadays, but it is maintained in good order and is seemingly capable of restarting operations at a very short notice.
Will this notice ever come?
Perhaps, but the story of the Kumgang project teaches us, the outside observers, some valuable lessons about what one should – and should not – expect from tourism interaction with North Korea.
Some lessons (arranged as a bulleted list):
North Korean tourist sites have a real, but limited, appeal to South Koreans. The prices are likely to be high, and tourists will have to abide by many rules and restrictions. Given that the younger generation of South Koreans feel even less interest in the North, as time goes by, these problems will be getting worse;
In most cases, tourism projects will have to be subsidized by the South Korean government. No matter what business people and politicians claim at the feasibility study stage, in the long run, the projects will be unviable without consistent government subsidies, direct and indirect. No profits can be made in this business, and even remaining afloat will be difficult without taxpayers’ money;
The political support of the incumbent South Korean government is necessary, as well. Tourist projects can work well in periods of improving inter-Korean relations, but are likely to suffer or even collapse when the Blue House is inhabited by people hostile to the ideas of interacting with the North (and paying for the privilege). This makes projects highly vulnerable to the domestic political-electoral cycle in South Korea;
One should not count on significant relaxation of political controls in regard to the South Korean tourists. In order to keep their country stable and governable, the North Korean authorities have no choice but to keep visitors isolated and under constant surveillance. This will have a bad impact on the quality of the tourist products, and will also constitute an ever-present, if statistically low, threat to tourists’ physical security;
This does not mean, however, that tourism projects will not be implemented. Compared to many other conceivable projects, they tend to be cheaper and easier to arrange and run. Due to the easily-marketable (in South Korea) nationalistic appeal, tourism projects also have great symbolic value, so one should expect that any Seoul government which wants to improve relations with the North would consider tourists activities as a way to start.
Edited by Oliver Hotham
The failure of the Hanoi Summit brought great disappointment to those who expected -- and hoped -- that in the near future economic cooperation between the two Koreas would restart on a large scale.As recently as late February, many well-informed observers believed that in Hanoi, certain exemptions to the sanctions regime would be granted for some South Korean companies, and that South Korean
Andrei Lankov is a Director at NK News and writes exclusively for the site as one of the world's leading authorities on North Korea. A graduate of Leningrad State University, he attended Pyongyang's Kim Il Sung University from 1984-5 - an experience you can read about here. In addition to his writing, he is also a Professor at Kookmin University.