Over the weekend before the May 1 public holiday in China, the gritty, somewhat run-down northeastern city of Dandong found itself inundated with people from across the country, armed with ready cash and on the hunt for property.
The reason for the sudden interest in a city not known as a residential hotspot? A perception that North Korea, just across the Yalu River from Dandong, would be opening up to the world after its leader, Kim Jong-un, met his southern counterpart Moon Jae-in at a historic summit at the end of April. That, the thinking went, would allow the border city to profit from its traditional role as gateway to the isolated communist nation.
Such was the interest that house prices rose by more than 30 per cent in just a few days, prompting the city government to impose sales and mortgage restrictions. And prices have remained high and out of reach for locals even as the uncertainty grows over how the North Korean situation will play out.
“It was mostly buyers flying all the way from Guangdong and Zhejiang,” said a property agent at a development by Hong Kong-listed Kaisa Group who gave her name as Lu, referring to China’s wealthier southern and eastern provinces. “One buyer from Zhejiang bought 17 units in one go. They were optimistic over the prospects for North Korea.”
Their target was the city’s New District, part of a border zone designed in anticipation of the opening of a bridge over the Yalu linking Dandong with Sinuiju in North Korea, making the North a five-minute drive away. The district was set to have its own library, hospital and even a stadium and was conceived with the aim of lifting the local economy.
But a drive around tells a different story.
The 3km dual-carriageway bridge, which was expected to open in November 2015, is deserted, and no new official date for its opening has been announced. Skeletons of apartment blocks and shopping complexes dot the area, and several construction sites facing the Yalu are abandoned. Traffic is scarce and finding a bus stop is a challenge.
In one development built by Hong Kong-listed Greentown China Holdings, there is a school, a few small stores and one supermarket operated by China’s second largest e-commerce firm, JD.com.
The occupancy rate in the New District is around 50 per cent, according to estimates from various property agents.
Nevertheless, those residential complexes still being built by developers with deep enough pockets to tide them over the slowdown have benefited from the sudden influx of buyers. At one development, called Kaixuanmen, prices have doubled as a result of high demand.
The city of Dandong as a whole has struggled economically, in large part because of the volatile nature of North Korea’s relations with the rest of the world and with its biggest trading partner, China.
China provides North Korea with most of its food and energy and accounts for more than 90 per cent of North Korea’s total trade volume, according to a report US-based think tank CFR. Between 2000 and 2015, bilateral trade rose tenfold, peaking in 2014 at US$6.86 billion, according to statistics from the Seoul-based Korea Trade-Investment Promotion Agency.
But increasing sanctions on the country by the United Nations Security Council in response to its nuclear tests have cut that trade sharply, even though China has been reluctant to impose very stringent measures on its neighbour.
Dandong Port Group, which has close links to the local government, has been one of the biggest casualties of the sanctions, after Beijing stopped North Korean ships transporting coal from docking at the port at the end of 2015. Dandong Port defaulted on a 1 billion yuan (US$156.2 million) corporate bond last year and had its assets frozen by a local court last month.
At the same time, North Koreans who had worked as waitresses and in factories in Dandong have been leaving the city.
The slowdown has been reflected in the city’s finances. Its gross domestic product fell each year between 2014 and 2016, before picking up slightly in 2017 to 7.93 billion yuan, up 2.8 per cent from 2016.
Local government income fell from 27.6 billion yuan in 2014 to 21.29 billion yuan in 2016, a 23 per cent decline, while government spending and borrowing increased in the period. A report last year by Chinese rating agency Dagong said that Dandong’s outstanding debt had reached 28.88 billion yuan by the end of 2016, a rise of 11.2 per cent from the previous year.
For local businesses in Dandong, however, there are signs that things are getting better.
“We’ve seen some corporate clients coming to Dandong, besides tourists,” said Regina Cong, a hotel manager in the old town, which is also popular with North Koreans. “I wouldn’t say business is back to normal. There were times last year when there wasn’t that much going on.”
A tourist guide based in Dandong who moonlights as a merchant said there was constant demand in China for North Korea’s tobacco and ginseng, but few North Koreans could afford Chinese goods.
“Of course it would be great if North Korea opens up,” said the guide, who would only give his name as Yuan. “In recent months business hasn’t been bad. For example, there are more people coming into Dandong to buy properties.”
For such property investors however, Dandong remains a risky bet. In the past few weeks, some buyers have asked to cancel purchase agreements because of the uncertain outlook, according to Lian Jihong, branch manager with Dandong’s largest property agency, Golden Key. But she noted that prices have not changed much, despite the cancellations.
One buyer who paid 290,000 yuan for a one-bedroom flat in a complex named Singapore City that was built by Singaporean private investment firm Brother Holdings, is staying put.
“I bought the flat because I liked the river view,” said the buyer from Guangzhou, who declined to be named, referring to the Yalu, across which North Korean soldiers can be seen on patrol.
“This is a long term [investment]. I might even use it as a holiday home.”