As North Korea seeks to develop its economy by exporting more processed goods, Chinese buyers still prefer raw materials, putting North Korean traders in a pickle.

“Trading companies that work with China in Sinuiju such as Sinhung Trading Corporation and Daehung Trading Company are focusing on exporting processed goods such as ginseng-infused alcohol, ginseng tea, cigarettes, soap, and cosmetics because they are not allowed to export raw materials. They’ve taken various steps to improve sales, such as making the packaging sharper, but the Chinese still want raw materials,” a source in North Pyongan province told Daily NK recently.

According to the source, North Korean trading companies have been overseeing the domestic production of export goods in accordance with orders given by the Cabinet last September.

But most trading companies have been struggling with this new approach to exports because North Korean processed goods are not competitive in the Chinese market, the source said.

Trading companies have foreign currency earning quotas to meet, so they are updating package design to boost demand in the Chinese market and, in some cases, working with Chinese design firms to make products look more sophisticated. But North Korean products continue to meet a chilly reception in the Chinese market.

For example, North Korean products are displayed, but rarely purchased, at souvenir shops in Dandong, a city in China’s Liaoning province.

Chinese consumers are reportedly reluctant to buy North Korean products, assuming they are still of low quality despite their smarter packaging.

Given the state of the market, Chinese traders want North Korean trading companies to export pine nuts, soybeans, herbs, and ginseng as they used to do, which conflicts with the North Korean regime’s policy of exporting processed goods.

“As the policy of suppressing raw material exports and expanding processed good exports remains in place, the Cabinet ordered traders to earn more foreign currency on August 5, placing an even greater burden on them,” the source said. “Chinese traders recognize that North Korea is trying to improve its processed goods, but they would still rather receive raw materials, which puts North Korean traders in a real bind.”

North Korean officials introduced a competitive arrangement between trading companies last month as it pushes them to earn more foreign currency ahead of the Ninth Party Congress.

In response, trading companies are exploring various ways to maximize their earnings. In most cases, they are reportedly placing greater emphasis on improving the appearance of processed goods rather than improving their actual quality.

One North Korean trading company lost the trust of Chinese traders after presenting them with an exemplary sample and then shipping the same low-grade quality as before.

If the processed goods that are exported to China don’t sell, North Korean trading companies and their managers are ultimately on the hook for the loss.

“Trading companies performed fairly well when they were exporting both raw materials and processed goods, but their performance has taken a hit since the government ordered them to only export processed goods,” the source said.

“Trade is the only way to breathe life into both the national and regional economy. But these companies can’t succeed when the government keeps issuing orders without paying attention to opinions on the ground.”