PYONGYANG/SEOUL (Reuters) - From carrot-flavored toothpaste and charcoal facemasks to motorcycles and solar panels, visitors to North Korea say they are seeing more and more locally made products in the isolated country’s shops and supermarkets, replacing mostly Chinese imports.

A vendor is pictured in a shop in a newly constructed residential complex after its opening ceremony in Ryomyong street in Pyongyang, North Korea April 13, 2017. Picture taken April 13, 2017. REUTERS/Damir Sagolj

As the Trump administration considers tougher economic sanctions to push the isolated country toward dismantling its weapons programs, North Korea is pursuing a dual strategy of developing both its military and economy.

The majority of consumer products in North Korea still come from China. But under leader Kim Jong Un, there’s been an attempt to sell more domestically made goods, to avoid any outflow of currency and to reinforce the national ideology of juche, or self-reliance, visiting businessmen say.

There is no available data to show how much is being produced domestically. Export data from countries like China and Malaysia, which sell consumer goods to North Korea, may not be an accurate reflection.

China’s commerce ministry declined to comment when asked whether China’s exports to North Korea were decreasing due to an increase in locally-made products.

Visitors say that with the impetus from the top, large North Korean companies like military-controlled Air Koryo, the operator of the national airline, and the Naegohyang conglomerate have diversified into manufacturing consumer goods including cigarettes and sports clothing.

How Reuters reports from North Korea Read the Reuters Backstory behind this report

North Korea is one of the most insular countries in the world and visits by foreigners are highly regulated.

A Reuters team that was in the capital Pyongyang last month was allowed to go to a grocery store, accompanied by government minders, where shelves were filled with locally made drinks, biscuits and other basic food items. Other visitors have seen locally made canned goods, coffee, liquor, toothpaste, cosmetics, soap, bicycles and other goods on sale in the city.

“As new factories open, the branding, packaging and ingredients of our food products have improved,” said shop assistant Rhee Kyong-sook, 33.

Kim Chul-ung, a 39-year old physical education teacher visiting the store, said: “I can taste real fruit in the drinks that are made in North Korea, compared to drinks from other countries.”

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Visitors say locally made consumer goods are becoming increasingly sophisticated and QR or matrix barcodes can been found on a wide range of products from make-up to soft drinks. Market vendors are also becoming more competitive, offering samples of their food to shoppers, something they didn’t do five years ago.

“Around 2013, Kim Jong Un started talking about the need for import substitution,” said Andray Abrahamian of Choson Exchange, a Singapore-based group that trains North Koreans in business skills.

“There was clearly recognition that too many products were being imported from China, not just high-end consumer goods but also lower-end ones like food.”

“MY HOMELAND”

Air Koryo’s range of products now includes cigarettes, fizzy drinks, taxis and petrol stations.

“Naegohyang”, or “My Homeland”, began as a Pyongyang-based tobacco factory, but has expanded in recent years to produce playing cards, electronic goods and sports clothing. The company even sponsors a women’s football team of the same name.

The North Korean companies were not available for comment and do not publish revenue or profit statements. It was not possible to identify any joint venture partners.

Traders and retail experts said the North Korean market was attractive, thanks to a growing class of “donju”, or “masters of money,” who generate wealth in a gray market economy that is being increasingly recognized and controlled by the state.

“The North Koreans increasingly don’t want Chinese products because they think they are poor quality,” said a trader from Southeast Asia who exports consumer goods to North Korea. The trader did not want to be identified.

China has been rocked by a number of food safety scandals in recent years, including contaminated rice and milk powder.

“Mothers in North Korea are no different to mothers in China or Canada, they want to feed their babies the best possible food,” said Michael Spavor of Paektu Exchange, which brings delegations of investors, tourists and academics into North Korea.

“I’ve seen people in a store in North Korea comparing a Chinese and a Korean product and picking the Korean one,” he said.

STILL RELIANT

Nevertheless, North Korea is still heavily reliant on trade with China and the vast majority of raw materials to make consumer products still come from or through China.

For example, while domestically-made instant coffee is becoming increasingly common, the sugar used in it would likely come from China or another country that produces sugar and pass into North Korea via China, says Abrahamian.

“We’re seeing a rise in domestically-made products, including motorcycles, solar panels and food, but the business relationships on which these products depend on are still Chinese.”

Because of the reliance on China, it is likely these “Made in North Korea” companies will suffer if stiffer economic sanctions are imposed on the country.

Diplomats said this week Washington was negotiating with China on a possible stronger U.N. Security Council response - such as new sanctions - to North Korea’s missile launches.

(Washington considering imposing new sanctions on North Korea, to read more, click reut.rs/2p9JyO5)

“If you have a coal mining town of 10,000 people who are all in some way connected to the coal industry, then when sanctions are imposed against North Korean coal, the whole town’s consumer market will suffer because people don’t have the buying power anymore,” said Abrahamian.