Shockingly, China’s sanctions enforcement on North Korea eases after the summit

June 19th, 2018

By Benjamin Katzeff Silberstein

In perhaps the least surprising news there ever were, reports are now coming in regular intervals that Chinese enforcement of sanctions on North Korea is becoming less and less strict following the summit between Donald Trump and Kim Jong-un. Kim’s visit today in Beijing will likely speed up the process, but the Chinese enforcement of the sanctions regime would like have become less vigilant in due course regardless.

You’ll have to excuse the sarcastic tone of the title and content of this post, but this is precisely the sort of development that not just this blog, but a whole host of others too, have predicted all along. Trump’s idea that “maximum pressure” would survive through the summit and general process, regardless of what is decided, was always unfounded. That’s just not how these things work. Chinese enforcement of sanctions on North Korea depend much more on political circumstances in the region than on what sanctions the UNSC decides to level. China was always going to let down its guard once tensions de-escalated. Pressure could certainly get back on if things go back to the way they were earlier in the year, but to count on it as a matter of policy, as if it could be done easily or somehow automatically, is unwise or even naive.

To be sure, we shouldn’t draw any far-reaching conclusions from a small number of scattered news reports. But no one should be surprised if the number of reports continues to grow over the coming weeks, and if, one day in a not too distant future, Chinese customs figures of imports from North Korea also start to point upward.

I’ll be gathering articles on the matter in this post. First out is Radio Free Asia from a few days ago:

China is relaxing customs inspections and allowing restricted goods to flow across its border with North Korea, according to sources, despite making assurances that it will continue to enforce sanctions against the reclusive nation until it fully dismantles its nuclear arsenal.

A trader in China’s Dandong city, located in Liaoning province across the Yalu River from the city of Sinuiju in North Korea, recently told RFA’s Korean Service that inspections on trucks heading across the border to the North “have eased significantly,” and that customs officers who “used to check every single item following x-ray scans” are now searching “only around half of all vehicles.”

“In the past, when a truck driver got caught bringing restricted items on the sanctions list, the truck was impounded for a day and could only pass through the border if a fine was paid,” the source said, speaking on condition of anonymity.

“These days, those kinds of trucks [smuggling restricted goods] are fined, but can go through customs right away.”

The trader added that as customs officers have become less rigorous about their checks, “North Korean truck drivers are beginning to regularly smuggle items that are not on their manifestos.”

A resident of Dandong, who also asked to remain unnamed, told RFA that the customs process for North Koreans who travel to his city for personal reasons is also “now much easier,” noting that Chinese customs officers used to require them to open their luggage for inspection, “but they can now pass through after a routine x-ray screening.”

“Alcohol and tobacco products are limited to one bottle of alcohol and one carton of cigarettes, but the custom officers don’t make an issue out of having two or three bottles and a couple of cartons of cigarettes,” the source said.

A businessman based in Dandong, who said he exports clothing illicitly assembled in North Korea to Japan and other countries, told RFA that crackdowns on illegal trade between China and North Korea had also been reduced in recent months, making it easier for him to earn a profit.

“I use illegal vessels to send materials into North Korea and bring out processed clothes via the Yalu River, and it has been so much easier for me to operate these days,” he said.

“It always used to take me a long time to transport the clothing, due to China’s tight security along the border area, but now it doesn’t take long at all.”

Sources in Dandong and the Yanbian Korean Autonomous Region, in northeast China’s Jilin province, said that Chinese border guards ended their tight monitoring of smuggling after Kim made a rare visit to Beijing at the end of March and met with Chinese President Xi Jinping.

At that time, North Korea stopped repatriating workers it had based in China to generate foreign currency for the Kim regime, and even dispatched some additional workers to the country, the sources said.

And ever since Chinese authorities relaxed their controls on smuggling activities, they added, North Korean organizations tasked with generating foreign currency have begun steadily trafficking sanctions-restricted items into China, including iron, non-ferrous metals, chemicals, and seafood.

Trump-Kim summit

Reports of the reduced inspections follow a historic summit between U.S. President Donald Trump and North Korea’s leader Kim Jong Un, held on Tuesday in Singapore, during which Trump “committed to provide security guarantees” to the North and Kim had reaffirmed his “firm and unwavering commitment to complete denuclearization of the Korean Peninsula.”

On Thursday, U.S. Secretary of State Mike Pompeo met with his Chinese counterpart State Councilor Wang Yi in Beijing and told reporters after the talks that “China has reaffirmed its commitment to honoring the U.N. Security Council resolutions” for sanctions leveled against the North for repeated ballistic missile and nuclear weapons tests.

After Tuesday’s summit, China had suggested that international sanctions on North Korea could be lifted, but Pompeo on Thursday said Washington had “made very clear that the sanctions and the economic relief that North Korea will receive will only happen after the … complete denuclearization of North Korea.”

Full article and source:
China Relaxes Customs Inspections on Border With North Korea, Despite Sanctions Assurances
Jonhoo Kim
Radio Free Asia
2018-06-15

 

Dong-a Ilbo reports that several Chinese factories near the border, employing North Korean workers, have started operations back up after being forced to a halt due to the sanctions implementation:

More than 10 Chinese factories located in the border area between North Korea and China resumed operation around Tuesday’s U.S.-North Korea summit. The number of dispatched North Korean workers that showed a downward trend this year started increasing from last month. There are concerns that China would break away from coordination for North Korea sanctions before detailed agreements about denuclearization are concluded.

According to multiple diplomatic sources, a clothing company in Dandong, Liaoning, halted operation at the end of last year when the sanctions of the global community were strengthened but started to operate again in the middle of this month. “They hired more than five North Korean workers before resuming its operation,” said one of the sources. Among more than 600 businesses in Dandong trading with North Korea, more than 100 of them stopped operation last year but a lot of them have recently resumed operation or are preparing to do so.

The number of North Korean workers in China increased by 40 to 50 last month compared to early this year, and by more than 100 this month because of more active trade between China and North Korea. The United Nations Security Council resolution 2397, which was adopted in December last year, states that North Korean workers should return home within 24 months. China actively implemented the sanctions and sent an announcement to factories to return North Korean workers until early this year, but it reportedly has not put a pressure to send them back at all recently.

Full article and source:
More than 10 Chinese factories in border area with N. Korea resume operation
Jin-woo Shin
Dong-a Ilbo
2018-06-19

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Does the Trump-Kim summit and declaration mean anything for the North Korean economy?

June 12th, 2018

By Benjamin Katzeff Silberstein

The short answer is: no. One of the most notable absences from the US security perspective was that of CVID – complete, verifiable, irreversible dismantlement of North Korea’s nuclear weapons. From a North Korean perspective, diplomatic hardliners may be asking: what about sanctions relief? Neither the statement at the end, nor Trump’s press conference, gave any word on sanctions relief. The US has said that such relief will only come when CVID is completed, but to get North Korea to go along, it will likely need to make at least partial concessions along the way.

Sanctions relief may well come sooner than that in practice. No one should be under the illusion that Chinese sanctions enforcement, which has been the real key over the past ten months or so, is about adhering to international norms and UN resolutions. China evaluates whether such enforcement is beneficial to its own interests, and up until the late summer or early fall of last year, the consistent answer was “no”. With Trump’s increased pressure, that changed, as trade statistics have shown, with Chinese imports from North Korea plunging. Now that tensions have eased, China’s assessment may well ease too. We’ve already seen signs that goods as well as North Korean guest workers are once again crossing the border. Surely, China will see the Singapore summit’s very occurrence as a sign that it might be far less risky to let up more on sanctions enforcement. It will be crucial over the coming weeks and months to monitor trade flows, reported as well as unreported ones, over the Sino-Korean border.

For anyone curious about Kim Jong-un’s potential as a reformer in the economic realm, the following story by the Daily NK should be of interest:

The North Korean authorities held a video conference with high-ranking Party cadres ahead of the summit with the U.S. instructing them not to use the terms “reform and opening up.” This appears to be a precautionary measure implemented in response to the heightened expectations of North Korean residents for “greater freedoms” arising from the inter-Korean and U.S.-NK talks.

“In order to prevent ideological wavering that may occur among party executives and residents, the authorities organized a meeting on June 4 with organs directly under the authority of the Central Party Secretariat (Chairperson of the Provincial Party Committee, Chairperson of the Provincial People’s Committee, Director of the Provincial Public Security Bureau, etc.), a source in Ryanggang Province told Daily NK on June 10.

“This meeting was conducted via online video conference, hosted by the first vice director of the Organization and Guidance Department of the Central Committee of the Workers’ Party of Korea. The participants were provincial heads and secretaries across major organs, including Party and People’s Committees and the Ministry of State Security; however, the Ministry of People’s Security was not called upon to participate.”

According to the source, at the meeting, the first vice director said that the talks with the U.S. were planned out of necessity.

“He said that we shouldn’t mention reform and opening up from now on and that North Korea will never follow that path,” he explained.

“He told us to just follow our General’s (Kim Jong Un) orders and that the demolition of the Punggye-ri site does not mean we are giving up our nuclear weapons, but that it is the final step in the completion of our General’s nuclear strategy. He said that we shut down the Punggye-ri site because we have to get rid of unnecessary things.”

A source in South Pyongan Province informed Daily NK on June 10, “In a recent high-level executive meeting, there was mention that there will be absolutely no reform or opening up. We have decided not to use these terms.’”

Meanwhile, according to a separate source in Ryanggang Province, the participants of the meeting took part using computers in their own private offices. “In North Korea, there is an intranet called ‘Cheongbong Maeari (Blue Peak Echo)’, whose use by ordinary residents can be grounds for arrest, but can be used freely by party-level agency executives inside the agencies,” the source explained.

In North Korea, where internet use is restricted, it is also known that a nationwide intranet operated by the government called ‘Kwangmyong’ is commonly used. However, it is presumed that there is a separate intranet used only by party executives and government officials.

“After the announcement on the Central Committee’s video conference was made, a Provincial Party plenary meeting was held the next day. The chairperson of the Provincial Party Committee also gathered key officials in the province and urgently passed on the message of the meeting and told them to stay focused and speak and act according to our General’s plans, especially in times like this,” the additional Ryanggang Province-based source said.

“The Chairperson emphasized that regardless of how the talks go, things are going well according to our General’s plans and we should stand together more closely by our General. This video conference seems to be intended to provide assurance that North Korea will not be pushed around by the United States and to prevent unrest and confusion among party executives.”

Article source:
North Korea convenes meeting ahead of talks with U.S. to prohibit use of the terms ‘reform and opening’
Daily NK
2018-06-12

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South Korean companies gearing up to rush north

June 10th, 2018

By Benjamin Katzeff Silberstein

These days, it seems that scarcely no South Korean company isn’t looking north. Hopes are high that with a diplomatic opening – if this time is different, which we really don’t know – North Korea will be open for business. And aside from some Chinese companies and entities, no other have the know-how and language skills to make investments in North Korea profitable. Indeed, those that have happened have largely been in the realm of “adventure capital”, that is, high risks with the potential of high rewards. It seems that relatively few have reached the latter.

Many South Korean businesses will likely ask that the government underwrite potential investments, given the vast political risk. Moon’s government doesn’t seem completely adverse to this, despite the questions it raises about moral hazard and market fairness.

Looking at the types of investments that companies are talking about, it is hardly a given that they will – if they happen – have a positive, broad impact on the North Korean system and society. See below for the sorts of investments being talked about:

SM Group said it has set up a task force to check the country’s mineral resources, particularly in iron ore. The group said its ownership of South Korea’s sole operational iron ore mine effectively gives it an edge over others in terms of processing know-how and facilities it has on hand.

North Korea’s iron ore deposits are estimated at 50 billion tons worth some 213 trillion won (US$197.7 billion).

Besides resources, companies such as Keangnam Enterprises Co. and Dong Ah Construction Industrial have said they are moving to secure a foothold in the North’s building business once all sanctions are lifted.

Dong Ah said its past experience as a builder for the defunct Korean Peninsula Energy Development Organization that moved to build a light water reactor for Pyongyang could help it win future orders, especially in power infrastructure work areas.

Keangnam said that its participation in Seoul’s Official Development Assistance program for emerging economies will make it easier for it to engage in similar projects in the North if conditions permit.

SM Line Corp said it wants to ship North Korean resources using the country’s cheap labor and explore the opening of new shipping routes and related shore infrastructure.

“Work in the North will be a win-win development for all sides, and this is the reason why the company is looking into the matter,” a source at the shipping line said.

Besides medium-size companies, the large conglomerate Lotte said it has set up a team that can expand business ties not only with North Korea but also Russia and China.

Meanwhile, there has been growing interest by local companies who want to set up operations at Kaesong Industrial Complex in North Korea, which has been shuttered following the North’s nuclear and long-range missile provocations.

Dong-a Publishing said it wanted to take advantage of the low labor costs to set up business in Kaesong.

The company said due to the labor intensive work in the publishing field it makes sense to move its plant to the North.

Related to such moves, a business group representing South Korean firms that had operated factories in Kaesong said recently that upwards of 20 companies a day have called to make inquiries about opening new factories in the special economic zone.

Article source:
S. Korean mid-tier companies interested in biz opportunities in N. Korea
Yonhap News
2018-06-10

Much of what’s being talked about, in other words, is extraction of natural resources. Sure, this would be done with North Korean labor, but even though the domestic economy could get an upswing through these sorts of operations, North Korea wouldn’t necessarily reap the full potential benefits of its mineral assets, which could be sold for much higher prices if they were locally refined and processed. This is likely something that the North Korean leadership is very well-aware of, and Kim Jong-un talked about it in speeches in the 1990s. But given the need for hard currency, they may not see that they have much of a choice in the matter.

Other companies want to get in on the cheap labor. That’s all fine and good for the companies and the potential prospective North Korean employees, but factories of this sort can be set up pretty easily without sourcing raw materials locally, and with few connections with overall North Korean society.

In other words, if these investments come to see the light of day (again, a big “if”), it’s not a given that it’ll be in any way transformative for the North Korean economy. We have seen much of this before, and we know from Kaesong that the state is indeed both capable and willing to contain economic development to specific areas, keeping it separated and in check from broader North Korean society.

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South Korea asks for immunity for officials stationed in Kaesong

June 5th, 2018

Benjamin Katzeff Silberstein

While the world gears up for the summit (yes, The Summit), things are moving along on the peninsula as well. Moon promised in the election campaign that he would not only re-open Kaesong, but work to enlarge the zone as well. Last week, South Korea asked that North Korea grant diplomatic immunity for the officials it plans to station in the liaison office the two countries are in the process of establishing in the city:

The two Koreas agreed last week to open a liaison office in the city “at an early date” at high-level talks to discuss steps for implementing promises made by their leaders in the historic April and May summits.

South Korea plans to station its officials there in order to keep communication channels open around the clock as part of efforts to support cross-border exchanges, which are likely to increase.

According to the sources close to the matter, South Korea’s government recently proposed the North grant immunity from arrest and detention for its officials to be stationed in the office, just as the Vienna Convention grants such privilege to diplomats.

In addition, it also proposed that the North guarantee safety of passage and communications for its officials, while exempting them from checks on their bags and pouches, the sources said.

Kaesong is the western border city in the North where the two Koreas operated a joint industrial complex since 2004. It was hailed as a successful example of economic cooperation between the two Koreas as it married South Korea’s capital with the North’s cheap and skillful labor.

South Korea, however, closed its operations there in early 2016 and brought its officials and workers back in protest at the North’s continued missile and nuclear provocations.

Though there was an agreement regarding the safety of South Korean personnel at the time, there was no clear legal ground for the South Korean government to ask for the return of its people in case of their arrest or detention, experts said.

Article source:
S. Korea asks N. Korea to grant immunity to officials at liaison office to open in North
Yonhap News
2018-06-05

It wouldn’t be surprising if moves to open Kaesong come relatively soon, pending the overall diplomatic situation and sanctions regime. Kim Jong-un’s predilection for SEZs is well known and natural, they bring opportunities for making hard currency for the state while keeping systemic changes and capitalist incursion (in the North Korean lingo) contained within a specific geographic area. Some hope that they will eventually bring systemic changes to the broader North Korean society as well, but with Kaesong, we’ve seen no evidence that that is the case.

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The calm throughout the storm: North Korean market prices in May 2018

May 31st, 2018

By Benjamin Katzeff Silberstein

Daily NK just released their market price index for May 29th. With that, we get a pretty clear picture of the market situation for the full month of May.

So, what’s new? Not much, and that is newsworthy in its own right. Throughout the period of so-called “maximum pressure” in economic sanctions pushed by the Trump administration, North Korean market prices have, save for some months of a shaky diesel market, remained remarkably stabile. This trend continued in May.

Overall, average rice prices for May, in three North Korean cities, was 5041 won per kg. The average USD-exchange rate for the same period was 8061 won for $1. For a simple point of comparison, the average three-city rice price for late April 2017 was 4900 won/kg, and for USD, 8057 won/$1. For early June, rice cost 5228/kg, and for USD, 8026 won/$1. That prices are climbing is fully natural given that we’re approaching the so-called “lean season”, when North Korea is at the furthest point from the last harvest, and closest to the coming one.

How these relatively stabile prices are maintained is still very much a mystery. I maintain that if “maximum pressure” was truly all-encompassing, it would be very unlikely for at least foreign currency prices not to be impacted. The government may be keeping market prices stabile by adding to the supply of food and foreign exchange from their own coffers, and in the case of the foreign exchange rate, by contracting the supply of won by drawing down on credit supply to state enterprises, for example. But news of economic management at this scale would likely have been reported by at least one of the many outlets that regularly publish economic news from North Korea sourced from people inside the country. As things stand right now, there’s much we don’t know, but if the North Korean economy is truly in a crisis mode, market prices aren’t reflecting such a state of affairs.

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North Korean seafood continuously sold in China

May 31st, 2018

Benjamin Katzeff Silberstein

Reports Daily NK:

There has been further confirmation that North Korean seafood products are being sold in China despite sanctions on the export of such items by the UN Security Council.
Large volumes of North Korean seafood products that were smuggled into the country as recently as last year are now being processed by China’s customs authorities, Daily NK sources say.
A photo of traders running to line up around trucks full of North Korean dried fish in Jilin, Húnchūn and Bàiquán Xiàn after inspections by the customs authorities appears to support these allegations.
In the image, the traders appear to be competing for a share of the North Korean dried fish, which has become difficult to purchase since international sanctions took effect.
“The tax authorities at Quanhe Customs seem to be allowing the passage of trucks full of dried fish from North Korea,” said a China-based source on May 29. “Because of that, we have started to see North Korean seafood products in the markets of Yánjí.”
The source added that the import of North Korean seafood products had been “totally prohibited following sanctions last year,” but that imports have “increased recently.” It is likely that smuggling has enabled the products to show up in China.
Daily NK sources suspect that China is “turning a blind eye” to the prohibitions on North Korean exports following recent summits between the Chinese and North Korean leaders.
“The Chinese prohibited the importation of fish, shellfish, dried squid and pollack up until last year,” said a separate source in China close to North Korean affairs.
“But after about a year they seem to be loosening the prohibitions.”
In August 2017, the UN Security Council adopted Resolution 2371, which includes seafood products in the list of banned North Korean export items. China announced a complete ban on the import of North Korean seafood products on August 15, 2017.
North Korean seafood products smuggled in via China ‘s customs authorities
Moon Dong Hui
Daily NK
2018-05-31
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Recap: South Korea’s economic plans for North Korea

May 28th, 2018

Benjamin Katzeff Silberstein

In this post, I’ll be collecting news and information on Moon Jae-in’s plans and ideas for economic development in North Korea. I’ve had to take a little break from blogging for the past couple of weeks due to travel, so the articles here won’t necessarily be recent or up-to-date, especially since up-to-date regarding the Korean peninsula these days seems to extend only to the last five minutes or so.

For the contents of the Panmunjom Declaration that have to do with the North Korean economy, feel free to check out this post, where I make the case (which still holds, I would argue) for why infrastructure is the most plainly obvious as of now for economic cooperation with North Korea in the wake of the latest warming of ties.

Infrastructure was an important component of the famed USB-stick that Moon handed to Kim at the first inter-Korean summit this year. Hankyoreh:

South President Moon Jae-in ordered a joint inter-Korean research effort to examine future economic cooperation ahead of the anticipated lifting of international sanctions against North Korea following an upcoming North Korea-US summit, which will follow up the inter-Korean summit that was held on Apr. 27.

Speaking on Apr. 30 at the first Blue House senior secretaries’ and aides’ meeting since the inter-Korean summit, President Moon said he “look[ed] forward to us being able to carry out a joint inter-Korean research effort for implementation of the Oct. 4 Summit Declaration [of 2007] and inter-Korean economic cooperation,” a key Blue House official reported.“He was saying we need joint research to examine what kinds of economic cooperation the South and North can engage in ahead of [sanctions against North Korea] being lifted,” the official explained.

During their summit, President Moon also personally gave North Korean leader Kim Jong-un a pamphlet on his “new economic vision” and a USB device containing a presentation video, the Blue House reported.

The materials reportedly contained details on power plant construction and other economic cooperation measures that could be implemented once inter-Korean relations gain momentum and sanctions against North Korea are lifted.During the Apr. 30 meeting, President Moon described the Panmunjeom Declaration as “a peace declaration proclaiming to the world that there will be no more threat of war or nuclear weapons on the Korean Peninsula.”

Article source:
South Korean President Moon Jae-in orders joint research effort for inter-Korean economic cooperation
Seong Yeon-cheol
Hankyoreh
2018-05-01

New York Times noted the somewhat ironic fact that Kim received Moon’s plan on a USB-stick, an item whose use by its own citizens the North Korean regime has long cracked down on:

For years, Kim Jong-un, North Korea’s leader, has been cracking down on USB flash drives that activists smuggle into his isolated country to poison his people’s minds with outside influences, like South Korean K-pop music.

But last month, when he met with the South’s president, Moon Jae-in, Mr. Moon handed him a USB drive that contained quite a different message.

In charts and video clips, Mr. Moon’s memory stick laid out a “new economic map for the Korean Peninsula,” including new railways and power plants for the impoverished North, should Mr. Kim abandon his nuclear weapons, according to South Korean officials.

Mr. Moon based his sales pitch on the belief that Mr. Kim wants to become the North Korean equivalent of Deng Xiaoping, who oversaw the economic liberalization of China. In this view, Mr. Kim may be willing to transform his pariah state by trading in his nuclear arsenal for diplomatic and economic incentives he needs to achieve prosperity.

[…]

“Kim Jong-un’s desire to develop his country’s economy is as strong as, and even stronger than, his desire for nuclear weapons,” said Lee Jong-seok, a former unification minister of South Korea. “But he knows he cannot achieve the kind of rapid economic growth in China that he envisions for his country while keeping his nuclear weapons — because of the sanctions.”

[…]

Vilified as he was, however, Mr. Kim has also shown signs of being a reformer, granting farms and factories more autonomy, allowing more markets to open, and setting off a building boom in his showcase capital, Pyongyang. He exhorts his country to follow “international development trends” and “global standards” and even admits failing to deliver on his promise that his long-suffering people would “no longer have to tighten their belts.”

“My desires were burning all the time, but I spent the past year feeling anxious and remorseful for the lack of my ability,” Mr. Kim said in a nationally broadcast speech last year, a startling admission for a member of the family that has ruled North Korea with the help of a personality cult since its founding in 1948.

After meeting him, Mr. Moon called Mr. Kim “open-minded and practical.”

Nowhere is Mr. Kim’s dilemma better seen than in his policy of “byungjin,” or parallel advance, which seeks a nuclear arsenal and economic development simultaneously. Under that policy, Mr. Kim has rapidly developed his country’s nuclear weapons and ballistic missile programs, arguing that a nuclear deterrent would make his country feel secure enough to focus on rebuilding the economy. But the world has responded by imposing crippling sanctions.

[…]

If Mr. Kim pursues the route of economic reform, energy and transportation are the two areas where he most needs outside help. In his meeting with Mr. Moon, Mr. Kim admitted to the “embarrassing” condition of his roads and railways, South Korean officials said.

Trains running on electricity remain North Korea’s main means of transport, carrying 90 percent of its cargo and 60 percent of its passenger traffic, according to Ahn Byung-min, a senior analyst at the South’s government-funded Korea Transport Institute. But its rail systems are so decrepit that its fastest train, which runs to the Chinese border from Pyongyang, travels at 28 miles an hour. Other trains run at less than half that speed, Mr. Ahn said.

Lacking cash for oil imports, North Korea produces all its electricity from hydroelectric dams and coal-burning power plants. But the country’s power industry is trapped in a vicious cycle, energy experts say. Chronic electricity shortages make it difficult to produce coal and transport it to power plants. People in search of firewood for heat and cooking have denuded their hills, causing floods and droughts and making silt pile up at dams. That cuts down hydroelectric generation.

North Korea’s electricity generation amounts to only 4.4 percent of South Korea’s, according to Park Eun-jeong, an analyst at the South’s Korea Development Bank. The country prioritizes supplying electricity to lighting statues of Mr. Kim’s father and grandfather, who had ruled before him, while passengers wait for hours in trains unable to move because of power shortages, according to defectors from the country.

“Electricity is the Achilles’ heel for North Korea,” said Lee Jong-heon, an energy analyst in Seoul.

Mr. Moon’s proposal to modernize the North’s roads and railways and link them to the South’s is not meant to help just North Korea.

South Korean policymakers say that the two Koreas must first integrate their economies to make an eventual reunification less chaotic. They also envision building trans-Korean railways to find faster and cheaper routes to export South Korean goods to China, Russia and Europe, and bring Russian oil and gas into the South through pipelines for its power-hungry economy.

Full article and source:
South Korea Hands Kim Jong-un a Path to Prosperity on a USB Drive
Choe Sang-hun
New York Times
2018-05-10

Moon’s plan consists of three “economic belts”, as South China Morning Post notes, with infrastructure links that carry great potential gains for China and Russia as well:

President Moon Jae-in gave the North’s leader Kim Jong-un a USB drive containing a “New Economic Map of the Korean Peninsula” at the fortified border village of Panmunjom on April 27.

The initiative included three economic belts – one connecting the west coast of the peninsula to China, making the region a centre of logistics; one connecting the east coast to Russia for energy cooperation and one on the current border to promote tourism.

Whilst sources at the South Korean presidential office did not give further details about the information contained in the drive, they confirmed that the plan was in line with Moon’s “Berlin speech” last year when he outlined his basic approach to the north on a visit to the German capital.

During last year’s presidential election campaign, Moon pledged to merge the two Koreas’ economies in a single market to lay the foundations for unification.

Park Byeong-seug, a South Korean lawmaker from Moon’s ruling Democratic Party of Korea, said the proposal was in line with Moon’s campaign promises.

“The concept of the three belts was one of President Moon’s pledges during the election last year,” Park said.

“The new economic map includes railway links between the two Koreas and China’s northeast stretching all the way to Europe.”

One part of the plan would involve the construction of a rail link starting in Mokpo on the southwest tip of the peninsula, passing through Seoul and Pyongyang and the North’s Special Administrative Region of Sinuiju, before reaching Beijing.

Beijing is likely to welcome Seoul’s proposal as it accords with the core Chinese national interest of enhancing sustainable economic development and boosting the country’s northeastern rust belt.

Cheng Xiaohe, a deputy director at the centre for international strategic studies at Renmin University said Beijing may try to incorporate the plan into its Belt and Road Initiative.

“The northeast has been China’s weakest link and seen poor economic development for years. A rail link could make a real difference to the region,” Cheng said.

Improving the area’s logistics would also benefit China as its access to the open seas in that part of the world is physically blocked by the Korean peninsula and Russia’s far east.

North Korea’s economy is also closely tied to the northeast of China and opening up the reclusive state’s markets could provide new opportunities for the Chinese provinces on its border.

Lu Chao, a research fellow at Liaoning Academy of Social Sciences, said: “The plan would have a huge impact on China’s northeastern region as it would transform the region as a centre of logistics in East Asia, which could function as a driving force for the rapid economic growth of the region.”

“The northeast is the region with the greatest economic potential in China. A railway connection would bring a myriad of investments from overseas and would help the economy take off.”

[…]

South Korea would have to allow its allies and the UN to mediate any easing of sanctions before it could establish any economic cooperation with the North.

Moon Chung-in, a special foreign affairs and national security adviser in Seoul, said last month that Seoul’s economic incentives would compensate Pyongyang for freezing its missile programme, disclosing its nuclear capacity and allowing international inspections within its borders.

Full article and source:
Seoul offers Kim Jong-un grand bargain to link North and South Korean economies with China
Lee Jeong-ho
South China Morning Post
2018-05-07

Not surprisingly, Hyundai Asan is hoping to get in on whatever action may come. CNN:

Hyundai Group said Tuesday [May 8th] that it’s setting up a task force to prepare for the potential restarting of economic projects in North Korea.

The announcement comes shortly after a historic summit between South Korean President Moon Jae-in and North Korean supreme leader Kim Jong Un at which they committed themselves to rebuilding ties after years of tensions.

Hyundai Group, which split from the Hyundai Motor Group in 2000, was involved in various business projects in North Korea in the past, including a mountain resort and the Kaesong industrial complex, where North Korean workers made goods for South Korean companies.

“Hyundai needs to be ready when/if the two Koreas agree on terms and inter-Korean economic cooperation resumes,” a company spokesman said.

Hyundai will be closely monitoring the planned summit between Kim and US President Donald Trump that’s expected to take place in the coming weeks, as well as any potential changes to the heavy sanctions in place on North Korea’s economy, the spokesman said.

The Kaesong complex, a symbol of cooperation between the two Koreas, was closed as relations deteriorated in 2016. More than 120 South Korean companies had a presence there, employing tens of thousands of North Koreans and providing a steady stream of foreign currency to the regime in Pyongyang.

Hyundai also previously operated a tourist resort at North Korea’s Mount Kumgang, near the border with South Korea. It was shut down in 2008 after a South Korean tourist was killed by a North Korean soldier.

The company’s ties to North Korea go back to Hyundai’s late founder, Chung Ju-young, who was born there.

Last week, South Korean Deputy Prime Minister Kim Dong-yeon said the country’s government was “considering various scenarios” for economic cooperation between the two Koreas.

“The government is preparing response plans to different scenarios in terms of how and how fast to pursue [economic cooperation] and how to procure the resources for it,” he said.

South Korea’s government has allocated about $900 million to fund economic projects that involve both countries this year, according to the minister.

Full article and source:
Hyundai Group is getting ready to do business in North Korea again
Daniel Shane
CNN
2018-05-08

To be sure, preparations and planning are well underway in Seoul. Reuters:

South Korea’s finance minister said on Wednesday [May 2nd] the government was discussing how to finance possible economic projects with North Korea, although any projects with Pyongyang must first be approved by the international community.

“We’re internally carrying out preparations, in terms of what to prepare, and how to cooperate with the international community, and how to finance (possible inter-Korea projects),” Kim Dong-yeon told reporters in Sejong.

“But we need support from the international community and need to watch the (upcoming) summit between the United States and North Korea,” Kim said, without elaborating on specifics of any government financing.

Kim’s comments come after South Korean President Moon Jae-in and his North Korean counterpart Kim Jong Un agreed last Friday on a common goal of a “nuclear free” peninsula, and to “adopt practical steps towards the connection and modernization of the railways and roads”.

Many speculate that the two Koreas will start joint infrastructure projects as soon as international sanctions on North Korea are lifted. Currently, North Korea is under sanctions imposed by the U.N. Security Council to stop its nuclear weapons and missiles programs.

Kim also said there was a rise in the number of Chinese tourists in March although the services sector has not yet recovered from a drop in such visitors due to tensions between the two countries.

“The number of Chinese tourists is noticeably increasing since March, although it hasn’t recovered to the pre-Thaad level,” Kim said.

Tourist numbers plunged last year after South Korea angered China by deploying a U.S. Terminal High Altitude Area Defence (THAAD) system that features radar which Beijing believes could be used to penetrate its territory.

Full article and source:
South Korea considers financing of possible inter-Korea projects: finance minister
Reuters
2018-05-02

To be continued and updated…

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North Korean laws and regulations for consumer needs

May 2nd, 2018

Benjamin Katzeff Silberstein

An interesting column in the Daily NK reflects on changes in the North Korean system both to protect consumers, and boost domestic consumer goods production. The author, Na Jung Won, sources some of these insights from North Korean academic journals, pointing out that one article going back as far as to 2012 studies the insights into marketing strategy from the “Boston Consulting Group Matrix”, which I found pretty interesting, and one might wonder whether Choson Exchange has played a role in bringing this particular insight into the country. Overall, North Korean journals tend to often include references to theoretical models that are sometimes unexpected, given the largely closed-off nature of academia and research there.

Here’s the column:

Research has found that the North Korean economy has been growing continuously since the start of the Kim Jong Un era, despite economic sanctions and pressure from the international community. One can thus conclude that the North is able to maintain effective domestic growth while to some extent avoiding the effects of such outside variables. But in order to understand this economic growth, it is important to take a closer look at the North’s particular style of business administration.
Changing business law in North Korea
There have been two revisions or additions to North Korea’s business law since Kim Jong Un came to power – one enacted on November 5, 2013, and the other on May 21, 2015 – changing official business justifications and definitions, organizational principles, and management principles that are beginning to be reflected on the ground in the country.
Chapter 1 Article 4 of the business law covering management principles states, “In precisely laying out the nation’s management strategy and business strategy, ‘the administration of socialist business responsibility’ shall be carried out, and management activities must be carried out with socialism as the most fundamental underlying principle.” Chapter 4 is titled ‘Business Management,’ while Chapter 29 covers the same topic. Chapter 30 covers business strategy and the foundation for related business rights over socialist ownership, spelling out the management activities that must be carried out in realizing business development.
The entire system of financial management is governed under these business strategies, including item prices, sales, and salary standards. There is also a system for business capital, which spells out rights to earnings for companies, the unemployment payment system, and how companies can acquire loans from a commerce bank. Sales and pricing rights and restrictions are placed on products, contract requirements for distribution, sales, and trade in other products are described, and rules are laid out for how buyers can return problematic or poor-quality products which were misrepresented under the purchasing contract.
Trends in North Korean business administration research
North Korea is positioning its businesses and factories to increase their capabilities and follow global technological trends under its latest ‘five-year strategy for national economic development,’ revealing a shift in concern toward enacting effective changes to the previous, more centrally-planned economic strategy.
Research by Kim Kyung Ok for Economic Study No. 174 (2017-1) states: “Expanding production and planning rights for businesses must include contracts, and ordering contracts which are made under consideration of state central planning and quota fulfillment. Businesses are not permitted to unilaterally cancel contracts without justification, and consultations must be made between the parties to the contract over any changes or cancellations. The results are reviewed by the relevant organs and the agreed-upon production plan must be carried out under strict rules.” In other words, a system has been established to ensure that production contracts are carried out properly.
It implies that order contract fulfillment is extremely important even for ordinary businesses. Research by Rim Yong Chan for Economic Study No. 154 (2012-1) states that companies must follow contracts for producing and delivering products to the letter. Cha Jong Kyung writes for Economic Study No. 162 (2014-1) that agreements between factories and businesses must be made under a registered contract stipulating set rules for prices and collateral to ensure each party’s claim to profits. Rules for contracts for production materials, delivery, and other aspects of the process all help establish emerging new responsibilities for all parties involved.
North Korea is also increasing research into financial concepts such as credit and non-cash money, hoping to reap the benefits of development through credit and move towards creating new capital in addition to simply saving money. The idea is that diversifying credit-based transaction types will improve consumers’ purchasing power and economic activity as a whole.
Marketing has also been the subject of research in North Korea. Economic Study No. 156 (2012-3) by Pak Chun Gwang points to differing payment abilities and demands from residents in different areas and in different seasons of the year, as well as how the growing demands in material culture are affecting available products and services. In other words, matching resident needs and demand for products will have to be carried out according to regional and seasonal ‘targeting’ and ‘positioning.’ In additional research utilizing the principles of product lifecycle (PLC) management and the ‘Boston Consulting Group Matrix’ (typically referred to as the BCG Matrix), concepts of ‘cost leadership’ and ‘differentiation’ in international business management are discussed.
Effects of changing business administration
Various approaches to business management are practiced in workplaces across North Korea. After repairing the Gold Cup Food Processing Plant (est. 2006) in 2015, the previously low-volume operation increased from producing 360 products in less than 10 categories to over 600 products in close to 30 categories in November 2017.
A ‘New Products Expo’ starting in August 2017 was used to showcase the country’s domestic products, promoting the customer’s needs as the most important aspect. President of the beverage industry group Rim Song Chol said in an interview, “We are looking to the global market as we produce new products, but we are communicating with and listening to our customers as our number-one concern in informing the products we make,” implying that customer demand for a product is the most important factor in their process.
Producers are saying they will halt production for items that do not sell very well in the markets. The use of information management systems in the manufacturing process is also being promoted as helping producers make decisions over materials or whether or not to continue production, where unsuccessful new products are discontinued.
The Kim Jong Suk Pyongyang Textile Mill has also apparently shifted production to fabric for business suits after an increase in customer demand, running a synthetic fabric factory in Pyongyang to create a variety of suit material options according to specific orders. Competition in this market is heating up due in part to the use of synthetic fabric recycling for the suits. ‘Tetoron’ synthetic fabric production at the Kim Jong Suk Pyongyang Textile Mill is thus steadily rising, and customers such as the North’s official female marching band were able to demand custom colors and styles for their uniforms.
Product distribution companies are also changing to meet the needs of customers, with a lively and competitive market of service providers working to gain a leg up on their competitors. The Kwangbok Area Shopping Center, formerly the Kwangbok Department Store (est. 1991 and renovated in 2011), became a place where domestic products were sold under customer-responsive profit principles. In order to increase the variety of available products, government-affiliated domestic producers such as clothing and foodstuff factories are in the midst of improving capabilities and product quality. To attract more customers and increase sales, lighting fixtures are being improved in the shops and displays appear brighter and more modern. The third floor of the shopping center includes a buffet-style restaurant with over 400 menu items. Shops also offer loyalty cards to encourage repeat visits and offer rewards.
The Pyongyang Department Store No. 1 (est. 1982, Jung-gu district) is a top competitor of the Kwangbok Area Shopping Center. There, shops order directly from production companies, and it has become known among consumers in the capital as a place selling all the latest and most popular items. Aiming to become a ‘Shopping Center for the People’s Desires,’ this department store is also focusing on customers’ needs. Shops have instituted a system to track customer reactions and the popularity of items through sales records. These are just some of the latest signs of increasing attention being paid to customer demand in North Korea.
Source:
North Korean business developments reflect focus on ‘customer needs’
Na Jung Won
Daily NK
2018-05-01
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The Koreas summit and the North Korean economy: why infrastructure is on the table

April 29th, 2018

By Benjamin Katzeff 

It’s much to soon to expect concrete outcomes from all the summitry relating to the North Korean economy. Tentative signs suggest, however, that infrastructure will be on the table for the road ahead. A few of them:

  • Aside from a mention of promoting “balanced economic growth,” it’s really the only concrete measure within the economic sphere mention in the Panmunjom declaration: As a first step, the two sides agreed to adopt practical steps towards the connection and modernisation of the railways and roads on the eastern transportation corridor as well as between Seoul and Sinuiju for their utilisation. Sure, this is fairly vague too, but at least it’s something.
  • Kim mentioned infrastructure and railways during the summit, lamenting the comparatively poor state of North Korea’s transportation system:

During the talks, North Korea’s leader Kim Jong-un praised the quality of South Korea’s high-speed train system in Pyeongchang, while citing worries that if Moon were to visit the North, he would be inconvenienced since the transportation infrastructure there is much less advanced. “If (Moon) comes to the North after living in the South, it may be embarrassing. We will make preparations for a comfortable visit,” Kim said.

The South Korean president responded with hopes of restarting cooperation to build a railway connecting the South and North — which the two sides had agreed on during previous inter-Korean summits, yet never put to action.

“If the railroad is connected with the North, both the South and North can use high-speed trains. This is contained in the joint declarations of June 15 (2000), and Oct. 4 (2007), but it has not been executed over the past 10 years,” Moon said.

In other words, it’s already being talked about by the two leaders. It’s fairly uncontroversial and not politically touchy, at least not relatively speaking.

  • It’s not a coincidence that Putin mentioned infrastructure specifically during a phone call with Moon Jae-in about the summit. In theory, at least, it’s a potential win-win-win situation, both for North and South Korea and for other countries in the region, and therefore politically palatable. The idea of massive infrastructure projects as a way to facilitate trade, and peace, is certainly not new and has been part of the plan for inter-Korean economic exchange before, and the blueprints are too many to fully keep track of. Kim Jong-un will almost certainly be seeking support in this area, a crucial one for the second leg of Byungjin.

 

 

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Q1 of Foreign Trade Magazine highlights

April 27th, 2018

The North Korean web portal Naenara has been negligent in keeping us updated with the latest publications from the DPRK. However, through USKI-SAIS I was able to obtain a copy of the most recent issue of Foreign Trade Magazine (2018-1). I post the most interesting parts (to me) below. I don’t have time to go through them and analyze them here, so if you are interested, you may do so.

Topics include:
1. Regulations of the DPRK for Labor in Economic Development Parks (apologies for image quality)

 

2. Pukchong Agriculture Development Zone

3. Law of the DPRK on the Chamber of Commerce

4. Waudo and Jindo Export Processing Zones

5. Prospect of processed goods export in the DPRK

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