North Korean Economy Watch

You can download a PDF of  the Bank of Korea’s report here.

I have a collection of previous Bank of Korea reports on the North Korean economy here.

Yonhap reports on the findings:

The North Korean economy contracted for the second straight year in 2010 due to tougher international sanctions and sluggish agricultural production, the South Korean central bank estimated Thursday.

The Bank of Korea (BOK) estimated that the communist country’s economy shrank 0.5 percent on-year last year, compared with a 0.9 percent contraction in 2009. The data stood in sharp contrast to the 6.2 percent expansion of the South Korean economy in 2010.

The North Korean economy grew 3.1 percent in 2008 on one-off factors after shrinking 1 percent in 2006 and 1.2 percent in 2007, when heavy flooding hit its agricultural production and its relations with the international community deteriorated.

“Last year, the North Korean economy contracted as economic conditions at home and abroad worsened amid energy shortages and international sanctions and its manufacturing sector remained sluggish,” said Park Yung-hwan, an official at the BOK.

North Korea suffers chronic food and energy shortages due to years of isolation, mismanagement and natural disasters. The communist state has relied on international handouts since 1995 to help feed its more than 20 million people.

Last year, inter-Korean relations turned sourer following the North’s deadly sinking of a South Korean warship in March and its shelling of a border island in November.

The North’s agricultural and fishery industry contracted 2.1 percent last year from a year earlier, more than double the 1 percent fall of 2009. Its manufacturing sector declined 0.3 percent in 2010.

North Korea’s nominal gross national income (GNI) amounted to 30 trillion won (US$26.5 billion) last year, which is only 2.56 percent of South Korea’s GNI of 1,173 trillion won.

Meanwhile, inter-Korean trade grew 13.9 percent on-year to $1.91 billion, the BOK said.

Park said although chilly inter-Korean relations and following economic sanctions cut off trade such as humanitarian aid, shipments of goods produced at the Kaesong industrial complex rose.

The value of North Korean products shipped the South reached $1 billion last year, up 11.7 percent from the previous year. South Korean shipments to the North grew 16.6 percent to $868.3 million.

Bloomberg reports on the findings here:

North Korea’s economy shrank for two consecutive years as cold weather and rain hurt farming and power and raw material shortages cut industrial output, South Korea’s central bank said.

Gross domestic product contracted 0.5 percent in last year after a 0.9 percent decline in 2009, according to an estimate published by the Bank of Korea in Seoul today. Measured using nominal gross domestic product, a figure that isn’t adjusted for inflation, North Korea’s GDP totaled 30 trillion won ($26.5 billion) in 2010, compared with South Korea’s 1,173 trillion won, the central bank said in an e-mailed statement. North Korea’s per capita income was 1.24 million won while South Korea’s was 24 million won, according to the estimate.

“Major industries were hampered by bad weather, poor energy and raw material supply, and the international economic sanctions on the country,” the Bank of Korea said.

North Korea has relied on economic handouts since the mid-1990s when an estimated 2 million people died from famine, according to South Korea’s central bank. The United Nations and the U.S. last year increased economic sanctions imposed on the country as a result of its nuclear weapons activities after attacks that killed 50 South Koreans.

South Korea, whose economy is 40 times larger than North Korea’s, plans to set up a fund as early as this year to begin raising as much as 55 trillion won to pay for eventual reunification with North Korea, the South Korean Unification Minister Yu Woo Ik said in an interview with Bloomberg earlier this week.

Nuclear Program

The fund would meet the minimum cost of unification estimated by external researchers, assuming it takes place within the next 20 years and is a peaceful transition. Yu said the cost may be as high as 269 trillion won, or almost a quarter of South Korea’s 2010 gross domestic product.

North Korea and South Korea remain technically at war after their 1950-1953 conflict ended in a cease-fire. Six-nation talks on North Korea’s nuclear program, involving China, Japan, Russia, the U.S. and South Korea, haven’t convened since 2008. U.S. and North Korean officials resumed direct talks last month.

The UN increased sanctions banning trading in weapons and restricting financial transactions after North Korea carried out its second nuclear test in May 2009. The country’s first test occurred in 2006.

Intelligence Reports

The nation’s economy has contracted during four of the last five years, according to data collected by the Bank of Korea.

North Korea doesn’t release official economic data. South Korea’s central bank releases an annual estimate of North Korea’s economic growth, based on information from the National Intelligence Service of South Korea and other related organizations.

North Korea’s population rose to 24.19 million last year from 24.06 million in 2009, about half of South Korea’s. Inter- Korean trade rose 13.9 percent from a year earlier to $1.9 billion last year, South Korea’s central bank said.

North Korea relies on China to prop up its economy, with bilateral trade accounting for 83 percent of the country’s $4.2 billion in international commerce last year, according to the Seoul-based Korea Trade-Investment Promotion Agency.

North Korea’s exports, except for shipments to South Korea, rose 42.5 percent to $1.5 billion last year, driven by minerals, base metals, and textiles, according to the Bank of Korea. Imports increased 13.2 percent to $2.7 billion in 2010, the central bank said.

Agriculture and fisheries account for 20.8 percent of North Korea’s industry compared with 2.6 percent in South Korea. Manufacturing took about 22 percent in North Korea, less than South Korea’s 31 percent, according to the central bank.

The Institute for Far Eastern Studies (IFES) published the following:

The North Korean economy is facing a minus growth rate for two years straight as a result of worsening climate conditions and a slumping manufacturing industry.

The Bank of Korea (BOK) announced that North Korea’s real GDP last year decreased 0.5 percent against the previous year. According to the bank’s estimation, North Korea’s GDP recorded a 3.1 percent increase in 2008, a plus growth since the financial crisis. However, it fell into the minus growth range for two consecutive years from 2009.

South Korea’s economic growth, on the other hand, recorded an increase of 0.3 percent in 2009 and 6.2 percent in 2010, and the difference in growth between North and South Korea went from 1.2 percentage points to 6.7 percentage points, demonstrating about 5.6 times disparity between the two states.

In the BOK report, the North Korean economy is experiencing minus growth in agriculture, forestry and fishing industries, which are suffering from the extreme weather and sagging manufacturing industry — a consequence of the heavy focus placed on light industry.

The cold-weather and typhoon damages last year negatively impacted the agricultural production, recording a decrease of 2.1 percent against the previous year.

As for the mining industry, metallic and nonmetallic production increased despite the decrease in coal production, which fell 0.2 percent from the year before.

In spite of the increase in production in the heavy chemical industry, the manufacturing industry suffered from a decline of 0.3 percent, with waning production in light industry.

However, the service sector showed a 0.2 percent rise with improvement in the wholesale-retail and hospitality industries and increased businesses in transportation, communication, finance, insurance, and real estate.

The BOK has been publishing “GDP of the DPRK” and “Economic Growth of the DPRK” every year in June since 1991 based on information from the National Intelligence Service (of the ROK). This year’s report, however, was not released until just this month.

Contradictory to the report, some experts are claiming that there is a high possibility North Korea recorded a plus growth rate. Despite the BOK’s report that coal production fell 2 percent from the previous year, the Korea Institute of Unification Studies assessed that production of coal and iron ore recorded slight increases due to the improvements and expansion of facilities and power supply in the mining industry.

In addition, the BOK report’s view of North Korea’s economic revitalization is inconsistent with the testimonies and reports from domestic and overseas experts and officials who recently visited the North.

Some experts argue that, if the statistics provided by the BOK showing increased growth in the social and service sector were factual, “the construction plan of 100,000 house units in Pyongyang should create added value and continue to stimulate economic growth.”

The Daily NK also reported on the Bank of Korea findings.

The Financial Times also reported on the findings.

Here is the response in KCNA:

KCNA Commentary Terms ‘DPRK′s Economic Meltdown’ Absurd

Pyongyang, November 10 (KCNA) — Dishonest persons in the United States and south Korea are busy talking nonsense about the DPRK’s economic situation.

They have asserted that the economy in the DPRK has been on the decline for two consecutive years and that a certain country distributed a document recommending investors to be “careful” in their investment in the DPRK.

All these are sophism aimed to distort the true picture of the DPRK’s self-supporting economy.

The recent two years, mentioned by them, are a stirring period in the DPRK in which unprecedented miracles and innovations have been wrought in the efforts to improve the people’s standard of living and build socialism.

In this period the DPRK witnessed the successive completion of its plans for economic modernization, so ardently desired and accelerated by it with much efforts. In other word, it ushered in an epochal phase in building an economic power.

Today the DPRK’s economy is at the highest tide of its development ever in history.

Significant progress has been made in putting the national economy on a Juche-oriented, modern and scientific basis.

Epochal changes equivalent to the industrial revolution in the 21st century are taking place in the DPRK.

The DPRK entered a higher stage of socialist economic construction in which knowledge promotes the modern industry.

The Ryonha General Machinery Plant pushed back the frontiers in 11-axes processing. It is leading the world in CNC technology and machine-building industry.

The Juche-based steel-making system was perfected and Juche fibre and Juche fertilizer are being churned out in the country.

The DPRK also succeeded in nuclear fusion and made a signal progress in bio-engineering development.

The day is near at hand when a light water reactor entirely based on domestic resources and technology will come into operation in the DPRK.

Solid foundations have been laid for providing the people with rich material and cultural life and are now paying off in the country.

All these are a great fruition of the era of advance for great surge in which the Workers’ Party of Korea and the DPRK government secured powerful nuclear deterrent and, on this basis, concentrated efforts on the economic construction and the improvement of people’s living standard.

Our country has tremendous economic foundations and potentials and abundant resources, and it is in eco-geographically excellent location as a center in the Asia-Pacific region. Accordingly, other countries’ zeal for investment in it is growing higher with each passing day.

Signal turn is being brought in the development of its economic relations with neighboring countries.

This being a hard fact, some dishonest forces are getting hell-bent on smear propaganda. It is an absurd and reptile deed intended to hinder other countries’ investment in the DPRK and intercept its external economic relations. Lurking behind such deed is an ulterior scheme to sow discord in between the DPRK and China and between the DPRK and Russia the relations of which are developing on good terms day by day.

The talk about “DPRK’s economic meltdown” is little short of a false rumor floated by those who are astounded at the DPRK’s vigorous advance toward the victory in 2012.

The economic meltdown or collapse can be seen in the U.S. which has about 20 million destitute persons or in south Korea where more than 40 persons commit suicide everyday due to unemployment and destitution.

Poor sophism made by the hostile forces of the U.S. and south Korea means that they admitted themselves their defeat in the showdown with the DPRK.

It is the disposition and tradition of the army and people of the DPRK to advance with self-pride full of conviction despite the enemies’ despicable smear campaign.

The DPRK will as ever boost cooperation with all other countries friendly to it while more strikingly displaying the potentials and might of its independent economy.

UPDATE 1: Marcus Noland also made a few comments on the report.

UPDATE 2: Some additional analysis here.

Read the stories here:
N. Korean economy shrinks for 2nd year in 2010: BOK
Yonhap
2011-11-3

North Korea’s GDP Shrank in 2010, South’s Central Bank Says
Bloomberg
2011-11-3

According to Yonhap:

South Korea will next week start repairing a road used by North Korean commuters to reach an inter-Korean industrial complex in the North, an official said Thursday amid signs of a thaw in bilateral relations.

The 4.5-kilometer road linking North Korea’s border city of Kaesong to the nearby industrial park is used by more than 47,000 North Korean workers who are employed by some 120 South Korean firms operating in the zone. South Korean officials earlier said the road was damaged in summer’s torrential rains, prompting the South to conduct an on-site survey.

“After signing an agreement (with the North), we expect to start repair work next week,” said an official at the Unification Ministry, which handles inter-Korean relations in the South.

“It will likely take about three months to complete the work, unless the weather becomes too cold, and cost us around 1.8 billion won (US$1.59 million),” the official said, speaking on condition of anonymity.

The repairs will involve restoring damaged paved sections and filling in holes on unpaved sections. Repairing the road is expected to save time for North Korean commuters and reduce traffic accidents.

The Daily NK offers some additonal information:

A government official explained today that the decision was made pursuant to agreement between the Kaesong Industrial Complex Management Committee, LH Construction and the North Korean authorities.

“The agreement has not yet been signed, but we are hoping to start the construction at the beginning of next week,” the official explained.

“Our side has taken on responsibility for planning the road repairs and supervising the construction,” he went on. “The weather could change things, but the construction should require three months and is expected to cost 1.8 billion South Korean won.”

Aside from the aforementioned construction, there are also plans to reconstruct two turning points for buses serving the complex. The human resources for the construction will be provided by North Korea.

There are plans to extend bus service to cover the areas of Pongchon (봉천), Kumchon (금천), and Phyongsan (평산). However, the roads to these areas are unpaved and extension of transportation services to these areas will require negotiations with the North Korean authorities.

Read the full story here:
Seoul to start repairing road leading to Kaesong complex next week
Yonhap
2011-11-3

Pictured Above (Google Earth): The new PRC/DPRK economic zone: Hwanggumphyong-ri (“HGP” in Sindo County) and Wihwa Island (Sinuiju and Uiju Counties).  See islands in Google Maps here and here.

According to Yonhap:

North Korea has opened a bureau tasked with running a free trade zone near its border with China, a source familiar with the country said Wednesday, indicating the North’s continued efforts to revive its forlorn economy.

The move came shortly after North Korea and China agreed to create joint economic complexes on the border islands of Hwanggumpyong [HGP] and Wihwa following a summit between their leaders in May.

“North Korea has opened a bureau with some 10 staff members on Hwanggumpyong,” the source said, asking for anonymity. “It opened around August or September.”

The staff includes a ranking official who was in charge of operating the Kaesong industrial complex near the western border with South Korea in the early 2000s, the source said, a sign that the North may want to develop Hwanggumpyong in a similar way to Kaesong.

The inter-Korean industrial park in Kaesong combines South Korea’s capital and technology with cheap labor from the North. More than 47,000 North Koreans work at about 120 South Korean firms operating in the zone to produce clothes, utensils, watches and other goods.

In a related move, North Korea has added two more vice chairmen to a state-run investment committee charged with attracting foreign investment, the source said. The committee, which was launched in July last year, is known to be under the control of Jang Song-thaek, brother-in-law of North Korean leader Kim Jong-il and vice chairman of the North’s powerful National Defense Commission.

North Korea is seeking to boost economic cooperation with China, its closest political and economic ally, as Pyongyang struggles to achieve its stated goal of becoming a prosperous country by 2012.

Read previous posts on Hwanggumphyong (HGP) and Sinuiju here.

Read the full story here:
N. Korea opens bureau to run free trade zone with China: source
Yonhap
2011-11-2

The Nautilus Institute has published a new paper by Alexandre Mansurov on the DPRK’s communication and technology sectors.  The press release and a link to the paper are below:

PRESS RELEASE

The DPRK mobile communications industry has crossed the Rubicon, and the North Korean government can no longer roll it back without paying a severe political price. The most the authorities can do now is probably to manage its rapid expansion in such a way that will ensure that the interests of the political regime and state security are taken care of first.

While traditionally, the State Security Department monitored most communications on a daily basis, the implication of this explosion of mobile phone use is that communication in North Korea has transitioned from a panopticon of total control to a voluntary compliance system where the government makes an example of a select group to try and force the rest of the country to stay in line.

Alexandre Y. Mansourov, a Nautilus Institute Senior Associate, comprehensively examines information technology in North Korea. As of 2008 the regime launched a world-class 3G mobile communications service, which gained almost 700,000 users in less than three years of operation, revealing an insatiable demand for more robust and extensive telecommunications services among the North Korean general population.

Download the report here

About the Nautilus Institute: Since its founding in 1992, the Nautilus Institute (www.nautilus.org) has evolved into a thriving public policy think-tank and community resource. The Institute addresses a myriad of critical security and sustainability issues including the United States nuclear policy in Korea and energy, resource and environmental insecurity in Northeast Asia. Over the years, Nautilus has built a reputation for innovative research and analysis of critical global problems and translating ideas into practical solutions, often with high impact.

For more information, contact the Nautilus Institute at nautilus@nautilus.org or at 415 422 5523.

Here is Yonahp coverage of the report.

Pictured above: (L) A low-resolution image of the Hyeasn-China bridge (Google Earth) (R) A ground level photo of the bridge.

According to the Daily NK:

Construction work on a bridge connecting Hyesan in Yangkang Province and Changbai in China’s Jilin Province is raising hackles in the corridors of Sino-North Korean economic cooperation.

According to a source in China, both China and North Korea recognize that the existing ‘Friendship Bridge’ spanning the Yalu River between the two cities cannot handle increasing trade volumes. In particular, increasing copper ore production from Hyesan Youth Mine (which has been developed with Chinese capital) is putting it under unsustainable strain.

However, while China wants North Korea to expand and reinforce the existing bridge, North Korea is apparently pushing for the construction of an entirely new bridge in a different location using Chinese capital.

North Korea’s reason is supposedly one of revolutionary history. According to the source, “Chosun is opposed to the expansion of the bridge because right next to the bridge on the Hyesan side there is a stone commemorating a visit by Kim Jong Il.”

The 5m x 2m granite stone in question was set in place to commemorate the time on June 5th, 1956 when Kim Jong Il and his Pyongyang No. 1 Senior Middle School comrades stopped there during a trip to Mt. Baekdu and looked around an old royal building.

However, money also appears to be an issue. “In particular,” according to the source, “they are stubbornly insisting that ‘if you need a bridge, you should bear the burden of its construction.’”

In any case, the limitations of the bridge in its current condition are perfectly clear. It only has one lane, meaning that transit in both directions is impossible, and, though only built in 1985, there are very real concerns that its concrete structure cannot handle the Chinese heavy vehicles transporting copper ore away from the mine.

One other problem for North Korea is that the bridge is connected to Hyesan Customs House; the road off the bridge passes through the middle of the blue-roofed customs house, while the second floor houses the customs office itself. Therefore, expansion of the bridge would also involve redesigning the customs house. Due to fast flowing waters to the east, the only direction in which it is possible to expand is to the west; however, that is exactly where the commemorative stone is. Not only that, it is also the location of the local Kim Il Sung Revolutionary History Museum and Kim Jong Suk Art Theater.

Therefore, the source said North Korea has put forward an area around 4km east of the existing Hyesan Customs House as a possible candidate location for a new bridge. However, the suggested area is relatively unfavorable in terms of river width and topography, which would drive up construction costs. Given that North Korea is demanding that China bear the weight of these costs, it seems unlikely that agreement will be reached under the current conditions.

In the words of the source, “Chosun is making totally nonsensical demands. No conclusion is likely for the time being.”

This is not the first time that bridges spanning the Sino-North Korean border have been a source of friction between the two countries. Following a similar spat in 2005, China simply completed reinforcement work on its own half of a bridge between Hoiryeong and Sanhe, leaving the other half in its original state.

Related material:
1.  A Chinese company has mad a substantial investment into the Hyesan Youth Mine.

2. China is building a new bridge to the DPRK just west of the bridge linking Dandong and Sinuiju.

Read the Daily NK story here:
A Troubled Bridge between Friends
Daily NK
By Kang Mi Jin
2011-11-1

UPDATE 1 (2011-11-4): 3 DPRK sailors dead, 8 still missing after ship sinks off east China coast (Xinhua):

The body of a missing DPRK (Democratic People’s Republic of Korea) sailor was found Friday, bringing the death toll from the Oct. 28 sinking of a cargo ship off the coast of China to three, with rescuers continuing to search for eight missing sailors, according to Chinese maritime officials.

The Panama-flagged Oriental Sunrise sank with 19 crew members aboard following a collision with the Panama-flagged cargo ship Hamburg Bridge at 7:35 p.m. off the coast of east China’s city of Qingdao in Shandong Province.

The first sailor to perish in the incident died after being rescued, as he was heavily injured. The body of another sailor was retrieved on Oct. 31. Eight of the other sailors have been rescued and rescue workers are still searching for the remaining missing, according to officials from the Qingdao Maritime Safety Administration.

Salvage operations for the sunken ship are also under way, the officials said.

All of the crew members are from the DPRK, according to the Qingdao Frontier Inspection Station.

ORIGINAL POST (2011-11-1): According to the Daily NK:

The body of a North Korean crew member who went missing following the collision of two cargo ships in the waters off Qingdao, China last Friday was found yesterday morning, according to China’s Xinhua News Agency.

The two freighters, both flying Panamanian flags, collided on the 28th at around 7:35 in the evening, resulting in the sinking of the 2750-ton ‘Oriental Sunrise’. The next morning, the sunken ship’s mast was visible above the waterline.

Nine of the nineteen North Korean crew members on board the ship were rescued at the time, while ten were registered missing. One of the rescued nine later passed away, two are still in hospital and the remaining six are being put up at a local hotel.

Search-and-rescue units dispatched from Qingdao have not been able to locate the other missing crew members, and the situation now looks bleak.

Meanwhile, the other vessel, the 336m ‘Hamburg Bridge’, is now under investigation at anchor in waters near where the accident took place. There is also an oil slick of 200-300m in length and 10m in breadth at the scene of the collision.

The exact cause of the incident has yet to be established.

According to Xinhua:

Nine sailors are still missing while two have been confirmed dead after their cargo ship sank Friday, said local maritime officials Tuesday.

The Panama-flagged Oriental Sunrise sank following a collision with another Panama-flagged cargo ship Hamburg Bridge at 7:35 p.m. in the sea area near Qingdao, Shandong Province.

The death toll rose to two as a sailor’s body was found on Monday, said officials with Qingdao Maritime Safety Administration.

Nine of the total 19 crew members aboard had been rescued, but one of the three injured died after treatment failed. The rescuers will continue to search for the missing for three more days, they said.

All the 19 crew members were nationals of the Democratic People’s Republic of Korea, according to Qingdao Frontier Inspection Station.

See previous posts related to the DPRK’s shipping industry and infrastructure here.

Read the full stories here:
2 Dead, 9 Missing in Collision at Sea
Daily NK
Tang Hwa-Kwee
2011-11-1

DPRK sailors still missing, two dead, after ship sinks off E China coast
Xinhua
2011-11-1