North Korean Economy Watch

Korea Times
Jane Han
10/2/2007

Economic cooperation topping the agenda for the inter-Korean summit, plus the van of corporate decision makers traveling to the North together, begs the question: Will the trip bear fruit for two-way business?

Chung Mong-koo of Hyundai-Kia Automotive Group, Chey Tae-won of SK Group, Koo Bon-moo of LG Group and Hyun Jeong-eun of Hyundai Group, who are among the 18 CEOs accompanying President Roh Moo-hyun as part of a special entourage, showed signs of hope as they departed for Pyongyang on their three-day trip that started Tuesday.

“I hope the talks will go well and further the ongoing business between the two Koreas, while opening doors to new areas as well,” said Hyundai Chairwoman Hyun.

Unification Minister Lee Jae-joung was also optimistic as he detailed some of the items, including North Korea’s expansion of social overhead capital (SOC) and construction of railroads, which may be discussed among leaders of both sides.

“As there has been much progress in the peninsula over the past seven years, we’re hoping that this experience will set a milestone in history,” he said in a television interview.

These hopes may be translated into reality through at least two scheduled business leader meetings during the summit period.

“The definition of economic cooperation between the two Koreas, so far, has implied one-way support from Seoul,” said Koh Il-dong, a research fellow of the Korea Development Institute (KDI). “But now, it’s time to break free of that old understanding and move toward real cooperation.”

And “real cooperation” is what the North bound corporate executives are looking to, as they hint some of the possibilities they have in mind.

Among the top three business topics expected for discussion _ natural resource developments, roadway and railway distribution system expansions and dockyard construction _ Hyundai-Kia Automotive Group is said to be interested in building railroad cars through its shipping affiliate Glovis, and also measure the feasibility of SOC businesses, while POSCO showed interest in forestation.

Although company officials said forestation is just a possibility, as the steel maker has shown its interest in securing carbon credit overseas, industry insiders say the opportunity will be advantageous for POSCO if cooperation comes through.

And as speculations rose that SK Group may be considering communication and energy projects in the North, company officials said plans are open for review if the right offer is made.

LG and Samsung, which are said to be mulling over their specialty areas of electronics, seem to be in the same scouting stages as others.

“Each company needs to be given the time and circumstances to carry out through market research,” said Dong Yong-sueng, a research fellow of the Samsung Economic Research Institute (SERI), implying that those are some of the accommodations that must be worked out if business is to happen.

Contrary to the high hopes, economic experts pointed out that some corporations would be wary of cooperating with North Korea, as it may ruin their reputation in the global market.

Yohnap
10/1/2007

South and North Korea will be linked via the Internet during the summit of their leaders from Tuesday to Thursday, South Korea’s top communications service provider said on Monday.

KT Corp. said that it will reopen for three days the optical communication network which was established in July 2005 for the video reunions of families separated by the inter-Korean border, enabling the South Korean entourage and press corps to use the Internet.

North Korea originally planned to allow Internet access via China, but notified the South Korean government over the weekend of its decision to use the inter-Korean network.

Twelve personal computers have been connected to the Internet at the press center established at the Goryo Hotel in Pyongyang.

KT also plans to support a broadcasting relay for South Korean broadcasters using its Mugunghwa No. 3 satellite.

Daily NK
Kim Min Se
9/19/2007

It was reported that the North Korean high officials and Chinese emigrants have been using the satellite antennas in Pyongyang and major cities in North Korea to get access to South Korean TV.

Previously it has been reported that the high quality antenna (Yagi Antenna) smuggled from China was used to intercept the South Korean ground waves, which allowed them to listen and watch South Korean news and drama through Japanese televisions in secrecy in Kaesung and Pyongyang.

The “Yagi Antenna” is a VHF receiver which is intercepted for television. This type of antenna is utilized as a receiver for waves from South Korean soil which has high risk of being detected by outside and enforces its usage around nighttime.

However, recently the high officials in North Korea use satellite antennas in secrecy to watch South Korean news and drama. Due to the restriction, the number of people utilizing this satellite service is restricted.

Song Myung Hak (pseudonym), a Chinese trader who went to Pyongyang last month said, “I was surprised to get a request from a friend of mine who worked as a North Korean diplomat on his request to obtain the CD of ‘Ways to Meet a Perfect Neighbor’ (South Korean drama series broadcasted on SBS). He said that he is watching it via satellite but he wanted to recap the episodes he missed.”

Song stated that, “The former diplomat had the satellite dish in his veranda and his entire family was watching South Korean TV. With the expansion of the culture of viewing South Korean TV, Kim Jong Il issued a ban, which is making everyone a bit nervous.”

He said, “If they get caught watching South Korean TV, the family could suffer.” He also added, “Because he was a former diplomat, who was used to living overseas and the life abroad, it was difficult for him to resist the temptation of watching South Korean TV and foreign news. I’m sure it’s the same way for all people.”

Song stated that, “The satellite dish is imported through China to North Korea. The most recently produced satellite dish is quite small in size and China takes care of the maintenance so all they have to do in North Korea is connect it to the TV.”

Kang Myung Gil (pseudonym), a South Korean businessman selling regular satellite antenna and satellite broadcasting Skylife on commission in Dandong, China, explained over the phone that, “The normal satellite antenna (antenna and receiver) costs 600 Yuan (approx. USD86) in total, including the installation costs. We are also receiving the service of Koreasat Mugunghwa 2 which can be received from North Korea as well.”

Kang said that, “There is no technical difficulty in receiving South Korean TV if they are on an elevated apartment with spacious veranda heading the Southern direction. All of the 7-8 channels including KBS1, KBS2, SBS, MBC, EBS, China HAO TV and others can be directly received.”

Jin Hee Myung (pseudonym), an Chinese emigrant originally from Shinuiju, also installed satellite broadcasting service in her apartment. He said that even though overseas Chinese are also under surveillance, they do not receive as harsh of treatment by the North Korean authorities.

He added, “My wife loves to watch South Korean drama so much that I had to risk the consequences and install it. The satellite dish is so small that unless our house is searched thoroughly, there is no worry of being caught.”

In North Korea, if one is caught watching South Korean TV for a long time, they may be put into jail or receive harsh punishments. However, it is the experts’ general analysis that with the expansion of foreign cultures, it will be more difficult for North Korea to control this trend.

Choson Ilbo (Hat Tip DPRK Studies)
8/30/2007

Three South Korean terrestrial TV stations agreed in July to pay tens of millions to North Korea annually for footage from North Korea’s state-run Korean Central Broadcasting Station. An SBS executive said South Korean TV stations have used TV pictures aired by KCBS for free, but in July, the Korean Foundation for South-North Economic and Cultural Cooperation, as a proxy of the North Korean TV station, concluded negotiations with three TV stations whereby SBS will pay about W20 million every year to KCBS through the foundation. MBC will pay slightly more than that, and KBS will pay about W30 million.

The foundation, chaired by United New Democratic Party member Im Jong-seok, was established in 2004. It held talks with the three terrestrial networks for a year and a half. In the talks, the three argued it was unreasonable for South Korean TV stations to pay for North Korean footage in programs that aim at promoting mutual understanding, and they generally rejected the idea of unilaterally paying North Korea when the North does not pay South Korean broadcasters for footage.

Daily NK
Kim Young Jin
8/24/2007

An inside North Korean source relayed that along the North Korean-China border region, businesses connecting North Korean civilians with relatives in the U.S. and in Japan charging exorbitant usage fees are receiving the spotlight.

Choi Yong Nam (pseudonym, 37), residing in Moosan, North Hamkyung, in a phone conversation with DailyNK on the 23rd, revealed, “International cell phones calls are directly made from North Korea or there are cases where North Koreans are directly brought to China to call their relatives in foreign countries.”

Choi added, “In order to be connected to families or relatives in South Korea, at least 200,000 won in South Korean currency (around US$215) is needed. To communicate with families in the U.S. or in Japan, at least 400,000 to 500,000 won are used up.” He minimizes the essential element of risk, but denounced that the price is baselessly expensive.

Choi explained, “However, China or regular phone calls are not charged such fees. Separated families, cases of requesting huge amounts of remittance from relatives in the U.S., Japan, or in South Korea, or the process of relatives trying to bring the families in North Korea to foreign countries require a high fee.”

Such a costly fee seems to be due to the control of cell phone use in North Korea. In order to prevent information leaks to the outside, the North Korea’s authorities have stepped forward using equipments such as “cell phone detectors.”

Another source said, “Getting caught while using cell phones is rarely pacified on the spot as it used to be before. Inspection and punishment are severe, but one can escape through bribery even though there is a difference in the amount.”

After inspections, the violators are taken to the police station and have to go through basic investigations.

Regarding the content of investigations, he said, “They investigate the place of usage, past call history, whether or not the calls are related to foreign countries (South Korea, Japan, and the U.S.). Then, they investigate whether or not the person has a previous conviction.”

Kang Soon Young (speudonym, 44) who is visiting relatives in Yanji, China, said, “There are at least 100 North Korea-born people who are making a living doing various kinds of projects (work) along the border area in Yanji alone.”

The border area project refers to the remittances for money sent to South Korea or abroad or river-crossings, smuggling, phone connections and various projects that are becoming active in Chinese cities sharing the border with North Korea.

He relayed, “Nowadays, the border patrol has been toughened, so crossing the river without going through people who work in such border area projects is almost impossible.”

On one hand, Mr. Kang relayed, “There was a public execution along the Hoiryeong Riverfront on the 10th. The executed was a man in his 50s with the crime of aiding and abetting river-crossings (defecting) and was charged with smuggling.”

Institute for Far East Studies (IFES)
NK Brief No. 07-8-22-1

The Bank of Korea released a report on August 17 that details economic estimates on a variety of sectors in North Korea. Overall, North Korea’s Gross Domestic Product (GDP) fell 1.1 percent during 2006, the first time since 1999 that the North has failed to increase its GDP. Inclement weather was one factor that played into a fall in agricultural production, and there also appears to have been little progress in the construction of public works in the country. Overall, North Korean GNI was 2.9 percent of that in the South, with per capita GNI at 1,108 USD, 6 percent of the 18,372 USD per capita GNI in South Korea.

The entire economy of the DPRK is approximately 1/35th that of the South, with the Gross National Income (GNI) a mere 1/17th the level seen in the ROK. This shows a growing divide between the two Koreas, as the comparisons in the previous year were 1/33rd and 1/16th, respectively. Due to the North Korean nuclear issues and other foreign relations problems faced during 2006, a worsening of diplomatic relations with other countries, energy shortages and other economic woes befell the North, putting the entire economy in a difficult situation.

The North showed a weakening of the agricultural and forestry industries, increasing production by a mere 2.4 percent, 2.6 percent down from 2005. Corn and other cereal production grew by 7 percent, but rice was down 6.4 percent, and bean production was down 6.6 percent from the year before, leaving overall grain output down 3.6 percent. On the other hand, shellfish and crustacean harvests grew by 1.5 percent, while timber and livestock harvests remained unchanged.

On the mining front, coal and other non-metal mined resources showed promising increases, but production of lead, zinc, and copper fell by 1.7 percent, compared to the 3.5 percent growth posted in the previous year. Despite promising increases in production of manufactured goods and growth in the chemical and heavy industries in 2005, last year North Korean production growth rates in these fields fell flat at a mere 0.4 percent, increasing production rates of fibers, clothing and shoes, but turning out less kitchenware and food-related products. Coal and fuel products looked favorable, but fabricated metals and machine parts, as well as nonferrous metal products grew at a rate of 1.1 percent, down from 5.4 percent.

Gas-fired electrical generation was up 17 percent, while hydroelectric power grew only 2.7 percent, falling from 4.4 percent in 2005. Other infrastructure projects were also on the decline, with only 49 km of road paved in 2006.

The number of foreign tourists declined, with visitors to Kumgang Mountain falling from 366,000 in 2005 to only 265,000 last year, adding to the 21.8 percent decline in the food and lodging sector, but the transportation and communication sector grew by 5.1 percent, leading to an overall gain of 1.1 percent in the service industry.

The gap in overseas trade between the two Koreas increased from 182-fold to 212-fold as North Korean foreign trade fell off 5.2 percent. Imports in the North were up 2.3%, although seafood imports were down 48.4 percent. The slack was made up by a 34.1 percent increase in the import of plastics, a 31.2 percent increase in imported chemical goods, and a 12.4 percent increase in imported machinery.

During 2006, inter-Korean exchanges grew 27.8 percent, reaching 13.5 billion USD. South Korean exports to the North grew 16 percent as Seoul increased rice and fertilizer aid, and exports to the Kaesong Industrial Complex grew. On the other hand, North-South cooperative projects grew 52.7 percent as South Korea increasingly imported North Korean zinc, sand, and other natural resources.

In order to give some perspective to the North Korean economic data, the Bank of Korea offered the following comparisons:

DPRK/ROK/Ratio
Population (thousand) 23,079/48.297/2.1
Economic Growth (2006) -1.1%/5.0%
Nominal GNI (100 million USD) 256/8,873/34.7
Per Capita GNI (USD) 1,108/18,372/16.6
Exports (100 million USD) 9.5/3,254.6/343.8
Imports (100 million USD) 20.5/3,93.8/151.0
Coal Production (10,000 tons) 2,468/280/0.11
Electrical Use (10,000 kW) 782/6,551/8.4
Electrical Production Capacity (100 mill. KW) 225/3,812/16.9
Petroleum Imports (10,000 bbl) 384/88,843/231.4
Cereal Production (10,000 tons) 448.3/530.0/1.2
Rice Production (10,000 tons) 189.4/468.0/2.5
Seafood Harvest (10,000 tons) 92.3/303.3/3.3
Iron Ore Mining (10,000 tons) 504.1/22.7/0.05
Nonferrous Metals Mining (10,000 tons) 8.6/187.7/21.8
Automobile Production (10,000) 0.44/384.0/872.8
Steel (10,000 tons) 118.1/4,843.3/41.0
Cement (10,000 tons) 615.5/4,920.9/8.0
Fertilizer (10,000 tons) 45.4/318.3/7.0
Chemical Products (10,000 tons) 2.9/145.7/50.2
Railways (km) 5,235/3,392/0.6
Roads (km) 25,544/102,061/4.0
Port Loading Capacity (10,000 tons) 3,700/69,213/18.7
Shipping Capacity (10,000 tons) 90.4/1,180.2/13.1

Korea Times
Cho Jin-seo
8/16/2007

Internet will be the first gateway to outside world for North Korea when the tension on the Korean peninsular eases after the South-North summit, an expert said Thursday.

It will be a natural choice for the self-enclosed nation to connect its network to the global Internet if it wants to be a member of global society, said Koh Yoo-hwan, professor of Dongguk University.

“Kim Jong-il has great interest in the information technology sector,” Koh said. “Pyeongyang has kept its network closed from the outside because it was concerned about the Web’s possible influence on its regime. But if it wants to come out to the international society, it is inevitable to utilize the Internet, first of all.”

North Korea is one of few nations in the world where the Internet is not open to the public. But Koh said that there already are broadband networks set up in North Korea. A computer technology center was also opened by the order of Kim, he said.

Like South Korean Web sites use “.kr” for their internet domain address and Chinese sites have “.cn,” the “.kp” domain was allocated to North Korea but the country never officially asked for the use of the dormant domain.

“.kp” stands for “Korea, Democratic People’s Republic.” “kr” is a short for “Korea, Republic of.”

“’.kp’ has been allocated as North Korea’s country-code domain. That said, at the present time there is no delegated operator of the `.kp’ domain,” said Jason Keenan, media adviser of the Internet Corporation for Assigned Names and Numbers (ICANN).

ICANN discussed about the delegation of the “.kp” code in its board meeting on August 14. The minutes are soon to be released.

“Using of the domain suffix indicates that North Korea is now ready to jump into the ocean of information and it wants to prepare for the change,” Koh, the professor, said.

“The opening can only be possible when the political climate gets warmer in the Korean peninsular. If the North Korea-U.S. relations improves, reforms and opening will follow.”

The North Korean government operates a handful of official and unofficial Web sites on computer servers based in other nations. Most of them are to promote the country to foreigners. But the access to the sites from South Korea is blocked by the South’s authorities due to its decades-old laws on national security.

The closest relationship between South and North Koreans on the Web was probably formed between 2003 and 2004, when a North Korean cyber casino started distributing a computer program to its South Korean users, a step aimed at nullifying the access ban imposed by South Korea. The site was closed afterward.

October 20-27, 2007 (Beijing/Pyongyang)
GPI Consulting

GPI Consulting (Netherlands) is one of the few western companies that has done an audit of the DPRK’s IT capabilitites and has published about them.

They are organizing an IT delegation to visit the DPRK this October.  Here is their marketing flyer and itinerary: NK-IT-tour.pdf

From the Marketing Flyer:

North Korea offers interesting business opportunities in several fields, such as software development, production of computer games, animation and cartoons, data entry en digitization. In order to provide detailed information about the IT opportunities in North Korea, a unique IT Study Tour will take place from 20 – 27 October 2007.

The trip to North Korea will focus on offshoring in the field of IT and BPO (Business Process Out-sourcing). We expect participants from IT- and software organizations that are investigating offshoring, or from consultants researching new offshore locations. Companies interested in exploring a new potential export market are also welcome to join the tour.

Europe still lacks sufficient knowledge about the promising North Korean IT sector. The goal of the business mission is to give the participants detailed information about offshoring, and especially about the opportunities in North Korea. We will strive to have participants from large, small and medium sized companies taking part in the IT study tour.

In order to make a business trip of 7 days attractive, the delegation will visit various companies in Pyongyang in the field of IT, animation, cartoons, computer games and BPO. The business mission will have an informal character with a visit to a university and also with attention to cultural and tourist elements. The participants of the tour will meet in China (Beijing); after returning from North Korea, an extension of the stay in China is possible.

The organizer of this mission is KCC (Korea Computer Center), a major IT services provider in North Korea with offices in several cities, including Pyongyang and Beijing. The European contact for this business mission will be Mr. Paul Tjia, founder and director of GPI Consultancy, Rotterdam, The Netherlands.  Established in 1995, GPI Consultancy is a specialized Dutch consultancy firm in the field of offshore sourcing. It is regularly involved in IT study tours to various offshore countries in Asia.

Daily NK
Han Hee Yoen
8/5/2007

With the lack of construction of the infrastructure which supports cell phones and internet usage inside the Kaesung Industrial Complex, business management is increasingly becoming difficult.

At the “Inter-Korean Economic Cooperation and US-Korea FTA” conference held at the National Library on the 2nd by the Civil-Headquarters for Activating the South-North Economic Cooperation in Korea and 21st Century North-East Asia Peace Forum, Lee Im Dong, the secretary general of the Kaesung Industrial Complex Committee of Enterprises exposed difficulty, “The Kaesung Complex is facing a lot of hardship due to insufficiency of infrastructure needed for business and political influences at home and abroad.”

Lee revealed, “There are a lot of problems, such as the transportation and customs process, communications issue, labor power, absence of employment flexibility, and effectiveness. These problems should definitely be resolved, but these are impossible problems for the individual enterprises, so the government has to step forward.”

He said, “Cell phones and internet cannot be used inside the Kaesung Complex, so it takes significant amount of time and effort because the products that the buyers want can only be understood over fax and phone.”

Kim Joong Tae, the team manager of the Inter-Korean Economic Cooperation Team under the Ministry of Unification, revealed, “We are improving domestic laws, strengthening communication with enterprises, realizing transportation of joint economic commodities by pursuing formal rail operations, and expanding systematical apparatus at the level of the state.”

Kim also explained, “As for private investment into North Korea, the government and conservative media have upheld an emphasis of self-responsibility of businesses based strictly on market economic principles. The critical point in the government’s aid policy is the agreement issue with principles of the market economy, constraints in financial resources, or North Korea’s lack of understanding of the market economy.”

On one hand, Professor Kwon Young Kyung from the Education Center for Unification said, “Various efforts from the Kaesung Complex (stated during the FTA) is needed to satisfy the standard of establishment of the Committee on Outward Processing Zones on the Korean Peninsula. Most of all, the roadmap for resolving the North Korean nuclear issue, according to the February 13 Agreement, needs to progress smoothly, so that the denuclearization of the peninsula can actively take place.”

Institute for Far Eastern Studies (IFES)
8/1/2007

INTER-KOREAN RELATIONS

Following two days of talks between economic representatives of the two Koreas at the Kaesong Industrial Complex, South Korea announced on July 7 that it would begin shipping raw materials to the North in exchange for DPRK natural resources. South Korea shipped 800,000 USD of polyester fabric on July 25, and is set to send the rest of the materials by the end of November. North Korea accepted South Korean prices for the goods, and will pay transportation, cargo working, and demurrage costs, as well. South Korea will pay for shipping, insurance, and the use of port facilities. On 28 July, a South Korean delegation left for the North in order to conduct on-site surveys of three zinc and magnesite mines. The team will spend two weeks in North Korea.

It was reported on 17 July that North Korea proposed a joint fishing zone north of the ‘Northern Limit Line’ dividing North and South territorial waters to the west of the peninsula. Seoul turned down the offer.

Inter-Korean military talks broke down early on 26 July after only three days of negotiations as North Korea insisted on the redrawing of the Northern Limit Line.

North Korea demanded on 27 July that workers in the Kaesong Industrial Complex be given a 15 percent pay raise. The North Korean workers will not work overtime, weekends or holidays beginning in August unless the raise is granted.

It was reported by the Korea International Trade Association on 26 July that inter-Korean trade was up 28.6 percent in the first six months of 2007, totaling 720 million USD.

RUSSIA-DPRK INVESTMENT

It was reported on 19 July that Russia and North Korea have agreed to connect Khasan and Najin by rail, enlisting investment from Russian oil companies interested in an inactive refinery at Najin Port capable of processing up to 120,000 barrels per day. The project is estimated to cost over two billion USD.

MONGOLIA-DPRK RELATIONS

During a four-day visit to Mongolia by Kim Yong-nam beginning on 20 July, the two countries signed protocols on cooperation on health and science, trade and sea transport, and labor exchange issues. This follows on the heals of an agreement to allow South Korean trains to travel through North Korean territory on to Mongolia in route to Russia and Europe.

JAPAN-DPRK PROPAGANDA

Japan took one step further to recover abductees in North Korea this month when the government began broadcasting propaganda into the DPRK intended for Japanese citizens. The broadcasts are made in Korean and Japanese (30 minutes each) daily, and updated once per week.

U.S.-DPRK PEACE PROSPECTS

U.S. Ambassador to the ROK Alexander Vershbow stated that Washington was prepared to negotiate a permanent peace regime on the Korean Peninsula by the end of the year if North Korea were to completely abandon its nuclear ambitions.

EGYPT-DPRK INVESTMENT

The Egyptian company Orascom Construction Industries announced a 115 million USD deal with North Korea’s state-owned Pyongyang Myongdang Trading Corporation to purchase a 50 percent state in Sangwon Cement. To put this in perspective, the deal in worth more than four times the amount of frozen DPRK funds that had caused six-party talks to break down and delayed the implementation of the February 13 agreement.

NORTH KOREAN SOCIETY

The Economist reported on 7 July that, according to foreigners living in the North’s capital, concern for petty law appears to be weakening. Citizens are reportedly smoking in smoke-free zones, sitting on escalator rails, and even blocking traffic by selling wares on the streets.

It was reported on July 11 that a letter sent earlier in the year by the North Korean Red Cross indicated severe shortages of medical supplies. The letter stated that North Korea would accept any medicine, even if it was past expiration, and accept all consequences for any problems that arose from using outdated supplies. The (South) Korea Pharmaceutical Manufacturers Association had no choice but to reject the request.

Events were held on July 11 in North Korea in order to promote women’s health and well-being issues. Marking World Population Day, a North Korean official stated that the DPRK has cooperated with the UN Population Fund since 1986, and is now in the fourth phase of cooperation.

Seeing entertainment venues as a “threat to society”, North Korean security forces have been implementing a shutdown of karaoke bars and Internet cafes. These venues mainly cater to traders in the northern regions of the country.

It was reported on July 13 that construction of North Korea’s first all-English language university was nearing completion. The Pyongyang University of Science and Technology, funded largely by ROK and U.S. Christian evangelical groups, will hold 2600 students and offer undergraduate and post-graduate degrees in business administration, information technology, and agriculture.

Local elections were held on 29 July for DPRK provincial, city, and country People’s Assemblies. 100 percent of 27,390 candidates were approved with a 99.82 percent turnout reported.