North Korean Economy Watch

Korea Times
Kim Tae-gyu
6/27/2007

A private association composed of South Korea’s major software developers plans to establish software centers in Pyongyang and Gaeseong late this year.

The Korea Software Financial Cooperative (KSFC) said Wednesday that it aims to sign a contract on the centers with its northern counterpart, Samcholli General Corp., this summer.

Such high-profile software companies as Samsung SDI, LG CNS, SK C&C and PosData are members of the Seoul-based association together with about 1,000 other outfits.

“We visited Pyongyang last week and agreed in principle to set up software centers in the capital city and Gaeseong Industrial Park,” KSFC official Kim Seok-hyun said.

“We are now ironing out details. The best scenario is that we ink an agreement in July or August to open the centers late this year,” said Kim who heads the North Korean project.

The envisioned centers will hire North Korean technicians and will come up with various computer programs demanded by 1,000-plus members of the KSFC.

“High-tech employees at the centers will develop software that will be used in the South or shipped out of the country,” Kim said. “The facilities are not symbolic ones aimed at improving the South-North relationship.”

Kim added the contract will be a win-win for the two Koreas that have been divided over the past half-century.

“We will be able to create software at much lower prices thanks to the cheap but experienced work force of the North rather than finding a low-wage platform in other countries,” Kim said.

“In comparison, the North will earn dollars through the partnership as well as give its engineers an opportunity to learn advanced technology,” he said.

In the long run, Kim said the software centers will roll out products, which were ordered by foreign companies to South Korean firms.

This is not the first time that a South Korean company attempted to take advantage of software-producing skills and know-how of the Northern engineers.

KT, the South’s top fixed-line telecom operator, started developing sophisticated software via an outsourcing contract with Samcholli General Corp. in 2005.

Asia Times
Bertil Lintner
4/24/2007

The state of North Korea’s information-technology (IT) industry has been a matter of conjecture ever since “Dear Leader” Kim Jong-il famously asked then-US secretary of state Madeleine Albright for her e-mail address during her visit to the country in October 2000.

The answer is that it is surprisingly sophisticated. North Korea may be one of the world’s least globalized countries, but it has long produced ballistic missiles and now even a nuclear arsenal, so it is actually hardly surprising that it also has developed advanced computer technology, and its own software.

Naturally, it lags far behind South Korea, the world’s most wired country, but a mini-IT revolution is taking place in North Korea. Some observers, such as Alexandre Mansourov, a specialist on North Korean security issues at the Honolulu-based Asia-Pacific Center for Security Studies (APCSS), believes that in the long run it may “play a major role in reshaping macroeconomic policymaking and the microeconomic behavior of the North Korean officials and economic actors respectively”.

Sanctions imposed against North Korea after its nuclear test last October may have made it a bit more difficult for the country to obtain high-tech goods from abroad, but not impossible. Its string of front companies in Hong Kong, Singapore, Thailand and Taiwan are still able to acquire what the country needs. It’s not all for military use, but as with everything else in North Korea, products from its IT industry have both civilian and non-civilian applications.

The main agency commanding North Korea’s IT strategy is the Korea Computer Center (KCC), which was set up in 1990 by Kim Jong-il himself at an estimated cost of US$530 million. Its first chief was the Dear Leader’s eldest son, Kim Jong-nam, who at that time also headed the State Security Agency, North Korea’s supreme security apparatus, which is now called the State Safety and Security Agency.

Functioning as a secret-police force, the agency is responsible for counterintelligence at home and abroad and, according to the American Federation of Scientists, “carries out duties to ensure the safety and maintenance of the system, such as search for and management of anti-system criminals, immigration control, activities for searching out spies and impure and antisocial elements, the collection of overseas information, and supervision over ideological tendencies of residents. It is charged with searching out anti-state criminals – a general category that includes those accused of anti-government and dissident activities, economic crimes, and slander of the political leadership. Camps for political prisoners are under its jurisdiction.”

In the 1980s, Kim Jong-nam studied at an international private school in Switzerland, where he learned computer science as well as several foreign languages, including English and French. Shortly after the formation of the KCC, South Korean intelligence sources assert, he moved the agency’s clandestine overseas information-gathering outfit to the center’s new building in Pyongyang’s Mangyongdae district. It was gutted by fire in 1997, but rebuilt with a budget of $1 billion, a considerable sum in North Korea. It included the latest facilities and equipment that could be obtained from abroad. According to its website, the KCC has 11 provincial centers and “branch offices, joint ventures and marketing offices in Germany, China, Syria, [the United] Arab Emirates and elsewhere”.

The KCC’s branch in Germany was established in 2003 by a German businessman, Jan Holtermann, and is in Berlin. At the same time, Holtermann set up an intranet service in Pyongyang and, according to Reporters Without Borders, “reportedly spent 700,000 euros [more than US$950,000] on it. To get around laws banning the transfer of sensitive technology to the Pyongyang regime, all data will be kept on servers based in Germany and sent by satellite to North Korean Internet users.” Nevertheless, it ended the need to dial Internet service providers in China to get out on the Web.

Holtermann also arranged for some of the KCC’s products to be shown for the first time in the West at the international IT exhibition CeBIT (Center of Office and Information Technology) last year in Hanover, Germany. The KCC’s branches in China are also active and maintain offices in the capital Beijing and Dalian in the northeast.

Another North Korean computer company, Silibank in Shenyang, in 2001 actually became North Korea’s first Internet service provider, offering an experimental e-mail relay service through gateways in China. In March 2004, the North Koreans established a software company, also in Shenyang, called the Korea 615 Editing Corp, which according to press releases at the time would “provide excellent software that satisfies the demand from Chinese consumers with competitive prices”.

Inside North Korea, however, access to e-mail and the Internet remains extremely limited. The main “intranet” service is provided by the Kwangmyong computer network, which includes a browser, an internal e-mail program, newsgroups and a search engine. Most of its users are government agencies, research institutes, educational organizations – while only people like Kim Jong-il, a known computer buff, have full Internet access.

But the country beams out its own propaganda over Internet sites such as Uriminzokkiri.com, which in Korean, Chinese, Russian and Japanese carries the writings of Kim Jong-il and his father, “the Great Leader” Kim Il-sung, along with pictures of scenic Mount Paekdu near the Chinese border, the “cradle of the Korean revolution”, from where Kim Il-sung ostensibly led the resistance against the Japanese colonial power during World War II, and where Kim Jong-il was born, according to the official version of history. Most other sources would assert that the older Kim spent the war years in exile in a camp near the small village of Vyatskoye 70 kilometers north of Khabarovsk in the Russian Far East, where the younger Kim was actually born in 1942.

The official Korean Central New Agency also has its own website, KCNA.co.jp, which is maintained by pro-Pyongyang ethnic Koreans in Japan, and carries daily news bulletins in Korean, English, Russian and Spanish, but with rather uninspiring headlines such as “Kim Jong-il sends message of greetings to Syrian president”, “Kim Jong-il’s work published in Mexico” and “Floral basket to DPRK [North Korea] Embassy [in Phnom Penh] from Cambodian Great King and Great Queen”.

On the more innocent side, the KCC produces software for writing with Korean characters a Korean version of Linux, games for personal computers and PlayStation – and an advanced computer adaptation of go, a kind of Asian chess game, which, according to the Dutch IT firm GPI Consultancy, “has won the world championship for go games for several years. The games department has a display showing all the trophies which were won during international competitions.”

Somewhat surprisingly, the North Koreans also produce some of the software for mobile phones made by the South Korean company Samsung, which began collaboration with the KCC in March 2000. North Korean computer experts have received training in China, Russia and India, and are considered, even by the South Koreans, as some of the best in the world.

More ominously, in October 2004, South Korea’s Defense Ministry reported to the country’s National Assembly that the North had trained “more than 500 computer hackers capable of launching cyber-warfare” against its enemies. “North Korea’s intelligence-warfare capability is estimated to have reached the level of advanced countries,” the report said, adding that the military hackers had been put through a five-year university course training them to penetrate the computer systems of South Korea, the United States and Japan.

According to US North Korea specialist Joseph Bermudez, “The Ministry of the People’s Armed Forces understands electronic warfare to consist of operations using electromagnetic spectrum to attack the enemy by jamming or spoofing. During the 1990s, the ministry identified electronic intelligence warfare as a new type of warfare, the essence of which is the disruption or destruction of the opponent’s computer networks – thereby paralyzing their military command and control system.”

Skeptical observers have noted that US firewalls should be able to prevent that from happening, and that North Korea still has a long way to go before it can seriously threaten the sophisticated computer networks of South Korea, Japan and the US.

It is also uncertain whether Kim Jong-nam still heads the KCC and the State Safety and Security Agency. In May 2001, he was detained at Tokyo’s airport at Narita for using what appeared to be a false passport from the Dominican Republic. He had arrived in the Japanese capital from Singapore with some North Korean children to visit Tokyo Disneyland – but instead found himself being deported to China. Since then, he has spent most of his time in the former Portuguese enclave of Macau, where he has been seen in the city’s casinos and massage parlors. This February, the Japanese and Hong Kong media published pictures of him in Macau, and details of his lavish lifestyle there – which prompted him to leave for mainland China, where he is now believed to be living.

Whatever Kim Jong-nam’s present status may be in the North Korean hierarchy, the KCC is more active than ever, and so is another software developer, the Pyongyang Informatics Center, which, at least until recently, had a branch in Singapore. Other links in the region include Taiwan’s Jiage Limited Corporation, which has entered a joint-venture operation with the KCC under the rather curious name Chosun Daedong River Electronic Calculator Joint Operation Companies, which, according to South Korea’s trade agency, KOTRA, produces computers and circuit boards.

The US Trading with the Enemy Act and restrictions under the international Wassenaar Arrangement, which controls the trade in dual-use goods and technologies (military and civilian), may prohibit the transfer of advanced technology to North Korea, but with easy ways around these restrictions, sanctions seem to have had little or no effect.

North Korea’s IT development seems unstoppable, and the APCSS’s Mansourov argues that it can “both strengthen and undermine political propaganda and ideological education, as well as totalitarian surveillance and control systems imposed by the absolutist and monarchic security-paranoid state on its people, especially at the time of growing conflict between an emerging entrepreneurial politico-corporate elites and the old military-industrial elite”.

So will the IT revolution, as he puts it, “liquefy or solidify the ground underneath Kim Jong-il’s regime? Will the IT revolution be the beginning of the end of North Korea, at least as we know it today?” Most probably, it will eventually break North Korea’s isolation, even if the country’s powerful military also benefits from improved technologies. And there may be a day when the KCNA will have something more exciting to report about than “A furnace-firing ceremony held at the Taean Friendship Glass Factory”.

Bertil Lintner is a former correspondent with the Far Eastern Economic Review and is currently a writer with Asia-Pacific Media Services.

Daily NK
Choi Myung Chul
4/19/2007

I defected at a young age and arrived in South Korea in 2004, where I was admitted into third of year of middle school. In North Korea, I had been attending school and was in second year high school.

At first, I found it difficult assimilating into a South Korean school. Social interests were different and the fact that 9 out of 10 South Korean children enjoyed going to an internet café and playing games was intriguing on its own. Though I find computer games challenging and fun today, back then it was hard enough trying to figure out a computer, let along mastering a game.

There are no opportunities to see computers in North Korea. That’s because no one owns a computer. Comparatively, North Korea is like South Korea in the 1970’s. I played outside with top spins, paper-flipping, slides and soccer. I also caught fish as our family lived in Hoiryeong nearby the Tumen River, though catching fish was not only a game but our means of survival.

At that time, the greatest obstacle to our play was hunger. When you run around and play, you need food to regain your energy. There were even times we had no strength to sit up and play. Rather we lay, slumped. During those times, we sat around day-dreaming. We would play truth or dare and pretend to smoke with cigarette butts we had secretly collected and talked nonsense while lamenting over our lives.

Satisfying hunger through the generosity of an affluent friend

We often had fights with kids from other schools. There was one incident where a child even got his head seriously hurt, but back then your friends were all you had. Even as we lay lifeless, I felt secure because of my friends.

Though I was starving, I even got to watch TV, that is during the short times our village was supplied energy. Though the majority of us were poor, one of my friends had a TV in his home, as his mother had done well at the markets. Even though only one station was broadcasting, the North Korea program, it was still very fun. I remember seeing one movie, “Order 027” which was about the People’s Army invading the Blue House (South Korea’s presidential building). The action wasn’t too bad, even interesting to a point.

Once in a blue moon, a friend would come into some money and then we would go to the markets to buy snacks. We bought bread made of corn powder and tofu rice. Even though the serving was small, my friend always shared his food with me.

Actually, all our friends did this. It was a time where we were all starving, yet we were willing to share our food, even half a corn cob.

Then one day, my mother left and I starving of hunger, left for China. On my way to Dalian in search for relatives, I was caught and forcefully repatriated back to North Korea. So I went looking for my best friend Hakjoo. Hakjoo and I had grown up together and had experienced so many things including severe hunger.

Offer to escape but offer denied

I informed Hakjoo of my plans and tried to persuade him to come. He replied, “Nevertheless, my homeland is here. If I died, I am going to die here. I cannot go with you.” We got into a huge argument and he said I had been brainwashed by capitalism.

Ever since we were little, we studied that Chosun (North Korea) was a socialist paradise and learned of Kim Jong Il and Kim Il Song’s revolutionary history. Even at that time, many of us were ignorant of the outside world. My friend’s loyalty to the great leader stood firm and he denied leaving our motherland.

By the time I had seen and heard of China, my devotion to Kim Jong Il had disappeared. I tried to convince Hakjoo that China was rich in food and much more abundant than North Korea but, failed to persuade him. I remember him saying, “Still. How can I desert our leader and our motherland?”

Hakjoo did not agree with my dreams but he still wished me health and safety. He also promised me that he would not report me to the authorities and said, “Don’t worry. But you must go in safety. Do not get caught and be safe.”

North Korea is a society where each person regulates one another. It is a society where trust is nonexistent. However, I trusted that friend and because I believed that he would not report me, I was able to safely defect the country.

As I left, I said to me friend, “I will return without fail… I’ll see you then.”

That was ’98. I found my way to my relatives home in Dlian, worked as a farmer in China for 3 years and then at a restaurant for 3 years.

At first, I planned to live in China. I had no intention of coming to Korea as I felt it would then be harder for me to return to North Korea. However, I could not continue to live hidden as an illegal immigrant and in the end, I followed the footsteps of another friend in 2004.

Whenever I face a hard time I think, ‘If I came with Hakjoo, it wouldn’t have been so hard,’ If we had defected together, the hardships in China and the loneliness would not have been so bad.

No matter how difficult the task, that friend always pulled through. However, he is not here now and so all the decisions have to be made by me. It’s tough because there is not one person I can fully trust and be dependent on.

But I am going to live well. Every day, I have just enough to scrape by and though it’s not easy, I am attending university. When I return to North Korea one day, there are many things for me to do. My dream is to construct a company there and rebuild a North Korea that has fallen to devastation.

And above all, I study because I made a promise to my friend. When I return to my hometown, my aim is to meet my friend standing tall and proud.

NK Choson.com

Kimchaek University of Technology, the top college of science and engineering as well as a central higher educational institution of North Korea, is located in Pyongyang, not in Kimchaek.

Colleges and universities in North Korea are classified into two: central and regional. But criteria for the classification differ from those of the South. It’s wrong to assume that those located in the capital are central institutes of higher education, and those housed in provincial cities and towns are regional ones.

Central higher educational institutions as referred to in the North denote “central-grade institutions of higher education founded in Pyongyang and elsewhere in the provinces for the purpose of educating prospective national leaders, engineers and scientists.” Accordingly, colleges and universities located in Pyongyang are not necessarily central institutions of higher education; nor those situated in the provinces are all regional colleges and universities.

Chongjin Mining and Metallurgy College, the only one of its kind not only in the North but in Asia, and Wonsan Agriculture College, the first of its kind in the North, for example, are definitely central colleges, though the former is located in North Hamgyong Province, and the latter in Kangwon Province, respectively. The same applies to Shinuiju Light Industry College located in North Pyongan Province; Sariwon College of Koryo Pharmacy in North Hwanghai Province; and Hamhung Hydrographic and Power College in South Hamgyong Province. Though located in provincial cities, they are all central colleges founded with regional features taken into account.

On the other hand, Pyongyang Machinery College, Pyongyang Agriculture College, Pyongyang Printing Industry College, though all are located in the capital, are classified as regional colleges. Each province or special city under the direct jurisdiction of the central government in the North has two normal and teachers colleges and one arts and physical education colleges, all of which are typical regional ones. Factory, farm and fishing farm colleges attached to industrial entities also belong to the regional category.

What is the central criterion separating central high educational institutions from their regional counterparts? It depends on who administers and manages them. Those administered directly by the Education Ministry are central institutions of higher education; those administered by the Education Department of the People’s Committee of a relevant province or special city placed directly under the jurisdiction of the central government are regional colleges or universities. Needless to say, no regional institutions of higher education are free from Education Ministry guidance; the guidance is only given indirectly through the People’s Committee Education Department of a pertinent province or special city. In an exception, Kim Il Sung University, the most prestigious higher educational institute in the North, is placed under the direct jurisdiction of the cabinet.

Central colleges and universities, wherever they are located, recruit students from across the land, and their graduates are assigned to any agencies, factories, corporations or research institutes in the country. On the other hand, only seniors and graduates from senior high schools in pertinent provinces and special cities are eligible to enter regional institutes of higher education, whose graduates, when given job assignments upon graduation, are confined to offices or factories in their respective administrative areas.

North Korea has quite a few institutes of higher education that are called colleges, entirely unrelated to central and regional colleges, but whose nature and curricula are totally different. The Yalu River College trains espionage agents sent to the South under the jurisdiction of the Reconnaissance Bureau of the Ministry of People’s Armed Forces; Pyongyang College of Technology, also called the State Security Agency Political College, produces prospective leaders of the intelligence agency.

The Automation College, once called Mirim College, is a special college founded for the purpose of turning out manpower needed for waging electronics information warfare, placed under the jurisdiction of the Ministry of the People’s Armed Forces. The College of People’s Economics and International Relations College are institutes retraining leading staff of the party headquarters; the College of Communism run by each province or special city is a special educational institute retraining junior leaders of regional chapters of the Workers’ Party.

Samjiyon Information Technology Center was established as a professional multimedia technology department under the control of KCC on October 24, 1990.

From that time down to this day, SITC has been conducting research & development activities about fields of multimedia communication, image processing, audio & video processing, embedded application, educational application, multimedia contents and authoring tools, and the many powerful and good products were developed.

Our products are being on sale on home and foreign markets, and well received by the customers.

SITC is making inroads actively into the foreign markets based on cooperative relations established with several companies of Japan and China in fields of marketing and joint research & development.

SITC is very proud of its employees, among them more than 80% are qualified with masters or doctoral degrees.

Distribution ratio of technical personnel by fields

Strategy
  – Continuous improvement of the qualitative growth of technical forces
  – Strengthening of the cooperative relations between enterprises and educational & research institutions
  – Maximum intellectual property

Management Goal
  – 3 unique products and services
  – 10 unique core technologies
  – Certification acquisition from ISO9001 Pyongyang Certificate authority and CMM3 acquisition

As in the past, SITC will meet customers’ expectations by superior technology and improved service while amplifying cooperation and exchange with home and foreign partners. 

Yonhap
3/29/2007

A group of 143 South Koreans made a four-day visit to North Korea starting from March 22 to celebrate the opening of a North Korean digital library built with South Korean technology, a local foundation that has a leading role in the project said.

During their stay in Pyongyang, Rep. Im Jong-seok of the ruling Uri Party and other delegates attended the opening ceremony of the digital library at the North’s top school, Kimilsung University, on March 23 and toured the city’s landmarks.

The library’s computer network was built with aid from South Korea’s Hanyang University, the Kim Dae-jung Presidential Library and the Korean Foundation for South-North Economic and Cultural Cooperation, a private foundation for the promotion of such inter-Korean cooperation.

Kimilsung University is the first North Korean school to introduce the South’s advanced digital library system.

Jo Chol, vice president of the North’s university, said he hopes to see an exchange of teaching staff between the universities of the two Koreas, saying the exchange in academic fields will promote the improvement of inter-Korean relations.

KCNA
3/2/2007

“Koryo Pen”, a hand-writing input program developed by the Korean Computer Center is popular in the Democratic People’s Republic of Korea. It enables computer users to input various kinds of documents with an electronic pen without typing.

It is very convenient for those who are not good in typing.

With high character recognition ability, “Koryo Pen” can recognize most of hasty writing whose stroke orders are correct, to say nothing of correct characters.

Symbols and marks are analyzed, too.  There is little problem about a document with foreign characters.

KCNA
2/8/2007 

Redoubled efforts are being made to build a socialist economic power in the DPRK. The people are turning out in the grand march for perfecting the looks of a great, prosperous and powerful nation, full of confidence in sure victory and optimism.

The DPRK has consolidated the foundation for building an economic power over the last years.

The Workers’ Party of Korea has developed in depth President Kim Il Sung’s idea on economy as required by the developing revolution and thus provided unswerving guidelines for building an economic power.

While implementing the revolutionary economic policies of the WPK such as the line on economic construction in the Songun era with main emphasis on the development of the munitions industry and the policy of putting the national economy on a modern footing and IT, the Korean people have been firmly convinced that they will certainly build an economic power in this land when they work as indicated by the Party.

The army-people unity has developed as the oneness of army and people in terms of ideology and fighting spirit in the Songun era. It constitutes a powerful impetus to the construction of the economic power.

The Kanggye spirit, torchlight of Songgang and the Thaechon stamina have been created while the whole society following the revolutionary soldier spirit. The efforts have brought about a great change in the overall socialist construction.

Through the heroic endeavors, the people replete with faith in the future of prosperity have put industrial establishments, once stopped, on normalization of production and erected many monumental edifices including the Thaechon Youth Power Station No. 4.

An importance has been attached to science. A large army of intellectuals are paving the shortcut to the construction of an economic power with an extraordinary revolutionary enthusiasm.

A solid material and technical foundation for the construction of an economic power has been laid in the country.

All the sectors of the national economy have pushed ahead with the work of perfecting production structures, renovating technique and putting them on a modern footing, with the result that the number of such model factories in technical renovation and modernization as the Pyongyang 326 Electric Wire Factory is increasing as the days go by.

Production bases such as foodstuff factory, chicken farm, catfish farm, beer factory and cosmetic factory, which are directly contributing to the improvement of the people’s living standard, have mushroomed in different parts of the country.

The DPRK, with all the conditions for leaping higher and faster, will demonstrate the might of an economic power in the near future.

Chosun ilbo
2/1/2007

A man presumed to be North Korean leader Kim Jong-il’s eldest son Kim Jong-nam appeared in Macau on Tuesday, the Yomiuri Shimbun reported. A South Korean government official confirmed the report on Wednesday. It seems Kim Jong-nam has not been allowed to return to North Korea and been wandering the globe for six years.

Once heir apparent of the North Korean leader, Kim Jong-nam first grabbed international headlines when he was caught trying to enter Japan on a fake passport with his wife and son in May 2001. The reasons for his departure from North Korea are unclear. According to former high-ranking North Korean officials who defected, Kim junior was branded a traitor to the revolution by his father after he talked about a Chinese-style reform and opening policy at a private gathering in 2000. They say he was forced to leave the country over a power struggle with his stepmother Ko Young-hee, the mother of his younger half-brothers Jong-chul and Jung-woon.

Since then, he has reportedly been staying in China. He was spotted at expensive restaurants in Beijing several times in January last year. Kim contacted an ethnic Chinese trader who was arrested on charges of espionage in South Korea in April 2006, a government official said. He gets along with members of the so-called Taizidang or princes’ club comprising children of prominent Chinese leaders like former president Jiang Zemin.

Kim is said to have made money from a trade business, which he set up with the Taizidang group. He has shown interest in the IT sector since his Pyongyang days and now is in touch with IT experts he met when he visited Hong Kong and Macau to gather information. Despite being a stateless refugee, Kim does not appear restrained either socially or financially.

Analysts say China does not treat him as an unwelcome guest. Kim Jong-nam tried to return to Pyongyang after his stepmother died in June 2004, but to no avail. Security strategy specialist Lee Ki-dong says anti-Kim Jong-nam forces remain strong in North Korea, adding the fact that Kim junior has not returned proves that the North’s succession structure remains unstable.

Asia Times
Ting-I Tsai
1/10/2007

North Korea’s nuclear test has been a hot topic among analysts around the world. But inside the isolated Stalinist state, getting a hold of a pair of running shoes, a bicycle or a television set is still what most excites ordinary citizens.

And Chinese businesses continue to cash in on these material desires by selling goods manufactured at home or in North Korea at prices higher than their quality justifies, sparking much criticism.

When Pyongyang publicized its intention to initiate economic reforms in July 2002, most people had doubts about how far the policy would be taken. Four years later, the regime is still struggling to implement its reforms, but it has at least partly satisfied some of the daily demands of citizens by allowing more Chinese products to be manufactured in North Korea and more Chinese goods to be imported.

Shoes, bicycles, TV sets, beverages and clothes made in China or by Chinese companies in North Korea are helping to satisfy demand, but some disreputable Chinese companies are ruining their country’s reputation by dumping factory seconds and damaged goods on the market.

Over decades of isolation, North Koreans have been suffering not just from food shortages, but from a scarcity of basic consumer goods. In past years, Pyongyang has reportedly asked the South Korean government to donate thousands of tons of soap and clothes, as well as material for the production of 60 million pairs of shoes. In a visit to Pyongyang in November, products such as Colgate toothbrushes, toothpaste and a Japanese facial cleaner were carefully displayed in glass cases bearing price tags equivalent to US$2.60-$5.90, well beyond the financial reach of all but a few North Koreans.

After years of studying China’s experiences, Pyongyang is now gearing up to solicit foreign investment and advanced technologies to modernize its decades-old manufacturing base.

Supply and demand
“Because the supply can’t satisfy the demand, prices of most of the Chinese products simply soar in the North Korean market,” said Su Xiangzhong, chairman of a Tianjin company that founded a beverage-manufacturing joint venture, Lungjin, with a North Korean.

Trade between the two countries increased by 35.4% in 2004, followed by a 35.2% increase in 2005. By the end of October 2006, bilateral trade had reached $1.38 billion, a 4% increase over 2005.

Beijing-based Winner International Industries Ltd was one of the Chinese companies that foresaw North Korea’s consumption potential in 2000. By then, the company had co-founded a joint-venture running-shoe and clothing-manufacturing presence in North Korea. With advanced machinery from Taiwan, its shoe-manufacturing division is now capable of producing 8 million pairs of running shoes, according to an official from the company, who declined to identify himself. The clothing-manufacturing division, he said, has been a supplier to South Korean and Japanese companies. However, he added that orders from the two countries had recently decreased for unknown reasons.

Leather shoes for soldiers are of high quality, but they are not available to the average person. In Pyongyang shops catering exclusively to foreigners, a pair of leather shoes could cost as much as $326. The North Korean government is still soliciting foreign investment and purchasing shoemaking equipment via Chinese companies.

To get around in a country with underdeveloped public transportation, getting a pair of shoes is not enough. Taking advantage of that situation, Tianjin’s Digital Co started making bicycles in Pyongyang in October 2005, after the North Koreans agreed to let the Chinese take a 51% controlling share in the joint venture, virtually a monopoly, for 20 years.

It is estimated that the nation’s demand for bicycles is about 7 million, according to the Chinese media. The company now manufactures some 40 models and 60,000 bicycles annually, with the most popular model costing $26. In coming years, it plans to produce 300,000 bicycles annually and construct another three bicycle plants.

Aside from daily necessities, there are few entertainment options for North Koreans, which means there is a high demand for TV sets. Nanjing Panda, a TV maker, appeared to be the only Chinese company to foresee the emergence of the North Korean market when it invested $1.3 million there in 2002. After four years of operation, its 17-inch black-and-white and 21-inch color TV sets are reportedly the hottest items available in Pyongyang. With Panda products beginning to dominate the local market, it is becoming increasingly difficult for others to import TV sets into North Korea, according to Chinese business people.

The Panda joint venture is now digging up another potential gold mine by manufacturing personal computers (PCs) in North Korea.

In 2003, Chinese non-financial investments in North Korea amounted to just $1.12 million. That total, however, soared to $14.13 million in 2004, and reportedly reached $53.69 million in 2005. According to the Chinese media, there are now about 200 Chinese investment projects operating in North Korea. A Pyongyang-based foreign businessman described the Chinese investors as “by far the largest group by country doing business there, in all kinds of fields – plus they are from one of the few countries with the protection and representation of a big embassy”.

In March 2005, Chinese Premier Wen Jiabao signed an investment-protection agreement with his North Korean counterpart, and the two nations inked five bilateral economic-cooperation agreements between 2002 and 2005.

During North Korean leader Kim Jong-il’s visit to China last January, Wen introduced new economic-cooperation guidelines.

Despite these positive moves, controversy over the role of Chinese businesses has emerged. A Pyongyang-based Western businessman suggested that quite a few disreputable companies “go there with the intention of getting rid of old or damaged goods they can’t sell in China, and rip off North Koreans, who have no way to get their money back”.

“Also, a lot of fake goods come from China,” he added.

Still, more and more Chinese business people are rushing to Pyongyang. Su Xiangzhong, chairman of a Tianjin-based company, noted that his firm is creating a new beverage brand, like China’s Wahaha, in Pyongyang. North Koreans are also very interested in cooperating with Chinese enterprises in manufacturing and mining.

Chinese-made clothes for women and children, low-end and generic-brand household products and sundries, color TVs and PCs are popular products in North Korea.

Li Jingke, a Dandong-based Chinese businessman who runs the China-DPR Korea Small Investor Association, suggested that natural-resource exploitation and manufacturing are the best industries for foreigners to invest in, adding that more investment-friendly policies would likely be introduced in April. By then, he said, Chinese business people might need to become more concerned about unprofessional conduct.

“When North Korea introduces more liberalized policies, competent companies from everywhere will enter the market, which would likely eliminate the existence of those Chinese businessmen who don’t have modern commercial ideas in mind,” Li said.