North Korean Economy Watch

Writing today for the Asia Times, Sunny Lee gives an update on the North Korean-run restaurants in China and South East Asia.  Much has already been published on these restaurants: how they channel money back to North Korea and how the waitresses tend to defect.  (As mentioned in the Kaesong post yesterday, they probably also pay hefty bribes for their overseas posts and have well-connected relatives.)

Sunny Lee points out that these restaurants (see YouTube video here) are now diversifying their product lines to boost profits, and like other successful capitalists across Asia, they are doing it by leveraging their most unique asset–attractive North Korean women.  How?  By transforming into karaoke bars after dinner hours.

North Korea has some 100 restaurants overseas, mostly in China and Southeast Asia, including Laos, Vietnam and Cambodia. These restaurants serve as an important revenue pipeline for earning foreign currencies for Pyongyang. Each overseas North Korean restaurant is said to be allotted a revenue quota to fill, ranging from US$100,000 to $300,000 a year to send to Pyongyang, which makes the total revenue estimation some tens of millions of dollars.

The business formula - restaurant by day and karaoke bar by night - is also seen as an effort for these restaurants to meet the assigned financial quota. Currently, there are scores of North Korean restaurants in China, including in cities such as Beijing, Tianjin, Tsingdao, Dandong and Yanji. Beijing has 11 North Korean restaurants. All of these employ North Koreans whose total employment number in China is estimated to be several hundred. (Asia Times)

Despite the higher cost, business is brisk…

The reason that North Korean restaurants are expensive yet remain popular among customers is their immaculate service from beautiful employees. In China, where service quality at restaurants is often unsatisfactory, North Korean restaurants are becoming a favorite alternative among members of the businesses community. (Asia Times)

However, if you want to enjoy an authentic North Korean dining experience but have moral qualms about supporting the regime, then you can patronize similar resturants managed by North Korean defectors in South Korea–though the experience is quite different.  Whereas the Chinese pay extra for premium restaurant service in Beijing, the South Koreans pay for the genuine socialist restaurant experience.  In other words, they pay to be treated like an annoyance to the staff.

[At the Pyongyang Moran Bar (located in South Korea), the] North Korean waitresses wore traditional dresses in the bright colors that were fashionable in the South some years back. The singer’s interpretation of “Whistle,” a North Korean standard of the 1980’s, was shaky and off-key. Service was bad and included at least one mild threat. Drinks were spilled, beer bottles left unopened and unpoured.

But the South Korean customers could not get enough of the Pyongyang Moran Bar. (New York Times)

So you have your choice of North Korean themed restaurants:  The propaganda ideal or the  socialist reality.

The full articles can be found here:
Chillin’ at a North Korean karaoke bar
Asia Times
Sunny Lee
2/8/2008

In Deep South, North Koreans Find a Hot Market
New York Times
Norimitsu Onishi
5/25/2006

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-2-5-1
2/5/2008

Kim Jong Il’s first visit of the year was reported on January 6 to have been to the Ryesonggnang hydro-electric power plant. Generally, the leader’s visits in the first months of the year, along with the New Year’s Joint Editorial, which focused on economic recovery, set the tone for the coming year’s policies. His second inspection of the year was to a military unit.

Defectors claim that prostitution is on the rise in North Korea, and on January 9, the aid group ‘Good Friends’ reported that the DPRK has begun to close massage parlors as part of a crackdown on prostitution. The agency reported that in the DPRK there was a “steady campaign to weed out decadent foreign culture,” and that in September, DPRK soldiers were ordered to avoid alcohol, sex, and money.

On January 16, it was reported that Kim Jong Il had instructed all DPRK institutions to reduce their bureaucracies, including senior staff, by thirty percent.

Figures released by North Korea’s Korean Central News Agency indicate that the DPRK’s population had increased to 23.6 million in 2004, the latest available figures. According to DPRK figures, the population has grown from 22.1 million in 1996.

North Korea announced the closure of its Australian embassy on January 22. While the DPRK will continue to maintain diplomatic relations with Australia, it apparently can no longer afford to maintain an embassy in Canberra.

According to a report released by the International Red Cross, North Korea has the largest number of people in the world killed by natural disasters over the past decade. The report states that 458 thousand North Koreans have died from natural disaster, 38 percent of the disaster-caused deaths in 220 countries from 1997-2006.

A U.S. Senate investigation reported that the DPRK funneled as much as 2.7 million USD through a bank account set up from UN development projects. The report stated that North Korea used the UN account due to fears that the United States would block its ability to transfer money internationally.

DPRK Nuclear Negotiations

2008 opened with the United States and Japan releasing statements expressing their disappointment at North Korea’s failure to meet its December 31 deadline to fully disclose the extent of its nuclear programs, while North Korea’s New Year’s Joint Editorial called for “stability on the Korean Peninsula and peace in the world” as well as an end to hostile U.S. policies. A U.S. White House spokesman stressed that there was still opportunity to move forward with negotiations, stating, “the important thing is that we get a declaration that…needs to be full and complete,” not whether the declaration is made by the deadline.

On January 4, North Korea claimed it had met its obligations to come clean on its nuclear programs, and that it had provided Washington with a list of its nuclear programs in November. Pyongyang also threatened to bolster its “war deterrent” because Washington had failed to provide promised aid following the declaration. Washington denied that any complete declaration had been made.

A senior Russian diplomat was quoted on January 11 as saying that while Russia regrets the slowed state of progress in talks on DPRK nuclear issues, Russia will fulfill its promise to provide the North with fuel oil. 50,000 tons of fuel oil were delivered on January 20~21.

According to a book of figures recently published by the National Statistical Office, ”Comparison of North and South Korean Socio-economic Circumstances”, the DPRK’’s crude imports over the past several years bottomed out at 2,325,000 barrels in 1999, then rose to 4,244,000 barrels by 2001. Since 2001, imports have steadily fallen until only 3,841,000 barrels were imported in 2006, recording the least imports in the last five years.

North Korea opened its first online shopping mall in January. The site offers items from fourteen categories ranging from machinery and building materials to stamps and artworks. The site, www.dprk-economy.com/en/shop/index.php, is based in China.

Orascom Telecom, a Cairo-based phone operator, has been granted the first commercial license for provision of mobile phone services in North Korea. The license was granted to CHEO Technology, a subsidiary that is 25 percent-owned by the state-run Korea Post and Telecommunications Corporation.

DPRK Abduction Issue

The Cambodian Foreign Minister announced on January 16 that his country had been working behind the scenes to find a resolution to the DPRK-Japan abduction issue. The minister stated, “Cambodia is in a position where it can hold high-level meetings with North Korea, and it has the ability to persuade North Korea.”

Inter-Korean Affairs

The incoming Lee Myung-bak administration announced on January 4 a plan to develop an international cooperative fund to support North Korea’s economy. The plan is said to call for World Bank and the Asia Development Bank to help, and for South Korea to provide 40 billion USD.

On January 7, it was reported that Lee Myung-bak’s presidential transition team had asked the ROK Unification Ministry to slow the pace of inter-Korean economic projects and to link them to progress in the six-party talks. The incoming administration has promised not to link humanitarian projects such as rice and fertilizer aid to nuclear negotiations.

The Lee Myung-bak administration announced plans for downsizing the South Korean government, including disbanding of the Ministry of Unification. Opposition to the plan points out the role played by the ministry in improving inter-Korean relations, while proponents to the plan of relegating the ministry’s duties to the Ministry of Foreign Affairs and Trade applaud the move to align North Korea policy with standing foreign policy directives.

On January 14, it was reported that Lee Myung-bak had asked the United States to further engage in talks with DPRK military leaders, while presenting a balanced approach, stating that “our people don’t support the idea of giving lavish aid to the North nor do they want to irritate it too much, I believe.” He went on to add that the United States holds the key to easing DPRK fears of opening up.

The net worth of inter-Korean exchanges totaled 1,797,890,000 USD in 2007, up 33% from the 1.35 billion USD in the previous year. The almost 1.8 billion dollars in trade recorded in 2007 is the highest to date, and is equal to 65 percent of the DPRK’’s non-Korean trade volume of 2.996 billion USD in 2006.

The Seoul-based International Vaccine Institute announced on January 14 that it will soon begin inoculating approximately six thousand North Korean children against bacterial meningitis and Japanese encephalitis.

The two Koreas began working-level military talks on January 25, marking the first talks of the year. During talks, the North proposed reducing the frequency of the inter-Korean rail services, citing a lack of cargo. The Southern delegation felt that the frequency was an important indication of inter-Korean cooperation. The two sides agreed to continue daily runs, but to reduce the number of empty carriages in the future.

North Korea is still not as attractive to businesses as other Asian neighbors. A survey released by the (South) Korea Chamber of Commerce and Industry on January 28 indicated that China and Vietnam are more attractive to ROK businesses. According to the survey, 80 percent of businesses have difficulties starting or operating businesses in North Korea.

An ROK special envoy returned on January 23 from Moscow after proposing a joint ROK-DPRK-Russian cooperative project in eastern Siberia. President-elect Lee Myung-bak sent a letter to Russian President Vladimir Putin pushing for cooperation of “North Korea’s workforce, Russia’s resources and capital, and [South] Korean technology.”

U.S.-DPRK Relations

On January 9, amidst reports concerning possible DPRK-Syria nuclear connections, it was reported that in 1991 Israel was posed to strike a ship suspected of delivering missiles from the DPRK to Syria, but was dissuaded by Washington.

A U.S. State Department official stated on January 22 that North Korea had met the legal criteria to be removed from the U.S. list of state sponsors of terrorism. This came just after reports of conflicting opinions within the Bush administration, with Secretary of State Condoleezza Rice sharply rebuking Special Envoy on North Korean Human Rights Lefkowitz, who stated that North Korea is not serious about nuclear disarmament. Rice went so far as to say that Lefkowitz “certainly has no say on what American policy will be in the six-party talks,” dismissing his negative position on the failure of North Korea to meet its obligations. The White House later stated that North Korea must make a full declaration of its nuclear activities before being removed from the list.

Five officials from the DPRK recently visited the United States in order to learn how to treat and prevent tuberculosis, a serious concern for the North that is “practically non-existent in most developed countries.” The officials were invited by The Korea Society, which is based in New York.

DPRK-PRC Relations

According to the PRC General Administration of Customs, China’s oil exports to North Korea were the same in 2007 as they were in 2006. China sent 523,160 tons of oil to North Korea in 2007.

A senior PRC Communist Party official traveled to Pyongyang for a meeting with Kim Jong Il on January 30. Wang Jiarui, director of the International Liaison Department of the Chinese communist party, was to convey a message to Kim, inviting him to the opening ceremony of the Beijing Olympics. While Kim reportedly told Wang that there would be no change in the DPRK stance on nuclear negotiations, he also assured the Chinese envoy that North Korea had no intention of harming DPRK-PRC relations.

Speculation time…

As mentioned before China and Russia seem to be competing for access to the DPRK’s Rajin port.  I do not know why this is suddenly a story since Rajin has ostensibly been open for business for years.  However, it appears now that the Russians and Chinese seem to think that the North Koreans are finally ready to make some money. 

What the Chinese and Russians are offering, and what exaclty each wants vis-a-vis the other, is not readily known.  Is it exclusive control of Rajin Port, just a controlling interest, or even just guaranteed access, or something as innocuous as discounted taxes?

The South Koreans see Rajin as a cheap alternative to rebuilding North Korea’s aging railway system along its east coast.  South Korea could ship goods to Raijin and hand them over to the Russians for prompt transportation to European markets. 

The World Tribune today offered a bit more information of what the Russians are offering:

Farther north along the North Korean border, the port city of Rajin will soon start receiving electricity it badly needs from the Inter RAO UES Company of Russia.

“We have no idea what is going on higher up there,” said a Korean-Chinese businessman from Yenben, “but it certainly looks like China and Russia are trying to win Pyongyang to their sides, like the old days.”

But don’t count China out too quickly-not only do they have a larger border with the DPRK, and greater numbers, they also have ethnic Koreans with family still inside the DPRK:

“Judging from the fact that the two-way tourism traffic is heavily in favor of Chinese travelers, it is expected more Chinese people will have a chance to peek into ordinary people’s lives at the other side of the bridge,” said a Yenben government official.

The two sides will designate travel companies to handle pedestrian tourists in their respective countries and visas will be granted within 24 hours, according to the announcement. Officials in Tumen said the city would help build reception facilities in Namyang for the tourists.

The full article can be found here:
China and Russia competing for North Korean favor along borders
World Tribune (H/T DPRK Studies)
2/1/2008

Institute for Far Eastern Studies
NK Brief No. 08-1-29-1

It is being reported that North Korea’s Chungnyun Mine, in Hyesan, Ryanggang Province, is facing severe economic difficulties due to floodwater. Hyesan mines produce 80 percent of all North Korean copper, and the North had estimated that it will be able to continue mining copper there for the next forty years. Chinese firms in Hebei’s Luan River region had wanted to import 51 percent of Hyesan Chungnyun Mine’s product, but the deal fell through due to opposition from North Korea’s committee overseeing its second (military) economy.

In 1996, during the North’s ‘Arduous March’, electricity was not provided to the mine, leading to flooding in the mineshafts. Since 1998, Kim Jong Il has budgeted 8.2 million USD to dewater the mine, and the mine was recovered using electricity and equipment provided by China.

The mine resumed operations in May, 2004, and in March of last year even an ore-dressing plant and crushing facility were constructed, indicating that there were high expectations that production would grow. However, as water filled up at the dam for the near-by Samsoo Powerplant, completed in May, the mines began to flood again.

There was no end to criticism that the powerplant, located in Jangan-Ri, Hyesan, Ryanggang Province, was to be constructed on a limestone foundation that would leech massive amounts of water, however, as a result of its construction, despite this opposition, water leaks out of the power station and has flooded the mine.

In the event that North Korea abandons the Hyesan Chungnyun Mine, it will be faced with the difficulty of needing to import the large amounts of copper required by the manufacturing industry. As this mine began to flood, North Korea has begun to import most of the copper necessary for its economy from Chile.

Currently, there is no feasible way to technically restore the mine, so as senior authorities in the North are demanding that the mine be saved at any cost, those in charge of operations are said to be uneasy.

In October, the Korea Economic Institute published a presentation of North Korean economic data assembled by the Bank of Korea.  Basic stats below:

• GDP: -1.1% in 2006 (+3.8% in 2005)-Due to decrease in agriculture output. 
• Services are the largest component of the economy (34%)
• Trade volume (exports + imports) approximately US$3 billion
• 2005 trading partners in order: China, South Korea, Thailand, Russia, Japan, Singapore

See the full report here: northkorea.ppt

The New York Times (free registration required) ran an article today on Baengnyeong Island, South Korea’s northern most island which is below the NLL (the de jure, though disputed, sea border between the DPRK and the ROK), but only 10 miles from the coast of North Korea.

Fishermen have gone missing from this island for years, and occasionally, naval clashes erupt between the DPRK and ROK.  The latter problem, though not the former, was an agenda item on the most recent Inter-Korea talks between Kim Jong Il and the former South Korean President Roh Moo-hyun.

The island is now a sad reminder of the costs of division and isolation:

[F]or Chang Hyung-soo, a 64-year-old retired diver here, this narrow strip of water is what separates him from his hometown [in the PDRK]. It also separates him from three of his friends who were lost in fog while fishing and taken to North Korea three decades ago.

and… 

“A few weeks ago, a 93-year-old man came here to take a last look at his hometown across the channel before he died,” Mr. Chang, the retired diver, said from the hilltop. “But he could see nothing because of the fog. I still remember the old man’s tears of disappointment.”

Complicating the matter, however, is the competition from Chinese fishersmen granted territorial access by the DPRK:

To make matters worse, hundreds of Chinese fishing boats, after paying fees to the North Korean Navy, have sailed into waters between their islands and North Korea in recent years while the South Korean fishermen have been restricted to waters close to their own shores.

“The Chinese trawlers catch anything, everything, and deplete our seas,” said Kim Myong-san, 78, who first came to the island as a marine and settled here with his wife.

Notes:
One Eye on the Fish, the Other on North Korea
New York Times
Choe Sang-Hun
1/31/2008

Top image from Google Earth. Download “North Korea Uncovered” to see this location on your own Google Earth.

Daily NK
Yang Jung A
1/31/2008

Due to the food export restraint imposed by China, the price of food items have been rising significantly recently, revealed Good Friends, a nongovernmental organization for North Korea, through a newsletter released on the 30th.

The newsletter relayed, “The price of rice, flour, corn, and grains has been continuously rising due to a systematic adjustment in trade exchange with China. With the Beijing Olympics ahead, the duties on food items have gone up 5% for rice, 20% for corn, and 20~25% for flour.

The newsletter also divulged that “China demands an export permit for grains. Rice and corn are flowing into North Korea because the export permits issued last year still remain in effect. However, China has not yet demanded any export permits for flour, and therefore flour cannot be exported to North Korea.”

“As a result, the price of flour has been increasing rapidly within just a month. In December of last year, the price of flour remained at 1,000 won per unit for the most part, but since the new year, it rose to 1,700 won per unit. People who have been selling bread, dumplings, and snacks have not been able to do business due to the shortage of flour.”

The source relayed, “The North Korean custom house has been requesting a quality verification report on par with international standards at the time of the importing of Chinese food products, but a majority of merchants with whom food is traded has not been able to follow the new standard yet, saying such documents are hard to provide.”

“So, the food items have not been imported into the market, which has caused the price to continuously rise due to the lack of provisions. Nowadays, even if people tried to buy a 1 kg of rice for over 1,400 won, they are unable. Chinese companies who have been dealing with North Korea have predicted that the cease in trading with Chosun (North Korea) will give rise to a food shortage.

The Ministry of Commerce of the People’s Republic of China announced the process of registration and 2008 conditions for registration for milled farming export quarter on the 19th and has implemented a method for the provisional food export of rice, corn, and flour starting January of this year. Related parties of North Korea-Chinese trade forecasted that food exports to North Korea will be reduced significantly as a result of the stringent food export conditions imposed by the Chinese government.

Today The Economist published a report on the political momentum of the North Korean human rights movement.  Although this web site does not keep up with the politics of the movement, the article points out how globalization is seemingly improving human rights in the DPRK…

A Black Hole
The Economist
1/30/2008

When you learn that Chinese firms are teaching notions of corporate social responsibility to factories in North Korea, there are two possible reactions besides incredulity. One is despair. Scandals from China involving tainted products, abused workers or environmental degradation are legion: what could its companies possibly have to teach their backward, isolated and viciously repressive neighbour?The other is to celebrate the glorious rising tide of globalisation, which washes up little bits of good news on even its most remote and neglected shores.
…
Human rights, then, no longer seem so central to the West [politically]. So it is moderately encouraging to hear that Chinese garment-makers, subcontracting to North Korea to escape mounting costs at home, insist that their partners stop imposing seven-day working weeks. Just as China’s Western partners 15 years ago trapped them in misdemeanours by finding that sewing needles had broken on supposed rest days, so the Chinese are catching the North Koreans with the same tactics.

This might seem like a radical thought, but imagine how much better companies from OECD countries would be doing this. According to US Census data, the US has only imported $1.7 m from the DPRK since 1992 (including the famine).  Since isolation from western markets has been the DPRK’s policy essentially since its founding,  why try to maintain it?  Lets start investing and trading.  Agree or disagree in the comments.  I’d like to know your thoughts.

The AFP reports today that the Russians are in North Korea to discuss upgrading the 55km railway from Raijin to the Russian border. What goes unmentioned in the story is that the Russians have been seeking access to a port that does not freeze up in the winter for as long as anyone can remember. How are the Russians seeking to solidify their interest in Raijin:

Russian delegation in NKorea to discuss rail project
AFP
1/27/2008

A Russian railway spokesman told AFP last week a preliminary agreement had been reached with North Korea on renovating the railway section, while North Korea had yet to respond to Russia’s proposal to build a cargo terminal in Rajin.

Reconstruction of North Korea’s railways would cost about 2.5 billion dollars, according to Russian estimates.

South Korea also wants the railways upgraded, but the article does not mention if they are offering contributions:

South Korea sees the port project as an efficient alternative to renovating dilapidated rail networks running the length of North Korea and linking them to the Russian railway.

Also unmentioned in the story is China’s interest in securing access to Raijin:

Beijing also has its eye on the North Korean port, which it envisions as part of its grand design to build a transport network that stretches from the Indian Ocean to the North Pacific.

“Najin Port is near the Jilin area and China’s own ports in the area have already reached their full capacity,” a government official said yesterday.

Beijing has recently notified Pyongyang that it is willing to spend $1 billion to develop port facilities, build railroads connecting the port to China and improve existing infrastructure such as highways, the official said.

In a report published earlier this year, Cho Myung-chul, a researcher at the Korea Institute for International Economic Policy, predicted that China would use investments in the North’s ports and railroads to extend its own infrastructure for export and import purposes. China has made similar investments in Burma and Bangladesh, among others.

Olympic torch ‘going to N Korea’
BBC
12/16/2007

North Korea will host a leg of the 2008 Beijing Olympic Games torch relay, state media has reported.

The flame, which is due to pass through 22 cities in the four months before the Games, is expected to reach North Korean capital Pyongyang on 28 April.

Chinese and North Korean officials made the agreement in Pyongyang, said the official Korean Central News Agency.

A day earlier the torch is scheduled to pass through the South Korean capital of Seoul on its way north, say reports.

The torch, which will be lit at Olympia in Greece on 25 March, is due to cover five continents before the event begins on 8 August.

The planned 137,000-km (85,000-mile) relay route will include a trip to the top of Mount Everest.

The two Koreas have agreed to send a joint team of officials to the Beijing Olympics by train, as part of reconciliation efforts after their 1950-1953 civil war.

Coca-cola And Samsung Billboards to Appear in Pyongyang
Daily NK
Park Hyun Min
12/17/2007

Coca-cola and Samsung billboards, viewed by the North Korean regime as symbols of “American capitalism” and “Imperialistic culture,” will soon be visible in downtown Pyongyang just on April 28, 2008.

The China-based Huanqiu Times reported that the Beijing Organizing Committee of the 2008 Olympic Games (BOCOG), the Chosun (North Korea) Olympic Committee, and the Pyongyang People’s Committee signed an agreement to cooperate during the 2008 Olympic Torch Relay.

Samsung, Coca-cola, and Lenovo (a Chinese IT company), three of the main companies sponsoring the Beijing Olympics, will be allowed to advertise their products by cars when the Olympic Torch Relay passes through Pyongyang on April 28.

The three companies will be able to distribute pamphlets to North Korean citizens, but the extent of the content of these pamphlets will limited to the history of the respective companies’ sponsorship of the Olympic Games. Outdoor billboards will not be permitted along the relay path.

Additionally, with the exception of Shanghai-Volkswagen (the official car company of the 2008 Olympic Torch Relay), car companies will not be allowed to reveal their logos during the event.

The upcoming Torch Relay marks the first time in Olympic history that the Torch will pass through Pyongyang. Fifty-seven members of the Chosun Olympic Committee, six representatives from the three sponsorship companies, one member of the International Olympic Committee, and four Chinese diplomats will act as torchbearers in the event.

The relay will begin at the Tower of Juche Idea. Sights along the route will include the May Day Stadium, Kim Il Sung University, the Chosun-China Friendship Tower, the April 25 House of Culture, the National Liberation War Memorial Hall, Pot’ong Gate, the People’s Palace of Culture, the Pyongyang Gymnasium, Kim Il Sung Plaza, the Chollima Statue, the Arch of Triumph, and the Kim Il Sung Gymnasium. The total distance will be 20 kilometers.

The Pyongyang leg of the relay will begin after the South Korean leg is complete. The Torch will cross the DMZ by airplane and will be run through downtown Pyongyang from 2p.m. to 8 p.m. on the 28th of April.