North Korean Economy Watch

Daily NK
Kwon Jeong Hyun
1/25/2007

Since last year, North Korean authorities have been attempting to cut off all kinds of capitalist culture. Hence, another extensive hunt for Korean videos and radio broadcasts continues on.

North Korean authorities formed “109 Inspection Team” consisting of authority officials, inspectors from the National Safety Agency and Social Safety Agency, who have been focusing on regulating the major cities for watching and selling foreign VCDs. As of this year, the regions for inspection has extended to the provinces, an inside source informed. The regulations seem to have become an annual event.

The source from North Korea said “About 50 people who were caught watching foreign videos in the district of Woonsan, North Pyongan and now are being investigated” and “The preliminary hearing for about 10 people with no connections or who could not offer bribes, also the people found to be directly circulating the videos has ended and are now waiting a sentence.”

During the 80’s, video tapes were controlled by intercepting with electricity and any family found with videos in their video players were individually restrained. However, many families with video players also had chargers and so this method was ineffective. Now inspector groups consisting of 10~20 people have search warrants to thoroughly check all parts of the home.

The source said “The people sentenced will probably get sent to the labor training corps but of these repeaters if any person has issues with ideologies or are condemned as responsible for selling the videos, then they will be sentenced to jail.” The source added “People who are sentenced to jail because of videos are normally imprisoned for 4~5 years, but many are released after 2~3 years on special occasions like Feb 16th (Kim Jong Il’s birthday) or April 15th (Kim Il Sung’s birthday).”

On a different note, the latest issue of Democratic Chosun (issued on January 13), the government paper, obtained on the 20th stated “Imperial activists are sticking to us from within until death in order to sow the seeds of capitalist” and ordered a firm response “We must stick to them (capitalists) and austerely cut them off.”

Daily NK
Kim Min Se
1/25/2007

Since 2002’s 7.1. economic reform measures, North Korea’s markets have become most vital part of peoples life. North Korean market system operates from ‘general market’ with huge process chain to small local ‘yard market’ in the remote countryside. And, in between, there are always some brokers.

An importer buys goods from China and transports them through cargo trains or trucks to large cities in North Korea, such as Hamheung, Chongjin, Pyongsung or Nampo. Wholesale traders take those products and resell to local businesspeople. In North Korean jargon, such process is called “running.”

Usually imported goods from China or North Korean domestic ones take three steps of circulation; one or two laps of ‘run’ is added in case of mountain area.

Wholesale is mostly carried out by cars. Since oil and vehicles are not enough, sometimes wholesalers rent cars by themselves.

A forty one-year old trader working in Dandong, China, Kim, said that he purchases goods from Chinese factories firsthand. If the amount of import is huge, Kim uses freight. If not, a few trucks are fine for him. At maximum, Kim bought 60 tons of texture from China at once and resold it to North Korean wholesaler in one month.

In Hyesan, Yangkang province, 38-year old Choi, a broker of mainly Chinese cloths and shoes, sells his stuff to nearby Chongjin. Choi told the Daily NK “There are two types of so-called running; first run and second run. “Running” requires a lot of capital like money for vehicles. So the person must be patient and cautious when buying and selling something.”

According to the interview with Kim, using vehicle in wholesale business takes from 3.5 million NK wons (roughly 1,000 US dollars) to 35 million wons. The money includes not only car rental but also “transportation permit” application fee. Transportation permit is required when vehicle and personnel move inter-province, and costs relatively large amount of cash.

Kim keeps about twenty percent of total sales as his profit. The other 80% is comprised of original price of goods, car tax, gasoline and multifarious types of ‘extra expenses,’ or bribe.

The “first run” business is apportioned to a few with privilege in North Korea. Those who can earn cooperation from Security Agency and police are able to do the first run. Without bribery, it is impossible to obtain various permits that are essential for any businessperson.

In addition, to trade with overseas Chinese merchants, one must possess enough wealth and credit. Credit enables North Korean businessmen to buy goods in China with comparatively low price. Those first runners are, in most cases, wealthy North Koreans with ten thousand US dollars cash on their hand at any moment.

Korea Times
Chang Se-moon
1/23/2007

Obviously, it is important to know the correct answer to this question. Sanctions that have no impact on North Korea’s economy will not change the behavior of North Korean leaders. If sanctions do have a significant impact, the possibility that North Korean leaders may be tempted to resolve the pending security issues through negotiations exists.
In answering the question, however, we need to keep in mind what the British economist John Maynard Keynes (1883-1946) said: “The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor draw correct conclusions.’’ In plain English, Keynes stressed an unbiased economic way of thinking that could help us draw correct conclusions. In other words, until we review all the facts with an open mind we should not make up our minds.

This is exactly what we will do by assessing the impacts of economic sanctions on North Korea.

The first question that comes to mind is which sanctions are we talking about. If we review U.S. sanctions on North Korea since the outbreak of the Korean War in 1950, there would be too many sanctions imposed on North Korea to be practical. There are three important sanctions that are still in effect, however. One is the U.S. denial of a Most Favored Nation (MFN) trade status on North Korea’s exports.

This sanction was imposed on North Korea’s exports to the United States on September 1, 1951, following the outbreak of the Korean War. MFN tariffs are the lowest tariffs that are levied on imports to the U.S. Over 99 percent of imports to the United States qualify for the MFN tariffs. Without MFN status, tariffs on North Korean exports to the United States are so high that North Korea simply cannot even imagine exporting anything to the United States.

The second of the three important sanctions stemmed from the bombing of Korean Air 858 by North Korean agents on November 29, 1987. The explosion killed 115 innocent passengers and crew members. On January 20, 1988, North Korea was placed on the list of countries that supported international terrorism according to the U.S. Export Administration Act of 1979.

The importance of this sanction is that placement on the list has made it impossible for North Korea to borrow money from international financial institutions including the World Bank and the International Monetary Fund. Like the denial of MFN status, the placement of North Korea on the list of countries supporting international terrorism continues to this date.

The third of these three key sanctions relates to tightening of North Korea’s illegal financial transactions, which culminated in Banco Delta Asia’s termination of business dealings with North Korea as of February 16, 2006. You may know that Banco Delta Asia had long been suspected of handling North Korea’s illicit activities overseas such as laundering of counterfeit U.S. dollars and sales of illegal drugs

Banco Delta Asia is located in Macao, which is a Special Administrative District of China. Tightening of North Korean financial transactions was extended to North Korean trade during 2006. This added pressure on North Korea originated from U.N. Resolution 1540 following North Korea’s test-launching of long-range missiles on July 5, 2006, as well as from U.N. Resolution 1718 which followed North Korea’s nuclear test on October 9, 2006.

Are these sanctions having an impact on North Korea’s economy? Perhaps, a more accurate question is whether these sanctions are placing enough pressure on North Korean leaders to reconsider the possibility of returning to the negotiation table?

One aspect is the status of North Korea’s trade deficit. As you probably know, North Korea buys from other countries much more than it sells to other countries. When the amount of imports exceeds the amount of exports it’s called a trade deficit. North Korea’s annual trade deficit averaged about $800 million from 2003 to 2005. This figure does not include North Korea’s trade deficit against South Korea, since South Korea appears to consider any financial support to the North as a long-term investment rather than a trade deficit.

How has North Korea been paying for the trade deficit? The ways have been unique. Almost the entire deficit appears to have been financed by weapons sales, illicit activities, and funds flowing from South Korea through joint projects.

In fact, a study by the Korean Institute for Defense Analysis indicates that full implementation of U.N. Resolution 1718 would cause North Korea to lose just about the same amount ($700 million to $1 billion) by stopping exports of weapons and illegal drugs and counterfeit money.

The Economist Intelligence Unit is quoted to have estimated in 2003 that “North Korea earned as much as $100 million a year from counterfeit money, while in 2005, a U.S. task force estimated that “$45 million to $60 million in Pyongyang’s counterfeit currency (primarily in U.S. $100 bills) is in circulation,’’ reportedly, including some in Seoul’s Namdaemun Market.

Assuming that recently added sanctions will cause North Korea to lose about $800 million that it has been earning overseas each year, the next interesting question is how North Korea will pay for the annual trade deficit of $800 million in the future? If North Korea does not pay for its imports, other countries will refuse to sell products to North Korea and the North Korean economy will suffer.

North Korea cannot borrow from world financial institutions because of the 1988 U.S. sanctions that branded North Korea as one of countries supporting international terrorism. They cannot use the money from foreign direct investment because China and Korea are the only two countries that have been willing to invest in North Korea, but the combined amount is not even close to paying for the annual trade deficit.

Think of it this way. If you borrow money every year, and lenders believe that your ability to pay off the debt is rapidly declining, will lenders continue to lend you money? Not likely. With sanctions adversely affecting North Korea’s ability to pay for imports, North Korea will find it increasingly difficult to buy what it needs. The breaking point may not be imminent, but the future is predictable.

This is what I think will happen. North Korea will ask China to increase its foreign direct investment in North Korea by giving China more incentives for such investment. These incentives may include low taxes and free land. North Korea will ask South Korea to send more money.

For instance, as of July 1, 2004, Hyundai Asan and North Korea set the entrance fee to Mt. Kumkang at $10 for a day trip, $25 for a two-day trip and $50 for a three-day trip. On May 1, 2005, these fees were raised to $15, $35, and $70. On July 1, 2006, these fees were raised again to $30, $48, and $80. This is just one way.

North Korea may also ask South Korea to lend it a large sum of money with an empty promise of paying it back. This explains in part why it is so important for North Korea to have leaders of the South Korean government who are friendly to North Korea.

These desperate acts are likely to be very short of paying for the majority of the annual trade deficit. If sanctions continue to be effective, the likelihood of North Korea returning to the negotiation table increases. Economics is rarely boring, especially when it deals with real problems.

Yonhap
1/22/2007

China has issued a permit to allow its citizens to take a tour of the North Korean Mount Geumgang, via South Korea, tourism officials said Monday.

Hyundai Asan Corp., the operator of the tourism business at the scenic mountain, signed an exclusive contract with a travel agency affiliated with China’s communist youth organ, they said.

Daily Telegraph
Sergey Soukhorukov
1/21/2007

The men who finally made it into the remote highland village of Koogang were greeted by an eerie silence and a gruesome sight.

Lying among the simple wooden huts and burnt remnants of wooden furniture, they found the bodies of 46 North Korean villagers, including women and children, all of whom had frozen to death. Cut off from the outside world by one of the harshest winters in many years, the villagers had suffered a macabre fate that has exposed both the desperate poverty and callous misrule blighting the Stalinist state.

More than 300 people are thought to have perished from cold so far this winter in North Korea’s mountainous north, victims of temperatures as low as -30C and of an arrogant ruling clique.

“Nobody got out of the trap alive,” said an official at the Chinese embassy in the capital, Pyongyang, who confirmed the events of Koogang. “After heavy snowfalls, there was a severe frost. The inhabitants were doomed.”

In a country notorious for its secretiveness, the regime of President Kim Jong-il has made no mention of the deaths. As the rest of the population struggle to stay warm, 50,000 members of his ruling elite continue to live in splendid isolation in a compound in central Pyongyang – enjoying the benefits of hot water, central heating and satellite television.

Elsewhere in the city, though, the scene could have been lifted from the pages of a Charles Dickens novel. The air is thick with the smell of coal dust, as families light fires on the floors of their apartments to keep out the bitter, cold winds that blow south from Siberia.

Outside Pyongyang, the situation is yet more desperate. A six-mile drive from the city, poor farmers trudge through the snow with bundles of brushwood on their backs.

A massive process of deforestation, begun in the 1990s by Kim Jong-il’s father and predecessor, Kim il Sung, has resulted in huge swathes of forest being chopped down to clear land for farming. The disastrous policy led to large-scale soil erosion, believed by many to have been a leading cause of mass famine of the 1990s, when up to three million people starved to death.

It has made the bitter winter, when the temperature in the capital routinely falls to -13C, even more dangerous as the rural poor struggle to gather enough firewood to sustain them.

The inhabitants of Koogang, around 200 miles north-east of the capital, set fire to tables and chairs, even tearing down the wood from their own homes in a desperate attempt to keep warm.

The World Food Programme estimates that North Korea will be 900,000 tons short of the amount of food needed to feed its 23 million population this year. Aid efforts have been complicated by sanctions, imposed after Kim Jong-il’s regime carried out a nuclear test in October last year. Last week, the country held negotiations with US diplomats aimed at re-starting six-party peace talks, which also include China, South Korea, Japan and Russia.

Christopher Hill, America’s chief envoy at the talks in Berlin, signalled progress, saying that the US looked forward “to establishing a normal relationship with North Korea”.

But while there may be signs of a thaw in the country’s frosty relationship with the West, in Pyongyang there is no respite from the sub-zero temperatures.

The electricity supply is notoriously unreliable and as evening falls the city streets are plunged into darkness.

The only constant source of light is the giant illuminated copper statue of Kim il Sung on a hill top overlooking the city – cold comfort for those living through the bleak North Korean mid-winter.

Daily NK
Yang Jung A
1/18/2007

On the 9th, a Japanese broadcast “tv asahi” exposed footages of drug smuggling at a boarder station between North Korea and China.

The footage caught a North Korean dealer crossing the Tumen River via a tube. On meeting a female Chinese dealer, the North Korean dealer unraveled a pink package which contained an envelope written “Opium powder” in red.

The drug seems to have been manufactured at “Ranam pharmaceutical factory.” This factory is known for its manufacture of mediocre drugs. Although opium is normally supposed to be packaged as medication, it is common that the drug falls into the hands of smugglers.

The moment the Chinese dealer gets hold of the package, she confirms the quality of the drug and hands over Chinese currency. The North Korean dealer counts the money and scurries back over to North Korea. It was agreed that additional dealings would be made via the telephone.

The transaction that was made on this day was 8~9 bags, each containing 100g of opium. 

As the international community continues to enforce its regulations against drugs and counterfeit dollars, drugs dealings have taken effect in North Korea with increasing illegal trades occurring between China and North Korea, the broadcast claimed. In addition, the number of drug addicts in North Korea is also on the rise.

The footage also captured the North Korean drug dealers sniffing the drugs as well as the dealers talking about the transaction. Of the dealers, one person was a worker managing the level of humidity at a manufacturing factory and seemingly the intermediary supplier who obtained the drugs.

It seems that the 3~4 people sitting in a circle are personally testing the quality of the drugs before purchase. Although the dealer’s child has entered the room, the buyers continue to inhale the drugs.

The woman who seems to be buying the drugs in this footage, scrupulously inhales the drug as if her body was very accustomed to it.

The woman showed signs of drug addiction murmuring “I’m so used to it (taking drugs). My hardest moment was when I was in custody. If I can’t sniff any drugs, my nose is runny and my head spins.”

Also, she suggested that drug addiction had spread throughout North Korea “It has spread from the top, right to the bottom.”

As the dealers need to give bribes to the border guards, a deposit is first received then the balance paid after the goods given.

Comments were also made on the distribution of the latest drugs. The latest drug, blue in color is made naturally and is much more effective than the original, so is very popular amongst the rich.

Of the people there, one man was acting as the link to the boarder patrol, whereas the remaining people examined the issue of reliable Chinese buyers.

The first footage exclusive of North Koreans communally taking drugs was exposed in Korea by the DailyNK in October 2005.

Asia Times
1/10/2007
Ting-I Tsai

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.

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.

Joong Ang Daily
Jung Ha-won
12/27/2007

In early 2007 South Korea is expected to begin its first graphite shipments from a new mine in North Korea that has been co-developed by the two countries since 2003.

The mine development project in Jeongchon, which cost $10.2 million, was completed in April, but electricity shortages and diplomatic tension over North Korea’s nuclear test delayed testing operations for months.

According to Korea Resources Corp., South Korea’s state-run mineral developer that took part in the project, the new mine, located near the western part of the border with South Korea, recently began test operations, and graphite shipments will begin early next year.

“North Korea authorities recently guaranteed a stable supply of electricity,” said an official with Korea Resources.

The mine is expected to produce about 3,000 tons of graphite a year, and Korea Resources Corp. plans to bring about 1,830 tons of graphite, or 20 percent of annual production, to South Korea each year for next the 15 years. The firm is also involved in an iron ore mine development project in the North’s Deokhyun, North Pyeongan province.

North Korea is known to have more than 200 varieties of minerals worth about 2.2 quadrillion won ($2.4 trillion) still unexplored in its mountainous areas. Chinese companies have wasted no time exploring those resources, with the North Korean government thirsty for cash and outside investment. China’s state-run steelmaker, Tonghua Iron and Steel Group, last year was granted rights to develop the Musan iron ore deposit in North Korea, the largest open-air iron mine in Asia, for the next 50 years. North Korea also granted exploration rights for more than 10 mines to China’s Wookwang Group and other Chinese developers.

South Korea has been sluggish by comparison, due to political issues and a lack of infrastructure, such as roads and electricity. There remain untapped resources in the reclusive North.

“There is a wealth of magnesite buried in the Dancheon area,” said the Korea Resources Corp. official. “We will carefully review the plan to explore the area.”

Yonhap
12/24/2006

Chinese firms have bought a controlling stake in one of the largest copper mines in North Korea, industry sources said Sunday.

Sources familiar with business cooperation between North Korea and China said Hebei-based Luanhe Industrial Group and another privately owned company signed a deal that gives the firms control over Hyesan Youth Cooper Mine in Yanggang Province.