North Korean Economy Watch

From the Joon Ang Daily:

Ties sour at North’s China border

Signs of discontent between those two closest of allies, China and North Korea, have begun to appear. Last month, despite Chinese urging, North Korea fired off a test salvo of seven missiles. Although the tests were generally considered to be a bid for international attention, they provided Japan with more domestic ammunition to change its constitutional bar on warfare as an instrument of national policy, a development China does not see as in its interests.

Some suggestions of those cooling ties can be seen in this Chinese border city. Recently, about 40 North Korean women were waiting in front of the customs office in preparation for returning to North Korea. One of the women said Chinese authorities had order the women, who had worked at a stuffed-toy factory, out of the country.

“We received a three-year approval originally to work there, but after less than a year we are going back,” the woman said. Customs officials said the women were working illegally, but other people here were skeptical. One noted that many Russians have no problems because of a lack of work papers. “When relations between China and North Korea were good, there were no problems,” one said. “These incidents are in line with the cooling ties in light of the North Korean missile launch.”

In all, about 300 North Koreans have been told to leave Dandung for their homeland. The head of a trading company here, who has been dealing with North Korea for 10 years, said another 300 North Koreans will be sent home from Dandung within a month.

A source in Beijing said the Labor Ministry headquarters told its subordinate offices earlier this month not to issue work permits to North Koreans who carry passports and visas issued to government officials. “In the past, these people were allowed to work, and given the fact that they already have a visa, this measure is probably a retaliatory move by Beijing,” this source said.

A South Korean trader with ties to the North and China said that custom checks at the border have been increased, resulting in longer delays in shipping goods. The Dandung Customs Office said concerns about drug trafficking was the reason for stepped-up measures, an explanation that some residents here say has no precedent.  

From the Daily NK:
8/17/2006

National Defense Commission’s Inspection Task Force Dispatched to Sino-Korean Border
By Kim Young Jin, Yanji of China
 
An inspection task force under the National Defense Commission (NDC) is deployed on the Sino-Korean border in order to review border security and to check defection from North Korea to China.

Kim Choon Il (a false name), a 36-year-old defector living in South Korea since 2003, said on Wednesday that in a telephone conversation with his family in North Korea on Tuesday, he was told that NDC’s inspection team came to the border area since the end of last July and inspection became much tighter.

Kim also said that the inspection task force, cooperating with local Workers’ Party office, National Security Agency, and police, blocked the Sino-Korean border.

This inspection task force is under the control of the highest state organ NDC, which surpasses the power of other previous inspection squads organized under the lesser authority.

Since the task force is directly responsible to Kim Jong Il, it is expected that the task force is granted some specific inspection guideline.

The NDC inspection squad was deployed after the UN resolution on North Korean missile crisis was passed. Also it was immediately after a flood killed thousands and created hundreds of thousands victims who lost their homes.

Dispatch of the inspection team is a measure against infiltration of outside ideology and culture and also to prevent massive defection due to recent internal and external crises.

North Korean authority sent a party inspection team to the border area in 1992 after China and South Korea normalized diplomatic relationship. Also, as the number of defectors increased since then, another inspection team under the combined control of five departments (army, security agency, prosecutor’s office, police and party) was sent.

NDC’s dispatch of an inspection task force represents the highest authority’s distrust of previous inspection teams’ activities. It’s been pointed out that due to corruption and bribery previous inspection squads were unable to root out crimes.

According to inside sources, NDC inspection task force’s primary mission is to thwart defection, leak of documents, infiltration of outsiders, guns trafficking and any other anti-socialist activities. It is confirmed that in Sino-Korean border area not only drug and counterfeit dollar bills but also guns and ammunition are smuggled.

The informant also reported that it is ordered illegal defectors and their families to be deported, and infiltrators from outside and missionaries to be executed publicly.

According to Han, a defector living in Inchon, South Korea, who is aiding North Korean refugee in China, among those who suffered flood, an increased number of them wants to escape to China or South Korea.

I stole this from Wikipedia: 

SiliBank is a financial institution based in Shenyang, Liaoning, China, closely related to the Democratic People’s Republic of Korea (DPRK).

The name “sili” means “true profit” in both Chinese and Korean.

In 2001 the bank began offering a limited electronic mail relay service to and from North Korea where Internet access with outside is limited. Along with Chesin.com, SiliBank appears to be one of only two e-mail gates to DPRK.

SiliBank maintains dedicated servers in Pyongyang and Shenyang, between which e-mail transmissions are exchanged once every 10 minutes (when the service commenced, this was hourly).

The fee for sending an e-mail to North Korea from abroad (as of May 10, 2003) costs 10 Eurocents per kilobyte for up to 40 kilobytes, and 0.2 Eurocents for each additional kilobyte in each e-mail transmission. The minimum charge per e-mail is 1 Euro. Customers must first pre-register with SiliBank with prepayment for estimated usage over a three-month period. SiliBank only allows e-mail relay between registered users of this service.

From the Donga:

China Fencing Border With N. Korea
8/12/2006

It was confirmed on August 11 that China has been building wires along its border with North Korea, around the source of the Duman River near Mt. Baekdu.

Speculations are that the wires are meant to prevent defection of North Koreans to China, or that they are aimed at drawing a clear Sino-Korea borderline in an apparent attempt to incorporate an ancient Korean kingdom into a Chinese historical timeline.

The border between North Korea and China has so far been marked with 21 boundary stones from Mt. Baekdu to the source of the Duman River.

The Chinese government was alleged to have kept fencing since the end of 2004 to prevent North Korean residents from defecting to China, but this is the first confirmation that the wires are actually in place near the mountain and the upper Duman River.

The wires are a series of 1.5 to 1.7 meters high and two to three meters wide T-shaped concrete pillars, similar to those along the Military Demarcation Line on the Korean peninsular.

Beijing reportedly claimed that the fence is there to stop North Korean defection. One Chinese source said that the Chinese government has set up wires near Mt. Baekdu around the Duman this summer and that it plans to extend them to Samhap and Yenbien where many North Korean defectors stay.

However, some raise doubts that the construction work is part of Chinese efforts to incorporate Korea’s ancient history into its own.

Given that Beijing fears that the Sino-DPRK border area will be absorbed into Korean influence in the process toward unification of the two Koreas, the world’s most populous country’s recent move could be interpreted as part of its “historic reorganization.”

Furthermore, Beijing tried to have Mt. Baekdu registered in UNESCO World Heritage and World Geopark, while developing its tourist programs near Mt. Baekdu.

Professor Kim Woo-jun at the Institute of East and West Studies said that China is set to make a clear-cut borderline on the occasion of the fifth anniversary of China’s Northeast Project ending next year. He went on to say that the wires are built up for both blocking defection and securing its sovereignty.

This view is widely held as many North Koreans pass the areas near Mt. Baekdu and the Duman River to flee their country.

Furthermore, the border fencing has something to do with the recent Sino-DPRK relations estranged by Pyongyang’s missile tests.

Professor Kim Tae-ho of the Hallym Institute of Advanced International Studies said that the change in the bilateral ties is transforming the concept on the areas between North Korea and China from “the frontier” to the “national border.” He also said that after the second North Korean nuclear crisis in October 2002, armed police border patrols were replaced with a standing army in September 2003.

from the Hankyoreh:

Pyongyang, Beijing halt visa waivers
Move a sign of chilled relations between the two
 
North Korea and China have reportedly reached agreement that visas must be obtained prior to arrival in the other country, except for visits for ’official affairs.’ Previously, travel between the two countries had been largely free of visa requirements.

A Chinese source familiar with North Korean affairs said that the dispute over visa regulations – which has caused a controversy between the two allies since the beginning of this year – was partly resolved when Pyongyang and Beijing agreed that North Korean laborers working in China will first have to get a permit of employment from China’s Ministry of Labor and Social Security. They so far have enjoyed ’no visa required’ status.

Under Beijing’s revised regulations on visa and employment, almost 50 North Korean restaurants located in Chinese major cities such as Beijing, Shanghai, Shenyang, Guangzhou, Qingdao, Yanji, and Dalian are expected to be hit more severely. Workers of these restaurants will be allowed to stay in China after obtaining a permit from the Chinese Labor Ministry.

In order to lower the unemployment rate, Chinese authorities are requesting foreign companies hire locals in positions except for technical posts. As a result, a large number of North Korean restaurants will have to close, or replace their employees with Chinese citizens. According to the source, four North Korea restaurants moved out of China last month.

Pyongyang has up to now issued three kinds of passports: those for public affairs, those for general affairs, and those for official business trips. North Koreans working at restaurants in China could enter China without visas, using passports for official business trips. However, from this year, China has required those passport holders to obtain visas in Pyongyang, as well.

Some sources note that the new visa measure indicates that the relationship between the two allies is changing from that of a closely linked socialist bond to that of ’ordinary’ nations.

From NK Zone:

Few details are available, but the zone will be in the Namyang Workers’ Zone in Unseong county, Hamgyeong Bukdo province in the extreme north of North Korea, opposite the Chinese city of Tumen

The report notes that there are roads and railways crossing the border and the area is a transit point for Chinese, Korean and Japanese goods and that citizens of third countries have access.

The agreement was signed at the Chinese embassy in Pyongyang between the head of the foreign affairs department of Hamgyeong Bukdo, Kim Cheol-geun, and the Chinese consul-general, Sun Xianyu

The report does not say if the agreement has NK central government approval, which is apparently a sticking point in the much bigger deal under which the Chinese city of Hunchun will lease the NK port of Rajin.

From the Korea Times:

Elusive Welcome Mat
By Andrei Lankov
 
It is believed that some 40,000 to 80,000 North Koreans live in Northeast China, earning money through unskilled work, or living with their Chinese partners. Some five years ago, their number was much greater _ perhaps, up to 250,000.

At first sight, defection to South Korea would be the most logical next step for these people. After all, the South Korean Constitution does not recognize the existence of North Korean state, thus every North Korean is, by definition, a citizen of the Republic of Korea (ROK), eligible to special rights and protection. However, such defections are rare _ only a few thousand North Koreans have move to the South over the last few years. Why?

The major reason is the unwillingness of the South Korean government to help refugees gain safe conduct to Korea. When a refugee manages to contact the South Korean embassy or consulate in China, he or she does not find support there. Those who have relatives in the South can use the expensive services of people smugglers (at least, $5,000 up front), but the majority have no chance to get to the South without some official support _ and this support is not forthcoming.

Among those who have been denied assistance there have even been some who would have been seen as god-given propaganda gifts 10 or 15 years ago. In 1996, for example, the South Korean Embassy in Beijing was visited by a family of six whose father, an exemplary “shock worker,’’ was once granted a rare honour _ to have his picture taken with Kim Il-sung himself. The diplomats advised the family that they were unable to do anything for them and wished the would-be defectors good luck. But they had no such luck _ they were arrested, deported back to the Democratic People’s Republic of Korea, and severely punished. A 36-year-old military officer from an elite security unit fled to China in 1996. He spent 1996-2002 repeatedly applying for permission to move to the South. He contacted the South Korean Embassy a number of times but every time the diplomats advised him “be patient and wait.’’

A defector once told a South Korean journalist: “When I first fled the North I thought that it would be easy to go to South Korea. With the help of ethnic Koreans I arrived in Qingdao [China] in August 1996. But at the Korean Consulate, on which I had pinned all my hopes, [I] was told: ‘Under the present circumstances, this is difficult.’ [I felt like] the heavens collapsed.’’

Only those who represent an exceptional propaganda value (or have had access to very important intelligence) can count on official assistance these days.

Are you going to have an outburst of righteous disgust about “heartless Seoul bureaucrats?’’ Alas, it is not that easy. There are good reasons why the South Korean officials act in such a way…

First of all, the ROK does not wish to create problems with China, which carefully maintains its neutrality in the Korean conflict and does not wish to become a transition zone for crowds of refugees heading for Seoul. South Korean officials are also wary of ethnic Koreans from China who might try to pass themselves off as North Koreans to get access to ROK citizenship.

Admittedly, those refugees who manage to cross the border again, and reach the South Korean missions in South East Asia might count on better treatment and help. But the way across China is expensive and dangerous, especially since the Chinese police are on the lookout for likely refugees from North Korea.

Nevertheless, it appears that the major reason behind Seoul’s passivity is not a set of diplomatic calculations but a tacit understanding that refugees _ largely uneducated peasants _ have little hope of adjusting to South Korean society. Indeed, the defectors seldom fare well in the South _ in spite of the generous if recently curtailed aid packages. Encouraging defection would entail a great increase in spending on the already large aid programs.

In addition, Seoul does not want to destabilize its ex-enemy. A large-scale exodus of North Koreans to the South would likely cause a serious political crisis in Pyongyang. This is exactly the scenario that South Korean diplomacy strives to prevent: in recent years the notion of “German-type unification’’ is seen as a nightmare, to be avoided at all costs. Economic considerations play a major role, but one should not forget the remote but real chance that a cornered Pyongyang would start a new Korean War as a last resort.

Are these considerations sufficient enough to justify inaction? Frankly, I do not know. Alas, in real life people often have to make difficult choices between two evils, and attempts to present such choices in black-and-white are likely to lead to more tragedies. Seoul’s policy toward the North in the recent decade has been a basket of choices between bad and worse _ even though politicians were wise enough not to call a spade a spade, guarding the feelings of the majority who prefer to comfortably see the world in black and white. But that is another story…

from the Daily NK:

Recently, concerns mounted that a counterfeit $100 “supernote” was being used as “official currency” between North Korean traders.

For a while, the supernote was used in areas of China in common trade and drug smuggling. The counterfeit money began circulating in Jangmadang and then North Korean markets, as “unofficial forms of trade”.

As of early this year, the supernote circulated amongst North Korean common traders was valued at $70, and by June, had spread throughout the whole nation. It appears that the counterfeit money is being accepted as “income currency”.

This information was obtained by North Korean and Chinese tradesmen residing both in and outside of North Korea.

On July 26th, Park Chul Woong (pseudonym, 34), a Korean-Chinese merchant in Dandong, China said “It has been a while since counterfeit money has been used as a form of transaction in North Korea. Now, tradesmen use the supernote amongst themselves to do business”.

Park said “Even if you make a small deal of $1,000, this still equates to 600 sheets of North Korean 5,000 won notes. (The largest North Korean bill) As people do not want to carry this amount of money with them, merchants use the counterfeit money instead”.

Also, Park said “Merchants do not deal with North Korean currency as they do not trust it. When inflation rises rapidly as in 2002, merchants sit around and discuss how the money has no value. However, there is nothing you cannot do with the dollar. As the dollar is scarce, merchants have resorted to using fakes.”

The traders complain that the North Korean currency has lost its value so much, that if they were to use the money for trade at markets they would have to carry numerous bags of it. They also said “Every day the market price fluctuates dramatically. The more you trade with North Korean money, the greater the loss.”

No control of counterfeit money
 
Last May, Kim Young Man (pseudonym, 38), a Korean-Chinese who went to Shinuiju for an Investment Conference, said “North Korea is unhestitantly using the counterfeit $100 note as real $70. It is of concern as to how far they will take this.”

He said “Even business employees of the National Security Office or the Department of the People’s Armed Forces General Logistics Bureau use counterfeit when paying Chinese tradesman for products such as seafood and hand-made goods. If North Korean authorities discover that counterfeit money is circulating in North Korea on such a large scale, chaos could ensue.”

Also, he said “Merchants generally carry dollars. Rich merchants store their real currency in safekeeping and use counterfeit money for “exchange”. He continued, “Although the whole world has eradicated counterfeit money, North Korea is still far behind”.

At Dandong’s economic development zone, a Chinese tradesman said “The U.S. alleges that it will eradicate the counterfeit money, but there has been little change. The value of the counterfeit money at $70 is not depreciating”.

On the one hand, tradesmen say “Apart from the supernotes manufactured by North Korean authorities, computer-made supernotes have been discovered and rejected as a means of business.”

At present, it is difficult to estimate how much counterfeit money is circulating around North Korea. However, if the counterfeit money is accepted amongst common traders at Jangmadang, this means that the counterfeit currency has reached a large scale and is spreading further.

This substantiates the failure of the North Korean authority’s implementation of foreign transaction of the Euro in December, 2002.

Last July, at the Interpol Conference on counterfeit money in Riom, France, North Korea was marked as “a hotbed of counterfeit money”. It is expected that the U.S. will take drastic measures to control the counterfeit dollars circulating throughout North Korea as official currency.

Joong Ang Daily
August 01, 2006

With North Korea more isolated than ever from the international community over its nuclear program and recent missile launches, Pyongyang is taking steps to tighten controls on its people in a bid to show it can defy the international community, North Koreans interviewed in Beijing said.

“It seems that we have to sing the revolutionary songs again,” said one North Korean in Beijing, saying it was time for his country to get mentally tougher. “Nobody listens to us, thus the only way left is to stick together,” the North Korean said.

If Pyongyang hoped to gain more concessions in nuclear negotiations and resolve the issue of financial sanctions imposed by Washington on Banco Delta Asia through its missile launch, the results have been the opposite.

A United Nations Security Council resolution backed by Pyongyang’s long-time ally, Beijing, was adopted. The Bank of China also froze North Korean accounts at its Macao branch, a Korean lawmaker has said.

In addition, a senior official of the United States Treasury Department said recently, Singapore and Vietnam have made commitments to clamp down on illicit North Korean financial activities such as money laundering.

A source in Seoul who is familiar with North Korea’s circumstances said yesterday that Pyongyang has decided to halt exchanges with the outside until April of next year. The Arirang Festival scheduled for this month has already been cancelled.

Experts said a series of economic measures aimed at reviving the North’s ailing economy, which have been underway since 2001, will also likely be put on hold.

“Inside the North, there are even some calling for a halt of the Kaesong Industrial Complex and the Mount Kumgang tours,” said the source, who added that large numbers of North Korean college students are submitting requests to enlist in the military.

Recently, a senior North Korean official on a visit to Beijing said the North is fully prepared to engage in “a march of suffering.” Recent rhetoric coming out of Pyongyang reflects a war-like atmosphere in the country. The state-run Rodong Sinmun has warned that “invaders would be swept away by the fierce anger of the country.”

A government official in Seoul yesterday admitted that in the short run, diplomatic efforts to lure Pyongyang back to nuclear negotiations would be tough. “We are in a difficult situation, but what else can we do but try?” said the official.

Nautilus Institute
Nathaniel Aden
August 2006

Paper here: Nautilus-Aden.pdf
web link here

Abstract:  China is North Korea’s largest international trading partner. Since 1995, energy and fuels have dominated bilateral trade between allies.  North Korea is a net importer of Chinese crude oil and oil products; however, it became a net exporter of electricity and coal to China in 2003.  Whereas North Korean coal and electricity exports are sold at sub-market “friendship prices,” Chinese coal and oil products have been sold to North Korea at premium prices.  Over the past ten years, North Korea’s imports have become increasingly energy-intensive, while exports have become more labor-intensive.  Chinese customs data suggest that Beijing is taking a pragmatic, market-oriented approach to trade with its reclusive neighbor, while the increasingly asymmetrical energy embodiment of bilateral trade may reflect dilapidation of North Korea’s non-military industries.

Bullet Points:
1.  In 2005, bilateral trade with the PRC accounted for 39% of North Korean international trade by value.

2. North Korean trade data are compiled by partner-country Customs Bureaus, the United Nations, and the Internaitonal Monetary fund (IMF).  China and South Korea provide the best “mirror” statistics.  Customs data do not include aid shipments, official development assistance, direct government transfers, foreign direct investment, services, remittances, barter trade, smuggling, illicit trade, trade in military equipment.

3.  The DPRK has spent an increasing amount of money on diminishing quantities of energy imports, particularly Chinese crude.  The decline of energy import volumes in the face of increasing overall imports and trade may reflect demand sensitivity to increased international market prices and/or North Korea’s lack of hard currency with which to purchase imported energy and fuels.

4. The DPRK has significant, ongoing refining capabilities.

5. Between 1985 and 2002, the DPRK domestic coal production has declined from 37.5 million tons to 21.9 million tons.  Nonetheless, North Korea increased its export quantity to 2% of total domestic production since 2002. 

6.  Starting in May 2005, North Korea has been an uninterrupted monthly electricity exporter.  Hydropower may account for much of the DPRKs surplus electric power.

7.  Energy prices reflect the pragmatic, market-oriented character of China’s economic relationship with North Korea.  North Korea may be providing China coal at subsidized prices, below those of China’s other trading partners.

8.  North Korea coal export prices show an awareness of market prices starting in 2002.

9.  The DPRK has consistently paid premium prices for Chinese oil product exports over the last ten years.

10. Aside from politically-determined prices, several conditions could explain this: 1.  Real factors (transport costs, demand, goegraphy) 2. Pyongyang’s insulation from market realities 3.  No DPRK leverage.

11. In 2005, North Korea imported $2omillion worht of trucks, $2 million worth of cars, $1 million of tractors.  The transport sector has not grown significantly since 1995.

12.  Shift of DPRK trade towards energy-intensive imports and labor-intensive exports suggests deterioration of non-military industry.

From the Donga:

The Chinese Government is hurriedly working on making the world recognize Mt. Baekdu (or Mt. Changbai in Chinese) as Chinese territory.

The Wenhui Newspaper of Hong Kong reported on July 30 that China has decided to register Mt. Baekdu on the World Geopark list designated by the United Nations Educational Scientific and Cultural Organization (UNESCO).

The Jilin Provincial Government of China has so far made efforts to get Mt. Baekdu registered as a world natural heritage site by the year 2008 when Jilin hosts the general assembly of the UNESCO World Heritage Committee. It might be fair to call this the “Mt. Baekdu Project” of incorporating the old territory of Goguryeo, an ancient Korean kingdom, into Chinese history, as it follows the Northeast Asia Project that focused on incorporating its history into China’s.

Back in 1980, China got Mt. Baekdu designated as a UNESCO Man and Biosphere (MAB) zone; the State Council designated Mt. Baekdu as a national-level natural protection zone in 1986 and has since managed it.

Mt. Baekdu has long been managed by the Yanbian Korean Autonomous Prefecture, where people of Korean origin collectively reside. Last year, the Jilin Provincial Government established the “Committee for Protection, Development and Management of Mt. Changbai,” an organization directly belonging to the provincial government and responsible for management of the mountain.

In a meeting with the “First Delegation of Chinese Internet Journalists Visiting Jilin” on July 22, Vice Director Li Zhanwun of the Committee said, “Mt. Changbai ranked second out of 17 places on the preliminary list of the nation’s cultural and natural heritage that the National Construction Ministry announced for the first time in January. Protection and development of the areas near Mt. Changbai has entered a new phase of development.”

The Committee plans to inject two billion Yuan (approximately 240 billion won) to develop the western slope of Mt. Baekdu on the Chinese side and open it around the year starting 2007.

Mt. Changbai Airport, which is currently being constructed in Fusong County 36 kilometers away from the North Korean border, is scheduled to open before the 2008 Beijing Olympics begins. The Jilin Provincial Government is also sparing no investment to expand the transportation networks near Mt. Baekdu, and is planning to complete construction of the Mt. Changbai Eastern Railroad, three highway networks and circular roadways in the next three years.

The Chinese National Tourism Agency and the Jilin Provincial Government recently held the first tourism festival near Mt. Baekdu; they are also active in attracting tourists from Russia and other foreign countries by holding the Yanbian Korean ethnic exposition. They also seek to stimulate the economy by developing mineral water in the areas nearby Mt. Baekdu and expanding cultivation of ginseng there.

Meanwhile, the Chinese government is reportedly seeking to register as UNESCO world cultural heritage the remnants of the Sanggyeong Yongcheonbu, which is the old capital of another ancient Korean kingdom—Balhae—located in the Bohai Bay, Ningan City, Heilongjiang Province.