North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No.10-01-29-1
2010-01-29   

The director of the (North) Korea Institute of Social Sciences has publically stated that the shocking currency reforms announced last November were aimed at filling the state’s public finance coffers.

In an interview for the Choson Sinbo, a newspaper distributed by the pro-North ‘General Association of Korean Residents in Japan,’ director Kim Cheol Jun revealed, “[last year’s] currency exchange program in [North Korea] was effectively carried out…through the currency exchange, socialist economic management principles could be better realized and a public finance foundation was prepared on which leaping advancements in the lives of the people will be achieved.”

Many experts in South Korea and abroad had speculated that the North’s objective in revamping its currency was to boost public coffers, but this was the first time that anyone from North Korea had publicly alluded to such goal. Director Kim stated that last year was a year ‘carved into history’ as the year in which the nation was turned around toward the realization of the goals set for 2012, noting that new seeds had been developed to boost crop yields, and that double- and triple-cropping as well as improved potato and bean crops had been accomplished.

Director Kim also stated that a decisive turn-around had been made in resolving food shortage problems, noting the successful development of Lyosell as one example of improved production in North Korea. Lyosell is a silk-like material made from wood pulp transformed into cellulose, and is softer and more hygroscopic than cotton, yet almost as strong as polyester.

Director Kim added that last year also saw the completion of the Yeoungwon Powerplant, the Yeaseong River No. 1 Youth Powerplant, and the Keumya River Powerplant, as well as the installation of Computer Numerical Control (CNC) systems in the Taean Heavy Machinery Complex, the Cheollima Steel Complex, and the Hyecheong Construction Machinery Factory.

Following the currency reform, there was a total lack of policy to stabilize the lives of the North Korean people, and the ban on foreign currency, closing of markets and other control measures only pushed residents to the brink. On December 28, North Korean authorities released a memorandum completely banning the use of foreign currency, and since the beginning of the new year, markets throughout the country have been closed, causing people in the North to turn to barter in order to obtain food. However, the schedule for the closing of markets varies by region, and the state authorities have been unable to enforce state-set pricing as the government has been faced with more than a little resistance to the currency reforms.

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-11-10-1
11/10/2009

North Korea is pouring all efforts into the construction of 10,000 family homes in Pyongyang by 2012. Whether this construction plan can be completed within the next three years will weigh on the success or failure of the regime’s goal of establishing a ‘Strong and Prosperous Nation.’

An article run on November 4 in the Chosun Sinbo, a newspaper of the Jochongryeon, the pro-Pyongyang Korean residents’ association in Japan, stated, “Currently, the construction of 10,000 family dwellings is underway in Pyongyang, and the efforts poured into this over the next 3 years will show the strength of the country.” It was also reported that “North Korean authorities are devising policies to concentrate all efforts into the construction area in order to see this through.”

The article also confirmed that the apartment construction project was part of the “effort to open the door to a ‘Strong and Prosperous Nation’,” and that completion of the project “would mean the complete solution of the people’s housing problems in Pyongyang.”

The newspaper claimed that the project is the largest project ever undertaken by the North. In the 1980s and 1990s, 5,000-unit apartments were built along Kwangbok Street and Unification Street over 4 to 5 years, but the current project is twice as large. The aim is to complete the project in 3 years. Each unit is said to be 100 square meters.

North Korean authorities are reportedly pledging that the ‘Strong and Prosperous Nation’ will not just be reflected through economic statistics or increased production, but that they are putting all efforts into increasing the standard of living for the people.

In order to meet the expected increase in demand for electricity, a hydroelectric power plant is being built in Huicheon, Chagang Province, and is expected to be complete by 2012.

It is expected that it will be difficult for the North to complete 10,000 apartments in the next 3 years, and so authorities are also conducting campaigns to repair and upgrade old production lines in factories and companies in order to meet the demand for materials. As well, Preparations are also underway to create a system of factories and businesses to produce needed materials within Pyongyang. The construction project has meant the removal of some military barracks in the area, causing some conflicts between soldiers and civilians.

The General Association of Koreans in Japan (Chongryun) have made a video about foreign direct investment and joint venture companies in the DPRK.  I have posted links to the video below.  It features the PyongSu pharmaceutical factory among other things.  It is in Korean and Japanese (with Japanese subtitles), so if there are any readers who care to translate, please let me know if there is any interesting information in the videos:

Part 1:

Part 2:

Part 3:

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-1-9-1
1/9/2009

The Jochongryeon mouthpiece, Chosun Sinbo, reported on January 5 that North Korea is working to boost economic production by establishing “concrete attainment goals” in each sector in a “yearly, phased plan” from last year until 2012 in order to reach the goal of establishing a “Strong and Prosperous Nation” by the 100th anniversary of the birth of Kim Il Sung. The paper reported that the North had not made an official announcement regarding this plan, but that it was currently in the process of implementing a 5-year economic development plan

In the textile industry, North Korea is focusing efforts on upgrading equipment in five weaving factories, including major sites in Pyongyang and Sariwon, with the goal of increasing cloth production 400 percent by 2012. The newspaper also reported that North Korea is aiming to increase coal production over the next few years, with the goal of reaching 1980s-levels of production. Coal production peaked in 1989 at 43 million metric tons, and it is estimated that North Korea has over 20 billion metric tons of coal reserves, but the Bank of (South) Korea estimates that in 2007, the North mined a mere 24.1 million metric tons of coal due to a lack of electricity and spare parts. Many of North Korea’s coal reserves are below the waterline, and require constant electricity in order for pumps to maintain an environment in which mining can take place. Last year, in order to boost coal production, North Korea increased budget allocations for energy, coal and metal industries by nearly 50 percent.

This year’s New Year’s Joint Editorial placed heavy emphasis on the metals industry, and emphasized that efforts last year to modernize equipment and improve technology increased 2008 steel production by 150 percent at the Chollima Steel Complex and the Kim Chaek Iron and Steel Complex. The newspaper stressed that these plans were not merely wishful thinking, but that they were “the basis for meaningful achievements,” pointing out that last year, the North Korean cabinet increased investment into both basic industries and vanguard enterprises 49.8 percent. In 2008, North Korea either refurbished or newly constructed over 140 new production facilities, and, “in particular, actively promoted metal, instrument, science, and light industrial sectors.”

According to the newspaper, North Korea would continue to promote economic development in the new year, as well, citing the current global economic crisis and the need to build an independent economic foundation not reliant on South Korea.

Although removal from the US list of state sponsors of terror carries little economic significance for the DPRK, its government has made this one of its top policy priorities.  Now that this has been accomplished, we must ask what the DPRK’s next move is in terms of international economic integration.  Will they push for removal of more economically-significant legal barriers which isolate them, to a large degree, from global markets (indicating reform is an important policy goal), or will we continue to see mixed signals and muddle-through policies (indicating a desire to maintain the status quo)? 

We cannot answer this question without knowing the DPRK’s overall strategy.  Today, however, a North Korean academic quoted in the Japanese media acknowledges that de-listing changes little economically, and signals that we should not expect to see much change in the DPRK’s economic environment:

Ri Gi Song, professor at North Korea’s Academy of Social Sciences, told Kyodo News in an interview that other international sanctions are still in place and “there should be no illusions” about the country’s trade environment.

“The delisting from the terror list is expected to have a certain level of beneficial impact, but this does not mean that all (international) economic restrictions have been taken away,” he said.

Ri also said Japan’s sanctions against North Korea have not had a major impact on the country’s economy but are hurting Korean residents of Japan who do business with North Korea.

“There is little impact from these restrictions on the economic development of the country, but I think there is an impact on businessmen of Chongryon,” he said, referring to the pro-Pyongyang General Association of Korean Residents in Japan.

“The Korean residents of Japan cannot come and go as they please,” Ri said.

Japan’s sanctions include a ban on port calls by North Korean vessels including a cargo-passenger ferry that provided a major means of transportation for Koreans in Japan traveling to North Korea. The sanctions also ban imports from North Korea and exports of luxury goods to the country.

The sanctions were first imposed in 2006 in the wake of an impasse in the issue of past abductions of Japanese nationals by North Korea. The sanctions are subject to review every six months and were extended in October for the fourth time.

Ri said he does not think North Korea’s centrally planned economy will be affected by the current global financial turmoil that began with the U.S. subprime mortgage meltdown.

“I don’t think it will have a direct impact on our economy, as our economy is not part of the capitalist market mechanism,” he said. (Kyodo - link requires subscription)

As an aside, Mr. [Dr.?] Ri might be surprised to learn just how exposed his country is to the “capitalist market mechanism”.

(Hat tip to Oliver for the article)

The full article can be read here:
N Korea Trade To Gain From U.S. Terror Delisting: N Korea Expert
Kyodo (subscription required)
11/4/2008

The above image is from Returned to North Korea, a documentary on the 1959 program to repatriate Japanese-Koreans to the newly founded Democratic People’s Republic of Korea. Watch the video here.

According to Bloomberg:

Japan’s government will lift some of its sanctions on North Korea after the nation led by Kim Jong Il agreed to begin a new investigation into the abduction of Japanese citizens.

Japan agreed to lift the sanctions after officials met with their North Korean counterparts in Beijing, Chief Cabinet Secretary Nobutaka Machimura said today. Japan will end travel restrictions and allow North Korean ships to load humanitarian cargo at its ports, he said.

“We see this as a certain degree of progress,” Machimura said. “But this does not change Japan’s position that it won’t participate in sending humanitarian aid to North Korea at this point.”

“The Democratic People’s Republic of Korea will reinvestigate the abduction issue,” the state-run Korean Central News Agency cited a government press release as saying in a statement today. The June 11-12 talks between Japan and North Korea were held “to redeem the inglorious past and normalize the relations between them,” KCNA said.

Japan stopped all trade and exports with North Korea in October 2006 after the country detonated a nuclear device. Japan last renewed sanctions, which it reviews every six months, in April.

Although both sides made very minor concessions, this move gives them greater political space in which to operate in the future.

Read the full article here:
Japan to Lift Some Trade Sanctions on North Korea
Bloomberg
Toko Sekiguchi and Keiichi Yamamura
6/13/2008

As the Japanese government continues talks with the DPRK (after taking a year off), A Korean woman who emigrated from Japan to North Korea in 1963 (and returned in 2003) will file an 11 million yen suit against the General Association of Korean Residents in Japan, or Chongryon, claiming the group neglected to explain the reality of North Korea to her, and as a result, it is responsible for her suffering physical and mental pain during her years in North Korea.

Some background from the AP:

Koreans form Japan’s largest minority group, with their ancestors brought to the country, often forcibly, during Tokyo’s 1910-1945 colonial rule over the Korean peninsula.

A total of 93,340 people — mostly Koreans but also their spouses and children with Japanese nationality — moved to North Korea between 1959 and 1984 in a deal between the countries’ Red Cross societies aimed at settling the legacy of the past.

Read the full stories here:
N. Korea defector to sue Chongryon over emigration program
TMC.net
6/8/2008

Defector to sue North Korean ‘embassy’ in Japan: report
Associated Press
6/8/2008

Expectations Modest as Japan, North Korea Resume Talks
Voice of America
Kurt Achin
6/7/2008

UPDATE: 
The Daily NK brings us up-to-date on the DPRK’s  anti-corruption drive.  The Daily NK analysis, however, gives the impression that Kim Jong Il is clamping down on the military, which again raises speculation that this policy is driven by concerns greater than financial leakage:

A source from Shinuiju reported in a telephone interview with Daily NK on May 14th that, “Director Jang Sung Taek has been staying at the Yalu River Hotel in Shinuiju since March, and has been directing inspections at Shinuiju Customs covering imports and exports made by rail, foreign currency-making activity organizations, and trade companies belonging to the army.”

“This inspection is decidedly different in scale and scope from previous inspections which are usually carried out every spring at Shinuiju Customs and various trading companies. The inspection usually targets simple private corruption as well as all fields related to business with China,” said the source.

The inspection group reportedly consists of some 100 agents dispatched from the Ministry of Administration, the Central Prosecutor’s Office, the National Security Agency, the People’s Safety Agency, and the Imports & Exports Guidance Bureau of the State External Economic Affairs Commission. Some 50 other agents were sent as reinforcements in late April.

…

The inspection group withdrew all trade certificates with exception of those certificates belonging to the families of anti-Japanese guerilla fighters, and those certificates issued by the Ministry of Finance or the Shinuiju Municipal Administrative Committee.  Therefore, presently at Shinuiju Customs, all import items without trade certificates issued by the above mentioned three groups have to be sent back to China.

The whole article is worth reading here.  If any readers have a thoughtful take on these events, please share them.

ORIGINAL POST:
North Korean Economy Watch has thoroughly covered news of the DPRK’s anti-corruption drive (here, here, here, here, and here).  We have speculated as to whether this campaign is motivated by primarily fiscal concerns or whether it is a broader realignment of state, party, and military portfolios necessary for a policy/personnel change within North Korea’s socialist system.

Hideko Takayama at Bloomberg highlights the fiscal aspect of the anti-corruption campaign and is the first to announce the Kim Jong Il’s brother-in-law is leading it:

Jang, 62, was sent to Beijing and the Chinese city of Dandong near the border with North Korea in February to root out corruption at North Korean corporations operating in China, the businessmen and officials said.

Jang, who was dismissed from Kim Jong Il’s power circle in 2004, was rehabilitated in December 2005 and appointed to be Director of Administration of the Workers’ party last October, an official at Chosensoren, a North Korean organization in Japan which acts as a de facto embassy, said, requesting anonymity.

The leader’s brother-in-law is also responsible for the State Security Department, the People’s Security Ministry and the Central Prosecutor’s Office, according to the Chosensoren official. In addition, Jang runs a campaign against what the government calls anti-socialist activities.

Jang’s mission was to find and punish people who were diverting profits that were supposed to be repatriated to the North Korean capital, Pyongyang.

“Jang is familiar with how the business is done outside the country and knows all about money and corrupt ways of making money,” Lee Young Hwa, professor of developing economies at Osaka’s Kansai University, said. “His assignment is like sending a thief to catch a thief.”

Read the full stories here:
Kim’s Brother-in-Law Heads North Korea Anti-Corruption Campaign
Bloomberg
Hideko Takayama
5/2/2008

Shinuiju Inspectors Investigate Corruption
Daily NK
Jung Kwon Ho, Park In Ho
5/16/2008

If you want to make money, you have to spend money. 

Excerpts from Yonhap:

North Korea regards [Chongryun] the pro-Pyongyang residents’ group in Japan as its major overseas support base. The pro-communist group operates a number of primary and junior and high schools in Japan where students of Korean ancestry learn the Korean history and language.

Kim Jong-il “sent 205 million yen as educational aid fund and stipends to the General Association of Korean Residents in Japan for the democratic national education of the children of Koreans in Japan,” the Korean Central News Agency said in a report, monitored in Seoul.

The latest North Korean financial donation comes amid warnings by international aid groups that the isolated communist country faces its worst food shortage in years.

Read the full sotry here:
N. Korea donates US$2 million to pro-Pyongyang group in Japan: report
Yonhap
4/12/2008