North Korean Economy Watch

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.

Blane Harden wrote an excellent article for the Washington Post on the KPA takeover of state-owned trading companies and how these companies are increasing natural resource exports to China.  (As an aside, China has just recently ceased publishing North Korean trade data).  This is interesting because just a year-and-a-half ago we were discussing Jang Song-thaek’s anti-corruption campaign which was supposed to be closing down KPA companies and making them reapply for export licenses with the Ministry of Foreign Trade (meaning the WPK could start dipping into the revenue pools).

Quoting from Mr. Harden’s article:

The potential profits are eye-popping: China is one of the world’s most voracious consumers of raw materials, and North Korea’s mineral reserves are worth $5.94 trillion, according to an estimate by South Korea’s Ministry of Unification. China has been critical of North Korea’s nuclear program and missile tests, but it also has vastly increased its economic ties with Kim’s government.

Kim is increasingly creaming off a significant slice of Chinese mineral revenue to fund his nuclear program and to buy the loyalty of elites, according to “North Korea, Inc.,” a recent report by the United States Institute of Peace, a Washington-based group funded by the U.S. Congress.

The report echoes the views of North Korean analysts in South Korea, Japan and the United States, who say the military has elbowed out other ministries and the Korean Workers’ Party to take control of exports that earn hard currency. The military is also sending trucks to state farms to haul away as much as a quarter of the annual harvest for its soldiers, analysts say.

“The military is by far the largest, most capable and most efficient organization in North Korea, and Kim Jong Il is making maximum use of it,” said Lim Eul-chul of the Institute for Far Eastern Studies in Seoul.

North Korea is perhaps the world’s most secretive and repressive state, but it makes no attempt to hide the ubiquitous role the military plays in the daily lives of the country’s 23.5 million people. Soldiers dig clams and launch missiles, pick apples and build irrigation canals, market mushrooms and supervise the export of knockoff Nintendo games. They also guard the country’s 3,000 cooperative farms, and help themselves to scarce food in a hungry country.

…

Missile sales were for many years major earners of foreign currency, according to a report for the Strategic Studies Institute by Daniel A. Pinkston, who is now a Seoul-based analyst with the International Crisis Group. But the cost of the arms trade has gone up and sales have declined as a result of U.N. sanctions imposed after the North’s nuclear tests in 2006 and this year, South Korean analysts say.

The military has thus turned to its new Chinese cash cow. As the army has taken over management of mines in North Korea, mineral exports to China have soared, rising from $15 million in 2003 to $213 million last year. Led by those sales, the North’s total trade volume rose last year to its highest level since 1990, when a far more prosperous and less isolated North Korea was subsidized by the Soviet Union.

A unique advantage the Korean People’s Army brings to foreign trade is a well-disciplined workforce that has to be paid — nothing. Soldiers receive food, clothes and lodging, but virtually no cash. This competitive edge makes military-run trading companies especially attractive to the North’s leadership, according to the Institute of Peace report.

Based on confidential interviews with recent North Korean defectors, four of whom said they worked for trading companies run by the military, the paper concludes that a “designated percentage of all revenues generated from commercial activities . . . goes directly into Kim Jong Il’s personal accounts.” The rest of the revenue flows into the operating budget of the military.

The full article is worth reading here.

Additionally, the report by the Institute of Peace cited above, “North Korea, Inc.”, can be downloaded here. The paper is on my reading list this weekend, but here is the introduction and conclusion:

Introduction: Assessing regime stability in North Korea continues to be a major challenge for analysts. By examining how North Korea, Inc. — the web of state trading companies affiliated to the Korean Workers’ Party (KWP), the Korean People’s Army (KPA), and the Cabinet — operates, we can develop a new framework for gauging regime stability in North Korea. Insights into the Democratic People’s Republic of Korea (DPRK)1 regime can be gained by examining six core questions related to the DPRK state trading company system. First, what are DPRK state trading companies and how did they emerge? Second, how do DPRK state trading companies operate? Third, what roles do they play? Fourth, why are DPRK state trading companies important? Fifth, what major transformations are taking place in the DPRK state trading company system? Sixth, what are the implications of the manner in which this system is currently functioning?

Conclusion:  Despite lingering problems with the fragmented Public Distribution System, the challenges of chronic food shortages, and a deteriorating economic infrastructure system, the DPRK regime has proven to be remarkably resilient. By operating North Korea, Inc. — a network of state trading companies affiliated to the KWP, the KPA, and the Cabinet — the regime is able to derive funds to maintain the loyalty of the North Korean elites and to provide a mechanism through which different branches of the North Korean state can generate funds for operating budgets. During periods when the DPRK’s international isolation deepens as a result of its brinkmanship activities, North Korea, Inc. constitutes an effective coping mechanism for the Kim Jong Il regime.

While North Korea remains an opaque country, we now have greater access to unique defectors with the following characteristics — prior experience working in DPRK state trading companies and current business dealings with former colleagues in North Korea through channels in China. By closely examining DPRK commercial activities and capabilities, a new field of North Korea analysis can be structured to produce insights into the internal dynamics of the DPRK regime. This new line of inquiry would help to broaden our understanding of an evolving North Korea.

China has ceased publishing its balance of trade with North Korea. Since China is the DPRK’s largest trading partner, this story has significant implications for all those who study the DPRK.

According to Reuters:

China has stopped publicly issuing trade data about North Korea, veiling the potentially sensitive numbers about its wary neighbour under another category while the two countries seek improved ties.

Destination and origin statistics on China’s imports and exports for September issued on Monday gave no separate numbers for second straight month for the Democratic People’s Republic of Korea, the formal name of the North, as they have long appeared in the tables.

The trade tables for coal, crude oil, oil products and cereals issued by China’s General Administration of Customs instead used another category, “other Asia not elsewhere specified”, which for those commodities at least appeared to cover exclusively trade flows between China and the North.

Analysts and officials have used Chinese statistics to gauge otherwise opaque ties between the two communist neighbours. But North Korea has stopped appearing in the Chinese data since last month, when statistics for August also avoided mention of it.

The change may help Beijing to obscure shifts in economic flows with the North, which relies on China for most of its trade and aid.

In the build-up to North Korea’s first nuclear test in Oct. 2006, the trade data showed China cut crude oil shipments to the North in September, although it was unclear whether the stoppage was a calculated gesture or due to more prosaic problems.

An official in charge of data services at the Customs Administration told Reuters that the change would last, but would not say why. Reuters and other companies buy the data.

“We’re no longer issuing trade data about North Korea,” said the official, who declined to give her name. “We’re not allowed to issue the data anymore.”

She declined to answer further questions, referring them to another data services official.

That official, Xu Xianghui, said the data could not be released because of a “technical fault”. But Xu said it was unclear if that fault would ever be fixed.

This is a rather blunt statement by the unnamed Chinese official.  There was not even an attempt to offer a justification. The decision to cease publishing the data obviously originated at the top of the Chinese leadership and the employees at the Chinese Customs Administration were probably told to relay (exactly) the simple message delivered above.

I wonder how long the Chinese officials at the top sat around trying to think of an acceptable public justification before just giving up.  I am trying to think of one now but not having much luck.

Lets hope that his policy is eventually reversed.

UPDATE (quasi-related) from the Choson Ilbo:

When Chinese Premier Wen Jiabao’s visited Pyongyang in October, North Korea and China boasted they had opened a new era of cooperation. The two countries described their talks as “constructive” even though no palpable progress was made in the North’s nuclear issue. But according to a senior source in North Korea, one significant step was a secret agreement to restore intelligence cooperation.

No details have been disclosed, but it is presumed that this refers to cooperation between traditional intelligence agencies including North Korea’s External Liaison Department and Operational Department rather than in ferreting out and repatriating North Korean defectors. The source said the two sides put the agreement into writing to strengthen their defense against South Korea, the U.S. and Japan.

North Korea is said to have asked China to provide intelligence about North Korean defectors and anti-North Korean government activities in China, while China reportedly asked the North to cooperate on cracking down on drug trafficking and counterfeiting of dollars or yuan.

Read the full article here:
China hides North Korea trade in statistics
Reuters
Chris Buckley
10/26/2009

According to the Choson Ilbo:

Nachod is a small village in the Czech Republic around three hours by car from the capital Prague. It is an isolated place sparsely dotted with farm houses. On the outskirts of the village is a two-story factory called Snezka that manufactures sheets for cars and travel bags. Until 2007, the factory was filled with North Korean women who had gone there to work.

The European press described the women as “21st century slaves,” being watched 24 hours a day by North Korean minders and required to wire most of their earnings back to North Korea. The Czech government eventually sent back all North Korean workers by 2007, including the 90 women who had been working for Snezka.

As orders from European automakers skyrocketed, the number of staff at Snezka rose to around 700, but it was difficult to find cheap and dependable workers in such a remote place. That was when the North Korean Embassy in the Czech Republic called to offer the services of “loyal” workers. The first handful of North Koreans who were hired proved to be excellent workers and the factory kept on hiring more. “From an employer’s perspective, they were ideal workers,” one executive recalls. “Unlike Czech or Ukrainian workers, the North Koreans never wasted time drinking coffee and chatting. They were very good with their hands too. They were extremely accurate in their sewing, as if machines had done it.”

The executive objects to the term “21st century slaves.” The North Koreans worked eight hours a day, five days a week in two shifts — 6 a.m. to 2 p.m. and 2 p.m. until 10 p.m. Weekends earned them an extra 75 percent of their daily incomes, a standard uniformly applied to both North Korean and other workers. Factory staff say the North Koreans led a dull existence. Three or four lived in a house supplied by Snezka, and they traveled in groups of five or six even when they were going for a short walk around the factory.

They rarely talked to other workers. One worker from Poland says, “I never heard them say a single word about their family, friends or hometowns.” In time, around half of the 90 North Korean workers were able to communicate in Czech, but they were still said to be “quiet.”

Here is the town of Nachod.  I have not located the factory yet.

Previous posts on this story here (first) and here (second).

Also, North Korea gets trams from the Czech Republic.

Read the full sory below:
Czech Factory Regrets Departure of N.Koreans
Choson Ilbo
10/28/2009

According to the article:

The U.N. expert panel set up to assist the implementation of sanctions on North Korea began formal operations Friday.

Six of seven panel members attended a meeting convened by the U.N. Security Council’s sanctions committee on North Korea.

The expert panel has been established under Resolution 1874, which the Security Council adopted on June 12 in response to North Korea’s second nuclear test on May 25.

The panel is to play an auxiliary role in implementing the penalties the sanctions committee worked out following the nuclear test.

Kyoto University graduate school professor Masahiko Asada, the panel member representing Japan, told reporters after the closed meeting that the participants had a ”good” discussion. He is an expert on arms trade control and the nonproliferation of weapons of mass destruction.

Asada and six other members were selected from the five permanent Security Council members — Britain, China, France, Russia and the United States — plus Japan and South Korea.

Turkish Ambassador to the United Nations Ertugrul Apakan, who chairs the sanctions committee, described the meeting as ”useful.” But he declined to elaborate, citing the confidential nature of the proceedings.

A U.N. diplomatic source said the seven panel members have already begun work on an individual basis, aiming to compile their first report in mid-November.

U.N. Secretary General Ban Ki Moon named the seven members in the summer and the panel was initially to have started work in September. But the Chinese representative quit and the selection of a new representative for the country took time, delaying the panel’s first meeting until Friday.

In mid-July, the sanctions committee worked out a new set of sanctions on North Korea, imposing a travel ban on five officials and asset freezes on five entities for their involvement in nuclear weapons and missile development programs. The entities were in addition to three the committee designated in April.

U.N. members are also reportedly considering expanding a list of individuals and entities subject to sanctions depending on new information from member states.

The expert panel is tasked with collecting information and analyzing the implementation of the sanctions. It can recommend that either the Security Council or the sanctions committee take action if it deems their efforts to punish North Korea insufficient.

The sanctions committee was set up after the Security Council adopted Resolution 1718 in October 2006 following Pyongyang’s first nuclear test.

Track this year’s US and UN sanctions activities starting here.

Read the full article here:
U.N. expert panel on N. Korean sanctions begins operation
Kyodo News
10/30/2009

UPDATE: Contrary to earlier reports (below) that South Korea was set to begin importing sand from the DPRK, it turns out that they are tightening import restrictions on goods from the DPRK.  According to Yonhap:

The government has tightened rules on imports of sand, pine mushrooms and anthracite from North Korea, the Unification Ministry said Tuesday, in an apparent move to keep a close eye on cash flows into Pyongyang.

The three items have been allowed into South Korea only with a declaration to the customs office, but the toughened rules now require their importers to receive approval from the unification minister, said ministry spokeswoman Lee Jong-joo.

“Inter-Korean trade volumes of pine mushrooms, sand and anthracite have rapidly increased recently,” Lee said in a press briefing, without specifying the hike rates.

“This revision was prepared in consideration of two things — transparency of inter-Korean trade and keeping the import volume at a proper level,” she added.

Seoul has so far required approval from the unification minister, only when excessive imports of a certain item are feared to harm local producers. Those three items are not considered to fall into that category.

North Korean sand has been rumored to be linked to the country’s military. The concerns prompted Seoul to ban local sand importers from traveling to North Korea after it launched a long-range rocket in April, and such trips are not still allowed.

Last year, US$73.35 million worth of sand, $14,93 million of pine mushrooms and $25.1 million of anthracite were imported from North Korea. Sand was the largest imported item, while anthracite was 9th and pine mushrooms 18th.

With the tightened entry rules, the government can “make a judgment on the site about whether each business is appropriate and get sufficient information about them, thereby enhancing the transparency of inter-Korean trade and its soundness,” the spokeswoman said.

Read the full Story here:
South Korea stiffens import rules on N. Korean products
Yonhap
10/27/2009

ORIGINAL POST: RoK looking to import sand from DPRK (again)
According to Yonhap:

South Korea has suspended sand imports from North Korea since April, when the North test-fired a long-range rocket. Seoul had banned sand importers from traveling to the North.

South Korea first brought in North Korean sand for use at local construction sites in late 2002, as part of an inter-Korean accord signed by leaders of the two Koreas in 2000.

“The government is reviewing the resumption of imports of the North’s sand, given strong requests from businesses and the overall state of current inter-Korean relations,” an informed government official said, requesting to be unnamed.

The South Korean government is expected to decide soon whether to lift the travel ban on sand importers as well, according to officials.

Seoul reportedly placed the travel restriction on sand importers due to suspicions that payments for sand shipments were pocketed by military authorities in the North.

Read other stories about the sand trade here.

Read the full story below:
Seoul mulls resuming sand imports from N. Korea: sources
Yonhap
Tony Chang
10/22/2009

From GPI:

PDF Brochure here.

In the current financial and economic situation, companies face many challenges. They must cut costs, develop new products and find new markets. In these fields, North-Korea might be an interesting option. Since a few years, it is opening its doors to foreign enterprises. The labor costs are the lowest of Asia, and its skilled labor is of a high quality. It established free trade zones to attract foreign investors and there are several sectors, including textile industry, shipbuilding, agro business, logistics, mining and Information Technology (computer games, animation) that can be considered for trade and investment. Heineken is an example of a  Dutch company, active in North-Korea. Its beer is now widely available (see photo).

In order to explore these business opportunities, a Dutch trade delegation visited North-Korea in September. See a report of this mission here. Are you interested as well? Then join our upcoming mission in May 2010, when we will also visit the annual Pyongyang Spring International Trade Fair. This fair can also be used by European companies to come in contact with potential buyers and suppliers in North-Korea, by using a booth. It is also possible for us to organize individual business tours, for participants from a single company.

With best regards,

Paul Tjia (director)
GPI Consultancy
P.O. Box 26151
3002 ED Rotterdam, The Netherlands
E-mail: paul@gpic.nl
tel: +31-10-4254172
fax: +31-10-4254317
Web: www.gpic.nl

I have not read the full report yet, but here are the details:

PRESS RELEASE EXCERPT: A newly released Asia Society/U.C.-Institute on Global Conflict and Cooperation report focuses on economic engagement with North Korea as a peaceful means of inducing change in the DPRK. As the likelihood of some form of US-DPRK talks increases, this report proposes a fundamental rethinking of Washington’s approach toward the DPRK. Economic engagement, properly integrated into a system of sanctions, can transform North Korea into a country that can better provide for its people’s welfare and engage with other countries in a non-hostile manner. As the report shows, North Korea’s history of experiments with reform is limited, and domestic resistance to transition is formidable. But recent trends and tentative past efforts suggest some impulse toward reform and opening from within. North Korea should be actively engaged from the inside to encourage change in its domestic and foreign policy.

The report identifies a number of potential benefits to the U.S. and its allies of economic engagement with the DPRK.

* Economic engagement would encourage the transformation of the DPRK’s political economy and foreign policy, with direct benefits to international peace.
* It would open space for the Korean people to have greater contact with outsiders, and vice versa.
* It would reinforce changes that are already taking place from the ground up.
* An active economic engagement policy would bring the long-term strategic approach of the U.S. into alignment with those of its allies and partners.

The report recommends a combination of the following avenues to initiate the new policy approach: official contacts, Track Two dialogues, academic exchanges, and non-governmental organizations’ (NGOs) development programs. The report further recommends that the U.S. government adopt a new visa policy to increase contacts significantly. Finally, the report suggests how the U.S. could help enable international financial institutions to begin to interact with North Korea.

Download the full report here (PDF).

According to Yonhap:

Inter-Korean trade grew for the first time in 13 months in September amid improving global economic conditions and eased cross-border tensions, customs data showed Monday.

According to data compiled by the Korea Customs Service, trade between South and North Korea amounted to US$173.17 million last month, up 2.6 percent from a year earlier when the global financial turbulence first began following the collapse of Lehman Brothers.

Also according to Yonhap however, the DPRK and RoK failed to agree on an aid-for-family reunions deal:

The two Koreas on Friday ended their day-long negotiations over further cross-border family reunions and other humanitarian issues without reaching any concrete agreement, with Pyongyang asking for resumption of aid by Seoul, officials said.

In the meeting arranged by Red Cross offices from both sides, South Korea proposed holding new rounds of reunions for families separated by the 1950-53 Korean War next month in both Seoul and Pyongyang, and again around February at the North’s Mount Kumgang resort.

But aid is not off the table.  According to the Korea Times today:

The government has been reviewing whether to subsidize non-government organizations through the inter-Korean cooperation fund in order to provide aid to North Korea, according to the Ministry of Unification, Monday.

“The government is mainly checking plans to offer health and medical care,” ministry spokesman Chun Hae-sung told reporters. “But details have yet to be determined.”

Chun reiterated that Seoul is sticking to its existing stance that it will provide North Korea with humanitarian assistance regardless of the political climate.

According to government sources, the subsidy would total less than 1 billion won (about $853,000).

The plan, however, is not related to North Korea’s request for humanitarian aid made during the inter-Korean Red Cross talks last Friday, the sources said.

Seoul has also been reviewing whether to provide the reclusive state with government-level support such as food and fertilizer aid, according to ministry officials.

The inter-Korean cooperation fund has served as a lifeline for cross-border business projects, including the Gaeseong Industrial Complex and the Mt. Geumgang tourism program, which has been suspended.

It is also a main source of South Korea’s economic aid to the impoverished North.

The cash pot was introduced in 1990 in order to boost personal exchanges, economic cooperation and trust-building between the two Koreas.

In August, the ministry approved a plan to subsidize 10 civic groups with approximately 3.6 billion won ($3 million) from the fund for relief activities involving North Korean babies, pregnant women and other social minorities.

The government originally planned to distribute the money starting from April but North Korea’s provocations postponed the plan.

As reported before, the South Korean government has spent just 5% of the funds it budgeted for inter-Korean projects this year.

At the same time North Korea is soliciting aid from South Korean and Western religious origanizations.  See here, here, and here in just the last few days.

BBC Monitoring Service
October 13, 2009
Source: The Standard website, Nairobi, in English 13 Oct 09

Text of report by Ally Jamah entitled ” Kenya gets into ties with North Korean republic” published by Kenyan privately-owned daily newspaper The Standard website on 13 October

Kenya has established diplomatic relations with North Korea.

North Korean Ambassador Pak Hyon Jae presented his diplomatic credentials yesterday to President Kibaki at State House, Nairobi, before proceeding to a luncheon hosted by Foreign Affairs Minister Moses Wetang’ula at the Intercontinental Hotel. He, however, declined to speak to the media during and after the ceremony.

Also feted in the same luncheon were diplomatic representatives from Trinidad and Tobago, Niger, Qatar and Sierra Leone.

North Korean leader Kim Jong II never travels outside the country and maintains a strict centralized military state.  In the past 60 years, the country has been technically at war with the USA over its nuclear and military capabilities.

In his speech, Mr Wetang’ula expressed support for North Korea’s nuclear programme if peaceful and non-military, adding Kenya was also seeking nuclear technology to generate energy for its expanding economy.

“We welcome North Korea to Kenya, just as we welcome any other nations, because we have so much to exchange and  share,” he said. But Wetang’ula was quick to dismiss suggestions that Kenya could borrow nuclear technology from North Korea to generate energy for the country.

“If we need nuclear power we don’t have to go to North Korea alone, we are in friendly terms with many nuclear states, who are too happy to share with us,” he said. He said the University of Nairobi was doing good work in preparations to introduce nuclear energy into mass use in the country.

The North Korean mission will be managed from Kampala, Uganda, where the country maintains a full diplomatic presence. The USA, one of Kenya’s key allies in military and economic fronts, has no diplomatic relations with North Korea.

Here is the location of the North Korean Embassy in Kampala.
Here is their address/contact info:
10, Prince Charles Drive, Kololo
PO Box 5885
Kampala, Uganda
Phone: +256-41-2546033, +256-41-343424
Fax: +256-41-250224