North Korean Economy Watch

By Michael Rank

Direct flights are planned between Pyongyang and Shanghai, as well as charter flights from Chinese cities to the North Korean capital, a Chinese website reports.

It gives few details, but says the plans follow two visits by Shanghai tourism officials to Pyongyang in June.

At present the only direct flights are from Beijing and Shenyang. The report says there are hopes of attracting more tourists from the Shanghai region and mentions the possibility of charter flights from nearby Hangzhou.

It quotes the Shanghai officials who visited Pyongyang as finding the city “quiet” and “clean”. A separate report notes that because of “tension on the Korean peninsula” Shanghai residents haven’t been terribly interested in visiting North Korea, but this is now expected to change.

In loosely related news, a North Korean delegation in June visited the northern Chinese city of Tianjin, where they are reported to have toured the European Airbus factory where the A320 is being assembled and which opened last year. Rather surprising, given the high tech nature of such a plant… The first Airbus assembled in China was delivered the day after the North Korean visit. The North Korean delegation was led by the deputy chairman of the Central Inspection Bureau, Choi In-hak최인학.

According to Aung Zaw in the Wall Street Journal Aisa:

A government report leaked by a Burmese official last month shed new light on these ties. It described a Memorandum of Understanding between Burma and North Korea signed during a secret visit by Burmese officials to Pyongyang in November 2008. The visit was the culmination of years of work. Diplomatic relations between the two countries were cut in 1983 following a failed assassination attempt by North Korean agents on the life of South Korean President Chun Doo Hwan while he was visiting Rangoon. The attack cost 17 Korean lives and Burma cut off ties.

One of the first signs of warming relations was a barter agreement between the two countries that lasted from 2000 to 2006 and saw Burma receive between 12 and 16 M-46 field guns and as many as 20 million rounds of 7.62 mm ammunition from North Korea, according to defense analyst Andrew Selth of Griffith University in Australia. In exchange, Burma bartered food and rice.

The two countries formally re-established diplomatic relations in April 2007. After that, the North Korean ship the Kang Nam — the same ship that recently turned away from Burma after being followed by the U.S. navy — made a trip to Burma’s Thilawa port. Western defense analysts concluded that the ship carried conventional weapons and missiles to Burma.

This laid the ground for the MoU signed in November, when Shwe Mann, the regime’s third-most powerful figure, made a secret visit to North Korea, according to the leaked report. Shwe Mann is the chief of staff of the army, navy and air force, and the coordinator of Special Operations. He spent seven days in Pyongyang, traveling via China. His 17-member delegation received a tour around Pyongyang and Myohyang, where secret tunnels have been built into mountains to shelter aircraft, missiles, tanks and nuclear and chemical weapons.

The MoU he signed formalizes the military cooperation between the two countries. According to the terms of the document, North Korea will build or supervise the construction of special Burmese military facilities, including tunnels and caves in which missiles, aircraft and even naval ships could be hidden. Burma will also receive expert training for its special forces, air defense training, plus a language training program between personnel in the two armed forces.

Shwe Mann’s delegation also visited a surface-to-surface missile factory, partially housed in tunnels, on the outskirts of Pyongyang to observe missile production. The Burmese were particularly interested in short-range 107 mm and 240 mm multirocket launchers — a multipurpose, defensive missile system used in case of a foreign invasion. Also of great interest was the latest in antitank, laser-guided missile technology.

Previous Myanmar – DPRK posts here.

Read the full story below:
Burma and North Korea, Brothers in Arms
Wall Street Journal Asia
Aung Zaw
7/10/2009

According to Yonhap:

Seoul will stiffen control of South Korean goods going into North Korea, mostly banning luxury items such as wine and fur, the Unification Ministry said Thursday.

The restrictions, to take effect as of Friday, are in accordance with U.N. Security Council (UNSC) Resolution 1874 adopted after North Korea’s second nuclear test on May 25. The resolution prohibits weapons trade with Pyongyang and calls on member states to tighten the sanctions imposed on Pyongyang after its first nuclear test in October 2006. The earlier UNSC resolution bars exports of luxury goods to the North.

The ministry said it will require prior authorization for South Koreans carrying in items from 13 categories including liquor, cosmetics, jewelry, fur products and automobiles.

The government will allow exceptions for South Korean government and business officials who carry in the listed items during travel between the two Koreas on official duty or for personal use during their stay in the North, ministry officials said.

“The government’s approval will depend upon whether it believes the goods will be used by South Koreans or given to North Koreans,” an official said.

Read the full story here:
Seoul to enforce new restrictions on goods going into N. Korea
Yonhap
Tony Chang
7/9/2009

According to Fox News:

A spokesman for the World Food program has confirmed to FOX News that on July 3, the emergency relief organization was ordered to limit food deliveries to 57 of the 131 North Korean counties it previously served. At the same time, the agency was told that it must give seven days’ notice of visits to oversee food deliveries at all of its relief sites — a sharp change from the one-day notice previously required under a deal to retain U.S. support for North Korean relief efforts. As a result, the spokesman said, WFP is “reviewing the current terms and conditions for our work” in North Korea, “to ensure that our work and our accountability is not compromised.”

Additional constraints were also slapped on the child relief organization UNICEF in June, according to a spokesman, Chris de Bono. He told FOX News that the regime banned UNICEF from operating in its northerly Ryanggan province, which borders China, and is one of the impoverished country’s poorest areas. UNICEF still operates in 56 other counties across North Korea.

The restrictions make even more dire the food situation in a country where starvation and malnutrition are widespread, even as the Kim regime continues to set off atomic blasts and fire missiles in the direction of Japan and Hawaii.

Furthermore, they once again raise questions about the U.N.’s ability to monitor whatever relief activities that remain in the country. UNICEF’s spokesman told FOX News that only WFP had won the right to 24-hour notification for inspection visits, and that all other U.N. institutions in North Korea have operated with the one-week request limit as a matter of course.

UNICEF has ten international staff and 20 local staffers in North Korea. None of the international staff speak Korean. The agency is budgeted to spend $13 million a year on North Korean operations, principally on food for infants, children and pregnant women, along with emergency vaccination programs, essential medicines and clean water supplies.

But nowhere near that amount of money from international donors is currently available. According to its Web site, UNICEF has received only 10 percent of the total, or about $1.3 million, undoubtedly a result of the North Korean regime’s aggressive pursuit of nuclear weapons. Unless more money is received soon, the UNICEF spokesman said, “it will be difficult to maintain the current level of operations and this will have serious negative consequences for children and other vulnerable people.”

The same funding shortfall applies to the World Food Program, which told FOX News a month ago that donor nations had provided only $75.4 million toward a 2009 goal of $503 million for North Korea, with more than half of that amount — $38.8 million — food aid that was not delivered in 2008.

The only other U.N. agency that has significant operations in North Korea, the United Nations Population Fund, reports that it has received no curtailment in its activities, but it only operates in 11 North Korean counties. It was slated to spend roughly $8.3 million in North Korea between 2007 and 2009, chiefly for birth control and other forms of “reproductive health” and for helping the regime collect population statistics.

Nonetheless, a big question mark still hangs over the North Korean operations of the United Nations Development Program, the U.N.’s major anti-poverty agency, which suspended operations in North Korea in 2007 in the wake of revelations from an independent inquiry that it had wrongfully provided millions in hard currency to the North Korean regime, ignored U.N. Security Council sanctions in passing on dual-use equipment that could conceivably be used in the country’s nuclear program, and allowed North Korean government employees to fill key positions.

Read the full story below:
North Korea Cuts Off More U.N. Relief as Nation Starves
Fox News
George Russell
7/7/2009

According to Reuters:

Countries appear even less willing to give following North Korea’s second nuclear test in May, Torben Due, the U.N. World Food Programme representative in North Korea, told a news conference in Beijing.

“It’s a very sensitive area. I understand to a certain extent why donors are questioning,” he said. “But my angle is as a humanitarian. Being a humanitarian organisation you should look at the needs of the people. WFP does not engage in the political part of it.”

Due said no new donations had been received following that second test.

An appeal for more than $500 million in food aid has been just 15 percent met, meaning a planned relief operation to reach 6.2 million people has been scaled back to target 2 million.

Due, who lives in Pyongyang and was passing through the Chinese capital, told of the human toll of the state’s struggling economy and international seclusion, with mothers and children stunted by starvation.

“We are now in the middle of the lean season in North Korea, where food supplies are low and it’s a very difficult situation for many people in the country,” he said.

“But more importantly it should be noted that we have a situation where a very large part of the population has been undernourished for 15 or 20 years.”

In some parts of North Korea, some women weigh just 45 kg (99 lb) when they give birth, he added, citing a medical survey.

“The children that survive these conditions will be born with compromised immune systems … and that will contribute to their stunting,” Due said. “It’s a problem which goes from one generation to the next.”

Given the DPRK’s prerogatives, however, the US is not inclined to send food aid.  According to the Associated Press:

The United States said Wednesday it is “very concerned” about the North Korean people but cannot send needed food aid without assurances from their Stalinist government that it will reach them.

“We currently have no plans to provide additional food aid to North Korea and any additional food would have to have assurances that it would be appropriately used,” Kelly told reporters.

“We remain very concerned about the well-being of the North Korean people,” the spokesman said.

“But we are very concerned because we need to have an adequate program management in place, monitoring and access provisions and we don’t have that right now,” he added.

He recalled that in March North Korea expelled non-governmental organization (NGO) monitors in line with its decision to reject US food aid.

“At that time we had about 22,000 metric tonnes in storage there. We’ve learned that the DPRK (North Korean) has distributed this food,” Kelly said. 

I have not seen any food prices from North Korean markets in a while.  If anyone has come across any, please send them to me. 

Recent defectors offer a more nuanced account:

The food supply in the North may have improved slightly in the past two years due to better weather, but Jo said food still is hard to come by. “Even last year, we had a campaign in Kangwon province of getting by with two meals a day. Soldiers sometimes would just get three potatoes a day.”

There is a thriving market economy in North Korea at the local level where the average person buys food staples and consumer goods often made in China. Private plots of land are increasingly used for providing food for one’s family, said Cho Myungchul, a researcher who was an economist in the North before defecting to the South 15 years ago. (Reuters)

Read more here:
U.N. says North Korea food aid has dried up
Reuters
Ben Blanchard
7/1/2009

US cannot send food aid to NKorea despites its concerns
AFP
6/1/2009

Life in North Korea: lies, potatoes and cable TV
Reuters
Jack Kim
7/1/2009

On January 21, the day after the Obama administration took office, the White House approved certain trade sanctions–initiated by the Bush administration–to be printed in the Federal Register.  These sanctions targeted specific Chinese, Iranian, and North Korean companies that the US believes were/are violating arms export regulations governing missile technology and other proliferation activities.  [Read more, including Federal Register text, here]

After North Korea conducted a long-range missile test in April, the US pushed the UN Security Council to adopt a presidential statement which blacklists several additional North Korean firms. [Read more here].

After North Korea conducted a second nuclear test, in violation of UNSC resolution, the UNSC adopted a resolution which tightened sanctions on the DPRK. [Read more here]

In June, the South Korean government imposed sanctions on these DPRK companies for the first time [Read more here]

The US followed up the UNSC resolution by announcing an inter-agency team that will focus exclusively on enforcing DPRK sanctions [Read more here] 

Today, the US Treasury Department announced it was targeting Hong Kong Electronics (Kish Island, Iran) [from where a former FBI agent is still missing] for supporting the balcklisted North Korean organizations.  According to Market Watch:

The Treasury Department said Tuesday that it has targeted another player in North Korea’s missile proliferation network. The agency designated Hong Kong Electronics, located in Kish Island, Iran, for providing support to North Korea’s Tanchon Commercial Bank and Korea Mining Development Trading Corp. Those two firms have been targeted by the U.S. and the United Nations as part of North Korea’s nuclear proliferation network. “Today’s action is a part of our overall effort to prevent North Korea from misusing the international financial system to advance its nuclear and missile programs and to sell dangerous technology around the world,” said Stuart Levy, Treasury under-secretary for terrorism.

What does this mean? It means that any bank accounts or other financial assets found in the United States belonging to the company must be frozen. Americans also are forbidden from doing business with the firm. This probably does not amount to much economically, but is probably intended to discourage banks outside of the US from doing business with these firms.

UPDATE 1: It looks like the State Departmet is also going after a North Korean company believe to be involved in weapons proliferation today.  According to a statement by the Treasury Department:

The U.S. Department of the Treasury today targeted North Korea’s missile proliferation network by designating Hong Kong Electronics under Executive Order 13382.  E.O. 13382 freezes the assets of designated proliferators of weapons of mass destruction and their supporters and prohibits U.S. persons from engaging in any transactions with them, thereby isolating them from the U.S. financial and commercial systems.  Hong Kong Electronics, located in Kish Island, Iran, has been designated for providing support to North Korea’s Tanchon Commercial Bank (Tanchon) and Korea Mining Development Trading Corporation (KOMID).

Tanchon and KOMID have also been designated by the United States under E.O. 13382 and the UN Security Council under Resolution 1718. The Department of State also today targeted North Korea’s nuclear proliferation network by designating Namchongang Trading Corporation (NCG), a North Korean nuclear-related company in Pyongyang, under E.O. 13382. 

“North Korea uses front companies like Hong Kong Electronics and a range of other deceptive practices to obscure the true nature of its financial dealings, making it nearly impossible for responsible banks and governments to distinguish legitimate from illegitimate North Korean transactions,” said Stuart Levey, Under Secretary for Terrorism and Financial Intelligence. “Today’s action is a part of our overall effort to prevent North Korea from misusing the international financial system to advance its nuclear and missile programs and to sell dangerous technology around the world.”

Since 2007, Hong Kong Electronics has transferred millions of dollars of proliferation- related funds on behalf of Tanchon and KOMID. Hong Kong Electronics has also facilitated the movement of money from Iran to North Korea on behalf of KOMID. Tanchon, a commercial bank based in Pyongyang, North Korea, is the financial arm for KOMID – North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons.

Tanchon plays a key role in financing the sales of ballistic missiles for KOMID. Tanchon has also been involved in financing ballistic missile sales from KOMID to Iran’s Shahid Hemmat Industrial Group (SHIG), which is the Iranian organization responsible for developing liquid-fueled missiles. SHIG has been designated under E.O. 13382 and sanctioned by the United Nations under UN Security Council Resolution (UNSCR) 1737. Since 2005, Tanchon has maintained an active relationship with various branches of Iran’s Bank Sepah, an entity designated under E.O. 13382 and sanctioned by the United Nations under UNSCR 1747, for providing financial services to Iran’s missile program. The U.S. has reason to believe that the Tanchon-Bank Sepah relationship has been used for North Korea-Iran proliferation-related transactions.

Here is the press release by the State Department:

The U.S. Department of State today targeted North Korea’s nuclear proliferation network by designating Namchongang Trading Corporation (NCG) under Executive Order 13382. E.O. 13382 is an authority aimed at freezing the assets of proliferators of weapons of mass destruction and their supporters, and at isolating them from the U.S. financial and commercial systems. Entities designated under E.O. 13382 are prohibited from engaging in all transactions with any U.S. person and are subject to a U.S. asset freeze.

NCG is a North Korean nuclear-related company in Pyongyang. It has been involved in the purchase of aluminum tubes and other equipment specifically suitable for a uranium enrichment program since the late 1990s.

The Department of the Treasury also today designated Hong Kong Electronics, located in Kish Island, Iran, for providing support to North Korea’s Tanchon Commercial Bank (Tanchon) and Korea Mining Development Trading Corporation (KOMID). Tanchon and KOMID were designated by the United States under E.O. 13382 on June 28, 2005 and the UN Security Council under Resolution 1718 on April 24, 2009.

North Korea’s April 5, 2009 launch of a Taepo Dong-2 (TD-2) missile and May 25, 2009 nuclear test demonstrate a need for continued vigilance with respect to North Korea’s activities of proliferation concern. The designations add to continuing U.S. efforts to prevent North Korean entities of proliferation concern from accessing financial and commercial markets that could aid the regime’s efforts to develop nuclear weapons and the missiles capable of delivering them.

McClatchy has more here.

According to the Washington Post:

The White House is ramping up its efforts to enforce sanctions against North Korea by forming a new interagency team to coordinate U.S. actions with other nations, senior administration officials said today.

The new team will be led by former ambassador to Bolivia Philip S. Goldberg, who is slated to leave for China in the near future as the U.S seeks concerted action to stop the North Korean regime from developing nuclear weapons.

“There is a broad consensus about the need to have a focused and engaged effort to see that these sanctions are implemented … and that we’re sharing information with each other,” one official said, speaking on background.

U.S. officials described the new group as a way to focus the administration more squarely on implementation of the latest sanctions, which were approved by the United Nations in the wake of North Korea’s nuclear test last month.

The officials said they are hoping the group — with representatives from the State Department, the White House, the National Security Agency, Treasury and others — will help “shine a spotlight” on the actions of the regime.

“We wanted somebody who woke up every morning and thought about nothing but sanctions implementation,” one official said. “It’s a huge difference when you have somebody who isn’t worried about any of the other aspects of this.”

The White House also announced a renewed effort to use the authority of the U.N. resolution to take financial actions against the North Korean regime in an effort to choke off the money flowing from small arms trade and other activity.

Treasury officials have issued a public memorandum to private financial institutions reminding them of the global condemnation and other risks of doing business with the North Korean regime.

The letter warns that North Korean banks and institutions often use deceptive techniques to engage in financial transactions that could place legitimate financial firms at risk.

“Financial institutions should apply enhanced scrutiny to any such correspondent accounts they maintain, including with respect to transaction monitoring,” the letter states.

One senior official said the U.S. is confident that the financial sanctions will over time help to further isolate North Korea and pressure its leaders to abandon its nuclear program.

“It’s going to take time to have a bite,” he conceded. “But we’re trying to get out of the box quickly.”

The Bush administration also had a sustained effort to implement United Nations sanctions after North Korea first tested a nuclear weapon in 2006.

The Counterproliferation Directorate of the White House National Security Council coordinated the effort, while the State Department and Treasury also co-chaired an interagency effort to examine specific cases that eventually worked their way up the chain for approval.

A team of senior officials, led by the undersecretary of State for arms control, traveled to Asia to work closely with allies. But the effort was dropped after Bush shifted course and decided to pursue diplomacy with North Korea.

Their first stops: China then Malaysia.

Citations:
New North Korea Sanctions Team Formed
Washington Post
Michael D. Shear and Glenn Kessler
6/26/2009

U.S. North Korea sanctions team to visit Malaysia
Reuters UK
7/2/2009

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. 09-6-16-1
6/16/2009

The amount of inter-Korean exchange has shrunk considerably this year, as tensions between the North and South continue to mount. According to the ROK Customs Administration’s inter-Korean trade office, cross-border transactions between January and April of this year fell 24.8 percent from 2008; trade amounted to 426.35 million USD, down from 566.92 million USD during the same period last year. South Korean imports were down only 9.5 percent, at 260.19 million USD, but exports to the North amounted to a mere 59.4 percent of the amount sent last year, recording 166.17 million USD. 54.9 percent of these goods (by value) traveled across the border by passing through Dorasan Station; 32.8 percent went through Incheon Harbor; 6.4 percent through Busan Harbor, 1.6 percent through Sokcho Harbor; and 1.1 percent passing through Goseong.

In April, with the North’s launch of a long-range missile in spite of the opposition of the international community, inter-Korean trade dropped to 69.2 percent of last year’s level, falling to 105.53 million USD. In fact, inter-Korean trade fell relative to the same month in the previous year eight months straight, beginning in September of last year.

With last month’s sudden nuclear test and South Korea’s subsequent joining of PSI, inter-Korean trade is expected to continue to wither in the latter half of the year. The amount of trade seen from January to April of this year is equivalent to 23.4 percent of the total trade for last year (1.82078 billion USD), and even if the current level of trade is maintained for the rest of the year, it is expected to amount to a mere 70 percent of what was traded in 2008.

Inter-Korean trade had previously been recording significant growth; in 1999, during Kim Dae Jung’s ‘People’s Government’, inter-Korean trade was worth only 328.65 million USD, but began to climb, growing more than five-fold by 2008, topping out at 1.82078 billion USD last year. However, after the launch of the current government, the amount of goods imported by the North from the South began to fall; exports to North Korea in 2008 were worth 883.41 USD, 145.15 million less than in 2007.

North Korean companies involved in processing-on-demand, agriculture and fisheries work have been part of Pyongyang’s trade ambitions, and these companies have also been hurt by the freeze in inter-Korean relations, with dozens of businesses facing closure, and many more severely hit by the North’s shrinking trade.

UPDATE: From Timeout (Vietnamese English publication):

The largest collection of paintings from the Democratic People’s Republic of Korea (North Korea) ever shown in Southeast Asia was put on display at the Nha Trang Sea festival last week.

The paintings were produced by more than two dozen artists with recognized artists – so-called Merited artists – and emerging talents all contributing.

The exhibition included a series of beautiful paintings in a variety of styles and materials – prints, watercolour, oil, pencil drawings and “jewel-powdered paintings”, a Korean specialty art.
 
With little exposure to the outside world, North Korean art is considered very pure. North Korean artists are loyal to their country and adhere to the country’s political philosophy.

In the absence of influences by contemporary art trends from the rest of the world the painters have, in a unique manner, developed their own techniques and the use of colors in an original style.

The displayed paintings include, among other things, a variety of beautiful sceneries of nature and of North Korean daily life. These pieces of artwork give a rare insight into the lives and thoughts of the people of this country.

Some of the most impressive pieces are the products of the veteran artist Han Gyong Bo and the emerging artist Han Song Il, a precocious 24-year old who has won many top prizes at national and international exhibitions.

Han Gyong  Bo is famous for his watercolour paintings of wistful and fanciful landscapes created in strong, deep and bold brush strokes. Meanwhile Han Song Il bewitches viewers with his romantic yearnings and smooth style. With refined and flowery strokes, Il’s paintings express the beauties of his country’s natural landscapes.

The painting collection belongs to Swiss businessman Felix Abt and his Hanoi-born wife Doan Lan Huong, who lived and worked in Pyongyang for seven years, where they got to know and love North Korean arts.

At present Abt and his family mostly stay in Nha Trang, Vietnam where they manage their own website Pyongyang-painters.com, one of the very few on-line galleries outside North Korea permitted to sell art and to represent the country’s leading artists as well as new talents.

“Much to our surprise we noticed that (artistic) talents are identified very early in a person’s life and systematically fostered thereafter. As a consequence a high number end up as painters with extraordinary skills. Unfortunately this is largely ignored by the outside world,” says Felix Abt.

Together with the Korea Paekho Fine Arts Company in Pyongyang, Felix and his wife prepared last year the systematic launch and promotion of North Korean paintings on the world wide web and through other marketing measures.

Famous painters from North Korea as well as promising new talents, including young female painters, are now being introduced to a wider public. Abt’s website has been up and running since the beginning of this year and orders are coming from all over the world.

During his time in Pyongyang, Abt and his wife Huong had the opportunity to get acquainted not only with the country’s institutions involved in fine arts but also with numerous artists across the country.

“We learnt that the Koreans were not merely transmitting Chinese culture but also assimilating and adapting it and creating a unique culture of their own while also influencing neighbouring cultures for thousands of years,” says Abt.

But Abt knows that a good website alone is not sufficient to introduce North Korean paintings to a larger public. The paintings need to be physically closer to potential buyers.

“The Sea Festival in Nha Trang, where both Vietnamese and foreigners spend holidays and may want to shop in a relaxed atmosphere was a good opportunity for us to ‘test the market’ in Vietnam,” says Abt.

“In addition, since Nha Trang is a beautiful place with a highly promising potential for tourism, we intend to operate this business out of Nha Trang for both the domestic and international arts markets.”

Talking about their future galleries in Hanoi and Ho Chi Minh City, Abt shares that making beautiful North Korean paintings available in these cities is a good idea since there are certainly a sufficient number of people in both cities who would love to have such paintings and can also afford them.

But instead of setting up their own galleries they would prefer to build up a close partnership with a couple of existing galleries in these cities that meet their expectations. Moreover, “this business model which we start in Vietnam could then be applied to other major cities in the region such as Singapore, Kuala Lumpur and Bangkok.”

Read the Press Release below:

(more…)