North Korean Economy Watch

Lankov writes in the Financial Times:

The US and its allies have almost no leverage when it comes to dealing with North Korea. There is much talk about sanctions, but, to be effective, they must be upheld by all major states, and this is not going to happen. China and Russia, driven by their own agendas, have already made clear that they would not support a tougher approach. These two states have veto power in the Security Council, and are major trade partners of North Korea (slightly more than half of Pyongyang’s entire trade is with them).

The ineffectiveness of sanctions has been demonstrated before. In 2006 when Kim Jong-il’s regime conducted its first nuclear test, even China was outraged and supported UN sanctions. However, it soon became clear that the sanctions were not working, since not only China, but also the US chose to return to business as usual. As a result from 2006 the North Korean government, despite theoretically being subjected to sanctions, felt more secure domestically and internationally than at any time since the early 1990s. This time, however, even the chance of passing a resolution is slim.

What else can be done? Military actions are unthinkable. Unilateral economic pressure will not work since neither the US nor its major allies have significant trade with North Korea. Financial sanctions, imposed on the foreign banks serving the regime, would probably deliver a blow, but it is unlikely that this would lead to a serious crisis in Pyongyang.

Indeed, even if an efficient sanctions regime were imposed, its only victims would be common people in North Korea. In the late 1990s, about 5 per cent of the entire population starved to death, but there were no signs of discontent: terrified, isolated and unaware of any alternative to their system, North Korean farmers did not rebel, but died quietly.

This means that diplomatic condemnation will have no consequences, and North Korean dictators understand this. If anything, the excessive noise is harmful: the sharp contrast between bellicose statements and lack of real action will again demonstrate to North Korean leaders that their opponents are powerless.

However, there is something even worse than empty threats, and this is empty threats followed by generous concessions. If history is a guide, this is likely to happen. In 2002-06 the US took a very harsh approach to the North, but everything changed in October 2006 when North Korea conducted a partially successful nuclear test. In merely four months, US policy was dramatically reversed, negotiations were restarted, and aid delivery resumed. Perhaps this change of policy was wise in itself (isolation would not work anyway), but its timing was bad. It once again confirmed to North Koreans that blackmail works.

The recent launch confirmed they had learnt the lesson. Since the regime was afraid the US was not paying enough attention to it, it was deliberately provocative, in the hope that the US, after a short outburst of militant rhetoric, would rush back to the negotiating table ready to make more concessions. It might be right.

—

There is no alternative to negotiations with Mr Kim’s clique. But Pyongyang dictators should be taught that provocations do not pay (or, at least, do not pay handsomely and immediately). This is especially important now, when Mr Obama’s administration has its first encounter with North Korean brinkmanship.

Read the full article here:
Sanctions will have no effect on North Korea
Financial Times
Andrei Lankov
4/12/2009

UPDATE 2: Financial markets do not seem to care.  According to Reuters:

Financial markets in Seoul and Tokyo were not affected by North Korea’s announcement, with investors seeing it as more of the sabre-rattling they have come to expect from Pyongyang.

UPDATE 1: According to the Wall Street Journal, the DPRK has ordered nuclear inspectors to leave the country (again):

North Korea ordered International Atomic Energy Agency inspectors out of the country Tuesday. The decision ends international monitoring of a research reactor at Yongbyon and in theory could allow reprocessing of fuel rods to produce plutonium. The IAEA is expected to announce the eviction in the next hour.

The on-again, off-again inspections at the 5-megawatt Experimental Nuclear Reactor Plant and the Nuclear Fuel Fabrication Plant at Yongbyon resumed in October, soon after the U.S. announced it would remove North Korea from the State Department list of countries that sponsor terrorism.

The IAEA issued a press statement here. 

ORIGINAL POST:
The UN Security Council has published its presidential statement condemning th DPRK’s missile launch (read the full text of the statement here), and the media is widely reporting on the contents:

The United Nations Security Council has condemned North Korea’s April 5th rocket launch and demanded that Pyongyang not conduct further tests, saying that it would expand sanctions against North Korea.

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The Security Council’s presidential statement is a level below a resolution — which has the power of force to back it up. But several ambassadors, including U.S. envoy Susan Rice, said the statement is legally binding, nonetheless. “The United States views presidential statements, broadly speaking, as binding. In this instance, it is more than binding in that it adds to an existing Chapter 7 sanctions regime. So in our view, there is no doubt that the measures that will be imposed as a consequence of this presidential statement by the 24th or 30th of April will occur and will be binding,” he said.

—

Monday’s statement goes further, saying there will be additional strengthening of measures in resolution 1718 and activates the dormant sanctions committee set up under that resolution.

“It is not extending the number of sanctions. It is not doing that. What it is doing is broadening the base of sanctions under the existing resolution. That is what we have agreed to do in principle and we have agreed to do it in a tight timeline by end of this month. So we are tightening the sanction screw a notch against North Korea,” said British Ambassador, John Sawers.

The statement calls for the designation of entities that would be subject to asset freezes and the prohibition of the transfer of some goods into or out of North Korea.

Turkish Ambassador Baki Ilkin, chairman of the sanction committee, said no countries have officially submitted their list yet. But several ambassadors said they are putting them together. (Voice of America)

This morning, the DPRK annonced it will withdrawl from 6 party talks:

Fuming at the U.N. Security Council for condemning its recent missile launch, North Korea said Tuesday it will restart its plutonium factory, junk all its disarmament agreements and “never participate” again in six-country nuclear negotiations.

It called the Security Council’s statement a “brigandish,” “wanton” and “unjust” infringement of its sovereignty. It said that six-party nuclear talks with the United States, South Korea, Japan, Russia and, even its closest ally, China, had “turned into a platform” for forcing the North to disarm itself and for bringing down its system of government.

“We have no choice but to further strengthen our nuclear deterrent to cope with additional military threats by hostile forces,” North Korea’s Foreign Ministry said in a statement released by its state news agency.

If it follows through on Tuesday’s bluster, North Korea will walk away from six years of slow, fitful but sometimes productive negotiations that have led to substantial disablement of the North’s main nuclear reactor and partial disclosure of the scale of its weapons program.

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“We will actively consider building our own light-water nuclear reactor, will revive nuclear facilities and reprocess used nuclear fuel rods,” the ministry said. Experts have said the North does not have the equipment or skills to make an advanced light-water reactor.

China, host of the six-party talks, called for restraint and calm on Tuesday, asking all countries to return to the discussions, even after North Korea announced it would never do so.

“We hope the relevant parties could proceed from the perspective of the overall interest of the region, so as to work together to safeguard the progress of the six-party talks,” Chinese foreign ministry’s spokeswoman Jiang Yu said at a news briefing.

Japan also urged North Korea to return to the talks and the Russia government said it regretted Pyongyang’s decision.

—

Analysts in Seoul said that North Korea, with its threat to pull out of the six-party talks, appeared to be up to its familiar tactics of brinkmanship — creating a crisis in order to be rewarded for helping to solve it.

“North Korea can use today’s walkout as a negotiating chip with the United States in the future,” said Koh Yu-whan, a profession of North Korean studies at Dongguk University in Seoul.

“North Koreans have learned from past experience that when they create worst-case scenarios they get closer to solving their problems,” said Chun Hyun-joon, a North Korea specialist at the Korea Institute for National Unification. (Washington Post)

Here is the full KCNA comment:

DPRK Foreign Ministry Vehemently Refutes UNSC’s “Presidential Statement”
 
Pyongyang, April 14 (KCNA) — The DPRK Foreign Ministry issued a statement Tuesday flatly rejecting the brigandish “presidential statement” which the U.S. and its followers finally released by abusing the UNSC to condemn the DPRK’s launch of satellite for peaceful purposes.

Saying that throughout history the UNSC has never taken issue with satellite launches, the statement continues:

First, the DPRK resolutely rejects the unjust action taken by the UNSC wantonly infringing upon the sovereignty of the DPRK and seriously hurting the dignity of the Korean people.

Second, there would be no need to hold six-party talks which the DPRK has attended.

Now that the six-party talks have turned into a platform for infringing upon the sovereignty of the DPRK and seeking to force the DPRK to disarm itself and bring down the system in it the DPRK will never participate in the talks any longer nor it will be bound to any agreement of the six-party talks.

Third, the DPRK will bolster its nuclear deterrent for self-defence in every way.

It will take the measure for restoring to their original state the nuclear facilities which had been disabled under the agreement of the six-party talks and putting their operation on a normal track and fully reprocess the spent fuel rods churned out from the pilot atomic power plant as part of it.  

Read the full stories here:
North Korea orders UN nuclear inspectors to leave
Reuters
Jon Herskovitz
4/14/2009
North Korea Expels Nuclear Inspectors After Leaving Six-Party Talks
Wall Street Journal
David Crawford, Evan Ramstad
4/14/2009

Security Council condemns DPR Korea’s recent launch
UN Security Council Press Release
4/13/2009

UN Condemns North Korea Rocket Launch 
Voice of America
Margaret Besheer
4/13/2009

N. Korea Says It Will Boycott Nuclear Talks, Restart Weapons Plant
Washington Post
Blaine Harden
Washington Post Foreign Service
4/14/2009

(Hat tip to a reader) On March 26, the Anglo-Korea Society in London hosted an interesting panel discussion with the London ambassadors from both North and South Korea along with Martin Uden, Britain’s ambassador to the ROK, and Stephen Lillie, the head of the FCO Far East Group.

It is a bit too late to attend, but below are summary links and photos:
1. Official page of the event (pictures at the bottom)

2. Pearl Daborn summary

3. Michael Rank summary

4. Jennifer Barclay summary

5. Marian Werner summary

According to Radio Free Asia:

Following North Korea’s April 6 rocket launch, South Korea began limiting the number of its citizens allowed to cross the border to the Kaesong Industrial Zone, which was set up just inside North Korea amid thawing relations between the two sides in 2004.

“We plan on maintaining the minimum personnel needed to run the Kaesong operations,” South Korean Unification Ministry spokeswoman Lee Jong-joo said.

“The South Korean government has requested enterprises invested in Kaesong to maintain their staff at the minimum level necessary to avoid disruption of production and business operations in the complex.”

South Koreans trying to travel to Kaesong this week were surprised to find their entry permits revoked by the South in the wake of the rocket launch, with the number of South Koreans working in the zone cut to a little above the minimum needed for basic operations.

“Eight persons initially received permission to travel to Kaesong, but eventually only three were allowed to take the trip, and actually most South Korean managerial staff had to stay behind,” a Kaesong-based South Korean entrepreneur said.

‘Skills gap’
“The big issue here is that the skill level of North Korean workers is insufficient, and that’s why South Korean management is essential.”

He warned of negative economic consequences if management personnel were unable to reach the zone from the South.

“Banning South Korean managerial staff from traveling to Kaesong will inevitably have a negative impact on production in the complex,” the entrepreneur said.

Tensions have further escalated over the March 30 detention of a South Korean employee of the Kaesong-based Hyundai Asan factory, allegedly for encouraging North Koreans to defect and criticizing the communist regime.

Hyundai’s company president visited Kaesong for a second time this week to press North Korean officials for the employee’s release, but he was refused permission to see the employee, identified only by his surname, Yoo.

Unification Minister Hyun In-taek warned that Seoul wouldn’t tolerate further detention of the employee.

Warning to North
“In the case of Mr. Yoo, the Hyundai Asan employee in the custody of the North Korean authorities, we will react vigorously to any unreasonable extension of the detention of the South Korean,” Hyun told a foreign affairs, trade, and unification committee in Seoul.

He also warned against “any punitive measures exceeding what was agreed upon between the two Koreas, such as a warning or expulsion to South Korea.”

The South has ruled out the possibility of closing the joint industrial park despite rising tensions with the North, however.

In March, in protest against a joint South Korea-U.S. military exercise, the North blocked the border crossing to the industrial complex several times, affecting production in some factories.

Experts have called for bilateral talks to hash out a clear framework for the running of Kaesong, to prevent economic fallout from political events in future.

“South and North Korea need to discuss and consult on the relevant systemic and legal issues associated with inter-Korean economic cooperation in the area,” said Hong Ik-pyo, researcher at the Korea Institute for International Economic Policy.

Read the full story here:
Korean Tensions Hit Zone
Radio Free Asia
J.W. Noh
4/10/2009

UPDATE:  According to the band (via Christian Post):

“Made many friends. We performed twice and were awarded for the performance of Lifesong,” he added Monday. “We also recorded the Korean song, White Dove, in their studio in Pyongyang.”

ORIGINAL POST: According to the Christian Post:

Contemporary Christian band Casting Crowns will again participate in North Korea’s annual Spring Friendship Arts Festival but this time won’t be the only U.S. Christian group there performing.

The Grammy Award-winning band will be joined by the Annie Moses Band (AMB), a five-sibling ensemble whose ages range from ten to 24.

“In early December we received an official invitation from the North Korean government to perform in the Spring Friendship Arts Festival,” AMB lead vocalist and violinist Annie Wolaver told The Christian Post on Friday.

“We have been praying for many years that the Lord would open doors for us to tour overseas. We had some grand visions of playing Celtic jigs in the Scottish highlands, but instead He opened a door that was entirely unexpected,” she reported.

Two years ago, Casting Crowns was invited to perform at the 25th Annual April Spring Arts Festival with help from Global Resource Services (GRS), which has worked in the Democratic People’s Republic of Korea – the official name of North Korea – for more than a decade.

The annual Spring Arts Festival reportedly emphasizes artistic exchange and promotes peace and good will.

According to GRS, the band was well received and even drew praise from the vice chairman of the festival, Jang Chol-sun, who expressed his hope that groups like GRS, Casting Crowns and the people of North Korea can work together to bring unity and peace.

Here is a web page by Jason Carter who performed in this show some years ago.

Read the full article here:
Casting Crowns to Return to North Korea for ‘Friendship’ Festival
By Josh Kimball
Christian Post
4/10/2009

From the National Comittee on North Korea:

On April 10, 2009 the Japanese government renewed sanctions on the DPRK that were set to expire on April 13. The sanctions, first implemented in 2006, ban entry into Japanese ports of all North Korean flagged vessels and charted flights between Japan and the DPRK, as well as ban, in principle, visits by Japanese government officials to the DPRK and visits by DPRK government officials to Japan. The sanctions also ban all DPRK imports and payments for imports from the DPRK. The 2006 sanctions, initially implemented for six months and renewed for six month periods thereafter, were renewed for a full year on April 10.

The Japanese government also instituted stricter reporting requirements on the amount of funds people in Japan can remit or transfer to the DPRK. The new regulations reduce the amount of funds that can be transferred undeclared to the DPRK from 30 million yen (US$298,000) to 10 million yen ($99,000). In addition, travelers can bring only 300,000 yen cash ($2,990) to the DPRK without reporting it; this is down from a previous limit of over a million yen.

Although the new reporting requirement has been called a “new sanction,” it does not seem to be a genuine sanction since it does not limit remittances to the DPRK. According to Xinhua, Japanese Chief Cabinet Secretary Takeo Kawamura told reporters, “The measure is aimed at getting a clearer picture of fund flows to North Korea (DPRK).” He also said that the move is “appropriate giving consideration to the unsettled abduction issue.”

Japan considered but rejected a ban on all exports to the DPRK. Newspapers report that the Japanese government thought such a ban would have little impact.

And according to Bloomberg:

Trade between Japan and North Korea fell 97 percent to 793 million yen in 2008 — all in Japanese exports — from 21.4 billion yen in 2005, according to Japan’s Finance Ministry.

You can read the full Bloomberg story here:
Japan Imposes New North Korea Sanctions After Missile Launch
Bloomberg
Takashi Hirokawa and Toko Sekiguchi
4/10/2009

Writing in the Wall Street Journal, Evan Ramstad offers some information on China’s investments in North Korea:

The diplomatic minuet is taking place after China increased trade with North Korea over the past four years. Last year, trade between China and North Korea jumped 41% to $2.79 billion, with most of that coming from increased exports by China.

 On Tuesday, truck traffic between the two countries resumed after a break Monday for a Chinese holiday. Dozens of trucks made the crossing in Dandong, a major city along the North Korean border.

China has been North Korea’s chief political and economic sponsor since the Soviet Union collapsed nearly 20 years ago. For much of that time, it served as donor of last resort, making up the difference when energy, food and donations to North Korea dropped off from other countries. That often amounted to $100 million to $200 million in aid.

China broke from that pattern in 2005 by boosting its exports and widening its trade surplus with North Korea. Outside experts view China’s trade surplus as the chief measure of its economic aid to North Korea because North Korea has no measurable debt instrument and little ability to narrow the trade gap.

Chinese companies, sometimes with help from the Chinese government, are investing heavily in North Korea’s mining industry, construction and light manufacturing such as textiles. Chinese consumer goods line store shelves and market stalls in North Korea.

Many executives of Chinese companies in North Korea say it’s a difficult place to operate. Among the challenges: getting money out of the country. China helped Panda Electronics Group, based in Nanjing, start a computer assembly factory with Taedong River Computer Corp. in North Korea five years ago.

North Korea’s currency, the won, can’t be converted. To move money out of the country, Panda must buy commodities in North Korea and sell them in China for cash, an executive said.

The increased business activity in North Korea reflects China’s desire to treat North Korea more as a “normal country” rather than a socialist brother entitled to unlimited assistance, scholars and analysts in China say. They say China also hopes its companies in North Korea will encourage the North’s government to open its economy as China began to do in the 1980s.

Wang Kai, a manager of Liaoning Fuxin Tianxin Technology and Development Co., says the company decided to build a pipe-making factory in North Korea because the country’s economy has few places to go but up.

“North Korea’s situation and economic status are pretty similar to China’s before the start of the opening up and reform policy,” Mr. Wang said in an interview before the rocket launch.

Others note China’s desire is to prevent North Korea’s collapse, which might pour refugees into China’s northeast.

The increased business is yielding a payoff in political influence for China in Pyongyang that’s become more important since North Korean dictator Kim Jong Il was incapacitated by illness in August. One signal that Mr. Kim was back in control came when he met in late January with a delegation of visiting diplomats from Beijing.

Read the full story here:
Economic interests shape Beijing’s Pyongyang Policy
Wall Street Journal Online
Evan Romstad
4/8/2009

UPDATE: According to the Wall Street Journal, Friday was even better:

The Korea Composite Stock Price Index, or Kospi, gained 6.78 points, or 0.5%, to end at 1283.75. The index is up 3.7% on this week following last week’s 5.7% gain.

“Improving economic data and overnight gains in offshore markets lent support to the market, but Asian markets generally lagged U.S. and European peers as they needed to slow down after steep gains over a short period,” said Kim Hak-kyoon, an analyst at Korea Investment & Securities.

“But the upward march has not stopped and foreigners continued to show strong appetite for local stocks again today,” added Kim.

Meanwhile, market participants didn’t react much to news that North Korea may launch a rocket as early Saturday.

“Isn’t it the fact that North Korea will launch a rocket? The key to determine the mood in the financial market will be how South Korea and the U.S. will handle the case. So far market participants, in particular foreigners, don’t seem to worry too much about that,” said Kim at Korea Investment & Securities.

Market analysts continued to treat the potential missile launch as a short-term event to the financial market.
“North Korea’s main goal seems to be to push for a lifting of current sanctions and get economic aid flowing by showing off its ability to attack the mainland of the U.S.,” said You Seung-min, an analyst at Samsung Securities. “In reality any direct military clash seems to be unlikely….The stock market will likely return fast to its normal track after experiencing short-term volatility caused by the launch.”

ORIGINAL POST:Just the news I expected (sort of).  According to Reuters:

Meanwhile investors largely ignored news that North Korea had begun fueling a long-range rocket it plans to launch between April 4-8, starting a process that experts say means the rocket will be ready for lift-off in three to four days.

“Yes, the North will probably launch the missile, and that certainly can’t be good. But markets will probably bounce backafter a couple days as they always do…market participants have learned over time to remain calm to North Korea-related developments,” Lee added.

Read the full articles here:
S Korean Shares End Tad Up On Econ Recovery Hopes
Wall Street Journal
Soo-Kyung Seo
4/3/2009

Seoul shares hit 5-½ mth high;North news ignored
Reuters
Jungyoun Park
4/1/2009

From the Wilson Center’s North Korea International Documentation Project:

The North Korea International Documentation Project is pleased to announce the publication of the latest addition to NKIDP Document Reader Series, Limits of the “Lips and Teeth” Alliance: New Evidence on Sino-DPRK Relations, 1955-1984.

The collection was specially prepared for the joint NKIDP-United States Institute of Peace conference, North Korean Attitudes Toward China: A Historical View of Contemporary Difficulties, and contains newly obtained documentary evidence on North Korea’s relations with China throughout the Cold War from Russian, (East) German, Albanian, and Hungarian archives. The 24 documents contained in the reader shed new and invaluable light on Pyongyang’s perspective of the Sino-DPRK relationship, and may force a reevaluation of the U.S. strategy of relying on China’s political leverage over North Korea to resolve contemporary disputes over North Korea’s nuclear weapons and ballistic missile programs.

Limits of the “Lips and Teeth” Alliance: New Evidence on Sino-DPRK Relations, 1955-1984 was edited by NKIDP Coordinator James Person with indispensable assistance from Tim McDonnell. NKIDP is part of the Center’s History and Public Policy Program directed by Dr. Christian Ostermann. This publication, like all NKIDP publications, was made possible by a generous grant from the Korea Foundation and is available for download free of charge from the NKIDP website.  

Download a PDF of the NKIDP reader here.

Writing in the Korea Times, Andrei Lankov points out the interesting history of Koreans within the early communist movement:

The [Russian] revolution was followed by the Civil War which lasted to 1922, and during this conflict few ethnic groups supported the Communist Red Army with the same devotion and enthusiasm as the Koreans.

Some 8,000 Koreans joined the Red forces. This might not appear to be a large number, but the ethnic Korean community was roughly 100,000 strong in 1917, so it means that roughly one out of four able-bodied males joined the Communist army.

In most cases these people were volunteers, not draftees: for a long time, the Russian Far East was beyond the reach of the regular Red Army, so operations were conducted largely by guerrillas who relied on wide popular support.

At the same time, there were very few ethnic Koreans who chose to fight on the other side, with the anti-Communist Whites.

Such enthusiasm for the militant left was easy to explain. First, the battle cry of the Communists was “land to the farmers!” Most Koreans were farmers, but they often faced serious discrimination.

Russian authorities preferred to give land to the ethnic Russian settlers whose plots were then often toiled by Korean tenants. The Communists explicitly promised to change the situation by distributing land equally among all people who needed it.

Second, Koreans faced a certain amount of discrimination in old Russia, and Communists, being patiently anti-imperialist and anti-racist, promised that in a Communist Russia there would be no ethnic or racial discrimination whatsoever.

Third, in the Russian Far East the anti-Communist forces were supported and supplied by the Japanese. A large Japanese expeditionary force was actually dispatched to Siberia.

Taking into consideration that most Korean intellectuals (and nearly all politically active Korean leaders) had been active in the national liberation movement, they naturally enough became allies with their enemies’ enemy, that is with the Reds ― even if they did not initially harbor much sympathy for the Communists’ radical social program.

Thus, the Koreans entered the red guerrilla ranks in large numbers ― and in the early Communist armies they knew how to indoctrinate soldiers.

A number of those people, especially Russian speakers, soon became devoted Communists and active propagandists of the new teaching among their fellow Koreans.

The first prominent leader of the Korean Communists was a woman, Alexandra Stankevich (Nee Kim). Actually, she was more Russian than Korean in culture and education.

Her Korean father, a fluent Russian speaker and a professional interpreter, died when she was very young, and the girl was adopted by her father’s friend and his Russian family.

Alexandra received a good education, married (unhappily) a Russian man whom she later divorced, and traveled far across Russia.

From around 1915 she became very involved with underground socialist politics. In 1917-18 she was a prominent Communist leader in the maritime province and also a chief foreign policy negotiator for the local Communist government.

When in 1918 the government was overthrown by the Whites and their Japanese allies, Alexandra Kim was captured and killed.

Around the time of Alexandra Kim’s death, Yi Tong-hwi, a former officer of the Korean army, and by then a guerrilla commander, established the first Korean Communist group, called the Korean Socialist Party.

This happened in the city of Khabarovsk, and most party members were local Russian Koreans. Soon afterward, Yi Tong-hwi was even invited by Lenin to have a discussion about the Korean situation, in Moscow, and his small group became the first sprout of the Korean Communist movement, which for better or (more likely) worse influenced Korean history for the next hundred years.

Read the full story here:
First Red Koreans
Korea Times
Andrei Lankov
3/26/2009