North Korean Economy Watch

Joong Ang Daily
Jo Dong-ho
8/1/2007

The environment for economic relations between South and North Korea has changed.

In 1998, when the Sunshine Policy was started, South Korea’s national per capita income was $7,355, while North Korea’s stood at $573. At the time, South Korea’s export volume was $132.3 billion, and North Korea’s was $600 million. In a nutshell, South Korea’s national per capita income was 13 times higher and its export volume was 220 times bigger than North Korea’s.

Since then, South Korea’s national per capita income has rapidly increased, to $18,372 as of 2006. Meanwhile, according to an estimate by the Bank of Korea, North Korea’s national per capita income hovers at around $900.

South Korea’s exports are worth $325.6 billion, nearly triple 1998 numbers, but North Korea’s export volume is merely $900 million.

Accordingly, the gap between the two Koreas’ economies has widened. Now, South Korea’s national per capita income is 20 times higher than North Korea’s. South Korea’s export volume is 325 times larger than North Korea’s.

In particular, South Korea’s economy has developed and matured a great deal in terms of quality because it opened its doors more widely after the financial crisis 10 years ago.

But North Korea still cries out for an independent, self-sufficient economy, leading to a wider discrepancy in the economies of the South and North.

In the meantime, economic cooperation between South and North Korea has developed a great deal. In 1998, trade volume between South and North Korea was worth around $200 million. In 2006, it was more than $1.3 billion. Today, large-scale projects by both the private and the public sectors are in progress, something that was unthinkable back in 1998.

Examples of these are a building project at the Kaesong Industrial Complex and the government’s project for social overhead capital, such as railways and highways between the two Koreas. A variety of agreements have already been prepared, such as one protecting investments.

As a result, South Korea is North Korea’s largest export market, its second-largest trade partner and largest investor. South Korea also provides support and more assistance to North Korea than other countries.

The number of visitors to North Korea has increased as well. In 1988, 3,317 people went to North Korea, but last year more than 100,000 people visited there.

The reason why I included these lengthy statistics is to underscore the change in South and North Korea’s economies as wellas their economic relations.

In the past, South Koreans wanted to buy products made in North Korea out of curiosity, but now an item from North Korea is simply commonplace.

A small project involving North Korea made headlines in the past, but now many go unnoticed.

However, the Sunshine Policy, which has been in place since the Kim Dae-jung administration, has not changed at all.

The Sunshine Policy was aimed at inducing North Korea to change and expanding contact and exchange with North Korea was a means to achieve that goal.

That is why we did our utmost to cooperate economically with North Korea and to increase assistance to the country. As seen in statistics, these efforts have produced significant achievements on the outside.

But in the process, we became preoccupied with the means and forgot about the original goal of the policy. We continued economic cooperation with North Korea even though it carried out a nuclear test. We wanted a summit meeting with North Korea even though it meant we had to put a tremendous amount of money under the table. The Donghae line is not of much use because the railway does not run northbound from Gangneung. We connected it because North Korea wanted us to.

Maintaining contacts and exchange with North Korea has become the ultimate goal of the policy. Because of the Sunshine Policy, in which the means have become the goal, North Korea receives assistance even though it sticks to its old-fashioned ideology.

Thus, now we need to straighten out the means and the goal. The environment for economic relations between South and North Korea has changed. We can’t define the Sunshine Policy as either a failure or a success.

We have long since passed the stage where we have to pour all our efforts into the means, but we have not changed our direction to focus our energy and attention on a new goal. It is meaningless that presidential hopefuls discuss whether they will embrace or abolish the Sunshine Policy in its entirety.

In the past, starting economic relations with North Korea was the top priority even though it meant “shoveling aid across the border.” The time has come to steer the policy in the right direction.

Yonhap
8/1/2007

Pyeonghwa Motors Corp., a South Korean automaker with exclusive rights to produce cars for the North Korean market, said Wednesday it has been in talks with Chinese automaker Brilliance Automotive Holdings Ltd. to assemble trucks in North Korea, a company official said Wednesday.

In North Korea, Pyeonghwa Motors is assembling some 600-700 vehicles, including sport-utility ones, sedans and mini buses, a year at its plant in Nampo, near the capital Pyongyang.

The North has requested Pyeonghwa Motors to produce trucks for farmers and factory workers, the official said.

“We will soon select a truck model after consultations with North Korean and Chinese sides,” the official said on the condition of anonymity, citing protocol.

If the North Korean plant begins production of trucks, annual vehicle sales of Pyonghwa Motors in North Korea will exceed 1,000 units, the official said.

The North’s economy went into a steep decline in the early 1990s after the collapse of the Soviet Union, according to reports released by South Korea’s Bank of Korea.

However, since the late 1990s, the North Korean economy has been growing again, helped by an influx of foreign aid and better weather, the South’s central bank said.

Institute for Far Eastern Studies (IFES)
8/1/2007

INTER-KOREAN RELATIONS

Following two days of talks between economic representatives of the two Koreas at the Kaesong Industrial Complex, South Korea announced on July 7 that it would begin shipping raw materials to the North in exchange for DPRK natural resources. South Korea shipped 800,000 USD of polyester fabric on July 25, and is set to send the rest of the materials by the end of November. North Korea accepted South Korean prices for the goods, and will pay transportation, cargo working, and demurrage costs, as well. South Korea will pay for shipping, insurance, and the use of port facilities. On 28 July, a South Korean delegation left for the North in order to conduct on-site surveys of three zinc and magnesite mines. The team will spend two weeks in North Korea.

It was reported on 17 July that North Korea proposed a joint fishing zone north of the ‘Northern Limit Line’ dividing North and South territorial waters to the west of the peninsula. Seoul turned down the offer.

Inter-Korean military talks broke down early on 26 July after only three days of negotiations as North Korea insisted on the redrawing of the Northern Limit Line.

North Korea demanded on 27 July that workers in the Kaesong Industrial Complex be given a 15 percent pay raise. The North Korean workers will not work overtime, weekends or holidays beginning in August unless the raise is granted.

It was reported by the Korea International Trade Association on 26 July that inter-Korean trade was up 28.6 percent in the first six months of 2007, totaling 720 million USD.

RUSSIA-DPRK INVESTMENT

It was reported on 19 July that Russia and North Korea have agreed to connect Khasan and Najin by rail, enlisting investment from Russian oil companies interested in an inactive refinery at Najin Port capable of processing up to 120,000 barrels per day. The project is estimated to cost over two billion USD.

MONGOLIA-DPRK RELATIONS

During a four-day visit to Mongolia by Kim Yong-nam beginning on 20 July, the two countries signed protocols on cooperation on health and science, trade and sea transport, and labor exchange issues. This follows on the heals of an agreement to allow South Korean trains to travel through North Korean territory on to Mongolia in route to Russia and Europe.

JAPAN-DPRK PROPAGANDA

Japan took one step further to recover abductees in North Korea this month when the government began broadcasting propaganda into the DPRK intended for Japanese citizens. The broadcasts are made in Korean and Japanese (30 minutes each) daily, and updated once per week.

U.S.-DPRK PEACE PROSPECTS

U.S. Ambassador to the ROK Alexander Vershbow stated that Washington was prepared to negotiate a permanent peace regime on the Korean Peninsula by the end of the year if North Korea were to completely abandon its nuclear ambitions.

EGYPT-DPRK INVESTMENT

The Egyptian company Orascom Construction Industries announced a 115 million USD deal with North Korea’s state-owned Pyongyang Myongdang Trading Corporation to purchase a 50 percent state in Sangwon Cement. To put this in perspective, the deal in worth more than four times the amount of frozen DPRK funds that had caused six-party talks to break down and delayed the implementation of the February 13 agreement.

NORTH KOREAN SOCIETY

The Economist reported on 7 July that, according to foreigners living in the North’s capital, concern for petty law appears to be weakening. Citizens are reportedly smoking in smoke-free zones, sitting on escalator rails, and even blocking traffic by selling wares on the streets.

It was reported on July 11 that a letter sent earlier in the year by the North Korean Red Cross indicated severe shortages of medical supplies. The letter stated that North Korea would accept any medicine, even if it was past expiration, and accept all consequences for any problems that arose from using outdated supplies. The (South) Korea Pharmaceutical Manufacturers Association had no choice but to reject the request.

Events were held on July 11 in North Korea in order to promote women’s health and well-being issues. Marking World Population Day, a North Korean official stated that the DPRK has cooperated with the UN Population Fund since 1986, and is now in the fourth phase of cooperation.

Seeing entertainment venues as a “threat to society”, North Korean security forces have been implementing a shutdown of karaoke bars and Internet cafes. These venues mainly cater to traders in the northern regions of the country.

It was reported on July 13 that construction of North Korea’s first all-English language university was nearing completion. The Pyongyang University of Science and Technology, funded largely by ROK and U.S. Christian evangelical groups, will hold 2600 students and offer undergraduate and post-graduate degrees in business administration, information technology, and agriculture.

Local elections were held on 29 July for DPRK provincial, city, and country People’s Assemblies. 100 percent of 27,390 candidates were approved with a 99.82 percent turnout reported.

Asia Times
Michael Rank
8/1/2007

Above the chic shops and arcades of London’s Pall Mall, the flag of the Democratic People’s Republic of Korea wafts incongruously in the wind. Look inside, and portraits of the Great Leader and the Dear Leader stare out at you.

No, the North Korean army hasn’t marched across the River Thames, but Pyongyang has established a small cultural enclave in London’s West End in the form of the first major exhibition of North Korean art in the Western world.

Curator David Heather says he first got the idea after meeting a North Korean painter at an art exhibition in Zimbabwe in 2001. “I got chatting with Mr Pak and he invited me to Pyongyang,” said Heather, making it all sound surprisingly straightforward. But the 45-year-old financier admits that mounting the exhibition was “quite a challenge … very time-consuming” and also admits that he has no great knowledge of art or the international art market.

He describes the surprisingly extensive exhibition of about 70 artworks as “an opportunity for people to see art from what is a secretive and protective society at first hand”.

The show ranges from apolitical landscapes and ceramics to a vast, blatantly propagandistic battle scene celebrating the routing of the US Army in the Korean War, as well as hand-painted posters on such unexpectedly diverse themes as “international hero” Che Guevara and “say no to sexual slavery in the 21st century”. This is a clear reference to Korean and Chinese “comfort women” who were forced into prostitution to serve Japanese soldiers during World War II.

Heather brought over three of the artists to London for the opening of the exhibition, including Pak Hyo-song, whom he had met in Zimbabwe and who has two dramatic – if highly un-North Korean – wildlife paintings of zebras and lions on show.

Pak spent five years in Zimbabwe as representative of the Mansudae Art Studio, North Korea’s leading group of official artists, whose activities include designing monuments and propaganda posters on behalf of foreign, mainly African, governments.

Pak’s dramatic if not entirely lifelike oil paintings seem to have been influenced by the well-known British African wildlife artist David Shepherd, and sure enough, the 47-year-old “Merited Artist” told Asia Times Online at the opening party that he was a great fan of Shepherd.

He is undoubtedly the only North Korean artist to have had a one-man show in Europe, after Heather mounted an exhibition of 15 of his paintings in Wiesbaden, Germany, in 2005.

The London opening featured a remarkable mix of people. It was was a rare chance for the three North Korean artists and normally elusive members of the North Korean Embassy in London to mix socially with South Korean diplomats, art collectors and business people as well as with British Foreign Office officials, members of Britain’s tiny pro-Pyongyang New Communist Party, and at least one aging Moonie.

Heather said he had hopes of bringing the show to Paris, Berlin and even New York, and that only a few days after the opening he had already sold 50 posters at 250-300 pounds sterling (US$500-600) each, as well as two large paintings priced at several thousand pounds.

The sum of 300 pounds may sound like a lot for a none too subtle North Korean poster by an anonymous artist, but propaganda art is highly fashionable nowadays, with Chinese posters from the 1960s and 1970s fetching hundreds of dollars in London and New York. Given that the North Korean posters are hand-painted while the Chinese pictures are mass-produced prints that originally cost a few cents, the North Korean versions may turn out to be rather smart investments.

Heather said he had “no idea” how much he had invested in the exhibition, including renting a gallery on one of London’s most expensive streets for six weeks. “I don’t do it to make or lose money,” he said, but he clearly takes pride in being “a good negotiator”.

He said the North Koreans are “very direct and straightforward” and that “they are very open to ideas”. He has visited Pyongyang just once, in 2004, and conducted most of his negotiations in Beijing. Heather said he had bought 150 artworks, which he would show in rotation. Pricing the pictures was difficult, as this was the first time North Korean works of art were being sold in the capitalist West, he noted. “It opens up a new market which wasn’t there before.”

The biggest and most expensive picture in the exhibition is called Army Song of Victory and is priced at 28,000 pounds. A collective work by seven artists, it shows a Korean People’s Army brass band celebrating as US troops flee in the Battle of Rakdong River in 1950. A spokeswoman said the gallery was considering an offer of 21,000 pounds on the opening night.

Heather said he had received “a lot of help” from the North Korean Embassy and the British Foreign Office, and quiet encouragement also from the South Korean Embassy, which was anxious to see what North Korean art was all about. He has taken the North Korean artists to the Houses of Parliament, the British Museum and the historic city of Bath – despite the floods covering much of western England – and invited them to his home for a traditional British dinner of roast beef and Yorkshire pudding.

Heather has clearly formed an excellent rapport with the North Korean Embassy, and has even played golf with one of its diplomats on a course near London. “He’s sort of average like me. He has played on the Pyongyang golf course; it’s mainly for the elite,” Heather explained.

But holding an art exhibition is just the beginning, and Heather is now hoping to bring a 150-member North Korean orchestra over to London next year. “I’m hoping they will play in the Royal Albert Hall or Royal Festival Hall,” he said, referring to London’s two biggest concert halls.

This may not be quite as far-fetched as it sounds. Heather is working on the orchestra project with British soprano Suzannah Clarke, who has given several concerts in Pyongyang and is one of North Korea’s few foreign celebrities. Her rendition of “Danny Boy” is said to be especially popular with North Korean audiences. Given her fame and his business prowess, it’s an unlikely plan that just could come off.

Artists, Arts and Culture of North Korea runs at La Galleria, 5b Pall Mall, London SW1Y 4UY, until September 2.

Korea Herald
Ko Kyoung-tae
7/30/2007

Trade between South and North Korea expanded fast this year as South Korean manufacturers picked up investment and output at the Gaeseong Industrial Park, trade data showed yesterday.

The Korea International Trade Association said the inter-Korean trade rose to a record high $720 in the first half, up nearly 30 percent from a year earlier.

Imports from the North jumped over 60 percent to $390 million, while exports slightly declined to $330 million, according to the association.

The large leap in imports from North Korea largely resulted from the fast-growing manufacturing facilities in Gaeseong.

The two Koreas have traded around $190 million of products and machineries through the industrial complex in the first six months, up almost 80 percent from a year earlier.

The KITA officials expect the rising interests in the Gaeseong complex to further push up the cross-border investment and trade in the coming years.

South Korean conglomerate Hyundai Group built the manufacturing park in the North’s border city of Gaeseong in 2004 in a bid to attract South Korean manufacturers looking for cheap labor.

More than 20 South Korean companies currently employ around 11,000 North Korean workers.

Gaeseong’s output accounts for about one-third of the total inter-Korean commercial trade, the KITA noted.

Other regular trade also soared over 65 percent to $210 million as fishery and commodity imports grew in recent months.

In contrast, aid from South to North Korea remained stagnant.

Private cross-border aid dropped 15 percent to $140 million while government aid more than doubled to $20 million, the KITA noted.

The association estimated that 2007 inter-Korean trade would surpass $1.7 billion, four times that of 2000.

Korea Times
Andrei Lankov
7/29/2007

On September 30, 1950, at 11:30 p.m., the Eighth Department of the Soviet General Staff received a coded message from Pyongyang. It took about an hour to decipher it, and then a courier was dispatched to deliver it to Stalin’s residence on the outskirts of Moscow. It was 2:30 a.m., but the Soviet dictator liked to work at night. At any rate, the message was so important that perhaps they would wake him anyway. Kim Il-sung had reported that the North Korean army had ceased to exist, and that the only way to save the North Korean state would be through an urgent dispatch of troops from the USSR.

Stalin was hardly surprised. He was never an enthusiast for Kim Il-sung’s invasion plans, and when in January 1950 he finally granted permission to invade the South, he did so on the assumption that the U.S. would have no time, and perhaps, no will, to interfere. Hence, when Stalin learned of the Incheon landing, he was quick to appreciate what had happened.

Thanks to the recent efforts of historians, especially Alexander Mansourov and Pak Myong-rim whose research I use for this article, we know what was happening in Moscow, Beijing and Pyongyang during the fateful two weeks which followed MacArthur’s amphibious operation in Incheon.

The landing did not come as a complete surprise: the Soviet _ and, obviously, Chinese _ intelligence expected something like it, and the Chinese even warned the North Koreans about the danger.

When Stalin learned about the large-scale landing, he realized that a disaster was looming. As early as Sept. 18, he cabled his instructions to Pyongyang. He requested a stop of the push toward Busan, and demanded the withdrawal of troops from the South to reinforce Seoul’s defenses. This was a reasonable suggestion, but Stalin did not appreciate the degree of U.S. military superiority. It is doubtful whether such a withdrawal would have accomplished much.

But Stalin’s representatives in Korea, including Gen. Shtykov, the first Soviet ambassador to Pyongyang, were even less appreciative of the new dangers. While the U.S. and South Korean forces were fighting their way to Seoul, soon to cut the North Korean troops off from their supply bases, both Shtykov and Kim Il-sung still hoped that the landing force could be contained. The documents confirm that even when the U.N. forces took over the Gimpo airfield and entered the outskirts of Seoul, the North Korean command still hoped to take Busan in the following few days.

The North Korean press remained silent about the landing. By Sept. 18, the sounds of battle were well heard in Seoul, but the official propaganda and communist activists assured everybody that nothing special was taking place. Kim Song-chil, a historian and author of a famous diary, described how his Communist interlocutors insisted that the sounds of distant artillery were merely produced by the field exercises of the North Korean troops.

On Sept. 20, Stalin repeated his demand, and required the withdrawal of forces from the southern part of the country to Seoul, in order to “establish strong frontline positions to the north and east of Seoul.” It indicated that Seoul should be surrendered to the U.N. forces. But Kim Il-sung, with his trademark stubbornness, kept pressing on toward Busan.

Only on the evening of Sept. 25, did Kim Il-sung admit that there was no chance of pushing the South Korean forces into the sea near Busan. He ordered a withdrawal, but it was too late. The next day, heavy battles unrolled into the streets in downtown Seoul where the North Korean forces tried to resist. They did what they could. Kim Song-chil wrote about their bravery with great admiration, and the historian was no fan of the communists.

Over the two days of Sept. 27-28, the North Korean command system disintegrated. Kim Il-sung could not even contact his own Defense Minister Choe Yong-gon, who was in Seoul doing his best to keep the city. An emergency meeting in Pyongyang created a new command structure, presided over by Kim Il-sung, himself. But he was a general without an army; after the battle of Seoul, the North Korean forces ceased to exist.

For a while, there was some hope that the U.N. troops would not cross the 38th parallel. But by Oct. 1, it became clear that such a turn of events was very unlikely. Thus, Kim Il-sung and Pak Hon-yong, his foreign minister and future victim of the purges, wrote a cable in which they desperately asked for help. They admitted “if the enemy were to take advantage of the situation and step up its offensive in North Korea, then we would be unable to stop the enemy by our own forces.” Accordingly they asked for Soviet troops.

But Stalin did not want to launch a third World War. He hoped that the Chinese would take the military responsibilities on. After all, their stake in the situation was greater than his. He eventually succeeded, but it took much effort on his part.

Yonhap
7/29/2007

South Korea on Sunday sent 22,590 tons of heavy fuel oil to North Korea, its last oil shipment to the communist neighbor under the first stage of a landmark nuclear disarmament deal.

Under a Feb. 13 deal signed with five other regional powers, North Korea agreed to shut down its nuclear reactor in Yongbyon in return for 50,000 tons of heavy fuel oil aid from South Korea.

The oil shipment, the fifth of its kind, left this southeast port at 1 a.m. and is to arrive at Sonbong Port in northeastern North Korea at 7 a.m. on Monday, South Korean officials said.

North Korea shut down the Yongbyon reactor after South Korea sent the first shipment on July 12. The February deal also calls for North Korea to disclose and disable all its nuclear programs in return for an additional 950,000 tons of oil or equivalent aid.

The six nations — the two Koreas, the U.S., China, Russia and Japan — met in Beijing earlier this month but the talks ended without setting a date to meet again.

Yonhap
7/27/2007

South and North Korea will start a joint on-site survey this week of three zinc and magnesite mines in the North’s mountainous northeastern region, the Unification Ministry said Friday.

“The zinc deposit in Komdok mine is about 200-300 million tons, the largest in East Asia, and magnesite deposits in Ryongyang and Taehung are about 4 billion tons, the world’s third largest,” a ministry official said.

Ahead of the 15-day joint survey of the mines starting from Saturday, the South started shipment of light industry materials worth US$80 million to the North on Wednesday. The first shipment was 5 million tons of polyester fabric worth $800,000.

Earlier this month, the two Koreas agreed on how to cooperate in natural resource exploration in the North in return for the South’s provision of light industry materials.

In 2005, South Korea agreed to offer industrial raw materials to the North to help it produce clothing, footwear and soap starting in 2006. In return, the North was to provide the South with minerals after mines were developed with South Korean investments guaranteed by Pyongyang.

But the accord was not implemented, as North Korea abruptly cancelled the scheduled test runs of inter-Korean cross-border trains in May last year, apparently under pressure from its powerful military. The two Koreas carried out the historic test run of trains across their heavily armed border in mid-May.

Daily NK
Kwon Jeong Hyun
7/27/2007

An order was made by North Korean authorities prohibiting the use of all Japanese cars until the year 2009. Though this only applies to old cars manufactured before 2003, it seems that the orders are being enforced stronger than expected.

The drivers seat of cars manufactured after 2004 are being changed to the right hand side by the Japanese Chongryon (General Association of North Korean Residents in Japan), informed a source on the 25th.

In addition, all Japanese cars have been banned from entering Pyongyang excluding cars with permits (such as governmental or company cars). As a result, many Japanese delivery services are experiencing hardship.

This kind of order was made around Kim Jong Il’s birthday on February 16th by central authorities with inspection conducted by the transportation department of the Social Safety Agency in both the rural districts and Pyongyang.

These orders were made amidst a time when relations between North and South Korea had worsened and when a broken down Japanese car blocked the road while Kim Jong Il was on his way to worship at his the Kim Il Song Memorial.

Regarding this, one safety traffic official of Pyongyang city informed, “Cars which have been produced with the South such as the “Hweparam (whistle)” and “Arirang” are being regulated by the nation. National income is being increased by selling these. Further, the regulations were enforced to control the people who were making lots of money by trading cars illegally.”

The Pyeonghwa Motors which operates under the control of the Unification Church has been working in collaboration with North Korea. Since 2002, cars and mini buses have been supplied after parts had been put together at the factory.

This order by North Korean authorities has been enforced strongly and has lasted much longer than expected. Hence many traders and individuals are expressing discontent.

Japanese cars are being sold at ridiculously low prices with yet another year and 2 months remaining until the ban is lifted. People who took out loans in order to purchase the cars are being pressured by their debtors, a source informed.

Korea Times
Jane Han
7/26/2007

Inter-Korean trade rose 28.6 percent in the first half of 2007 from a year earlier, the country’s leading trade agency said Thursday, attributing the boost to the Gaeseong joint industrial complex and the eased tension between Seoul and Pyongyang.

Trade amounted to $720 million during the January-June period, the Korea International Trade Association (KITA) said.

While South’s exports to the North dropped 9.4 percent to $330 million, imports from the North jumped an impressive 63.3 percent to $390 million.

The trade group credited the big import leap to the expanded number of items produced in the industrial complex located at North Korea’s western border city.

But unlike the positive performance of the two-way trade, the Mt. Geumgang tour business has dropped 7.2 percent.

South Korean companies are currently employing about 15,000 North Korean workers in the Gaeseong complex and the number is expected to rise as the facility undergoes expansion.

Symbolic of the cooperation between the Cold War rivals, the industrial park began construction in June 2003 and its operation started the following year.