North Korean Economy Watch

Joong Ang Daily
Yeh Young-June and Ser Myo-ja
3/9/2007

The United States has already agreed to take North Korea off Washington’s list of states that sponsor terrorism and a follow-up development will happen soon, Kim Gye-gwan, North Korea’s vice foreign minister, said yesterday.

The United States is expected to release a new list in April. Mr. Kim said no conditions were placed on North Korea’s removal from the list.

After two days of talks in New York with his American counterpart, Christopher Hill, Mr. Kim arrived at Narita International Airport in Tokyo last night and spoke to reporters briefly on his way back to Pyongyang.

“Spring is coming, so the atmosphere will change,” Mr. Kim said, describing the first round of normalization talks as “constructive.”

He also said the discussion included North Korea’s cooperation in the investigation of a highly enriched uranium-based nuclear arms program.

Mr. Kim said he and Mr. Hill also discussed the possibility of arranging a foreign minister-level meeting among the two Koreas, China, Japan, Russia and the United States. “It will probably take place around April,” Mr. Kim said. “It is, however, not to upgrade the six-party talks. It is for the six ministers to get together to give momentum to the six-party talks.”

Asked whether Pyongyang will make more demands after financial sanctions on North Korean accounts in a bank in Macao, China are lifted, Mr. Kim said, “Just think that things are going well. Don’t try to know too much about it.”

Bloomberg
Bradley Martin, Allen Cheng
3/6/2007

Chinese entrepreneur He Ho was burned by his first North Korean investment, a bakery in the shabby border city of Sinuiju. He lost his entire $20,000 when the plan to make the city a special economic zone stalled in 2003.

If another opportunity comes along, though, “I’ll be the first to go in,” the 34-year-old said in an interview in Dandong, the bustling Chinese city facing Sinuiju across the Yalu River. “North Korea’s a good investment because so many things are lacking.”

Business executives in Dandong, one of the main conduits for trade in and out of North Korea, see opportunity in the recent six-nation agreement to end Kim Jong Il’s nuclear-weapons program. They think the 65-year-old North Korean leader will now focus on fixing his country’s nearly flattened economy and may revive plans for a special economic zone — an area designed to promote foreign investment, with fewer rules and regulations than elsewhere in the country — on the western border with China.

“Most of North Korea’s trade with China is via Dandong, so a special zone in this corridor could make sense,” said Marcus Noland, senior fellow at the Peterson Institute for International Economics in Washington. “This could be the North Korean equivalent of the Chinese coastal SEZs in the early years of the Chinese reform.”

No Guarantee

There’s no guarantee against another disappointment for entrepreneurs like He Ho, said Peter Beck, Seoul-based Northeast Asia project director for the International Crisis Group, a Brussels-based organization that works to resolve crises around the world.

“The eternal optimist in me hopes that Kim will see the light and recognize the direction in which he needs to lead the economy,” Beck said in a telephone interview. “But the jury’s still out.”

At the same time, “the North Koreans have been talking about putting a special economic zone in the far northwest aimed at China for a decade,” said the Peterson Institute’s Noland. “If they get the politics right, this venture could work.”

China is North Korea’s top trading partner, with 2006 exports of $1.23 billion and imports of $468 million, according to its Ministry of Commerce.

A little over a year ago, Kim visited six booming Chinese cities, including the special economic zone of Shenzhen, bordering Hong Kong. North Korea’s Central News Agency described the nine-day trip as a visit to places “where the cause of modernization is being successfully carried out.”

Executives’ Speculation

Business executives in Dandong speculate that North Korea will develop a new zone in Cholsan County, a peninsula on the east side of the mouth of the Yalu some 50 to 60 kilometers (31 to 37 miles) south of Dandong and Sinuiju. China’s commerce and foreign ministries and North Korea’s embassy in Beijing didn’t respond to faxed requests to comment on their plans.

In 1991, North Korea built a special economic zone at Rajin-Sonbong, in the remote northeast of the country, which has failed to attract much foreign investment because of its location.  Another zone near the southern border at Gaeseong, only 60 kilometers from Seoul, has proven more popular, especially with South Korean manufacturers in search of low-cost labor.

In 2002, North Korea announced plans for the zone in Sinuiju, which would have included export factories and casinos to lure gamblers from China. Kim named Dutch-Chinese businessman Yang Bin governor of the zone. China, which hadn’t given its approval, squelched the plan by arresting Yang and jailing him in 2003 on charges of fraud and illegal land use.

Strained Relations

Kim’s test of a nuclear device in October, which strained relations with the Beijing government, didn’t halt commerce on the border, according to Shen Yuhai, general manager of Dandong Jade Ocean Trade Co. “We didn’t stop trading at any time,” he said in a recent interview.

Shen’s office overlooks a busy parking lot where Chinese customs officials examine trucks departing neon-lit, high-rise Dandong for the run-down and darkened Sinuiju.

The trucks cross on the Friendship Bridge’s single lane in the morning with manufactured goods and return in the evening, either empty or carrying minerals, silkworm cocoons and seafood, Shen said. Four trains a week cross in each direction, connecting the North Korean capital of Pyongyang with Beijing.

China is supplying its neighbor with “daily necessities, home electrical appliances and, in this season, farming tools and chemical fertilizer,” said Shen.

While business is booming, he said he’s still cautious about the risks. He requests payment in yuan, dollars or euros, not North Korean won, and accepts bank transfers only after business relations have been established.

Even then, he said, “sometimes we are cheated.”

–With additional reporting by Hideko Takayama in Tokyo and Lee Spears and Dune Lawrence in Beijing.

For a copy of a list of banned goods to North Korea: http://www.state.gov/t/isn/76138.htm

Daily NK
Kim Min Se
3/7/2007

90% daily goods made in China, 50% circulated by Chinese merchants

While some prospect that North Korea may be an affiliated market of China’s 4 provinces in the Northeast, the real focus is on the merchants who actually control North Korea’s markets. Recently, North Korean citizens have been asserting that markets would immobilize if Chinese merchants were to disappear.

Lately, Chinese merchants are nestling themselves with their newly found fortune in North Korea, undeniably to the envy of North Korean citizens.

In a recent telephone conversation with the DailyNK, Kim Chang Yeol (pseudonym) a resident of Shinuiju said “Most of the tiled houses in Shinuiju are owned by Chinese merchants in Shinuiju are upper class and the rich.” Unlike Pyongyang, tiled houses in Shinuiju are greater in value than apartments. In particular, the homes owned by Chinese merchants are luxurious and impressing.

Kim said “At the moment, 90% of daily goods that are traded at Shinuiju markets are made in China.” What Kim means by 90% of goods is basically everything excluding agricultural produce and medicinal herbs. Apparently, about half of the (90% of) supplies are circulated by Chinese merchants.

Kim affirmed that the market system could be shaken if supplies were not provided by the Chinese merchants. Hence, Chinese merchants have elevated themselves in North Korea’s integrated market system, to the extent that the market could break down without their existence.

In addition to this, Chinese merchants are playing a vital role in conveying information about the external world into North Korea. Even in 2004, it was Chinese merchants to first telephone China through mobile phones relaying the news about the Yongcheon explosion. As a result, rumors say that the movement of Chinese merchants can either be a “cure” to the economic crisis in which the North Korean government seems unable to fix, or “poison,” as more and more foreign information flows into the country.

How many Chinese merchants are there in North Korea?

A report by China’s Liaoning-Chosun Newspaper in 2001 sourcing data from North Korea, states that immediately after WWII, approximately 80,000 overseas Chinese were residing in the Korean Peninsula. Then following the Korean War and the formation of a Chinese government, the majority of people, approximately 60,000 Chinese, returned home. In 1958, statistics show that 3,778 families of overseas Chinese were living in North Korea, totalling 14,351 people.

These Chinese engaged in business related to farming, home made handicrafts and restaurant business, and in the late 50’s, lost all this due to the implementation of economic planning and dictatorial regime. Since then, the majority of merchants continued to return to China until the early 80’s.

In 2001, Liaoning-Chosun Newspaper confirmed that approximately 6,000 Chinese were living in North Korea. Of this figure, more than half were residing in Pyongyang, approx. 300 families living in North Pyongan and approx. 300 families residing throughout Jagang and northern districts of South Hamkyung.

At present, there are 4 middle and high schools for children (11~17 years) of Chinese merchants, located in Pyongyang, Chongjin, Shinuiju and Kanggae. In addition to these schools, there are a number of elementary schools (for children aged 7~11 years) located sporadically throughout each province.

Wang Ok Kyung (pseudonym) a resident of Shinuiju attended Chongjin Middle School for children of overseas Chinese in 1981~86. Wang said “At the time, there were about 40 students in each year. Now there is only about 5~6 students.” Nowadays, many Chinese children complete their elementary studies in North Korea, but the general trend is to send the children to China for middle school. She said “In order to enter a Chinese university, students must have completed their middle school studies in China and must be fluent in Chinese. He/she can also go to private institutes in China.”

Fortunes made through trade between North Korea-China during the food crisis

Even until the early 80’s there were no such thing as a wealthy North Korean-Chinese merchant. They were no different to North Korean citizens.

However, in the 80’s, many people began importing and selling goods such as socks, handkerchiefs, hand mirrors and cards from China, literally through their sacks. As the 90’s approached North Korean-Chinese merchants began to experience great wealth, the time where North Korea-China trade fundamentally kickstarted.

Today, Son Kwang Mi (pseudonym, 52) falls under the top 10 wealthiest Chinese merchants in Dandong, characterizing an unique rags to riches story. In the past, Sun lived in Chongjin and was one of the first figures to trade with China in the 80’s.

In the beginning, Son was so poor that she had to sell her watch received as a wedding gift in order to buy goods to sell.

Fortunately, Son found her money smuggling gold. In North Korea, gold is considered a public good or simply put Kim Jong Il’s personal inheritance, so private trade of gold is strictly regulated. Nonetheless, there are still some laborers who export gold secretly and a great number of people still collect gold through dubious ways. In particular, after the 80’s as North Korea began to experience economic decline, more and more people sold gold secretly.

Hence, a small number of Chinese merchants infiltrated the market of secretly trading gold with China. Chinese smugglers were able to take advantage of North Koreans by greatly raise their market margins, as the supply of gold and North Koreans wanting to sell their gold was high yet the demand in North Korea low.

Son said “Of the Chinese merchants in North Korea, 60% earned a great fortune at that time through illicit trade.”

She says that there were two opportunities for overseas Chinese to make a great fortune. The first was in 1985~89 through illicit trade of gold and the second, during North Korea’s mass food crisis in 1995~98.

“During the mass famine, everything in North Korea was in shortage and so Chinese merchants began to provide the daily necessities of life. At the time, if you brought large amounts of goods such as fabric and sugar, you could make a profit of 1 million Yuan (US$137,000),” she said.

Son was fortunate enough not to miss these two opportunities which led her to great wealth and allowed her to possess a fortune of 50 million Yuan (US$6.31 million).

Chinese merchants can relatively enter and exit China freely. Also, with the ability to speak Chinese fluently and the possibility of staying in the homes of many relatives in China, the occupation possesses ideal conditions.

Joong Ang Daily
3/8/2007

North Korea yesterday asked for 300,000 tons of fertilizer in aid, the Unification Ministry said, days after the two Koreas agreed to resume humanitarian projects.

“Chang Chae-on, president of the North’s Red Cross, sent a fax message to his South Korean counterpart Han Wan-sang, requesting 300,000 tons of fertilizer and wanting to know how much and what type,” said Yang Chang-seok, a ministry spokesman.

Mr. Yang said the shipment will be sent to the North in late March or early April, after the details have been worked out.

Mr. Yang estimated the aid will cost 100 billion won. “The government earmarked 108 billion won for that purpose this year.”

The North has also asked for rice and Red Cross officials will discuss the resumption of rice aid during a new round of economic talks to be held in Pyongyang on April 18 to 21.

Korea Times
Park Hyong-ki
3/7/2007

The outlook for inter-Korean trade this year seems bright, as North Korea agreed to dismantle its nuclear weapons programs at the six-party talks in Beijing last month.

According to a survey conducted by the Korea International Trade Association (KITA), about 45 percent of South Korean companies doing business with North Korea were optimistic that the volume of inter-Korean trade will grow this year. The survey was conducted on 150 firms in February.

Some 35 percent believe that the bilateral trade will remain the same as last year’s, while only 15 percent showed negative responses toward this year’s trade, saying that the volume will “drastically” decrease.

Only two companies said they will pull out of North Korea this year, while five companies were undecided.

Last year, inter-Korean trade amounted to about $1.3 billion, up 28 percent from 2005. Key trading commodities were agricultural, chemical and textile products.

Despite North Korea’s nuclear and missile tests as well as chilly inter-Korean relations last year, South Korean companies operating in the Kaesong Industrial Complex saw their sales grow 69 percent to $298 million.

The Kaesong site is one of the major cross-border projects symbolizing economic ties between the two Koreas, which utilize North Korea’s cheap labor and South Korea’s technological skills.

The Ministry of Unification is hoping to attract about 2,000 manufacturers to Kaesong by 2012. Currently, there are 55 South Korean firms operating in the joint economic zone, which account for 22 percent of overall South-North business, according to the trade association.

The other joint business _ the Mt. Kumgang tour managed by Hyundai Asan _ suffered from the aftermath of North Korea’s nuclear weapon test. The tourism project recorded only $57 million in sales, down 35 percent from the year before.

Specifically, a total of 477 South Korean companies participated in inter-Korean trade last year, down from 523 firms in 2005, due to heightened risks following Pyongyang’s nuclear test.

About 44 percent of those surveyed said that the test had negatively affected their business with the North. The report showed that only 39 percent reaped a “little” profit last year while doing business with North Korea.

Half of firms upbeat for North trade
Joong Ang Daily
3/8/2007

Almost half of South Korean companies doing business with North Korea said they have a bright outlook for inter-Korean trade this year due to expectations for better ties with the North, a poll said yesterday.

According to a survey of 67 companies conducted by the Korea International Trade Association, 45 percent of the respondents said inter-Korean trade will likely increase this year. Thirty-five percent expected trade to remain at the same level as last year while 15 percent said it will likely decline.

The poll also said 75 percent of local companies operating in the industrial park in the North’s border city of Kaesong had an optimistic outlook for trade. The industrial complex, mainly for smaller South Korean firms, is considered a model for reconciliation and cooperation between the two Koreas. Currently, 21 garment and other labor-intensive South Korean plants are operating there, employing about 11,000 low-paid North Korean workers.

The survey said among the firms that forecast inter-Korean trade to rise, 17 percent said their continued trust in North Korean firms was the reason for their upbeat outlook, while 16 percent and 14 percent said it was a rise in new orders and expectations for inter-Korean reconciliation. The survey was conducted before a deal on dismantling North Korea’s nuclear program was reached, reflecting that local firms have maintained a positive view toward inter-Korean trade. The agreement calls for Pyongyang to shut down and disable its main nuclear reactor and dismantle its atomic weapons program.

Choson Ilbo
3/6/2007

Two tons of rice cultivated on North Korean soil with help from South Korean agriculture experts has reached the South’s port city of Incheon.

The rice came from a one-hundred-hectare field near Pyongyang planted with a mix of South and North Korean rice last year. The paddy yielded over 50,000 tons of rice and the shipment that arrived in Incheon was of the South Korean variety. It will be donated to a number of welfare groups as well as civilians who were displaced during the Korean War.

The project is one of several agricultural and cultural exchanges run by Gyeonggi Province which signed an agreement to cooperate with North Korea in 2004.

Korea times
Lee Jin-woo
3/6/2007

The Ministry of Unification said Tuesday it has provided some 400 million won ($400,000) to help North Korea stem the spread of scarlet fever, an infectious disease, a ministry official said.

Yang Chang-seok, spokesman for the ministry, said the money has been provided to an association of some 51 local private relief organizations.

As the money was financed by the inter-Korean cooperation fund under a matching fund system, the association promised to provide some 200 million won for the aid program.

Yang said the decision was made at a government meeting on Feb. 12.

The spokesman, however, said the decision was not in opposition to Unification Minister Lee Jae-joung’s earlier remarks not to provide any government-level assistance over the infectious disease in the impoverished North.

During a press briefing in January, the minister stated that the government would not provide medical aid to the North as scarlet fever is not a fatal infectious disease.

“Given the nature of the disease, we believe that North Korea itself will be able to solve the problem,” Lee told reporters on Jan. 11.

The spokesman said Minister Lee was referring to government-level aid through the Korean National Red Cross (KNRC), not financial assistance from private relief organizations.

South Korean humanitarian aid groups have shipped various types of medicine including penicillin and other antibiotics to Pyongyang since last December. Scarlet fever broke out in northern Ryanggang province last October.

Scarlet fever is intrinsically not a serious communicable disease, but if not treated properly it can become serious like cholera or typhoid. The impoverished North lacks medicine.

South Korea suspended its government-level humanitarian aid to North Korea after the North’s missile tests last July. A possible resumption of the aid was blocked due to the North’s nuclear bomb test in October.

During ministerial talks in Pyongyang last week, the two Koreas agreed to hold a series of meetings to restart the aid project. 

Yonhap
3/6/2007

North Korean and Japanese officials met Tuesday in Hanoi to set the agenda for their two-day discussions scheduled to start here Wednesday to settle pending bilateral issues preventing them from normalizing diplomatic relations.

The Japanese representative to the talks, Koichi Haraguchi, met with his North Korean counterpart, Song Il-ho, Tuesday morning for the preparatory discussions.

The normalization talks are part of last month’s six-nation agreement aimed at dismantling North Korea’s nuclear weapons program. Under the accord, North Korea has 60 days to shut down its plutonium-producing Yongbyon facility in return for 50,000 tons of heavy fuel oil for electricity production. Japan has said it won’t contribute to the aid unless there is progress on the issue of its citizens abducted by the North.

North Korea admitted to kidnapping 13 Japanese in the 1970s and 1980s and allowed five to return in 2002. Japan says 17 people were kidnapped and must be accounted for.

In addition to the abduction issue, the North Korean and Japanese diplomats are expected to focus on the ways for Japan to atone for its 1910-45 occupation of the Korean Peninsula.

Prior to the opening of the talks, meanwhile, Japanese Prime Minister Shinzo Abe made clear in a parliamentary address in Tokyo that Japan will not compromise with North Korea over its abduction of Japanese citizens.

“Solving the nuclear problem was the main theme of the six-nation agreement, but the abduction issue is not one where any concession is possible,” Abe said. “Our stance is that unless they change their attitude, we won’t change.”

Korea Times
Andrei Lankov
3/5/2007

When future historians analyze the history of North Korea in the 1990s and early 2000s, what will they see as the most important events of that era (likely to be remembered as the “demise of Kim Il-sung’s socialism’’)? I do not think that future works of historians will spend too many pages (or megabytes) describing the never-ending soap opera of the “nuclear crisis.’’ Perhaps, some still unknown clashes in the North Korean palaces will deserve attention. But much more important will be the social changes in North Korea and, among other things, the near collapse of border control on the northern frontiers of the country. This collapse has opened the North to foreign influences and international exchanges of all kinds.

It is a bit of an overstatement to say that the North Korean border with China is now “open.’’ It is not open in the same sense as, say, the border between the Canada and U.S., let alone borders between the West European states. But it is porous to the extreme, and this situation is quite new.

For decades, cooperation between the DPRK and Chinese authorities ensured that defectors stood little chance of gaining asylum across the border. Sooner or later a defector would be arrested by the Chinese police and sent back to the North where he or she would be prominently sent to a prison camp forthwith. Everybody, including aspiring defectors, was clear on this point.

But this system collapsed about ten years ago, and the adjacent areas of China were soon flooded with North Korean refugees whose numbers in the late 1990s reached some 200,000 (now the numbers are much lower).

Nowadays crossing the border is not too difficult or dangerous. In the late 1990s, the people who crossed the border every night could be counted in the hundreds. Most of them were refugees fleeing the destitution and hunger of their Korean villages. Others were smugglers, engaged in the somewhat risky but profitable business of moving valuable merchandise across the border. And yet others were engaged in more unusual activities.

There are professional matchmakers, for example. While ethnic Korean girls from the Chinese North-East try, and sometimes succeed, in marrying South Koreans, the girls from the North would not mind having a Chinese husband, normally _ but not always _ of Korean ethnicity. China, with its abundant food supply, appears a veritable dreamland for them.

Such marriages are quite common: according to one study, in 1998 some 52% of all North Korean refugees (overwhelmingly women) were living with their local spouses. In most cases such marriages are arranged via Chinese (Han or ethnic Korean) brokers, and sometimes these brokers contact girls and their families while they are still in North Korea. If the girls are interested in the idea, the matchmaker or his/her agent crosses the border and then escorts the would-be bride to her new place of residence.

Most of the “husbands’’ are people who, for a variety of reasons, have had difficultly in finding a wife by more orthodox methods: widowers with children, habitual drunkards, the handicapped. In many North Eastern villages the mass migration of young women to the booming cities has resulted in a bridal shortage, such that North Korean wives are in high demand.

Of course, being illegal aliens, North Korean wives face a risk of deportation, and there are problems with children born of such unions. Nonetheless, a bit of caution, and a hefty bribe, can often solve some of the problems, ensuring the much-coveted registration for a baby and buying the local constable’s willingness to look elsewhere.

Another business is getting people from the North to China and, ultimately, to South Korea. Nowadays, there is large and growing community of North Korean refugees in Seoul. Many of these people save every cent to get their families in from North Korea. When they have enough money, they pay the brokers who arrange the escape. A few thousand dollars will be enough to ensure that a professional agent will cross into North Korea, locate the person and escort him/her across the border. $10,000 is the payment for getting a resident of Pyongyang, but for closer areas the fees are lower. Then, an additional payment will be necessary to get the person to Seoul (this costs between another $2,000 and $9,000, depending on various factors).

And there are money transfers, both from the North Korean refugees doing well in China, and from South Korea. Money has to be sent in cash, through reliable couriers (and there are many ways to confirm that the transfer has been delivered).

Take, for example, the case of Ms. Lim, a 31 year old refugee, happily married to a Chinese man and engaged in running a small business (the story was recently described by the Daily NK, a South Korean web-based newspaper). Twice a year Ms. Lim sends about $400 to her parents in the North. Being a retired officer of an elite unit, and a devoted supporter of the regime, her father initially refused to accept any money from the “daughter who had betrayed the country,’’ but he changed his mind. Nowadays, these transfers keep the family alive and even prosperous by North Korean standards.

I also assume that some of the people who cross the border have far more important tasks than delivering a few hundred dollars from a loyal daughter. The area is perhaps a hotbed of spying activities of all kinds. But those are other stories, not to be told in full in the next fifty years…

Daily NK
Kim Min Se
3/5/2007

North Korea customs at Shinuiju is under strict control by Central Committee of North Korea Workers Party.

An inside source from Shinuiju said on the 4th, “Authorities are currently undergoing investigations at Shinuiju customs, looking for tax evasions and illicit acts. The parties subject to these crimes include customs officers at Shinuiju customs and merchants engaging in North Korea-China trade.”

The source added that the investigations had virtually terminated North Korea-China trade between Shinuju and Dandong.

Shinuiju customs is critically important for North Korea as 80% of food and daily necessary goods between North Korea and China are imported and exported from here.

According to Kim Young Hee (pseudonym), a North Korea-China tradeswoman in Shinuiju, “Trade merchants have given up on trade and are in a state of panic because of authorities making investigations at Shinuiju.”

Kim said “At times like this, keeping is a low profile is the way to survive” and expressed her concern, “They have made orders to arrest at least 10 people. Who knows, anyone could be unlucky and caught.” She said “Like there is any trade merchant who does not engage in some sort of illegal act” and retorted “Simply obtaining a permit from authorities is generating money.”

“Prior to authority investigations, on average 50~100 cars would pass through Shinuiju-Dandong, per day. Now the figures have drastically reduced with only 5~10 cars passing through” she said.

Kim continued “There is not an article that falls through the cracks of authority officers. All goods approved by customs, whether it be minerals to seafood is confirmed by authorities… All things are left up to the hands of authority officials.”

On the other hand, the source also informed that despite recent investigations placing trade between North Korea and China in a state of lull, apparently counteracting effects such as dramatic rises in Shinuiju markets have not yet occurred.