North Korean Economy Watch

From the Korea Herald:
9/10/2006

The United States has had some success in limiting North Korea’s export of missiles by persuading other countries not to buy them, a senior administration official says.

Washington has long sought to stop such sales and stepped up its initiative after Pyongyang tested a string of missiles in July, including a long-range missile.

“As a direct result of our policies, we have cut off North Korea from several of its customers for ballistic missiles,” Robert Joseph, the Bush administration’s top nonproliferation official, told Reuters.

“We have made it more difficult for the North to ship missiles and have made it more likely that these shipments will be exposed. The risk of exposure further turns off customers,” he said in a recent interview.

He said Yemen committed not to buy more North Korean missiles after taking delivery of a shipment of 15 Scuds in 2002 and Libya promised to forgo North Korean missiles as part of a 2003 agreement in which it abandoned its weapons of mass destruction and missile programs.

Some U.S. officials say Pakistan and Egypt also are no longer buying from Pyongyang, leaving Iran and Syria as the major missile customers.

Some other U.S. officials and experts are skeptical of the effectiveness of the Bush administration policy.

Jonathan Pollack, chair of the Asia-Pacific Studies Group at the U.S. Naval War College in Rhode Island, welcomed the close scrutiny the U.S.-led program had brought on North Korea’s activities but said the results were difficult to measure and it was probably too soon to draw firm conclusions.

The U.S. strategy includes a crackdown on banks that aid the North’s illicit activities and the “proliferation security initiative” in which some 88 member nations share intelligence and practice interdicting weapons shipments.

In addition, potential buyer nations now may find their U.S. aid curtailed if they buy weapons from North Korea. Pakistan, Iraq and Egypt are major recipients of U.S. assistance.

After Pyongyang tested seven missiles in July, the United Nations called on countries to avoid supporting the missile program. Missile sales earn the impoverished state hundreds of millions of dollars in hard currency.

One long-range missile crashed soon after launch during the July tests, but the other medium range missiles hit their target areas, U.S. officials and experts said.

U.S. Defense Secretary Donald Rumsfeld has said North Korea – which claims itself to be a nuclear weapons power – is more dangerous as a proliferator than as a military threat to neighbor South Korea.

Pyongyang has been working on missile production for three decades and is the leading supplier of ballistic missiles to the developing world, experts say.

The chief exports are variations of Soviet-origin Scud missiles, regarded as fairly reliable and accurate but based on technology advanced military powers would consider obsolete.

North Korea’s oldest and most loyal customer has been Iran, which helped finance Scud development, according to various U.S. studies. The connection dates to the Iran-Iraq war of the 1980s when Pyongyang tested and shipped missiles to Tehran.

North Korea, as well as China, provided ballistic missiles, cruise missiles and their production facilities to Iran, Iraq, Syria and Egypt, U.S. government reports say. Libya and Pakistan have also been missile customers.

Arms connections between North Korea and Iran are very strong, with the former regime being the main supplier of ballistic missile technologies to Tehran, a senior U.S. nonproliferation official said Wednesday.

Undersecretary of State Robert Joseph, in charge of arms control and international security, was cautious about going into intelligence.

“But I can say that the connections between North Korea and Iran are very strong,” he said at a news conference with the foreign press.

“And North Korea has been, I think, the principal supplier to Iran of ballistic missile technologies,” he said.

Suspicions about exchanges of personnel, technology and equipment between Pyongyang and Tehran on missile development date back decades. Joseph noted that a number of revelations about such ties have already been made public.

From the Korea Liberator and Sunday Morning Herald:

You can download the game here.

9/7/2006

South Koreans will be able to enjoy one of their favorite games on computer using a program written in communist North Korea released here Thursday.

“Silver Star 2006” –a North Korean-made computer program of the chesslike board game called Baduk in South Korea and more widely known as GO–was launched in South Korea as part of an agreement reached with the North in July, said ForOneBiz, the South Korean distributor.

The program can be downloaded for 33,000 won (US$35; euro27), part of which will be paid to the North as royalties, ForOneBiz said.

The company said it also plans to share its technology know-how with the North to improve the software.

The level of technology development in the impoverished North is a far cry from the neighboring capitalist South, which boasts the world’s highest per capita broadband connections.

As part of North Korean government controls on outside information reaching its people, outside Internet access is provided only to high-ranking officials and elite.

The game released this week isn’t the first time for a North Korean computer program to go on sale in the South. In March, North Korean software was launched here for the first time to help with input of repetitive words and provide various symbols and sound effects when people use word processors or send e-mail.

The two Koreas remain divided since the 1950-53 Korean War ended in a cease-fire, not a peace treaty. However, relations have warmed in recent years since a 2000 summit between leaders of the North and South, and the two sides are involved in a number of joint projects.

Korea Times
9/6/2006
Kim Tae-gyu

Starting today, a South Korean venture start-up will market a North Korean paduk computer game, Silver Star 2006, here that is arguably the most advanced program for paduk, also known as go.

ForOneBiz yesterday announced the scheme to launch Silver Star 2006 that has won the FOST Cup, the annual computer paduk championship participated in by global contenders, for the past three consecutive years.

“In June, we reached an agreement with the North’s Samcholli General Corp. to debut Silver Star 2006 here,” ForOneBiz chief executive officer Kim Byung-su said.

“We inked a commission-based deal, not the conventional lump sum-based ones. We will take roughly 90 percent of sales income while the remaining 10 percent will go to Samcholli,” he added.

The price of the program, which can be downloaded at the Web site of ForOneBiz (www.i-silverstar.com) or ordered by calling (02) 2115-6035, is 33,000 won ($34.5).

The Silver Star series, called Unbyol in Korean, was developed by the North’s state-run Korea Computer Center in the 1990s. Experts say it has the most outstanding algorithm for baduk.

“We plan to improve Silver Star 2006 further by cooperating with North Korea. It will work because the North has a competitive edge in software while the South today leads the world in offline baduk techniques,” Kim said.

This is not the first time for North Korean software to go on sale in the South.

Earlier in March, the Seoul-headquartered BH Partners began selling the Speed-K4.0, a computer program developed by the North Korean agency, at its Web site (www.bhpartners.co.kr).

People can download the input software, which helps them easily type in sentences from a word processor or e-mail, at 5,500 won.

From the Donga:

Is S. Korean Rice Feeding Kim’s Army?
9/6/2006
 
A film was found featuring a scene in which the North Korea military handled 400,000 to 500,000 tons of rice, originally supplied by the South Korea government every year since 2000.

The film, which was made on May 24, might bring about some arguments as it intimates that the rice supplied to support North Koreans who are suffering from famine may be used for other purposes by the North Korean military.

The 3-hour long film broadcasted in Weekly Donga which was published on September 5 shows that rice with the seal of the Republic of Korea was loaded by North Korean soldiers into trucks from freight cars parked in Danchon station, Hamgyongnam-do.

Moreover, it also shows North Korean soldiers conducting guard duty on freight cars filled with rice and lying down in the cars while on duty, but no evidence was found as to the destination of the rice shipment. The film was made by a North Korean defector who sneaked back into North Korea again, and is known to be currently staying in a third country.

There is a possibility that North Korea has used military vehicles due to its inferior transportation system, but nonetheless, the intervention of the military in moving provisions violates the agreement between South Korea and North Korea. The agreement indicates that the organization which supplies rice to the people is limited to designated “Sumae-yangjeong-seong” under the DPRK administration.

The Ministry of Unification delivered 500,000 tons of rice from July of last year to this past February for the 2005 supply and has monitored the situation on 20 occasions. “The monitoring is conducted by four delivery personnel, but there’s a limitation of inspection since they do not reside in North Korea,” an official of the Ministry of Unification said.

“Only 30 percent of the ration supplied from South Korea is distributed to North Koreans, while the rest is going to military sites as soon as it is delivered,” Ho Hye-il, one of the North Korean defectors who worked as security guard at the inter-Korean summit in 2000, announced in his book published in June.

From Reuters:
9/5/2006

The chairman of British investment advisory firm Koryo Asia, which has bought North Korea’s Daedong Credit Bank, said on Tuesday it was pressing the U.S. to ease sanctions against the isolated communist country.

Colin McAskill confirmed to Reuters a newspaper report that Koryo Asia had taken over Daedong Credit Bank. Koryo is also an adviser to the Chosun Fund, which invests in North Korean assets.

“We will take on the U.S. over the sanctions stand-off. They’ve had it too much their own way without anyone questioning what they are putting out,” McAskill said in a report in the Financial Times on Tuesday.

Asked later by Reuters about the reported remarks, McAskill said, “That is true,” but declined to comment further.

North Korea defied international warnings and test-fired seven missiles in early July. Dubbed part of an “axis of evil” by U.S. President George W. Bush, the heavily militarised state enforces tight censorship and a strong personality cult of its leader Kim Jong-il.

The United States imposed strict economic sanctions on North Korea in 1950, some of which were eased under the Clinton administration in the 1990s.

The United Nations passed a resolution in July this year imposing sanctions on the country, demanding that North Korea suspend ballistic missile tests.

Daedong Credit Bank has most of its cash frozen under U.S. trade sanctions imposed last September, the Financial Times said. However, its new UK-based owners want to demonstrate that the accounts were earned legitimately and get sanctions lifted.

McAskill has asked U.S. officials to scrutinse the records of Daedong and has written to the U.S. Treasury department about the matter, the newspaper said.

The latest move comes after Anglo-Sino Capital, a firm based in London which is involved in day-to-day management of the Chosun Fund, won regulatory approval from Britain’s Financial Services Authority in May this year.

The Chosun Fund aims initially to raise $50 million, eventually rising to a total asset size of around $100 million, targeting, for example, a possible revival in North Korea’s financial and mining sectors.

From the Donga:
9/5/2006

“Problems can arise anytime you do business in North Korea since there is no market order. However, when business partners disregard agreed-upon deals, it is impossible to conduct any new business. Someone who betrays others can always betray me. Now, who will be willing to trust North Korea and make new deals with it?”

Upon hearing the news report yesterday that North Korea sold the rights to build a large-scale resort including a golf course within the Gaesong Industrial Complex to South Korean real estate developer Unico, despite the fact that Hyundai Group currently holds the rights, one executive of a large company was assured that North Korea was not a trustworthy investment partner.

“If the South Korean government fails to have a control over ‘lawless’ North Korea, the entire business with North Korea can fall into a crisis,” he worried.

During the Kim Dae-jung administration, Hyundai Group began its North Korean business led by then-chairman Chung Ju-yung. It has invested more than $1 billion in North Korea, including $450 million (about 510 billion won by then exchange rate) illegally transferred to the North as a price for holding the inter-Korean summit in 2000. In the process, the company had to go through a major management crisis and the tragedy of Chairman Chung Mong-hun’s suicide.

At such a great cost, Hyundai earned from the North “seven business rights,” which include the rights to provide electricity, railway, tourism, and a dam. With regards to the 3-phase Gaesong Industrial Complex project, it obtained a certificate with which it is allowed to use the land for 50 years.

Nevertheless, Hyundai is gradually being excluded in North Korean businesses except for the existing Geumgang Mountain tour and the first-phase Gaesong Industrial Complex development. There are even rumors that North Korea is in the final stages of negotiation with Lotte Tours over tourism business in Gaesong and Baekdu Mountain, excluding Hyundai that has the business rights in those areas.

Now that North Korea is found to have sold the rights to use 1.4 million-pyeong of land in Gaesong to Unico at the price of $40 million, there is a greater sense of crisis in Hyundai.

It is needless to say that North Korea bears the largest responsibility for the recent trouble.

However, some point out that the South Korean government has been too lukewarm in its response to the problems with the North, out of fear that inter-Korean relations might suffer. They argue that such an attitude only encourages North Korea’s “derailment.”

“Hyundai Asan’s deal with the North over the second and third phases of the Gaesong Industrial Complex development and Unico’s deal with the North can cause overlaps or conflicts. Thus, the companies will have to negotiate over the matter,” said Goh Gyeong-bin, director-general of the Social and Cultural Exchanges Bureau at the Unification Ministry, yesterday when the news on Unico’s North Korea deal was reported.

“The Ministry of Unification never approved Hyundai Asan of its North Korea business to build a golf course in Gaesong. I believe a double deal is possible here just like it is in the private area,” he added.

This implies that the extraordinary business of inter-Korean economic cooperation is being recognized as an ordinary area of private autonomy where private business partners must resolve problems through self-negotiations.

However, everyone knows that Hyundai’s North Korea business did not start out as a mere private business activity. “The government has drawn no clear line in North Korean business, allowing companies to recklessly engage in such business only to encourage North Korea to develop bad habits,” one executive of an economic organization pointed out.

“In order to effectively manage business deals with unpredictable North Korea, the South Korean government must provide clear trade rules and guidelines. Considering the extraordinary nature of North Korean business, relying on the private sector’s autonomy will only extend uncertainties,” professor Hong Ki-taek of ChungAng University emphasized.

From the Joong Ang Daily: 

Kaesong golf course under consideration
9/5/2006

North Korea is in talks with a South Korean company other than Hyundai Asan Corp. for a golf course business in Kaesong, the Unification Ministry said yesterday.

Hyundai Asan, a Hyundai Group affiliate, holds an exclusive right to do business in North Korea.

According to the ministry, Unico, a real estate developer based in Daegu, signed an agreement with North Korea’s Asia Pacific Peace Committee to rent two sites near Kaesong Industrial Complex to build golf courses.

Under the contract, the North Korean committee will lease the two sites, one in the southwest and the other in the north, for $40 million over the next five decades.

Along with the golf courses, Unico plans to establish hotels and other entertainment facilities, said the ministry.

However, the same sites are part of the 16,337 acres of land that Hyundai Asan was allowed to use after reaching an accord with the North in 2000. The Korean company is in the middle of building an industrial complex on 816 acres.

Building golf courses on the sites Unico made a deal on was on Hyundai’s agenda for next year.

“The right to run a golf course business there belongs to us, as we forged the contract first,” said a senior executive from Hyundai Asan.

The company began consultations with Unico yesterday over the golf courses in the North, according to the source.

“If Unico comes up with an appropriate business proposal, we can let the company be a business partner,” he added.

A high-ranking manager from Unico said the company pushed ahead with the project as North Korea explained Hyundai Asan has the right to businesses in Kaesong Industrial Complex only.

The Unification Ministry said it would consider approving the golf course business in North Korea only if North Korea, Hyundai Asan and Unico reach a compromise.

From the Daily NK:
NK, A Pitiable Medicine Peddler at aTrade Exhibition
9/4/2006
Kim Young Jin

The Second China Jilin Northeast Asia Investment and Trade Expo commenced on September 2nd in Changchun, Jilin province where North Korea dispatched 100 people from economic and trade groups to set up 36 booths promoting and consulting trade and goods.

North Korea elected Kim Dong Myeong director of Chosun International Exhibition Co. to coordinate the North Korean booths at the trade event, and director in second department of Ministry of Foreign Trade Jeon Hyeong Jeong, vice secretary of Chosun Chamber of Commerce Yoon Young Suk, Chosun Manyeon Health Co. Lee Yong as department representatives. About 100 people were allocated to various booths in addition to 30 Chinese university students who acted as translating helpers.

‘Wooden spatulas’ and ‘Dried ferns?’

The exhibition was divided into categories such as food, cars, electronic goods, petrochemicals, metal goods, construction materials and medical machinery of which North Korea exceeded technicalities and opened 32 booths related to ‘food.’

In the division of construction materials, the Chosun Chongjin Metal Corporation Company had not organized their booth even after people began to enter the exhibition hall much to the embarrassment of sponsors. Clients passed by confused as in the next booth, ‘Inpung Trade Company’ from the Trade Department in Jagang province had set up a display of wooden spatulas, chopsticks and dried ferns totally unrelated to construction.

North Korean booths categorized as ‘foods,’ health and medical products were the focus of retail sale. Each booth stationed 1~2 consultants wearing a dress shirt and pants, 1~2 sales assistants wearing the traditional Korean costume and a Chinese translator sponsored by the event.

Rather than directly advising clients on product queries, the male consultants seem to sit clustered at the back of the booth supervising the female sales assistants and translating helper. As the translating helpers were all Chinese university students and partly inexperienced in English or Korean, it was obvious that they were having difficulty trying to explain product information to foreign clients.

Abundant medical products, chili paste and sesame oil unverified

Excluding Chosun Mansudae Overseas Project Group of Companies of D.P.R.K. (MOP), Chosun Minye Corporation and Chosun Suyangsa Trade Company which sold North Korean paintings, porcelain and handicrafts, the majority of booths sold ‘food’ or ‘medical’ products.

A spokesperson for ‘Tosung Korea Medicine Export Department of Pyongyang Trading Public Corporation’ drew the attention of clients by stating “The ‘Tosung 1 injection’ developed by our company is the leading panacea of this generation. This injection is known to have outstanding effect on various illnesses such as cancer, leukemia, diabetes and tuberculosis.”

In reply to a reporter’s question “If 1,000 injections are ordered, how many days it will take for delivery?” the assistant answered “It is difficult for me to give you a definite answer. However, if equipment is offered for a large-scale order, delivery should be made possible within 3 months.”

Of the North Korean sales assistant met by the reporter, the majority of workers knew only of the cost of products on display and when questioned of large-scale orders, delivery, North Korea’s proof of inspection, ‘clinical effectiveness’ and ‘medical approval’ assistants could not give any definite answers.

However a common scene amongst North Korean booths were appeals to clients “Although economic conditions nor equipment do not yet support mass production, not only has a new medical product has been successfully created but we ensure that the world’s best ingredients, effectiveness and skills are used.”

North Korean assistants asserted by showing ‘An innovative wonder drug’ developed by ‘Chosun Dongbang Drugs Center’ as an impotent drug ‘neo-viagra-Y.R,’ the bird flu antidote ‘Kumdang-2 injection’ by ‘Chosun Pugang Pharmaceutics Company’ and longevity foods ‘Angungwoohwangan’ developed by Korea Myongsung Health Food Pharmaceutical Factory.

According to a speech by a sponsor, various Northeast Asian countries such as South Korea, China, Japan, Mongolia, North Korea and 46 other countries participated in The Second China-Jilin Northeast Asia Investment and Trade Expo. Of 500 corporations in the world, 71 corporations participated in the event and promoted products in 2,200 booths.

From AFX News on Yahoo:
9/3/2006
NKorea opens bank accounts in Russia to dodge US sanctions – report

TOKYO (XFN-ASIA) – North Korea has opened about 10 bank accounts at Russian financial institutions in an effort to secure fund flows now blocked by US financial sanctions, the Sankei Shimbun here reported at the weekend.

The newspaper, quoting sources who it described as being close to North Korean affairs, said senior North Korean officials were transferring their funds through the accounts.

Thi is part of Pyongyang’s efforts to escape pressure from the US, which has moved to freeze North Korean funds it claims are the profits of drug trafficking, money laundering and other illegal activities.

Washington is aware of North Korea’s money flows through the Russian banks and it may step up pressure on the Russian authorities to abandon such support for North Korea, the newspaper said.

North Korea has warned the United States it will take ‘all necessary counter-measures’ against Washington for increasing the the pressure on North Korea through financial sanctions.

In November, Pyongyang walked out of six-way talks on its nuclear ambitions after Washington accused a Macau-based bank of helping Pyongyang launder earnings from fake US currency, and told US financial institutions to stop dealing with the bank.

From the Korea Times:
Ship Carries 1st Flood Relief to North
8/30/2006
Lee Jin-woo

The South Korean government has shipped its first batch of flood relief to North Korea via the Red Cross, the Ministry of Unification said yesterday.

The shipment included some rice, the supply of which had been halted since the North’s test-firing of missiles on July 5. The government has made it clear that the humanitarian aid is unrelated to the government’s halted periodic aid provided annually to the communist state.

The shipment comprising 300 tons of rice and 20,000 blankets as well as other emergency relief supplies was made through the Korean National Red Cross (KNRC) and set out from Inchon port, west of Seoul, the ministry said.

The ship, Trade Fortune, is expected to arrive at the North Korean port of Nampo in a day or two. Four Red Cross officials are on board to supervise the delivery, a KNRC official said.

The total aid, comprising 100,000 tons of rice, 100,000 tons of iron rods, 80,000 blankets and more than 200 construction vehicles, will be delivered in 40 installments by mid-October.

“The torrential rain also left damage in South Korea, but we decided to send the flood relief to North Koreans, who face a much more dire situation,’’ said Han Wan-sang, president of the KNRC during a ceremony before the shipment. “I hope the two Koreas can find a breakthrough in the chilly inter-Korean relations through the aid program.’’

Also speaking at the ceremony, Vice Unification Minister Shin Un-sang said the humanitarian flood relief has great symbolic meaning as it was based on bipartisan support from the governing and opposition parties as well as the public.

After a meeting of Red Cross officials from the two sides at Mt. Kumgang in the North on Aug. 19, the government announced its humanitarian aid plan for the North to help repair the damage from recent flooding.

The ministry estimates the rice aid will cost some 195 billion won ($203 million); and the construction supplies and equipment, 26 billion won.

The ministry plans to use the Inter-Korean Cooperation Fund to match the contribution made by local private relief organizations. A 10 billion won subsidy will be given to those organizations next month.

The exact number of flood victims in the North has not been confirmed yet due to a lack of information on the reclusive state.

The National Intelligence Service (NIS) has reported to the National Assembly that some 900 North Koreans are dead or missing because of flooding, sources said. The number greatly differs from claims by South Korean humanitarian aid groups who say casualties have reached 10,000.