North Korean Economy Watch

From the Korea Times:

A head doctor of Hyundai Asan Hospital in the Kumgang tourist area, which was set up to deal with emergency cases among South Korean tourists, told Unification Minister Lee Jong-seok that North Korean soldiers sometimes sneak into the hospital.

Their commander has apparently ordered them to stay away from the South Korean tourist districts, but still the ordinary soldiers come to get better medical treatment, he said.

From the Korea Herald:
 
The South Korean Ministry of Science and Technology yesterday announced this year’s cooperative science and technology projects between South and North Korea.

The ministry selected 15 projects, including new and ongoing ones. They are regarded as having future viability and continuity, the ministry said.

These projects will be supported for the next three years at least, while being evaluated on a regular basis, the ministry said.

For the South-North cooperative science projects, the ministry has invested a total of 4.8 billion won from 1999 to 2005. The ministry has allocated 650 million won for this year.

The 15 projects include the Korea Transport Institute’s peninsula-wide traffic specifications; Korea Center for Disease Control & Prevention’s study on malaria in North Korea; the Korea Research Institute of Chemical Technologies’ study on chemical products as basic necessities; Pohang University of Science and Technology’s training program for computing specialists; Inha University’s initiative to develop North Korea’s wind power resources; Korea Institute of Machinery and Materials’ research on North Korea-originated magnesite; Korea Research Institute of Bioscience and Biotechnology’s development of cold-resistant sweet potatoes to alleviate North Korea’s food shortage.

Also, there are Andong University’s South-North comparative study on fossils in the paleozoic era; Korea Institute of Geoscience and Mineral Resources’ peninsula-wide geological map; Science & Technology Policy Institute’s analysis on North Korea’s science and technology policy; Seoul National University’s parasite control technology; and Korea Institute of Science and Technology Information’s project for North Korean infrastructure building.

The project selection utilized the Korea Institute of Science and Technology Information’s analysis tool for documents and patents, the ministry added.

Dubbed “KITAS,” the tool has helped the ministry analyze North Korea’s 22 different kinds of academic documents, which amounted to 38,000 volumes.

The ministry then selected promising areas of cooperation, which include biotechnology, machine manufacture, and non-metal mineral exploitation.

With its food crisis, North Korea has a particular interest in biotechnology, such as plant breeding and rabbit cloning, the ministry said.

“I think biotechnology cooperation between the two Koreas will be very promising,” said Yoon Dae-sang at the ministry’s science-technology cooperation division.

Yonhap
5/1/2006

South Korea could capitalize on North Korea’s emerging prowess in the biotechnology sector to foster inter-Korean cooperation in this modern scientific field, a report by a state-run institute in Seoul said Monday.

The communist country, often viewed as stunted politically and economically, possesses considerable competitiveness in the field of biotechnology, the report by the Korea Institute of Science and Technology Information (KISTI) showed. This, it said, is partly due to the need to alleviate the country’s chronic food shortages.

The institute cited 38,737 papers published in North Korea from 1985 to 2005, to show how scientists there have published a wealth of biotech papers related to medicine and clinical testing of plants and animals.

“North Korea has built up certain fields that can be developed by the two Koreas in the future,” said a KISTI researcher, declining to be named.

North Korean scientists have published many papers on biological agents designed to facilitate growth of tissues and micro-organisms, he said.

The country also reported the world’s second successful cloning of a rabbit and has demonstrated a level of expertise in fields like protein structure analysis, enzyme research and genetics, he added.

Biotech is one of the key future growth industries being pushed by Seoul, so cooperating with the North is being viewed as a potentially win-win deal.

In addition, the report said, South and North Korea can conduct joint works on areas like non-metal research and technology to help in the mining of natural resources.

The report by the institute comes after scientists from both countries promised to expand cooperation in the scientific field.

South Korea’s science minister Kim Woo-sik pledged earlier in the day, to continue state support for joint South-North Korea science cooperation. Seoul plans to provide 650 million won (US$710,200) this year after having spent 4.8 billion won from 1999-2005.

Yonhap
5/1/2006

China’s second-largest carrier China Southern Airlines Co. began a three-times-weekly flight service between Beijing and Pyongyang, Xinhua News Agency reported Monday.

The airline’s first airplane left Beijing at 1:05 p.m. (local time) and arrived in Pyongyang, the North’s capital, at 2:35 p.m., the report said.

From the BBC: 

The Japanese government is stepping up pressure on the DPRK by introducing legislation to impose formal economic sanctions.

North Korea has admitted kidnapping 13 Japanese citizens in the 1970s and ’80s to train its spies. Five have been allowed to return. Japan has demanded proof of what happened to the others. It is sceptical about North Korea’s insistence that they are dead. It also believes more of its citizens may still be held by the government there.

Pyongyang and Tokyo have no diplomatic ties, but there is some trade between the two countries. (Chongryun)

This new bill would require the government to impose sanctions on North Korea unless it gets the answers it wants.  The punishments would include a ban on the docking of North Korean ships at Japanese ports, and stopping private individuals in Japan from sending money to Pyongyang.

Two years ago Japan passed a law setting out a range of similar measures that could be imposed. The new legislation is designed to strengthen that policy.  Japan has up to now stopped short of imposing sanctions, preferring instead to pursue the matter through occasional talks, but there has been little progress.

Pyongyang has always said any imposition of economic sanctions would be regarded as an act of war.

Korea Times
4/27/2006

South Korea’s state-run resources development corporation on Thursday announced the opening of a joint graphite mine in North Korea.

The 50-50 joint venture between the Korea Resources Corp.(KORES) and a North Korean firm can produce 3,000 tons of graphite per year.

Of that, South Korea will import 1,830 tons every year for the next 15 years. This amount is equivalent to 20 percent of the South’s domestic demand.

The corporation has invested $10.2 million into the mine in Chongchon, South Hwanghae Province. It is estimated to hold 6.25 million tons of graphite.

Graphite from the mine can be used in batteries, brake-lining for cars and flame-proof or heat-resistant materials. The first batch of graphite is to arrive in South Korea in the second half of the year.

The joint development pact was signed in March 2003 with a formal deal signed four months later. South Korea transferred mining materials and other equipment to the mine in early 2004 and development got underway shortly afterwards.

According to the Nautilus Institute’s web site [Link broken since posing]:

“Under the direction of central authorities, foreign currency management groups are rapidly being moved into Sinuiju, while ordinary residents are being relocated to other regions only to be replaced by residents of Pyongyang and other areas who are in the process of moving in.”

The Sinuiju Special Administrative Region (SAR) project lost momentum in September 2002 when its first governor-to-be, Chinese-born Dutch businessman Yang Bin, was arrested in China. North Korean leader Kim Jong Il’s visit to China at the beginning of this year, however, appears to have triggered a turnaround. With Kim’s China trip focused on the revision of economic policies, the rejuvenation of Sinuiju SAR development plans came into the spotlight.

Most South Korean press have run pieces, based on the stories of North Korean defectors and Chinese residents in Dandoong and other border areas, alluding to the fact that there is change in the air around Sinuiju. A North Korean businessman in Dandoong was quoted as saying, “No official word has come down from central [authorities], but they are busy preparing the Sinuiju SAR,” while rumors are spreading among area residents that “Sinuiju is the next Hong Kong.”

The most reluctant promoters are the People’s Committee and regional administrative organs. As orders come down, some administrators are required to immediately pack and relocate to southern Sinuiju, an underdeveloped area not even comparable to Sinuiju proper. Authorities had chosen the site as far back as 1986, and while development was fully promoted, only factories were built up. Housing, roads, and other indirect social capital facilities are still lacking. While regional authorities may have decided to build up southern Sinuiju, it will take another ten years of hard work to do so.

On the other hand, the outlook for city authorities is considerably brighter. This is because in the future, they will have the opportunity to rise up though organizations run by special administrative businesses. Up until now, instructions have come through the Regional People’s Committee, security bureau and defense authorities, but even though they own the facilities, they can still receive orders directly from the central government. Because of this, regional officials are still influenced by the temperament of local and central party politics while being faced with increasing pressure from city authorities to transfer power to them. While some factories — like the Sinuiju Cosmetics Factory, Sinuiju Shoe Factory, Sinuiju Synthetic Fiber Plant, and other large factories — are preparing for foreign capital support and cooperative ventures, most administrators appear to be pushing for keeping the status quo.

There are still many concerns. As the SAR is being set up, central officials are being dispatched to fill roles as factory officials; central officials without any personal interest. A similar sort of dispatch of central officials took place in the Rajin-Sonbong Special Economic Zone in the past.

Most small- and medium-sized enterprises and regional factories are beginning to transform into trading companies. There are currently around one hundred fifty such trading offices in Sinuiju. In the future, if Sinuiju is officially designated as a SAR, it appears that a great many more trade offices will appear.

Other news from Sinuiju insiders is that the People’s Committee, People’s Security Force, National Security and Defense Bureau and other central government departments that have received Kim Jong Il’s permission to trade have already opened offices in Sinuiju, employing people in the area and busily seeking out people with connections in China in order to find trading partners.

It appears by looking at the relocation currently underway that the goal is to move residents within the same timeframe that was required for the first round of relocations in 2002, when residents were moved to Chunma, Kwaksan, Dongrim and other areas around the outskirts of Sinuiju. There are problems here as well, as the government wants to relocate residents from Pyongyang and other regions to Sinuiju. At issue is the fact that while the number of residents who can move in needs to equal the number relocated out of the area, some North Koreans have already used connections with the central and regional party affiliates in order to move to the region.

In addition, the housing market is active, with housing prices in central downtown areas having already skyrocketed. While officially owned by the state, dwellings are unofficially “sold” through the use of “modification fees”: apartments run from 25 to 30 million won (8 to 10 thousand USD), while two-three story condominiums in “Chinatown” in the Namsang district run in the tens of thousands of dollars.

However, complications have arisen. Many residents being moved out have decided to get rid of their houses, but this has proved more difficult than expected. Some have put up their house for sale but have been unable to find a buyer. There are also those who were caught in the midst of sales through “real estate offices” when a crackdown by authorities resulted in their expulsion. A source stated that the administrative authority of the city security bureau in charge of relocating residents is undermanned and takes different measures to direct different groups of residents, while pressing for the expulsion of what it deems as “lesser” or unemployed people.

According to Yonhap:

The number of North Korean workers at a South Korean-run industrial complex in the North Korean border city of Kaesong rose 22 percent every month over the past one and a half years, the South’s Unification Ministry said Wednesday.  Production increased 36 percent every month due largely to a rise in the number of South Korean factories operating in the complex, according to the ministry.

As of Friday, a total of 6,859 North Korean workers, including 1,047 construction workers, were registered at the complex.

South Korea hopes to promote the Kaesong complex as a role model for inter-Korean economic partnership, while officials in Washington express concern over its possible negative impact on the multilateral efforts to end North Korea’s nuclear weapons program.

The US Secret Service, which is part of the Treasury Department, has the responsibility to track down counterfit US currency, and becuase of a quirk of history, also protects the President of the USA.

According to Yonhap, the Secret Service has collected up to $50 million of “supernotes,” first discovered sixteen years ago and believed to come from North Korea….

But the latest trend shows the communist regime depends heavily on counterfeiting cigarettes for major income, smuggling at least one 40-foot container every month into the U.S., they said.

Testifying before the Senate in the first Congressional hearing on Pyongyang’s illicit financial activities, Michael Merritt, deputy assistant director of the U.S. Secret Service, gave statistics gathered from a global investigation.

There were more than 170 arrests involving more than 130 countries since the supernote was first detected in 1989 by a Central Bank cash handler in the Philippines, he said.

“Our investigation has revealed that the supernote continues to be produced and distributed from sources operating out of North Korea,” he said.

“These new versions show corrections or improvements in the flaws which are used by banking and law enforcement to detect them,” he said.

“A major source of income to the regime and its leadership, we believe, is the counterfeiting of cigarettes,” he said.

The U.S. government is seeking $5 million in criminal forfeitures in several of these indictments, according to the official.

I was told on my last visit to the DPRK that Marlboro Reds were popular in the DPRK and many astute smokers could taste the difference between the American and European versions–and prefered the American product. 

According to Yonhap, the US State Department has reported to the US Senate (who controls its funding) that it does not have “sufficient information to designate North Korean individuals or organizations under the Kingpin Act, a legislation that denies foreign drug traffickers access to American financial institutions.”

According to the Article:

Peter Prahar, a director at the [State] [D]epartment’s bureau for international narcotics and law enforcement, told a Senate hearing that the U.S. does not yet have sufficient information to designate North Korean individuals or organizations under the Kingpin Act, a legislation that denies foreign drug traffickers access to American financial institutions.

He said indictments are unlikely at this point, since they require “a certain level of evidence that I don’t believe exists,” he said.

Asked if North Korea might be put on the major drug trafficker nation list, Prahar said it is something his department considers “on a regular basis.”  But he cited inability to confirm reports of massive opium cultivation in North Korea, or find evidence that the country’s drug transiting is impacting the U.S.

“But this is something…that we consider regularly within the Department of State, and if we have information that will substantiate that finding, that is a recommendation we are going to make,” Prahar said.

Kim Seong-min, a former North Korean director, claimed it is certain that Pyongyang continues to produce opium.  “Youngsters are used to collect extract from opium,” he told the hearing.  As much as 70 percent of three North Korean counties are set aside to cultivate poppy seeds, totaling some 30,000 hectares, he claimed.

Prahar also stressed alarm at North Korea’s counterfeiting of pharmaceuticals which is “still sketchy” so its magnitude cannot be measured.