North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
2013-1-17

China’s Ministry of Commerce reportedly sent about 70 specialists to North Korea to provide “joint consulting” services for Rajin and Hwanggumpyong and Wihwa Islands joint special economic zones (SEZs).

According to Yonhap News, about 70 specialists from the Department of Commerce of Jilin Province were dispatched to North Korea a few months ago to work on the China-DPRK joint venture projects. Their main focus is to discuss the management and legal systems of the SEZs, promotion of foreign investment, and share over 30 years of China’s experience on opening and reform.

The Department of Commerce of Jilin Province is directly under the Commerce Ministry. Chinese officials are going between Rajin, Sinuiju (near Hwanggumpyong and Wihwa Islands), and Pyongyang areas to negotiate on specific management measures concerning the SEZs.

Since Vice Chairman of the National Defense Commission (NDC) Jang Song Thaek visited China in August 2012, the two countries have reached an agreement and established joint management committee in Rason and Hwanggumpyong and Wihwa Islands. Since then, briefing sessions have been hosted in major Chinese cities to promote investment in North Korea.

Many speculated that joint management committees would be established in both zones.

A recent article in North Korea’s economic journal Kyongje Yongu (October 30, 2012), outlined general types of SEZ management: management-led, public enterprise management, cooperative management, joint venture, and contract-based management committees. Government-led management committee was referred to as the most common form.

Currently, the Kaesong Industrial Complex is jointly operated by North and South Korea by a management committee. However, one drawback to this system is that the high government involvement places enormous constraints on the activities of investing companies.

China, on the other hand, is trying to reduce North Korea’s intervention in the management process of the SEZs. China is also shying away from adopting a management committee-led form of management.

Meanwhile, the seventh meeting of the DPRK-China Intergovernmental Cooperation Committee on Economics, Trade, and Science and Technology was held in Pyongyang on January 9, where an agreement on economic and technology cooperation was signed. At a subsequent ceremony, the two sides also signed an agreement for the construction of administrative office buildings in the Rason and Hwanggumpyong SEZs.

The DPRK-China Intergovernmental Cooperation Committee on Economics, Trade, and Science and Technology began in March 2005 and has held one to two meetings each year to promote bilateral economic cooperation.

According to Bloomberg:

North Korea’s trade with China expanded more than 60 percent to $5.63 billion in 2011 […]

Commerce with China accounted for 70.1 percent of the North’s total $8 billion trade in 2011, up from 57 percent in the previous year, South Korea’s national statistics office, Statistics Korea, said in its annual report today in Seoul. North Korea does not report economic data. Inter-Korean trade amounted to about $1.71 billion in the same year.

…

Excluding a dip in 2009, trade between the two countries has increased every year since the start of 2000, when the statistics bureau started releasing estimates. Data for 2012 will be released around the end of next year.

North Korea’s economy expanded 0.8 percent in 2011 and gross national income per capita was 1.33 million won ($1,239), nearly one nineteenth that of South Korea’s 25 million won, according to the Bank of Korea. South Korea’s total nominal gross national income was 38.2 times that of the North’s 32.44 trillion won.

The regime imported 3.8 million barrels of crude oil for 2011. Power generation capacity was 6.9 million kilowatts, less than one-10th that of South Korea. Steel production was 1.23 million tons and production of chemical fertilizer production was 471,000 tons.

North Korea’s population rose to 24.3 million in 2011 from 24.2 million the previous year — about half of South Korea’s. Population estimates were based on North Korea’s 1993 and 2008 censuses.

The Los Angeles Times also reported on these findings.

Here is coverage in Business Insider.

The Statistics Korea page for North Korea can be found here.

Read the full story here:
N. Korea’s 2011 China Trade Grew More Than 60 Percent
Bloomberg
Sangwon Yoon
2013-1-2

In 2010 a South Korean church lit a Christmas Tree on a hill overlooking the Han River and within view of Kaesong, DPRK.

In 2011, the South Koreans planned to do the same.  However, this time around, the death of Kim Jong-il prompted the South Koreans to avoid ruffling the feathers of the DPRK. The tree lighting was canceled.

Now for 2012. With the Kim Jong-un era thoroughly underway, the South Koreans decided that this year they should return to the tradition of lighting a Christmas Tree for their brothers and sisters in the DPRK.  According to the Wall Street Journal, the tree was lit on December 22 (Saturday).

The North Koreans are not happy about this…if we are to judge from their official publications KCNA and Rodong Sinmun. I would normally take the time to link to all KCNA and Rodong Sinmun materials, but since I am behind on blogging, I will just link to this post in the Wall Street Journal article which carries the relevant texts.

The Nautilus Institute has put together an amazing research paper on the DPRK’s energy sector. I cannot understate the value of the quality/quantity of facts/figures/tables in this research.

You can download the PDF here.

I have also added it to my DPRK Economic statistics Page.

Here is the introduction:

Energy demand and supply in general—and, arguably, demand for and supply of electricity in particular—have played a key role in many high-profile issues involving North Korea, and have played and will play a central role in the resolution of the ongoing confrontation between North Korea and much of the international community over the North’s nuclear weapons program. Energy sector issues will continue to be a key to the resolution of the crisis, as underscored by the formation of a Working Group under the Six-Party Talks that was (and nominally, still is) devoted to the issue of energy and economic assistance to the DPRK.

The purpose of this report is to provide policy-makers and other interested parties with an overview of the demand for and supply of the various forms of energy used in the DPRK in six years during the last two decades:

• 1990, the year before much of the DPRK’s economic and technical support from the Soviet Union was withdrawn;
• 1996, thought by some to be one of the most meager years of the difficult economic 1990s in the DPRK; and 2000, a year that has been perceived by some observers as a period of modest economic “recovery” in the DPRK, as well as a marker of the period before the start, in late 2002, of a period of renewed political conflict between the DPRK, the United States, and it neighbors in Northeast Asia over the DPRK’s nuclear weapons development program; and
• 2005, also a year in which observers have again noted an upward trend in some aspects of the DPRK economy, as well as the most recent year for which any published estimates on the DPRK’s energy sector and economy are available.
• 2008, the last year in which the DPRK received heavy fuel oil from its negotiating partners in the Six-Party talks; and
• 2009, the most recent year for which we have analyzed the DPRK’s energy sector.

The Atlantic has an article on Global Resource Services, a religious US-based NGO which has been running programs in the DPRK for years. The full article is well worth reading.

According to the GRS web page, these are the project in which they are involved:

1. “HaePo Ri Soy Farm“. I suspect that this is located in Haepho-ri (해포리)in Singye County. According to the web page:

About 500 hectares of land originally used to grow corn, has now been dedicated to growing soybeans. Initially, GRS helped by supplying soy seed and equipment to process the soybeans. The soybean products are an excellent source of protein for the local diet. Growing soybeans also helps replenish the soil after growing corn for many years. The soybean oil is used for cooking oil, and the soymilk is used in the local school lunch program.

…

The newest installation at the HaePo Ri Soy Farm is a soybean oil factory. The soybean oil is used for cooking oil, which is very important in preparing meals with locally grown corn and other grains. Soybean meal is also a byproduct of the factory that is also high in protein, and can be used in the local diet and to supplement animal feed. Approximately 30 tons of soybean oil are produced each year.

…
GRS and local farm managers at HaePo Ri have a long range plan for community development. Economic development, water resource development, medical health programs, and educational programs are being planned and implemented.

2. “Jangpoong Goat Dairy Farm”. I suspect that this is the “Jangphung (장풍읍) Goat Farm”.

According to the web page:

GRS began working with the DPRK Ministry of Agriculture and officials from the Jangpoong Goat Dairy Farm in 2002. The engineers and workers at the Jangpoong Farm constructed a building, and GRS began installing dairy processing equipment in June 2003. Dairy processing began in October 2003. Since that time, GRS staff and partners have made several visits to the farm with ongoing support. A delegation of DPRK agricultural experts visited Langston University in 2004 for discussions and training in goat care, nutrition, cheese making, and artificial insemination. GRS began a several year program in 2004 to improve the goat breed at the farm through artificial insemination. A pelletizing machine was installed at the farm in 2007 to pelletize locally grown goat feed for winter storage. Currently the farm has over 3000 goats and regularly processes cheese, yogurt, and butter. Winter production is often continued using powdered milk.

3. Global Health Program and exchanges.

Pictured Above (Google Earth): Pyeonghwa Motors Factory in Nampho. Recent additions highlighted in Yellow.

UPDATE 1 (2013-1-22): In a later interview, the head of Pyeonghwa Motors revealed more information on his compan’y relinquishment of Pyeonghwa Motors, and described their future ambitions.

ORIGINAL POST (2012-12-3): According to Yonhap (via Korea Times):

The source said, “As far as I know, Pyeonghwa Motors is seeking to sell its factory in Nampo for about US$20 million in order to end its auto business.”

…

“The (South Korean) president of the auto firm appears to be eyeing the distribution sector” in North Korea, an official at the foundation said, adding the president may move to a new industry after liquidating the auto business. “But nothing has been determined so far,” the official said.

Pyeonghwa Motors president Park Sang-Kwon is widely expected to hold discussions with the North over the business shift during a North Korean visit scheduled for mid-December, to mark the first anniversary of the death of late North Korean leader Kim Jong-il, who died on Dec. 17.

According to the Wall Street Journal:

The North Korean government is a 30% partner in the car manufacturer.

A unit from the church’s business arm spent about $55 million to build the Pyeonghwa factory in Nampo, a port city on North Korea’s west coast about an hour or so outside of the capital Pyongyang. After the factory was completed in 2002, workers there completed partially built cars, in a form called knockdown kits, that were imported from manufacturers in Italy and China.

But the company appears to have rarely been profitable. In 2009, the firm earned about $700,000 from the sale of 650 cars. About $500,000 of that was remitted to its parent operation in South Korea. The South Korean government noted then that it was the first time a South Korea-based company repatriated profits from North Korea.

The Pyeonghwa Motors web page does not contain any information on this development.  You can view the web page here (english). The last published press release was on 2011-1-11:

The web page does have production and sales data (if you choose to believe it):

No revenue or profit numbers are given on the web page, but it does mention that the factory’s capacity is 10,000 units per year. If these numbers are correct, in 2011 (the most productive year in terms of output) the factory was only running at approximately 19% capacity.

The Pyeonghwa Motors web page also offers a grand vision of the factory’s future (100,000 unit capacity):

However, as Google Earth satellite imagery shows, this plan has yet to come to fruition.

Previous posts on Pyeonghwa Motors here.

Read the full stories here:
Unification Church to wind up auto venture in NK
Yonhap (via Korea Times)
2012-11-28

End of the Road for North Korean Auto Maker?
Wall Street Journal Korea Real Time
Evan Ramstad
2012-11-27

According to Yonhap (via the Korea Times):

North Korea’s crop imports from China plunged 62 percent in October from a year earlier, data showed on Saturday, spawning speculation Pyongyang’s crop yield was not hit as hard by floods this year as was predicted.

According to the data compiled by the Korea Rural Economic Institute (KREI), North Korea imported 22,331 tons of crops such as flour, rice, corn and bean in October from its neighboring country, compared with 59,369 tons a year earlier.

The October figure was also down 38 percent from the previous month, according to the data.

In the first 10 months of the year, the North imported a total of 239,325 tons of crops from its strongest ally, also down 23 percent from the 310,106 tons a year earlier, the data showed.

The data followed projections North Korea’s crop yield would plunge this year, due mainly to unfavorable weather conditions that swept the country in late-summer, exacerbating the chronic food shortage in the poverty-stricken nation.

…

North Korea imported a total of 376,431 tons of crops from China last year, following 313,694 tons in 2010 and 203,390 tons in 2009, according to the data.

Read the full story here:
NK’s crop import from China dip 62% in October
Yonhap (via Korea Times)
2012-12-1

Institute for Far Eastern Studies (IFES)
2012-11-30

North Korea has focused on developing Rajin Port, located in the North Hamgyong Province, with the aim of attracting foreign investments.

China and Russia have already secured usage rights to these ports and Mongolia has expressed itsinterest in this endeavor. This indicates a rising popularity and competition to use these ports.

Mongolian parliamentary speaker, Zandaakhuu Enkhbold,met with the DPRK’s Supreme People’s Assembly Chairman and Korean Workers’ Party Secretary Choe Tae Bok on October 19 on his four-day visit to Ulan Bator, the capitol of Mongolia. The officials from both countries agreed on the future possibilities of bilateral trade and cooperation in the fields of information technology and human exchanges. Mongolia is landlocked and expressed interests in cooperating for port leaseswhile Chairman Choe expressed enthusiasm in cooperation in harbor, coal, and mining industries.

The day after the two leaders met, Choson Sinbo, Pyongyang’s mouthpiece in Japan, directly reported on the results of the talk, exposing North Korea’s positive reaction to leasing ports to Mongolians. According to the newspaper, “Rajin Port is the most convenient sea route for Mongolia.”

Mongolia’s and North Korea’s bilateral cooperation on Rajin Port has been received positively as it fits the economic interests of these two countries. For Mongolia, they are interested in exporting coal and other underground resources overseas, as the country is rich in underground resources such as coal, copper, gold, and uranium. However, these resources arecostly to export since Mongolia has to rely on Chinese and Russian railway systems.

Once it is able to obtain lease rights to the Rajin Port, Mongolia should be able to significantly reduce itsshipping costs. Thus far, Mongolia has exported coal mainly to China, but may intend to diversify exports to other countries once it is able to use the port at Rajin.

Furthermore, once freight trains between Hassan in the Far East region of Russia and Rajin begin to operate, it will make it possible for Mongolia to transport coal directly to Rajin Port.

North Korea is most likely to lease Pier No. 2 and Sonbong Port to Mongolia, which are currently not being usedby China or Russia.

More importantly, North Korea is turning to South Korean participation in the development of future Rajin Port development. Choson Sinbo reportedin an article on October 21 (under the title, “Hwanggumpyong and Rason”)that “We (North Korea) sincerely want North and South to cooperate for mutual prosperity through communication and join forces to advance economic cooperation larger than neighboring countries.”

Once inter-Korean relations improve and South Korea joins China, Russia, and Mongolia in the development of Rajin Port, other economic cooperation between these five countries is likely.

Stephan Haggard posts some economic data from the Kaesong Industrial Zone. I repost most of it here for archival purposes:

According to the MOU, the average monthly wage at KIC has reached $128.3 as of the first half of 2012. This marks a steady increase from $68.1 in 2006, $71.0 in 2007, $74.1 in 2008, $80.3 in 2009, $93.7 in 2010, $109.3 in 2011. One source of the increase is a built-in escalator clause on the minimum wage payment, which started at $50 and has increased 5% a year over the last six years. But that only gets you to about $67 for this year.

The remainder of the observed increase is apparently the result of additional payments for overtime, which has been rising dramatically. Average weekly working hours were already 55.2 hours in 2006 but now stand at 61.6 in 2012 (up to July). If we knew that these additional hours were the result of the free choices of hard-working, upwardly mobile workers we would still probably find it a little excessive. But of course, the advantages of working in Kaesong are such that North Korean authorities have absolute power to hire and fire at will. There is no way of knowing whether workers would choose this regimen if they were organized or not.

But the story is much worse, of course, because we don’t ultimately know what share of these wage payments actually end up in the hands of the workers in the complex. Wages are paid in U.S. dollars to the North Korean authorities by the South Korean companies operating in the complex. 45% of the wage bill–15% for “social security” and 30% for “socio-cultural policy entitlements”–flows into the regime’s coffer, while the remaining 55% is supposedly given to the workers in either DPRK won or coupons.

But not so fast. A crucial question is the exchange rate at which workers are paid and the value of the “coupons” they receive. We hardly need to state the obvious: North Korean workers are not getting paid the won equivalent of their dollar salaries at anything resembling the shadow-market exchange rate that reflects actual scarcities. At least in the Yonhap report, the MOU makes no mention of what the real dollar equivalent of won payments are using a realistic exchange rate. But given the country’s high inflation and rapid depreciation of the exchange rate—see my colleague Marc Noland on this—the dollar value of what North Korean workers actually receive could be only a small fraction—even a very small fraction—of the stated dollar wage .

Why has Kaesong stayed open? The answer lies in a pretty straightforward political economy calculus on both sides. For the South, Kaesong is industrial policy for labor-intensive firms. For North Korea, it is a cash cow that even hardliners have been loath to push the way of the Mt. Kumgang project. Since 2004, total wage payments for North Korean workers in the KIC has totaled $245.7 million, rising from $380,000 in 2004 (the first year of operation) to $61.76 million in 2011 and $45.93 million in the first half of 2012. For Pyongyang, even hardliners can see that this is a no-brainer.

UPDATE 2 (2012-11-19): Writing in 38 North, Kyung-Ae Park offers some more details on the program which brings these North Korean students to Canada:

The UBC program has been hosting North Korean professors since 2011 as part of a long-term knowledge sharing exchange initiative. For its inaugural effort, KPP hosted six North Korean scholars, five from the Kim Il Sung University and one from Wonsan Economic University. The scholars, who arrived in early July and studied at UBC through December 2011, took English courses during the summer and business and management courses from September focusing on international trade, management, finance, and economics. The curriculum consisted of regular, unmodified courses also attended by UBC students. As part of the curriculum, participants completed a group research project with faculty supervision on an aspect of international trade/finance stemming from their studies at UBC. In addition, they had opportunities to take field trips, and meet with leading individuals in Canada’s financial, business, and legal communities, as well as fellow academics.

Now in its second year, KPP is hosting another group of six participants, this time from Kim Il Sung University, the University of National Economy, and the Pyongyang University of Foreign Studies. As in the previous year, these scholars will be provided with an in-depth education of the international economy and policies implemented by other countries. With this second year of the program well underway, UBC has emerged as a leader in academic engagement with North Korea. There is great optimism that KPP will serve as a possible model for other educational institutions interested in exploring knowledge sharing programs with North Korea in the future.

Read the full story here.

UPDATE 1 (2012-7-20): Yonhap reports that the the Canadian-run program of bringing North Koreans  to the University of British Colombia to learn about economics is continuing. According to the article:

Six professors of leading North Korean universities are staying in Vancouver to study capitalism at a Canadian university on a six-month program, the program director said Friday, drawing fresh attention to the North’s possible transition under its Swiss-educated young leader.

The economics professors from three North Korean universities arrived in Canada earlier this month to take courses at the University of British Columbia (UBC) in the fall semester, which begins in September, after a two-month language course, Professor Park Kyung-ae, director of the Center for Korean Research, said.

“They will mainly study international business, economics, finance and trade,” Park told Yonhap News by phone, without giving further details of their identifications.

The elite universities include Kim Il-sung University, the top university named after the country’s founding leader, the People’s Economics University and the Pyongyang Foreign Language College, Park said. All the institutions are located in the North’s capital, Pyongyang.

They are the second group of visiting professors to take the courses under the Canada-DPRK Knowledge Partnership Program, which Park helped launch at UBC last year. DPRK stands for North Korea’s official name, the Democratic People’s Republic of Korea.

A group of six professors, five from Kim Il-sung University, attended the program in the fall semester last year, which included meetings with CEOs of Canadian law firms, banks, insurance companies and energy firms.

“There was no such long-term program related to North Korea in the past,” said Park, who visited the communist state last month. “The professors who completed last year’s course did their best and had good relations with other professors and faculty members. As they successfully finished the course, we were able to continue the program this year as well.”

ORIGINAL POST (2011-8-18): Just as Canada tightens sanctions on the DPRK, news comes out that the Canadians are running a very worthwhile program–teaching economics to North Korean professors! Let’s hope this program can be expanded!   According to Yonhap:

Six North Korean professors are studying economics and other related subjects at a university in Canada on a months-long program initiated by the school, the program director said Wednesday, opening a rare opportunity for the people of the repressive regime.

Professor Park Kyung-ae, director of the Center for Korean Research at the University of British Columbia, told Yonhap News Agency the North Koreans arrived last month to study international business, international economics, finance and trade. Five of the visiting professors teach these subjects at Kimilsung University, the elite North Korean institution named after the country’s founding leader, while one teaches at a university of economics in the eastern city of Wonsan, she said, declining to give further details.

The Japanese newspaper Asahi Shimbun reported earlier that the six professors from Kimilsung University were studying on an MBA course at the university in Vancouver. In fact, Park said the North Koreans will study four subjects at the undergraduate and postgraduate levels starting in September, after completing a two-month English language course.

The visiting professors are the first group to have been invited under the Canada-DPRK Knowledge Partnership Program, which Park helped launch at UBC last year. DPRK stands for North Korea’s official name, the Democratic People’s Republic of Korea.

“The program is very unusual in that it allows North Korea’s college professors to conduct research (overseas) on a long-term basis,” Park said, saying the professors will stay for a total of six months. “Other universities in North America are paying close attention to the program, and through it, I plan to push for exchanges between university officials of the two countries.”

Park, who has traveled to Pyongyang on several occasions since the mid-1990s and hosted North Korean delegation visits to Canada, said she believes educational exchanges are an important mechanism through which the two countries can improve ties. She noted that North Korea and Canada established diplomatic relations in 2001, but their ties have faltered over Pyongyang’s nuclear weapons program.

Since the 1990s, the North Korean regime has been known to send a selected few, mostly government officials, to study the market economy in Switzerland and other countries. However, these people have only been allowed to stay for several weeks, apparently due to fears they will try to escape the control of their repressive regime.