North Korean Economy Watch

Anju’s outdoor market

Voice of America published a series of photos from inside the DPRK. Many of the pictures are from Anju. Looking through them, I saw this outdoor market of which I was unaware.  It did not, however, take too long to find it on Google Earth. The coordinates of the outdoor market are 39.623199°, 125.680848°. Anju and nearby Sinanju both also have one covered market each.  Lots of shoes for sale.

UN Conference on Disarmament
The winner of the “rolling eyes” award this week goes to the announcement that the DPRK has been named to the presidency of the United Nations Conference on Disarmament.  According to the official press release:

In his initial address to the Conference as president, So Se Pyong of the Democratic People’s Republic of Korea said that he was very much committed to the Conference and during his presidency he welcomed any sort of constructive proposals that strengthened the work and credibility of the body. He was ready to work closely with all members to provide the grounds for strengthening their work. As president, he would be guided by the Rules of Procedure and take into account the position of each delegation to find common ground on substantive issues and procedural matters as well. With their support and cooperation, he would do everything in his capacity to move the Conference on Disarmament forward.

I am sure you can think of some recommendations for him!

Canada has since boycotted the committee (2011-7-11).

How to Generate Good Press: Write it
This week the Wall Street Journal’s Korea Real Time had a great post about the North Korean proclivity to purchase advert space in foreign publications and then report “favorable coverage” to the people back home.  “See how much foreigners envy us and out leader[s]”?!

Paying for space in Blitz actually represents something of an economy drive for the Pyongyang publicity machine. Back in 1997, as famine gripped the land, the regime shelled out for some pricier real estate: a full page in the New York Times. That allowed the KCNA to boast that the U.S. newspaper of record had “dedicated one whole page to a special writeup under the title ‘Kim Jong Il Emerges As Lodestar For Sailing the 21st Century’”—with, as the KCNA noted, a large color picture.

Here are five stories from KCNA citing praise in the New York Times: KCNA 1, KCNA 2, KCNA 3, KCNA 4, KCNA 5.  As far as I can tell, the DPRK has never advertised in the Wall Street Journal.  Wouldn’t that be something.

DPRK: There’s an app for that
Martyn Williams writes about Eric Lafforgue’s new iPhone app featuring his pics of the DPRK.  His photo set is here.  Now all we need is a Kernbeisser iPhone app.

Institute for Far Eastern Studies (IFES)
2011-6-25

Since the June 8 and 9 groundbreaking ceremonies for joint development projects between North Korea and China were held, attention has been directed toward North Korea’s international economic activities. The Japan-based newspaper, Chosun Shinbo, featured an interview article regarding these collective projects, including the areas of Hwanggumpyong and Wiwha Islands and the Rason Economic and Trade Zone.

According to North Korea’s Committee of Investment and Joint Venture, Rason Economic and Trade Zone is, “an important national undertaking following the teachings of Kim Il Sung. . . . Rason will soon become the entrepot port like Singapore, enhancing the lives of North Korean people.”

In addition, it was mentioned that the development of economic zones in Hwanggumpyong and Wiwha Islands will solidify the already strong DPRK-China friendship and expand the boundaries of international economic relations.

According to North Korea’s Committee of Investment and Joint Venture, politically, “Stable political atmosphere allow investors to engage freely in investment activities and necessary legal measures were taken creating favorable legal conditions for foreign investments. This includes the establishment of Joint Venture Law (of 1984) and other related laws.” Economically, “All the necessary substructures supporting the business operation are set. Workers will all be provided free 11-year education and tax rates are the lowest in the region and for those investors investing in sectors that the DPRK is promoting, will be provided with preferential treatment.”

North Korea is encouraging foreign investments especially in the industrial, agricultural, transportation, construction, financial, and tourism sectors. In particular, adopting state-of-the-art production technology is considered most important. This is to increase the area’s competitiveness in the international market through the production of items that have high export value. However, investment restrictions are placed preventing exports on natural resources like ore and coal.

The Committee also stressed the accomplishments of economic cooperation with China and Egypt and revealed plans of passing a double tax avoidance agreement with China, who is the largest foreign investment for North Korea.

The Egyptian company Orascom Telecom has invested in telecommunications, construction, and financial sectors in North Korea. The president of Orascom is said to have met with Kim Jong Il early this year, announcing his plans of expanding investment in the country.

In addition, the Committee reiterated building an independent national economy does not exclude international economic relations. It explained, “We are trying to resolve our shortcomings through international economic activities while maximizing our domestic technology and resources. This is the principle of socialist economic construction.

The Committee of Investment and Joint Venture was established last July, which is a central state organization under the Cabinet overseeing joint ventures and investments. It is in charge of guiding, supervising and administering the inducement of investments from abroad. It is a government body on the level of the Ministry of Trade, which it has close affiliations with. The Ministry is a central organization controlling general trade activities while the Committee is mostly responsible for attracting foreign investment, joint investment, and ventures.

According to Yonhap:

North Korea began discharging water from a dam near the border earlier this week without notifying South Korea, officials here said Wednesday.

Officials here in this Gyeonggi Province town, north of Seoul, said the North earlier this week opened the Hwanggang Dam near the Imjin River, which flows out to South Korea’s west coast, and has kept it open since.

“No damage has been reported around the Imjin River,” an official said. “We’re not concerned about (the water level of the river) yet.”

Officials said the water level on the Pilseung Bridge near the border, which serves as a gauge of North Korea’s water discharge, reached 4.49 meters as of 8 a.m. Tuesday, well over the warning level of 3 meters, and then fell to 4.03 meters at 4:20 p.m. Wednesday before inching back up to 4.04 meters by 5 p.m.

Officials said it usually takes 10 hours for water from the Hwanggang Dam to reach the Pilseung Bridge.

After the North Korean discharge, South Korea opened its Gunnam Dam to control the water level. The dam, which began operations last July, was specifically designed to capture flash floods from North Korea.

North Korea was hit by Typhoon Meari this week, officials added, suggesting that a sudden rise of the water level there might have forced the discharge.

It is the same dam that North Korea opened without prior notice in September 2009. The ensuing flash flood claimed six South Korean lives. At a later inter-Korean meeting on flood control, North Korea expressed regret over the incident and vowed to give prior notice before future discharges.

Last year, North Korea also sent water from the Hwanggang Dam and did notify officials here through the military communication line. The water near the Pilseung Bridge rose to 8.67 meters, but the Gunnam Dam helped prevent damage along the Imjin River.

An official said the local authorities were remaining on guard.

“The water level can surge suddenly,” a local official said. “In 2009, when six South Koreans were killed, the level on the Pilseung Bridge was 4.69 meters. So we’re closely monitoring the situation.”

Additional Information:
1. The South Korean government has also warned its people to be on the lookout for land mines that wash downstream from the DPRK.  See here and here.

2. Read about the 2009 Hwanggang Dam incident here.

3. Here is an older satellite image of the dam (Google Maps).

…by expanding the capacities of Hanawon.

According to Yonhap:

South Korea will build a new facility to accommodate a growing number of North Koreans fleeing poverty and political oppression from their communist homeland, an official said Wednesday.

The move is the latest reminder that the flow of North Korean defectors isn’t letting up despite Pyongyang’s harsh crackdown on escapees. Seoul is now home to more than 21,700 North Koreans.

South Korea has already been running two other resettlement centers, known as Hanawon near Seoul to help the defectors better adjust to life in the capitalist South.

Still, the government will break ground for another resettlement center in Hwacheon on July 7 as the two current facilities are running at full capacity, Unification Ministry spokeswoman Lee Jong-joo told reporters.

The area is about 118 kilometers northeast of Seoul.

She also said the government is planning to offer re-education for former North Korean teachers, doctors and other experts in the new resettlement center to be built by the end of 2012.

The announcement comes amid the latest dispute between the two Koreas over nine North Koreans who defected to the South earlier this month.

Seoul has indicated it will not return the North Korean defectors despite the North’s request for repatriation. The North usually claims South Korea kidnaps its citizens, charges that Seoul denies.

Some defectors have criticized Hanawon.

Read the full story here:
S. Korea to build new resettlement facility for N. Korean defectors
Yonhap
2011-6-22

Here is the statement from the US Treasury Department:

​On June 20, 2011, the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”) amended the North Korea Sanctions Regulations, 31 C.F.R. part 510 (the “NKSR”), to implement Executive Order 13570 of April 18, 2011.  OFAC also removed from 31 C.F.R. chapter V the Foreign Assets Control Regulations, 31 C.F.R. part 500 (the “FACR”), and the Regulations Prohibiting Transactions Involving the Shipment of Certain Merchandise between Foreign Countries (Transaction Control Regulations), 31 C.F.R. part 505 (the “TCR”).  The final rule containing the NKSR amendments was published at 76 FR 35740 (June 20, 2011); the final rule removing the FACR and TCR was published at 76 FR 35739 (June 20, 2011).

Here and here are the links to the final rules (PDF).

Here is a link to the Treasury Department’s DPRK information resource page.

Pictured above (Google Earth): Rason’s three ports: Rajin, Sonbong, Ungsang

Institute for Far Eastern Studies (IFES)
2011-6-21

North Korea and China hosted a groundbreaking ceremony on June 8 for the launch of the joint development project in Hwanggumpyong Island near the DPRK-China border. On the next day, the launching ceremony for the Rason Economic and Trade Zone took place.

The KCNA reported on April 27 that the modernization projects for the Rajin, Sonbong, and Ungsang Ports are to take place. According to the report, “These three ports in Rason City have the geographical advantage for maritime transportation. . . . Rajin Port, surrounded by Daecho and Socho Islands, is an ideal harbor that provides security and excellent marine conditions for docking ships.”

Currently at the Rajin Port, a number of equipment, fishery products, and processed foods are handled. An official from the Rason City People’s Committee stated, “There are plans of advancing Rajin, Sonbong, and Ungsang Ports even further to double the capacity and cargo.”

Recently, news on the Rason Economic and Trade Zone by the KCNA can be heard more frequently as North Korea is making an effort to advertise the development of this area. Recent reports covered news on the preferential tariff system, development program, and light industry zone.

The preferential tariff system of the Rason Economic and Trade Zone was adopted as means to lure more foreign investment into the area and improve the North Korea’s image as being more cooperative and supportive toward foreign businesses. Preferential treatment is being granted to foreign investors in order to turn the area into a major entrepot, export producer, and financial and tourist hub of Northeast Asia. One North Korean official stated, “Rason Economic and Trade Zone has favorable conditions to grow as a major trade zone. There are plans of constructing state-of-the-art equipment, facilities, and light industry factories to develop the area as a major export base.”

China and Russia are said to be paying special attention to the Rason Port development. China is already known to have invested in Pier 1 at Rajin Port and Russia in Pier 3.

North Korea has taken various legal measures to develop the area since Kim Jong Il’s field guidance visit to Rason City in December 2009. Rason City was designated as a “special city” in January 4, 2010 and the Rason Economic and Trade Zone Law was passed on January 27, 2010.

Additional Information:
1. A Swiss firm is alleged to have rented Rajin’s Pier No. 2, but it has not.

2. Here and here is some background information on the new Hwanggumphyon SEZ.  Here is some more information on the Rason ground-breaking and Chinese investment tour.

Lankov writes in the Korea Times about the DPRK’s various Special Economic Zones:

In early June, the governments of China and North Korea declared that they would work to develop two new special economic zones (SEZs). One zone is to be situated in the small port city of Raseon, on the eastern coast of South Korea, just 20 kilometers from the nearest crossing to China. Another zone will be developed on the unremarkable sandy island of Hwanggumpyong, in the vicinity of Sinuiju, the largest city on the border (some three quarters of trade between the two countries pass through this city).

One cannot be surprised by this initiative as talk of new SEZs “soon to be established” has been around for over a decade. There is little doubt that the North Korean government is very interested in the idea of SEZs. Unfortunately, this interest does not necessary mean that the North Korean authorities are willing to make the concessions that would allow the SEZs to operate efficiently.

The history of North Korean SEZs is essentially the history of frequent failures and occasional partial successes. The first attempt to create a SEZ took place in 1991, when the North Korean government established a SEZ in the remote northwestern corner of the country. The Raseon SEZ, as it has now become known, is located where the borders of China, Russia and North Korea meet.

Read the remainder of the story below:
(more…)

The Global Times (PR of China) has posted a very interesting and blunt assessment of the DPRK’s newly announced Special Economic Zone by Zhang Liangui (张连瑰), a specialist in Korean issues and professor at the International Strategic Research Bureau at the Party School of the Central Committee of CPC.  The article is posted below:

After drawing up a 10-Year Economic Development Plan at the beginning of this year, North Korea has announced several measures to readjust its ties with China from an aid-dependent relationship to an economic partnership. Will North Korea switch from its militaristic focus to economic development? What are the implications of the recently announced Hwanggumpyong island project in the middle of the Yalu River? Nanfang People Weekly magazine talked to Zhang Liangui (Zhang), a specialist in Korean issues and professor at the International Strategic Research Bureau at the Party School of the Central Committee of CPC, on these issues.

Q: What is the rationale behind North Korea’s efforts to facilitate the joint development of Hwanggumpyong with China?

Zhang: There are several reasons. The most straightforward motive is obviously to ameliorate the shortage of foreign money, since North Korea is suffering from international sanctions as a result of its nuclear weapon development.

Beyond that, North Korea wants to strengthen its economic ties with China, avoiding a hopeless isolation from the international community. Third, this move also reflects North Korea’s territorial concerns.

Q: Why do you think the cooperation has something to do with territorial issues?

Zhang: Because of the border on the Yalu River. Usually rivers on the border between two sovereign nations are demarcated on a half-to-half basis, which means there’s a middle line of control accepted by both sides.

However, the Yalu River is jointly held by both China and North Korea, while the latter has exclusive possession of Hwanggumpyong island.

For years due to alluvial deposition, the island has continued to expand. It now has abutted on the Chinese side, and local government has to build a fence along the border.

Under this circumstance, North Korea has de facto control over the part of Yalu River to the east of Hwanggumpyong island.

Thus the development on Hwanggumpyong island may help North Korea secure its territorial and river possession.

With the erection of buildings and infrastructure, North Korea expects Chinese developers to build the ground base, cement the foundations and free the island from the threat of alluvial erosion. If there’re many buildings, North Korea will have safe and unchallenged control over the island.

After acquiring Hwanggumpyong, North Korea asked farmers to plant trees and develop farmland. This caused the island to expand as well as causing disputes between the two sides. China should be fully aware of these concerns if it is looking for long-term cooperation over Hwanggumpyong.

Q: Why China is willing to cooperate and provide 80 percent of the funds?

Zhang: Many Chinese believe the US will try to contain China, especially at a time of tension among Northeastern Asian countries. The security concerns may give China and North Korea impetus for cooperation.

China also perceives North Korea’s instability, both economically and politically. China’s aid to North Korea is understandable and necessary in pursuing its goal of regional stability.

But China should be clear that its aid doesn’t serve the purpose of saving a specific government. The survival of any particular government is up to North Korea’s domestic will. And China doesn’t need to intervene in everything.

Q: Why did North Korea grant the opportunity to a Hong Kong enterprise? Will Hwanggumpyong become another Hong Kong, as North Korea wishes?

Zhang: It seems that North Korea is particularly enthusiastic about cooperating with Hong Kong firms. The precedent is the casino in Rason. A casino managed by Hong Kong executives can better woo Chinese tourists, as well as corrupt officials and outlaws.

However, Hong Kong’s prosperity is based on its transparent government, advanced legal system, high credibility, well-established infrastructure and financial markets, and in particular, stability.

It remains a difficult mission for today’s North Korea to build another Hong Kong.

Q: Will the Hwanggumpyong project attract more Chinese business people in the future?

Zhang: North Korea has reason to expect more investors to come. But I think there are several reasons preventing a great number of investors from going to Hwanggumpyong. According to my experience in dealing with Chinese business people, many of them complain of a lack of lawful regulations and the capricious North Korean economic policies.

Besides, many countries including China don’t accept credit cards issued by North Korea. Understandably, much of China’s national investment in North Korea comes out of political reasons rather than economic motivations. Unless North Korea has a stable and predictable government as well as international credibility, the prospect of foreign investment in North Korea is bleak。

Q: What do you think of the 10-Year Economic Development Plan, announced recently by the North Korean government?

Zhang: It seems 10 years is a bit long for North Korea’s management habits. So far, North Korea hasn’t been able to follow through on many of its long-term economic projects.

For example, the Kaesong Industrial Park was once planned to be a lucrative business produced by North-South Korean cooperation.

In May 2009, North Korea unilaterally announced a demand for wage and rent rises and scrapped the agreement they had signed up to. In 2010, the sinking of the Cheonan warship further hampered industrial activities in the region. Thus I think the 10-Year Economic Development Plan remains provisional and is intended more or less for propaganda purpose.

Q: Why does North Korea stress that its 10-Year Economic Development Plan “isn’t a reform and opening-up policy?”

Zhang: This is obviously aimed at China. Many Chinese media are under the delusion that North Korea is emulating China’s example to get rid of poverty and develop its country. In fact, North Korea is very unhappy about this claim.

North Korea is still against the idea of “reform and opening-up,” albeit now inexplicitly. It once equated “reform and opening-up policy” with revisionism and imperialists’ supposed conspiracy to topple socialist regimes.

During Kim Jong-il’s visit on June 5, while the Chinese media speculated about North Korea going through “reform and opening-up policy,” the North Korean media never used this phrase.

According to Yonhap:

A Hong Kong conglomerate is likely to be tapped as a developer of a China-North Korea joint industrial complex on a North Korean island, a Chinese-language weekly said Monday, a move seen as deepening the North’s economic reliance on its neighboring country.

Earlier this month, China and North Korea broke ground to develop Hwanggumphyong Island, which sits at the estuary of the Yalu River between two border cities, Dandong on the Chinese side and Sinuiju on the North’s side.

The Economic Observer, one of the leading economy-focused newspapers in China, said it has exclusively obtained a document showing that Sunbase International Holdings Ltd., an investment conglomerate based in Hong Kong, will win exclusive rights to develop the border island.

The group, which reportedly has direct control over total assets of over HK$60 billion (US$9.3 billion), is recognized as one of the largest property management companies in Hong Kong and mainland China.

Gunter Gao, chairman of the board of Sunbase International, visited North Korea twice last year and had high-level meetings with North Korean government officials on the economic development of the island, the report said.

The newspaper earlier reported that the 56-year-old Hong Kong tycoon met Kim Yong-nam, president of the Presidium of the North Korean Supreme People’s Assembly, before the groundbreaking ceremony of the joint economic zone. Gao is widely considered to have strong ties with politicians in mainland China.

Gao has long served as one of the Hong Kong members of the National Committee for Chinese People’s Political Consultative, a political advisory body in mainland China.

Citing unnamed sources, the weekly said the North Korean authorities preferred Hong Kong entities rather than mainland Chinese firms as developers of the joint economic zone because Hong Kong companies are more open and international.

The economic cooperation between China and North Korea comes on the heels of North Korean leader Kim Jong-il’s weeklong trip to China in May when he studied the neighboring country’s economic development. It was his third trip to China in just over a year.

Beijing has been trying to lure its impoverished ally to embrace the reform that lifted millions of Chinese out of poverty and helped China’s rise to become the world’s second-largest economy.

North Korea has been facing worsening food shortages and massive inflation, which has increased public anger in the country.

Read the full story hre:
Hong Kong conglomerate likely to be tapped as developer of N. Korean island: report
Yonhap
Kim Young-gyo
2011-6-20

Imports from North Korea: Existing Rules,Implications of the KORUS FTA, and the Kaesong Industrial Complex
Mark E. Manyin, Coordinator, Jeanne J. Grimmett, Vivian C. Jones, Dick K. Nanto, Michaela D. Platzer, Dianne E. Rennack
Congressional Research Service (CRS)
June 2, 2011

Download the PDF here.  This publication has been added to the list of previous CRS reports on the DPRK here.

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Trade with China 1995-2009
Nathaniel Aden
Nautilus Institute
June 7, 2011

View the paper here.  A link to this paper has been added to the DPRK Economic Statistics Page. The Nautilus Insitute has also posted links to some very interesting presentations from the 2010 DPRK Energy and Minerals Working Group.

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[Book] The Contemporary North Korean Politics: History, Ideology, and Power System (현대 북한의 정치: 역사, 이념, 권력체계)
Jong Song-Jang (정성장)
More information TBA, but see here and here (Korean).

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[Book] Architekturführer Pjöngjang (German: Pyongyang Architecture Guide)
Philipp Meuser
Order here at Amazon. More here and here.