North Korean Economy Watch

38 North
Andray Abrahamian
2011-8-29

A bus bumps and bruises its way along the unpaved road, carrying would-be investors to Rason’s First Rason International Trade Exhibition which ran from August 21-25, 2011, in Sonbong. The windows are open, until a crimson humvee barrels past, its powerful suspension dancing on the road, leaving behind a plume of beige dust. The bus windows snap shut, the still air quickly gets hot and more than one of the passengers wishes we were Chinese high-rollers, being whisked to the Emperor Casino and Hotel, which sits beautifully on Korea’s East Sea, overlooking Bipa Island and flanked by lush green mountains and crystal waters.

The passengers of the humvee-part of the casino’s fleet-will long be checked in and gambling their fortunes away by the time we complete our two and a half hour journey. However, it won’t always be this way. Rason’s 50km road to the border is finally being upgraded. Indeed, the 2.5 hour journey took 3.5 hours in June. Since then, the road has been widened, the first stage of the construction plan, allowing for traffic to flow both directions more easily and smaller passenger vehicles to overtake the more cumbersome truckers who ply the road.

Its construction is an important sign in the development of the Rason Special Economic Zone. Rason, an amalgamation of the names of the area’s two biggest cities, Rajin and Sonbong, could theoretically be a vibrant hub for both logistics and manufacturing. It is located in the far Northeast of the Democratic People’s Republic of Korea, bordering Russia and China. It has abundant, cheap labor and the region’s northernmost ice-free port. It has been a legal entity since the early 1991, but has struggled to reach its potential in the face of ambivalence from Pyongyang and difficult geopolitical circumstances.

Local administrators have bold plans for this experiment in economic opening-up and to develop as the Rason Municipal People’s Committee has imagined, an efficient road link with China’s Northeastern provinces is vital. For about a decade, improvements to the road have been “under discussion” and “coming soon,” but it is now undeniably underway. Work began in May of this year…READ MORE HERE

Institute for Far Eastern Studies (IFES)
2011-8-24

Kim Jong Il’s visit to Moscow on August 20 is sparking interest for the future of economic cooperation between the two countries.

According to the KCNA, Russian President Dmitry Medvedev expressed interest to increase trilateral cooperation between the ROK-DPRK-Russia in the gas, energy, and railroad sectors. In the message sent from Medvedev to mark the 66th anniversary of independence from Japanese colonial rule, “plans to expand cooperation with the DPRK and the ROK in gas, energy, and railroad industry” were emphasized.

The cooperation projects are evaluated to have “great economic and political significance contributing to the stability in Northeast Asia and denuclearization of the Korean peninsula.”

In July 4, the KCNA reported that the delegates from the Russian energy giant Gazprom headed by Chairman Alekhsandr Ananenkov visited Pyongyang to discuss energy cooperation, although details of the visit was not elaborated. Ananenkov was reported to have met with North Korean officials in gas and oil industriesto discuss bilateral cooperation in these areas.

Russia has also expressed interest in linking gas pipelines to export natural gas to South Korea via inter-Korean railroad system.

A spokesperson of the foreign ministry of the DPRK reported on the recent visit from the vice-foreign minister and chief representative of Russia on Six-Party Talks, Aleksei Borodavkin, this past March. In the statement, the Russian government expressed concerns for improving inter-Korean relations and stressed prospects of the tripartite economic cooperation projects with North and South Korea including the construction of railways, gas pipeline, and a transmission line linking the three countries. The DPRK also expressed support for the upcoming economic cooperation projects.

In result, the main agenda in the bilateral economic cooperation between Russia and North Korea entails railway, gas pipeline, and transmission line construction.

President Lee Myung-bak has met with the Russian president Medvedev in September 2008 in Moscow. At the summit, the two presidents reached an agreement to pursue projects to export Russian PNG or pipeline natural gas to South Korea through a pipeline via North Korea from 2015.

Immediately following the summit, South Korea’s Korea Gas Corporation (KOGAS) and Russia’s Gazprom signed a memorandum of understanding (MOU) to jointly study the possibilities of constructing a long-distance pipeline running from Vladivostok. Under the contract, Russia will send at least 7.5 million tons of natural gas annually for a period of 30 years through a pipeline to South Korea via North Korea.

This joint study between ROK-Russia is expected to serve as a momentum in bringing diverse economic cooperation between North and South Korea as well.

While it is still premature to judge the long-term outlook for such trilateral economic cooperation, its effects are anticipated to contribute to stability and peace in the Northeast Asian region.

Additional Information: here is a summary of the recent Kim Jong-il — Medvedev summit.

According ot the Choson Ilbo:

In the scorching afternoon heat last Thursday, two Asian laborers sat in front of a grocery store near a building site in Vladivostok, Russia, cooling themselves with mugs of draft beer. When asked if they were North Koreans, the men asked, “Are you from South Korea?”

One of the laborers, who was in his 40s, then said there were around 50 workers from all over North Korea, including Pyongyang and Nampo, at this particular site alone, and they can be seen at practically every construction site in Vladivostok.

The entire Siberian city has turned into a building site in preparation for the 2012 APEC Summit as roads are being widened and hotels and apartments built. The projects have created booming conditions for North Korean laborers. They can easily be spotted at practically any construction site, cheap restaurant or near housing projects. One North Korean laborer in his 50s said, “We earn US$500 a month if we work from 7 a.m. until 10 p.m. Aside from missing our families, things are not that difficult.”

There are an estimated 3,000 North Korean laborers in Vladivostok. One source there said, “In the past, most of the North Korean laborers worked at logging sites near Khabarovsk, but now most of them work at building sites here.” City officials expect around 3,000 more North Koreans to arrive.

But they are getting stripped of their hard-earned money by the regime. They are sent to Vladivostok by North Korean companies tasked with raising foreign currency and must send a set portion of their earnings back to the North. When their three- to five-year contracts expire, they return home.

One South Korean resident in Russia said, “Even in winter, when there is no work, North Korean workers are threatened by their government minders, who extort money by telling them it is up to them whether they want to stay in Russia or go back to the North and starve.”

For these laborers, money comes before loyalty to the regime. Some with more experience working abroad earn extra cash on the side by working as handymen in Russian homes after they make their payments to North Korean officials.

Recently, there have been rumors that North Korean workers are having to be especially careful. Seven North Koreans working in Vladivostok were apparently sent back to the North after they were caught watching South Korean movies on DVD. One South Korean resident in the city said, “North Korean laborers are allowed to watch porn, but they get in big trouble if they watch South Korean movies.” The resident said North Korean laborers refused to watch South Korean movies even if they are free.

“North Korean laborers send back up to $1,000 a month,” an ethnic Korean merchant in China said. “Things must be better than living in North Korea, but they don’t seem to make enough money compared to the hard work they do.” He said North Korean workers are notorious for never buying anything.

Read the full story here:
Vladivostok Teeming with N.Korean Laborers
Choson Ilbo
2011-8-18

Pictured Above (Google Earth): Tynda Logging Camp in Russia. See in Google Maps here.

According to the Daily NK:

Kim, a defector who arrived in South Korea in 2008 after working for 30 years in the North Korean forestry sector, explained to The Daily NK on the 5th, “North Korea’s operations in Russia are now just enough to send timber to North Korea on the birthdays of Kim Il Sung and Kim Jong Il; they provide little real benefit in terms of foreign currency earning.”

In essence, Kim went on, “North Korea is just running the Forestry Mission to maintain its relationship with Russia.”

Following a 1967 agreement between the two countries, logging has at times played a key role in North Korea’s hard currency earning efforts, with more than 20,000 North Korean laborers being involved in forestry operations in Russia by the start of the 1990s.

Under the agreement, Russia agreed to provide the trees, equipment and power, while North Korea would provide the labor, and both countries shared the timber.

However, the deal is no longer beneficial to the North Korean state, as Kim explained in more detail, saying, “At the moment, Russia takes 72% and North Korea 28% of what is felled by these North Korean laborers, but most of the money North Korea earns from selling it on to Chinese trade companies goes on the laborers’ wages, accommodation, food and administration of the Forestry Mission. Now that Russia is a market economy with constantly rising prices, there is hardly any hard currency left to send back to the North Korean authorities.”

“Recently, China has been offering the Russians more money for these felling operations, so the North Korean laborers have no choice but to go home,” Kim added, continuing, “In addition, the scale of the workforce and operations has been decreasing recently partly because those groups of workers who protest about wage delays and whatever else are all dispatched back to North Korea.”

“In the past there used to be trade missions in Tynda and Khabarovsk, but now they is only the one in Tynda, with seven logging businesses underneath it,” he said. “The Khabarovsk trade mission has recently been closed down, and there are now a total of just nine logging operations underway in all of Russia.”

The numbers of loggers has shrunk to “4,000 in Khabarovsk and 2,000 in other remote areas; a total that does not exceed 6,000,” Kim stated.

Even the remaining forestry mission in Tynda is not large, with a president, chief engineer and vice-director working in parallel with a Party chief secretary, organizational secretary and propaganda secretary. Although each secretary has two or three workers under him, even with the National Security Agency staff that keeps tabs on the activities of the workers included in the total, the mission remains small.

Elsewhere, however, there are actually tens of thousands of North Korean laborers in Russia working in fields including construction, agriculture and mining, including around 30% of the 6,000 nominally said to be involved in logging.

The activities of military-run enterprises are on the increase, too. Kim explained, “Following cooperation between the Russian Air Force and the North Korean Air Force Command, there are now farming operations going on around air fields. If you include the General Reconnaissance Bureau, North Korea has sent at least a few tens of thousands of people to Russia.”

Given the ever increasing number of laborers running away from their assigned workplaces, Kim speculated there could also be as many as 600 or more defectors residing in Russia.

“In 2006 the Ministry of Forestry sent some cadres all over Russia to try and lure defectors back home, but these people had grown accustomed to living in Russia and nobody listened. There were 598 at that time, so it’s probably even higher by now,” Kim said.

One other key reason why North Korea has been unsuccessful in its attempts to retrieve the defectors is that the Russian authorities take a sympathetic view of their plight. According to Kim, “Russia does not forcibly repatriate defectors in the same way as China, so they are able to marry and work there. The Russian police have been treating defectors as humanitarian refugees since 2005, aware that forcibly repatriated defectors risk public execution and that their families face punishment, too.”

Naturally though, surveillance and control of the laborers is as severe as it has always been at the logging sites. Every week the workers are forced to participate in Party-led activities including mutual criticism sessions. The authorities are trying to limit the number of defectors by encouraging them to spy on one another, and the NSA has an intricate system of investigation to maintain order. Nevertheless, workers are sufficiently unhappy with their situation that defections continue to occur.

According to the Russians, there were 32,000 North Koreans working in the country in 2010. Here is a link to the source of this number and previous posts on North Koreans logging in Russia.

Read the full story here:
Logging in Russia: Not What It Used to Be
Daily NK
Kim Yoinh-hun
2011-8-8

Andrei Lankov writes in the Korea Times:

The present author was born in the former Soviet Union and is frequently asked which period of Soviet history the current North Korea is reminiscent of?

I usually say that this question has no straightforward answer. The problem is that depending on what area you look, the associations are remarkably different. The developments in North Korea are not that different from those of the USSR, but in different areas the time seems to flow with a different speed.

North Korea’s official ideology and propaganda continues to be uncannily similar to late Stalinist Soviet culture, to the period of the late 1940s. The North Koreans are still served the same fare of ossified Leninism and strong nationalism, heavily spliced with eulogies to the leaders’ wisdom and benevolence.

It appears as if North Korean propaganda, as well as its official ideology, has been frozen in time since the late 1960s. One can take an article from Rodong Shinmun of, say, 1972 and then compare it with an article published yesterday only to find no major differences in language, style and reasoning.

At the same time, the general mood among educated urban North Koreans is quite similar to the mood which prevailed among the same social milieu in Moscow and Leningrad of the 1960s. People are still afraid to talk politics and most of them do not entertain serious doubts about the fundamentals of the system. They tend to believe that their economic problems have been created by a combination of natural disasters, collapse of the ‘socialist markets’ and, of course, an economic blockade maintained by the greedy U.S. imperialists and their shameless lackeys.

However, very few educated North Koreans nowadays buy the official propaganda message wholesale. They know that the official media lies, and sometimes lies quite shamelessly. While being more or less loyal subjects of their state, they entertain significant (and growing) skepticism about its institutions and the official pronouncements of its leaders.

It seems that social fear, once powerful and omnipresent, is diminishing. The North Korean state remains highly repressive, but the level of repressiveness is in steady decline. Nowadays North Koreans can do many things which would almost definitely have landed them in prison some 20 years ago ― in some cases, even mildly critical statements about the system are now tolerated.

Of course, open dissent is still unthinkable, but genuine enthusiasm is almost impossible to find. This is a picture, clearly reminiscent of the USSR of, say, year 1965 (albeit the North Korean state remains far more repressive than the Soviet Union used to be during Brezhnev’s rule).

The economic situation is different again. In economic terms, present day North Korea is similar to Russia in the early 1990s, the turbulent days that followed the collapse of the Soviet Union. At that time a large number of the Soviet people discovered that their official salaries would not suffice if they wanted to stay alive, so they began to look for additional sources of income. Ex-Soviet officials busily stole state property, whilst less lucky commoners relied on an assorted variety of small businesses, household workshops and subsistence farming.

This is very similar to present-day North Korea, even though the collapse of the socialist economy in North Korea led to far more damaging consequences than was the case in Russia –after all North Korea experienced a disastrous famine, while few if any Russians starved to death in the early post-Soviet period.

In North Korea, the collapse of the state-run economy and rationing system plunged a majority of the population into the world of the grass-roots market economy. No reliable statistics are available, but researchers tend to agree that roughly three-quarters of average household income in North Korea is now derived from private economic activities of different kinds.

Like their early post-Soviet peers, North Korean officials are always on the lookout for a nice bribe. They also don’t mind quietly transforming state property into their own personal property– many North Korean enterprises ostensibly still owned by the government are actually private nowadays. Meanwhile other North Koreans sell, buy, smuggle, farm unofficial plots, run individual workshops or find employment with such workshops.

So, we have a curious picture. Ideology still pretends that almost nothing has changed in the last 50 years (it’s telling that the official media has never mentioned the market economy, as if it doesn’t exist). The political consciousness is less dominated by the state, but still remains under its control.

However, the North Korean state has almost completely lost control of the economic life of its people. This picture has no parallels in the history of the Soviet Union or, for that matter, in the histories of other ex-communist countries, even though all its elements (if taken separately) would appear familiar to the people with Soviet-era experience.

Read the full story here:
Comparison of NK and USSR
Korea Times
Andrei Lankov
2011-6-19

According to Yonhap:

The number of North Koreans officially visiting China reached 28,600 in the first three months of the year, up 35 percent from the same period last year, a news report said Wednesday.

More than half of them visited China to work in either factories or restaurants, while 6,000 people visited China for conferences or businesses, the Voice of America reported, citing Chinese government data.

The VOA also said 700 North Koreans toured China for sightseeing, while fewer than 100 North Koreans visited China to meet relatives or friends and 7,300 visitors had other purposes. The report did not elaborate.

The data did not include information on North Koreans staying illegally in China after defecting, the VOA said.

Tens of thousands of North Korean defectors are believed to be hiding in China, a major land route through which many North Korean defectors travel to Thailand and other Southeast Asian countries before resettling in South Korea.

According ot the Choson Ilbo:

Chinese tourists will start visiting Russian and North Korean cities without visas on Wednesday under a formal agreement between Beijing and the two countries. The tour course starts in the Chinese border city of Hunchun in the lower reaches of the Duman (Tumen) River and goes on to eastern Russia and the Rajin-Sonbong special economic zone in North Korea.

A group of 21 tourists left Changchun, the capital of northeast China’s Jilin Province, on Tuesday for the Hunchun. Travelers will then visit Slavyanka, Vladivostok and Khasan, the official Xinhua news agency said. They then go to North Korea by train and tour the cities of the Duman River and the Rajin-Sonbong area.

The four-day tour starts every Wednesday and costs 2,300 yuan (approximately W390,000). Only Chinese travelers are eligible for the visa-free arrangement.

Read the full stories below:
Number of N. Korean visitors to China rises in first quarter
Yonhap
4/27/2011

Chinese Tourists Visit Russia, N.Korea Visa-Free
Choson Ilbo
4/28/2011

Pictured above on Google Earth: hill-side farming plots in the DPRK

Lankov writes in the Korea Times:

Every visitor to North Korea who has passed through mountainous areas in the country has seen some peculiarities of the modern North Korean landscape.

Somewhere high in the mountains one can see small fields of strange, irregular shapes which look quite different from the orderly, rectangular shapes of the cooperative farm fields. If asked about these fields, North Korean minders will probably avoid giving a straight answer. This is understandable ― even though the existence of such fields is tacitly accepted by the authorities, from a purely ideological view, which minders are obliged to present, these fields are not supposed to exit.

We are referring to sotoji, private plots, which have been spreading across North Korea over the last 15 years and now play a major role in food production in North Korea.

It would be only a minor exaggeration to say that in his policies, Kim Il-sung tended to be more Stalinist than Joseph Stalin himself. He took the state-run economy to its natural (or unnatural) extreme and collective farming was no exception. Once upon a time, the North Korean peasantry was herded into so-called “agricultural cooperatives.” The description of these institutions as cooperatives is actually misleading because they were essentially state-run farms, where farmers had basically no influence over management or income distribution.

But North Korea has one important peculiarity: unlike Stalin’s Soviet Union, in North Korea farmers were not allowed to cultivate even small private plots. In the Soviet Union a farming family would be allowed a plot which might have been as large as a few thousand square meters. In North Korea, the maximum size of an individual plot was limited to a paltry 100 square meters – barely enough to grow some pepper and spice and clearly not enough to make any meaningful economic difference.

This was done on purpose ― North Korean policy planners assumed that farmers, being deprived of any alternative means of existence, would work more efficiently in state-owned fields. In agricultural cooperatives farmers essentially worked for their daily ration ― one full day of work was rewarded with 700g of grain (similar to the ration of the average worker in a city).

This system was never especially efficient but for a few decades it managed to exist and function somehow. However the collapse of the North Korean economy in the early 1990s produced a devastating blow to state-run agriculture. In 1995 and 1996 the harvests were around half of what was necessary to keep the North Korean population alive, so many North Koreans starved to death (the exact numbers are disputed but it seems that between 500,000-1,000,000 perished) and the survivors began to look for ways to make a living outside the state-run-economy. Predictably enough, farmers did what one would expect them to do ― they began to develop their own food production.

Unlike their Chinese counterparts, the North Korean elite refused to disband the state-run agricultural cooperatives. Therefore farmers had no choice but to acquire land on their own, outside of what would be normally considered arable land. Usually they went to the mountains, since all arable land in the valleys had long been cultivated within state-run farms.

In some cases, farmers would make agreements with local forestry departments whose officials agreed to turn a blind-eye to unlawful activities in protected forest areas. In some other cases the local authorities tolerated and even encouraged the sotoji cultivators.

A quick look through satellite images of North Korea shows the widespread nature of the sotoji phenomena. In some counties near the Chinese border, the percentage of land under the cultivation of sotoji owners roughly equals that under cultivation by state-run farms. In other areas the level of private production may be smaller but it seems clear that private food production makes a major contribution to North Korea’s food supply today.

Indeed, in the above-mentioned borderland counties, sotoji fields seem to produce as much as 60 percent of all food sold on the local market. This might be an exception because the current county in question is covered by mountains and contains a lot of places where people can hide from police. Nonetheless sotoji produced food is found widely in the country’s markets.

In the last 15 years or so, North Koreans have developed a large and successful private economy of which the sotoji phenomenon is an important part. However their cultivators are not high on the newly emerging social ladder. Sotoji are usually tilled by people who do not have the money, skills or inclination to start a more conventional business. Some of them are essentially market-orientated enterprises which make profit but the majority lose money.

Nonetheless, the random new shapes of North Korean mountains nowadays are yet another reminder of how much the country has changed over the last two decades.

Read the full story here:
Sotoji — small private plot
Korea Times
Andrei Lankov
2011-4-24

Accoridng to KBS:

A Russian company is facing charges of operating a gambling room in the North Korean embassy in Moscow.

The company, which leased the second and third floor of the embassy’s administrative building, has allegedly been running the illegal operation since December.

The North Korean embassy denied the allegations when reports surfaced last week. But signs of a gambling operation were detected in a recent investigation by the Russian Foreign Ministry.

The Russian Foreign Ministry issued letters of protest to ambassadors from North Korea and Belarus and demanded the casino immediately shutdown to prevent further violation of Russian law and bilateral agreements.

Read the full story here:
Russia Protests NK Embassy’s Casino Operation
KBS
2011-4-21

According to ITAR-TASS:

According to the head of the Russian delegation, “North Korea has a possibility to send workforce to Russia.” Last year about 32,000 citizens of North Korea worked on the territory of Russia. He noted that North Korea “hopes to increase the number of its citizens working in Russia”.

Of course there has been plenty of media attention given to the North Koreans who work as loggers in Russia (See here, here, here, here, here, here, here, here, here), but they must be a small minority of 32,000 people.

What else are North Koreans doing in Russia? Art shows, trade and construction, paying off imports, etc.  There are 5,000 in Vladivostok alone. Leonid Petrov adds more details.

According to Choson Ilbo:

North Korean products are being sold in South Korea labeled as Russian after the South stopped all cross-border trade in May last year. The North is desperate to unblock the flow of hard currency and is pushing for resumption of dialogue over the Kaesong Industrial Complex and lucrative package tours to Mt. Kumgang.

The Unification Ministry has released a list of the top 10 North Korean agricultural and fisheries imports, which show that the South brought in around 310,000 tons between 2006 to 2010. Imports totaled US$677 million tons, which worth $135 million a year. Over the last decade, North Korea also earned more than $500 million from the Mt. Kumgang tours, while the Kaesong Industrial Complex brought in $50 million annually.

Shellfish exports made the most money for the North, totaling 171,533 tons worth $268 million, followed by dried fish ($78.76 million), processed fish products ($76.02 million) and other seafood ($67.42 million).

Before the South halted trade following the sinking of the Navy corvette Cheonan, most North Korean shellfish was brought into the port city of Sokcho on the east coast. South Korean importers paid in U.S. dollars in Sokcho after signing contracts in the Chinese border town of Dandong with North Korea’s official economic cooperation agency.

But since trade was halted, North Korean shellfish has been labeled in Dandong as Chinese in origin and apparently sent to the western port city of Incheon. North Korean fisheries products are also apparently loaded on to Chinese vessels in the West Sea and brought into South Korea. As the pressure to bring in more dollars increases, chances have risen that the North’s agricultural and fisheries products are being falsely labeled.

A South Korean businessman who trades with North Korea, said, “Since trade was halted, North Korea has been trying to sell its products to South Korea labeled as Chinese or Russian in origin. This shows just how desperate North Korea is for dollars.”

The alternatives would be to sell the goods to China, the North’s largest trading partner, but prices have to be slashed and it costs more to transport them. Most of the dollars North Korean makes from selling goods to South Korea appear headed straight for leader Kim Jong-il’s coffers and used to prop up his rule. Kim’s funds are divided into local and foreign currencies and the latter, raised by selling farm and fish products, account for a key portion. Products such as shellfish and mushrooms that can bring in the most foreign currency are controlled by the Workers Party or the military, making it hard for the money to be used to boost the welfare of the North Korean people.

“North Korea uses a lot of the money it makes from trade to fund its rule, either buying gifts for government officials or building luxury homes,” said Cho Myung-chul, a professor at the Korea Institute for International Economic Policy, who taught economics at Kim Il-sung University in North Korea. “North Korea desperately needs money to win the hearts and minds of the public and gain support for the hereditary transfer of power. That’s why it’s seeking talks with South Korea, so it can find a way to sell its products.”

South Korea is also prosecuting South Korean firms suspected of trading with the DPRK.

Read the full story here:
N.Korea Sells Products in South Under False Labels
Choson Ilbo
1/22/2011