North Korean Economy Watch

UPDATE (Oct 15, 2008):

North Korea lost to Iran (2:1).  Iran fight to take second place in Group Two behind South Korea, who beat United Arab Emirates 4-1.  South Korea, Iran, Saudi Arabia and North Korea all have four points. Video here.

The DPRK is scheduled to play Saudi Arabia (twice), UAE, South Korea, and Iran (again) in matches lasting through June 2009. 

UPDATE: According to Bloomberg:

North and South Korea drew 1-1 in Asian qualifying for soccer’s 2010 World Cup.

Hong Yong-Jo put North Korea ahead with a 63rd-minute penalty kick in Shanghai yesterday, with Ki Sung-Yeung replying for South Korea five minutes later. It was the teams’ fourth draw in as many matches this year.

UPDATE:  FIFA has set the September 10 DPRK-ROK World Cup qualifying match in Shanghai (again).  Pyongyang is still reluctant to raise the South Korean flag in Kim il Sung stadium.  Someone please tell the DPRK foreign ministry that this does not reinforce the image of social strength that the North works so hard to cultivate.  Read more here.

Goal.com makes the claim that these political decisions also hurt the team’s chances of winning.

FIFA is neutral, and it will not sanction the DPRK since both teams agree to play the game in Shanghai.  More on their decision can be found here.

ORIGINAL POST: As reported earlier, North and South Korea were both drawn into Group 3 in Round 3 qualifying matches for the 2010 World Cup in South Africa.  North and South Korea tied 0-0 in both games against each other.  However, due to Pyongyang’s refusal to raise the South Korean flag and play the South Korean national anthem, the initial Pyongyang home match was moved to Shanghai, where yours truly was able to attend.  Pyongyang also tried to have the Seoul home match moved to another city or country before finally abandoning politics and just letting their boys play.

Well, FIFA has drawn groups for Round 4 qualifiers, and both North and South Korea have been chosen for Group 2.  This means Pyongyang will have another opportunity to host the South Korean national football team—along with their flag and anthem.  What are the odds that Pyongyang will actually host their home game this time around?

Matches are scheduled for September 10 and January 4, 2009.  Venues TBD.

UPDATE: The head of the South Korean Football Association Chung Mong-joon wants the 2010 World Cup qualifier against North Korea scheduled for September 10 to take place in Pyongyang. (Goal.com)

The Russians have begun upgrading a 54km railway line that, when completed, will connect Khasan, on the Russian border, with the North Korean port cities (and special economic zone) Rajin and Songbon (aka Rason).  The railway line needs to be upgraded because the Russians use a different gauge than the North Koreans.

According to the Donga Ilbo (where the above picture originates as well):

The project will […] cost [] 195 million U.S. dollars, 72 million dollars of which will be shouldered by Moscow. 

The Defense-Technology Blog quotes the project’s price at US$207 million, the difference probably the result of exchange rate calculations.  Additionally:

Eurasia’s largest transcontinental railroad of over 10,000 km will be established as a result.  Cargo transshipment from Asia to Europe along the route will take 14 days, while sea freight shipping takes 45 days. The completion of just the first stage of the project will make it possible to attract up to 100,000 containers annually to the Trans-Siberian railroad, a spokesman for Far Eastern Railways said.

As reported (here, here, and here) I believe this deal, which gives the Russians 49 years of rental control over the rail line, is strategically important to the Russians for numerous reasons:

1. The Russians are happy to have a Pacific port that does not freeze in the winter.  This will open up year-round trade opportunities for Russia’s far east. 

2. Bringing the Rason port under Russian “administration” puts Russia in a position to profit from linking South Korea’s economy to Europe (the DPRK will also indirectly benefit no doubt).  This could be accomplished by putting South Korean cargo in Russian ships which could be unloaded in Rason and carted across Siberia into Europe, significantly reducing the time (and cost) required to put South Korean goods on European shelves.

3. As reported earlier (here and here), South Korea is interested in Russian energy resources, specifically oil and natural gas.  Ideally, pipelines could be build from Russia to South Korea (via the DPRK).  Until this pipe dream (pun alert) is a reality, however, the Rajin port will serve as an effective transit hub between the two countries.

4.  Investment in significant economic assets within the DPRK will solidify Russia’s position (vis-a-vis China?) as a permanent player in political and economic developments on the Korean peninsula. 

As an interesting aside, Yonhap reports that the North Korea just replaced the Minister of Railways:

Jon Kil-su, a career transportation official, has been named North Korea’s new railways minister, according to the country’s official media seen here on Sunday.

Jon, who headed the transportation ministry’s transportation command bureau, has been promoted to replace Kim Yong-sam as the top railways official in the North’s government, the report said. The outgoing minister had served in the post since 1998.

Read more below:
North Korea-Russia Railway Reconnection
Donga Ilbo
10/7/2008

Russia, North Korea break ground on rail link project
(NSI News Source Info)
10/6/2008

N Korea has replaced its railways minister: report
Yonhap
10/5/2008

(The Wilson Center’s North Korean International Documentation Project (NKIDP) does innovative historical work collecting, translating, comparing, and analyzing records kept on the DPRK in the archives of formerly (and some currenty) communist countries.  They recently held an innovative conference where they brough in period policy makers to discuss and comment on these archival records.)

NKIDP publishes document reader from international conference “Crisis and Confrontation on the Korean Peninsula: 1968-1969″
September 8-9, 2008

Crisis and Confrontation on the Korean Peninsula: 1968-1969 focused on the two tumultuous years which saw the capture of the U.S. Navy’s intelligence ship USS Pueblo by the DPRK, the North Korean attempt to assassinate ROK President Park Chunghee with a cross-border commando raid on the Blue House, and numerous other provocative incidents.

The conference’s document reader—a 1200 page collection of newly declassified documents from South Korean, American, and former communist bloc archives–is the most comprehensive collection of primary source materials on US-ROK-DPRK relations during the late 1960s ever assembled, and it is now available for download free of charge from NKIDP.

Armed with this document reader, scholars from around the world, and former policy-makers from the United States, South Korea, and the former communist bloc gathered at the Woodrow Wilson Center in Washington for two days of discussions.

These discussions gave historians the opportunity to interact with the very officials whose reports and memoranda comprised the document reader, and will result in a more nuanced understanding of US-ROK-DPRK relations during the late 1960s.

The DPRK’s recent efforts to reconstruct the Yongbyon 5MW nuclear reactor seem to have brought implementation of the “second” Agreed Framework to a halt, though it was already behind schedule.  This week the US sent Chris Hill to Pyongyang to try and rescue the process which is hung up on verification protocol.   The North claims to have sufficiently declared their nuclear capabilities and believe they should be removed from the US list of state sponsors of terror.  The US does not believe this condition has been met and seeks to establish a protocol to verify if the North’s declaration is accurate.

Japan is also set to extend sanctions (due to expire) on the DPRK.  According to Bloomberg:

Japan’s ruling Liberal Democratic Party decided to extend sanctions against North Korea for six months after their Oct. 13 expiration date, Jiji Press reported.

LDP lawmakers agreed to extend the sanctions because North Korea took steps to reactivate its nuclear program and made little progress in an investigation into Japanese nationals abducted by North Korean agents, Jiji reported.

Prime Minister Taro Aso’s Cabinet is likely to endorse the extension by Oct. 10., the Japanese wire service said.

The sanctions include a ban on North Korean imports and the entry of North Korean ships into Japanese ports. The extension will be the fourth since sanctions began after North Korea’s October 2006 nuclear test, Jiji said.

Just as the DPRKs hopes of restoring/establishing relations with Japan and the US start to dim, however, they have reached out to South Korea, with whom political relations had recently gone sour due to the South’s policy change from unsupervised aid provision under the “sunshine policy” to a quid-pro-quo relationship under a “policy of mutual benefits and common prosperity“.  Additionally, the fatal shooting of a South Korean tourist in Kumgangsan led to a deterioration in cooperation between the two governments and suspension of the inter-Korean project (a cash cow for the North).

How much was the Sunshine Policy worth to the North?  South Korean GNP lawmaker Jin Yeong, who analzed data submitted by the Unification Ministry and the Export-Import Bank of Korea, claims that the Kim and Roh administrations oversaw the transfer of 8.38 trillion South Korean Won in aid and loans since 1998.

Taking office in February 2003 after the second North Korean nuclear crisis emerged in September 2002, Roh doled out 5.68 trillion won to Pyongyang over his five-year term, double that of his predecessor Kim (2.70 trillion won).

Kim and Roh gave to North Korea 2.4 trillion won for building light-water reactors and in food aid; 2.5 trillion won to pin the price of rice aid to that of the global market; 2.8 trillion won for other aid including fertilizer; and 696 billion won in aid from advocacy groups and provincial governments.

In 2003, South Korean aid to the North reached a high of 1.56 trillion won. Then after North Korean leader Kim Jong Il declared that his country had gone nuclear in 2005, the Roh administration sent 1.48 trillion won to the North.

Jin said, “South Korea gave a loan with rice first in 2000. Payments on the loan are deferred for 10 years. Thus, we are to receive the first repayment installment in 2010. But most of the 2.4 trillion won in loans seem irrecoverable.”

PricewaterhouseCoopers Korea audited the fiscal 2007 accounts of Seoul`s inter-Korean cooperation funds, saying, “Considering the characteristics of the North Korean government, grave uncertainty exists over the possibility of redeeming the loans given to the regime. The ultimate outcome depends heavily on the conditions around the Korean Peninsula.”

Since President Lee Myung-bak took office this year, exchanges between the two Koreas have been rare. Still, aid to the light-water reactor and the Gaesong industrial complex projects and civilian donations have continued, amounting to a combined 211.3 billion won. (Donga Ilbo)

It appears the Russians are doing their part to bring the North and South together through a project they can all agree on—building a natural gas pipeline from Russia to South Korea via the DPRK:

South Korea plans to import $90 billion of natural gas from Russia via North Korea, with which it shares one of the world’s most heavily fortified borders, to reduce its reliance on more expensive cargoes arriving by sea.

State-run Korea Gas Corp. signed a preliminary agreement with OAO Gazprom, Russia’s largest energy company, to import 10 billion cubic meters of natural gas over 30 years starting in 2015, the Ministry of Knowledge Economy said in a statement. The accord was signed in Moscow during President Lee Myung Bak’s three-day visit that began yesterday.

Gazprom Chief Executive Officer Alexei Miller said after talks today between Lee and Russian President Dmitry Medvedev that the exact delivery route hasn’t been determined and that shipments could begin as early as 2015.

“Russia suggested a pipeline via North Korea, which is expected to be more economical than other possible routes,” the minister said in a news briefing. “Russia will contact the North to discuss this.”

“Transporting gas through North Korea could be risky for South Korea,” said Kim Jin Woo, a senior research analyst at Korea Energy Economics Institute. “But the project will ease tensions on the Korean peninsula if Russia successfully persuades North Korea” to accept the plan.

North Korea could earn $100 million a year from the gas- pipeline project, the Ministry of Knowledge Economy said.

“Russia will supply the fuel in the form of LNG or compressed natural gas if negotiations with North Korea do not work out,” according to the ministry’s statement. South Korea and Russia will sign a final agreement in 2010 when a study on the route is completed.

South Korea is turning to Russia, holder of the world’s biggest proven gas reserves, as it faces intensifying competition for energy resources from China and Japan. Asia’s fourth-largest economy depends on gas for 16 percent of its power generation.

Under the agreement, a pipeline to South Korea will be laid via North Korea from gas fields on Sakhalin Island in Russia’s Far East. The pipeline would initially carry 10 billion cubic meters of gas a year, or about 20 percent of South Korea’s annual consumption. The cost of the gas link’s construction is estimated at $3 billion, the ministry said.

Read the full articles here:
South Korea Seeks $90 Billion of Russian Natural Gas
Bloomberg
Shinhye Kang
9/29/2008

Liberal Gov`ts Gave W8.38 Bln to North Korea`
Donga Ilbo
9/30/2008

According to the Choson Ilbo, the South Korean government is monitoring 76 pro-DPRK websites:

The National Police Agency is monitoring a total of 76 pro-North Korea websites overseas. According to data on the NPA submitted to Grand National Party lawmaker Lee Bum-rae of the National Assembly’s Public Administration and Security Committee, of the websites with servers abroad, 31 in the U.S., 19 in Japan, 13 in China, 4 in Germany, and 9 in other countries. 

The NPA said it has also asked or advised web portals to delete a total of 6,377 pro-Pyongyang postings since the inauguration of the Roh Moo-hyun administration in February 2003. The number has been on the increase from 1,010 in 2004 to 1,434 in 2007. Until August this year, the NPA already asked web portals to delete a total of 1,035 such postings.

I find this personally disturbing for a couple of reasons—the first being that the South Korean government asking content to be removed from the Internet sounds more like a North Korean policy than that of a democratic government in one of Asia’s wealthiest nations.  The second bit of news that disturbs me is that I cannot come up with more than 10 pro-DPRK web sites.  Where are these people hiding?     

Read the full article here.

UPDATE: South Korea raids the offices of a pro-North group:

A group of agents from the National Intelligence Service, the police, and the Prosecutor’s Office Saturday stormed the headquarters of the All-Korean Committee for Implementation of June 15 Joint Declaration in Seoul and its 5 regional offices as well as the houses of the organization’s five officials simultaneously, Yonhap News reported.

The authorities also arrested seven officials of the organization, including its leader, whose last name is Choi, for violation of the National Security Law.

The authorities reportedly launched the massive investigation of the group when it was airing the media contents from North Korea through its Internet-based “6.15TV” that allegedly violated the 7th clause of the law that prohibits the praise for and encouragement on North Korea.
The group was established in October 2000 to commemorate the June 15 Joint Declaration and promote the unification movement on a civilian level. It has been engaged in civilian exchanges between the two Koreas, demanded the withdrawal of the U.S. troops from South Korea as well as a movement to understand North Korea better.

The group’s Web site (www.615.or.kr) was inaccessible Saturday afternoon due to heavy traffic volume.

Read the full story in the Korea Times.

UPDATE 2: 4 South Korean arrested for “praising north”

Four progressive civic group members were arrested Tuesday for allegedly praising North Korea, leading the Solidarity for Practice of the South-North Joint Declaration (SPSNJD) to criticize the National Intelligence Service (NIS) and the prosecution for abusing what they call the outdated National Security Law.

They were charged with opening an exclusive pro-North chat room on the group’s Web site ― restricted to certified members ― and releasing North Korean press material to praise the Stalinist country at the expense of the South. (Korea Times)

Really? A chat room with 4 nobodys?  It would be different if they had guns and plans, but reading silly North Korean press releases can’t seriously be considered subversive activity can it?

The policy of mutual benefits and common prosperity

It doesn’t have the same ring as “Sunshine Policy,” and the acronym PMBCP is too long, but this is the English name of South Korean President Lee Myung-bak’s policy towards the DPRK. 

According to Yonhap:

We decided to fix an English name for the policy because there have been many different translated versions,” Kim Ho-nyoun, spokesman for the Unification Ministry, the top Seoul office on North Korea, told reporters.

He said the name was chosen because it best suits the government’s policy of pursuing a relationship of co-existence and co-prosperity with the North beyond the current phase of reconciliation.

The government aims at a firmer inter-Korean reconciliation than its two liberal predecessors, seeking to bring tangible benefits not only to the North but to the South as well, officials said.

President Lee Myung-bak pledged during his election campaign to help the North triple its per capita gross national income to US$3,000 if it abandons its nuclear programs and opens itself to the world.

The so-called “Vision 3,000″ program is now part of Lee’s broader North Korea policy, officials said.

The goal of tripling the DPRK’s per capita GNI (GNP) to $3,000 is based on the assumption that the DPRK’s current per capita income is close to $1,000, which is a wild over statement.  Some more realistic assesments put it as low as $368 per year.  Here is a wrap up of the DPRK’s most recent economic stats from the Bank of Korea.

Read the full article here:
Gov’t sets official English name for N.K. policy
Yonhap
Shim Sun-ah
8/26/2008

Despite tensions between North and South Korean this year, South Korea is still delivering promised energy aid to the North:

Under a six-nation accord signed last year, South Korea has started delivering energy assistance to North Korea.

This week’s shipment included 600 tons of round steel bars.

Seoul has so far provided assistance worth 124,000 tons of heavy fuel oil.

Read the full story here:
South Korea supplies the North with energy
Birmingham Star
08/08/08 

According to the Korea Times, the end of official North-South dialogues has put plans on hold to expand housing for workers in the Kaesong Industrial Zone. 

From the article:

Officials at the complex expressed concerns that South Korean companies intending to set up operations there may be unable to do so as a lack of housing will likely see manpower shortages.

According to the Gaesong Industrial District Management Committee, the number of North Korean workers at 72 companies operating in the site totals 30,084 and the figure could reach 40,000 by late this year.

Besides, approximately 80,000 to 100,000 workers would be needed by 2010 when 450 companies are expected to settle in the industrial park.

However infrastructure projections show that less than 60,000 North Korean workers will likely be able to commute to the industrial site.

Currently, North Korean workers head for their workplaces by 88 commuter buses and bicycles and the authorities promised to provide an additional 100 buses until the year’s end.

South and North Korea agreed last December to build dormitories to accommodate 15,000 North Korean workers.

The two sides were to conduct a geological survey early this year and start construction work in the first half of the year following the agreement but the suspended talks have hindered the plan.

After conservative President Lee Myung-bak vowed a tougher line toward the North, the communist North kicked South Korean officials out of its territory in March and cut off official communication channels.

The Seoul government recognizes the lodging problem as urgent. Yet, it admitted it cannot find a solution at the moment since the North is rejecting any talks.

Read the full story here:
Gaeseong Complex Lacks in Lodgings for N. Korean Workers
Korea Times
Kim Sue-young
7/9/2008

Kim Dong-Jin, head of South Korean steel company POSCO’s China branch, visited Pyongyang Tuesday for talks on purchasing more of the DPRK’s coal, iron ore, and other raw materials.

According to the AFP: 

POSCO, the world’s fourth largest steelmaker, has imported 200,000 tons of coal from North Korea every year.

South Korea’s investment in the North’s rich mineral resources has been sluggish due to the standoff over the North’s nuclear programme and mixed views on whether such investment can be profitable.

North Korea has promoted raw material exports as a means of generating much needed hard currency for some time.  Unfortunately, this development strategy will bring the fewest benefits to the North Korea people. Look at any oil-exporting country for comparison.  Raw materials exports generally enrich the politically connected—and workers, who in North Korea are unable to leave their jobs or negotiate their wages, generally (pun alert) get the shaft.

South Korean firms operating in the North, however, do tend to offer better working conditions than North Korean or Chinese firms.  If POSCO launches operations in North Korea, hopefully public pressure and the profit motive will see an increase in productivity, wages, and working conditions for the DPRK’s miners.

South Korea apparently also operates a graphite mine in North Korea.  If anyone has any information on this, please send it my way.

Read the full story here:
POSCO eyes NKorea raw materials
AFP
6/25/2008

Although political tensions have risen between North and South Korea (list here), Yonhap reports trade between the two countries has increased this year!

According to Yonhap:

South Korea’s trade with North Korea in the first five months of this year surged 30 percent on-year thanks to brisk industrial exchanges that offset a sharp drop in humanitarian aid, the Unification Ministry said Tuesday.

Inter-Korean trade volume increased to US$734.25 million in the January-May period, up from US$562.92 million during the same period last year, according to ministry data. The increase was notable in the commercial sector, which posted US$685 million worth of trade over the months, up 52 percent year-on-year.

However, exchanges in non-commercial areas significantly contracted due to strained inter-Korean political ties. Non-commercial trade dropped by 56 percent to US$49.2 million.

I have been unable to locate this information on the MoU website.  Perhaps it is not listed in English.  If you find it, please send me the link. 

Read the Yonhap article, see below:
Inter-Korean trade rises despite political chills
Yonhap
6/25/2008