Archive for the ‘South Korea’ Category

North Korea’s negative growth in 2017: things look bad, unsurprisingly, but take the numbers with a grain of salt

Friday, July 20th, 2018

By Benjamin Katzeff Silberstein

Bank of Korea (BOK) has put out their yearly estimate of North Korea’s GDP trends. This year, they estimate that the country’s GDP decreased by 3.5 percent. Off the top of my head, this seems a fairly reasonable estimate, particularly since sanctions were only in force for a minor part of the year (late fall and onward). Some quick thoughts below:

As always, remember: estimate GDP in North Korea is very, very hard. How do you evaluate, for example, the market sector versus the state sector? Given how complicated and partially opaque North Korea’s system for pricing it, how can a GDP figure even be reasonably estimated? That said, BOK has been doing this for many years, and their figures are, for all their faults and flaws, some of the most reasonable estimates among the few that exist. Still, as one of the leading experts in the field once told a class of grad students studying the Korean economy: if someone gives you a figure on the North Korean economy with a specific decimal number, you can be sure that it’s wrong.

Some news outlets have made a big number of the fact that this contraction is the largest for over two decades, according to the BOK numbers. While that is true, the proportions are very different: in 1997, BOK estimates that the economy contracted by 6.5 percent, that is, almost double the contraction of 2017. So we’re not talking about any crisis nearly as significant as the famine of the 1990s.

BOK estimates a drop by 1.3 percent in agricultural and fisheries production. Notably, still, market prices for food have looked completely normal throughout the year, as this blog has noted several times before. It’s unclear how exactly agricultural production is estimated, and what the “sector” here really means – only what goes into the state-side of agricultural production and supply, or the sale of surplus production on the semi-private markets? The latter may very well be underestimated given how tricky it is to asses what share of agricultural production still lies firmly and solely within the state system.

It’s unclear how much of the shortfall in electricity production is compensated for by items like solar panels and other forms of electricity generation increasingly prevalent on the ground. Many have noted the various creative ways in which much of the North Korean population already adapts to the shortfall and unreliability of public supply of electricity.

The estimated trade numbers are very dire but also probably approximately realistic. Though the 37 percent shortfall in exports may be an overestimate given that they (presumably) don’t account for smuggling, it is undeniable that the economy is taking a very large hit from sanctions. People who recently visited the Chinese border speak of very low levels of activity in goods transports and the like. This gives cause for some skepticism toward the reports claiming that Chinese sanctions enforcement has gone much more lax lately: it may well have, but that hardly means the doors are flung open. At the same time, imports went up 1.8 percent. Either China is letting North Korea run a trade deficit which they assume they’ll get back once sanctions are eased, or the regime has much more currency stashed away to pay with the goods for than many have thought. The truth may lie somewhere in the middle there.

 

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South Korea, North Korea and Russia discuss railway cooperation

Sunday, July 15th, 2018

Benjamin Katzeff Silberstein

Trilateral cooperation discussions on the cross-peninsular railway happened in Rason despite Russia’s earlier cancellation:

A group of representatives from South Korea’s presidential panel returned home Sunday after a trip to North Korea, where they discussed possible trilateral economic cooperation involving the two Koreas and Russia, its official said.

The Presidential Committee on Northern Economic Cooperation sent an 11-member team led by committee chairman Song Young-gil to the North’s northeastern border region of Rason. They stayed there for two days from Friday.

The team originally planned to attend a seminar hosted by Russia to discuss trilateral economic cooperation involving the two Koreas and Russia but canceled its participation. Instead it had discussions with North Koreans and Russians on the Rajin-Khasan project and other issues, the official said.

Rason, formerly known as Rajin and Sonbong, was designated as a special economic zone in 1991. The North has sought to develop the zone by drawing outside investment but faced setbacks amid its continued provocations.

The Rajin-Khasan project, in particular, is a logistics project aimed at transporting coal from Russia to the North by using a 54 km-long railway linking Khasan in Russia to the Rajin port of North Korea and then to South Korea by ship.

There have been test operations of the transport route three times, including the latest one in November 2015.

The trilateral cooperation project, however, has been put on hold as South Korea banned maritime transport from the North in early 2016 in the wake of the North’s nuclear and missile provocations.

South Korea and the United States have said that full-fledged economic cooperation with the North should wait until it carries out its promised “complete denuclearization.”

“The Rajin-Khasan project is not subject to U.N. sanctions but to sanctions imposed by the U.S. So we plan to draw up and propose a broad picture and make preparations for joint study until there is progress in denuclearization and discussion begins on lifting those sanctions,” the panel official said.

Article source:
Presidential panel discusses Rajin-Khasan cooperation during trip to N.K.
Yonhap News
2018-07-15

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Reopening Kaesong key to cooperation, says ROK gov’t official

Friday, July 13th, 2018

Benjamin Katzeff Silberstein

A South Korean official (albeit one specifically representing the interests of the zone) calls re-opening Kaesong a “first step” towards resumed inter-Korean economic cooperation. Yonhap:

A South Korean official in charge of promoting investments in North Korea’s Kaesong Industrial Complex said Friday that the reopening of the now-suspended industrial park in the North’s border town will be a first step towards resuming inter-Korean economic cooperation.

Addressing a unification symposium in Seoul, Kim Jin-hyang, chairman of the Kaesong Industrial District Foundation, said the operation of the Kaesong complex has to be restarted as quickly as possible.

“Inter-Korean economic cooperation cannot be discussed without the Kaesong Industrial Complex,” said Kim, who doubles as chief of the Kaesong Industrial District Management Committee.

The government of former President Park Geun-hye abruptly announced the closure of the Kaesong park on Feb. 10, 2016, in retaliation for the North’s fourth nuclear weapons test and long-range missile launch.

Kim dismissed the abrupt closure of the complex as a “completely failed policy,” saying, “The decision was a grave disaster that shut down peace, economy and security altogether. North Korea was never dealt a blow when the Kaesong park was closed.”

“The Kaesong complex was not a special favor to the North. It was intended to support the South Korean economy stuck in a low-growth trap,” he said.

Kim noted that the Kaesong park is also very symbolic in terms of security and peace, arguing that the mix of about 60,000 South and North Korean workers in a single location can deter tensions and guarantee peace.

He stressed that South Korea should now join Singapore, Russia and China in preparing for large-scale investments in North Korea following its successive summit talks with the United States and South Korea to enhance the peace mood on the Korean Peninsula.

Article source:
Reopening of Kaesong Industrial Complex key to inter-Korean cooperation: official
Yonhap News
2018-07-13

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Two Koreas agree on railway improvements

Wednesday, June 27th, 2018

Benjamin Katzeff Silberstein

AP reports on talks between North and South Korea to improve North Korean railways, including a great overview of current railway systems in the country:

North Korea’s state media on Wednesday acknowledged inter-Korean discussions on “issues arising in reconnecting, updating and using the railways on the east and west coasts,” but did not describe that South Korea would be sending officials and experts to examine the country’s aging rail system.

The agreement Tuesday to start joint inspections of North Korea’s railways on July 24 was apparently as far as the rivals could go at the moment. The vows to upgrade the North’s railways and roads will remain purely aspirational until international sanctions against North Korea are lifted and the South is freed to take material steps.

The talks at the border village of Panmunjom were the latest to discuss ways to carry out peace commitments made by North Korean leader Kim Jong Un and South Korean President Moon Jae-in.

During their April 27 summit, when they issued a vague commitment to denuclearize the Korean Peninsula, Kim and Moon expressed a desire to modernize North Korea’s railways and roads and reconnect them with the South. The Koreas are to hold another meeting on Thursday to discuss roads.

South Korean officials say better transport would greatly improve North Korea’s economy by facilitating trade and tourism. It may also provide the South with cheaper ways to move goods in and out of China and Russia. However, some experts say updating North Korean trains, which creak slowly along rails that were first laid in the early 20th century, would require a massive effort that could take decades and tens of billions of dollars. It might be impossible to embark on such projects unless North Korea denuclearizes, which isn’t a sure thing.

THE WEST SIDE

In their summit, Kim and Moon called for “practical steps” toward the “connection and modernization” of railways and roads between South Korea’s capital, Seoul, and North Korea’s Sinuiju, a port town on its border with China, and also along the peninsula’s “eastern transportation corridor.”

During the meeting on April 27, Kim went against the grain of North Korean propaganda by describing the country’s transport conditions as poor and praising South Korea’s bullet train system, clearly communicating an eagerness to improve his country’s rail networks, according to comments provided by South Korea’s presidential office.

In Tuesday’s meeting, the Koreas agreed to start inspections of the North Korean portion of a railway that once connected Seoul and Sinuiju before moving on to railways in the eastern region.

Japan completed a 499-kilometer (310-mile) railway line connecting Seoul and Sinuiju in 1906, mainly to move soldiers and military supplies, before it annexed the peninsula in 1910. The Gyeongui line was separated in 1945 at the end of World War II, when the peninsula was liberated from Japanese colonial rule but also divided between a U.S.-controlled southern side and a Soviet-controlled north. The peninsula remains in a technical state of war after the 1950-53 Korean War ended in an armistice, not a peace treaty.

The Gyeongui line was temporarily reconnected during a previous era of rapprochement between the rivals in the 2000s. The Koreas in December 2007 began freight services between South Korea’s Munsan Station in Paju and North Korea’s Pongdong Station, which is near the border town of Kaesong. The South used the trains to move construction materials northbound, while clothing and shoes manufactured from a factory park jointly operated by the Koreas in Kaesong were sent southbound.

The line was cut again in November 2008 due to political tensions over North Korea’s nuclear program and the hard-line policies of a new conservative government in Seoul.

___

THE EAST SIDE

Japan during its colonial rule completed a 193-kilometer (120-mile) rail line between North Korea’s Anbyon county and South Korea’s Yangyang along the peninsula’s eastern coast in 1937. The Koreas temporarily reconnected the cross-border part of the line between 2007 and 2008 to move South Korean tourists in and out of the North’s scenic Diamond Mountain resort. However, the project never advanced beyond a trial run before South Korea pulled out in June 2008 amid worsening ties.

South Korea has ambitions to significantly extend the eastern “Donghae” line so that it connects its southernmost port of Busan with North Korea’s northernmost industrial cities of Chongjin and Rajin. Seoul hopes the line will eventually link South Korea with Russia and the trans-Siberian railway. South Korea also hopes to eventually reopen a railway between Seoul and North Korea’s eastern coastal town of Wonsan which ran through the middle of the peninsula.

Article source:
Koreas agree to improve North’s railways, but work must wait
Kim Tong-Hyung
AP News
2018-06-27

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South Korean companies gearing up to rush north

Sunday, June 10th, 2018

By Benjamin Katzeff Silberstein

These days, it seems that scarcely no South Korean company isn’t looking north. Hopes are high that with a diplomatic opening – if this time is different, which we really don’t know – North Korea will be open for business. And aside from some Chinese companies and entities, no other have the know-how and language skills to make investments in North Korea profitable. Indeed, those that have happened have largely been in the realm of “adventure capital”, that is, high risks with the potential of high rewards. It seems that relatively few have reached the latter.

Many South Korean businesses will likely ask that the government underwrite potential investments, given the vast political risk. Moon’s government doesn’t seem completely adverse to this, despite the questions it raises about moral hazard and market fairness.

Looking at the types of investments that companies are talking about, it is hardly a given that they will – if they happen – have a positive, broad impact on the North Korean system and society. See below for the sorts of investments being talked about:

SM Group said it has set up a task force to check the country’s mineral resources, particularly in iron ore. The group said its ownership of South Korea’s sole operational iron ore mine effectively gives it an edge over others in terms of processing know-how and facilities it has on hand.

North Korea’s iron ore deposits are estimated at 50 billion tons worth some 213 trillion won (US$197.7 billion).

Besides resources, companies such as Keangnam Enterprises Co. and Dong Ah Construction Industrial have said they are moving to secure a foothold in the North’s building business once all sanctions are lifted.

Dong Ah said its past experience as a builder for the defunct Korean Peninsula Energy Development Organization that moved to build a light water reactor for Pyongyang could help it win future orders, especially in power infrastructure work areas.

Keangnam said that its participation in Seoul’s Official Development Assistance program for emerging economies will make it easier for it to engage in similar projects in the North if conditions permit.

SM Line Corp said it wants to ship North Korean resources using the country’s cheap labor and explore the opening of new shipping routes and related shore infrastructure.

“Work in the North will be a win-win development for all sides, and this is the reason why the company is looking into the matter,” a source at the shipping line said.

Besides medium-size companies, the large conglomerate Lotte said it has set up a team that can expand business ties not only with North Korea but also Russia and China.

Meanwhile, there has been growing interest by local companies who want to set up operations at Kaesong Industrial Complex in North Korea, which has been shuttered following the North’s nuclear and long-range missile provocations.

Dong-a Publishing said it wanted to take advantage of the low labor costs to set up business in Kaesong.

The company said due to the labor intensive work in the publishing field it makes sense to move its plant to the North.

Related to such moves, a business group representing South Korean firms that had operated factories in Kaesong said recently that upwards of 20 companies a day have called to make inquiries about opening new factories in the special economic zone.

Article source:
S. Korean mid-tier companies interested in biz opportunities in N. Korea
Yonhap News
2018-06-10

Much of what’s being talked about, in other words, is extraction of natural resources. Sure, this would be done with North Korean labor, but even though the domestic economy could get an upswing through these sorts of operations, North Korea wouldn’t necessarily reap the full potential benefits of its mineral assets, which could be sold for much higher prices if they were locally refined and processed. This is likely something that the North Korean leadership is very well-aware of, and Kim Jong-un talked about it in speeches in the 1990s. But given the need for hard currency, they may not see that they have much of a choice in the matter.

Other companies want to get in on the cheap labor. That’s all fine and good for the companies and the potential prospective North Korean employees, but factories of this sort can be set up pretty easily without sourcing raw materials locally, and with few connections with overall North Korean society.

In other words, if these investments come to see the light of day (again, a big “if”), it’s not a given that it’ll be in any way transformative for the North Korean economy. We have seen much of this before, and we know from Kaesong that the state is indeed both capable and willing to contain economic development to specific areas, keeping it separated and in check from broader North Korean society.

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China’s economic openings to North Korea after summit(s)

Saturday, June 9th, 2018

Benjamin Katzeff Silberstein

A recent Reuters report looks at some of the ways, including tourism and the restaurant business, through which economic contacts between North Korea and China have increased after the spring of summits:

North Korean officials have toured China to discuss economic development. Speculators are snapping up property along their common border. And South Korea is studying ways to boost engagement with its isolated neighbor to the north.

Across the region, there are signs that U.S. President Donald Trump’s campaign of “maximum pressure” on Pyongyang to give up its nuclear weapons is weakening ahead of his summit with North Korean leader Kim Jong Un in Singapore on Tuesday.

Trump, along with leaders like South Korea’s President Moon Jae-in, have credited the pressure campaign with bringing Kim to the negotiating table through a combination of international sanctions, political isolation, and threats of military action.

However, unless there is a major provocation or resumption of nuclear testing or missile launches by North Korea, strategists and academics say it is unlikely that maximum pressure will ever fully return.

“Trump’s campaign is over,” said Kim Hyun-wook, a professor at the Korea National Diplomatic Academy. “The diplomatic openings with North Korea have already been taking a toll on the maximum pressure campaign.”

Trump has himself said he doesn’t want to use the term “maximum pressure” any more because of improving relations with North Korea.

Joseph Yun, the United States’ former top negotiator with North Korea, told a Senate hearing on Tuesday: “Practically it is not possible to continue maximum pressure when you’re talking with your adversary. I don’t think you can have serious engagement as well as maximum pressure.”

Preparations are already underway in China, South Korea and Russia, which share land borders with North Korea, for better ties with the isolated nation.

[…]

Along China’s border with North Korea, speculators are buying land and traders are stockpiling cheap North Korean coal amid hopes that restrictions will soon be lifted.

“It’ll be good if North Korea opens up,” said a hat seller in the border city of Dandong, who only gave her name as Yang. “The people there are so poor, it’s like China in the 1980s.”

She said the number of North Koreans shopping in the city had dropped in recent months after the sanctions were tightened. But now, she said, property prices in Dandong were being driven up by speculators betting that trade would revive.

Other local people in Dandong said North Korean workers were returning, prompting the opening of some restaurants and hotels.

The owner of one Korean restaurant was training staff on presenting a new menu in preparation for more visitors from other parts of China, including people intending to visit North Korea.

The Liuji Restaurant, which was shut after its owner was investigated in 2016 for dealings with North Korea, reopened in March after Kim’s visit to China, his first trip out of the country since taking office.

It was not clear what happened to the investigations or who the new owner was.

The restaurant’s North Korean staff explained the closing as “renovations.”

On June 5, state carrier Air China announced it would resume regular flights between Beijing and Pyongyang, which officials had indefinitely suspended in November, citing poor demand.

Although the first Air China flight had only around 20 passengers, tour operators said busloads of Chinese tourists were in Pyongyang, their numbers surging in recent weeks because of the lowered tensions.

“I went to the train station (in Pyongyang) and it was the busiest I’ve ever seen it,” said the founder of the Dandong-based INDPRK tour company, who goes by the name Griffin Che. “I’d guess about 100 Chinese tourists arrived by train today. In the past I would see a maximum of 30-40 tourists.”

Che said the prospect of new economic opportunities in North Korea has him interested in branching out beyond tourism into investment and coal trading.

U.S. lawmakers have raised concerns that traders in China are already skirting sanctions, but Beijing-based diplomats say that there is no evidence that China is abandoning its U.N. Security Council commitments.
[…]

Some of that political isolation has been reduced, however, by Kim Jong Un’s meetings with leaders of China and South Korea, and this week’s summit with Trump.

At the end of May, Russian Foreign Minister Sergei Lavrov landed the first meeting between a Russian official and Kim as head of state, and extended an invitation for the North Korean leader to visit Russia.

Russia has long been skeptical of the sanctions regime, and South Korea’s Moon has proposed a three-way study on potential joint projects, including railways, gas and power linking Siberia to the Korean peninsula.

“Even if the summit fails and U.S.-North Korea tensions resurface, Russia is unlikely to support new rounds of sanctions on North Korea,” said Artyom Lukin, a professor at Far Eastern Federal University in Vladivostok.

“If previously adopted U.N. sanctions continue to be in effect, Russia will abide by them, but it will probably find some legal ways and loopholes to make their enforcement as mild as possible.”

Kim has met Chinese President Xi Jinping two times in recent months and analysts say Beijing’s willingness to maintain last year’s level of pressure on North Korea is waning.

[…]

Two North Korean restaurants in Jakarta have shut down.

In Vietnam, two North Korean restaurants in Ho Chi Minh City closed in October last year, but there is still one in Hanoi, owned by a Vietnamese businessman who also runs a shipping company.

The country’s once-close ties with North Korea have been strained over North Korea’s alleged use of a Vietnamese citizen in the assassination of Kim Jong Un’s half brother, Kim Jong Nam, in Kuala Lumpur in February last year.

In March, Vietnam filed a report to the United Nations in which the country said it has “always fully implemented” sanctions on North Korea.

In response to U.S. pressure, Thailand said annual trade with North Korea fell by 94 percent, although some North Korean businesses have continued to operate in the country, including two restaurants in Bangkok.

At the Pyongyang Haemaji Restaurant, North Korean waitress Pak Il Sim said tables were routinely full of customers, most of them Japanese.

When asked if the restaurant had come under pressure from Thai authorities to close, she said: “No, business as normal”.

Full article and source:
Door already ajar: Trump may struggle to isolate North Korea again
Brenda Goh and Josh Smith
Reuters
2018-06-09

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South Korea asks for immunity for officials stationed in Kaesong

Tuesday, June 5th, 2018

Benjamin Katzeff Silberstein

While the world gears up for the summit (yes, The Summit), things are moving along on the peninsula as well. Moon promised in the election campaign that he would not only re-open Kaesong, but work to enlarge the zone as well. Last week, South Korea asked that North Korea grant diplomatic immunity for the officials it plans to station in the liaison office the two countries are in the process of establishing in the city:

The two Koreas agreed last week to open a liaison office in the city “at an early date” at high-level talks to discuss steps for implementing promises made by their leaders in the historic April and May summits.

South Korea plans to station its officials there in order to keep communication channels open around the clock as part of efforts to support cross-border exchanges, which are likely to increase.

According to the sources close to the matter, South Korea’s government recently proposed the North grant immunity from arrest and detention for its officials to be stationed in the office, just as the Vienna Convention grants such privilege to diplomats.

In addition, it also proposed that the North guarantee safety of passage and communications for its officials, while exempting them from checks on their bags and pouches, the sources said.

Kaesong is the western border city in the North where the two Koreas operated a joint industrial complex since 2004. It was hailed as a successful example of economic cooperation between the two Koreas as it married South Korea’s capital with the North’s cheap and skillful labor.

South Korea, however, closed its operations there in early 2016 and brought its officials and workers back in protest at the North’s continued missile and nuclear provocations.

Though there was an agreement regarding the safety of South Korean personnel at the time, there was no clear legal ground for the South Korean government to ask for the return of its people in case of their arrest or detention, experts said.

Article source:
S. Korea asks N. Korea to grant immunity to officials at liaison office to open in North
Yonhap News
2018-06-05

It wouldn’t be surprising if moves to open Kaesong come relatively soon, pending the overall diplomatic situation and sanctions regime. Kim Jong-un’s predilection for SEZs is well known and natural, they bring opportunities for making hard currency for the state while keeping systemic changes and capitalist incursion (in the North Korean lingo) contained within a specific geographic area. Some hope that they will eventually bring systemic changes to the broader North Korean society as well, but with Kaesong, we’ve seen no evidence that that is the case.

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Recap: South Korea’s economic plans for North Korea

Monday, May 28th, 2018

Benjamin Katzeff Silberstein

In this post, I’ll be collecting news and information on Moon Jae-in’s plans and ideas for economic development in North Korea. I’ve had to take a little break from blogging for the past couple of weeks due to travel, so the articles here won’t necessarily be recent or up-to-date, especially since up-to-date regarding the Korean peninsula these days seems to extend only to the last five minutes or so.

For the contents of the Panmunjom Declaration that have to do with the North Korean economy, feel free to check out this post, where I make the case (which still holds, I would argue) for why infrastructure is the most plainly obvious as of now for economic cooperation with North Korea in the wake of the latest warming of ties.

Infrastructure was an important component of the famed USB-stick that Moon handed to Kim at the first inter-Korean summit this year. Hankyoreh:

South President Moon Jae-in ordered a joint inter-Korean research effort to examine future economic cooperation ahead of the anticipated lifting of international sanctions against North Korea following an upcoming North Korea-US summit, which will follow up the inter-Korean summit that was held on Apr. 27.

Speaking on Apr. 30 at the first Blue House senior secretaries’ and aides’ meeting since the inter-Korean summit, President Moon said he “look[ed] forward to us being able to carry out a joint inter-Korean research effort for implementation of the Oct. 4 Summit Declaration [of 2007] and inter-Korean economic cooperation,” a key Blue House official reported.“He was saying we need joint research to examine what kinds of economic cooperation the South and North can engage in ahead of [sanctions against North Korea] being lifted,” the official explained.

During their summit, President Moon also personally gave North Korean leader Kim Jong-un a pamphlet on his “new economic vision” and a USB device containing a presentation video, the Blue House reported.

The materials reportedly contained details on power plant construction and other economic cooperation measures that could be implemented once inter-Korean relations gain momentum and sanctions against North Korea are lifted.During the Apr. 30 meeting, President Moon described the Panmunjeom Declaration as “a peace declaration proclaiming to the world that there will be no more threat of war or nuclear weapons on the Korean Peninsula.”

Article source:
South Korean President Moon Jae-in orders joint research effort for inter-Korean economic cooperation
Seong Yeon-cheol
Hankyoreh
2018-05-01

New York Times noted the somewhat ironic fact that Kim received Moon’s plan on a USB-stick, an item whose use by its own citizens the North Korean regime has long cracked down on:

For years, Kim Jong-un, North Korea’s leader, has been cracking down on USB flash drives that activists smuggle into his isolated country to poison his people’s minds with outside influences, like South Korean K-pop music.

But last month, when he met with the South’s president, Moon Jae-in, Mr. Moon handed him a USB drive that contained quite a different message.

In charts and video clips, Mr. Moon’s memory stick laid out a “new economic map for the Korean Peninsula,” including new railways and power plants for the impoverished North, should Mr. Kim abandon his nuclear weapons, according to South Korean officials.

Mr. Moon based his sales pitch on the belief that Mr. Kim wants to become the North Korean equivalent of Deng Xiaoping, who oversaw the economic liberalization of China. In this view, Mr. Kim may be willing to transform his pariah state by trading in his nuclear arsenal for diplomatic and economic incentives he needs to achieve prosperity.

[…]

“Kim Jong-un’s desire to develop his country’s economy is as strong as, and even stronger than, his desire for nuclear weapons,” said Lee Jong-seok, a former unification minister of South Korea. “But he knows he cannot achieve the kind of rapid economic growth in China that he envisions for his country while keeping his nuclear weapons — because of the sanctions.”

[…]

Vilified as he was, however, Mr. Kim has also shown signs of being a reformer, granting farms and factories more autonomy, allowing more markets to open, and setting off a building boom in his showcase capital, Pyongyang. He exhorts his country to follow “international development trends” and “global standards” and even admits failing to deliver on his promise that his long-suffering people would “no longer have to tighten their belts.”

“My desires were burning all the time, but I spent the past year feeling anxious and remorseful for the lack of my ability,” Mr. Kim said in a nationally broadcast speech last year, a startling admission for a member of the family that has ruled North Korea with the help of a personality cult since its founding in 1948.

After meeting him, Mr. Moon called Mr. Kim “open-minded and practical.”

Nowhere is Mr. Kim’s dilemma better seen than in his policy of “byungjin,” or parallel advance, which seeks a nuclear arsenal and economic development simultaneously. Under that policy, Mr. Kim has rapidly developed his country’s nuclear weapons and ballistic missile programs, arguing that a nuclear deterrent would make his country feel secure enough to focus on rebuilding the economy. But the world has responded by imposing crippling sanctions.

[…]

If Mr. Kim pursues the route of economic reform, energy and transportation are the two areas where he most needs outside help. In his meeting with Mr. Moon, Mr. Kim admitted to the “embarrassing” condition of his roads and railways, South Korean officials said.

Trains running on electricity remain North Korea’s main means of transport, carrying 90 percent of its cargo and 60 percent of its passenger traffic, according to Ahn Byung-min, a senior analyst at the South’s government-funded Korea Transport Institute. But its rail systems are so decrepit that its fastest train, which runs to the Chinese border from Pyongyang, travels at 28 miles an hour. Other trains run at less than half that speed, Mr. Ahn said.

Lacking cash for oil imports, North Korea produces all its electricity from hydroelectric dams and coal-burning power plants. But the country’s power industry is trapped in a vicious cycle, energy experts say. Chronic electricity shortages make it difficult to produce coal and transport it to power plants. People in search of firewood for heat and cooking have denuded their hills, causing floods and droughts and making silt pile up at dams. That cuts down hydroelectric generation.

North Korea’s electricity generation amounts to only 4.4 percent of South Korea’s, according to Park Eun-jeong, an analyst at the South’s Korea Development Bank. The country prioritizes supplying electricity to lighting statues of Mr. Kim’s father and grandfather, who had ruled before him, while passengers wait for hours in trains unable to move because of power shortages, according to defectors from the country.

“Electricity is the Achilles’ heel for North Korea,” said Lee Jong-heon, an energy analyst in Seoul.

Mr. Moon’s proposal to modernize the North’s roads and railways and link them to the South’s is not meant to help just North Korea.

South Korean policymakers say that the two Koreas must first integrate their economies to make an eventual reunification less chaotic. They also envision building trans-Korean railways to find faster and cheaper routes to export South Korean goods to China, Russia and Europe, and bring Russian oil and gas into the South through pipelines for its power-hungry economy.

Full article and source:
South Korea Hands Kim Jong-un a Path to Prosperity on a USB Drive
Choe Sang-hun
New York Times
2018-05-10

Moon’s plan consists of three “economic belts”, as South China Morning Post notes, with infrastructure links that carry great potential gains for China and Russia as well:

President Moon Jae-in gave the North’s leader Kim Jong-un a USB drive containing a “New Economic Map of the Korean Peninsula” at the fortified border village of Panmunjom on April 27.

The initiative included three economic belts – one connecting the west coast of the peninsula to China, making the region a centre of logistics; one connecting the east coast to Russia for energy cooperation and one on the current border to promote tourism.

Whilst sources at the South Korean presidential office did not give further details about the information contained in the drive, they confirmed that the plan was in line with Moon’s “Berlin speech” last year when he outlined his basic approach to the north on a visit to the German capital.

During last year’s presidential election campaign, Moon pledged to merge the two Koreas’ economies in a single market to lay the foundations for unification.

Park Byeong-seug, a South Korean lawmaker from Moon’s ruling Democratic Party of Korea, said the proposal was in line with Moon’s campaign promises.

“The concept of the three belts was one of President Moon’s pledges during the election last year,” Park said.

“The new economic map includes railway links between the two Koreas and China’s northeast stretching all the way to Europe.”

One part of the plan would involve the construction of a rail link starting in Mokpo on the southwest tip of the peninsula, passing through Seoul and Pyongyang and the North’s Special Administrative Region of Sinuiju, before reaching Beijing.

Beijing is likely to welcome Seoul’s proposal as it accords with the core Chinese national interest of enhancing sustainable economic development and boosting the country’s northeastern rust belt.

Cheng Xiaohe, a deputy director at the centre for international strategic studies at Renmin University said Beijing may try to incorporate the plan into its Belt and Road Initiative.

“The northeast has been China’s weakest link and seen poor economic development for years. A rail link could make a real difference to the region,” Cheng said.

Improving the area’s logistics would also benefit China as its access to the open seas in that part of the world is physically blocked by the Korean peninsula and Russia’s far east.

North Korea’s economy is also closely tied to the northeast of China and opening up the reclusive state’s markets could provide new opportunities for the Chinese provinces on its border.

Lu Chao, a research fellow at Liaoning Academy of Social Sciences, said: “The plan would have a huge impact on China’s northeastern region as it would transform the region as a centre of logistics in East Asia, which could function as a driving force for the rapid economic growth of the region.”

“The northeast is the region with the greatest economic potential in China. A railway connection would bring a myriad of investments from overseas and would help the economy take off.”

[…]

South Korea would have to allow its allies and the UN to mediate any easing of sanctions before it could establish any economic cooperation with the North.

Moon Chung-in, a special foreign affairs and national security adviser in Seoul, said last month that Seoul’s economic incentives would compensate Pyongyang for freezing its missile programme, disclosing its nuclear capacity and allowing international inspections within its borders.

Full article and source:
Seoul offers Kim Jong-un grand bargain to link North and South Korean economies with China
Lee Jeong-ho
South China Morning Post
2018-05-07

Not surprisingly, Hyundai Asan is hoping to get in on whatever action may come. CNN:

Hyundai Group said Tuesday [May 8th] that it’s setting up a task force to prepare for the potential restarting of economic projects in North Korea.

The announcement comes shortly after a historic summit between South Korean President Moon Jae-in and North Korean supreme leader Kim Jong Un at which they committed themselves to rebuilding ties after years of tensions.

Hyundai Group, which split from the Hyundai Motor Group in 2000, was involved in various business projects in North Korea in the past, including a mountain resort and the Kaesong industrial complex, where North Korean workers made goods for South Korean companies.

“Hyundai needs to be ready when/if the two Koreas agree on terms and inter-Korean economic cooperation resumes,” a company spokesman said.

Hyundai will be closely monitoring the planned summit between Kim and US President Donald Trump that’s expected to take place in the coming weeks, as well as any potential changes to the heavy sanctions in place on North Korea’s economy, the spokesman said.

The Kaesong complex, a symbol of cooperation between the two Koreas, was closed as relations deteriorated in 2016. More than 120 South Korean companies had a presence there, employing tens of thousands of North Koreans and providing a steady stream of foreign currency to the regime in Pyongyang.

Hyundai also previously operated a tourist resort at North Korea’s Mount Kumgang, near the border with South Korea. It was shut down in 2008 after a South Korean tourist was killed by a North Korean soldier.

The company’s ties to North Korea go back to Hyundai’s late founder, Chung Ju-young, who was born there.

Last week, South Korean Deputy Prime Minister Kim Dong-yeon said the country’s government was “considering various scenarios” for economic cooperation between the two Koreas.

“The government is preparing response plans to different scenarios in terms of how and how fast to pursue [economic cooperation] and how to procure the resources for it,” he said.

South Korea’s government has allocated about $900 million to fund economic projects that involve both countries this year, according to the minister.

Full article and source:
Hyundai Group is getting ready to do business in North Korea again
Daniel Shane
CNN
2018-05-08

To be sure, preparations and planning are well underway in Seoul. Reuters:

South Korea’s finance minister said on Wednesday [May 2nd] the government was discussing how to finance possible economic projects with North Korea, although any projects with Pyongyang must first be approved by the international community.

“We’re internally carrying out preparations, in terms of what to prepare, and how to cooperate with the international community, and how to finance (possible inter-Korea projects),” Kim Dong-yeon told reporters in Sejong.

“But we need support from the international community and need to watch the (upcoming) summit between the United States and North Korea,” Kim said, without elaborating on specifics of any government financing.

Kim’s comments come after South Korean President Moon Jae-in and his North Korean counterpart Kim Jong Un agreed last Friday on a common goal of a “nuclear free” peninsula, and to “adopt practical steps towards the connection and modernization of the railways and roads”.

Many speculate that the two Koreas will start joint infrastructure projects as soon as international sanctions on North Korea are lifted. Currently, North Korea is under sanctions imposed by the U.N. Security Council to stop its nuclear weapons and missiles programs.

Kim also said there was a rise in the number of Chinese tourists in March although the services sector has not yet recovered from a drop in such visitors due to tensions between the two countries.

“The number of Chinese tourists is noticeably increasing since March, although it hasn’t recovered to the pre-Thaad level,” Kim said.

Tourist numbers plunged last year after South Korea angered China by deploying a U.S. Terminal High Altitude Area Defence (THAAD) system that features radar which Beijing believes could be used to penetrate its territory.

Full article and source:
South Korea considers financing of possible inter-Korea projects: finance minister
Reuters
2018-05-02

To be continued and updated…

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Weekend reading recommendation: North Korea’s Shackled Economy, 2018

Friday, March 23rd, 2018

By Benjamin Katzeff Silberstein

The National Committee on North Korea (NCNK) has published a report by William Brown, and I urge all those with an interest in the North Korean economy to read it. It is a pragmatic take on the North Korean economy in 2018, noting both the progress and the limits of the changes in its economic system over the past few years. Brown is pessimistic (or perhaps just realistic) about North Korean economic resilience in the face of sanctions, but also notes the great potential for economic development that exists in North Korea’s human capital and skilled labor. Brown’s analysis of the country’s currency situation, one of the most opaque topics in already opaque field, is particularly interesting. Below is an excerpt from the executive summary:

The North Korean economy remains weak and vulnerable, but its structure is changing as it confronts major internally- and externally-generated pressures. Ironically, as UN sanctions have tightened in recent years, the economy has become more decentralized and productive, as weakening state controls have allowed the spread of market activities, providing incentives for individuals and families to work in their own self-interest. Central planning is weakening as money replaces the once ubiquitous ration coupon, and self-reliance on both a national and localized level is increasing as foreign trade and foreign aid dwindle. However, the state-run economy has not withered away, and Pyongyang dictates perhaps half of all economic transactions, a far larger share than does the central government in any other country. The state and its enterprises and the huge farmers’ collectives still own most capital and property, and through their extensive regulations and police powers extract large rents from individuals and families.

The full report can be found here.

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“Maximum pressure” and the North Korean economy: what do market prices say?

Friday, March 9th, 2018

By Benjamin Katzeff Silberstein

With the news today about a summit between Kim Jong-un and Donald Trump tentatively planned for the end of May, there has been much debate about the role of the US policy of “maximum pressure” through economic sanctions.

The efficacy of the policy is difficult to evaluate, particularly since it often takes many months or even years for the full effect of sanctions to play out. Whether the policy has been effective or not depends on, well, how you judge success or failure. There is little doubt that North Korea’s exports have taken a significant hit not primarily from the sanctions themselves, but from China’s enforcement of them. This is the single biggest difference between how sanctions have hit the North Korean economy during the past year, versus previous years. It seems fairly indisputable that sectors of the economy have suffered, with export industries taking the biggest hit.

But what has been the impact on the economy as a whole? It’s difficult to say, but we have two important indicators: prices of rice and foreign currency on North Korean markets. The data on these two indicators is far from perfect, and it is difficult, if not impossible, to draw firm conclusions from it. (For an explanation of this data, and the rationale for using rice prices in lieu of the formal goods basket used to measure inflation in other countries, see this article, for example). Nevertheless, neither of the two indicators suggest a situation out of the ordinary on North Korean markets during the period that “maximum pressure” has been applied.

First, a look at rice prices. If sanctions were truly devastating the North Korean economy, there is a whole host of reasons why one should expect rice prices to increase.

One of them is expectations of worse times to come as importing inputs for agriculture as well as food becomes increasingly difficult. Another is that if importing food products in general* becomes more difficult, perhaps because Chinese traders anticipate that their North Korean counterparts won’t be able to pay, consumers would be expected to switch more of their consumption to domestically sourced goods, increasing demand and thus prices. In general, anxiety about worsening times often leads to inflation.

This does not seem to have happened. In fact, rice prices have been remarkably stable over the past year (if the graph looks strange, click for full image):

There may well be other forces at work, too. Increased smuggling of cheaper Chinese rice, for example, may well have contributed to the price stability. But this is in itself a sign of the resiliency of the North Korean economy; when some supply decreases, there are ways of compensating through other means.

Exchange rates are another important metric. If the inflow of foreign currency (in this case US dollars) decreases, its price – the exchange rate – should go up. Expectations matter here, too: if the market expects that foreign currency supply will dry up in the future, it tends to act in the present and make purchases today to hedge for tomorrow. As with rice prices, exchange rates have been remarkably stable over the past year (again, click for better image):

In sum, we have little or no hard evidence that the North Korean economy, on the whole, has suffered significantly and harshly from sanctions thus far. That may itself not be an argument against sanctions, since again, it may take much longer than just a year for their full impact to play out. But it does call into question the claims that “maximum pressure” is the chief reason for Kim Jong-un’s outreach to Donald Trump.

*This likely holds true regardless of the level of self-sufficiency in North Korea’s agricultural production.

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