North Korean Economy Watch

USA Today published a story on the ROK’s transition program for DPRK defectors, Hanawon (하나원).  There is not much new information in the story, but I wanted to address some of the criticisms the program receives.

Here is the most salient part of the article:

North Koreans who’ve gone through the program say it is helpful but not enough to prepare one for a Western-oriented society after a life in a Stalinist dictatorship cut off from the outside world.

Gwang Il Jung, who attended the program six years ago and runs an advocacy group, Free NK Gulag, says the courses have good intentions but gloss over too many details.

“They will tell you the basics,” he says. “But what can you really learn in three months? How do you teach someone to use an ATM or ride the metro in a classroom setting? The classes need to be more hands-on.”

He says the requirement that North Koreans remain on the school grounds for three months is unhelpful.

“They just got here in pursuit of freedom. And they’re locked in again. It’s like prison for them. All they think about is getting out. Let them live. They’ll make their share of mistakes, but many are eager and able to learn,” Jung says.

The two Koreas share a common heritage and language, but much has changed since the two countries were divided in 1948 after the United States and the Soviet Union agreed to temporarily occupy the country as a trusteeship following the Allied victory in World War II.

The students must complete 130 hours of language courses to get a better grasp of the Southern dialect that has been infiltrated by English and other foreign vocabulary, such as the words “Internet” and “computer,” “chicken” and “phone.”

“They may find a job as a waitress, but if they can’t take orders or understand a command like ‘Go get that key from the cabinet,’ it’s just a matter of time before they’re fired,” Youn says.

Personal finance courses, ranging from basic money management skills to the concept of private property ownership, are also mandatory, as many North Koreans are ill-equipped to handle the sudden exposure to welfare and settlement payments the South Korean government provides.

Stories of defectors falling victim to financial scams or bouts of compulsive shopping are common.

Students take lessons on using computers, child-rearing skills and even hairdressing.

First of all, there is no program that is going to suitably address the individual needs of all the defectors that enter the ROK. Individual capacities, experiences, and needs are simply to heterogeneous for a single government program to address.  This diversity of needs, however, presents a market opportunity for non-profits and education entrepreneurs.   Indeed I can think of  a few organizations that offer “continuing education” to former North Koreans as they adjust to life in their new homes.   So Hanawon should not be criticized for failing to meet all needs of all defectors, it should be seen as simply the first step.

Hanawon also draws criticism in the article for keeping North Korean defectors isolated on campus for three months.  This criticism stems from the fact that Hanawon serves more than one mission.  The first mission is to facilitate the transition of North Korean defectors to their new lives in the south.  The second mission is to facilitate the gathering of information on the DPRK and to protect South Korea (and the North Korean defector community) from infiltration by North Korean agents.  There are now 20,000+ North Korean defectors in the South and some +% of them are active agents.  Given the potentially high and visible cost of failing to catch a North Korean agent, South Korean policymakers have a bias toward preventing type 1 errors (allowing DPRK agents to enter the country).  They try to reduce this cost by extending the amount of time defectors spend under scrutiny while confined at Hanawon.  However, this produces a type 2 error: the unnecessary “holding” of innocent DPRK defectors who just want to get on with their lives.  These particular individuals (the vast majority) have every right to feel “mistreated” by this system, but the only politically feasible way to minimize this cost is to improve the ability of the South Korean security services to detect North Korean agents–something few people are able to do anything about.

It is also worth pointing out that there are quite a few North Koreans that don’t go through Hanawon when they come to the South.  I wonder why that is?

Previous posts on Hanawon here.  Previous posts on North Korean defectors here.

You can read the full USA Today story here.

According to the Daily NK:

The names Kang Ho Dong and Yoo Jae Seok are growing in popularity in urban North Korea now that variety shows hosted by the two South Korean entertainers, KBS show “One Night, Two Days” and MBC’s “Endless Challenge”, are becoming popular there.

One source who trades in Pyongyang said, “I rented ‘X-Men’ (a variety show on another big South Korean station, SBS), the show hosted by Kang Ho Dong and Yoo Jae Seok, from a CD store; it was really entertaining.”

“One of the popular things with Pyongyang elementary and middle school students is the games they can see in this show,” he added.

He noted, “Parents believe the games in X-Men can develop their children’s brains, so they also try to occasionally show it to them. Kang Ho Dong and Yoo Jae Seok are really popular here; we laughed until we cried.”

According to the source, people in Pyongyang do not generally purchase CDs of North Korean products, but rent them for around 500 won each, while illegally-produced South Korean dramas and variety shows are generally 2,000 won each, approximately the price of a kilogram of rice.

Another source from Shinuiju said, “The shows with Kang Ho Dong and Yoo Jae Seok, ‘One Night, Two Days’ and ‘Endless Challenge’ are so popular that they sell for 4,800 won.”

The reason why people like ‘One Night, Two Days’, in which a number of South Korean entertainers, led by Kang, take a trip to little-known South Korean places to camp out, mingle with locals and play a range of games, the source said, is “because people can see a lot of the scenery of South Chosun, as if they were sightseeing for real. It gives comfort to those who are in the situation of being unable to so much as dream of a trip to Chosun.”

There is another background reason for their growing popularity: they are also popular among Korean-Chinese people in the border provinces of China, leading to these illegally copied CDs flowing into North Korea.

In Yanji, Dandong, Shenyang and other Chinese cities with big Korean-Chinese populations, internet cafes have their own servers to download South Korean TV shows so that local people can see them easily at a decent speed.

North Korean or Korean-Chinese smugglers then take illegally copied DVDs or CDs containing the shows into North Korea. One smuggler generally carries between 1,000 and 3,000 recordable CDs or DVDs including such shows into North Korea at any one time.

Another defector, Kim Seong Cheol explained, “I can copy thousands of CDs cheaply and send them to North Korea all at once.”

When he crosses the river, Kim says he ends up giving away a few hundred discs in the form of bribes, and wholesales a few hundred to each North Korean trader.

Read the full story here:
South Korean Entertainers Gaining in Popularity
Daily NK
Park Jun Hyeong and Jeong Jae Sung
3/23/2011

According to Arirang News (3/22/2011):

The Supreme Court decided Tuesday that South Korean nationals are not eligible to claim ownership of property in North Korea.

A 56-year-old man surnamed Yoo filed a lawsuit, claiming ownership of six lots in the Yeoncheon district of Gyeonggi Province, which is in North Korea, and demanded the court change the land registration back to his name, based on a deed in his ancestor’s name from the early 1900s.

Two lower courts had previously acknowledged the deed and ruled partially in favor of the plaintiff.

But the Supreme Court annulled the decision, saying it is impossible to verify the ownership of the land, since the original land registration was destroyed in the Korean War, restored in 1980 and then discarded in 1991 because the land is north of the Demilitarized Zone.

I am no lawyer or expert in the field of property rights, but my understanding is that when reunification comes property reconciliation will be a nightmare for both Koreas.  Many South Koreans have already prepared the paperwork to reclaim lands confiscated by both the Japanese colonial government and the DPRK government and they are simply waiting to file them.  I imagine there are many North Koreans that have done the same.  No doubt there will be numerous types of claims and remedies—too voluminous to list here.

At a minimum, this case seems to establish the first of many tests for the validity of land reclamation cases: verification.  If a claim cannot be verified in evidence, it will not be honored by the court, and we also have a better idea of what kinds of evidence are not admissible.

Although possessing the right documentation will be important, I can also see all sorts of creative solutions emerging to help establish a claim even for those who lost their land titles long ago–DNA comparisons from family burial plots, to name just one example.

If anyone is aware of any good papers on this topic, please let me know.  There is probably a hefty German literature in this area, though I am not sure how comparable the legal systems are particularly when it comes to the disposition of land.

Some other recent South Korean cases:
1. A South Korean court gave North Korean defectors the right to divorce their spouses in the DPRK so they could remarry.

2. The North Korean children of a deceased, wealthy DPRK defector (who died in South Korea) are suing in a South Korean court for their share of his inheritance.

Pictured Above: Chung Ju-yung Stadium in Pyongyang
(Google Earth:  39.040093°, 125.735237°)

According to the Korea Herald:

North Korean leader Kim Jong-il has sent a verbal message to commemorate the 10th anniversary of the death of a noted South Korean industrialist who pioneered cross-border economic projects, the North’s media said Saturday.

Chung Ju-yung, the then chairman of Hyundai Group, initiated a series of major economic projects in North Korea starting in 1998, including a sightseeing tour to scenic Mount Geumgang on the North’s east coast. He died on March 21, 2001.

In the verbal message, the North Korean leader spoke highly of the South Korean industrialist, saying that he did the right thing to promote national reconciliation, the North’s Korean Central News Agency said in a report.

“Chung Ju-yung paved the way for national reconciliation and cooperation and did really a great job for the development of the inter-Korean relations and the sacred cause of national reunification,” the KCNA quoted the leader as saying in the message.

Kim also expressed hope that everything would go well for the Chung family and Hyundai, the KCNA report said.

The report did not say when and how the North Korean leader’s message was conveyed to the Chung family in Seoul. Chung’s eldest son, Chung Mong-koo, heads the nation’s largest automaker, Hyundai Motor Co.

According to the Choson Ilbo:

North Korea has sent a wreath to Hyundai Group to commemorate the 10th anniversary of the death of Hyundai founder Chung Ju-yung.

The wreath that read “In memory of Chung Ju-yung” was delivered from Pyongyang’s Asia-Pacific Peace Committee to Hyundai staffers at the joint-Korean industrial complex in Kaesong.

On Friday North Korean leader Kim Jong-il spoke highly of Chung for his role in paving the way for national reconciliation and cooperation.

Chung initiated various projects with the Stalinist state including the Mt. Kumgang package tours in the North and had sent more than one-thousand cows over the demilitarized zone to North Korea.

The Daily NK also offers some cultural background…

According to the Daily NK:

This year, the North Korean authorities have been cracking down on the sale and distribution of products, tools and materials coming out of the Kaesong Industrial Complex. As a result, such Korean goods, formerly an expensive but popular choice in Hwanghae and South Pyongan Provinces, are now hard to find in markets.

A source from South Pyongan Province who spoke with The Daily NK in China explained, “Right up until last year, literally anything being made in the Kaesong Complex was available in the market, including clocks, metal, screws, clothes, underwear, toys and parts of electronics. However, the amounts have fallen dramatically since regulations were strengthened.”

The reason behind the regulations is unclear, however; the source suggested it could only be because of deteriorating inter-Korean relations.

Regardless, the source went on, “Nowadays, revealing the fact you sell those Kaesong Complex goods results in high fines and puts you in a bind” Therefore, he went on, “Only bread (Choco Pies), stainless steel or ceramic bowls and underwear are being sold.”

One consequence of the crackdown is that it makes the sale of other South Korean products smuggled in from China equally difficult. Albeit with some provincial differences, clothes and electronics cannot now be displayed on stalls, and must be sold in alley markets in secret.

A source from Shinuiju explained, “Market watch guards go around markets every day inspecting stalls with no notice; their investigation into South Korean products is really severe.” He explained, “If they find goods with Korean writing on, they confiscate them and give them back after two or three days later, after fines have been paid.”

“I hear there was a decree from above reinforcing crackdowns, but won’t this only lead to bribes?” the source pointed out.

Even when readily available, South Korean products are at the top of the price range, so most average families cannot afford them; one Choco Pie, a circular, individually wrapped chocolate cake made famous by the movie “JSA”, is between 180 and 200 won, a set of women’s underwear is 90,000 won, and a set of roughly ten plates, five or six small bowls and some coffee cups is around 250,000 won.

The source reported, “Due to the severe regulations, some traders sell them at home or in secret, hiding the goods behind the curtain.”

Interestingly, one South Korean official with the Kaesong Industrial Complex told the Daily NK that product leakage is not a problem at Kaesong, saying, “There have been almost no cases of complete products leaking out, but it is possible for stock, tools or things provided to workers like Choco Pies. However, the leaks are not enough to affect factory management.

And yet, one defector who used to be a worker in a shoe factory in charge of testing product quality explained that the siphoning off of materials, complete products, tools and other things is common among North Korean workers.

“The way they hide things and bring them out of the factory is really expert. I sometimes put up to 20 pairs of shoes on my body and came out of the factory. If you wear a long, thick winter coat then it is not so remarkable. Sometimes we did it in collusion with the factory manager.”

Read the full story here:
South Korean Products Disappear from Markets
Daily NK
Park Jun Hyeong and Mok Yong Jae
2010-3-10

According to Yonhap:

Hundreds of South Korean companies doing business with North Korea are teetering on the edge of bankruptcy due to a prolonged cross-border trade ban, the head of the first inter-Korean joint venture said Sunday.

Inter-Korean trade flourished following a summit between the divided countries in 2000, but has been banned by South Korea since last May in response to the sinking of the Cheonan corvette two months prior, which Seoul says a North Korean submarine torpedoed.

According to the South’s unification ministry, about 860 South Korean companies are operating in North Korea.

“South Korean companies, which invested about 200 billion won (US$179 million) in Pyongyang and Nampo, North Korea, are on the brink of bankruptcy because of the suspension of the inter-Korean trade,” Kim Jung-tae, head of Pyongyang Andong Hemp Textiles, said in an interview with Yonhap News Agency.

Pyongyang Andong Hemp Textiles is the first inter-Korean 50-50 joint venture between the South’s Andong Hemp Textiles and the North’s Saebyol General Trading Co., which was established in October 2008.

Kim said the companies posted a combined $150 million in operating loss due to Seoul’s ban on inter-Korean trade.

In June, Kim formed a body consisting of about 200 South Korean businessmen to seek solutions to the prolonged inter-Korean trade suspension. In its opening ceremony, the body called for the government to implement measures to resume inter-Korean trade.

However, the unification ministry holds firm to its position that the trade ban will remain intact until the North takes responsible measures for the sinking of the Cheonan.

Read the full story here:
S. Korean firms reeling from inter-Korean trade ban
Yonhap
3/6/2011

UPDATE 3 (2/23/2011): According to Yonhap:

A recent survey of North Korean defectors in South Korea showed Wednesday that a large number of them use part of their resettlement money from the government here to help their families in the North.

In the survey conducted in November by the Organization for One Korea, a group run by unification activists, 71 percent of 350 respondents said they have sent money back to the communist country before. About 66 percent of the cash remitters said that they used part of their money received from the South Korean government.

In an effort to buffer the initial costs of resettlement, the government here provides each defector with a subsidy of 6 million won (US$5,330) and partly finances their housing.

More than 20,000 North Korean defectors have arrived in South Korea since the 1950-53 Korean War ended in a truce. The number does not account for the estimated tens of thousands hiding in China.

According to the survey that had a margin of error of 3.59 percentage points, about half of the cash remitters said brokers took away 30 percent of their money sent to the North as a fee, while only 65 percent believed the remainder was entirely delivered.

North Korean defectors are 17 times likelier to depend on government allowances, according to the Unification Ministry. Over 50 percent of defectors depend on a universal welfare program that pays them about 400,000 won (US$355) a month.

Defections began to accelerate after a massive famine swept through North Korea in the mid-1990s, killing an estimated 2 million people. North Korea considers defectors criminals punishable even by death.

Read previous recent stories about remittances below.
(more…)

According to Yonhap:

Half of North Korean defectors’ households in South Korea earn less than 1 million won (US$893) per month, a poll said Wednesday, underscoring the economic difficulties they continue to face in the capitalist society here.

The National Police Agency, which conducted a survey of 12,205 households between August and October last year, said 50.5 percent of them fell into that income range. About 23 percent of them earn less than 500,000 won a month, it added.

The figures contrast with South Korea’s per capita income, which stands at around US$20,000. The survey also coincides with another that said earlier this month that the average monthly income of North Korean defectors with jobs here was 1.04 million won and that 38 percent of them were part-timers.

More than 20,000 North Koreans have defected to the South since the end of the 1950-53 Korean War. The defections have taken place mostly since the 1990s, and the border between the two Koreas remains heavily fortified.

Nearly 40 percent of the defectors surveyed by the National Police Agency said they were living under tough economic conditions. Fourteen percent complained of cultural differences and 13 percent of difficulties in getting jobs.

Defectors undergo several months of resettlement training once they arrive here from the impoverished communist state, mostly via China. South Korea also tries to cover their initial expenses of resettlement and provides them with citizenship.

Read the full report here:
Half of North Korean defectors’ households earn below 1 million won a month: poll
Yonhap
2/16/2011

According to the Choson Ilbo:

The government will set a 1-percent quota for North Korean defectors in administrative assistant jobs at public agencies, it said Thursday. The government made the decision on the assumption that about 3,000 North Koreans arrive in South Korea on average every year who have a hard time adapting to their new environment partly due to difficulties finding jobs.

Some 200 North Korean defectors are expected to be employed as administrative assistants this year, given that the total hired by the central and local governments is about 20,000 annually.

A Ministry of Public Administration and Security spokesman said the government “decided to take the lead in hiring North Korean defectors to raise awareness of them and encourage private companies to follow suit.”

The ministry plans to ask former and current public servants to serve as mentors for defectors and give them a training course through which they can develop their skills.

According to the ministry, the total number of defectors stood at 7,687 in 2005 and is expected to exceed the 30,000 mark in 2013.

Read the full story here:
1% of Public-Sector Jobs to Go to N.Korean Defectors
Choson Ilbo
1/28/2010

According to KBS:

South Korea says it plans to implement during the first half of the year a registration system for South Korean firms that trade goods with North Korea.

An official from the Unification Ministry in Seoul said Monday that revisions must be sought on the law governing inter-Korean exchanges and cooperation in order to introduce the registration system.

The official said that the government will conclude such legal revisions within the first half of the year.

The ministry plans to propose a related bill before May in hopes of winning parliamentary approval for the plan by June.

The ministry had unveiled plans to introduce such a system when it briefed President Lee Myung-bak late last year on its key policies for 2011.

Additional Information:

1. The DPRK is working to bypass ROK trade restrictions.

2. The South Korean government is investigating companies suspected of trading with the DPRK.

Read the full story here:
S.Korea Seeks Registration System for Firms Trading with NK
KBS
1/24/2011