North Korean Economy Watch

According to Yonhap:

Trade between South and North Korea nearly doubled last month compared with a year ago amid a nascent economic recovery in the South, a government report showed Wednesday.

Inter-Korean trade jumped 88.5 percent from a year ago to US$204.03 million in March, according to the report by the Korea Customs Service. Compared with two years ago, before the South Korean economy was hit by the global financial crisis, trade between the two Koreas rose 29.7 percent in the reported month.

South Korea imports a range of labor-intensive goods such as clothes and watches from the joint Kaesong industrial complex in North Korea, as well as seafood and some agricultural produce. North Korea imports textiles such as cotton and other staple fabrics, along with electronics products including computers and machinery.

South Korea’s outbound shipments to the North came to $84.36 million while its imports from the communist country amounted to $119.67 million. This marked the highest trade deficit for the South in 17 months at $35.31 million, the report said.

The surge came on the back of an economic turnaround in the South. Inter-Korean trade did not seem to be affected by ongoing political tensions on the Korean Peninsula.

During the first quarter of this year, two-way trade soared 64.3 percent from a year earlier to $526.72 million, it said.

Bilateral trade has increased steadily over the past decade from $328.65 million in 1999 to $651.68 million in 2002 and surpassing the $1 billion mark for the first time in 2005.

Inter-Korean trade reached $1.79 billion in 2007 and peaked at $1.82 billion the following year before falling slightly to $1.66 billion last year.

Read the full story here:
Inter-Korean trade nearly doubles to $200 mln in March
Yonhap
4/28/2010

According to Yonhap:

South Korea denounced North Korea’s decision Friday to seize five South Korean facilities at a mountain resort on its soil and warned that Pyongyang will be held responsible for the deterioration of inter-Korean relations.

“It is an illegal and unreasonable measure that undermines the very foundation of the South-North relations,” a spokesman for South Korea’s Unification Ministry said in a statement after Pyongyang said it will seize the South Korean assets at Mount Kumgang.

“The North has proven itself to be an unfit partner for normal business and transactions,” it said.

North Korea also said other non-state South Korean assets at Mount Kumgang will be frozen, and that all employees from the South at the resort will be expelled. The measures were seen as aimed at pressuring Seoul to resume the suspended mountain tour program that had been a source of foreign currency for Pyongyang.

Seoul said it will take “strong measures” against the North. It did not elaborate.

“We cannot accept the (North’s) measures, as they are in violation of contracts between North Korea and our businesses, agreements between the governments and of international laws. It is an unjust step that undermines the very foundation of South-North relations,” a ministry official told reporters.

The North’s move came at the end of a two-day inspection by North Korean military officials of the mountain resort, where dozens of South Korean businesses and private investors own various facilities that are part of the suspended tourism program.

The five facilities to be seized include a family reunion center, funded and owned by Seoul’s National Red Cross, as well as a fire station and a duty free shop. They also include a cultural center and a hot spring resort, both owned by Seoul’s Korea Tourism Organization.

Pyongyang froze the assets, worth some 124 billion won (US$112 million), on April 13 after an on-site inspection by its officials late last month. The latest inspection ended Friday.

“First, we will confiscate all five assets of the South Korean authorities that have already been frozen in compensation for our loss due to the long suspension of the tour,” an unidentified spokesman for the General Guidance Bureau for the Development of Scenic Spots said in a statement carried by the North’s official Korean Central News Agency.

The once lucrative tourism program for the impoverished North was suspended in July 2008 after a South Korean tourist was shot dead by a North Korean guard near a restricted area. Nearly 2 million South Koreans had visited the mountain resort since the tours began in 1998.

“The confiscated real estate will be put into the possession of the DPRK or handed over to new businessmen according to legal procedures,” the statement said, referring to North Korea by its official name, the Democratic People’s Republic of Korea.

The North said early last month that it will restart the tourism program with a new business partner unless Seoul agreed to resume the tours before the end of April.

“The situation has reached such an extreme phase that it is at the crossroads of a war or peace, much less thinking of the resumption of the tour. It is quite natural that we can no longer show generosity and tolerance to the south side under this situation,” the statement said.

Friday’s measure also included freezing of all assets owned by over 30 South Korean businesses and private investors.

Hyundai Asan, the main South Korean developer of the joint mountain resort, urged the North to withdraw its decision and the governments of the two Koreas to resolve the issue through dialogue.

“The road to Mount Kumgang must not be severed as the tours greatly helped promote cooperation and reconciliation between the South and the North and peace on the Korean Peninsula,” the business group said in a statement.

“We also urge our government to actively seek a solution to the current situation, as the joint economic cooperation project of the South and the North, as well as properties of businesses that invested in Mount Kumgang, now sit on the verge of a breakdown,” the statement said.

Read the full story here:
Seoul denounces N. Korea’s seizure of assets at Mount Kumgang
Yonhap
4/23/2010
Byun Duk-kun

Vladimir Lenin is often quoted as saying “The Capitalists will sell us the rope with which we will hang them”.  This popped into my head this morning when I read this story in the Choson Ilbo:

Unification Minister Hyun In-taek on Tuesday admitted that the fiber optic cables South Korea provided have made it more difficult to spy on North Korea. Hyun was answering a question from a lawmaker at a session of the National Assembly’s Foreign Affairs, Trade and Unification Committee. “I understand that there is a problem or a loophole” in South Korea’s intelligence-gathering ability, he said.

Grand National Party lawmaker Chung Jin-suk expressed worries that South Korea’s ability to gather intelligence was weakened by fiber optic cables which the South Korean government supplied to the North in the past. “I suspect that some of the 45 km-long fiber optic cables may have been diverted to lay a communications network between frontline Army units in the North,” he said.

Hyun said Seoul has “no plan as of now to comply with an additional request from the North for more fiber optic cables.”

The South Korean government sent 20 km, 15 km and 2 km-long copper cables to the North in 2002, 2005 and 2007, which were meant to be used for inter-Korean military communications. Last year, the South supplied the North with 45 km-long fiber optic cables, two sets of optical termination equipment, and two sets of optical measuring instruments.

Under an agreement, a 25 km portion was supposed to be laid on the east coast, and another 20 km portion on the west coast. It is difficult to wiretap a network of fiber optic cables, Chung said.

“We haven’t checked yet whether the cables were used simply for the inter-Korean military communications network or for the expansion of a new communications network for frontline units,” Chung said.

He said if copper cables were replaced with fiber optic cables, then that would make intelligence gathering much more difficult in cases like the sinking of the Navy corvette Cheonan, where there is a suspicion of North Korean involvement.

Read the full story here:
Seoul ‘Hampered Its Own Ability to Spy on N.Korea’
Choson Ilbo
4/14/2010

According to the Choson Ilbo:

South Korean goods remain popular among well-to-do North Koreans, especially women, Open Radio for North Korea station reported on March 25.

The defector-run radio station said one North Korean official bought South Korean goods including a robot vacuum cleaner, air conditioner, heater, underwear, and cosmetic goods worth US$3,000 in December last year. He was quoted as saying his wife asked him to buy them and was very happy with them, so her circle of friends asked him to buy the same things for them.

South Korean goods are apparently no longer confiscated in customs. The official said customs officers do not mind as long as the goods are for personal use and not for sale. Control by Chinese customs is stricter than in North Korea.

It said South Korean robot vacuum cleaners are thought to be cheaper than Japanese ones, and the batteries last longer. South Korean underwear and cosmetic goods suit North Koreans better than those imported from other countries.

Read the full story here:
Rich N.Korean Women Lead Craze for S.Korean Goods
Choson Ilbo
4/3/2010

According to Yonhap:

South Korea has significantly reduced import quotas for eight North Korean agricultural goods, government officials said Sunday, amid the enforcement of strong U.N. economic sanctions on the communist nation.

According to a public notice posted by the Unification Ministry, the amounts of six North Korean goods allowed to be shipped to the country, including crab, shrimp and peanut products, have been reduced to half from those of last year while the import quota for sesame seed has been reduced from 300 tons to 100 tons.

An official at the ministry, Seoul’s key office on North Korean affairs, said the move had little to do with the U.N. sanctions that were imposed shortly after the North’s second nuclear detonation test last year.

“The items, whose import quotas have been reduced this year, are the ones we had little imports of in the past five years,” the official said, asking not to be identified. “The change was only to reflect the actual amount of imports.”

The import quota for mung beans doubled from 1,000 tons last year to 2,000 tons while that of soybeans also increased from 2,000 tons to 3,000 tons, according to the official.

The government places import quotas on certain items to protect domestic markets and producers, he noted.

This comes as South Korea ends imports of North Korean sand.

According to the Financial Times:

South Korea is to phase out its main import from North Korea, delivering a heavy blow to an impoverished regime already reeling economically from confiscated arms shipments and bungled currency reforms.

Sand was the biggest export to South Korea from the north in 2008, earning Pyongyang $73m (£47m). That represents about twice as much as it gains annually from wages at factories in Kaesong, a cross-border industrial zone for South Korean companies.

South Korean officials told the Financial Times that Seoul would phase out sand exports when existing contracts with its northern neighbour expired.

“Once those companies receive their sand, for which they have already paid, that will be the end,” a senior South Korean security official said.

It could have a profound political impact – but South Korean officials insist the decision was taken because Seoul increasingly dredges its own sand domestically.

Officials admit that South Korea has long worried that money paid for sand goes to the military, but they say increased dredging and the imminent conclusion of numerous outstanding contracts have given it the opportunity to end the trade.

…

North Korea is trying to compensate for South Korea’s decision by seeking alternative sand markets in Russian construction projects.

Russia’s Itar-Tass news agency reported late last year that North Korea would ship sand to Vladivostock for use in building projects for the Asia-Pacific Economic Co-operation summit in 2012.

Sand shipments to South Korea started in 2002 amid inter-Korean rapprochement – but were suspended last March while North Korea prepared to fire a long-range missile over Japan.

Pressed by construction companies that have been affected by the import ban, Seoul resumed imports from North Korea in November. The current flow, however, is less than one-fifth of previous levels.

In an effort to salvage the trade with South Korea, Pyongyang has offered to provide sand to South Korean companies in exchange for other building materials and fuel.

But the South Korean unification ministry said domestic companies were not interested and had not applied for export licences to conduct such swaps.

Previous posts on North Korean sand can be found here. 

Read the full story here:
North Korea hit by Seoul move to end valuable sand imports
Financial Times
Christian Oliver and Song Jung-a
3/19/2010

According to Yonhap:

Inter-Korean trade soared 52.1 percent from a year ago to US$153.49 million in February, according to the report by the Korea Customs Service.

South Korea’s outbound shipments came to $77.14 million while its imports from the communist country amounted to $76.35 million for the South’s trade surplus with the North reaching $792,000, the report said.

The surge came as the global economy is on the road to recovery. Inter-Korean trade is expected to soar this year thanks to rising demand amid an economic turnaround, the customs office said.

Nearly half of the companies participating in inter-Korean trade responded that two-way trade will increase this year, according to a survey by the Korea International Trade Association.

In January, the country ran a deficit of $9.55 million from its trade with the North after posting a surplus of $23.91 million in December 2009 for the first time in 16 months.

Bilateral trade has increased steadily over the past decade from $328.65 million in 1999 to $651.68 million in 2002 and surpassing the $1 billion mark for the first time in 2005.

Inter-Korean trade reached $1.79 billion in 2007 and peaked at $1.82 billion the following year. But it fell slightly last year to $1.66 billion.

Read the full article here:
Inter-Korean trade jumps 52 percent in Feb.
Yonahp
3/17/2010

According to the Choson Ilbo:

“Wealthy people in Pyongyang prefer goods to cash as they have lost confidence in the North Korean currency since the reform,” it said. “Demand for South Korean goods, which are considered best quality, has more than doubled.”

The broadcaster quoted a Korean-Chinese trader dealing with the North as saying, “Growing numbers of people want to smuggle South Korean products and sell them in the North despite a crackdown by North Korean customs.” It said the widespread perception among North Koreans is that South Korean goods are of much better quality than Japanese or Chinese products.

Sinuiju Customs Office lets small quantities of South Korean goods that do not seem to be for sale pass through on condition that they do not carry “Made in Korea” labels, but is strict about seizing larger quantities.

Favorite products include luxury goods like necklaces and earrings, electronic home appliances such as TV sets, DVD players, digital cameras, and notebook computers, toiletries, air fresheners, and clothing.   

Pyongyang is believed to be home to an estimated 1,000 dollar millionaires, the radio station said. 

I am a bit skeptical about this story.  Given the DPRK’s monetary history, I understand the need of North Koreans to “get out of cash,” but the number of individuals hoarding South Korean goods has to be small.  Jewelry aside, manufactured goods are not a reliable store of value.  They are hard to hide, difficult to transport, they break down, and require electricity.  As for televisions, South Korean TVs operate on NTSC (like the US) and North Korea uses PAL (presumably the “South Korean” TVs are made for the Chinese market and operate on PAL–thanks Gag).  

Why not stick with Yuan?

Also, Japanese goods have been considered the paragon of quality in the DPRK for decades.  Is it realistic to assume that attitudes towards South Korean goods have changed so much so quickly? 

UPDATE: A strong counterpoint to my intuition comes from Dr. Lankov.  He notes:

Well, in the USSR of my youth many people did just that. They hoarded industrial goods, in spite of all above mentioned shortcomings. TV sets, VCRs, furniture, glassware, even books. There was a major difference, though: in the the USSR it was strictly illegal and, indeed, risky, to be possession of foreign currency.

Also see this IFES report. 

Read the full story here:
Wealthy N.Koreans Hoard S.Korean Goods
Choson Ilbo
3/11/2010

According to Yonhap (3/9/2010):

South Korea’s Red Cross said it will send 20 tons of powdered skim milk to North Korea on Wednesday as part of humanitarian aid to the impoverished neighbor.

The aid worth 156 million won (US$137,000) will be delivered on two 11-ton trucks across the inter-Korean border and unloaded in the border town of Kaesong, the Red Cross said in a release.

In January, North Korea accepted a proposal by the South to provide powdered milk along with other types of aid as humanitarian assistance.

Photo in the Hankyoreh.

According to Yonhap:

South Korea’s planned shipment of its first food aid to North Korea in years has hit a snag due to sourcing difficulties, an official said Saturday.

The South has been preparing to send 10,000 tons of corn to the impoverished neighbor since mid-January, right after Pyongyang accepted its aid offer made months earlier. The shipment would mark Seoul’s first food assistance to the North since President Lee Myung-bak took office in early 2008.

The government has since approved a 4 billion won (US$3.5 million) budget to fund the assistance and notified the North of a shipping route, based on a plan to buy corn in China and ship it directly to the North from there.

“Considering shipping costs, it would make the most sense to send Chinese corn” to the North, a government official said on customary condition of anonymity.

The official said, however, that the plan has faltered because of China’s “grain export quota,” which places restrictions on food exports in order to meet the country’s rising domestic demand.

The delay has raised concern that the planned aid may not be delivered by the time the North needs it the most — usually between March and May when food shortages in the country worsen — because it usually takes at least a month after the purchase is made for such to be delivered.

But the government official said that he believes the problem will be resolved soon, though he did not elaborate.

Read the full article here:
South Korea’s planned food aid for North Korea hits snag
Yonhap
3/6/2010