North Korean Economy Watch

From the Korea Times:
Andrei Lankov
9/10/2006

Recently I was talking to a Westerner who has been working in Pyongyang for quite a long time. Describing the recent changes, he said: “Once upon a time, one had to come back from an overseas trip with a truckload of cigarettes. Now my North Korean colleagues want me to bring movies, especially tapes of South Korean TV dramas.’’

Indeed, North Korea is in the middle of a video revolution which is likely to have a deep impact on its future.

What killed Soviet-style socialism? In the final analysis, it was its innate economic inefficiency. The state is a bad entrepreneur, and the entire history of the 20th century testifies to this. The capitalist West outproduced and outperformed the communist East, whose countries were lagging behind in many regards, including living standards.

Thus, the communist governments had to enforce the strict control of information flows from overseas. There were manifold reasons to do so, but largely this was done exactly because the rulers did not want commoners to learn how vastly more prosperous were people of similar social standing in the supposedly “exploited’’ West.

But people learned about it eventually, and once it happened, the fate of state socialism was sealed.

In the USSR and other countries of once communist Eastern Europe, uncensored information was largely provided by a short-wave radio broadcast. The BBC, the Voice of America and Freedom Radio were especially popular. The USSR was a more liberal place than North Korea, so Soviet citizens could easily buy radio sets in shops.

As far as I know, Moscow never considered a ban on short-wave radio sets in peacetime-perhaps, because in a vast country such a measure would prevent a large part of population hearing the news. The government occasionally resorted to jamming, but it was not always efficient as it could only work around major cities.

In North Korea, where the radio sets are sold with pre-fixed tuning, their role is less prominent even if some North Koreans do listen to foreign broadcasts.

However, North Koreans found another way to access foreign media. If the Soviet Union was brought down by the short-wave radio, in North Korea the corresponding role is likely to be played by videotape.

As with many other great social changes, this one began with a minor technological revolution. DVD players have been around for quite a while, but around 2001 their prices went down dramatically. Northeast China was no exception. Local Chinese households began to purchase DVD players, and this made their old VCRs obsolete. The Chinese market was instantly flooded with very cheap used VCRs that could be had for $10 or $20.

Many of these machines were bought by smugglers who transported the goods across the porous border between North Korea and China. They were re-sold at a huge premium, but still cost but some $30 to $40.

This made VCRs affordable to a large number of North Korean households. In the 1990s, they would have to pay some $200 for a VCR-a prohibitive sum with the average monthly salary hovering around $5. A $35 VCR is within reach of many (perhaps, most) North Korean households, even if they have to save a lot to afford one.

Against the dull background of the official arts, the VCRs were a vehicle for accessing good entertainment. Needless to say, people do not buy these expensive machines to watch the “Star of Korea,’’ a lengthy biopic about the youth of the Great Leader! Since the only major producer of Korean language shows is South Korea, it is only natural that most programs come from Seoul via China. The South Korean soaps are a major hit.

In a sense, the much-talked “Hallyu’’ or “Korean Wave,’’ a craze for all things Korean across East Asia, is a part of North Korean life as well. Young North Koreans enthusiastically imitate the fashions and parrot the idioms they see in South Korean movies. And this does not bode well for the regime’s future.

Of course, the moviemakers did not deliberately pursue any political goals, and their plots involve the usual melodramatic stories of love, family relations and escapist adventure. They are not even produced with a North Korean audience in mind. But the movies reflect the life of South Korea, and this image is vastly different from what the official North Korean media say.

I do not think that the North Koreans take what they see in the movies at face value. They know that their own movies grossly exaggerate the living standards in their county, so they expect moviemakers from other countries, including South Korea, to do the same.

Thus, they hardly believe that in the South everybody can eat meat daily or that every Seoul household has a car. Such an improbable affluence is beyond their wildest dreams.

But there are things that cannot be faked _ like, say, the Seoul cityscape dotted with high-rise buildings and impressive bridges. It is gradually dawning on the North Koreans that the South is not exactly the land of hunger and destitution depicted in their propaganda.

It became cool to look Southern and behave like Southerners do. This is yet another sign of coming change, and I do not think that these changes are likely to be as smooth as many people in Seoul would like them to be.

From the Korea Liberator and Sunday Morning Herald:

You can download the game here.

9/7/2006

South Koreans will be able to enjoy one of their favorite games on computer using a program written in communist North Korea released here Thursday.

“Silver Star 2006” –a North Korean-made computer program of the chesslike board game called Baduk in South Korea and more widely known as GO–was launched in South Korea as part of an agreement reached with the North in July, said ForOneBiz, the South Korean distributor.

The program can be downloaded for 33,000 won (US$35; euro27), part of which will be paid to the North as royalties, ForOneBiz said.

The company said it also plans to share its technology know-how with the North to improve the software.

The level of technology development in the impoverished North is a far cry from the neighboring capitalist South, which boasts the world’s highest per capita broadband connections.

As part of North Korean government controls on outside information reaching its people, outside Internet access is provided only to high-ranking officials and elite.

The game released this week isn’t the first time for a North Korean computer program to go on sale in the South. In March, North Korean software was launched here for the first time to help with input of repetitive words and provide various symbols and sound effects when people use word processors or send e-mail.

The two Koreas remain divided since the 1950-53 Korean War ended in a cease-fire, not a peace treaty. However, relations have warmed in recent years since a 2000 summit between leaders of the North and South, and the two sides are involved in a number of joint projects.

Korea Times
9/6/2006
Kim Tae-gyu

Starting today, a South Korean venture start-up will market a North Korean paduk computer game, Silver Star 2006, here that is arguably the most advanced program for paduk, also known as go.

ForOneBiz yesterday announced the scheme to launch Silver Star 2006 that has won the FOST Cup, the annual computer paduk championship participated in by global contenders, for the past three consecutive years.

“In June, we reached an agreement with the North’s Samcholli General Corp. to debut Silver Star 2006 here,” ForOneBiz chief executive officer Kim Byung-su said.

“We inked a commission-based deal, not the conventional lump sum-based ones. We will take roughly 90 percent of sales income while the remaining 10 percent will go to Samcholli,” he added.

The price of the program, which can be downloaded at the Web site of ForOneBiz (www.i-silverstar.com) or ordered by calling (02) 2115-6035, is 33,000 won ($34.5).

The Silver Star series, called Unbyol in Korean, was developed by the North’s state-run Korea Computer Center in the 1990s. Experts say it has the most outstanding algorithm for baduk.

“We plan to improve Silver Star 2006 further by cooperating with North Korea. It will work because the North has a competitive edge in software while the South today leads the world in offline baduk techniques,” Kim said.

This is not the first time for North Korean software to go on sale in the South.

Earlier in March, the Seoul-headquartered BH Partners began selling the Speed-K4.0, a computer program developed by the North Korean agency, at its Web site (www.bhpartners.co.kr).

People can download the input software, which helps them easily type in sentences from a word processor or e-mail, at 5,500 won.

From the Donga:

Is S. Korean Rice Feeding Kim’s Army?
9/6/2006
 
A film was found featuring a scene in which the North Korea military handled 400,000 to 500,000 tons of rice, originally supplied by the South Korea government every year since 2000.

The film, which was made on May 24, might bring about some arguments as it intimates that the rice supplied to support North Koreans who are suffering from famine may be used for other purposes by the North Korean military.

The 3-hour long film broadcasted in Weekly Donga which was published on September 5 shows that rice with the seal of the Republic of Korea was loaded by North Korean soldiers into trucks from freight cars parked in Danchon station, Hamgyongnam-do.

Moreover, it also shows North Korean soldiers conducting guard duty on freight cars filled with rice and lying down in the cars while on duty, but no evidence was found as to the destination of the rice shipment. The film was made by a North Korean defector who sneaked back into North Korea again, and is known to be currently staying in a third country.

There is a possibility that North Korea has used military vehicles due to its inferior transportation system, but nonetheless, the intervention of the military in moving provisions violates the agreement between South Korea and North Korea. The agreement indicates that the organization which supplies rice to the people is limited to designated “Sumae-yangjeong-seong” under the DPRK administration.

The Ministry of Unification delivered 500,000 tons of rice from July of last year to this past February for the 2005 supply and has monitored the situation on 20 occasions. “The monitoring is conducted by four delivery personnel, but there’s a limitation of inspection since they do not reside in North Korea,” an official of the Ministry of Unification said.

“Only 30 percent of the ration supplied from South Korea is distributed to North Koreans, while the rest is going to military sites as soon as it is delivered,” Ho Hye-il, one of the North Korean defectors who worked as security guard at the inter-Korean summit in 2000, announced in his book published in June.

From the Donga:
9/5/2006

“Problems can arise anytime you do business in North Korea since there is no market order. However, when business partners disregard agreed-upon deals, it is impossible to conduct any new business. Someone who betrays others can always betray me. Now, who will be willing to trust North Korea and make new deals with it?”

Upon hearing the news report yesterday that North Korea sold the rights to build a large-scale resort including a golf course within the Gaesong Industrial Complex to South Korean real estate developer Unico, despite the fact that Hyundai Group currently holds the rights, one executive of a large company was assured that North Korea was not a trustworthy investment partner.

“If the South Korean government fails to have a control over ‘lawless’ North Korea, the entire business with North Korea can fall into a crisis,” he worried.

During the Kim Dae-jung administration, Hyundai Group began its North Korean business led by then-chairman Chung Ju-yung. It has invested more than $1 billion in North Korea, including $450 million (about 510 billion won by then exchange rate) illegally transferred to the North as a price for holding the inter-Korean summit in 2000. In the process, the company had to go through a major management crisis and the tragedy of Chairman Chung Mong-hun’s suicide.

At such a great cost, Hyundai earned from the North “seven business rights,” which include the rights to provide electricity, railway, tourism, and a dam. With regards to the 3-phase Gaesong Industrial Complex project, it obtained a certificate with which it is allowed to use the land for 50 years.

Nevertheless, Hyundai is gradually being excluded in North Korean businesses except for the existing Geumgang Mountain tour and the first-phase Gaesong Industrial Complex development. There are even rumors that North Korea is in the final stages of negotiation with Lotte Tours over tourism business in Gaesong and Baekdu Mountain, excluding Hyundai that has the business rights in those areas.

Now that North Korea is found to have sold the rights to use 1.4 million-pyeong of land in Gaesong to Unico at the price of $40 million, there is a greater sense of crisis in Hyundai.

It is needless to say that North Korea bears the largest responsibility for the recent trouble.

However, some point out that the South Korean government has been too lukewarm in its response to the problems with the North, out of fear that inter-Korean relations might suffer. They argue that such an attitude only encourages North Korea’s “derailment.”

“Hyundai Asan’s deal with the North over the second and third phases of the Gaesong Industrial Complex development and Unico’s deal with the North can cause overlaps or conflicts. Thus, the companies will have to negotiate over the matter,” said Goh Gyeong-bin, director-general of the Social and Cultural Exchanges Bureau at the Unification Ministry, yesterday when the news on Unico’s North Korea deal was reported.

“The Ministry of Unification never approved Hyundai Asan of its North Korea business to build a golf course in Gaesong. I believe a double deal is possible here just like it is in the private area,” he added.

This implies that the extraordinary business of inter-Korean economic cooperation is being recognized as an ordinary area of private autonomy where private business partners must resolve problems through self-negotiations.

However, everyone knows that Hyundai’s North Korea business did not start out as a mere private business activity. “The government has drawn no clear line in North Korean business, allowing companies to recklessly engage in such business only to encourage North Korea to develop bad habits,” one executive of an economic organization pointed out.

“In order to effectively manage business deals with unpredictable North Korea, the South Korean government must provide clear trade rules and guidelines. Considering the extraordinary nature of North Korean business, relying on the private sector’s autonomy will only extend uncertainties,” professor Hong Ki-taek of ChungAng University emphasized.

From the Joong Ang Daily: 

Kaesong golf course under consideration
9/5/2006

North Korea is in talks with a South Korean company other than Hyundai Asan Corp. for a golf course business in Kaesong, the Unification Ministry said yesterday.

Hyundai Asan, a Hyundai Group affiliate, holds an exclusive right to do business in North Korea.

According to the ministry, Unico, a real estate developer based in Daegu, signed an agreement with North Korea’s Asia Pacific Peace Committee to rent two sites near Kaesong Industrial Complex to build golf courses.

Under the contract, the North Korean committee will lease the two sites, one in the southwest and the other in the north, for $40 million over the next five decades.

Along with the golf courses, Unico plans to establish hotels and other entertainment facilities, said the ministry.

However, the same sites are part of the 16,337 acres of land that Hyundai Asan was allowed to use after reaching an accord with the North in 2000. The Korean company is in the middle of building an industrial complex on 816 acres.

Building golf courses on the sites Unico made a deal on was on Hyundai’s agenda for next year.

“The right to run a golf course business there belongs to us, as we forged the contract first,” said a senior executive from Hyundai Asan.

The company began consultations with Unico yesterday over the golf courses in the North, according to the source.

“If Unico comes up with an appropriate business proposal, we can let the company be a business partner,” he added.

A high-ranking manager from Unico said the company pushed ahead with the project as North Korea explained Hyundai Asan has the right to businesses in Kaesong Industrial Complex only.

The Unification Ministry said it would consider approving the golf course business in North Korea only if North Korea, Hyundai Asan and Unico reach a compromise.

Yonhap
8/30/2006
Sam Kim

Thousands of used but clean shirts, pants and other clothes are stacked in big heaps in warehouses outside Seoul to be sent to poverty-stricken North Korea.  But they can’t be sent as they are, because North Korean officials want to get them their way: all without English writing on them and their size no bigger than “large.”

“In addition, we have color restrictions,” Ahn Jeong-hui, director of the Korean Council for Reconciliation and Cooperation, the donor of the clothes and other relief goods. “Strong colors could easily repulse North Koreans.”

Whenever impoverished North Korea suffers from flood and other natural or man-made disasters, sympathetic South Korean civic organizations usually respond to their appeal for emergency aid with warm hearts.

The shipment-in-waiting is for thousands, perhaps tens of thousands of North Koreans who were made homeless in massive floods in mid-July.

There were no official North Korean announcement on the extent of the flood damage but its media said “hundreds” of people were killed or missing. One South Korean relief group said “thousands” were killed.

The South Korean civilian aid is in addition to more than US$200 million worth of relief goods scheduled to be sent by the Seoul government, which include 100,000 tons each of rice and cement, 50,000 tons of reinforced steel bars and a number of trucks and other construction equipment.

With its economy in shambles, impoverished North Korea turned to international handouts in 1995 to help feed its 23 million people. U.N. relief workers said the largest floods in the country are expected to result in 100,000 tons of crop damage this year.

After years of dealing with North Korea, South Korean donors have learned that helping the communist country is not just about sending large quantities of supplies. It requires certain “customization,”

“The maximum size of clothes we send to North Korea is ‘large,'” said Hyun Il-hyun, secretary at Join Together Society, another South Korean relief agency, “We know anything bigger, like ‘extra large’ or ‘extra extra large,’ won’t fit North Koreans.”

“What will fit elementary school kids in South Korea will usually fit North Korean middle-schoolers,” she said. “Most North Korean adults will fit well into what South Korean teenagers wear.”

Chronic food shortages and malnutrition have stunted many North Koreans, making some look like dwarfs. Television footage broadcast in South Korea showed gaunt North Koreans scouring winter fields for grains left by reapers.

Nearly 8,700 North Koreans have defected to South Korea since the Korean War ended in 1953, including 1,139 in 2002, 1,281 in 2003, 1,894 in 2004, 1,383 in 2005 and 1,054 in the first seven months of this year. Many complained of hunger in their communist homeland.

A 2004 survey of 2,300 North Korean defectors showed that average North Korean men and women are 5.9 centimeter and 4.1 centimeters shorter than their South Korean counterparts, respectively. An average 14-year-old boy from North Korea is up to 15.8 centimeters shorter than the same-aged South Korean.

English-embellished clothes are not welcome, either, in North Korea, relief workers said.

“We pick out any clothing that has English writing on it,” Hyun of Join Together Society said. “North Korean authorities apparently don’t want their people to think the clothes are coming from their sworn enemy, the U.S. We also restrict clothes that have the names of South Korean organizations.”

North Korea has asked them to increase shipments of rice and flour instead of instant noodles, according to South Korean relief workers.

“We will comply with the North Korean request and no longer send instant noodles,” said Ahn of the Korean Council for Reconciliation and Cooperation. “I think the North’s request has do to with the South Korean marks and logos on the packings.”

According to South Korean government officials, North Korea tightly controls the flow of information among its people. All radio sets are pre-set to monitor only state broadcasts.

From the Joong Ang Daily:

Four South Korean Red Cross officials are expected to visit North Korea’s Nampo port this week to supervise the delivery of the first government aid package to help the North recover from recent flooding, an official at the Unification Ministry said yesterday.

The Red Cross officials will depart from the port of Incheon at 11 a.m. Wednesday aboard the 3,000-ton ship Trade Fortune, which sails regularly between the Koreas, according to the official.

The shipment includes 300 tons of rice, 20,000 blankets and 10,000 first aid kits, according to the official.

Seoul suspended shipments of its regular humanitarian assistance to the North shortly after Pyongyang launched seven ballistic missiles in early July, including a long-range Taepodong-2, which is believed capable of reaching the U.S. west coast.

The South Korean government says it will not make additional commitments of any economic assistance to the communist state until the North returns to stalled international negotiations with the South, Japan, China, Russia and the United States over its nuclear program.

The government, however, pledged to give 241 billion won ($251 million) worth of aid through the country’s Red Cross as one-time humanitarian assistance to the North after heavy rains there last month reportedly left hundreds of people killed or missing and thousands of others injured.

Pyongyang rejected an initial aid offer from the South Korean Red Cross last month, but its inter-Korean pro-unification organization later asked Seoul’s civic organizations and other “related offices” for rice and construction equipment, while expressing gratitude for the civic groups’ efforts to help the country recover from devastating torrential rains and flooding.

The Unification Ministry has also agreed to provide funds matching amounts raised by each civic organization, expected to total some 10 billion won.

The government’s aid through the Red Cross will include 100,000 tons of rice, 100,000 tons of iron rods, 80,000 blankets and over 200 construction vehicles.

From Yonhap:
Byun Duk-kun
8/29/2006

Four South Korean Red Cross officials are to visit North Korea’s Nampo port this week to supervise the delivery of the first government aid package to help the North recover from recent flooding, an official at the Unification Ministry said Tuesday.

The Red Cross officials are to depart from a port in the country’s western city of Incheon at 11 a.m. Wednesday aboard the 3,000-ton ship Trade Fortune, which sails regularly between the Koreas, according to the official.

“The trip is to supervise the first shipment of the Red Cross’ flood aid to North Korea,” the official said.

The shipment includes 300 tons of rice, 20,000 blankets and 10,000 first aid kits, according to the official.

Seoul suspended shipments of its regular humanitarian assistance to the North shortly after Pyongyang launched seven ballistic missiles, including a long-range Taepodong-2, which is believed capable of reaching the U.S. west coast.

The South Korean government says it will not make additional commitments of any economic assistance to the communist state until the North returns to stalled international negotiations with the South, Japan, China, Russia and the United States over its nuclear ambitions.

The government, however, pledged to give 241 billion won (US$251 million) worth of aid through the country’s Red Cross in one-time humanitarian assistance to the North after heavy rains there last month reportedly left hundreds people killed or missing and thousands of others injured.

Pyongyang rejected an initial aid offer from the South Korean Red Cross last month, but its inter-Korean pro-unification organization later requested Seoul’s civic organizations and other “related offices” for rice and construction equipment, while expressing gratitude for the civilian efforts to help the country recover from the flooding.

The Unification Ministry has also agreed to provide funds matching those raised by each civilian organization, expected to total some 10 billion won.

The government’s aid through the Red Cross is to include 100,000 tons of rice, 100,000 tons of iron rods, 80,000 blankets and over 200 construction vehicles.

South Korea provided hundreds of thousands of tons of rice and fertilizer to the impoverished North annually since heavy rains and a nationwide famine in the mid-1990s left over 2 million North Koreans dead and millions of others displaced.

North Korea requested the South to give half a million tons of rice for the year before it launched the seven missiles into the East Sea on July 5.

Government officials say the country will not consider accepting the North’s request until the North agrees to return to the international nuclear negotiations, which have stalled since November due to Pyongyang’s boycott, as well as resumes its self-imposed moratorium on missile tests.

The Koreas remain divided along a heavily-fortified border since the end of the 1950-53 Korean War, which ended with a cease-fire.

Yonhap
8/27/2006

Trade between South and North Korea in the first seven months of this year topped US$600 millio this year due to increasing trade of agricultural products and corporate products, a local trade promotion agency said Sunday.

The inter-Korean trade reached $668 million in the January-July period, up 14.7 percent from a year earlier, according to the Korea International Trade Association (KITA).

Corporate-related trade, including the trading related to inter-Korean industrial complex in Kaesong, increased 31.9 percent to $489 million worth, while non-corporate trade such as government and private aids fell 15.3 percent to $178.5 million.

South Korea sent $446.6 million worth of goods to the North, down 2.2 percent, from the same period last year while the value of products coming to South Korea reached $263.2 million, up 56.8 percent, the association said.