North Korean Economy Watch

Joong Ang Daily

The government said yesterday it would give loan guarantees of up to 10 billion won ($10.5 million) to companies operating in the Kaesong Industrial Complex in North Korea.

The guarantees, offered as a means of encouraging more manufacturing activity there, will be available beginning late this year.

The Korea Credit Guarantee Fund, a government-owned fund, will guarantee loans extended by banks and other financial institutions. The guarantees will be limited to seven years, and will carry a price tag of a maximum of 3 percent of the loan amount.

The decision was made at a meeting presided over by Han Duck-soo, the economic deputy prime minister.

Finance Ministry officials said such guarantees are limited to 3 billion won for small and medium businesses operating domestically. Those “ordinary” guarantees are also available to exporters and trading companies who want to open or expand domestic facilities.

Companies operating in Kaesong are also eligible for direct loans of up to 5 billion won from official inter-Korean economic cooperation funds.

North Korea has grumbled about the slow pace of building up the Kaesong complex; part of the problem, the ministry said, is that there is some hesitation by companies and difficulty in obtaining loans because of the perceived political risk and the difficulty in using assets located in North Korea as collateral for loans in the South. Those questions, coupled with what the ministry hopes will be a surge in interest in manufacturing at the complex, were the spurs for the new guarantee program, finance officials said.

Seoul is pushing its trade partners to treat goods made in Kaesong as domestic Korean products, a request accepted by some but rejected by others, including the United States. Some trade experts also worry that the new guarantee program could be seen as government subsidies to manufacturers, which could be illegal under international trade rules.

Fifteen companies are operating at the complex now; another 23 are preparing to start.

Joong Ang Daily
6/16/2006

Seven North Korean teachers attended a middle school class here yesterday to watch the presentation of lessons on Korean reunification prepared jointly by North and South Korean educators.

This is the second year that teachers on both sides of the DMZ have collaborated on lessons to mark the anniversary of the 2000 inter-Korean summit, but it was the first time North Korean teachers have watched the presentation of the material in the South.

At the Mujin Middle School library yesterday, 36 second-year students met Kim Song-chol, the head of the North Korean Educational and Cultural Workers’ Union, six other teachers and two North Korean reporters. Kwon Su-hee, 27, an ethics teacher at the school, presented the lesson.

Bolstered by a video clip of the meeting of the two Korean leaders, Kim Jong-il and Kim Dae-jung, in 2000, Ms. Kwon described the background and repercussions of the meeting. Another video clip showed North Korean students in their classrooms.

“Children in North Korea are not different from you,” the video’s narrator said. “They are your friends with innocent smiles and dreams.”

Some students, however, appeared puzzled by the material. “I couldn’t fully understand the class,” one said, “but I think that North and South Korean students would have more in common if we studied the same things.”

Kim Young-sik, the principal of Moranbong First Middle School in Pyongyang, said, “I felt like I was watching students at my school. We should make this joint class work, because Korean unification depends on our students.”

From the Joong Ang Daily:

A senior maritime official in North Korea told visiting journalists from the JoongAng Ilbo that his government wants to modernize and open Hungnam Port on the nation’s east coast to expand inter-Korean economic exchanges. Since 2000, a sea route connecting Incheon with the North Korean port of Nampo has been open for direct shipping along the west coast; Pyongyang evidently wants to replicate that success on the east coast, perhaps in a bid to increase investment or to reduce logistics problems in distributing aid shipments from South Korea.

Hungnam is about 10 kilometers (6 miles) from Hamhung, North Korea’s second-largest city.

“We put priority on one port on the west coast and another on the east coast,” said Cha Son-mo, the maritime operations director of the North Korean Ministry of Land and Sea Transportation. He spoke to the journalists on May 12, during a tour of North Korean economic sites arranged by the newspaper with North Korean authorities.

The comments were the first public indication of Pyongyang’s interest in such a project. Mr. Cha is the equivalent of an assistant minister in South Korea.

“Chongjin and Rajin are essential for freight to and from China and Russia,” he said. “For inter-Korean maritime cooperation, Hungnam should be modernized first. We also plan to upgrade facilities at other places.”

He also confirmed reports that North Korea has been negotiating with China to attract investment to modernize the Rajin and Chongjin ports, both in North Korea’s extreme northeast.

“Through Rajin, China wants to ship goods produced from its three northeastern provinces to South Korea, Japan and Europe,” Mr. Cha said. “And Rajin alone may not be enough, so it wants to modernize and expand operations at Chongjin.” He added that China had proposed to build roads connecting China with the two ports; negotiations are in progress, he said.

Mr. Cha also greeted the visiting journalists during their tour of a ship repair facility in Nampo two days later, giving a detailed briefing on the Yongnam Ship Repair Factory. “While we are focusing on repair operations, our next goal is ship cannibalization and shipbuilding,” he said. “We strongly hope that the two Koreas can cooperate in this field.”

He said North Korea had invested $100 million in the factory, a huge amount in this cash-strapped country. The plant had been modernized to allow it to repair one 50,000-ton ship and two 20,000-ton ships simultaneously.

The shipworks also recently found a partner in the South. Responding to a bid by North Korea last July, Hanaro Shipyard was set up in South Korea in December by Jeong Chan-bae, specifically to work with the Yongnam repair yard.

“South Korean ships all use repair bases in China and Vietnam because there is no place to repair vessels,” said Jeong Chan-bae, the president of Hanaro Shipyard. “But repair prices in China went up sharply recently, so we decided to use the North Korean facility.”

Citing North-South maritime cooperation accords, Mr. Cha also said there was no legal problem to concern South Korean ship owners about using repair services in the North. He is also the chief negotiator for the maritime talks between the two Koreas. “Our repair service prices will be an average of 30 percent less than those in China,” he said.

He also appeared on the scene to guide a separate group of South Korean economists and businessmen who visited the factory on May 17. After that tour, Jeong Nam-su, an executive of South Korea’s STX Shipbuilding, was cautiously positive about the facility. “It is hard to find a place to repair ships in South Korea,” Mr. Jeong said. “The quality and technology of the Yongnam factory has not yet been evaluated, but it has some positive prospects.”

From the Daily NK:

North Korean prices are continuing to rise.

At Sunam Jangmadang of Chongjin City, the price of rice is 1,200W/1kg, corn 300W, bottle of oil 2,000W, pork 2,500W and pants made from China 20,000W.

As it is spring, not only is it a time where the overall price of Jangmadang rice rises, but because the country is not distributing rations, the majority of people depend on the rice at Jangmadang. Also, rice sellers are watching this opening and are raising prices.

Lee who entered South Korea in 2003 says she has already sent money to her family by various means. The money sent through earnings from part-time jobs and resettlement money from the South Korean government, is becoming a lifeline for her family. Her families in North Korea depend on her to send money to live and get great relief from their daughters who live in South Korea.

Chinese 100yuan is 34,000won at Jangmadangi

Lee’s family who support their living by selling goods made from China, ceased trade because of soaring prices and control of Jangmadang by authorities.

Lee added, as it became harvest season and authorities restrained Jangmadang operations, there was even an incident last May at Chongjin where a lot of children were hospitalized after eating sweets and medicines made from China, and instruction was made in regards to strengthening the regulation of Chinese goods.

However, Chinese goods are in the majority and controlling Chinese commodities in North Korea is ‘shading the sun with the palm of your hand.’ Lee conveyed that to regulate the problem, police officers confiscate Chinese goods such as alcohol and cigarettes, and that oppression is worsening.

According to Lee, at present in Chongjin, Chinese 100yuan is 34,000 won for North Korean money. If this is converted to dollars, $1 calculates approximately 2,750won.

In March, the exchange rate at Musan Jangmadang was 100yuan to 37,125 won North Korean currency, in dollars $1 for 2,970won. The exchange rate for Yuan has decreased since March from roughly 100yuan to about 3,000won.

Local factory workers, majority mobilized to the village

The local industrial factory Lee’s brother works for in Chongjin, has recently closed factory doors and sends workers to the village. Compared to reports of North Korean publicity and media of central businesses in production at Pyongyang, standards of local industries are extremely inferior.

The reason, local industries could not extricate the aftereffects of acute shortages in equipment and materials following the economic breakdown in the mid-90’s.

According to defector of Chongjin, person ‘A’ laments “Recovery in factories is difficult as electric machines and electric lines are stolen and sold. Factories themselves want restoration but money is required, and isn’t it that there is no where money can appear.”

The most urgent is the problem of electricity. Most recently, as it is the farming season, all the electricity is mobilized for the water meter operations, with electricity servicing the villages approximately 10hours daily. However, as electricity is supplied to the villages, meanwhile the city is locked in darkness.

Yonhap
Kim Hyun
6/9/2006

North Korea, which has shunned Western entertainment, has given in to World Cup fever and started efforts to satiate people in the country who yearn to watch the imminent tournament.

Pyongyang is seeking to broadcast World Cup matches live across the country with Seoul’s support. North Korea’s state-run broadcaster, Korean Central Broadcasting Station (KCBS), sent a letter to the Korean Broadcasting Commission of South Korea last month asking it to share its World Cup footage with the North that could not pay for the broadcast rights. The request came as the Koreas were politically at odds over testing of newly connected inter-Korean railways.

The South Korean broadcasting commission is in talks with FIFA as part of efforts to assist with Pyongyang’s request, said a public affairs official in the broadcasting commission requesting anonymity because a contract had not yet been signed.

When the deal is reached early next week with FIFA and its Switzerland-based business representative Infront Sports & Media, the North will be able to provide its people with a live broadcasts of the games via satellite from Seoul, the commission official said.

North Korea has candidly expressed on its television programs its people’s desire to watch the football tournament. A KCBS announcer said, “This year’s World Cup competition will really be worth seeing.”
Pyongyang has published four kinds of stamps in commemoration of the tournament, according to the (North) Korean Central News Agency on Tuesday. The stamps depict football players from different countries who distinguished themselves in previous tournaments, it said.

North Koreans in and around Pyongyang who watched the 2002 World Cup games, co-hosted by South Korea and Japan, via free satellite distribution with the South’s help, were thrilled by the South’s unexpected progress, said Kim Jong-chol, a reporter with the Minju Chosun, the North’s Cabinet newspaper.

“The South’s advance to the semifinals in 2002 boosted the morale of the Korean people,” Kim told a Yonhap News Agency reporter.

North Korea failed to advance to the World Cup in the regional qualifier after winning one game and losing five.

After their team lost 2-0 to Iran, angry North Korean players offended the referee and fans threw bottles onto the pitch. As punishment, they had to play Japan in Bangkok without spectators.

The communist country is revving up efforts to gain global status in the next World Cup finals in South Africa in 2010. It has strengthened international exchanges to sharpen the team and established football training grounds with artificial grass supplied by FIFA earlier this year.

From the Korea Times:

South Korea’s chief delegate for the inter-Korean economic talks yesterday reaffirmed the North will not be getting any new economic support unless it pushes ahead with the railways test-run.

In a radio interview, Vice Finance Minister Bahk Byong-won said, “We created a structure in which the additional economic cooperation is only possible after the railways test-run.”

The two Koreas closed their 12th Economic Cooperation and Promotion Committee meeting in Jeju on Tuesday with a nine-article agreement on support for light industries, natural resources development and others.

The two sides concurred such agreements will only be implemented when “conditions are met,” which they verbally confirmed referred to the cancelled cross-border test-runs.

North Korea abruptly cancelled the scheduled testing last month, prompting an angry response from the South.

The South, remaining steadfast to its policy of engaging more economically with its communist neighbor, believes staunch military authorities to be behind the cancellation.

“(The North’s) military authorities are closely connected with the procedures of implementing many of the inter-Korean agreements. And the (preconditioning) clause refers to just that,” Bahk said, emphasizing that the North Korean military must take visible measures such as preparing a military guarantee for the railways operation.

The two railways, on the east and west of the Korean Peninsula, run through heavily fortified borders. It would be the first time in over five decades that the trains run.

“Although we said ‘conditions’ in the agreement, both sides made clear when we read out the agreement that the conditions referred to the railways test to avoid any conflicting interpretations in the future,” Bahk said.

(angiely@heraldm.com)

By Lee Joo-hee

From the Joong Ang Daily:

South Korean delegates at the inter-Korean economic talks here won a victory of sorts early yesterday morning; North Korea agreed to Seoul’s linkage of the completion of test runs of the newly reconnected railroads across the Demilitarized Zone to its offer of raw materials for the North’s light industries.

But in what apparently was a face-saving gesture to the North, the linkage was not made explicit in the joint announcement of the results of the four-day meeting. South Korea agreed to supply a package of raw materials for the North’s shoe, soap and textile industries worth $80 million, which will be delivered “when necessary conditions are met.” The agreement said nothing more about the conditions, but the rail tests, most recently cancelled by North Korea the day before they were to be conducted last month, were clearly the point at issue. Kim Chun-sig, the Seoul delegation’s spokesman, made that explicit. “The trial train runs are linked with the supply of raw materials, and the agreed announcement was issued with that understanding by the North.” He said agreement to the linkage was not easily won from the North; Seoul’s delegates stressed the uproar that would break out here if that condition were not attached.

The aid will be in the form of a loan to be repaid in kind ― North Korean natural resources ― over a 15-year period with an interest rate of 1 percent. The two delegations met the press to announce the agreement, saying they had signed a nine-point agreement and a 10-point supplemental document dealing with the aid package.

In the agreement, the aid is to be delivered in August. Mr. Kim said that meant that the necessary military-to-military agreement on safeguards required before travelers cross the Demilitarized Zone must be in place and the rails tests completed.

The strings attached to the aid package are something of a departure for the Roh administration, which has been tolerant ― far too tolerant, critics in the South contend ― of North Korea’s penchant for accepting aid donations while failing to keep promises it had made in return. Pyongyang’s cancellation of the railroad tests in late May was, apparently, too much for Seoul to stomach politically. The tests were cancelled the day before they were to take place, and the North blamed “political instability” in the South and the lack of a military safeguards agreement that the North itself has blocked.

A Seoul delegate said proudly, “Unlike in the past, we focused on enforcement of the agreement and secured some leverage over North Korea.” The two sides made some modest progress on other issues. They agreed to conduct negotiations on a joint project to mine gravel from the mouth of the Han River inside the Demilitarized Zone. They agreed that military-to-military agreements would be necessary for safety and security reasons. The project had been suggested by Seoul in April, and reflects the dwindling supply of such material here because of South Korea’s 30-year construction boom.

Other agreed meetings will address administrative procedures at the Kaesong Industrial Complex, flood control on cross-DMZ rivers and exchanges of weather data, especially on the yellow dust storms that originate in China’s Gobi Desert.

From the Korea Herald:

JEJU – The two Koreas yesterday agreed on a set of contracts to stimulate North Korea’s light industries and mining operations, but only when “conditions are met.” South Korean officials say the expression is a diplomatic term being used to describe the North’s obligation to allow the test run of trains on two cross-border rail links.

Economic delegates from Seoul and Pyongyang ended their four-day meeting on Jeju Island early yesterday morning, working out a nine-point agreement on various economic cooperation plans.

The talks were held against a background of hostility in the South following North Korea’s unilateral cancellation of the landmark testing of cross-border railways on May 25.

After marathon talks, the two sides managed to achieve a reluctant consensus on how to describe Pyongyang’s duty to revive the cancelled railway test-runs in return for a package of business cooperation deals.

The two sides resorted to indirectly referring to Pyongyang’s railway obligation by using the term “when conditions are met,” instead of using more direct language. Some observers said the “ambiguous” preconditioning leaves room for Pyongyang to pull out from the agreement later on.

The North apparently faces opposition from the military authorities who are apparently against opening the railways to the South. The North Korean military has demanded the two Koreas first conclude a full military guarantee.

“The implication of the agreement is that if there is no test run for the railways, there will be no economic support,” said Kim Chun-sig, spokesman for the South Korean delegation, during a press briefing.

Underscoring that the agreement is strong enough to encourage North Korea fulfill its part of the bargain, Kim said that the two Koreas would soon begin to discuss the military guarantees.

Based on the agreement, South Korea will provide some $80 million worth of raw materials needed for the destitute state to manufacture garments, shoes and soaps from August this year. North Korea will repay 3 percent of the loans in the form of minerals such as zinc. The interest rate was set at a low 1 percent.

The two Koreas also agreed to jointly develop North Korean mines and designate an organization to take charge of the project within one month from now.

Seoul officials argue that this agreement raises the level of inter-Korean cooperation to a mutual and commercial relationship from one-sided aid from Seoul to Pyongyang.

Other agreements included a joint excavation of aggregates in the Han River estuary that is located along the demarcation line, and to open working-level contacts from June 26-27 to discuss how to prevent the Imjin River from flooding nearby areas.

The two Koreas also saw eye-to-eye on advancing their joint businesses into third countries.

Another working-level meeting on the Gaeseong industrial park will be held from June 20-21.

The next Economic Cooperation and Promotion Committee meeting will be held in September in Pyongyang.

South Korean delegation was headed by Vice Finance Minister Bahk Byong-won and the North Korea team was led by Ju Tong-chan.

By Lee Joo-hee

From Yonhap:

The following is the full text of a joint press statement issued by South and North Korea at the end of their four-day economic cooperation meeting on the southern South Korean island of Jeju, Tuesday.

South and North Korea held the 12th meeting of the Inter-Korean Economic Cooperation Promotion Committee in Jeju Island on June 3-6, 2006.

During the meeting, the two sides discussed the issues to further develop the inter-Korean economic cooperation project in the interest of the Korean people in the spirit of the June 15 joint declaration, and agreed on the followings.

1. South and North Korea agree to adopt an accord on South-North Cooperation in Light Industry and Natural Resource Development and enforce it at the earliest possible time in favorable conditions.

2. South and North Korea agree to discuss and then implement a project to extract sand from the Han River’s estuary as military safety measures are taken.

3. South and North Korea agree to make necessary conditions for making the Kaesong Industrial Park globally competitive. To that end, the two sides will hold the second meeting of working-level officials for Kaesong industrial park construction and discuss ways of introducing an ID system, simplifying customs and passage procedures, securing a stable source of workers and building dormitories and convenient facilities to solve problems stemming from an increase in the number of workers.

4. South and North Korea agree to hold the first working-level meeting in Kaesong on June 26-27 to prevent flooding in shared areas near the Imjin River to review each other’s survey reports, discuss joint survey plans and ways of establishing a flood warning system.

5. South and North Korea agree to cooperate actively in preventing such natural disasters as flood, forest fires and yellow dust storms and discuss concrete issues at a working-level meeting in Kaesong sometime in July.

6. South and North Korea agree to discuss their advance into third countries in the field of natural resource development at a working-level meeting in Kaesong sometime in July.

7. South and North Korea agree to exchange economic observation delegations when an accord on South-North Cooperation in Light Industry and Natural Resource Development takes place.

8. South and North Korea agree to discuss and finalize the schedules of working-level meetings for fishery, science and technology cooperation, as well as a timetable for business arbitration committee talks, visits to Kaesong and Mount Geumgang and exchange of lists and other things, in the form of exchanging documents.

9. The 13th meeting of the Inter-Korean Economic Cooperation Promotion Committee will be held in Pyongyang in September 2006 and the date will be determined after consultation in the form of exchanging documents.

From the Daily NK:

In North Korea, South Korean dramas are confidentially distributed through VCDs(‘Flat eggs’, as the Cds are known).  Previously, North Koreans were only allowed to watch films from the DPRK, China and USSR.  Posessing VCDs was also illegal.

According to Mr. Lee, a Chinese-North Korean who often visits Shinuiju, “Recently, Kim Jong Il has allowed North Koreans to see films only on the flat eggs(CDs) produced by Hana Electronic [the state-owned production monopoly]”. He added “Hana Electronics VCDs are all North Korean movies, Chinese movies featuring fighting with Japanese soldiers, and the Soviet Union movies”.

However, North Koreans are enthusiastic about South Korean dramas such as Love Song in Winter and Autumn Story and obsolete Western movies Rambo and ‘Bruce Lee’.

Mr. Lee said that “Recently South Korean dramas have been distributed widely, and because North Koreans see religious activities and adult materials through the flat eggs(CDs), the North Korean government dispatched an extensive censors group to crack down them”.

In North Korea, every kind of VCD was prohibited. However, realizing that North Koreans took pleasure in secretly watching the widely distributed VCDs, the North Korean government changed its policy and “partially” allowed its people to watch.

Mr. Lee said that, “These days, the punishment for [watching videos] has lightened, so watching VCDs except religious materials is just fined or orally warned”, adding, “The government does not take violators to political prison camps, but maybe Nodon Danryeondae (Labor facility), or Gyohwaso (long-term labor camp)”. Subsequently, he said that, “Because all officials of the National Security Agency and officials of the People’s Safety Agency see the dramas, the government can not unconditionally prevent from watching like the past”.

He said that, “Recently, the numbers of religious people have increased, and because of it, some people were caught watching religious films”, and “It is hard to survive in the religious cases”.

Meanwhile, shortwave radios are illegally traded at around 2,000 won($0.67) at Jangmadangs. Until 3 or 4 years ago, the government had carried out the reporting system about the illegal trades, but after the news that South Korea and the U.S sent radios, the trades at Jangmadangs were officially inhibited.

Now it was known that the small radios sold in secret are carried in through smuggling vessels generally in Jagangdo province, North Korea.  financial problems are resolved, a broker is introduced and guidance to an exile route is given.

Joong Ang Daily
6/1/2007

The Korean Peninsula Energy Development Organization, or KEDO, announced yesterday that the project to build light water reactors at Sinpo, North Korea, has been scrapped. The infiltration of a North Korean submarine into Gangneung, South Korea, in 1996 and the firing of a Daepodong missile in 1998 were all incidents that cast a shadow on the project. In particular, the admission in 2002 by North Korea that it was working on a nuclear program using enriched uranium was the final straw in the Bush administration’s decision to halt a project that it was already skeptical about. In response, the North withdrew from the Nuclear Proliferation Treaty in 2003 and went on to declare in 2005 that it possessed nuclear weapons. Such developments led to today’s situation.

The confrontation between North Korea and the United States does give us something to think about. While agreeing with us on the denuclearization of the Korean Peninsula, the North secretly hung on to developing nuclear weapons. In response, in 1994, we cooperated with the United States but were not even allowed into the negotiations yet we still agreed to cover 70 percent of the cost of the light water reactor project. That may have been inevitable, because South Korea was the country most threatened. Nevertheless, it is debatable whether the negotiations in which Seoul paid the bills but had no say in the matter were the best method. This is an issue that the government needs to ponder seriously.

It has also become clear that the changes in U.S. foreign policy with a new administration are too much for us to deal with. Even though we threw away $1.1 billion, a solution to the North Korean nuclear problem seems to be even further away, Washington continues to cling stubbornly to its new policies.

So the administration should think about what it has learned from this experience and how it should use that knowledge. One good example is the announcement by Seoul last year that it would provide 2 million kilowatts of electricity to the North even before figuring out what the North’s answer would be.

The announcement was billed as an “important proposal,” but the North has turned a blind eye to it and says it wants a light water reactor. With an astronomical amount of tax money already having disappeared, isn’t offering to provide electricity to the North another burden? Whether it’s North Korea or the United States, others have an ability to think strategically and look into their opponents’ minds. Why not us?