North Korean Economy Watch

Pictured Above (Google Earth): Pyeonghwa Motors Factory in Nampho. Recent additions highlighted in Yellow.

UPDATE 1 (2013-1-22): In a later interview, the head of Pyeonghwa Motors revealed more information on his compan’y relinquishment of Pyeonghwa Motors, and described their future ambitions.

ORIGINAL POST (2012-12-3): According to Yonhap (via Korea Times):

The source said, “As far as I know, Pyeonghwa Motors is seeking to sell its factory in Nampo for about US$20 million in order to end its auto business.”

…

“The (South Korean) president of the auto firm appears to be eyeing the distribution sector” in North Korea, an official at the foundation said, adding the president may move to a new industry after liquidating the auto business. “But nothing has been determined so far,” the official said.

Pyeonghwa Motors president Park Sang-Kwon is widely expected to hold discussions with the North over the business shift during a North Korean visit scheduled for mid-December, to mark the first anniversary of the death of late North Korean leader Kim Jong-il, who died on Dec. 17.

According to the Wall Street Journal:

The North Korean government is a 30% partner in the car manufacturer.

A unit from the church’s business arm spent about $55 million to build the Pyeonghwa factory in Nampo, a port city on North Korea’s west coast about an hour or so outside of the capital Pyongyang. After the factory was completed in 2002, workers there completed partially built cars, in a form called knockdown kits, that were imported from manufacturers in Italy and China.

But the company appears to have rarely been profitable. In 2009, the firm earned about $700,000 from the sale of 650 cars. About $500,000 of that was remitted to its parent operation in South Korea. The South Korean government noted then that it was the first time a South Korea-based company repatriated profits from North Korea.

The Pyeonghwa Motors web page does not contain any information on this development.  You can view the web page here (english). The last published press release was on 2011-1-11:

The web page does have production and sales data (if you choose to believe it):

No revenue or profit numbers are given on the web page, but it does mention that the factory’s capacity is 10,000 units per year. If these numbers are correct, in 2011 (the most productive year in terms of output) the factory was only running at approximately 19% capacity.

The Pyeonghwa Motors web page also offers a grand vision of the factory’s future (100,000 unit capacity):

However, as Google Earth satellite imagery shows, this plan has yet to come to fruition.

Previous posts on Pyeonghwa Motors here.

Read the full stories here:
Unification Church to wind up auto venture in NK
Yonhap (via Korea Times)
2012-11-28

End of the Road for North Korean Auto Maker?
Wall Street Journal Korea Real Time
Evan Ramstad
2012-11-27

Stephan Haggard posts some economic data from the Kaesong Industrial Zone. I repost most of it here for archival purposes:

According to the MOU, the average monthly wage at KIC has reached $128.3 as of the first half of 2012. This marks a steady increase from $68.1 in 2006, $71.0 in 2007, $74.1 in 2008, $80.3 in 2009, $93.7 in 2010, $109.3 in 2011. One source of the increase is a built-in escalator clause on the minimum wage payment, which started at $50 and has increased 5% a year over the last six years. But that only gets you to about $67 for this year.

The remainder of the observed increase is apparently the result of additional payments for overtime, which has been rising dramatically. Average weekly working hours were already 55.2 hours in 2006 but now stand at 61.6 in 2012 (up to July). If we knew that these additional hours were the result of the free choices of hard-working, upwardly mobile workers we would still probably find it a little excessive. But of course, the advantages of working in Kaesong are such that North Korean authorities have absolute power to hire and fire at will. There is no way of knowing whether workers would choose this regimen if they were organized or not.

But the story is much worse, of course, because we don’t ultimately know what share of these wage payments actually end up in the hands of the workers in the complex. Wages are paid in U.S. dollars to the North Korean authorities by the South Korean companies operating in the complex. 45% of the wage bill–15% for “social security” and 30% for “socio-cultural policy entitlements”–flows into the regime’s coffer, while the remaining 55% is supposedly given to the workers in either DPRK won or coupons.

But not so fast. A crucial question is the exchange rate at which workers are paid and the value of the “coupons” they receive. We hardly need to state the obvious: North Korean workers are not getting paid the won equivalent of their dollar salaries at anything resembling the shadow-market exchange rate that reflects actual scarcities. At least in the Yonhap report, the MOU makes no mention of what the real dollar equivalent of won payments are using a realistic exchange rate. But given the country’s high inflation and rapid depreciation of the exchange rate—see my colleague Marc Noland on this—the dollar value of what North Korean workers actually receive could be only a small fraction—even a very small fraction—of the stated dollar wage .

Why has Kaesong stayed open? The answer lies in a pretty straightforward political economy calculus on both sides. For the South, Kaesong is industrial policy for labor-intensive firms. For North Korea, it is a cash cow that even hardliners have been loath to push the way of the Mt. Kumgang project. Since 2004, total wage payments for North Korean workers in the KIC has totaled $245.7 million, rising from $380,000 in 2004 (the first year of operation) to $61.76 million in 2011 and $45.93 million in the first half of 2012. For Pyongyang, even hardliners can see that this is a no-brainer.

Institute for Far Eastern Studies
2012-10-25

Recently, eight companies in the Kaesong Industrial Complex (KIC) informed that they received tax collection notices, a unilateral decision made by the North Koreans.

The Ministry of Unification and KIC reported that out of the 123 companies, 8 companies were informed by the North Korean authorities to pay about 160,000 USD in total in taxes.

Two companies out of the eight notified companies already paid close to 20,000 USD to the North Korean tax authorities.

On top of taxation, 21 companies were notified to submit additional tax documents. This may be to collect additional information for future tax collection purposes.

The tax authorities are also requiring companies to submit documents related to show proof of purchase of raw materials, and submit cost analysis documents and a copy of bank statements showing the history transactions.

Last August, the Central Special Direct General Bureau (CSDGB) notified the Kaesong Industrial District Management Committee of new tax bylaws, which enforces a fine up to 200 times the amount of accounting manipulation and abolish the retroactive taxation system while increasing the number of documents for submission. Furthermore, the North is threatening to restrict access to the KIC, if companies fail to pay owed taxes or do not submit requested documents.

In addition to imposing fines for tax frauds, new tax bylaws demanded by the CSDGB included enforcement of additional taxes in the name of corporate income tax, sales tax, and other taxes.

The unilateral decision by the CSDGB to amend bylaws is a violation of Kaesong Industrial District Law, which requires any revision of the laws must be negotiated between the North and the South. Another problematic issue is that tax imposed on the companies is based on North Korea’s own estimation rather than tax reports submitted by the companies of the KIC.

For the first time last year, tenant companies in the KIC recorded an average operating profit of 56 million KRW, finally operating in the black after years in deficit.

The Daily NK offers some recent numbers on North Koreans that have arrived in the South:

According to Ministry of Unification statistics, the number of defectors arriving in South Korea is indeed beginning to rise slightly, going from 90 in February to 116 in March, 107 in April, 137 in May, 141 in June and 164 in July.

Hyun continued, “The cost of defection has risen to more than five million won, while there are almost no travel permits being issued and close checks being conducted on accommodations in the region. However, orders from above are only being kept at a low level and, as time goes by, will go slack and the number of defections will once again rise.”

“It is true that the number of defectors arriving in South Korea has fallen compared to last year, but because people cannot survive on state distribution and wages they are going to keep on trying to defect irrespective of the official controls.”

Hyun added that in Hyesan the number of people defecting is beginning to rise because it has become harder to make money from smuggling in the face of increased border security.

Read the full story here:
North Korea Can’t Stop the Defections Forever
Daily NK
Mok Yong Jae
2012-9-17

The Rev. Sun Myung Moon was born between what is now Wonbong-ri and Osong-ri in Jongju City (정주시).

Pictured above (R) is a satellite image of the exact building the DPRK and the Unification Church claim was the birthplace of Rev. Moon. I first blogged about this  in 2009. The Google Earth coordinates are  39.683728°, 125.291145°, and you can see a ground level photo of the site here (taken by Unification Church delegation).

The Rev. Moon’s Church, the Unification Church, has made substantial investments in the DPRK.

The Unification Church built the Pothonggang Hotel and Pyongyang Peace Embassy (Google Earth:  39.020134°, 125.717641°) in Phyongchon-guyok, Pyongyang:

See photos of the Pothonggang Hotel and Peace Embassy on the Pyeonghwa Motors web page.

The Unification Church also launched Pyeonghwa Motors in the DPRK.

Pyeonghwa Motors was the first firm allowed to put up billboard advertisements in the DPRK. Here are links to images of most of the billboards: Link 1 (Images also say where they are located), Link 2, Link 3, Link 4, Link 5.

Pyeonghwa Motors has several assets in the DPRK, the status of which remains a bit unknown:

There is of course the Pyeonghwa Motors Assembly Factory in Nampho, which I first identified on Google Earth years ago. It has seen some minor expansion between 2009 and 2011:

You can see a Pyeonghwa Motors advert here which features the factory:

Pyeonghwa Motors also built a gas/petrol station in Pyongyang:

The Google Earth coordinates are  38.996068°, 125.712410°, and you can see photos of the Pyeonghwa Motors Petrol Station here.

Pyeonghwa Motors also has a showroom on Kwangbok Street in Mangyongdae-guyok:

The Google Earth coordinates are  39.026709°, 125.682252°, and you can see photos of the Pyeonghwa showroom here.

The Pyeonghwa Motors web page also advertises an accessory shop in Pyongyang:

The Google Earth coordinates for this shop are  39.039590°, 125.743704°, and you can see photos of the Pyeonghwa Motors Accessories Shop here.

Although this facility is listed as operational on the Pyeonghwa Motors web page, recent tourist video shows that at some point before April 2012 this building has become a humble flower shop (꽃상점):

The shop’s entrance can be seen at the 2:00 mark.

However, according to this photo taken on June 6, 2012, the Peonghwa Motors logo still appears on the top of the building. So I am unsure of the actual status of this facility.

It is unclear if the accessory shop has moved or if it has permanently closed down.

Previous posts on Pyeonghwa Motors here.

If there are any Unification Church assets that I have not mentioned in this post, please let me know.

Read more on the history of the Unification Church in the DPRK here.

According to the Donga Ilbo:

South Korea held two rounds of secret talks with North Korea at an inter-Korean industrial complex in Kaesong at Pyongyang`s request late last year on joint development of rare earth metals in the North. Called the “vitamins of high-tech industries,” rare earth metals are minerals necessary for making smartphones, notebook computers and hybrid vehicles.

The North’s proposal to hold the meetings was made after the South stopped almost all inter-Korean economic cooperation in May 2010, soon after a South Korean naval vessel was sunk by a North Korean torpedo. Whether this will lead to the resumption of inter-Korean economic cooperation remains to be seen.

The Korea Resources Corp., a South Korean state-run resources developer, said Sunday that it held working-level talks with officials of the North’s National Economic Cooperation Federation at the Kaesong Industrial Complex in September and December last year.

In the second contact, the federation handed over four rare earth samples to the South Korean side. An analysis showed that the samples were a type of rare earth metals used to manufacture LCD panels and optical lenses.

A South Korean official who participated in the talks said, “The North strongly proposed that the two Koreas jointly develop coal mines as well as rare earth metals.”

The resources corporation tried to brief North Korea on the results of the sample analysis. No further talks have been held since, however, due to changes in Pyongyang’s political situation following the death of leader Kim Jong Il on Dec. 17 last year.

Still, the corporation said it maintains a “hotline” with its North Korean counterpart and plans to develop resources in the North. CEO Kim Shin-jong briefed South Korean President Lee Myung-bak on the results of the sample analysis in February. He said, “The president encouraged us to carry on after we reported that North Korean rare earth metals are economically promising.”

The South Korean resources development industry estimates that North Korea has 42 types of minerals, including rare earth metals at nearly 700 mines under development. Their value is estimated at nearly 6,984 trillion won (6,133 billion U.S. dollars). In particular, the industry says that while China has made rare earth metals a strategic resource, the North has up to 20 million tons of rare earth deposits. China’s rare deposits are estimated at 55 million tons, accounting for about half of the world’s total.

A South Korean official involved in economic projects in the North said, “We cannot rule out the possibility that inter-Korean economic cooperation projects will be resumed, as (the North`s No. 2 man) Jang Sung Taek and (military bigwig) Choe Ryong Hae, who are known as pragmatists, have rapidly emerged as powerful men,” adding, “Resource development is what the North needs the most and the South can approach this without political burden.”

The Wall Street Journal’s Korea Real Time adds additional details:

North Korea makes occasional claims to have large deposits of rare earths, a potential source of hard currency for the impoverished nation. There are no reliable data on North Korea’s rare earth deposits.

China controls about 95% of the world’s rare-earth production. Rare-earth minerals are used in products ranging from consumer electronics to batteries to defense systems.

Kores invested 6.25 billion won ($5.5 million) in 2003 to jointly develop a graphite mine in North Korea. The project has capacity to produce as much as 3,000 tons of graphite annually and the deal allows Kores to take half of the annual produce for 20 years, according to the official. So far, Kores has collected 850 tons of graphite.

Economic ties between North and South Korea remain almost completely suspended following two attacks on South Korea in 2010 by the North that killed 50 people.

Additional information below:
1. The graphite mine mentioned above is called the Janchon Graphite Mine.  You can learn more about it here.

2. More on rare earths in the DPRK can be found here.

Read the full stories here:
Koreas held 2 secret talks on rare earth metals last year
Donga Ilbo
2012-7-23

South, North Korea Discussed Rare Earth Mining
Wall Street Journal’s Korea Real Time
2012-7-24

According to Yonhap:

The total number of South and North Koreans visiting each other’s country fell nearly seven percent in the first five months of 2012 from a year earlier, the Seoul government said Tuesday, as tensions persist over the North’s deadly attacks on the South in recent years.

A total of 47,432 South Koreans visited North Korea in the January-May period, while no North Koreans visited the South, according to data from the Unification Ministry, which handles inter-Korean affairs. The figure is down 6.9 percent from the same period last year, when the number of inter-Korean visits reached 50,925, including 13 North Koreans who visited the South.

Read the full story here:
Inter-Korean visits drop 7 pct this year
Yonhap
2012-7-10

The Hankyoreh has published an interesting about a inter-Korean economic project in Dandong, China.

According to the article:

Taking its name from the traditional song “Arirang,” Ari Sports was established in Nov. 2011 with a 500 million won investment from the city of Incheon and 23 workers from North Korea. It is managed not by a North or South Korean organization, but by China’s Yunnan Xiguang Trade.

…

The football sneaker and sports clothing production plant was originally planned for Pyongyang’s Sadong District. Efforts began in 2008, and the building was nearly complete when the May 24 measures were passed in 2010 and it had to be abandoned. The factory in Dandong is a temporary structure erected in its stead.

Inter-Korean Athletic Exchange Association standing committee chair Kim Gyeong-seong said, “It’s frustrating not to be able to use the good land and facilities we had in Pyongyang.”

“I hope we are soon able to produce and sell soccer shoes and clothes in Pyongyang,” Kim added.

Song said, “Things are difficult right now between North and South Korea, but if we all work together we can overcome it.”

He added that the company was a “small but meaningful project taking place at a time when economic cooperation has been shut off.”

The company has received orders for three thousand pairs of soccer shoes as of May. It currently plans to produce and sell two to three thousand pairs a month. To achieve this, it is organizing a football contest for working people nationwide at the first Incheon Peace Cup event to commemorate the June 15 Summit on June 16 and 17.

I have never heard of this project and I have been unable locate any other articles on the factory. Despite its relative obscurity, however, the North Korean workers know how to deal with the foreign press (they stay on message):

On June 9, the company was visited by around fifty participants in the Incheon-Dandong-Hankyoreh West Sea Cooperation Forum, including Incheon Mayor Song Young-gil and Hankyoreh Foundation for Reunification and Culture chairperson and former Unification Minister Im Dong-won. Located in a farming village on the outskirts of Dandong in China’s Liaoning Province, Ari Sports has 1,600 square meters of floor space on a plot of land also measuring 1,600 square meters.

North Korean workers expressed their frustration with the inability of economic cooperation projects to move forward due to the state of inter-Korean relations. Workers Kwon Ok-kyong, Kim Kum-ju, and Kim Myong-hwa said they wished production and sales could proceed smoothly.

When asked about working at the company, Cho Sang-yon said, “Well, it’s not as good as working in my home country.”

Pak Hyok-nam said, “I’d like to see bigger economic cooperation projects between North and South.”

I have been unable to learn anything else at all about this project.  If you are able to find company logos, web page, photos, or even factory locations on Google Earth, please let me know.

Read the full story here:
Factory in China continues producing soccer shoes in spite of frosty relations
Hankyoreh
Kim Kyu-won
2012-6-11

According to the Hankyoreh:

Prosecutors carried out a large-scale investigation of companies involved in inter-Korean trade over the past year. They were seeking evidence of violations of the Inter-Korean Exchange and Cooperation Act (IKEC Act) in their remittances to North Korea. Around 200 such companies were found to have been fined.

The fined companies argue that their penalties are attributable to differing interpretations and application of the law by the Lee Myung-bak administration. The same actions were not deemed problematic under the administrations of Kim Dae-jung and Roh Moo-hyun (1998-2008). Those governments took a softer line on North Korea; things changed significantly when the conservative Lee Myung-bak government took office in 2008.

The Inter-Korean Economic Cooperation Promotion Committee, under chairman Jeong Yang-geun, estimated that as many as 200 companies involved in inter-Korean trade had been fined as of late May. A biggest change was the Lee government’s May 24 measures, put in place after the March 2010 sinking of the Cheonan warship. The measures suspended almost all transactions with North Korea.

Companies that were already on the brink of bankruptcy were stuck with fines ranging from one million to eight million won. Companies with high transaction volumes were fined the legal limit of 10 million won (about US$8500).

They were accused of violating Article 13, Item 1 of the Exchange and Cooperation Act, citing Article 4 of a Jan. 2008 Unification Ministry notice stating that anyone sending a third-party remittance to North Korea through a Chinese bank account must receive separate permission from the Unification Minister.

The president of Company “H,” identified by the initial “K,” has been called and visited several times since late last year by police public security officers and detectives from in and around Seoul and elsewhere investigating items brought in from North Korea. In April, he was summoned to a police station in South Gyeongsang province.

K had been involved in transactions since before the Kim and Roh administrations. He said there were no problems because the items in question were subject to blanket approval by the Unification Minister and had already passed through normal procedures.

The president of Company T, identified as Lim, was investigated on the same charge between January and April of this year. He confessed being cowed by the demand to travel from Seoul to a police station in Incheon and report to the security division there. He said he wasted time and suffered hardship submitting three rounds of documentation at the police’s request. Five companies had already been investigated by that same police station, Lim said.

“The police asked for an authoritative interpretation, and the officials at the Unification Ministry couldn’t make a proper judgment about whether there had been a violation. It was as though they had no idea such a rule existed,” he added.

The president of Company C, who goes by the initial “G,” paid a visit to Korea Exchange Bank in late 2007 to send a remittance to pay for sand, and was told that a third-party remittance was not possible. G went to the Bank of Korea. There, he was told they wouldn’t be able to do a remittance either. So he put one of the employees there in touch with the Unification Ministry. After that, he was able to notify the Bank of Korea and send remittances within their limit without a problem.

Some time around March of 2011, police launched an investigation and began calling him in. He asked them just what kind of permission he was supposed to receive. There was no information in the Jan. 2008 ministry notice about the procedure or documents for remittances. He also asked what kind of law for exchange and cooperation the IKEC Act was. G was fined according to another law after lawfully sending the remittance according to the Foreign Exchange Transactions Act.

Experts and attorneys countered that the transactions in question were already approved according to Article 13, Item 4 of the IKEC Act, which empowers the Unification Minister to issue blanket approvals to “items involved in transactions with North Korea, forms of transactions, and methods of payment.” And since North Korea does not have an international financial system, nearly all the companies’ remittances took the form of third-party transactions through Chinese banks.

Experts and attorneys said the fines could only be interpreted as prosecutors taking issue with the very notion of money being sent to North Korea. The businesspeople in question had also agreed with the ministry to follow a normal procedure of reporting third-party remittances to the Bank of Korea in accordance with the Foreign Exchange Transactions Act, they said.

An attorney for Corporation “T” said, “Not only is there ample room for debate about judicial authorities punishing activities deemed lawful by Article 13, Item 4 of the IKEC Act on the basis of the Unification Minister’s notice, but it also shows a disregard for what the ministry has recognized over the past years.”

Indeed, a trade company sent a question to the ministry asking whether any of the 500 firms it knew to be involved in inter-Korean economic cooperation had requested approval from the minister for third-party remittances to North Korea. None, the ministry replied.

The ministry was also found not to have taken any follow-up measures on documentation or procedures in its presiding offices after specifying in its notice that the minister’s approval was required for third-party remittances.

University of North Korean Studies professor Yang Mu-jin, a onetime secretary to the Unification Minister, said, “After the May 24 measures, now they’re killing these businessmen twice.”

But a senior ministry official said there was no problem with application of the law in the prosecutors’ investigation, although it was done without prior discussion with the ministry.

Another senior official said the notice was issued “in the interest of ensuring transparency in remittances to North Korea.”

Those on the receiving end of the fines said the measures were tantamount to using the Exchange and Cooperation Act to kill off the companies involved in exchange and cooperation.

“They’re about to keel over anyway because of the state inter-Korean relations are in,” one said. “What good is the law once all the companies are gone?”

Unification Ministry figures show a steady increase in the amount of North Korean items brought in through inter-Korean trade (including consignment processing), rising from US$258 million win 2004 to a peak of US$645 million in 2007. The level stayed above US$600 million as recently as 2008, the first year of the Lee administration.

But as relations with North Korean headed downhill, the numbers plummeted below US$500 million starting in 2009, finally bottoming out at US$4 million in 2011 after relations were severed with the May 24 measures.

Read the full story here:
When it comes to trading with North Korea, it’s no longer business as usual
HK
Kang Tae-ho
2012-6-7

UPDATE (2012-9-19): The South Korean government is offering compensation to companies affected affected by the South Korean government’s policy decisions. According to the JoongAng Daily:

The Ministry of Unification announced a plan yesterday to pay cash to local firms financially distressed by the suspension of inter-Korean trade and economic cooperation.

The unprecedented aid totaling 7.5 billion won ($6.7 million) will go to South Korean businessmen who have financially suffered from Seoul’s imposition of economic sanctions on North Korea on May 24, 2010 in the wake of the North’s sinking of the South’s naval vessel Cheonan earlier that year, said Kim Hyung-suk, a unification ministry spokesman. The 7.5 billion won comes from the Inter-Korean Cooperation Fund.

The offer of cash aid to companies doing business with North Korea is a first. Previously, authorities provided loans worth a total of 56.9 billion won to 221 companies on two occasions in 2010 and this year.

The decision comes as all economic cooperation between Seoul and Pyongyang has been put on hold except at the Kaesong Industrial Complex, since the implementation of measure announced by the Lee Myung-bak administration in May 2010.

The sanctions on trade with North Korea in the wake of the sinking of Cheonan, which killed 46 naval officers in March 2010, stopped all business partnerships.

“As it is mainly small- and medium-sized companies that are in financial difficulties due to the halted economic activities in the North, we expect the funds to help them recover,” said Yoon Min-ho, director of the economic cooperation division at the ministry.

To be eligible, companies must have investment records in the North during the two years before May 2010 or a history of trading with Pyongyang one year before May 2010.

The ministry will provide between 5 million won and 20 million won to each company that invested in the North following due diligence. Business groups that invested more than $3 million in the North will be given the maximum amount of 20 million won.

For traders with volumes of trade of over $1 million, aid of 15 million won will be given.

Companies that invested in the Mount Kumgang tourism business, which was curtailed after a North Korean guard shot a South Korean tourist in 2008, can also apply for assistance.

Article citation: Kang Jin-kyu, “Cash aid for ailing investors in North”, JoongAng Daily, 2012-9-19

ORIGINAL POST (2012-6-1): Along with the anniversary of the “May 24 Measures”  we have seen many reports on the status of the DPRK – ROK trade relationship. I have previously blogged about the reports by the Korea Development Institute (KDI), Hyundai Research Institute and  Korea International Trade Association.

Now we have a new report by the Korea Trade-Investment Promotion Corporation (KOTRA).

Because I am unable to locate the original report (in Korean), I have posted commentary on the report below.

According to the Hankyoreh:

Seoul’s attempts to handle North Korean provocation by isolating it economically appear to have been ineffective. A report on 2011 North Korean trade trends released May 30 by the Korea Trade Promotion Corporation (KOTRA) had the country’s exports up by 84.2% and its imports up by 32.6% from the year before. The numbers did not include inter-Korean trade figures.

North Korea had trade of US$6.3 billion for 2011, comprised of US$2.8 in exports and US$3.5 in imports. This marked a 51.3% increase from the year before.

Its biggest export was coal, at US$1.17 billion, followed by minerals (US$400 million) and textiles (US$390 million). The largest import was petroleum and other fuels (US$810 million), followed by machinery (US$300 million) and electronics (US$270 million).

The country’s largest trading partner was China, with US$2.46 billion in exports and US$3.17 billion in imports last year, for total trade of US$5.63 billion, or 89.1% of all North Korean trade. In 2004, only 48.5% of North Korea’s trade was with China. The next largest trading partners were Russia, Germany, India, and Bangladesh, in that order.

Meanwhile, trade with South Korea slid amid Seoul’s efforts to isolate Pyongyang. A report on inter-Korean trade by the Unification Minister showed a total of US$1.7 billion last year, down nearly US$200 million from the US$1.9 recorded in 2010.

The numbers show that while inter-Korean economic cooperation is being stymied by the South Korean government‘s policies, North Korea has been making up the difference and then some by trading with other countries.

University of North Korean Studies professor Yang Mu-jin said, “Not only are the government’s isolation policies completely ineffective, but they’ve increased [North Korea’s] reliance on China. These policies have been proven ineffective and should be abandoned immediately.”

Here are some additional details from the Financial Times:

Trade with China increased 62.4 per cent from a year earlier to $5.63bn.

…

“The increased trade does not mean a better life for North Koreans because the hard currency earned from mineral exports to China was mostly spent on the large-scale events to promote the regime,” said Suh Jae-pyong, a North Korean defector who works for the Committee for the Democratisation of North Korea, a civic group.

Stephan Haggard comments on the KOTRA report on his blog:

So how important is China to North Korea? The numbers cited are often wildly exaggerated in the policy debates, largely because of the difficulty of getting accurate information on the DPRK’s overall trade. The government of North Korea regards economic statistics as state secrets; as a result, all trade data has to be reconstructed by examining the “mirror statistics” of the country’s trade partners: by adding up what other countries say that they import from the country.

But even such an apparently simple exercise is fraught. First, a number of countires—including Iran—also do not provide reliable trade statistics. Second, nearly every year the statistical agency of some country around the world gets North and South Korea confused and reports an amazing spike in trade with North Korea, consisting of imports of North Korean cell phones and automobiles. Not!

The most widely cited source on North Korean trade is a South Korean public agency, KOTRA, which carefully screens the mirror data for such obvious anomalies. But KOTRA adopts a number of other conventions that distort the overall trade picture. In calculating North Korean trade it excludes the country’s trade with South Korea (on the constitutional grounds that inter-Korean trade is within the nation) and oddly ignores trade with many Middle Eastern countries that do in fact report trade with North Korea to the UN statistical agencies. We have never figured out why they do this, and it may have reasonable motivations, such as beliefs about the reliability of the data. But simply throwing the data out makes now sense.

The upshot is that the prominence of the trade partners that KOTRA does count is greatly exaggerated. The New York Times and Washington Post, for example, have both reported that China accounts for 80 percent of North Korea’s trade; even with smuggling that is wildly exaggerated given the ongoing important of Kaesong for North Korea’s balance of payments.

The actual figure, once North-South and other missing entries are accounted for, is roughly half as much by our estimates (see the figure above). But over 40% reliance on China is not trivial. Moreover, the prevalence of private firms in this trade—as we have reported in two recent working papers (here and here)—is high. Moreover, state-owned enterprises are themselves profit-driven. Even if Chinese authorities were aggressive in enforcing sanctions—which they do not appear to be—the opportunities for mischief are high.

Scott Snyder comments on the numbers here.

Read the full stories here:
North Korea keeps doing business in spite of isolation
Hankyoreh
Lee Jeong-hun
2012-1-1

N Korea trade soars on Chinese demand
Financial Times
Song Jung-a
2012-1-1

Sanctions Busing
Stephan Haggard
2012-6-12