North Korean Economy Watch

German Asia-Pacific Business Association
Ausgabe 3/2009
Download the full publication here (PDF)
Download Mr. Abt’s article here (PDF)

North Korea – doing business in a demanding environment
Despite political obstacles within the system and internationally, it is possible to set up successful business in North Korea, says Felix Abt. Identifying partners and exploring market potentials are difficult tasks. Having completed them, one can count on a dedicated workforce.

The Right Local Partner: The Most Important Requirement to Succeed First, you need a Korean partner for your business as you cannot do any business without one and, second, you do have to find the right one if you want to succeed. When you start with your fact finding mission you come across people who want to introduce you to a specific business partner or they want you to do business with themselves. Of course, they have a vested interest and, most likely, they will not introduce you to alternative and potentially more suitable business partners. But you need to know that in every industry there are companies of different sizes, competence, ranges of products, competitiveness etc.

(more…)

The BBC ran an interesting video story on North Korean loggers felling trees in Russia.  Of course this has been going on for a long time. However, this is the first video footage of the logging facilities that has appeared in the Western media.

According to the video, North Korea’s logging concessions are managed by a company called “Association No. 2,” which is housed in a compound in northern Tynda, Russia.  According to the story, Association No. 2 receives 35% of proceeds of logging (appx $7m) some fraction of which is repatriated to the DPRK’s Ministry of Forestry.  Using the video, I located the Association No. 2 compound on Google Earth. Here is an image:

(Click on image for larger version.  You can see it in Google Maps here.)

Additional Notes:

1. I have not been able to locate the other North Korean logging camps in Russia.  If any readers can find them, please let me know.

2.  The DPRK appointed a new Minister of Forests last October.

3. Bertil Lintner on North Koreans working in Russia.

4. Andrei Lankov on the loggers.

5. Claudia Rosette on the loggers.

6. YouTube video on NKs in Russia.

Nearly two weeks ago, the UN Security Council sanctioned five North Korean organizations. One of them was the Hyoksin Trading Corporation.  I believe they even have a web page here.

Today, the US imposed financial sanctions on this company.  According to the The Associated Press  (Via the Washington Post):

The Obama administration on Thursday imposed financial sanctions on a North Korean firm accused of involvement in the country’s missile programs.

The Treasury Department’s action covers Korea Hyoksin Trading Corp. It means any bank accounts or other financial assets found in the United States that belong to the company must be frozen. Americans also are prohibited from doing business with the firm.

It is the latest move by the United States to keep pressure on Pyongyang, whose nuclear ambitions have ratcheted up global tensions.

The department alleges that Korea Hyoksin Trading is owned or controlled by another North Korean firm, Korea Ryonbong General Corp., which the United States says is involved in the development of weapons of mass destruction. Korea Ryonbong supports Pyongyang’s sales of military-related items, the department said.

Read the full story here:
US tightens financial noose on North Korea
The Associated Press
Jeannine Aversa
7/30/2009

According to the Choson Ilbo:

A Chinese investment company developing a copper mine in North Korea with a North Korean company sanctioned by the UN Security Council has reportedly called an abrupt halt to the project.

An industry source in China said the investment firm sent a letter to NHI Shenyang Mining Machinery, the company it had commissioned to build facilities for the mine in Hyesan, North Korea, telling it to stop construction. An estimated 400,000 tons of copper are deposited there.

The Chinese firm had signed an agreement with (North) Korea Mining Development Trading Corporation (KOMID) [NKeconWatch: a.k.a. Korea Mining Development Corporation) to develop the mine in November 2006. But the North Korean partner was blacklisted by the UN Security Council after North Korea carried out its latest nuclear test.

The industry source said, “When Chinese Vice President Xi Jinping visited Pyongyang in June last year, he pledged full support for the development of the Hyesan copper mine so that it could become a model for investment by Chinese business in North Korea. This prompted NHI to hurry construction so that production could start in September this year.”

But he added the Chinese government apparently persuaded the investment firm to stop the project as Beijing takes part in the UN sanctions. “Otherwise, it’s unusual for a project to be stopped at this late stage,” he said. The investment firm reportedly gave NHI no reason for the cancellation.

Looking at Hyesan on Google Earth, this appears to be the only large-scale minig operation in Hyesan.

Read the full article below:
N.Korea Mining Project Buckles Under UN Sanctions
Choson Ilbo
7/31/2009

From YouTube:

(Click on image to see video)

According to the video description:

This was PyongSu’s introduction to donor organisations and individuals that have been purchasing pharmaceuticals abroad and shipped them to North Korea. PyongSu’s promotional presentation explained to them why they should place their orders with PyongSu rather than with pharmaceutical companies abroad.

As PyongSu had no budget to mandate a professional advertising company with the task its managing director Felix Abt made the concept, the script and produced it in-house towards the end of 2005, with the help of North Korean IT and designing students and their Canadian trainer Ian Lee as well as teacher Michael P. Spavor, then giving language courses in Pyongyang, who was the “voice” in this clip. Thus, this unique advertising clip was made in its entirety in Pyongyang (and by people who are not advertising professionals). Check it out and add your comment!

Longer videos on investments in the DPRK can be found here.

On Thursday the UNSC adopted a travel ban on five North Koreans, an asset freeze on five DPRK organizations (and the five individuals), and banned the export of graphite and para-aramid fiber to the DPRK.  Below are the details:

UNSC Sanctions effective: July 16, 2009.

Officials named:
1. Ri Je-son, director at North Korea’s General Bureau of Atomic Energy (GBAE)
2. Hwang Sok-hwa, director at North Korea’s General Bureau of Atomic Energy (GBAE)
3. Yun Ho-jin, director of Namchongang  Trading Corp.
4. Ri Hong-sop, former director of North Korea’s Yongbyon nuclear research center
5. Han Yu-ro, director of Korea Ryongaksan General Trading Corp.

Organizations named:
1. General Bureau of Atomic Energy (GBAE)-DPRK weapons agency
2. Namchongang Trading Corp-alleged to have procured Japanese vacuum pumps and aluminum tubes used to enrich uranium.
3. Hong Kong Electronics-transferred millions of dollars to Tanchon Commercial Bank and Korea Mining Development Trading Corp., both subject to sanctions by Security Council agreement in April.
4. Korea Hyoksin Trading Corp
5. Korean Tangun Trading Corp-primarily responsible for the procurement of commodities and technologies to support” North Korea’s defense research and development program

Further Notes:
1. The North Korean’s actually have a web page for the Hyoksin Trading Corp.

2. Here is a previous post summarizing most of the sanctioning activites this year.

Read more below:
U.N. council sanctions North Korea entities, officials
Reuters (via Washngton Post)
Patrick Worsnip
7/17/2009

North Korea Officials Sanctioned by UN for Travel, Nuke Program
Bloomberg
Bill Varner
7/17/2009

From GPI Consulting:

In the current financial and economic situation, companies face many challenges. They must cut costs, develop new products and find new markets. In these fields, North-Korea might be an interesting option. Inspired by the economic successes of its neighbouring country China, North-Korea has since a few years opened its doors to foreign enterprises. It established several free trade zones to attract foreign investors and there are several sectors, including textile industry, shipbuilding, agro business, logistics, renewable energy, mining and Information Technology, that can be considered for trade and investment.

North-Korea is competing with other Asian countries by offering skilled labor for very low monthly wages and by offering tax incentives.  Last year, North-Korea’s exports rose with 23 percent and its imports with 32 percent. Do you want to explore new business opportunities for your company? Then join us from 19 – 26 September 2009 on our trade & investment mission to North-Korea. The program includes individual matchmaking, company visits, network receptions and dinners. Furthermore, we will visit the annual Autumn International Trade Fair in Pyongyang (see photo). We will also meet European business people who are working and living in North-Korea.
 
The mission is meant for entrepreneurs from various business sectors; tailormade meetings will be arranged by our local partner, the DPRK Chamber of Commerce. The program of this unique mission has been attached and we can be contacted for further details. In case you want to participate: please register as soon as possible, so we can start the visa-application procedure.
 
With best regards,
Paul Tjia (sr. consultant ‘global sourcing’)
GPI Consultancy, P.O. Box 26151, 3002 ED Rotterdam, The Netherlands
E-mail: paul@gpic.nl tel: +31-10-4254172  fax: +31-10-4254317 Website: www.gpic.nl
 
N.B. some examples of investment opportunities in North-Korea:  
http://www.gpic.nl/invest(hungsong).pdf and http://www.gpic.nl/invest(clock).pdf 

GPI’s marketing flyer is here.

Last week we mentioned the curious case of Kim Kwang Jin, a high-ranking defector who helped raise money for the North Korean government who is spending a year here in DC at the Committee for Human Rights in North Korea.  This week he spoke to Fox News and painted a broad picture of the DPRK’s financial strategy:

Trim and sharply dressed, his bushy head of hair dyed jet black, the 42-year-old Kim, once an English professor at a computer college in Pyongyang, speaks polite and fluent English, albeit in a halting style and with a heavy accent.

An interview with FOX News in late June marked Kim’s first with an American TV news channel. Kim recounted his extraordinary experiences working for the Northeast Asia Bank and Korea National Insurance Corporation, where he handled accounts worth hundreds of million of dollars.

He described two economies in North Korea: one administered by the North Korean Cabinet and nominally oriented toward serving the needs of the people; and a “Royal Court economy,” financed by illicit enterprises worldwide and providing the stream of hard currency that keeps Kim Jong Il, and his cronies, ensconsed in power and luxury.

“Kim [Jong Il] himself enjoys a lavish lifestyle,” said Kim Kwang Jin. “He is giving gifts to his associates: the Mercedes-Benz[es] and whiskeys, first-class room and [air]fare from Japan. Everything’s provided to his aides….Kim Jong Il himself is now ruling the country with [the] dollar, hard currency….Without hard currency they cannot rule the country.” 

Kim Kwang Jin described a society in which bankers demand bribes from clients, doctors from patients, professors and teachers from students. 

“Everybody tries to make use of their position, their authority…to survive,” Kim said.

The former banker said the regime’s largest source of hard currency comes from the clandestine manufacture and sale of weapons of mass destruction. After that comes the regime’s multibillion-dollar insurance fraud business, in which the authorities stage arson and bogus accidents to collect multimillion-dollar payouts from international banks and insurers. 

“The state — Kim Jong Il himself — controls all these funds,” said Kim Kwang Jin. “It is funneled to him. And then he’s using all these revenues according to his regime’s priorities, which are now the missile program and nuclear weapons development.”

Kim Kwang Jin believes the North Korean government has never negotiated in good faith with the United States and its allies at the Six-Party nuclear disarmament talks. 

“The North Koreans are coming to the table not for negotiation; they are there for winning, for implementing their strategy,” he said. To grant meaningful concessions at such negotiations, or to enact meaningful internal reforms toward democratization, would, Kim says, be tantamount to “suicide to the regime.”

Yet Kim also believes financial sanctions can compel better behavior from Pyongyang, and cites as an example the Treasury Department’s targeting from 2005 to 2008 of Banco Delta Asia: a bank in Macau, also known as “BDA,” through which the North Korean regime once transferred large sums. It was during this period, when Banco Delta Asia faced international restrictions, that the North made its most far-reaching concessions in the Six-Party Talks, only to renege on them once the sanctions were lifted.

“The BDA case was a frightening thing to the regime,” Kim said. “It was a blow to [Kim Jong Il’s] personal funding, to the economic sector which is now supporting the regime. And even the national economy, the people’s economy run by [the] Cabinet, is influenced by this BDA case. 

Here is his interview on Fox News via YouTube. 

Read the full story here:
North Korean Defector Describes Inner Workings of Isolated Regime
Fox News
James Rosen
7/2/2009

On January 21, the day after the Obama administration took office, the White House approved certain trade sanctions–initiated by the Bush administration–to be printed in the Federal Register.  These sanctions targeted specific Chinese, Iranian, and North Korean companies that the US believes were/are violating arms export regulations governing missile technology and other proliferation activities.  [Read more, including Federal Register text, here]

After North Korea conducted a long-range missile test in April, the US pushed the UN Security Council to adopt a presidential statement which blacklists several additional North Korean firms. [Read more here].

After North Korea conducted a second nuclear test, in violation of UNSC resolution, the UNSC adopted a resolution which tightened sanctions on the DPRK. [Read more here]

In June, the South Korean government imposed sanctions on these DPRK companies for the first time [Read more here]

The US followed up the UNSC resolution by announcing an inter-agency team that will focus exclusively on enforcing DPRK sanctions [Read more here] 

Today, the US Treasury Department announced it was targeting Hong Kong Electronics (Kish Island, Iran) [from where a former FBI agent is still missing] for supporting the balcklisted North Korean organizations.  According to Market Watch:

The Treasury Department said Tuesday that it has targeted another player in North Korea’s missile proliferation network. The agency designated Hong Kong Electronics, located in Kish Island, Iran, for providing support to North Korea’s Tanchon Commercial Bank and Korea Mining Development Trading Corp. Those two firms have been targeted by the U.S. and the United Nations as part of North Korea’s nuclear proliferation network. “Today’s action is a part of our overall effort to prevent North Korea from misusing the international financial system to advance its nuclear and missile programs and to sell dangerous technology around the world,” said Stuart Levy, Treasury under-secretary for terrorism.

What does this mean? It means that any bank accounts or other financial assets found in the United States belonging to the company must be frozen. Americans also are forbidden from doing business with the firm. This probably does not amount to much economically, but is probably intended to discourage banks outside of the US from doing business with these firms.

UPDATE 1: It looks like the State Departmet is also going after a North Korean company believe to be involved in weapons proliferation today.  According to a statement by the Treasury Department:

The U.S. Department of the Treasury today targeted North Korea’s missile proliferation network by designating Hong Kong Electronics under Executive Order 13382.  E.O. 13382 freezes the assets of designated proliferators of weapons of mass destruction and their supporters and prohibits U.S. persons from engaging in any transactions with them, thereby isolating them from the U.S. financial and commercial systems.  Hong Kong Electronics, located in Kish Island, Iran, has been designated for providing support to North Korea’s Tanchon Commercial Bank (Tanchon) and Korea Mining Development Trading Corporation (KOMID).

Tanchon and KOMID have also been designated by the United States under E.O. 13382 and the UN Security Council under Resolution 1718. The Department of State also today targeted North Korea’s nuclear proliferation network by designating Namchongang Trading Corporation (NCG), a North Korean nuclear-related company in Pyongyang, under E.O. 13382. 

“North Korea uses front companies like Hong Kong Electronics and a range of other deceptive practices to obscure the true nature of its financial dealings, making it nearly impossible for responsible banks and governments to distinguish legitimate from illegitimate North Korean transactions,” said Stuart Levey, Under Secretary for Terrorism and Financial Intelligence. “Today’s action is a part of our overall effort to prevent North Korea from misusing the international financial system to advance its nuclear and missile programs and to sell dangerous technology around the world.”

Since 2007, Hong Kong Electronics has transferred millions of dollars of proliferation- related funds on behalf of Tanchon and KOMID. Hong Kong Electronics has also facilitated the movement of money from Iran to North Korea on behalf of KOMID. Tanchon, a commercial bank based in Pyongyang, North Korea, is the financial arm for KOMID – North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons.

Tanchon plays a key role in financing the sales of ballistic missiles for KOMID. Tanchon has also been involved in financing ballistic missile sales from KOMID to Iran’s Shahid Hemmat Industrial Group (SHIG), which is the Iranian organization responsible for developing liquid-fueled missiles. SHIG has been designated under E.O. 13382 and sanctioned by the United Nations under UN Security Council Resolution (UNSCR) 1737. Since 2005, Tanchon has maintained an active relationship with various branches of Iran’s Bank Sepah, an entity designated under E.O. 13382 and sanctioned by the United Nations under UNSCR 1747, for providing financial services to Iran’s missile program. The U.S. has reason to believe that the Tanchon-Bank Sepah relationship has been used for North Korea-Iran proliferation-related transactions.

Here is the press release by the State Department:

The U.S. Department of State today targeted North Korea’s nuclear proliferation network by designating Namchongang Trading Corporation (NCG) under Executive Order 13382. E.O. 13382 is an authority aimed at freezing the assets of proliferators of weapons of mass destruction and their supporters, and at isolating them from the U.S. financial and commercial systems. Entities designated under E.O. 13382 are prohibited from engaging in all transactions with any U.S. person and are subject to a U.S. asset freeze.

NCG is a North Korean nuclear-related company in Pyongyang. It has been involved in the purchase of aluminum tubes and other equipment specifically suitable for a uranium enrichment program since the late 1990s.

The Department of the Treasury also today designated Hong Kong Electronics, located in Kish Island, Iran, for providing support to North Korea’s Tanchon Commercial Bank (Tanchon) and Korea Mining Development Trading Corporation (KOMID). Tanchon and KOMID were designated by the United States under E.O. 13382 on June 28, 2005 and the UN Security Council under Resolution 1718 on April 24, 2009.

North Korea’s April 5, 2009 launch of a Taepo Dong-2 (TD-2) missile and May 25, 2009 nuclear test demonstrate a need for continued vigilance with respect to North Korea’s activities of proliferation concern. The designations add to continuing U.S. efforts to prevent North Korean entities of proliferation concern from accessing financial and commercial markets that could aid the regime’s efforts to develop nuclear weapons and the missiles capable of delivering them.

McClatchy has more here.

According to the Washington Post:

The White House is ramping up its efforts to enforce sanctions against North Korea by forming a new interagency team to coordinate U.S. actions with other nations, senior administration officials said today.

The new team will be led by former ambassador to Bolivia Philip S. Goldberg, who is slated to leave for China in the near future as the U.S seeks concerted action to stop the North Korean regime from developing nuclear weapons.

“There is a broad consensus about the need to have a focused and engaged effort to see that these sanctions are implemented … and that we’re sharing information with each other,” one official said, speaking on background.

U.S. officials described the new group as a way to focus the administration more squarely on implementation of the latest sanctions, which were approved by the United Nations in the wake of North Korea’s nuclear test last month.

The officials said they are hoping the group — with representatives from the State Department, the White House, the National Security Agency, Treasury and others — will help “shine a spotlight” on the actions of the regime.

“We wanted somebody who woke up every morning and thought about nothing but sanctions implementation,” one official said. “It’s a huge difference when you have somebody who isn’t worried about any of the other aspects of this.”

The White House also announced a renewed effort to use the authority of the U.N. resolution to take financial actions against the North Korean regime in an effort to choke off the money flowing from small arms trade and other activity.

Treasury officials have issued a public memorandum to private financial institutions reminding them of the global condemnation and other risks of doing business with the North Korean regime.

The letter warns that North Korean banks and institutions often use deceptive techniques to engage in financial transactions that could place legitimate financial firms at risk.

“Financial institutions should apply enhanced scrutiny to any such correspondent accounts they maintain, including with respect to transaction monitoring,” the letter states.

One senior official said the U.S. is confident that the financial sanctions will over time help to further isolate North Korea and pressure its leaders to abandon its nuclear program.

“It’s going to take time to have a bite,” he conceded. “But we’re trying to get out of the box quickly.”

The Bush administration also had a sustained effort to implement United Nations sanctions after North Korea first tested a nuclear weapon in 2006.

The Counterproliferation Directorate of the White House National Security Council coordinated the effort, while the State Department and Treasury also co-chaired an interagency effort to examine specific cases that eventually worked their way up the chain for approval.

A team of senior officials, led by the undersecretary of State for arms control, traveled to Asia to work closely with allies. But the effort was dropped after Bush shifted course and decided to pursue diplomacy with North Korea.

Their first stops: China then Malaysia.

Citations:
New North Korea Sanctions Team Formed
Washington Post
Michael D. Shear and Glenn Kessler
6/26/2009

U.S. North Korea sanctions team to visit Malaysia
Reuters UK
7/2/2009