North Korean Economy Watch

Details are starting to emerge on North Korea’s recent anti-corruption drive.   

North Korean authorities have been investigating the chief of a North Korean committee in charge of inter-Korean economic cooperation for months after seizing $20 million from his house, a report said Friday.

Quoting an unidentified Chinese source informed on North Korean affairs, the Dong-A Ilbo newspaper said Pyongyang authorities are intensifying their investigation into Jung Woon-eop and 80 other officials of the committee over where the money came from.

It is possible that this is just a good old fashoned purge.

It is also possible that this campaign is the first stage in a policy shift.

The full article can be found here:
NK Official Suspected of Embezzling Funds From Seoul
Korea Times
Jung Sung-ki
02-22-2008

Last Friday, Yonhap reported that Kim Jong Il has ordered an anti-corruption investigation of two key agencies, both of which manage South Korean investments in the DPRK: the United Front Department (which Lankov claims is involved in clandestine operations) and the National Economic Cooperation Council.

North Korea is in the midst of a massive anti-corruption drive which has already resulted in the arrest of one of its top officials handling business with South Korea, informed sources in Seoul said Saturday.

The campaign, ordered by leader Kim Jong-il, was prompted by widespread allegations that some top party and administration officials took bribes as they pushed business projects with South Korean industrialists, said the sources well versed in North Korean affairs.

“The probe was launched as National Defense Commission Chairman Kim Jong-il said there was a lack of supervision over the United Front Department [a key party organization that supervises inter-Korean affairs], although lots of suspicions were raised over the department’s corruption,” one source told Yonhap News Agency.

According to the sources in Seoul, the North Korean leader was enraged after getting a report that some party and government officials allegedly pocketed bribes and diverted food and other aid from South Korea to black markets.

Also under investigation is the National Economic Cooperation Council, a government body that handles business with South Korean entrepreneurs, the sources said.

The Council’s chief, Jeong Woon-eop, remains under arrest pending investigation into allegations that he took “huge amounts” of bribes, said the sources, who wanted to remain anonymous. (Yonhap excerpted)

Frequently “anti-corruption campaigns” in developing countries have nothing to do with making the bureaucracy more accountable or responsive to public demands, but rather are political maneuvers to prevent “rents” or funds from being channeled to uses that lie outside the leadership’s control (or some faction of the leadership).  In other words, they are regime enhancing.  The announcement of this campaign demonstrates two important principles that deserve explicit mention:

1. Not all profits earned by North Korean joint ventures are channeled to the leadership, and in fact many of them are siphoned off by middlemen who actually control the financial machinery.  Once skimmed off the top, it is likely that these funds are used in illicit private commercial operations since they cannot be legally declared by the owner (unless there are domestic channels for laundering money in North Korea).

2.  If funds are being siphoned off of high-profile official joint venture operations, then the leadership is not in control of its internal fiscal affairs.  Indeed it is likely that, as in the Soviet Union, the people who keep the private economy running are the trusted mid- to senior-level officials who can skirt the rules and know how to actually get things done within the system.

Update 2/24/2008:

North Korean authorities have been investigating the chief of a North Korean committee in charge of inter-Korean economic cooperation for months after seizing $20 million from his house, a report said Friday.

The full article can be found here:
NK Official Suspected of Embezzling Funds From Seoul
Korea Times
Jung Sung-ki

Update 2/12/2008:

The chief of Daesung General Bureau, a division of the 39th Department which manages foreign transactions, was fired on suspicion of embezzling US$1.4 million last fall.” (Daily NK)

The full article can be found here:
North Korea launching massive anti-corruption drive
Yonhap
2/9/2008

Institute for Far Eastern Studies (IFES)
NK Bfrief No. 08-2-5-2
2/5/2008

It appears that from the end of last year through this January, North Korean Party, regional, cabinet and People’s Committee officials have been carrying out inspections of trading companies, ordering massive layoffs and closings of companies where mis-management or other abnormalities are found.

In Yonhap News, a North Korean insider in Beijing, China was quoted on the 31st as saying, “Since November of last year, North Korean authorities have carried out inspections on trading companies under the control of each organization, with layoffs at most trading firms with abnormalities, deficits, or other mismanagement.”

According to the source, over 100 trading companies are registered in Chungjin, South Hamkyung Province, but after the current housecleaning measures are enforced, only around 15 will remain in operation, with practically all problematic offices being closed down.

Another North Korean source in Shenyang, China reported, “These inspections include trading offices run by the Party, military, and other so-called ‘powerful institutions’, so across the board, there are no exceptions, and as to the growing intensity [of the inspections], they are much stronger and wider in scope than formal annual inspections that have been carried out in the past.” “The order handed down at the end of last year to greatly reduce staff in the Party, military and Cabinet happens every year, but this year massive lay-offs in the workforce at trading companies appears to related to a different kind of personnel liquidation.”

These inspections reportedly stem from an incident at the end of last July in which Oh Moon-hyuk, branch manager of the Ruengra 888 trading company in Yunsa, North Hamkyung Province, was executed after being implicated in the smuggling of timber. The trading company was responsible for the export of timber, and operates under the control of the Party’s accounting bureau. The inside contact stated that because of this incident, North Korean authorities carried out further inspections, leading in October of last year to the dismissal of one official receiving vice-minister pay, and the broadening of the inspections nationwide.

Through the inspection-broadening measures, trade officials under the North Pyungan Province trade office also received an inspection party from the central government, causing many problems for Chinese traders who could not travel in from Dandong. Through these inspections, North Korean authorities reportedly uncovered several cases of embezzlement and misappropriation of company finances while the trading companies were exporting marine products or coal, iron ore, and other mining materials.

The goal of these inspections appears to have been the restoration of public order, just as the recent measures preventing women under the age of 45 from working in markets was a reaction to diminishing public discipline. In the future, price controls, regulations on export goods, or other government regulations regarding international trade are likely to be strengthened.

Daily NK
Yang Jung A
1/3/2008

Through its publication “North Korea is Changing” the Korea Institute for National Unification (KINU) highlighted numerous changes and reforms that have occurred in North Korea due to the 2002 “July 1st Economic Maintenance Reform Policy” (Hereon referred to as the “July 1 Policy”). This publication deals with the changes the North Korean economy is undergoing following the economic crisis of the 1990s, and expounds on the country’s prospects for future economic reform.

The following is a summary of the main points introduced in the publication.

The “Invisible Hand” at Work in North Korean Markets

Following the enactment of the July 1 Policy in 2002, agricultural markets transformed into general markets. Soon, industrial products were being sold alongside agricultural products as the free market spirit spread to the country’s distribution system.
Along with the rise of general markets, street markets, and individualized commercial activities, a new merchant class is emerging. People who are able to put to use business acumen and an understanding of market principles are able to accumulate personal wealth. This demonstrates that aspects of Western-style rationalist thinking, including the pursuit of profit-seeking are being instilled in the minds of the North Korean people.

It is difficult to say if this experiment in free market economics will be successful in the long run. More than anything, due to the rigidity of the North Korean regime, the realm in which the “Invisible Hand” can operate is greatly restricted. This is the fundamental paradox facing North Korea’s prospects for reform and opening.

“Hardworking Heroes” Become “People with Two Jobs”

As the economic difficulties became severe, work opportunities evaporated. Living off of the wages provided by the state became impossible. North Korean laborers responded to this by taking on side jobs or engaging in independent sales.

According to defectors living in South Korea, after the July 1 Policy, there has been an increase “People with Two Jobs.” These are people who are engaging in economic activities additional to their primary occupations. People are beginning to accept the notion that it is better to work for personal benefits than to receive the title of “Hardworking Hero.”

Such phenomena have also changed people’s perceptions about occupations in general. For example, the elite classes now prefer diplomatic positions and jobs where they can make international connections, rather than working in party or government positions. The common people prefer agricultural jobs with the benefits of access to the food distribution system and the ability to earn side profits by being a merchant. In addition, common people also prefer being personal drivers, photographers, workers at the Food Distribution Office, servicepersons, or fishermen.

Business Conglomerates Are Emerging in North Korea

With the implementation of the July 1 Policy, North Korea has witnesses the creation of its first business conglomerates. A case in point is the Korea Pugang Corporation, which has expanded to include 9 subsidiaries and 15 foreign offices engaging in various lines of work. The website of the “Korea Pugang Corporation” reveals that the company has around $20 million in capital and does an average of $150 million of business each year.

The executives in charge of the company’s growth are brothers Jon Sung Hun and Young Hun. President Jon Sung Hun is in his early 50s and studied abroad in Tanzania before returning home to teach English at Kim Il Sung University. He later became a businessperson. His English skills are among the top 10 in North Korea. Young Hun is in his 40s and is the president of a company affiliated with the Finance and Accounting Department of the Workers’ Party. His company dominates North Korean diesel imports.

If the Jon brothers are the representative examples of conglomerate-based new capital, Cha Chul Ma ranks high among those who earned capital due to their power in North Korean society. With his focus on doing business with China, Cha is known for his ability to earn foreign currency and dominates the foreign currency earning businesses belonging to the Standing Committee of the Supreme People’s Assembly. His personal wealth is said to be over $10 million.

As the son-in-law of Lee Jeh Gang, the First Vice Director of the Guidance Department of the Workers’ Party, Cha gets some support from his father-in-law. Cha, who is known to live so freely that he was seen wearing Bermuda shorts on the streets of Pyongyang, is said to be a “Representative Case of a North Korean who succeeded in business on his merits, regardless of assistance from surrounding figures”.

The Number One Worry is Sustenance

North Koreans are said to live three different lives: their family lives, their working or school lives, and their political lives. Their lives are organized by politics from “cradle to grave,” and they must attend various political meetings, organizations, and study sessions. However, there are many people who are unable to participate in regular meetings of their political units due to economic difficulties. As they do not receive sufficient food distributions and their wages are too low, they must seek their food independently through individual economic activities.

Because the transportation infrastructure in the country is not advanced, it takes at least half a month to one month to go into the countryside to search for food and then they must return and sell the food or daily-use items they acquired, leaving little time for any other activities. Ninety percent of North Koreans engage in some form of business, and as a result, only an estimated 30% to 60% participate in required political activities.

Marriage Culture

These days, in North Korea, the ideal spouse is the one who makes the most money. Previously, when North Korean women chose their spouses, they considered the social status of their potential suitor. However, after the economic crisis, they started to prefer businesspersons and people who earn foreign currency, instead of discharged soldiers and cadres. For men as well, they now prefer money to looks as society increasingly revolves around the economy. As a result, an overwhelmingly higher proportion of men marry older woman than before.

Marriage customs are simplifying as well. Before the economic crisis, women usually provided the domestic items for the household and men provided the estate. However, after the economic crisis, dowries have downgraded into simple things like clothes. Because the allocation of estates has been delayed, more and more people are living at their parents’ homes.

Especially for women, there have been some phenomenal changes. Many women consider marrying late or not marrying at all. Reasons for this include the fact that woman cannot marry men just because the men can’t work and needs a woman to bring home money. Even in such a patriarchal culture, such complaints are becoming increasingly common.

The most authoritative map of North Korea on Google Earth
North Korea Uncovered v.7
Download it here

This map covers North Korea’s agriculture, aviation, cultural locations, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the sixth version.

Additions to the latest version of “North Korea Uncovered” include: A Korean War folder featuring overlays of US attacks on the Sui Ho Dam, Yalu Bridge, and Nakwon Munitians Plant (before/after), plus other locations such as the Hoeryong Revolutionary Site, Ponghwa Revolutionary Site, Taechon reactor (overlay), Pyongyang Railway Museum, Kwangmyong Salt Works, Woljong Temple, Sansong Revolutionary Site, Jongbansan Fort and park, Jangsan Cape, Yongbyon House of Culture, Chongsokjong, Lake Yonpung, Nortern Limit Line (NLL), Sinuiju Old Fort Walls, Pyongyang open air market, and confirmed Pyongyang Intranet nodes.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.

Korea Times
Ryu Jin
12/11/2007

Namkwang Engineering & Construction, a South Korean company which has recently been stepping up efforts for inter-Korean economic projects, plans to form a joint venture with a North Korean firm for construction works in the North and other countries.

Namkwang E&C CEO Lee Dong-chul told reporters Tuesday that his company, along with 516 Construction Company in the North, will seek to win construction orders in foreign countries including Angola as well as North Korean cities such as Gaeseong and Pyongyang.

“We signed a memorandum of understanding (MOU) for joint projects with the North Korean firm late last month,’’ he said in a press meeting. “They could be operated in the form of a joint venture, depending on the final agreement to be signed early next year.’’

Lee added that Namkwang would largely provide capital and construction technologies to the proposed joint-venture company while the North Korean firm would supply labor.

Founded about 50 years ago, 516 Construction Company is the only construction firm in the North Korean border city of Gaeseong where an inter-Korean industrial complex is located. It has constructed apartments in the city with more than 3,000 workers.

“Currently, the firm is building a steel-frame factory in the Gaeseong Industrial Complex including reinforced concrete, tiles and plaster work under a contract with us,’’ Lee said. “Maybe we can take part in construction works in Angola and Libya jointly.’’

Namkwang, which recently got government approval for cross-border projects, has invested some 7.6 billion won ($8.23 million) since October to build the steel-frame factory which would be used for the second-phase construction of the Gaeseong Industrial Complex.

Lee said that his company would also redouble efforts to get more orders for overseas construction in such countries as Angola, Libya and Vietnam next year. Namkwang has received orders worth $1.1 billion along with NIEC, a joint venture in Angola, since 2005.

Established in 1947, Namkwang has carried out a lot of large-scale projects in South Korea and also advanced to foreign countries such as Saudi Arabia, Iraq and the Philippines for construction of buildings, roads, dams and harbors on the back of its unique technology.

Daily NK
Han Young Jin
12/7/2007

In North Korea nowadays, individual-use PCs concentrated in Pyongyang and Chongjin, Shinuiju and other large-size cities have been gradually increasing. The trend has been rapidly increasing due to the propagation of computers by North Korean party organizations, the administrative committee office and middle schools.

The computerized citizen registration project by the North Korean village office was completed around the Local People’s Assembly representative elections last July.

A source from Shinuiju, North Pyungan said in a phone conversation with DailyNK on the 5th, “Provincial organizations and the village office are taking on computer-based projects. Large-city wealthy people are also acquiring computers left and right due to their children’s education.”

The new-rich class, who have made huge profits from recent trade with China, believe gradually that “The outer society cannot do anything without computers. Our children have to learn computers, too, to not get behind.”

A majority of computers provided to North Korea are Chinese and South Korean-made and have entered through official trade with North Korea, but a portion has been going through smuggling. South Korean computers, with the exception of Korean software, are permitted. North Korea uses North Korean word processors, such as “Dangun” and “Changduk.”

A portion of the upper-class use the new model computers smuggled from China, but a majority use secondhand Pentium IV-processor or below imported from China. In North Korea’s Shinuiju, a computer (Pentium II) which includes a used CTR monitor is 100~120 dollars and a computer which includes LCD monitor is 300 dollars. The offering price for a used laptop is around 300 dollars.

He said, “People cannot connect to the internet via computers, but can use most programs set up on computers. The resident registration computerization project has been completed and in Pyongyang, networks between libraries are in operation.”

North Korea is the single country in the world that is not connected to an internet cable network. North Korea, while being endowed with the national domain suffix, “kp”, does not operate a domain. People cannot use internet, but can use software programs set up on individual computers such as MS-Word, Excel, and Photoshop.

In North Korea, after 2000, the import of used and new computers from China, Japan, and South Korea through individuals and companies increased dramatically. Around 2001, around 2,000 Samsung, LG and TriGem Computer were provided to North Korea’s main colleges such as Kim Il Sung University and Kim Chaek University of Technology.

Mr. Kim said, “Chosun (North Korea) people prefer LCD monitors, not CTR monitors. Computers that have been coming in North Korea are mostly made in China and South Korean computers such as Samsung, LG, and TriGem Computer have been widely distributed as well.”

Electronic Publications Service using Domestic Network Possible

North Korea prohibits internet, so computer education mostly focused on program usage are taught in colleges and high schools. In schools for the gifted and college computer majors nationwide, a new generation of software developers is being nurtured.

Major organizations in the area of software development are Chosun (North Korea) Computer Center (KCC), Pyongyang Program Center, and the Academy of Sciences.

Since 2002, North Korea has created a network connecting the libraries of Grand People’s Study House, Kim Il Sung University, and Kim Chaek University of Technology. The network has been expanded throughout Pyongyang and the provinces. Currently, a few high officials in Pyongyang can use reportedly the Grand People’s Study House’s electronic publications service at home.

Bloomberg
Bomi Lim
11/13/2007

North Korea’s Daepung Investment Group will set up a $10 billion fund with China Development Bank to help Chinese firms operating in North Korea, Yonhap News reported, citing the company’s vice president.

The fund will be used to help Chinese companies build roads, railways and ports in North Korea, Daepung Vice President Bae Kyeong Hwan was quoted as saying. Bae didn’t say how much each country will contribute the fund.

Daepung also plans to set up a bank to attract investment from overseas, the report said.

China is North Korea’s biggest trading partner and an important provider of food and fuel. North Korea is isolated from most of the rest of the world and has received virtually no foreign investment.

The most authoritative map of North Korea on Google Earth
North Korea Uncovered: Version 6
Download it here

This map covers North Korea’s agriculture, aviation, cultural locations, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the sixth version.

Additions to the newest version of North Korea Uncovered include: Alleged Syrian nuclear site (before and after bombing), Majon beach resort, electricity grid expansion, Runga Island in Pyongyang, Mt. Ryongak, Yongbyon historical fort walls, Suyang Fort walls and waterfall in Haeju, Kaechon-Lake Taesong water project, Paekma-Cholsan waterway, Yachts (3), and Hyesan Youth Copper Mine.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.

Daily NK
Yoon Il Geun
11/2/2007

“Foreign Films That Are Circulating at More Than One Million CDs”

Despite the North Korean authorities’ strict control, foreign films and South Korean drama Video Compact Disks (VCDs) circulating around North Korea is reportedly over 1 million copies since 2000.

Defector Choi Young Bum (pseudonym, 38), who has circulated South Korean and foreign movie VCDs among North Korean citizens said, “If one goes to a large city market, not only Pyongyang, but Pyongsung, Chongjin, Hamheung, Wonsan, and Shinuiju, hundreds or thousands kinds of movie and drama CDs can be obtained through black marketeers.”

According to Mr. Choi, foreign movie CDs inside North Korea have become significantly more mainstream.

Mr. Choi said that the largest market for the North Korean VCD business is the Pyongsung market. He said, “In Pyongsung market alone, merchants who sell South Korean dramas or foreign movie CDs while avoiding regulations, are sufficiently over 100. One person has several hundred copies at the least while another person has over 2,000 copies on the higher end. The authorities are stepping forward for inspections, but VCDs that have been circulating are at over several million copies.”

He said, “In Pyongyang, VCDs that have been circulating are more than in other regions. In early 2000, Hong Kong movies, South Korean dramas in mid-2000s, and recently, American movies that have been translated in Korea have been drawing a lot of popularity.” He relayed that the cultural difference between Pyongyang or other large cities to the provinces are sizable. The South Korean drama “Winter Sonata” became already a classical one in Pyongyang, but was still a hit in the countryside.”

He said that with the rise in popularity of South Korean dramas among North Korean people, the VCD merchants along the border region made quite a profit.

According to Mr. Choi, the prime cost from China was 150 North Korean won, but now, the asking price is over 300 won. The price of a VCD was around 900~1,000 won per copy in 2003, but it is now over 1,500 won. The price is supposed to jump twofold as the VCDs pass through each phase through Chinese merchants, the wholesaler, runner (regional circulators), and to retail trade.

He explained, “With popular action movies or dramas, they were sold at 2,000 won per copy. South Korean Series that have been consistently popular like “Autumn Sonata,” “Hourglass,” and “Glass Slippers” are wrapped in cases by sets, so the price is a bit discounted.”

Mr. Choi said that the price of a VCD player is around 30,000 won. “There were times when we sold the VCDs in cash, but we have thrown in extra as a bonus when selling used TVs from China.”

He added, “From mid-2004, DVDs started entering North Korea. Nowadays, their qualities are better than VCDs and high-capacity DVDs have been in circulation.”

Mr. Choi said that according to a change in DVD trends, North Korea’s Hana (one) Electronics Company have assembled and sold DVD players from attachments from China with the “Hana Electronics” brand. These DVDs can be purchased at North Korean stores.

”The contents of DVDs which can be produced legally in North Korea are mostly North Korean movies, films, former Soviet movies, former Chinese movies, screen accompaniment music (music videos), etc. North Korean civilians pretend like they are watching DVDs that are officially sold in North Korea while they have been watching South Korean dramas bought from the black market.”

Defector Ms. Im, who entered South Korea, said, “North Korean citizens, when someone comes to visit them while they are watching South Korean dramas with doors locked, hide the CDs while the other person goes to the door. They switch on a North Korean CD as if they were watching a North Korean movie.”

Ms. Im said, “Even the National Security agents and the Safety agents watch South Korean dramas and most people are watching them secretly. No matter how much the authorities regulate, it is difficult to control the practice. Once people are exposed to such a culture, it is not easy to stop. They are not going to stop watching them.”