North Korean Economy Watch

Vanity Fair has published a lengthy article about the DPRK’s mysterious Bureau 39 which is allegedly behind a number of illicit activities such as counterfeiting US currency and cigarettes, smuggling drugs and bilking western insurance companies with fraudulent claims. The full article is worth reading here.  (h/t DPRK Studies)

Of immediate interest, here is the supposed location of Bureau 39 just south of the Grand People’s Study House:

Hamer’s three-year investigation—code-named Operation Smoking Dragon—began not with supernotes but with counterfeit cigarettes, which were being shipped by freight container from China into California ports by the millions. These, too, says Asher, originated in North Korea, and were the subject of a report by the Coalition of Tobacco Companies, one of whose investigators made an undercover visit, posing as a buyer, to North Korean factories in Pyongyang and the northeastern city of Rajin. These turn out fake Western brands, such as Marlboros, in such quantities that they generate as much as $720 million in gross revenue each year. Hamer set up a number of front operations to get inside the cigarette-smuggling business, and soon had many contacts who dealt with him as if he were a smuggler, too. In the spring of 2004, Hamer and his colleagues were asked by F.B.I. headquarters to see if they could acquire North Korean supernotes. One of Hamer’s best customers, Chao Tung “John” Wu, who eventually pleaded guilty to smuggling counterfeit currency, cigarettes, and narcotics, as well as conspiring to broker a deal for Chinese-made, shoulder-fired missiles, but died before he was sentenced, promised he could supply them with the help of a man who was a frequent visitor to North Korea—Wilson Liu. The notes were so good, Wu said at a secretly recorded meeting, “you can even go to Las Vegas and slide them into the machines—they take them right away.”

According to the Dow Jones Newswire:

The U.S. Treasury Department Tuesday announced sanctions on the Korea Kwangson Banking Corp., a bank the department says is tied to North Korea’s nuclear and weapons trade.

Treasury alleges that North Korea used the Korea Kwangson Banking Corp., or KKBC, to hide nuclear proliferation activities.

The department accuses the bank of providing financial support to Tanchon Commercial Bank and a unit of the Korea Ryonbong General Corp., both of which have already been identified by the U.S. government as weapons of mass destruction proliferators.

“North Korea’s use of a little-known bank, KKBC, to mask the international financial business of sanctioned proliferators demonstrates the lengths to which the regime will go to continue its proliferation activities and the high risk that any business with North Korea may well be illicit,” Treasury Under Secretary for Terrorism and Financial Intelligence Stuart Levey said in a statement.

According to the Associated Press:

The sanctions mean bank accounts or other financial assets found in the United States that belong to the firm are blocked. Americans also are prohibited from doing business with the bank. It is based in North Korea and has operated at least one overseas branch in Dandong, China.

Further information:
1. Here is an earlier post that contains information on other sanctions imposed this year.

2. Aside from the US and UN, China has also “sanctioned” the DPRK this year.  See here and here.  No doubt they will react to the Dandong branch of KKBC as well. 

3. Stephan Haggard Marcus Noland call these kinds of actions “Whac-a-Mole.” Read their analysis here. 

4. Joshua notes that this company was one of the North Korean banks listed in Treasury/OFAC’s June 18th advisory about North Korean financial institutions engaging in money laundering activities.

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

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-7-28-1
7/28/2009

The Standing Committee of the North’s Supreme People’s Assembly announced, through a cabinet order on July 22, the establishment of a new Ministry of Foodstuff Manufacturing. According to (North) Korean Central Broadcasting, the standing committee created the new bureau with Cabinet Order 161, but no further details were revealed. The designation of ‘Ministry’, however, indicates that the new entity will be under the control of the Cabinet.

At the first session of the 12th Supreme People’s Committee, last April, the Cabinet identified 37 government facilities, including three committees, thirty ministries, two bureaus, one institute, and one bank; the establishment of this new Ministry of Foodstuff Manufacturing brings the number of offices under Cabinet control to 38.

It appears that the establishment of such a ministry is closely tied to the regime’s efforts at improving the daily lives of the people of North Korea as it strives to achieve a ‘Strong and Prosperous Nation’ by 2012. North Korean authorities have shown an awareness of the need to raise the standard of living for the average resident. After inspecting the Samilpo Special Product Factory and the factory-run store, both operated by the military, Kim Jong Il declared that the store was an example of a significant turn-around in public service activity for the residents of the country.

On July 14, a ‘Commerce Sector Leaders Conference’ was held in Pyongyang, with Cabinet Vice-Minister Kwak Beom Ki and Minister of Commerce Kim Bong Cheol in attendance. Discussion at the conference focused on “Tasks and Means for Turning Around Public Service Activities for the People.” Just as was seen last year, North Korea continues to emphasize improving the lives of the people, while focusing on resolution of food shortage issues and ensuring adequate supply of daily necessities, as well as continuing to build housing in Pyongyang. Despite these calls for improvement, however, the continued prioritization of military and heavy industry development, combined with raw material shortages means that no real progress has been made. 

ORIGINAL POST: According to Yonhap:

North Korea said Wednesday it has created the Ministry of Foodstuff and Daily Necessities Industry as the country strives to resolve its food shortage within years.

The Presidium of the Supreme People’s Assembly issued a decree on setting up the ministry, the official Korean Central News Agency said in a one-sentence dispatch. It gave no further details.

According to KCNA:

Decree of DPRK SPA Presidium Issued

Pyongyang, July 22 (KCNA) — The Presidium of the DPRK Supreme People’s Assembly issued a decree on setting up the Ministry of Foodstuff and Daily Necessities Industry on July 22.

Read the full story here:
N. Korea sets up food ministry
Yonhap
6/22/2009

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

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-7-15-1
7/15/2009

Despite the fact that inter-Korean relations continue to be stalled, North Korea authorities reportedly provided approximately 1,300 new workers in June for businesses entering the Kaesong Industrial Complex (KIC). Despite the fact that there has been no progress in inter-Korean working-level talks between authorities involved in the KIC, the North is continuing to provide a labor force for South Korean businesses in the complex.

An official from the Kaesong Industrial District Management Committee verified that “approximately 1,300 new laborers were supplied last month,” and that “there are some young workers, as well, but the majority are 30 to 40-year-old women.” The official also explained, “the number of laborers was reduced slightly at the beginning of the year; while [their number] was insufficient, laborers continue to come…up until June of this year, while the number fluctuated, an average of around 700 per month [were provided].” Last year, the number of new workers each month was around 1,000.

New workers continue to be provided to the KIC, but there has also been a sharp increase in the number of workers quitting or being removed from their positions. At the end of June, there were 40,255 North Korean laborers; the overall number of workers provided by the North has only increased by 1,324 since the end of last year.

The source explained that at the beginning of 2009, more than 2000 construction workers quit. It appears, according to the numerous reports on the status of employment in the KIC, that the supply of workers is still insufficient, but that the North Korean authorities are working as hard as possible to provide what manpower they can.

North Korea’s Central Special Zone Development Guidance General Bureau recently held a general assembly for all North Korean labor representatives, and ordered them to “work to the max” in order to alleviate all complaints by South Korean businesses. However, as there has still been no resolution to the issue of constructing additional dormitories for the workers, this issue will continue to restrict growth in the number of North Korean laborers, regardless of the attitude in Pyongyang.

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