North Korean Economy Watch

Daily NK
Moon Sung Hwee
4/8/2008

April 8th is Postal Service Day in North Korea. Each province has a branch office of the Ministry of Posts and Telecommunications and Communication Maintenance Bureau. The postal system manages the distribution of letters, telegrams, telephone calls, TV broadcasts, newspapers and magazines. Additionally, they mint stamps and also operate an insurance agency in name only.

In the late 1990s, the national postal system was completely ruined

In North Korea, postal service offices are set up in each “ri”—a small village unit–, of each county to deliver letters, parcel posts and telegrams. Following the March of Tribulation in the late 1990s, the delivery system was completely destroyed and its formal structure was left in tatters. Even in the 1980s when the North Korean economy and people’s lives were relatively stable, it took around 15 days to two months on average to deliver a letter from Pyongyang to a rural village.

In the case of a telegram, it took generally 3 or 4 days to reach a postal office in a rural area. In the late 1980s, to guarantee efficiency within the telegram delivery system, the authorities supplied the offices with second-hand bicycles from Japan.

After the March of Tribulation, letters disappeared due to train delays and frequent blackouts, and the telegram service was virtually incapacitated due to the lack of electricity.

Telephones were restricted to control the outflow of national secrets

North Korea uses a separate electricity supply for its telephone system. Even if there is a power blackout in a village, villagers can still use the telephone network. In 1993, fiber-optic cables were installed and the use of mail and telegram services began to decline. North Korean people call fiber optic cable a “light telephone.”

North Korea built an automatic telecommunicates system by developing multi-communication technology with imports of machinery and by inviting engineers from China in 1998.

In 2003, authorities allowed cadres to use telephones in their houses and in 2005, they also allowed people to use the telephone at home as long as they paid 2,000 North Korean won (approx. USD0.6) a month (a monthly salary is 1,500 won per laborer).

In August, 2007, the government tightened regulations regarding the telephone system. People could make calls only within their province. Authorities said the reason was to prevent the outflow of national secrets.

The Ministry of Posts and Telecommunications controls TV and other broadcasting. There is no cable TV in North Korea. Authorities set up an ultra-short wave relay station in each county to relay television broadcasts.

North Korea signed a contract with Thailand for satellite broadcasting and installed U.S.-made transmission and relay facilities in 2000.

People can now listen to “Chosun Central Broadcasting,” but in rural areas, it is difficult to recieve signals because the broadcasting facilities and cables have already begun to deteriorate.

People sarcastically say a “newspaper is not about news but about “olds.” The authorities pay special attention to the successful delivery of the Workers Party Rodong Shinmun bulletin. To deliver Rodong Shinmun from Pyongyang to each province or even to each city and county by train, it normally takes 4-5 days. Sometimes, it takes more than a week.

People also say they use an “oral-paper” to get information because rumors are faster than the Rodong Shinmun.

Postal service workers were dragged to prison camps

In 1992, the Minister and all related officials of Posts and Telecommunications were fired, and the Minister, the Vice Minister and their families were sent to political prison camps for having wasted national finances for the import of factory machinery to produce fiber-optic cables from the U.K.

They submitted a proposal to Kim Jong Il to buy factory machines in order to earn foreign currency through the production and export of fiber optic cables. However, in the end they eventually bought worn-out machines from the U.K. and failed to earn profits. In addition, they embezzled some of the funds.

In 2001, in Lee Myung Soo Workers-District of Samjiyeon, Yangkang Province, two office workers and a manager of a relay station broadcasted Chinese TV programs that they were watching to residents by mistake, so they were sent to a political prison camp and their families were expelled to a collective farm.

Agents of the National Security Agency are stationed at the Ministry of Posts and Telecommunications in order to scrutinize mail, parcels, to tap telephone wires and to supervise residents.

The Ministry regularly dispatches professional engineers to the 27th Bureau, to the airwaves-monitoring station, and to the 12th Bureau, which was newly established to censor mobile phones.

On Postal Service Day, Chosun Central Agency often delivers praise for the development of North Korea’s postal system and facilities under the General’s direction.

However, most ordinary citizens will not be able to watch or read about it in time, for the lack of paper, electricity, infrastructure, and delivery systems.

From the Donga Ilbo:

A black Benz with the red license plate of “087” passed by quickly. 087 is a number used exclusively for the sedans of North Korean diplomats. It was easy to tell that the North Korean embassy located on this street recently purchased the luxurious sedan.

“The North Korean embassy has been full of life since the latter half of 2006 because of the increased number of North Korean workers sent to Russia, diversified businesses and growing efforts to secure energy supplies,“ said North Korean defectors that the Dong-A Ilbo report team met in Moscow.

North Korean workers will construct the next APEC forum venue:

In order to prepare for the APEC, the Primorsky regional government (on the North Korean border) plans to issue work permits to 12,000 North Korean workers in 2008, four times higher than the number of those last year. A foreign national, who has hired North Korean workers, said, “North Korean senior officials are lobbying fiercely in order to increase the quota for laborers. They even arrange free tours of North Korea for Russian government officials.”

North Korea companies revived:

Recently, North Korean companies, such as Daedong River, Neungra, Baekdu and Goonpyo, have established their offices in many parts of Russia.

A 39-year-old North Korean defector who has stayed in Russia for 12 years said, “I believe, out of the 49 Russian provinces, North Korean firms have established their offices in about 30 provinces. Some 90 percent of them are responsible for overseeing North Korean workers.”

Joint ventures between Russia and North Korea, which went into hibernation after the United States froze North Korea’s account at Macau’s Banco Delta Asia in 2005, have recently resumed their activities. “Joint companies, which were active in the early 1990s, such as Dongbang Seafood and Far East Marine Transportation, have resumed their businesses,” said one Korean-Russian residing in Nakhodka.

Wages and Taxes:

“North Korean companies, which are spread across Russia, have been collecting about $400 to 500 from each North Korean worker every month. It is then used as high ranking officials’ business expenses,” said a 46-year-old North Korean defector.

“The discontent of workers is growing because high ranking officials dine out at fancy restaurants and their wives purchase expensive clothes with money earned by them,” added the defector.

(Uncle Sam is the only other government I know of that also taxes the income its citizens earn outside of its territory)

The story also makes a big deal out of the fact that the North Koreans pay huge bribes to do business in Russia, but who doesn’t?

Big players, who deliver a large sum of bribes to Russians, have also recently emerged. A captain of a North Korea freight ship was caught March 12 on site while shipping 100 tons of crude oil without reporting to customs at the Slavyanka shipyard, southern Vladivostok. It was found that the captain gave $45,000 to the president of the crude oil storage company as a kickback.

Read the full sotry here:
N.Korea’s Businesses Thriving in Russia
Donga Ilbo
4/4/2008

Three weeks ago, the Daily NK specualted that preparations for North Korea’s political succession are leading to an end of “Songun” and a resurgence of the Korean Workers Party.  A recent story in the Donga Ilbo seems to be reinforcing this claim, noting that several assets in the military’s portfolio are being moved to various state institutions and ministries (where the Worker’s Party and probably Kim’s key supporters exercise more oversight).

Here is an excerpt from the story:

A knowledgeable source on North Korea said yesterday, “[Leader] Kim Jong Il has ordered the military to transfer its foreign operations to his cabinet and is implementing radical reform of military authorities.”

Kim ordered to reduce the number of executives and the size of the ruling Workers’ Party, government and military by 30 percent at the end of last year.

The source also said officers in the chain of command including the Ministry of the People’s Armed Forces, the National Security Council, the Ministry of State Inspection and the General Staff Department began retiring in January.

The North Korean leader is also reportedly streamlining troop distribution. The North’s Border Guard Brigade has removed regiments and the role of the minting agency has shrunk.

The Ministry of People’s Security, considered the North’s main police organization, is seeing its status rise. No longer under the control of the prosecution, the ministry can now probe corruption in the prosecution and civilian damage caused by the military.

An Anti corruption campaign and purges might also be a part of this transition.

Read the whole story here:
N.Korea Changing ‘Military-First’ Policy
Donga Ilbo
3/12/2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-3-22-1
3/22/2008

Recently, North Korea passed a measure prohibiting women younger then 49 from selling goods in markets, leading to clashes between police enforcing the rule and younger women wanting to work in markets.

The March 19th newsletter from ‘Good Friends’, an organization providing aid for North Korea, reported that on February 5th in Haeju, South Hwanghae Province, women who were not allowed to enter the local market and so were selling goods on a nearby corner physically clashed and police. This reportedly led to the arrest and detention of 9 people.

The newsletter reported, “The women held at the police station were subjected to harsh interrogation as to ‘who was the ringleader’, and after being subjected to four days of torture, one who could no longer hold out confessed to being the ringleader and was sent to a detention center, while the remaining women were all released.”

North Korean authorities announced the measure restricting women under 49 from selling goods in markets after December 1st last year, and that measure is being enforced not only in Pyongyang, but in rural areas as well.

According to Good Friends, “Just like other cities, Haeju City has received absolutely no food rations since March,” and “Women from households barely managing regular meals through market trading are being reduced to the weakest level by North Korean authorities’ prohibition on trading.”

It follows that in Haeju City, either authorities recognize that if these women can not sell in the markets their families will starve to death and so turn a blind eye to their activities, or these women, prevented from selling in markets, will continue to clash with authorities.

The newsletter also reported, “On March 3, in Chungjin City, North Hamkyung Province, organized protests by women prevented from market activities by the new regulations broke out, and Chungjin City authorities are now allowing all women, with no exception, to sell goods in markets.”

Immediately following organized protests by these women, Chungjin City officials reported the disturbances, but no policies to deal with the issue were forthcoming, and so it appears that all women, with no exception, are now allowed to conduct market activities.

In the words of Alejandro himself:

[The] Korean Friendship Association concluded its first busines [sic] delegation, headed by Mr. Alejandro Cao de Benos, Special Delegate and KFA President, in collaboration with the DPRK Committee for Cultural Relations, Ministry of Trade and the DPRK Chamber of Commerce. The group included companies from Australia, France, Spain and Lebanon in different sectors like ship building, foodstuff production, medicine, IT and infrastructure, etc. The visit was a big success and 75% of the investors signed letter of intentions and contracts. All of the participants agreed that DPR Korea has a huge potential and new market with many interesting opportunities with the lowest taxes and wages but with the most skilled, motivated workforce. The companies fullfiled [sic] all their plans and resolved the questions during the visit and they had meetings with their Korean counterparts as well as with the officials of Trade, Chamber of Commerce, Banking authorities and logistics.

They visited a Foodstuff factory,  Heavy Machinery complex, Ostrich farm as well as the ‘Kaesong Industrial Zone’ in the border with South Korea, were they had a briefing by the Director representative of Hyundai-ASAN.

After that, the investors visited a South Korean cable-making factory and a garment manufacturing plant specialized in high quality sport brands.

From KFA we congratulate the companies that concluded agreements and established Joint Ventures in the DPRK and wish them success in their projects.

From a follow up post on the KFA forum, one of the attendees appears to be Mr. Kevin Liu, head of Asian Division of London-based Exclusive Analysis.

A couple of days ago, we had an interesting exchange in the comments that I want to make sure readers have an opportiunity to see:
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Werner Koidl Says: 
 
In that Asia Times report Dr. Petrov wrote:
“… Last year the Russian auto plant KamAZ opened its first assembly line in North Korea, specializing in the production of medium-size trucks named “Taebaeksan-96″. …”

I would be interested in more details about that KAMAZ truck assembly line in North Korea ! Where ?, joint venture ?, size ?
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Leonid Petrov Says: 
 
Concerning the “Taebaeksan 96″ truck assembling plant, the KamAZ set it up last year (2007 or Juche 96) in the town of Pyeongseong. The terms of this deal with NK were really “friendly” and last year KamAZ was having no or very little profit. The production volume last year was very limited (45 or 48 trucks). However, it’s just the beginning of such cooperation.

There is one technician-representative from KamAZ who manages the assembling process. He stays in Pot’onggang HTL and commutes to Pyeongseong. Many North Korean drivers and technicians seem to be technically ignorant (i.e. not knowing how to change the engine oil, etc.), so they need a new technological culture to be introduced. Russians train them well and the North Koreans are grateful.
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Gag Halfrunt Says:

Now that explains the brochure for the Taebaeksan 96 I’d noticed on the Korean Friendship Association’s exports page. I was wondering how anyone could be making money from sticking badges on KamAZes and trying to sell them on. In any case, the export potential for the Taebaeksan 96 must be close to zero, since anyone outside the DPRK who wants a KamAZ can buy one assembled by KamAZ itself.

Trying to drum up interest in the DPRK as an investment destination, the KFA say, “All business made directly with the government, state-owned companies. No middle agents.” This is amusing, because, on the Pyeonghwa car brochure on the KFA website, they’ve sneakily deleted Pyeonghwa’s own contact details and replaced them with the KFA’s email and web addresses. I think this qualifies them a “middle agent” standing between Pyeonghwa and any potential export customers…
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Werner Koidl Says:
 
The link “brochure for the Taebaeksan 96″ given by Gag Halfrunt seems to indicate that the KamAZ Taebaeksan-96 is assembled in a joint venture with Ryongwang [Ryongbong] Trading Company of North Korea. Ryongwang Trading is also the joint venture partner of Pyeonghwa Motors (Unification Church) to assemble the “Whiparam” in Nampo. And Ryongwang Trading company is also business partner of “Kohas” company from Switzerland. And because of its connections to Ryongwang this Swiss company got in troubles with the US administration.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-3-3-1
3/3/2008

In the latest issue (February 3rd) of the DPRK Cabinet bulletin, “Democratic Chosun”, it was reported that the first extended cabinet meeting of the year opened in the beginning of February, with Premier Kim Young-il presiding. The bulletin stated that the issue of accomplishing this year’s economic plans was discussed.

At the meeting, Vice Premier Kwak Bum-ki stressed that accomplishing this year’s economic goals was “essential for opening the doors to a breakthrough for building an economically strong nation,” and that it was the “fundamental task laid out before the Cabinet.” He went on to reveal the tasks and directives needed to revitalize all realms of socialist construction, which he stated was necessary to create a powerful and prosperous nation by 2012, the centennial anniversary of the birth of the late Kim Il Sung.

In particular, he called for the production of the “lifeline of socialist construction”, and specifically, electricity, coal, metal, and railways, which he referred to as the “four lines for the advance of the people’s economy.”

Accordingly, the goal of carrying out overwhelming repairs to power generation facilities, and at the same time constructing new power plants in order to increase electrical production capabilities by several hundred thousand kilowatts, was proposed.

The meeting also stressed the need for concentrating efforts on geological exploration and exploitation industries in order to reasonably development and use natural resources, for a change in production of goods necessary for daily life, and for a resolution to the people’s ‘eating problem’ alluded to in the recent New Year’s Joint Editorial.

The bulletin also reported that there was discussion on creating a new five-year plan for the development of science and technology, going as far as to say, ”the role of science and technology in the building of an economically powerful nation is decidedly large, and in order to answer the very real calls for development, [the issue of] strengthening international economic projects” was brought up.

Premier Kim Young-il, Vice-Premier Kwak Bum-ki, Chairman Kim Kwang-rin, of the Committee on National Planning, Park Nam-jil, of the Power Supply Industry Bureau, and Kim Yong-sam, from the Railways Bureau, were among cabinet ministers present.

The international press (and just about every blogger on the planet-including myself) has written something about the NY Philharmonic’s visit to North Korea last week.  Whether one believes that this event is a significant breakthrough in cultural relations or not, what has evaded direct discussion in the media is the purpose of cultural relations in the North Korean system (and indeed its predecessor – the Soviet system).

At the end of World War II, the DPRK imported many Soviet party, state, and military organizations.  One of these was the USSR All Union Society for Cultural Relations with Foreign Countries (known as ‘VOKS’).  Publicly, the mission of VOKS was to promote peace and understanding between the Soviet people and other peoples of the world.  However, the actual mission of VOKS was to promote Soviet ideology, policy, and influence overseas. 

VOKS began its mission in the 1920s.  It undertook activities such as: Attempting to influence French intellectual circles; bringing sympathetic individuals and groups to tour the Soviet Union to see how the construction of the worker’s paradise was proceeding; bringing students from the developing world to be educated in the Soviet Union; sending Soviet scholars and technicians to undertake development projects overseas, etc.  VOKS was even influential in the USA, where it supported a number of pro-Soviet civil society organizations. 

VOKS also played an important role in establishing the legitimacy of Soviet hegemony in North Korea following World War II.  Cultural delegations of North Koreans were taken to the Soviet Union to bear witness to the great accomplishments of the worker’s revolution.  Their impressions were then distributed to the North Korean population at large, along with many other cultural goods produced by the Soviet Union. 

Although VOKS’ success at swaying public opinion in the west is an unresolved question (as far as I know), the details of their activities are well known to western scholars since Soviet archive materials are readily accessible. Effective or not, the take away from this history lesson is that socialist countries have historically treated cultural relations activities, like everything else, as regime-enhancing activities.  In other words, they promote the political incumbents. 

The North Koreans copied VOKS wholesale from the Soviets, and this organization is still functioning in the DPRK today.  It is the Korean Committee for Cultural Relations with Foreign Countries (CCRFC).  Although this body has been around since the founding of the DPRK, it is perhaps most known in contemporary times for supporting the Korean Friendship Association, numerous pro-Pyongyang “Friendship Societies,” and to a lesser degree, several leftist organizations such as the National Lawyers Guild.  These organizations tend to toe the party line and echo Pyongyang’s perspective in international debates.  At a minimum, they promote a marginal distrust of western media and historiography.

Based on the comments I have made so far, many might be led to believe that I am pessimistic on the positive impact that cultural relations broadly, and the the NY Philharmonic visit specifically, might have in changing the North Korean system.  But this would be a mistake.  Since the Arduous March and Kim Jong Il’s rise to power, North Korean institutions have undergone such a transformation that comparison with their Soviet predecessors might not be useful for understanding their purposes today.

Since 1997, the North Korean CCRFC has been chaired by Mun Jae Chol, a North Korean policy elite.  I just finished watching the NY Phil performance-here-and Mun Jae Chol is indeed in the audience, as are several people who work for him who I have met.  Mun Jae Chol took over the committee in 1997 (as best I can put together from KCNA reports–his promotion was not formally announced in the news), and since then the mission of the organization seems to have changed significantly.  To start with, the cold war is over.  North Korean cultural relations activities are not going to convince the world’s people that the North Korean government is the legitimate governing authority for the whole Korean peninsula.  No one will ever believe that now.

Since the propaganda war is over, and resources are scarce, the CCRFC seems to be  focused on generating foreign exchange revenue from tourism, cultural exchanges, and brokering foreign direct investment (all under the guise of their previous mission, however).  Under established laws and customs, the staff of the CCRFC are permitted to interact with foreigners and make regular trips overseas.  They are the very people who have an incentive to promote interaction with the west because they will directly benefit financially from it.  True these people are not paragons of liberalism, but they all own western clothes, use digital cameras, listen to iPods, broker deals between private North Koreans and foreigners (smuggle goods), and travel to China on a regular basis.  There are procedures in place to control their entrepreneurial tendencies, such as never allowing one guide to be alone with a foreigner, however, these rules can be evaded at minimal cost.  They might repeat what they are told to say, but they certainly know better.

Staff of the CCRFC include influential party members and security personnel.  Raising the frequency and profile of cultural relations activities with North Korea will increase the income of these individuals who can buy support directly through cash transfers, or indirectly through business deals, ultimately greasing the cogs of change in the North Korean bureaucracy towards a greater acceptance of openness.  Maybe.

Comment from Dr. Petrov:
CCRFC (known in North Korea as Taewe Munhwa Ryeollak Wiwonhoe or simply TaeMun) is indeed struggling to survive in the changing economic environment. Although most of the projects they try to lure foreigners into are devoid of economic sense, they are still pretty powerful and even allowed to invite journalists to visit N.Korea. Cooperation with CCRFC is a game of unpredictability but in some cases can lead to success. See a success story here.

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

A little over a week ago, the North Korean government announced an anti-corruption campaign in two agencies: the United Front Department and the National Economic Cooperation Council. 

As I said then, these sorts of campaigns have nothing to do with making the bureaucracy more accountable or responsive to public demands, but 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 (like a purge).

Today, the Daily NK offers a scenario whereby this anti-corruption drive might be a necessary precondition for a drastic policy change: 

The fact that the Guidance Department is involved in the current investigation may be a sign that Kim Jong Il is trying to rebuild the party so that he can change the focus of policy from the military to economic matters. Kim Jong Il has already created a militarily powerful country by acquiring nuclear weapons. Now he wishes to improve other areas.

Within the context of the anti-corruption campaign, today’s Daily NK does a wonderful job identifying the specific agencies involved in reorganizing the DPRK’s levers of power:

The Defense Security Command of the [Korean] People’s Army and the National Security Agency are also launching inspections, but these kinds of inspection are limited. A Defense Security Command investigation can inspect military organizations, local party organizations and individual cadres, but it cannot investigate party branches in the capital and the National Security Agency. At the same time, the National Security Agency’s investigators cannot access the party organizations in Pyongyang, the military and the Defense Security Command.

However, the Guidance Department’s inspection can examine every organization including party organizations in Pyongyang, the Defense Security Command, and the National Security Agency. [A Guidance Department investigation requires Kim Jong Il’s direct authorization. It is often said that if one is the target of such an investigation, one stands little chance of reprieve.]

There are only two known examples of a Guidance Department-led investigation in North Korean history. The first was the investigation of the National Security Agency in February, 1984. […] The second case occurred in 1997 and was known as the Shimhwajo case, resulting in the hushed-up removal of many of Kim Il Sung’s close associates. This inspection was approved by Kim Jong Il and was operated by Jang Sung Taek, Kim’s brother-in-law and the First Vice-Director of the Guidance Department. Through the investigation, thousands of high officials who followed Kim Il Sung were punished, expelled, secretly executed, or sent to prison camps.

To read about another similar change in the balance of power in the DPRK, read the rest of the story here:
Inside the North Korean Shake-up
Daily NK
Moon Sung Hwee
2/21/2008