North Korean Economy Watch

The Economist
3/11/2004

So far as a visitor can tell in this secretive land, North Korea’s economic reforms are starting to bite. But real progress will require better relations with the outside

COMMUNIST North Korea has started to experiment with economic reform, and opened its door a crack to the outside world. Though its culture of secrecy and suspicion stubbornly persists, it was deemed acceptable for your correspondent to visit Pyongyang’s Tongil market last week. Here, stalls are bursting with plump vegetables and groaning with stacks of fresh meat. You can even buy imported pineapples and bananas from enthusiastic private traders.

But how about a photograph? Most foreigners think of North Korea as a famished nation, and the authorities are evidently keen these days to tell the world about the great strides their economy has made since reforms were introduced in July 2002. Logic might seem to suggest that a snap showing the palpable result of the reforms would be acceptable too. But it is not. The officials were friendly but firm: no pictures of fat carrots.

The July 2002 reforms were ground-breaking for North Korea: the first real step away from central planning since the dawn of communism there in 1945. The government announced that subsidies to state-owned enterprises were to be withdrawn, workers would be paid according to how much they produced, farmers’ markets, hitherto tolerated, would become legal and state enterprises would be allowed to sell manufactured products in markets. Most of these enterprises, unless they produced “strategic items”, were to get real autonomy from state control.

Almost two years on, how to assess the success or failure of these reforms? That climate of secrecy makes it deeply frustrating. Even the simplest of statistics is unavailable. Li Gi Song, a senior economist at Pyongyang’s Academy of Sciences, says he does not know the rate of inflation. Or maybe he is not telling. After all, he says, “We can’t publish all the figures because we don’t want to appear bare before the United States. If we are bare then they will attack us, like Afghanistan or Iraq.” So what follows can be little more than a series of impressions.

The indications are that the reforms are having a big impact. For a start, North Korea has recently acquired its first advertisement (pictured above)—for foreign cars, assembled locally by a South Korean majority-owned company. Or, to be more basic, take the price of rice, North Korea’s staple. Before the reforms, the state bought rice from state farms and co-operatives at 82 chon per kilo (100 chon make one won, worth less than a cent at the official exchange rate). It then resold it to the public through the country’s rationing system at eight chon. Now, explains Mr Li, the state buys at 42 won and resells at 46 won.

North Korea’s rationing system is called the Public Distribution System (PDS). Every month people are entitled to buy a certain amount of rice or other available staples at the protected price. Thus most North Koreans get 300g (9oz) of rice a day, at 46 won a kilo. According to the UN’s World Food Programme (WFP), that is not nearly enough. Anything extra has to be bought in the market.

In theory, even in the market the price of staples is limited. Last week, the maximum permitted rice price was marked on a board at the entrance to Tongil as 240 won per kilo. In fact, it was selling for 250. WFP officials say that in January it was selling for 145 won, which points to significant inflation, for rice at least. This is not necessarily a bad thing, since it means that the price is coming into line with the market.

The won’s international value is also adjusting. Since December 2002, the euro has been North Korea’s official currency for all foreign transactions. In North Korean banks, one euro buys 171 won. In fact, this rate is purely nominal. A semi-official rate now exists and the price of imports in shops is calculated using this.

Last October, according to foreign diplomats, a euro bought 1,030 won at the semi-official rate. Last week it was 1,400. A black market also exists, in which the euro is reported to be fetching 1,600 won—which implies that the won is approaching its market level. It also means, however, that imported goods have seen a big price-hike. For domestically-produced goods, like rice, prices may well go on rising for a good while longer.

What about earnings? Before the 2002 reforms, most salaries lay in the range of 150-200 won per month. Rent and utilities, though, were virtually free, as were (and are) education and health care. Food, via the PDS, was virtually given away. Now, pay is supposed to be linked to output, though becoming more productive is not easy for desk-bound civil servants or workers in factories that have no power, raw materials or markets.

Rents and utilities have gone up, though not by crippling amounts. A two-bedroom flat in Pyongyang including electricity, water and heat costs just 150 won a month—that is, about a tenth of a euro.

Earnings have gone up much more: a waitress in a Pyongyang restaurant earns about 2,200 won a month. A mid-ranking government official earns 2,700. A worker at a state farm earns in the region of 1,700, a kindergarten teacher the same, and a pensioner gets between 700 and 1,500. A seamstress in a successful factory with export contracts can earn as much as 5,000 won a month. Since that seamstress’s pay equates to barely three euros a month, wages still have a long way to adjust.

The prices of food and other necessities, to say nothing of luxuries, has gone up much more than rent has. According to the WFP, some 70% of the households it has interviewed are dependent on their 300 gram PDS ration, and the WFP itself is targeting 6.5m vulnerable people out of a total population of some 23m. Not all suffer equally: civil servants in Pyongyang get double food rations from the PDS.

There are some encouraging stories. In Pukchang, a small industrial town 70km (40 miles) north-east of Pyongyang, Concern, an Irish aid group, has been replacing ancient, leaking and broken-down water pipes and pumps, and modernising the purification system. This has pushed the amount of clean water available per person per day from 80 to 300 litres. Kim Chae Sun is a manager at the filtration plant, which is now more efficient. Before July 2002 she earned 80 won a month. Afterwards she earned 3,000 won. Now she earns 3,500.

As Mrs Kim speaks, three giant chimneys belch smoke from the power station that dominates the town. All workers have been told they can earn more if they work harder, but certain groups have been told they will get even more money than everyone else. In energy-starved North Korea these include miners and power workers. Mrs Kim says her husband, who works in the power plant, earns an average of 12,000 won a month. Her rent has gone up from eight to 102 won a month, and in a year, she thinks, she will be able to buy a television or a fridge.

A lot of people, in fact, are buying televisions. The women who sell the sets from crowded Tongil market-stalls get them from trading companies which they pay after making a sale. The company price for an average set is 72,000 won, the profit just 1,000 won. After they have paid for their pitch, the traders can expect an income of 10,000-12,000 won a month.

Mystery sales
Which makes for a puzzle. Who can afford a good month’s salary for a locally made jacket in Tongil, costing 4,500 won? How come so many people are buying televisions, which cost more than two years of a civil-servant’s pay? How come the number of cars on the streets of the capital has shot up in the past year? Pyongyang still has vastly less traffic than any other capital city on earth, but there are far more cars around than a year ago. Restaurants, of which there are many, serve good food—but a meal costs the equivalent of at least a white-collar worker’s monthly salary. Many of these restaurants are packed.

Foreign money is part of it. Diplomats and aid workers say many new enterprises seem to have opened over the last year. Nominally they are state-owned, but sometimes they have a foreign partner, often an ethnic Korean from Japan. The majority are in the import-export business. Some have invested in restaurants and hotels and some in light industry. Thanks to the 2002 reforms, these firms have a degree of autonomy they could not have dreamed of before. An unknown number of people also receive money from family abroad, but there are still no North Korean-owned private companies.

Farmers are among the other winners: they can sell any surpluses on the open market. But two out of three North Koreans live in towns and cities, and only 18% of the country is suitable for agriculture. The losers include civil servants, especially those outside Pyongyang who do not get double food rations and have no way to increase their productivity.

Factory workers have it the hardest. A large proportion of industry is obsolete. Though Pyongyang has electricity most of the day, much of the rest of the country does not. Despite wild talk of a high-tech revolution, the country is not connected to the internet, though some high-ups do have access to e-mail service. In the east of the country lies a vast rustbelt of collapsing manufacturing plants.

Huge but unknown numbers of workers have been moved into farming, even though every scrap of available land is already being cultivated. The extra workers are needed because there is virtually no power for threshing and harvesting and no diesel for farm vehicles. This requires more work to be done by hand. Ox-carts are a common sight.

The innocent suffer
Markets are everywhere. But this does not mean that there is enough food everywhere. In Pyongyang, where there are better-off people to pay for it, there is an ever-increasing supply. Outside the capital, shortages are widespread.

No one knows how many died during the famine years of 1995-99; estimates range from 200,000 to 3m. In Pukchang, officials say that 5% of children are still weak and malnourished. In Hoichang, east of Pyongyang, schools and institutions tell the WFP that about 10% of children are malnourished. Masood Hyder, the senior UN official in North Korea, says that vulnerable households now spend up to 80% of their income on food.

And yet some things are improving. Two surveys carried out in 1998 and 2002 by the North Korean government together with the WFP and Unicef showed a dramatic improvement in children’s health between those years. The proportion of children who fail to reach their proper height because of malnutrition fell from 62% to 39%, and the figures are thought to be still better now. However, Unicef says that though children may no longer die of hunger, they are still dying from diarrhoea and respiratory diseases—which are often a side-effect of malnutrition.

To a westerner’s eye, a class of 11-year-olds in Hoichang is a shocking sight. At first, your correspondent thought they were seven; the worst-affected look to be only five. Ri Gwan Sun, their teacher, says that apart from being stunted some of them still suffer from the long-term effects of malnutrition. They struggle to keep up in sports and are prone to flu and pneumonia. They are also slower learners.

Pierrette Vu Thi of Unicef says that North Korea’s poor international image makes it hard for her agency, the WFP and others to raise all the money they need. The country is in a chronic state of emergency, she says, and to get it back on its feet it would need a reconstruction effort on the scale of Afghanistan and Iraq.

Such bleak talk is echoed by Eigil Sorensen of the World Health Organisation. He says that health services are extremely limited outside the capital. Medicines and equipment are in short supply, large numbers of hospitals no longer have running water or heating and the country has no capacity to handle a major health crisis.

None of this is likely to change very fast. With no end yet to the nuclear stand-off between North Korea and the United States, American and Japanese sanctions will remain in place. And nukes are only part of it. Last week the American State Department said it was likely that North Korea produced and sold heroin and other narcotics abroad as a matter of state policy. North Koreans who have fled claim that up to 200,000 compatriots are in labour camps. North Korea denies it all.

Reform, such as it is, has plainly made life easier for many. But rescuing the North would take large amounts of foreign money, as well as measures more far-reaching than have yet been attempted. At present, there is no way for the government to get what it needs from international financial institutions like the World Bank. Such aid as comes will be strictly humanitarian, and investment in so opaque a country will never be more than tentative. Domestic reform on its own cannot fix an economy wrecked by decades of mismanagement and the collapse of communism almost everywhere else.

From the Office of the National Counterintelligence Executive:

North Korea: Channeling Foreign Information Technology, Information to Regime Goals Pyongyang is working with Koreans abroad and other foreign partners in information technology (IT) ventures, sending software developers overseas for exposure to international trends, granting scientists access to foreign data, and developing new sources of overseas information in a bid to develop the economy. Cellular telephones and Web pages are accessible to some North Koreans, while foreigners in Pyongyang have access to foreign television news and an Internet café. While such steps are opening windows on the world, however, Democratic People’s Republic of Korea (DPRK) oficials are largely limiting such exposure to areas required for economic development. Moreover, they are applying IT tools to develop new means of indoctrinating the public in North Korea and reaching audiences overseas.

Working With Foreign Partners in IT Ventures
North Korea is promoting cooperative ventures with foreign partners to develop IT, which DPRK media have repeatedly described as a priority area in science and technology. An editorial in the 10 November 2003 issue of the party newspaper Nodong Sinmun, for example, named IT as the first of three technical fields, along with nanotechnology and bioengineering, to which “primary efforts should be directed.”

North Korean media suggest that officials have grasped the potential of leveraging IT for national development. A recent article in the government’s newspaper asserted that (1) “IT trade surpasses the automobile and crude oil industries” and (2) “IT goods are more favorable in developing countries than they are in the developed nations” (Minju Choson, 7 March).

ROK analysts, such as those who compiled a survey of Pyongyang’s IT industry (Puhkan-ui IT Hyonhwang-mit Nambuk Kyoryu Hyomnyok Pangan, 1 January), have suggested that DPRK policies for promoting a domestic IT industry reflect the nation’s lack of capital, dearth of natural resources, and relative abundance of technical talent.  Hoonnet.com CEO Kim Pom-hun, whose extensive experience in North Korea includes residence in Pyongyang from December 2001 to October 2002, has assessed North Korean IT manpower as resembling “an open mine with the world’s best reserves of high-quality ore” ( Wolgan Choson, 1 January).

Pyongyang is partnering with Koreans in South Korea, Japan, and China, as well as Chinese, in ventures to develop both software and hardware, including:

• The Morning-Panda Joint Venture Company in Pyongyang, a partnership between North Korea’s Electronic Products Development Company and China’s Panda Electronic Group, which began making computers in late 2002.
• The Pyongyang Informatics Center (PIC) and South Korea’s Pohang University of Science and Technology (PUST), which are cooperating to develop virtual reality technology. In addition:
• The ROK’s Hanabiz.com and PIC launched the Hana Program Center in Dandong, China, in August 2001 (http://hanabiz.com/history.html) for joint software development and training of DPRK programmers.
•  IMRI—ROK manufacturer of computer peripherals—and CGS—a Tokyo-based software company affiliated with the pro-Pyongyang General Association of Korean Residents in Japan (GAKRJ, a.k.a. Chosen Soren)—joined hands in July 2000 to form UNIKOTECH (Unification of Korea Technologies) to develop and market software. Both partners maintain links to North Korean IT enterprises.
• The ROK’s Samsung Electronics and the DPRK’s Korea Computer Center (KCC) have been developing software together at a Samsung research center in Beijing since March 2000 (Chonja Sinmun, 15 October).

Venturing Overseas To acquire information on foreign IT trends and to promote their domestic industry, North Koreans have begun venturing overseas in recent years.

• State Software Industry General Bureau Director Han U-ch’ol led a DPRK delegation in late September 2003 to the China International Software and Information Service Fair in Dalian. The North Koreans joined specialists from China and South Korea in describing conditions in their respective IT industries and calling for mutual cooperation. Participants from China and the two Koreas expanded on the theme of cooperation at the IT Exchange Symposium, sponsored by the Dalian Information Industry Association, Pyongyang’s State Software Industry General Bureau, and Seoul’s Korea Advanced Institute of Science and Technology (KAIST). Dalian Alios Technical Consulting, a company run by Chinese Korean Yi Sung-nam, hosted the exchange (www.kotra.or.kr, 15 October, http://hanabiz.com, 9 October).
• Pyongyang opened, in April 2002 in Beijing, its first foreign exhibition of DPRK software products developed by Kim Il-song University, Korea Computer Center (KCC), PIC, and other centers of software development (DPRK Korea Infobank, 16 May 2002).
• KCC Deputy Chief Technician Kim Ki-ch’ol led a delegation of DPRK computer technicians to the World PC Expo 2001, held in September 2001 outside Tokyo. KCC has worked with Digiko Soft—a company run by a Korean resident of Japan—to develop commercial software. Through Digiko Soft, the expo was the first show in Japan “of computer software developed in [North] Korea” (Choson Sinbo, 22 October, 1 October 2001).
• KCC computer programmers Chong Song-hwa and Sim Song-ho won first place in August 2003 in a world championship software competition of go—an Asian game of strategy—held in Japan. KCC teams have visited Japan and China on at least eight occasions since 1997 to compete in program contests for go, taking first prize three times.

Gaining Access to Foreign Data North Korea has been acquiring foreign technical information from a variety of sources in recent years, benefiting from developments in technology, warming ties between the Koreas, and longstanding sympathies of many Korean residents in Japan.

• Authorities have held the annual Pyongyang International Scientific and Technological Book Exhibition since 2001, bringing foreign vendors and organizations related to S&T publications to North Korea (KCNA, 18 August).
• The Trade and Economy Institute, advertised as North Korea’s “sole consulting service provider” on international trade, has been exchanging information with “many countries via Internet” since September 2002 (Foreign Trade of the Democratic People’s Republic of Korea, 1 April).
• According to PUST President Pak Ch’an-mo, who has extensive DPRK contacts in academic and scientific circles, North Korea has been purchasing technical books from amazon.com and from South Korea (Kwahak-kwa Kisul, 1 April).
• Pro-Pyongyang Korean residents of Japan have long sent technical literature to North Korea.
• ROK organizations, including PUST and IT publisher youngjin.com, have been donating technical publications on IT in recent years to DPRK counterparts as a means of earning good will and contributing to the eventual unification of Korea (Chonja Sinmun, 11 August).

Cell Phones, Web Pages, and NHK
Within North Korea, the advance of IT technology has been suggested by a number of recent developments:

• Approximately 3,000 residents of Pyongyang and Nason have reportedly purchased cell phone service since November 2002 (The People’s Korea, 1 March).
• Installation of a nationwide optical-fiber cable network in 2000, launch of the Kwangmyong 2000 Intranet the same year, and establishment of computer networks have made available domestic access to extensive technical databases maintained by the Central Scientific and Technological Information Agency, the Grand People’s Study House, and other repositories of technical information.
• Via North Korea’s Silibank Web site (www.silibank.com), established in Shenyang, China, in September 2001, registered foreign users can exchange e-mails with DPRK members.
• In August 2002, Kim Pom-hun, CEO of the ROK IT company Hoonnet.com, opened an Internet café in Pyongyang, the only place in North Korea for the public to access the Internet. Most customers of the service, which uses an optical cable linking Pyongyang and Shanghai via Sinuiju, are foreign diplomatic officials or international agency staffers; steep fees reportedly keep most Koreans from going on line (Wolgan Choson, 1 January).
• Foreign guests in Pyongyang hotels have had access to foreign news broadcasts of Britain’s BBC and Japan’s NHK since May 2003, according to a Japanese television report (TBS Television, 2 September).

Limiting Information to Technical Areas, Harnessing IT for Domestic Indoctrination and Foreign Propaganda Development of the nation, rather than empowerment of the individual, appears to be driving DPRK efforts to develop domestic IT infrastructure and industry. Officials, scientists, and traders can now access and exchange information pertinent to their duties within the domestic Kwangmyong Intranet. Those with a “need to know” can even surf the worldwide Web for the latest foreign data. While Kim Chong-il reportedly watches CNN and NHK satellite broadcasts (Kin Seinichi no Ryorinin, 30 June) and supposedly surfs the Internet, the public has no such freedom to learn of the outside world without the filter of official propaganda.

Indeed, Pyongyang is using IT to indoctrinate the public and put its propaganda before foreign audiences. In addition to studying the party line through regular group reading of Nodong Sinmun in hard copy, a practice for indoctrinating members of work units throughout North Korea, the installation of computer networks now brings the newspaper to some workplaces on line, as the photograph below shows:

Moreover, Pyongyang has put its propaganda on the Internet.

• KCNA offers Pyongyang’s line in English, Korean, and Spanish at a Web site in Japan at www.kcna.co.jp.
• News and views of the General Association of Korean Residents in Japan and its affiliated organizations appear on the group’s site at www.chongryon.com.
• DPRK media, including newspapers Minju Choson and Nodong Sinmun, have appeared on sites originating in China, such as www.dprkorea.com and www.uriminzokkiri.com.

Financial Times
September 4, 2003
Page 4
by Andrew Ward 

Kim Jong Il yesterday staged a rare cabinet reshuffle, replacing several top officials with younger men in an apparent attempt to strengthen his power base. 

Mr. Kim face a twin threat to his Stalinist regime from looming economic collapse and increasing pressure from a US government angered by the state’s development of nuclear weapons. 

Mr. Kim replaced his prime minister, two of his three deputy premiers and five ministers in what South Korean reporters said was the most far-reaching government shake-up for five years. 

Analysts in the south speculate Mr. Kim was replacing ageing officials associated with Kim Il Sung his late father and former leader.  In their place, had come younger officials more loyal to the current leader. 

Diplomats and intelligence officials, who admit their assessments about the reclusive regime are little better than guess work, hoped the promotion of younger officials would clear the way for political and economic reforms resisted by the old guard. 

Economic reforms introduced last year – wages and prices were raised to meet market values – fuelled hopes that North Korea might open up, but there have been few further signs of change. 

Some of those replaced held important economic planning posts, perhaps reflecting Mr. Kim’s concern about the parlous state of the country’s economy. 

South Korea‘s Yonhap news agency said 52% of North Korea’s new power elite was aged under 55.  However there was no sign of a shift away from Mr. Kim’s “army first policy” of concentrating power and resources with North Korea’s 1.1 million-strong army. 

Most top military leaders kept their jobs – including Mr. Kim himself, who was re-elected Chairman of the National Defense Commission, the country’s most powerful body – and the legislature approved measures to strengthen the “nuclear deterrent force”. 

Pak Pong Ju, former minister for the chemical industry, was elected prime minister, replacing Hong Song Nam, according to North Korean media monitored by Yonhap. 

“The cabinet will work out a scientific and bold economic strategy and operational plan as required by the new century and dynamically implement them to build a strong national economic power suited to the great prosperous powerful nation,” Mr. Pak said.

From the BBC:

Foreign minister Choe Su-hon is attending the opening ceremony, and he will meet his British counterpart Bill Rammell, who will press for more information about the secretive nation’s nuclear programme.

The isolated Stalinist state’s interests will be represented from the house of its charge d’affaires, Ri Tae-gun, in Ealing, west London.

Britain initiated diplomatic relations with North Korea in December 2000, after five decades of mutual enmity after the Korean war.

A British embassy was opened in the communist state in July 2001, while three North Korean officials were accredited to an office in London.

The leafy suburb of Ealing is far from the opulence of Kensington and Mayfair where embassies are traditionally located.

But North Korean diplomats will benefit from easy access to Heathrow, extensive green spaces and good public transport links.

Officials are said to be looking for a permanent site in central London.

In line with the secretive atmosphere in North Korea, an official at the embassy refused to discuss Wednesday’s ceremony “for security reasons”.

From the BBC:

North Korea’s economy has been in the doldrums for more than a decade. Perhaps as many as a million people perished in a famine during the 1990s, and the food situation inside the country remains precarious today.

There are two hypotheses about why a country facing such problems has pursued nuclear weapons.

1. Its nuclear programme is merely a bargaining chip to be traded away to extract political and economic concessions from the US – a kind of atomic “trick or treat”.

2.  The North Koreans regard nuclear weapons as an end in themselves – a military deterrent and the ultimate guarantor of the regime’s survival.

North Korea’s foreign ministry said as much on 18 April when it declared, “The Iraqi war teaches a lesson that in order to prevent war and defend the security of a country and the sovereignty of a nation, it is necessary to have a powerful deterrent force only.”

Yet even from this perspective, there is an intriguing economic angle.

If a nuclear North Korea were to foreswear aggression toward South Korea, then its huge conventional forces would be redundant.

Its million-man army, an albatross around the economy’s neck, could be demobilised.

In fact, before the nuclear crisis erupted last October, North Korea floated trial balloons regarding the possibility of such a demobilisation.

But if the North’s army is to be demobilised, those troops have to have jobs to go to.

Last July, the government announced a package of policy changes designed to revitalise the economy.

These included marketisation, the promotion of special economic zones, and a diplomatic opening toward Japan, which the North hoped would pay billions of dollars in post-colonial claims and aid.

However, the rapprochement with Tokyo has stalled, and the expected capital infusion has not materialised.

The consensus of outside observers is that, so far, the reforms have largely failed to deliver.

Indeed, some of the policy changes, such as the creation of massive inflation and the demand that North Koreans surrender their holdings of dollars, could be interpreted as an attempt to re-assert state influence rather than reform the system.

Last month, Pyongyang introduced a new financial instrument it called a bond, though it is more like a lottery ticket. A mass campaign encouraging citizens to purchase these bonds suggests that politics, not personal finance, is the main selling point.

To make matters worse, the oil flow through a pipeline from China on which North Korea depends was interrupted earlier this month for several days.

The official explanation was that mechanical failure, not diplomatic arm-twisting, was the cause.

In sum, the economic situation remains dire.

However, both China and South Korea have indicated that while they want to see a negotiated resolution [to the nuclear issue], they are unwilling to embargo North Korea in the way the US envisions.

This reluctance to sanction Pyongyang undercuts the credibility of the US threat to isolate North Korea.

The Bush administration’s own rhetoric also calls into question its willingness to promote North Korea’s constructive integration into the global community.  

Marcus Noland is a senior fellow at the Institute for International Economics, and author of Avoiding the Apocalypse: The Future of the Two Koreas.

Korea Herald
Chris Gelkin
3/30/2007

“It’s not just about making money, at least not from our perspective as a producer,” declared Felix Abt, president of the Pyongyang-based pharmaceutical company PyongSu Pharma. “The profit margins are very small. It is more about supplying a necessary and quality product at a price people can afford.”

Abt was in Seoul earlier this week meeting with South Korean pharmaceutical companies and aid organizations. On the table was a unique opportunity that would allow them to expand their existing humanitarian work, while at the same time helping to lay a solid foundation for the future of the pharmaceutical sector in North Korea.

“One of the main purposes of my visit here is to meet with the people who donate drugs and medicines to North Korea, or their agents who are based here,” Abt told The Korea Herald. The “frontier-businessman” believes substantial savings could be realized if the donor had the drugs produced locally, in North Korea, rather than purchasing them here in the South or overseas and then having them shipped in.

“We have lower production costs in the North, and of course there would be savings on transportation. All of these cost savings would translate into more money being made available for the actual provision of drugs. And after all, that is the whole point of the exercise, isn`t it?” Abt said, posing a very pertinent question.

For each donated dollar, for each dollar spent, he explained, more medicines would actually reach the people who need them.

“So that, from a humanitarian position at the very least, is a very compelling reason for them to buy from us or have us produce them and then organize the distribution.”

PyongSu has been gaining experience through contract manufacturing for charity organizations, donors and pharmaceutical companies, but Abt says there is plenty of scope to do more.

“We have a total staff of about 30 running one full shift,” Abt said, “and obviously we have capacity to expand that.”

Abt said in addition to helping even more North Korean patients in hospitals and clinics throughout the country, aid organizations could also help raise the quality standards of the local pharmaceutical industry.

“Just shipping aid here is all well and good,” Abt explained, “but it has the danger of creating a culture of dependency. So rather than, for example, just giving them fish, we should give them a fishing rod and teach them how to fish.”

By expanding local production in terms of quantity and variety, Abt said, donors would be helping the people to learn how to stand on their own feet.

“This should be particularly interesting for pharmaceutical companies based here in the South,” he said, “it is absolutely in their long-term interests to see a pharmaceutical sector in the North that is developed and meets international standards which could later become a strong and important partner for South Korean companies.”

PyongSu recently underwent an international inspection and has been approved as a producer that meets the highest standards of pharmaceutical producers worldwide.

The company was launched in the summer of 2004 in a joint venture between the Ministry of Public Health and a group of foreign investors. By the end of 2006, PyongSu was producing a range of medications including painkillers and antibiotics among others.

The company`s mission was to reach and maintain production quality and service standards comparable to any pharmaceutical producer elsewhere in the world.

“We are making a direct contribution to the improvement of the local pharmaceutical sector,” Abt said, “through training, education, and our sharing of knowledge with medical professionals and staff at all levels throughout the DPRK.”

PyongSu pharmacists meet regularly with staff from hospitals and clinics to fully understand their needs, and provide them with up to date information on the latest drugs.

Abt said PyongSu has its finger on the pulse of the medical sector in the DPRK, and is in a unique position to serve humanitarian and aid organizations by producing drugs on their behalf and distributing them, “to those who are in need of them.”

from the BBC:

The BBC’s Kevin Kim joined the first overland tourist trip to North Korea, and reflects on his journey to the other side of the border.

“I was on board one of 20 buses that crossed the DMZ for the first time.

As a South Korean it felt really strange, because up to now we were strictly forbidden from getting near to the DMZ.

The mountains on the North Korean side looked totally different from the mountains on the South Korean side.

It was very barren. There were hardly any trees.

North Korea is in an energy crisis right now and every single tree is put to good use, for heating.

The South Korean guide told us that while travelling through the DMZ we must not take pictures, wave outside, or show any South Korean newspapers or magazines through the window.

I guess that is why everyone on the bus was talking in a very soft voice.

Every few hundred metres there were North Korean soldiers with their rifles just looking on as the buses went by.

I was really tempted to just open the window and say “hello” or “nice to see you”.

But I had been told by my South Korean guide that I could open the window but I could not say anything to them.

Like the words of the South Korean song, “Longing for Mount Kumgang”, getting to North Korea and seeing its natural beauty has been something that people in the South could only long for until now.

Unification, too, is something that Koreans have only dreamed about.

But having travelled through the most heavily fortified border in the world, I began to think that while unification in the Korean peninsula may seem impossible right away, it does not have to stay as a dream.

Who knows, in 20 years time we might actually be seeing the fences coming down.

It is wishful thinking. But Koreans are natural born optimists. ”

Also from the BBC:

The overland border between the two Koreas has opened for the first time since the Korean war ended half a century ago. The BBC’s Seoul correspondent Caroline Gluck was among the first to cross.

Fanfare, fireworks and balloons greeted us at a ceremony on the South Korean border, as we prepared to journey through the world’s most heavily fortified road border to the North.

This is the first land route for civilians since the end of the Korean war half a century ago.

The pilot journey is due to pave the way for regular overland tourist trips to the North’s scenic resort of Mount Kumgang, or Diamond Mountain – which has been developed by the South Korean company Hyundai Asan.

Hyundai Asan’s president, Kim Yoon-Kyu, described the trip as a historic moment.

“I can compare it to breaking the wall between East and West Germany,” he said.

Opening the border was also one of the ways to reduce tensions between North and South Korea, he said.

“I’m going to persuade (the North Koreans) not to have any nuclear power. We need money. Money is better than nuclear power,” he said.

At the demilitarized zone, there was a razor wire fence on either side, and signs warning that landmines were present.

When we reached the military demarcation line, I could see the first North Korean soldiers watch the convoy – around 20 buses in all.

All around me I could see the mountains covered in snow.

It is a barren landscape but quite beautiful. Many believe that if the two Koreas reunify, it should be turned into an ecological zone.

On the North Korean side, a welcoming committee with a female brass band was waiting for us, playing the North Korean song Pangap-sumnida, or Nice to Meet You.

Around 150 North Koreans took part in the ceremony to welcome their southern counterparts.

Ro Chang hyup, a North Korean tourist official, said it was an important step forward in inter-Korean exchanges.

“This is a first step towards unification. It is helping to break the ice and I really welcome our south Korean brothers.”

Ri Jong-hyok, deputy head of the North’s Asia-Pacific Peace Committee which handles the North’s joint ventures with South Korea, said: “People are here for tourism. Why are you talking about nuclear issues? I get a headache when people talk about that”.

Bang Jong-Sam, head of the Mount Kumgang international tourism company, had a similar message.

“We don’t have nuclear weapons. Let the crazy people say whatever they want. All we have to do is to continue tourism,” he said.

Since 1988, when tours by cruise boat to Diamond Mountain began, around half a million South Koreans have travelled to the area.

For most, it is their only chance to visit the Communist North. They come to explore the peaks of the fabled mountain – immortalised in songs, paintings and poetry.

Fenced-in resort

But contacts between the two Koreans at the resort is limited.

The Hyundai-built tourism site is fenced in, and North Korean guides are on hand to monitor all movements.

You can catch glimpses of North Korean villages and people travelling on roads only allowed for locals – but most visible are the soldiers.

A group of around 40 soldiers marched by our tour group, singing the praises of their leader, Kim Jong-il.

He’s our great commander, they said.

“His love is like the sun, reaching out to every corner.”

If the project is aimed at breaking down barriers between the two Koreas, there is clearly a long way to go.

But some ventures, like a locally run restaurant open only to South Koreans, at least help to allow more contact between the two sides.

“I’m sure unification will come,” said my waitress.

“It’s really good that so many South Koreans are coming here. I’m proud to work here – and I welcome them.”

Projects like this and the opening of the cross-border road between the two Koreas are full of symbolism.

But, in practice, it is clear that there is still a long way to go before the two sides can freely mingle.

Far Eastern Economic Review
Bertil Lintner
2/13/2003 

One of the few things that Kim Kum Jin and Sun Hui Ri didn’t leave behind when they fled Slovakia in August last year was their collection of bank records. Their invoices came to millions of dollars, but the documents recovered by Slovak police don’t make clear where all the money went. Some answers could probably be found just up the Danube River from Bratislava. Since 1982, the North Koreans have had their own bank in Austria’s capital, Vienna. It’s called the Golden Star Bank–almost the same name as a North Korean company in Beijing that was used by Kim.

According to official Austrian bank documents seen by the REVIEW, the Golden Star Bank is 100% owned by the Korea Daesong Bank, a state enterprise headquartered in Pyongyang. Kim Dok Hong, a top North Korean official who fled to South Korea in 1997, says that both banks come under the jurisdiction of Bureau 39, a shadowy wing of the ruling Korean Workers’ Party controlled by North Korean leader Kim Jong Il. Western and Asian intelligence services believe it was set up in 1994 to generate hard currency for Kim’s impoverished nation.

For more than two decades, the Austrian police have kept a close eye on the Golden Star Bank, but there is no law that forbids the North Koreans from operating a nonretail financial institution in the country. Nevertheless, Austria’s police intelligence department stated in a 1997 report: “This bank [Golden Star] has been mentioned repeatedly in connection with everything from money laundering and distribution of fake currency notes to involvement in the illegal trade in radioactive material.”

But finding hard evidence of illegal activity is another matter and the bank continues trading in the Austrian capital. While documents left behind in Bratislava by Kim Kum Jin and Sun show dealings with respected banks such as the Bank of China and the National Bank of Egypt, there is no paperwork connecting them directly to the Golden Star Bank. But the Austrian police report’s assertion that “Vienna must be seen as North Korea’s centre for financial transactions in Europe” remains relevant today.

The former Portuguese enclave of Macau–where the North Koreans have had a discreet but solid presence since the mid-1970s–plays a similar role in East Asia, according to Western and Asian intelligence officials. The North Koreans do not have their own bank in the largely autonomous Chinese territory, but they operate through locally owned family banks, the officials believe.

In an October 2000 conference paper, Marcus Noland of the Washington-based Institute for International Economics asserted that money owed by South Korea’s Hyundai company to the North Korean government had gone “into the Macau bank account of ‘Bureau 39’.” The payments were for permission to operate tourist trips to Mt. Kumgang in the North. An official at Hyundai Asan, which organizes the tours, says only that royalties are paid to North Korea through Korea Exchange Bank’s branches in unspecified third countries.

The Congressional Research Service–which provides United States congressmen with background briefings–reported on March 5 last year that “the U.S. military command and the Central Intelligence Agency reportedly believe that North Korea is using for military purposes the large cash payments, over $400 million since 1998, that the Hyundai Corporation has to pay for the right to operate [the] tourist project.”

Noland, an expert on Korean affairs, asserted in his paper that this income was used for “regime maintenance,” or to strengthen the government and its armed forces. Bankers and Western security officials believe this is also the case with money earned from the operations in Europe and the Middle East.
The Macau Connection
The Former Portuguese Colony was a Terrorist Base for Pyongyang

Avenida de Sidonio Pais is not Macau’s busiest street. And the trading company that is located on the fifth floor in a nondescript concrete building doesn’t even have a sign outside. But this is where Zokwang Trading is located–and from where the North Koreans have conducted some of their more nefarious activities in East Asia. The company was set up shortly after the Carnation Revolution in Portugal in 1974, when the old fascist dictatorship was overthrown and the new, left-leaning leaders recognized North Korea.

But Zokwang, which ironically means “morning light” in Korean, has always been more than a trading company. This was the alleged planning base for the 1983 bombing in which North Korean agents killed 17 South Korean officials, including four cabinet ministers, who were visiting the Burmese capital, Rangoon. In 1987, another set of North Korean agents bombed a Korean Air jet, killing all 115 people on board. One of those agents, Kim Hyun Hee, now lives in Seoul and describes in her autobiography, The Tears of My Soul, how she was trained in Macau. There, she and other North Korean agents learnt Cantonese so that they would be able to pose as Macau or Hong Kong Chinese when sent on overseas missions. They were also trained to shop in supermarkets, use credit cards and visit discos–amenities that did not exist in their homeland.

In 1994, the head of Zokwang and four other North Koreans were arrested in Macau for depositing millions of dollars worth of counterfeit $100 bills. But nothing came of the investigation and in 1999, more counterfeit dollars were discovered in Macau. The North Koreans were also suspected of peddling drugs and guns through the then Portuguese enclave. Once a week, the North Korean national carrier Air Koryo flew from Bangkok to Pyongyang with a stopover in Macau. The flights, now monthly, carried few passengers–but plenty of cargo.

So Western and Japanese intelligence agencies were apprehensive when North Korea was allowed by the Chinese government to open a new consulate general in Hong Kong on February 16. Air Koryo had applied in April last year for permission to use Hong Kong’s new Chek Lap Kok airport instead. But the airport authorities turned the request down. Air Koryo’s old Tupolev Tu-154 aircraft were just too noisy.

But those who thought Hong Kong would become a new centre for North Korean crime have so far been proven wrong. Perhaps under Chinese pressure, the North Koreans in Hong Kong have become model diplomats: open, approachable and eager to forge links with the local business community. Hong Kong has also eclipsed Macau as the centre for North Korean businesses in East Asia, and the new style may serve as a harbinger for change. No one wants to see another terrorist state emerge in Asia.

Issue cover-dated October 25, 2001

According to the Chosun Ilbo (2002-11-21):

It has been learned that North Korea recently opened a branch office of the (North) Korea Trade Bank in Dandong, China across the border from Sinuiju, a step tied with the designation of Sinuiju as a special administrative region. The only bank in the North specialized in foreign currency and responsible for exchange rates, the Korea Trade Bank opened its Dandong branch in October under the a judgment that promotion of economic cooperation with Dandong is a prerequisite to success for the Sinuiju capitalism experiment, said South Korean government officials.

The officials saw the step as indicating Pyongyang’s will to develop the Sinuiju SAR despite the detention of Yang Bin, the first administrative officer of the SAR. The Korea Trade Bank is empowered to conclude agreements with foreign financial institutions under accords reached between governments involved. The bank’s recent opening of its branch office in Dandong, accordingly, indicates that China, which originally opposed to the Sinuiju SAR, is in favor of it now.

The Korea Trade Bank’s Dandong branch is expected to handle not only inducement of foreign investments into the Sinuiju SAR, but also North Korean corporations’ exports to China via Dandong, observed the officials.

The article used as a source for this post has since been removed from the Choson Ilbo web page.

KCNA
4/6/2002

Kim Yong Sun meets S. Korean delegation

Kim Yong Sun, chairman of the Korean Asia-Pacific Peace Committee, met a delegation that had attended a ceremony of commissioning the Pyonghwa Motors General Factory at the People’s Palace of Culture today and had a talk with it in an atmosphere overflowing with compatriotic feelings.

Setting Up Shop in N. Korea: Car Firm Plunges In
Los Angeles Times
Barbara Demick
3/28/2002

Company linked to Sun Myung Moon’s church is to open an assembly plant in April.

At first glance, there couldn’t be a more improbable business proposition than opening an automobile factory in North Korea, where hardly anybody owns a car or knows how to drive. Even more surprising is that the company making this investment is an affiliate of the Unification Church, headed by the thumpingly anti-communist Rev. Sun Myung Moon.

Against all odds, Pyonghwa Motors next month is opening a $55-million auto assembly plant where there once were rice paddies in the western coastal city of Nampo. It is one of the largest private ventures in North Korea, a bastion of militant communism that only recently has cracked open its doors to foreign investment in a desperate quest for hard currency.

“This country was so closed that nobody, not God, not Buddha, could get in the last 50 years without a visa,” Park Sang Kwon, the president of Pyonghwa Motors, said at a news conference Friday in Seoul, the South Korean capital, where the company is headquartered. “Nobody, even in my own company, believed it was possible to build an automobile in North Korea. Only I believed.” Initially, the assembly line will turn out Fiat Sienas, a compact model, but Pyonghwa Motors hopes to develop its own model for the North Koreans.

The communist government, which also owns a stake in the company, has contracted to buy 1,000 cars in the first year. After that, the company hopes to sell vehicles in China, Russia and, if the political situation allows, South Korea. The plant has the potential to turn out 20,000 cars a year.

The unlikely relationship between the Unification Church and North Korea dates to 1991, when Moon visited the country’s founder and chief ideologue, Kim Il Sung. That paved the way for Moon, an archconservative who nonetheless supports dialogue with the North, to buy two hotels in Pyongyang, the North Korean capital, including the 161-room Potonggang, which boasts of being the only hotel in the isolated country with satellite television.

The North Koreans also allowed Moon’s followers to develop Jongju, the northwestern town where Moon was born, into a pilgrimage site–another coup for the Unification Church because the communist nation bans all practice of religion.

In addition to the car assembly plant, Pyonghwa wants to open a department store, gas stations, automobile showrooms and what the company described as a “World Peace Center” in Pyongyang to promote cultural and educational exchanges.

Pyonghwa officials say they hope the investments will advance the reconciliation process between the two Koreas, estranged for more than half a century. Indeed, the name of the company means “peace” in Korean.

“We will show the North Koreans brotherly love through this project,” Park, the company president, said Friday, flashing slides for journalists of North and South Korean employees working together in building the assembly plant, then clowning around as they pose for a photograph.

From a financial viewpoint, the company hopes that low labor costs will allow it to turn out automobiles more cheaply than elsewhere in Asia. The company now employs about 200 North Korean auto workers who are paid an average of $120 a month.

“We are bound to succeed,” Park said. “There are no unions, low labor costs. The workers are very clever, very quick to learn, and they are harshly controlled by their superiors.”

Among the extraordinary problems that Pyonghwa has encountered in trying to do business in North Korea is the erratic power supply and poor transportation system. The new plant is situated next to a 2-year-old highway linking Nampo with Pyongyang, 25 miles to the northeast. However, the road was constructed with picks and shovels; it does not accommodate heavy trucks well and frequently needs repairs. Merely putting up a sign over the front gate of the factory was a struggle, in which capitalism ultimately triumphed over communism.

“This is the first time anybody was allowed to put a company logo on a billboard in North Korea,” Park said.

The plant’s grand opening, scheduled for April 5, comes as North Korea is going through a particularly rough patch in trying to attract foreign investment. The rapprochement with South Korea has ground to a halt, while President Bush’s characterization of North Korea as part of an “axis of evil” has hardly induced companies to invest.

There also have been a number of well-publicized failures. Hyundai, the South Korean conglomerate, recently had to turn to its own government for a bailout to rescue its 3-year-old venture bringing tourists to North Korea’s scenic Mt. Kumgang.

“We advise companies to look carefully, to cross-check everything as much as possible before doing business in North Korea,” said Jean-Jacques Grauhar, secretary-general of the European Chamber of Commerce in Seoul. “We don’t think the legal framework is satisfactory at this stage, and the general way of doing business is not yet developed.”

In addition to its assembly line, Pyonghwa is refurbishing used cars imported from Japan for resale in North Korea. That business opened early last year and has brought in about $300,000 in sales.

There are 3,000 passenger cars in North Korea for a population of 23 million. All are said to belong to the government or top officials.

Pyonghwa also owns a Fiat assembly plant in Vietnam and has tried various automotive projects in China, which so far have been unsuccessful.

The company’s affiliation with the Unification Church is unclear. Several businesspeople in Seoul said it is part of the church, although company officials said it is merely owned by individuals who are church members, including Park, who owns about 80%.

“This really has nothing to do with religion, and the fact that our president is a member of the church doesn’t affect the way the company does business,” said Lee Hyun Tak, a Pyonghwa official.

Unification Church to sell 1,000 cars in N.Korea in ’02
Reuters
Samuel Len
3/22/2002

The automotive arm of South Korea’s Unification Church said on Friday it has finished building a $55 million car assembly plant in famine-hit North Korea, whose government has pledged to buy 1,000 cars each year.

“North Korea wants to develop its own model as soon as possible,” Park Sang-kwon, the company’s president, told a news conference in Seoul.

Business prospects in the reclusive country seemed to glow shortly after President Kim Dae-jung of South Korea held an unprecedented summit in 2000 with North Korean leader Kim Jong-il.

But relations between the neighbours chilled last year and have come under even greater pressure after President George W. Bush labelled North Korea part of an “axis of evil” in January.

North and South Korea remain technically at war as the 1950-53 Korean War ended without a peace agreement.

Undaunted by this atmosphere, Pyeongwha Motors Corp, the first South Korean company to build an auto plant in the north, says it sees a burgeoning market.

Pyeongwha, which means “peace” in Korean, is a joint venture with North Korea’s Ryonbong company. The assembly plant in the port city of Nampo will be capable of rolling out up to 20,000 cars annually when it opens on April 5.

Two years ago, Pyongyang completed a spanking new, 10-lane highway linking the port city of Nampo to the capital, he said.

All that’s needed, Pyeongwha says, are cars to fill the empty roads of a country of 23 million people. However, there were just 3,000 passenger cars among the 290,000 to 300,000 vehicles in North Korea in 1999.

NORTH KOREAN CAR EXPORTS?

The Unification Church, founded in 1954 by Reverend Sun Myung Moon and famed for mass wedding ceremonies, is also a considerable business force in South Korea. Its interests range from refining titanium to pharmaceutical products.

“We were chosen because we approached them with an offer to develop our own offspring,” he said. “We want to fill North Korea with cars and then export them.”

Exports could begin anywhere from 10 to 15 years down the road, with North Koreans preferring to export an indigenous model fitted with a Pyeongwha engine, Park said.

The orders from the North Korean government alone would be enough for the company to break even. Ssales are expected to rise to 2,000 to 3,000 cars next year, he said.

The plant assembles one model for domestic sales, the Siena compact designed by Italy’s Fiat SpA FIA.MI.

Pyeongwha has imported used Japanese cars into North Korea and refurbished for resale using North Korea’s cheap labour. It has been selling 20 to 30 cars a month, at between $10,000 to $15,000, mainly to foreign businessmen and diplomats, Park said.

Park painted a picture of life in the North Korean capital far different from the horrific images of outer regions described by aid workers.

“There’s a nine-hole golf course in the city, as well as a driving range,” built by ethnic Koreans in Japan, Park said.

Wikipedia:

Stockholders
70% Pyonghwa Motors (Seoul) (owned by the Unification Church)
30% Ryonbong Corp.

Car models
Hwiparam (휘파람 – Whistle) – based on the Fiat Siena
Ppeokkugi (뻐꾸기 – Cuckoo) – based on the Fiat Doblò
Premio (also known as Cuckoo 3) – based on a Dandong Shuguang pick-up
Pronto (also known as Cuckoo 2) – based on a Dandong Shuguang SUV
Junma – apparently based on the SsangYong Chairman

Video from DPRK state television