Archive for the ‘Economic reform’ Category

North Korea to attract foreign capital through foreign media

Thursday, May 7th, 2015

Institute for Far Eastern Studies (IFES)
2015-5-7

As North Korea struggles to attract foreign investment due to international sanctions, an argument is growing in North Korea that it needs to launch an investment charm offensive targeting foreign media.

Already skilled in socialist propaganda, North Korea appears intent on fully employing those skills in the attraction of investment, the essence of management in capitalism.

In the January 20th issue of the monthly Kim Il Sung University newspaper (vol. 1, 2015), an editorial was published entitled, “The Importance of Proactively Using Various Means to Attract Investment.” This editorial emphasized the importance of using the media in order to attract investment.

It argued that if the government invited esteemed members of the media when publicizing developments like a new investment environment or policy and the media reported on these events to their respective news agencies, it “could promote these developments widely at home and abroad through such special reports.”

Following this, the editorial advised that authorities select widely-circulated newspapers and magazines commonly read by investors and companies and submit to these publications news regarding things such as the progress of talks, the signing of contracts and agreements, the scale of businesses and related events.

It also suggested that authorities advertise in TV commercials during peak-viewing time. In the case of newspapers, it advised that they pay attention to their selling price, political inclination and religious nature when considering the daily, morning and evening papers.

While stating that maintaining relations with media outlets is important, the editorial also entreated that the government invite members of the press to investment-related events or inform them at the proper time regarding news of the Special Economic Zones (SEZs).

Furthermore, it argued that in order to effectively publicize investment opportunities, economic development zones themselves need to create homepages and make employees proficient in how to use the Internet and search for information that investors request in a timely manner.

At the same time, because “decadent and reactionary ideas and cultures can infiltrate, and information regarding investment targets can be carried away” through the Internet, the editorial did not forget to suggest that authorities only enable selected institutions and interested parties will be permitted to use the Internet.

In addition, in order to facilitate the exchange of information with investors, the editorial encouraged the government to introduce detailed procedures and methods for maintaining email accounts and to use programs like Excel for managing data and documents.

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Construction of new Wonsan Airport continued through winter

Friday, May 1st, 2015

New Google Earth imagery shows continued development of the new civilian airport in Wonsan. The airport is presumably intended to support the Wonsan-Mt. Kumgang International Tourist Zone.

2015-3-26 (Google Earth)

Wonsan-Airport-2015-3-26

2015-2-10 (Google Earth)

Wonsan-Airport-2015-2-10

2014-12-25 (Google Earth)

Wonsan-Airport-2014-12-25

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North Korea Spurring Development of Various Special Tourist Zones

Thursday, April 30th, 2015

Institute for Far Eastern Studies (IFES)
2015-4-30

North Korea is expediting the development of various ‘Special Tourist Zones’. North Korea is diversifying its tour packages, and have designated Mt. Kumgang (Kumgangsan) and Mt. Paektu (Paektusan) as International Special Tourist Zones. A Special Tourist Zone on the riverside near the Amrok (Yalu) River Bridge is also under construction. This zone is designed to attract foreign tourists including Chinese tourists.

In addition, North Korea and China are pushing forward with the ‘Onsong-Tumen Border Culture and Tourism Cooperation Zone.’ This is intended to be a cooperation zone that integrates tourism, cultural performances, duty-free shopping and serves as a distribution center of tourism products for both countries.

North Korea has also revealed outlines of its plans for the Wonsan-Mt. Kumgang Tourist Region and is pushing ahead with an on-site briefing session scheduled for May 2015. While North Korea repairs and expands the existing road network connecting each tourist site (focusing first on Wonsan), authorities have decided to construct a transportation network by establishing a high-speed railroad between Pyongyang and Wonsan, as well as opening passenger routes between Wonsan Harbor and Rason, and Wonsan Harbor and Vladivostok. They also plan to introduce a series of measures for attracting tourists, including a no-visa system, currently under consideration.

In addition, the Korean Central News Agency (KCNA) has announced an era of full-fledged international tourism in Mt. Paektu. On April 23, 2015, KCNA revealed that the Mubong International Special Tourist Zone will be built in part of Samjiyon County’s Mubong Workers’ District near Mt. Paektu. The Mubong Workers’ District is 35km away from Mt. Paektu, 60km away from Samjiyon, and 70km away from Taehongdan. Thus, it is considered eligible for designation as a special district.

This location is considered to be relatively well-equipped with tourism infrastructure compared to other regions, and expected to perform favorably in attracting outside investment. KCNA reported that this region has a number of amenities and attractions as a Special Tourist Zone.

For example, two decades ago North Korea prepared to host the 1995 Asian Winter Games in Samjiyon until those preparations came to a halt. However, construction resumed in the 2000s, and since then North Korea has constructed a large-scale winter athlete’s village equipped with facilities such as a ski resort and ice rink. Also, Mubong lies in the middle of Samjiyon, Mt. Paektu, and Taehongdan. From Mubong one can go climb Mt. Paektu and view the entire Samjiyon area, or go to Taehongdan and see the large potato-growing districts.

Since the Kim Jong Il era, potato fields were planted in Taehongdan as a tourist attraction. In Mubong, North Korea built large-scale blueberry production complexes, which have become well-known for their blueberry wine. There are also customs offices in Ssangdubong, making the entry process for foreigners presumably less difficult.

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DPRK announces Mubong Special Zone for International Tour [sic]

Thursday, April 23rd, 2015

Mubong-special-zone-google-earth

 

Pictured above (Google Earth): Mubong Special Zone for International Tour

According to KCNA:

The Mubong Special Zone for International Tour will be established in the DPRK.

A relevant decree was promulgated by the Presidium of the Supreme People’s Assembly of the DPRK on Wednesday.

According to the decree, the special zone for international tour will cover some areas of the Mubong Workers’ District in Samjiyon County, Ryanggang Province.

The sovereignty of the DPRK will be exercised in the zone to which the DPRK Law on Economic Development Parks and its regulations concerning foreign investment will be applied.

Here is coverage in Xinhua.

Here is coverage in Yonhap:

North Korea said Thursday it has decided to establish a special tourist zone in a district near the peninsula’s highest peak, a move seen as intended to earn hard currency.

North Korea’s Supreme People’s Assembly on Wednesday promulgated a decree designating some areas of the Mubong workers’ district near Mount Baekdu as the Mubong Special Zone for International Tour, according to the official Korean Central News Agency (KCNA).

The district, located in Samjiyon County, Ryanggang Province, is well positioned for a tourist zone as there are already lodging houses and other facilities located there. A military airport is also located near the county, raising accessibility to the district.

North Korea’s sovereignty will be exercised in the special tourist zone where the North’s laws and regulations on economic development zones and foreign investment will also apply, according to the KCNA.

The Mubong zone will be the second special zone for international tour in the North, along with a special zone at Mt. Kumgang, a scenic resort on the North’s east coast.

Experts said that the latest move is aimed at luring the dollar from foreign tourists by boosting tourism at Mt. Baekdu at a time when inter-Korean exchanges have been suspended since 2010 following a deadly warship sinking.

Read the full story here:
N. Korea creates special tour zone near Mt. Baekdu
Yonhap
2015-4-23

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Iron Silk Road: South Korean involvement in Rason (UPDATED 2015)

Thursday, April 16th, 2015

UPDATE 20 (2015-4-27): The second shipment of coal is in Rason waiting to be shipped to South Korea. According to Yonhap:

The North Korean port city of Rajin has improved its capacity to handle a second shipment of Russian coals, boosting confidence in the joint coal shipment project involving the two Koreas and Russia, Seoul officials said Monday.

About 140,000 tons of Russian coal is expected to be transferred into South Korea on a ship from Rajin after being moved from Russia’s border city of Khasan on a re-connected railway as a second pilot operation for the three-way logistics project. The shipment will be made between April 16 and May 9.

In November, the first shipment carrying 40,500 tons of Russian coal smoothly arrived in South Korea in its pilot operation of the Rajin-Khasan project.

The project came as a symbolic project of three-way cooperation at a time when inter-Korean exchanges have been almost suspended following the deadly sinking of a South Korean warship by the North in 2010.

“Compared with in November, we think that the port’s capacity to load or unload the shipment was improved,” said an official at the Ministry of Unification, asking not to be named.

“Nothing has been decided, but there may be a third pilot operation for the project,” he said. “We expect that talks over a formal contract could come.”

The project involves three South Korean firms — top steelmaker POSCO, shipper Hyundai Merchant Marine Co. and state train operator Korail Corp. They will decide on whether to clinch a formal contract based on the outcome of the pilot operations.

This time the project also includes two power plant operators: Korea East-West Power Co. and Korea Midland Power Corp.

The coal shipment will arrive at three South Korean ports in early May, including the one in Pohang, 374 kilometers southeast of Seoul and a port in Dangjin, 123 kilometers south of the capital.

The Rajin-Khasan project is part of Seoul’s move to realize President Park Geun-hye’s vision for a united Eurasia.

UPDATE 19 (2015-4-16): The Donga Ilbo reports on the second shipment of coal from Rason to South Korea:

A second trial run in a three-party trade project involving Seoul, Pyongyang and Moscow that will transport more than 100,000 tons of soft coal from Russia to three Korean ports is scheduled to start today, the Ministry of Unification said on Wednesday.

The venture, referred to as the Rajin-Khasan logistics project, will run from today to May 9, and use Chinese ships to transfer the consignment, according to a ministry official.

A consortium of three South Korean companies – top steelmaker Posco, the Korea Railroad Corporation (Korail) and ship maker Hyundai Merchant Marine Co. – are involved in the project, which will see the soft coal transported to Rajin, North Korea, from the Russian border city of Khasan on a reconnected 54-kilometer (33-mile) railway before being shipped to South Korea.

The expected shipment will be used for thermal power generators and ironmaking. The consignment is three times the amount of coal that was transported in the pilot round, when some 40,000 tons were transferred to Pohang, North Gyeongsang, in November over the same route.

Power plant operators Korea East-West Power Co. and Korea Midland Power Corp. are also participating in the second trial run.

The Russian coal will be transported via two China-flagged vessels, a 44,000-tonner and a 49,000-tonner, that will sail from the Rajin port down the East Sea and around the Korean Peninsula to three ports. The coal is expected to arrive first in Dangjin Port in Gyeonggi, where it will be used by the Korea East-West Power Co.

More is scheduled to arrive the following day in Gwangyang Port in South Jeolla for use by Posco. Korea Midland Power Corp. will get its delivery on May 9, at the Boryeong Port in South Chungcheong.

An inspection team of 18 government officials and representatives from the three South Korean companies will make a weeklong visit to the North Korean city with Russian railway authorities on Friday for the project.

“Our government completed the procedures needed for this second trial operation, receiving approval to visit North Korea and import the coal,” a Unification Ministry official said on Wednesday. “Pyongyang will, depending on its contract with Russia, receive payment just for the cost of using the North Korean port.”

The companies will then decide on whether to forge a formal contract for the trilateral project based on the outcome of both test runs.

The Rajin-Khasan project is a part of President Park Geun-hye’s Eurasia Initiative first announced in October 2013 as a way to boost the regional economy through free trade and economic cooperation in the Eurasian bloc by reconnecting the railways that link both Koreas, China and Russia.

UPDATE 18 (2015-4-14): South Korea awaits  DPRK approval for second coal shipment. According to Yonhap:

A group of three South Korean firms has been in talks with North Korea and Russia over another pilot operation, during which some 150,000 tons of Russian coal may be shipped to the South between late April and early May, according to the source.

“As North Korea has not given final approval for the second operation, the date and size of the shipment has not been decided,” the source said, requesting anonymity.

The logistics project is seen as a symbol of trilateral cooperation between the two Koreas and Russia at a time when inter-Korean relations remain stagnant.

The project involves three South Korean firms — top steelmaker POSCO, shipper Hyundai Merchant Marine Co. and state train operator Korail Corp. They will decide on whether to clinch a formal contract based on the outcome of the two pilot operations.

The project could help realize South Korean President Park Geun-hye’s vision for a united Eurasia.

UPDATE 17  (2015-4-12):  Second trial shipment of coal announced. According to Yonhap:

A consortium of Seoul firms is expected to run another pilot operation of a key logistics project involving South and North Korea and Russia in late April, a government official said Sunday.

The so-called Rajin-Khasan logistics project is the symbol of trilateral cooperation between the two Koreas and Russia at a time when inter-Korean relations remain stagnant.

In the previous pilot operation, 40,500 tons of Russian coal arrived in South Korea on a ship from the North Korean port city of Rajin in November after being transported from Russia’s border city of Khasan on a re-connected railway.

“The companies are in the process of setting a specific schedule with the North and Russia as they are seeking to run a second operation late this month,” said an official at the unification ministry, asking not to be named.

The logistics project involves three South Korean firms — top steelmaker POSCO, shipper Hyundai Merchant Marine Co. and state train operator Korail Corp. They will decide on whether to clinch a formal contract based on the outcome of the two pilot operations.

The project could help realize South Korean President Park Geun-hye’s vision for a united Eurasia.

In October 2013, Park unveiled her Eurasia initiative that calls for, among other things, infrastructure development and freer trade among Eurasian nations by linking their railways.

South Korea imposed the May 24 punitive sanctions on North Korea in 2010 following Pyongyang’s deadly sinking of the Cheonan warship in March that year.

The move has suspended all trade and exchange programs with the North, apart from a joint factory park project in the North Korean border city of Kaesong. The three-way logistics project also has been regarded as an exception.

Here is coverage in the Donga Ilbo.

UPDATE 16 (2014-12-7): According to Yonhap, KEPCO is mulling participation in the Rajin-Khasan project:

The five KEPCO units, led by Korea Midland Power Corp., are reviewing the economic feasibility of the project. “But it is hard to say we will participate in the project as nothing has yet been decided,” said an official at KEPCO.

Last month, a group of officials from the units, along with government officials, visited the North’s Rajin port to assess the viability of importing Russian coal, industry sources said.

South Korea’s leading steelmaker POSCO, a major shipper Hyundai Merchant Marine Co., and the state-run rail operator Korea Railroad are already taking part.

UPDATE 15 (2014-12-1): Seoul offers support to Rajin-Khasan transport project. According to Yonhap:

The South Korean government vowed full support Monday for the nascent Rajin-Khasan project, saying it would help spur the “Eurasia Initiative” proposed by President Park Geun-hye.

The unification ministry described the logistics program, which is on a test run, as the “starting point” for economic cooperation among the two Koreas and Russia.

“It is meaningful as a project to lay the foundation for realizing the Eurasia Initiative, peace in Northeast Asia and the renovation of our economy,” ministry spokesman Lim Byeong-cheol said at a press briefing.

He was referring to South Korea’s plan to bring Russian coal through the North’s port of Rajin.

In the landmark pilot operation, 40,500 tons of Russian coal arrived in the South on a Chinese-flagged ship over the weekend from Rajin. The coal was transported from the Russian town of Khasan to Rajin on a 54-kilometer railway that was re-connected last year.

South Korea’s top steelmaker POSCO began unloading the coal from the ship at its iron mill in Pohang on Monday.

Lim said his government will provide every necessary support for the tripartite project in an effort to achieve the Eurasia Project.

Another ministry official said the South’s consortium, also involving Hyundai Merchant Marine Co. and Korail Corp., is expected to ink a formal contract with Russia next year.

It plans to purchase a stake from RasonKonTrans, a joint venture in charge of the Rajin-Khasan scheme, he told reporters on background.

RasonKonTrans was established in 2008 by Russia’s RZD Trading House and the port of Rajin, with 70 percent controlled by Russia and 30 percent by North Korea.

The South’s consortium is seeking to buy some of Russia’s stake.

“If necessary, I think there could be one more round of pilot operation (before signing the deal),” the official said.

Last year, President Park suggested linking energy and logistics infrastructure in the Far East and Europe.

But Seoul is not yet considering any other measure such as the modernization of the North’s Rajin port, he added.

UPDATE 14 (2014-12-1): Here is coverage of the first coal shipment from the Institute for Far Eastern Studies (IFES):

As South Korean companies have recently been showing interest in the Rajin-Khasan Project currently ongoing between North Korea and Russia, the first ever shipment of 45 thousand tons of Russian coal is set to depart from Rajin harbor (DPRK) on November 28, 2014 and arrive in the South Korean port city of Pohang the following night.

According to the Ministry of Unification, the South Korean delegation will work in conjunction with a Russian railroad construction company while visiting North Korea to do a comprehensive technical inspection of Rajin harbor. The inspection will cover the loading and shipment of coal, entrances and exits for transport ships, railway-to-port connectivity and other complex logistical processes, and will take place from November 24th to the 28th.

Accordingly, a total of 12 representatives from South Korean companies including POSCO, Hyundai Merchant Marine Co. and KORAIL, plus one representative from the Ministry of Unification are slated to take a train from the Russian settlement of Khasan to the North Korean port at Rajin on November 24th. The consortium is visiting North Korea in order to oversee a pilot demonstration of the Rajin-Khasan Project, which will bring coal from Russia into Rajin harbor, where it would then be transported to Pohang harbor in South Korea. This visit is expected to mark the South Korean consortium’s full-fledged participation in the Rajin-Khasan Project.

The pilot project will cover the shipment and transportation of 45 thousand tons of coal mined from the West Siberian region in Russia to the South Korean port of Pohang. After the coal is mined and transported to Rajin, North Korea via railroad, it will be loaded onto a Chinese national freighter (capable of holding 56 thousand tons) which is expected to depart Rajin harbor at 10 A.M. on November 28th and arrive in Pohang the following evening at approximately 10 P.M.

Specifically, this marks the first use of the direct maritime route connecting Rajin harbor to Pohang harbor, which passes over the Northern Limit Line in the East Sea, since the implementation of the May 24 Measures. This direct route, which takes approximately 36 hours, has been calculated to save up to 15 percent in both time and fuel costs. It is expected that this cost-cutting effect would become even greater if the South Korean companies involved in the Rajin-Khasan Project are able to sign into a long-term contract.

The total scale of the pilot project is said to be approximately 4 million USD (approx. 4.45 billion KRW), with around 10 percent of the total being provided by a joint DPRK-Russian corporation known as RasonKon Trans. In relation to this, the Ministry of Unification has stated that the majority of this money is being paid to Russian mining companies, with a small portion being given to North Korea for port dues and other costs, and that there appear to be no problems or abnormalities in this international trade project.

It appears that POSCO, Hyundai Merchant Marine, KORAIL and other South Korean firms have been examining a possible stake in Russian railroad construction companies, and will proceed with establishing a corporate body in Russia to invest in RasonKon Trans. The equity structure of RasonKon Trans currently stands at 7:3, with the Russians holding the larger share. South Korean firms are currently reviewing investing in a stake of the Russian share, and formal contracts are not expected until 2015.

The goal of this pilot project is to test how much supply the project can technically handle, and to use that figure as a base for calculating profitability. The South Korean representatives are planning to hold negotiations with Russia; however, it appears that it will be difficult to conclude these talks within the year. In July, an inspection team was dispatched to Rajin harbor as part of the “Rajin-Khasan Logistics Project,” where they concluded that the port was capable of transporting 4 million tons per year.

The coal mined in West Siberia is transported via the 54 kilometer Rajin-Khasan railroad and takes merely one hour to reach Rajin, where it is then transported to the harbor and distributed to as many as three piers equipped to handle shipment.

UPDATE 13 (2014-11-30): So now that the first trial run is over, what is to stop North Korea from demanding more revenue once the transportation route is formalized? Russia–according to this piece in the Korea Times:

Choi Kyung-soo, a director at the North Korean Resources Institute in Seoul, says that a trilateral partnership tends to be less risky than a bilateral project such as the Gaesong Industrial Complex.

“There is a possibility that the North may try to use the trade route as a means to put pressure on the South when things go badly for them. But I think Russia won’t sit idle if its economic interests are affected,” he said.

Because there is a role that a third party can play, Choi says, the shipment of Siberian coal to South Korea via the North Korean port will be less risky than the Gaesong Project.

UPDATE 12 (2014-11-21): Russia and South Korea launch first pilot project to ship coal via Rason. According to Yonhap:

Under the envisioned program, South Korea’s top steelmaker POSCO will bring in Russian coal via the North Korean port of Rajin. Two other South Korean firms — Hyundai Merchant Marine Co. and Korail Corp. — are joining the project.

“Since it is a normal international commercial trade, it’s my understanding that there is no problem with the U.N. sanctions,” the official told reporters on background.

It is also a “special case” as far as Seoul’s bilateral sanctions on Pyongyang are concerned, he added.

The South maintains the May 24th Measure, effectively blocking all inter-Korean economic projects except for the Kaesong Industrial Complex. The sanctions were imposed for the North’s deadly torpedo attack on a South Korean warship in 2010.

Once the trilateral program is formally launched, he admitted, the North will be able to secure a stable supply of cash.

The three countries are poised for the first test run of the project next week, in which POSCO will import 40,500 tons of coal from a Russian mine in the West Siberian region.

The 54-kilometer railway between the North Korean city of Rajin and Russia’s Khasan will be used and then a Chinese-flagged 56,000-ton ship will carry the coal to the South’s port in Pohang.

The ship is scheduled to depart Rajin on Nov. 27 for about a 36-hour voyage.

If the project proves cost-effective, the South Korean consortium will hold further talks with the Russian side for a formal contract. It would be hard to ink the deal within this year, though, given the time needed for the relevant process, said the official.

POSCO brings in some 2 million tons of Russian coal every year by way of Vladivostok.

The Rajin-Khasan project is expected to cut shipment costs by 10-15 percent in the long term, according to the ministry official.

“But the stability (of its operation) is the key to its success,” he said, citing the possibility of political setbacks amid Pyongyang’s unpredictable behavior.

Meanwhile, a team of 13 South Korean delegates plans to visit Rajin and Khasan next week to monitor the pilot run worth US$4 million. The delegation is composed of a unification ministry official and a dozen related company officials.

The ministry said it approved their trip to the North earlier Friday.

South Korea has an ambition of linking its railway network with that of Europe through North Korea.

Here is coverage in the Korea Times.

The Wall Street Journal also included this information:

Based on current coal prices, the shipment is valued at around $4 million. North Korea is receiving an undisclosed sum, which a Unification Ministry official called “very small.” A spokesman for the Russian Railways said North Korea receives 30% of the usage fee for about 50 kilometers (31 miles) of railroad from the Russian border to Rajin but couldn’t provide details about the payment. A spokesman for Posco declined to comment on the cargo value or the payment structure.

A Unification Ministry official said that since the structure of the deal involves payment via a third country it isn’t subject to Seoul’s sanctions against Pyongyang. The official, who requested customary anonymity, said the exception was also made to promote South Korean President Park Geun-hye’s “Eurasian Initiative,” which aims to link Europe and East Asia with energy and transport networks.

According to the JoongAng Ilbo, the ship was sipposed to depart Rason on Nov 28, but because the loading went smoothly, the vessel left port on Thursday, Nov 27. It arrived in South Korea on the following Saturday.

UPDATE 11 (2014-7-24):  North Korea apparently willing to allow South Korean investment Rason railway project. According to Yonhap:

North Korea is willing to host South Korean firms’ investment in the country’s railway project with Russia, a South Korean government official said Thursday after a recent on-site inspection visit to the North.

A group of 38 government officials and representatives from South Korean rail operator KORAIL, steelmaker POSCO and shipping company Hyundai Merchant Marine Co. returned on Tuesday from their one-week visit to the North’s Rajin port near the country’s northeastern border with Russia.

It was the three-firm consortium’s second visit to the North, intended to conduct a feasibility study on their plan to join the so-called Rajin-Khasan logistics project, linking the North Korean port city to Russia’s Trans-Siberian railway.

“(The North) basically said they are pleased with South Korean investment and reacted with a hope that this (deal) could help South-North Korean relations advance,” a South Korean government official who joined the recent North Korean tour said on condition of anonymity.

The official said based on the recent on-site inspection, the local business consortium may finalize the review of its plan to join the project, adding that it is likely to strike a deal with the Russian side later this year or early next year.

During their summit meeting in Seoul in November, South Korean President Park Geun-hye and her Russian counterpart, Vladimir Putin, agreed to help the South Korean firms join the project, which would let them invest indirectly in the North.

The local consortium is reportedly planning to test-run a transportation route within this year to move Russian coal to the North Korean port and then to ship it to South Korea’s eastern port of Pohang.

The official said the North Korean port of Rajin is now fully ready for such coal transportation.

“(Transportation) seemed to be possible at any time,” the official said, referring to the Rajin port’s third pier, which has been completed recently and launched last week. The local consortium is seeking to use the new pier if it enters into the North Korean-Russian project.

The new pier is capable of handling 4 million tons of coal annually, the official added.

Under the bilateral logistics project, North Korea and Russia reopened in November a 54-kilometer stretch of railroad track linking the North Korean port to the eastern border Russian city of Khasan after a five-year renovation.

The South Korean official also said the cross-border railroad was being well operated as of recently.

If the local consortium finally decides to join the project, it reportedly may so do by acquiring half of Russia’s share in the project.

The South Korean government has been promoting South Korean firms’ participation in the logistics project, which it views as closely linked to President Park Guen-hye’s “Eurasian Initiative,” a vision that calls for building more infrastructure and freeing up trade between Eurasian nations to create what could become a large single market rivaling the European Union.

The unification ministry earlier said that a formal deal between the consortium and its Russian counterpart for the project will be signed in the second half of the year.

UPDATE 10 (2014-6-11): According to Russian media:

Russian Minister for Far East Development Alexander Galushka announced plans to extend the Trans-Siberian Railroad into North and South Korea during a Russian-Korean trade meeting in Vladivostok on Thursday.

The expansion program calls for a collaborative railway construction project between Russia, North Korea and South Korea. Russian officials hope the expansion will not only triple the speed at which goods are shipped between Europe and Korea, but also restore peace between North and South Korea, RT.com reports.

“We have agreed to launch trilateral projects between Russia, DPRK and South Korea with a focus on the railroad project,” Galushka said, according to RT.com. “It’s important to extend the Trans-Siberian Railroad to the Korean peninsula. It will service to stabilize and improve the situation on the Korean peninsula as a whole.”

Mechel, Russia’s largest steelmaking company, has agreed to supply the steel required for the first phase of the expansion. South Korea’s Hyundai Construction has been identified as a likely commercial partner in the project.

North Korean officials have been reluctant to participate in any collaborative infrastructure program despite the poor conditions of its rail system. Members of the North Korean government began to express interest in a railway development project last September after Russia re-opened a 33-mile expanse of track to Khasan, the last Russian city before the North Korean border, according to RT.com.

UPDATE 9 (2014-4-29): The Choson Ilbo reports that Ms. Choi has returned from the DPRK:

The Organisation for Co-Operation between Railways (OSJD) has decided to hold two major meetings, the Commission on Freight Traffic in 2015 and Conference of General Directors in 2019, in Seoul.

KORAIL president Choi Yeon-hye made the announcement at Gimpo Airport on Monday after returning from an OSJD meeting in Pyongyang. It is unprecedented for an associate rather than full member to host the conference.

The OSJD is an organization of 27 former and current communist countries, including Russia, China and North Korea.

“We don’t know yet whether the North will attend the meetings in 2015 and 2019, but the participants unanimously decided to hold them here, and the North didn’t oppose it, so we expect them to come,” she added.

The annual conference of general directors alternatively takes place in Asia and Europe, but exceptionally the 2019 meeting will also be held in Asia following the 2018 meeting in Vietnam.

The government here is keen to work with the railway body to link South Korea to Eurasia via North Korea.

Here is coverage in Yonhap.

UPDATE 8 (2014-4-22): The Choson Ilbo reports that the head of Korail has left for the DPRK:

KORAIL president Choi Yeon-hye is appropriately on her way to North Korea by train.

Choi left for Pyongyang on a train from Beijing on Monday afternoon to attend a meeting of the Organisation for Co-Operation between Railways (OSJD), KORAIL said Monday.

The OSJD is an organization of 27 former and current communist countries, including Russia, China and North Korea.

The government approved Choi’s request to visit to the North on Sunday after the North sent her a letter of invitation. She got a visa from the North Korean Embassy in Beijing the same day.

The train runs from Beijing to the North Korean border city of Sinuiju in 24 hours, where she switches trains for the 225 km stretch to Pyongyang.

A KORAIL executive said, “Choi’s visit is the North’s first approval of a South Korean official’s visit” since the South imposed sanctions against North Korea in 2010.

She is the first senior South Korean figure to visit Pyongyang since the inter-Korean summit in 2007.

President Park Geun-hye is keen to connect South Korea to Eurasia by railway, which requires cooperation from the OSJD.

Here is coverage in Yonhap.

UPDATE 7 (2014-4-18): The DPRK has “sort of” invited the head of Korail to a conference in Pyongyang. According to Yonhap:

North Korea has invited the head of South Korea’s rail operator to an international conference to be held in Pyongyang next week, a source with knowledge of the matter said Friday.

However, the North made the invitation verbally, which is preventing Choi Yeon-hye, president and CEO of the Korea Railroad Corp., from formally applying for the trip to Pyongyang, the source said.

The rail conference in Pyongyang, scheduled for April 24-28, is meant to boost international cooperation between railway operators, the source said, adding that it is expected to bring together top rail officials from China, Russia and 25 other member states of the Organization for Cooperation of Railways.

South Korea’s Unification Ministry, which handles inter-Korean affairs, said no decision has been made yet on whether to allow Choi to travel to the North for the conference.

UPDATE 6 (2014-3-29): Russia and North Korea held talks on entry of the Russian firms into the Kaesong Industrial Complex and the railway project. According to Yonhap:

Also on the table in the Pyongyang-Moscow talks was how to boost cooperation among the two Koreas and Russia, with Pyongyang and Moscow making it clear that the two “share mutual interest” in the trilateral cooperative projects, according to the report.

“The (Russian) ministry reaffirmed the countries’ mutual interest in joint projects with South Korea, including international connections for railways, gas pipelines and power lines,” it said, adding that the minister stressed stability on the Korean Peninsula is key to achieving the goal.

Discussions of the project to connect the Trans-Siberian Railway (TSR) with the Trans-Korean Railway (TKR), dubbed the “Iron Silk Road,” have been under way for more than a decade, but geopolitical obstacles have hindered it, particularly given North Korea’s nuclear ambitions.

South Korea and Russia have also been in discussions to push for a project to build a gas pipeline linking the two via North Korea.

The next meeting of the bilateral commission is scheduled for June in Russia’s far eastern city of Vladivostok, according to the ministry.

You can read more about the gas pipeline here.

UPDATE 5 (2014-3-24): South Korea to import coal through Rajin by next year. According to Korea IT Times (note-I changed the South Korean “Najin” to the North Korea “Rajin”):

A pilot program to carry coal from the port of Rajin in North Korea to Pohang in the south is expected to bear fruit within the year. A high-ranking official at the Ministry of Oceans and Fisheries said on March 23, “We have finalized a plan to ship coal between Rajin and Pohang before the year’s end as part of the Eurasia Initiative.”

Once the coal shipment from Siberia arrives in Rajin through the Hasan train station on the Russian side, South Korean ships will move the cargo to POSCO in Pohang from the No. 3 wharf in Rajin.

The ministry official added, “In a visit to Rajin in February we found that the port facility is capable of handling coal load up to 4 million tons a year. We will send a due diligence team again within the first half to find out the depth of the water near the port.”

The pilot coal shipment program is undertaken as part of the Rajin-Hasan railway project. The 54-kilometer railway link is critical to connecting the rail lines in the south to Busan and the trans-Siberian railway to European destination. Earlier in 2000, Russian President Vladimir Putin and then-ruler of North Korea Kim Jong-il agreed to build the line at the cost of US$340 million.

Rajin is a port city located at the northernmost corner of North Korea bordering Russia. The Russian government has since 2010 been working on building berths capable of holding 70,000-ton vessels in Rajin’s No. 3 wharf. The Chinese government is also in talks with North Korean authorities over building container unloading facility as well as expanding the wharves No. 4 to 6. The problem, however, is the Russian side has not found coal mines big enough to supply the volume demanded by Korean companies including POSCO.

UPDATE 4 (2014-3-24): South Korea has joined the Organization for Cooperation Between Railways (OSJD) in Warsaw. According to the Choson Ilbo:

Korea has taken the first step toward connecting its railways to the Eurasian continent. The Korea Railroad Corporation on Sunday said it became an associate member of the Organization for Cooperation Between Railways (OSJD) in Warsaw, Poland.

In order to connect Korean railways from Busan to Europe, it is essential for KORAIL to register to the OSJD, which makes the rules on the Eurasian continent and overseas treaties amongst member states.

This makes a more realistic prospect of a planned “Silk Road” railway connecting the Korean Peninsula to Europe that lies at the core of President Park Geun-hye’s “Eurasia Initiative.”

The initiative, which was announced in October last year, aims to strengthen Eurasian economic cooperation and prompt an opening of North Korea to lay the groundwork for reunification with the South.

The OSJD invited KORAIL to a meeting of the heads of member states’ railways in Pyongyang next month.

UPDATE 3 (2014-3-5): South Korean companies could be operating out of Rason by next year. According to Yonhap:

South Korea may be able to use the North Korean port city of Rason for logistical purposes as early as early next year, the unification ministry said Wednesday.

“The flow of goods through the Rason region may become possible around next spring if things go smoothly,” Unification Minister Ryoo Kihl-jae said in a lecture to a group of former lawmakers.

“In early February, South Korean companies paid an on-site visit to the Rason area and if this (cooperation project) goes smoothly, major progress would take place around September this year,” the minister said of Seoul’s push to join the Rajin-Khasan development project between Pyongyang and Moscow.

The project is designed to develop Rajin, the northeastern North Korean port city now reintegrated into Rason, into a logistics center linked to Russia’s Trans-Siberian Railway.

The government is planning to link the North Korean port to two major South Korean southern ports of Pohang and Busan.

UPDATE 2 (2014-2-6): According to the Wall Street Journal:

…Seoul’s Unification Ministry said on Sunday that an 18-strong Southern business team will visit Rajin in North Korea’s northeast, near Russia and China, on Feb. 11-13. Three firms are going: steelmaker Posco; Hyundai Merchant Marine011200.SE -6.55%, a shipper; and state-owned monopoly Korail. The government isn’t sending anyone.

This follows a deal signed during Russian President Vladimir Putin’s one-day visit to Seoul in November. The plan is for the South Korean trio to acquire up to half of Russian Railways’ 70% stake in RasonKonTrans, a $340 million project which last fall, five years late, finished upgrading 54 kilometers of track from Russia’s border at Khasan down to Rajin, Asia’s most northerly all-year ice-free port. Harbor facilities are also to be modernised.

I was skeptical at the time. The companies sounded non-committal, and two big political reefs loomed. Had anyone asked North Korea, whose railways ministry owns the other 30% of RasonKonTrans? And wouldn’t this breach the ban Seoul imposed in 2010 on all trade and investments in North Korea, outside the Kaesong Industrial Complex? The Southern government says no.

This is just an inspection tour, but North Korea appears to have raised no objection – which is interesting, if scarcely consistent. Pyongyang plays politics with family reunions: a sadistic heartbreaker for elderly Koreans yearning to see their long-lost kin, if only once and briefly.

According to Xinhua (2014-2-9):

A group of South Korean company officials will visit the Democratic People’s Republic of Korea ( DPRK) to carry out field study for joining in Rajin-Khasan railway and port development project between Pyongyang and Moscow, South Korea’s unification ministry said on Sunday.

A total of 18 officials from South Korea’s state-run Korea Railroad Corp. (KORAIL), steelmaker POSCO and shipper Hyundai Merchant Marine are scheduled to visit DPRK’s northeastern port city of Rajin from Tuesday to Thursday.

The ministry said they will meet their Russian counterparts in Vladivostok and then departed for the DPRK.

South Korean President Park Geun-hye and Russian President Vladimir Putin agreed to cooperate in the Russian-led project during their summit in Seoul last November.

The Rajin-Khasan project aims to refurbish DPRK’s Rajin port and a railroad connecting it to the nearby Russian town of Khasan, paving the way for the Trans-Korean Railway and the Trans-Siberian Railroad reaching Europe.

A double-track railway between Rajin and Khasan reopened last September after years of renovation. It is reported that if the trilateral program runs smoothly, the Rajin port will become a logistics center for South Korean and Russian firms.

The project is part of Park’s plan for building the “Silk Road Express” by linking roads and railways running from South Korea to Europe via the DPRK, Russia, China and other Eurasian nations.

According to Yonhap (2014-2-9):

Officials from South Korean companies set to participate in an economic project between Pyongyang and Moscow will visit North Korea this week for an on-site inspection, the government said Sunday.

The unification ministry said 18 officials from three South Korean firms will visit North Korea’s northeastern port of Rajin from Tuesday to Thursday. The companies are state-run Korea Railroad Corp. (KORAIL), top steelmaker POSCO and No. 2 shipper Hyundai Merchant Marine. No government official will join the trip, the ministry said.

Their inspection is part of South Korea’s participation in the Rajin-Khasan development project, the Russian-led rail and port development venture in North Korea.

It’s designed to develop Rajin into a logistics center linked to Russia’s Trans-Siberian Railway. Last September, a double-track railway reopened between Rajin and Khasan, the nearby Russian town, after years of renovation.

In their summit meeting in Seoul last November, South Korean President Park Geun-hye and Russian President Vladimir Putin agreed to help South Korean firms join the Rajin-Khasan project.

Also last year, Park unveiled her plan to expand economic cooperation with Eurasian nations, dubbed the Eurasian Initiative. The policy is built on the idea that exchanges between South Korea and Eurasian nations, in particular Russia, could help induce the reclusive North Korea to open up and alleviate tensions on the Korean Peninsula.

Chris Green of the Daily NK has translated an  interview with the executive director of POSCO Corporate Strategic Planning Dept, Jeon Woo-sik, wherein he offered details about the delegation visiting Rason?

Ha Joon-soo, “나진~하산 프로젝트 현장 실사단 내일 방북“ [Rajin-Khasan Project onsite inspection team to visit North Korea tomorrow], KBS News, February 10, 2014.

Q: What is the makeup of the inspection team?

Jeon: There are five people going from POSCO [포스코]: a ports expert, an investment expert, and staff. There are six from Korail [코레일], another five from Hyundai Merchant Marine [현대상선], and two from the inspection company [실사법인], which makes eighteen. Aside from that, twenty staff from Russian Railways [러시아 철도공사] will accompany [the group]. Meetings with the North Korean side will be conducted in English and Russian, so the Russian side will bring interpreters.

Q: What is an “inspection company”?

Jeon: There is the need for personnel to expertly verify accounting and tax documentation, so we incorporated a body [for that].

Q: There will be no [South Korean] government officials with the group?

Jeon: None. This is a purely private undertaking, and it was decided that if government officials were included it could have a negative impact. Therefore, we formed the entire team from the private sector, and the government accepted this position.

Q: What is the team’s schedule?

Jeon: We minimized it as far as possible. Given that experts from each sector will be doing the inspecting, we decided that three days would be sufficient. Today [February 10] they departed for Vladivostok in Russia, and tomorrow morning [February 11] they will set off by special train. After completing the border formalities at Khasan on the Russia-DPRK border, we expect them to arrive in Rajin at around 12. Construction at Rajin Port is currently underway, so they will conduct visual inspections of the state of the port, whether pier construction is being done properly, and what the state of the Rajin-Khasan railway is. It is also expected that they will get additional information from the Russian side.

Q: What was done in advance to facilitate this?

Jeon: We applied for the visit in the middle of January, and document checks took about three weeks. The North Korean government signed off on the visit on February 5, and [the South Korean] government approved it on February 7.

Q: Can you give a concrete breakdown of what the team is going to do?

Jeon: The port and railway inspections will be divided into areas of expertise. More concretely: they will check the state of the rail track bed, the width of the track and the spaces between the rails, as well as signaling systems and stations. In the Russian documentation it says that Pier 3 is 600m long, but this must be verified, along with the depth of the water, whether it freezes in winter, the state of the mobile port cranes, whether it will be possible to use the pier over the long term, its strength, and how much investment is likely needed for dredging. Once that has been done, we’ll be able to roughly assess the investment cost on the Russian side.

Q: Is it right that, according to the Russian side, construction at Pier 3 will be complete at around the end of 2013?

Jeon: Port construction progress is currently at 90 percent. It’s winter now so construction isn’t possible, but it should be 100 percent complete during the next quarter. We’ll check on the construction of the port distribution terminal during these inspections. As it stands, coal from Siberia is what is coming in, so as long as there is storage for coal it is enough.

Q: Why do you need to perform in-situ checks?

Jeon: As you will be aware, the “Rajin-Khasan Project” is a cooperative one between North Korea and Russia. It’s an integrated port and rail freight business, and is worth a total of $340,000,000. Of this, North Korea has invested 30 percent and Russia 70 percent.

However, around half the Russian stake is supposed to be supplied indirectly by this consortium of Korean firms; yet even last November when a MoU was adopted between Russia and Korea, decisions were made based on documents from the Russian side. We have never seen for real how the construction is proceeding. How much should be invested can only be decided once the precise reality has been seen.

Q: What will happen once the inspection has been completed?

Jeon: We need to know the results of the inspection before we can decide that. Investment sums will be decided within this calendar year.

Q: So, when can we expect boats loaded with coal to come from Rajin down to Pohang and Busan [in South Korea]?

Jeon: Russian Far East ports are at saturation point dealing with Russia’s natural resources. The best thing would be for the freight headed for South Korea to be taken out and sent through Rajin instead. However, for a South Korean vessel to come and go from Rajin Port requires an authorization process. This part is linked to the 5.24 Measures[1], meaning that it would become possible more rapidly if the 5.24 Measures were lifted.

According to the Hankyoreh (2014-2-11):

Explaining that the Rajin-Hasan Project is a “special case” that is going ahead despite the May 24 measures, Unification Minister Ryoo Kihl-jae said that North Korea would have to take meaningful steps before the May 24 measures could be revoked.

During a plenary session at the National Assembly on Feb. 10 on issues related to diplomacy, unification, and national defense, the minister said that the May 24 punitive measures against North Korea would not be lifted until the North took action showing its remorse for the sinking of the Cheonan warship.

The May 24 measures, instituted after the Cheonan was sunk in 2010, constitute a complete ban on economic activity, exchange, and cooperation with North Korea.

But when asked about the Rajin-Hasan project, in which POSCO, Korail, and other South Korean companies have recently received permission to invest, Ryoo said that the project is moving ahead because it has particular significance for South Korea’s national interest regarding relations with Russia. If the project makes progress in the future and material starts to move, Ryoo predicted, various discussions will take place. That is to say, South Korea is moving forward with the Rajin-Hasan project as an exception to the May 24 measures.

On Monday, South Korean Prime Minister Chung Hong-won also said that the Rajin-Hasan issue is a special case.

“What happened to the principles that President Park Geun-hye was talking about?” complained one businessman involved in economic cooperation with North Korea. “If you’re going to relax the restrictions, you should relax them for everyone. It‘s not fair just to relax them for large companies,” the businessman said on condition of anonymity.

Read the full stories here:
North Korea’s Rajin as Rotterdam? A Little Less Crazy Now
Wall Street Journal
Aidan Foster-Carter
2014-2-6

S. Korean firm officials to visit DPRK for Rajin-Khasan joint project
Xinhua
2014-2-9

S. Korean corporate officials to visit N. Korea as part of Pyongyang-Moscow venture
Yonhap
2014-2-9

Rajin-Hasan Project going ahead as a “special case”
Hankyoreh
Choi Hyun-june
2014-2-11

UPDATE 1 (2014-1-16): South Korea launches task force on railway and other projects. According to Yonhap:

South Korea is set to launch a task force on economic cooperation projects with North Korea and Russia, including a long-discussed plan for a trilateral rail link, Seoul officials said Thursday.

The move is the first follow-up step after President Park Geun-hye announced late last year her plan to expand economic cooperation with Eurasian countries for more trade opportunities.

Called the Eurasian Initiative, the policy is centered on the idea that exchanges between South Korea and Eurasian nations, especially Russia, will help induce an opening up in the reclusive North, which lies in between, thus allaying the long-running military and diplomatic tensions on the Korean Peninsula.

The task force, tentatively named the Trilateral South, North Korea, Russia Cooperation Task Force, will be launched as soon as February under the wing of the foreign ministry’s Europe division, according to the officials.

Under the task force, about five government officials will be charged with reviewing the feasibilities of various economic project ideas among the three nations, including much-discussed plans to link a railroad, gas and oil pipes, and electrical grids between South Korea and Russia through North Korea, according to them.

“All the issues concerning the trilateral cooperation among South and North Korea, and Russia can be subject to the task force’s reviews,” a foreign ministry official said. “Specific details about the projects will be known after the task force goes into operations.”

Discussions of the project to connect the Trans-Siberian Railway (TSR) with the Trans-Korean Railway (TKR), dubbed the “Iron Silk Road,” have been under way for more than a decade, but geopolitical obstacles have hindered it, particularly given North Korea’s nuclear and missile ambitions.

In a summit meeting held in Seoul last November, South Korean President Park and Russian President Vladimir Putin signed a memorandum of understanding to help South Korean companies join the Rajin-Khasan development project in North Korea, the Pyongyang-Moscow project to link their railways for better logistics.

ORIGINAL POST (2013-11-13): The Russians and South Koreans recently discussed and signed a MOU on investment in the Rajin-Russia railway link and port. According to Yonhap:

South Korea agreed Wednesday to take part in a Russian-led rail and port development project in North Korea that could help reduce tensions with Pyongyang and open up a new logistics link between East Asia and Europe in line with President Park Geun-hye’s “Eurasian initiative.”

The memorandum of understanding was the most tangible outcome from Park’s summit with Russian President Vladimir Putin. It calls for steel giant POSCO, Hyundai Merchant Marine Co. and Korea Railroad Corp. to participate in the Rajin-Khasan development project.

The project was designed to develop North Korea’s ice-free northeastern port of Rajin into a logistics hub connected to Russia’s Trans Siberian Railway. In September, a 54-kilometer, double-track rail link reopened between Rajin and the nearby Russian town of Khasan after years of renovation.

Once the project to modernize the port of Rajin is completed, the rail-connected port can be used as a hub for sending cargo by rail from East Asia to as far as Europe. South Korean firms can also ship exports first to Rajin and transport them elsewhere via Russian railways.

North Korea and Russia launched the US$340 million project in 2008.

“The two sides agreed to encourage the rail and port cooperation project that companies of the two sides are pushing for so that it can move smoothly forward,” said a joint statement issued after the summit.

The project fits into Park’s “Eurasian initiative,” which calls for binding Eurasian nations closely together by linking roads and railways to realize what she called the “Silk Road Express” running from South Korea to Europe via North Korea, Russia and China.

Wednesday’s agreement was seen as a first step toward the ambitious vision.

“We, the two leaders, agreed to combine South Korea’s policy of strengthening Eurasian cooperation and Russia’s policy of highly regarding the Asia-Pacific region to realize our mutual potential at the maximum level and move relations between the two countries forward,” Park said during a joint press conference.

“South Korea and Russia will join hands to build a new Eurasian era for the future,” she said.

The Korean consortium plans to buy a stake in RasonKonTrans, the Russian-North Korean joint venture carrying out the rail and port renovation project. A final decision on the planned purchase will be made after a due diligence study in the first half of next year, officials said.

State monopoly Russian Railways has a 70 percent stake in the joint venture, with the North holding the remaining 30 percent. News reports have said that the Korean consortium plans to buy about half the Russian stake.

The purchase could be in conflict with Seoul’s ban on new investments in North Korea, though it is an indirect investment via Russia. The ban is part of sanctions Seoul imposed on Pyongyang after the North torpedoed and sank a South Korean warship near their Yellow Sea border in 2010.

The project could pave the way for similar indirect investments in the North and help reduce tensions on the divided peninsula. Inter-Korean relations, which had shown signs of a thaw following months of high tensions, chilled again after Pyongyang unilaterally canceled reunions for separated families in September.

Putin arrived in South Korea from Vietnam earlier Wednesday on a one-day visit for his second summit with Park. They first met in September on the sidelines of a Group of 20 major economies meeting in Russia’s second-largest city of Saint Petersburg.

In Wednesday’s summit, the two leaders also signed an MOU to enhance cooperation in shipbuilding. Officials said the deal laid the groundwork for South Korea to win orders of at least 13 liquefied natural gas tankers from Russia on the condition of technology transfer.

Also discussed was a long-discussed project to link railways of the two countries via North Korea and through to Europe. The two sides signed an MOU on rail cooperation and agreed to study the project as a long-term venture. The rail project has been talked about for many years, but little headway has been made due to security tensions.

Other projects the two sides agreed to cooperate on as long-term ventures included building a natural gas pipeline linking Russia and South Korea via the North and developing Arctic shipping routes to reduce shipping distances and time between Asia and Europe.

In total, the summit produced 17 cooperation agreement, including a visa-exemption pact calling for allowing Koreans and Russians to visit each other’s nation without a visa for up to 60 days, as well as an accord to set up cultural centers in each other’s nation.

Other topics for the meeting included regional and global security issues, such as the North Korean nuclear standoff. Russia is a member of the six-party talks aimed at ending Pyongyang’s nuclear program and is also one of the five permanent members of the United Nations Security Council.

“The two sides confirmed they cannot accept Pyongyang’s policy of building independent nuclear and missile capabilities … and stressed that North Korea cannot have the status of a nuclear state,” the joint statement said.

They also emphasized the North should abide by international denuclearization obligations and commitments, and agreed to work together to create the right conditions for restarting the long-stalled six-party talks on ending Pyongyang’s nuclear program, the statement said.

In an apparent swipe at Japan, the statement said that the sides shared a concern that the strong cooperation potential in Northeast Asia has not been realized due to obstacles created by recent “retrograde acts and words on history.”

Putin’s visit to Seoul is the first by a leader from the four major powers that also includes the United States, Japan and China since Park came into office. The Russian president is also the sixth foreign leader to visit South Korea under the Park administration.

Yonhap also published this related but separate report:

The ministry, in charge of all inter-Korean relations, said plans by a South Korean consortium to buy a stake in RasonKonTrans, the Russian-North Korean joint venture, can strengthen ties between South Korea and Russia and create greater opportunities for all sides. The project, first launched in 2008, cost Pyongyang and Moscow US$340 million.

It said the memorandum of understanding, signed on the sidelines of summit meeting between South Korean President Park Geun-hye and Russian President Vladimir Putin earlier in the day, did not mean Seoul was abandoning its so-called May 24 blanket ban that prohibits all economic and personnel exchanges with the North.

The ban has been in place since 2010, after Seoul accused Pyongyang of sinking one of its warships near the sea border in the Yellow Sea. Seoul at present only permits humanitarian assistance exempt from the sanctions rule.

“This project is special, and efforts will be made to assist visits by South Koreans who have to go to the North to carry out due diligence,” said a ministry official who declined to be identified.

He added that while an investment does conflict to some extent with Seoul’s ban, it is slightly different, since companies will be buying stakes in the Russian company.

“It will be an indirect form of investment and not the direct kind that has been banned so far,” the source said. However, he conceded the move marks the first time that investments into a North Korean project have been authorized.

South Korean businessmen from steelmaker POSCO, Hyundai Merchant Marine Co. and Korea Railroad Corp. are expected to go on fact-finding missions to Rajin and check the rail line linking the port city with the Russian town of Khasan.

Under the project, aimed at utilizing North Korea’s ice-free port, Russia aims to transform Rajin into a logistics base linked to its Trans Siberian Railway (TSR). If the project makes headway, Rajin can be used by South Korean companies to send cargo by rail to Europe using the TSR.

On the controversy that may arise from “bending” the rules, the ministry official said the government is willing to review other indirect forms of investments involving other countries if proposed.

“If a proposal is submitted, it will be judged in terms of the nature of the project, the effect it will have on cross-border relations and North Korean attitude,” he stressed.

Additional Information:
1. Read more about the Russia-Rajin rail link here.

2. Read more about the Russia – South Korea gas pipeline here.

3. Read previous posts on the Rason SEZ here.

Read the full stories here:
S. Korea to participate in Russian-led rail, port development project in N. Korea
Yonhap
Chang Jae-soon
2013-11-13

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DPRK real estate market: sustained boom, or bubble?

Saturday, April 11th, 2015

According to the Hankyoreh:

“They say there are apartments in Pyongyang selling for US$200,000.”

Jung Eun-yi, a research professor at Gyeongsang National University, was talking about how rapidly housing prices in North Korea have been rising. Jung had just returned from spending January and February in Dandong, China, where she had been tracking trends in the North Korean housing market. In July 2014, the highest price for an apartment in Pyongyang that heard about in Dandong had been US$100,000.

Needless to say, this doesn’t mean that an apartment worth US$100,000 had doubled in value to US$200,000 in the past six months. Nevertheless, the appearance of apartments worth US$200,000 indicates just how quickly Pyongyang apartments are increasing in quality, size, and value.

Jung is one of the foremost experts in South Korea on prices in the North Korean housing market. She received considerable interest from the media because of a paper that she presented at the World Conference on North Korean Studies at the end of Oct. 2014 in which she reported that some apartments in Pyongyang were selling for US$100,000.

In 2013, she had gained attention in the academic community by publishing a paper that included a detailed breakdown of housing prices in the North Korean city of Musan, North Hamgyong Province, down to the neighborhood.

Based on the data collected during her most recent stay in Dandong, Jung argues that there are signs that the housing market in North Korea is turning into a real estate market, rather like South Korea. If a housing market is one in which houses are bought simply for the purpose of living in them, a real estate market is formed when people start to see the houses they buy both as a residence and an investment.

What enabled Jung to publish such a pioneering paper on the North Korean housing market is that she spends all four months of her summer and winter vacations each year in Dandong, where she researches trends in the North Korean housing market.

Jung says that there are several reasons why she is interested in the North Korean housing market. The market offers hints at how the North Korean market economy is developing; it reflects the economic policies that the Kim Jong-un regime are adopting; and it provides a great deal of information about the appearance of a propertied class inside North Korea and about the growing wealth gap between the rich and poor.

What follows is a summary of the interview that Jung gave to the Hankyoreh on Mar. 30, organized by topic.

North Korea’s housing market: most profitable business area

Jung explains that one of the biggest recent changes in the North Korean housing market is the participation of North Korean trading companies. The reason, she says, is that building and selling houses has become even more lucrative than trade.

Why would that be? Jung explains that, while there is a lot of potential demand, there is a limited number of suppliers, creating a monopoly in the market. In other words, it’s easy to find buyers once you build a house.

But there’s just one catch. Before trade companies can jump into the housing market, they have to be working with someone who has connections in North Korea’s bureaucratic system.

As of now, housing transactions in North Korea are technically illegal. Given this situation, it is essential that a business have access to someone who can negotiate the bureaucracy so that it can provide the person buying the house with the permit that is legally required for them to move in.

According to Jung, no matter how much financial backing a developer may have, “they will fail without a partner who can cut through all the red tape.”

The growth of the house-buying class

Jung says that the price of housing in North Korea is linked to rice and US dollars (the exchange rate). When calculations are made in rice, the preferred unit is the ton.

The growth in a housing market that involves the movement of such huge amounts of rice and dollars implies that an increasing number of people in North Korea have that much purchasing ability.

The increasing level of purchasing power, or disposable income, can also be verified in the fact that houses in North Korea are improving in quality every day.

The concept of the “front room” was introduced in some ritzier North Korean houses back in the 1990s. Front room means a living room that includes a kitchen with a sink, rather than the traditional coal-burning kitchen. But even since then, houses have been becoming more elaborate, some using high-quality materials from China.

However, the very increase in the number of people with property – the consumers of these new houses – also implies that the gap between the rich and the poor is widening. Behind every house that is sold is a family whose financial destitution leaves them no choice but to sell the house in which they had been living. In this way, the growth of the housing market in North Korea offers another glimpse at the growing wealth disparity there.

Predictions for the North Korean housing market 

Jung expects that the North Korean real estate market will continue to expand for a significant period of time. Just as in South Korea, there was also an explosion in demand for houses in North Korea starting in the early 1980s because of the baby boomers, the generation of those born around 1957.

However, the demand in North Korea was suppressed by the “arduous march,” Jung believes. During this famine in the mid-1990s, when the severe shortage of food caused people to starve to death, the massive flight of people out of the country actually led to an increase in the number of vacant houses around North Korea’s border with China.

But with the subsequent development of private markets and the appearance of people with money to spend in the 2000s, these vacant residences were the first to be sold at cut-rate prices. This signaled the beginning of growth in the housing market.

Housing prices in North Korea increased rapidly then faltered during the currency reform in 2009, when the Kim Jong-il regime attempted to put limits on these markets. But from 2011 to 2014, after the North Korean government started to tolerate the markets again, housing prices soared once more.

Jung believes that the growth trend in North Korean housing prices will continue for the time being. The reason is that demand for housing both among baby boomers and among new members of the propertied class is likely to continue.

The North Korean housing market and Kim Jong-un’s economic reforms

Jung explains that the regime of Kim Jong-un is taking steps toward normalizing the housing market. Presumably, the regime has concluded that the official economy of the country is suffering major losses because the housing market is outside of the system.

As one example, Jung cites housing deals between private citizens in the 1990s. While the volume of transactions greatly increased during this period, the failure to solve the issue of legal collateral resulted in unending disputes about these transactions.

There was also widespread corruption connected with them. Jung says that sometimes the housing allocation department of the urban management bureau of the people’s committee – which is in charge of issuing residential licenses – would confiscate houses that had been illegally bought by low-ranking officials and then conduct business with those houses themselves. Since the housing market did not go beyond individuals making money, it did not benefit government finances.

Jung believes that the Kim Jong-un regime was trying to stamp out this kind of corruption when it established housing delegation offices in 2013. These offices are public organizations whose purpose is to take money from public citizens and to build them a new house. The existence of this organization is another example that both central planning and market forces are at work in the North Korean economy today.

Jung sees this as being part of efforts to institutionalize market mechanisms. “This is evidence that the Kim Jong-un regime is going beyond the military-first policy known as Songun that was instituted by Kim’s father and moving down the path toward socialist capitalism,” she said.

Housing market: A market economy learning center

According to Jung, the housing market is turning into a “learning center” writ large for the market economy – not just for the Kim regime, but for the North Korean public. Most crucially, housing prices in North Korea are already being decided based on a variety of factors, including access to transportation, markets, nearby facilities, and even the number of floors. As an example, Jung mentioned the price of apartments in Musan, a county in North Hamgyong Province. The most expensive apartments on the market there are seven-story buildings for “people of national merit.” But the most expensive, she said, are not the seven-story blocks, but the five-story ones. The smaller buildings go for more because they don’t have elevators, which makes them better for moving firewood. One- to two-story buildings are less popular because they are seen as similar to South Korea’s, Jung added. Even in North Korea, a number of different variables go into shaping housing market prices.

Chinese presence in the North Korean real estate market 

Jung also noted that some Chinese people have begun branching into the North Korean real estate market. Chinese residents of North Korea who were interviewed in Dandong indicated that more and more Chinese have begun investing after seeing the real estate. North Korea has not yet made its housing fully open to foreigners, but those who invest in North Korea are reportedly allowed to buy housing for temporary residence. It’s a sign that regulations on foreign activities are being relaxed. As a result, an increasing number of Chinese people are investing in needed areas such as toll processing and solar energy development in Pyongyang and other places – and acquiring housing and land in the process. The strategy is twofold: immediate gains, along with more long-term profits from the land.

The real estate housewives of North Korea? 

“It hasn’t reached that point yet, but the signs are there.” According to Jung, relatively rigid enforcement of the one-family, one-home rule in North Korea means the country has yet to develop a visible community of “housewife speculators” buying and selling homes for profit. But there have been cases of people buying homes under their mother’s name, or investing when a house is still incomplete and cheaper before turning around and selling at a higher price when it is finished, she added. Both are similar to the kinds of behaviors seen among South Korea’s housewife speculators. As these activities increase, Jung notes, the idea of the home as a place of residence only is giving way to the idea of real estate as an investment – even in North Korea.

The increasingly market-oriented nature of the North Korean housing market, and the Kim Jong-un regime’s attempts to incorporate the changes into its system, led Jung to predict that the shift toward market economy principles will only grow and intensify going ahead. The question now is whether this market-oriented real estate market will lead North Korea to reprise the disastrous experience of ’70s-era Gangnam as the economy grows – or whether the result will be something completely different.

Read the full story here:
North Korean real estate market: sustained boom, or bubble?
Hankyoreh
Kim Bo-geun
2015-4-11

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How to run a “private” bus company in the DPRK

Wednesday, April 1st, 2015

According to the Daily NK:

More independent transportation companies, run by the donju, or new affluent middle-class, are springing up in North Korea’s main transit hubs and driving up fares.

“There is a growing number of bus and truck companies operating not only in Pyongyang but nationwide,” a source from North Hamkyung Province told Daily NK last Friday. “People are buying buses or trucks and then paying the state a certain fee to open up transportation companies authorized by the central authorities.”

She explained that those members of the donju with significant amounts of money establish contacts with central bodies and win over the right to operate. “The ‘Pyongyang Transit and Trade Company’ and the ‘General Bureau of Transportation,’ which fall under the Cabinet, write up permits for individual donju and are authorizing the operations in exchange for a certain amount of the profits,” she said, adding that each region has bus companies that come from those two Pyongyang-based offices, creating a de facto public-private collaborative operation.

The donju, by importing second-hand buses from China for 3,000 to 4,000 USD, are overtly raking in profits and revolutionizing bus transportation in North Korea; personal bus transportation was only available in two to three cities in the early 2000s, including Pyongyang, but now it has spread nationwide. According to the source, some companies own anywhere from dozens to hundreds of buses.

“The fare between Chongjin and Musan used to be 8,000 KPW [1 USD] until just two years ago, but now it has jumped to 50,000 KPW [6.25 USD]. The bus that runs between Chongjin and Kim Chaek is currently 80,000 KPW [10 USD] – ten times the original price,” she noted. “Donju are raising the fares to whatever they want depending on the oil prices and exchange rate with the Chinese yuan.”

In the North’s main cities, state-run trams, trolleys, and long-distance buses do operate, but the vehicles are old and the companies beset by economic difficulties. The number of donju-run companies, however, is increasing by the day, leaving the state no choice but to accept their money and grant them license to operate.

“People are happy that there are more options for transportation but there are a lot of complaints about the expensive fares,” the source said. “Some say it’s not unusual for such companies to be operating in the way they do considering the dilapidated condition of state companies, but in the end it’s the regular people who bear the brunt of it all.”

Additional posts on the DPRK’s bus networks here.

Read the full story here:
Transportation Options Taking Off
Daily NK
Choi Song Min
2015-04-01

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Outline for development of Wonsan-Kumgangsan Tourist Region revealed

Thursday, March 26th, 2015

Institute for Far Eastern Studies (IFES)

North Korea has recently revealed an outline of its plans for the Wonsan-Kumgangsan Tourist Region. In May an information session regarding the development of this project will be held on-site in Kumgangsan.

The Chinese newspaper Liaoning Daily reported on March 21, 2015: “North Korea recently held a briefing session regarding its development plans for the Wonsan-Kumgangsan Region at the Grand Metropark Hotel in Shenyang. The meeting was attended by professionals, scholars and businesspeople from several neighboring Northeast Asian countries.”

According to the newspaper, at the event North Korea revealed development plans for a tourist region of approximately 430 square km in area. It also revealed that there will be six major scenic spots throughout the Wonsan-Kumgangsan Tourist Region, namely, Wonsan, Tongchon, Mount Kumgang, Sogwangsa, Masikryong Ski Resort and Ullim Falls.

North Korean authorities explained, “This year the Wonsan-Kumgangsan Tourist Region development project is considered the most important element of our country’s international economic development efforts. The region is being designed at the government level as a world scenic spot that combines the beauty of the ocean, lake, and city.”

The authorities went on to explain that “Geographically, the Wonsan-Kumgangsan Tourist Region is situated on the eastern part of the Asian continent and the central part of the Choson [Korean] Peninsula. Within a 3-hour flight of that region there are a total of 40 cities with populations exceeding 1 million people […] The region contains a total of approximately 670 tourist sites, 140 historical sites, 10 sand beaches, 4 mineral springs, 10 natural lakes, and 3 million tons of muds that are highly effective in the treatment of neuralgia and enteritis of the small and large intestines.”

While North Korea repairs and expands the existing road network connecting each tourist site (focusing first on Wonsan), North Korean authorities have decided to construct a transportation network by establishing a high-speed railroad between Pyongyang and Wonsan, as well as opening passenger routes between Wonsan Harbor and Rason and Wonsan Harbor and Vladivostok. They will also introduce a series of measures for attracting tourists, including a no-visa system, which is currently being studied.

The authorities also explained that North Korea “guarantees the free economic activity of investors and will offer fixed, regular benefits in areas such as land use, labor employment, and taxes.”

“Tourism, manufacturing, and service businesses will be exempt from corporate income taxes for four years, three years, and one year respectively. Meanwhile, real estate businesses that invest in infrastructure will be exempted from land use taxes for ten years, and those that invest in other areas will be exempt for five years.”

The Liaoning Daily reported that at the information session, O Ung Gil, president of North Korea’s Wonsan District Development General Corporation, said, “I hope that by participating this May at Mount Kumgang in the international seminar regarding the development of the Wonsan-Kumgangsan Tourist Region, everyone will have the opportunity to witness and experience Mount Kumgang first-hand. […] North Korea’s door is always open and investors are welcome any time.”

Various Chinese companies and private organizations hosted the information session. Approximately 50 Chinese professionals and business people, who were invited beforehand, attended the program. Only a few Chinese and Japanese media outlets that were chosen by the organizers were permitted to cover the event.

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DPRK apparently easing up on market restrictions

Monday, March 23rd, 2015

The Daily NK gives us some relatively good news on North Korean market operations.

First, it appears there is an informal easing up on unauthorized street vendors near marketplaces. According to the Daily NK:

Alley merchants [also known as grasshopper merchants]– those who sell goods in alleyways to avoid crackdowns by Ministry of People’s Safety [MPS] officials–are now referred to as “tick merchants,” a term coined after their rapid proliferation, according to sources within North Korea.

Affiliated with city and county People’s Committees throughout North Korea, official marketplaces are run by a management center, charged with collecting and handling fees for vendors renting stalls from which to sell their sundry goods.

However, securing a location for their operations is not feasible for a multitude of residents. “Many don’t have enough money to afford to pay for a stall in the marketplace, so they either sell goods in the alleys of villages or by crossroads in close proximity to the jangmadang [North Korea’s system of markets],” a source in North Pyongan Province told Daily NK on February 9th.

Regulation of these “alley merchants,” of whom there are countless numbers, is carried out by the Ministry of People’s Safety and patrol units falling under its umbrella. Frequently, these officials are know to extort merchants under the pretense of regulating illegal market activity, confiscating their goods, only to turn around and return the merchandise as soon as their bribe demands have been met.

Despite the incessant threat of crackdowns and extortion by these officials, “grasshopper vendors” are determined to continue selling their items, desperate to hold onto their “lifelines,” according to the source, who noted a marked difference in this particular sector of the market economy since just last year.

Of this situation, she said, “With February 16th [Kim Jong Il’s birthday] fast approaching, the number of alley merchants has surged [to sell goods for residents preparing for the holiday], as has the number of MPS officials.” She went on to explain that last year, however, these “grasshopper merchants” largely abided orders, fleeing the premises after the MPS units arrived for fear of the repercussions. But this year most are staying put in these makeshift alleyway market areas, even saying things to the officials like, ‘If we got our rations, do you think we would be putting ourselves through this?’

This is how the newly coined term, ‘tick merchant’, came into existence: derived from a common expression in North Korea–regarding how impossible ticks are to remove and keep away before another comes along–these merchants are much the same–refusing to budge despite the consequences, determined to claim their spot in the market system.

Recently, investigations launched by the Central Party, aimed at rooting out reckless misconduct of MPS officials toward residents, are also thought to be contributing to the ease on regulation of these alley merchants. This, coupled with the bribe culture continually infiltrating the “tick merchant” realm–just as in the rest of North Korea–has seen the number of those engaged in these operations spike; nominal bribes of cash or goods ensure, at least for the time being, that they can do business in relative peace. Not unlike those with official stalls inside the market, some even reportedly pay periodic fees directly to the market management, all but guaranteeing their exemption from regulation.

The residents, and even the MPS officials themselves, are not overly preoccupied with regulations and clampdowns, because, as the source put it, “it becomes increasingly difficult for officials to crackdown on merchants selling in the surrounding areas of the markets, entirely reliant on selling goods to survive.”

Many are concerned that the leniency pervading these alley way operations may be fleeting, but the source asserted things will never return to the past. “When the investigations on the Ministry of People’s Safety officials are over, regulation of the alley markets is expected to become stringent again. Still, at this point, it’s next to impossible for these officials to make residents, largely dependent on business to maintain their livelihoods, obey them, meaning eradicating these ‘tick merchants’ is just as improbable,” she concluded.

And the DPRK has begun lifting age restrictions on market vendors. According to the Daily NK:

Amid relaxation of restrictions on market activities, the North Korean authorities began lifting age restrictions for vendors at the end of last year in some regions and, more recently, scrapping the ban nationwide.

“The authorities have been quite lax with clampdowns and regulations of official markets as of late,” a source in Yangkang Province reported to Daily NK on March 20th. “Those previously not permitted stall rights to sell their products are now being granted these privileges, greatly increasing the number of stalls. Also, women below the age of 50 are no longer prohibited from selling at the markets.”

In the absence of age restrictions, markets have seen a marked increase of women selling goods there. According to the source, the North Korean authorities previously regulated trade activities by women under 50 to deter shirking of ideological study sessions or–even more importantly– nationwide mobilization directives for agricultural or construction efforts, The authorities compromised by granting these women permission to participate in these compulsory organization activities only in the morning, freeing up the afternoon for market activities.

“Since last year, the authorities didn’t really implement clampdowns and have even showed a great deal of leniency to those selling in the alleys. As a result, women who previously idled away at home have been propelled into market life, selling everywhere they can,” she explained.

Unsurprisingly, most women are perplexed, if cautiously elated, by the leniency shown by a system that has wielded such stringent power and regulation over them for so long. “The shift in sanctions feels like hell has frozen over,” many have remarked, adding that they “finally have the opportunity to make ends meet.” Still, many are wary, noting that “you never know when the authorities will abruptly declare a new policy or revert to stringent clampdowns.”

She added that while the state did not lift the restriction to “improve people’s lives” as it claims, it has had a positive impact nevertheless. According to the source, North Korea’s motives for the lift begin and end with procuring funds. “There are thousands of stalls in Hyesan Market; this yields huge profits for the state who collect the fees vendors pay to use the space,” she pointed out.

That said, she maintained a sanguine outlook, remarking how empowering it is to see women effecting change in the markets by expanding their inroads into this sector, while making significant, if not dominant, fiscal contributions within their individual households. “Whereas there were only older women in the markets in the past, you can now easily spot women in their 20s and 30s in the industry,” she explained.

Surprisingly, the reduced regulations have increased rather than diminished participation in state mobilization efforts– such as compost collection or “loyalty singing sessions”– because women are afforded a bit more breathing room from unceasing concerns about how to secure their next meal. The positive results are already palpable, according to the source, who said that “most families are better off now due to women’s increased forays into the market domain.”

Read the full story here:
Crackdowns Ease Up on Alley Merchants
Daily NK
Seol Song Ah
2015-02-11

NK Lifts Market Age Restrictions
Daily NK
Kang Mi Jin
2015-03-23

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DPRK-Russia look to boost business ties

Sunday, March 22nd, 2015

According to Voice of America:

A Russian official said Moscow and Pyongyang have agreed to discuss the creation of advanced development zones in Russia’s Far East and North Korea.

The latest project to be discussed between Russia and North Korea would call for a trilateral project, with South Korea’s participation, said Alexander Galushka, Russia’s minister for the development of the Russian Far East.

In an email sent to the VOA Korean news service, Galushka said Moscow and Pyongyang agreed to “discuss the creation of advanced development zones in the Russian Far East and on the territory of the DPRK with the participation of the Russian Federation, the DPRK and South Korea.”

Economic delegation

The agreement was reached during a visit by a North Korean economic delegation to Moscow in late February. The North Korean delegation was led by Ri Ryong Nam, Pyongyang’s Minister for Foreign Economic Affairs.

Ri and Galushka co-chair a commission tasked with promoting economic ties between Moscow and Pyongyang.

The move is an example of a series of ambitious economic projects recently launched by Moscow and Pyongyang in their efforts to enhance economic ties.

In November, the two sides expanded the Khasan-Rajin project, a project connecting the railways of Russia’s border town and the North Korean port, by conducting a test shipment of Russian coal from Russia to the South Korean port city of Pohang through the Rajin.

In October, the two countries launched a rare joint project that calls for Russia to overhaul North Korea’s railway system in return for access to the North’s mineral resources. The project involves reconstruction of more than 3,000 kilometers of railroads over 20 years.

Galushka said the railway project would pave the way for a significant increase in bilateral trade between Russia and North Korea.

Some analysts are skeptical that the project can be sufficiently financed. So far, Moscow is known to have attracted one domestic investor for the project.

Read the full story here:
Russia, North Korea Boost Economic Ties
Voice of America
Yonho Kim
2015-3-22

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