North Korean Economy Watch

At its height, North Korea’s socialist infrastructure was responsible for the vast majority of the people’s standard of living.  Ration coupons and large purchases (such as for a car or refrigerator) were all provided through one’s employer.  This is because society was vertically integrated, with state-owned companies and ministries providing a broad array of social services that are handled by a variety of agents in a capitalist society (food, housing, education, childcare, health care etc..). There was little room for markets, or even prices, in people’s lives.

Although this system only worked for North Koreans in large urban areas, and excluded those in smaller villages and the country side who were much more dependent on themselves, for the vast majority of North Koreans today that system (or social contract) is a distant memory.  Out of fiscal necessity it has been chiseled away over the years, and as a result the scope for individual entrepreneurship in both the public and private spheres is increasing.  I do not want to give the impression that capitalism is running wild, but when compared to the past, the control of the North Korean state over the lives of its people is diminished.

One practice which has been retained to some degree, however, is the distribution of gifts or special provisions on the birthdays of the two leaders, Kim il Sung and Kim Jong il.  The scale of one’s gift, however, allegedly depends on one’s rank in society.  A common farmer might get a new pair of socks.  A senior Worker’s Party official probably receives a good deal more.  One estimate puts the value of these special gifts at USD$20m. 

The origins of these gifts are mixed.  Some are donated by foreigners.  Some are imported by the leadership.  Others are made domestically by the people themselves.

According to a story in today’s Daily NK, creeping marketization – bringing with it an increase in price and quality discrimination,  has left many North Korean consumers less than impressed with this year’s gift offerings:

A North Korean source in Shinuiju said in a phone conversation on the 17th, “When looking at the goods provided this time around, the quality has gone up as a whole in contrast to the past. However, the citizens did not attach too much significance to the ‘Great General’s gift’ as in the past.”

The source relayed the public sentiment as “Goods more valuable than his gifts are all over the place in the jangmadang. A portion of the people has said, ‘Special provisions are not necessary. Just do not regulate the markets.'”

In Shinuiju, a bottle of luxury liquor, 2kg of tangerine, and two pheasants were provided to the party organization through the “special provision’ and a bottle of liquor and a modest amount of fruits such as apples and tangerines were given to regular organizations. The People’s Units received a bottle of liquor, a toothbrush, and a bar of soap and pre-school and elementary school students received five pieces of gum, two rice crackers, two packs of chips, and one pack of candy.

The source added, “Those receiving the ‘title of hero’ and the Secretaries in charge of the county parties were given boxes marked with the label ‘gift,’ but its contents are uncertain.”

Another source in Hoiryeong in a phone conversation on this day said, “A bottle of liquor, a bar of soap, and a bottle of toothpaste were provided through the February 16th holiday provision and the children received a pack of candy, two packs of chips, a pack of pea candy, two packs of rice crackers, and seven pieces of gum.”

He also expressed discontent, saying, “It is pitiful to have to wait in line in front of the stores through which provisions are handed out for a mere bottle of liquor and soap.”

In the Hyesan, Yangkang Province region, laborers working at state enterprises were given 3kg of Annam rice (wild rice) and a bottle of liquor and oil were given to average households.

North Korea, in time for Kim Jong Il’s birthday in 2007, provided around 10 food items and daily necessities, including liquor and beer, cider and rice tally, oil, chips, and gum, to civilians.

In 2007, 200g of chips, 200g of candy, 100g of rice snacks, and five pieces of gum were given to elementary school students. Due to the shortage in foreign currency, special provisions were not offered to average civilians.

A caveat to this story is that all of the data points are from the large cities on the Chinese border.  These cities have benefited the most from trade with China and in all likelihood are the most “ideologically contaminated” in the DPRK.  

Source:
Jangmadang Goods Are More Valuable Than the General’s Gifts
Daily NK
Choi Choel Hee
2/21/2008

Since Orascom announced at the end of January that it was going into the cell phone business in the DPRK, there has been a lot of follow up reporting which has flushed out a broader picture of the DPRK’s attempts to launch a mobile phone network.

Today Yonhap is reporting that Pyongyang will likely go live with the Orascom project in April, although on a piecemeal schedule:

The measure will affect only Pyongyang, the North’s capital, this time and gradually expand to cover other major cities in the communist country, the Tokyo Shimbun said, quoting an unnamed North Korean official in Beijing.

North Korea has prohibited its people from using mobile phones since a deadly explosion occurred at the Ryongchon train station near the North’s border with China in April 2004. Debris of a mobile phone with adhesive tape attached to it was reportedly found at the scene of explosion, leading the authorities to impose the sudden ban in the belief that the mobile phone could have been used as a detonator.

More details of the deal also emerged:

Cheo [an Orascom subsidiary] secured a 25-year license and will invest up to US$400 million in network infrastructure. The North Korean state company owns a 25 percent stake in Cheo, Orascom said.

How accessible will the  new phones be?

Choi Yeong-cheol, 43, who defected from North Korea in 2006, said that senior party and administrative officials as well as trade workers were given mobile phones for free in 2002. “But ordinary people have not even dreamed of using a mobile phone because it cost them 170,000 North Korean won,” Choi told Daily NK, a Seoul-based Internet newspaper. The figure of 170,000 won is big money considering the average monthly payment for ordinary North Korean workers is up to 3,000 won (US$1) now.

The full article can be found here:
N.K. to lift mobile phone ban in April: Japanese daily
Yonhap
2/18/2008

Update:
It seems opposition efforts to spare the South Korean Ministry of Unification were not entirely successful. Yonhap is reporting that even though the ministry will retain its name, much of the rest of it is on the chopping block.

Sources said that if the ministry is retained, its five divisions and one office may be reduced to a single office and three bureaus, with part of its work transferred to the other ministries.

The ministry’s five division headquarters — including unification policy, economic cooperation and cultural exchange — are likely to be reorganized into smaller bureaus, with public relations and information analysis to come under the direct control of the minister.

The office in charge of the Kaesong industrial complex may be turned over to the newly created Ministry of Knowledge-based Economy.

However, the ministry may retain control of inter-Korean dialogue headquarters, the inter-Korean transit office, and a settlement support team for people who have fled North Korea.  (Yonhap)

Although I personally favor an engagement policy with the DPRK, sending the signal that MoU standard practices will no longer be tolerated might actually encourage the DPRK to use donated funds and supplies in an acceptible way.  Remember: carrots AND sticks.  See the game theory here.  However, since the DPRK’s new game seems to play the US, China, Russia, and South Korea off of each other, some are concerned that pushing the DPRK too hard on accoutability and transparency in managing their donations might simply shift North Korea more firmly into China’s corner–which according to Lankov, they already have a strong incentive to do… 

Original Post: 2/8/2008
In the political shake up following the recent South Korean elections, incoming President Lee Myung-bak floated the idea of merging the Ministry of Unification (responsible for the North Korea protfolio) with the South Korean Foreign Ministry.  The story is here.

Today, Reuters is reporting that the Unification Ministry is here to stay.  Afterall, the first rule of bureaucracy is, “Why have one ministry when you can have two at twice the cost!” 

South Korean lawmakers have agreed to spare the ministry responsible for relations with North Korea and reject a call for its closure made by the president-elect, local media reported on Saturday.

The compromise allows the Unification Ministry to stay while lawmakers try to strike a deal to shut other ministries in a plan backed by Lee to streamline government, local media reported lawmakers as saying.

Critics say Lee’s proposal to close the ministry primarily responsible for relations with North Korea could send the wrong signal to Pyongyang, which has long accused Lee’s conservative party of plotting to keep the peninsula divided.

The Unification Ministry has been at the centre of criticism that the outgoing government had been too soft on the impoverished North, pouring aid across the border despite internationally condemned missile and nuclear tests. (Reuters)

The full article can be found here:
South Korea to keep ministry on North: media
Reuters
Rhee So-eui
2/8/2008

New gov’t to downsize Unification Ministry
Yonhap
2/17/2008

This morning I received an email from a reader at the Brookings Institution who shared an article by one of their visiting fellows.  Much of it was about US/DPRK foreign policy, but I thought the following excerpt was interesting from a social change perspective:

On a recent visit to Pyongyang, this author was impressed by the sheer scale of new economic phenomena in DPRK. In terms of variety of goods, activity, and scale, markets in North Korea’s central areas (less in the provinces) remind of Chinese provincial markets. Numerous restaurants serve good—and very cheap, by Western standards—food to customers flocking to them. New “service centers” (eundokwon), combining shops, saunas, and restaurants under one roof, have sprung up and are run by highly placed entities such as Party departments and “offices.” Every branch of the Party, military, and local authorities now operates trading companies. Real business managers have appeared, some engaged not only in the “shuttle” trade with China but in bigger projects (in construction, for example), and some corporations have amassed a considerable volume of business. Judging by the author’s experiences in the 1980s and 1990s, these “new Koreans” are much more realistic and open to contact with outsiders than was the case before. There are changes in the official line as well: North Korean economists explained that now, out of several hundred thousand products manufactured in the country, only several hundred are now centrally planned. For the vast majority of manufactured products, managers of the state-owned enterprises are given a free hand to determine their production targets and to get what they need through the “socialist wholesale market.”

Having witnessed the processes eventually leading to the denunciation of the command economy in the USSR, and the transition to a market-based economy, this author can testify that there are striking resemblances in certain aspects of contemporary daily life in the DPRK to the USSR in the 1970s and 1980s (the Chinese experience in the1980s, with private enterprise officially sanctioned, is less similar). At that time in the Soviet Union, a vast black market of goods and services began to form in major cities. Many of its dealers became (often after a prison term) the leading businessmen of the post-Soviet era.

For example, at that time there was no private property for apartments in Moscow or elsewhere, and no real estate market officially existed. But at the same time almost any Soviet in the course of his life would “change” one apartment for a better one, paying considerable sums of money to the former “owner.” Some shadowy dealers would buy apartments outright, bribing officials to get a “registration” (propiska), and many made a profession of acting as a “go-between.” Similar activities are sprouting like mushrooms around North Korea. A one-room apartment in Pyongyang is said to cost about US$5000, less in local areas. However, real estate in some small cities close to Pyongyang boast the same high prices, as various kinds of dealers and traders, who are not permitted to settle in Pyongyang, buy apartments there. Foreign currency flows freely and, like in the USSR, most things can be obtained for money. A Russian joke said: “if it is illegal, but very much desirable, it is not prohibited.”

The ground for developing market relations is well prepared. The “royal economy” serving the ruling class (Kim Jong-il’s immediate retinue and the top nomenklatura or kanbu), and a large part of the internationalized sector (joint ventures and free economic zones) operate on market principles. The next step, should the country’s leaders admit the need for developing the country and sustaining their power, should be “setting the rules of the game” by providing a legal framework for what already exists. For that, however, external security should be guaranteed to the regime—irreversibly and comprehensively. Only then will the hard-liners, who fear—with good reason—that reforms would invite subversion of the regime, be confident enough for real progress to take place. Nevertheless the words “reform” and “openness” (especially because of their “Chinese connotations”) are unacceptable to Pyongyang, and Kim Jong-il himself stated as much during his talks with Roh Moo-hyun in October 2007. Under the present leadership Pyongyang, any economic reforms would most likely never be called such and would take place in an unpublicized manner without discussion, which is not helpful in terms of public relations with the West and negative international sentiment about the regime.

The full article can be found here:
North Korea Now: Will the Clock Be Turned Back?

Georgy Toloraya, Visiting Fellow, Center for Northeast Asian Policy Studies
2/11/2008

The Chosun-Shinbo reports (via the Daily NK) “North Korea can produce instant noodles again” because construction has been completed on Pyongyang’s newest (and largest) noodle factory, the Pyongyang Wheat Flour Factory.

“Starting this year, domestically produced instant noodles will likely be supplied to people on a large scale.”(Daily NK)

…signaling that the DPRK government still seems intent on re-launcing the collapsed Public Distribution System (which has floundered many times).

[The] Pyongyang Wheat Flour Factory is located in Samheong-dong of Mankyungdae District, in Pyongyang, and mainly produces wheat flour, cookie, noodle, and yeast. North Korea built its first noodle factory, Daedong River Instant Noodle Factory, with foreign capital in August 2000 along the Daedong River in Pyongyang.(Daily NK)

Last October Yonhap, reported that Hyundai’s 44,000-strong union donated US$553,800,  appx. $13 per worker, to help finance a corn noodle factory in Pyongyang.  This is likely the “older” Daedong River Instant Noodle Factory.  If this is the case, then Pyongyang has two noodle factories coming on line at about the same time.

The rest of the story:
Although the DPRK government is a newcomer to the noodle business, noodle production and consumption have been burgeoning in North Korea’s private economy, and there is supportive journalistic evidence that the business now suports those on the lower rungs of the  economic ladder (see here, here, here, and here).  Small scale noodle production requires little capital, so it is a natural fit for those who have nothing but have taken to supporting themselves. 

The opening of new government-operated food processing plants is tantamount to a “re-nationalization” of a “privatized” industry in the DPRK.  Past reports claim that noodle sales earned private vendors between 900 to 1,600 won.  Now these vendors, who operate at the fringes of North Korea’s semi-legal private economy, will at a minimum, be forced to compete with “free” or heavily subsidized government operators. 

What will be the result?  On the pessimistic side, we could claim that the DPRK government is attempting to monopolize the food supply to control the population (as it has in the past).  On the other hand, their ambitions might be more modest and they are only looking to establish some form of carrot they can point to as legitimization of the government’s leadership.

From an economic reform perspective, however, North Korea needs fewer government-run noodle factories and a better business environment for noodle entrepreneurs. 

The full stories can be found here:
North Korea Can Produce Instant Noodles Again
Daily NK
Park Hyun Min
2/12/2008

Hyundai Motor union leaders visit N. Korea for noodle project
Yonhap
10/31/2007

Kang: North Korean Trade Potential
Council on Foreign Relations
12/17/2007

Last December, David C. Kang, a professor of government at Dartmouth College and an adjunct professor at Tuck Business School, discussed the North Korean economy for the Council on Foreign Relations. I have excerpted some of his comments below.

His view on the new North-South cargo train service:

It doesn’t have huge economic significance in the overall GDP of North Korea. But it does have major economic significance in the fact that what North Korea had to do in order to let a train go through was an awful lot of adjustment[…]in terms of linking up the railroad, all the ministries had to prepare.  The old [Korean Energy Development Organization] had this problem as well. [W]hen they wanted Americans and South Koreans working in North Korea to build this light-water reactor, [they] had to set up protocols [Post offices, phone calls, where they were going to stay, etc]. It is pretty significant in terms of how much they had to adjust.

He quoted the following figures on North – South trade:

From $200 million in 1998, to now exceeding $1.7 billion in 2007.   South Korea’s total trade volume is $250 billion.

His opinion on the direction of the North Korean economy:

At this point what we’re seeing is very initial steps on the part of North Korea as they try to open up reform and yet maintain control. At the same time, they are being forced into a number of institutional changes and mind-set changes that are the first step forward in this process.

His view of North Korea’s comparative advantage:

Most of the companies that have gone in—the South Korean companies that have gone in—are assembly and light manufactures, such as or textiles and light consumer goods. This is the sort of obvious point of departure. It’s not hugely capital intensive in terms of building factories, and can take advantage of North Korean cheap labor and South Korean technological advantages.

There are a lot of potential mineral resources in North Korea, which would require a whole infrastructure of legal reforms to happen before anyone would take care of them. But at this point the safest bets are the ones that are on the order of assembly and light manufactures in the North and then exporting them out.

His view of South Korea’s long term goals:

If there’s unification, or even better relations, and South Korean companies can use cheap North Korean labor, instead of having to send those factories to China or Vietnam—not only do they speak Korean, they’re culturally similar, and the labor would be cheaper.

[I]f you could reconnect the railroads, from Japan, through Pusan [South Korea], up through North Korea, then out to China and Russia, you would be linking up all these economies in a much more efficient way than they are now. So everybody wants that. But obviously there’s the political problem. And even on the infrastructure side, the North Korean rail system is so old and so decrepit, that basically it would have to be rebuilt from zero. But the potential upsides are massive, in the long run.

His view of China’s engagement:

China has been essentially as deeply involved in economic engagement with North Korea as has South Korea—and by some measures, actually more so. Whereas South Koreans just do this assembling, some Chinese companies are moving in and building full factories in the North. There’s a lot of interest in Chinese-North Korean economic relations on both sides.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-2-12-1
2/12/2008

South Korean businesses currently involved in inter-Korean economic cooperation are facing many difficulties, both due to and in spite of the system in place, so that at the moment, investment in North Korea does not look much more appealing than in Vietnam or China.

The Korea Chamber of Commerce carried out a survey, titled “Business Perspective on the Direction of South-North Economic Cooperation Policy”, targeting 300 successful businesses (170 companies responded) and 200 companies currently involved in inter-Korean economic cooperation (132 companies responded). According to the results of the survey, 79.4 percent of companies involved in inter-Korean cooperation responded that they are “currently facing systemic and procedural difficulties.”

More specifically, 44.7 percent pointed to the “3-C” (commute, communication, and customs) issues, 22.4 percent pointed to “claim resolution procedures,” 14.3 percent highlighted “difficulties with financial transactions,” 11.8 percent chose the “ban on the import of strategic materials,” and 5 percent indicated that “limited markets” were the main issue.

In addition, 58 percent of responding companies noted issues not related to the system set up for inter-Korean cooperation. 36.6 percent pointed to difficulties resulting from the “lack of understanding of market economics,” 28.7 percent noted a “lack of supervision by managers,” 24.8 percent chose “uncooperative, highly tense attitudes,” and 8.9 percent pointed out “demands for quick production.”

When asked about the relative attractiveness of investment in North Korea if the current situation were maintained, as compared to Vietnam and China, only 27 percent responded, “more attractive”, while 53.7 percent, or twice as many companies, responded that investment was “impossible.”

However, 58 percent responded that, in the event the North’s nuclear issues were resolved, investment in North Korea would be “more attractive than China and Vietnam”, while only 21.7 percent responded that investment in the North would still be “impossible.”

The overall impression of these companies regarding inter-Korean cooperation is that “improvement of inter-Korean relations offers opportunities for new enterprises and is a positive influence on the South Korean economy” (65.3 percent), and 19 percent felt that cooperation would “in the future, serve as a springboard for the relaunch of the South Korean economy.” 15.7 percent of responding companies felt, however, that “there would be no substantial positive influence on the economy.”

Currently, a resolution to the North Korean nuclear issues is the most important factor, but it is imperative that pledges of the incoming ROK administration such as strengthening investment security, preparing claim resolution measures and other issues to placate business interests, and nurturing North Korean exporters, are institutionalized.

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

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

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

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

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

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

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

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

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

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

Update 2/24/2008:

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

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

Update 2/12/2008:

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

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

From Naenara:

The Law of the DPRK on Foreign-invested Bank was adopted by Decision No. 42 of the Standing Committee of the Supreme People’s Assembly on November 24, 1993 and amended by Decree No. 484 of the Presidium of the SPA on February 26, 1999. It was amended by Decree No. 3400 of the Presidium of the SPA on November 7, 2002.

The law consists of 32 articles in 5 chapters.

Chapter 1. Fundamentals (Articles 1-7)

This chapter stipulates that the law shall contribute to the expansion and development of cooperation with different countries the world over in the area of finance.

A foreign investor may establish and operate a foreign-invested bank within the territory of the DPRK.

Foreign-invested banks include joint venture banks, wholly foreign-owned banks and branches of foreign banks.

The state shall protect the legal rights and interests of foreign-invested banks established in the territory of the DPRK.

Chapter 2. Establishment and Dissolution of Foreign-invested Banks (Articles 8-17)

This chapter stipulates that an investor who intends to establish a foreign-invested bank in the territory of the DPRK shall file an application to the DPRK Central Bank, declaring the name of the bank, the name and curriculum vitae of its president, the registered capital, paid-up capital, operation fund, investment rate, details of business, etc.

The Central Bank of the DPRK shall decide upon the approval or rejection of the application within 50 days from its receipt.

A foreign-invested bank shall be dissolved when it cannot continue its operation due to such reasons as the expiry of the term approved, merger of the banks, insolvency, defaulting of the contract and natural calamities.

Chapter 3. Capital and Reserve Funds of Foreign-invested Banks (Articles 18 – 22)

This chapter stipulates that a foreign-invested bank shall deposit the primary paid-up capital and operating capital with a bank designated by the Central Bank of the DPRK within 30 days from the date when it obtained the approval of establishment and shall have it confirmed by a certified public accountant.

A joint venture bank and a wholly foreign-owned bank shall set aside as reserve fund 5 per cent of its annual profits each year until the reserve fund grows to 25 per cent of the registered capital and a foreign-invested bank may reserve such funds in need as bonus fund, welfare fund and R&D fund.

Chapter 4. Transactions and Settlement of Foreign-invested Banks (Articles 23 – 28)

This chapter stipulates that a foreign-invested bank may engage in part or whole of the following transactions:

A·  Accepting deposits of foreign currencies of foreign-invested enterprises, foreign enterprises and
         foreigners,

B· Granting loans in foreign currencies, overdrafting on the current account excess payment and
         discounting of foreign currency bills,

C· Dealing in foreign exchange,

D· Investment in foreign currencies,

E ·Guarantee against liabilities in foreign currencies and defaulting of contract obligations,

F· Remittance of foreign currencies,

G· Transactions of securities in foreign currencies,

H· Trust banking,

I· Credit survey and consultation.

A foreign-invested bank shall open an account with the branch of the Central Bank of the DPRK in the area where it is located and deposit the reserve fund for deposit payment.

A foreign-invested bank shall submit to the foreign exchange control organ the annual balance sheet and profit and loss account confirmed by a certified public accountant within 30 days from the date of the completion of the annual business settlement, and the quarterly financial statement and necessary statistics by the 15th day of the first month of the ensuing quarter of the year.

Chapter 5. Penalties and Settlement of Disputes (Articles 29 – 32)

This chapter stipulates that a foreign-invested bank shall be liable to fining in the following cases:

J · In case it has changed its president or vice-president or the location of the bank without approval,

K· In case it has failed to set aside the reserve fund of required amount,

L· In case it has obstructed or caused difficulties in inspection, and

M· In case it has failed to submit regular reports within a fixed period of time, or submitted false ones.

In case a foreign-invested bank engages in other transactions than those approved, or revises the memorandum, or increases or decreases the registered capital and operating capital without approval, it may be ordered out of operation.

In case an applicant for establishment of a bank fails to commence banking business within 10 months from the date of the approval, the approval granted for establishment of the bank may be withdrawn.

The Law of the DPRK on Foreign-invested Bank shall ensure stability of activities of foreign-investors and contribute to the expansion and development of the external economic relations by establishing system and order for foreign-invested banks.

Writing today for the Asia Times, Sunny Lee gives an update on the North Korean-run restaurants in China and South East Asia.  Much has already been published on these restaurants: how they channel money back to North Korea and how the waitresses tend to defect.  (As mentioned in the Kaesong post yesterday, they probably also pay hefty bribes for their overseas posts and have well-connected relatives.)

Sunny Lee points out that these restaurants (see YouTube video here) are now diversifying their product lines to boost profits, and like other successful capitalists across Asia, they are doing it by leveraging their most unique asset–attractive North Korean women.  How?  By transforming into karaoke bars after dinner hours.

North Korea has some 100 restaurants overseas, mostly in China and Southeast Asia, including Laos, Vietnam and Cambodia. These restaurants serve as an important revenue pipeline for earning foreign currencies for Pyongyang. Each overseas North Korean restaurant is said to be allotted a revenue quota to fill, ranging from US$100,000 to $300,000 a year to send to Pyongyang, which makes the total revenue estimation some tens of millions of dollars.

The business formula – restaurant by day and karaoke bar by night – is also seen as an effort for these restaurants to meet the assigned financial quota. Currently, there are scores of North Korean restaurants in China, including in cities such as Beijing, Tianjin, Tsingdao, Dandong and Yanji. Beijing has 11 North Korean restaurants. All of these employ North Koreans whose total employment number in China is estimated to be several hundred. (Asia Times)

Despite the higher cost, business is brisk…

The reason that North Korean restaurants are expensive yet remain popular among customers is their immaculate service from beautiful employees. In China, where service quality at restaurants is often unsatisfactory, North Korean restaurants are becoming a favorite alternative among members of the businesses community. (Asia Times)

However, if you want to enjoy an authentic North Korean dining experience but have moral qualms about supporting the regime, then you can patronize similar resturants managed by North Korean defectors in South Korea–though the experience is quite different.  Whereas the Chinese pay extra for premium restaurant service in Beijing, the South Koreans pay for the genuine socialist restaurant experience.  In other words, they pay to be treated like an annoyance to the staff.

[At the Pyongyang Moran Bar (located in South Korea), the] North Korean waitresses wore traditional dresses in the bright colors that were fashionable in the South some years back. The singer’s interpretation of “Whistle,” a North Korean standard of the 1980’s, was shaky and off-key. Service was bad and included at least one mild threat. Drinks were spilled, beer bottles left unopened and unpoured.

But the South Korean customers could not get enough of the Pyongyang Moran Bar. (New York Times)

So you have your choice of North Korean themed restaurants:  The propaganda ideal or the  socialist reality.

The full articles can be found here:
Chillin’ at a North Korean karaoke bar
Asia Times
Sunny Lee
2/8/2008

In Deep South, North Koreans Find a Hot Market
New York Times
Norimitsu Onishi
5/25/2006