North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No. 07-12-17-1
12/17/2007

North and South Korea are poised to allow Internet, telephone, and cellular services to be available in the Kaesong Industrial Complex (KIC) and at the Kumgang Mountain Tourist Resort beginning next year. The 7th Defense Ministerial Talks opened on December 12 at the ‘Peace House’ on the South Korean side of Panmunjum, and at the meeting, North and South Korea reached an agreement regarding communications, transportation, and customs.

According to the agreement, Pyongyang has given permission for the use of Internet landlines and cellular phones in the two largest inter-Korean cooperative projects. However, while the South Koreans pushed for the inclusion of “mobile phones” in the agreement, the North insisted on “wireless telephone communications”, suggesting that they hope to use dual-use wired telephones rather than mobile cellular phones.

In addition, under the agreement, North and South Korean rail and road traffic will be allowed to cross the border daily from 7:00am to 10pm, with the exception of Sundays and official holidays. Currently traffic in the area is limited to 7am~6pm in the summer, and 8am~5pm in the winter months.

The two sides also agreed to new procedures aimed at simplifying customs inspections and reducing delivery delays. From now on, the two sides will exchange lists of goods being moved, after which time any specific good that is flagged will be inspected. Currently, both sides are required to supply a list of goods to be pass through the area three days in advance, and every piece is individually inspected, complicating customs procedures.

The agreement was signed ROK Defense Minister Kim Jang-soo and Kim Il-chul, minister of the DPRK People’s Armed Forces, and went into effect on December 13. With this agreement, exchange and cooperation in the KIC and Kumgang Mountain resort are expected to even more actively grow.

Yonhap
12/16/2007

North Korea’s state-run airline is likely to be used to ferry South Korean tourists to the North’s Mount Paektu, a government official said Sunday.

The official, who declined to be identified, said Air Koryo planes may be used to carry tourists, owing to concerns about safety related to Samjiyeon Airport, about 30 kilometers southeast of the mountain.

He did not elaborate on the nature of safety concerns, but said it may be inappropriate for South Korean flag carriers like Korean Air and Asiana to use the airport.

Tours to the 2,744-meter-high mountain, held sacred by many Koreans, are the result of the summit meeting between South Korean President Roh Moo-hyun and North Korean leader Kim Jong-il in early October.

He added that flights would probably use Seoul’s Gimpo International Airport, fly over Gangwon Province, head out into the East Sea before turning north toward Mount Paektu, on the North Korea-Chinese border.

The official said Gimpo has been selected as it can easily handle greater numbers of people than provincial air terminals, and the high level of airport security that can be maintained.

Hyundai Asan, which is responsible for organizing tours to North Korea, said direct flights linking Gimpo and Mount Paektu should begin in May, 2008.

The company currently organizes tours to Mount Geumgang on the east coast, and the historic city of Kaesong just north of the demilitarized zone separating the two Koreas on the west coast.

Yonhap
12/16/2007

South and North Korea are still far apart over setting up joint fishing areas along their disputed western sea border but they have made some progress in establishing similar zones off their shared eastern sea border, a South Korean government report said Sunday.

In a statement posted on its Website, South Korea’s Unification Ministry said working officials of both Koreas made some meaningful headway on a proposal to open their shared eastern sea border to fishing boats from both sides.

“The South and the North agreed to actively cooperate to allow South Korean ships begin fishing at designated areas in the North Korean side of the East Sea within 2008,” the ministry said, outlining a six-point agreement reached at a two-day inter-Korean working meeting that ended at the North’s border city of Kaesong on Saturday.

The two Koreas have yet to agree on many specifics on the eastern sea border, including where to set up the proposed joint fishing areas, but they agreed on some details, including how South Korea should pay for its fish catch in the northern side of the border, it said.

North Korea, among other things, agreed to allow South Korean ships to pay in goods, not cash, the statement said.

The sides also agreed to hold a new round of working talks early next year to discuss Seoul’s provision of “fishing implements and gears that will constitute its fishing fees” and other related issues,” it said.

They have also agreed to begin construction on a joint fishery research and storage center in the North before the end of the year, for which a survey team of some 20 South Korean officials will travel to the North on Dec. 21-25, according to the agreement.

It’s unclear how such agreement on the eastern sea border would affect efforts by the two Koreas to ease tension along their acutely disputed western sea border, the site of two bloody naval clashes in 1999 and 2002.

During an October summit, South Korean President Roh Moo-hyun and North Korean leader Kim Jong-il agreed to turn the disputed western maritime border into a peace zone in which fishing boats of both sides would jointly operate.

High-level military officials of both sides met at the inter-Korean border village of Panmunjom last week to discuss the western sea border but failed to reach agreement.

North Korea insisted that the proposed joint fishing areas in the West Sea must be established south of the Northern Limit Line (NLL), an interim border unilaterally set by the American-led U.N. Command right after the 1953 end of the Korean War.

South Korea turned down the North’s demand, counterproposing that any joint fishing area in the area must conjoin waters on both side of the NLL.

Korea Times
Ryu Jin
12/11/2007

Namkwang Engineering & Construction, a South Korean company which has recently been stepping up efforts for inter-Korean economic projects, plans to form a joint venture with a North Korean firm for construction works in the North and other countries.

Namkwang E&C CEO Lee Dong-chul told reporters Tuesday that his company, along with 516 Construction Company in the North, will seek to win construction orders in foreign countries including Angola as well as North Korean cities such as Gaeseong and Pyongyang.

“We signed a memorandum of understanding (MOU) for joint projects with the North Korean firm late last month,’’ he said in a press meeting. “They could be operated in the form of a joint venture, depending on the final agreement to be signed early next year.’’

Lee added that Namkwang would largely provide capital and construction technologies to the proposed joint-venture company while the North Korean firm would supply labor.

Founded about 50 years ago, 516 Construction Company is the only construction firm in the North Korean border city of Gaeseong where an inter-Korean industrial complex is located. It has constructed apartments in the city with more than 3,000 workers.

“Currently, the firm is building a steel-frame factory in the Gaeseong Industrial Complex including reinforced concrete, tiles and plaster work under a contract with us,’’ Lee said. “Maybe we can take part in construction works in Angola and Libya jointly.’’

Namkwang, which recently got government approval for cross-border projects, has invested some 7.6 billion won ($8.23 million) since October to build the steel-frame factory which would be used for the second-phase construction of the Gaeseong Industrial Complex.

Lee said that his company would also redouble efforts to get more orders for overseas construction in such countries as Angola, Libya and Vietnam next year. Namkwang has received orders worth $1.1 billion along with NIEC, a joint venture in Angola, since 2005.

Established in 1947, Namkwang has carried out a lot of large-scale projects in South Korea and also advanced to foreign countries such as Saudi Arabia, Iraq and the Philippines for construction of buildings, roads, dams and harbors on the back of its unique technology.

International Crisis Group
Asia Briefing N°71
4 December 2007

North Korea’s relations with Russia have been marked by unrealistic expectations and frequent disappointments but common interests have prevented a rupture. The neighbours’ history as dissatisfied allies goes back to the founding of the Democratic People’s Republic of Korea (DPRK) with Soviet support and the Red Army’s installation of Kim Il-sung as leader. However, the Soviets were soon written out of the North’s official ideology. The Sino-Soviet split established a pattern of Kim playing Russian and Chinese leaders off against each other to extract concessions, including the nuclear equipment and technology at the heart of the current crisis. Since Vladimir Putin visited Pyongyang in 2000, diplomatic initiatives have come undone and grandiose economic projects have faltered. Russia is arguably the least effective participant in the six-party nuclear talks.

The relationship between Putin’s Russia and Kim Jong-il’s North Korea has disappointed both sides. Putin has mostly been unable to assert himself as a prominent player in North East Asia, and North Korea has received neither the unalloyed political support nor the economic backing it seeks. Russia has more influence in the region than it did in the 1990s but not enough to change the equation on the Korean peninsula. Opportunities for economic cooperation have been limited, mostly by Pyongyang’s refusal to open its economy but also by Russia’s fixation on overly ambitious schemes that at best may take decades to realise. China’s more nimble investors have moved in much faster than Russia’s state-owned behemoths.

Moscow has been conservative in its political dealings with Pyongyang, playing a minor but thus far positive role at the six-party talks consistent with its concerns about proliferation and the risks of DPRK collapse. It regards the denuclearisation of the peninsula as in its interests, has relatively few commercial opportunities in the North and considers its relations with the other nations in the exercise more important in every way than its ties to Pyongyang.

While Russia has shown interest in building energy and transport links through the North, little progress has been made. Rebuilding railways on the peninsula will cost enormous sums, and overcoming the many obstacles will require years of negotiation. Investments have been hindered by the North’s unreliability and history of default on loans. Russia may eventually have to forgive billions of dollars of debt the North cannot repay. Energy is a major mutual interest but pipelines across the North are unlikely to be built soon; Japan and China are expected to be the main markets for Russian energy, while South Korea is reluctant to become dependent on the North for its supply. 

Pyongyang wants Russia to balance China’s growing influence but appears to recognise that Moscow will never provide the level of support it once did. The North has been keen to discuss economic cooperation but has lacked the political will to reform its economy sufficiently for foreign investment, even from a country as inured to corruption and government interference as Russia. It is equally interested in technical and scientific aid. Russian technology, equipment, and “know-how” have featured prominently in the history of both Koreas, and Pyongyang still seeks to resolve its economic problems by scientific and technical solutions. But there is unlikely to be much growth in bilateral cooperation unless the nuclear crisis is resolved peacefully, and the North opens its economy. 

This briefing completes Crisis Group’s series on the relationships between North Korea and those of its neighbours – China, South Korea, Japan and Russia – involved in the six-party nuclear talks. It examines Russia’s aims and ambitions in the region, as well as the responses from North Korea and is based on both interviews in Russia, Central Asia and South Korea and analysis of Russian and North Korean statements.

Daily NK
Moon Sung Hwee
12/4/2007

An internal source conveyed on the 30th that due to an extreme decree which prohibits all sales of medical goods, the suffering of citizens has been increasing.

The source maintained that “In August, the sale of medical products was banned, and by the start of anti-socialism inspections in September, no medical products could be found in the jangmadang.”

The North Korean authorities have long since stated its position in prohibiting the sale of medical goods, saying that the sale of medical goods in the jangmadang is a show of democracy that undermines the national medical system. However, regulations usually never went beyond formalities.

Recently, however, anti-socialism inspections have been conducted on a large-scale in Yankang with the theme of “Abolishing capitalist trends in the market.” Medical products, which are mostly from China and South Korea, have been regulated more aggressively. Some have said that the authorities have strengthened regulations due to frequent incidences involving Chinese sub-standard medical products.”

With the harbinger of regulation of medical products, pharmaceutical vendors have sold medical products to their acquaintances on a limited basis. The price has increased significantly as well. Chinese-made aspirin, “Zhengtongbian”, which costs 20 North Korean won per pill, has hiked up to 30 won. A bottle of anti-diarrhea medicine has increased from 150 won to 300 won and penicillin from 120 to 200 won.

Especially the smuggling of Electrolyte Solution, used in IV’s to hydrate hospital patients, has stopped due to regulations, causing a jump in price.

From mid-August to the end of October, the anti-socialism inspections in Hyesan, Yankang were cooperatively conducted by the central Party, the Prosecutor’s Office, the National Security Agency and the People’s Safety Agency. Along with the strict regulation of cell phones, the market, and capitalist “corruption,” the medical goods ban has cast a heavy burden on the civilians.

“Good Friends” reported in October that “Thirty people have been incarcerated as a result of the anti-socialism inspections in Yankang since mid-August, and regulations have tightened.”

When the sale of medical products completely ceased in the markets, citizens and doctors who must treat their patients have been extremely disgruntled.

The source said, “People have to go to the homes of pharmacists in order to buy medicine, but they cannot if the pharmacists do not know them personally. The price has increased dramatically due to the regulations of medicinal products.”

“Even hospitals do not carry medicine and there is no way to procure them, even at doctors’ request.” Doctors have complained, saying “Are we supposed to just sit by and watch the sick people?”

A majority of medical products that could be found in the markets were Chinese-made contraband goods. In some cases, Party leaders or army hospital leaders have illegally procured medicine as well.

The source commented that when civilian discontent rose, the Party Municipal Committee explained the cause of the cease in sale of medical goods as, “In a socialist society, hospitals have guaranteed medical goods, but during this temporary time of suffering, some immoral people have hoarded the national medical supply and are making a profit.”

Daily NK
Yoon Il Geun
12/3/2007

An inside source told the Daily NK recently that about 20 to 30% of business agents in Pyongyang are university students.

Since the late 90s, college students started working as agents between artifacts buyers and sellers.

Pyongyang middlemen usually connect local merchants in border area and retailers in Pyongyang. Besides trading foreign goods, they also took part in artifact business around Kaesung, which was the capital of Koryo dynasty from 10th century to late 14th, and thus full of ancient artifacts.

College students lack funds, so their only way to earn money is to be agent.

The insider said “Pyongyang’s college students are the smartest and known for their business skills. Among them, students from Kim Chaek University of Technology are best. It is reasonable to assume at least two out of ten students have become working as trading agents since the March of Tribulation in 1990s.”

“Students are perceived as trustworthy because they are from middle class families. And those who are from local provinces and studying in Pyongyang have advantages.”

Most of these business-practicing students are former army veterans, especially those who are interested in earning money rather than studying. A few poor students who have not enlisted do business.

According to the source, these students rarely attend classes and bribe school college administrators in order to graduate. During “farming supporting period” every spring and autumn (every college student is mandatory to work at farms twice a year), business-students are exempt while buying food for those who participate.

A defector from Pyongyang said “There is little to learn at universities and society is changed to capitalist, so there is no shame for doing business among college students. The other reason might be influx of army veterans into colleges.”

Electonic Times News (South Korea)
Hat tip DPRK Studies
Gil-soo Jang
11/30/2007

South and North Korea team up to develop a version of ‘Hana Linux (tentatively named)’ and set standards.

Reunification IT Forum (South), Chosun People’s Science Technology Association (North) and Chinese Information Society co-hosted ICMIP 2007 in Yenji, China on November 27 to 28.

At the conference, IT experts from two Koreas agreed on the need for cooperation in the Linux sector and developing ‘Hana Linux.’ Besides, the two parties will pursue other projects such as Open Office, an internationally certified (CC) office suite, and developing Korean language for excellent open software.

Such a proposal was initially made by president of Hee-tak Moon of Korea Open Source Software Association (KOSSA) to the North counterpart. A detailed plan will follow at the Speical Duties Committee (SDC) which will be formed soon by two Koreas and China.

President Ho-ik Seok of Reunification IT Forum, Secretary General Kyung Chon of Chosun People’s Science Technology Association, and President Ryong-woon Hyung of Chinese Information Society agreed to five points at issue and to create expert working groups and the SDC soon.

The three parties also consented to nurture software professionals and, as part of that effort, to base Yenben and Dandung of China, and Pyongyang, Kaesong and Hoichun of Korea as training centers. Moreover, they will consider sharing information by establishing an IT exhibition hall, library and history archive.

To further the agreement and issues, IT experts decided to hold an international conference in Pyongyang in the first half of next year to bring IT professionals together.

They were in agreement that there are differences in IT terminology between South, North Koreans and Korean Chinese and agreed to make efforts to standardize the terms.

Yonhap
Lee Joon-seung
11/23/2007

North Korean graphite material made at an inter-Korean joint venture factory is being shipped to South Korea, the Commerce Ministry said Friday.

The 200-ton shipment from the factory near the city of Haeju left the North Korean port of Nampo earlier in the day and is expected to reach Incheon on Saturday, the Ministry of Commerce, Industry and Energy said.

“The shipment is significant because it is the first time that products made from minerals in the North have been shipped to the South after being manufactured at an inter-Korean joint venture company,” a ministry official said. The graphite can be made into heat-resistant bricks, pencils, ceramic melting pots and car brake linings.

South Korea’s state-run Korea Resources Corp. (KORES) holds a 50 percent stake in the US$10.2 million graphite processing plant along with the North’s Kwangmyung Trading Co.

The factory can produce 3,000 tons of processed graphite every year, with KORES entitled to 1,830 tons for 15 years as payment for its initial investment. The amount is equivalent to 15 percent of the graphite products the country imports every year. China, Japan and Germany are currently South Korea’s main suppliers of the material.

The state-run company signed the contract for the joint venture in July 2003, and commercial production began in April of this year. Initial test production began in April 2006.

The ministry also said the Jeonchon mine near the factory is estimated to hold 6.25 million tons of crystalline graphite ore.

Wonjin Co., a local carbon refractory brick manufacturer, signed a contract in September with the KORES to buy all the graphite from North Korea and market it in South Korea.

Joong Ang Daily
Ser Myo Ja
11/19/2007

Seo Myeong-hee has traveled the world to see the pyramids of Egypt, the Great Wall of China and the Grand Canyon in the United States, but she said her visit to Chonji, the crater lake on the peak of Mount Paektu, was the best trip of her life.

“It was a beautiful sunny day in May last year. I was just taken away by the magnificent view,” Seo, 57, recalled of her visit to the mountain that straddles the border between China and North Korea. “After walking along the ridge for about three hours, we were there. The lake was a mysterious blue, and there were wildflowers everywhere.”

Standing 2,744 meters (9,002 feet) tall, Mount Paektu has been worshipped for centuries as the place of Korea’s ancestral origins. In addition to its beauty, it is this rich cultural tradition that prompted Seo, like many South Koreans, to travel through China to see the mountain, since there is currently no way to visit the area via North Korea. “It was a five-day trip, but mostly we spent time in Chinese towns seeing ancient ruins of the Goguryeo Kingdom and other tourist attractions,” she said. “The highlight was definitely Mount Paektu, but you have to sit on the bus for many painful hours to actually get there.”

All that, though, is about to change. Last month’s inter-Korean summit finally opened the door for South Koreans to fly directly to the mountain. It promises to be a popular destination once the infrastructure is complete.

In 2005, North Korean leader Kim Jong-il promised Hyundai Asan Chairwoman Hyun Jeong-eun during a visit to Pyongyang that he would allow a tour program for Mount Paektu. Nothing was done for more than two years, however, until the October summit between Kim and President Roh Moo-hyun resulted in a deal to allow passengers to fly from Seoul to an airport on the mountain.

With cooperation from the Korea National Tourism Organization, Hyundai Group’s North Korea business arm, Hyundai Asan, has begun preparations in cooperation with North Korea’s Asia-Pacific Peace Committee, which handles civilian inter-Korean projects.

Hyundai Asan, which has the sole franchise to operate tours to the North from South Korea, plans to begin offering tours to Mount Paektu in May 2008. The only other tour program from the South allows visitors to travel to Hyundai’s resort at Mount Kumgang, a project that began in 1998. A South Korean team including officials from the KNTO, the Roh administration and Hyundai will make an on-site survey of Mount Paektu before the end of this month.

Yoon Man-joon, president of Hyundai Asan, told the JoongAng Daily in an interview Thursday that he is extremely optimistic about the tour project. Yoon and Hyun visited the mountain personally early this month.

“The Mount Kumgang tour had more of a symbolic meaning, because it was the first opportunity for South Koreans to go to North Korea for tourism,” Yoon said. “Mount Paektu, however, has much more potential to succeed solely as a tour program.”

Yoon thinks demand will be high and response immediate once the tours begin. “Mount Kumgang is praised for its scenic beauty, but Mount Paektu is more than that,” Yoon said. “The place is the origin of all Koreans, and it is an extraordinary experience for us to visit there.”

Seo could not agree more. “When I saw Chonji, the crater lake, I became so emotional that I almost cried,” she said. “The lyrics of our national anthem even begin with the mountain ― ‘Until the East Sea’s waves are dry, and Mount Paektu is worn away, God watch o’er our land forever!’”

The mountain has long been considered sacred. In Korea’s creation myth, Hwanung, a son of the Lord of Heaven, was allowed to descend onto Mount Paektu with 3,000 followers and found the City of God.

There a tiger and a bear told Hwanung that they dreamed of becoming human, and Hwanung gave them 20 cloves of garlic and a bundle of mugwort, ordering them to eat only those foods and remain out of the sunlight for 100 days. The tiger failed, but the bear endured and eventually was transformed into a woman.

The bear-woman then prayed for a child, and Hwanung took her for his wife. A son, Dangun, was born, and he built the walled city of Pyongyang and called his kingdom Joseon. Not to be confused with the Joseon Dynasty, the kingdom is referred to in Korean history as Gojoseon or Ancient Joseon. Historians believe his kingdom began in 2,333 B.C.

This mythology is still marked on the modern Korean calendar, with Oct. 3 celebrated as Gaecheonjeol, or National Foundation Day, which marks the establishment of the first Korean kingdom.

The opening of Mount Paektu is not without controversy. Other travel agencies have expressed their displeasure with Hyundai Asan’s monopoly on tours to the famous mountain. On Nov. 13, Shim Joong-mok, the president of the Korea Tourism Association, held a press conference and said the group wants a share of the potentially lucrative market. He said the association, which represents more than 20,000 travel agencies in Korea, may take legal action if their request is not met.

Hyundai Asan President Yoon rebuffed the demand. “The agreement we have with North Korea for exclusive rights to Mount Paektu tourism is a legitimate commercial deal,” Yoon said. “They act as if we received this right for free, but we have made vast investments in North Korea over the past nine years and earned the North Korean authorities’ trust. The tour program was given in return.”

Yoon said the tourism industry should respect market principles. “It would be the same for any other beautiful mountain. Would it make sense for me to develop a resort under an exclusive contract and then have other travel agents demand that they also want to do business there?” Yoon asked. “The travel agents’ demand is unreasonable.”

According to a Hyundai Research Institute report, it will cost up to $1.26 billion to develop a resort on the mountain comparable to the facilities in Pyeongchang, the South Korean city that hopes one day to host the Winter Olympics.

Yoon said he is confident about the Paektu program’s potential, citing his recent visit to the mountain. “There are two lodging facilities built by North Korea on the mountain. One is Sobaeksu State Guest House and the other is Baegyebong Hotel. Both are modern, and they will be usable after some modifications,” Yoon said.

He said the survey team, which will leave before the end of this month, will also study what work is needed for Samjiyon Airport on Mount Paektu to begin receiving flights from South Korea. “We will have a better idea after surveying the runway and traffic tower,” he said, adding that Korean Air and Asiana have both expressed interest in flying to North Korea.

The modernization of the airport may also be expensive. The Ministry of Construction and Transportation said in a report last month that repairs will cost 280 billion won ($304 million).

The price of the tour program is also still to be decided. “It will be competitive with tour programs via China,” Yoon said. “We don’t want to make it too expensive or too cheap.”

Seo said she paid 1.2 million won for her five-day package to visit the mountain via China. “I didn’t think it was too expensive,” Seo said. “If I can fly to the mountain in just two hours at a similar cost, I will be more than willing to go one more time.”

Running a tour program for Mount Paektu is also tricky because there are only few weeks in the year when Chonji Lake can be seen in good weather. “I was happy because the May weather was fantastic,” Seo remembered. “The tour guide said we were lucky because many groups could not see the magnificent view due to the weather.”

According to Yoon, Hyundai Asan is reviewing other plans to use the mountain’s winter weather as a possible attraction for sports and hot springs.

The new tour may take away one small attraction of the Chinese route ― a chance to see the low-key North Korean border with China. “The border is not heavily guarded,” Seo said. “Our guide even allowed us to cross the border on foot. The North Korean guard smiled at us, and we took a souvenir photo together. I gave him a chocolate, and he was really thrilled.”