North Korean Economy Watch

Joong Ang Daily
Brian Lee
11/1/2007

Newspapers indicate a desire for more outside interactions

North Korea is increasingly sending out signals through its state media indicating a desire to interact more with the outside world.

The North’s communist party newspaper Rodong Sinmun said in an editorial earlier this week that it is no longer a time for production and construction to be achieved through the workers’ bare hands alone.

“We are stressing self-sufficiency, but that does not mean we are disregarding international economic relations while striving to build our economy,” the newspaper said. “The republic has always maintained its position that it wants to have good relations, even with capitalist countries.”

The Chosun Sinbo, a pro-Pyongyang newspaper in Japan widely believed to be representing North Korea’s views, also said this week that progress in the six-party talks reflected Pyongyang’s political will to improve ties with neighboring countries.

“The nuclear test was Pyongyang’s tool to change the stalemate with Washington,” said Koh Yoo-hwan, a North Korean specialist at Dongguk University. “It got its attention and now both sides are talking. The diplomatic exchanges with other countries are a sign from the North that it can accept capitalist methods and that it is open to the outside. This is not coming just out of the blue. In the North everything is planned from the top and all these moves are done strategically. They want to connect to the outside.”

Yesterday, North Korea restored diplomatic ties with Burma after 24 years of severed ties over the North’s involvement in a bomb attack on South Korean cabinet members in 1983, The Associated Press reported.

North Korean Premier Kim Yong-il has also embarked on a rare sweep of the Asian region, visiting Vietnam last week with Malaysia, Cambodia and Laos also on his itinerary.

Washington has tried in its own way to lure the isolated North more into the open.

A visit by the New York Philharmonic to the North is being pondered while the JoongAng Sunday reported that the North’s women’s soccer team may visit the United States.

In a related development, Christopher Hill, Washington’s chief representative to the six-party talks, met with his North Korean counterpart Kim Gye-gwan in Beijing yesterday to discuss progress in the nuclear negotiations.

Hill is scheduled to arrive in Seoul today to brief officials here on the meeting, a government official said yesterday on condition of anonymity.

Foreign Minister Song Min-soon told reporters a U.S. team of nuclear experts is scheduled to enter the North today to take actual steps to disable the North’s key nuclear facilities. Pyongyang said earlier this week that such measures would start within this week.

Yonhap
11/3/2007

Direct flights that will allow tourists from South Korea to visit Mount Paekdu in North Korea will begin in May, Pyongyang’s official state-run news agency said Saturday.

The Korean Central News Agency (KCNA) said the deal was reached in talks between Hyundai Group chairwoman Hyun Jung-eun and representatives of the North’s National Economic Cooperation Federation.

The tours were agreed upon at the summit meeting between South Korean President Roh Moo-hyun and North Korean leader Kim Jong-il early last month. Seoul had previously provided materials to repair an airfield near the mountain.

Foreign visitors to Mount Paekdu, whose 2,744-meter peak is the highest on the Korean Peninsula, usually climb the mountain from the Chinese side, although the mountain is a popular tourist destination for foreign tourists in North Korea. Koreans traditionally consider Mount Paekdu a sacred mountain.

The KCNA report also said Hyundai will start tours of Kaesong, an ancient Korean capital, in early December.

Hyundai Asan, a affiliate of the the business group, runs the Kaesong industrial complex that is home to about 50 South Korean companies producing clothes, shoes, watches and kitchen appliances.

The inter-Korean complex 60 kilometers northeast of Seoul is hailed as the crowning achievement of the historic first-ever inter-Korean summit in 2000. It has played a key role in expanding two-way economic exchanges from just $300 million in 1999 to $1.35 billion last year.

The North Korean news agency said Hyun and Hyundai Asian president Yoon Man-joon met with Kim Jong-il.

The two senior executives are expected to return to South Korea later in the day.

Yonhap
11/1/2007

The chief of South Korea’s Hyundai Group met with North Korean officials in charge of inter-Korean cooperation on Thursday to discuss the group’s business projects in the North, the North’s Korean Central News Agency (KCNA) reported.

The KCNA said Hyundai Group Chairwoman Hyun Jung-eun held talks with North Korean officials, including officials from the North’s National Economic Cooperation Federation.

The two sides took notes on an industrial park in the North Korean city of Kaesong and the building of a tourist resort near Mount Paekdu, according to the KCNA. Prior to the talks, Hyun’s delegation also toured Mount Paekdu, the North’s highest mountain on the border with China, the KCNA said.

The KCNA, however, stopped short of reporting the outcome of the talks.

At Thursday’s talks, Hyun is believed to have discussed the Mount Paekdu tourism project and the second-stage development of the Kaesong industrial complex with the North.

The South Korean company said earlier that Hyun and Yoon Man-joon, head of Hyundai Asan, a Hyundai subsidiary that runs Hyundai’s business in North Korea, visited Pyongyang on Tuesday via Beijing to discuss inter-Korean projects with North Korean officials. Hyun and Yoon are to return home Saturday, according to Hyundai officials.

Hyun’s visit this week marked her second trip to North Korea in a month, as she accompanied South Korean President Roh Moo-hyun on his historic inter-Korean summit with North Korean leader Kim Jong-il from Oct. 2-4.

At the summit, Roh and Kim agreed their two countries would work together on a wide range of economic projects, even though the two states are still technically at war since the 1950-53 Korean War ended in an armistice, not a peace treaty.

After the summit, Hyun said she expects tours to Mount Paekdu to start as early as next April. At the summit, the two leaders agreed to establish direct flights from Seoul to Mount Paekdu.

Hyundai maintains close business ties to North Korea. One of its major cross-border projects is tours of scenic Mount Geumgang on the North’s east coast. More than 1 million South Koreans have visited it since 1998.

Hyundai’s business with North Korea was started by its late founder, Chung Ju-yung, in the early 1990s.

Hyun took the helm of Hyundai in 2003 after her husband, Chung Mong-hun, the Hyundai founder’s fifth son, committed suicide by jumping from a window of his high-rise office in Seoul, apparently under pressure from a lobbying scandal involving a North Korean project.

Yonhap
11/1/2007

South Korean business leaders are set to inaugurate a forum next week to facilitate economic cooperation between the two Koreas’ private sectors, a South Korean business body said Thursday.

The Korea Chamber of Commerce and Industry (KCCI), which has spearheaded the the forum’s establishment, said about 70 business and financial figures, including KCCI chief Sohn Kyung-shik, and Unification Minister Lee Jae-joung, will get together on Monday to launch the private forum for inter-Korean economic cooperation.

Sohn will take the helm of the 60-member forum that will include representatives of the South’s leading conglomerates that have taken part in inter-Korean economic projects — Samsung Electronics Co., Hyundai Motor Co. and Hyundai Asan Corp.

The forum’s inauguration comes on the heels of the Oct. 2-4 inter-Korean summit. At the close of the summit, South Korean President Roh Moo-hyun and North Korean leader Kim Jong-il issued a joint declaration calling for massive investment from the South in the North’s key industrial sectors, including shipbuilding and tourism.

The forum plans to serve as a mediator for exchanges and cooperation between the two Koreas’ private firms. After receiving information and feedback from South Korean firms on their investments in the North, the forum also plans to make recommendations to the two governments on inter-Korean economic projects.

In addition, the forum envisions the dispatch of a delegation to the North, which will examine the investment climate in the communist country and establish a dialogue channel for inter-Korean economic cooperation in the private sector.

Yonhap
Nam Kwang-sik
11/1/2007

Hyundai Asan Co., an affiliate of South Korean conglomerate Hyundai Group, said Thursday that the number of visitors to a mountain resort that it operates in North Korea hit a monthly high in October.

A total of 64,447 people took its tours of the Mt. Geumgang resort on the east coast of the North in October, the company said in a statement, adding that it was the highest monthly figure since Hyundai Asan started the program in November 1998.

The previous monthly record was 43,000 in August 2005. In terms of one-year periods, the tours had the highest number of participants in 2005, when 301,822 people travelled from South Korea to the mountain.

“The rise in the number of tourists was attributable to the second summit between the South and North Korean leaders and growing hopes for the resolution of the North Korean nuclear issue,” a company official said.

The two Koreas held the summit in Pyongyang in early October, with the six-party talks on the North’s denuclearization making tangible progress.

Between 1998 and 2006, about 1.4 million people, including 8,000 foreigners, visited the resort, according to data by Hyundai Asan.

Yonhap
10/31/2007

Union leaders of Hyundai Motor Co., South Korea’s largest carmaker, left for North Korea to attend a ceremony to mark the completion of a corn noodle plant in the North’s capital, union officials said Wednesday.

Hyundai’s 44,000-strong union has donated 500 million won (US$553,800), collected from unionized workers for a mere $13 each, to help a South Korean humanitarian group build the noodle factory in the impoverished North.

Nautilus Institute
Stephan Haggard and Marcus Noland
10/30/2007

The success of economic cooperation projects depends on the intentions of North Koreans.

The Arabs have a proverb: “He who foretells the future lies.” The recent summit announcement may make many people liars, not the least its authors. The problem with the summit announcement is that its ultimate impact depends on three major unknowns: the attitude and commitment of the next South Korean president; the willingness of the North Koreans to embrace reforms; and progress-or lack thereof-on resolving the North Korean nuclear issue.

The summit and the nuclear controversy are inextricably linked, even if Roh Moo-hyun and Kim Jong-il may have wished to downplay it, and the summit announcement must be evaluated in the context of the nuclear matter. The nuclear issue provides a great opportunity for North-South reconciliation but also sets limits on how fast progress on other fronts can be made.

On the one hand, aid from Seoul may act as inducement for Kim Jong-il to resolve the nuclear issue; this has long been the claim of proengagement politicians. On the other hand, Seoul will receive little support for its diplomacy from the United States, Japan, and other countries if it moves forward aggressively on economic cooperation before the North Korean regime shows a genuine willingness to abandon its nuclear weapons program.

Indeed, the risk is that aid from the South could reduce economic incentives on the North to cooperate and undercut the negotiations. Pyongyang’s celebration of the first anniversary of its nuclear test underscores that achieving this goal could prove an arduous march of its own.

Yet there are signs of hope. The summit document did make a reference, however brief, to resolving the nuclear question and in the context of the six-party talks the North Koreans have-almost simultaneously-agreed to a timetable for the dismantlement of existing nuclear facilities. The summit agreement also contains some important confidence building measures, including most notably a commitment to address conflicts over the disputed boundary in the West Sea that has led to military engagements in the past.

However, all parties have to date studiously avoided mention of what will be done with North Korea’s stocks of nuclear weapons and fissile material. And talk of a final peace settlement to replace the armistice puts the cart before the horse; in the absence of a resolution to the nuclear question it would make little sense to negotiate a broader peace agreement.

If these issues can be resolved the next hurdle is North Korea’s willingness to embrace economic reform. The summit document lays out a number of economic cooperation projects that could be beneficial to both North and South Korea: reestablishment of trans-Korean transportation links; expansion of the Gaeseong Industrial Complex and its replication in other locations; and cooperation in specific industries such as shipbuilding where complementarities would seem to exist between North and South Korean capabilities. All of these are positives.

Yet the projects, while desirable, will have a limited impact as long as North Korea avoids the challenge of broader opening and reform. North-South discussions appear to have avoided the basic building blocks of a market economy-operation of markets, enterprise management, agricultural reform-which would allow the North Koreans to make the most of the aid that they will receive. The long history of aid to other developing countries suggests that aid can be futile, even counterproductive, in the absence of complementary reforms.

Moreover, South Korea’s engagement-in contrast to China’s-remains bottled up in physically and economically delimited projects such as Gaeseong and the Mount Geumgang tourism venture. This situation is regrettable because it is only by broadening contacts with profit-oriented South Korean firms that their North Korean counterparts will learn about the operation of a market economy. Pyongyang continues to resist broader opening, presumably due to concerns that more contact with South Korea could be politically destabilizing.

South Korean analysts are already calculating the costs and benefits of the program outlined in the summit announcement, with one press account describing the costs as “astronomical.” Even the high-end estimates, on the order of $11 billion and more, are a mere drop in the bucket compared to the ultimate costs of rehabilitating the North Korean economy and providing a stable basis for eventual unification. If nothing else, such analyses should stimulate a serious discussion in South Korea of the long-term costs and benefits of different contingencies on the peninsula including the possibility of regime collapse, a discussion that, regrettably, has largely been avoided.

The resolution of outstanding security issues on the peninsula is an important precondition for broader reforms to really work. It is unlikely that foreign investors from the United States, Japan, or Western Europe are going to take a serious interest in the country in the absence of a resolution of the nuclear question. The summit announcement is unlikely to have much of an impact on the passage of the Korea-US free trade agreement (KORUS FTA) in the US Congress. But if North and South Korea push forward with the phase II expansion of the Gaeseong complex in the absence of resolution of the nuclear issue, it would make passage of the KORUS FTA agreement in the US Congress more difficult.

Ultimately, these issues will be laid at the doorstep of the next South Korean president. One contender, Lee Myung-bak, has already expressed reservations about the open-ended nature of South Korean commitments. But whoever enters the Blue House in February 2008, the president-elect will have to make their own decisions on how to approach the North and may not be bound by a document negotiated by an unpopular lame duck president. The 2007 summit announcement may end up like the 1991 North-South Denuclearization Accord, amounting to little more than a statement of good intentions rather than a map for subsequent policy.

The two agreements differ in one significant respect, however. The big budget projects of the summit announcement may create constituencies in South Korea in favor of expanded engagement for purely self-interested reasons. The next South Korean president may confront South Korean corporations lobbying for expansion of contact for the contracts or subsidies they bring regardless of the broader political or diplomatic ramifications.

Ultimately the success of the program sketched out in the summit announcement will depend on the intentions of the North Koreans. Pyongyang could use the assistance offered by the Seoul to leverage its own reform program. However, it could take the aid and simply retreat into its shell, avoiding real reform and a verifiable resolution to the nuclear issue. Only time will tell.

Korea Times
Jung Sung-ki
10/29/2007

North Korea has a keen interest in economic modernization program aimed at luring foreign investment through business cooperation projects with other countries, a member of the European Parliament said Monday.

In a press conference in Seoul, Hubert Pirker, an Austrian member of the European Parliament, said the North clearly understands the fact that without economic modernization, it will not be able to attract foreign investment into the country.

Pirker and two other EU representatives _ Jas Gawronsky of Italy and Glyn Ford of Britain _ visited North Korea from Oct. 20-27 and met the North’s Prime Minister Kim Yong-il. They also held an economic forum with North Korean officials.

During the forum, North Koreans’ attitudes “were not closed or hostile,” said Pirker.

“We visited the railway station, for example, and also parks and restaurants. I could say we could see more modern-style restaurants and more cars than ever before,” the European lawmaker was quoted by Yonhap News Agency as saying.

The European lawmakers discussed ways of modernizing North Korea’s agriculture, light industry, information technology and finance sectors with officials there, Pirker said.

North Korea’s Foreign Minister Pak Ui-chun expressed his wish to visit Europe next year, as Pyongyang seeks to send its young officials and industrial trainees there to learn information technology and other advanced knowledge from European nations, he said.

Pirker said the delegates had advised the North Koreans that upgrading the level of communications and finance systems in the North to global standards was essential to securing foreign investments in a stable manner.

Progress at the six-party talks aimed at scrapping Pyongyang’s nuclear weapons program and expanding inter-Korea economic cooperation would help the North achieve its goal of inviting foreign capital, the legislator added.

The European Union has so far sent about 50 million euros worth of aid to North Korea, he said.

The impoverished North has recently shown strong interest in the economic reform programs of other countries.

Reports said North Korean leader Kim Jong-il expressed intentions last week copying Vietanam’s economic reform and openness policy, called “Doi Moi,” during a meeting with Nong Duc Manh, the secretary-general of the Vietnamese Communist Party, in Pyongyang.

The ongoing visit to Hanoi by the North Korean premier appears to have something to do with Kim’s remarks, they said. The reclusive leader is reportedly planning to visit Vietnam in the near future.

North Korean officials expressed firm commitment to denuclearization under the Feb. 13 nuclear deal, according to Pirker.

Under the pact signed by the two Koreas, the United States, China, Japan and Russia, Pyongyang pledged to disable its nuclear facilities and declare all of its nuclear programs by the end of this year in return for economic assistance and political concessions.

North Korea has received 50,000 tons of heavy fuel oil from South Korea and an equal amount from China for closing five of its nuclear facilities in July. The regime is to receive an additional 900,000 tons of oil or equivalent energy aid if it goes through the second stage of denuclearization.

The EU delegates are scheduled to pay a courtesy call on Prime Minister Han Duck-soo and hold meetings with South Korean business leaders including Hyundai-Kia Automotive Group Chairman Chung Mong-koo before leaving South Korea on Nov. 2.

Korea Times
Jung Sung-ki
10/28/2007

North Korean leader Kim Jong-il has expressed intention to model after the Vietnam-style economic reform and openness policy, dubbed “Doi Moi,” a report said Sunday.

Vietnam adopted the reform policy in 1986 to establish a market economy such as liberalization of trade and finance with foreign countries, decentralization of state economic management and reliance on the private sector as an engine of economic growth.

Kim made the remarks during a meeting with Nong Duc Manh, secretary-general of Vietnam’s Communist Party, in Pyongyang last week, Yonhap News reported, citing the Sunday edition of the weekly Yazhou Zhoukan, a Hong Kong-based international Chinese business daily. The newspaper carried an interview with Vietnamese Foreign Minister Pham Gia Khiem who accompanied the secretary general on his Pyongyang visit.

“Chairman Kim highly evaluated the achievements Vietnam’s Doi Moi has made in the past 20 years while meeting with Secretary General Manh,” Khiem was quoted as saying, adding the North Korean leader accepted Manh’s proposal for Kim’s visit to Hanoi.

The ongoing visit to Hanoi by North Korean Prime Minister Kim Yong-il aims to prepare for Kim’s visit to Vietnam, the report said.

The North Korean premier, who arrived in Hanoi Friday, visited several industrial and tourist sites in Vietnam, including Halong Bay, one of the biggest tourist attractions for foreigners, reports said.

Diplomatic sources in Hong Kong, however, were quoted as saying it is remarkable that Kim Jong-il expressed an interest in Doi Moi, but it is not likely for the communist North to closely follow the reform program.

The reason why the North is eyeing Vietnam’s economic program could have something to do with China’s lukewarm attitude to Pyongyang’s efforts to build special economic zones near the North’s border with China, they said.

Hanoi’s reform has often been referred to as a model for North Korea’s underdeveloped economy to emulate.

Chief U.S. nuclear envoy Christopher Hill said during a visit there in May that North Korea should “move on in the way that Vietnam has done so well.”

North Korea, Vietnam agree to boost bilateral ties
Yonhap
10/27/2007

North Korea and Vietnam said Saturday they have agreed to forge closer cooperation in the sectors of agriculture, culture and tourism, in their first high-level meeting in five years.

The agreement was reached after a meeting of visiting North Korean Premier Kim Yong-il and Vietnamese Prime Minister Nguyen Tan Dung.

Kim, who is in charge of economic policy, arrived in Hanoi on Friday for a five-day stay, as part of the first leg of a tour to Southeast Asian nations that include Malaysia, Cambodia and Laos.

Vietnam has shifted to a market economy since the mid-1980s and Hanoi’s reform is seen by many as a model for North Korea’s underdeveloped economy to emulate.

Joong Ang Daily
10/23/2007

Regulatory filing requirements to invest in North Korea will be eased, and the Export-Import Bank of Korea will manage information on investment activities in the North, according to a Ministry of Finance and Economy release yesterday.

For an amount below $300,000, an investor will no longer need to hand in an annual financial report to the bank handling the company’s foreign exchange deals for investments in the North.

For an amount below $1 million, an investor will only need to report briefly.

The bank dealing with foreign exchange transactions will need to report the investor’s financial information to the Export-Import Bank of Korea instead of the Ministry of Unification and the Finance Ministry.