North Korean Economy Watch

Institute for Far Eastern Studies
NK Brief No. 07-8-7-1
2007-8-7

According to a recent report from a North Korean insider, the border city of Sinuiju, in North Pyongan Province, was redesignated as a ‘Special Economic Zone’ in the first part of this year, and accordingly, full-fledged city development has been underway since last June, including the relocation to the city of 3000 families from Pyongyang.

The “NK Chosun” reported that this development was revealed by a North Korean official during a meeting with an associate in Dandong while on a recent visit to China. The official was quoted as stating, “Pyongyang citizens are being temporarily transferred to Sinuiju because they are ideologically prepared.” The official went on to share that the Pyongyang residents being moved to Sinuiju are the laborers that will work in the industrial zone, state security officials, police, and their families.

According to the associate in Dandong, “due to rumors of the relocation of Pyongyang residents, real estate prices in the Sinuiju area are skyrocketing.” While DPRK authorities are instituting a plan to relocate Pyongyang residents to Sinuiju, at the same time 3000 Sinuiju families are being banished from the city. Rumor has it that Sinuiju police and security forces have begun identifying residents with problematic blood lines and those considered to have ideological problems and announcing lists of ‘purgees’.

Even as large scale aggregate gathering at the mouth of the Yalu River is growing, all residents living in the vicinity of the Sinuiju train station were removed and barbed wire and dirt walls were set up around the outskirts of the area following its designation as a ‘Special Economic Zone’.

One DPRK source in Dandong stated, “The past plan for the Sinuiju Special Economic Zone promoted by Chinese [businessman] Yang Bin aimed to make money through a casino and entertainment facilities, but this time, according to the directives of Chairman of the National Defense Commission Kim Jong Il, a city is to be constructed that can fulfill the role of Kaesong Industrial Complex as well as Rajin-Sunbong .”

Yonhap
8/6/2007

Most South Korean companies operating at an inter-Korean industrial zone in North Korea plan to increase their facility investment there, a survey showed Monday.

The survey, conducted by the Korea Federation of Small and Medium Business, found that 87.8 percent, or 19 out of 24 companies operating at the North Korean border city of Kaesong, said they plan to boost investment levels.

South Korea began building the industrial park, located just 70 kilometers north of Seoul, in 2003 on a trial basis with the hope of creating a model for an eventual reunification of the Korean Peninsula. Currently, 26 South Korean plants employ about 16,000 North Korean workers who produce garments, kitchenware and a number of other goods.

If the industrial zone becomes fully operational by 2012, more than 350,000 North Korean workers will work there, according to the South’s Unification Ministry.

Last week, officials from the Koreas agreed to increase the minimum salary of North Korean workers at the Kaesong industrial complex by five percent to US$52.50 a month, marking the first pay raise since the complex’s launch.

The industrial park is one of the prominent symbols of inter-Korean reconciliation efforts following a landmark summit in 2000 between then South Korean President Kim Dae-jung and North Korean leader Kim Jong-il.

Daily NK
Kim Yong Hun
8/3/2007

As August 1st was the deadline that North Korea placed for a 15% increase in the wages of the Kaesung Industrial Complex laborers, companies have raised their guards on the changes of this situation.

North Korea had claimed before that if South Korean companies wouldn’t raise the wages by 15%, it would refuse to work overtime or work on special duties. If North Korea carries out such policies, it is predicted that there will be a setback for companies entering the Kaesung Industrial Complex.

The labor regulations that North Korea and South Korea agreed on limit the range of annual wage increase to 5%. If wages are raised to North Korea’s requests, minimum wage will increase from $57.50 to $66.00 and overtime (4 hours X 26 days) and special work (4 times a month) will near $118 per month.

Companies have decided to negotiate with the North by preparing a guideline through which they could compromise between both sides.

Kim Kyu Chul, Representative of the Forum for Inter-Korea Relations, a citizens group for economic cooperation between South and North Korea expressed his concern stating, “An overwhelming wage increase will be a great burden to companies and thus it is inevitable to control the amount of output and there is a good possibility that start-up companies will put their businesses on hold or give up.”

According to the Forum, the productivity of the Kaesung Industrial Complex remains at a mere 50% that is less than factories of China or Southeast Asia. The assertion is that the payability will worsen if wages are drastically increased with conditions of low productivity.

On the other hand, North Korea also requested the construction of a child care facility along with the wage increase and thus the Kaesung Industrial Complex Committee of Enterprises (Chairman Kim Ki Moon, Central Chairman of SME’s) opened a temporary hearing on July 26th and decided to implement a policy of an 8-month unpaid child care leave instead of a child care service.

According to the Choson Ilbo (2007-8-2):

North Korea early this year declared Shinuiju, a border town in North Pyongan Province, a special economic zone, North Korean officials said. Some 3,000 households in Pyongyang are to be relocated to Shinuiju under an urban development project launched there in June.

During a recent visit to China, a North Korean official told an official from the Chinese border city of Dandong the North will relocate Pyongyang citizens to the Shinuiju Special Economic Zone since they are “ideologically prepared.” Some will be assigned as workers to an industrial complex, who will be joined by officials from the Ministry of Public Security and the State Security Department, and police officers and their families.

A Dandong official said, “I understand that housing prices in the Shinuiju area have skyrocketed due to rumors that Pyongyang citizens will move in.” He said North Korean authorities plan to evict 3,000 households from Shinuiju to the city’s suburbs to make room for the newcomers. Public and state security officers in Shinuiju have begun making a list of those with dubious backgrounds and who are ideologically suspect, which rumor has it will result in a roster for eviction.

Meanwhile, the Yalu River estuary is being dredged and all private houses near Shinuiju Railway Station are being demolished, while the special economic zone is being surrounded new by barbed-wire tangles and fences.

A North Korean source based in Dandong said an earlier Shinuiju special economic zone project promoted by Yang Bin, a Chinese, was aimed at making money through casinos and entertainment facilities. But on North Korean leader Kim Jong-il’s instructions, the current project is designed to build a city that can play the same role as both the Kaesong Industrial Complex and the Najin-Sunbong Free Trade Zone.

Read the full story here:
N.Korea Starts Clearing Special Economic Zone
Choson Ilbo
2007-8-2

Institute for Far Eastern Studies (IFES)
8/1/2007

INTER-KOREAN RELATIONS

Following two days of talks between economic representatives of the two Koreas at the Kaesong Industrial Complex, South Korea announced on July 7 that it would begin shipping raw materials to the North in exchange for DPRK natural resources. South Korea shipped 800,000 USD of polyester fabric on July 25, and is set to send the rest of the materials by the end of November. North Korea accepted South Korean prices for the goods, and will pay transportation, cargo working, and demurrage costs, as well. South Korea will pay for shipping, insurance, and the use of port facilities. On 28 July, a South Korean delegation left for the North in order to conduct on-site surveys of three zinc and magnesite mines. The team will spend two weeks in North Korea.

It was reported on 17 July that North Korea proposed a joint fishing zone north of the ‘Northern Limit Line’ dividing North and South territorial waters to the west of the peninsula. Seoul turned down the offer.

Inter-Korean military talks broke down early on 26 July after only three days of negotiations as North Korea insisted on the redrawing of the Northern Limit Line.

North Korea demanded on 27 July that workers in the Kaesong Industrial Complex be given a 15 percent pay raise. The North Korean workers will not work overtime, weekends or holidays beginning in August unless the raise is granted.

It was reported by the Korea International Trade Association on 26 July that inter-Korean trade was up 28.6 percent in the first six months of 2007, totaling 720 million USD.

RUSSIA-DPRK INVESTMENT

It was reported on 19 July that Russia and North Korea have agreed to connect Khasan and Najin by rail, enlisting investment from Russian oil companies interested in an inactive refinery at Najin Port capable of processing up to 120,000 barrels per day. The project is estimated to cost over two billion USD.

MONGOLIA-DPRK RELATIONS

During a four-day visit to Mongolia by Kim Yong-nam beginning on 20 July, the two countries signed protocols on cooperation on health and science, trade and sea transport, and labor exchange issues. This follows on the heals of an agreement to allow South Korean trains to travel through North Korean territory on to Mongolia in route to Russia and Europe.

JAPAN-DPRK PROPAGANDA

Japan took one step further to recover abductees in North Korea this month when the government began broadcasting propaganda into the DPRK intended for Japanese citizens. The broadcasts are made in Korean and Japanese (30 minutes each) daily, and updated once per week.

U.S.-DPRK PEACE PROSPECTS

U.S. Ambassador to the ROK Alexander Vershbow stated that Washington was prepared to negotiate a permanent peace regime on the Korean Peninsula by the end of the year if North Korea were to completely abandon its nuclear ambitions.

EGYPT-DPRK INVESTMENT

The Egyptian company Orascom Construction Industries announced a 115 million USD deal with North Korea’s state-owned Pyongyang Myongdang Trading Corporation to purchase a 50 percent state in Sangwon Cement. To put this in perspective, the deal in worth more than four times the amount of frozen DPRK funds that had caused six-party talks to break down and delayed the implementation of the February 13 agreement.

NORTH KOREAN SOCIETY

The Economist reported on 7 July that, according to foreigners living in the North’s capital, concern for petty law appears to be weakening. Citizens are reportedly smoking in smoke-free zones, sitting on escalator rails, and even blocking traffic by selling wares on the streets.

It was reported on July 11 that a letter sent earlier in the year by the North Korean Red Cross indicated severe shortages of medical supplies. The letter stated that North Korea would accept any medicine, even if it was past expiration, and accept all consequences for any problems that arose from using outdated supplies. The (South) Korea Pharmaceutical Manufacturers Association had no choice but to reject the request.

Events were held on July 11 in North Korea in order to promote women’s health and well-being issues. Marking World Population Day, a North Korean official stated that the DPRK has cooperated with the UN Population Fund since 1986, and is now in the fourth phase of cooperation.

Seeing entertainment venues as a “threat to society”, North Korean security forces have been implementing a shutdown of karaoke bars and Internet cafes. These venues mainly cater to traders in the northern regions of the country.

It was reported on July 13 that construction of North Korea’s first all-English language university was nearing completion. The Pyongyang University of Science and Technology, funded largely by ROK and U.S. Christian evangelical groups, will hold 2600 students and offer undergraduate and post-graduate degrees in business administration, information technology, and agriculture.

Local elections were held on 29 July for DPRK provincial, city, and country People’s Assemblies. 100 percent of 27,390 candidates were approved with a 99.82 percent turnout reported.

Yonhap
7/27/2007

South and North Korea will start a joint on-site survey this week of three zinc and magnesite mines in the North’s mountainous northeastern region, the Unification Ministry said Friday.

“The zinc deposit in Komdok mine is about 200-300 million tons, the largest in East Asia, and magnesite deposits in Ryongyang and Taehung are about 4 billion tons, the world’s third largest,” a ministry official said.

Ahead of the 15-day joint survey of the mines starting from Saturday, the South started shipment of light industry materials worth US$80 million to the North on Wednesday. The first shipment was 5 million tons of polyester fabric worth $800,000.

Earlier this month, the two Koreas agreed on how to cooperate in natural resource exploration in the North in return for the South’s provision of light industry materials.

In 2005, South Korea agreed to offer industrial raw materials to the North to help it produce clothing, footwear and soap starting in 2006. In return, the North was to provide the South with minerals after mines were developed with South Korean investments guaranteed by Pyongyang.

But the accord was not implemented, as North Korea abruptly cancelled the scheduled test runs of inter-Korean cross-border trains in May last year, apparently under pressure from its powerful military. The two Koreas carried out the historic test run of trains across their heavily armed border in mid-May.

Daily NK
Kim Chan Ku, Researcher in the Institute for Far Eastern Studies
7/26/2007

1989 July 14th. Kim Ki Dong, a manager at Rajin ship repairs and superintendent and Choi Chng Ku (affiliated with Daesung General Bureau) of Rajin’s Donghae Marine Products for Exports made a decision to reinvestigate business plans for a ship maintenance factory.

The 3.30PM train headed for Kimchaek arrives at Kimchaek station at 10.40 in North Hamkyung where an official from Kimchaek Fisheries Office came awaiting their guests. We headed for the villa.

Through these business investments, a small fraction of North Korea’s closed doors have been opened and the number of tourists continued to rise. In addition, a great number of Korean-Americans were reunited with their separated North Korean families.

In fact, most of these people had been thinking about small-scale investments with the purpose of frequently meeting their separated families. I was the only person wanting to invest in North Korea despite not having any connections.

In 1988, Koreans with American citizenship thought they were allowed to invest in North Korea different to U.S. North Korea policies. It was at this time problems began to arise.

Korean-Americans only permitted 1 visit to North Korea per year

The U.S. government had claimed North Korea as an enemy state and for this reason had placed restrictions to the number of visits to North Korea. The U.S. had drafted and was regulating a list of visitations to North Korea in which Korean-Americans took no notice of. With the sole reason that North Koreans were of the same race, people traveled unrestricted to North Korea in which the U.S. had deemed an enemy state. However, the U.S. government could not accept this.

Around this time, the number of visits had been reported to the U.S. Department of Treasury.
1) All Korean-Americans residing in the U.S. (with citizenship or permanent residency) are permitted to travel to North Korea on 1 occasion per year.
2) No more than US$100 worth of goods possessed or purchased in North Korea can be brought into the country.
3) All Korean-Americans are prohibited from investing in North Korea and are prohibited from arbitrating any businesses for other North Korea advancement.

A notice was made which specifically stated that strict penalties would be made under U.S. law against any persons who did not comply to the 3 law enforcements. However, I continued with my work.

Following consultations with company authorities, a whole day was spent drafting business plans needed to repair a Russian cargo ship. On examining the business plans, it was decided that a floating dock would be the most appropriate and cost effective operation.

A decision made to help overrun coastal facilities

평양으로 돌아온 나는 종합검토 결과 라진-선봉지역은 일제 때부터 일본군인들이 사용했던 항구이고, 또 지역적으로도 앞으로 동북아 물류 중심 항구로 손색이 없겠다는 결론을 내렸다. 또한, 북한 측의 요구를 고려해 라진-선봉 지구에 시설을 하기로 했다. 원 부자재인 플로팅 독(Floating Dock)은 내가 책임지고, 그 외의 모든 설비는 대성총국 측에서 책임지기로 합의서를 작성했다.  

On returning to Pyongyang, I made a decision on the results which indicated that the Rajin-Sunbong region had been used as a port by Japanese soldiers during Japanese occupation and that geographically, this region possessed no disadvantages in being the focal port of distributing goods in the future of North East Asia.

For 10 days, I visited many small and large ports throughout North Korea’s eastern coast and having seen the incomparably inadequate state of the ports in comparison to South Korean marine business, I made the decision to help these people and signed a contract.

On returning to Seoul, I spent a lot of time collating data that needed to be submitted by September. For 3 weeks, colleagues spent the summer working for more than 10 hours each day taking pictures and collecting information on North Korea companies and repair factories on location in Busan.

3 people, a planner, work colleague and myself, Kim Song Chan, a businessman from LA with experiences in trading with Communist countries arrived early in the morning of September 25th at North Korea’s embassy on the borderline and having received the visas arrived in Pyongyang.

In addition, a trading manager, advisor and colleague also joined us on our journey as we left on a special night train headed for Sunbong at 5PM on the 27th. The railroads were so poor that I felt as if I had bordered a boat and I couldn’t see anything as there was no light.

On the following morning, we arrived at Kimchaek city at 8AM. The purpose of this trip was to make ultimate decisions on fisherman, refrigerator and storage for the company, as well understand the present condition of catching turban shells and location for ship repairs. At the time, the Chosun Central Fisheries Committee had requested us to construct facilities at either Rajin or Wonsan port, but the Daesung General Bureau requested that the facilities be constructed at Kimchaek port as it provided all the good conditions.

Korea Herald
7/10/2007

An increasing number of foreigners have visited an inter-Korean industrial complex in the North Korean border city of Gaeseong this year as the North’s relations with foreign countries thaw after the communist state took steps to denuclearize, Yonhap News Agency reported.

In the first half of this year, 324 foreigners, including ambassadors and potential investors, toured the capitalist enclave where South Korean businesses use low-cost, skilled North Korean workers to produce goods, according to government data released Tuesday.

“The Gaeseong industrial complex combines the South’s capital and technology with the North’s labor and land to show foreigners the future of the Korean Peninsula,” a Unification Ministry official said.

Only five foreigners visited the complex in 2005 when the North first permitted foreign visits. In the first half of last year, the number increased to 295, but it dwindled to 104 in the second half as North Korea conducted missile and nuclear weapons tests.

The industrial complex, the crowning achievement of a landmark summit between the leaders of the two Koreas in 2000, is one of two major cross-border projects that South Korea has kept afloat in spite of United Nations sanctions against the the North following its nuclear weapons test in October. The two Koreas also run a joint tourism project at the North’s scenic Mount Geumgang on the east coast.

N. Korea Refuses to Accept Visitors
Korea Times
Jung Sung-ki
7/10/2007

South Korea’s Unification Ministry said Tuesday that the operation of the inter-Korean industrial complex in North Korea’s border city of Gaeseong will be not affected by Pyongyang’s abrupt cancellation of scheduled events for South Korean visitors this week.

On Monday, North Korea asked South Korea to postpone South Koreans’ visits to the economic zone without specifying any reasons, ministry officials said.

Some local media reported various speculations about the North’s ulterior motive. The DongA Ilbo newspaper said North Korean leader Kim Jong-il could visit Gaeseong and that might be a reason for the cancellation.

“The North didn’t specify reasons, but company executives and workers in Gaeseong are commuting to the complex freely as usual,’’ ministry spokesman Kim Nam-sik told reporters.

About 100 South Korean government officials and journalists were scheduled to visit the business compound Tuesday, followed by visits by hundreds of South Korean business officials on Wednesday and Thursday.

The Gaeseong complex, just north of the heavily fortified Korean border, is considered one of the main achievements of the landmark inter-Korean summit in 2000. The zone is called a testing ground for mixing South Korean capitalism and technology with the North’ cheap labor.

Twenty three South Korean firms produce goods ranging from clothes to kitchenware there, employing about 15,000 North Korean workers. The number of North Korean employees is expected to increase to more than 350,000 when the complex becomes fully operational by 2012, officials said.

Monthly production in the complex exceeds $10 million.

The inter-Korean economic zone has gained attention from foreign countries with the number of foreign tourists steadily increasing, according to the ministry.

Yonhap
Sohn Suk-joo
7/4/2007

South and North Korea will hold new round of working-level talks this week to discuss ways to cooperate in light industry and natural resource exploration, the Unification Ministry said Wednesday.

The two-day talks slated to be held in the North Korean border city of Kaesong on Thursday come as North Korea moves to take initial steps to shut down its main nuclear facilities.

In April, South Korea reconfirmed the agreement to supply industrial materials worth US$80 million to the North starting in June to help revive its sagging light industry in return for the right to develp natural resources in the North.

Under the deal, North Korea will allow a team of South Korean experts to conduct an on-site survey of three zinc and magnesite deposits in its mountainous northeastern region for 12 days beginning June 25. In return, the South will ship 5 million tons of polyester fabrics worth $800,000 to the North on June 27.

But the schedule has been postponed as the two sides failed to thrash out differences on the price and list of industrial materials the South is to provide the North in exchange for the right to develop natural resources in the communist country. The North called for more than the South had earmarked for in the shipment, according to South Korean officials.

In 2005, South Korea agreed to offer industrial raw materials to the North to help it produce clothing, footwear and soap starting in 2006. In return, the North was to provide the South with minerals, such as zinc and magnesite, after mines were developed with South Korean investments guaranteed by Pyongyang.

But the economic accord was not implemented, as North Korea abruptly cancelled the scheduled test runs of inter-Korean cross-border trains in May last year, apparently under pressure from its powerful military. The two Koreas carried out the test run of trains across their heavily armed border in mid May.

Korea Times
Yoon Won-sup
7/3/2007

Kim Yun-kyu, who stepped down as vice president of Hyundai Asan, South Korea’s operator of inter-Korean business and tourism, due to illegal use of corporate funds in October 2005, is resuming work with North Korea.

Kim set up his own company for North Korean business last year, dubbed Acheon Global Corp., which imported 531 kilograms of caviar from North Korea via the East Coast train on June 21, and entered the Gaeseong Industrial Complex, according to the Unification Ministry.

The importing of the caviar is Acheon’s first business transaction with North Korea, which was finalized by Kim’s aide Yuk Jae-hee, vice president of Acheon and former executive of Hyundai, during Yuk’s visit to Mt. Geumgang in North Korea June 18 to 20.

Kim will visit Mt. Geumgang Thursday, the first time since his resignation, to discuss additional imports with North Korean government officials. His North Korean counterpart is a business association in charge of fisheries.

Kim is reportedly seeking to bring North Korean sand to the South. Accordingly, he visited Gaeseong June 19, and Yuk plans to visit Gaeseong soon for further discussion on sand importing.

However, the two CEOs of Acheon are not likely to meet senior North Korean government officials, though they previously have met with and will, again, meet with working-level officials on inter-Korean affairs, in Gaeseong and Mt. Geumgang.

“Kim got approval from North Korea to visit the country for trade of agricultural and fishery projects, and the discussion has been conducted according to the purpose of his visit to North Korea,” a South Korean government official said on condition of anonymity.

Kim already discussed imports of North Korean fisheries and sand to the South and the establishment of an office in Gaeseong, with Choi Seung-chul, vice chairman of Asia Pacific Peace Committee of North Korea.

In line with Kim’s plan, Acheon signed a contract with the Korea Land Corp. to rent 1,400 square meters of land in the Gaeseong complex.

A building is to be set up there to accommodate restaurants, coffeehouses and other facilities for workers in Gaeseong, but it is not yet decided what kind of facilities will be built by Acheon. A permanent office of Acheon also is likely to be set up in Gaeseong.

Some observers say Kim’s resumed activity may lead to competition with Hyundai Asan regarding inter-Korean business, but the dominant opinion is that the chance is slim for the time being.

Kim led the inter-Korean business with Mt. Geumgang tourism and Gaeseong complex under the confidence of late Hyundai Group founder Chung Ju-yung and his late son Mong-hun, former president of Hyundai Asan. Now Hyun Jung-eun, widow of Chung Mong-hun, leads Hyundai Asan.