North Korean Economy Watch

Interesting stuff from the Korea Times:

Military generals of South and North Korea will hold the fourth round of talks from May 16 to 18 on easing tension along the heavily fortified border and avoiding accidental clashes in the West Sea border, the Defense Ministry said on Friday.

The talks, to be held at the truce village of Panmunjom, will also deal with ways to guarantee the safe passage of those using cross-border railways and roads, ministry officials said.

The cross-border passage issue is drawing keen attention as former President Kim Dae-jung hopes to travel to North Korea by using an inter-Korean railway next month amid the prolonged international dispute over Pyongyang’s nuclear programs.

Under a temporary agreement struck in 2003, the two Koreas guarantee the safety of traffic across the Demilitarized Zone (DMZ) on roads, but the pact failed to include the passage on railroads, the officials said.

“The opening of inter-Korean railways and roads has long been on the table,’’ Col. Moon Sung-mook, chief of the ministry’s North Korean affairs, said in a briefing. “The South Korean delegation this time will also try to reach an agreement with the North on the matter, as both sides already share the necessity for it.’’

The South and North have almost completed construction work on reconnecting two railway lines that have been closed for half a century. North Korean military authorities, however, have been reluctant to give the green light to the railway linkage.

The 27.3-kilometer Tonghae line crosses the border at the Korean Peninsula’s eastern line, while the Kongui line, some 25.5 kilometers long, connects the two border cities of Munsan in South Korea to Kaesong in North Korea.

Working-level talks on the railway linkage have been underway since the North accepted the former president’s second trip to the communist nation late last month. The two sides are scheduled to hold a meeting on May 16 at the North’s Mt. Kumgang to discuss details on Kim Dae-jung’s visit to Pyongyang, according to the Unification Ministry.

Establishment of a joint fishing area in the disputed West Sea border and a direct hotline between the two authorities will be on the top of the agenda, Moon added.

The military talks in March ended without substantial progress as the North stuck to its long-held position that the sea border should be remapped.

The Northern Limit Line (NLL) has been controversial since the 1950-53 Korean War, which ended in an armistice, not a peace treaty. Seoul views the NLL as the de facto borderline, while Pyongyang denies it, claiming the U.S.-led United Nations Command unilaterally decided it after the war.

A series of naval clashes over the years in the rich fishing grounds of the West Sea have caused scores of casualties on both sides.

Maj. Gen. Han Min-gu, the ministry’s chief policymaker, will represent the five-member South Korean delegation at the upcoming talks, while the North’s delegation will be led by Maj. Gen. Kim Yong-chul, officials said.

Inter-Korean relations have thawed since the historic summit in 2000. But tension persists along the world’s most fortified border. The South maintains 690,000-strong forces against the North’s 1.1-million military.

In the first two previous talks, the sides agreed on a set of confidence-building measures such as dismantling propaganda facilities along the 248-kilometer land border in phases. Pyongyang, however, has failed to fully implement the agreements after Seoul airlifted 468 North Korean defectors from a third nation. It also criticized the annual joint military drills between South Korea and the United States.

From the Korea Herald:

The ROK government is considering selling off the remaining blocks at the kaesong industrial complex in North Korea in three steps to maximize their value, sources said yesterday.

A 1-million-pyeong compound was built as the first phase of the Gaeseong project and is currently occupied by 15 businesses.

An additional 24 businesses are set to operate since last August and there is currently 580,000 pyeong of land left up for grabs.

The Unification Ministry, Hyundai Asan and Korea Land Corporation – the three organizers of the project – have recently completed its sale plan which will begin next month.

Of the 580,000 pyeong, the government will first offer 220,000 pyeong for sale in June.

Based on the outcome, the government will release the remaining lots in two steps, in September and December.

Sources said by dividing the land lots in the sale, the government is hoping to minimize the risk and maximize their value.

The government is also planning to differentiate the types of businesses entering kaesong in order to increase the level of cooperation within the companies.

Such business fields will include electronics, electricity, machineries, metal and chemicals.

The complex will also be open wide enough for three to four foreign businesses to invest, following a show of interest from business owners from Germany and China.

At Gaeseong there are currently 500 South Korean employees working with about 6,800 North Korean workers.

From Hankyoreh:
Why Is Danchon in North Korea Important?
South Korea Proposes Joint Developments with North Korea

South Korea suggested to the North a plan to designate Dancheon, South Hamgyeong Province, as a “special joint resource development district” in the 18th South-North ministerial talks held at Pyeongyang at the end of April. According to a statement, the South and North agreed to “consider a program to jointly develop resources,” but it is obvious that Dancheon is a candidate to become the third joint special economic zone, after the tourist district of Mt. Kumgang and the Kaesong Industrial zone.

In the early stages of the 1994 Agreed Framework regarding the curtailing North Korea’s nuclear program in exchange for investment, North Korea proposed to the U.S. that it invest in two mines and a port in the Dancheon area. Peter Hayes, executive director of the U.S.-based public policy think tank Nautilus Institute, expressed regret that the U.S. missed an opportunity to make the North dismantle its nuclear weapons program, in an article published May 2 on the institute’s web site. Is it possible for Dancheon to become another symbol of South-North cooperation? Since the North has suggested the development of the zone to the U.S. in the past, the North will surely accept the South’s interest in the project.

Why Dancheon?

If the two Koreas designate a special district for joint resource development, government officials and experts agree that Dancheon is an ideal place. In short, the area has infinite potential. Dancheon has deposits of 25 kinds of minerals, including zinc, magnesite, lead, gold, silver and asbestos.

There also are mining industry-related factories. The Dancheon refinery, which came into operation in 1985, produces 100,000 tons of zinc in a year, and the Ryongryang plant processes the raw slag that can be supplied to brick factories.

Many experts say that Dancheon has a better distribution infrastructure than other mining areas. Dancheon has its own port, and Cheongjin and Sinpo ports are just 40km and 80km away from Dancheon, respectively.

Benefits for both Koreas

The South imports all of the zinc and magnesite it uses. If the special economic zone program succeeds, the Dancheon area will provide the South with a steady flow of needed minerals.

Politically, the success of the project could bring about a certain degree of ‘restraint effect’ against foreign capital in the North, including putting a check on China, which has been of late coveting the mineral resource potential of the North.

If the North increases the operating status of its mines, currently between 20 and 30 percent of total employment capacity, with the help of capital and technology from the South, the project will both generate more jobs and help the North earn foreign currency. With this kind of success, a “special district” would mean a win-win economic cooperation.

Obstacles remain

The largest problem is whether the North Korea will accept the program. Fortunately, Dancheon is known to have no military facilities. But it is not clear if the military will agree to the terms of a special economic district, which means a near-complete opening of the area to the South. Due to this, the statement issued in the recent ministerial meeting regarding further development did not specify the Dancheon area, analysts point out.

Experts forecast that even if the two Koreas agree to develop another special district, it will take a long time before goods can be produced. In addition, the North will have to settle a few problems before the project can get underway, such as legislation concerning foreign investments and ownership.

A cost problem exists, as well. In light of the previous cases of Kaesong and Mt. Kumgang, the South will have to provide almost all the infrastructure necessary to develop the special district. An industry official has estimated the cost at more than one trillion won (about one billion US dollars), due to the condition of the North’s transportation routes and electricity grid.

From the Korea Herald:

the ROKs Ex-Im Bank has focused on bolstering economic cooperation with developing countries and promoting reconciliation and cooperation with North Korea. Ex-Im Bank is the official inter-Korean settlement bank for South Korea with Foreign Trade Bank of North Korea as its counterpart.

A number of initiatives were carried out to promote better operation of the state-run lender’s Economic Development Cooperation Fund and the Inter-Korean Cooperation Fund.

Active policy dialogues with partner countries, for example, has significantly increased effectiveness through simplified procedures and co-financing approaches with multilateral development institutions. The Inter-Korean Cooperation Fund supported infrastructure projects such as the construction of roads and railways connecting the two Koreas, while providing humanitarian aid to North Korea. The fund also provided loans to South Korean firms involved in trade with North Korea.

From the Korea Herald:

The 39th annual meeting of the board of governors of the Asian Development Bank will be held at Hyderabad International Convention Center in Hyderabad, India’s fastest growing high-tech corridor, for four days ending on Saturday.

The meeting this week will bring together more than 2,500 delegates from around the world to discuss issues including governance, poverty reduction, development finance, international finance architecture as well as economic and social development.

The ADB, which is dedicated to fighting Asian poverty, does not make any investments in North Korea, which could benefit from various education and training projects.  The prospect of membership would also encourage the nation prepare for it by reforming their economy.

Strong U.S. and Japan led-opposition has kept North Korea from becoming an ADB member nation so far, the insiders said.

From the Joong Ang Daily:

Jay Lefkowitz, Washington’s special envoy on North Korean human rights, has continued to criticize the working conditions for North Korean laborers at the Kaesong Industrial Complex, where South Korean companies have located plants.

On the surface, wages and working conditions are the main issue, but experts say there is a more fundamental difference between Seoul and Washington on economic support for the North and on human rights issues there.

In an essay in the Wall Street Journal’s weekend edition, Mr. Lefkowitz said daily wages for North Koreans at the complex were less than $2. That appears to be correct; the monthly minimum wage at the complex is $57, including a 30 percent commission to the government. But because companies at the site pay those wages to a North Korean labor service provider, it is not known how much, if any, of the wages actually find their way into workers’ pockets.

There are currently, 6,850 North Korean workers at the complex; the number will go up by about a fifth this month.

The Unification Ministry here was outraged by Mr. Lefkowitz’s comments, especially by a reference to “slave labor.” The minister, Lee Jong-seok, said on Sunday that he wasn’t sure whether Mr. Lefkowitz was trying to improve human rights in the North or hamper them.

Seoul has put human rights issues in North Korea on the back burner, angering many conservatives here, arguing that the best way to improve rights was by economic development of the North, assisted by massive amounts of economic assistance from South Korea. 

From Yonhap: 

SEOUL, May 1 (Yonhap) — North and South Korea are to hold working-level talks this week to discuss ways to increase economic cooperation, including Seoul’s proposal to jointly develop the Han River’s sand-rich estuary and mineral mines in the communist North, Seoul’s Unification Ministry said Monday.

The new round of dialogue between officials of the Inter-Korean Economic Cooperation Promotion Committee is to be held in the North’s border town of Kaesong from Wednesday through Thursday, the ministry said in a press release.

The meeting will include talk of ways to jointly develop the western mouth of the Han River, called the Imjin River in the North, which is believed to contain at least 1 billion cubic meters, or about 1.6 billion tons, of sand.

It will also serve as a venue to fix the next meeting of the inter-Korean committee, the highest-profile dialogue between the divided Koreas. Last month the two sides agreed on a deadline of end-May.

The sand project was proposed by Unification Minister Lee Jong-Seok, Seoul’s chief delegate to the inter-Korean Cabinet talks, at a meeting in Pyongyang last month.

The Seoul metropolitan area houses almost half of the country’s 48 million population live and requires some 80 million tons of sand a year for use in construction, according to ministry officials.

The South Korean minister also proposed the two sides work together in developing the North’s zinc and magnesite mines in the country’s northwestern city of Danchon.

In an eight-point agreement adopted at the end of the ministerial talks, the North Korean side welcomed Seoul’s proposal, but left actual projects for joint mining to be discussed at the upcoming inter-Korean economic talks.

The South Korean delegation is to be led by the head of the ministry’s social and cultural exchanges bureau, Kim Chun-sig, while the North Korean side will be led by Cho Hyon-ju, an official from the North’s National Economic Cooperation Committee, the ministry said.

Yonhap
5/1/2006

South Korea could capitalize on North Korea’s emerging prowess in the biotechnology sector to foster inter-Korean cooperation in this modern scientific field, a report by a state-run institute in Seoul said Monday.

The communist country, often viewed as stunted politically and economically, possesses considerable competitiveness in the field of biotechnology, the report by the Korea Institute of Science and Technology Information (KISTI) showed. This, it said, is partly due to the need to alleviate the country’s chronic food shortages.

The institute cited 38,737 papers published in North Korea from 1985 to 2005, to show how scientists there have published a wealth of biotech papers related to medicine and clinical testing of plants and animals.

“North Korea has built up certain fields that can be developed by the two Koreas in the future,” said a KISTI researcher, declining to be named.

North Korean scientists have published many papers on biological agents designed to facilitate growth of tissues and micro-organisms, he said.

The country also reported the world’s second successful cloning of a rabbit and has demonstrated a level of expertise in fields like protein structure analysis, enzyme research and genetics, he added.

Biotech is one of the key future growth industries being pushed by Seoul, so cooperating with the North is being viewed as a potentially win-win deal.

In addition, the report said, South and North Korea can conduct joint works on areas like non-metal research and technology to help in the mining of natural resources.

The report by the institute comes after scientists from both countries promised to expand cooperation in the scientific field.

South Korea’s science minister Kim Woo-sik pledged earlier in the day, to continue state support for joint South-North Korea science cooperation. Seoul plans to provide 650 million won (US$710,200) this year after having spent 4.8 billion won from 1999-2005.

Korea Times
4/27/2006

South Korea’s state-run resources development corporation on Thursday announced the opening of a joint graphite mine in North Korea.

The 50-50 joint venture between the Korea Resources Corp.(KORES) and a North Korean firm can produce 3,000 tons of graphite per year.

Of that, South Korea will import 1,830 tons every year for the next 15 years. This amount is equivalent to 20 percent of the South’s domestic demand.

The corporation has invested $10.2 million into the mine in Chongchon, South Hwanghae Province. It is estimated to hold 6.25 million tons of graphite.

Graphite from the mine can be used in batteries, brake-lining for cars and flame-proof or heat-resistant materials. The first batch of graphite is to arrive in South Korea in the second half of the year.

The joint development pact was signed in March 2003 with a formal deal signed four months later. South Korea transferred mining materials and other equipment to the mine in early 2004 and development got underway shortly afterwards.

According to the Nautilus Institute’s web site [Link broken since posing]:

“Under the direction of central authorities, foreign currency management groups are rapidly being moved into Sinuiju, while ordinary residents are being relocated to other regions only to be replaced by residents of Pyongyang and other areas who are in the process of moving in.”

The Sinuiju Special Administrative Region (SAR) project lost momentum in September 2002 when its first governor-to-be, Chinese-born Dutch businessman Yang Bin, was arrested in China. North Korean leader Kim Jong Il’s visit to China at the beginning of this year, however, appears to have triggered a turnaround. With Kim’s China trip focused on the revision of economic policies, the rejuvenation of Sinuiju SAR development plans came into the spotlight.

Most South Korean press have run pieces, based on the stories of North Korean defectors and Chinese residents in Dandoong and other border areas, alluding to the fact that there is change in the air around Sinuiju. A North Korean businessman in Dandoong was quoted as saying, “No official word has come down from central [authorities], but they are busy preparing the Sinuiju SAR,” while rumors are spreading among area residents that “Sinuiju is the next Hong Kong.”

The most reluctant promoters are the People’s Committee and regional administrative organs. As orders come down, some administrators are required to immediately pack and relocate to southern Sinuiju, an underdeveloped area not even comparable to Sinuiju proper. Authorities had chosen the site as far back as 1986, and while development was fully promoted, only factories were built up. Housing, roads, and other indirect social capital facilities are still lacking. While regional authorities may have decided to build up southern Sinuiju, it will take another ten years of hard work to do so.

On the other hand, the outlook for city authorities is considerably brighter. This is because in the future, they will have the opportunity to rise up though organizations run by special administrative businesses. Up until now, instructions have come through the Regional People’s Committee, security bureau and defense authorities, but even though they own the facilities, they can still receive orders directly from the central government. Because of this, regional officials are still influenced by the temperament of local and central party politics while being faced with increasing pressure from city authorities to transfer power to them. While some factories — like the Sinuiju Cosmetics Factory, Sinuiju Shoe Factory, Sinuiju Synthetic Fiber Plant, and other large factories — are preparing for foreign capital support and cooperative ventures, most administrators appear to be pushing for keeping the status quo.

There are still many concerns. As the SAR is being set up, central officials are being dispatched to fill roles as factory officials; central officials without any personal interest. A similar sort of dispatch of central officials took place in the Rajin-Sonbong Special Economic Zone in the past.

Most small- and medium-sized enterprises and regional factories are beginning to transform into trading companies. There are currently around one hundred fifty such trading offices in Sinuiju. In the future, if Sinuiju is officially designated as a SAR, it appears that a great many more trade offices will appear.

Other news from Sinuiju insiders is that the People’s Committee, People’s Security Force, National Security and Defense Bureau and other central government departments that have received Kim Jong Il’s permission to trade have already opened offices in Sinuiju, employing people in the area and busily seeking out people with connections in China in order to find trading partners.

It appears by looking at the relocation currently underway that the goal is to move residents within the same timeframe that was required for the first round of relocations in 2002, when residents were moved to Chunma, Kwaksan, Dongrim and other areas around the outskirts of Sinuiju. There are problems here as well, as the government wants to relocate residents from Pyongyang and other regions to Sinuiju. At issue is the fact that while the number of residents who can move in needs to equal the number relocated out of the area, some North Koreans have already used connections with the central and regional party affiliates in order to move to the region.

In addition, the housing market is active, with housing prices in central downtown areas having already skyrocketed. While officially owned by the state, dwellings are unofficially “sold” through the use of “modification fees”: apartments run from 25 to 30 million won (8 to 10 thousand USD), while two-three story condominiums in “Chinatown” in the Namsang district run in the tens of thousands of dollars.

However, complications have arisen. Many residents being moved out have decided to get rid of their houses, but this has proved more difficult than expected. Some have put up their house for sale but have been unable to find a buyer. There are also those who were caught in the midst of sales through “real estate offices” when a crackdown by authorities resulted in their expulsion. A source stated that the administrative authority of the city security bureau in charge of relocating residents is undermanned and takes different measures to direct different groups of residents, while pressing for the expulsion of what it deems as “lesser” or unemployed people.