The Beijing branch of the Joint Venture and Investment Committee of North Korea (JVIC), called the Choson Investment Office, announced on July 18 of various preferential conditions to foreign investors and employment conditions on its website.
The Choson Investment Office opened its doors this year and is the only overseas branch of the JVIC, in charge not only of securing foreign capital but cultural and science and technology exchanges and cooperation.
The website posted an article titled, “Problems Investors Face,” which provided useful information for foreign investors in a question and answer format.
In the article, the employment conditions for workers were included. The minimum monthly wage for workers in North Korea was set at 30 euros or about 42,000 KRW. In addition, foreign companies must pay 7 euros to each employee separately as social insurance. Overtime pay also needs to be paid and at the event of work related injuries or illness, the company is responsible for handling the situation with its board of directors.
In comparison, the minimum monthly wage for North Korean employees in the Kaesong Industrial Complex (KIC) is 110 USD or about 125,000 KRW.
As for preferential tax policies, foreign-capital companies that are not joint venture are exempt from certain taxes including tariffs on exports and resource tax for the development of mines.
North Korea will bear the land use tax, which is 1 euro per square meter, and China and other foreign investors will have no restriction for mining the underground resources.
The income tax rate for the foreign capital companies was specified at 25 percent and business tax between 2 to 10 percent will be collected from transportation, power, commerce, trade, finance, insurance, tourism, advertisement, hotel and entertainment industries.
Power is the main concern for most foreign companies and it will be provided at 0.053 euro per 1,000 kilowatt. The DPRK’s central trade guiding organ will oversee the setting of prices of goods while the trademark rights will belong to the company.
The DPRK’s Joint Venture and Investment Committee was expanded and reorganized in July 2010 from Joint Venture and Investment Bureau, with main activities centered around Hwanggumpyong Island and Rajin-Sonbong development.
The main agents for foreign currency earnings are the cabinet, military, JVIC, and Daepung International Investment Group*. Most of the trading companies are affiliated with one of the four groups.
In March, JVIC announced through the KCNA that “As the investment environment is favorably changing, joint venture and investment contracts are increasing. Investment interests from large companies are rising especially in our abundant rare-earth and underground resources as well as building railroads, roads, and power plants.”
Andrei Lankov highlights in a recent Asia Times article some observations (qualitative data) that indicates the DPRK has seen significant growth in recent years. He is careful to qualify his observations with caveats that the level of growth in the country as a whole (as opposed to Pyongyang) remain more difficult to determine.
More expensive shops stocking luxury goods are becoming more numerous as well. Gone are the days when a bottle of cheap Chinese shampoo was seen as a great luxury; one can easily now buy Chanel in a Pyongyang boutique; and, of course, department stores offer a discount to those who spend more than one million won on a shopping spree. One million won is roughly equivalent to US$250 – not a fortune by the Western standards but still a significant amount of money in a country where the average monthly income is close $25.
The abundance of mobile phones is much talked about. Indeed, North Korea’s mobile network, launched as recently as late 2008, has more than one million subscribers. It is often overlooked that the old good landline phones also proliferated in the recent decade. A phone at home ceased to be seen as a sign of luxury and privilege, as was the case for decades. Rather, it has become the norm – at least, in Pyongyang and other large cities.
The capital remains badly lit in night, but compared with the norm of some five or 10 years ago, the situation has improved much. The electricity supply has become far more reliable, and in late hours most of the houses have lights switched on.
Of course, this affluence is relative and should not be overestimated: many people in Pyongyang still see a slice pork or meat soup as a rare delicacy. The new posh restaurants and expensive shops are frequented by the emerging moneyed elite, which includes both officials and black/grey market operators (in some cases one would have great difficulty to distinguish between these two groups). In a sense, Pyongyang’s prosperity also reflects the steadily growing divide between the rich and poor that has become a typical feature of North Korea of the past two decades.
Nonetheless, those foreign observers who have spent decades in and out of Pyongyang are almost unanimous in their appraisal of the current situation: Pyongyang residents have never had it so good. It seems that life in Pyongyang has not merely returned to pre-crisis 1980s standards but has surpassed it.
And how can we explain these developments? Lankov offers three theories:
The first seems to be the growth of private economic activity. Estimates vary, but most experts agree that the average North Korean family gets well over half its income from a variety of private economic activities.
The second reason is the gradual adjustment of what is left of the state-controlled economy. Nowadays, North Korean industrial managers do not sit by helplessly when they cannot get spare parts or fuel from the state – as was often the case in the 1990s. Instead, they try to find what they need, often getting the necessary supplies from the private market.
The third reason is, of course, Chinese economic assistance and investment.
Read the full story here:
North Korea’s pools of prosperity Asia Times
Dr. Seliger has sent in some interesting information on financial products being advertised to North Koreans. I will post it over the next few days.
Today we will look at the marketing materials for the Jeil Credit Bank in Pyongyang:
Here is what the marketing poster says:
외화저금안내 Currency savings guide
저금종류 리자률 (년리)% Interest Rate Types of savings (per annum)%
Usual saving 1%
Regular Saving (6 month) 2.5%
Regular Saving (1 year) 6%
Regular Saving (2 year) 7%
Regular Saving (3 year) 7.5%
Regular Saving (5 year) 8%
Regular Saving (10 year) 9%
제일신용은행은 자기의 이름 그대로 경영전략과 자금관리에서 신용을 제일 생명처럼 여기고 있으며 개인저금잔고를 절대로 남에게 보여주거나 알려주지 않습니다.
Jeil Credit Bank, as the name of itself, consider credit of management strategies and money management as our life and does not show or share ones account information to others.
제일신용은행의 저금자들은 저금하는 날 혹은 저금 만기 전 임의의 날에 리자를 먼저 찾아 쓸 수 있으며 저금만기날이 아니라도 언제든지 필요하면 저금한 돈을 전부 되찾을 수 있습니다.
Jeil credit bank customers can withdrawal the interest before maturity at any time and if needed, all of the money from the savings can be withdrawn before maturity.
제일신용은행은 싱가포르와 50년간 합영계약을 맺고 있는 은행입니다.
Jeil Credit Bank has a 50 years joint venture contract with Singapore.
영업시간 월요일부터 금요일까지 오전 10시~12시 20분, 오후 14시~16시 20분
Business hours: Mon-Fri 10 am – 12.20 pm, 2 pm – 4.20 pm
Click image above to see KCNA video of interview with Yun Yong-sok, vice department director of DPRK Joint Venture Investment Committee
According to KCNA (2012-3-23):
The Democratic People’s Republic of Korea is willing to further improve its environment for foreign investment, Yun Yong Sok, a vice department director of the DPRK Committee for Investment and Joint Venture, told KCNA.
The nation’s economy is gaining momentum, with many industrial establishments and power stations being built across the country.
It is a consistent policy of the DPRK Government to enhance economic cooperation with other countries, while beefing up its self-reliant national economy.
In December last year, the government amended investment-related laws, including the DPRK Law and Regulations on Foreign Investment, laws on joint venture and joint collaboration and the Law on Foreign-funded Businesses and Foreigners’ Tax Payment, in step with the nation’s developing economy and international practices.
It enacted the law on economic zone on Hwanggumphyong and Wihwa islets in the River Amnok and revised and supplemented the law on the Rason economic and trade zone.
The joint development and management in the two economic zones takes on a new way of cooperation. Now it has been under way in a creditable way, driven by the active efforts of both sides of the DPRK and China.
Contracts on joint venture and joint collaboration have been on increase with the investment environment changing for the better.
Rare earth abundant in the country and infrastructure projects lure foreign investment in the DPRK.
The committee will pay deep attention to ensuring the interests of foreign investors, while invigorating the exchange and cooperation with governments, investors and businesses.
In other news, KCNA has adopted the American colloquialism “beefing up”.
UPDATE 1 (2012-2-21): According to the Korea Times, this store is now providing people with a legal window to exchange local for hard currency:
North Korea is apparently allowing foreign currency to be exchanged at unofficial, black market rates at a newly-renovated department store in Pyongyang, according to a diplomatic source who recently visited the country, Tuesday.
The source said people could exchange euros, dollars and yuan at kiosks at Kwangbok Area Supermarket, which recently opened after refurbishment and is said to resemble department stores in the South. The North has long kept the value of its local currency artificially high.
Euros were being exchanged at the rate of one euro for 4,420 North Korean won, while the official rate is around 130 won per euro, the source said.
“They are exchanging hard currency at a rate that seems to be an unofficial rate,” the source told The Korea Times. “People can also shop at the department store using foreign currency by taking their receipts to the booths.”
The source added that the exchange rates were written on a board inside the kiosks.
ORIGINAL POST (2012-1-6): See the original post below.
Pictured Above: (L) The original facade of the “Kwangbok Department Store (광복백화점)”. (R) The new facade of the “Kwangbok Area Supermarket (광복지구상업중심)”
Astute observers will notice the American beer, Pabst Blue Ribbon, featured prominently in the beer section.
Here is coverage of the opening in KCNA (2012-1-5):
Pyongyang, January 5 (KCNA) — The Kwangbok Area Supermarket was opened with due ceremony on Thursday.
All business service at the supermarket built as a commercial service center has been put on IT and digital basis. Customers can buy varieties of goods according to their taste and requirements in the sales rooms on each floor stacked with household appliances, electronic products, foodstuff, fibre, sundries and others.
Present there were officials concerned, officials of the Korea Taesong General Trading Corporation, officials and employees of the Kwangbok Area Supermarket, members of the Feihaimengxin Trading (Beijing) Co. Ltd. staying in the DPRK and the Chinese embassy here.
O Ryong Il, general president of the Corporation, said in his speech that the work to build the supermarket was successfully completed under the energetic leadership of leader Kim Jong Iland the dear respected Kim Jong Un and the positive efforts of the peoples of the two countries.
He expressed belief that the supermarket would help towards improving the people’s living standard and promoting the well-being of the two peoples through better service and management.
Xue Rifei, executive managing director of the Feihaimengxin Trading (Beijing) Co. Ltd., said in his speech that Kim Jong Il and Kim Jong Un gave field guidance to the supermarket on December 15, 2011 and named it the Kwangbok Area Supermarket.
He expressed the expectation that an effort will be made to reenergize the supermarket to win high appreciation for its best management, service and credit.
The Korea Taesong General Trading Corporation is a sanctioned organization, and according to the US Treasury, it is a “key node” in the illicit activity of Office 39. According to NK Leadership Watch:
One of the participants at the opening ceremony was Jon Il Chun (Chon Il-chun), deputy director of the Korean Workers’ Party’s Finance and Accounting Department and section chief of Office #39. Mr. Jon accompanied Kim Jong Il on a visit to the Kwangpok store in mid-December 2011, which was KJI’s last reported public appearance before his death.
On a more casual note, the supermarket marks a point of administrative departure from the way department stores are typically managed in socialist countries. The Kwangbok Department Store (the former name) was one of Pyongyang’s premier formal retail outlets. For decades it operated in the same way as other socialist department stores: customers ended up standing in three lines before they were able to collect their merchandise (one line to order, another line to pay, and another line to pick up). The new Kwangbok Supermarket has adopted a market-style check out line. Though unnoticed by foreigners, this is the first such check out line I have seen in a North Korean department store.
The supermarket is supplied with home and foreign-made products which are in demand in the country.
Although I have not acquired data specific to this store, I believe it is reasonable (even rational) to assume that if the supermarket sells imported goods it will charge had currency for them. This opinion is based on the following assumptions: 1. The Chinese investors will not accept North Korean won under any circumstances. 2. The goal of Office 39 is to acquire hard currency for the Kim family. 3. North Korean retail outlets frequently post prices in multiple currencies so I don’t see any reason why it would be different here. Today a plurality of North Koreans can easily acquire foreign exchange.
Here is my working assumption of the business model: Chinese partner acquires merchandise and imports it to the DPRK. Sales in hard currency go towards allowing the Chinese supplier to recover its costs. Chinese partner either earns a profit from a markup it charges Kwangbok or it divides the profit with Office 39 along some agreed percentage.
If Chinese profits are earned from a cost-plus markup that it charges Kwangbop, then the partnership is closer to an exclusive supplier deal rather than a true joint equity deal. The North Koreans could cheat on this deal by finding cheaper suppliers and decreasing its purchases from the Chinese partner. If after-sales profits are split between the Chinese and Office 39, then both partners will need auditors on hand to make sure the books are accurate. The Chinese partner will also need a good relationship with the Chinese embassy if it runs into problems with the DPRK managers should they unilaterally change the terms of the contract (the split).
Pictured Above (Google Earth): The Hwanggumphyong and Wiwha Island SEZ on the Yalu/Amnok River which separates the DPRK and PRC.
On Friday, the Donga Ilbo reported that Daewoo Shipbuilding was going to invest in the DPRK’s Hwanggumphyong SEZ (see the original post below). Today the report appears to be incorrect. According to the Wall Street Journal:
Daewoo Shipbuilding & Marine Engineering Co. on Monday shot down news reports that it had agreed to build a shipyard in North Korea.
“We don’t have any plans to do that,” a spokesman said.
According to some South Korean news accounts over the weekend, the company, which is the world’s second-largest builder of ships and whose controlling stake is owned by the South Korean government, had agreed to help a Chinese company develop an island off North Korea’s northwest coast, near the Chinese city of Dandong.
The DSME spokesman said the company held discussions with the Chinese company but isn’t close to an agreement.
The news accounts said DSME would build a shipyard that would be devoted to repair work. One report said the idea would be presented to DSME’s directors and announced in April.
The company spokesman said it’s unclear how the accounts originated.
As we argued last fall, the name of the game for Pyongyang’s elites is securing trade and investment deals. Two main investment organs exist, the JVIC and the Daepung Investment Group. We have in the past heard rumors of other similar international investment organizations being under consideration, also. From these overarching groups, down to smaller State Owned Enterprises, there is considerable competition to show that one’s organization can deliver.
Ri Chol was a close ally of Kim Jong Il’s and the organization he came to be associated with, JVIC, rose to prominence after he helped put together the Orascom deal and was given stewardship. He was even with Kim on his last official visit, to a joint venture supermarket in Pyongyang.
He also spent most of the 1980’s and 1990’s in Switzerland in various diplomatic capacities, not the least of which was acting as a minder to Kim Jong Il’s children as they studied at private school.
What might his departure portend?
A few possibilities come to mind.
– Has the JVIC fallen out of favor with the new leadership? If this is the case, Ri might be tasked with building a new organization, perhaps with a similar focus. It would seem redundant to add another, rather than reform this one, but redundancy is hardly unheard of in planned economies.
– Has Ri himself fallen out of favor? Is he being put out to pasture? Again, it is impossible to know, but it seems that such a long term friend of the Kims, who has a personal relationship with Kim Jong Un from his school days would be a key ally at this time, especially since his deals are driving economic growth in North Korea. (Though who knows? Perhaps Kim the Younger has never liked him.)
– If not an issue with Ri personally, the move could be a part of a factional reshuffling. Bartering and dealmaking for control of the commanding heights of the economy is no doubt underway as the new government consolidates its power. It might have been deemed necessary to grant control of the JVIC to another group of Pyongyang movers and shakers – of which Ri Chol is not a part.
– Also very possible is that the very top leadership is planning to give Ri some new responsibility elsewhere. JVIC may have been judged to be running smoothly enough that Ri’s skills would be more effectively used another important organization.
This of course is highly speculative. All we really know is that Ri Chol, with a track record of securing investment, has left the JVIC. Whatever the case may be, he is worth watching in the coming months, as Pyongyang is compelled to keep investments from China and elsewhere coming.
UPDATE (2011-12-19): KJI’s financial manager appears on tour of Kwangbok. According to Yonhap:
The head of a shadowy North Korean agency charged with managing slush funds for leader Kim Jong-il has again appeared in public after five months.
Recent footage from the North’s state television network showed Jon Il-chun standing closer to Kim than Kim’s heir apparent son, Kim Jong-un, on an inspection tour of a supermarket in Pyongyang.
Kim Jong-un is being groomed to succeed his father Kim Jong-il as the country’s next leader in what would be the country’s second hereditary power transfer.
Jon and Kim Jong-un were also seen standing side by side on an escalator at the Kwangbok Area Supermarket, according to recent photos released by the North’s official Korean Central News Agency.
Jon, who has rarely been exposed to media, was last seen on Kim’s trip to a factory in July.
He heads Office 39, which has often been referred to as Kim’s “personal safe” for its role in raising and managing secret funds for the North Korean leader.
The office is also believed to be involved in counterfeiting US$100 bills and drug trafficking.
Last year, the United States blacklisted Office 39 as one of several North Korean entities to come under new sanctions for its involvement in illegal activities such as currency counterfeiting.
ORIGINAL POST (2011-12-16): According to the Daily NK:
Chosun Central News Agency (KCNA) today reported news of an onsite inspection by Kim Jong Il, Kim Jong Eun and others to the Kwangbok District of Pyongyang, the city’s commercial center. The main site on the visit was reportedly the newly expanded and redesigned Kwangbok Department Store.
The redevelopment of the store was ordered by the elder Kim following his trips to China earlier this year, where he was repeatedly exposed to the full force of China’s commercial development.
According to KCNA, “To enhance the people’s welfare and improve their lives, upon the direct suggestion and boundless affection of the fatherly General with his perpetual concern for the people, Kwangbok Department Store, which was constructed in October, 1991, has been transformed anew into the commercial center of Kwangbok District.”
“From warehouse to sale, the realization of information technology and numerical control of all management operations guarantee accuracy and speed, and the store has been stocked to guarantee the utmost convenience of visitors,” it went on.
KCNA went on to say that Kim Jong Il listening to information from related officials, and subsequently declared himself satisfied with the way the store matched the people’s needs in all areas, from sales plans to the amount and quality of goods available.
“We must proceed with the kind of commercial activity that can sell to the people of the capital city those things that they would not be able to live without in their daily lives such as clothing, shoes, food, conveniences, family items, school goods and cultural things, and leave them with no complaint,” he emphasized.
Read the full story here:
Kim Satisfied with “Transformed” Store Daily NK
Kang Mi Jin
Hyesan-China Joint Venture Mineral Company, a large joint project between China and the Democratic People’s Republic of Korea (DPRK), started operation at Hyesan of Ryanggang province on Monday.
The mineral company was jointly set up by Wanxiang Resources Limited Company of China and the Ministry of Mining Industries of the DPRK on Nov. 1, 2007. Its main business was to produce and sell copper.
DPRK Mining Industries Minister Kang Min Chol and Chinese ambassador Liu Hongcai attended the opening ceremony.
Kim Chol, chairman of the people’s committee of the Ryanggang province, said at the ceremony that the joint venture was one of the symbols of the development of the DPRK-China friendship and would be a model of modernization, science and economic benefits.
Liu believed the company would make profits for both sides, benefit the two peoples and promote traditional China-DPRK friendship.
The mine was located a few miles from the Chinese city of Changbai in the northeastern province of Jilin and was 51 percent owned by Wanxiang, a source with direct knowledge of the project told Reuters on Tuesday.
The mine had a designed annual capacity of 50,000-70,000 tonnes of copper concentrate, expected to contain 20-30 percent copper, he added.
“All the concentrate will be sold to China,” the source said.
The source said the joint venture would conduct second-phase construction to expand the capacity of the mine if production ran smoothly, but did not give details on timing or expanded capacity.
China is the world’s top copper consumer but does not produce sufficient concentrate to meet demand. The country imported 3.4 million tonnes of copper concentrate in the first seven months of 2011, down 11 percent from a year earlier.
The Hyesan Youth Mine in Ryanggang Province was successfully updated as required by the new century.
The workers and technicians of the mine together with Chinese technicians and skilled workers completed the vast modernization project and successively ensured their commissioning.
The modernization of various production processes including mining, carriage and ore dressing made it possible to boost mineral production and thus contribute to economic development and the improvement of the standard of people’s living.
A ceremony for the completion of the modernization project at the Hyesan Youth Mine and the Hyesan-China Joint Venture Mineral Company was held on Monday.
Present there were Kang Min Chol, minister of Mining Industry, Kim Hi Thaek and officials concerned, Liu Hongcai, Chinese ambassador to the DPRK, and staff members of his embassy and Han Youhong, president of the Wanxiang Resources Co., Ltd. of China, and personages concerned.
Ri Mun Yong, manager of the Ryanggang Provincial Mining Complex, made an address to be followed by congratulatory and other speeches.
At the end of the ceremony, the participants went round production processes.
That day a reception was given in connection with the ceremony.
Pictured above: (L) satellite image of the Rajin Market, (R) a ground-level photo taken in 1999
Among the the flurry of activities that comprised the DPRK’s recent public relations campaign in Rason (Rajin-Sonbong), the Rajin Market appeared on the itineraries of a few visiting delegates. Alexa Olsen writes about the market for the Associated Press:
Chinese travel agents, potential investors and foreign journalists recently traveled into the North to get a look at the special economic zone Pyongyang is promoting in Rason. It lies in the far northeastern tip of North Korea, 600 miles (1,000 kilometers) from Pyongyang, but will be about an hour’s drive from China once the road is completed.
Rumbling Chinese cargo trucks already ply the route, churning up plumes of choking dust and ferrying containers of Chinese-made shoes, plastic toys, computer speakers, T-shirts and DVDs to the Rason Free Trade Market.
The market, a 13-year-old experiment in small-scale capitalism, has been so successful that the Chinese managing company, the Tianyu Group, is planning to expand the jam-packed 54,000-square-foot (5,000-square-meter) market to 320,000 square feet (30,000 square meters), Tianyu vice director Zheng Zhexi said.
“As I see it, this is the way of economic development, and it’s something that the people want,” Zheng said. “I think it’s reached a point where it cannot be reversed.”
North Korea declared the area a special economic zone 20 years ago. But after a brief flurry of activity and funding from the U.N. Development Program, the project languished without backing from Pyongyang’s leadership.
Rason has benefited from the shift in Pyongyang’s priorities. When Zheng arrived in 1997 to set up the market, people were hesitant to get involved. Now Tianyu doesn’t have the space to approve even a fraction of the applications from prospective vendors, he said.
“Ordinary people’s sense and the awareness of the market, and their views on the economy — all these have changed a lot,” Zheng said.
Foreign journalists, who typically are barred from local markets, were taken on a strictly controlled, 15-minute tour. No photos, no notes, the guide instructed: “Just use your eyes.”
Vendors, mostly women, stood behind stands loaded with freshly skinned rabbit and live chickens, as well as goods mostly imported from China: blouses, speakers, refrigerators, sofas, shampoo, playing cards, binoculars.
High heels went for 25 yuan (US$4), a Kim Jong Il-style beige suit for 85 yuan ($13) and a container of sea salt for 3 yuan ($0.47).
North Korean tour guide Mun Ho Yong, 25, said his family shops at the market several times a week to supplement state rations of rice, oil and fish.
Everything Mun wore — striped dress shirt, belt, polyester trousers and black dress shoes — was bought at the market except his pin of late President Kim Il Sung attached to his shirt, over his heart.
One major challenge will be to successfully leap from the market’s small-scale commerce to full-fledged manufacturing and trade.
(UPDATE) In an article published later in the New York Times (2011-10-12):
A Chinese company critical to Rason’s development, the Yanbian Tianyu International Trade Company, got involved here 13 years ago. It began by erecting the bazaar, then built the casino, a hospital, a bread factory and a telecommunications building. It is now working on a cement factory, and operates two iron mines.
“The policy environment has been improving continuously,” said Zheng Zhexi, 58, the company’s vice president. “It’s moving towards a market economy.”
He pointed to the official tolerance for the bazaar, where merchants rent stalls from the government to sell goods that they buy from Chinese traders. Prices fluctuate and shoppers haggle. The bazaar has proved so successful that it is expanding to six times the current size.
These kinds of markets have sprung up all over the country to supplement the government’s weak food distribution system. Still, the government is sensitive to their capitalist nature, and some top officials have tried to set limits on them. Foreign journalists were permitted a 15-minute tour of the Rason market on the condition that they not photograph it or take notes.
The market, open just a few hours each day, was bustling, with goods like skinned rabbits, sofas, Sony headphones and Dell computer mice. A soldier with a Kalashnikov slung over his back walked among the aisles, looking to buy, and women running stalls wore red vests, the uniform of officially registered merchants.
In one corner was an office with the English words “Foreign Exchange” above the door. In Rason, currency is exchanged at the market rate — one Chinese renminbi to 350 North Korea won — rather than at the official rate, which values one renminbi at 15 won.