North Korean Economy Watch

From Joong Ang Daily:

One ROK official said yesterday that shipments of 100,000 tons of fertilizer and 500,000 tons of rice, the remainder of assistance promised this year, would be suspended at least temporarily.

“There should be no misunderstanding on this,” the official said. “We told the North that actions would be taken if they fired a missile.”

Other projects, such as manufacturing at the Kaesong Industrial Complex and tours to the resort area of Mount Kumgang, will probably not be touched. Mr. Lee, the Unification Minister, said the two projects had long-term goals and involved private capital, and so were not appropriate instruments of retaliation.

Joong Ang Daily
Kim Hyung-soo
7/6/2006
 
However concerned politicians may be about North Korea’s missile test, many Korean companies that deal with the reclusive state are saying it has had minimal impact on business. So far.

Hyundai Asan, which does much of its business in North Korea ― including the Mount Kumgang tour and operating the Kaesong industrial complex ― said it was business as usual. Hyundai Asan said only 50 people canceled their trip to Mount Kumgang yesterday, while 700 people went as planned.

“As the government has already mentioned, private businesses are not subject to restrictions because of the North Korean missile problem,” a Hyundai Asan official said.

The South Korean company stressed that although it has faced problems in the past because of developments in the North, its businesses there have never been forced to stop.

“Business in North Korea should be consistently maintained, as it could be a solution that could solve the strained relationship between the two Koreas,” the official said.

Hyundai Asan said they were more concerned that the North’s recent actions could end up reducing the number of tourists in summer, the high season for travelers.

ShinWon, which manufacturers clothing at Kaesong industrial complex, said the plants there were operating as usual.

“The only difference was that our headquarters in Seoul called to ask what the atmosphere was like in Kaesong,” said a South Korean ShinWon worker at Kaesong.

Despite the firms’ apparent sangfroid, experts were quick to point out the possible long-term consequences. “[The launch] could reduce the credibility of the Korean economy and affect foreign investments,” said an official at the Korea Chamber of Commerce and Industry. “The future of economic cooperation between the two Koreas has become more uncertain.”

“Poor security is the economy’s biggest negative factor,” said Lee Dong-eung at the Korea Employers Federation. “At times like this society needs to remain calm and unified.”

Though many foreign investors who visited Kaesong last month stressed that politics and business should be kept separate, it remains to be seen how the missile launch will affect foreign sentiment toward the industrial complex. 

From the Korea Times: 

Two Koreas Discuss Setting Up Weather Center at Mt. Kumgang
By Lee Jin-woo

Tourists visiting North Korea’s scenic Mt. Kumgang resort are likely to be presented with more accurate weather forecasts as early as this fall, officials at South Korea’s Unification Ministry said Wednesday.

South and North Korea are in negotiations to open a weather forecasting center at the mountain to provide tourists with more accurate meteorological information in the region, notorious for its unpredictable weather, said a ministry official, who asked not to be identified.

“Negotiations between the two Koreas are currently under way to open a weather center. There are still some areas that the two sides need to agree upon,” the official said. “Pyongyang is showing a positive response to the plan though.”

In May, a survey team comprised of officials from the ministry, Hyundai Asan Corp. as well as the Korea Meteorological Administration (KMA) was dispatched to the area to gather information prior to beginning construction, sources said.

Hyundai Asan has led the tourism project under which more than 1.2 million South Koreans have visited the resort area since the communist state opened the outer part of Mt. Kumgang on its east coast in 1998. Last year, the annual number of South Korean visitors to Mt. Kumgang reached over 300,000 for the first time.

“It was early last year when we first requested local broadcasting companies to add weather forecasts for Mt. Kumgang and its adjacent areas,” said Kwon Kee-seob, who is in charge of public relations at Hyundai Asan. “The broadcasters, however, told us to discuss the matter with the KMA and the Unification Ministry to set up some facilities to gather information there.”

Kwon added over 2,000 South Koreans, including some 1,000 travelers, visit or stay in the North Korean territory on average everyday.

“We’ve got many phone calls from those who plan to make a trip to Mt. Kumgang, but have not been able to give them good weather information,” he said.

South Korean officials once considered making use of weather forecasts by the North Korean meteorological agency, but later gave up the plan due to the poor quality of weather information from the North, sources said.

Kumgang resort goes international
 
Emerson Pacific Group, a Korean company that is now building a golf and spa resort at North Korea’s Mount Kumgang, said yesterday that it had reached an agreement with a British resort operator to co-manage those facilities.

A spokeswoman for Emerson Pacific said that her company would be responsible for development planning for the resort and fund it entirely; the British company, General Hotel Marketing, would oversee the resort’s construction and interior design, operating systems, staff training and global marketing. General Hotel Management operates 16 resorts around the world, including at Langkawi and Bali in Asia.

The agreement gives an international polish to the formerly inter-Korean project to develop tourism at Mount Kumgang, widely acclaimed from antiquity as the Korean Peninsula’s most scenic area.

Ralf W. Ohletz, the executive vice president of General Hotel Management, told the press yesterday that he was convinced that the resort “has the potential to become a global-scale tourist attraction.” He added that the locale ― North Korea ― made the project both challenging and attractive.

Emerson said it would spend about 80 billion won ($85 million) on the resort, which is scheduled to open next year. It is already selling memberships in the golf course there for 17 million won each.

Hyundai Asan, which is the overall operator of the tourism project at Mount Kumgang, said yesterday that the beach there will be open for swimming and picnicking beginning Saturday.

The tour operator also said the Oegeumgang Hotel, on the mountains’ eastern slope, has been remodeled and will be open on July 11. The 11-story building, with 179 rooms, was formerly a retreat for senior North Korean officials. 

From the Daily NK:

North Korean Women Responsible for 90% of Family Living…Recent Increase in Divorce 

Recently, it has been found that the divorce rate of North Korean women is rapidly increasing.

According to a newsletter published by a support organization for North Korea ‘Good Friends’ on the 29th, the majority of North Korean women bound to this battle of life are responsible for more than 90% of the family’s living and are caught in a severe lifestyle where they even have to gather bribes to the liking of security officers and protection officers.

It was reported that “The majority of women wake up at 3.30am to make rice and work outside the home all day. On returning home, they are still in charge of domestic housework such as cooking, washing, cleaning. For these reasons divorce has rapidly increased.”

The newsletter also reported “In the case of North Hamkyung province, in spite of divorce proceedings being complicated and approval difficult, of the people married the actual figure of couples living separately or undergoing divorce has reached 20%.”

The major basis of divorce is the burden of women to fulfill duties both in society and traditional female roles within the home.

In addition, it was explained that the reason divorces rates are rising is “During the period of full mobilization to farms like in May and June, not only is it difficult to eat three proper meals a day, but the number of husbands that help in domestic affairs does not even reach 10%.”

In the old days, the DPRK nurtured its independence by alternating its allegiance between China and Russia, playing the big boys off each other.  Today, China clearly holds more influence in the DPRK in terms of trade and direct political influence.  In fact, China and the DPRK are involved in several hydro-power projects on the Yalu river.  Perhaps energy subsidies are a way for Russia to regain a foothold in the DPRK and protect its direct link to Pyongyang and potential land links to Seoul. 

On an economic note, this kind of behavior is typically called “dumping” in the west and it is not allowed under WTO rules.  But both parties are clearly better off if the deal goes through.  This should tell us something about our Anti-dumping trade rules in the west as well. 

But this is all just silly speculation on my part.  Here is the article from the Joong Ang:

July 04, 2006
KHABAROVSK, Russia ― Russia has been in discussions with North Korea to supply it with surplus electricity, Russian officials at a state-owned electric power company recently told the JoongAng Ilbo. In return, North Korea would provide Russia with natural resources.

“We have been discussing exporting surplus electricity from the far eastern district of the country to North Korea,” Victor Minakov, president of Vostokenergo, the far eastern branch of the United Energy System of Russia, said in an interview last week in Khabarovsk.

“The fastest and most efficient way to resolve North Korea’s electricity problem is to supply electricity from Russia,” Mr. Minakov said.

According to Mr. Minakov, negotiations have been delayed because Russia initially asked North Korea to pay cash for the electricity, and then asked it to cover the expenses for building power transmission lines, neither of which the North could afford.

However, the negotiations resumed after Pyongyang offered to pay for the electricity with natural mineral resources. “Representatives from the Russian energy company will visit Pyongyang at the end of this month for further discussions on detailed matters,” Mr. Minakov said.

The far eastern area of Russia, reportedly has around 300,000 kilowatts of surplus electricity, and the government plans to further improve productivity there by building more power plants. Russia and North Korea has been negotiating on the supply of electricity since 2001.

Russia plans to build a 370-kilometer (229-mile) power transmission line between Vladivostok, Russia, and Chongjin, North Korea, to supply 300,000 to 500,000 kilowatts of electricity. Building power transmission lines and converters would take three years, and cost at least $200 million.

“It costs much less to supply electricity from Russia to North Korea than from South Korea to the North or through the programs of the Korean Peninsula Energy Development Organization,” Pavel Korovko, vice president of Vostokenergo, said on June 27 at a seminar in Khabarovsk.

The Korean Peninsula Energy Development Organization was dissolved recently after failing to build light water reactors in North Korea under the terms of a 1994 agreement between North Korea and the United States.

Yonhap
7/4/2006

South Korean companies will be able to make remittances to their operations in an industrial complex in North Korea without having to make a prior report to the authorities in Seoul, the Finance Ministry said Tuesday.

The ministry said it has amended regulations governing remittances to North Korea to help South Korean companies operating in the inter-Korean industrial complex in Kaesong, just north of the heavily-armed demilitarized zone that divides the two Koreas.

Financial remittances to North Korea had previously needed to be reported to the Bank of Korea, South Korea’s central bank.

According to the ministry, a branch of South Korean lender Woori Bank that is located in the industrial complex will serve as the intermediary bank.

A total 13 South Korean companies are currently operating in the industrial complex, a key product of the 2000 summit between the leaders of the Koreas that boosted reconciliation and cooperation programs involving the two countries.

The number of South Korean companies in Kaesong is expected to reach 300 when the first phase of construction is completed next year. Seoul believes the industrial city will be able to house as many as 2,000 South Korean firms by 2012 when the complex is fully developed.

Their web page is here, but it looks like they have not updated it in a while.

According to their website,

[KBC is]  among the first to identify the opportunities that North Korea could offer to enterprising companies. As a result, KBC clients benefit from our considerable experience and well-established contacts with this hard-working and largely industrial nation which finds itself on the threshold of fuller integration with the world economy. We believe the significant economic changes that have started to unfold will create major business opportunities for foreign companies with the right strategy.

In the DPRK market, we work with (and for) our customers to secure business and investment opportunities, manage relations, provide effective business solutions and oversee the process of entering the North Korean market.

Specifically, they offer a newsletter.  The sample issue they have displayed is quite old, so I am not sure if it is still published.

They also promote business delegations (with golf) and trade exhibitions, such as the Pyongyang International Trade Fair (PITF),  and the International Technology and Infrastructure Exhibition in Pyongyang

And on the implementation side, Korea Business Consultants offers a full range of financial, legal and transportation services, including:

• Project finance, legal advice and analysis of tax and investment laws of the DPRK.
  Investment seminars to attract inward investment: planned for 2002 – with DPRK support and involvement.
• Participation in DPRK’s expanding and regular Trade Fairs and Exhibitions.
  Trading partners to facilitate the trade of commodities/metals and a full range of other DPRK goods.
• Network of partners in London, Luxembourg, Hong Kong, Seoul, Shanghai, Singapore, Switzerland, Seattle and Toronto.

From the Korea Times:

Seoul to Promote Knowledge Sharing With N. Korea
By Kim Sung-jin
Staff Reporter

The government Thursday said it will continue to promote various projects to exchange economic knowledge with the reclusive North Korea.

Vice Finance and Economy Minister Bahk Byong-won said Thursday that private economic cooperation between the South and the North has become brisker than ever with the Kaesong Industrial Complex and North Korean tourism projects getting into full swing, but inter-government cooperation is still very limited.

“What we need more than anything else to further advance the cooperative inter-Korean economic relations is an extension of knowledge-sharing programs with the North,” Bahk said. He made the remarks at a conference on knowledge sharing for the economic development of North Korea at the Westin Chosun Hotel in downtown Seoul.

Participants in the conference included the Asia Foundation’s country representative in Korea Edward Reed, head of political section of the Delegation of the European Commission to Korea Maria Castillo Fernandez, former Swiss Agency for Development and Cooperation’s (SDC) North Korean office resident director Rudolf Strasser and Korea Institute for International Economic Policy (KIEP) president Lee Kyung-tae.

As Bahk noted, government-level economic exchange programs between the South and the North are still very limited although Seoul and Pyongyang agreed on revising a plan to dispatch economic inspectors across the demilitarized zone (DMZ) at the Inter-Korean Economic Cooperation talks held on Cheju Island between June 3 and 6.

“The Korean government will make consistent efforts to widen knowledge sharing with the North as well as with the international community,” Bahk said.

“We also hope that academia, non-government organizations and international organizations will play a leading role in extending inter-Korean knowledge sharing programs,” he added.

Annual inter-Korean economic transactions, including the transaction of merchandise and services such as tourism, have made a significant improvement over the past five years regardless of the political tension on the Korean Peninsula. They expanded to $1 billion in 2005 from some $200 million prior to the inter-Korean Summit held in 2000.

Meanwhile, the Korea International Trade Association (KITA) said Thursday that inter-Korean economic transaction, or trade, expanded 30 percent in the first five months of this year, thanks to vibrant industrial activity in Kaesong just across the inter-Korean border.

Between January and May, inter-Korean economic transactions amounted to $428.63 million, up 34.4 percent from the same period last year.

In the cited period, North Korea-bound South Korean goods jumped 35.4 percent to $264.97 million, and imports from the North increased 32.9 percent to $163.66 million.

Inter-Korean economic transactions are forecast to expand sharply next year as the number of South Korean manufacturers moving into the Kaesong industrial complex will reach 300 with the completion of the first phase of the industrial park construction project, up from current 15.

Seoul plans to help Kaesong house as many as 2,000 South Korean firms by 2012 when the complex is fully developed.

From Yonhap:

South Korea will intensify efforts in technical assistance and training for North Korea in order to help the communist state’s economy grow further, a government official said Thursday.

“We should help the North to enhance its understanding of economic principles and their operation mechanism, which will guarantee us more substantial and enduring results from economic assistance to North Korea,” Vice Finance Minister Bahk Byong-won said in a speech at a forum titled “Knowledge Sharing for Economic Development of North Korea.”

“Material assistance without economic knowledge and managerial capacity cannot contribute to sustainable economic growth,” he said.

Bahk said excessive transaction costs caused by the lack of adequate knowledge about economic principles, practices and international economy on the North Korean side have posed bigger threats to economic development than anything else.

“Some have suggested that inter-Korean cooperation has proceeded at a slow pace, but despite a rapidly changing environment, inter-Korean economic cooperation has shown remarkable strides,” he said.

Inter-Korean trade volume, which stood at US$2 million-$3 million before the 2000 inter-Korean summit, reached $1 billion last year, making South Korea the second-largest trading partner of North Korea, the official said.

Also, personnel exchanges and movement between South and North Korea have never been more frequent than recently, he said.

Bahk said economic cooperation between the Koreas, which has been regarded as one-sided, has also shifted to the one that is reciprocal and serves mutual interests, he said.

“South Korea, international organizations and nongovernmental organizations should seek to create synergies by exerting concerted efforts through sharing information among ourselves with regard to the knowledge-sharing experience with North Korea,” Bahk said.

The South Korean government will not spare any effort to vitalize knowledge sharing with North Korea for its economic development in close partnership with the international community, he said.

From Industry Week:

June 29, 2006 — China and North Korea have signed an agreement to build a hydroelectric dam on the Yalu river which borders the two nations, state media reported June 28.  The deal was signed on Tuesday in Pyongyang between China’s Changchuan Hydroelectric Power Co. Ltd. of Jilin province and North Korea’s electric power and coal industry ministry.

China will fund the 350 million yuan (US$43.75 million) Wenyue Hydroelectric Project, while the infrastructure will be built in North Korea. The dam will have a capacity of 40,000 kilowatts although the electricity will be used in North Korea where power supplies are far more scarce.

Construction on the dam is expected to begin in September and will be completed in three years. The Chinese side will provide equipment for the dam.

Under the agreement the North Korean side will repay the investment on the dam to the Chinese side from proceeds from electricity sales.