North Korean Economy Watch

From the Korea Times:

A head doctor of Hyundai Asan Hospital in the Kumgang tourist area, which was set up to deal with emergency cases among South Korean tourists, told Unification Minister Lee Jong-seok that North Korean soldiers sometimes sneak into the hospital.

Their commander has apparently ordered them to stay away from the South Korean tourist districts, but still the ordinary soldiers come to get better medical treatment, he 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.

According to Yonhap:

The number of North Korean workers at a South Korean-run industrial complex in the North Korean border city of Kaesong rose 22 percent every month over the past one and a half years, the South’s Unification Ministry said Wednesday.  Production increased 36 percent every month due largely to a rise in the number of South Korean factories operating in the complex, according to the ministry.

As of Friday, a total of 6,859 North Korean workers, including 1,047 construction workers, were registered at the complex.

South Korea hopes to promote the Kaesong complex as a role model for inter-Korean economic partnership, while officials in Washington express concern over its possible negative impact on the multilateral efforts to end North Korea’s nuclear weapons program.

The division of labor and specialization was championed by Adam Smith in the 1700s for being one of the great sources of the wealth of nations.  The division of labor was attacked by Karl Mark in the 1800s for “alienating” workers from the value they provide their customers…making them “cogs in the machines”…”bricks in the wall,” etc.  If you see Chalrie Chaplin’s Modern Times you will get the idea.

According to the Daily NK, the government of North Korea has found itself struggling against the natural economic processes of division of labor in its emerging private sector.  If government officials were interested in promoting economic growth, the natural response to this is to establish courts that can enforce contracts between business partners.  This will provide the state with tax revenue and provide a sort of insurance to businessmen who need instruments that will facilitate credible commitment between business partners to the fulfilment of obligations.  The mafia can do this also if the state declines.

According to the story, the governemnt has decided instead to ban private employment in an effort to protect the state owned enterprises.  If this were enforceable, about which I have serious doubts, it will limit business organizations to one person, or will promote the growth of “family businesses”, where members of the organization do not have to worry about their partners cheating them.  “family businesses” can take on many different roles if you get my drift…either way, customers will not be able to take advantage of the lower prices and higher quality of goods produced by specialized labor.

Economic Reform and SEZ as Survival Strategy of DPRK
PDF: Deok Ryong Yoon.pdf
Deok Ryong Yoon

Introduction to & implications of Gaesong Industrial Complex Project
PDF: kaesong.faqs.pdf
Ministry of Unification

Gaeseong Industrial complex: Past, Present and Future
PDF: Dong-geun Kim.pdf
Speech by Dong-geun Kim, Chairman of Gaeseong Industrial District Management Committee

Gaeseong Industrial Complex : Frequently Asked Questions (FAQs)
PDF: kaesong.faqs1.pdf
Ministry of Unification, ROK

Well, it has been another whirlwind session of the SPA…I can only imagine what working here is like.

According to the Daily NK:

Rodong Shinmun of the 12th reported that the 4th conference of the 11th North Korean Supreme People’s Assembly was held in the Pyongyang Mansudae Assembly Hall on 11 March.

It was informed that 595 of 687 registered representatives including Kim Young Nam, the Permanent Chairman of the Supreme People’s Assembly, and Choi Tae Bok, the Chairman of the Supreme People’s Assembly, participated in the conference, yet Kim Jong Il was absent from it.

Discussed conference agendas were about the fixed tasks of the previous year and the feasible achievements of this year, the executed budget for the previous year and the arranged budget for this year, and pursuing a great country construction by promoting technological development.

There was no ‘significant declaration’ related to reformation and liberalization that was receiving much attention, nor mentions related to economic sanction and nuclear weapon issue. Given that only technological development and advance to the foreign market were stated. This means that North Korea seams to emphasize an acute food problem and economic recoup in this year.

This year’s budget was arranged 2,935 million dollars which was expecting to be more revenue of 7.1 %, more expenditure of 3% than the previous year and national defense expense was fixed more 15.9% than the previous year.

Technological development plan is thought-provoking in the respect of what strategy North Korea will take in the technology field in the future. This shows that the North Korean Organization and Guidance Department has an intension to encourage technology for its economic recovery, to reinforce productivity and to modernize the production facilities.

Choi Tae Bok, the Chairman of the Supreme People’s Assembly and Secretary of the Science Education Department at the Central Party, announced a five-year plan (2008-2012) and a medium and long-term plan(up to 2022) for technological development.

Particularly considering that he presented a resolute to concentrate on developing superior species through Information Technology and Bio-technology, raw material industries through Nano-technology and Space Science, Martials Science and Basic Science. It seems that North Korea may spur technological interchanges with China.

This is an evidence that ofter Kim Jong Il’s visit to over the districts of Guangzhou and Shenzen and Jang Sung Taek’s visit to China, North Korea is highly interested in technological development of China. Recently, a frenzy of Chinese language prevailing in Kim Chaek Technical College is not irrelevant to the interest.

The Prime Minister Park Bong Joo revealed that, “North Korea will realize cooperation or joint ventures with the companies from other countries and unroll foreign economic cooperation businesses actively”. This presents the intention of North Korea to seek a breakthrough for economic recovery outside.

The specific budgets for this year was more increased than the last year as follows: 15.9% in national defense, 12.2% in agriculture, 9.6% in steel, fuel, and electricity, and 3.1% in technological development. However, it is doubtful that North Korea could push the economic strategy as the Prime Minister Park stated.

Because although the defense budget is arranged 15.9%, the real appropriation for defense is more than that percentage. Plus, the North Korea situations is that the Prime Minister who cannot sigh economic joint contracts because of no money of even several thousands dollars.

The expectation that a Special Act related to reformation and liberalization would be announced was off the mark. Yet it is impossible to say firmly that North Korea does not have any will of reformation and liberalization at consideration of the fact that this time plan was decided by the Supreme People’s Assembly like the ‘Shinuiju Sepecial Region Act’.

From the Daily NK:

Workers in the Kaesong Industrial Complex are officially paid $57.50/month.

North Korean workers only receive 4500W ($1.5/month) after various deductions. So North Korean workers only take 2.6% of their wage home. This is still twice of the wage of normal North Korean workers, so they are satisfied.

North Korean workers in Kaesong Industrial Complex might not recognize that this is a problem. They are used to obeying the government. 

I would not be happy paying 97.4% income tax.  I try to avoid getting out of my relatively low American taxes as it is.   I would not work (above ground)…unless I was really hungry.
 

Discussion from the Korea Times:

“Yes” Reasons:
-Prolonging the life of the Kim Jong-il regime at the expense of its people
-The North cheats its own workers by not giving them their full pay. There are no unions in Kaesong Industrial Park and workers are expected to work unpaid overtime regularly
“No” Reasons:
-Mini-Marshall Plan
-Workers there earn $58 per month and work under excellent conditions and are much better off than North Korean workers elsewhere.

Other factoids:
Kim Dong-Keun, president of the complex’s Industrial Management Committee said “The North Korean workers are very diligent with high manual skills. Their productivity level is on average 80 percent that of their South Korean counterparts.”

A manager at Hyundai claimed, “Workers’ income at the complex is about 5-10% that of South Korean workers, which is much more than North Koreans generally earn. And they work under better conditions, too”