Archive for the ‘Economic reform’ Category

Market Research

Tuesday, August 9th, 2005

Korea Times
Andrei Lankov
8/9/2005

Once upon a time, North Korea prided itself on being the country that came the closest to the complete the eradication of markets, those notorious dens of private commerce and capitalist spirits. It seems that in the 1960s markets were indeed formally outlawed for a brief while. Later, they made a moderate comeback, but they remained marginal to the life of most North Koreans until around 1990.

And then things changed. The slow-motion collapse of the Stalinist economy began in the late 1980s, and in a few years this slide developed into a free fall. By 1996, the old economy of coal mines, mammoth plants, and chimney smokes was dead, rations were not forthcoming, and many North Koreans had to resort to commerce to survive. The markets began to grow.

There is a large volume of evidence about these markets, and now I would like to say a few words about one of them. This market was described in the Pukhan monthly by a former female vendor who recently defected to the South and now lives in Seoul. It is located in a relatively large North Korean city, somewhat close to the border with China.

This market began to operate on a large scale in the mid-1990s. Initially, the local authorities felt a great unease about this new institution, and even launched occasional eradication campaigns, which are still well remembered in the city. The victims were largely old ladies who were first to initiate the market trade.

The poor “halmonis’’ were dragged to the police station by policemen who occasionally shouted some appropriate slogans, like “down with speculation!’’ But such bizarre sights did not last long: by around 1996, the authorities gave in and ceased to fight the market which alone made survival of the population possible.

The market ground is a space some 50 to 100 meters-square, surrounded by a high wall made of crude cinder blocks (the sort of very large bricks that are widely used as construction material in the North). Inside the market, there are rows of stalls used by the vendors.

The gates are closed when the market is not in operation _ that is, between 5 p.m. and 7 a.m. The guards and managers ensure that nobody stays inside the market after hours. But this does not mean that trade only takes place inside the walled space of the officially allocated area. A great amount of bartering, both legal and semi-legal, happens outside the wall. There, trade lasts much longer, and the food stalls do not close until 10 or 11 p.m.

Outside the gates, one can also find a bicycle shed (guarded, of course, since bicycle theft is very common now), a storeroom where vendors can leave their merchandise for the night, and a canteen. There are also private canteens around, as well as some private storeroom facilities, but those institutions try to keep a low profile and not attract any excessive attention from the authorities.

Most of the goods on sale are imported from overseas, largely from China, but there are South Korean products as well. The latter are generally admired for their high quality, but often become the targets of bans and confiscations.

The market has a manager appointed by the local government, and the manager is assisted in his hard work by a staff of 6-8 people. There is also a police box permanently staffed by a policeman, as well as a small office of the Ministry for Protection of the State Security, the North Korean political police. Yes, a market has its own representative of this agency.

Once again, the Kims have out-Stalined Stalin: even in the most paranoiac times of recent Russian history one could not imagine a KGB operative being posted to every single countryside market! The administration enforces law and order, makes sure that nothing improper or forbidden takes place, and also collects the market fee that is paid by every vendor.

One of the major problems is the regular confiscations of prohibited goods (often this means goods produced in South Korea). During a check, a group of policemen goes along the stalls checking all goods in search for forbidden merchandise. Everything is put into a pushcart. The market is arranged in such a way that vendors cannot hide their merchandise from an inspector’s eye, so resistance is futile.

The confiscated goods are supposed to be sent to a special “commercial shop.’’ Such shops normally buy and sell the production of local handicraftsmen at market prices (as opposed to the fixed prices of the state commercial system, now almost defunct). There are rumors that some goods are taken by the market managers and police officers for their private use.

Well, quite likely… although for some minor transgression a payment of roughly 15 percent of the price of the confiscated merchandise will be probably sufficient to get the goods back. But from what is known, it appears that the North Korean officials do not overuse the right, more or less at their discretion, to confiscate goods for extracting bribes.

On an average day, the market (both its walled and open sections) attracts some 8,000 vendors and 50,000-60,000 shoppers. The vendors are predominantly female, and this reflects an interesting peculiarity of North Korea’s new capitalism: to a surprising degree it is dominated by women. But that is another story…

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Stand in Line for Half Day Long to Make a Phone Call

Wednesday, July 20th, 2005

Daily NK
Kim Young Jin
7/20/2005

Demand for Wire Telephones after the Government Confiscation of Cellular Phones

Recently in North Korea, demand for house phone skyrocketed and as the government confiscated personal cellular phones, people have also be increasingly using public phones.

It is known that setting a wire telephone for a household costs more than 450,000 Won and it is difficult to get one even after 4-5 months longs reservations.

Even Cellular Phones of Government Officials Confiscated

Park Young Chul (pseudo name, age 45) whom The DailyNK met in Tumen of China testified, “As the government completely banned the use of cellular phones after the Ryonchon Incident, demand for wire phones has been skyrocketing.”

Is the use of cellular phones still banned?

“It is hard to see cellular phones in North Korea. Not in local places, even in cities, people holding cellular phones cannot be seen.”

How about the Party cadres and managers of the state enterprises?

“The government confiscated all the cellular phones after the Ryongchon accident. They are still strictly banned. Even the provincial party cadres, National Security Agency, People’s Safety Agency officials are not allowed to use cellular phones.”

There are two kinds of cellular phones used in North Korea.

One kind is the official one acknowledged by the government, the GSM method of European style, which was used since 2002. Although it costs more than $1300 only to register and it is only usable in the city, it is known that more than 20,000 people are using this kind. Most of the users are foreigners and among the North Korean people, Party cadres and special government officials possessed it as the symbol of their special right.

The other kind is the Chinese wave, which the people use in secret along the Sino-Korean border areas. Although the number of users is unverifiable, it is known that the main purpose of their cellular phone use is to communicate with their family members in China and South Korea or with the dealers for their businesses. Due to the limitation in reach of the wave, these phones cannot be used extensively in inland. They are especially targeted by the government for control.

Then after the Ryongchon accident was known to the outside world by the cellular phones, the government of North Korea confiscated all the cellular phones last May. Although the foreigners are free from prohibition, there is no way for North Korean people to legally possess cellular phones.

Wire Phone Lines Still Hard to Get Even with Money

Then how do the people in North Korea communicate with each other?

“Usually by the wire phones (house phones). People who run business with other sellers and buyers in other verify their deals through phone. Those who have enough money seek to obtain their own phone line.”

Due to the limited means of transportation and communication, price differences between the regions varied much. For example, in Huiryeong of North Hamkyung province, the price of rice was low and the price of pollak pretty high while in Chungjin the opposite. People could take advantage of such price difference and earn money in between, for instance, by buying pollak in Chungjin and selling them in Huiryeong and buying rice from Huiryeong and selling it in Chungjin.

In the past such business were done only with guesses on price, but now phones are used to check the price differences. Recently dollar dealers are known for checking exchange rates through phone calls to China and even across the nation everyday.

How much does it cost to obtain a phone line?

“In the past it was not so difficult if you had money. Now, it is pretty difficult even if you had money. It cost about 450,000 to 500,000 North Korean won. That is a lot of money in North Korea. However, it is not a matter of how much it costs. The problem is that the government does not have enough of IC block necessary for switchboard of the Ministry of Communication to set up the phone line, so even if you had requested for a phone line, you are not guaranteed to get one.

Does that mean that someone has to withdraw a line for another person to get?

“Precisely. In the end, the cost of setting a phone line is actually the cost of selling and buying the IC block. The cost also includes the expense of laying phone line from the place where switchboard is located to the designated house. That is why it is so expensive.”

After the 7.1 Economic Management Improvement Measure in 2002, the average monthly wage of a North Korean worker ranges between 1500∼2500 won, thus 450,000won is the amount which an average worker has to save for 20 years without spending a penny, but the fact that “many people are willing to obtain” shows that there is a significant number of rich people present in North Korea.

Personal Identification and Deposit Money Required for the use of ‘Public Phones’

How is the situation of the public phones?

“They are called “common phones,” and two or three of them are located in each communications office or branch office in each area (district). There is a communications office in every 8km~12km and in the city about 4km.”

How much does it cost?

“It costs 10won for one local call. Before it was 50 jun (half of 1won) but recently the price increased. Of course the price varies for long distance called, they are more expensive. You have to leave your personal identification and 40-50won of deposit at the office prior to your make the call and when you are done you get them back after you pay.”

Why do you need personal identification and deposit money?

“They made this procedure because of some people who ran away without paying”

Are there many people using the public phones?

“There was a communications office about 4km away from my house, usually if I go, I had to wait about 30 minutes to make a call. Sometimes you have to waste as long as half of the day for your turn. Still, there are many people in line waiting.”

Park sighed and said, “Only if the transportation system were a little bit better, the living of the people would be much better. When one thing gets better, the government soon turns it down.” What we see is a scene of discord between the people who are already living in capitalistic style and the government that tries to deject it.

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Expanding North Korean Tourism

Monday, July 18th, 2005

Korea Times
7/18/2005

Following Pyongyang’s scheduled return to the nuclear talks, the agreement to expand tourism is welcome news from the North. If the latest changes in the North Korean positions are genuine, they could turn tension into peace on the Korean Peninsula. Much of the credit should go to the Hyundai Group’s untiring efforts and the isolationist country’s bold turnaround toward an open-door policy. At stake is how to keep this momentum for peace and prosperity rolling despite challenges from within and without.

The agreement between North Korean leader Kim Jong-il and visiting Hyundai officials signals the start of full-blown tourism in the North. Next month, South Koreans will be able to climb Mt. Paektu, the nation’s spiritual headspring, from the North Korean side. They will also be able to explore in an hour’s drive from Seoul the rich cultural heritage of Kaesong, old capital of Koryo Dynasty (A.D. 918-1392) from which the country’s name originates. Mt. Kumgang will also open its inner sceneries to southerners.

This “triangular tourism project” will sharply improve the North’s tattered economy. North Korea’s real GDP increased 2.2 percent last year, but that in the accommodation-catering sector jumped 16.3 percent, thanks largely to the Mt. Kumgang tourism business. As South Koreans fly directly to Mt. Paektu or reach the mountain via Pyongyang, the tourists’ dollars will not go to China but to North Korea. The two Koreas also can build a world-class resort belt along the eastern coast starting from Mt. Sorak.

Hyundai will have to make massive investments to expand airports and develop other infrastructure. Although the group has won the exclusive development rights, it is not certain whether it alone can meet all the costs and ensure the project’s commercial viability. North Korea in this regard should refrain from asking excessive charges, as was the case in the Mt. Kumgang project. Nor should there be any recurrence of controversies stemming from under-the-table payments and other murky deals.

Both sides need to take a long-term approach. Just as Mt. Kumgang tourism helped to prevent an escalation of hostilities during naval battles in the West Sea, so can expanded tourism contribute to the establishment of a lasting peace on this peninsula. Therefore, its success depends on finding the equilibrium between peace and commercial dividends. A prerequisite for this balance is genuine trust between the two Koreas, a trust that cannot be shaken by internal splits or changes in external circumstances.

For North Korea, all these inter-Korean projects will help to ensure its security and economic development. As everyone knows, however, what Pyongyang really needs are more brisk economic transactions with the international community after being cleared of nuclear suspicion. And this is why it should show sincerity at the regional disarmament talks next week.

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Trade Traffic Tells of N.Korea’s Dependency on China

Wednesday, July 13th, 2005

Choson Ilbo
7/13/2005

It is the afternoon of July 1, and seven trucks carrying iron ore are lined up at the customs house in the border town of Tumen, in China’s Yanbian Korean Autonomous Prefecture, waiting to clear customs with their North Korean cargo. The trucks are laden with so much ore that it is a wonder they can support it all.

“These days, there’s a lot of iron ore coming in from North Korea,” a customs official muses. “Maybe they’re indiscriminately shipping out unprocessed ore because they’ve sold everything else worth selling.”

At the Musan Iron Mine further up the Tumen River at Musan, North Hamgyong Province, it looks like the ore is being sucked into a Chinese black hole. On July 5, some 10 13-ton Chinese trucks laden with ground iron ore from Musan were heading to towns in the Yanbian Korean Autonomous Prefecture like Nanping, which faces Musan across the river, and Chungsan. Chinese trucks are also busy climbing the hills near the Musan mine. The project to develop the Musan mines is China’s largest investment in North Korea, with the country’s Jilin Province saying in December it would invest 4 billion yuan (about US$483 million) into the mines, which had been inactive. Ground iron ore imports started full-scale this year.

The skyrocketing trade between the North and China including in underground resources started with Pyongyang’s economic reforms in 2002.

According to statistics from China’s Customs General Authority, China accounted for 25 percent of North Korea’s total foreign trade in 2002, but the figure rose to 33 percent a year later and to 39 percent last year. Meanwhile, Japan — North Korea’s third largest trading partner — dropped from 13 percent in 2002 to 7 percent last year, while South Korea’s share of North Korea trade has been decreasing.

Lee Myong-suk is a member of the city council of Yanji, a town busy handling a great deal of trade between China, North Korea and South Korea. “There has been more and more trade traffic coming from North Korea via Dandong on the Yalu River and the Yanbian area on the Tumen River,” she says. “It’s a combination of North Korea’s economic difficulties and China’s demand for raw materials.”

As North Korea’s economic dependency on China grows, there are mounting concerns that the impoverished country could one day be reduced to a de-facto Chinese province. Prof. Nam Seong-wook of Korea University smells a rat. “China’s investment in North Korea, which doesn’t have even a properly constituted market, appears to be motivated by political objectives rather than economic incentives,” he says.

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Almost-Free Enterprise

Tuesday, July 12th, 2005

Korea times
Andrei Lankov
7/12/2005

In 1997, when the North Korean economy began to crumble and the public distribution system ceased to function, the inhabitants of Yognchon County received a special gift from the Dear Leader: everyone was given a pair of nylon socks. Not luxurious goods, of course, but getting something in such a hard time was unusual. Few people knew that those socks were not actually provided by the government. The socks were donated by a Chinese Korean businesswoman, known to us as Mrs. Hwang.

But why did she do it? Why was it necessary for her to provide more or less the entire population of the county with socks?

It is increasingly difficult to see North Korea as a socialist state. The traditional Stalinist economy of the mammoth steel mills, railroads and coal mines, died a painful death in the mid-1990s. Nowadays, the North Korean economy depends on foreign aid, but most actual economic activity is made possible through the efforts of small-scale businessmen and businesswomen.

In order to be successful one has to have access to money. In other ex-Communist countries it is the former bureaucrats and party cadres who were best positioned to start a business simply by stealing the property they once managed as government-appointed officials. The property might be as large as an oilfield or as small as a corner shop, but an ex-bureaucrat always has many more chances to take over than an outsider.

But in North Korea the government is undecided on these issues. It has not (yet?) given the green light to large-scale privatization schemes along the Soviet or Chinese lines. Thus, it is other groups of people who are in position to make money. Paradoxically enough, they often come from groups once were seen as suspicious: repatriates from Japan or China, or local ethnic Chinese and Koreans who have close relatives overseas, preferably in China or Japan.

In this regard, Mrs. Hwang is a very typical case. Recently, Kwon Chong-hyon, an energetic Chinese-based correspondent of the Daily NK paper, interviewed her and got her to relate her life story and exploits. I believe that this is a story worth re-telling, since people like Mrs. Hwang are increasingly common these days.

Mrs. Hwang was born in China, in a mixed marriage, her father being Han Chinese, her mother an ethnic Korean. Like many other China-based families of Korean origin they fled from Mao’s “Cultural Revolution” in the 1960s and moved to North Korea. These days, when people are escaping from the North in their thousands, it is a little difficult to imagine that but a few decades back North Korea was often seen by the Chinese as a land of stability and affluence!

In recent years, Mrs. Hwang has lived in Yongchon County, not far from the border. Like many other Koreans with “Chinese connections” Mrs.Hwang began a cross-border trade business in the 1990s, when government control began to wane. Unlike many others, she had no need to resort to smuggling: having immediate relatives in China she can travel there legally, and in recent years this has become a lot easier. Of course, getting a travel permit might be troublesome, but her money allows her to smooth over the procedure with few kickbacks.

And, of course, her publicity stunt with “Kim Jong-il’s socks” did help a lot. She bought 100,000 pairs of socks wholesale and presented them to the local government for distribution. In doing so the local authorities could win some praise from above and improve their political standing, and in return Mrs. Hwang received powerful political support. And the common people got their socks!

Mrs. Hwang explained her survival strategy to Kwon Chong-hyon: “I know a lot of people in the foreign affairs department of the state security police in North Pyongan Province. Since I have a travel permit [to China], I can go there without trouble as long as I get it stamped by state security. If you have good relations with state security, it’s easy to get travel permits; if you have good relations with police, it’s easy to fight off the criminals; if you have good relations with the Party, it’s easy to do trade”.

The reference to criminals is not incidental. There is a growing lawlessness in the borderland areas, and businesspeople have to pay for their security. Mrs. Hwang said: “The criminal police and state security love tobacco, liquor and good dress very much. Now there are so many thieves and mobsters in North Korea, but once I give a phone call to the police officials whom I know, they always come [to protect me and my merchandise]. ”

Currently, Mrs. Hwang has two houses: one in North Korea and another in China. She prefers to deal with used and second-hand goods, items people in China do not buy any more. Such goods are cheap to buy in China, but when sold in North Korea they bring hefty profits measured in the hundreds of percent!

One of her most successful recent deals took place in late 2004. Mrs. Hwang bought 5,000 pairs of cheap working shoes in China, at 4 yuan a pair. She then re-sold the shoes to North Korean retailers for the equivalent of 13 yuan.

Mrs. Hwang is married, but it seems that her husband is less prominent in business than she. Indeed, the social changes of the last decade have greatly changed the balance of gender roles in the Korean families. But that is another story…

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The Transformation of Class Structure and Class Conflict in North Korea

Friday, July 8th, 2005

International Journal of Korean Unification Studies
Vol. 14, No.2, 2005, pp 52-84.

PDF Here: transformation of class structure.pdf

Abstract
This study examines how North Korea’s class structure transformations influenced the social transformations, and seeks to understand the structural characteristics of North Korea by examining in detail the existing shape of each social class. This study found that North Korea’s socialist transformation was the process of dismantling every social class, such as the landowners, farmers, commerce and industry, and intelligentsia classes, etc. The 1946 land reform dismantled the landowner class, the 1958 agricultural collectivization dismantled the farmers class, and the 1958 nationalization of commerce and industry did the same to the petty bourgeoisie. The only class remaining in North Korea is the managers of the governing class. There was no class differentiation, only dismantlement. Thus, with social classes dissolved, the governing class remains as the monolithic class monopolizing social, economic, and political power in North Korea, with no other social power to act as a balancer. This type of class structure may constitute the social conditions of political dictatorship in North Korea.

Highlights:
In North Korea, the fundamental ownership relations of the traditional class structure were dismantled in the name of socialist construction. The victims of this construction were the traditional classes of landowner, petty bourgeoisie, farmer, and intellectual.

When the 1946 Land Reform Law was passed, it was enacted in a month.  The law provided for government confiscation of land properties over 5 chongbo (1 chongbo=2.45 acres).  When completed, 1,000,325 chongbo of 1,982,431 under cultivation at the time.  At the time, land owned by the Japanese state, Japanese people, and religious organizations was barely 4%.  the remaining 96% was in the hands of Korean landowners and tenants.  It affected 405,603 of the 1,121,295 registered farming households.  4 in 10 households had land confiscated in part or whole.  Ten years after land reform, many were again prospering, and theor political influence became noticeable.  Kim il Sung sought to reassert control over them.  In 1958, land reform was reversed and farms were colectivised.

Nationalization of industry, traffic, transportation, communications and bank finances, including over 1034 important factories and businesses.  In 1947 80.2% of industry was held in state control.  Private commerce made up the rest.  After the Korean War, private enterprise production consisted of small-scale mills, metal workshops, rubber factories.  by May 1957, the number of private industrial enterprises was 633.  By August 1958, this activity was completely eliminated.

To purge the intellectuals (who were educated in the old ways) Kim il Sung proposed, “we have to speed up the construction of socialism, and fo rthat purpose, we have to fight against the conservatism of the intellectuals.” This started with technicians and economic managers.  Then dissident writers.

All social powers were ousted: Landowners, farmers, businessmen, and intellectual classes.  All menas of production were nationalized and socialiazed, so all became employees of the state, and the state became the sole employer.  North Korea’s new system consists of the rulers and everyone else (two groups).

To prevent remanats of the past from gaining influence, North Korea classified each individual according to their family background, and discriminated on this classification (starting in 1957).

Yunan and Soviet factions were purged in the August Faction Incident in 1956.  Cabinet Decision 149 mandates that ousted individuals be put in area 20km from the sea coast and demarcation line, 50km away from Pyongyang and Kaesong, 20km away fro mother cities and limited residential areas.  These individuals received a special stamp on their ID cards and were registered with the social security agency.

The North Korean managerial (ruling) class is an exclusive group which has institutionalized a system so that it may keep its privileges.  Only the sons and daughters of the core class can become promoted within the managerial class.  Children of Cadres only marry children of cadres.

Core class is 3,915,000 people in 870,000 households.  Wavering is 3,150,000 in 700,000 households.  Hostile is 7,930,000 in 173,000 households.

In the workplace, all indivduals are obliged to be part of one of three organizations: the party, the Youth League, or the Workers Union.

Supplies are divided into special numbers.  1,2,3,4, etc.  Those in higher positions are afforded higher rank in distribution.  “How could Party Secretaries, who don’t do anything,obtian objects of a 4 level?”

Private relationships are only possible through the party.

Self-criticism sessions are carried out every week.  Since these are routine, people know each other and act accordingly.  Becuase everyone has to criticize each other they tend to do so in a modest way.

Peasants most angry.  Laborers and office workers have time to do business on the side, but peasants do not.  Some bright peasants do tend private plots.

People complain openly now.

While the core class focused on inner-systemic solidarity when faced with a crisis, the wavering and hostile classes were the first to enter the black market.  After business expanded in the country side like wildfire the government brought the businesses into the open in July 2002.  The marginalized societies led the change in values.  Reportedly the collude with the regulatory authorities and security guards, borrow and rent vehicles for biusiness.

Only those sub-classified as Manyongdae line (Kim Il Sung’s lineage), Baektusan line (Kim Jong Il’s lineage), and Ryongnamsan line (People who graduated with Kim Jong Il from Kim Il Sung University) are able to receive official government posts.

Of the total population, 10% makes up the power-holding ruling class.  Another 40% make up a lower social rung doing business and making deals.

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Trading Ideals for Sustenance

Monday, July 4th, 2005

Los Angeles Times
Barbara Demick
7/4/2005

For most of her life, Kim Hui Suk had spouted the sayings of North Korea’s founder Kim Il Sung and never for a moment harbored a doubt: Capitalists were the enemy. Individualism was evil.

But then disaster rained down on her hometown, Chongjin, on North Korea’s remote east coast. Factories ran out of fuel. Food rations stopped. Watching her family slowly succumb to the famine — her mother-in-law, husband and son eventually would die of starvation — Kim realized she had to change.

Once a stickler for following the rules, she bribed a bureaucrat so she could sell her apartment. Then, with no business skills other than the ability to calculate on an abacus, she used the proceeds of the sale to set herself up in a black market business, hawking biscuits and moonshine she brewed from corn.

Kim could have been sent away for life for such crimes. But obeying the rules would have meant a death sentence.

“The simple and kind-hearted people who did what they were told — they were the first to die of starvation,” said Kim, a soft-spoken grandmother who now lives in South Korea and has adopted a new name to protect family members still in the North.

The famine that killed 2 million North Koreans in the mid-1990s and the death of the nation’s founder, Kim Il Sung, in 1994 sparked vast changes across the secretive communist country.

Markets are springing up in the shadows of abandoned factories, foreign influences are breaching the borders, inflation is soaring and corruption is rampant. A small nouveau riche class has emerged, even as a far larger group has been forced to trade away everything for food.

This is the picture of life in North Korea as painted by more than 30 people from Chongjin, the nation’s thirdlargest city. Some are defectors living in South Korea. Others were interviewed in China, which they had entered illegally to work or beg. Accounts of aid workers and videos taken illegally in Chongjin by disgruntled residents were also used to prepare this report.

Although the North Korean regime has a reputation as the ultimate Big Brother, people from Chongjin say the public pays less and less heed to what the government says. There is little that might be called political dissent, but residents describe a pervasive sense of disillusionment that remains largely unspoken.

“People are not stupid. Everybody thinks our own government is to blame for our terrible situation,” said a 39-year-old coal miner from Chongjin who was interviewed late last year during a visit to China. “We all know we think that, and we all know everybody else thinks that. We don’t need to talk about it.”

Kim Sun Bok, a 32-year-old former factory worker who came to South Korea last summer, said the country was “changing incredibly.”

“It is not the same old North Korea anymore except in name.”

Just a decade ago, when people in Chongjin needed new trousers, they had to go to government-owned stores that sold items mostly in drab browns or a dull shade of indigo. Food and other necessities were rationed. Sometimes the government permitted the sale of home-grown vegetables, but even a hairbrush was supposed to be purchased from a state-run shop.

Today, people can shop at markets all over Chongjin, the result of a burst of entrepreneurship grudgingly allowed by the authorities. Almost anything can be purchased — ice cream bars from China, pirated DVDs, cars, Bibles, computers, real estate and sex — for those who can afford the high prices.

The retail mecca is Sunam market, a wood-frame structure with a corrugated tin roof that is squeezed between two derelict factories.

The aisles brim with fresh cucumbers, tomatoes, peaches, scallions, watermelons and cabbage, as shown by rare video footage taken last year by the Osaka, Japan-based human rights group Rescue the North Korean People. Everything else comes from China: belts, shoes, umbrellas, notebooks, plates, aluminum pots, knives, shovels, toy cars, detergents, shampoos, lotions, hand creams and makeup.

Each of Chongjin’s seven administrative districts has a state-sanctioned market. Sunam, the city’s largest, is expanding, and some say it has a wider variety of goods than the main market in Pyongyang. Many vendors wear their licenses pinned to their right breasts while the obligatory Kim Il Sung buttons remain over the heart.

Although markets have been expanding for more than a decade, it was only in 2002 and ’03 that the government enacted economic reforms that lifted some of the prohibitions against them. Most of the vendors are older women such as Kim Hui Suk, a tiny 60-year-old with short, permed hair and immaculate clothing.

She was working in the day-care center of a textile factory in the early 1990s when production ground to a halt. Men were ordered to stay in their jobs, but Workers’ Party cadres at the factory started whispering that the married women, or ajumas, ought to moonlight to provide for their families.

“It was clear that the ajumas had to go out and earn money or the family would starve,” Kim said.

She first tried to raise pigs, locking them in a shed outside her downtown apartment building and feeding them slop left over from making tofu. But the electricity and water were too unreliable to keep the business going.

In 1995, Kim sold her apartment in the choice Shinam district and bought a cheaper one, hoping to use the proceeds to import rice from the countryside. But that too failed when she injured her back and couldn’t work.

The family’s situation became dire. Her husband’s employer, a provincial radio station, stopped paying salaries, and food distribution ended. In 1996, her mother-in-law died of starvation, and her husband the following year.

“First he got really, really thin and then bloated. His last words to me were, ‘Let’s get a bottle of wine, go to a restaurant and enjoy ourselves,’ ” Kim recalled. “I felt bad that I couldn’t fulfill his last wish.”

In 1998, Kim’s 26-year-old son, who had been a wrestler and gymnast, grew weak from hunger and contracted pneumonia. A shot of penicillin from the market would have cost 40 won, the same price as enough corn powder to feed herself and her three daughters for a week. She opted for the corn and watched her son succumb to the infection.

But Kim did not give up. She swapped apartments again and used the money to start another business, this time baking biscuits and neungju, a potent corn moonshine. If buyers didn’t have cash, she would accept chile powder or anything else she could use.

“We made just enough to put food on the table,” said Kim.

Much of Chongjin’s commerce is still not officially sanctioned, so it has an impromptu quality. Money changes hands over wooden carts that can be rolled away in a hurry. Those who can’t afford carts sell on tarpaulins laid out in the dirt.

Fashion boutiques are slapped together with poles and clotheslines, enlivening the monochromatic landscape with garish pinks and paisleys. Some clothes have the labels ripped out and vendors whisper that these items came from araet dongne or the “village below,” a euphemism for South Korea, whose products are illegal in the North.

Shoppers can buy 88-pound sacks of rice emblazoned with U.S. flags, and biscuits and corn noodles produced by three factories in Chongjin run by the U.N. World Food Program — all intended to be humanitarian handouts.

Some people cut hair or repair bicycles, though furtively because these jobs are supposed to be controlled by the government’s Convenience Bureau.

“They will bring a chair and mirror to the market to cut hair,” Kim said. “The police can come at any moment, arrest them and confiscate their scissors.”

Another new business is a computer salon. It looks like an Internet cafe, but because there’s no access to the Web in North Korea, it is used mostly by teenagers to play video games.

More products are available, but inflation puts them out of reach for most people. The price of rice has increased nearly eightfold since the economic reforms of 2002 to 525 won per pound; an average worker earns 2,500 won a month — about $1 at the unofficial exchange rate.

World Food Program officials in North Korea say the vast majority of the population is less well off since the economic changes, especially factory workers, civil servants, retirees and anybody else on a fixed income. But there are those who have gotten rich. Poor Chongjin residents disparage them as donbulrae, or money insects.

“There are people who started trading early and figured out the ropes,” said a 64-year-old retired math teacher who sells rabbits at the market. “But those of us who were loyal and believed in the state, we are the ones who are suffering.”

If Chongjin’s economic center is Sunam market, its political heart is Pohang Square, a vast plaza dominated by a 25-foot bronze statue of Kim Il Sung.

The grass here is neatly mowed, the shrubbery pruned and the pavement in good repair. Even when the rest of the city is without electricity, the statue is bathed in light. Across the street, a tidy pink building houses a permanent exhibit of the national flower, a hybrid begonia called Kimjongilia, named for current leader Kim Jong Il.

Since the practice of religion is barred, Pohang Square stands in as a spiritual center. Newlyweds in their best clothes pose for pictures, bowing to the statue so that their union is symbolically blessed.

When Kim Il Sung died on July 8, 1994, half a million people came to Pohang Square to pay their respects in the pouring rain and stifling heat. But among the adoring multitudes, there were malcontents.

One was Ok Hui, the eldest daughter of entrepreneur Kim Hui Suk. Though she dutifully took her place in the throng, any sadness she felt came from a foreboding that Kim Jong Il would be worse than his father.

“I went day and night along with everybody else. You had to…. But there were no tears coming from my eyes,” recalled Ok Hui, now 39, who did not want her family name published.

Ok Hui worked for a construction company’s propaganda unit, a job that entailed riding around in a truck with a megaphone, exhorting workers to do their best for the fatherland. But she didn’t believe what she preached.

Her father had taught her to doubt the regime. As a reporter and member of the Workers’ Party, he knew more about the outside world than many people and realized how far North Korea lagged behind South Korea and China.

“He and his friends would stay up at night when my mother was out, talking about what a thief Kim Jong Il was,” Ok Hui said.

Her mother, though, remained a firm believer. “I lived only for the marshal. I never had a thought otherwise,” said Kim Hui Suk. “Even when my husband and son died, I thought it was my fault.”

Ok Hui and her mother frequently clashed. “Why did you give birth to me in this horrible country?” Ok Hui remembers taunting her mother.

“Shut up! You’re a traitor to your country!” Kim retorted.

“Whom do you love more? Kim Jong Il or me?” her daughter shot back.

The regime was probably less beloved in Chongjin than elsewhere in North Korea. Food had run out in its province, North Hamgyong, earlier than in other areas, and starvation rates were among the highest in the nation.

Chongjin’s people are reputed to be the most independent-minded in North Korea. One famous report of unrest centers on the city. In 1995, senior officers from the 6th army corps in Chongjin were executed for disloyalty and the entire unit, estimated at 40,000 men, was disbanded. It is still unclear whether the incident was an attempted uprising or a corruption case.

Chongjin is known for its vicious gang wars, and it was sometimes difficult to distinguish political unrest from ordinary crime. There were increasing incidents of theft and insubordination. At factories, desperate workers dismantled machinery or stripped away copper wiring to sell for food.

Public executions by firing squad were held outside Sunam market and on the lawn of the youth park, once a popular lover’s lane.

In a village called Ihyon-ri on the outskirts of Chongjin, a gang suspected of anti-government activities killed a national security agent who had tried to infiltrate the group, former kindergarten teacher Seo Kyong Hui said.

“This guy was from my village. He had been sent to inform on a group that was engaged in suspicious activities,” she said. “They caught him and stoned him to death.”

Work crews went out early in the morning to wash away any anti-regime graffiti painted overnight, according to human rights groups, but most people were too scared to express their discontent. Badmouthing the leadership is still considered blasphemy.

To discourage anti-regime activity, North Korea punishes “political crimes” by banishing entire families to remote areas or labor camps.

“If you have one life to live, you would gladly give it to overthrow this government,” said Seo, the teacher. “But you are not the only one getting punished. Your family will go through hell.”

Even as Kim Jong Il’s regime weakens, many of its stalwarts are growing richer. Many of Chongjin’s well-to-do are members of the Workers’ Party or are connected to the military or security services. In the new economy, they use their ties to power to trade with China, obtain market licenses, extract bribes and sell bureaucratic favors.

“Those who have power in North Korea always figure out ways to make money,” said Joo Sung Ha, 31, who grew up in Chongjin and now works as a journalist in Seoul.

Joo was the pampered only son of a prominent official, and his family lived in Shinam, in the city’s northern hills overlooking the ocean. By the standards of South Korea or China, the single-family homes with lines of fish and squid drying from the roofs are nothing special. But for North Koreans, these are mansions.

The Joo family had a 2,000-square-foot cement-block house and a walled garden about twice that large. The garden proved crucial in protecting the family against the famine, though they had to contend with hungry soldiers who would scale the walls and steal potatoes and cabbages.

North Korean families like to measure their status by the number of wardrobes they own, and Joo’s family had five — plus a television, a refrigerator, a tape recorder, a sewing machine, an electric fan and a camera. They didn’t have a phone or a car — at that time those were unthinkable even for a well-off family — but they did have a bicycle.

“The appliances were of no use after the electricity ran out,” Joo said. “The bicycle was the most important thing, because the buses and trams stopped running.”

Joo attended the best elementary school in Chongjin, the city’s foreign language institute, and eventually the country’s top school, Kim Il Sung University in Pyongyang. He never met a native English speaker in the North, or any foreigner for that matter, but he trained his ear with videotapes of the BBC and banned Hollywood films.

“I sometimes watched ‘Gone With the Wind’ twice a day. Anybody else would have been arrested for watching Hollywood movies,” he recalled.

Joo’s glimpses of Western culture eroded his loyalty to the system. “I saw myself 20 years down the road in the prime of my career and North Korea would be collapsing,” he said.

While many of his classmates went to work for the regime’s propaganda news service after graduating, Joo arranged to return to Chongjin, where he taught high school until he escaped in 2001.

“The people from our neighborhood couldn’t understand,” said Joo, who stays in contact with his family. “They thought I had everything.”

Kim Hye Young, an actress, was also a child of privilege. Her father, Kim Du Seon, was an official of a trading company that sold mushrooms and fish in China. He learned how to navigate the bureaucracy, using his connections with the army and security services.

“If one of [the officials] had a wedding in the family, they would come to me for a couple of cases of wine,” the older Kim said.

As trade with China became more important, the family prospered. They took drives in a company car and ate at Chongjin’s nicest restaurant.

Growing up, Kim showed a flair for theater, and through her acting became a member of the elite in her own right. Her best-known role was in a play called “The Strong and the Righteous,” in which she portrayed a spy who sacrifices her life for North Korea.

When the production won first place in a Pyongyang drama festival in 1996, she got to meet Kim Jong Il. Still breathless with the memory, she said the leader shook her hand and gave her a fountain pen.

“I knew that I, as an actress, had an important role to promote the ideology of my country,” Kim said.

Kim and her sisters were largely oblivious to the famine, and their mother said she took pains to shelter them.

“My daughters don’t know to this day how many children in our neighborhood starved to death,” said her mother, Choe Geum Lan. She also didn’t tell them that their father, as a result of his business trips to China, had become increasingly pessimistic about North Korea’s future.

In 1998, when Kim was home from Pyongyang on vacation, her parents told her the family was going to visit an aunt in Musan, a city near the Chinese border. It was not until they had crossed to the other side that Kim and her teenage sisters, were told they had defected.

Kim, now 29 and advertising toothpaste on South Korean television, is one of the few defectors who says she didn’t want to leave.

“I was content with my life,” she said.

Today, North Korea’s elites are even better off, buying telephones for their homes and even cars.

“For $4,000 or $5,000, anybody can buy a car now. It used to be that you weren’t allowed to register your own car. We couldn’t dream of it,” said Kim Yong Il, a defector from Chongjin who lives in Seoul.

Recently, he arranged to have a computer smuggled from China to his relatives in Chongjin. North Korea’s state-run companies don’t have computers, so they’re eager to hire people who do. “If you have a computer, you can get a job,” he said.

Visitors have been shocked to glimpse the new conspicuous consumption in Chongjin.

Jeung Young Tai, a South Korean academic who was in Chongjin delivering South Korean government aid, noticed a paunchy man standing in front of the Chonmasan Hotel next to a new Lexus.

And at a hot spring in Kyongsong, on the city’s outskirts, he saw a woman carrying a lap dog — a striking sight in a country where there is so little food that the only pets usually are goldfish.

“You get the sense that there is a tremendous gap between rich and poor and that the gap is growing,” Jeung said.

The flip side, of course, is that the poor are getting poorer.

In Chongjin, those at the very bottom of the heap can be found at the train station.

The cavernous building boasts a large portrait of Kim Il Sung above the entrance and a granite-faced clock that rarely tells the right time. In front is a vast plaza crammed with people waiting for trains — sometimes for days, because the trains have no fixed schedules — and people waiting for nothing at all.

These are the homeless, many of them children. They’re called kotchebi, or swallows, because they wander the streets and sometimes between towns in search of food. Many gravitate to Chongjin station, because it is a major hub and the travelers have more to give.

A video shot last year by a military official and sold to Japan’s NTV television captured barefoot children near the station in torn, filthy clothing fighting over a nearly empty jar of kimchi. One boy scooted along the pavement on his buttocks; the narrator said his toes had been eaten away by frostbite.

Kim Hyok knows how easy it is for a child to end up at the station; he spent the better part of two years living there.

“If you can’t find somebody or they left their home, chances are you can find them at the station,” said Kim, now 23 and resettled in South Korea.

Kim’s mother died when he was a toddler, and he was raised by his father, a party member and an employee of a military unit that sold fish in China. During his early childhood, Kim, his father and elder brother lived in relative comfort in a high-rise apartment in the Sunam district.

When the government stopped handing out rations in 1993, Kim’s father used his connections to place his sons in an orphanage 60 miles away.

Kim, who was about 12 at the time, wasn’t sorry to be sent away. It was considered a privilege because the orphanages had food.

In 1997, just before his 16th birthday, Kim “graduated” from the orphanage. He caught a train back to Chongjin, but when he got to his neighborhood, things looked unfamiliar. The electricity was off. Many apartment buildings had no glass in the windows and appeared vacant.

Climbing the eight flights in pitch dark to his family’s unit, he heard a baby crying and wondered whose it might be. Confused and scared, he knocked on the door.

A young couple opened the door and told him his father had moved long ago but left a message: Look for him at the train station.

The phenomenon of vagrancy is testament to how much North Korea has changed. Before the famine, the government controlled people’s movements so strictly that they could not dream of visiting a relative in a nearby town without a travel permit, let alone selling their homes. Not showing up for work could bring a visit from police.

But as people embarked on increasingly desperate hunts for food, families broke apart. With few telephones and a barely functional postal service, parents and children became separated.

“People just started wandering around because they were hungry,” Kim said. “They would sell their apartments for a few bags of rice.”

Kim never found his father. He also never found his brother, who had left the orphanage a year earlier.

With no place to go, Kim ended up at the train station. By night, he slept squeezed into a narrow space designed for a sliding iron gate. By day, he loitered near the food vendors on the plaza. He often worked with a gang of other kids — a few would topple a vendor’s cart and the others would scoop up whatever spilled.

“If you’re not fast, you can’t eat,” said Kim, who even today in South Korea bears the signs of chronic malnutrition, with a head that looks oversized on a shockingly short frame.

Kim began hopping the slow-moving trains that pass through Chongjin on their way to the Chinese border. Once on board, Kim would scramble up to the top of a car, flatten himself to avoid the electric lines above and, using his pack as a pillow, ride for hours.

At the border, he would wade across the river to hawk the items in his pack: household goods on consignment from Chongjin residents, who were selling off their possessions.

In 1998, Kim was arrested by Chinese authorities, who do not recognize North Koreans as refugees. He was sent back to North Korea and spent two years in a prison camp before escaping again in 2000 to China, where he was eventually taken in by missionaries and brought to South Korea.

For every homeless person who survived, many more likely died. Kim Hui Suk recalled a particularly ghoulish scene at the train station.

“Once I saw them loading three bodies into a cart,” Kim said. “One guy, a man in his 40s, was still conscious. His eyes were sort of blinking, but they still were taking him away.”

Although the ranks of the homeless have thinned since the height of the famine, North Korean residents say their numbers are still considerable.

“If somebody disappears, you don’t know whether he dropped dead on the road or went to China,” the coal miner said.

About 100,000 North Koreans have escaped to China in the last 10 years. Many have ended up returning to North Korea, either because they were deported or because they missed their families. They often bring back money, goods to trade and strange new ideas.

Smugglers carry chests that can hold up to 1,000 pirated DVDs. South Korean soap operas, movies about the Korean War and Hollywood action films are among the most popular. Even pornography is making its way in.

This is a radical change for a country so prudish that until recently women were not permitted to ride bicycles because it was thought too provocative. Seo Kyong Hui, the kindergarten teacher, said that when she left North Korea in 1998, “I was 26 years old, and I still didn’t know how a baby was conceived.”

Even today, women are prohibited from wearing short skirts or sleeveless shirts, and both sexes are forbidden to wear blue jeans. Infractions bring rebukes from the public standards police.

But it is a losing battle to maintain what used to be a hermetic seal around the country. Just a few years ago, ordinary North Koreans could make telephone calls only from post offices. Dialing abroad was virtually impossible. Now some people carry Chinese cellphones and pay for rides to the border to pick up a signal and call overseas.

Smugglers also bring in cheap Chinese radios. Unlike North Korean radios, which are preset to government channels, the Chinese models can be tuned to anything, even South Korean programs or the Korean-language broadcasts of Radio Free Asia.

In the past, being caught with such contraband would land a person in political prison. Nowadays, security personnel will more likely confiscate the illicit item for personal use.

When a policeman caught Ok Hui, the entrepreneur’s daughter, with a Chinese radio in 2001, the first question he asked was, “So how do you work this thing?”

She wrote down the frequencies for South Korean radio stations.

“Don’t you have earphones so you can listen without anybody hearing you?” the officer then demanded.

North Korea instructs its citizens that the country is a socialist paradise, but the government knows outside influences can puncture its carefully crafted illusions.

“Bourgeois anti-communist ideology is paralyzing the people’s sound mind-set,” warns a Workers’ Party document dated April 2005. “If we allow ourselves to be affected by these novel ideas, our absolute idolization for the marshal [Kim Il Sung] will disappear.”

Among those who make it to China, many describe a moment of epiphany when they find out just how bad off North Koreans are.

Kim Ji Eun, a doctor from Chongjin, remembers wading across the partially frozen Tumen River in March 1999, staggering to a Chinese farmhouse and seeing a dish of white rice and meat set out in a courtyard.

“I couldn’t figure it out at first. I thought maybe it was for refrigeration,” recalled Kim, who now lives in South Korea. “Then I realized that dogs in China live better than even party members in North Korea.”

Many Chongjin residents who are caught trying to flee the country end up back in the city, behind the barbed wire of Nongpo Detention Center.

It sits near the railroad tracks in a swampy waterfront area. Prisoners are assigned back-breaking jobs in the nearby rice paddies or brick factory, where the workday begins at 5 a.m.

Ok Hui was one of those who served time in Nongpo. A rebel by nature, she had become fed up with North Korea and a difficult marriage.

In September 2001, during one of several failed attempts to escape, she was arrested in Musan and brought back to Chongjin by train. Guards tied the female prisoners to one another by tightly winding shoelaces around their thumbs.

In Nongpo, the inmates bunked in rows of 10, squeezed so tightly together that they had to sleep on their sides. Newcomers sometimes had to bed down in the corridor near overflowing toilets. Meals consisted of a thin, salty soup, sometimes supplemented by a few kernels of raw corn or a chunk of uncooked potato.

“The walls were very high and surrounded by wire,” Ok Hui said. “One woman tried to climb the wall. They beat her almost to death. You can’t imagine. They made us stand and watch.”

One day, when she was assigned to work in the fields, she spotted an old woman. She took off her underwear and offered it to the woman in exchange for sending a message to her mother. Underwear is scarce in North Korea, so the woman accepted and agreed to send a telegram to Ok Hui’s mother.

With her market earnings, Kim Hui Suk bought 10 packs of cigarettes for a security official to arrange her daughter’s release.

Some days later, the prison administrator came to talk to Ok Hui and other female prisoners who were picking corn. They were all due to be freed shortly, and the administrator urged them to resist the temptations of capitalism and imperialism, and to devote themselves to North Korea.

Then, he asked for a show of hands: Who would promise not to run away again to China?

Not a single woman raised her arm.

“We were all just thinking that our whole lives we had been told lies,” Ok Hui recalled. “Our whole lives, in fact, were lies. We just felt this immense rage toward the system.”

The prison administrator looked at the women squatting sullenly in silence in the cornfield.

“Well,” he said, “if you go again to China, next time don’t get caught.”

Forty days after her release, Ok Hui escaped again to China and made her way to South Korea. She used $8,000 in resettlement money from South Korea’s government to pay a broker to smuggle her mother out of North Korea. Today Ok Hui works in a funeral home and her mother as a housekeeper.

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Tourism with a North Korean twist

Tuesday, June 28th, 2005

Asia Times
Andrei Lankov
6/28/2005

This month, Hyundai Asan Corp stated that the number of tourists to have visited the Kumgang Mountain Tourist Project in North Korea since it began operations in 1998 had finally reached one million. This is seen as a reason for some major celebration – as any sufficiently round figure would.

However, in January 1999 Hyundai Asan leaders assured that by the end of 2004, there would have been an accumulative 4.9 million visits to the North. The actual figure was about 900,000. At the same time, Hyundai Asan managers predicted that in 2004 alone some 1.2 million tourists would visit the project. Yet the actual number of visits that year was 274,000.

Does this mean the Kumgang project is a failure? Not quite, since it remains in operation – unlike many other much-trumpeted intra-Korean projects. But it is kept afloat only due to persistent political and financial support from the South Korean government (or, in other words, due to the deepness of the pockets of South Korean taxpayers). Within its short history, the project has been on the verge of bankruptcy, and has even seen its chief executive officer driven to suicide.

The project was conceived in 1989, when Chung Ju-yung, the founder of Hyundai Group, spent a week in North Korea negotiating with the Pyongyang leaders, including president Kim Il-sung himself. The chairman of Korea’s largest industrial conglomerate was born in what is now North Korea, and in last years of his long and eventful life he demonstrated a sentimental attachment to his native land, being the most enthusiastic proponent of South Korean investment in the North.

One of the schemes briefly discussed during his 1989 visit was the idea of setting up a large tourist park in North Korea, to be used by South Korean tourists. The park was to be located in the Kumgang (“Diamond”) mountains, which for centuries have been seen in Korean culture as an embodiment of scenic beauty. The mountains conveniently lay near the Demilitarized Zone, or DMZ, the border between the two Korean states.

However, it took a decade and some major political changes to start the project moving. By the mid-1990s, Seoul realized that the collapse of North Korea was both unlikely and undesirable, since a German-style unification would be prohibitively costly. Hence, investment to the North and all kinds of direct and indirect aid came to be seen as a necessity by the new left-leaning administration of president Kim Dae-jung, who was elected in 1997.

That meant Chung Ju-yung’s plans received government support. He moved ahead with his characteristic energy, and in November 1998, the Kumgang project began to operate.

The idea was simple. The North Koreans agreed to create a sort of ghetto for South Korean visitors. A part of the Kumgang mountains was fenced off, with all the local population moved away. The South Korean tourists took a cruise ship to the area. The ship moored in a local harbor while the visitors ventured out for mountain walks and sight-seeing. Typically, a tour lasted for four days and three nights, and tourists lived onboard the cruise ship, which doubled as a floating hotel.

This clever scheme solved the problem of information flow, which was seen by Pyongyang as the major obstacle in its interactions with the South. North Korean commoners are supposed to believe that their South Korean brethren suffer under the cruel yoke of US imperialists. Understandably, their government does not want them to know that the per capita gross national project (GNP) in South Korea is 20 to 30 times higher than in the North. The sight of well-dressed South Korean crowds would be damaging for public morale and even political stability, but in the tourist scheme the rich southerners could be kept out of sight of average North Koreans, being accompanied only by a handful of carefully selected minders.

The South Korean visitors also had to behave themselves. They were warned that they could not criticize the North Korean system and its leaders, and that, in general, talking politics with North Korean personnel was not advisable. Transgressions could be punished.

In June 1999, Min Yong-mi, a 35-year-old housewife from Seoul, was engaged in talks with a North Korean minder. She told him a few words about South Korean prosperity and said something to the effect that North Korean defectors in the South were doing well. The reaction was swift: the talkative lady was arrested and spent one week in detention, accused of espionage. Of course she was not put into a real prison, but the ordeal was tough enough to undermine her health. There are good reasons to suspect that the entire affair was a deliberate provocation: the North Korean authorities were waited for something like this to happen to demonstrate that no quasi-political activities would be tolerated. They wanted to make an example of Min, and they generally succeeded: since then, tourists have become far more cautious.

Moneywise, the North Koreans were doing very well, too. The Hyundai Group built all the necessary infrastructure (presumably including the fences to keep the South Korean visitors under control), and also paid US$12 million every month as a fee for the use of the area. Some additional income was earned by North Korea through the sale of grossly overpriced local products and souvenirs.

Initially these conditions were accepted, not only because Chung Ju-yung was sentimental (and over-optimistic) about investment to North Korea, but also because a large tourist flow was expected. According to the above-cited sanguine estimates of 1999, by 2003 the numbers were supposed to reach the level of one million visitors per year – and then exceed them.

However, the plan did not work out as intended. Contrary to initial expectations, South Koreans were not too eager to spend their short vacations behind barbed wire. The early enthusiasm soon wore out, and from 2,000 the numbers of tourists began to decline. The trips were not cheap: the cost in 1998-99 was about 650,000 to 750,000 won (some $500-600 at the current rate). South Koreans soon discovered that for a similar amount of money they could visit China or even some parts of Southeast Asia, where apart from the scenery they would have some exposure to foreign cultures and would not feel under constant control and supervision.

The reformist drive of the Seoul government also contributed to the project’s mounting problems. Until early 2001, other subsidiaries of the mighty Hyundai Group were helping Hyundai Merchandise Marine, which initially operated the Kumgang Project. But as a result of government-initiated reforms of chaebol (conglomerates), the Hyundai Group was disbanded, after which independent companies of the former chaebol were not too eager to keep afloat a struggling project. In April 2001, Hyundai halved the number of trips to Kumgang and stated that the project would be discontinued due to the great loss of money.

Trouble in paradise
The government, however, could not allow this to happen; by that time the project had acquired huge symbolic importance. By 2001, the Kumgang project had become by far the largest intra-Korean economic operation, and the Kim Dae-jung administration, bent on keeping its “sunshine” engagement policy going, could not afford to lose the major symbol of such policy.

A rescue package saved the project from demise. The government-owned Korea National Tourist Organization was ordered to take part in the project and pay some of the overdue bills. The government also occasionally paid for generous discounts for many groups of people. For nine months in 2002, for example, the government paid 70% of the traveling expenses for elementary, middle and high school students, and 60% as well as all costs for students and teachers living in rural areas.

The North Koreans also demonstrated uncharacteristic flexibility when in 2001 they reluctantly agreed to accept payments depending on the number of tourists and the length of their stay, instead of the earlier fixed fee. Currently, these payments amount to $50 per tourist with a standard package of two nights, and $25 for a tourist who stays only one night.

Thus, the project survived the first crisis – only to be struck by a new one. This time, the reasons were political: the opposition uncovered evidence which showed that in order to secure Pyongyang’s agreement to participate in the North-South summit of June 2000, Seoul had secretly transferred $500 million to North Korea.

It was only logical that this clandestine money transfer was conducted with the involvement of Hyundai Asan. First, the survival of the corporation would be impossible without government involvement, and this meant its leaders could hardly say “no” when asked by the authorities to “help” in some delicate affair. Second, being the largest South Korean operation in North Korea, Hyundai Asan had both vested interests in intra-Korean detente and experience in dealing with money transfers of such kinds (there are some good reasons to suspect that the ill-fated “summit fees” were not the only clandestine money transfer to Pyongyang).

The discovery of the “summit bribe” led to a political scandal. An investigation ensued, and the then-head of Hyundai Asan, Chiung Mong-hun, the 55-year-old son of the conglomerate’s founder, found himself in the center of the scandal. He could not handle the stress. Amid mounting political pressures, he committed suicide by throwing himself out of his headquarters’ window on August 4, 2003.

Yet once again the Kumgang project survived the blow. In May of this year, Hyundai Asan stated it would probably make a profit in 2005. If that happens it will be the first time a profit has been recorded in the company’s history – of course, we are talking about ongoing costs and revenues, without considering the estimated $470 million that has been invested in the project so far. Nonetheless, it is clear that the situation has improved over the past few years, even if the actual performance would not be considered satisfactory in a less politically motivated project.

The improvement was brought about by the opening of a land route in 2003 that replaced the earlier cruises. Now, South Korean tourists board buses near the checkpoint and then travel to hotels operated by Hyundai Asan in the same Kumgang area. Currently, two hotels are operational, but the number will probably increase. The new tours can be shorter, with two nights being the norm. The new scheme also cuts down prices considerably, making the trip somewhat more attractive at 300,000 to 400,000 won (roughly, $350-$400) per person.

The basics of the tour remain unchanged, however: South Koreans are placed in a sort of ghetto, behind high fences carefully guarded by sentries. The tourists can shop for North Korean souvenirs, which are sold at exorbitant prices. It seems ant liquor and snake wine (with a real dead snake floating inside the bottle) are especially popular among males – both are believed to be good for virility. An acrobatics show and a hot spring are additional pleasures available for visitors – if they are willing to pay. A visit to the hot spring, for example, costs some $30, or about half of the average annual salary in North Korea.

Outside their hotels, tourists are constantly supervised by their North Korean guides, mostly young girls who are obviously selected for their good looks and, presumably, political reliability. There are some males as well, who dress in plain clothes. All guides are equipped with their Kim Il-sung badges, and are ever ready to deliver a well-rehearsed eulogy to the Great Leader and his son and successor, Dear Leader Kim Jong-il, in suitably exalted tones.

Combined with large iconic pictures of Kim Il-sung and Kim Jong-il on major crossroads and eulogies to their greatness carved in mountain rock, this creates a very bizarre picture of time travel: for one who wants to experience the feelings of visitors to Mao Zedong’s China in the early 1970s or Stalin’s Russia in the late 1930s, the place is worth a visit. Admittedly, not many foreigners rush to see the Stalinesque environment, long extinct elsewhere: even though formalities are kept at a bare minimum, only 0.5% of all visitors are foreign citizens.

Looking at the North Koreans present on the scene, one cannot help but wonder what is actually happening inside the heads of these highly privileged people, more often than not agents of the secret police or scions of well-connected families. The crowds of well-dressed, well-fed South Koreans contradict the official picture of the South as an impoverished domain of US imperialists and Japanese neo-colonialists. The selected few probably don’t ask questions, but they arrive at some conclusions no doubt.

However, this impact should not be overestimated. After all, the project was conceived in a way that allowed the impact of the South Korean visitors to be kept as low as possible. The number of North Koreans allowed to see these visitors is intentionally kept very low. Until recently, Pyongyang did not allow the Kumgang project to employ local personnel, and only recently have North Korean waitresses and cooks appeared at some restaurants and in one of the hotels. Their attitude vividly reminds this writer of the privileged Intourist hotel in Leningrad, which had the same air of unintended rudeness in dealing with its foreign guests, and great superiority in interacting with Soviet citizens. Nonetheless, at the Kumgang project, the presence of some 400 North Korean employees (excluding the guides and plain-clothed minders) is significant. However, most of the semi-skilled personnel are ethnic Koreans recruited from China – they agree to work for very low wages.

How will historians see the Kumgang project and the much-trumpeted “intra-Korean cooperation” in general? As a selfish attempt by affluent South Koreans to prolong the existence of a brutal dictatorship in order to save themselves from the troublesome necessity of paying for North Korea’s transformation? Or as an important contribution toward this transformation, a way to slightly open the closed doors of North Korean society and teach its inhabitants a thing or two about the modern economy and modern world? Perhaps they will see it as a way to support the expensive habits of the North Korean elite, or a way to ameliorate suffering of the commoners. We know not, but one thing is clear: business with North Korea is, first and foremost, a political affair, and this is unlikely to change in the foreseeable future.

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Kaesong Firms Required to Buy NK Insurance

Thursday, June 9th, 2005

Korea Times
Na Jeong-ju
6/9/2005

South Korean companies setting up operations in the Kaesong industrial complex face difficulties due to a North Korean obligation that they must purchase insurance policies from a North Korean state-run firm.

North Korea demands that South Korean firms have insurance against accidents with a North Korean state-run firm, but they question whether it is financially stable enough to cover all possible accidents.

According to related regulations set up by North Korea last November, South Korean firms in the Kaesong industrial complex must buy insurance policies from North Korean firms. If South Korean companies didn’t follow the rule, they had to pay $10,000 in fines.

South Korean firms regard this rule as unfair.

“We have to buy insurance from a North Korean company despite its inability to cover possible accidents,’’ said an official of a company in the Kaesong complex.

“We have asked the South Korean government to correct this problem because we don’t trust North Korean companies.’’

According to sources, the Unification Ministry, the Financial Supervisory Commission and the Korea Non-Life Insurance Association (KNIA) will hold a meeting today to discuss the matter. The South Korean government has been aware of the problem faced by South Korean companies, but it has delayed notifying the issue to North Korea, the sources said.

“South Korea should have a consultation with North Korea to address insurance matters,’’ a source said. “North Korea may be active in correcting the problem, but it may demand something in return.’’

Currently, a total of 15 South Korean companies have signed contracts with Hyundai Asan, a North Korean business arm of Hyundai Group, to set up a factory in the Kaesong complex. Hyundai Asan has the exclusive rights to develop the Mt. Kumgang tourism complex and the Kaesong complex under agreements signed in 2000.

“South Korean companies have asked the government to check the financial status of the North Korean insurance firm, but they have received no answer,’’ a KNIA official said. “In case of accidents, insurance firms must conduct investigations and check the financial status of policyholders. In this sense, we believe North Korean insurance companies are not capable.’’

North Korea has only one insurance company run by the government, but South Korean companies have little information about it.

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Overview of DPRK economic reform efforts

Tuesday, April 12th, 2005

The BBC offers a summary of economic conditions in the DPRK:

The focus of the international community’s alarm over North Korea is the isolated nation’s nuclear arsenal, and its refusal to talk about it.

An aspect that is sometimes overlooked is the dire state of its economy, and yet this could be at the heart of the nuclear crisis.

The regime, with few allies in the world, cannot appeal to the sort of humanitarian emotions that African or South Asian nations have in the past.

To ensure the flow of food and oil, it must have a bargaining chip, and its nuclear arsenal is that chip.

Therefore Pyongyang’s diplomatic bluster is inextricably linked to its need to keep what remains of its economy propped up by donations.

North Korea has recently attempted limited reforms to its economy, but these have not been comprehensive or well-enough planned to work.

Pushed into reform

North Korea became an independent state in 1953, and has operated a rigid centrally planned, or “command” economy based on that developed by Stalin in the USSR.

Industry and agriculture are planned on a five-year basis, all farms are collectivised, volume is praised over value and most foods and goods are rationed.

This model initially allowed for rapid industrialisation and rebuilding, but it failed to deliver sustainable growth or raise living standards.

The economy began to collapse, and by the mid-1990s the country was in a state of famine. The industrial base and the agricultural sector have been in decline ever since. Beijing, North Korea’s only real ally, decided to act in October 2001 with an economics lesson for North Korean leader Kim Jong-il.

He was shown round a GM plant and a hi-tech factory in Shanghai, and received a lecture about the benefits of Chinese-style reform.

The Chinese were effectively telling Mr Kim that it was time for change – and that they were fed up with the growing number of refugees fleeing over the Chinese border, and increasing demands for aid.

Mr Kim realised he needed to keep China close, and in June 2002 announced a series of economic reforms.

Pyongyang partially ended rationing and reformed the wages and pricing system.

Retail prices shot up – rice by 55,000%, corn 5,000%, electricity 143% and public transport fares 2,000% – but average wages increased by just 1,818% – from 110 won to 2,000 won (US$22) per month.

It also allowed private farmers’ markets to expand – to provide more goods for the consumers this monetary liberalisation had created.

Another major plank of the reforms was the new investment zone in Sinuiju – and another one in Kaesong, agreed as part of Kim Dae-jung’s Sunshine Policy.

These investment zones used foreign investment to create new economic ventures.

But neither the wage and pricing reform, nor the investment zones, have worked.

Scarce resources

The government had hoped that inflation created by the reforms, if kept under control, would “kick-start” the economy.

But this theory assumed there was a mass of underutilised resources waiting to be kick-started. Twenty-five years of decline meant that these resources were now scarce.

More food found its way into the farmers’ markets, but at prices ordinary people could not afford.

This effective legitimisation of private farming and smuggling across the border from China only succeeded in increasing the availability of goods to the elite – those whose wages were protected or had access to foreign currency.

As for the economic zones, Sinuiju’s position, opposite China’s flourishing economic zone in Dandong, annoyed Beijing.

It consequently arrested the Chinese businessman hired to run Sinuiju, imprisoning him for 18 years for tax evasion and effectively ending the project.

Kaesong survives but all the ventures are foreign-owned, with little benefit, therefore, for North Korea.

By the end of 2002, economic growth was estimated at just 1.2% at best, with the average citizen’s purchasing power severely eroded.

For most ordinary North Koreans, the end result of the reforms was further impoverishment and the eroding of any savings they may have been able to build up.

So, in light of the reforms’ failure, North Korea’s alleged announcement in October 2002 that its country was pursuing an enriched uranium programme could be interpreted as a return to its old bargaining tactics.

The international community responded to the announcement by setting up six-party talks in August 2003.

But the diplomacy is failing because North Korea, with no allies but the increasingly exasperated Chinese, and little prospect of economic revitalisation, needs to ensure a continued drip feed of aid.

That means a hard bargaining process, and Mr Kim has one bargaining chip – his nuclear bombs.

Already twice, as far as we know, Beijing has managed by persuasion, and perhaps a little economic pressure, to get Pyongyang back to the table after talks have stalled.

Now Beijing is trying again. Perhaps what Pyongyang wants most is a serious package of economic aid from China.

China may provide it to get the talking started again.

But the price Beijing will need to demand is that Pyongyang restarts economic reform in earnest, and moves away from the continual brink of collapse that forces it to make desperate diplomatic gambles such as the current crisis.

As for the economy today, it has to all intents and purposes collapsed.

The reforms were limited, and benefited just the elite of the country rather than ordinary people.

The basic structure remains in place and continues to erode the economy.

However, as long as the regime can keep the country isolated, it can survive on this drip-feed indefinitely.

The endgame is simple – regime survival. It is a long-term strategy using diplomatic belligerence and military threat to secure enough aid to maintain power and isolation.

The regime may survive, and may under pressure begin another round of tentative reform, but it seems unlikely that life will improve for ordinary North Koreans any time soon.

Read the full story here:
Economy root to N Korea crisis
BBC
Paul French
2005-4-12

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