North Korean Economy Watch

Asia Times
Andrei Lankov
4/6/2005

A defector from the North, a typical tough Korean auntie with trademark permed hair, smiled when asked about “men’s role” in North Korean families: “Well, in 1997-98 men became useless. They went to their jobs, but there was nothing to be done there, so they came back. Meanwhile their wives went to distant places to trade and kept families going.”

Indeed, the sudden increase in the economic strength and status of women is one of manifold changes that have taken place North Korea over the past 10 or 15 years. The old Stalinist society is dead. It has died a slow but natural death over the past decade and, in spite of Pyongyang’s frequent and loud protestation to the contrary, capitalism has been reborn in North Korea. The old socialist state-managed economy of steel mills and coal mines hardly functions at all, and the ongoing economic activity is largely private in nature.

But the new North Korean capitalism of dirty marketplaces, charcoal trucks and badly dressed vendors with huge sacks of merchandise on their backs demonstrates one surprising feature: it has a distinctly female face. Women are over-represented among the leaders of the growing post-Stalinist economy – a least on the lower level, among the market traders and small-time entrepreneurs.

This partially reflects a growth pattern of North Korean neo-capitalism. Unlike the restoration of capitalism in the former Soviet Union or China, the “post-socialist capitalism” of North Korea is not an affair planned and encouraged by people from the top tiers of the late communist hierarchy. Rather, it is capitalism from below, which grows in spite of government’s attempts to reverse the process and turn the clock back.

Until around 1990, the markets and private trade of all kinds played a very moderate role in North Korean society. Most people were content with what they were officially allocated through the elaborate public distribution system, and did not want to look for more opportunities. The government also did its best to suppress the capitalist spirit. The rations were not too generous, but still sufficient for survival.

And then things began to fall apart. The collapse of the Union of Soviet Socialist Republics brought a sudden end to the flow of the Soviet aid (which was, incidentally, happily accepted but never publicly admitted by the North Korean side). This triggered an implosion of the North Korean economy. In the early 1990s people discovered that the rations were not enough for survival, and thus something had to be done. In a matter of years acute shortages of food developed into a large-scale famine, and in 1994-96 the public distribution system ceased to function in most parts of the country.

But men still felt bound to their jobs by their obligations and rations (distributed through workplaces). Actually, rations were not forthcoming, but this did not matter. Being used to the stability of the previous decades, the North Koreans saw the situation as merely a temporary crisis that soon would be overcome somehow. No doubt, they reasoned, one day everything will go back to the “normal” (that is, Stalinist) state of affairs. So men believed that it would be wise to keep their jobs in order to resume their careers after eventual normalization of the situation. The ubiquitous “organizational life” also played its role: a North Korean adult is required to attend endless indoctrination sessions and meetings, and these requirements are more demanding for males than for females.

Women enjoyed more freedom. By the standard of the communist countries, North Korea has always had an unusually high percentage of housewives among its married women (for example, in the northern border city of Sinuiju, up to 70% of married women were estimated to be housewives in the 1980s). While in most other communist countries women were encouraged to continue work after marriage, in North Korea the government did not really mind when married women quit their jobs to become full-time housewives.

Thus when the economic crisis began, women were first to take up market activities of all kinds. This came very naturally. In some cases they began by selling those household items they could do without, or by selling homemade food. Eventually, this developed into larger businesses. While men continued to go to their plants (which by the mid-1990s had usually ceased to operate) women plunged into market activity. In North Korea such trade involved long journeys in open trucks, and nights spent on concrete floors or under the open skies; they often bribed predatory local officials. And, of course, women had the ability to move heavy material, since the vendor’s back tends to be her major method of transportation.

This tendency was especially pronounced among low- and middle- income families. The elite received rations even through the famine years of 1996-99, so the women of North Korea’s top 5% usually continued with their old lifestyle. Nonetheless, some of them began to use their ability to get goods cheaply. Quite often, the wives of high-level cadres were and still are involved in resale of merchandise that is first purchased from their husbands’ factories at cheap official prices. It is remarkable that in the case of North Korea such activities are carried out not so much by the cadres themselves, but by their wives. Cadres had to be careful, since it was not clear what was the official approach to the new situation of nascent capitalism. Thus it was assumed that women would be safer in such undertakings since they did not, and still do not, quite belong to the official social hierarchy.

But for the cadres’ wives, these market operations were a way to move from being affluent to being rich. The lesser folks had to do something just to stay alive.

Perhaps, had the state given its formal approval to nascent capitalism (as did the still formally “communist” state of China), the men would be far more active. But Pyongyang officialdom still seems to be uncertain what to do with the crumbling system, and it is afraid to give to unconditional approval to capitalism. Thus men are left behind and capitalism is left to women.

This led to a change in the gender roles inside families. On paper, communism appeared very feminist, but real life in the communist states was an altogether different matter, and among the communist countries North Korea was remarkable for the strength of its patriarchal stereotypes. Men, especially in the more conservative northeastern part of the country, seldom did anything at home, with all household chores being exclusively the female domain. But in the new situation, when men did not have much to do while their wives struggled to keep the family fed and clothed, many men changed their attitude that housework was something beneath their dignity (at least this is what recent research among the defectors seem to suggest). As one female defector put it, “When men went to outside jobs and earned something, they used to be very boastful. But now they cannot do it and they become sort of useless, like a streetlight in the middle of the day. So a man now tries to help his wife in her work as best as he can” to keep the family going.

Recently, when it is increasingly clear that the “old times” are not going to return, some men are bold enough to risk breaking their ties with official employment. But they often go to market not as businessmen in their own right but rather as aides to their wives who have amassed great experience over the past decade. Being newcomers, males are relegated to subordinate positions – at least temporarily. Or alternatively, they are involved in more dangerous and stressful kinds of activity, such as smuggling goods across the badly protected border with China. As one woman defector said: “Men usually do smuggling. Men are better in big things, you know”.

Economic difficulties and change in money-earning patterns as well as new lifestyle and related opportunities in some cases led to family breakdowns. In South Korea the economic crisis of 1998 resulted in a mushrooming divorce rate. In the North, the nearly simultaneous Great Famine had the same impact, even if in many cases the divorce was not officially recognized.

Of course, we are talking about a great disaster here, and a large part of the estimated 600,000-900,000 people who perished in those years were women. Of the survivors, not all women became winners, bold entrepreneurs or successful managers: some were dragged into prostitution, which has made a powerful comeback recently, and many more had to survive on whatever meager food was available. But still, it seems that years of crisis changed the social roles in North Korean families. For many women, the social disaster became the time when they showed their strength, will and intelligence not just to survive, but also to succeed.

Korea Economic Institute
Oh-Seung Yeul

February 2005

Download in PDF: Oh.pdf

Trade, reform, inter-Korean cooperation, China, IT, aid.

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From Chongryun:

On December 11, 2004, the DPRK finalized management, entry and residency regulations, and customs regulations for the Kaesong Industrial Zone.

Set up under a de facto constitution, the “Kaesong Industrial Zone Management Institution” consist of 21 articles.

The Management Institution is a corporation in charge of administrating the region.  People who have experience in these kinds of managemnt fields can work for the Institution, but employees of firm that operate in the zone are no allowed to serve.

The Institution will make annual plans for the development of the zone on its own and carry out the plans and will discuss with the central leading organ of the zone in case an important problem arises in the course of its work.

Entry and residence articles: 30

The regulations apply to South Koreans, overseas Koreans and foreigners who come to the zone from the South or do so by transportation means using the same route. According to the regulations, persons can enter the zone by showing their passports or certificates issued by the management institution.

They can stay in the zone for a long or short term. A short term stay is within 90 days and a long term stay is over 91 days. The extension of their stay is permitted if they applied for it at the immigration office of the industrial zone. Excluded from extended stay are those who are expected to leave the zone within 7 days from their arrival, as well as members of international organizations and foreign missions in South Korea, tourists and those who are not required to register themselves for their stay.

The regulations also clarify the issue of certificates related to entry into the zone, procedures for issuing the certificates of stay and residence registration cards and the extension of their term of validity, orders of deportation from zone, etc.

Customs

According to the regulations, goods, postal matter and persons engaged in transport service who stay in the zone for a certain length of time, can pass through the customs clearance house.

The goods that are sent by organizations and enterprises in the DPRK to the zone are exempt from customs procedures. But customs should be imposed on the goods from other countries which are to be sold in the DPRK as they are, without being processed.

Also clarified in the regulations are the rules of customs registration, the rules of customs exemption and payment, presentation of applications for permits to carry goods into and out from the zone, declaration of postal matter and personal belongings, customs inspection and supervisory institutions, the inspection method of goods to be carried into or carried out from the zone, standard customs rates and calculation methods, etc.

The goods prohibited to be carried into the zone include weapons, bullets, explosives and other materials for military use, narcotics, radioactive material, toxic chemical agents, printed matter that may adversely affect public order and good manners and customs of the nation and listed goods coming from contagious disease-afflicted areas.

Those goods banned to be taken out from the zone include weapons, bullets, explosives, materials for military use, lethal weapons, wireless apparatuses and their accessories, poisonous substances, powerful medicines, narcotics, radioactive material, toxic chemical agents, historical relics, secret documents, printed matter (copies included) and their manuscripts, films, photos, cassettes and video tapes, records, compact disks and other goods which are banned from being carried out under related agreement.

Asia Times
Andrei Lankov
12/4/2004

A creeping revolution, both social and economic, is under way in North Korea and it seems there’s no turning back. For decades, the country served as the closest possible approximation of an ideal Stalinist state. But the changes in its economy that have taken place after 1990 have transformed the country completely and, perhaps, irreversibly.

For decades, Pyongyang propaganda presented North Korea as an embodiment of economic self-sufficiency, completely independent from any other country. This image sold well, especially in the more credulous part of the Third World and among the ever-credulous leftist academics. The secret of its supposed self-sufficiency was simple: the country received large amounts of direct and indirect aid from the Soviet Union and China, but never admitted this in public. Though frequently annoyed by such “ingratitude”, neither Moscow nor Beijing made much noise since both communist giants wanted to maintain, at least superficially, friendly relations with their small, capricious ally.

But collapse of the Soviet Union made clear that claims of self-sufficiency were unfounded. From 1991, the North Korean economy went into free fall. Throughout 1991-99, the gross national product (GNP) of the Democratic People’s Republic of Korea (DPRK) nearly halved. The situation became unbearable in 1996, when the country was struck by a famine that took, by the best available estimates, about 600,000 lives. The famine could have been prevented by a Chinese-style agricultural reform, but this option was politically impossible: such a reform would undermine the government’s ability to control the populace.

The control on daily lives was lost anyway. What we have seen in North Korea over the past 10 years can be best described as collapse of what used to be rigid Stalinism from below. In the Soviet Union of the late 1950s and in China of the late 1970s, Stalinism-Maoism was dismantled from above, through a chain of deliberate reforms planned and implemented by the government. In North Korea the same thing happened, but the system disintegrated from below, despite weak and ineffectual attempts to keep it intact.

In the 1960s, North Korea was unique in being the only nation in the world where markets were outlawed. The retail trade in a strict sense almost ceased to exist since virtually everything, from socks to apples, was distributed through an elaborate public distribution system with money payments being rather symbolic. The rations depended on a person’s position in the intricate social hierarchy, which eventually became semi-hereditary. In Kim Il-sung’s North Korea, there was almost nothing that could be sold on market since production outside the state economy was almost non-existent.

Unlike governments of other communist countries, until the late 1980s the North Korean government did not even allow its farmers to cultivate kitchen gardens – the individual plot was limited to merely 20-30 square meters, hardly enough to grow enough chili pepper. This was done on purpose. In many other communist countries, farmers had bigger plots and made their living from them, ignoring their work obligations to the state-run cooperative farms. Without their own plots, farmers would work more for the state – or so believed the North Korean government. In the utopia constructed by Kim Il-sung, every single man or woman was supposed to work for the state, and was rewarded for his and her efforts with officially approved rations and salaries.

In 1969, Kim himself admitted that the anti-market policy had been a failure. Thus private markets were gradually legalized, but remained small and strictly controlled. However, as late as late 1980s, markets were still considered inappropriate for a “socialist paradise”. They were something to be ashamed of, so they were pushed to the margins of the city. Until the early 1990s, most markets were in places more or less hidden from view, inside residential blocks and behind high concrete walls. In Pyongyang, the main city market was set up under a huge viaduct at the easternmost part of the North Korean capital, as far from the city center as possible.

However, the economic disaster of 1991-95, and especially the subsequent famine, changed the situation. Markets began to spread across the country with amazing speed. From 1995-97, nearly all plants and factories ceased to operate. The rations were not issued anymore: in most areas people still received ration coupons but these could not be exchanged for food or other rationed goods. Only in Pyongyang and some other politically important areas did food continue to be distributed. But even there, the norms were dramatically watered down. In such a situation, the ability and willingness to engage in some private business became the major guarantee of physical survival.

The government also relaxed the restrictions on domestic travel. Since around 1960, every North Korean who ventured outside his native county was required to have a special “travel permit” (an exception was made for one-day travel to neighboring counties). However, in the mid-1990s, the authorities began to turn a blind eye to unauthorized travel. It is not clear whether it was a deliberate relaxation or just inability to enforce regulations when the state bureaucracy was demoralized. After all, a bribe of some US$5 would buy such a permit from a police officer.

The tidal wave of small trade flooded the country, which once came very close to creating a non-money-based economy. People left their native places in huge numbers. Many sought places where food was more available while others enthusiastically took up the barter trade, including smuggling of goods to and from China. Women were especially prominent in the new small businesses. Many North Korean women were housewives or held less-demanding jobs than men. Their husbands continued to go to their factories, which had come to a standstill. The males received rationing coupons that were hardly worth the paper on which they were printed. But North Korean men still saw the situation as temporary and were afraid to lose the trappings of a proper state-sponsored job that for decades had been a condition for survival in their society. While men were waiting for resumption of “normal life”, whiling away their time in idle plants, the women embarked on frenetic business activity. Soon some of these women began to make sums that far exceeded their husbands’ wages.

The booming markets are not the only place for retail trade. A new service industry has risen from the ashes: private canteens, food stalls and inns operate near the markets. Even prostitution, completely eradicated around 1950, made a powerful comeback as desperate women were eager to sell sexual services to the newly rich merchants. Since no banking institution would serve private commercial operations, illegal money lenders appeared. In the late 1990s they would charge their borrowers monthly interests of 30-40%. This reflected very high risks: these lenders had virtually no protection against the state, criminals and, above all, bad debtors.

In North Korea, which for decades was so different, this meant a revolution. The new situation undermined the government’s ability to control the populace. People involved in the new market activities are independent from (or inured to) subtle government pressures that had ensured compliance for decades. One cannot promote or demote a vendor, transfer him or her to a better or worse job, nor determine his or her type of residence (though admittedly, most people still live in the houses they received when the old system was still operating).

The growth of new markets also undermined some pillars of old North Korean hierarchy. Of course, many people who became affluent in the new system came from the old hierarchy – as was the case in most post-communist countries. Officials or managers of state-run enterprises found manifold ways to make an extra won. These managers often sold their factories’ products on the market. But many hitherto discriminated-against groups managed to rise to prominence during this decade. The access to foreign currency was very important, and in North Korea there were three major groups who had access to some investment capital: the Japanese-Koreans, Chinese-Koreans and Korean-Chinese.

The Japanese-Koreans moved into the country in the 1960s (there were some 95,000 of them – with family members, children and grandchildren, their current number can be estimated at 200,000-250,000). These people have relatives in Japan who are willing to send them money. Traditionally, the authorities looked at Japanese-Koreans with suspicion. At the same time, since money transfers from Japan have been a major source of hard currency for Pyongyang, their activities were often tolerated. This particular group even enjoyed some special rights, being privileged and discriminated against at the same time. When the old system of state control and distribution collapsed, Japanese-Koreans began to invest their money into a multitude of trade adventures. It did not hurt that many of them still had the first-hand experience of living in a capitalist society.

Another group were people with relatives in China. The economic growth of China meant that the relatives could also help their poor relatives in North Korea. In most cases, this was not in the form of money transfers, but assistance in business and trade. The local ethnic Chinese were in an even better position to exploit the new opportunities. For decades, they have constituted the only group of the country’s inhabitants who could travel overseas as private citizens more or less at their will. Even in earlier times, the ethnic Chinese used this unique position to earn extra money by small-scale and part-time smuggling. In the 1990s, they switched to large operations. There is an irony in the sudden economic advance of these groups. For decades, their overseas connections have made them suspect and led to systematic discrimination against them. In the 1990s, however, the same connections became the source of their prosperity.

Until recently, the government did not try to lead, but simply followed the events. The much-trumpeted reforms of 2002 by and large were hardly anything more than the admission of the situation that had been existing for a few years by then. The official abolition (or near-abolition) of the public distribution system did not count for much, since this system ceased to operate outside Pyongyang around 1995.

But the North Korean economy has indeed come a long way from its Stalinist ways. Now the government has neither money nor support nor the political will to revive the Stalinist-style central economy. There is no way back, only forward. Stalinism is dead. Welcome to capitalism, comrades!

From KCNA:

Regulations of Insurance in Kaesong Industrial Zone Adopted

Pyongyang, October 11 (KCNA) — Decision No. 35 of the Presidium of the DPRK Supreme People’s Assembly “On the Adoption of the Regulations of Insurance in the Kaesong Industrial Zone” dated September 21, Juche 93 (2004) has been published. The decision says the regulations were adopted and the Cabinet and organs concerned of the DPRK are to take working measures for their implementation. 

The regulations consist of 28 articles.

The mission of the regulations is to strictly establish the system and order in the work of insurance in the Kaesong industrial zone so as to help toward stabilizing the business activities and life of those who reside and stay there.

The regulations are applied to the enterprises, branches and offices established in the Kaesong industrial zone.

They are applied also to the south Koreans, overseas Koreans and foreigners who stay and reside in the industrial zone.

First foreign practice is a lure to investors : Law firm allowed in Pyongyang
Associated Press (via Herald Tribune)
Andrew Salmon
9/8/2004

North Korea has allowed the establishment of the country’s first private law firm as part of its efforts to attract international investors, according to a principal in the new venture.

Hay, Kalb & Associates opened its office on Kim Il Sung square in Pyongyang on Aug. 15, according to Michael Hay, who owns the firm with a North Korean partner.

The establishment of a partly foreign-owned law firm in North Korea is a rare instance where the Communist state is more open than its capitalist neighbor to the south.

South Korea remains closed to all foreign legal entities.

“The North Koreans recognize that foreign investors need a comfort level in the legal environment,” Hay, a British lawyer turned business consultant, told foreign journalists recently.

“Many foreign companies think it’s a dirt-poor country legally. It’s not. They are really revising laws.”

So far, there has been no official confirmation of the new firm by the North Korean government.

The firm has a dozen local lawyers and plans to focus on foreign companies seeking opportunities in North Korea.

“We are looking at two main areas,” Hay said. “The legal area for foreign

investors, and transparent accounting, bookkeeping and repatriation of funds.”

Foreign companies seeking to do business in North Korea have previously had to rely on legal advisers provided by the government, as no private law firms exist.

Hay said the North Korean authorities hoped that the establishment of Hay, Kalb and Associates would be a stage in the arrival of a completely foreign-owned, international blue chip law firm in Pyongyang.

Hay said international law firms that have flirted with entering North Korea have pulled back in recent years because of the recurrent crisis over the country’s capability to produce nuclear weapons.

Foreign lawyers working in South Korea were skeptical of the new firms prospects. “This sounds like a great romantic adventure,” said Brendon Carr, an American lawyer working for Seoul’s Aurora law firm.

Hay said, however, that business activity in the North was on the rise.

“Last time I was up there, I counted over 1,200 vendor stalls in Pyongyang, using the local currency, not dollars,” Hay said. “And reforms aren’t over; there are more coming.”

He cautioned, however, that reform had its detractors: “Young Turks are not always popular.”

Other foreign visitors have noted changes since economic reforms announced by North Korea in 2002.

“You see a lot of Chinese investment now, and Chinese are there for profits,” said Jean Jacques Grauher, Secretary General of the European Union Chamber of Commerce in Korea, which maintains offices in Seoul and Pyongyang. “There is more money circulating now, and there is a clear law on repatriation of funds,” he said.

The most promising business areas for foreign investors are agriculture, infrastructure development and power generation, Grauher said.

He noted, however, that major foreign investment is unlikely until North Korea is approved to receive financial assistance from international bodies such as the Asia Development Bank.

Areas where North Korea has core skills are animation and software, as well as textiles, Grauher said.

South Korea, Asia’s third-largest economy, maintains a legal market that is closed to foreign firms. Foreign lawyers working for South Korean law firms are titled “legal consultants.”

UK lawyer opens firm in Pyongyang
BBC
http://news.bbc.co.uk/2/hi/business/3634274.stm
9/7/2004

Betting on the further liberalisation of North Korea’s economy, a UK lawyer is opening a law firm in Pyongyang to advise investors doing business there.
Hay, Kalb Associates, which was set up by Mike Hay and the North Korean government, started business in August.

The firm offers legal advice, accounting services and help with repatriating funds from the North.

“[The North Korea government] realises they need a comfort level on the part of foreign investors,” Mr Hay said.

‘Opportunities’

North Korea is currently locked in dispute with its neighbours and the US over its nuclear programme.

Investors there have to wade through red tape, put up with power cuts and surveillance, amid widespread criticism of North Korea’s human rights record.

Some observers also wonder if money really can be made there.

But two years ago, the country did introduce economic reforms, including price and wage liberalisation.

Mr Hay said there are more reforms to come and that he is already advising a Western European firm though he declined to give its name. He added that there were rewards for those prepared to take the risk.

Areas of interest include tourism, mineral extraction and energy software.

Hay, Kalb Associates employs about 12 North Korean lawyers, all graduates of the Kim Il-sung University.

The company’s offices will be located in Kim Il-sung square in the central government complex.

Mr Hay, whose contacts with the North date back to 1998, said the level of legal expertise in the country is high.

“People think it’s a dirt track country in terms of law but it’s not,” he told foreign correspondents in Seoul.

From Asia Times:

North Korea has mass-produced computers with Pentium IV processors since 2002, a Russian journalist says in a new book. The confirmation came at a time when the United States and North Korea are in a war of nerves over US and international export control regulations that would ban 15 South Korean firms selected to operate in an industrial complex in the North’s city of Kaesong from bringing in “strategic materials,” including computers.

The South Korean companies said they must be permitted to bring computers with at least Pentium IV chips, which are essential for normal office work, citing earlier unconfirmed reports that the North already began to produce those kinds of computers.

“North Korea has produced computers with Pentium IV processors since 2002, which I saw during my visit to an electric appliance factory in Pyongyang,” Olga PMaltseva, a Vladivostok-based journalist, said in her new book about the North Korean leader, Kim Jong-il.

The Korean translation of the book, titled “A Waltz with Kim Jong Il” was published here on Monday.

“Seven hundred workers and technicians made 14,000 Pentium IV computers in 2002,” she said.

“The factory has produced tens of thousands of computers since 1986 and half of them were exported to Germany.”

There was a similar report by the Choson Sinbo, organ of the pro-Pyongyang General Association of Korean Residents in Japan, in May last year.

The newspaper reported at the time that a North Korean electronic appliance developer has been selling computers with Pentium IV processors in a joint venture with China’s Nanjing Panda Electronics Co since September 2002.

South Korea’s Korea Trade-Investment Promotion Agency (KOTRA) confirmed the report in August last year, citing data from its North Korean counterpart, the International Trade Promotion Committee.

The KOTRA said the North’s electronics firm “Achim (Morning)” and China’s Nanjing Panda have produced three types of Pentium IV computers.

The Russian author is believed to have visited the joint venture factory.

North Korea is classified as a “dangerous country” under the Wassenaar Arrangement, which replaced the Cold War era’s Coordinating Committee for Export Control to Communist Areas in 1996, and thus signatory countries cannot export items classified as “strategic materials” to the communist state.

The items include computers, various metal machinery, laser equipment, high-tech materials and electronic appliances with US-produced parts.

South Korea is among the 33 signatory nations.

An earlier report said the South Korean government is studying ways for the 15 domestic companies to use production equipment, materials and office supplies in Kaesong without conflicts with the U.S.

The Kaesong industrial complex, being built by the Korea Land Corp and Hyundai Asan Corp, a South Korea firm, is one of the most prominent symbols of inter-Korean reconciliation set in motion by the first-ever summit of the leaders of the two countries in 2000.

The developers are scheduled to open Kaesong’s main complex to hundreds of South Korean manufacturers in the first half of next year.

KIEP has published the North Korea Development Report 2003/04 (follow the link to download all several hundred pages!)

Summary: As a result of North Korea’s isolation from the outside world, international
communities know little about the status of the North Korean economy and its
management mechanisms. Although a few recent changes in North Korea’s economic system have attracted international interests, much confusion remains as to the characteristics of North Korea’s recent policy changes and its future direction
due to the lack of information. Therefore, in order to increase the understanding of readers in South Korea and abroad, KIEP is releasing The North Korea Development Report in both Korean and English. The motivation behind this report stemmed from the need for a comprehensive and systematic investigation into North Korea’s socio-economic conditions, while presenting the current status of its industrial sectors and inter-Korean economic cooperation. The publishing of this second volume is important because it not only supplements the findings of the first edition, but also updates the recent changes in the North Korean economy. The topics in this report include macroeconomics and finance, industry and infrastructure, foreign economic relations and inter-Korean economic cooperation, social welfare and science & technology.

This report also covers the ‘July 1 Economic Reform’ launched two years ago and
subsequent changes in the economic management system. The North Korea
Development Report helps to improve the understanding of the contemporary North
Korean economy.
Table of Contents  
 
Part I Macroeconomic Status and Finance
Chapter 1 Current Status of the North Korean Economy and Its Prospects
Chapter 2 National Financial Revenue and Expenditure
Chapter 3 Banking and Price Management

Part II Industrial Management and Problems
Chapter 4 The Industrial Sector
Chapter 5 The Agricultural Sector
Chapter 6 Social Overhead Capital
Chapter 7 Commerce and Distribution Sector
Chapter 8 The Defense Industry

Part III International Economic Activities
Chapter 9 Foreign Economic Relations
Chapter 10 Special Economic Zones
Chapter 11 Inter-Korean Economic Relations

Part IV Social Security and Technology Development
Chapter 12 Social Security and Social Services
Chapter 13 Science and Technology Sector

Part V The Recent Economic Policy Changes
Chapter 14 The Contents and Background for the Recent Policy Changes
Chapter 15 The Features and Problems of the Recent Economic Policy Changes
Chapter 16 Prospects and Future Tasks of the July 1 Economic Reform  

From the Asia Times:

Global player wins N Korea’s only JV bank
By Tom Tobback (founder of Pyongyang Square)

“Dr. Johnny” Sei-hoe Hon, formerly of Hong Kong and now chairman of the UK-based Global Group of Companies, agreed to take over North Korea’s only joint-venture bank, Hon told Asia Times Online on Tuesday in a telephone interview.

Hon, 32, identified by the KCNA as “chairman of the British Global Group”, is a British citizen with roots in Hong Kong who received a PhD in psychiatry from Cambridge University, but his psychiatric expertise was apparently not the reason he visited Pyongyang. He was officially received by Choe Thae-bok, chairman of the North Korean parliament, or the Supreme People’s Assembly (SPA). Hon presented Choe with a gift for the leader of the Democratic People’s Republic of Korea (DPRK), Kim Jong-il.

As usual, KCNA reported nothing more than that the two parties had “a friendly talk”, but it is clear that the visit was related to Pyongyang’s efforts at economic reform, initiated in July 2002, and possibly to new plans for its problematic special administrative region (SAR) of Sinuiju, which Pyongyang announced in September 2002.

The Global Group, of which Johnny Hon is founder, chairman, and chief executive officer (as described on his website), defines itself as “an evolving organization with diverse business ventures spanning the globe. Every new undertaking illustrates our skill in choosing the right opening in the right market – and most importantly, at the right time.”  The group specializes in financial consultancy, wealth management, high-growth companies, and online betting.

Hon revealed to Asia Times Online that his Global Group is taking over the majority stake in the Daedong Credit Bank (DCB), the only foreign joint-venture bank in North Korea, from a British company based in Hong Kong. The Daedong Credit Bank, run in Pyongyang by Nigel Cowie, has been serving the expatriate community and the few foreign business ventures in North Korea for many years.

“Our stake in the DCB will facilitate further investment projects; the Supreme People’s Assembly [SPA] has offered us business proposals which we will consider in due time,” Hon said. Currently he is awaiting the due-diligence report by Deloitte & Touche for his Daedong Credit Bank deal.

It remains to be seen what advice the Global Group can offer to revive the North Korean economy, but probably professional help from international financial institutions such as the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB) would be a safer bet than venture-capital companies such as Hon’s Global Group.

BBC
Lucy Jones
4/13/2004

“Got any nuclear weapons for sale?” is the response Briton Roger Barrett usually gets when he tells people at Beijing cocktail parties that he invests in North Korea.
The country’s admission to a nuclear weapons programme and its listing on George W Bush’s “axis of evil” means most people are staying well away.

But Mr Barrett, 49, a former troop commander in the British army who has 10 years experience of doing business in North Korea, recently opened a branch of his consultancy firm, Korea Business Consultants, in Pyongyang.

A self-confessed “business adventurer”, he says there is growing interest in the country after Chairman Kim Jong-il introduced economic reforms in 2002.

It’s like China in the eighties… The market reforms are very evident. It’s an exciting time to join the market.

Robert Barrett, Korea Business Consultants 
He is also the enthusiastic publisher of what must be North Korea’s only business publication – the DPRK Business News Bulletin – which features some of the 250 companies he advises.

“It’s like China in the eighties… The market reforms are very evident. It’s an exciting time to join the market,” he says.

Mr Barrett is not alone.

Even in the middle of a nuclear crisis there are foreign investors in the country, and their numbers are increasing.

They say North Korea is a mineral rich country that needs everything and insist they have to get there first.

They also believe the 2002 economic reform is for real and that the country is gradually moving towards becoming a market economy.

Poverty

The little data there is on the country’s economy is hardly encouraging, though.

There has been a devastating famine and the UN says malnutrition is still widespread.

There are chronic heating and water shortages, and most North Koreans are paid less than £5 a month.

The country also has an appalling human rights record.

A BBC documentary on the country’s gulags this year contained allegations that chemical experiments are being carried out on political prisoners.

Meanwhile, the US says it is “highly likely” that North Korea is involved in state-sponsored trafficking of heroin.

In the political arena, the second round of six-nation talks aimed at resolving the nuclear crisis ended in Beijing in February without agreement, which means US and Japanese sanctions will remain in place.
‘Communism’ tourism

But the foreign entrepreneurs in North Korea are not put off.

Some are helped by UN employees who have worked in Pyongyang (among the few people to have had contact with the regime there) and many have a track record in China.

Pack a torch, conduct business meetings on the street to avoid big brother listening in and have plenty of “Asian patience” for the endless red-tape, they advise.

An Austrian company is reportedly buying pianos from the North Koreans, a French television station uses North Korean artists to produce cartoons, while a Singapore-based firm is developing forestry and tourism.

The Singaporeans intend to offer “adventure” stays on their North Korean forestry plantations.

Meanwhile, Western tourist agencies are gearing up to offer the last chance to see communism in action, and Fila and Heineken have reportedly entered into sponsorship deals with the North Korean regime.

North Korean labour

A German, Jan Holtermann owner of the computer firm KCC Europe, is putting North Korea online.

He hopes that by being there first he will be able to eventually tap into North Korean computer talent.

The country’s small number of internet users currently dial-up to Chinese providers, a costly process at about £1 a minute.

Mr Holtermann’s customers, who he hopes will number 2,000 by the end of the year, will have unlimited access for £400 a month.

As only a few North Koreans are permitted to have telephones, and as the internet service is costly, Mr Holtermann expects his customers to be government ministries, news agencies and aid organisations.

He has invested £530,000 in the venture, intending to get first pick when North Korean software programmers come onto the market.

“They are very talented,” he says.

“It’s this capacity we want to sell in Europe.”

The parcel delivery company DHL has operated in Pyongyang since 1997, when it was invited there by the government, and now has North Korean light manufacturing, textile and beverage companies on its books.

It sees itself as contributing to the country’s “slow but increasingly visible” economic reform programme.

British consultants

Former bank employee Mr Barrett is convinced North Korea is opening up much quicker than people think.

There are opportunities in banking, minerals, agriculture and telecommunications, he insists.

“There is the odd story of something going wrong,” he says.

“But when you walk around you notice construction going on.

“The people are feeling a change.”

High level contacts

But how to do business with one of the most isolationist regimes on earth?

Contacts are essential, say businessmen.

Though even knowing a North Korean minister is not enough, says Gerald Khor of Singapore-based forestry company Maxgro Holdings.

“You have to go above the ministers to the cabinet. You don’t have to know a member but you need to know people who can influence them,” he says.

“It is very important to get the favour of the dear leader (Kim Jong-il). Because when he says something, it gets done.”

Through a former UN employee, Maxgro got Kim Jong-il’s attention and has invested $2m in forestry, agreeing the state gets 30% of the profits.

“Kim Jong-il is an environmentalist,” Mr Khor says.

“We are confident we’ll get a return.

“We have dwindling supplies and this is high quality wood.”

To locate the forests elsewhere would cost much more, he adds.

Forced to change

Economic reforms introduced by the government in 2002 are seen as the first move away from central planning since the country adopted communism in 1945.

The government has been forced to change in order to survive, especially now it can no longer barter with Eastern Europe and the former Soviet Union, experts say.

“There is no real option not to carry out these reforms,” says UK-based Keith Bennett, who has taken trade missions to Pyongyang.

“But people don’t know where they will lead.

Chinese leaders have impressed on Kim Jong-il that there can be economic reform without fundamental political change.”

Way up on North Korea’s border with Russia and China is the Tumen economic zone, which was established in 1991 with UN help to lure investors.

The project has only had limited success and may indicate the type of problems those investing elsewhere in North Korea may face.

The North Korean section of the zone, Rajin-Songbong, hosts foreign-run hotels, telecommunications and restaurants, but that is about all.

“The North Koreans have sometimes been very co-operative and sometimes not, maybe because of policy change,” says Tsogtsaikhan Gombo, from the UN’s development agency.

“They were also disappointed when they didn’t see the investment.”

Vibrant Chinese economic zones nearby have put up fierce competition.

But even opening the door just slightly to let in capitalism has greatly improved the lives of the 150,000 people living in the zone, says Mr Gombo.

And many foreigners insist that small investments elsewhere in the country may have similar results.