North Korean Economy Watch

According to the Daily NK:

In an unprecedented move, the North Korean authorities have warned residents in border areas that sharing information on market prices with the outside world will result in harsh punishment.

A Daily NK source located in North Hamkyung Province reported on the 14th, “Recently lectures at People’s Units have emphasized that the Republic’s secrets are being leaked to the outside via phone conversations. We were threatened that if anyone was caught in the act of calling someone outside of the country they would be sent to a prison camp.”

“It was said that ‘impure elements’ are planning to bring about the collapse of socialism in our style from the inside out,” the source recalled.

“We were also told that market prices were a state secret. Such a thing has never been raised in a People’s Unit lecture before, and the people are dumbfounded that the price of rice, pork and corn can be considered a secret of that magnitude.”

“Others are making more cynical remarks,” the source continued. “They say, ‘We’re the worst off in the world, and since we don’t get paid we can’t buy expensive rice. This is a national embarrassment for them and all they want to do is hide it. That’s why market prices are a state secret as well.'”

Furthermore, “Many ordinary people are of the opinion that the cadres [should be targeted] as they know better than anybody else about state secrets. Smugglers, too, are now concerned for their livelihoods as it is necessary for them to discuss pricing issues with their counterparts in China.”

The flow of information in and out of the country has long been restricted by the Kim regime out of fears of a challenge to their unitary rule.

Others assess that these latest measures indicate the North’s sensitivity over recent criticism leveled against the regime in the South Korean media, an act that the North deems an “insult to the Highest Dignity.”

Read the full story here:
Regime Classifies Market Prices as “State Secret”
Daily NK
Kang Mi Jin
2014-3-17

NOTE: There is LIKELY a misplaced decimal in this story. Output in Dec. 2013 was worth $35.29 million, compared to $36.42 million a year earlier. Yonhap actually says $352.9 and $364.2 million.

According to Yonhap:

Operations at the inter-Korean industrial complex in the North Korean border city of Kaesong have almost recovered to their level before the park came to a sudden halt early last year, data showed on March 9.

The Kaesong Industrial Complex was shut down in early April 2013 after the North pulled out all of its workers at 123 South Korean firms. It reopened in September after Pyongyang agreed not to repeat such a suspension.

According to the data compiled by Seoul’s Ministry of Unification, the output of the firms in the park totaled US$352.9 million in December, slightly lower than the $364.2 million posted a year earlier.

Around 52,000 North Korean employees worked there as of the end of last year, compared to some 53,000 people in March 2013, the ministry said, adding that all South Korean companies, except one, had normal operations as of last week.

Trade volume between the two Koreas in January also reached some 94 percent of that recorded in the same month a year earlier at $168.87 million, the data showed.

In accordance with the so-called May 24 sanctions South Korea imposed on the North for its sinking of one of its warships in the Yellow Sea in 2010, economic exchanges unrelated to the park are banned.

“We’ve seen some progress in the inter-Korean agreement to strive to boost the park by focusing on the three issues of launching Internet services, simplifying the customs process, and making South Koreans’ access to the park easier,” a ministry official said.

As the last remaining symbol of inter-Korean economic cooperation, the Kaesong complex has served as a major revenue source for the cash-strapped communist country.

Read the full story here:
Inter-Korean factory park recovers to pre-halt level
NORTH KOREA NEWSLETTER NO. 304 (March 13, 2014)
Yonhap
2014-3-13

Pictured above (Google Earth): Phyongsong Bus Station (2013-5-3)

According to the Daily NK:

Not only are North Korean people able to buy and sell goods in markets using hard currency these days; US Dollars or Chinese Renminbi are also in use for the ubiquitous “servi-cha,” one of North Korea’s few reliable means of mass transit.

A source from North Hamkyung Province told Daily NK on the 11th, “Trains only run about once a week, and you’d be a fool if you believed that they would run on time. Demand has risen thanks to this state of affairs, so people are making good money from running servi-cha.”

“If you want to ride a servi-cha you can’t use Chosun currency, you have to use Chinese or American money,” the source went on to claim. “You can get anywhere in the country that you want for 200 Yuan.”

The source said that people in Hyesan opt to travel by servi-cha in part because the journey can take up to a week by train but only takes a day by servi-cha. The route from Pyongsung to Chongjin costs 100 Yuan, and a similar amount is required for the trip from the North Hamkyung Province county of Kilju to the border near Hyesan.

According to the source, the price of North Korean gasoline is currently 11 Yuan per kg, approximately two to three Yuan cheaper than the Chinese equivalent. Diesel trades at 6 Yuan. The source said, “There is no problem running a vehicle these days because there are fuel traders selling cheap North Korean gas alongside every road in the country that buses use.”

Many owners of servi-cha have purchased buses rather than utilizing trucks, as they used to do. Owners offer a portion of their income to local government agencies and enterprises, in effect forming the North Korean equivalent of a Chinese “red hat enterprise.”

These privately run buses are clean and popular, and the business itself is seen by operators as an easy way to earn good money. The servi-cha are mainly new vehicles from China or second-hand ones from Japan, and the average cost is in the vicinity of 12,000 USD (though size and type of vehicle both vary). A well run business can earn 3000 USD per month.

In theory, if a traveller wishes to visit a different region, prior to travel he or she must obtain a certificate authorizing the visit. The 2nd Department of his or her Provincial People’s Committee ordinarily issues these permits; however, corruption among Party officials means that these can also be bought illicitly.

According to the source, servi-cha owners deliver regular bribes to senior security service officials running No. 10 Checkpoints, which are in place on every major thoroughfare connecting regions for the purpose of checking transit papers. These payments ensure rapid transit for customers.

Read the full story here:
Servi-Cha Professionalizing for Kim Jong Eun Era
Daily NK
Seol Song Ah
2014-03-13

Pictured Above (Google Earth): The approximate borders of the Sinuiju Special Economic Zone.

According to Yonhap:

North Korea has joined hands with a Hong Kong-based company to develop the country’s northwestern border city of Sinuiju into a special economic zone, a North Korean official said.

Sinuiju, which borders China’s Dandong city, has drawn much attention from foreign investors for its geographical advantage as North Korea’s western gateway to China, Ri Chol-sok, the vice chairman of North Korea’s economic development committee, said in an interview in the March issue of Kumsugangsan magazine, a North Korean government mouthpiece.

“Now a joint development company has been established for the development of (Sinuiju) and is striving to win back lost opportunities,” said the North Korean official.

Hong Kong-based conglomerate Great China International Investment Groups Ltd. reportedly signed the deal with North Korea.

North Korea is also making efforts to lure foreign investment to other special economic zones, including one in the Rason area in the northern tip of the country, according to Ri.

The foreign company already has deep ties with the North, having joined the country’s project launched in January to renovate the eastern part of the capital Pyongyang.

The Institute for Far Eastern Studies (IFES) reported the following:

It has been reported that North Korea has established relations with a Hong Kong-based company with the goals of developing Sinuiju, a city bordering China in the northwest region of North Pyongan Province, into a special economic zone (SEZ). Vice Chairman of North Korea’s Committee for Economic Development Ri Chol Sok emphasized the nation’s efforts to attract foreign investors to the Sinuiju economic zone in an interview in the March issue of Kumsugangsan, a North Korean government magazine.

Vice Chairman Ri specifically mentioned that, in the past, Sinuiju garnered praise and attention from foreign investors due to its geographically advantageous location along the western border. Ri also announced the establishment of the Sinuiju-Great China joint venture development company, which plans to draw further interest and investment from abroad.

It is reported that the Sinuiju-Great China joint venture development company was created alongside a Hong Kong-based finance conglomerate known as Great China International Investment Groups, Ltd. (“Great China Groups”). Great China Groups has recently shown great interest in investing in North Korea and recently began the construction of East Pyongyang Commercial Street this past January.

Recent reports from other foreign media outlets have shown that Great China Groups had intentions to invest in the development of the Sinuiju region for some time, but Vice Chairman Ri’s announcement marks the first time that North Korean state media has officially recognized their joint development plans.

Meanwhile, the North Korean foreign publicity website Naenara announced that development of an additional economic development zone (EDZ) in North Pyongan Province along the Amnok (Yalu) River began on January 27 of this year. The Amnok (Yalu) River economic development zone will extend 6.6 square kilometers, with construction taking place in Ryongun-ri and continuing up to the Guri and Ojok Islands, where the North Korean border meets the city of Dandong and the Hu Mountain in China’s Liaoning Province.

North Korea plans to draw in tourists visiting China’s Hu Mountain to Ojok Island, where an “international services station” will offer food, entertainment, and tourist attractions. There are also plans to develop a modern agricultural sciences research complex on Guri Island that will specialize in flower and vegetable production.

North Korea specifically pushed for this location for the development of the Amnok (Yalu) River economic development zone — which will operate autonomously in Pyongan — due to its border location with China. In addition to its desirable geographical location, convenient transportation between the two nations will likely attract more attention from Chinese foreign investors, giving the Amnok (Yalu) River EDZ a higher chance of success compared to other economic development zones.

Investments reaching upwards of 240 million USD (approx. 260.3 billion KRW) make the Amnok River EDZ the largest in scale among the 13 total development areas.  In terms of actual size, however, the largest economic development zone in North Korea is the Shinpyong tourist development zone (8.1km²), located in North Hwanghae province.

Apart from the EDZs in the North Pyongan region of Sinuiju, the central government has announced their plans to push forward with two other special economic zones. The Hwanggeumpyong and Wihwa Islands SEZ was announced in June 2010, and in November of last year, plans were revealed to develop an additional special economic zone in the Sinuiju region.

All the economic development zones are listed here. Some people say there are 13 of them. Some people say 14 because they consider the Sinuiju Special Economic Zone an economic development zone. I am in the 14 camp. There have also been at least three other zones proposed that did not make the final list. 

The Sinuiju Special Economic Zone was announced on 2013-11-21 (the same day as the other 13 EDZs were announced–though in a different article).

Besides the Sinuiju Special Economic Zone, the only other EDZ to have reportedly made any progress is the  North Hamgyong Provincial Onsong Island Tourist Development Zone.

Read the full story here:
N. Korean, Hong Kong firms to develop border city of Sinuiju
Yonhap
2014-3-12

Marcus Noland and the US-Korea Institute at Johns Hopkins have published an interesting report on South Korean labor practices in the DPRK.

You can download the report here (PDF). Noland’s blog post here.

You can watch the paper release talk:

Here is a summary of the paper:

By 2012, South Korean firms employed more than 50,000 workers in North Korea. Survey data indicate that the North Korean government has successfully circumscribed exposure of North Korean citizens both to South Koreans and to more market-oriented economic practices. South Korean investment in North Korea may well be beneficial both for the firms and the workers involved, but evidence of the sort of broader spillovers that proponents of engagement sometimes assert is not evident.

In the new USKI report, “Labor Standards and South Korean Employment Practices in North Korea,” Marcus Noland, Executive Vice President and Director of Studies at the Peterson Institute for International Economics and Adjunct Professor of Korea Studies at Johns Hopkins SAIS, examines key questions about the nature of South Korean employment practices in North Korea both inside and outside the Kaesong Industrial Complex and whether this interaction is likely to encourage North Korean economic transition. He also examines the international legal obligations of both Koreas to implement fair and equitable labor standards and suggests ways to encourage better labor practices by South Korean government and firms in North Korea.

According to the Pyongyang Times (2014-3-11):

Korea has been renowned for scenic beauty of mountains and rivers and has lots of scenic spots named after Mt. Kumgang, a celebrated mountain with unsurpassed scenery.

Among them, there is the Sinphyong Kumgang Scenic Spot in Phyonghwa-ri of Sinphyong County, North Hwanghae Province. Sinphyong Kumgang has also been called Little Kumgang Mountain.

Since ancient times, the area has been dubbed Tohwa Valley, meaning a beautiful valley covered with peach blossoms.

It is surrounded by high and steep mountains in the heart of the Ahobiryong Mountains in the middle of the country.

Sinphyong Kumgang is characterized by the beautiful sights of gorges.

The narrow and long Tohwa Valley is flanked by successive gorges and there are 72 noted places.

Waterfalls, ponds and fantastic rocks are found everywhere.

The fauna and flora are diverse. There are good tree species, Panax schinseng, songi mushroom, wild edible greens, bear, roe deer, pheasant, woodpecker, carp, goldfish, catfish and minnow.

There are sites of such temples as Kwanjok and Kirum which offer a glimpse of the private life of ancient Buddhist monks.

Kumgang Sujong spring water gushing out from a place near the scenic spot is widely known to different countries for its virtue in enhancing the beauty of women.

In different places of the scenic attraction there are resting sites, pavilions, observation platforms, sites for shower bath, fish ponds and fountains. There are also tourist, sightseeing and mountaineering roads stretching for over 8 kilometres.

The North Hwanghae Provincial People’s Committee has a plan to establish a Sinphyong Tourist Development Zone in some parts of the scenic spot comprising the areas of Kumgang Waterfalls Valley, Big Bear Valley and Small Bear Valley. It will offer comprehensive tourist services.

The zone is some 600 metres above sea level on average, which is ideal for mountaineering and physical training and favourable to building a tourist resort.

It is free from pollution and eco-friendly and expected to cover an area of 8.1 square kilometres.

A modern hotel with accommodation for hundreds of tourists, a golf course and other service facilities will be built.

The zone is easy of access as it is located in the middle of the tourist road between Pyongyang and Wonsan in Kangwon Province which is now being built into an international tourist city.

It is about 120 kilometres away from Pyongyang Airport, some 75 kilometres from Wonsan Port, nearly 142 kilometres from Sariwon, the capital of North Hwanghae Province, 8 kilometres from Sinphyong county town and about 30 kilometres from Jongbong Railway Station in Singye County, the nearest railway station.

Small as it is in area, Sinphyong Kumgang is a show-stopper for the original beauty of gorges, refreshing waterfalls, clean air and diverse fauna and flora.

Institute for Far Eastern Studies (IFES)
2014-3-7

North Korea has been showing increased efforts in attracting economic investment from overseas Koreans. In particular, recent foreign media outlets run by overseas Koreans are showing increased emphasis on economic cooperation with North Korea.

In the March issue of the monthly magazine Joguk (Homeland) published by the General Association of Korean Residents in Japan (a pro-North Korea association), featured an interview with Park Kyung Jin, the director of Economic Cooperation Office for Overseas Koreans.

In the interview, Director Park described the plans for the organization: “We are diligently working to create an environment where overseas Koreans can successfully do business with North Korea.” He also emphasized that they are continually working to protect the rights and provide special legal treatment for overseas Koreans.

On February 24, US-based pro-North Korean website Minjoktongsin (Minjok Thongsin) introduced Kim Ji Hyuk and Ri Hak Song, department heads of the (DPRK) State Economic Development Commission in an article, “Where Is the North Korean Economy Heading?”

In the article, the officials stressed that North Korea is actively looking to foster economic experts and said, “We welcome the participation of experts, businesses, and organizations of overseas Koreans who wish to invest in North Korea.”

In addition, in order to increase economic cooperation with overseas Koreans, the commission introduced future plans of easing the travel process to and from North Korea including visa and other entry requirements.

North Korea is subject to international sanctions that limit its trade with most of the world and appears to be turning to overseas Koreans to overcome the country’s economic crisis. Rather than reaching out to other foreigners, North Korea is likely to be reaching out to overseas Koreans who share a common language and ethnicity, with relatively easier access.

Since the establishment of the Joint Venture Act in 1984, North Korea has worked extensively with the General Association of Korean Residents in Japan and with ethnic Koreans living in China. Since the launch of the Kim Jong Un regime, economic development zones (EDZs) are being set up across the country and ties with overseas Koreans are likely to be strengthened in efforts to further attract foreign investments into North Korea.

According to Bloomberg:

How did North Korea become the conduit by which thousands of tons of old junk moved from the developed world into China’s bustling e-waste recycling industry?

As with any smuggling story, the tale starts with a prohibition. In this case, Chinese laws and regulations prohibit e-waste — most commonly understood as old, non-working electronics like laptops, monitors and mobile phones — from being imported into the country. The reasons are several, including a government interest in keeping used foreign goods from competing against new ones, and environmental concerns about how some of those goods are recycled. Nevertheless, China’s national-level environmental and customs authorities have long struggled to maintain those prohibitions against local ports and authorities — especially in south China — who view e-waste recycling as a good source of jobs, tax revenue, and used components to drive local industry. Of the several conduits through which e-waste has traditionally been smuggled, the most common and long-standing was over the Hong Kong-China border.

That all changed in February 2013 when — for reasons that are still unclear — Beijing announced “Green Fence,” a high-level crackdown on the import of prohibited waste and recycling exports, including old electronics. Nonetheless, here and there, imported old electronics still turned up in Chinese recycling facilities (I personally saw them).

The likely means, as described in state media after the North Korea bust, was convoluted. A Hong Kong “gang” allegedly received containers of used electronics from abroad. They arranged for them to be placed them on smaller ships bound for a “country in Northeast Asia.” The culprit’s identity is clear from the awkward phrasing. Criticism of North Korea in the Chinese press is exceedingly rare and -– needless to say — connecting the country to an e-waste smuggling ring qualifies as criticism. Were the country Japan, or even South Korea, it would have been named.

In fact, North Korea has long been rumored to be an e-waste recycling center. Since January 2008 a Chinese company based in Liaoning Province along the border has advertised for scrap to feed its e-waste recycling operations in North Korea itself. The facilities are located, according to the ad, in the port of Nanpo, and “take advantage of North Korea’s environmental policies and inexpensive labor resources.” There, the ad promises, prohibited e-waste can be dismantled and transformed into a product acceptable for export to China.

The smuggling ring was allegedly doing something similar, although its “transformed” e-waste clearly did not meet environmental standards. In North Korea the bulky e-waste was dismantled (steel cases would be removed from old desktop PCs, for example), segregated into marketable components like computer chips for re-use, and then sent to Dandong, a Chinese city and port on the Yalu River, directly across from North Korea. From there, the goods were trucked south, to recycling and re-use centers in Guangdong Province, a straight-line distance of roughly 1,800 miles.

Read the full story here:
Did North Korea Recycle Your Laptop?
Bloomberg
Adam Minter
2014-3-6

Two officials at the State Economic Development Commission have apparently been reinstated following their removal during the purge of Jang Song-thaek. According to Yonhap:

Kim Ki-sok and Kim Chol-jin, chief and deputy chief of the North’s State Economic Development Commission, had been sacked in connection with the purge and execution of leader’s uncle, Jang Song-thaek, in December last year, but have been reinstated after undergoing an “ideology re-education,” the source said on the condition of anonymity.

“Kim Ki-sok and Kim Chol-jin were forced to resign from the posts after being involved in the case of Jang Song-thaek, but reinstated as they were considered not so close to Jang,” the source said.

After reinstatement, Kim Ki-sok, chief of the North Korean commission, made secret visits last week to Beijing and Shenzhen, southern China, during which he met with Chinese business people, according to the source.

Here is what the Choson Ilbo had to say:

A source in Beijing said Kim visited Beijing, Shenzen, Singapore and Malaysia last week. He met with businesspeople interested in developing North Korea’s special economic zones.

Kim also met with Chinese officials who had experience in developing special economic zones, the source said. In Singapore, Kim discussed the development of a tourism zone in Wonsan.

But he apparently returned empty-handed.

Diplomatic sources in Beijing say North Korea is poised to push for more economic exchanges with China after elections for its rubber-stamp parliament on March 9. It will form a new team to handle the initiative now that Jang and his associates have been purged.

Prime Minister Pak Pong-ju or Ri Su-yong, a deputy department chief in the Workers Party who used to manage the coffers for former leader Kim Jong-il, may pay an official visit to China, according to sources.

Read other posts about the State Economic Development Commission here.

Read the full story here:
N. Korea reinstates key officials on economic projects with China
Yonhap
2014-2-26

Writing in 38 North, Bradley Babson comments on the effect Jang Song-thaek purge will have on North Korea’s economic management moving forward:

With Jang’s demise there is now a potential opportunity to make fundamental changes in the North Korean economic management and financial systems. Removing his influence over major foreign exchange earning enterprises operating outside any institutionalized supervision means that some other mechanisms must be put in place to manage these important national resources. Whether this will lead to a more rational system of cabinet-managed financial institutions serving an economic development strategy endorsed by Kim Jong Un is a basic question. Early indications are that the cabinet will be empowered to exercise more centralized control over the economy,[2] but how far this will extend into the fragmented financial system remains to be seen.

One indicator of possible significant change is whether the KPA will regain its former economic independence or become more closely integrated with national economic and financial management. This is important for improving efficiency in allocation of resources for economic development and having more control in balancing security expenditures with investments in the general economy.

Another indicator will be whether the existing system that provides funds for sustaining luxury goods patronage for the Pyongyang elite and for showcase projects like equipping the new Masik Pass ski resort, will be handed over to new more loyal technocrats to manage. Or will the Cabinet be given more latitude to shape the future political economy and distribution of wealth, given the reality that access to market power is becoming more valuable for the Pyongyang elite than receiving patronage? This would be a major change that could lead to new incentives for more rational economic management. Acknowledgment that markets are here to stay would open the possibility of addressing the need to build new financial institutional capabilities required for mobilizing and regulating private savings and economic activity. This would also help focus attention on ways to improve macroeconomic management of the mixed state-directed and market economy system.

Read the full story here:
The Demise of Jang Song Thaek and the Future of North Korea’s Financial System
38 North
Bradley Babson
2014-2-24