North Korean Economy Watch

Pictured Above: The Hoeryong Food Avenue (Google Earth)

According to Radio Free Asia:

A shuttered special food court established by former North Korean leader Kim Jong Il as a showcase for “high quality dishes at reasonable prices” has reopened and is being allowed to operate independent of the government in a rare move seen by some as reflecting economic reforms.

The center in Hoeryong city in North Hamgyong province bordering China was closed several months after its opening in November 2010 because the management faced financial problems as it could not meet production costs based on food sold to the public at prices dictated by the authorities, sources said.

North Hamgyong authorities recently allowed the Hoeryong Special Food Court to reopen and operate on an “autonomous” basis under new economic management methods introduced last year by Kim Jong Il’s son, Kim Jong Un, who took over after his father’s death in December 2011, the sources told RFA’s Korean Service.

“In order to meet the demands of the New Economic Management System, [the ruling] Workers Party provincial offices allowed the restaurant owners at Hoeryong Special Food Court to operate on an autonomous management basis,” one source in North Hamgyeong province said.

But some observers said the authorities had no choice but to allow the food center to set prices on its own to keep the operations alive, adding that any reform excuse was just an eyewash.

North Korea raced to build the food court after Kim Jong Il proposed it during a visit to his mother’s home town in 2009. He directed government funding of U.S. $800,000 for the project, which was completed in November 2010.

When he inspected the food court a month later, he ordered that it serve people with “high quality dishes at reasonable prices,” asking it to follow in the footsteps of another food outlet, Okryu Restaurant, in Pyongyang.

Operating cost

The source in North Hamgyong province said that the Hoeryong Special Food Court tried to adjust its prices to keep in tandem with those of Okryu Restaurant but could not cope with operating costs.

“During the initial months of operations, the North Korean authorities [subsidized prices] but soon after, the restaurants lost support from the government, thus it went out of business,” another source in the province said.

Even though the authorities did not provide support, they continued to regulate the food prices to make them 75 percent cheaper than those of regular restaurants,” the source said. “Therefore, the owners were suffering from financial difficulties.”

Some sources complain that under the new management of the Hoeryong Special Food Court, food prices have shot up rapidly. In addition, food that is not on the menu is served.

For instance, a seafood specialty restaurant serves steak while a steak house offers noodles, one source complained.

“Before at Hoeryong restaurant, cold noodles were 1,000 North Korean won (about 17 cents), and one bottle of Korean distilled spirits was 800 won (about 10 cents), but after the owners got authority to manage independently, the price of cold noodles went up to 4,000 won (about 68 cents) and one bottle of Korean distilled spirits up to 2,000 won (about 34 cents).

Read the full story here:
Special North Korean Food Court Allowed to Operate Independently
Radio Free Asia
Sung Hui Moon
2013-8-16

According to Radio Free Asia:

The party has created a centralized department with branches throughout the nation to formulate and oversee policies ranging from appointment of top economic officials to approval of companies and implementation of foreign exchange controls, a source from Jagang province, near the border with China, told RFA’s Korean Service.

The Party’s Department of Economy was set up last month.

“From last June, each [Party] committee in the provinces and cities established a [a branch of the] Department of Economy,” the source said on condition of anonymity.

“It will further strengthen the control and management of the Party,” he said.

The move by the Workers’ Party Central Committee was part of a shakeup within the Party and led to several branches of existing departments being transferred to the Department of Economy, he said.

A source in Yanggang province, also along the Chinese border, told RFA that the newly-formed department would wield as much power as the Department of Organization Management, which oversees the entire Workers’ Party.

“From now on, all officials in charge of economic matters have to be approved by the Department of Economy, while all companies also require approval from the department when they are established, shut down, or merged,” the Yanggang source said.

The Department of Economy also has the power to punish and appoint officials in charge of economic matters, he said, adding that he expects it to become “the strongest department in the Party.”

Even if the North Korean military, judicial agencies, and the Cabinet—or executive branch of the government—seek to establish new units for earning foreign currency or production, they are required to obtain permission in advance from the department, he said.

…

“Establishing the Department of Economy is related to the so-called ‘reformed economic management system,” the source in Yanggang province said, referring to a new policy announced in June last year which grants individuals greater authority in the distribution of goods.

“It means the Party never wants to lose its control over the economy, even though the ‘reformed system’ takes place everywhere,” he added.

The source said that the lack of central control had led to situations in which bogus companies and organizations were running businesses and generating foreign currency revenue without reporting them, creating a need for the Party to more efficiently oversee these groups.

For example, he said, several companies and restaurants which were established under the guise of being welfare organizations to feed and clothe the poor are really generating foreign currency for the North Korean Cabinet.

But he noted that even as the Department of Economy sought to rein in these businesses, it would inevitably generate conflict within the Party as it grew in power, leading different factions to jockey for control.

“[Some of] the functions of [the Party’s] Department of the Executives and Department of Organization Management were already taken away by the Department of Economy, and also the Department of Administration has seen interference from the department as well,” the source said.

“In the future, the scope of Department of Economy’s activity will surely conflict with other departments of the Workers’ Party.”

Read the full story here:
North Korea’s Workers’ Party Takes Economic Control
Radio Free Asia
Sung Hui Moon
2013-7-12

According to Yonhap (via Global Post):

Foreign direct investment (FDI) in North Korea has steadily increased over the past three years, but the investment amount still remains at one of lowest levels in the world, a news report said Thursday.

North Korea attracted US$79 million in FDI in 2012, up 41 percent from a year earlier, the Washington-based Voice of America said, citing an annual world investment report by the United Nations Conference on Trade and Development.

In 2009, a total of only $2 million flowed in to the North, but the number jumped to $38 million the next year, according to the report.

Despite the latest three-year growth, the amount marks one of lowest levels in the world and the majority of the FDI inflow represents investment from China, by far North Korea’s biggest ally, the report said.

A few countries in sub-Saharan Africa or small countries in the Oceania and the Caribbean logged FDI smaller than North Korea, the report noted.

As of the end of 2012, the total inflow of FDI to the North stood at $1.61 billion, it also said.

Although the article does not mention it, the information comes from the “World Investment Report: 2013” (PDF).  Some of the data comes from a table on page 214. The report was published by the United Nations Conference on Trade and Development.

Lots of other economic statistics on my Economic Statistics Page.

Read the full story here:
Foreign direct investment in N. Korea gains for 3rd year
Yonhap (via Global Post)
2013-7-4

According to Yonhap (via Global Post):

North Korea has started to lend state-owned farmland to city laborers as part of efforts to solve chronic food shortages, a local group said Wednesday,

“Since mid-May, the North started to lend state-owned cooperative farmland to city workers as part of its various efforts to solve serious food shortage problems for city workers,” the North Korea Intellectuals Solidarity said in a press conference, citing inside sources in the North.

City laborers are bearing the brunt of food shortages in the North while farming workers have easier access to farm produce, the group said.

North Korean leader Kim Jong-un is well aware of growing indignation among citizens over food shortages and in order to quell their anger, the leader is drawing a variety of ideas to help them feed themselves, it said.

The latest farmland renting plan is one of the North’s ideas to help solve food shortages, according to the study group.

Under the plan, one plant worker or state firm employee can borrow up to 826.5 square meters of land belonging to state-owned cooperative farms and they are required to pay about 25 kilograms of corn or 12.5 kg of beans in rent, the group said.

The country is promoting the plan as an effective way to encourage workers to raise self-sufficiency as well as to increase national agricultural output, it said, adding that some citizens are pessimistic about the plan because of the shortages of seeds, fertilizer and other tools needed for farming.

Read the full story here:
N. Korea starts to lend farmland to city workers to solve food shortage
Yonhap (via Global Post)
2013-6-26

UPDATE 4 (2013-9-6): On May 29, the Presidium of the Supreme People’s Assembly promulgated the “DPRK Law on Economic Development Zones“. Now it appears they have named a body to administer the law. According to the Institute for Far Eastern Studies (IFES):

DPRK Economic Development Committee launched: Special economic and tourism zones to be named (IFES)

In the wake of normalizing the Kaesong Industrial Complex (KIC) agreement, North Korea has announced that it had installed the Economic Development Committee and named special economic and tourism zones, as well as newly appointed officials in charge. In the near future, North Korea has plans to announce specific special economic zones in Sinuiju, Nampo, and Haeju, along with tourism zones in Mount Baekdu, Wonsan, and Chilbosan. The head and director-level executives for the Economic Development Committee are likely to be appointed from the Joint Venture Investment Committee. The head of the Tourism Development is reported to be the former director of Korea Tourism Administration.

Meanwhile, North Korea has released the preamble of the economic development law adopted at the recent Presidium of the Supreme People’s Assembly held on May 29. As inter-Korean relations are progressing with the plans of restarting the Kaesong Industrial Complex and the reunion of separated families moving forward, North Korea’s economic development law is drawing attention once again.

In principle, the selection process for the special economic zones must possess these following elements: Area must 1) be in a favorable location for foreign economic cooperation and exchanges; 2) contribute to the economic and science and technology development; 3) be at a fixed distance from the residential areas; and 4) be at a location that does not intrude in the state protected areas (Article 11). This can be interpreted as the North’s effort to segregate the existing residential areas with the special economic zone similar to the Kaesong Industrial Complex so as to minimize the political and social impact of these zones.

The newly confirmed information for the new Economic Development Law is the list of development activities. “Investors from other countries are permitted to develop economic zones either alone or in collaboration after obtaining state approval (Article 20).” Evidently, North Korean institutions and enterprises may also develop economic zones after receiving approval from the state.

In addition, the law granted comprehensive property rights to the development companies. It states that “Companies have the right to sell, re-lease, bequeath, or transfer the ownership of the buildings and land lease” and “the selling or re-lease price shall be determined by the development company” (Article 29).

As for recruitment of workers, there is a provision that states “our country’s labor force must be given preferential consideration” (Article 41), and “the minimum wage for the employees of the Economic Development Zone shall be determined by central guidance organization of special economic zone” (Article 42). This poses some concern as the employee wage at the Economic Development Zone could be compared to that of the KIC, which could lead to wage disputes after the KIC begins to implement its internationalization process.

Another noteworthy change is the currencies permitted at the zone: “currency for circulation and payment must be Korean Won (KPW) or other specified currency” (Article 46), suggesting that other currencies such as the US dollar and euro will be allowed.

Furthermore, the Act specifies that “Companies in the economic development zone will decide on the commodity and service prices, and all the prices in the Economic Development Zone between institutions, enterprises and organizations shall be determined by the international market price based on agreement of all the parties” (Article 43). This suggests that the products produced in the zone may be traded domestically in North Korea.

In this Act, corporate income tax rate was set at 14 percent of profits and “Economic Development companies that operate for more than 10 years will be considered for a tax cut or exemption from the corporate income tax.” Article 58 grants “communication guarantees” for the usage of mail, telephone, and fax services, but did not include the use of the Internet.

Posts on the Economic Development Commission can be found here.

UPDATE 3 (2013-8-30): In August, the Pyongyang Times issued the following information on the DPRK’s Law on Economic Development Zones:

New law friendly towards investment

The law on economic development zone was enacted and promulgated in the DPRK on May 29.

The Pyongyang Times staff reporter Kim Rye Yong interviewed Kang Jong Nam, PhD and researcher at Law College of Kim Il Sung University, about the law.

What is the difference between this law and other laws that are in force in such special zones as Rason Economic and Trade Zone, Hwanggumphyong and Wihwado Economic Zone and Kaesong Industrial Park?

The recent law is applied to economic development zones to be newly established.

According to the law, an economic development zone is the area where investors receive preferential treatment in their economic activities in line with the legislation specially laid down by the state. Such a zone includes industrial, agricultural, tourist, exports processing and cutting-edge technology development areas. It is a principle to establish such a zone in the area which is favourable for external economic cooperation and exchange, conducive to the development of the country’s economy, science and technology and somewhat distant from residential areas and reserves.

Foreign investors may develop the zone singly or jointly and DPRK institutions and enterprises may be developers.

The zone shall be invested by foreign bodies corporate, individuals (natural persons) and economic groups and overseas Koreans.

The law defines that the investors’ rights, interests, properties and lawful profits are under protection by law. The state shall not nationalize or expropriate their properties. Should unavoidable circumstances make it necessary to expropriate or temporarily use their properties for the public good, it shall inform them of this in advance and make a full and timely compensation for this.

The personal safety of investors is also protected by law. Without legal grounds they will not be subjected to detention or arrest and their residences will not be subjected to search.

Where there are treaties concluded between the DPRK and foreign countries as regards personal safety, they shall prevail.

How is an economic development zone managed?

It is managed by the economic development zone management body under the guidance and with the assistance of the central special economic zone guidance organ and the people’s committee of a relevant province or a municipality directly under the central authority.

The management body carries out assignments given by the central organ and the people’s committee including the formulation of rules of the development and management of the zone, creation of investment environment and invitation of investment, licensing of the establishment of enterprise and its registration and the licensing, supervision and cooperation related to the construction, management and operation of project.

The law stipulates that an investor can lease land for a maximum of 50 years and, if need be, continue to use the land by renewing the contract before the expiry date.

The enterprise income tax rate shall be 14 per cent of settled accounts profits and that in encouraged sectors 10 per cent, a very low rate. An enterprise that operates in the zone for over ten years shall enjoy the benefit of exemption from or reduction of taxes. Where an investor reinvests profits to increase registered capital or sets up a new enterprise to operate it for over five years, he shall be paid back 50 per cent or 100 per cent of the income tax.

Tariff in the zone is preferential.

The prices of goods and services dealt between enterprises in the zone and those of goods dealt between the enterprises in the zone and the Korean economic organizations outside the zone shall be fixed by mutual consent between the parties proportionate to international market prices.

UPDATE 2 (2013-6-24): The Institute for Far Eastern Studies (IFES) offers information on the new law:

North Korea passes economic development zone law
Institute for Far Eastern Studies (IFES)
2013-6-14

Since the start of Kim Jong-un regime, internal economic management measures continue to be established. Recently, a new law was enacted for the establishment of economic development zones.

The KCNA reported on June 5 that a law for economic development zones was adopted and “in this regard, ordinance of the DPRK Supreme People’s Assembly’s Standing Committee was promulgated at the session on May 29.”

This legislation is a follow up to the decision reached on April 1 this year by the Supreme People’s Assembly for the creation of economic development zones.

The legislation is composed of 7 chapters and 62 sections, which cover matters such as configuration, development, management, conflict resolution, and so forth.

The report added that “Economic development zones, in accordance with the regulations set forth by the state, are entitled to various privileges as special economic zones.”

In addition, “Foreign corporations, individuals, economic organizations, and overseas Koreans are able to invest in the economic development zones, and can freely engage in economic activities including establishment of businesses, branches, and offices.” It also indicated that “the state will provide preferential terms to investors in areas such as land usages, recruitment, and tax payments.”

The details of the rights granted to investors were expounded, emphasizing that economic development zone is a special zone, and provides legal safeguards to protect the rights, investment properties and legitimate profits of foreign investors.

According to the KCNA, the economic development zones will include various economic and science and technology sectors such as industrial development, agricultural, tourism, export processing, and high-tech development zones.

Chairman Kim Jong-un delivered a speech at the WPK’s Central Committee Meeting entitled “Economic Development Zones Must Be Created in Every Province Reflecting the Regional Characteristics,” hinting at the state’s policy to attract more foreign investment to accelerate the development of the economic zones.

In particular, investments in infrastructure construction, state-of-the-art science and technology sector, and production of goods highly competitive in the international market were especially encouraged.

The management of these economic development zones will be separated into local-level and central-level zones, indicating that economic development zones will be established in all parts of the country.

However, this law does not apply to the preexisting economic and trade zones in Rason, Hwanggeumpyeong, Wihwa Island, Kumgang and Kaesong. The new legislation indicates that North Korea is committed to economic development regardless of the tense relations on the Korean Peninsula.

UPDATE 1 (2013-6-23): Yonhap offers new details of the legislation not published by KCNA:

North Korea will offer a maximum 50 year lease on land for the economic development zones it wants to set up across the country to spur outside investment, an analysis of a propaganda magazine monitored in Seoul showed Sunday.

Close examination of the May 29 edition of the Tongil Sinbo, a weekly magazine that highlights activities taking place in the isolationist country, revealed the lease system.

The 50-year scheme for development zones is on par with land lease favors offered by Pyongyang to businesses operating in the Kaesong Industrial Complex and the Rason Economic and Trade Zone. The plan can offer assurances to investors, which can be a critical incentive.

Kaesong is on the west coast just north of the demilitarized zone, while Rason is located in the country’s northeastern region near the border with China and Russia.

In addition, the weekly said companies will be able to freely buy and sell rights on buildings and land in the economic zones and even hand over property deeds with a clause being fixed that can allow the present rights holder to release it to a third party.

Development of land leased can be assisted by North Korean state organizations and companies.

The weekly said Pyongyang has set corporate tax rates for these zones at 14 percent of earnings after the settlement of accounts, with the government pledging the safety of all foreigners in the special zones under North Korean law.

In regards to where the development zones will be set up, the weekly said the North will give priority to areas that can trade easily with the outside world, a region that can contribute to the advancement of the national economy, and a location that is separate from local residences.

The report said that all authority for the new development zones will be given to a centralized economic oversight organization to make it easier for investors to talk to authorities and receive administrative assistance.

Read the full story here:
N. Korea to offer max 50 years lease on land in economic development zones
Yonhap (via Global Post)
2013-6-23

ORIGINAL POST (2013-6-5): According to KCNA (2013-6-5):

DPRK Law on Economic Development Zones Enacted

Pyongyang, June 5 (KCNA) — The DPRK enacted a law on economic development zones.

A decree on the law was promulgated by the Presidium of the Supreme People’s Assembly of the DPRK on May 29.

The law has seven chapters (62 articles) and additional rules (two articles).

The law deals with fundamentals of the law, establishment, development and management of economic development zones, economic transactions in the zones, their encouragement, preference and settlement of complaints and disputes.

According to the law, economic development zones are special economic zones in which preference is granted as for economic activities under the laws and regulations specially provided for by the state.

The economic development zones include industrial development zone, agricultural development zone, tourism development zone, exports processing zone, ultra-modern technological development zone and other development zones in the fields of the economy and science and technology.

The state will assort the economic development zones into local-level economic development zones and central-level economic development zones and manage them according to their affiliations.

Foreign corporate bodies, individuals and economic organizations and overseas Koreans can invest in the economic development zones and also set up businesses, branches and offices and conduct free economic activities.

The state shall provide investors with conditions for preferential economic activities regarding the use of land, employment of labor, payment of taxes, etc.

The state shall specially encourage investment in the fields of infrastructural construction and ultra-modern science and technology and in the field producing goods with high competitiveness in international market in the economic development zones.

Rights granted to investors and investment properties and legal income are protected by law in the zones.

The law on economic development zones and regulations and rules for its enforcement will be applied as for economic activities like development and management of the economic development zones and the operation of businesses.

This law is not applied to the Rason Economic and Trade Zone, Hwanggumphyong and Wihwado economic zones, Kaesong Industrial Zone and Mt. Kumgang Tourist Special Zone.

Here is the Korean version of the article from KCNA (2013-6-5):

경제개발구법 채택

(평양 6월 5일발 조선중앙통신)조선에서 경제개발구법이 채택되였다.

이와 관련한 조선민주주의인민공화국 최고인민회의 상임위원회 정령이 5월 29일에 발표되였다.

법은 7개의 장(62개조)과 부칙(2개조)으로 구성되여있다.

경제개발구법의 기본, 경제개발구의 창설, 개발, 관리와 경제개발구에서의 경제활동, 장려 및 특혜, 신소 및 분쟁해결에 대해 서술되여있다.

법에 의하면 경제개발구는 국가가 특별히 정한 법규에 따라 경제활동에 특혜가 보장되는 특수경제지대이다.

경제개발구에는 공업개발구, 농업개발구, 관광개발구, 수출가공구, 첨단기술개발구 같은 경제 및 과학기술분야의 개발구들이 속한다.

국가는 경제개발구를 관리소속에 따라 지방급경제개발구와 중앙급경제개발구로 구분하여 관리하도록 한다.

다른 나라의 법인, 개인과 경제조직, 해외동포는 경제개발구에 투자할수 있으며 기업, 지사, 사무소 같은것을 설립하고 경제활동을 자유롭게 할수 있다.

국가는 투자가에게 토지리용, 로력채용, 세금납부 같은 분야에서 특혜적인 경제활동조건을 보장한다.

경제개발구에서 하부구조건설부문과 첨단과학기술부문, 국제시장에서 경쟁력이 높은 상품을 생산하는 부문의 투자를 특별히 장려한다.

경제개발구에서 투자가에게 부여된 권리, 투자재산과 합법적인 소득은 법적보호를 받는다.

경제개발구의 개발과 관리, 기업운영같은 경제활동에는 이 법과 이 법에 따르는 시행규정, 세칙을 적용한다.

라선경제무역지대와 황금평, 위화도경제지대, 개성공업지구와 금강산국제관광특구에는 이 법을 적용하지 않는다.

According to Yonhap (via Global Post):

Trade between South and North Korea came to virtually zero in May after inter-Korean tensions led to the shutdown of the Kaesong Industrial Complex seen as the last symbol of bilateral economic cooperation, the government said Monday.

The volume of inter-Korean trade reached only US$320,000 last month, which accounts for just over 1 percent of the $23.4 million recorded in April, according to the Unification Ministry, which handles inter-Korean affairs.

The majority of the May trade represents electricity costs the South spent to maintain the plant facilities in the factory park in the North Korean border city of Kaesong, according to the ministry. The South exported about $260,000 worth of electricity while importing $60,000 worth of periodicals from the North last month, the ministry said.

Inter-Korean exchange came to an abrupt halt in mid-April as the North withdrew North Korean workers employed by South Korean firms in the Kaesong industrial zone in protest against South Korea’s joint military drills with the U.S. in March.

The joint factory park made up almost all of the inter-Korean trade as chilly relations cut off other exchanges.

The number of cross-border trips permitted during May came to only seven, the ministry said, adding that they were the last batch of the seven South Korean workers who returned to the South after the closing of the Kaesong complex.

As inter-Korean relations remain frosty, the hiatus in inter-Korean trade is expected to continue, analysts said.

Read the full story here:
Inter-Korean trade comes to almost naught in May
Yonhap (via Global Post)
2013-6-24

Pictured above (Google Earth): The Victory (Sungri) Refinery in Rason, North Korea.

UPDATE 2 (2016-3-25): NK News reports that HBOil refutes the claim in the Joong Ang Daily:

“HBOil JSC … hereby refutes the South Korean publication known as ‘KOREA JOONGANG DAILY’, for irresponsible reporting and dissemination of erroneous news on 23 March 2016; asserting that HBOil JSC has withdrawn from its joint venture in the Democratic People’s Republic of Korea,” the statement read.

HBOil also confirmed, “that it remains fully committed to its joint venture with Korea Oil Exploration Corporation (“KOEC”) of the DPRK, and continues its tenacious efforts to progress the joint venture’s ambition for exploration and development of hydrocarbon resources onshore North Korea.”

HBOil entered into a joint venture with North Korea in 2013 and has attempted to make inroads into North Korea’s undeveloped oil and gas sector.

The company has since invested in projects that could give it access to upstream oil and gas production and downstream refinery capacity in the coming years. However there has not been much reported movement on their North Korean project, and the outlook will not have been improved by a 70 percent drop in oil prices since last year.

While the statement affirmed HBOil’s belief that North Korea represents an “exceptional business opportunity” it also stated that the company are reviewing the implications of the recently adopted UN Security Council resolution against the country.

UPDATE 1 (2016-3-23): The Joong Ang Daily reports that HBoil is pulling out of North Korea:

A Mongolian oil company recently decided to withdraw from North Korea, a South Korean government source said, amid growing pressure from the international community after North Korea recently conducted nuclear tests and long-range missile launches.

HBOil JSC, an oil trading and refinery company based in Ulaanbaatar, Mongolia, acquired 20 percent of the North Korean entity Sungri refinery in June 2013, valued at roughly $10 million. In May 2014, the company opened a joint venture in Pyongyang.

The ex-communist country established bilateral ties with the North in 1948, but after this recent decision, the already impoverished North Korea will be further isolated from the international community.

“Mongolia is sending a message to North Korea: don’t fall down the wrong path,” said Nam Sung-wook, professor at Korea University’s Department of North Korean Studies.

North Korea formerly attracted foreign investment to resume operations of the Sungri refinery, which stopped running in 2009, in order to push for economic development. The deal with Mongolia, begun almost three years ago, was taken as evidence that North Korea wass seeking further investment partners-in addition to China.

However, the North Korean government continually delayed the inland oil development project, failing to provide reasonable explanations. Mongolia may therefore have concluded that there was no practical benefit to continuing the project.

Bilateral ties between the two countries recently turned bitter when Mongolian president Tsakhiagiin Elbegdorj said Mongolia could not endure the North’s tyranny forever, a remark made during his speech at Kim Il-sung University in Pyongyang at the end of October 2013.

“No tyranny lasts forever. It is the desire of the people to live free, that is the eternal power,” the president said in his speech. After his remarks, North Korean leader Kim Jong-un expressed disappointment and refused to hold meetings with the Mongolian president.

ORIGINAL POST (2013-6-13): Clarification:   “HBOil has 20% of a state-dominated joint venture called Korean Oil Exploration Corp. International, and a formal commitment with Sungri has yet to be made. Another option is to invest in a refinery on the west coast of the DPRK.”

According to Bloomberg:

HBOil JSC, an oil trading and refining company based in Ulaanbaatar, Mongolia, said it acquired 20 percent of the state-run entity operating North Korea’s Sungri refinery, according to an e-mailed statement yesterday. It intends to supply crude to Sungri, which won’t be fully operational for up to a year, and export the refined products to Mongolia.

“Mongolia has had diplomatic relations with North Korea for many years,” Ulziisaikhan Khudree, HBOil’s chief executive officer, said in a June 12 interview in Ulaanbaatar. “There are certain risks, but other countries do business with North Korea so I am quite optimistic the project will be successful.”

The investment comes as ex-communist Mongolia seeks to power its mining-led boom while offering sanctions-hit North Korea a bridge to economic reforms. Since Swiss-educated Kim Jong Un took over the leadership of the totalitarian regime in December 2011, Mongolia has pledged to help its Soviet-era ally implement an economic transition similar to its own of the 1990s.

…

Under the transaction, worth as much as $10 million, the Mongolian Stock Exchange-listed HBOil would swap shares for full ownership of Ninox Hydrocarbons (L) Berhad, a private Malaysian company that owns 20 percent of KOEC International Inc., and issue convertible notes to fund investment at Sungri.

The rest of KOEC International is held by North Korea’s national oil company, Korea Oil Exploration Corp., which also has oil production and exploration rights in North Korea.

“This is a chance to take an equity holding in a foreign entity, and will allow us to import petroleum products, which could be lower than the current price,” said HBOil’s Khudree.

HBOil jumped by the daily limit of 15 percent to close at 253 tugrik (18 cents) on the Mongolian stock exchange today.

The deal will be the first purchase by a Mongolian-listed company of a foreign asset, according to Joseph Naemi, chief executive officer of the Ninox parent, Ninox Energy Ltd. The company is in compliance with international sanctions levied against North Korea, he said.

“If the sanctions change, and if they target the oil and gas industry, that would put us out of business, and we will have to comply,” Naemi said. “That is a risk one takes.”

Naemi said he had briefed his North Korean partners on the transaction and that “they are supportive.” No one was available to speak about the deal at North Korea’s embassy in Ulaanbaatar, which is in the middle of a renovation.

North Korea has three onshore oil basins with “proven working petroleum systems” and the country is conducting exploration for new fields, BDSec brokerage, Mongolia’s largest and the underwriter of the bonds HBOil plans to offer, said in a note to investors yesterday.

The Sungri refinery, located in the Special Economic Zone of Rason City in North Korea’s northeast, has a refining capacity of 2 million tons a year and is connected to the Russian railways system, HBOil said in its release.

Read the full story here:
Mongolia Taps North Korea Oil Potential to Ease Russian Grip
Bloomberg
Michael Kohn and Yuriy Humber
2013-6-18

38 North has published new satellite imagery of Hwanggumphyong that shows new construction taking place on the island.

We can now identify the groundbreaking ceremony stone, management committee building, electricity infrastructure, and construction equipment.

Check it out here.

Previous posts on Hwanggumphyong and Sinuiju SEZ here.

UPDATE 4 (2014-10-2): North Korea reveals Wonsan-Mt. Kumgang International Tourism Zone development blueprints (IFES):

North Korea recently released blueprints for a new tourism zone in the Kangwon area, which is designated as the location for the national goal of developing a global tourist attraction. This area has been officially named as the “Wonsan-Mt. Kumgang International Tourism Zone.” The Wonsan District Development Company, an affiliate of North Korea’s Ministry of External Economic Affairs, introduced large-scale development plans for the Wonsan-Tongchon-Mt. Kumgang “tourism belt” to a crowd of over 200 members of the World Federation of Overseas Korean Traders Association (World-OKTA) at an investment forum held in Dalian, China on September 20, 2014.

At the investment forum, North Korean representatives emphasized that the focus city of this project, Wonsan (population 360,000), is merely 1 to 2 hours away from neighbors China and Japan, and is within a three-hour plane ride from over 40 other cities each with populations of over 1 million. The nation anticipates that, provided tourism infrastructure developments are completed according to plan, the Wonsan-Mt. Kumgang International Tourism Zone could potentially attract up to 1 million visitors annually.

North Korea marked the fourth quarter of 2013 with the opening of the Masikryong Ski Resort and the remodeling of the Songdowon International Children’s Union Camp as iconic projects leading the development of the Wonsan-Mt. Kumgang area. Representatives were quoted as saying, “The Masikryong Ski Resort enjoyed incredible popularity during its opening season last winter, attracting more tourists than hotel facilities could accommodate. . . . The Masikryong Ski Resort has become a huge asset to our nation’s tourism industry, capable of entertaining tourists even during the winter off-season.” Increasing hotel and lodging facilities were emphasized as the next most urgent task.

The Masikryong Ski Resort, located 25 kilometers from the city of Wonsan, was introduced as a resort capable of competing in the international market with its 49.6 kilometers of slopes, outdoor ice rink and swimming pools, and hotel accommodations for up to 360 guests. In addition to accommodation facilities for 12,000 people in Wonsan, 7,000 in Tongchon, and 14,000 people in the Mt. Kumgang area, North Korea also revealed plans for new and additional construction of infrastructure facilities in the Wonsan area—including airports, ports, railroads, roads and electricity—and for expansion of recreational facilities such as golf courses and casinos.

More specifically, construction is planned for a large-scale airport in the Kalma (Galma) Peninsula area of Wonsan which will be able to accommodate thousands of passengers per day [Learn more here and here]. Once completed, foreign tourists will be able to visit the Wonsan-Mt. Kumgang zone directly, with no need to pass through Pyongyang. While the most important project is to repair and expand the roadways connecting inner Wonsan with the Masikryong Ski Resort, Ullim Waterfall, Sokwangsa and Mt. Kumgang areas, North Korea also plans to construct or remodel service facilities within inner Wonsan such as hotels, exhibition centers, athletic facilities, and other business and commerce services necessary to satisfying the needs of tourists.

Overseas investors’ requests to visit the Wonsan-Mt. Kumgang International Tourism Zone for inspection and consulting can be processed within ten days, and North Korea is planning to invite potential investors to an on-site investment briefing to be held in April 2015.

UPDATE 3 (2014-7-29): According to the Pyongyang Times:

Thongchon to be developed as tourist zone

A project is to be launched to develop an international tourist zone in Thongchon County, Kangwon Province, which has lots of tourist resources.

The project is part of the development plan for the Wonsan-Mt. Kumgang International Tourist Zone, according to a decree released on June 11 by the Presidium of the Supreme People’s Assembly.

Thongchon County is situated 52 km south of Wonsan, the capital city of Kangwon Province.

The county boasts Chongsokjong—a group of basaltic stone columns which is known as one of the eight scenic beauties in the northeastern part of Korea, four picturesque lakesides, six sand beaches, nine scenic sites and a treatment mud resource of over 3 280 000 cubic metres.

The tourist zone area covers well over 9 000 hectares.

Tourist facilities for sea bathing and boating will be added to Chongsokjong so that visitors could enjoy sightseeing day and night.

Accommodation facilities with a capacity of over 5 600 people are to be built in the area of Lake Tongjong while the Lake Sijung area will turn into a health and treatment hub with an accommodation capacity of over 1 000 people and a sanatorium equipped with health and fitness facilities.

Detailed plans are being mapped up.

UPDATE 2 (2014-6-12): KCNA has formally announced the Wonsan-Mt. Kumgang International Tourist Zone:

Pyongyang, June 12 (KCNA) — The world-class Masikryong Ski Resort and Songdowon International Children’s Camp were successfully built and areas of Wonsan, Ullim Falls, Sokwang Temple and Thongchon are being peculiarly spruced up as cultural recreation grounds for people in Wonsan-Mt. Kumgang area under the wise guidance of the Workers’ Party of Korea. Koreans and world people are showing ever-growing expectation and interest in world famous Mt. Kumgang and other scenic spots. 

The DPRK decided to set up Wonsan-Mt. Kumgang International Tourist Zone in Wonsan-Mt. Kumgang area in Kangwon Province to reenergize the international tour of scenic spots in the area of Wonsan and scenic spots on the east coast now in the process of turning into world famous tourist destinations.

The international tourist zone includes areas of Wonsan, Masikryong Ski Resort, Ullim Falls, Sokwang Temple, Thongchon and Mt. Kumgang.

The Wonsan area comprises some parts of Wonsan City and Anbyon County, the ski resort area includes some parts of Wonsan City and Popdong County, the area of Ullim Falls comprises some parts of Munchon City and Chonnae County, the area of Sokwang Temple includes some parts of Kosan County, the Thongchon area comprises some parts of Thongchon County and the area of Mt. Kumgang includes the international tourist special zone and some parts of Kosong County and Kumgang County.

The DPRK law on Mt. Kumgang International Tourist Special Zone, the law on economic development zone and the laws related to foreign investment are applied to the relevant areas and objects in the Wonsan-Mt. Kumgang International Tourist Zone.

The DPRK decided to increase new tourist destinations, depending on the progress made in the development of the Wonsan-Mt. Kumgang International Tourist Zone and tour.

The Presidium of the DPRK Supreme People’s Assembly promulgated a relevant decree on June 11.

UPDATE 1 (2013-6-27): The JoongAng Ilbo claims to have a North Korean document called “General blueprint for the Wonsan District”. This document has not been made public, so I cannot vouch for its authenticity or content. However, as reported in the paper, the contents seem fairly congruent with established facts.

According to the article:

According to a document entitled “General blueprint for the Wonsan District” obtained exclusively by the JoongAng Ilbo on Tuesday, North Korea is in the process of constructing three special districts in Wonsan: a financial district, an entertainment and sports area and a tourist destination.

The report says Kim is planning to develop Songdowon Beach in Wonsan into a holiday destination for summers and a ski resort on Mount Masik for winters. Mount Masik is about 20 kilometers (12.4 miles) from Wonsan.

…

Sources in Seoul say the plan to develop the eastern naval city was actually his father’s.

In fact, in the transcript of the 2007 inter-Korean summit that was declassified Monday, Kim told former South Korean President Roh Moo-hyun that “Wonsan is a holiday destination,” rejecting Roh’s proposal to develop the city into an industrial park like the Kaesong Industrial Complex.

“Wonsan is a bay,” Kim said. “Waste comes into the bay and it can’t be properly managed because of Masik Mountain behind the city. So we will shut down all of the factories and shipyards in Wonsan right away.”

Sources said Jong-un might have decided to turn the city into a tourist resort based on the Kumgang resort, which was jointly run with the South but has been closed since July 2008.

“In Wonsan, there are a series of heavy industry factories, such as automobile plants and shipyards,” a source said. “But North Korea has a plan to close the aging factories and turn the city into a resort.”

Sources told the JoongAng Ilbo in March that North Korea appeared to have moved their MiG jet fighters from an airfield in Wonsan to a frontline unit in Kuup. They also reportedly shut down some factories in the city.

Still, the plan obtained by the JoongAng Ilbo didn’t elaborate on the length of construction or the cost.

“North Korea is hoping to lure investment of more than $1 million from a company in Singapore [for the project],” the source said. “Completion of the project relies on whether they attract foreign investment.”

North Korea has already started construction at Mount Masik, starting with a ski slope, three lifts, an office for ski rentals and a hotel. In phase two, it will build a larger slope, a gas station and a golf course.

ORIGINAL POST (2012-2-24): North Korea planning special economic zone in Wonsan and Mt. Kumgang regions
Institute for Far Eastern Studies (IFES)

North Korea announced plans to develop a special tourism zone in the Mount Kumgang region and recently established detailed plans to connect five countries in the Northeast Asian region by land, sea and air routes. In particular, it specified construction plans for the Tongchon Special Economic Zone (SEZ) in Tongchon County of Kangwon (Gangwon) Province.

Currently, there are four SEZs in North Korea: Rajin-Sonbong (Rason) SEZ, Hwanggumpyong SEZ, the Kaesong Industrial Complex, and Mt. Kumgang Tourism Zone. Tongchon will be a special case where a free economic trade zone will be located within the Mt. Kumgang Tourism Zone linking the areas of Wonsan and Mt. Kumgang.

Growing attention is being paid to the “Tongchon Special Economic Zone in the Mt. Kumgang Tourism Zone.” Industrial service facilities will be built in the Tongchon SEZ along the coastline including, “comprehensive industrial, merchandise, and communication service center zone,” “international multipurpose building zone,” “international finance, trade, and business center,” and a golf course.

Construction inland is currently underway for regular and high-tech industrial complexes in the following areas: IT, LCD, and electronics; home electronics; automobile; new energy and environmental protection; and biomedical and breeding.

Tongchon Port is equipped to accommodate 100,000-ton vessels and there are plans of constructing beaches, a marine park, hot springs, and luxury hotels, and vacation homes in the vicinity.

According to a five-page blueprint for the “Choson Wonsan-Mt. Kumgang Development Plan” (in Chinese), North Korea has set 10 million tourists per year as its goal and is preparing to attract large investment of over 10 billion USD over the next ten years.

Although it is unclear who has prepared the blueprint, it is most likely that North Korea has prepared the plan in Chinese to promote the SEZ internationally. North Korea recently distributed briefing materials in Chinese at the 7th China Jilin-Northeast Asia Investment and Trade Expo (JNIT), which was held last September.

The report included plans of constructing Wonsan International Airport at an estimated cost of 150 million USD.

The ten-year development plan is further divided into three periods: October 2011 to December 2013 (short-term); 2014 to 2016 (mid-term); and 2017 to 2020 (long-term).

In addition, the report included the detailed plans of road and facility renovations. The Pyongyang-Wonsan-Mt. Kumgang highway that stretches 310 km will be renovated with investments worth around 150 million USD. A four-lane highway will also be added. The seaside areas of Wonsan and Mt. Kumgang and the tourism zone will be reconstructed with major facilities and electricity worth 10 billion USD and a new town is also being designed to accommodate a population between 800,000 and 1 million people.

The report “Establishment of International Travel between Mt. Kumgang and Five Countries in Northeast Asia” included details of 18 air routes from Beijing, Changchun, and Shenyang to Wonsan International Airport; 8 sea routes to Nampo Port and the routes from South Korea, Japan, Russia, and the Northern Pacific rim using the port in Mt. Kumgang. In addition, a land route connecting Dandong of China to Mt. Kumgang is also included in the plan, via Shinuiju.

It is designed to develop Mt. Kumgang into an international tourism zone making it accessible by land, sea, and air transportation to South Korea, China, Russia, and Japan.

Specifically, Niigata Port of Japan, Vladivostok Port of Russia, and Jeju, Busan, and Sokcho Ports of South Korea were mentioned as the major ports for the sea travel to North Korea.

Travelers from China will be connected to Mt. Kumgang by rail (from Wonsan to Mt. Kumgang) and by sea (from Rajin-Sonbong Port to Mt. Kumgang Port).

Interestingly, no land route was designated for travel from South Korea. The previously used Donghae Line to travel from Kosung to Mt. Kumgang by road and railroad was omitted from the plan.

Additional information:

1. Check out previous posts on the DPRK’s “Law on Economic Development Zones“.

2. You can read about the DPRK’s plans for a new Wonsan International Airport in this article and in this article with James Pearson.

Read the full story here:
North is building ski, beach resorts in Wonsan
JoongAng Daily
2013-6-27

Institute for Far Eastern Studies (IFES)
2013-6-7

Under the new leadership of Kim Jong Un, North Korea has been making gradual changes with new economic measures. Last year, task force was installed at a state level to configure new economic measures and details are being released one by one.

Details confirmed thus far include the authorities of the administrators of cooperative farms and enterprise are being expanded, which include surpluses can be disposed at the discretion of the administrators of individual organizations. This means voluntary incentives can be now paid to workers to increase production.

The North’s key industries of agricultural and industrial sectors were first to implement such change. The AP reported on April 1, the administrators of cooperative farms and factories were granted the discretionary rights for the promotion of production.

Specifically, the cooperative farms installed smaller work units and each unit of the organization are directly responsible for all the harvest. Whereas all the harvest were required to be sent to the state in the past, surpluses are now can be stored, sold, or exchanged with other goods.

In the case of factories and enterprises, worker’s wages were strictly controlled by the state but after the change, each factory and enterprise can now pay incentives to workers depending on the production results.

Professor Ri Ki Song at the North Korea’s Academy of Social Sciences stated, “individual workers are able to work more to earn more,” and “such policy decision was enforced from April 1 after a period of trial operation.”

New economic measures by the cooperative farms, factories and enterprises that granted each organizations the rights to freely dispose its surpluses is analyzed as an effort to increase production by granting incentives to workers. Increased production is expected to attract active participation of the people in the new economic measures, to achieve a ‘virtuous cycle’ in production.

The increase in goods exchanged between people is changing the existing distribution structure. North Korea is making efforts to ease the planned economy structure in commercial and distribution sectors. In other words, the number and variety of products distributed domestically is increasing and the state is intervening to amend the existing distribution system and strengthen the discretion rights of commercial and industrial institutions.

North Korea’s release of this information regarding the new economic measures to AP and other foreign media after it gained the confidence to properly manage the new economic measure from the successful pilot projects of the new economic measures. However, information released to the foreign media is still limited and changes in other areas including banking and finance sectors remain unknown.