North Korean Economy Watch

According to the Wall Street Journal:

On a vast construction site outside this northeastern Chinese city, engineers are working around the clock on a project that could transform the economic—and geopolitical—dynamics of the region: a 223-mile, high-speed rail link to the North Korean border.

The $6.3 billion project is one of three planned high-speed railways designed to bring North Korea closer into China’s economic orbit, even as Beijing supports sanctions aimed at Pyongyang. China is also sinking millions of dollars into new highways and bridges in the area, and the first cross-border power cable.

China’s vision for closer economic integration with North Korea runs counter to a U.S. strategy aimed at piling pressure on Pyongyang to abandon its nuclear-weapons program and refrain from further threats.

(more…)

According to Yonhap:

North Korea is pushing to give greater autonomy to its distribution sector, a senior Pyongyang official said, in what is seen as another sign of the communist country loosening its tight grip on the planned economy.

In an interview with a monthly magazine published by the pro-Pyongyang General Association of Korean Residents in Japan (Chongryon), Oh Young-min, a director of the North’s Ministry of Commerce, said the ministry will overhaul the way wholesalers distribute consumer goods.

“Wholesalers will offer information on all goods — those manufactured under a government plan, surplus products and unplanned goods — and deliver them after receiving orders from unspecified retail networks,” Oh said in the June edition of the magazine obtained by Yonhap News Agency on Sunday.

The ministry is drawing up a detailed plan to revolutionize the commerce and distribution network in order to meet the needs of the new century, the official said, adding that an order system should be implemented thoroughly in order to boost the efficiency of the distribution sector.

In a planned socialist economy, an order system refers to one where goods are produced and distributed based on the amount of orders from users.

The North’s push is widely deemed a follow-up on the country’s new economic management system, which was announced in late June last year.
“In line with the June measure, North Korea appears to be seeking a change of course by granting individuals greater authority in the distribution of goods,” said Cho Bong-hyun, an analyst at the IBK Economic Research Institute.

The move to overhaul the distribution system also comes two months after North Korea reportedly gave greater leeway to managers of cooperative farms and factories in an effort to boost production.

Last year’s reform drive is seen as a step forward from the country’s similar reformist efforts in 2002, when wages and rice prices were sharply lifted to match market levels. Increased money supply following the wage and rice price hikes triggered severe inflation, causing the reform drive to fail, according to experts.

Read the full story here:
N. Korea seeks to ease state grip on distribution
Yonhap
2013-6-2

According to Yonhap:

The number of mobile phone owners in North Korea has exceeded the 2 million level, a report said Friday, indicating that one out of every 12 North Korean citizens are using wireless telephone services.

Washington-based Radio Free Asia reported the information, citing a statement released on Wednesday by Naguib Sawiris, the chairman of Orascom Telecom Holding.

The number of wireless phone users stood at around 100,000 in 2009 and 500,000 in mid-2011 before jumping to the 1 million level in February 2012 and the 1.5 million mark in November of the same year.

The Egyptian firm currently provides third-generation wireless service covering 15 major North Korean cities, including Pyongyang, as well as 100 other smaller cities in the communist country with a population of about 24 million.

Read the full story here:
Number of N. Korean mobile phone users tops 2 mln: report
Yonhap
2013-5-31

Institute for Far Eastern Studies (IFES)
2013-5-30

North Korea currently under robust international sanctions has put on extensive advertising campaign for the recent International Product Exhibition [Spring International Trade Fair] held in Pyongyang.

A week has passed since the 16th Pyongyang International Spring Product Exhibition (May 13-16), but the Choson Sinbo, the bulletin of the Japan-based Chosen Soren, continues to run daily articles on the products displayed in the exhibition.

The products displayed at the Pyongyang International Spring Product Exhibition, which is North Korea’s largest trade exhibition, provided a peak at the country’s current industrial trends. Moreover, this year’s exhibition introduced a number of products which are used in the daily lives of North Koreans.

The (North) Korean United Trading Company exhibited over fifty categories of products including colored metal products and a variety of lubricants and ball bearings. Groups including the Sungri Economic Trade Alliance, the State of the Art Technology Development and Exchange Center, the (North) Korean Hard Glass Company, the Pyongjin Bicycle Joint Venture Company, etc. entered products which contribute to improving the lives of North Koreans. The Chosun Sinbo introduced various new products displayed at the exhibition, including shoes was introduced which treats athlete’s foot and dissipates odors with substances such as nano silver as well as complex lactic acid products and other pharmaceutical products made at the Pyongchon Koryo Pharmaceutical Factory.

North Korea also focused on advertisement for automobiles and electronics. Pyonghwa Motors introduced over 30 new models at the exhibition, with the increase in demand. It also boasted that the new models were equipped with lower fuel consumption, reduced by two-thirds.

North Korean media also praised computer products introduced by the (North) Korean Computer Center for its rise in popularity and international competitiveness. The Ryongak Computation Information and Technology Exchange Center introduced a new tablet PC which it dubbed the ‘Yongheung.’ It was reported that buyers welcomed the site for portable profile projectors which had TVs for viewing and allowed for comfortable exhibition of mass media materials.

To overcome the current international sanctions imposed on North Korea, the exhibition is likely to be intended to increase its economic cooperation with the outside world. On May 22, the Chosun Sinbo reported that despite the United States-led economic sanctions on North Korea, many foreign enterprises participated in the exhibition in the hopes of expanding trade with North Korea. It highlighted that the Rason Comet Trade Corporation which is located in China and North Korea’s joint Rason Special Economic District, participated this year for the first time in the Pyongyang International Spring Merchandise Exhibition. The article explained that the Rason Comet Trade Corporation is exporting clothing including t-shirts and athletic wear to Indonesia, Thailand, China, etc. Pyonghwa Motors which exhibited 36 varieties of cars, passenger vans, and buses at the outdoor exhibition center, benefited from meetings with several foreign companies as well as North Korean trade and economic agencies.

The 16th annual Pyongyang Spring Product Exhibition was held from the 13th to 16th of this month and companies from North Korea, Germany, Malaysia, Mongolia, Switzerland, Singapore, Australia, Italia, Indonesia, China, Poland, and Taiwan participated at the event with various products including machineries, electronics, light industry, foods, medical, and chemicals.

UPDATE 2 (2013-5-24): South Korea has again requested that the DPRK repay past food loans. According to Yonhap:

South Korea again called on North Korea Friday to repay millions of dollars in loans provided in the form of food since 2000, the Unification Ministry said.

The impoverished North missed the June 7, 2012 deadline to repay South Korea US$5.83 million in the first installment of the $724 million food loan extended to the North in rice and corn. The latest call is the South’s fifth demand made on the North to repay its debt.

Seoul’s state-run Export-Import Bank (Eximbank) sent a message on Thursday to Pyongyang’s Foreign Trade Bank, calling for the repayment, Unification Ministry spokesman Kim Hyung-suk said in a briefing.

The South Korean bank also sent another message the same day, notifying the North of its forthcoming June 7th deadline to repay the second installment of $5.78 million, the spokesman said.

“North Korea should faithfully abide by what they previously agreed to with the South,” Kim said, calling for the repayment of food loans.

Amid a conciliatory mode under the liberal-minded late President Kim Dae-jung, Seoul started to provide food loans to the famine-ridden country, providing a total of 2.4 million tons of rice and 200,000 tons of corn from 2000-2007.

Under the deal, the North is required to pay back a total of $875.32 million by 2037.

Read the full story here:
S. Korea again asks North to repay food loans
Yonhap
2013-5-24

UPDATE 1 (2012-7-15):  South Korea claims the DPRK missed a deadline for explaining how it intended to repay South Korean “loans”. According to Yonhap:

North Korea missed the deadline Sunday for notifying South Korea of how it will repay millions of dollars in loans provided in the form of food in 2000, resulting in Seoul having the right to declare Pyongyang has defaulted on its debt, an official said.

South Korea sent the North a message on June 15 that the communist nation was supposed to have paid back US$5.83 million in the first installment of a 2000 food loan worth $88.36 million by June 7. The North was required to respond to the message in 30 days.

That deadline passed on Sunday with the North remaining silent, giving South Korea the right to declare the North has defaulted on the debt, according to a government official in Seoul.

But South Korea is unlikely to go ahead with the declaration any time soon as it would have little effect on the North. The communist nation remains largely outside of the international financial system and the prospect of national default is unlikely to force it to repay its debt.

Officials said they are considering sending Pyongyang a message again calling for debt repayment.

Widespread views are that it won’t be easy for the North, which is still struggling with food shortages, to pay back its debt, but officials said the country could repay the debt in kind as it did before. In 2007 and 2008, the North repaid some debt with $2.4 million worth of zinc ores.

After the two Koreas held their first-ever summit in 2000, South Korea provided the North with a total of US$720 million in loans of rice and corn until 2007. Including interest accrued on the loans, the North is required to repay some US$875 million by 2037.

Such aid has been cut off after the South’s President Lee Myung-bak took office with a pledge to link any assistance to the North to progress in international efforts to end Pyongyang’s nuclear weapons programs.

The Daily NK also covered the story.

ORIGINAL POST (2012-6-8): According to Yonhap:

North Korea has not shown any signs of repaying the loans South Korea extended in food grains since 2000 although the initial day of the scheduled repayment passed as of Thursday. The South Korean government provided North Korea grain loans worth US$725 million for seven years until 2007, including 2.4 million tons of rice and 200,000 tons of corn. The total principal and interest North Korea should repay for the next 20 years is estimated at $875.32 million.

North Korea was scheduled to pay South Korea $5.83 million by Thursday for the loans extended to it in 2000. Korea Eximbank, which is in charge of trade finance with the North, notified its counterpart the Chosun Trade Bank of North Korea of the repayment obligation Monday but North Korea had not responded of Friday.

The former South Korean governments led by President Kim Dae-jung and Roh Moo-hyun provided an estimated 1 trillion won (US$850 million) to North Korea from 2000 to 2007 under the sunshine policy. South Korea provided an additional 1.37 trillion won to North Korea to finance the construction of a light water reactor in order to suspend North Korea’s nuclear development. All the loans to the North were taxpayer’s money.

…

North Korea should show sincerity in the repayment of these loans for the sake of its future. If it fails to do so, the North will encounter substantial difficulties in accessing further loans from the international community. North Korea also has failed to repay loans it borrowed from the old Soviet Union. Russia reportedly had to reduce 90 percent of the Norths loans, worth $11 billion.

If North Korea has difficulties repaying its debts to South Korea in cash, it should sincerely discuss alternative measures to repay the loans with the South Korean government.

The South Korean government should positively consider measures to get the money back in kind, such as in mineral resources. North Korea should understand that if it fails to show the minimum sincerity on the repayment of its debts, it will experience much more difficulty in attracting economic assistance from the outside world.

The Choson Ilbo reports this additional information:

In 2007 and 2008, South Korea also gave the North $80 million worth of raw materials to produce textiles, shoes and soap. At the time, North Korea repaid 3 percent of the loan with $2.4 million worth of zinc ingots. Repayments of the remaining $77.6 million become due after a five-year grace period, so North Korea must start repaying $8.6 million a year every year for 10 years starting in 2014.

Seoul also loaned Pyongyang W585.2 billion (US$1=W1,172) from the Inter-Korean Cooperation Fund so it could re-connect railways and roads with the South that were severed in the 1950-53 Korean War. And it provided W149.4 billion worth of equipment to the North. The North must repay that loan in 20 years with a 10-year grace period at an annual interest of 1 percent.

It also seems unlikely that South Korea will be able to recoup W1.37 trillion plus around W900 billion in interest it provided North Korea through an abortive project by the Korean Energy Development Organization to build a light-water reactor.

The loans amount to a total of around W3.5 trillion, which the South will probably have to write off.

The Daily NK also reported on this story.

Read the full story here:
North Korea should show sincerity in repaying South Korea loans
Yonhap
2012-6-8

N.Korea Misses 1st Loan Repayment Deadline
Choson Ilbo
2012-6-8

According to Yonhap:

Trade between South and North Korea tumbled last month after the North shut down the jointly run industrial park in its border town of Kaesong, government data showed Tuesday.

The monthly inter-Korean trade volume came to US$23.43 million in April, down 88 percent from $194.27 million recorded the previous month, according to the data from the Ministry of Unification in charge of inter-Korean affairs.

The April figure is almost similar to the average monthly trade volume of $23.94 million registered in 1995.

In early April, the North banned the entry of South Korean workers and materials into the Kaesong Industrial Complex and withdrew all North Korean workers employed by South Korean firms there in protest against Seoul’s joint military exercises with the U.S. in March.

…

Trade between the two countries, which remain technically at war since the 1950-53 Korean War ended in an armistice, had steadily increased since late in the 1980’s to register an annual record of $1 billion in 2005.

Read the full story here:
Tnter-Korean Trade Tumble
Yonhap
2013-5-21

Institute for Far Eastern Studies (IFES)
2013-5-20

High ranking North Korean officials have relayed that, since last year, North Korea’s Kim Jong Un has on several occasions provided direction on improvements for economic management methods and that some new measures are being implemented on an experimental basis.

In a May 10, 2013 interview with the Choson Sinbo, North Korean Cabinet secretariat Kim Ki Chol and National Planning Committee director Ri Yong Min relayed that “Kim Jung Un spoke on several occasions, both this year and last, about the time to fix economic management practices and delegated related responsibilities to students and laborers.” The officials added, “We are holding rounds of consultation and discussion together with research institutes and representatives of several economic sectors.”

The officials further stated that “Out of these consultations have emerged a number of promising economic proposals which we are putting into practice on an experimental basis. In the case that they show positive results, we plan to introduce them across the country. Most remain in the research stage.” These remarks indicate that North Korea is embarking on some kind of economic reform measures.

These statements seem to confirm that North Korea’s economic measures are being driven by the direct orders of Kim Jung Un, such as the ‘June 28 Measure’ (i.e., policy on agriculture). They also suggest that once measures clear the testing stage, they will be implemented on a national scale.

They also explained that while additional new economic control measures are being adopted, these measures at the same time deal with issues related to production planning, price adjustment, and currency circulation. They added that new laws would have to be created, and explained that measures were being expanded that allow for the expansion of authority in the interest of reinvigorating production at factories and industrial sites.

Mention of price adjustment and currency circulation suggests that North Korea’s new economic reforms may not be limited to farms, factories, and industrial sites; rather, it hints at the possibility that North Korea will embark on much larger scale reform extending to the financial sector.

They explained that some farms which carried out the national plan last year implemented land distribution, and contributed to the right of factories and industrial sites to sell and trade freely. They added that such steps reflected the demands of workers.

The officials were reserved in their comments in regard to the timing of any future announcements related to North Korean economic measures: “If successes are consistent we can advance the reforms on a wide scale; but, for now, we need to keep an eye on progress.”

The officials added that they were being retrained in management at the University of the People’s Economy and taking classes about farm management and management at Kim Bo Hyun College.

North Korea emphasized the construction of an economic powerhouse at the beginning of May, and it is currently heating up in the fields of industry and farming by encouraging an increase in production. In relation to this, the Korean Workers’ Party is mobilizing media sources including the Rodong Sinmun, the Korean Central News Agency, and Korean Central Broadcasting.

Particularly, these media sources are emphasizing that obtaining a nuclear deterrent is the greatest asset on the road to economic construction. They are also claiming that increase in production is one means for the achievement of the new economic line of pursuing simultaneously economic construction and building of a nuclear force.

Now that the annual US-ROK joint unit tactical military field training drills, i.e., ‘Foal Eagle’, have concluded (as of April 30) and tensions on the Korean peninsula have subsided somewhat, North Korea’s new economic line is being assessed as one which is aimed at enhancing the economic livelihoods of North Koreans.

According to Radio Free Asia:

Private ownership of homes is illegal in North Korea, but residents of Pyongyang who make frequent trips to China and residents of cities on the border between the two countries told RFA it is no longer strange to hear about “sales” of government properties between individuals.

According to a virtual housing market for North Korean civilians, the country’s most expensive homes are located in Sinuiju, with Hyesan city in northern Yanggang province next in cost and Pyongyang in third.

A single family home or large apartment in what is deemed a good location in Sinuiju can fetch around U.S. $30,000, while those in the suburbs of Pyongyang and other border cities are priced less.

While houses are being built everyday in Pyongyang to supply a growing demand, it is difficult to find new homes in other cities, leading to a rise in the cost of real estate, the sources said.

A resident of Hyesan told RFA that homes in cities like his, near the border with China, command the highest prices on the black market because they provide access to Chinese money and infrastructure.

“I can’t say all houses in Hyesan are expensive, but those which are good for the smuggling trade and receive a clear Chinese cell phone signal are really high priced,” the source said, speaking on condition of anonymity.

“Several houses by the riverside are even priced similarly to Chinese houses on the opposite side of the border in [Jilin province’s] Changbai city,” he said.

Sources told RFA that the North Korean government has canceled licenses several times in recent years, issuing statements which describe the practice of housing transactions as an “offence against the system of the North Korea.”

But attempts to stamp out the trend have repeatedly failed as those involved in the sales include untouchable high-ranking officials and because the practice is too far reaching.

Read the full story here:
Illegal Trade in North Korean Homes Flourishes
Radio Free Asia
2013-5-7

According to Martyn Williams in PC World:

North Korea’s sole 3G network operator has managed to double its subscriber base in a little over a year and is about to hit 2 million users.

Koryolink launched service in the final days of 2008 and has become one of the most visible foreign partnership success stories in the country.

The network operator is jointly owned by Egypt’s Orascom Telecom Media and Technology Holding (OTMT) and North Korea’s Ministry of Posts and Telecommunications. Orascom holds a 75 percent majority stake with the remainder in the hands of the government.

Before Koryolink’s service began, mobile phones were an unusual sight in Pyongyang, but that has changed in recent years. Visitors speak of seeing scores of citizens talking and texting from mobile handsets.

2 million subscribers is approximately 8.3% of the North Korean population.  The majority of subscribers are likely to be in Pyongyang but we do not have any data on the internal distribution of subscriptions. All subscribers are paying in hard currency, though none of it has been repatriated from the DPRK.

More information available at North Korea Tech.

Institute for Far Eastern Studies (IFES)
2013-4-25

After North Korea’s currency revaluation in 2009, North Korean currency is still unstable and North Korean markets near the DPRK-China border are reportedly filled with Chinese merchandise, with transactions being conducted mainly in Chinese yuan.

An online newspaper, the Daily NK, reported that markets in the city of Hyesan (Ryanggang Province) and surrounding areas are using Chinese yuan as the primary currency for transactions rather than local North Korean won.  Rice prices are standard indicators of inflation in North Korea and even rice was reported to be exchanged in yuan.  As the monetary value of domestic currency continues to fall, North Korea is experiencing hyperinflation and North Koreans are showing a preference for the more stable Chinese yuan over won.

With an exception of rice, vegetables, and seafood, manufactured goods including confectioneries, the daily necessities for sale in these markets are mostly from China.  As well, some South Korean items such as instant noodles, Choco Pies, and butane gas are sold openly in the markets.

Border areas have a higher rate of Chinese yuan usage than inland areas, as for years traders have been buying Chinese goods with Chinese yuan to sell in the domestic markets.  However, with the unstable domestic currency, more and more North Koreans have been using Chinese yuan over the last three years.  Some report goods bought with North Korean won must be converted to the CNY exchange rate.

As of mid-April, the exchange rate of 100 CNY to KPW was 130,000. However, Pyongsong and Pyongyang cities used mainly US dollars and local won in equal rates.

A video recording obtained by the Daily NK unveiled the landscape of the marketplace and nearby alley markets of  Hyesan and surrounding areas.  Items for sale include jackets, mufflers, gloves, coats and other winter clothing as well as cosmetics, perfumes, toothpaste, toothbrushes and other daily goods. Transactions were being made in Chinese yuan.

North Korean authorities are waging a crackdown against the use of the yuan in the markets but merchants continue to use yuan in secret.

The high number of Chinese goods in North Korean markets can be attributed to the failed production system of the people’s economy of North Korea, which began to tumble in the late 1990s. As the regime began to invest excessively in its military sector, production in the manufacturing sector declined.

Although North Korean products appear in the markets, most people prefer Chinese goods due to their better quality.

A recent article in the official state economics journal of North Korea, Kyongje Yongu (Journal of Economic Research), criticized the “trade companies for focusing on only one or two countries,” expressing concerns that, “the whole nation may experience political and economic pressure from trade companies that restrict foreign trade to only one country.”

Kim Jong Un has also expressed official disapproval against “import syndrome” of the people and regarded it as an obstacle hindering the development of North Korea’s light industry.

Although no specific country was named, it is believed that China makes up over 80 percent of North Korea’s total foreign trade. North Korea continues to show vigilance against its rising dependence on China.