North Korean Economy Watch

Arirang News has posted a video on the changes in consumer culture in the DPRK. It highlights just how much things have changed since the days of Kim Il-sung:

According to Choson Exchange:

Chinese tourists will have visa free access to the border regions linking Yanbian Autonomous Region, Rason Special Economic Zone and Russia, according to a report originating with Jilin Radio that surfaced in South Korean media today.

The report doesn’t give an date for implementation, but does state that the previous tourism agreement governing the border region (signed in 2010) will be streamlined. It still takes 10 days for a Chinese traveler to get permission to visit Rason. This process will drop to 2-3 days.

If accurate, this could go a long way towards boosting tourism in the SEZ. After all, a Beijinger or Shanghaiian might well be more willing to spend the money to visit the region if they can get two countries in the same trip. At the risk of overgeneralizing, Asian tourists seem eager maximize passport stamps above all else on international tours. This desire could be effectively exploited if Rason and Russia’s Primorsky Krai province coordinate their marketing.

Also, now that the road to Rason is paved, the ease with which Chinese gamblers can reach the Emperor Casino and Hotel greatly increases and arguably makes the destination seem more normal and therefore attractive. One wonders if the casino’s fleet of crimson humvees, once needed to whisk high-rollers along the laborious dirt road from, will now be replaced by Mercedes or Lexuses. (Lexi?)

Last year, the SEZ experimented with self-drive tours for Chinese citizens, though there has yet to be any follow-up on it.

For westerner tourists thinking of visiting Rason, we recommend Krahun, a company that has had a presence in Rason for over a decade and know the region exceptionally well.

Read the full story here:
Visa Free Rason Tourism for Chinese Citizens
Choson Exchange
Andray Abrahamian
2012-5-29

Dr. Seliger has sent in some interesting information on financial products being advertised to North Koreans. I will post it over the next few days.

Today we will look at the marketing materials for the  Jeil Credit Bank in Pyongyang:

Here is what the marketing poster says:

외화저금안내 Currency savings guide

저금종류 리자률                (년리)% Interest Rate
Types of savings              (per annum)%

보통저금
Usual saving 1%

정기저금(6개월)
Regular Saving (6 month) 2.5%

정기저금(1년)
Regular Saving (1 year) 6%

정기저금(2년)
Regular Saving (2 year) 7%

정기저금(3년)
Regular Saving (3 year) 7.5%

정기저금(5년)
Regular Saving (5 year) 8%

정기저금(10년)
Regular Saving (10 year) 9%

제일신용은행은 자기의 이름 그대로 경영전략과 자금관리에서 신용을 제일 생명처럼 여기고 있으며 개인저금잔고를 절대로 남에게 보여주거나 알려주지 않습니다.
Jeil Credit Bank, as the name of itself, consider credit of management strategies and money management as our life and does not show or share ones account information to others.

제일신용은행의 저금자들은 저금하는 날 혹은 저금 만기 전 임의의 날에 리자를 먼저 찾아 쓸 수 있으며 저금만기날이 아니라도 언제든지 필요하면 저금한 돈을 전부 되찾을 수 있습니다.
Jeil credit bank customers can withdrawal the interest before maturity at any time and if needed, all of the money from the savings can be withdrawn before maturity.

제일신용은행은 싱가포르와 50년간 합영계약을 맺고 있는 은행입니다.
Jeil Credit Bank has a 50 years joint venture contract with Singapore.

영업시간 월요일부터 금요일까지 오전 10시~12시 20분, 오후 14시~16시 20분
Business hours: Mon-Fri 10 am – 12.20 pm, 2 pm – 4.20 pm

제일신용은행
Jeil Credit Bank

According to the BBC:

China has launched a drive against illegal immigration in a north-eastern region bordering North Korea.

The campaign in the Yanbian Korean Autonomous Prefecture in Jilin province mainly focuses on North Koreans fleeing poverty and persecution at home.

China is known to routinely repatriate North Koreans who often slip across the border undetected.

Human rights groups say many face punishment when they return.

“Foreigners who illegally enter, work and overstay are hidden troubles, and they might pose potential threats to social stability,” Li Yongxue, a police official from Yanbian, was quoted by state-run China Daily newspaper as saying.

The police say they want to stamp out criminal activities to maintain order. They add that those without proper documents will be sent back.

Many of these illegal immigrants have relatives in China, some come to work, while others use China as a staging post before moving to other countries, according to the BBC’s Michael Bristow.

A police officer from the province told the BBC that it was a sensitive year in China, with officials stressing the need for stability ahead of a leadership change this year.

Read the full story here:
China targets illegal immigration at North Korea border
BBC
2012-5-25

According to the Hankyoreh:

South Korean businesses have suffered losses of up to ten trillion won (US$8.3 billion) from the cutbacks in inter-Korean economic cooperation under the Lee Myung-bak administration, figures show.

The losses taken by South Korean firms are fives times the 1.8 trillion won (US$1.7 billion) North Korea’s estimated losses. The results show an unintended effect of Seoul’s May 24 sanctions, which were meant to punish North Korea economically for the shooting death of a tourist at the Mt. Kumkang resort, the sinking of the Cheonan warship, and the shelling of Yeonpyeong Island. North Korea has offset these losses with increased cooperation with China.

Read more below…

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The Joongang Ilbo reports some recent statistics from, the Kaesong Industrial Zone and some trade statistics between the two Koreas and China.

Inter-Korean and China trade (Joongang Ilbo):

Exactly two years ago, on May 24, 2010, in the aftermath of the deadly sinking of the Cheonan warship, the Lee Myung-bak administration imposed sanctions against North Korea that forbade all inter-Korean trade and South Korean investments in the North.

[…]

Statistics from the Korea International Trade Association show that the volume of inter-Korea trade in 2011 dropped by 10.4 percent, falling to about $1.7 billion from $1.9 billion in 2010. The Kaesong Industrial Complex, which was exempted from the sanctions, accounted for most of the inter-Korean trade.

In contrast, the volume of trade between North Korea and China surged by 62.4 percent in 2011, from $3.4 billion in 2010 to $5.6 billion.

“After stopping trade with South Korea, factories in Pyongyang and Nampo cities turned to Chinese companies and now work for them,” a South Korean businessman said on condition of anonymity. “It took so much time and money for us to teach North Korean employees and now Chinese companies enjoy the fruits of our labor.”

The North Korean government responded to the South Korean sanctions:

As talks between the two authorities have been halted, North Korea has unilaterally decided to raise taxes on income and management of the complex.

In fact, the North Korean regime earns significant money from the complex. South Korean firms pay the North Korean government an average of $126.4 per month for each North Korean worker. The government then distributes 5,000 won of North Korean currency and some food coupons to each employee per month. This wage is desirable compared to other worker payments in the North.

Analysts calculate that the regime is holding at least $50 million from the $77.8 million of the North Korean employees’ annual income.

At current black market rates, there are appx 4,450 DPRK won to for US$1.

The article notes, however, that the Kaesong Industrial Zone continues to grow:

Located only three kilometers away from the Military Demarcation Line, the inter-Korean complex has 123 South Korean companies and about 51,000 North Korean employees.

…

Currently, the South Korean government is implementing a scheme to build more roads and infrastructure for South Koreans crossing the border to commute to the complex (see here and here).

“Although Kim Yong-chol, former head of the policy planning office of the North’s powerful National Defense Commission, who has exerted a huge influence on operating the Kaesong complex, repeatedly threatened to shut down the complex since the May 24 sanctions, he’s recently been more cooperative, saying ‘Let’s make it better,’” a high-ranking government source told the JoongAng Ilbo.

Unlike the frosty inter-Korean relations, the sales performance of the joint industrial complex is positive. For the past three years, 55 South Korean firms additionally moved into the complex and the annual output value surpassed $400 million in 2011, jumping from $180 million in 2007.

Last year’s volume is 30 times that of the $14.91 million in 2005, when the complex made its first yearly outputs. The total output value since 2005 has accumulated to $1.5 billion.

[…]

Currently, roughly 160,000 people are living in Kaesong city and approximately one out of three are working in the complex

The article also reports on additional DPRK-China projects that are not necessarily a result of higher barriers to commerce between the two Koreas (dredging, mining, labor mobility, and SEZs):

“A Chinese firm based in Yanji is now implementing a 60-kilometer-long (37-mile) dredging project in the Tumen river bed,” a government-affiliated research official said.

“It’s not simple dredging work, but a plan to mine the iron ore buried nearby.”

“In the river bed, about 30 percent of the sand contains iron ore,” the official said.

The regime also exports their labor forces to their closest ally.

“Most of the local people left for South Korea to get a decent job and the average wage for a Chinese worker is increasing,” a Chinese factory manager in Yanji said. “So we are planning to hire North Korean workers instead.”

Pyongyang and Beijing are also focusing on developing the two special economic zones, Rason and Hwanggumpyong in northeastern North Korea.

When Chen Deming, the Minister of the Chinese Ministry of Commerce of China, and South Korean Trade Minister Park Tae-ho had a bilateral meeting on May 2 to start negotiations on the Korea-China free trade deal, they included a provision stating the two countries will allow preferential tariffs on goods produced in designated zones.

“Hwanggumpyong is like a Kaesong Industrial Complex to China,” a South Korean authority said. “The Hwanggumpyong zone has the same function as Kaesong, composed of China’s capital and technology and North Korea’s land and labor forces.”

In the Rason Economic Zone, China has finished construction paving the 53-kilometer-long road connecting the Rason zone and a local tax office in Wonjong-ri, a North Korean village close to China.

The Chinese government also arranged a harbor near the Rason area, constructing a pier that can accept a three million-ton ship and building a bus route between an express bus terminal in China and the zone.

“If China uses the Rason harbor, they can save $10 per metric ton,” Jo Bong-hyeon, a senior official at the Industrial Bank of Korea, said. “It’s really good business for China, enough to invest money on building infrastructure in the zone.”

Read the full story here:
Kaesong complex running well despite sanctions
JoongAng Ilbo
2012-05-23

Institute for Far Eastern Studies (IFES)
2012-5-22

In the past, it was usually Kim Jong Il or Kim Jong Un who made on-the-spot guidance and inspections. However in the recent years, that has changed. Premier of the DPRK Cabinet Choe Yong Rim, is making onsite inspections in economic sectors, while the director of the Korean People’s Army (KPA) General Political Bureau, Choe Ryong Hae, is doing the same at construction sites.

The KCNA reported on May 15 that Choe Yong Rim and Choe Ryong Hae each made on-the-spot visits.

First, Choe Yong Rim visited the Hwanghae Iron and Steel Complex on May 15.

The KCNA reported that the “workers of the complex are making achievements in updating it and producing heavy-duty rails true to the behests of General Secretary Kim Jong Il.”

The news also added “Going around gas generation and high temperature air combustion heating process and various other places, the premier learned in detail about the progress made in updating the complex and held a consultative meeting.”

Premier Choe was also reported to have visited the 15th Pyongyang Spring International Trade Fair on the same day where he stressed “the need to positively develop the bilateral and multilateral cooperation among countries and regions in the economic and trade fields.”

The 15th Pyongyang Spring International Trade Fair was held from May 14 to 17 at the Three-Revolution Exhibition Hall with over 270 countries participating. The KCNA reported the exhibit was organized by the Korean International Exhibition Corporation, the sole body in charge of any international trade fair held in the country. On May 10, the KCNA released an article that covered the major achievements of the Corporation, for having won special prizes, gold and silver cups and certificates at international trade fairs. Furthermore, the corporation is known to have made import and export contracts with many countries in Asia, Europe, and other regions.

On the other hand, Choe Ryong Hae was reported to have visited Pyongyang Folk Park on the same day and inspected the progress made in the construction for the park, which is in its final stages.

The KCNA described the park to be, “associated with the noble intention of the great men of Mt. Paektu to provide the Korean people with better cultural and emotional life while valuing the folk tradition.”

Choe Ryong Hae examined the construction site and “encouraged the soldier-builders for their labor achievements for making innovations day by day true to the teachings provided by Supreme Commander Kim Jong Un.”

In addition, he commanded for the construction of the park to be completed at the highest level that was “initiated by General Secretary Kim Jong Il and for which the Supreme Commander has shown concern for.”

By Michael Rank

Independent British energy company Aminex PLC has withdrawn from North Korea, citing ‘”the volatile and unpredictable politics of the area”, just two years after signing a deal covering a 50,000 sq km area off the country’s east coast.

Aminex said it was “in the best interests of shareholders for the Company to withdraw from the Korean exploration programme and not participate in seismic acquisition. This decision will allow Aminex to focus on growing its African portfolio.”

The company first signed an agreement for co-operation in oil and gas with the North Korean government in 2004, but this failed to make progress. In 2010 it introduced a new foreign partner, Singapore-based Chosun Energy Pte Ltd, which provided finance for the initial stages and a regional base in Singapore. Aminex said at the time that “despite challenging international politics,” it had “succeeded in maintaining strong relations with the Korean authorities”, resulting in the production sharing contract signed in May 2010.

But industry sources said Stuard Detmer, who was made Aminex CEO last September, was less enthusiastic about North Korea than his predecessor Brian Hall, who remains executive chairman, and this had contributed to the company’s decision to pull out of the DPRK.

Aminex’s main focus is now on Tanzania, where in February it made the first gas discovery in the onshore Ruvuma basin, having also disposed of an oilfield in Texas.

Aminex said in 2010 that the agreement “involves reprocessing and reinterpretation of old seismic data plus acquisition of new marine seismic data during an initial period. Licence holder] Korex believes that the East Sea has great potential for significant discoveries of oil and gas, while recognising the political challenges in the region and the need to ensure that any international sanctions are strictly observed.”

See previous posts about Aminex here.

According to Yonhap:

President Lee Myung-bak on Friday urged North Korean leader Kim Jong-un to give up the collective farm system and privatize state-owned agricultural land to help enrich the North and its residents.

…

“North Korea should abandon its collective farm system and shift to the privatization of agricultural land. If so, rice will be abundant in two to three years. Farmland privatization will help individuals earn more and the state increase revenues,” Lee was quoted by his spokesman Park Jeong-ha as saying in the lecture.

“(Farmland reform) is a must for North Korea. All the young leader has to do is the (reform). It is the most urgent matter and has to precede its market opening. Continued dependence on aid will only produce beggars.”

President Lee’s statement stresses the short-term economic benefits of moving away from collective farming: More food, higher incomes to farmers, improved fiscal position, and thus, increased political legitimacy for the Kim Jong-un government. However, from a political and strategic viewpoint he is probably hoping that North Korean agricultural reform will pave the way for broader economic reforms — as was the case in China. However, it is worth noting that China’s agricultural reforms, which ended the misery of the Great Leap Forward and laid the foundation for broader economic reforms, were not created in Beijing.  They were developed and implemented by a single village of scared, hungry farmers:

Pictured above (via Marginal Revolution): Farmers from 18 households in Xiaogang village (Fenyang County, Anhui Province) signed this contract bringing a de facto (not de jure) end to collective farming.

Economists Tyler Cowen and Alex Tabarrok said the following of the Xiaogang Contract:

The Great Leap Forward was a great leap backward – agricultural land was less productive in 1978 than it had been in 1949 when the communists took over. In 1978, however, farmers in the village of Xiaogang held a secret meeting. The farmers agreed to divide the communal land and assign it to individuals – each farmer had to produce a quota for the government but anything he or she produced in excess of the quota they would keep. The agreement violated government policy and as a result the farmers also pledged that if any of them were to be killed or jailed the others would raise his or her children until the age of 18.

The change from collective property rights to something closer to private property rights had an immediate effect, investment, work effort and productivity increased. “You can’t be lazy when you work for your family and yourself,” said one of the farmers.

Word of the secret agreement leaked out and local bureaucrats cut off Xiaogang from fertilizer, seeds and pesticides. But amazingly, before Xiaogang could be stopped, farmers in other villages also began to abandon collective property. In Beijing, Mao Zedong was dead and a new set of rulers, seeing the productivity improvements, decided to let the experiment proceed.

The rapid increase in China-DPRK trade and information exchanges raises the question of just how many North Koreans have heard of the Xiaogang contract or how many villages have implemented similar measures?

For its part, the Workers Party has employed a mixture of both top-down agricultural policies and accommodation of bottom-up economic innovations to increase food availability. From a top-down perspective, the DPRK has promoted “technological inputs” (fertilizer production, terraced hillsides, large irrigation projects, land reclamation, land rezoning, new foodstuff factories, improved management techniques, CNC) and multilateral aid outreach (official and private food aid from abroad). From a bottom-up perspective, the DPRK has offered and expanded economic incentives (kitchen/private plots, farmers’ markets, general markets, July 2002 Measures, 8.3 Measures, accommodation of some illegal activity,  family-based work team units on collective farms).  The combination of all these efforts, however, has obviously not resulted in food security–for a number of reasons that are too  lengthy for a simple blog post.

If you are interested in learning more about the DPRK’s agricultural policies, I have posted below some papers (PDF) covering different stages in the North Korean agriculture sector: Pre-war, post war (collectivization), and post famine (arduous march). They are all well worth reading:

1. Lee Chong-Sik, “Land Reform, Collectivisation and the Peasants in North Korea”, The China Quarterly, No. 14 (Apr. – Jun., 1963), pp. 65-81

2. Yoon T. Kuark, “North Korea’s Agricultural Development during the Post-War Period”, The China Quarterly, No. 14 (Apr. – Jun., 1963), pp. 82-93

3. Andrei Lankov, Seok Hyang Kim, Inok Kwak, “Relying on One’s Strength: The Growth of the Private Agriculture in Borderland Areas of North Korea”

Andrei Lankov writes in the Asia Times:

When one talks about virtually any country, wages and salaries are one of the most important things to be considered. How much does a clerk or a doctor, a builder or a shopkeeper earn there? What is their survival income, and above what level can a person be considered rich?

Such questions are pertinent to impoverished North Korea, but this is the Hermit Kingdom, so answering such seemingly simple questions creates a whole host of problems.

Read the full story below:

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