North Korean Economy Watch

According to the New York Times:

North Korea on Monday gave South Korean tourism officials 72 hours to leave a mountain resort, saying it would start auctioning off South Korean-owned hotels, restaurants and other remnants of what used to be a symbol of inter-Korean cooperation.

…

North Korea gave the ultimatum on Monday after talks failed to resolve a dispute over whether tourism in the resort should resume and under what conditions.

“We consider that the South has completely given up all rights on properties owned by South Korean companies and now start legal disposal of them,” the North’s official Korean Central News Agency quoted the North Korean tourism authorities as saying. “All assets owned by South Korean companies in the Geumgangsan resort are banned from being taken out as of Aug. 21.”

The South Korean assets in the resort amount to 480 billion won, or $443 million, according to government data. North Korea said last year that it had confiscated the assets, including a spa, a duty-free shop and other businesses built and owned by the South Korean government.

Fourteen South Koreans were staying in the area maintaining facilities owned by Hyundai and other private South Korean investors. The Unification Ministry, a South Korean government agency in charge of inter-Korean relations, said it would take “all possible diplomatic and legal measures to protect the property rights of our government and enterprises.”

Hyundai Asan, which developed and ran the resort, warned that anyone who bought facilities at the resort would be implicated in international lawsuits.

After attracting 2 million South Korean tourists by sea or by a road built across the nations’ heavily armed border, the project came to an abrupt halt in 2008, after the female South Korean tourist strayed outside the tourism zone one morning and was shot and killed by North Korean soldiers.

Xinhua, the Chinese state media outlet reports that the South Koreans have rejected this move by the North Koreans:

“The government cannot accept North Korea (DPRK)’s arbitrary measures, and we’d like to make it clear the North should be held responsible for all consequences,” Chun Hae-sung, spokesman for the unification ministry in Seoul, told reporters.

“The government will seek all necessary measures including legal and diplomatic ones, and will stay in close contact with business operators involved,” he added, calling Pyongyang’s announcement “regrettable.” The ministry oversees inter-Korean affairs.

The Choson Ilbo points out some additional points of economic interest:

The greatest concern for South Korean officials is the potential conflict over power generators Hyundai Asan installed at Kosong Port to supply electricity to the resort. Since 2008, Hyundai has been operating only one of them to supply power for the remaining staff. If Asan halts the power generators, North Korea cannot use the facilities in the resort. This may be why the North has threatened to take “stern measures” should South Korea “cause damage to assets” left in the resort.

While freezing the South Korean assets, North Korea has been trying to organize tours to Mt. Kumgang on its own. Some analysts say the North hopes to get another country to operate the tours to generate hard cash. Until the tours were suspended in 2008, North Korea made US$487 million from Hyundai Asan.

A separate Choson Ilbo article questions whether the operation will be as profitable if targeted at non-South Koreans:

But of the total 1.93 million visitors to the resort between 1998 and 2008, non-Koreans accounted for only 12,817, or less than 1 percent, which comes to just four a day. It was South Koreans who were willing to pay a large amount of money, including fees to cross the border, to briefly set foot on Korean soil on the other side of the demilitarized zone, But for foreigners, the resort is just a place in the middle of nowhere.

Foreign investors who were cautiously calculating the viability of investments in North Korea were probably shocked to see the seizure of South Korean assets. The North scrapped a 50-year contract with Asan as if it was not worth the paper it was written on and even invented a new law enabling it to sign a deal with somebody else. Which investor in his right mind would want to put his money in a country like that?

The Donga Ilbo breaks down the cost of the fixed capital investments Hyundai-Asan made in the Kumgang Resort:

South Korean assets seized by the North are worth 484.1 billion won (447.2 million dollars). Of the amount, Hyundai Asan invested 226.9 billion won (209.6 million dollars), including hotels in the resort, and the South Korean government spent 124.2 billion won (114.7 million dollars) to build a meeting venue for Korean families separated during the Korean War, duty-free shops and a cultural hall.

Hyundai Asan’s three power generators with a capacity of 1,700 kilometers at Goseong dock are one of the major assets in the tourist region.

North Korea, however, is unlikely to attract foreign tourists to Mount Kumgang on its own or sell the facility to foreign investors. It continues to search for a new partner in China, Japan and the U.S.

Rumor also has it that that North Korean leader Kim Jong Il has ordered that the Mount Kumgang tour be made into a luxury business but low feasibility has prevented progress in the project.

A timeline of Kumgang stories from the shooting until the present can be found here.

Read the full stories here:
North Korea to Auction Resort Owned by South
New York Times
Choe Sang-hun
2011-8-22

S. Korea rejects DPRK’s threatened disposal of properties
Xinhua
2011-8-22

N.Korea Orders S.Koreans Out of Mt. Kumgang
Choson Ilbo
2011-8-23

N.Korea Shoots Itself in the Foot Again
Choson Ilbo
2011-8-23

NK declares disposal of S.Korean assets in Mount Kumgang
Donga Ilbo
2011-8-23

Stephan Haggard and Dan Pinkston have found and posted comments attributed to Kim Jong-il revealing some of his thinking on “markets” and the “market economy”:

Kim Jong-il, “On the promotion of a superior socialist economy…adhering to the principles of socialism” June 18, 2008, dialogue with party and state officials.

“…As I said on many occasions during the recent period, one must have a correct understanding of the market. As we allowed a certain use of markets with respect to economic management, some people understood this as a departure from the socialist principle and as a move towards a market economy through “reform” and “opening up” of the country’s economy.

But this is a very wrong way of reasoning. Having a misguided understanding of the market and the market economy on the part of economic planners shows their lack of ideology and knowledge… [If] one fails to exactly and deeply recognize the party’s ideology and policy with regards to economic planning, that person will have his or her faith in the superior socialist economy shaken and can be dazzled by “reform” or “opening up” that the imperialists brag about and also be captured by the fantasy that the capitalist market economy promises.

Workers need to be awakened from these pitfalls…. Markets are both home to and a hotbed for un-socialist phenomenon and capitalist factors in the economic sectors. Without devising a national plan about markets and neglecting them as they are, or further encouraging their activities and expanding their reach, the country’s economy will inevitably turn into a market economy. However, following the practical conditions by using the market to a certain extent while keeping it under national control does not necessarily mean a movement towards market economy. Markets and a market economy are not the same concepts. The question resides in how to perceive and treat the market, and how to use it following [appropriate] principles and direction…”

-Original text in Korean

“…….내가 최근시기 여러 기회에 말하였지만 시장에 대한 인식을 바로 가져야 합니다. 우리가 경제관리에서 시장을 일정하게 리용하도록 하였더니 한때 일부 사람들은 사회주의 원칙에서 벗어나 나라의 경제를 《개혁》《개방》하여 시장경제로 넘어가는 것처럼 리해한 것 같은데 이것은 아주 잘못된 생각입니다. 경제지도일꾼들이 시장과 시장경제에 대한 그릇된 인식을 가지게 되는 것은 사상의 빈곤 지식의 빈곤에 빠져있다는 것을 말해줍니다. 누구나 할 것 없이 경제사업과 관련한 당의 사상과 방침을 정확히, 깊이있게 인식하지 못하면 사회주의 경제의 우월성에 대한 신념이 흔들리게 되어 제국주의자들이 떠벌이는 《개혁》《개방》에 현혹될 수 있고 자본주의 시장경제에 대한 환상에 사로잡힐 수 있는 것입니다. 이에 대하여 일군들이 각성을 높여야 합니다….시장은 경제분야에서 나타나는 비사회주의적 현상, 자본주의적 요소의 본거지이며 온상입니다. 시장에 대하여 아무런 국가적 대책도 세우지 않고 그대로 내버려 두거나 시장을 더욱 조장하고 그 령역을 확대하는 방향으로 나간다면 불피코 나라의 경제가 시장경제로 넘어가게 됩니다. 그러나 현실적 조건에 따라 국가적 통제 밑에 시장을 일정하게 리용하는 것이 곧 시장경제로 가는 것은 아닙니다. 시장과 시장경제는 같은 개념이 아닙니다. 문제는 시장을 어떻게 보고 대하며 그것을 어떤 원칙과 방향에서 어떻게 리용하는가 하는데 있습니다….”

Marcus Noland followed up with a [longer] publication by Kim Jong-il’s sister, Kim Kyong-hui:

Strengthening Centralized, Unified State Guidance Over Economy, Kyo’ngje Yo’ngu

Our army and people are vigorously carrying out a general onward march to elevate the economy to a stage of leaping development through a new great revolutionary upswing under the great party’s military-first leadership.

Today, when our country is displaying its majestic appearance and might as a politically, ideologically, and militarily powerful state, in order to build it into an economically powerful socialist state and a socialist paradise where the people enjoy an affluent life with nothing more to desire in the world by concentrating efforts on the economic construction and on improving the people’s living standard, it is necessary to adhere to the socialist principle in the economic work and bring the superiority of the socialist planned economy into high play, and what is important in this is to strengthen the centralized and unified guidance of the state over the economic construction.

The great leader [ryo’ngdoja] Comrade Kim Jong Il [Kim Cho’ng-il] has pointed out the following:

“Above all else, it is necessary to strengthen the centralized and unified guidance of the state over the economic construction.”

Strengthening the centralized and unified guidance of the state in the socialist economic management arises as a basic demand for improving the economic management in line with the intrinsic nature of socialist society, further consolidating and developing the socialist economic system by bringing the superiority of the socialist planned economy into high play, and accelerating the construction of an economically powerful state.

Strengthening the centralized and unified guidance of the state is a basic demand for improving the socialist economic management because, above all, managing and operating the country’s economy in a planned manner under the state’s centralized and unified guidance is an intrinsic demand of the socialist economy that is based on collectivism and a basic principle of the socialist economic management.

Realizing the centralized and unified guidance of the state in the socialist economic management serves as a lifeline of the socialist economic management, which stems from the natural law-governed nature of the socialist economic development and the essential characteristics of the socialist economy.

The centralized and unified guidance of the state over the economy is, above all, an intrinsic demand of the socialist economy that is based on collectivism. The socialist economy is a large-scale collective economy in which all sectors and units of the people’s economy are organically connected with each other based on social ownership of the means of production, and it is a highly organized and centralized planned economy. This is the essential superiority of the socialist planned economy, which is distinct from the capitalist market economy that operates spontaneously on the basis of private ownership of the means of production. In a capitalist society, the bourgeois state is not able to perform the function of interconnecting the management activities of different enterprises and leading them in one direction. In a capitalist society, the economy moves in a spontaneous manner amid the pursuit of profits and competition based on the law of the jungle due to the conflict of interests between the capitalist class and the working popular masses and among capitalists, and this accompanies the bankruptcy of enterprises.

In contrast, the socialist economy is based on social ownership of the means of production, and it is managed and operated through goal consciousness by the popular masses as the masters. Social ownership of the means of production calls for combining all economic sectors and units into a single production organism, and also for the factories and enterprises comprising its components to move under a unitary command. Realizing planned ties between factories and enterprises and ensuring that the economy operates under a single unitary command are firmly guaranteed by the unified guidance of the socialist state.

The centralized and unified guidance of the state over the economy is also a basic principle of the socialist economic management.

Apart from the centralized and unified guidance of the state and the principle of managing a planned economy, socialism cannot be defended in the economic field, and the socialist economy cannot be developed.

The initiative of lower units has to be brought into high play in the socialist economic management, but this has to be achieved strictly on the basis of firmly guaranteeing the centralized and unified guidance of the state and within the framework of the socialist planned economy. It is only through the centralized and unified guidance of the state that it is possible to correctly map out plans so as to guarantee the greatest actual profits consistent with national interests and the all-people’s economic interests, mobilize all production potentials of the country to the maximum, concentrate forces and resources on the objects that are of key significance in the overall economic development, and thus achieve a planned and balanced development of the economy. If one moves in the direction of giving a free rein to economic management and enterprise management in an attempt to enhance the initiative of lower units and strengthen their “independence” and “self-reliance,” then the lower units will break way from the unified guidance and control of the state and act as they please, and this will not only bring about tremendous national waste and loss but also make it impossible to neither defend socialism in the economic field nor develop the socialist economy.

Strengthening the centralized and unified guidance of the state is a basic demand for improving the socialist economic management also because the centralized and unified guidance of the state over the economy has to be strengthened in order to be able to mobilize all potentials to the maximum based on the principle of self-reliance and thus elevate the country’s economy to a stage of leaping development and accelerate the construction of an economically powerful socialist state.

Today’s great upswing calls for more highly holding up the banner of self-reliance, and an economically powerful socialist state is a powerful state of self-reliance, a powerful state with a mighty self-supporting national economy.

We have laid the strong foundation of a socialist self-supporting national economy by highly displaying the revolutionary spirit of self-reliance under the wise leadership of the great leader [suryo’ngnim] and the respected and beloved general. Mobilizing and utilizing the potential of the already provided foundation of a self-supporting economy to the maximum is the most accurate way to elevate the country’s economy to a stage of leaping development and accelerate the construction of an economically powerful socialist state in our style in the present circumstances.

Though many obstacles are still lying in the way ahead of us, we have to open a road of advance for victory by relying on the boundless creative ability of all the people, our resources and technology, and the superiority of our system.

The centralized and unified guidance of the state over the economy has to be strengthened in order to elevate the country’s economy to a stage of leaping development by mobilizing the potential of the already provided foundation of a self-supporting national economy to the maximum and to accelerate the construction of an economically powerful socialist state.

Above all, the centralized and unified guidance of the state has to be strengthened in order to ensure a balanced and harmonious development of the economy in conformity with the aspiration and demand of the popular masses. An important task we are faced with in the economic construction at the present time is to rely on the superiority of the socialist planned economy to closely combine the normalization of production with modernization and push ahead with it vigorously, and thus decisively surpass the highest production level in all sectors of the people’s economy. It is only under the condition of strengthening the centralized and unified guidance of the state that it is possible to create the military-first era’s speed of waging the general onward march by mobilizing all production potentials of the country to the maximum from the viewpoint of national interests consistent with the party’s policy demands, and also accelerate the construction of an economically powerful socialist state by harmonizing the production ties centered on the objects of key significance in the economic development, guaranteeing the planned and disciplined nature of the economic work, and thus achieving a balanced development of the overall economy.

The centralized and unified guidance of the state has to be strengthened also to be able to bring the initiative of individual sectors and units, and local areas into high play and thus actively mobilize and utilize the potential of the self-supporting economy.

There may be things that are in short supply and that are missing in the process of building an economically powerful state. This is why the demand for bringing the initiative of each sector and unit into high play arises in order for all sectors and units of the people’s economy to normalize production and surpass the highest production level based on the existing assets.

Only when the centralized and unified guidance of the state over the economy is realized smoothly, is it possible to enhance the initiative of all sectors and units in line with the intrinsic requirement for the development of socialist economy that is based on collectivism and decisively boost the economic effectiveness in mobilizing and utilizing the reserves.

Strengthening the centralized and unified guidance of the state over the economy in no ways means disregarding the initiative of lower units. The socialist economic construction can be carried out successfully only when the unified guidance of the state is combined correctly with the initiative of lower units. This is because if the state’s centralized and unified guidance enables the economy to develop harmoniously on a pan-social level, then the initiative of lower units spurs factories and enterprises to increase production and perfect the production and technical processes on their own by positively exploring and mobilizing the existing reserves and production potentials pursuant to the economic plans established by the state. If the lower units are restrained based on the opinion that the management activities of each unit should be unconditionally subordinate to the state, then the initiative of factories and enterprises will be suppressed and the production will not proceed smoothly. This is why the centralized and unified guidance of the state over the economy is based on the premise of further enhancing the initiative of lower units.

All the economic guidance functionaries should have a correct perception of the state’s centralized and unified guidance and realize it correctly, and thus bring the genuine superiority of socialist planned economy into high play.

“위대한 당의 선군령도따라 우리 군대와 인민은 새로운 혁명적대고조로 경제를
비약적인 발전단계에 올려세우기 위한 총진군을 힘있게 벌려나가고있다.

정치사상강국, 군사강국의 위용과 위력을 온 세계에 떨치고있는 오늘 경제건설과
인민생활향상에 힘을 집중하여 우리 나라를 사회주의경제강국으로, 인민들이
세상에 부러움없이 잘 사는 사회주의락원으로 건설하기 위하여서는 경제사업에서
사회주의원칙을 고수하고 사회주의계획경제의 우월성을 높이 발양시켜야 하며
여기서 중요한것은 경제건설에 대한 국가의 중앙집권적, 통일적지도를
강화하는것이다.

위대한 령도자 김정일동지께서는 다음과 같이 지적하시였다.

《무엇보다도 경제건설에 대한 국가의 중앙집권적, 통일적지도를 강화하여야
합니다.》

사회주의경제관리에서 국가의 중앙집권적, 통일적지도를 강화하는것은
사회주의사회의 본성에 맞게 경제관리를 개선하고 사회주의계획경제의 우월성을
높이 발양시켜 사회주의경제제도를 더욱 공고발전시키며 경제강국건설을
다그치기 위한 기본요구로 제기된다.

국가의 중앙집권적, 통일적지도를 강화하는것이 사회주의경제관리개선의
기본요구로 되는것은 무엇보다먼저 나라의 경제를 국가의 중앙집권적,
통일적지도밑에 계획적으로 관리운영하는것이 집단주의에 기초한 사회주의경제의
본성적요구이며 사회주의경제관리의 기본원칙이기때문이다.

사회주의경제관리에서 국가의 중앙집권적, 통일적지도를 실현하는것은
사회주의경제발전의 합법칙성과 사회주의경제의 본질적특성으로부터 출발한
사회주의경제관리의 생명선이다.

경제에 대한 국가의 중앙집권적, 통일적지도는 우선 집단주의에 기초한
사회주의경제의 본성적요구이다. 사회주의경제는 생산수단에 대한 사회적소유에
기초하여 인민경제의 모든 부문들과 단위들이 유기적으로 련결된 대규모의
집단경제이며 고도로 조직화되고 중앙집권화된 계획경제이다. 이것은 생산수단에
대한 사적소유에 기초하여 자연발생적으로 움직이는 자본주의시장경제와 다른
사회주의계획경제의 본질적우월성이다. 자본주의사회에서는 부르죠아국가가
각이한 기업체들의 경영활동을 서로 맞물리고 하나의 방향으로 이끌어나갈수
있는 기능을 수행할수 없다. 자본주의사회에서는 자본가계급과
근로인민대중사이, 자본가들사이의 리해관계의 대립으로 하여 경제가 리윤추구와
약육강식의 경쟁속에서 자연발생적으로 진행되며 이것은 기업파산을 동반한다.

이와는 달리 사회주의경제는 생산수단에 대한 사회적소유에 기초하고있으며
인민대중이 주인이 되여 목적의식적으로 관리운영된다. 생산수단에 대한
사회적소유는 모든 경제부문, 단위들을 하나의 생산유기체로 결합시키는 한편 그
구성부분으로 되는 공장, 기업소들이 유일적인 지휘에 따라 움직일것을
요구한다. 공장, 기업소들사이에 계획적인 련계를 실현하며 경제가 하나의
유일적인 지휘밑에 움직이도록 하는것은 사회주의국가의 통일적지도에 의하여
확고히 담보된다.

경제에 대한 국가의 중앙집권적, 통일적지도는 또한 사회주의경제관리의
기본원칙이다.

국가의 중앙집권적, 통일적지도와 계획적경제관리원칙을 떠나서는 경제분야에서
사회주의를 지킬수 없고 사회주의경제를 발전시킬수도 없다.

사회주의경제관리에서 아래단위의 창발성을 높이 발양시켜야 하지만 그것은
어디까지나 국가의 중앙집권적, 통일적지도를 확고히 보장하는 기초우에서,
사회주의계획경제의 테두리안에서 이루어져야 한다. 국가적리익,
전인민경제적리익에 맞게 가장 큰 실리를 보장할수 있도록 계획을 세우며 나라의
모든 생산잠재력을 최대한으로 동원하고 전반적경제발전에서 관건적인 의의를
가지는 대상들에 력량과 자원을 집중하여 경제의 계획적, 균형적발전을
이룩하는것은 국가의 중앙집권적, 통일적지도에 의해서만 옳게 실현될수 있다.
아래단위의 창발성을 높이고 《독자성》과 《자립성》을 강화한다고 하면서
경제관리, 기업관리를 풀어놓는 방향으로 나간다면 아래단위들이 국가의
통일적지도와 통제에서 벗어나 제멋대로 움직이게 되며 국가적으로 막대한
랑비와 손실을 가져오는것은 물론 경제분야에서 사회주의를 지킬수도 없
사회주의경제를 발전시킬수도 없다.

국가의 중앙집권적, 통일적지도를 강화하는것이 사회주의경제관리개선의
기본요구로 되는것은 다음으로 경제에 대한 국가의 중앙집권적, 통일적지도를
강화하여야 자력갱생의 원칙에서 모든 잠재력을 최대한 동원하여 나라의 경제를
비약적인 발전단계에 올려세우고 사회주의경제강국건설을 다그칠수
있기때문이다.

오늘의 대고조는 자력갱생의 기치를 더 높이 들것을 요구하며
사회주의경제강국은 자력갱생의 강국, 위력한 자립적민족경제의 강국이다.

우리는 위대한 수령님과 경애하는 장군님의 현명한 령도밑에 자력갱생의
혁명정신을 높이 발휘하여 사회주의자립적민족경제의 토대를 튼튼히 마련하였다.
이미 마련된 자립적경제토대의 잠재력을 최대한 동원리용하는것은 오늘의
형편에서 우리 식으로 나라의 경제를 비약적인 발전단계에 올려세우
사회주의경제강국건설을 다그치는 가장 정확한 길이다.

우리앞에는 의연히 많은 난관이 가로놓여있지만 전체 인민의 무궁무진한
창조력과 우리의 자원과 기술, 우리 제도의 우월성에 의거하여 승리의 진격로를
열어나가야 한다.

이미 마련된 자립적민족경제토대의 잠재력을 최대한 동원하여 나라의 경제를
비약적인 발전단계에 올려세우고 사회주의경제강국건설을 다그치자면 경제에
대한 국가의 중앙집권적, 통일적지도를 강화하여야 한다.

우선 국가의 중앙집권적, 통일적지도를 강화해야 인민대중의 지향과 요구에 맞게
경제의 균형적이고 조화로운 발전을 보장할수 있다. 현시기 경제건설에서
우리앞에 나서는 중요한 과업은 사회주의계획경제의 우월성에 의거하여
생산정상화와 현대화를 밀접히 결합시켜 힘있게 밀고나감으로써 인민경제 모
부문에서 최고생산수준을 결정적으로 돌파하는것이다. 국가의 중앙집권적,
통일적지도를 강화하는 조건에서만 당의 정책적요구에 맞게 국가적리익의
견지에서 나라의 모든 생산잠재력을 최대한 동원하여 선군시대의 총진군속도를
창조할수 있으며 이와 함께 경제발전에서 관건적인 의의를 가지는 대상들을
중심으로 생산적련계를 조화롭게 하고 경제사업에서 계획성과 규률성을 보장하여
전반적경제의 균형적발전을 이룩함으로써 사회주의경제강국건설을 다그칠수
있다.

또한 국가의 중앙집권적, 통일적지도를 강화하여야 개별적부문과 단위, 지방의
창발성을 높이 발양시켜 자립경제의 잠재력을 적극 동원리용할수 있다.

경제강국을 건설하는 과정에는 부족한것도 있고 없는것도 있을수 있다. 따라서
인민경제 모든 부문, 모든 단위에서 있는 밑천을 가지고 생산을 정상화하
최고생산수준을 돌파하기 위하여서는 매개 부문, 단위의 창발성을 높이
발양시켜야 할 요구가 제기되게 된다.

경제에 대한 국가의 중앙집권적, 통일적지도를 원만히 실현하여야 모든 부문,
모든 단위의 창발성을 집단주의에 기초한 사회주의경제발전의 본성적요구에 맞게
발전시킬수 있으며 예비를 동원하고 리용하는데서 경제적효과성을 결정적으로
높일수 있다.

경제에 대한 국가의 중앙집권적, 통일적지도를 강화한다는것은 결코 아래단위의
창발성을 무시한다는것을 의미하지 않는다. 사회주의경제건설은 국가의
통일적지도와 아래단위의 창발성을 옳게 결합시킬 때 성과적으로 진행될수 있다.
그것은 국가의 중앙집권적, 통일적지도가 전사회적범위에서 경제가 조화롭게
발전될수 있게 한다면 아래단위의 창발성은 공장, 기업소들이 국가가 세운
경제계획에 따라 있는 예비와 생산잠재력을 적극 탐구동원하여 생산을 늘이
자체로 생산기술공정을 완비하도록 추동하기때문이다. 만일 매개 단위의
경영활동이 국가에 무조건 복종되여야 한다고 하면서 아래단위를 얽어매놓으면
공장, 기업소들의 창발성이 억제되여 생산을 원만히 진행할수 없게 된다.
그러므로 경제에 대한 국가의 중앙집권적, 통일적지도는 아래단위의 창발성을
더욱 높이는것을 전제로 한다.

모든 경제지도일군들은 국가의 중앙집권적, 통일적지도에 대한 옳은 인식을
가지고 이를 옳바로 실현함으로써 사회주의계획경제의 참다운 우월성을 높이
발양시켜나가야 할것이다.”

Institute for Far Eastern Studies (IFES)
2011-8-11

Despite the current impasse in inter-Korean relations, the trade volume in the Kaesong Industrial Complex (KIC) continues to rise, up about 20 percent against last year.

According to the ROK Ministry of Unification, the inter-Korean trade via Kaesong totaled 825.88 million USD in the first six months of 2011. In comparison to last year’s 691.09 million USD, this is a 19.5 percent increase (134.795 million USD) and a whopping 135.8 percent climb (475.64 million USD) from 2009.

The total import reached 444.98 million USD, up 36.4 percent from last year. The total export recorded 389 million USD, a slight increase of 4.3 percent.

As of June 2011, there are about 123 companies reported to be in Kaesong. A total of 560 South Korean staffs work in the KIC, 155 of which joined since June of last year. There was also a boost in the number of North Korean workers; 3,161 new workers joined the complex from the year before, making the current number of North Korean employees 47,172.

In comparison, both commercial trade including general trade (mineral and agricultural products) and noncommercial trade such as humanitarian assistance and socio-cultural exchanges dwindled 16.2 percent (161.34 million USD) from the previous year.

The figure suggests the plunge was triggered by the sanctions imposed by the South Korean government on North Korea since May 24 of last year — a response to North Korea’s deadly provocation in March 2010 — cutting off most of the humanitarian assistance and exchanges. According to the ministry of unification, before the sanctions went into effect, general trade that comprised 30 percent fell below 1 percent and humanitarian assistance became nonexistent.

According to a recent survey conducted in the complex, economic loss engendered by the May 24 sanctions are estimated to be 3.875 billion USD. Out of the 154 total economic cooperation and trade firms in Kaesong, 104 claimed to have suffered economically, totaling over 430 million USD in losses.

The survey was conducted from January 24 to March 25 with 154 firms: 79.2 percent indicated the recent sanctions have significantly impacted their businesses; 3.2 percent answered “a little” effect; none answered “no effect at all.”

Moreover, 78.6 percent responded that the sanctions led to interruption in business operations and 12.3 percent replied that the sanctions resulted in complete shutdown.

In addition, reduction of staffs was also linked to the sanctions, in which 34.4 percent reported to have downsized by 20 percent, while 26.7 percent reported 30 to 40 percent cut backs in the number of staff.

Pictured above (Google Earth): A bus depot in Rakrang-guyok, Pyongyang.  See in Google Maps here.

According to the Daily NK:

Growth and improvement is evident in some areas of the private sector in North Korea, Ishimaru Jiro of ASIAPRESS revealed on the 16th, pointing to the growth of bigger, better private transit concerns and relatively productive coal mining operations as evidence of this trend.

In the past, trains were almost the only viable means of long-distance transportation in North Korea. Then, as private business began to grow and the railways fell into a deep malaise, vehicles such as trucks and cars belonging to military bases, state security and state enterprises were pushed into service to earn money for moving people; this, the so-called ‘servi-cha’ industry.

The servi-cha industry has long been fragmented and small scale; but now transportation companies run by rich individuals (‘donju’) which purchase several buses and hire drivers, guides and mechanics, are acting just as a transit company in a capitalist state would do.

With profit-sharing and bribery as the backbone, a large number of North Korean organs and enterprises have decided to lend their name to these individuals, fuelling the growth and development of a network of sorts.

“From the early 2000s, a high-speed bus network mostly between major cities began to emerge,” Ishimaru, revealing the latest research by ASIAPRESS internal North Korean sources, commented. “The companies are packaged as an enterprise affiliated to some state authority outwardly, but they are actually operated by individuals who pay kickbacks to that authority.”

The People’s Safety Ministry affiliated 116 Task Force Team is one such transportation company, Ishimaru says. It operates buses connecting Shinuiju, South Pyongan Province and Pyongyang. Ordinarily, the bus parks at a station or major public location, and then departs when it is full of passengers going to the next destination.

Here are previous posts on the servi-cha industry.

Read the full sotry here:
Green Shoots of Private Enterprise Growth
Daily NK
2011-8-17

According to the Vancouver Sun:

Canada has tightened sanctions against North Korea to punish the secretive Asian nation for “aggressive actions” such as the sinking of a South Korean corvette, the foreign ministry said on Monday.

Canada will ban all exports, imports and new investment as well as outlawing the provision of financial services and technical data to North Korea. Humanitarian efforts and the supply of food and medical supplies are not included.

The sanctions are largely symbolic since bilateral trade last year was just C$12.4 million ($12.7 million), according to Statistics Canada data.

No doubt CanKor will have more to say on this in the near future.

Read the full story here:
Canada tightens sanctions against North Korea
Vancouver Sun
2011-8-16

Peterson Institute Working Paper WP 11 – 13
Stephan Haggard, Jennifer Lee, and Marcus Noland

Read the full paper here (PDF).

Theory tells us that weak rule of law and institutions deter cross-border integration, deter investment relative to trade, and inhibit trade finance. Drawing on a survey of more than 300 Chinese enterprises that are doing or have done business in North Korea, we consider how informal institutions have addressed these problems in a setting in which rule of law and institutions are particularly weak. Given the apparent reliance on hedging strategies, the rapid growth in exchange witnessed in recent years may prove self-limiting, as the effectiveness of informal institutions erode and the risk premium rises. Institutional improvement could have significant welfare implications, affecting the volume, composition, and financial terms of cross-border exchange.

JEL: P3, P33, F15, F36
Keywords: economic integration, property rights, institutions, transition, China, North Korea

Read the full paper here (PDF).

Andrei Lankov provides some anecdotal evidence and a taxonomy of the DPRK’s growing entrepreneurial class (perhaps one of the most interesting and least reported aspects of the DPRK).  He also gives us a glimpse of how the North Korean version of the “infant industry” mindset can impede economic reform.

Here is a great blurb from the article in the Asia Times:

Who are they – the North Korean new rich? The upper crust of this social group consists of high-level officials. Some of them have gained their wealth through illegal means, but many have seen their business activities permitted and even actively encouraged by the government. Most of the money is made in foreign trade, with China being by the far the most significant partner.

Many North Korean companies, despite being technically owned by the state, are effectively private and are run by top officials and their relatives.

That said, these people are not that frequently seen on the streets of Pyongyang. They live in their own enclosed world, of which not much is known.

But if we go one or two steps down, we will encounter a very different type of North Korean entrepreneur – somebody who has made his or her (yes, surprising many of them are women) money more or less independent of the state.

Complete independence is not possible because every North Korean businessman has to pay officials just to make sure that they will not ask too many questions and turn a blind eye to activities that are still technically illegal. In many cases, North Korean entrepreneurs prefer to disguise their private operations under the cover of some state agency.

Take for example Pak. In his early 40s, he runs a truck company together with a few friends. The company has seven trucks and largely specializes in moving salt from salt ponds on the seacoast to major wholesale markets. The company employs a couple of dozen people, but officially it does not exist. On paper, all trucks are owned by state agencies and Pak’s employees are also officially registered as workers of state enterprises.

Pak bought used trucks in China, paying the Chinese owners with cash. He then took them to North Korea where he had the vehicles registered with various government agencies (army units are the best choice since military number plates give important advantages). Pak paid officials for their agreement to “adopt” the trucks. This is so common in the North that there is even an established rate of how much fake registration of a particular type of vehicle costs at which government agency.

Kim was a private owner of a gold mine. The gold mine was officially registered as a state enterprise. Technically, it was owned by a foreign trade company that in turn was managed by the financial department of the Party Central Committee. However, this was a legal fiction, pure and simple: Kim, once a mid-level police official, made some initial capital through bribes and smuggling, while his brother had made a minor fortune through selling counterfeit Western tobacco.

Then they used their money to grease the palms of bureaucrats, and they took over an old gold mine that had ceased operation in the 1980s. They restarted the small mine and hired workers, bought equipment and restarted operations. The gold dust was sold independently (and, strictly speaking, illegally) to Chinese traders.

The brothers agreed with the bureaucrats from the foreign trade company on how much money they should pay them roughly between 30-40% and the rest was used to run the business and enjoy life.

One step below we can see even humbler people like Ms Young, once an engineer at a state factory. In the mid-1990s, she began trading in second-hand Chinese dresses. By 2005 she was running a number of workshops that employed a few dozen women.

They made copies of Chinese garments using Chinese cloth, zippers and buttons. Some of the materials was smuggled across the border, while another part was purchased legally, mostly from a large market in the city of Raseon (a special economic zone which can be visited by Chinese merchants almost freely).

Interestingly, Ms Young technically remained an employee of a non-functioning state factory from which she was absent for months on end. She had to pay for the privilege of missing work and indoctrination sessions, deducting some $40 as her monthly “donation”. This is an impressive sum if compared with her official salary of merely US$2.

The North Korean new rich might occasionally feel insecure. They might be afraid of the state, because pretty much everything they do is in breach of some article of the North Korean criminal code. A serious breach indeed – technically any of the above described persons could be sent to face an execution squad at the moment the authorities change their mind.

And before we all get our hopes up that this emergent entrepreneurial class will eventually push the leadership to adopt economic reforms, Lankov reminds us how they could just as well serve to prolong the regime’s life:

Paradoxically, the long-term interests of the emerging North Korean business class might coincide with that of the Kim regime. Unlike normal people in the North, both groups – officials and entrepreneurs – have an interest in maintaining a separate North Korean state. Unification with the South is bound to spell disaster for both groups.

A person who is now running a couple of small shops might eventually, if North Korean capitalism continues uninterrupted growth, become an owner of a supermarket chain. If unification comes, he or she would be lucky to survive the competition with the South Korean retail giants and keep the few corner shops they had.

The full story is well worth reading here:
The secret world of North Korea’s new rich
Asia Times
Andrei Lankov
2011-8-10

Pictured above: (L) Mangyongbong-92 in the Wonsan Harbor. (R)  American Budweiser Beer and dried fish served on the Mangyongbong-92

UPDATE 3 (2013-2-26): The Singaporean ship,  Royale Star, has been delivered to Rajin to handle tourist cruises. According to Google Earth imagery (2012-9-21), the Mangyongbong-92 has been returned to its primary port in Wonsan.

UPDATE 2 (2011-9-3): The Telegraph and ITN (UK) put together a humorous take on the cruise here.

UPDATE 1  (2011-8-31): According to the Associated Press:

The maiden voyage — a trial run — arrived Wednesday, carrying dozens of Chinese travel agents, international media and North Korean officials.

About 500 North Koreans lined up with military precision at the Rason port for a red carpet send-off Tuesday, waving small flags and plastic flowers while revolutionary marches such as “Marshal Rides a White Horse” blared over the loudspeakers. Streamers swirled and balloons spiraled skyward.

The Mangyongbong, a refurbished Japanese-built cargo ship with rusty portholes and musty cabins, was used for the 21-hour overnight cruise tracing the length of North Korea’s east coast. Some passengers slept on wooden bunkbeds while others were assigned mattresses on the floor. Simple meals were served cafeteria-style on metal trays.

A plaque on board commemorated a 1972 tour of the boat by North Korea’s founder, late President Kim Il Sung, and bright red posters emblazoned with his sayings decorated the walls.

Park promised a “more luxurious” ship capable of carrying up to 900 passengers, perhaps next year. He said the goal is to bring as many as 4,000 visitors a day from Rason to Mount Kumgang during the peak summer season, up from some 500 per week now.

“People from any country — Jamaica, Japan, Singapore, people from various countries — can come to Rason and don’t require a visa,” said Rason’s vice mayor, Hwang Chol Nam. “That’s the reality.”

But other restrictions remain. Hwang said visitors must book with approved travel agents and remain in their guides’ company throughout. Mobile phones must be left behind in China.

…

It remains to be seen how many Chinese tourists will be interested in the new tours. With incomes rising, Chinese are traveling abroad in rising numbers, thronging tour groups to Europe, Thailand, Japan and South Korea, with a small but growing number making the short trip to neighboring North Korea.

A rush of American visitors is unlikely. A long-standing U.S. State Department travel warning says North Korea strictly monitors visitors and harshly punishes law-breakers and reminds Americans that the two countries do not have diplomatic relations.

A senior South Korean official said North Korea would have trouble drawing investors and tourists after the way the North dealt with South Korean businesses.

South Korea’s Unification Ministry plans to send a letter to foreign embassies asking them not to cooperate with any new Diamond Mountain tours offered by North Korea, said the official, who spoke on condition that his name was not used.

North Korea’s latest moves are likely to upset Hyundai — but that might be the strategy of Pyongyang officials riding out conservative South Korean President Lee Myung-bak’s leadership, which ends next year, said Yoon Deok-ryong, an economist at the Korea Institute for International Economic Policy in Seoul.

“If they bring potential investors into the Mount Kumgang area, Hyundai would be upset and try to mobilize possible supporters in Parliament so the next government in South Korea will improve inter-Korean relations,” he said. “That is I think the design of the North Korean government.”

Wang Zhijun, a Chinese hotel manager from Jilin province who joined the trip free of charge, said it won’t be hard to sell the cruise to tourists in his region, which has a large ethnic Korean population and lacks coastline of its own.

But, he said, the price would have to stay low, suggesting around 2000 yuan (US$310) per passenger for an all-inclusive, five-day trip.

“It ought to be very popular. There are a lot of tourists already coming across to Rason,” Wang said. “People from China’s northeast would really like this kind of trip because it’s a cruise. You can enjoy the sea.”

The AFP also reported from the bosom of the Mangyongbong:

It has karaoke and fresh coffee, but the bathrooms on the lower decks are out of water and some guests sleep on the floor. Welcome aboard North Korea’s first cruise ship.

Keen to boost tourism and earn much-needed cash, authorities in the impoverished nation have decided to launch a cruise tour from the rundown northeastern port city of Rajin to the scenic resort of Mount Kumgang.

In a highly unusual move, the reclusive regime invited more than 120 journalists and Chinese tour operators on board the newly-renovated, 39-year-old Man Gyong Bong ship for a trial run of the 21-hour journey.

The vessel left one of Rajin’s ageing piers on Tuesday to the sound of rousing music, as hundreds of students and workers holding colourful flowers stood in line and clapped in unison.

“The boat was only renovated one week ago,” said Hwang Chol Nam, vice mayor of the Rason special economic zone, as he sat on the top deck at a table filled with bottles of North Korean beer, a large plate of fruit, and egg and seafood dishes.

“But it has already made the trip to Mount Kumgang and back. I told people to test the ship to make sure it was safe,” said the 48-year-old, dressed in a crisp suit adorned with a red pin sporting late leader Kim Il-Sung’s portrait.

The project is the brainchild of North Korea’s Taepung International Investment Group and the government of Rason, a triangular coastal area in the northeast that encompasses Rajin and Sonbong cities, and borders China and Russia.

Set up as a special economic zone in 1991 to attract investment to North Korea, it never took off due to poor infrastructure, chronic power shortages and a lack of confidence in the reclusive regime.

Now though, authorities are trying to revive the area as the North’s economy falters under the weight of international sanctions imposed over the regime’s pursuit of ballistic missiles and atomic weapons.

The country is desperately poor after decades of isolation and bungled economic policies, and is grappling with persistent food shortages.

In Rason, Hwang said authorities had decided to focus on three areas of growth — cargo trade, seafood processing and tourism.

North Korea has only been open to Western tourists since 1987 and remains tightly controlled, but more destinations are gradually opening up to tour groups keen to see the country for themselves.

Mount Kumgang, though, is at the heart of a political dispute between North and South Korea after a tourist from the South was shot dead by a North Korean soldier in 2008.

And Rason, where the cruise begins, is a poor area. The tours are tightly monitored, and the only brief contact with locals is with guides, tourist shop owners and hotel employees.

Visitors can expect only brief glimpses of everyday life through the windows of tour buses, as locals — many dressed in monochrome clothing — cycle past or drive the occasional car in otherwise quiet streets.

Small apartment blocks, many of them run down, are interspersed with monuments to the glory of the country’s leaders.

A portrait of current leader Kim Jong-Il and his late father Kim Il-Sung greets visitors as they walk through the vast lobby of the large, white hotel in Rajin.

“The book is a silent teacher and a companion to life,” reads a quotation from the late Kim, hung over glass cases full of books about North Korea, with titles like “The Great Man Kim Jong-Il” and “Korea — a trailblazer.”

The rooms are spartan but clean. But there is no Internet connection anywhere in the area, and the phone lines are unreliable and expensive. Foreign mobile phones are confiscated by tour guides as travellers enter the country.

Hwang said the government in Rason was trying to address communication problems and had signed a 26-year exclusive agreement with a Thai firm to set up Internet in the area, which he hoped would be running in September.

He acknowledged, however, that non-business related websites would likely be blocked, with the media tightly controlled in North Korea.

Many of Rason’s tourists come from neighbouring China. The area sees an average of 150 travellers from China every day during the summer peak season.

One Chinese national from the southeastern province of Fujian who gave only his surname, Li, said he had come to North Korea after a business meeting on the Chinese side of the border.

“We’ve come here mainly to see what changes there have been compared to our country… I like to go to places I’ve never been to before,” he said, standing in front of a huge portrait of Kim Il-Sung.

Simon Cockerell, managing director of Koryo Group, a Beijing-based firm that specialises in tours to North Korea, conceded that Rason may not be everyone’s idea of a holiday, but said its attraction lay in the unknown.

“A lot of people like going to obscure places. And this is the most obscure part of a very obscure country in tourism terms — the least visited part of the least visited country,” he said.

Back on the boat, Chinese tour operators sang karaoke in a dining hall decked out with North Korean flags as a waitress made fresh coffee, while guests drank beer and ate dried fish at plastic tables up on deck.

Inside, some cabins were decked out with bunk beds, while others just had mattresses laid out on the floor. The better rooms had tables, chairs and private washrooms.

Water in bathrooms on the vessel — used as a ferry between North Korea and Japan until 1992 when it started shipping cargo — was unreliable and when available, was brown.

But Park Chol Su, vice president of Taepung, said he had big plans for the tour if it attracted enough visitors.

He wants to invite more than 100 tourist agencies from Europe in October to sample the same trip, in a bid to attract travellers from further afield.

Authorities have promised no visas will be needed to go on the cruise and, if all goes to plan, the ship will be upgraded to a more comfortable one.

“Next year, we aim to get a bigger, nicer boat that can accommodate 1,000 people. We’d rent that from another country in Southeast Asia,” he said.

Some great photos of the trip are here.

A timeline of Kumgang stories from the shooting until today can be found here.

Read the full story here:
North Korea starts group tours from China to mountain resort formerly operated with South
Associated Press
2011-8-31

ORIGINAL POST (2011-9-7): The Mangyongbong-92 is going to be used for tourism. According to Yonhap:

North Korea appears likely to use a ferry to try to attract foreign tourists, a source familiar with the issue said Friday, in what could be an attempt to earn much-needed hard currency.

For decades, the Mankyongbong-92 served as the only shuttle between North Korea and Japan, which have no diplomatic relations, and was mostly used by pro-North Korean residents in Japan.

The 9,700-ton ship was later used to transport cargoes before Tokyo blocked its entry as part of economic sanctions over Pyongyang’s missile and nuclear tests in 2006.

The ferry has also been suspected of being used for trafficking drugs, counterfeit money and other contraband goods.

North Korea is now preparing to use the vessel as a cruise ship for Chinese and other foreign businessmen during an upcoming international fair in Rason, the country’s special economic zone near China and Russia, the source said.

The North plans to use the ship to take the businessmen on a sightseeing trip in waters off the economic zone at the end of the international fair later this month.

The move is widely seen as the North’s attempt to use the ship for its tourism project.

“It is meaningful in that the Mankyongbong-92 would set sail as a cruise ship for the first time,” said Cho Bong-hyun, a researcher at the IBK Economic Research Institute, noting the North seems to be revitalizing tourism in the economic zone and attempting to attract Chinese tourists to earn hard currency.

The North designated Rason as a special economic zone in 1991 and has since striven to develop it into a regional transportation hub, though no major progress has been made.

…

Read the full story here:
N. Korea pushing to use ferry to attract foreign tourists
Yonhap
Kim Kwang-tae
2011-8-5

Steve Park, president of Korea Pyongyang Trading USA which imports a North Korean Soju (see previous posts here), claims that he has signed a MOU with the DPRK over tourism in the Kumgang resort.  This claim has been picked up by numerous media outlets.  It might be true, but I have yet to see the MOU documentation or any corroboration in the DPRK media.

According to the Hankyoreh:

Park Il-woo, also known as Steve Park, who has long conducted business with the communist nation, said his firm recently signed a memorandum of understanding (MOU) on the Mount Kumgang tourism business.　He is the president of Korea Pyongyang Trading U.S.A., which imports a North Korean liquor branded Pyongyang Soju.

The MOU stipulates that the company will be in charge of marketing, investor relations and tourist recruitment for what is said to be the most scenic mountain on the peninsula.　Under the agreement, the mountain area will be developed into a multi-purpose resort.

He said he plans to visit North Korea this weekend or next week to discuss concrete business plans. He expressed confidence that he will be able to attract substantial U.S. investment for the business. The North is also expected to select Japanese and Chinese business partners soon, he added.

According to another article in the AFP:

“I understand (the North) will also select Japanese and Chinese business partners soon,” said Park, whose company imports a North Korean liquor branded Pyongyang Soju.

No sooner had the deal been announced than the South Koreans raised the point that Mr. Park will need the permission of the US government to carry out his business plans. According to Yonhap:

A small New York-based company selected by North Korea to revive a stalled tour program to a mountain resort in the isolated country needs the endorsement of the U.S. government for its project, a South Korean official said Friday.

The U.S. Executive Order 13570 that took effect in April prohibits the importation into the United States, directly or indirectly, of any goods, services, or technology from North Korea.

Under the order, the envisioned tour program to North Korea’s Mount Kumgang by Korea Pyongyang Trading U.S.A. is subject to the U.S. government’s approval, the official said.

The company, headed by a Korean-American businessman, has yet to file an application with the U.S. government for approval of its proposed tour project in the North, the official said on the condition of anonymity, citing office policy.

U.S. State Department officials in Washington were not immediately available for comment.

The comments by the South Korean official came days after the New York firm signed a memorandum of understanding with the North on the tour program.

According tot he Donga Ilbo, Mr. Park has not yet submitted any paperwork to the US government:

Korea Pyongyang Trading USA is known to have not yet submitted an application to the U.S. government for business with the North.

Another South Korean government source said, “Considering the scale and situation of the trading company that was reportedly chosen as the new operator of the Mount Kumgang tour program and under the conditions of U.S. sanctions against the North and the executive order, we cannot confidently say the Mount Kumgang tour project will be implemented.”

These views by Seoul officials apparently reflect their internal judgment that they cannot accept Pyongyang`s unilateral revocation of Hyundai Asan’s exclusive right to the tours and appointment of a new operator.

The South Korean government understands that the North is taking steps to attract another foreign business other than the American company. Government officials in Seoul predicted, however, that the North is unlikely to find an operator due to U.S. sanctions against Pyongyang, limited demand for tours, and lack of infrastructure in the North.

A timeline of Kumgang stories from the shooting until now can be found here.

According to Yonhap:

Trade volume between South and North Korea reached US$825 million in the first six months of the year, up 19.5 percent compared to the same period last year, the Unification Ministry said Wednesday.

The cross-border trade volume jumped more than 135 percent compared to the January-June period in 2009, the ministry said.

The figure suggests that a joint industrial complex in the North’s border city of Kaesong, a key source of inter-Korean trade, has not been affected by South Korea’s sanctions imposed on the North for its two deadly attacks on the South last year.

The industrial complex, an achievement of the first-ever inter-Korean summit in Pyongyang in 2000, combines South Korea’s capital and technology with the North’s cheap labor.

More than 47,000 North Koreans work at about 120 South Korean firms operating in the industrial zone to produce clothes, utensils, watches and other goods.

South and North Korea have recently raised the minimum monthly wage for the North Korean workers by 5 percent this year to US$63.814, according to the ministry.

Previous posts on the Kaesong Industrial Zone can be found here.

Read the full story here:
Inter-Korean trade via joint industrial zone increases 19 pct in H1
Yonhap
Kim Kwang-tae
2011-8-3