North Korean Economy Watch

Pictured above (Google Earth): The location of the Trade Fair
in the Three Revolutions Museum compound, Pyongyang

According to KCNA:

Pyongyang Spring Int’l Trade Fair Opens

Pyongyang, May 16 (KCNA) — The 14th Pyongyang Spring International Trade Fair opened at the Three-Revolution Exhibition Monday with due ceremony.

Present there were Vice-Premier Kang Sok Ju, Minister of Foreign Trade Ri Ryong Nam, officials in the field of foreign trade and delegations from several countries and regions.

Diplomatic envoys of several countries and officials of foreign embassies here were also present.

Kim Mun Jong, director of the Korean International Exhibition Corporation, made an opening address to be followed by a congratulatory speech by O Ryong Chol, vice-minister of Foreign Trade.

The speakers said that the fair will provide multi-lateral economic and trade activities and scientific and technological exchanges among several countries and regions, expressing hope that the entrants would gain good success through broad contacts.

The DPRK will further economic and cooperative relations with other countries on the principles of equality and mutual benefits, they said.

After the opening ceremony the attendants looked round exhibits from companies of the DPRK, China, Germany, Malaysia, Mongolia, Syria, Switzerland, Singapore, Britain, Australia, Austria, Italy, Indonesia, France, Poland and Taipei of China.

A reception as regards the opening of the fair was given at Pyongyang Koryo Hotel the same day.

Uriminzokkiri posted a video of the trade fair on You Tube. Watch it here.

According to the Choson Ilbo:

A panel of experts says the Unification Ministry has a cavalier attitude to South Korean companies doing business with North Korea. The panel, led by Kim Young-yoon of the Korea Institute for National Unification, tried to find out how many firms there are and what they do.

The experts say that according to ministry figures, 1,017 South Korean companies are doing business in the joint Korean Kaesong Industrial Complex, Mt. Kumgang, Pyongyang, as well as Nampo, Haeju, Rajin and Sinuiju. But the ministry does not even have contact numbers for 188 of those companies, and the phone numbers of 259 are wrong, meaning it only has accurate numbers for 570.

That begs the question whether the tally is even remotely accurate. “Even if businesses have an office in North Korea, most of them are headquartered here,” said one of the experts. “So it shouldn’t be very difficult to assess the status of these businesses, and inaccurate statistics show that the ministry has not done its job properly.”

The probe was prompted by a request from some firms doing business with North Korea to the National Assembly’s Foreign Affairs and Unification Committee to review business in the North and give them a clear picture after the government halted all trade with the North except the Kaesong complex on May 24 last year.

The panel had planned to publish a white paper on May 24 this year, but apparently scrapped the idea due to the lack of basic information.

A response from a Unification Ministry official only adds to the confusion. “We gave them a list of 720 companies, including 584 that are involved in trade with North Korea, 122 that are based in the Kaesong Industrial Complex and 20 in Mt. Kumgang,” he said. “I don’t know where they got the 1,017 figure from.”

Read the full story here:
Ministry ‘Confused’ Over Firms Doing Business with N.Korea
Choson Ilbo
2011-5-16

According to the Daily NK:

Loan-sharking of both money and food is back to being widespread in North Korea these days, and sources say this is causing problems.

The activity is said to have waned for a time in the face of strict crackdowns during the currency redenomination in 2009; however, according to sources, a lot of those people who were expropriated by the currency redenomination have now started borrowing money from loan sharks in order to begin trading or get access to food, meaning it has spread widely once again.

A source from Hyesan, Yangkang Province explained on the 13th, “Those without funding for trade tend to borrow money at high interest. If they borrow money from an acquaintance, the interest rate is five percent, or they make an agreement with a loan-shark, who they don’t know well, to give ten percent.”

“Some loan-sharks get from 15 to 20 percent interest from smugglers for loans over a single night! Even though it is risky, depending on the regulations, they lend money to smugglers because they can earn large sums of money in just a few days.”

Loan sharks have been the target of crackdowns for years. In August 1997, the Ministry of Public Security (formerly the People’s Safety Ministry) released a decree stating that authorities could go so far as to execute those caught loaning food at high interest rates. Additionally, right before the currency redenomination in September of 2009, the National Security Agency cracked down on loan-sharking, releasing a decree calling on officials to “Map out measures to uproot usury.”

However, given that even agents of the People Safety Ministry use loan-sharking for the trading activities of their families, the crackdowns are doomed to fail.

According to sources from several provinces, the activity is also more common in rural areas than in cities, because in cities people have more survival mechanisms, but rural people do not have many alternative ways to get hold of money or food.

Loans are used in these agricultural areas in order to borrow grain from March to May, and are paid back double in the harvest season. In Yangkang Province, meanwhile, when people borrow one kilogram of rice or flour, they must pay it back in the form of 2.5 or 3 kg of potato starch, since the major product of the province is potatoes.

It is the kind of interest rate that was applied during the March of Tribulation, but people still apply it now.

This is a vicious circle of poverty, another defector pointed out. “Those who suffer loan-sharking each year face another worrying fall because their harvest must be paid to the loan sharks.”

The author of this Daily NK story unfortunately chooses to describe the DPRK’s “informal lenders” as “loan sharks,” making them morally equivalent to thieves and bullies, rather than describing them as lenders in a high-risk market.  This sort of pejorative name-calling is common among those who don’t understand how credit markets work, particularly in a high-risk business environment such as the DPRK.

The reality is that informal and black market lenders in the DPRK are making de jure illegal loans from their own savings.  This means that if the loan is officially discovered, the lender (and probably the borrower) will face criminal charges.  Even if the lender is not arrested, he must pay regular protection money to keep it that way.  Additionally, there is little property in the DPRK which can be credibly used as collateral in a loan, which means that even if the loan is not discovered by the authorities, if the borrower defaults or absconds with the funds there is little the lender can take possession of to recover his capital.  This level of risk requires borrowers to pay much higher interest rates to coax scarce lenders into the market.

In addition to the high interest rates that black market lenders usually charge, they also earn a bad reputation for their resort to “informal” mechanisms to insure and recover these loans.  Some insurance mechanisms, such as lending to family members and close acquaintances, might work well.  Other mechanisms, such as making threats of harm (and following through), are not as widely respected. But these are “technological” adaptations and responses to the DPRK business environment, not purely sadistic behavior.  In other words, these market practices are completely predictable given the institutional environment and not unique to the DPRK.  If the DPRK court system impartially enforced contracts, and collateral could be legally secured, these sorts of technologies would be unnecessary.

I am not claiming that black market lenders are angels, or even pleasant people (in fact some of them may be powerful individuals in the party and security infrastructure), but they are financing the development of the DPRK’s unofficial economy out of nothing more than financial self-interest.  Without their efforts a whole class of informal and black market entrepreneurs would be unable to access capital markets to start new businesses or finance operations.  The unpleasant side of black market lending should not be placed on the market participants themselves, but on the DPRK’s policymakers who have pursued economic policies that have made this sort of behavior necessary.

Read the full Daily NK story here:
Loans Creating Circle of Poverty
Daily NK
Kang Mi Jin
2011-5-16

According to the Donga Ilbo:

Members of the credit rating agency under the Export-Import Bank of China are known to have visited North Korea around the “Day of the Sun” on April 15, otherwise known as the birthday of the Stalinist country`s founder Kim Il Sung.

A source in Beijing said, “Around 10 people from the Export-Import Bank of China made a 10-day trip to North Korea ahead of the Day of the Sun. They not only visited Pyongyang but also other cities.”

The agency provides sovereign credit ratings for countries around the world. Critics say the members visited the North to seek further economic cooperation, adding their trip holds more meaning than attending the holiday event because they also visited other cities.

Another source in Beijing said, “The Chinese government is mulling financial benefits including no-interest loans to Chinese companies investing in the [North’s] city of Rason.”

Beijing seems to be preparing to invest in the Hunchun-Rason area near the Tumen River and Dandong-Sinuiju’s Hwanggeumpyong region near the Yalu River, where Pyongyang-Beijing economic cooperation is vital.

Read the full story here:
China`s Exim Bank delegation visited N. Korea last month
Donga Ilbo
2011-5-9

According to Yonhap:

A daily average of more than 600 South Korean workers are currently staying at the Kaesong Industrial Complex in North Korea, up from the 500-level in the past several months, according to a Seoul ministry Sunday.

The increase reflects a reduction in military tensions between the two Koreas, officials at the Unification Ministry that handles inter-Korean affairs said.

The ministry’s data showed that around 650 South Koreans stay at the industrial park, located just north of the inter-Korean border, per day starting last month.

“With regard to the number of production-related manpower, we are granting permission to stay (there) with more flexibility starting in the middle of April,” a ministry official said, requesting anonymity. “The number is expected to gradually increase down the road as well.”

He said the ministry’s flexible stance is attributable to petitions from companies in the Kaesong complex and the alleviation of security concerns of South Korean workers as inter-Korean tensions have eased a bit.

Read the full story here:
Number of S. Koreans at Kaesong rebounds amid letup in tension
Yonhap
2011-5-8

Pictured above: Locations of Koryolink (Orascom) moblie phone towers I have identified in the DPRK.  Supposedly 300 exist in total.

The German Financial Times published a story on Orascom.  Much of it was familiar material, but it did contain one interestign nugget I had not seen before:

Etwa 20 Ägypter und mehr als 200 Nordkoreaner arbeiten für Koryolink – die meisten der Expats im Management, ein Großteil der Nordkoreaner als Techniker und im Service. Für die Kundenbetreuung wurde ein modernes Callcenter eingerichtet. Das Netz deckt die Großstädte, die Autobahnen und die Schienenwege ab, insgesamt etwa 15 Prozent der Staatsfläche. In dem Gebiet leben 91 Prozent der Bevölkerung.

And putting this through Google Translate we get:

Throughout the country, told Heikal, meanwhile, more than 300 transmitters spread. Some 20 Egyptians and more than 200 North Koreans work for Koryolink – most of the expatriates in management, the majority of North Koreans as a technician and service. For customer support a call center was established. The network covers the major cities, highways and rail lines, totaling about 15 percent of state land. In the field 91 percent of the population live.

The service has grown to over 500,000 users but still remains out of the hands of the vast majority of the population:

Auch wenn jetzt theoretisch jeder ein Handy haben darf, sind die Tarife für die meisten Nordkoreaner unbezahlbar. 200 Freiminuten und 20 SMS kosten im Monat 800 nordkoreanische Won, nach offiziellem Wechselkurs sind das rund 5,50 Euro. Dazu kommen die Freischaltgebühr und die SIM-Karte für 50 Euro – zahlbar in Devisen. Wer sich nichts in der wuchernden Schattenökonomie dazuverdient, kann sich das nicht leisten.

And again, via Google Translate:

Even though now may theoretically have a cell phone each, the rates for most North Koreans are priceless. 200 free minutes and SMS cost 20,800 North Korean won per month, according to the official exchange rate is around 5.50 €. Then there are the activation fee and the SIM card for € 50 – payable in foreign currency. Anyone who does nothing, earned in the sprawling shadow economy can not afford that.

And on the human resources front…

Auch bei seinen nordkoreanischen Mitarbeitern bemerkt er Veränderungen. “Vom technischen Können her sind sie sehr gut, die Herausforderungen lagen eher im kaufmännischen Bereich und im Marketing”, sagt Heikal. “Aber wir bilden sie im Unternehmen aus, und wir organisieren für sie Trainings im Ausland, vor allem in China. Ich spüre, dass sich ihre Mentalität über die vergangenen drei Jahre gewandelt hat. Sie beginnen, das Geschäft zu kapieren.”

Bisher sind nordkoreanische Angestellte noch nicht ins oberste Management vorgestoßen, aber mittelfristig sollen sie die ägyptischen Expats ablösen. Natürlich wünscht sich das Regime, dass die eigenen Leute dort die Verantwortung übernehmen – und hegt trotzdem, wie so oft, schwere Bedenken dagegen. “Auf der Managementebene muss man mit der Außenwelt kommunizieren”, gibt Heikal zu bedenken. “Wir diskutieren das mit den Behörden. Sie verstehen das Problem, aber ich denke, das wird noch etwas dauern.” Er lächelt. “Im Rückblick erkennt man enorme Verbesserungen und Veränderungen, aber wir haben noch viel vor uns. Eine ganze Reihe von Dingen wird noch eine Menge Geduld brauchen.”

via Google Translate:

Even with his North Korean employees, he noticed changes. “From her technical ability, they are very good, the challenges were more in the commercial sector and in marketing,” says Heikal. “But we are training in the company, and we’ll arrange for her training abroad, especially in China. I feel that their mentality has changed over the past three years. You begin to understand the business.”

So far North Korea’s workers are not pushed into top management, but the medium they are to replace the Egyptian expatriates. Of course, the regime hopes that their own people over there take the responsibility – and still cherishes, as so often, serious concerns about it. “At the management level needs to communicate with the outside world is,” says Heikal pointed out. “We discuss with the authorities. You understand the problem, but I think it will take some time.” He smiles. “In retrospect, there are vast improvements and changes, but we still have a lot to us. A whole series of things still need a lot of patience.”

Read the full story here:
Die Pyramidenbauer von Pjöngjang
German Financial Times
2011-5-8

According to the Hankyoreh:

China is stepping out into the Pacific through the gates of North Korea’s Rason Special District. North Korea, which has been declaring its aim of creating a “strong and prosperous nation by 2012,” is actively welcoming the move from China.

A number of sources, including officials with the Jilin Province government in China, reported that a groundbreaking ceremony is to be held on May 30 for a highway linking the North Korea cities of Wonjong and Rason, bordering directly on Quanhe in Hunchun, Jilin Province. A number of leaders from both countries are scheduled to attend the ceremony, which is to take place in Rason (Rajin-Sonbong), North Korea.

A Chinese official working on preparations for the project said in a recent interview with the Hankyoreh that the event would be “an occasion for declaring North Korea-China economic cooperation and North Korean openness to the world.” The official added that dozens of officials from the Chinese central government would be attending, including a number of leaders.

The construction effort is a signal announcing the opening of Rason and large-scale economic cooperation between North Korea and China. In addition to the groundbreaking ceremony for the highway, which is to be a major channel tying North Korea and China together economically, efforts to develop China’s Rajin Harbor and transport large amounts of coal through it are beginning in earnest.

The Rason development effort is taking place according to China’s “blueprints” in everything from the planning to investment and management. Local sources said that China and North Korea have already formed a special joint steering committee for the district, and that it has been decided that the chairman will be from China.

The Rason urban development plan jointly drafted by China and North Korea includes the development of international freight brokerage, export processing, and financial regions. According to a North Korean video, models for the plan include Dalian and Tianjin, which Kim Jong-il inspected in 2010 during a visit to China.

An official with the Yanji city government said, “North Korea is also aware that keeping its doors closed will only lead to death, but it is concerned that the regime will be destabilized if it opens up all at once, so it plans to first open up Rajin and develop it as a ‘test region.’”

“They are adopting the Chinese model, learning from China about legislation, taxes, and benefits to lure businesses,” the official added.

The effort is being pursued promptly, in contrast with previous North Korea-China economic efforts, which tended to amount to little more than words. The reason for this is that the central governments in Beijing and Pyonyang are directly taking care of economic cooperation through the medium of Rason’s development.

A Chinese government official reported that Chinese Minister of Commerce Chen Deming traveled to North Korea to sign a memorandum of understanding, and that China and North agreed on a plan for joint investment in and administration of Rason’s highway, port, and industrial park construction. The official added the Chinese Prime Minister Wen Jiabao personally signed policy documents upgrading Hunchun to a special economic district in line with the Rason development plans.

Meanwhile, North Korea formed an office in its central government to directly administer Rason Special City, replaced old officials who failed to make progress with Rason’s development over the years, and sent in young officials from the central government, including Rason Special City secretary Im Kyong-man, sources reported.

China needs the Rason development to ensure the success of its current national development plan for Changchun, Jilin, and the Tumen River basin, while North Korea decided to cooperate with China to address its economic problems and stabilize its succession framework. Analysts say North Korea hopes to tout successful development of Rason as an achievement of Kim Jong-un.

The development project is proceeding in a very specific and far-reaching way. “This is Korean land, but the industrial complex is being operated as Chinese and will hire North Korea workers to earn foreign currency” for North Korea, said an official with a Chinese company in charge of a large-scale construction effort in Rason.

The electricity shortage issue, which had previously been a major stumbling block to investment, has been resolved by China. A source in Hunchun said, “Plans are being examined to either send surplus power from Hunchun’s thermoelectric power plants to Rason, or for a company in Jilin Province to retrofit an old Soviet crude oil plant in the Sonbong region into a coal-burning power plant.”

Even Chinese officials have been astonished at the active measures from Pyongyang. A Rajin representatives’ office opened in downtown Yanji, the seat of the Yanbian Korean Autonomous Prefecture, is hard at work drawing in investment.

“If Chinese investors want to take a look at Rason, they can drive their cars in for themselves with an invitation from the Rajin representatives,” explained a source in Yanbian.

In the border city of Hunchun, money and people have begun shifting toward the North Korean side. Construction of 500 apartments for Chinese people working in Rason began in late March, according to officials at a construction company commissioned to carry out the project. Capital and labor investment for the Hunchun-Rason highway construction is coming entirely from China, and a number of the roughly 500 Chinese workers needed to begin have already arrived in Rason with six-month passes issued by North Korea. Large Chinese corporations such as Changli, Shangdi Guanquan Investment, and FAW are known to be undertaking investment in Rason.

According to the Korea Herald:

Despite its reputation as one of the most closed nations in the world, North Korea is, at least partly, opening up to market economy conventions, evident in its effort to cultivate its specially designated economic zone.

North Korea designated Raseon the country’s first free trade zone, as a “special city” in January 2010. The city, which borders both China and Russia, was dubbed a free trade zone along with nearby Sonbong in 1991, even though foreign investment never materialized.

In recent years, the North has tried to reinvigorate the trade zone, signing an accord with Russia to restore railways that could help rejuvenate the port there. Russia invested 140 million euro ($202 million) in the Rason project in late 2008.

In recent months, North Korea appears to have initiated a media campaign for Rason, beckoning foreign investors as Pyongyang struggles to resuscitate its moribund economy, according to informed sources and media reports.

According to a source familiar with North Korean affairs, the city has seen both new factories built and upgrades of previous ones.

A couple of large Chinese companies have also reportedly signed deals on either providing construction parts or investments in the region’s resources development.

Chinese commerce officials from the central government and the nearby Jilin Province have also reportedly held talks with their Pyongyang, Rason counterparts regarding such business transactions.

The city is also becoming more urbanized, according to sources. Apartments and road construction repairs are sprouting, while the number of daily logistics traffic across the nearby North Korea-Chinese border has nearly doubled to some 200 trucks in late April, compared to some 100 trucks just three months ago.

The North Korean leader Kim Jong-il recently traveled to the city, a move that analysts see as underlining the regime’s desire to promote the trade city to lure foreign investment.

The KCNA reported on April 22 that Kim visited the city’s Rajin Shipyard where he was briefed on different processes of shipbuilding. There he highlighted the importance of the shipbuilding industry and urged for the introduction of new production technology.

It was the first time that the North’s tightly controlled media reported the name of the shipyard and Kim’s visit there. Known as one of three major shipyards in North Korea, the Rajin Shipyard is believed to have built warships and submarines, according to sources in Seoul.

Increasing media reports from North Korea on Rason also seems to back claims that the country is putting its weight behind the city.

On April 19, the KCNA filed a profile report on Rason’s tourism industry, touting its historic relics, cultural facilities and fantastic seascape “and introducing tourist hot spots in and near the city.

In an earlier, March 30 report, the KCNA said that the city has adopted “a preferential tariff system” for foreign investors and traders.

“Choe Kwang-nam, an official in charge of economic cooperation of the Rason City People’s Committee, told the KCNA that the zone provides favorable business conditions to foreign investors through the preferential tariff system,” it said.

“Foreign investors and businesses are allowed to conduct diverse economic and trade activities and have a free choice of investment forms and business,” it quoted Choe as saying.

Read the full stories here:

N.Korea’s Rason Special District could open country to China
Hankyoreh
Park Min-hee
2011-5-4

Investment, projects seemingly brim in N. Korea border city
Korea Herald
2011-5-4

The Korea Economic Institute has published the latest in its Academic Paper Series:

“Similar Policies, Different Outcomes: Two Decades of Economic Reforms in North Korea and Cuba”
Dr. José Luis León-Manríquez, Universidad Autonoma Metropolitana

North Korea and Cuba benefitted economically from Soviet Union support, but after the collapse of the Soviet bloc, both countries had to reexamine their policies. Since 1990, these two countries have tried various economic reforms under their centrally planned economies. Which country has been more effective in their efforts? As the two nations are both undergoing leadership transitions, how likely are further economic reforms?

Download the paper (PDF) here. Listen the presentation here.  See the presentation video here.

Institute for Far Eastern Studies (IFES)
(NK Brief 11-04-27)

Kim Jong Il is continuing to make field guidance visits around Ryanggang and the Northern Hamgyong Province.

The Rodong Sinmun reported on April 23 that Kim Jong Il visited Rajin Shipyard. Rajin Shipyard is known for producing ships necessary for advancing fishing, marine transportation, and foreign trade industries. Chairman Kim emphasized the importance of self-reliance, especially on the need to adopt the latest science and technology and partake in the mass technical innovation movement by implementing CNC (Computer Numerical Control) technology into ship design, assembly, and manufacturing.

According to the Korean Central News Agency (KCNA) on April 20, Kim also gave field guidance at Kim Chaek Iron and Steel Complex and newly built Susongchon General Foodstuff Factory in Northern Hamgyong Province. The Rodong Sinmun on April 22 also reported that the DPRK leader provided field guidance at Hyesan Youth Mine in Ryanggang Province. At the Hyesan Youth Mine, he said “The major project of the Party is to complete the technological modernization to radically increase the production of mineral ores.”

At the recent visitation to Songjin Steel Complex at Kim Chaek City, Kim once again emphasized self-reliance. Kim stated, “The self-reliance of the metal industry is the permanent path of our economy.” He further added, “Despite the imperialist’s sanctions and blockade, we reached the highest level of metal production from the revolutionary spirit of self-reliance. The Party’s traditional slogan of self-reliance is the only weapon of victory leading to our nation’s triumph and prosperity.”

North Korea announced that Songjin Steel Complex established Juche steel production system at the end of 2009. At the complex, Kim gave praise to the facility by saying, “The completion of steelmaking process of Juche steel with our own technology is a greater victory than the success of a third nuclear test.”

However, Kim Jong Un, the vice-chairman of the Central Military Commission and the named successor of the DPRK was not included in the list of entourage in the recent field guidance given by the senior Kim at Kim Chaek Iron and Steel Complex, Hyesan Youth Mine and Najin Shipyard.

Kim Jong Il is reported to have conducted 35 official activities in the first quarter of 2011. Although it is a decrease from last year’s number of 41, it is still higher than the average of 21(1999-2010) in the first quarter. The breakdown of the activities of Kim is as follows: 12 economy-related visitations, 10 attendances at performances, 9 inspections at military bases or other military related activities and lastly, 4 meetings with diplomatic delegations.

The economy-related inspections were the highest in the first quarter since 2009. This trend reflects Kim’s intentions of concentrating on inspecting the economic sectors early on in the year to encourage results in this sector. A notable point is that self-reliance and incorporation of CNC was mentioned at all industrial facilities that Kim inspected.

Among the entourage, Kim Jong Il’s sister, Kim Kyong Hui, director of the Light Industry Department of the Korean Workers’ Party (KWP), accompanied the leader 28 times on his recent inspections. Kim Ki Nam, the KWP Secretary and Director of Publicity and Information Department made 24 trips, Kim Jong Un and Tae Jong Su, KWP Secretary and Director of the General Affairs Department made 22 trips each, and Chang Song Taek (Jang Song Thaek), the husband of Kim Kyong Hui and vice-chairman of the National Defence Commission, is known to have made 20 accompaniments.

Recently, North Korea has been making changes in the planned economy by naming the new Central Bank chief, upgrading the State Price Bureau to the State Price Commission, and establishing the State General Bureau of Economic Development.

Kim Jong Il has conducted a total of 161 official activities last year, his most active year since the official launch of the Kim Jong-Il regime in 1998.

UPDATE: DPRK to Set Up Special International Tour Zone at Mount Kumgang
Institute for Far Eastern Studies (IFES)
NK Brief (11-05-2)
2011-5-3

According to KCNA news agency, the Presidium of the DPRK Supreme People’s Assembly issued a decree on April 29 to set up a special zone for international tours at Mount Kumgang. It reported the special zone in Kangwon Province would include Kosong-eup and Onjong-ri of Kosong County; Samil-po, Hae-Kumgang, and Nae-Kumgang areas in Kumgang County, and Thongchon County.

The Central Tourist Guidance Agency expressed its intentions of increasing new tourist destinations depending on the progress made in the special zone. In addition, it also announced the annulment of October 2002 decree on the Kumgang Special Tourism Zone, which rescinded the exclusive rights of Hyundai Asan.

Previously on April 8, the DPRK’s Korean Asia-Pacific Peace Committee (KAPPC) informed Hyundai Asan that it would retract the monopoly rights of Hyundai. Instead, it expressed plans of entrusting the tours from the North through foreign businesses while Hyundai will continue to lead the tours from the South. The North announced the Mt. Kumgang tours will be renewed through appropriate national measures.

The KCNA explained, “The DPRK’s sovereignty will be exercised in the special tour zone.” Additionally, the DPRK is encouraging free investment in the special zone by corporations, individuals and other economic bodies and such investments are protected by law.

On the May issue of South Korean monthly magazine Minjog 21, the Committee of Investment and Joint Ventures of the DPRK and Kempinski Group was reported to have reached an agreement on its entrance into the Kumgang tourism project. The magazine also reported the Kempinski Group’s plans of modernizing the Wonsan Airport, development of Wonsan City into a resort town, and building roads connecting Wonsan with Kumgang.

Kempinski Hotels is a luxury hotel group known for its five-star hotels and resorts and recently expanded into Asia with current projects underway with India and China. Kempinski is majority owned by the Crown Property Bureau of Thailand and the royal family in Bahrain. Once the Kempinski Hotel is completed in Wonsan, it is expected to become an international resort town linked with Mt. Kumgang Special Zone.

The Mt. Kumgang tours from the North are expected to be managed by the Kempinski Hotels while the tours from the South will be still managed from Hyundai. An interview on April 13 by Ri Jong Hyok, vice-chairman of the KAPPC commented, “The buildings and facilities built by Hyundai will come to ruins if left at its current unoccupied stage. This is the reason why we are attempting to restart the tours, but only until the South decides to resume the tours.”

The Committee of Investment and Joint Ventures was upgraded from Joint Venture and Investment Guidance Bureau last July, becoming a central state organization in charge of all projects related to investments and joint ventures from overseas.

ORIGINAL POST: According to Yonhap:

North Korea’s rubber-stamp parliament said Friday that it will set up a special zone for international tours of the country’s troubled mountain resort in an apparent move to induce foreign investment.

The North “will encourage free investment in the development of the special zone by corporate bodies, individuals and other economic bodies and will protect by law the invested capital and properties and income and other profits to be gained through business,” the North’s Supreme People’s Assembly said in a decree carried by the country’s official Korean Central News Agency (KCNA).

The legislature said North Korea’s sovereignty will be exercised over the zone that includes several areas on Mount Kumgang, a scenic resort on the country’s east coast.

It also said the agency in charge of tourism will take relevant measures to increase new tourist destinations, depending on the progress in the special zone development. No details were provided.

Lee Jong-joo, a spokeswoman for South Korea’s Unification Ministry handling inter-Korean affairs, said the North’s move appears to be aimed at attracting foreign capital to develop the resort.

A spokesman for Hyundai Asan, a key South Korean tour operator in the mountain resort, said his company had no immediate comment on the North’s announcement. He asked not to be identified as he was not authorized to speak to media.

The decree came weeks after Pyongyang terminated exclusive tourism rights for Hyundai Asan, citing skepticism over the resumption of the joint venture.

The two Koreas launched the joint tour program in 1998 as part of moves to boost cross-border reconciliation and cooperation, providing a legitimate source of hard currency to the cash-strapped North.

However, Seoul suspended the tour program in 2008 when a female South Korean tourist was shot dead after straying into an off-limits military zone near the resort.

Pyongyang claims it has done everything to shed light on the shooting and guarantee the safety of future tourists, but Seoul says it has yet to receive a formal apology for the shooting or government-to-government promises to enhance safety.

Here is the KCNA statement:

Pyongyang, April 29 (KCNA) — A special zone for international tour of Mt. Kumgang will be established in the DPRK.

A decree on this decision was issued by the Presidium of the DPRK Supreme People’s Assembly on Friday.

According to the decree, the special zone is to be set in the area of Mt. Kumgang in Kangwon Province and the zone will include the township and some areas of Onjong-ri in Kosong County, Lagoon Samil, Sea Kumgang area, Inner Kumgang area of Kumgang County and some areas of Thongchon County.

The DPRK sovereignty will be exercised over the zone.

The DPRK will encourage free investment in the development of the special zone by corporate bodies, individuals and other economic bodies and protect by law the invested capital and properties and income and other profits to be gained through business.

The Central Tourist Guidance Agency shall take relevant measures to increase new tourist destinations, depending on the progress made in the SZ development.

The decree of the SPA Presidium on “Setting Up Mt. Kumgang Tourist Zone in the DPRK” issued on Oct. 23, 2002 is no longer valid.

Aside: So there are two DPRK agencies that deal with tourism: KITC and the “Central Tourist Guidance Agency”?

Historical information:

The Kumgangsan resort was the scene of a terrible tragedy, the shooting of a South Korean tourist.  Allowing a joint-Korean investigation of the murder became a precondition by the South Korean government for resuming tourism to the resort.

On March 4th 2010, the DPRK first threatened to revoke contracts with the South Korean Hyundai-asan stating that a future guarantee of safety was sufficient for resuming tourism.

Later in th month, Hyundai-asan’s chief offered to resign.

In April 2010, the DPRK “seized” the Hyundai properties in the Kumgangsan resort.

Shortly afterwards, Chinese tourists began arriving at the resort (here and here).

The Donga Ilbo reported that the NDC took over the properties and put them in the Korea Taepung International Investment Group portfolio.  If the property was under Taepung control and has now been put under normal ministerial control, then this signals that Taepung’s sun might have set.

If possible, I would expect that Hyundai-asan will attempt to bring suit in South Korea against whichever company chooses to set up in the zone.

Read the full sotry here:
N. Korea to set up special int’l tour zone at Mount Kumgang
Yonhap
2011-4-29