North Korean Economy Watch

Pictured above (L – R): Jang Song-thaek, Naguib Sawiris, and Kim Jong-il

According to Martyn Williams:

The CEO of Egypt’s Orascom Telecom has been given a rare honor during his current trip to Pyongyang: an audience with Kim Jong-il and dinner hosted by the reclusive leader for the businessman whose firm owns a majority of North Korea’s only 3G cellular network.

Naguib Sawiris arrived in the North Korean capital on Friday and was received on Sunday by Kim Jong-il, the Korea Central News Agency reported on Monday.

Kim Jong-il, “warmly welcomed his DPRK visit taking place at a time when Orascom′s investment is making successful progress in different fields of the DPRK, including telecommunications,” the report said.

Orascom holds a 75 percent stake in Cheo Technology, which operates North Korea’s only 3G cellular network.

The network, the remaining stake in which is held by the government, uses the Koryolink service name. It has seen fast growth in subscribers and currently claims more than 300,000 accounts in just the two years since its launch.

After starting first in Pyongyang, the network has been expanded to cover provincial capitals and smaller cities and a 3G signal is now within reach of 75 percent of the population, the company said in November last year.

The Orascom group has made several other investments in the country. In 2007 it invested in a cement factory and in late 2008, at around the same time it launched the 3G network, it opened a local bank. The company has also been tied to renewed construction work at Pyongyang’s pyramid-shaped Ryugyong Hotel. The iconic building was halted in 1992 and has remained vacant ever since.

According to the AFP:

North Korean leader Kim Jong-Il has met the head of an Egyptian company that provides a mobile phone service in the impoverished communist nation, state media reported Monday.

Naguib Sawiris, chairman and CEO of Orascom Telecom Holding, has been visiting the North since Friday. His company has provided a mobile phone service in the North jointly with a local firm since late 2008.

Kim “warmly welcomed his DPRK (North Korea) visit taking place at a time when Orascom’s investment is making successful progress in different fields of the DPRK, including telecommunications,” the North’s state news agency KCNA said.

Kim had “a cordial talk” with Sawiris and hosted a dinner for him, it added.

Orascom said last year that mobile phone subscriptions in North Korea had more than quadrupled in the space of a year — to 301,199 by the end of September 2010 from 69,261 a year earlier.

However, it said overall “mobile penetration” remains at one percent in the country, which has an estimated per-capita GDP of 1,700 dollars and a population of 24 million.

North Korea strictly controls access to outside information and fixes the tuning controls of radios and televisions to official stations.

It began a mobile phone service in November 2002 but shut it down without explanation 18 months later and began recalling handsets.

But in December 2008 the country introduced a 3G mobile phone network in a joint venture with the Egyptian firm.

The Egyptian group in 2007 sealed a 115 million dollar deal to invest in a North Korean cement plant. It is also reportedly involved in completing construction of the 105-storey Ryugyong Hotel in the capital.

Martyn has more at North Korea Tech.

Image from the Hankyoreh: The left graph shows the number of South Korean tenant companies operating at Kaesong Industrial Complex. 122 companies are operating normally, 77 companies are not currently operating, and 16 have halted operations. The right graph shows the total number of workers: above, the number of North Korean workers and below, the number of South Korean workers.

According to the Hankyoreh:

… [Companies in the Kaesong Zone]  complained that they have lost hundreds of millions of Won (hundreds of thousands of dollars) with the suspension of factory construction due to administration measures forbidding new investment. They also said that the situation is growing bleaker by the day, with veteran employees quitting as the numbers of resident personnel at the complex drops due to concerns about personal safety. Despite all of this, they suffer without a word of formal complaint out of fears that they might draw the anger of North Korean and South Korean authorities.

In its May 24 measures last year, the Lee administration declared a suspension to trade and exchanges with North Korea in response to the sinking of the Cheonan. At the complex, only existing facilities were allowed to operate, while the resident workforce was halved to 500 people and the introduction of additional equipment was prohibited. Sixteen companies that were in the process of building new factories suffered a direct hit from these measures. At present, a total of 122 small and medium companies run factories in the complex.

Company “A,” a garment company that invested 5 million Won ($4,493) in inter-Korean economic cooperation funding to build a sewing factory, but were forced to suspended construction with approximately 90 percent of the process complete.

“Only the exterior and interior remain,” said the president of the company. “We could not bring in factory equipment, so we just gave up.”

The Export-Import Bank of Korea (EXIM) only stood surety for 90 percent of the loan, so Company A faces the immediate burden of principal and interest repayments in the hundreds of millions of Won. It also has to pay 16 million Won per year in interest on the EXIM-guaranteed loan until compensation money comes from the government.

The company’s president said, “We borrowed the money because they said to do an inter-Korean economic cooperation project, and then they just cause a loss by suspending exchange. Is the administration playing interest games with South Koreans?”

To date, a total of 1.26 trillion Won ($1.1 billion) has been invested in the complex, the bulk of which is facility investment paid by tenant companies, amounting to 730 billion Won.

Company “B,” another garment company, originally had seven South Korean employees working with 330 North Korean workers. But following the order from Seoul to halve the number of resident employees, there are now just three South Korean employees left. Two employees left the company. “The employees who left were heads of household in their forties who had worked with us for over a decade,” the president sighed. “They had a difficult time getting up at 6 in the morning for the 70 to 80 kilometer commute, and the government actually ended up fanning anxieties with its talk about ‘protecting employee safety,’ so their family members dissuaded them from working at the complex.”

Hiring new employees is not an option. In some cases, interviews were held and start dates were set before the new recruits abandoned their plans after the Yeonpyeong Island shelling occurred two months ago. Company B, which has its head office in Seoul, is in a slightly better position. Employees at businesses in Daegu, Gwangju, and Busan, for whom commuting is impossible, are forced to stay at motels in Munsan, Gyeonggi Province.

“They emptied out a perfectly good dormitory in the Kaesong complex, and employees have been wasting time, money, and strength for months now,” said the president of Company “C.” “It stands to reason that the departure rate is increasing.”

The president of Company “D” stated emphatically that there is no physical risk at the complex. In fact, the president said, North Korean authorities have added more productive labor on site since the Cheonan sinking and the bombardment of Yeonpyeong Island. The 45,332 North Korean workers as of November 2010 represented an increase of a full 2,771 over the 42,561 working in 2009. The president of Company D stressed that the government must increase the number of resident personnel if the physical safety of South Korean employees is to be guarded.

“If it is impossible to guarantee physical safety, they should not be leaving a single person at the Kaesong complex,” the president said. “Does it make any sense to say that 500 people is okay, but 1,000 is not?”

Some buyers have also fallen away because of anxieties. In late 2010, garment company “E” lost a buyer that had previously been purchasing 70 percent of its production output. “They got worried when it became difficult to bring in raw materials due to the sanctions against North Korea, and finally they halted transactions, saying that they thought the government had washed its hands of the Kaesong complex,” the president of Company E said. “Even if we suspend operations because there is no work to do, we still have to pay the workers’ wages, so the deficit is increasing by the day.”

With the decreased South Korean presence, six commercial facilities within the complex have also closed down, including a supermarket, restaurant, and singing room at “Songak Plaza.”

“If you look at the Gaeseong Industrial Complex Support Act, which the National Assembly passed unanimously, the government is to provide support and guarantees so that we can conduct business freely, like companies do in any other region,” said the president of Company F. “We are on the brink of withering away because of this idea of restricting property rights and company activities for administrative expedience, and through a minister’s order rather than any law.”

While they have been driven to the brink, the company presidents are adamantly opposed to closure of the complex. The president of Company G explained, “At first, things were rocky because of cultural and ideological differences, but now the North Korean workers understand the companies. They have realized by themselves why we need to meet the delivery deadline, why we need to improve quality, why we need to make so much. The Kaesong complex is performing the role of reducing the costs of reunification by restoring homogeneity between North Korea and South Korea.”

The president of Company H said, “The possibility of war is also being checked by the presence of North Korean and South Korean workers in the complex.”

“For the sake of peace and shared prosperity, we need to develop [the complex] into a special economic zone of peace where North Korea and South Korea can communicate,” the president added.

According to the Choson Ilbo:

Six of nine commercial [leisure] facilities in the joint Korean Kaesong Industrial Complex have closed, it emerged on Tuesday.

According to the Unification Ministry, a supermarket, a beer hall, a karaoke and a billiard hall in the Songak Plaza, the industrial park hotel operated by Hyundai Asan, closed on Dec. 1, right after North Korea’s shelling of Yeonpyeong Island. Already in February a massage parlor closed, and in August a Japanese restaurant.

Only a duty-free shop and Korean and Chinese restaurants managed directly by Hyundai Asan stay open. A staffer at the industrial park said the reason is that the number of South Korean staffers in the industrial park, who were the main customers of the facilities, has dropped sharply.

There were some 1,200 to 1,500 South Koreans at the industrial park until the North’s sinking of the Navy corvette Cheonan in March and its shelling of Yeonpyeong in November, but the number dropped to about 500 recently.

According to Yonhap:

Production at an inter-Korean industrial park dropped 15 percent in November last year when the North bombarded a South Korean island, raising bilateral tensions to the highest level in years, the Unification Ministry said Sunday.

The fall, however, contrasted with an increase in the number of North Korean workers at the Kaesong industrial park, located just north of the heavily armed inter-Korean border, the ministry said on its Web site.

Over 45,000 North Koreans were working as of November for more than 120 South Korean firms at the complex, the ministry said, adding that they produced US$25.1 million worth of products that month, compared to $29.4 million in October.

The factory park is considered the last remaining symbol of reconciliation between the two Koreas that remain divided by a heavily armed border after the Korean War ended in a truce in 1953.

After North Korea shelled the western South Korean island of Yeonpyeong on Nov. 23, killing four people, Seoul restricted the number of South Korean workers allowed to stay overnight in Kaesong.

The measure, which remains in place, led business managers to complain of difficulties in production. South Korea maintains it will continue to support manufacturing activities at the Kaesong industrial park despite the North Korean provocation.

Since May when a multinational investigation led by Seoul found the North responsible for the sinking of a South Korean warship earlier that year, South Korea has suspended all cross-border trade with North Korea.

Read the full stories here:
Kaesong companies on the brink as sanctions continue
Hankyoreh
Jung Eun-joo
1/19/2011

Leisure Facilities at Kaesong Close Down
Choson Ilbo
1/19/2011

Output at inter-Korean factory park falls amid tension
Yonhap
1/23/2011

Evan Ramstad at the Wall Street Journal: Korea Real Time interviews Marcus Noland:

Only a handful of outside economists spend the enormous time required to delve into the mysteries of North Korea.

Marcus Noland is one of them. With his research and writing partner Stephen Haggard, Mr. Noland has written several books about the North, including a definitive study on the famine that gripped the country from the mid- to late-1990s and resulted in the death of at least 1 million people and perhaps upwards of 2 million.

In a new book published this week, called Witness to Transformation: Refugee Insights into North Korea, Messrs. Noland and Haggard produce the results of interviews they and their researchers conducted with more than 1,600 North Koreans who fled the country. The interviews took place from 2004 to 2008 and involved people who left North Korea as early as 1991.

The book documents the remarkable changes inside the North through the eyes of people who lived through them. Of course, it’s a group that holds negative views of North Korea. But the economists do their best to take that into account.

Mr. Noland, who is based at the Peterson Institute for International Economics in Washington, discussed the book with us. Here’s an excerpt of the interview:

WSJ: Most books and studies on North Korea by people outside the country are focused on the nuclear weapons issue and the geopolitics around that. Why have you focused on refugees and the economy?

Mr. Noland: An understudied aspect of the North Korea story, we believe, is the really quite dramatic internal changes that have been going on in North Korea over the last 10 to 20 years. North Korea poses an analytical challenge in that access is limited and the conventional ways that one could go studying a country aren’t available. In this context, the diaspora of refugees leaving the country is an important source of information.

The refugees themselves constitute a first-order crisis. Most of these people, in a clinical setting, would probably be diagnosed with post-traumatic stress disorder. Their mental health issues appear to be related not only to the difficult circumstances they faced in China but their experiences in North Korea.

WSJ: What is the cause of those stresses?

Mr. Noland: Specifically the loss of family members and family separations associated with the famine. The sense among many of them that they were abandoned in their moment of greatest need. The feeling that they were not given access to international humanitarian aid, which many of them believe was diverted to the military. And the experience of many of them of having been arrested and incarcerated in North Korea’s vast and sprawling penal system.

So the refugees themselves are an issue. They also provide us a window into North Korea.

WSJ: What did you learn from them?

Mr. Noland: Our book addresses three broad issues, which they illuminate.

The first is the underlying economic changes in the country. What we find is the economy has essentially marketized over the last 15 years or so, not as any kind of planned reform but rather as a function of state failure. What is extraordinary is the degree of marketization that the refugees portray when describing their daily lives. They describe a situation in which doing business or engaging in corrupt or illegal activities is increasingly seen as the way to get ahead in North Korea. And positions in the state or the party are still highly desired and seen as a way to get ahead, but not out of patriotism because these positions increasingly provide a platform for extortion of the general population.

Which brings us to the second big theme of the book and that is the criminalization of economic activity and the use of this vast penal system not only for its traditional use as a tool of political intimidation but for economic extortion. What we find is that changes in the North Korean legal code have criminalized vast areas of economic life, the sort of economic life that real people actually lead. In their daily lives, most if not all of North Korea’s non-elites run afoul of some of these statutes, which in effects makes everyone a criminal.

The fact that everyone is running afoul of some statute is combined with the fact that the police are given extraordinary discretion in who they arrest and who they incarcerate and for what period of time. We find that the North Korean penal system has four components. The worst and best known are the long-term political prisons, the North Korean gulag that was set up by Soviet advisors. There’s also a set of institutions that are effectively felony prisons, where you put the murderers and the rapists. Then there are a set of institutions that correspond to misdemeanor jails in other societies. What has developed since the famine period of the 1990s is a fourth set of institutions that have been codified. Those primarily house people who have made economic crimes, such as hiring labor for money or selling things in the market that you’re not supposed to be selling. We go through the enormous expansion of articles in the North Korean legal code to cover these crimes, such as illegally operating a restaurant.

This is a fantastic instrument for extortion. It means if you were engaging in entrepreneurial behavior, the police can come to you and say ‘You’re engaged in illegal activity. We can take you, take your spouse, take your kid and put them in this institution where you know horrible things happen.’ So the penal system not only serves its traditional function as a platform for political corruption but we find it is now a platform for economic predation as well.

We discovered something that we call the ‘market syndrome.’ It is a series of characteristics that seem to be linked with engaging in market activities. People who engage in market activities are 50% more likely to be arrested than their counterparts. They are more likely to harbor more negative appraisals of the regime than their counterparts. And in a society where people are afraid to express their opinions, these guys who are engaged in the market, who have been to jail and been released, are more likely to express their views to others. That is to say that the market is emerging as a kind of semi-autonomous zone of social communication and potentially political organizing. And in that sense, the regime is right to fear the market.

And that brings us to the final theme, and that is the political attitudes of these people and nascent dissent. What we find is people have very negative appraisals of the regime. That’s not surprising. We’re sampling from a group of people that have voted with their feet and one would expect them to have negative views, though we go through fairly elaborate statistical exercises to try to control as best we can for the demographic characteristics of the people we’ve interviewed.

People have very negative views of the regime. They are increasingly disinclined to believe the regime’s meta-narrative, which rationalizes their misery as a function of being held captive by hostile foreign forces. Most of these people hold the government itself as responsible for their plight.

WSJ: You two previously wrote one of the seminal studies on the North Korean famine (Famine in North Korea: Markets, Aid and Reform), what did the refugees tell you about living through that?

Mr. Noland: Both Steph and I were really struck by was just how the famine experience reverberates. The famine was more than 10 years ago. It ended in 1998. A significant share of the people, I think about a third, reported separation from, or death of, family members during that process. You had people out scavenging to find food. People going to China. Family separation and death of family members just continued to reverberate.

We asked them: ‘Were you aware of the international food aid program?’ The numbers differ in our surveys, but significant numbers of people were unaware of the food aid program. It was astonishing to us.

Then, among the ones who were aware, we asked `Do you believe you were a beneficiary?’ Only a small minority responded yes. And when we run all the regressions, this status of knowing of the existence of the program but believing you were not a beneficiary, this is a profoundly demoralizing experience. These people feel they were abandoned at this time of need, when they were seeing their families and neighbors dying. They believe it’s going to the army and the elites. That group of people, when we run the psychological tests and ask them their views of the regime, this is an embittered group. The effect of that experience is bigger than being in the prisons.

We wrote a book on the famine, so obviously we’re interested in it. But we were surprised and we wouldn’t have guessed that this experience continues to reverberate among the people who lived through it.

Read the full story here:
Marcus Noland on NK’s Refugees and Economy
Wall Street Journal: Korea Real Time
Evan Ramstad
1/12/2011

The Daedong Credit Bank (Based in the Potonggang Hotel in Pyongyang) has issued a press release.

I have made a PDF of it available here.

Here is their web page.

UPDATE: China denies sending troops to the DPRK.  According to the Global Times:

A Chinese government official Sunday dismissed a report by a South Korean newspaper that China was sending troops to North Korea.

“China will not send a single soldier to other countries without the approval of the UN,” an official at the Chinese Ministry of Defense told the Global Times on condition of anonymity, citing China’s basic policy on troop deployment.

ORIGINAL POST BELOW: According to the AFP:

China is in discussions with North Korea about stationing its troops in the isolated state for the first time since 1994, a South Korean newspaper reported Saturday.

The Chosun Ilbo newspaper quoted an anonymous official at the presidential Blue House as saying that Beijing and Pyongyang recently discussed details of stationing Chinese soldiers in the North’s northeastern city of Rason.

The official said the soldiers would protect Chinese port facilities, but the location also gives access to the Sea of Japan (East Sea), while a senior security official was quoted as saying it would allow China to intervene in case of North Korean instability.

A spokeswoman for the Blue House said she had no information, while China’s defence ministry declined comment to AFP on the matter this week.

“North Korea and China have discussed the issue of stationing a small number of Chinese troops to protect China-invested port facilities” in the Rason special economic zone, the unnamed official was quoted as saying.

“The presence of Chinese troops is apparently to guard facilities and protect Chinese nationals.”

China reportedly gained rights in 2008 to use a pier at Rason, securing access to the Sea of Japan (East Sea), as North Korea’s dependence on Beijing continues to grow amid a nuclear stand-off with the United States and its allies.

The last Chinese troops left the North in 1994, when Beijing withdrew from the Military Armistice Commission that supervises the truce that ended the 1950-53 Korean war.

Seoul’s International Security Ambassador Nam Joo-Hong told the Chosun Ilbo that China could now send a large number of troops into the North in case of instability in the impoverished communist state.

“The worst scenario China wants to avoid is a possibly chaotic situation in its northeastern provinces which might be created by massive inflows of North Korean refugees,” Nam was quoted as saying.

“Its troops stationed in Rason would facilitate China’s intervention in case of contingencies in the North,” he said.

Here is the original report in the Choson Ilbo (in Korean).

UPDATE: The Choson Ilbo posted a story in English which claims the Chinese soldiers are already in North Korea:

Chinese troops have been stationed in the special economic zone of Rajin-Sonbong in North Korea, sources said Friday.

This would be the first time since Chinese troops withdrew from the Military Armistice Commission in the truce village of Panmunjom in December 1994 that they have been stationed in the North.

“Pyongyang and Beijing have reportedly discussed the matter of stationing a small number of Chinese troops in the Rajin-Sonbong region to guard port facilities China has invested in,” a Cheong Wa Dae official said. “If it’s true, they’re apparently there to protect either facilities or Chinese residents rather than for political or military reasons.”

How many of them are there is not known. The move is unusual since North Korea is constantly calling for U.S. forces to pull out of South Korea and stressing its “juche” or self-reliance doctrine.

A China-based source familiar with North Korean affairs said, “In the middle of the night around Dec. 15 last year, about 50 Chinese armored vehicles and tanks crossed the Duman (Tumen) River from Sanhe into the North Korean city of Hoeryong in North Hamgyong Province.”

Residents were woken up by the roar of armored vehicles. Hoeryong is only about 50 km from Rajin-Sonbong. Other witnesses said they saw military jeeps running from the Chinese city of Dandong in the direction of Sinuiju in the North at around the same time.

“The Chinese armored vehicles could be used to suppress public disturbances and the jeeps to round up on defectors from the North,” the source speculated.

Nam Joo-hong, the ambassador for international security, said, “What China is most worried about in case of a sudden change in the North is mass influx of defectors, which would throw the three northeastern Chinese provinces into confusion. With its military presence in Rajin-Sonbong, there is a likelihood that China could intervene in Korean affairs by sending a large number of troops into the North under the pretext of protecting its residents there in an emergency.”

The North and China have engaged in lively military exchanges since two visits to China by North Korean leader Kim Jong-il last year. Guo Boxiong, the top Chinese military officer and vice chairman of the Chinese Central Military Commission, visited the North in late October last year and met with leader Kim Jong-il and his son and heir Jong-un. In the meeting, Kim senior emphasized “blood ties” between the two countries.

A Chinese mission has been stationed in Rajin-Sonbong since last December. China is transporting natural resources from its northeastern region to the south via Rajin-Sonbong Port, which has recently been renovated.

According to China’s official Xinhua news agency on Jan. 3, China first used the port on Dec. 7, when it transported 20,000 tons of coal from a mine in Hunchun, Jilin Province to southern parts including Shanghai. There is speculation that China will supply its own electricity to Rajin-Sonbong from April.

Quoting an internal North Korean source, the online newspaper Daily NK said the North and China in December signed an investment pact on building three more piers at the port and building a highway and laying a railroad between Quanhe in Jilin and Rajin-Sonbong.

The number of Chinese people arriving in the special zone has grown as a result of the North’s quest for investment, observers said.

“The North Korean State Security has more or less stopped checking Chinese people,” another source said. “The North has apparently concluded that it is unavoidable to accept the Chinese military presence on its land to woo Chinese investment, even if it’s not happy about it.”

Read the full story here:
China to station troops in N. Korea: report
AFP
1/16/2011

According to the Choson Ilbo:

The North Korean regime appears to have started a new reign of terror to consolidate the succession of leader Kim Jong-il’s son Jong-un.

The South Korean government and a North Korean source on Wednesday said public executions more than tripled last year. And increasing numbers of North Koreans have been killed trying to cross the Apnok (or Yalu) or Duman (or Tumen) River after the regime gave a shoot-to-kill order. The party and military, meanwhile, are engulfed in a whirlwind of purges, observers believe.

Public Executions

A diplomatic source familiar with North Korean affairs Wednesday said there were 60 confirmed public executions in the North last year, more than triple the number of 2009. “Since last year, the regime has put a notice on bulletin boards warning that those who use Chinese-made mobile phones or illegally circulate dollars face public execution, the source said.

Another source familiar with North Korean affairs said, “It’s rumored that Kim Jong-un has called for ‘gunshots across the country.’ Kim Jong-il did exactly the same thing when he took power.”

Jang Se-yul of the North Korean People’s Liberation Front, a group of former North Korean soldiers and officers who defected to South Korea, said, “In Chongjin, North Hamgyong Province alone last year, at least six people were executed publicly on charges of human trafficking and robbery. People are executed publicly for crimes that would have sent them to prison for just a few years in the past.”

“The number of public executions had gradually dwindled in the North since the famine of the late 1990s,” said International security ambassador Nam Joo-hong. “But since last year, the regime has apparently relied increasingly on public executions to tighten control in the aftermath of the botched currency reform and complaints about the hereditary succession.”

‘Shoot-to-Kill’ Order Against Defectors

Observers believe the regime has issued a shoot-to-kill order against defectors. According to a high-level source in the Changbai region in the Chinese province of Jilin, five North Koreans were shot dead and two others wounded by North Korean border guards on the Chinese side of the border after they crossed the Apnok River on Dec. 14.

And the military is being purged of unreliable elements. Quoting an internal North Korean source last Saturday, Free North Korea Radio, a shortwave broadcaster in the South, said the number of inmates has soared at a labor camp under the Ministry of People’s Armed Forces in North Hamgyong Province. It said many of the inmates are former army generals who have been purged by Kim Jong-un.

The regime’s determination to tighten control is also reflected in the Workers Party’s new regulations, the first for 30 years. The regime recently added a new clause calling for all party members to abide by a new regulation requiring them “to oppose and fight against anti-socialist trends.”

A South Korean intelligence official said the phrase refers to elements of capitalism that have flowed in from South Korea. “The regime has paved the way to publicly execute even people who watch South Korean soap operas or dress in South Korean style, branding them as anti-party elements,” he said.

The Daily NK also reports some personnel changes:

North Korea has been replacing local Party officials with a younger generation since the Chosun Workers’ Party Delegates’ Conference on September 28th, in preparation for Kim Jong Eun’s ascent to power.

In particular, North Korea replaced a great many officials in November and December of last year, a source from Chongjin has revealed, bringing in new provincial, municipal, and district institution officials and industrial complex Party committee members to replace those over 60 with people in their 30s and 40s.

The source commented, “After each Party committee’s annual evaluation meeting, the replacement of officials took place,” continuing, “For the stated purpose of raising the quality of the Party to make it a ‘young, vigorous, and ambitious party’, they are replacing aged officials with younger ones. Thus, recently some officials that people wouldn’t know if they tripped over them have been appearing.”

The policy apparently stems from Kim Jong Il, who is pushing the succession process forward relatively swiftly for reasons said to include his own health and North Korea’s external political environment. Of course, it is also a strategic move on the part of Kim Jong Il, to strengthen unity around Kim Jong Eun by bringing in new blood which will henceforth owe a debt of gratitude to him.

According to the source, Party committees organized a one-month short course for such young officials in October of last year, during which instructors dispatched from Pyongyang or the provincial Party center promoted the idea that youth, vigor and ambition, alongside iron loyalty to the dictator, would be necessary tenets of future party operations.

According to the source, officials emphasized during the lecture course, “Obeying Youth Captain Kim Jong Eun and working well are the kind of faithful actions which repay the trust we receive from the General,” and, “Officials need to strengthen the Party, following on from their predecessors.”

Adding detail to the Party reshuffling; the source said that graduates of Communist Colleges older than 60 are being relieved of their positions, and graduates of Kim Il Sung Senior Party College are filling the ranks in behind.

Those who have at least two-year career as secretary of a Party cell can enter a Communist College, a provincial entity managed by the provincial committee of the Party; after graduation they can work on a provincial committee of the Party.

However, Kim Il Sung Senior Party College, the so-called Central Party College, is a more elite institution in Pyongyang charged with fostering the Party’s core workers; it admits officials with a good family background who have been working for more than two years on a provincial committee.

According to North Korean defectors, once one graduates from Central Party College, one is on the road to a comfortable life. For example, in the words of one defector with experience of the system, any North Korean official with access to a vehicle is almost certain to have graduated from Central Party College.

Accordingly, using North Hamkyung Province as an example, people in ‘powerful’ departments like factory guidance units, the Propaganda and Agitation Department of the Guidance Department of North Hamkyung Province Party Committee, the Ministry of Administration, factory and industrial complex Party committees (Guidance Department, Officials Department, Propaganda and Agitation Department, Party Member Registration Department and General Affairs Department) have been or are being replaced with graduates from the Central Party School.

Those who are being eased out are either destined for less powerful departments, the source said, citing the Party Inspections Committee or Labor Organization Department, or are being completely removed.

Quoting a common phrase relating to the holding of power, the source said that those about to be replaced are full of regret, saying, “If I had known this would happen, I would have done more to prepare for my future when I had glue on my hands.”

A similar process of replacing officials was conducted in the 1980s, prior to Kim Jong Il’s coming to power. In addition to which, this fits in with the overall propaganda rhetoric, which is justifying Kim Jong Eun’s succession by emphasizing youth and his regime’s concomitant ability to apply technology (CNC etc.) to solve North Korea’s chronic economic shortcomings.

The usual caveats apply.

Read the full story here:
N.Korean Regime Intensifies ‘Reign of Terror’
Choson Ilbo
1/13/2010

Youth, Vigor, Ambition, and Loyalty
Daily NK
Im Jeong Jin
1-12-2011

According to KBS:

South Korea says it will not re-station personnel at the inter-Korean economic cooperation office inside the Gaeseong Industrial Complex in North Korea.

An official from the Unification Ministry in Seoul said Tuesday that the decision was made as there is no work to be done at the office.

Seoul banned inter-Korean economic cooperation and trade in May of last year as part of its retaliatory measures for Pyongyang’s sinking of South Korea’s “Cheonan” naval vessel in March.

North Korea notified the South on Monday that it plans to resume operations at the economic cooperation office in the business park.

Meanwhile, the South accepted North Korea’s proposal to reopen the Red Cross communication channel at the truce village of Panmunjeom. The ministry official said that a South Korean liaison officer will answer the phone if North Korea attempts to contact the office Wednesday morning.

Read the full story here:
Seoul Will Not Send Officials to Gaeseong Office
KBS
1/11/2011

UPDATE  1 (2011-1-19): According to the Wall Street Journal:

A Chinese firm has signed a letter of intent to invest $2 billion in a North Korean industrial zone, representing one of the largest potential investments in Kim Jong Il’s authoritarian state and a challenge to U.S. policy in the region.

The agreement was signed with little fanfare in Pyongyang on Dec. 20—a day otherwise marked by pitched tension on the Korean peninsula following the North’s shelling of a South Korean island—according to documents viewed by the Wall Street Journal. Confirmation of the deal comes as Chinese President Hu Jintao visits Washington this week in a bid to forge closer security and economic ties with the U.S.

U.S. officials said the administration is aware of the possible Chinese investment, but noted that previous projects haven’t gone anywhere. “No investment project will enable North Korea to meet the needs of its people as long as its government continues its destabilizing behavior,” said a senior administration official.

The letter of intent involves China’s Shangdi Guanqun Investment Co. and North Korea’s Investment and Development Group. An assistant to the managing director of Shangdi Guanqun, who identified himself only by his surname, Han, said his company’s planned investment is focused on the Rason special economic zone, situated near North Korea’s border with Russia.

The zone was called Rajin-Sonbong when it was established in 1991, but failed to attract sufficient investment. It was revived, and re-named Rason, following a visit there in 2009 by Mr. Kim.

Mr. Han said the plan is to develop infrastructure, including docks, a power plant and roads over the next two to three years, followed by various industrial projects, including an oil refinery, over the next five to 10 years. He said the company was waiting for a response from the North Korean government before applying for approval from China’s Ministry of Commerce.

“It’s all pending at this stage, and it’s really up to the Korean side to make the decision,” Mr. Han said. He added that the $2 billion figure was what the North Korean side had hoped for, not necessarily what his company could deliver.

The company’s Web site says the company was “under the administration” of a state-owned enterprise, Shangdi Purchase-Estate Corporation. Mr. Han, however, said his company was “100 percent private.”

For the Obama administration, securing China’s cooperation in restraining North Korea’s military and nuclear-proliferation activities is a cornerstone of a warmer bilateral relationship. But the potential investment is a reminder of possible limits of Chinese cooperation.

The U.S. wants to step up sanctions to force Kim Jong Il to give up his nuclear-weapons arsenal and military activities. China, meanwhile, is increasingly promoting business projects and direct investment to influence the North, say Chinese and American analysts, arguing financial pressure hasn’t worked.

China is North Korea’s biggest trading partner and aid donor, but the scale of this deal raises concerns in Seoul that Beijing is running its own version of the “Sunshine” policy under which the South boosted investment in the North from 1998 to 2008.

This policy disconnect is expected to be one of the issues Chinese and U.S. officials discuss this week. “These types of deals pursued by China generally present a real challenge to the sanctions” being effective, said Victor Cha, a North Korea expert who helped oversee Asia policy in George W. Bush’s National Security Council. “The net effect is that it does make it more difficult for these sanctions to have the desired effect.”

Such deals have emerged in the past and have come to nothing, analysts said, and it is possible this one, too, could peter out. A number of similar North Korean economic zones have failed to live up to their billing because of poor infrastructure and corruption, and a lack of economic reform. News of the deal was first reported in the Korean-language press, including the Voice of America’s Korean service.

It is unclear how long the agreement has been in the works. But its Dec. 20 signing came on the day South Korea conducted a closely watched artillery test from Yeonpyeong Island near North Korea.

The test marked a high point in tensions after North Korea’s surprise late November shelling of Yeonpyeong, which killed four South Koreans. Pyongyang had threatened a swift military response should Seoul carry out an announced artillery test on Dec. 20. But the day’s drill came and went amid high security in the South, with the North saying in a statement it “did not feel any need to retaliate.”

Top administration officials have recently both praised and chided the Chinese over the North. On a trip to China last week, Defense Secretary Robert Gates commended the Chinese for their “constructive” role in reducing tensions on the peninsula after Pyongyang’s recent shelling of a South Korean island. Secretary of State Hillary Clinton in a Friday speech pressed China to be more aggressive in helping tamp down the North’s nuclear program.

The proposed investment is among the strongest evidence yet of China’s strategy of using direct investment rather political pressure to push for change in North Korea. Chinese experts say that after North Korea’s first nuclear test in 2006, China tried to make improved bilateral relations dependent on Pyongyang dismantling its nuclear program. But after a second test in 2009, China changed tack.

Beijing now believes, according to Chinese experts, that the North Korean regime won’t respond to political pressure and could collapse completely if China cuts off aid and investment, triggering a flood of refugees into northeastern China, and bringing U.S. troops right up to the Chinese border.

The investment strategy was cemented when China’s Premier Wen Jiabao visited North Korea in October 2009 and signed a slew of economic and trade agreements. One of those agreements was for China to fund construction of a $250 million bridge across the Yalu River that separates the two countries.

Construction of the bridge, which would link China with another North Korean special economic zone, had been slated to start in August. Local officials said in November it appeared to have been put on hold indefinitely. Now they say a ground-breaking ceremony was held Dec. 31.

U.S. officials are particularly concerned about how China’s financial links to North Korea may be facilitating Pyongyang’s weapons programs. In November, Pyongyang showed a visiting American scientist 2,000 centrifuges stationed at a cover site, drastically raising fears about the North’s ability to expand its nuclear-weapons arsenal.

“China’s increased economic support undercuts the rest of the region’s efforts to convince Pyongyang that there will be consequences for further belligerence, nuclear weapons development or transfer of nuclear capabilities,” said Michael Green, who also served as a senior official on Asia during the Bush administration.

Read the full story here:
Chinese Firm to Invest in North Korea
Wall Street Journal
Jay Soloman and Jeremy Page
2011-1-19

ORIGINAL POST (2011-1-7): According to the Joong Ang Ilbo:

A Chinese state-run company recently agreed to invest $2 billion in North Korea’s Rason free trade zone, the JoongAng Ilbo learned yesterday from documents related to the deal.

Shangdi Guanqun Investment Co., Ltd. signed a 10-point memorandum of understanding with Pyongyang’s Investment and Development Group on Dec. 20 in Beijing, the documents showed.

The signing ceremony was attended by Mi Chang, president of Shangdi Guanqun Investment, and Kim Chol-jin, president of the Investment and Development Group.

The goal of the investment, stated in the documents, is to build Rason, a northeastern North Korean city on the East Sea that borders both China and Russia, into the “biggest industrial zone in Northeast Asia” in around 10 years.

The project calls for coal-fired power plants, roads, piers and oil refineries in the North Hamgyong Province city, the documents said.

According to the documents, the deal is “a strategic joint project based on trust between high-level figures” in China and North Korea, which suggests it may have been negotiated by North Korean leader Kim Jong-il during two visits to China last year, on which he met Chinese President Hu Jintao.

The North’s economy has suffered under international sanctions on trade and financial services overseas, imposed after its nuclear weapon tests, and is desperately seeking foreign investment.

China is investing in Rason as an export base to serve markets in Japan, southern China and Southeast Asia.

Rason is a merger of two towns, Rajin and Sonbong, and was designated the first free trade zone in the North in 1991. It was promoted to a “special city,” which means it has fewer restrictions on businesses.

“We have a deep interest in North Korea’s ample natural resources,” an official of Shangdi Guanqun Investment Co., Ltd. told the JoongAng Ilbo. “To facilitate the export of natural resources [from the region], we will invest $300 million first and construct a coal-fire power plant at the coal mine and build a railway, roads, and harbors and piers [near it].”

The Chinese firm’s official said the company opened an office in Pyongyang at the end of last month.

Shangdi Guanqun Investment, established in 1995 by the Chinese government, is a trading firm specializing in oil processing, natural resources and international financial services. It is one of the key companies in China’s 12th five-year economic development plan that starts this year.

North Korea’s Investment and Development Group is in charge of developing the country’s four free trade zones. The other economic special zones are in Kaesong, Mount Kumgang and Sinuiju.

The Shangdi Guanqun Investment official said the company will build an oil refinery in Rason, where it plans to refine crude imported from the Middle East and Russia and sell the output to China or other countries.

I believe this Chinese story also relates to the same project.

Read the full story here:
China backs North’s Rason project
Joong Ang Daily
Ko Soo-suk
2011-1-7

According to Yonhap:

Despite persisting political woes, a new South Korean company has begun operating in North Korea’s border industrial complex that combines superior South Korean capital and know-how with the North’s cheap local labor, a government official said Thursday.

The company, known as DSE, completed building its factory in Kaesong in early May and is therefore exempt from the investment ban on North Korea that Seoul imposed later that month over the sinking of a South Korean warship, the Unification Ministry official said.

…

The ministry official, who spoke on customary condition of anonymity, said DSE began operating on Jan. 3 and is employing 160 North Korean workers, part of the 44,000 workforce in the Kaesong complex, to produce lighting apparatuses and other metallic products.

The number of South Korean companies operating in Kaesong now stands at 122, the official added.

…

South Korea has since sharply cut down on the number of its workers allowed to stay in Kaesong. The North, in an apparent act of desperation to revive its economy, has since called for lowering tension and holding cross-border dialogue. South Korean officials are demanding that the North first show “sincerity,” indicating Pyongyang must apologize for the series of provocations blamed on it.

Read the full story here:
New S. Korean company begins operating in N. Korean factory park
Yonhap
Sam Kim
1/6/2011

Click image to see the Chinese, Russian, and North Korean piers

UPDATE 5: No more intra-Chinese coal shipments  through Rason have been reported following this 2011 experiment.

UPDATE 4 (2011-6-4): KCNA reports some additional details on the coal being shipped from Hunchun to Shanghai via Rason. According to the article:

It was against this backdrop that China was in the process of transporting 20,000 tons of coal to Rason Port via Hunchun from May 14 and then transporting it to Shanghai by a cargo ship.

Yanbian Ribao, conveying this news on May 18, reported that the Shanghai branches of the Hunchun Mining Group and the Chungjiang Group would transport 500,000 tons of coal to Shanghai by this method this year. This would be tantamount to more than 14,000 truck loads. An official concerned of the Mining Group said that transport of loads to various provinces of Southern China by this method would help sharply cut down the time and transport charges, etc. as compared with the inland transport.

So apparently the 20,000 tonne pilot project what supposed to pave the way for a 500,000 tonne project that never materialized.

UPDATE 3 (2011-1-25): China ships coal from North Korean port for first time. According to Michael Rank:

China has for the first time shipped coal from the North Korean port of Rajin following a deal by a Chinese company to renovate the port, a Chinese website reports.

The 20,000 tonnes of coal, mined in Hunchun, about 80 km north of Rajin, was shipped to Shanghai last month. After going through customs inspection at Hunchun, it was transported by road via the Wonjeongri border post near Dumangang, the report said.

It noted how shipping the coal from Rajin saved the cost of transporting it to the nearest suitable Chinese port of Yingkou or further afield by train and how the deal to renovate and expand Rajin’s no 1 dock would help to boost trade from northeast China more generally.

It said the Dalian-based Chuangli Group reached a deal to lease the dock in 2008 and the following year agreed to renovate it and expand its capacity to one million tonnes a year, although news was not announced until last spring.

But when this reporter visited Rajin last September there was no sign of the port being renovated and expanded, and although a couple of small North Korean vessels were moored at the port, there was little sign of any activity and the area was largely deserted.

China does have ambitious hopes for Rajin, however, and last month a Chinese company, Shangdi Guanquan Investment Co, was reported to have signed a letter of intent to invest $2 billion in an industrial zone in the region.

The Wall Street Journal quoted an assistant to the managing director to Shangdi Guangqun as saying the plan was to develop infrastructure, including docks, a power plant and roads over the next two to three years, followed by various industrial projects, including an oil refinery, over the next five to 10 years. He said the company was waiting for a response from the Pyongyang government before applying for approval from China’s Ministry of Commerce.

“It’s all pending at this stage, and it’s really up to the Korean side to make the decision,” the assistant, named only as Han, said, according to the WSJ. He added that the $2 billion figure was what the North Korean side had hoped for, not necessarily what his company could deliver.

North Korea has implausible dreams of turning the city into an international freight brokerage, export processing and finance hub, and has even made a computerised promotional video about its plans to build glitzy skyscrapers along the seafront.

Photo of Rajin port here.

UPDATE 2 (2011-1-14): According to Every China:

As the first cross-border cargo ship for domestic trade in China, 10,000 tonner “Jinbo”, loaded with 21,000 tons of coal, arrived safely at Shanghai and docked steadily at the pier of Waigaoqiao Terminal at 4 p.m. on January 14. This marked the success of the maiden sail for cross-border domestic trade in our nation.

It is introduced that this 10,000 tonner Jinbo is a freight ship serving for Hunchun Chuangli Shipping Logistics Co., Ltd. of Jilin Province. There was totally 20,000 tons of coal in this cross-border transport produced by Hunchun Mining Group, departing from Hunchun Quanhe Port on December 7, 2010 to Rajin Port of North Korea and cargo concentration in port was accomplished there after one month. Special purpose vessel Jinbo ship docked at No.1 pier of Rajin Port of North Korea at 15 o clock on January 6 this year. The shipment began on 7th and the ship departed from Rajin Port at local time 10:30 on January 11 and arrived safely at the pier of Waigaoqiao Terminal, Shanghai after over 3 days voyage. Currently, related procedures for customs and inspections are in process.

Successive notices on pilot cross-border domestic trade transport in Jilin Province have been issued by General Administration of Customs, Ministry of Transport and General Administration of Quality Supervision, Inspection and Quarantine of the People s Republic of China since last year. Now, the successful arrival of the first cargo ship at the destination is an important achievement gained by Hunchun City or even Yanbian Autonomous Prefecture from implementing the forerunning policy of The Planning Outline of Cooperation in the Exploitation of Tumen River Zone, China. It is also a significant breakthrough in new international land-sea joint transport passage of Hunchun City or even Jilin Province, marking a crucial progress in the Launching out to sea through borrowed port strategy of Jilin Province.

Not only the coal resource of Hunchun City, but also that of Heilongjiang Province, closely adjacent to Yanbian area, can be transported to South China after Rajin Port exit is available. Because of the relatively low transport cost compared with that of other ports at home, this sea passage may become the Golden Passage for transporting coal from the north to the south until then.

UPDATE 1 (2011-2-22): According to the China Daily:

A city in Northeast China is aiming to import coal from the Democratic People’s Republic of Korea (DPRK) as part of its effort to establish an international coal production base in the border area.

Hunchun, a city wedged between the DPRK and Russia, has coal reserves of 1.2 billion tons, and supplies the fuel to Jilin, Liaoning, Jiangsu and Shangdong provinces. It currently produces about 6 million tons of coal annually.

“We plan to raise our production to more than 10 million tons a year by importing and exploiting coal both from the DPRK and Russia,” said a senior Hunchun city official, who declined to be named.

In January, coal was shipped for the first time from Hunchun to Shanghai via the DPRK port of Rajin, following a deal made by a Chinese company to renovate that port.

The 20,000 tons of coal mined in Hunchun reached Shanghai in three days in the transportation trial. Normally, it takes more than 10 days to transport that amount of coal by train from Hunchun to Shanghai.

“We will try to deliver coal by this new shipping route in the future, because it saved a lot of money in transportation costs,” the government officer said.

The city government also intends to transmit the electricity power generated by its coal-fired power plant to the DPRK.

China has been striving to establish an international sea route through the two countries to boost bilateral trade.

Dalian-based Chuangli Group invested 30 million yuan ($4.6 million) in improvements to Rajin last year, according to officials.

The Dalian group expanded the port’s annual shipping capacity to 1 million tons last year, after reaching a deal to lease and reconstruct it in 2009.

Hunchun officials said the city’s foreign trade volume has quadrupled in the past three years, thanks to improved international shipping.

By taking advantage of cross-border energy production and transportation, Huchun expects its coal production to rise by 22 percent during the 12th Five-Year Plan (2011-2015).

The Seoul-based Yonhap News Agency reported earlier that the DPRK plans to cooperate with Chinese enterprises on exploiting mineral resources in Hamgyeongbuk-do in the DPRK, which has about 200 million tons in coal reserves.

ORIGINAL POST (2011-1-4): Rason is being used to transport coal from Hunchun to Shanghai. According to the Choson Ilbo:

In official confirmation that closer China-North Korea business ties have come to fruition, the state-run Xinhua news agency and local media in Jilin on Monday said China has transported 20,000 tons of coal from a mine in Jilin to Shanghai and Ningbo through North Korea’s Rajin-Sonbong Port since Dec. 7.

The coal produced in Hunchun was carried by some 570 35-ton trucks across the Duman (or Tumen) River and transported to the port along a 60 km unpaved road between Hunchun and Rajin-Sonbong.

A source in Hunchun said, “Since a month ago, dozens of trucks a day have been going to the North” through Quanhe Customs Office.

The abundant coal deposits in the northeastern China are mainly used for heating homes in southern China in winter, but with no access to the East Sea, China had to transport it overland to Yingkou Port in the Bohai Bay, some 800 km to the west, incurring logistical costs.

China has long tried to get the right to use Rajin-Sonbong and Chongjin ports in North Hamgyong Province in North Korea in a bid to secure an East Sea route.

In 2009, Chuangli Group, an environmental facilities manufacturer in Dalian, obtained the right to use a pier in the Rajin-Songbong port for 10 years in collaboration with a North Korean trading company. Another Chinese firm in Tumen is also reportedly seeking the right to use Chongjin Port.

Prof. Yoon Seung-hyun of Yanbian University said Chongjin Port, has better facilities than Rajin-Sonbong. “The North is more open and aggressive” because it is groaning under international sanctions and aid from South Korea has dried up, he added.

Recent posts on Rajin (Rason) can be found here.

Read the full story here:
Chinese Shipping Through N.Korean Port in Full Swing
Choson Ilbo
2011-1-4