North Korean Economy Watch

According to Yonhap:

South Korea’s level of urbanization first exceeded that of North Korea in the 1980s, and the gap may widen to 24 percentage points by 2015, data by the South Korean statistical office and the United Nations showed Sunday.

The South’s urbanization rate reached 83 percent as of 2010 while the corresponding figure for the communist North stood at 60.2 percent, giving South Korea a 22.8 percentage point lead, reports of global urbanization forecast by Statistics Korea and the U.N. showed.

The urbanization rate calculates the proportion of a country’s total population living in city areas and indicates its level of modernization or industrialization, which encourages more movement of population to cities.

North Korea showed a higher level of urbanization in 1975 with 56.7 percent, compared with the South’s 48 percent, but the difference has started to narrow since then, the reports showed. The South eclipsed the communist country in the 1980s.

The urbanization rate is forecast to reach 84.4 percent for South Korea by 2015 while the ratio for the North may only inch up to 61 percent, expanding the difference to 23.4 percentage points five years from now, according to the reports.

The growing urbanization gap is attributable to the two separated countries’ differing fates. While the South pushed for aggressive industrialization and export-led growth, the North remained closed to the global market and stayed underdeveloped.

The U.N. report also forecast the population of the South’s two major cities — Seoul and Busan — to reach 10,007,000 and 3,322,000, respectively, while the population of Pyongyang and Nampho, two main cities of the North, are expected to stand at only 2,859,000 and 1,187,000, respectively.

The two countries have technically remained at war since their 1950-53 Korean War ended in a truce, not a peace treaty.

Read the full story here:
Two Koreas’ urbanization gap likely to widen further by 2015: reports
Yonhap
1/2/2010

(Pictured above: Areas in Pyongyang where street stalls have reportedly become more numerous—via Google Earth)

Although we in the west note the proliferation of markets across the DPRK, the Daily NK reminds us that they still lack the institutions of capitalism: security of contract and property, rule of law, etc. According to the article:

Kim Sun Jung, who is a wholesaler in Pyongyang, talked to The Daily NK on Tuesday from the border region in North Korea. She said, “Wives of military officials and general workers should engage in trade in order to get by even in Pyongyang. Those who cannot get a stall in a permanent market (an allowed market, called jangmadang) sell goods in alley markets near the jangmadang, neighborhood alleys or on the banks of the Daedong River, but they always get trouble from PSM agents and community watchmen, who systematically squeeze money and goods from them.”

According to Kim, currently in the center of Pyongyang, the Pyongcheon and Jung districts on the west side of the Daedong River, and the Sunkyo, Dongdaewon and Daedong River districts on the east side, the number of street stalls set up along the river has been increasing greatly.

Traders selling goods along the river are chased every day by agents. If they are caught, they have to pay for the stalls. The cost is the same for a stall in permanent markets, 250 won per stall.

She said that, “In order to avoid paying the 250 won street tax, you often see traders clutching their goods while running this way or that way. Nowadays, agents use cell phones, so it is not so easy to get away.”

Besides the costs for a stall, agents regularly demand meat and alcohol in order to offer them to their cadres including the chairman of the PSM office. If they have not gathered as much as they want through bribes, they confiscate goods and impose fines, around 20,000 or 30,000 won, and offer the excuse that, “Trade is prohibited by those above.”

She said such despotism is directed not only at illegal trade but also at the jangmadang. She explained, “In a permanent market when the chief manager (of the market management office) comes to the site under the pretext of doing an inspection, after collecting as many goods as he wants, he leaves the market without having carried out any inspection.”

In addition, according to sources in the jangmadang, street vendors have been spreading recently. Agents help themselves to food and alcohol there without paying. The street vendors sell pork and alcohol until 11 in the evening and after agents eat there, they leave saying only, “Comrade, trade well.”

Lee Ok Rim, who sells goods in a market in Pyongsung, South Pyongan Province, explained another type of extortion, “Even though the authorities have been strictly monitoring the sale of South Korean goods, traders cannot give them up because they’re good. Accordingly, agents take advantage of this situation: they will confiscate all South Korean goods through a sudden crackdown, and then a few days later, if they get tens of thousands of won in fines, they give the goods back to the traders.”

She explained, “When wholesalers who smuggle South Korean goods through Shinuiju are caught, they must pay 100,000 won as a fine.” Once wholesalers are caught, they make the acquaintance of the agent in charge, offer bribes regularly, and then will not have any further problems in supplying South Korean goods. For agents who are in charge of monitoring wholesalers, this is a big business, so they generally put a lot of work into monitoring them because the scale of regular bribes from wholesalers is huge.”

Therefore, traders openly say that, “Agents are much higher than secretaries of the Central Committee of the Party,” according to Lee.

Read the full story here:
Bribery and Extortion Are Common in North Korean Commerce
Daily NK
Shin Joo Hyun
12/31/2010

Item number one: the DPRK’s domestically produced film camera, Hakmujong-1 (학무정-1):

This picture comes via the Russian blog “Show and Tell Pyongyang”. You can read about this camera in the original Russian here.  You can read about it in English (via Google Translate) here. This is the same blog that informed us about the DPRK’s PDA device and the DPRK’s Linux OS, Red Star.  He also has some fabulous pictures of the Kim Jong-suk Pyongyang Silk Mill here.

Item number two: DPRK’s domestic “Coke”:

This photo comes from the collection of Eric Lafforgue.  If you have not already seen his photos, please do yourself a favor and click over.

The soda is “Crabonated” which is a pretty funny typo.  Also worth noting are the lengths they have gone through to copy the Coca-Cola brand–as if they are trying to win back market-share from the foreign firm.  The colors, red, black, silver and white are the same.  The familiar cursive English “C” at the beginning of the word is a close copy.  They even tried to replicate the Coke “wave” by adding a literal wave in a similar curve along the bottom of the advert.

Item number three: DPRK caviar (Okryu Restaurant)

“Thanks to our leader Kim Jong-il we have managed to breed sturgeons.  People from Pyongyang and other provinces can come here to taste caviar and turtle meat.”

See the full video here. Here is a satellite image of the restaurant.

Item number four: Women’s fashion

Uriminzokkiri has posted a clip on DPRK women’s fashion to their Youtube account.  You can see it here.  I have blogged about women’s fashion before here and here.

Item number five: New Koryolink advert (Koryolink is the DPRK’s new 3-G mobile phone service founded by Orascom)

The video comes from this NK web page.  For South Koreans I posted it to my Youtube account.  You can see it here.

Item number six: DPRK verison of The Diary of Anne Frank

Michael Rank has scanned the introduction and uploaded it here.

Item number seven: Happy new year!

The Choson Ilbo begins this story with “Rumor has it”….

Rumor has it that China is getting directly involved in the development of North Korea’s Rajin-Sonbong Port, once the center of the UN Development Programme’s Duman (or Tumen) River project in 1991. A source in Beijing said Wednesday, “As far as I’m aware, North Korea and China’s Commerce Ministry recently signed a memorandum of understanding outlining Beijing’s investment of US$3.5 billion over five years beginning next year” in the special economic zone there. The source said China is investing in roads, ports and gas facilities in the region.

The Rajin-Sonbong area, at the mouth of the Duman River, is a strategic point of economic cooperation between the two countries, but neither bank is Chinese territory. One side is in North Korea and the other in Russia, so to get to the East Sea China had to borrow a port from either side. China did nothing about the UNDP initiative in the 1990s, but since the mid-2000s, it has set its eyes on the area.

North Korea for some reason rented out the best equipped dock there to Russia in 2008 but since last year it has been seeking investment from China to overcome dried-up aid from South Korea amid international sanctions. North Korean leader Kim Jong-il urged Chinese President Hu Jintao when he visited China in May this year to invest in the region.

But the rumor of direct investment from the Chinese government has not been confirmed. One diplomatic source in Beijing said, “I’ve heard nothing about the Chinese Commerce Ministry’s direct involvement in negotiations. It’s just one of many rumors since North Korea became active in developing the Rajin-Sonbong area.”

UPDATE from the Choson Ilbo:

Chinese officials with close ties with North Korea say the North has used to demand hard cash for business deals but is now taking a more flexible approach. The Global Times, a sister publication of the People’s Daily, published a series of reports Saturday about the Rajin-Sonbong special economic zone of North Korea.

It said street lights and neon signs powered by windmills have appeared in the region, which had earlier been pitch dark at night, while the previously ubiquitous soldiers have vanished.

North Korea allowed 4,000 Chinese residents in the area to rent commercial property and agreed to designate an area in the Rajin-Sonbong special economic zone to be jointly administered by the two countries.

North Korea had offered China to develop one or two islands in the estuary of the Apnok River on a 50-year lease, but when China demurred it apparently offered a 100-year lease and even allowed construction of golf courses and other recreational facilities.

…

Many private Chinese companies are reticent about investing in North Korea. Not only is there a lack of business laws to protect their investment, there are also too many political uncertainties. As a result, the Chinese government is not playing a very active role. In the case of the bridge across the Apnok River, North Korea apparently wanted Chinese state-run companies to take part in construction, but Beijing declined.

One source in Beijing said some Chinese companies are showing great interest in developing the Rajin-Sonbong area, but most are biding their time. “Chinese businesses still don’t seem to trust the sincerity of North Korea’s desire to open up its economy,” the source added.

Additional Information:
1. The Chinese and Russians currently lease docks at Rajin. You can see a satellite image of them here.

2. Here is more information on China’s 10-year lease of Rajin.

3. Here is information on the Yalu Islands China is reportedly leasing.

4. The Russians are also building Russian gauge railway line from the Russian border to the port in Rajin.

5. Here are all previous Rajin (Rason)posts

Read the full stories here:
Beijing ‘Pouring Money into N.Korea’s Special Economic Zone’
Choson Ilbo
12/30/2010

N.Korea’s Cross-Border Business with China Picking Up
Choson Ilbo
12/30/2010

According to the Daily NK:

Even though the price of rice is over 1,300 won per kilogram in North Korean markets, cadres and the upper class are hoarding rice and grain. This is because a rumor is spreading saying that the international community may suspend food aid to North Korea next year due to the Yeonpyeong attack so the price of rice may not drop next year.

A source from Hoiryeong, North Hamkyung Province, said that, “In the Hoiryeong Jangmadang, rice sells over for 1,300 won per kilogram. Even though it is an unreasonably higher price than in previous years, the wealthy are hoarding the rice they will consume for the next year.”

Immediately after the Yeonpyeong attack, the price of rice soared to over 1,300 won and has stayed at that level. This is because the value of the Yuan has gone up since the currency redenomination last year.

The source explained, “Despite the high price of rice, people purchase it in bulk because they believe that next year the price may not decline considering the current trend.” He added, “A rumor that we won’t receive food aid next year due to being internationally isolated has been circulated by those who get international and domestic information via foreign radio or those who have visited China for private reasons.”

The source reported that, “Based on the experiences of the last decade, people know very well that there will be no food aid from the outside world when the situation is tense like it is this year.”

“Not only those who support themselves through commerce, but also family members of officials of the National Security Agency and People’s Safety Ministry, who primarily live off the national distribution system, are spending all the money they’ve saved to buy up food. They buy reserve provisions in order not to worry about a possible suspension of the distribution system.”

According to the explanation of the source, at the time of the November 30 currency redenomination last year, those who had goods to trade did not get hit hard. Therefore, wealthy people try to obtain more food despite the high price.

Read the full story here:
The Rich Hoarding Rice
Daily NK
Yoo Gwan Hee
12/29/2010

According to the Daily NK:

North Korea’s National Security Agency (NSA) is trying to use smugglers to crack down on defectors, an inside source has revealed to The Daily NK.

The source from Yangkang Province told a Daily NK reporter on Tuesday, “The Yangkang provincial NSA office has ordered smugglers investigated recently to report those who cross the river for the purpose of going to South Korea.”

In many border regions, smugglers play the role of brokers in river-crossing defections. As of late November this year, the commission earned by a smuggler for facilitating a river crossing was about 4000 to 6000 Yuan per person. For 500 to 1000 Yuan, the smugglers were willing to convey goods back across the Yalu River, too.

The source said, “About two hundred people convicted of smuggling were called in by the NSA,” explaining that they were told, “If they report river crossers to the NSA, the NSA promised to guarantee their smuggling activities.”

The reason for the new policy, the source also explained, is that “while the government keeps strengthening border controls and orders punishment for river crossers, the number of defections is not decreasing, so they have formulated a new plan. It has met with modest early success; on December 16th, three people who were crossing the Yalu River from Huchang to Changbai (China) were arrested by the NSA.”

However, the source pointed out, “Since some smugglers are cooperating with the NSA now, the number of river crossers might decrease for a while, but it will come back to normal. Those smugglers who report to the NSA will lose customers, and those who don’t will have more.”

Read the full story here:
Smugglers Told to Shop Defectors
Daily NK
Kang Mi Jin
12/24/2010

According to Yonhap:

A pre-dawn fire completely destroyed a South Korean factory in a joint industrial complex in North Korea Friday, an official here said, citing an electricity leakage as the possible cause.

No injuries were reported from the fire that began at 2:30 a.m. at a container building and spread to a nearby factory owned by a kitchenware manufacturer, the Unification Ministry official said, asking not to be named or have the firm identified in the media.

Read the full story here:
Fire destroys S. Korean factory in N. Korea: official
Yonhap
Sam Kim
12/24/2010

According to Yonhap:

Inter-Korean trade has fallen about 30 percent this year, largely affected by South Korea’s move to cut almost all business relations with North Korea after the North sank one of its naval ships in a torpedo attack in March, the customs office said Wednesday.

According to data provided by the Korea Customs Service (KCS), trade between the two Koreas amounted to US$464 million during the January-November period, down from $649 million recorded a year earlier.

In May, a multinational team of investigators released a report saying that North Korea torpedoed the South Korean warship Cheonan on March 26 near their disputed western maritime border, killing 46 sailors. The North has denied any involvement.

In response, the Seoul government suspended almost all business relations with Pyongyang on May 24 with the exception of the industrial complex in the border town of Kaesong, where South Korean firms are doing business in cooperation with workers from the North.

South Korea’s exports to the North came to $130 million during the cited period, down 28 percent a year earlier, while imports dropped 29 percent on-year to $334 million, the data showed.

Despite such a sharp shrinkage, trade through the Kaesong industrial complex, tallied in a separate statistic, remained robust. Trade amounted to $1.31 billion during the 11-month period, up 62 percent from a year earlier.

“There have been some disruptions due to heightened geopolitical tensions but the overall number of companies operating there increased compared with a year earlier, which resulted in a hike in production,” a KCS official said.

The official said that companies in the North Korean border town numbered 121 as of November this year, up from 93 a year earlier. An economic recovery in the South also helped boost production in factories there, the official said.

South Korea is the North’s second-largest trade partner after China. A suspension of inter-Korean business would significantly impact the reclusive communist nation’s efforts to secure cash, according to experts.

The two Koreas remain technically at war as their 1950-53 conflict ended in a truce, not a peace treaty.

Read the full story here:
Inter-Korean trade falls sharply amid heightened tensions
Yonhap
12/22/2010

A reporter in China feels the last year has been a good one for the DPRK (in economic terms).  I would take issue with some parts of his article (posted below), but the time I can devote to blogging is pretty slim until the end of January (field exam for school).  You are smart enough to form your own opinions in the meantime!

Here is the full article from China Daily:

Few people know that the Democratic People’s Republic of Korea (DPRK) was a relatively prosperous country in the late 1970s and 1980s. In 1979, its grain output reached 9 million tons, increasing to 10 million tons in 1984. In fact, it used to be a rice exporter during that period.

The DPRK economy started declining in the 1990s when a lot of its resources were diverted to defense and heavy industries, seriously hindering the development of agriculture and light industries. Besides, environmental destruction damaged the rich soil, making it impossible for the country to return to its past agricultural glory.

As a result, the DPRK’s economy registered negative growth in the late 1990s, and didn’t improve until 2000.

In 2009, when the international community was still worried over its second nuclear test in May, the DPRK launched economic development campaigns such as the “150-day battle”, and vowed to make the year a turning point toward economic strength and prosperity.

Let’s see the changes in the country after more than one year of the campaigns.

This year has seen many changes in the DPRK. New technologies such as computerized numerical control have been introduced to help light industries, and more cash crops grown to raise funds or exchange them with other countries for grain.

The year has seen a remarkable increase in the number of neon lamps and lights on Pyongyang’s roads and in residential buildings. Thanks to the construction of hydropower stations such as the Huichon Power Station in Chagang province and Wonsan Youth Power Station in Kangwon province, Pyongyang and Kangwon’s Wonsan city now get relatively stable electricity supply.

A drastic change in the DPRK’s economy this year is the drop in the price of rice. The DPRK government has lowered the price of rationed rice from 46 won to 24 won a kg.

In the open market, rice price dropped from 2,000 won a kg in 2009 to 1,500 won a kg in September this year. In November, it fell further to 900 won a kg in Pyongyang’s markets.

The availability of consumer goods has increased both in variety and quantity because of more and improved supply channels. Residents now rely on goods rationed by the government, as well as those available in markets and convenience stores. More special shops are selling necessities, although they cost more than in ration shops.

Contrary to some experts’ prediction, currency reform has not created a crisis or led to economic depression in the country. In 2009, the exchange rate of the yuan to the won was 1:500. This year it is 1:200, more than doubling the purchasing power of people in the DPRK.

Moreover, even though the currency reform has shrunk people’s fortunes, most of them have not suffered economic shocks.

Several facts prove that the living standards in the DPRK have improved this year. The supply of DPRK-made beer has increased, in variety and volume both, and the country may not need to import beer anymore. A bottle of rice beer costs about 600 to 700 won. More restaurants have opened in cities, and bicycles have become common in places where they were rare to find earlier.

Even the number of cell phone users has increased – to at least 80,000 – though the 200,000 to 600,000 won needed to use a mobile phone is still high and the handsets and service need to be improved.

In more sense than one, this year has a special meaning for the DPRK, not least because it chose its next generation leader. The year marks the 65th anniversary of the ruling Labor Party, too.

Though the DPRK’s claim of building an economically prosperous country in two more years may be exaggerated, we can see some obvious changes in the country. It is opening up to the rest of the world and shifting its attention from defense to people’s welfare.

But there is no denying that the DPRK now wants to develop the economy. This will become clearer if one has followed the country’s official media. During the new year’s comment, the Korean Central News Agency used the words “improving people’s lives” 16 times, a rarity earlier. Even in 2009, the words were used only once.

The DPRK tried to increase people’s income in 2002 but failed because it didn’t have enough goods then. The high inflation that followed made things worse.

Though last year’s currency reform didn’t raise people’s income directly, it has defused the currency bubble to a large extent. And this time the supply of more goods to meet rising demands has helped the country to move forward.

The currency reform, despite some negative effects, has not only improved people’s living conditions, but also built a sound financial base for the DPRK to welcome international economic cooperation in the near future.

If time and conditions allow, economic interaction could help the DPRK maintain peace in the region. The possibility of the DPRK economy suffering a 2002-like setback, however, cannot be ruled out.

Its weak agriculture and light industries are still not in a condition to support development in the long term. Plus, it has to depend on imports for 80 percent of consumer goods in the short term.

But 2010 is still a special year for the DPRK, for it is standing at a crossroads from where it can start attracting investment because capital now holds the key.

That means opportunities for China. The market for consumer goods such as light bulbs and cell phones are expanding in the DPRK, while rising demand for other products has created a larger profit space. Besides, the DPRK could open its resource markets to raise funds.

The DPRK’s economic development is good for China’s security and overall economic cooperation in the entire region. The international community should use this opportunity to help the DPRK open up to the rest of world. That would go a long way in resolving the Korean Peninsula nuclear issue than flexing of military muscles.

Read the full story here:
DPRK at economic crossroads
China Daily
Jin Meihua
12/22/2010

On November 18, 2010, the US Treasury Department issued the following press release:

Treasury Designates Key Nodes of the Illicit Financing Network of North Korea’s Office 39

WASHINGTON – The U.S. Department of the Treasury today designated Korea Daesong Bank and Korea Daesong General Trading Corporation pursuant to Executive Order (E.O.) 13551 for being owned or controlled by Office 39 of the Korean Workers’ Party.  Office 39 is a secretive branch of the government of the Democratic People’s Republic of Korea (North Korea) that provides critical support to North Korean leadership in part through engaging in illicit economic activities and managing slush funds and generating revenues for the leadership. Office 39 was named in the Annex to E.O. 13551, issued by President Obama on August 30, 2010, in response to the U.S. government’s longstanding concerns regarding North Korea’s involvement in a range of illicit activities, many of which are conducted through government agencies and associated front companies. Korea Daesong Bank is involved in facilitating North Korea’s illicit financing projects, and Korea Daesong General Trading Corporation is used to facilitate foreign transactions on behalf of Office 39.

“Korea Daesong Bank and Korea Daesong General Trading Corporation are key components of Office 39′s financial network supporting North Korea’s illicit and dangerous activities,” said Under Secretary for Terrorism and Financial Intelligence Stuart Levey.  “Treasury will continue to use its authorities to target and disrupt the financial networks of entities involved in North Korean proliferation and other illicit activities.”

E.O. 13551 targets for sanctions individuals and entities facilitating North Korean trafficking in arms and related materiel; procurement of luxury goods; and engagement in certain illicit economic activities, such as money laundering, the counterfeiting of goods and currency, bulk cash smuggling and narcotics trafficking. As a result of today’s action, any assets of the designated entities that are within U.S. jurisdiction are frozen and U.S. persons are prohibited from conducting financial or commercial transactions with these entities.

You can learn more about the Treasury’s press release here.

Here is the US Treasury Department’s new North Korea resource page.

In response, the Daedong Credit Bank issued the following press release:

FOR IMMEDIATE RELEASE:

US Treasury Press Release 18th November 2010

London UK/Pyongyang DPRK, December 20th 2010

Daedong Credit Bank (DCB) has noted the press release of 18th November 2010 by the US Treasury and makes the following comments:

1.    Korea Daesong Bank (KDB) is a 30% shareholder in DCB.  DCB is not, and never has been, aware of any activity by KDB which is in breach of any of its obligations, domestic or international.  In particular, DCB is not aware of KDB having acted in breach of any sanctions.  DCB is not aware of any cause of concern about the conduct of KDB.

2.    KDB has no executive control of DCB.

3.    DCB is majority owned by overseas investors and is foreign-managed.

4.    DCB does not act and has never acted in breach of any of its domestic or international obligations.  DCB acts in a manner consistent with domestic and international law.

5.    DCB is apolitical and promotes foreign investment in the DPRK as a positive development.

The Daedong Credit Bank looks forward to playing a significant part in facilitating normal commercial relationships between the DPRK and the international business community.

About Daedong Credit Bank

Daedong Credit Bank is a joint venture retail bank based in Pyongyang. It was established in 1995 as “Peregrine Daesong Development Bank”. The Bank underwent a change of name and foreign ownership in 2000.

Daedong Credit Bank is the first, by fifteen years, foreign majority held bank in the DPRK. DCB considers itself a flagship successful joint venture in the DPRK, and a key part of the infrastructure needed to assist the foreign-invested ventures, which drive the country’s economic reforms.

The bank’s principal function is to offer normal “high street” banking facilities in hard currency to; foreign companies, joint ventures, international relief agencies and individuals doing legitimate business in the DPRK.

Daedong Credit Bank was the first bank in the DPRK to introduce, and vigorously implement, a comprehensive set of anti-money laundering procedures. DCB’s anti-money laundering procedure manual was introduced seven years ago, and subsequently updated based on anti-money laundering guidelines provided by the Asian Development Bank. The manual has been sent to, and accepted by, DCB’s international correspondent banks.

Daedong Credit Bank also maintains strict procedures for the detection and rejection of counterfeit bank notes; it uses regularly updated note checking machines, and has personnel with over 10 years’ of experience of handling notes. DCB have encountered and impounded the so-called ‘superdollar’ notes, proving that these notes (despite media misconceptions) are not undetectable.

The wealth of experience garnered over Daedong Credit Bank’s 15 years of successful operation is unrivaled.

Daedong Credit Bank has a significantly strong position in relation to the future economic development of the DPRK and, being the oldest established foreign invested commercial bank in the DPRK, it is the intention of the bank to capitalise on these advantages.

CONTACT INFORMATION:

Daedong Credit Bank office address in Pyongyang is:

Daedong Credit Bank
401, Potonggang Hotel
Ansan-dong
Pyongchon District
Pyongyang
Democratic People’s Republic of Korea

Phone Switchboard  +850 2 381 2228/9    ext 401
Direct line     +850 2 381 4866
Mobile          +850 193 801 8400 *
*Note, the mobile number may not be obtainable from certain countries (eg UK and Hong Kong).
Corporate Website www.daedongcreditbank.com