North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-10-18-1
10/18/2010

The majority of joint ventures investing in North Korea have suffered significant losses since the South Korean government began to enforce sanctions as a result of the sinking of the ROKS Cheonan. On average, companies have incurred losses of almost one billion won, and most companies are no longer interested in investing in the North.

According to the Korea Chamber of Commerce and Industry, a survey of 500 companies (200 inter-Korean economic cooperative schemes and 300 other companies involved in business with the North) showed that 93.9 percent of respondents said they had suffered losses due to trade restrictions put in place due to the Cheonan incident, while 66.5 percent responded that they faced “financial difficulty” due to the sanctions. The companies have suffered an average of 974 million won in losses.

Investment and operational losses due to the ‘all stop’ order from the government amounted to 51.9 percent of losses reported, while 26 percent of respondents pointed to a reduction in orders and 22.1 percent blamed an increase in transportation and other associated costs. One company importing anthracite from the North turned to China, Vietnam, Russia, and other vendors after inter-Korean trade was restricted, but due to each country’s efforts to secure its own natural resources, this year’s sales are expected to be more than 10 billion won less than that seen last year.

Another company, investing in textiles, was strategically producing hand-made works in a North Korean factory, but now production has come to a halt and it may not be able to deliver goods it has produced. A source from the factory stated, “Personnel and raw material expenses in China, Vietnam, and other countries mean that profit margins will be minimal, and there is no alternative.” The same source also stated, “Special funds were distributed from the government, but [companies] are concerned about how long they can hold out.”

As companies invested in North Korea suffer losses in the wake of the Cheonan incident, interest in North Korea investment opportunities is also waning. 82.7 percent of responding companies believe that “even if economic cooperation was normalized, there would be no new investments or continuation of existing projects,” and 76.9 percent of respondents believed that “because of the uncertainty of the North Korean system” non-economic issues would dampen investment enthusiasm. 13.7 percent stated that difficulties with transportation and other infrastructure issues would discourage investment, and 9.4 percent of respondents answered, “North Korean authorities’…interference and restrictions” would turn away foreign investors.

Among those businesses not involved in cooperative economic ventures, 41.5 percent pointed to “North Korea’s overall reform and opening,” while 22.2 percent chose “guaranteeing the security of investments and expanding domestic SOC” as being necessary to propel investment in North Korea. Another 19.7 percent answered, “security issues like North Korean denuclearization” were necessary for improvement in the investment environment.

Many also voiced concerns over the ongoing ban on inter-Korean exchanges. When asked about the impact on business if sanctions against the North were to continue, 5.18 percent of respondents stated, “opportunities for foreign investors will suffer,” while 25.6 percent responded that the North’s economic reliance on China would grow, and 22.6 percent feared that the national image would suffer due to an increase in the security risk.

63.6 percent of respondents call for strengthened protection for investors, including protection against losses as well as guarantees on operational freedoms. 20.1 percent called for easing restrictions on businesses in the Kaesong Industrial Complex, and 16.3 percent pointed to the need for more monetary support.

Even after the government’s announcement halting inter-Korean exchanges on May 24, , inter-Korean trade worth approximately 80 million USD (90 billion won) was recorded due to a number of goods with special exceptions. 639 different cases of imported goods manufactured from raw materials or parts sent to the North prior to the May 24 restrictions amounted to 31.15 million USD, while 269 cases of pre-ordered exports amounted to just over 49 million USD.

This survey was conducted from August 12 to September 1, calling or faxing 200 companies invested in inter-Korean cooperative schemes and 300 of the 1000 companies involved in sales.

The Pyongyang International Trade fair is held twice a year: once in the spring and once in the fall.  The Fall 2010 fair begins today.  It is always held at the Three Revolutions Museum in Northern Pyongyang (satellite image here).

According to KCNA:

International Trade Fair to Be Held in Pyongyang 
 
Pyongyang, October 12 (KCNA) — The 6th Pyongyang Autumn International Trade Fair will be held at the Three-revolution Exhibition from October 18 to 21.

The fair will draw some 140 companies of the Democratic People’s Republic of Korea and other countries, exhibiting more than 57,000 pieces of 2,300 kinds with electrical machinery, steel goods, electronics products, foodstuffs, daily necessities, medicines, building materials, chemical goods and rolling stocks included.

Commercial consultation and activities for exchange and economic cooperation will also be held during the fair.

According to Ryu Jong On, a section chief of the Korean International Exhibition Corporation, businesses of China, Russia, Malaysia, Mongolia, Syria, Germany, Brazil and other ten countries have already entered their names for the fair.

Tania Branigan visited Pyongyang for The Guardian and wrote a long article on North Korean culture.  Most of the information is familiar to long-time DPRK watchers, though there were a few nuggets of information I had not heard before.  I have posted these below:

But who knew that The Da Vinci Code was a hit in this strictly controlled city? That Céline Dion is a karaoke favourite? Or that the mass performances are not only a tribute to the leadership and motherland, but the way that many young people find partners?

…

Few foreigners see this city at all. Around 2,000 western tourists visited last year, plus perhaps 10 times as many Chinese visitors. The expatriate population, excluding Chinese and Russian diplomats, and including children, stands at 150.

…

There are certainly signs of change here: Air Koryo has new planes and three gleaming airport buses to ferry passengers from runway to terminal. Last week a vast new theatre opened, as did an apartment complex, although it may be destined for officials. The 105-storey Ryugyong hotel – more than two decades in construction – is finally glass-sheathed and due to open in 2012. That year will mark the 100th birthday of the country’s founder, Kim Il-sung. But it is hard to see how it can achieve its pledge to become “a great, powerful and prosperous nation” by then – even given the Stakhanovite industrial efforts lauded in its newspapers.

…

Pyongyang is lucky: no one is plump, but nor is there noticeable emaciation. Dr Andrei Lankov, associate professor at Kookmin University in Seoul, says the official income in Pyongyang is around 3,000 won a month, but many have ways of making money on the side and – unlike other North Koreans – its residents receive subsistence food rations. Most top those up at markets that are legal though never formally acknowledged (officials insist that “everything is public”). At the turn of the year, the government embarked on currency reforms to eradicate an increasingly independent group of “kiosk capitalists”. But wiping out hard-won savings caused highly unusual public discontent and even, reportedly, unrest.

You can read the full article here:
The cultural life of North Korea
The Guardian
Tania Branigan
10/15/2010

Victor Cha writes in the Washington Post:

The real problem is the system itself. Even if the young Kim is enlightened, there are three obstacles to reform. First, despotic regimes such as North Korea’s cannot survive without an ideology to justify their iron grip. And the ideology that accompanies the son’s rise appears to look backward rather than forward.

I call it “neojuche revivalism.” It is a return to the conservative and hard-line “juche” (self-reliance) ideology of the 1950s and ’60s, harking back to a day when the North was doing well relative to South Korea. Neojuche revivalism is laced with “songun” (military-first) ideology, which features the North’s emergence as a nuclear weapons state (Kim Jong Il’s one accomplishment during his rule). This revivalist ideology leaves no room for an opening-up, because it blames the past decade of poor performance on “ideological pollution” stemming from experiments with reform.

Second, true reform in the post-Kim Jong Il era would require the courage to loosen the political instruments of control that allow the regime to keep its iron grip on the people. The dilemma the young Kim faces is that he needs to reform to survive, but the process of opening up will undeniably lead to the end of his political control. This was perhaps the most important lesson North Korea learned from the end of the Cold War.

Finally, even if Kim Jong Eun is an enlightened leader who has the courage to attempt such reform, he will be dealing with a generation of institutions and people who are the most isolated in North Korean history. The generals, party officials and bureaucrats of the Cold War era were far more worldly than those of the post-Cold War years. Kim Il Sung’s generation was able to travel freely to East Bloc countries. Kim used to vacation with Communist leaders such as East Germany’s Erich Honecker and Romania’s Nicolae Ceausescu. By contrast, Kim Jong Il’s generation saw Ceausescu executed and the Chinese Communist Party almost lose power in Tiananmen Square. The generation of leadership the young son will inherit sees nothing comforting about the outside world.

The full article is worth reading here:
Without a loosened grip, reform will elude North Korea
Washington Post
Victor Cha
10/15/2010

I have added links to satellite imagery of the markets mentioned in the story as well as made one correction.

According to the Chosun Ilbo:

About 300 markets are doing lively business throughout North Korea despite the regime’s attempt to suppress them, according to data an intelligence agency submitted to Grand National Party lawmaker Yoon Sang-hyun of the National Assembly’s Foreign Affairs, Trade and Unification Committee on Wednesday.

“Markets in the North are places where goods are transacted and information is exchanged at the same time, Yoon said. “They pose a threat to a regime that is hostile to markets.”

The regime has tacitly allowed markets to expand to make up for the shortage of daily necessities in the wake of a botched currency reform and international sanctions, but they have boomed alarmingly.

Typical examples are the Tongilgori (satellite image) and Jungang (satellite image) markets in Pyongyang. The Tongilgori Market, in Rakrang District, opened in August 2003. It has three buildings and a parking lot. The Jungang Market in Jung District is a single domed building with a parking area.

There are two famous markets in South Pyongan Province: the Kangso Market (satellite image), which opened in 2004, and the Doksan Market, which opened the following year. The Doksan Market is the largest center of wholesale and retail goods in the North and has played a role as a distribution point of goods from Rajin-Sonbong, Sinuiju and Wonsan. But it was reportedly closed down during a crackdown in June last year. [I believe the article mistakes the “Doksan Market” with the “Phyongsong Market” (satellite image) which is actually the largest market in the country]

The Chaeha Market (satellite image) in Sinuiju, near the Chinese border, is a distribution point for goods imported from China. Goods bought there are distributed throughout the North.

The Hoeryong Market (satellite image) in Hoeryong, North Hamgyong Province across from China, was established by the regime to secure financial sources and put foreign goods under easy control. The regime has allowed Chinese vendors to sell goods there.

In a bid to rein in the markets, the regime set out one control policy after another, including the ban on grain transactions in the markets in October 2005, a crack-down on illegal markets in 2007, and an attempt to turn general open-air markets into farmers’ markets in late 2008, but apparently failed to achieve tangible results.

Last year, the regime banned the sale of industrial products and the circulation of foreign currency. But it had to begin relaxing the bans in February in the face of protests and violent attacks on market control officials.

“We have to pay attention to what happens in North Korean markets because that is where a change will occur first and they will be the first places where we can see the impact,” Yoon said.

Read the full story here:
Markets Booming in N.Korea
Chosun Ilbo
10/14/2010

Even when the official marketplace is closed, there is still plenty of street trading.

Click image for larger version
38°21’32.50″N, 125°29’1.18″E
Sept 9, 2009
Google Earth/GeoEye

Sinchon also appears to be getting some 2012 construction support.  The city is building a new stadium and park with open air theater and pavilion:

Click images for larger versions
38°21’16.36″N, 125°28’48.94″E
October 2, 2006 (L), Sept 9, 2010 (R)
Google Earth/GeoEye

…from the Korea IT Times:

Back in 2008, North Korean mobile operator Koryolink entered the mobile communications business to serve 126,000 subscribers, but demand far exceeded the company’s expectations. Therefore, Koryolink plans to secure enough mobile phone circuits so as to serve all the people who wish to use mobile communications services.

In addition, the Choson Sinbo, a newspaper based in Japan, reported that the number of North Korean mobile subscribers would break the 600,000 mark by the end of this year. That means just one year and four months after 3G mobile carrier Koryolink started its business in December of 2008, the number of mobile subscribers topped 120,000 as of April of this year. The mobile communications bureau of the Chosen Post said, “In 2009, base stations were put up throughout Pyongyang and communications networks have been complemented. And major highways leading to Pyongyang (e.g. Pyongyang-Hyangsan, Pyongyang-Nampo highways), major railways sections, and each province have been equipped with communications networks.

“In the future, more than half of the counties and towns will have networks with the rest scheduled to be equipped within this year” said the Chosen Post. North Korea is planning to expand mobile connectivity to the entire nation by 2012. Those who wish to use 3G services can go to mobile service centers called “Bongsaso”, pick up an application form and submit it with a payment (the price of the mobile phone plus a 50 euro subscription fee). The prices of terminals range from 110 euro to 240 euro and some mobile devices have built-in cameras. The basic mobile device is supplied by China’s Huawei Technologies.

In the future, the 3G mobile communications service will go beyond simple voice calls: Multimedia services such as TV phones and high-volume, high-speed communications will be made possible. The subscription fees, call charges and the prices of mobile phones will go down. On the hardware front, North Korea aims to develop and manufacture its own hand-held mobile phones, but at the moment, mobile phones will be imported from foreign nations, primarily from China. For now, a new production line is planned to be built by a joint venture company, which was formed by foreign capital and the Chosen Post, to assemble imported parts into finished goods.

North Korea said it would set up a nation-wide mobile communications system in order to modernize its communication system. Building an upgraded mobile communication system has been of great interest to North Korean leader Kim Jong-il, so this project is expected to gain momentum quickly. According to South Korean mobile carriers and South Korea’s Korea Communications Commission (KCC), only senior government figures are using mobile phones right now in the North. Yet the general public will soon get their hands on mobile devices.

As for the North Korean mobile communications industry, getting foreign investors can be a problem. But the real issue lies with North Korea’s poor electricity grids, which are so insufficient that anticipated high electricity demand from maintaining network facilities and charging mobile phones may not be met. Regardless, it is indeed very encouraging that the North offers 3G mobile communication services to the public. I believe that the commercialization of 3G mobile communication services would serve as a stepping stone to North Korea’s gradual reform and market opening, which are deemed to be inevitable in the end.

Read the full story below:
North Korea’s Mobile Communications Service
Korea IT Times
Choi Sung
9/30/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-09-28-1
9/28/2010

While hopes had been raised following Kim Jong Il’s recent visit to China that the North may undergo some reform and opening, an editorial in the Rodong Sinmun, newspaper of the Workers’ Party of Korea, emphasizes the prudence of following the DPRK-style ‘Juche’ Economy’, and rejecting support from foreign powers. The article, which appeared on September 18, stressed the value of Juche as the tool for reviving the economy, and stated that there was no greater sin than passing on a “crippled economy” to the next generation. It emphasized the selfishness of living well only by the support of outside powers, as this provides no sustainable economy for future generations.

The paper went on to call on North Koreans to work together, stating that “there is no time like the present, when the principle of realizing Juche stands out in its universality,” and said that it is the current trend of economic development to “develop the resources of one”s own country, and to concentrate efforts on using [domestic] materials… If we actively develop our inexhaustible resources, we can live wealthily and raise the funds necessary for the construction of an economically strong state.” After stressing the implementation of Juche and self-reliance, the newspaper added, “If we rely on our own strengths and bring in foreign capital, we can avoid the serious crisis we are now facing, or we ultimately would not be able to choose this path.”

The newspaper also emphasized that the people of North Korea, “descendants of Comrade Kim Il Sung,” must not live selfishly, and “must not retreat even half a step on the road to Juche implementation,” urging that the current state of dependence on outside technology and resources cannot be tolerated. Kim Jong Il is quoted as saying that Juche must be firmly established in every realm of construction and development “today, tomorrow, and always” as the “revolutionary spirit of revival through one’s own efforts” is lifted high, and all problems must be resolved through one’s own strength. In particular, he is quoted as emphasizing “there can be not even a little flunkeyism and reliance on the outside,” and promising that the Workers’ Party will strive “to build an independent economy based on Juche philosophy.”

It is nothing new for North Korea to call for the establishment of a Juche-driven self-reliant economy, but it is noteworthy that the Rodong Sinmun would run such an article soon after Kim Jong Il’s trip to China and China economic development was so highly lauded. Kim said during his summit with Hu Jintao at the end of last month that China’s development was “spirited” everywhere and that China had “developed quickly after reform and opening.” The Rodong Sinmun editorial is likely a result of concerns that expectations for reform and dependence on outside forces might be growing within North Korea following Kim’s remarks about Chinese growth, and that this could complicate the effort to appoint Kim Jung Eun as successor.

You can download the PDF here.

Topics discussed include:
Kim Jong Il Praises China’s Economic Advance
“NK Keen on Investment in Mining”
DPRK Pavilion Day Marked at Shanghai Expo
NGO Initiatives in DPRK: Triangle Génération Humanitaire (France)
Choson Exchangers Train NK in Finance, Economics, Law
ROK Civic Bodies Seek to Help NK Flood Victims
Seoul’s NK Trade Ban Hits ROK Firms Hard
Can North Korea embrace Chinese-style reforms?
Pyongyang Night Life Buzzing
Hamhung Makes Economic Strides
Pomhyanggi Cosmetics Enjoy Popularity
P’yang Hosts International Film Festival
New Numerical-control Machine Tool
Climate Map to Aid Agriculture
New Rice Strain Suitable for Double Cropping
Online Medical Service Working Well
NK’s New Money-Making Venture: Video Games
Day-care Center Opens for Kaesong Complex Children
Seoul to Allow More of its Citizens to Work at Kaesong

Michael Rank writes in the Guardian:

If Pyongyang is North Korea’s showpiece city – albeit an empty and forbidding place – then the country’s interior is something else altogether.

In this desolate city [Rason] 800 kilometres from the capital, the main square turns to a sea of mud in the rain, and there are no street lights so it’s impossible to avoid the puddles at night.

Rason is 50km from the border with China, over a twisting dirt track through the mountains, but it could be another planet.

The cities on the Chinese side are frenetic with activity, skyscrapers sprouting like mushrooms in the rain and traffic jams unavoidable. Rason couldn’t be more different, stuck in a Stalinist time warp. Traffic chiefly consists of ox carts and Chinese lorries. Roads are repaired by teams of workers armed with shovels and picks.

Tourists are a rarity, just 20 so far this year and none at all in 2009, according to Simon Cockerell of Beijing-based Koryo Tours, which specialises in travel to North Korea.

Officially this is a “free economic and trade zone”. In practice that special designation doesn’t appear to make much difference.

The overwhelming majority of those who do venture in are Chinese, many of them lured by the area’s only apparent growth industry – a glittering casino and hotel built by a Hong-Kong multimillionaire.

The Emperor casino was supposed to have shut its doors in 2005 after a senior Chinese transport official gambled away more than 3.5 million yuan (£340,000), much of it public money.

But a few dozen Chinese were observed gambling in the smoky windowless rooms on the top floor of the venue on a recent evening.

Near the casino there is a small island that is linked to the mainland by a short causeway where tourists can relax over a seafood lunch consisting of raw sea urchins, chargrilled octopus and squid washed down with Chinese beer.

Not that Rason is awash with produce. In the 1990s, an acute famine killed many thousands. Although the worst is over, millions continue to go hungry and in Rason a British- charity, Love North Korean Children, makes enormous efforts to ensure that children in the area get enough to eat.

The charity feeds 2,500 children a day, and the youngsters in the Hahyeon nursery school looked well nourished when this reporter visited. But George Rhee, the charity’s founder and powerhouse, stressed that without the steamed buns his bakery provides “all these children would go hungry”.

Rason’s remoteness means it is easier to evade the central government’s relentless grip and benefit from trade, legal and illicit, with nearby China.

North Korea officially maintains the fiction that all economic activity is state-run. It therefore bans foreigners from visiting private markets which help to relieve dire shortages of even staple foods.

Yet during our visit, the Guardian was encouraged to shop in the market for crab for supper, which was cooked in a local restaurant. Apart from seafood, the market also sells cigarettes and alcohol imported from China.

For travellers who like to learn about their surroundings from the locals, North Korea is probably not the best destination.

The Guardian was closely manmarked by minders and ignored by locals. Local officials have been hoping to attract more tourists to Rason by building a golf course and racetrack, but it is hard to imagine these ever materialising in such an isolated and impoverished location.

Read the full story here:
North Korea: beyond the capital lies a different world
The Guardian
Michael Rank
9/26/2010