North Korean Economy Watch

UPDATE: According to Michael Rank:

Two power stations are under construction on the Yalu river between China and North Korea, a Chinese website reports.

They are both small plants with an installed capacity of 40,000 kilowatts and both are situated near the border town of Ji’an 集安 in southwestern Jilin province, near the border with Liaoning.

The dams are set to be finished in 2013. Negotiations concerning construction have been protracted: a preliminary agreement was reached in July 2004, followed by a further agreement in August 2008 and a final accord last January.

The Wangjianglou or Lintu 望江楼（林土）dam will be based on the Chinese side of the river with investment totalling 600 million yuan ($88 million), while the Wenyue or Changchuan 文岳（长川）dam will be based on the North Korean side with investment put at $500 million ($73 million). The report did not say how power, or costs, would be shared between the two countries.

A ceremony marking the beginning of construction was held on March 31, attended by North Korean vice-minister of electricity industry Kim Man-su and Jilin vice-governor Chen Weigen.

The plants will each produce 154 million kilowatt-hours per year. The Wangjianglou dam is 397 metres long and 16 metres high, while Wenyue is 602.7 metres long and 15.5 metres high. They are 36 and 24 km from Ji’an, respectively and are 1.5 and 5.5 km from North Korean railway stations (Rinto린토 and Mun’ak 문악 – these are the Korean names of the dams).

These dams are very small scale compared with the world’s largest dams, which run into thousands of megawatts (440 kW is just 0.44 MW).

ORIGINAL POST: According to the AFP:

China and North Korea will build two hydro-electric dams on the Yalu River that marks their border, Chinese state media reported on Thursday.

The dams will cost a total of 1.1 billion yuan (161 million dollars) and generate a combined 308 million kilowatt hours of electricity when completed, China Central Television reported.

The announcement came amid reports that North Korean leader Kim Jong-Il would soon visit China in a trip that could revive talks on ending Pyongyang’s nuclear drive.

Xinhua news agency said one dam would be built at Wangjianglou in China’s northeastern Jilin province and the other at Changchuan.

Electricity from the dams would help “drive economic growth in Jilin and North Korea,” it added.

It was not immediately clear how the two sides would share the cost of the projects or the electricity.

Construction would begin this year.

North Korea, desperately poor after decades of isolation and Stalinist economic policies, is heavily dependent on China for trade and aid.

South Korea’s government said this week there was a “high level of possibility” that Kim would pay a visit to China, the reclusive regime’s closest ally.

The South’s Yonhap news agency cited diplomatic sources saying he might leave for China as early as Thursday or Friday.

China’s foreign ministry declined to confirm the reports.

After an October visit to Pyongyang by Chinese Premier Wen Jiabao, Kim said his nation would rejoin the six-nation denuclearisation talks which the North stormed out of in April of last year.

The talks group hosts China, the two Koreas, Japan, the United States, and Russia.

Adam Cathcart offers a translation of the Xinhua dispatch:

中朝两国在鸭绿江新合建的两座水电站开工   // China and North Korea to Begin Construction on Two New Shared Hydroelectric Plants

Huanqiu Shibao, April 2, 2010 [translated by Adam Cathcart]

新华网吉林频道3月31日电(记者李双溪)31日， 中国与朝鲜在界河鸭绿江上共同建设的两座水电站开工。这两座电站总投资为11亿元人民币 ，建成后年发电量达3.08亿千瓦时。其中，望江楼(朝鲜称林土)电站计划投资6亿元，发电厂位于中方一侧，电站主要由混凝土重力坝、泄水闸、电站厂房及变电站等部分组成。On Jilin’s newschannel on 31 March, Xinhua’s reporter Li Shuangxi broadcast that China and North Korea would start joint construction on two hydropower plants in the border areas of the Yalu River. Investment on these two power plants will total 1.1 billion yuan, and the year after completion, they are projected to have a power generation capacity of 308 million kilowatts.  Among these plants are the Wangjiang Station (called Lintu by the Koreans), which is slated for 6oo million RMB of investment.   The power plant on the Chinese side will be a concrete gravity dam with a sluice gate and substation components.

[Lots of details follow on dam dimensions, projected electric output…It seems clear that China will bear all of the cost, though.]
2004年7月中朝双方审查通过了两座电站的初步设计，2006年中国有关部门批准了建设方案。2010年1月，双方在朝鲜签署了《中朝建设鸭绿江望江楼和文岳电站第九次会议纪要》，一致同意两电站开工建设。 In July 2004, China and the DPRK jointly reviewed the preliminary design of the two power stations.   In 2006, the Chinese authorities approved the construction plan.  In  January 2010, the two sides signed an agreement in North Korea known as the “Minutes of the Ninth Meeting on Sino-North Korean Construction of Yalu River Dams at Wangjianglou and Wenbing,” in which it was agreed to commence with the construction of the two power stations.

发源于长白山主峰、总长约795公里鸭绿江水能资源丰富，流经过吉林省和辽宁省。 目前在吉林省境内中朝双方已建有云峰、渭源两座水电站。 望江楼、文岳电站将成为双方共同受益的水电站，对开发鸭绿江、拉动吉林省和朝鲜的经济增长将起到积极的促进作用。Originating in the main peak of the Changbai Mountain range, with a total length of 795 km, the Yalu River is a rich resource flowing through Jilin and Liaoning provinces.  Currently, on the borders of Jilin Province, China and the DPRK have already built two jointly benefitted-from hydropower plants called Yunfeng and Weiyuan.  The Wangjianglou and Wenbing power stations will be built for of mutual benefit, developing the Yalu River, driving forward continued economic development between Jilin province and North Korea, playing a positive role.

I am not sure where these dams are going just yet.  The DPRK and China already share 4 dams across the Yalu. Here are satellite images of them (Dam 1, Dam 2, Dam 3, Dam 4).  Unfortunately I do not know the names of most of them, but Dam 2 is now known as the Suphung Dam.  It used to be called the Suiho Dam and it was bombed during the Korean war:

Read the full story here:
China, N.Korea plan Yalu hydropower dams: reports
AFP
4/1/2010

According tot he Washington Post:

Squeezed by food shortages and financial sanctions, North Korean leader Kim Jong Il appears to be reaching out to China and Chinese investors in a way that could mark an extraordinary opening in the insular nation’s shuttered economy.

Kim might soon travel to China, according to the office of South Korea’s president and U.S. officials. They cited preparations that appear to be underway in the Chinese border city of Dandong and in Beijing. The Chinese Foreign Ministry said Thursday it does not have information on whether Kim will visit China.

…

“The North is now planning to open foreign-owned factories not just in closed-off special economic zones, but in major cities like Nampo and Wonsan,” Lim said. Until now, the government has confined nearly all foreign business operations to sealed-off economic zones, such as Kaesong near the South Korean border. “The military is closely cooperating with the State Development Bank to try to increase foreign investment.”

Although the repressive power of the army and security forces remains strong, the North’s command-style economy is a ruin. There were unconfirmed reports of starvation deaths in some areas this winter.

Kim, 68, and showing the effects of a 2008 stroke, is in the early stages of handing power over to his untested 27-year-old son, Kim Jong Eun. But the legitimacy of the succession — and of the state itself — is being weakened by the growth of the markets and increased public access to foreign media.Refugee surveys show that many North Koreans blame Kim’s government for food shortages, corruption and incompetence.

…

In South Korea and China, there is widespread skepticism about North Korea’s willingness to create modern banking systems and enforce laws that allow foreign companies to operate under standardized accounting rules.

Companies that have invested in North Korean mineral ventures have complained for years of corruption and outright theft by the government.

Read the full story here:
Overtures to China may signal opening of North Korea’s economy
Washington Post
Blaine Harden
4/2/2010

Nautilus Institute Policy Forum Online 10-020A: April 1st, 2010
James E. Hoare
4/1/2010

I. Introduction

James E. Hoare was Britain’s Chargé d’Affaires to the DPRK from 2001-2002 and opened the British Embassy in Pyongyang. In this article on the Sunshine policy he writes, “Slowly, the policy was creating a group of people who could see benefits in remaining on good terms with South Korea and who had wider links with the outside world. Engagement has worked in other countries, most noticeably China, and I believe that it was beginning to work in North Korea. There was never going to be a speedy change in attitudes built up over sixty years, but stopping the process after ten was not a wise decision.”

This article was published by 38 North a web site devoted to analysis of North Korea from the U.S.-Korea Institute at SAIS. 38 North will harness the experience of long-time observers of North Korea and others who have dealt directly with North Koreans. It will also draw on other experts outside the field who might bring fresh, well, informed insights to those of us who follow North Korea.

The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Nautilus Institute. Readers should note that Nautilus seeks a diversity of views and opinions on contentious topics in order to identify common ground.

II. Article by James E. Hoare

– “Why the Sunshine Policy Made Sense”
By James E. Hoare

At a recent private meeting in London, a former senior United Nations’ official, drawing on experience relating to a wide range of countries, said that transforming a “failing” or “fragile” state was not something that could be done overnight. Those involved needed to think in terms of ten to twenty years rather than weeks or months. Regardless of whether or not one accepts the idea of the Democratic People’s Republic of Korea (DPRK or North Korea) as a failed or even fragile state-and the term is often used in some quarters-the idea that one is in for the long haul in bringing about major modifications in behavior and attitude is certainly a good one to have in mind when dealing with the DRPK. It was such an approach that marked the Republic of Korea’s policy towards the North under former Presidents Kim Dae-jung and Roh Moo-hyun.

Since the Lee Myung-bak government took office in the Republic of Korea (ROK or South Korea) in 2008, it is fashionable to dismiss the policies followed by his predecessors as an expensive failure. Sneers about “ATM diplomacy,” innuendo about Kim Dae-jung’s motives, and references to his successor Roh Moo-hyun’s naivety, are the commonplace of South Korean academic and press comment, and are heard much further afield. “Sunshine” or engagement have become terms of mockery. The Lee government has adopted a more aggressive policy towards North Korea. It has not refused assistance outright, but has couched its offers in such a way that rejection is inevitable-the most recent example is the “grand bargain” proposed in 2009 in which the DPRK must first give up its nuclear program to receive security guarantees and aid. This is then played back as evidence that the North is incorrigible and not deserving of assistance.

The Lee government’s approach is based on an incorrect assessment both of the Sunshine Policy and what went before it. “Sunshine” or “engagement” was not something that sprang from Kim Dae-jung’s fertile brain, though he certainly can be credited with refining and developing the idea. The policies pursued by Kim and Roh lay firmly within a tradition that goes back to President Park Chung Hee in the early 1970s and that was followed by all his successors to a greater or lesser degree. However, it was never easy to engage the North and it did not take much to divert earlier presidents from such a policy. Frustrated or annoyed, they eventually gave up the effort.

The difference after 1998 was that South Korea stuck to “sunshine” even when there were difficulties. Neither Kim nor Roh were starry-eyed and neither expected that the North would be changed overnight. Both responded to Pyongyang’s bad behavior with firmness. But they realized that circumstances had changed with the famine and other problems that hit North Korea in the 1990s. They also realized that for engagement to be successful, it was best to avoid rubbing in the fact that the country faced real problems. Even if the explanations offered for the problems often ignored the North Korean regime’s own part in bringing them about, there was nevertheless an acceptance that help was needed. The unprecedented appeal for outside assistance that brought in UN agencies and resident non-governmental organizations in the late 1990s showed that the South would help without preaching. No doubt the expense and complications of German reunification also gave pause for thought. If the two Germanys, which had not fought a savage war and were far richer, could not achieve a smooth reintegration, how could the two Koreas?

So Kim and Roh did not break off engagement as a result of “bad” behavior or outside criticism of “soft policies.” They accepted that it would take a long time to modify Pyongyang’s policies and that there were likely to be few expressions of thanks. Of course there was no instant transformation. But the new approach provided a window for other countries to establish relations with North Korea. In theory, it had long been the South’s policy to allow if not to encourage such relations, but the reality had been different. From 2000 onwards, that changed. Countries that had hitherto held back for fear of offending Seoul now found themselves encouraged to establish relations with Pyongyang.

Those that did so found a North Korea that seemed eager for change, although very careful about how that eagerness was expressed. But there was a readiness to do things that would have seemed improbable only ten years before. While never quite admitting that the policies pursued under Kim Il Sung and Kim Jong Il might have had defects, those of us working in the North between 2000-2002 found a willingness on the part of officials to admit that they needed assistance and that mistakes had been made. Examples included a vice-mayor who admitted that post-Korean War town planning had many defects that were only then becoming obvious. Officials were willing to admit that the country was in need of a whole range of economic and commercial skills that had hitherto been neglected. Perhaps most telling of all, a country that had responded to the changes in the former Soviet Union, Eastern Europe and China in the early 1990s by calling home all its overseas students now was most anxious to send students abroad once again.

Engagement was thus helping to open North Korean eyes to possibilities beyond juche, but unfortunately, even before the 2002 nuclear crisis, there was relatively little follow-up on these expressions of intent. Pyongyang found difficulty in matching students to the requirements of foreign universities and other training institutions. Some countries that established diplomatic relations preferred to concentrate on human rights issues to the exclusion of other matters. Since several of these were members of the European Union (EU), their approach inevitably affected the EU’s broad approach to North Korea. Even among countries that did not give predominance to human rights, goodwill was rarely transformed into sufficient funding to make a real difference.

That said, in the British case alone, we were able to fund several sessions of economics training, an English-language training program that put initially two-now four -British teachers into DPRK universities to train English teachers, and intensive English courses for a variety of North Korean officials. In addition, non-governmental bodies such as the BBC and Reuters conducted training programs for media staff in modern methods of news presentation and communication skills. Perhaps if the United States had been more supportive of its ally’s engagement policy these efforts would have made a difference. But as the relatively benign approach towards engagement of the Clinton years gave way to hostility under President George W. Bush after 2000 that too had an impact on how far countries such as Britain would support the sunshine policy.

It was South Korea’s approach to engagement that had the greatest impact. Seoul’s aid and other measures taken under the umbrella of the “sunshine” approach brought North and South into contact across many fields. During the period from 1998-2008, the North became known to South Korean citizens in a totally unprecedented way. The process had begun earlier, especially during the Roh Tae-woo presidency (1988-93), but the trickle of information about the North of those years became a flood. And it was not only information but actual contact with North Korea. For some, this meant tightly controlled tours to the Diamond Mountains (Mount Kumgang) or towards the end of the period, to Kaesong at the western end of the Demilitarized Zone. Limited though these were, they were still a glimpse into what had hitherto been unknown and feared. There were also signs that, as the North got used to the idea of such visits, it might open up a little more; the decision to allow the use of visitors’ own cars in March 2008 was one such indication, but there were several others.

Much more important were the wide range of government and non-governmental contacts. Relatively few North Koreans came South but the traffic in the other direction was enormous. On any given day, there were likely to be several thousand South Korean visitors in the North, dealing with aid, trade, cultural, educational and even religious exchanges-both the Protestant and the Roman Catholic churches in the North had regular South Korean officiating ministers as well as hymnbooks and prayer books produced in the ROK. South Korean journalists were also a not uncommon sight. Most of this activity may have been confined to Pyongyang, by not all of it was. South Koreans were visiting many parts of the country, especially in connection with agricultural assistance and other aid-related projects. Nobody was starry-eyed about these visits. South Korean visitors were watched and controlled. But they were able to learn a lot since they could speak and read Korean. If the projects agreed to at the October 2007 summit between Kim Jong-il and Roh Moo-hyun had been implemented by the incoming Lee Myung-bak government, there would have been a huge increase in these types of contacts.

No doubt engagement was expensive and sometimes the means used to bring it about were shady, but it was producing benefits. The South, and to some extent the rest of the world, now has a far better understanding of how North Korea works then it did before engagement began. Within the North, a large number of people have come to see their southern compatriots in a less hostile light and have some, even if limited, understanding of the economic and social structures of South Korea. Perhaps some of the assistance provided was diverted away from its original purpose, but enough rice and fertilizer bags reached areas far away from Pyongyang and enough people were willing to ask questions about the South to show that the impact of engagement extended beyond a small circle of ruling elite. Slowly, the policy was creating a group of people who could see benefits in remaining on good terms with South Korea and who had wider links with the outside world. Engagement has worked in other countries, most noticeably China, and I believe that it was beginning to work in North Korea. There was never going to be a speedy change in attitudes built up over sixty years, but stopping the process after ten was not a wise decision.

Aidan Foster-Carter writes in the Financial Times about some poor decision-making coming out of Pyongyang:

Great Leader? Pyongyang’s fawning hagiography not only grates, but is singularly unearned. Even by its own dim lights, North Korea’s decision-making is going from bad to worse.

Last year saw two spectacular own goals. Missile and nuclear tests were a weird way to greet a new US president ready to reach out to old foes. The predictable outcome was condemnation by the United Nations Security Council, plus sanctions on arms exports that are biting.

Domestic policy is just as disastrous. December’s currency “reform” beggars belief. Did Kim Jong-il really fail to grasp that redenomination would not cure inflation, but worsen it? Or that brazenly stealing people’s savings – beyond a paltry minimum, citizens only got 10 per cent of their money back – would finally goad his long-suffering subjects into rioting? Forced to retreat, officials even apologised. One scapegoat was sacked – and possibly shot.

By his own admission, Mr Kim does not do economics. In a speech in 1996, when famine was starting to bite, the Dear Leader whined defensively that his late father, Kim Il-sung, had told him “not to get involved in economic work, but just concentrate on the military and the party”.

That awful advice explains much. Incredibly, North Korea was once richer than the South. In today’s world, this is the contest that counts. “It’s the economy, stupid” is no mere slogan, but a law of social science.

Having taken an early lead, Kim senior threw it all away. He built the world’s fourth largest army, crippling an economy that he refused to reform, viewing liberalisation as betrayal. His own personality cult was and is a literally monumental weight of unproductive spending.

Used to milking Moscow and Beijing, in the 1970s North Korea borrowed from western banks – and promptly defaulted. That was not smart; it has had to pay cash up front ever since.

Pyongyang also resorts to less orthodox financing. In 1976 the Nordic nations expelled a dozen North Korean diplomats for trafficking cigarettes and booze. In December a Swedish court jailed two for smuggling cigarettes. More than 100 busts worldwide over 30 years, of everything from ivory and heroin to “supernotes” (fake $100 bills), leave scant doubt that this is policy.

Yet morality aside, it is stupid policy. Pariahs stay poor. North Korea could earn far more by going straight. The Kaesong Industrial Complex (KIC), where South Korean businesses employ Northern workers to make a range of goods, shows that co-operation can work. Yet Pyongyang keeps harassing it, imposing arbitrary border restrictions and demanding absurd wage hikes.

Now it threatens to seize $370m (€275m, £247m) of South Korean assets at Mount Kumgang, a tourist zone idle since a southern tourist was shot dead in 2008 and the north refused a proper investigation. Even before that, Pyongyang’s greed in extorting inflated fees from Hyundai ensured that no other chaebol has ventured north. Contrast how China has gained from Taiwanese investment.

In this catalogue of crassness, the nadir came in 1991 when the dying Soviet Union abruptly pulled the plug on its clients. All suffered, but most adapted. Cuba went for tourism; Vietnam tried cautious reform; Mongolia sold minerals. Only North Korea, bizarrely, did nothing – except watch its old system crumble. Gross domestic product plunged by half, and hunger killed up to a million. Now famine again stalks the land. The state cannot provide, yet still it seeks to suppress markets.

All this is as puzzling as it is terrible. China and Vietnam show how Asian communist states can morph towards capitalism and thrive. Kim Jong-il may fear the fate of the Soviet Union if he follows suit. True, his regime has survived – even if many of its people have not. Yet the path he is on is patently a dead end. Mr Kim’s own ill-health, and a belated bid to install his unknown third son as dauphin, only heighten uncertainty. Militant mendicancy over the nuclear issue – demanding to be paid for every tiny step towards a distant disarmament, then backsliding and trying the same trick again – will no longer wash. North Korea has run out of road; the game is finally up.

What now? A soft landing, with Mr Kim embracing peace abroad and reform at home, remains the best outcome. But if he obdurately resists change, we need a plan B. The US and South Korea have contingency plans for the north’s collapse. So does China, separately. Tacit co-ordination is urgent, lest future chaos be compounded by a clash of rival powers – as in the 1890s. Koreans have a rueful proverb: when whales fight, the shrimp’s back is broken.

But Beijing will not let it come to that. China is quietly moving into North Korea, buying up mines and ports. Some in Seoul cry colonialism, but it was they who created this vacuum by short-sightedly ditching the past decade’s “sunshine” policy of patient outreach. President Lee Myung-bak may have gained the Group of 20 chairmanship, but he has lost North Korea.

Nor will Mr Kim nuzzle docile under China’s wing, though his son might. As ever, North Korea will take others’ money and do its own thing. In early 2010 new fake “super-yuan” of high quality, very hard to detect, started appearing in China. They wouldn’t, would they?

Read the full article here:
Hermit economics hobbles Pyongyang
Financial Times
Aidan Foster-Carter
3/30/2010 

According ot the Daily NK:

The current rice price downturn in North Korea has been caused by the fact that wholesalers and individuals dumped rice and corn in bulk onto the market in order to avoid it being confiscated by the authorities, according to sources inside the country.

A source from North Hamkyung Province reported on the 26th that the rice price in Chongjin had dropped even further.

Recently, the authorities reportedly announced that food distribution would be normalized and that grain stored by individuals would be confiscated. Therefore, citizens started releasing their stored food onto the market in order to avoid confiscation, generating oversupply.

The source said on a telephone conversation with the Daily NK on the 26th, “In the Youth Park Market in Shinam-district, Chongjin, rice is now 480 won and corn 210 won per kilo.

The source said, “The Army security apparatus has been confiscating food stored by foreign currency earning organizations. It is a part of the implementation of their plan to lower food prices to state-designated levels.”

One North Korean resident told The Daily NK last week, “Prices have been fluctuating since the redenomination, but now a notice has been handed down from the Cabinet saying that prices will be stabilized by April 1. It says the Cabinet will deal with this confusion in the people’s economy.”

The source added, “In inspections by the Prosecutors Department of the Ministry of the People’s Armed Forces and Defense Security Command, foreign currency earning apparatus affiliated with military units stationed in Chongjin and another five organizations were revealed to be storing around 260 tons of grains, which was confiscated. Around 90 tons of grain stored by the No. 9 Division was also taken and managers were interrogated by the inspections group.”

With the downturn in food prices, the exchange rate in Chongjin also went down to 690 won to the dollar.

Confiscation Threat Spurs Grain Market Flood
Daily NK
Jin Hyuk Su
3/29/2010

According to Slate:

North Korean government-run restaurants have existed for years in the regions of China adjacent to the DPRK’s northern border, but the 21st century has seen an expansion of the business into other parts of Asia. In 2002, the first Southeast Asian branch of Pyongyang opened in the Cambodian tourist hub of Siem Reap, and it became an immediate hit with South Korean tour groups visiting the nearby temples of Angkor. The success of the restaurant, reportedly opened by Ho Dae-sik, the local representative of the DPRK-aligned International Taekwondo Federation, led to the opening of the Phnom Penh branch in 2003. This was followed by more elaborate establishments in Bangkok and the popular Thai beach resort of Pattaya, as well as a small branch in the Laotian capital, Vientiane.

Little is known of how the restaurants operate, but experts say they are closely linked with other overseas operations run by the reclusive regime in Pyongyang. Bertil Lintner, author of Great Leader, Dear Leader: Demystifying North Korean Under the Kim Clan, says that in the early 1990s, North Korea was hit by a severe economic crisis caused by the disruption in trading ties with its former Communist allies. At that time, both the Soviet Union and China began to demand that Pyongyang pay for imports in hard currency rather than barter goods, forcing it to open “capitalist” foreign ventures to make up funding shortfalls. He says the restaurants are part of this chain of trading companies controlled by Bureau 39, the “money making” (and money-laundering) arm of the Korean Workers’ Party.

“The restaurants are used to earn additional money for the government in Pyongyang—at the same time as they were suspected of laundering proceeds from North Korea’s more unsavory commercial activities,” he says. “Restaurants and other cash-intensive enterprises are commonly used as conduits for wads of bills, which banks otherwise would not accept as deposits.”

According to reports from defectors, the eateries are operated through a network of local middlemen who are required to remit a certain amount every year to the coffers in Pyongyang. Kim Myung Ho, a North Korean defector who ran a restaurant in northern China, reported in 2007 that each establishment, affiliated with “trading companies” operated by the government, was forced to make annual fixed payments of between $10,000 and $30,000 back to the North Korean capital. “Every year, the sum total is counted at the business headquarters in Pyongyang, but if there’s even a small default or lack of results, then the threat of evacuation is given,” Kim told reporters from the Daily NK, a North Korean news service run by exiles and human rights activists.

A year ago, the Pyongyang restaurants in Cambodia and Thailand suddenly closed their doors, only to reopen again after a six-month hiatus. Lintner cited an Asian diplomat in Bangkok saying the restaurants, like all “capitalist” enterprises, were hit hard by the global economic crisis, but locals familiar with the establishment in Phnom Penh offered another explanation. One worker at a nearby business said Pyongyang closed after a dispute with a Cambodian customer who tried to take one of its North Korean waitresses out for “drinks” after dinner.

If true, it would not be the first time. In 2006 and 2007, Daily NK reported several incidents in which waitresses from North Korean restaurants in China’s Shandong and Jilin provinces tried to defect, forcing the closure of the operations. Kim Myung Ho added that two or three DPRK security agents live onsite at each restaurant to “regulate” the workers and that any attempts at flight result in the immediate repatriation of the entire staff.

Read the full story here:
Kingdom Kim’s Culinary Outposts
Slate
Sebastian Strangio
3/27/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-03-22-1
3/22/2010

Foreign currency swaps and illegal trade are again prevalent in North Korea, despite recent currency reforms and bans on money exchanges.

Following last November’s currency reform, there has been a significant crackdown on the use of foreign currency and cross-border trade by individuals. However, reports indicate that North Korean traders continue to conduct business with outside entities, despite new regulations requiring them to remit profits through the Korean ‘Kwangson’ Bank. There has been a crack-down on unauthorized transactions, but it appears to have been ineffective.

The Korean Central Bank and Chinese People’s Bank established the Kwangson Bank in 2004 in Dandung as part of the North’s efforts to earn foreign capital. Even today, North Korean authorities rely on the Kwangson Bank to handle trade accounts, but most North Korean traders despise using the bank, and conduct most of their transactions privately, avoiding authorities. This is because the bank has a reputation for seizing the profits of private traders. The official decision to funnel foreign funds through the Kwangson Bank was part of the effort to crack down on smuggling, and was in conjunction with other currency reform efforts.

Economic reform attempts included crackdowns on illegal activity for a short time, but black market currency trade and smuggling has again become commonplace. Reform efforts were aimed at reducing unregulated and illegal trade by requiring transactions to be carried out through a government bank, but the costs associated with such a transaction further encouraged black market activity.

It also appears that currency exchange, banned as part of last year’s currency reform, is now again being allowed in order to ease rising prices and other detrimental side effects of the measures.

In North Korea, not only traders, but also average citizens are earning foreign capital through smuggling and other means. The latest reversal of policy to again allow currency exchange is seen as an attempt by authorities to sooth rising discontent within the masses.

In November of last year, North Korea implemented currency reforms and issued new notes, devaluing the currency by 100:1 and banning private holdings of foreign currency. This led North Koreans to lose faith in the value of their currency and sparked a drive on foreign monies. Now, the government appears to be implementing measures to underscore the value of the Won and to stave off inflation. Foreign visitors are allowed to again spend foreign currency and it appears that other restrictions are slowly being lifted.

According to the Daily NK:

Yun Gi Jeong, the 82-year old former Finance Director of the old Administration Council (now known as the Cabinet), has apparently been charged with resolving the crisis in the chaotic people’s economy.

Her elevation may represent an attempt to steady the ship following the disastrous currency redenomination and rumored execution of former economic boss Park Nam Ki.

The chair of a people’s unit in a neighborhood of Shinuiju told The Daily NK on Tuesday, “Prices have been fluctuating since the redenomination, but now a notice has been handed down from the Cabinet saying that they will be stabilized by April 1. It says the Cabinet will deal with this confusion in the people’s economy.”

He said that Yun Gi Jeong, who resigned her office in the Administration Council some years ago, had been brought back to the Cabinet to bring order to the chaos.

“Upon her return to the Cabinet,” the source added, “the rice price started dropping. It was over 1,500 won early March, but has now settled at around the 600 won level.”

According to his explanation, the North’s authorities intend to try and cap rising prices by April 1. The authorities released official price ceilings on February 4th; rice was 240 won and corn 130 won per kilogram, but these rapidly proved unrealistic.

Another source from North Hamkyung Province told the Daily NK yesterday, “When the rumor that they would restart distribution as normal came out, rice prices dropped drastically. As the news of Yun Gi Jeong came out, rice prices and exchange rates also went down. However, people still feel frustration at the fluctuating exchange rate.”

Yun Gi Jeong was born in Seoul in 1928 and served as the Finance Director of the Administration Council for almost 20 years from April, 1980. After her resignation in 1999 she became the President of the National Economic Institute, and is now an honorary professor at Kim Il Sung University, a member of the Party Central Committee and a delegate to the 12th Supreme People’s Assembly.

One defector who was a high official in North Korea explained to The Daily NK today, “Yun Gi Jeong is a person who Kim Il Sung was in favor of. After he died, she stepped back from the economic field.”

He added, “She tends to stick to her principles and is known to be a workaholic. Kim Jong Il presumably asked her to solve the economic problems because she is an old hand in the economic field.”

Read the full article here:
Old Guard Returns to the Economic Fold
Daily NK
Jung Kwon Ho
3/24/2010

According to the Donga Ilbo:

Ilyeon Investment Chairman Ahn Gyo-shik is nervous over Pyongyang’s latest moves. “I feel helpless since our company is rattled by external conditions, not our management’s ability,” he said.

The North has threatened to seize real estate owned by South Korean businessmen unless they visit North Korea for a land survey by Thursday. Ahn said he will cross the inter-Korean border with staff from the subcontractors of Hyundai Asan Corp. early Thursday morning.

Since launching a tour to Mount Kumgang in 2003, Ahn has built Kumgang Family Beach Hotel and a sashimi restaurant in the North. He has even served as a chairman of the Corporate Conference for South Korean Companies Doing Business at Mount Kumgang, a gathering of Hyundai Asan’s subcontractors.

In an interview with The Dong-A Ilbo yesterday, Ahn said the head of a conference member company recently died of a heart attack due to severe stress from his business in North Korea.

The suspension of the inter-Korean tours caused the late chairman’s company to teeter on the verge of bankruptcy, causing his death at age 55, Ahn said.

Ilyeon’s prospects are no better. Ahn has invested 14.7 billion won (12.9 million U.S. dollars) in his North Korea venture, including 13.4 billion won (11.8 million dollars) to build the hotel and additional facilities.

His company is six billion won (5.3 million dollars) in the red due to the suspension of the Kumgang tour. Its deficit slightly decreased in early 2007, but the killing of a South Korean tourist at Mount Kumgang in July 2008 by a North Korean soldier dealt another serious blow.

Since the shooting, Ilyeon has slashed the number of hotel staff from 119 (including North Korean workers) to three. Over the same period, Ilyeon’s office in South Korea has also downsized from 15 workers to four.

Ilyeon director Kim Rae-hyeon said, “Most member companies of the conference are almost bankrupt but cannot file for bankruptcy since their assets are in North Korea.”

On the North’s land survey Thursday, Ahn said, “Considering precedents and North Korea’s recent moves, Pyongyang is unlikely to make just empty threats. In the worst-case scenario, the North will confiscate assets held by South Korean companies after compensating South Korean investors with part of their investment.”

Worryingly, a Chinese tourist agency has released a six-day tour of both Kaesong and Mount Kumgang. This could encourage the North to deprive South Korean companies of their right to run businesses in the North.

Yang Mu-jin, a professor at the University of North Korean Studies in Seoul, said, “North Korea could mention Hyundai Asan’s underpayment of 400 million dollars as grounds to freeze assets held by South Korean companies. The North could also freeze the properties of South Korean companies, force them to recall their staff, annul existing contracts, and sign contracts with new companies.”

Other experts, however, say the North is unlikely to confiscate South Korean companies’ assets or deprive them of their exclusive right to do business.

For Thursday’s survey, Hyundai Asan said yesterday that 52 staff from 33 companies such as Hyundai Asan, its subcontractors, Korea Tourism Organization and Emerson Pacific will make the trip. Forty-eight workers from Hyundai Asan and its subcontractors had applied for their visit.

Shim Sang-jin, in charge of Mount Kumgang affairs for Hyundai Asan, will lead the group. The group will board a bus in Seoul and pass through the Customs, Immigration and Quarantine Office in Goseong County, Gangwon Province, around 9:40 a.m. Thursday.

Officials of the tourism organization will head for the North today.

And from the Choson Ilbo:

South Korean officials on Monday duly presented themselves at North Korea’s Mt. Kumgang resort after the North last week threatened to confiscate any real estate held by South Koreans unless they turned up for a survey.   

Three Korea Tourism Organization officials including its Mt. Kumgang branch chief Cha Dong-young went to North Korea through the east coast checkpoint in the afternoon.

Cha claimed the officials “are going to North Korea to conduct our own survey one day before the North’s planned survey” because the KTO has a considerable amount of property in the Mt. Kumgang area. “We’re visiting the North in a cool-headed way. We just hope that tour programs will be normalized as early as possible through dialogue between the two governments,” he added.

North Korea has become increasingly frantic to resume the lucrative tours as hard currency flow dried up amid international sanctions and the fallout from a botched currency reform late last year. Last week’s threat is only the latest in a series of attempts to bully and cajole the South into resuming the tours, which were halted after the fatal shooting of a South Korean tourist in 2008.

The KTO officials and staff from tour operator Hyundai Asan and other South Korean firms will comply with the North’s summons on Thursday. The KTO officials will stay at least until March 31 depending on how long the process takes.

The KTO invested W90 billion (US$1=W1,138) in a cultural hall and a hot spring spa in the tourist area.

“We’ve already handed documents including floor space of facilities and investment amount over to Hyundai Asan for delivery to the North,” Cha said. “We don’t think there’ll be any worst-case scenario, but we’ll find out what the North is up to once we meet North Korean officials.” 

Sixteen staffers of Hyundai Asan and other South Korean firms are to leave Seoul around on Thursday morning and return the same day. 

Yonhap asserts that the DPRK could be laying the groundwork for Chinese operators to take over.  That probably would not be good for Chinese-South Korean relations if they take over seized assets.  Of course if the Chinese bought out the South Koreans then that would be a win-win.

Here is the original story about the assets being seized. 

Here are older posts on Kumgangsan.

Read the full story here:
NK`s Seizure Threat Rattles S. Korean Investors
Donga Ilbo
3/24/2010

S.Korean Officials Respond to N.Korean Summons
Choson Ilbo
3/25/2010

According to Yonhap:

North Korea has informed South Korea of its plan to look into all of the real estate owned by South Koreans inside the scenic mountain resort along its east coast, the South’s government confirmed Thursday, as Pyongyang apparently grows impatient with Seoul’s refusal to allow its citizens to travel there.

In a recently faxed message to the South Korean government, the North’s Asia-Pacific Peace Committee, a state agency in charge of cross-border exchanges, said, “South Korean figures who possess real estate in the Mount Kumgang district should come to Mount Kumgang by March 25,” according to the Unification Ministry, which deals with inter-Korean affairs.

The North went on to say, “All assets of those who do not meet the deadline will be confiscated and they won’t be able to visit Mount Kumgang again.”

An inter-Korean tourism program to the mountain, once a cash cow for the impoverished North, has been suspended since the summer of 2008, when a female South Korean tourist was shot dead by a North Korean soldier while traveling there. A luxury hotel, a golf course, and other facilities built by the South Korean conglomerate Hyundai there have since remained idle. A similar joint tour business to the ancient city of Kaesong, just north of the two Koreas’ border, has been also halted.

North Korea, feeling the pinch of U.N. sanctions imposed for its missile and nuclear tests, has called for the South to immediately resume the tours.

In its statement issued March 4, the North Korean committee said, “We would open the door to the tour of the Kaesong area from March and that of Mount Kumgang from April.”

It said it may revoke all accords and contracts on the business unless the South stops blocking the resumption of the joint ventures.

South Korea has urged the North to first fully guarantee the safety of South Korean tourists. Related working-level talks between the two sides last month failed to yield a deal due to differences over details on a security guarantee.

The Unification Ministry expressed regret over the North’s latest threat.

“North Korea’s measure violates agreements between South and North Korean authorities, as well as between their tourism business operators,” the ministry said in a press release. “It also goes against international practice.”

It stressed the North should abide by accords with the South, and all pending issues should be resolved through dialogue.

“As the tours to Mount Kumgang and Kaesong are issues directly related with our people’s safety, there is no change in the government’s existing position that it will resume them only after the matters are settled,” it added.

Meanwhile, the head of the South Korean operator of the tours offered to resign to take responsibility for snowballing losses from the suspended businesses.

Cho Gun-shik, president of Hyundai Asan Corp., expressed his intent to step down in a statement emailed to all staff earlier Thursday, company officials said.

The Choson Ilbo has more:

In the message, North Korea said, “From March 25, North Korean authorities and experts will conduct a survey of all South Korean assets in the presence of South Korean officials concerned,” including Hyundai Asan staffers, who have assets in the area. “All South Koreans with real estate in the Mt. Kumgang area must report to the mountain by March 25,” it added.

According to the ministry, Hyundai Asan signed a lease with the North for a plot of land in Mt. Kumgang until 2052. South Korean firms have invested a total of W359.2 billion (US$1=W1,134), including W226.3 billion from Asan, in a hotel, a hot spring spa, a golf course, and a sushi restaurant there. The South Korean government owns a meeting hall for separated families opened in 2008 that cost more than W60 billion to build.

Nonetheless the threat is likely to fall on deaf ears. A South Korean security official said, “The North apparently wants South Korean firms that are in danger of losing their assets in the North to put pressure on the government, but the government won’t back down.”

A South Korean businessman operating in the Mt. Kumgang region said, “The North is threatening to seize our firms’ real estate there while talking about attracting large amounts of foreign investment. What South Korean or foreign business will make new investments in the North under these circumstances?”

Read the full stories here:
N. Korea threatens to seize S. Korean assets at Mount Kumgang
Yonhap
3/18/2010

N.Korea Ramps Up Threats Over Mt. Kumgang Tours
Choson Ilbo
3/19/2010