North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-4-4-1
4/4/2008

As smuggling scrap metal across the DPRK-PRC boarder has become widespread among North Korean residents lately, police are investigating the illegal trade, leading to the arrest of all of the residents in the border region that were involved in the smuggling. On April 1, the Daily NK quoted a source inside North Korea reporting that a group was arrested while transporting six tones of scrap metal to smuggle out to China via the highway connecting Yanggang Province’s Kabsan Town and Hyesan City, and subsequently imprisoned.

Those arrested were from ‘Unit 8’, an office in Hyesan under the direction of the People’s Trading Bureau regional office tasked with delivering and selling gold, food, oil and other goods in China and returning with materials needed in the North.

According to the source, “An order was handed down by the central government at the beginning of March to ‘come down hard on those scrap metal smugglers’, and the police and security force investigation is ongoing.” The source went on to report that in the Kumsandong Fertilizer Factory in Hyesan, “everything metal that wasn’t bolted down is gone, and only the walls of the factory remain…in the future [authorities] will punish scrap metal smugglers severely.”

It appears that scrap metal smuggling began to become popular in 2004, but these days, in the border areas, starving soldiers are using military vehicles to buy scrap metal from regions further from the border, then selling them in the Hyesan-Jangbaek border region. In the Yanggang and North Hamkyung Regions of North Korea, famine first spread in the mid-1990s, at which time emerged the presence of smugglers who quietly amassed copper, aluminum, nickel, and other metals and sold them in China. In response, North Korean authorities attempted to crack down, using public firing squads as a deterrent, but as border guards were in the pockets of smuggling residents of the border region, they became implicated in the cross-border illegal trading, and the crack downs became effectively useless.

Acheon Global Corp.  has obtained the exclusive right to use the Ryongnam Ship Repair Factory in the western port city of Nampo

The right to enable the firm to gain domestic and overseas investment in its ship repair and steel-structure manufacturing businesses in North Korea, Acheon officials said.

According to KCNA (12/29/2006), the site has been recently refurbished:

The Ryongnam Ship Repair Factory of the Democratic People’s Republic of Korea has been reconstructed on an expansion basis. The factory successfully constructed a large dock, three wharves to repair big cargo ships, a combined repair workshop, an acetylene generating workshop, oxygen generating workshop, a heavy oil power plant, a wind and solar power station over the last four years.

The newly built Dock No. 2 can repair several ships of tens of thousands of tons simultaneously.

The repair processes are automatized and controlled by computer. There are in the dock a horizontal jib crane, gantry crane and general control room. It is divided into the main sluice, operated by computer, and the middle one.

The combined repair workshop which covers the floor space of over 17,000 square meters specializes in making ship-body pipes while repairing propellers and power system.

The acetylene generating workshop does not produce any industrial spent water.

The wind and solar power station turns out stabilized electricity for the general control room, dwelling houses and cultural welfare facilities. Its expansion on a modern basis has consolidated the material and technical foundation for developing water transport.

Read the full article here:
Local firm to use N.K. ship repair yard
Yonhap
3/23/2008

The DPRK is sending a barrage of signals that it is not happy with the policy changes that are on the new South Korean government’s agenda (denuclearize and account for all nuclear activities, reform, repatriate missing South Korean citizens, etc):

1. February 25, 2008: the DPRK increases fighter jet maneuvers near the DMZ. (Source: N.K. flight maneuvers rise near border, Korea Herald, Jin Dae-woong
4/1/2008

2. March 27, 2008: the DPRK expels eleven South Korean officials from industrial zone. (Source: South Koreans kicked out of North Korea’s Kaesong industrial centre, The Times of London, Leo Lewis, (3/27/2008)

3. March 28, 2008: the DPRK test fires missles off its coast. (Source: North Korea sends a missile warning, Asia Times, Donald Kirk, 3/29/2008)

4. March 30, 2008: the DPRK issues blunt statements about deteriorating relations and suggesting complete destruction of the South if it is attacked. (Source: Pro-North Korea newspaper says relations with South at lowest since after nuclear test, Associated Press, 3/31/2008)

5. April 1, 2008: The DPRK breaks its silence on direclty challenging South Korea’s new president, labeling Lee Myung Bak a “traitor” and a “sycophant toward the U.S.” (Source: North Korea Calls South Korean President a `Traitor’, Bloomberg, 4/1/2008)

6. April 3, 2008: North Korea accuses the South Korean Navy of violating its territorial waters, “The South Korean military’s warmongers have sent three battleships deep into our territorial waters in the West Sea (Yellow Sea) at around 11:45 am (0245 GMT) on April 3,” and “South Korea’s military should clearly bear in mind that an unexpected countermeasure will follow if they continue to push battleships into (our waters) and raise tensions.” (Note here they are trying to pin the military escalation on South Korea) (Source: North Korea accuses South of entering its waters, Reuters, 4/3/2008)

7. April 3, 2008: North Korea announces it is suspending all dialogue with South Korea and closing the border to Seoul officials, its toughest action in a week of growing cross-border tensions. (North Korea cuts contacts with South, The Austrailan, Park, Chan Kyong, 4/3/2008)

8. DPRK violates NLL three times (Yonhap) 5/22/2008

Reasons not to panic:

1.  Although eleven South Korean officials have been expelled from the Kaesong Zone, Some 48 South Koreans and five North Koreans still work at a separate inter-Korean management committee overseeing the industrial zone, where about 800 South Koreans work along with more than 25,600 North Korean laborers for 69 South Korean companies.  In other words, it is still business as usual for the most part. (Source: Pro-North Korea newspaper says relations with South at lowest since after nuclear test, Associated Press, 3/31/2008)

2.  DPRK statements about about attacking the South are a response to statements aired in public by General Kim Tae-young at a National Assembly hearing on his nomination as chairman of the joint chiefs of staff where he claimed his people had plans for use any time it was deemed necessary to take out the North’s nuclear facilities. (Source: North Korea sends a missile warning, Asia Times, Donald Kirk, 3/29/2008)

3. While all of this was going on, 159 CEO’s of small- to medium-sized South Korean enterprises toured North Korea in search of investment opportunities. (Source: 159 CEOs Begin Trip to North Korea, Korea Times, Kim Sue-young, 3/19/2008)

4. Tourism to the DPRK continues unhampered.

5.  The Pyongyang International Trade fair in May is on and business delegations are still welcome.

6. April 3, 2008: The South’s unification ministry said it did not believe civilian exchanges would be affected. Two Seoul-funded projects in the North – the Kumgang resort and the Kaesong industrial complex – are major hard currency earners for the impoverished nation. (North Korea cuts contacts with South, The Austrailan, Park, Chan Kyong, 4/3/2008)

7. Inter korean trade this year is up! (Yonhap)

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-3-27-1
3/27/2008

The latest issue of the North Korean publication “Economic Research” (2008, issue no. 1) highlights the need to restructure North Korea’s trade system in order to meet the demands of the capitalist market. The journal quotes Kim Jong Il as saying, “[We] need fresh improvement, in our own manner, of the basic Socialist economy’s trade system of yesterday, meeting the current demands being faced due to the capitalist market.”

Therefore, the journal stresses, “As the socialist market crumbles, and given the demands of the capitalist market as [our] focus shifts to overseas economic relations, what is currently needed for the development of overseas trade is improvement of our own style to the trade system that can ensure large profits.

The journal goes on to recommend that, in order to meet these new demands of the international capitalist market, “the most important thing is improving the import-export system based on the foundation of an self-reliant national economy.” It states that raw materials should not be sold as-is, but rather should be turned into processed goods and then sold, that goods popular on the international market should be manufactured for export, and that niches should be chosen in which North Korean goods can dominate the international market.

However, the journal also says, “If individual offices trade with capitalists outside the scope of government controls, ‘reform’ and ‘opening’ sought by the imperialists would occur, and the nation’s economy could liberalize and capitalize…International trade must take place orderly under the uniform control and guidance of the nation.”

The journal asserts that even though a variety of offices are engaged in trade, they must first receive government permission, follow government guidelines, and operate in a government-created environment. The central government must standardize prices and designs of selected export goods from each trading company.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-3-22-1
3/22/2008

Recently, North Korea passed a measure prohibiting women younger then 49 from selling goods in markets, leading to clashes between police enforcing the rule and younger women wanting to work in markets.

The March 19th newsletter from ‘Good Friends’, an organization providing aid for North Korea, reported that on February 5th in Haeju, South Hwanghae Province, women who were not allowed to enter the local market and so were selling goods on a nearby corner physically clashed and police. This reportedly led to the arrest and detention of 9 people.

The newsletter reported, “The women held at the police station were subjected to harsh interrogation as to ‘who was the ringleader’, and after being subjected to four days of torture, one who could no longer hold out confessed to being the ringleader and was sent to a detention center, while the remaining women were all released.”

North Korean authorities announced the measure restricting women under 49 from selling goods in markets after December 1st last year, and that measure is being enforced not only in Pyongyang, but in rural areas as well.

According to Good Friends, “Just like other cities, Haeju City has received absolutely no food rations since March,” and “Women from households barely managing regular meals through market trading are being reduced to the weakest level by North Korean authorities’ prohibition on trading.”

It follows that in Haeju City, either authorities recognize that if these women can not sell in the markets their families will starve to death and so turn a blind eye to their activities, or these women, prevented from selling in markets, will continue to clash with authorities.

The newsletter also reported, “On March 3, in Chungjin City, North Hamkyung Province, organized protests by women prevented from market activities by the new regulations broke out, and Chungjin City authorities are now allowing all women, with no exception, to sell goods in markets.”

Immediately following organized protests by these women, Chungjin City officials reported the disturbances, but no policies to deal with the issue were forthcoming, and so it appears that all women, with no exception, are now allowed to conduct market activities.

Institute for Far Eastern Studies (IFES)
NK Bfrief No. 08-3-13-1
3/13/2008

International fuel and food prices are skyrocketing, while the cost of Chinese goods continues to rise, so that this so-called ‘triple-threat’ is sending shockwaves through the North Korean economy. In this year’s New Year’s Joint Editorial, North Korea championed the banner of a ‘strong and prosperous nation’, and declared that this year would focus on the economy, however this ‘triple-threat’ will likely make it extremely difficult for the North to meet its policy goals.

With oil prices peaking at over 110 USD per barrel, if these high oil prices continue, North Korea, which imports crude and refined oil from China, Russia and other countries, will face a growing import burden. In accordance with the February 13th agreement reached through six-party talks, South Korea, the United States and others will provide some heavy fuel oil, and the agreement stipulated the amount of oil to be delivered, rather than the value, so this will not be affected by rising prices. However, this oil does not cover all of the North’s needs, and as for the remaining portion, either the amount imported will have to be reduced, or the North will have no choice but to invest considerably more in fuel. In addition, as a large portion of North Korea’s oil is imported from China, Pyongyang’s trade deficit with its neighbor will also grow.

According to the Korea Trade Investment Promotion Agency (KOTRA), North Korea imported 523,000 tons of crude oil from China in 2005, 524,000 tons in 2006, and 523,000 tons last year, each year accounting for approximately 25 percent of total oil imports. North Korea’s trade deficit with China has shown a steadily growing trend, reaching 212,330,000 USD in 2004, 588,210,000 USD in 2005, and 764,170,000 USD in 2006. With grain prices also skyrocketing, and North Korea depending largely on China and Thailand for rice and other grain imports, the burden on the North’s economy is growing, and this is one factor in the instability of domestic prices in the DPRK.

According to the Chinese Customs Bureau, North Korea imported 81,041 tons of rice and 53,888 tons of corn last year, increases of 109.9 percent and 37.4 percent, respectively. North Korea’s corn, rice and oil imports from China are subject to market price controls, so that rising international prices directly affect the North’s cost burden. Last year, the price of Chinese goods rose 4.8 percent, recording the largest jump in ten years, and this trend extends to a wide variety of goods. 80 percent of disposable goods in North Korea are produced in China, and rising Chinese prices are directly reflected in North Korean import costs, which is passed on to DPRK citizens.

As North Korea emphasizes the building of its economy, it appears unlikely that residents will feel any direct effects of Pyongyang’s promise to prioritize the stability of its citizens’ livelihoods.

From Reuters…

[Naguib Sawiris, CEO] said he was “astonished” how quickly the North Korean authorities wanted the service to start and he had high hopes for business in the country.

“We firmly believe that in the next three or four years we will be having a couple of million subscribers there and we will be seeing ARPUs in the range of $12 or $15 (a month),” he added.

Sawiris said that of the $400 million the company plans to invest in North Korea over the next three years, about $200 million would probably come in the first year, with $100 million in each of the two subsequent years.

Read the full story here:
Egypt’s OT seeks 100,000 N Korean subscribers from May
Reuters
3/12/2008

In the words of Alejandro himself:

[The] Korean Friendship Association concluded its first busines [sic] delegation, headed by Mr. Alejandro Cao de Benos, Special Delegate and KFA President, in collaboration with the DPRK Committee for Cultural Relations, Ministry of Trade and the DPRK Chamber of Commerce. The group included companies from Australia, France, Spain and Lebanon in different sectors like ship building, foodstuff production, medicine, IT and infrastructure, etc. The visit was a big success and 75% of the investors signed letter of intentions and contracts. All of the participants agreed that DPR Korea has a huge potential and new market with many interesting opportunities with the lowest taxes and wages but with the most skilled, motivated workforce. The companies fullfiled [sic] all their plans and resolved the questions during the visit and they had meetings with their Korean counterparts as well as with the officials of Trade, Chamber of Commerce, Banking authorities and logistics.

They visited a Foodstuff factory,  Heavy Machinery complex, Ostrich farm as well as the ‘Kaesong Industrial Zone’ in the border with South Korea, were they had a briefing by the Director representative of Hyundai-ASAN.

After that, the investors visited a South Korean cable-making factory and a garment manufacturing plant specialized in high quality sport brands.

From KFA we congratulate the companies that concluded agreements and established Joint Ventures in the DPRK and wish them success in their projects.

From a follow up post on the KFA forum, one of the attendees appears to be Mr. Kevin Liu, head of Asian Division of London-based Exclusive Analysis.

Anyone who has spent time visiting North Korea on Google Earth will have noticed the acute shortage of trees.  I am not alone in this observation.  Dr. Lankov recently reported that South Korean tourists to Kaesong also sense this.

Donating trees to the North might sound like a particularly harmless form of aid–all the symbolism of inter-Korean cooperation without the messy politics of monitoring food aid or investment.  But the reality is far more pragmatic:

[H]elping North Korea to plant more trees is one of President Lee’s campaign pledges.

He said the South will send seedlings to the North but no details were given as to whether or when the two Koreas will meet for the forestry project.

The spokesman said when the Kyoto Protocol takes effect, the South can buy the right to emit CO2 from North Korea.(Korea Times)

The South Korean government is not alone in hoping to make money off increasing North Korea’s stock of trees.   Singaporean entrepreneur Richard Savage started a tree farm in the DPRK back in 2002:

Richard Savage kneels in the rich brown earth of a field on the outskirts of Pyongyang and reverentially spreads out the broad, green leaf of a young paulownia tree. The saplings have been in the ground for only a month but already they are a meter high; the first harvest could take place in just five years. Eyes shaded by his black cowboy hat, the Singaporean native gazes down the rows of juvenile trees, each worth thousands of dollars at maturity, with a satisfied grin. The experimental lumber crop has survived the harsh North Korean winter and is flourishing in the loamy soil. “The paulownia loves this,” he says. Glancing at another leafy plant, a new hybrid, he confides, “We’re going to let the Dear Leader name it.” (Time)

UPDATE 2002 (Via Werner Koidl):

The IHT wrote on Oct. 27th, 2006:
“Richard Savage, executive director of Maxgro, a company based in Singapore, is probably one of the most ambitious foreigners in North Korea. He is developing a hardwood plantation on 1,500 hectares, or 3,700 acres, manufactures Snow Pine cigarettes for the local market and is building an eight-story financial center in Pyongyang in a joint venture with the government and other investors.”

Even the North Korean government, though, has noticed that the forests are not as dense as they used to be.  Bradley Martin reported in Bloomberg that Kim Jong il has been pushing a reforestation program for some time:

North Korea’s deforestation program dates back to a 1961 speech by Kim Il Sung. In a mostly mountainous country, he proclaimed, “it is necessary to obtain more land through the remaking of nature.” Not only tidelands but “hills throughout the country and plateaus” should be “brought under the plough,” he said.

“The hills and mountains still had trees, and I never heard of floods,” said Hiroko Saito, a Japanese woman who moved with her Korean husband to North Korea in 1961. Her husband joined one of Kim’s vast mountain work teams in the early 1970s, said Saito, now 66 and back in Japan.

…

Following Kim’s death in 1994 — just before a flood-linked famine gripped the nation — his son and successor Kim Jong Il continued the sacrifice of forest cover until 2000, when he began encouraging reforestation. But the shift hasn’t reversed the damage, and some analysts warn that another famine, close to the scale of the 1990s disaster that may have killed millions of people, might occur as soon as next year.

The government’s agricultural policies launched a cycle of events that lead to greater and greater numbers of trees being culled.  Clearing the forests contributed to seasonal flooding.  The floods exacerbated the food shortage, and pushed people to adopt coping mechanisms to meet their minimum caloric intake for survival.  These coping mechanisms take a toll on what remains of the forests–which exacerbates the flooding.  Repeat annually. This  cycle of destruction has seemingly frustrated Mr. Kim’s plans to bring back the forests:

“For the past few years, I have been telling you to work hard afforestation and have encouraged you at every opportunity.”

“However, an forestation has not met the criteria of authorities and is not going according to plan.”

What Kim Jong Il is trying to say is that, “The reason afforestation is not working is because of the people’s reckless slash-and-burn cultivation, as well as the inefficiency of officers unable to block it.”

After the food crisis in ’95, people uprooted vines and trees to suffice their underfed diets, as well as cultivating illegal farms for food. Further, to save themselves from freezing to death, people used trees as firewood.(Daily NK)

Spontaneous coping mechanisms aside, efforts at increasing forrest cover might prove more difficult than the government expects.  Even if it resolves the food shortage (which does not seem likely in the near term), it has seemingly lost control of its technocrats who have no problem selling DPRK lumber overseas:

…Oh Moon-hyuk, branch manager of the Ruengra 888 trading company in Yunsa, North Hamkyung Province, was executed after being implicated in the smuggling of timber. The trading company was responsible for the export of timber, and operates under the control of the Party’s accounting bureau. The inside contact stated that because of this incident, North Korean authorities carried out further inspections, leading in October of last year to the dismissal of one official receiving vice-minister pay, and the broadening of the inspections nationwide. (Institute for Far Eastern Studies)

The full articles can be found here:
S. Korea to Help N. Korea Plant More Trees
Korea Times
Kim Yon-se
3/5/2008

Kims’ Clear-Cutting of Korean Forests Risks Triggering Famine
Bloomberg
Bradley Martin
Hideko Takayama
11/21/2007

Cause of Barren Mountains: Imperialism-Natural Disaster-Officers
Daily NK
Han Young Jin
3/16/2007

Institute for Far Eastern Studies (IFES)
NK Bfrief No. 08-2-5-2
2/5/2008

Light from the North?
Time
Donald MacIntyre
8/11/2002

A couple of days ago, we had an interesting exchange in the comments that I want to make sure readers have an opportiunity to see:
———————–

Werner Koidl Says: 
 
In that Asia Times report Dr. Petrov wrote:
“… Last year the Russian auto plant KamAZ opened its first assembly line in North Korea, specializing in the production of medium-size trucks named “Taebaeksan-96″. …”

I would be interested in more details about that KAMAZ truck assembly line in North Korea ! Where ?, joint venture ?, size ?
———————–

Leonid Petrov Says: 
 
Concerning the “Taebaeksan 96″ truck assembling plant, the KamAZ set it up last year (2007 or Juche 96) in the town of Pyeongseong. The terms of this deal with NK were really “friendly” and last year KamAZ was having no or very little profit. The production volume last year was very limited (45 or 48 trucks). However, it’s just the beginning of such cooperation.

There is one technician-representative from KamAZ who manages the assembling process. He stays in Pot’onggang HTL and commutes to Pyeongseong. Many North Korean drivers and technicians seem to be technically ignorant (i.e. not knowing how to change the engine oil, etc.), so they need a new technological culture to be introduced. Russians train them well and the North Koreans are grateful.
———————–

Gag Halfrunt Says:

Now that explains the brochure for the Taebaeksan 96 I’d noticed on the Korean Friendship Association’s exports page. I was wondering how anyone could be making money from sticking badges on KamAZes and trying to sell them on. In any case, the export potential for the Taebaeksan 96 must be close to zero, since anyone outside the DPRK who wants a KamAZ can buy one assembled by KamAZ itself.

Trying to drum up interest in the DPRK as an investment destination, the KFA say, “All business made directly with the government, state-owned companies. No middle agents.” This is amusing, because, on the Pyeonghwa car brochure on the KFA website, they’ve sneakily deleted Pyeonghwa’s own contact details and replaced them with the KFA’s email and web addresses. I think this qualifies them a “middle agent” standing between Pyeonghwa and any potential export customers…
———————–

Werner Koidl Says:
 
The link “brochure for the Taebaeksan 96″ given by Gag Halfrunt seems to indicate that the KamAZ Taebaeksan-96 is assembled in a joint venture with Ryongwang [Ryongbong] Trading Company of North Korea. Ryongwang Trading is also the joint venture partner of Pyeonghwa Motors (Unification Church) to assemble the “Whiparam” in Nampo. And Ryongwang Trading company is also business partner of “Kohas” company from Switzerland. And because of its connections to Ryongwang this Swiss company got in troubles with the US administration.