North Korean Economy Watch

Pictured above (Google Earth): The towns mentioned in the article below from which the Kaesong Industrial Zone could draw more labor: Pongchon (봉천), Kumchon (금천), and Phyongsan (평산).

Institute for Far Eastern Studies (IFES)
2011-10-20

According to South Korea’s Ministry of Unification (MOU), the “May 24 Sanctions” that went into effect after the sinking of the naval boat Cheonan was relaxed and began to permit the resumption of construction of businesses in the Kaesong Industrial Complex (KIC). In addition, plans to build fire stations and emergency medical facilities in the area are also currently underway.

After South Korean Grand National Party chairman Hong Jun-pyo visited KIC on September 30, 2011, the ROK government has reached the following decisions: 1) to allow the resumption of halted factory constructions; 2) to build a fire station and emergency medical facility; 3) to resume repair work for commuting roads for KIC employees; and 4) to extend the operations of commuter buses.

This means seven companies that received permits in the past to begin construction but stopped after the sanctions went into effect would be able to resume the halted construction projects.

According to the Ministry of Unification, the seven companies include three metal and machinery, three textile, and one electronic factories, taking up a total area of 103,527 square meters. The total site of production facilities of stage 1 businesses in the KIC reaches 2,171,900 square meters, in which the currently operating 123 companies take up 783,471 square meters. With the sanctions lifted, the total area of businesses in operation will reach 885,950 square meters.

In addition, five companies awaiting construction for expansion will have to wait a little longer. The authorities announced to discuss this issue at a later date, looking positively on their construction to resume shortly as well.

Also the MOU announced to push forward with the establishment of fire stations and emergency medical facilities, “to protect the properties and health of businesses and employees of the KIC. The plans to break ground for fire station will begin in mid-November and is expected to be completed by late next year.”

The layout for the KIC fire station was completed in December 2009 and 3.3 billion USD has been budgeted to fund the construction. The station will be constructed on a steel frame on a 3,305 square-meter lot with the total floor space to be around 2,182 square meters.

The Kaesong Management Committee has been operating a “fire/police station” from April 2005. But with occurrences of accidental fires since last winter, it has reinforced the number of fire engines and manpower – currently at a total of eight fire trucks and 36 fire fighters.

Medical facilities in the KIC will also be completed by the end of 2012 once the construction begins early next year. About 3 billion USD is set for this project.

Currently at the KIC, Green Doctor’s Cooperation Hospital is in charge of providing medical and health services in the KIC, with South Korea Green Doctor’s Kaesong Hospital treating the South Korean employees and North Korean Comprehensive Clinic treating the North Korean employees exclusively. The South Korea Green Doctor’s Kaesong Hospital is currently operated by volunteers at a clinic level. The hospital was in the process of improving the facilities to more than ten beds. However, this project was halted after the May 24 sanctions went in effect.

On another note, the MOU also announced that maintenance work for the road connecting Kaesong City to the KIC would begin. The road is normally used by North Korean employees of the KIC. It was also announced that the number and operation of commuter buses would increase to help with the commute. The buses operate in the 20 km radius; the plan is to increase that to 40 km. Since September 2010, the number of buses increased to 400.

There are plans to extend the service to cover the areas of Kumchon, Bongchon, and Pyongsang. However, the roads to these areas are unpaved and extension of transportation services to these areas will require negotiations with the North Korean authorities.

Although these measures will alleviate some of the problems faced by the businesses in the KIC, the MOU still stands firm on its position that North Korea must take responsibility and make formal apology for the Cheonan incident in order for a fundamental resolution of the situation to occur.

UPDATE 6 (2011-10-19): I finally received a list of companies participating in the first Rason International Trade Fair. Below is a picture of the names of participating companies listed on a display at the show and a PDF of their names (in English). I apologize for any typos:

Here is a PDF of the company names in English.

Most are obviously Chinese companies, though there appears to be at least one American company listed in the mix, White Stone Corporation Co., Inc. USA!

UPDATE 5 (2011-8-22): KCTV produced video footage from the fair.

UPDATE 4 (2011-8-25): KCNA announces the closing of the first Rason International Trade Fair:

First Rason International Trade Fair in DPRK Closes

Rason, August 25 (KCNA) — The first Rason International Trade Fair was closed with due ceremony on Thursday.

Present there were Jo Jong Ho, chairman of the Rason City People’s Committee, officials concerned and exhibitors of different countries and regions.

In a speech a speaker referred to the fact that the fair was successfully progressed and an advance was made in conformity in favor of mutual interests in economy, exchange of science and technology and trade through wide-ranging contacts.

Diplomas were awarded to the exhibitors who presented excellent goods at the closing ceremony.

UPDATE 3 (2011-8-25)): KCNA publishes a short article advertising the economic advantages of Rason:

Rason Economic, Trade Zone with Bright Prospect of Development

Pyongyang, August 25 (KCNA) — Rason City, the DPRK, is situated in an important area which can link China’s three northeast provinces and Russia’s Far East region, both full of natural resources, and many Asia-Pacific nations with each other.

Rajin, Sonbong and Ungsang ports in Rason and Chongjin Port adjacent to the area provide good conditions for transit trade for Northeast Asia and other continents.

The sea off the ports does not freeze in winter, so they are not subject to seasonal restriction.

The reconstruction projects of the Rajin-Khasan railway and Rajin Port launched in Juche 97 (2008) will make it possible to reduce the transport distance from Asia to Europe, sharply cutting down the transport fee.

The Rajin-Khasan railway will serve as a transport route between the DPRK and Russia and between Asia-Pacific and European nations.

Rason City has seafood, agricultural product and wild vegetable processing bases operated by Korean trading companies. The city also boasts of many ponds, lakes and bays favorable for fresh-water fish culture and offshore farm.

Its natural and geographical environment is suitable to an international tourist resort. There are sea-bird, seal and other animal sanctuaries in the area with beautiful islets, like Pipha and Sol.

Some foreigners have already launched business in the area and an increasing number of investors are interested in the zone.

Rason City with amazing geographical and economic conditions is likely to greatly contribute to the development and prosperity of Northeast Asian nations.

UPDATE 2 (2011-8-21): The first Rason International Trade Fair opens Monday. Some interesting information below:

Pictured above (Google Earth): The Rason International Trade Fair Exhibition Hall (See in Google Maps here)

Also, a reader sent in this promotional flyer which is full of information on the trade fair:

See images of the flyer here: Part 1, Part 2, Part 3.

Video footage of the trade fair can be seen here.

UPDATE 1 (2011-8-17): The First “Rason International Product Exhibition” to be Held in Rajin-Sonbong Special Economic Zone
Institute for Far Eastern Studies (IFES)

Rajin-Sonbong or “Rason Special Economic Zone” is a co-development project developed by North Korea and China. The Rason SEZ International Product Exhibition is scheduled to take place from August 22nd to 25th — an exhibition targeted to attract foreign investors to the region.

According to the KCNA article released on August 14, “The exhibition will display a wide array of items from various countries including vehicles, pharmaceutical and clothing products.” It was said that the exhibition promises be an important event to encourage cooperation and exchange with various countries in trade, economic and science, and technology sectors.

This event is expected to not only bring Chinese but also European and other foreign companies into the economic zone, pushing investment into the area.

There is also talk of developing Rason into an international tourism zone to attract tourists from China, Russia, and Japan.

After the closing ceremony of the exhibition, visits to Rajin Harbor, Mangyongbong ferry, and the amusement park are scheduled in order to provide sightseeing tours for the participants to the exhibition.

Mangyongbong ferry, well-known in the past for transporting North Koreans living in Japan back to North Korea, is gaining special attention itself as a new tourist attraction. This cargo-passenger ferry is expected to be utilized further for tourism in the near future, including bringing Chinese tourists from Dairen and other harbors in China to Nampo Harbor close to Pyongyang.

In the late 1950s, Mangyongbong ferry began to shuttle North Koreans in Japan from Niigata Harbor to Wonsan Harbor near Pyongyang. From 1984, it was used to transport cargo into Japan, but this was halted in 2006 due to economic sanctions against North Korea which followed in response to North Korea’s missile and nuclear tests.

There are two ferries in North Korea with the name Mangyongbong. The Mangyongbong-92 will be introduced in Rajin Harbor to maximize the demonstration effect. The Mangyongbong, weighing 3,500 tons, is much smaller and older and inadequate to be used as a ferry.

The Mangyongbong-92 was built in 1992 to commemorate the 80th birthday of Kim Il Sung. The ship was built with funds collected from Chongryon (i.e., the General Association of Korean Residents in Japan). It was estimated to cost over 4 billion JPY at the time, weighing about 9,700 ton with a capacity to hold 350 passengers.

On another note, the fourteenth annual Pyongyang Spring International Product Exhibition held this May hosted over 280 companies from 10 countries. 100 Chinese companies participated in the exhibition. Since then, Chinese corporations from Liaoning and Dandong are reported to have placed contract orders worth 800,000 USD.

ORIGINAL POST (2011-8-15):

Pictured above (Google Earth): Rason geographic border (in red) and security perimeter fence (Yellow).

According to KCNA:

First Rason International Trade Fair to Be Held

Pyongyang, August 14 (KCNA) — The first Rason International Trade Fair will be held in the DPRK from August 22 to 25.

Vehicles, medicines, garments, etc. presented by companies of different countries and regions including the DPRK will be displayed at the fair.

The fair will contribute to boosting cooperation and exchange among countries and regions in fields of trade, economy, science and technology.

The DPRK is no stranger to trade fairs. By my calculations, the DPRK has hosted the Pyongyang Spring International Trade Fair since 1998 and the Pyongyang Autumn International Trade Fair since 2005. These events, which draw vendors from across the planet, are held at the Three Revolutions Exhibition in Pyongyang.

This is the first trade fair of which I am aware that is being held outside of Pyongyang. The Rajin-Sonbong area was the site of the DPRK’s first experiment with special economic zones. Although it did not generate the expected level of interest, North Korean authorities are hoping that this time around they will be able to capitalize on their proximity to the Chinese market (see here and here).

Additional Information:

1. Previous posts on Rason here.

2. Previous Posts on the Pyongyang International Trade Fair here.

3. The Chinese have been upgrading the road that links the Rason port with the Chinese border.

4. A few days ago I posted a preliminary list of DPRK trade companies published in Foreign Trade magazine. I imagine that more than one of them will have a presence at the trade fair.

Institute for Far Eastern Studies (IFES)
2011-10-5

Dai Yulin, secretary of the Dandong Committee of the Communist Party of China, said in his interview with the China Daily on September 28 that concrete plans for the joint development projects between China and North Korea in the Hwanggumpyong and Rajin-Sonbong regions will be announced at the end of the year.

This past June, Dai stated both countries agreement to jointly develop Hwanggumpyong and Rajin-Sonbong as an economic development zone and reported smooth progress in its plans.

According to Secretary Dai, “The joint management committee between China and North Korea has already been formed to promote the Hamggumpyong development project. Both countries are getting up steam to advance the project.”

In addition Dai explained, “China has secured 10 square kilometers of national land to be used to support the joint development of Hamggumpyong.” He also added, “A think tank comprised of 72 experts was also established to advise and buttress the project.”

When DPRK Cabinet Premier Choe Yong Rim visited China last month, Dai commented, “Choe’s visit to China is underlined with North Korea’s strong interest in economic reform. All the high level officials in the economic sectors accompanied him on the trip.”

While visiting China for five days, Choe met with Premier Wen Jiabao and expressed strong motivation for strengthening trade and cooperation with China, especially to improve its infrastructure. He stated, “For those Chinese companies investing in North Korea, we will provide special accommodations to encourage more investments.” In response, Wen Jiabao commented, “China will do all it can to support North Korea, so that they may seek development method most appropriate for them.”

After the meeting between the two top officials, the two nations came to an agreement to cooperate in trade, investment, and infrastructure, resources and agriculture development.

Prior to meeting with Wen, Choe visited Lanxing Chemical Industrial Machine Co. After he paid his courtesy visit to President Hu Jintao of China in Beijing, he continued to make economic related visits to Baoshan Steel Group, Bailian Xijiao Goods Purchasing Center, and industrial facilities in Jiangsu Province.

After North Korea designated Hwanggumpyong Island as a free trade zone, China has signed a 50 year-lease agreement to develop the island. Despite being a “joint development” in name, in actuality, China has the exclusive development rights based on Chinese capital.

However, North Korea is requesting for revision of the name to “co-development between China and the DPRK,” a request that China is expressing some uneasiness over. The initial agreement was to “lease Hwanggumpyong Islands to China,” which gave exclusive and autonomous development and management rights to China in the zone.

China has articulated on many occasions the Hwanggumpyong project must be strictly based on market principles and expressed apprehension that Chinese businesses may be unwilling to invest in the area if North Korea continues to pursue to change it as a joint development.

Pictured above (Google Earth): Kaesong Industrial Zone (Sept. 2009)

According to Reuters:

South Korea said on Tuesday it will allow 120 of its firms to restart building a joint industrial park with North Korea, a fresh sign of tensions between the rival countries easing.

Construction of five factories can resume, and work to build seven new ones can go ahead, South Korea’s Unification Ministry said, 17 months after stopping activity in protest at what the South said was an attack by the North on one of its ships.

The South Korean firms employ about 46,000 North Korean workers at the Kaesong industrial park to make clothes, utensils and watches, taking advantage of cheaper labour and property than is available in the South.

According to the Choson Ilbo:

[The Ministry of Unification] will also build a fire station and hospital at the complex, repair a highway linking the city of Kaesong with the industrial complex, and add 45 buses to shuttle North Korean workers to and from the facility.

Previous posts on the Kaesong Zone can be found here.

Read the full story here:
S.Korea allows work at factories in North to restart
Reuters
2011-10-11

According to Yonhap:

North Korea is expanding travel routes between China and its scenic resort in Mount Kumgang, a source familiar with the North said Monday, indicating Pyongyang’s continued efforts to earn much-needed cash from Chinese tourists.

The new routes will include extra flights from Chinese cities to Mount Kumgang on North Korea’s east coast, in addition to trains and expressways linking Beijing to the mountain resort via Pyongyang, the source said on condition of anonymity.

The move comes after North Korea recently ran a trial cruise from its northeastern port city of Rajin to Mount Kumgang.

The source also said more than 100 Chinese tourists traveled to the resort on a five-day itinerary at the end of last month.

By the end of this month, North Korea is planning to launch a tour program to Mount Kumgang from China’s northeastern city of Harbin, although it is not clear whether the flight will land in Pyongyang or at a military airport on the mountain, the source said.

North Korea is reported to be considering converting a military airfield near the resort to a civilian airport to facilitate travel to the area.

“Starting with Harbin, (North Korea) plans to operate flights for Mount Kumgang from 16 cities across China, including Beijing, Shenyang and Guangzhou,” the source said.

“They also plan to attract Chinese visitors by opening a railway and expressway linking Beijing, Pyongyang and Mount Kumgang,” the source added, saying the first train tour on the route will likely be in April.

The move comes amid a dispute over the handling of South Korean assets at the resort. Seoul halted an inter-Korean joint tour program to the resort in 2008 following the shooting death of a South Korean tourist in the area.

In protest, North Korea recently expelled South Korean workers from the resort and vowed to legally dispose of all South Korean assets there. The tour program had served as a cash cow for the impoverished North.

South Korea has asked foreign countries not to invest or engage in tourism activities at the resort in a bid to protect its property rights there.

Previous posts on Kumgang here.

Read the full story here:
N. Korea expands travel routes for Chinese tourists: source
Yonhap
2011-10-3

Institute for Far Eastern Studies (IFES)
2011-9-21

The minimum monthly wage at the Rajin-Sonbong (Rason) Economic and Trade Zone has been set at 80 USD.

The Rason Economic and Trade Zone is a joint development project between China and the DPRK. Recently, a booklet on the “Tax Policy in the Rason Economic and Trade Zone” was published by Rason city’s tax bureau to introduce the zone’s tax policy to foreign investors. The booklet designates the monthly minimum wage for local employees at 80 USD.

The Rason Economic and Trade Zone Law was revised in January 2010, handing to local Rason authorities the jurisdiction to decide on the minimum wage for the North Korean workers working for foreign companies in the region.

With wages in China rising, Chinese firms are tending to look at Vietnam and Indonesia to build factories. The Rason Economic Zone is also becoming an attractive alternative, especially for those investors from companies situated in China’s northeastern provinces.

The monthly minimum wage at Rason will be 25.3 percent higher than the Kaesong Industrial Complex (KIC), which is set at 63.814 USD. However, the minimum wage at Rason still remains below half of the minimum wage of workers in China. According to the (South) Korea Trade-Investment Promotion Agency (KOTRA), the monthly minimum wage in China is 167 USD.

The booklet also provides detailed descriptions of tax related information in the Rason area.

For buildings obtained with one’s own funds, property tax will be exempted for five years. It will also be possible to make inheritance tax payments in installments, if it exceeds 20,000 Euros.

The corporate income tax rates range from 10 to 14 percent. Those companies that invest over 30 million Euros will be exempt from income tax for four years from the year they record a profit. Afterward for the next three years they will receive a 50 percent tax reduction. Other taxes such as sales and transaction taxes are set at 0.6 to 5 and 0.3 to 2.5 percent.

In addition, tax payments are permitted at banks and the tax bureau directly.

Kim Jong Il made a visit to Rason in 2009 where he announced to focus on three main sectors to revive the North Korean economy: manufacturing, transportation, and tourism.

According to a North Korean authority, “Investing in labor intensive industries will be profitable in many ways. Many Chinese and even Taiwanese textile companies are expressing interest in building factories in the Rason area.”

In addition, Rason authorities expressed future plans to attract businesses in the tools, shipbuilding, automobile, and high-tech industries, and are making great efforts to attract foreign investments to the area by promoting the zone’s geographical proximity to China and Russia, cheap labor, and tax benefits.

Additional Information:
1. Read more about the Rason tax and wage policies here.

2. Read previous posts on the Rason Zone here.

Institute for Far Eastern Studies (IFES)
2011-9-14

At the seventh China Jilin and Northeast Asia Investment and Trade Expo (NEASIAEXPO), the North Korean delegation actively promoted the Rajin-Sonbong (Rajin) Economic and Trade Zone to attract investment.

During the expo, the DPRK’s Ministry of Trade and China’s Ministry of Commerce and People’s Government of Jilin Province co-sponsored the “(North) Korean Business Day and China-DPRK Trade and Investment Session” at the Changchun International Conference and Exhibition Center on September 7. Hwang Chol-nam, the vice mayor of Rason City, briefed the attendees on the current situation, advantages, and special benefits of his city.

According to Hwang, “The spacious 470 square-kilometer Rason Economic and Trade Zone is one of the largest economic trade zones,” and advertised the geographic and economic advantages of Rason as the “transportation hub of Northeast Asia that connects China and Russia via Tumen River and with Japan across the East Sea.”

He also introduced the three ports in the region. “Rajin Port is equipped with the annual loading capacity of 3 million ton and Sonbong Harbor is able to transport 2 to 3 million ton of oil while Ungsang Harbor is able to handle up to 600,000 cubic-meter of lumber annually.” He also boasted the ports to be deep enough where it does not freeze during the winter.

Rason was also introduced to have received the “special city” designation in 2010 and will grow to have a population of one million. The recently amended “Law on the Rason Economic and Trade Zone” was revised and supplement with over 50 articles.

Hwang also elaborated on the eight preferential policies providing special tax benefits to foreign investors. He asserted, “The government of North Korea will guarantee the investment of the foreign investors by not nationalizing or demanding requisitions. For inevitable cases where such demands occur, proper compensation will be provided.”

The income tax is also at 14 percent, which is 11 percent lower than other areas in North Korea. For companies with business plans over ten years, foreign capital companies will receive three years of tax-free benefit starting from the profit earning year and two years thereon after will receive 50 percent tax-free benefits. According to Hwang, over 100 foreign companies and offices are operating businesses currently in the special economic zone.

He also announced that the current highway construction project connecting Rajin with Wonjung is expected to be completed in October, and that the Tumen-Rajin port railway system is to be upgraded to a broad gauge railway next month.

Specifically, Russian Railways reached an agreement with North Korea to repair the Hasan-Rajin Railway and improve the Rajin port facilities, especially focusing on Pier 3. The plans include upgrading Rajin as a container harbor to be capable of transporting twenty-foot equivalent units annually. Russia and the DPRK have already conducted measurement and geological surveys and reached the process design phase.

However, Seo Gil-bok, the DPRK’s vice minister of commerce, stated in a speech that North Korea would “actively work hard to make the Rason region a successful collaboration between the DPRK and China,” saying further that they would “pull out all the stops to realize the goals agreed by the best leaders from both nations.”

Many foreign media and correspondents were present at the event to cover the “Korean Business Day.” At the event, North Korea actively promoted the Rason Economic and Trade Zone by also presenting a promotional video of the zone.

Pictured above: (L) satellite image of the Rajin Market, (R) a ground-level photo taken in 1999

Among the the flurry of activities that comprised the DPRK’s recent public relations campaign in Rason (Rajin-Sonbong), the Rajin Market appeared on the itineraries of a few visiting delegates. Alexa Olsen writes about the market for the Associated Press:

Chinese travel agents, potential investors and foreign journalists recently traveled into the North to get a look at the special economic zone Pyongyang is promoting in Rason. It lies in the far northeastern tip of North Korea, 600 miles (1,000 kilometers) from Pyongyang, but will be about an hour’s drive from China once the road is completed.

Rumbling Chinese cargo trucks already ply the route, churning up plumes of choking dust and ferrying containers of Chinese-made shoes, plastic toys, computer speakers, T-shirts and DVDs to the Rason Free Trade Market.

The market, a 13-year-old experiment in small-scale capitalism, has been so successful that the Chinese managing company, the Tianyu Group, is planning to expand the jam-packed 54,000-square-foot (5,000-square-meter) market to 320,000 square feet (30,000 square meters), Tianyu vice director Zheng Zhexi said.

“As I see it, this is the way of economic development, and it’s something that the people want,” Zheng said. “I think it’s reached a point where it cannot be reversed.”

North Korea declared the area a special economic zone 20 years ago. But after a brief flurry of activity and funding from the U.N. Development Program, the project languished without backing from Pyongyang’s leadership.

…

Rason has benefited from the shift in Pyongyang’s priorities. When Zheng arrived in 1997 to set up the market, people were hesitant to get involved. Now Tianyu doesn’t have the space to approve even a fraction of the applications from prospective vendors, he said.

“Ordinary people’s sense and the awareness of the market, and their views on the economy — all these have changed a lot,” Zheng said.

Foreign journalists, who typically are barred from local markets, were taken on a strictly controlled, 15-minute tour. No photos, no notes, the guide instructed: “Just use your eyes.”

Vendors, mostly women, stood behind stands loaded with freshly skinned rabbit and live chickens, as well as goods mostly imported from China: blouses, speakers, refrigerators, sofas, shampoo, playing cards, binoculars.

High heels went for 25 yuan (US$4), a Kim Jong Il-style beige suit for 85 yuan ($13) and a container of sea salt for 3 yuan ($0.47).

North Korean tour guide Mun Ho Yong, 25, said his family shops at the market several times a week to supplement state rations of rice, oil and fish.

Everything Mun wore — striped dress shirt, belt, polyester trousers and black dress shoes — was bought at the market except his pin of late President Kim Il Sung attached to his shirt, over his heart.

One major challenge will be to successfully leap from the market’s small-scale commerce to full-fledged manufacturing and trade.

(UPDATE) In an article published later in the New York Times (2011-10-12):

A Chinese company critical to Rason’s development, the Yanbian Tianyu International Trade Company, got involved here 13 years ago. It began by erecting the bazaar, then built the casino, a hospital, a bread factory and a telecommunications building. It is now working on a cement factory, and operates two iron mines.

“The policy environment has been improving continuously,” said Zheng Zhexi, 58, the company’s vice president. “It’s moving towards a market economy.”

He pointed to the official tolerance for the bazaar, where merchants rent stalls from the government to sell goods that they buy from Chinese traders. Prices fluctuate and shoppers haggle. The bazaar has proved so successful that it is expanding to six times the current size.

These kinds of markets have sprung up all over the country to supplement the government’s weak food distribution system. Still, the government is sensitive to their capitalist nature, and some top officials have tried to set limits on them. Foreign journalists were permitted a 15-minute tour of the Rason market on the condition that they not photograph it or take notes.

The market, open just a few hours each day, was bustling, with goods like skinned rabbits, sofas, Sony headphones and Dell computer mice. A soldier with a Kalashnikov slung over his back walked among the aisles, looking to buy, and women running stalls wore red vests, the uniform of officially registered merchants.

In one corner was an office with the English words “Foreign Exchange” above the door. In Rason, currency is exchanged at the market rate — one Chinese renminbi to 350 North Korea won — rather than at the official rate, which values one renminbi at 15 won.

Additional Information:

1. Previous posts on Rason can be found here.

2. Additional information can be found here.

3. Source:
Tending a Small Patch of Capitalism
New York Times
Edward Wong
2011-10-12

China has reportedly agreed to provide electricity to the Rason special economic zone, and the minimum wage investors can expect to pay the North Korean government to employ North Korean citizens qill be approximately US$80.

According to the Korea Times:

China has agreed to provide electricity to a special economic zone in North Korea’s northeast, a source said Tuesday.

The agreement to provide power to the Rason economic zone was signed between Jang Song-thaek, vice chairman of the North’s powerful National Defense Commission, and China’s Commerce Minister Chen Deming, during an economic meeting on June 8, the source said.

The source cited Chinese officials familiar with the project.

The project calls for laying high-voltage power distribution lines between the Chinese border city of Hunchun and the North’s city of Rajin as well as building a thermal power plant in Rason, the source said.

Construction for the power lines is likely to begin soon while the two sides are in talks to work out details for the envisioned power plant, the source said.

“Power is an important infrastructure in developing the Rason special economic zone,” said Cho Bong Hyun, an expert at the Seoul-based IBK Economic Research Institute. “China’s agreement to provide power increases the chances of the zone’s success.”

The North designated Rason as a special economic zone in 1991 and has since striven to develop it into a regional transportation hub, though no major progress has been made. (Yonhap)

According to Yonhap:

The minimum monthly wage for workers at a North Korean special economic zone has been set at US$80, a source familiar with the reclusive state said Thursday, a small enough sum that could attract Chinese firms to invest there.

North Korea designated Rason as a special economic zone in 1991 with the aim of developing it into a regional transportation hub. Amid few signs of progress, the country broke ground in June on a joint project to develop it into an economic and trade zone with China. The northeastern port city borders both China and Russia.

“According to a booklet I obtained on the tax policy of the Rason economic and trade zone, the minimum monthly wage for workers is $80,” said the source, who spoke on the condition of anonymity.

Under a North Korean law for the Rason economic zone, revised in January last year, the minimum monthly wage for local employees at foreign firms is set jointly by the employer and the municipal authorities.

The amount is higher than the $63.814 recently set as the minimum wage for North Korean workers at the inter-Korean industrial park in Kaesong, the North’s western city bordering South Korea, but less than the average salary of Chinese workers. According to the South’s state-run Korea Trade-Investment Promotion Agency (KOTRA), Chinese workers are paid a minimum of $167 per month.

Experts say this wage gap could attract Chinese investors to Rason, as they have already started showing signs of relocating operations to Vietnam, Indonesia and other countries with cheaper labor than China.

The booklet also contains details of Rason’s tax policy, including a five-year property tax exemption for buildings purchased through private funds and a corporate income tax rate of up to 14 percent, according to the source.

“The booklet was made by Rason’s tax bureau in July-August to introduce foreigners to its tax policy,” the source said.

And according to the Institute for Far Eastern Studies (IFES):

Hwang also elaborated on the eight preferential policies providing special tax benefits to foreign investors. He asserted, “The government of North Korea will guarantee the investment of the foreign investors by not nationalizing or demanding requisitions. For inevitable cases where such demands occur, proper compensation will be provided.”

The income tax is also at 14 percent, which is 11 percent lower than other areas in North Korea. For companies with business plans over ten years, foreign capital companies will receive three years of tax-free benefit starting from the profit earning year and two years thereon after will receive 50 percent tax-free benefits. According to Hwang, over 100 foreign companies and offices are operating businesses currently in the special economic zone.

Read the full stories here:
China agrees to provide power to NK’s Rason economic zone
Korea Times
2011-9-13

Minimum wage at N. Korean special economic zone set at US$80: source
Yonhap
2011-9-8

According to Yonahp:

South Korean firms operating at an inter-Korean industrial complex have asked the government to grant a grace period for their debt repayments, saying the two Koreas’ strained political relations have adversely affected their business, officials at the complex said Wednesday.

The officials said an association of South Korean firms at the factory park collected signatures from some 40 firms operating there and submitted the request to the Ministry of Unification last week. The ministry is tasked with handling inter-Korean affairs.

“Although the total amount of production at the complex has increased this year, about 30 percent of our firms are experiencing significant difficulties,” said one of the officials, who wished to remain unidentified.

In the letter, the firms said their businesses are struggling due to the months-long political standoff triggered by North Korea’s deadly military attacks against the South last year. Seoul suspended nearly all ties with Pyongyang last year over the March sinking of the South Korean warship Cheonan and the artillery shelling of the front-line island Yeonpyeong, which killed a total of 50 South Koreans.

“With a growing number of firms facing the risk of bankruptcy, (we) need emergency measures from financial institutions, including an extension of grace periods and the deferral of debt repayments,” the firms said in the letter.

The association sent a similar request to Rep. Park Joo-sun of the main opposition Democratic Party last week, prompting lawmakers from a special parliamentary committee on inter-Korean relations to plan a trip to the joint industrial zone. The visit was canceled, however, after the Unification Ministry effectively denied their entry. All trips to North Korea are subject to prior approval from the ministry, as the Koreas remain in a technical state of war following a cease-fire at the end of the 1950-53 Korean War.

The industrial complex in the North Korean border city of Kaesong, an achievement of the first-ever inter-Korean summit in Pyongyang in 2000, combines South Korea’s capital and technology with the North’s cheap labor to produce clothes, utensils, watches and other goods.

Read previous stories on the Kaesong Industrial Zone here.

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Kaesong firms request deferral of debt repayments
Yonahp
2011-8-31