North Korean Economy Watch

UPDATE  1 (2011-1-19): According to the Wall Street Journal:

A Chinese firm has signed a letter of intent to invest $2 billion in a North Korean industrial zone, representing one of the largest potential investments in Kim Jong Il’s authoritarian state and a challenge to U.S. policy in the region.

The agreement was signed with little fanfare in Pyongyang on Dec. 20—a day otherwise marked by pitched tension on the Korean peninsula following the North’s shelling of a South Korean island—according to documents viewed by the Wall Street Journal. Confirmation of the deal comes as Chinese President Hu Jintao visits Washington this week in a bid to forge closer security and economic ties with the U.S.

U.S. officials said the administration is aware of the possible Chinese investment, but noted that previous projects haven’t gone anywhere. “No investment project will enable North Korea to meet the needs of its people as long as its government continues its destabilizing behavior,” said a senior administration official.

The letter of intent involves China’s Shangdi Guanqun Investment Co. and North Korea’s Investment and Development Group. An assistant to the managing director of Shangdi Guanqun, who identified himself only by his surname, Han, said his company’s planned investment is focused on the Rason special economic zone, situated near North Korea’s border with Russia.

The zone was called Rajin-Sonbong when it was established in 1991, but failed to attract sufficient investment. It was revived, and re-named Rason, following a visit there in 2009 by Mr. Kim.

Mr. Han said the plan is to develop infrastructure, including docks, a power plant and roads over the next two to three years, followed by various industrial projects, including an oil refinery, over the next five to 10 years. He said the company was waiting for a response from the North Korean government before applying for approval from China’s Ministry of Commerce.

“It’s all pending at this stage, and it’s really up to the Korean side to make the decision,” Mr. Han said. He added that the $2 billion figure was what the North Korean side had hoped for, not necessarily what his company could deliver.

The company’s Web site says the company was “under the administration” of a state-owned enterprise, Shangdi Purchase-Estate Corporation. Mr. Han, however, said his company was “100 percent private.”

For the Obama administration, securing China’s cooperation in restraining North Korea’s military and nuclear-proliferation activities is a cornerstone of a warmer bilateral relationship. But the potential investment is a reminder of possible limits of Chinese cooperation.

The U.S. wants to step up sanctions to force Kim Jong Il to give up his nuclear-weapons arsenal and military activities. China, meanwhile, is increasingly promoting business projects and direct investment to influence the North, say Chinese and American analysts, arguing financial pressure hasn’t worked.

China is North Korea’s biggest trading partner and aid donor, but the scale of this deal raises concerns in Seoul that Beijing is running its own version of the “Sunshine” policy under which the South boosted investment in the North from 1998 to 2008.

This policy disconnect is expected to be one of the issues Chinese and U.S. officials discuss this week. “These types of deals pursued by China generally present a real challenge to the sanctions” being effective, said Victor Cha, a North Korea expert who helped oversee Asia policy in George W. Bush’s National Security Council. “The net effect is that it does make it more difficult for these sanctions to have the desired effect.”

Such deals have emerged in the past and have come to nothing, analysts said, and it is possible this one, too, could peter out. A number of similar North Korean economic zones have failed to live up to their billing because of poor infrastructure and corruption, and a lack of economic reform. News of the deal was first reported in the Korean-language press, including the Voice of America’s Korean service.

It is unclear how long the agreement has been in the works. But its Dec. 20 signing came on the day South Korea conducted a closely watched artillery test from Yeonpyeong Island near North Korea.

The test marked a high point in tensions after North Korea’s surprise late November shelling of Yeonpyeong, which killed four South Koreans. Pyongyang had threatened a swift military response should Seoul carry out an announced artillery test on Dec. 20. But the day’s drill came and went amid high security in the South, with the North saying in a statement it “did not feel any need to retaliate.”

Top administration officials have recently both praised and chided the Chinese over the North. On a trip to China last week, Defense Secretary Robert Gates commended the Chinese for their “constructive” role in reducing tensions on the peninsula after Pyongyang’s recent shelling of a South Korean island. Secretary of State Hillary Clinton in a Friday speech pressed China to be more aggressive in helping tamp down the North’s nuclear program.

The proposed investment is among the strongest evidence yet of China’s strategy of using direct investment rather political pressure to push for change in North Korea. Chinese experts say that after North Korea’s first nuclear test in 2006, China tried to make improved bilateral relations dependent on Pyongyang dismantling its nuclear program. But after a second test in 2009, China changed tack.

Beijing now believes, according to Chinese experts, that the North Korean regime won’t respond to political pressure and could collapse completely if China cuts off aid and investment, triggering a flood of refugees into northeastern China, and bringing U.S. troops right up to the Chinese border.

The investment strategy was cemented when China’s Premier Wen Jiabao visited North Korea in October 2009 and signed a slew of economic and trade agreements. One of those agreements was for China to fund construction of a $250 million bridge across the Yalu River that separates the two countries.

Construction of the bridge, which would link China with another North Korean special economic zone, had been slated to start in August. Local officials said in November it appeared to have been put on hold indefinitely. Now they say a ground-breaking ceremony was held Dec. 31.

U.S. officials are particularly concerned about how China’s financial links to North Korea may be facilitating Pyongyang’s weapons programs. In November, Pyongyang showed a visiting American scientist 2,000 centrifuges stationed at a cover site, drastically raising fears about the North’s ability to expand its nuclear-weapons arsenal.

“China’s increased economic support undercuts the rest of the region’s efforts to convince Pyongyang that there will be consequences for further belligerence, nuclear weapons development or transfer of nuclear capabilities,” said Michael Green, who also served as a senior official on Asia during the Bush administration.

Read the full story here:
Chinese Firm to Invest in North Korea
Wall Street Journal
Jay Soloman and Jeremy Page
2011-1-19

ORIGINAL POST (2011-1-7): According to the Joong Ang Ilbo:

A Chinese state-run company recently agreed to invest $2 billion in North Korea’s Rason free trade zone, the JoongAng Ilbo learned yesterday from documents related to the deal.

Shangdi Guanqun Investment Co., Ltd. signed a 10-point memorandum of understanding with Pyongyang’s Investment and Development Group on Dec. 20 in Beijing, the documents showed.

The signing ceremony was attended by Mi Chang, president of Shangdi Guanqun Investment, and Kim Chol-jin, president of the Investment and Development Group.

The goal of the investment, stated in the documents, is to build Rason, a northeastern North Korean city on the East Sea that borders both China and Russia, into the “biggest industrial zone in Northeast Asia” in around 10 years.

The project calls for coal-fired power plants, roads, piers and oil refineries in the North Hamgyong Province city, the documents said.

According to the documents, the deal is “a strategic joint project based on trust between high-level figures” in China and North Korea, which suggests it may have been negotiated by North Korean leader Kim Jong-il during two visits to China last year, on which he met Chinese President Hu Jintao.

The North’s economy has suffered under international sanctions on trade and financial services overseas, imposed after its nuclear weapon tests, and is desperately seeking foreign investment.

China is investing in Rason as an export base to serve markets in Japan, southern China and Southeast Asia.

Rason is a merger of two towns, Rajin and Sonbong, and was designated the first free trade zone in the North in 1991. It was promoted to a “special city,” which means it has fewer restrictions on businesses.

“We have a deep interest in North Korea’s ample natural resources,” an official of Shangdi Guanqun Investment Co., Ltd. told the JoongAng Ilbo. “To facilitate the export of natural resources [from the region], we will invest $300 million first and construct a coal-fire power plant at the coal mine and build a railway, roads, and harbors and piers [near it].”

The Chinese firm’s official said the company opened an office in Pyongyang at the end of last month.

Shangdi Guanqun Investment, established in 1995 by the Chinese government, is a trading firm specializing in oil processing, natural resources and international financial services. It is one of the key companies in China’s 12th five-year economic development plan that starts this year.

North Korea’s Investment and Development Group is in charge of developing the country’s four free trade zones. The other economic special zones are in Kaesong, Mount Kumgang and Sinuiju.

The Shangdi Guanqun Investment official said the company will build an oil refinery in Rason, where it plans to refine crude imported from the Middle East and Russia and sell the output to China or other countries.

I believe this Chinese story also relates to the same project.

Read the full story here:
China backs North’s Rason project
Joong Ang Daily
Ko Soo-suk
2011-1-7

According to Yonhap:

Despite persisting political woes, a new South Korean company has begun operating in North Korea’s border industrial complex that combines superior South Korean capital and know-how with the North’s cheap local labor, a government official said Thursday.

The company, known as DSE, completed building its factory in Kaesong in early May and is therefore exempt from the investment ban on North Korea that Seoul imposed later that month over the sinking of a South Korean warship, the Unification Ministry official said.

…

The ministry official, who spoke on customary condition of anonymity, said DSE began operating on Jan. 3 and is employing 160 North Korean workers, part of the 44,000 workforce in the Kaesong complex, to produce lighting apparatuses and other metallic products.

The number of South Korean companies operating in Kaesong now stands at 122, the official added.

…

South Korea has since sharply cut down on the number of its workers allowed to stay in Kaesong. The North, in an apparent act of desperation to revive its economy, has since called for lowering tension and holding cross-border dialogue. South Korean officials are demanding that the North first show “sincerity,” indicating Pyongyang must apologize for the series of provocations blamed on it.

Read the full story here:
New S. Korean company begins operating in N. Korean factory park
Yonhap
Sam Kim
1/6/2011

Click image to see the Chinese, Russian, and North Korean piers

UPDATE 5: No more intra-Chinese coal shipments  through Rason have been reported following this 2011 experiment.

UPDATE 4 (2011-6-4): KCNA reports some additional details on the coal being shipped from Hunchun to Shanghai via Rason. According to the article:

It was against this backdrop that China was in the process of transporting 20,000 tons of coal to Rason Port via Hunchun from May 14 and then transporting it to Shanghai by a cargo ship.

Yanbian Ribao, conveying this news on May 18, reported that the Shanghai branches of the Hunchun Mining Group and the Chungjiang Group would transport 500,000 tons of coal to Shanghai by this method this year. This would be tantamount to more than 14,000 truck loads. An official concerned of the Mining Group said that transport of loads to various provinces of Southern China by this method would help sharply cut down the time and transport charges, etc. as compared with the inland transport.

So apparently the 20,000 tonne pilot project what supposed to pave the way for a 500,000 tonne project that never materialized.

UPDATE 3 (2011-1-25): China ships coal from North Korean port for first time. According to Michael Rank:

China has for the first time shipped coal from the North Korean port of Rajin following a deal by a Chinese company to renovate the port, a Chinese website reports.

The 20,000 tonnes of coal, mined in Hunchun, about 80 km north of Rajin, was shipped to Shanghai last month. After going through customs inspection at Hunchun, it was transported by road via the Wonjeongri border post near Dumangang, the report said.

It noted how shipping the coal from Rajin saved the cost of transporting it to the nearest suitable Chinese port of Yingkou or further afield by train and how the deal to renovate and expand Rajin’s no 1 dock would help to boost trade from northeast China more generally.

It said the Dalian-based Chuangli Group reached a deal to lease the dock in 2008 and the following year agreed to renovate it and expand its capacity to one million tonnes a year, although news was not announced until last spring.

But when this reporter visited Rajin last September there was no sign of the port being renovated and expanded, and although a couple of small North Korean vessels were moored at the port, there was little sign of any activity and the area was largely deserted.

China does have ambitious hopes for Rajin, however, and last month a Chinese company, Shangdi Guanquan Investment Co, was reported to have signed a letter of intent to invest $2 billion in an industrial zone in the region.

The Wall Street Journal quoted an assistant to the managing director to Shangdi Guangqun as saying the plan was to develop infrastructure, including docks, a power plant and roads over the next two to three years, followed by various industrial projects, including an oil refinery, over the next five to 10 years. He said the company was waiting for a response from the Pyongyang government before applying for approval from China’s Ministry of Commerce.

“It’s all pending at this stage, and it’s really up to the Korean side to make the decision,” the assistant, named only as Han, said, according to the WSJ. He added that the $2 billion figure was what the North Korean side had hoped for, not necessarily what his company could deliver.

North Korea has implausible dreams of turning the city into an international freight brokerage, export processing and finance hub, and has even made a computerised promotional video about its plans to build glitzy skyscrapers along the seafront.

Photo of Rajin port here.

UPDATE 2 (2011-1-14): According to Every China:

As the first cross-border cargo ship for domestic trade in China, 10,000 tonner “Jinbo”, loaded with 21,000 tons of coal, arrived safely at Shanghai and docked steadily at the pier of Waigaoqiao Terminal at 4 p.m. on January 14. This marked the success of the maiden sail for cross-border domestic trade in our nation.

It is introduced that this 10,000 tonner Jinbo is a freight ship serving for Hunchun Chuangli Shipping Logistics Co., Ltd. of Jilin Province. There was totally 20,000 tons of coal in this cross-border transport produced by Hunchun Mining Group, departing from Hunchun Quanhe Port on December 7, 2010 to Rajin Port of North Korea and cargo concentration in port was accomplished there after one month. Special purpose vessel Jinbo ship docked at No.1 pier of Rajin Port of North Korea at 15 o clock on January 6 this year. The shipment began on 7th and the ship departed from Rajin Port at local time 10:30 on January 11 and arrived safely at the pier of Waigaoqiao Terminal, Shanghai after over 3 days voyage. Currently, related procedures for customs and inspections are in process.

Successive notices on pilot cross-border domestic trade transport in Jilin Province have been issued by General Administration of Customs, Ministry of Transport and General Administration of Quality Supervision, Inspection and Quarantine of the People s Republic of China since last year. Now, the successful arrival of the first cargo ship at the destination is an important achievement gained by Hunchun City or even Yanbian Autonomous Prefecture from implementing the forerunning policy of The Planning Outline of Cooperation in the Exploitation of Tumen River Zone, China. It is also a significant breakthrough in new international land-sea joint transport passage of Hunchun City or even Jilin Province, marking a crucial progress in the Launching out to sea through borrowed port strategy of Jilin Province.

Not only the coal resource of Hunchun City, but also that of Heilongjiang Province, closely adjacent to Yanbian area, can be transported to South China after Rajin Port exit is available. Because of the relatively low transport cost compared with that of other ports at home, this sea passage may become the Golden Passage for transporting coal from the north to the south until then.

UPDATE 1 (2011-2-22): According to the China Daily:

A city in Northeast China is aiming to import coal from the Democratic People’s Republic of Korea (DPRK) as part of its effort to establish an international coal production base in the border area.

Hunchun, a city wedged between the DPRK and Russia, has coal reserves of 1.2 billion tons, and supplies the fuel to Jilin, Liaoning, Jiangsu and Shangdong provinces. It currently produces about 6 million tons of coal annually.

“We plan to raise our production to more than 10 million tons a year by importing and exploiting coal both from the DPRK and Russia,” said a senior Hunchun city official, who declined to be named.

In January, coal was shipped for the first time from Hunchun to Shanghai via the DPRK port of Rajin, following a deal made by a Chinese company to renovate that port.

The 20,000 tons of coal mined in Hunchun reached Shanghai in three days in the transportation trial. Normally, it takes more than 10 days to transport that amount of coal by train from Hunchun to Shanghai.

“We will try to deliver coal by this new shipping route in the future, because it saved a lot of money in transportation costs,” the government officer said.

The city government also intends to transmit the electricity power generated by its coal-fired power plant to the DPRK.

China has been striving to establish an international sea route through the two countries to boost bilateral trade.

Dalian-based Chuangli Group invested 30 million yuan ($4.6 million) in improvements to Rajin last year, according to officials.

The Dalian group expanded the port’s annual shipping capacity to 1 million tons last year, after reaching a deal to lease and reconstruct it in 2009.

Hunchun officials said the city’s foreign trade volume has quadrupled in the past three years, thanks to improved international shipping.

By taking advantage of cross-border energy production and transportation, Huchun expects its coal production to rise by 22 percent during the 12th Five-Year Plan (2011-2015).

The Seoul-based Yonhap News Agency reported earlier that the DPRK plans to cooperate with Chinese enterprises on exploiting mineral resources in Hamgyeongbuk-do in the DPRK, which has about 200 million tons in coal reserves.

ORIGINAL POST (2011-1-4): Rason is being used to transport coal from Hunchun to Shanghai. According to the Choson Ilbo:

In official confirmation that closer China-North Korea business ties have come to fruition, the state-run Xinhua news agency and local media in Jilin on Monday said China has transported 20,000 tons of coal from a mine in Jilin to Shanghai and Ningbo through North Korea’s Rajin-Sonbong Port since Dec. 7.

The coal produced in Hunchun was carried by some 570 35-ton trucks across the Duman (or Tumen) River and transported to the port along a 60 km unpaved road between Hunchun and Rajin-Sonbong.

A source in Hunchun said, “Since a month ago, dozens of trucks a day have been going to the North” through Quanhe Customs Office.

The abundant coal deposits in the northeastern China are mainly used for heating homes in southern China in winter, but with no access to the East Sea, China had to transport it overland to Yingkou Port in the Bohai Bay, some 800 km to the west, incurring logistical costs.

China has long tried to get the right to use Rajin-Sonbong and Chongjin ports in North Hamgyong Province in North Korea in a bid to secure an East Sea route.

In 2009, Chuangli Group, an environmental facilities manufacturer in Dalian, obtained the right to use a pier in the Rajin-Songbong port for 10 years in collaboration with a North Korean trading company. Another Chinese firm in Tumen is also reportedly seeking the right to use Chongjin Port.

Prof. Yoon Seung-hyun of Yanbian University said Chongjin Port, has better facilities than Rajin-Sonbong. “The North is more open and aggressive” because it is groaning under international sanctions and aid from South Korea has dried up, he added.

Recent posts on Rajin (Rason) can be found here.

Read the full story here:
Chinese Shipping Through N.Korean Port in Full Swing
Choson Ilbo
2011-1-4

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

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

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

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

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

UPDATE from the Choson Ilbo:

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

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

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

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

…

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

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

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

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

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

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

5. Here are all previous Rajin (Rason)posts

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

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

According to Yonhap:

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

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

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

According to Yonhap:

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

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

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

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

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

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

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

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

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

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

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

According to Yonhap:

Output at an inter-Korean industrial complex in the North Korean border city of Kaesong rose by over 10 percent in October from the previous month, data released by the Unification Ministry said Sunday.

In October, companies in the Kaesong complex produced goods totaling US$29.41 million in value, up by $2.72 million, or 10.2 percent, from $26.69 million in September, according to the data.

The figure increased by 8.9 percent from the same month last year, they showed.

Total output for the Kaesong complex had been on the decline since the Cheonan incident in March, in which 46 sailors died in a torpedo attack blamed on North Korea. The figure hit $26.41 million in July.

The data also showed that the number of North Korean workers in the border town complex marked 44,958 in October, rising steadily from 42,397 in March.

“Although the North shelled Yeonpyeong Island on Nov. 23, North Korean workers have been on the rise,” said a ministry official. “According to unofficial statistics, 45,300 North Koreans are working in Kaesong today.”

The Kaesong industrial park is considered the last remaining major symbol of reconciliation efforts between the two Koreas, whose relations have been tense over the past three years. The park began operating in 2004 as a product of the first inter-Korean summit held four years earlier.

Read the full story here:
Output for Kaesong industrial complex increases 10 pct in October
Yonhap
12/19/2010

According to Yonhap:

Once hailed as vanguards of reconciliation but now threatened by simmering animosity between the Koreas, a group of South Korean businessmen pleaded Thursday with senior lawmakers to safeguard their operations in North Korea against further political fallout.

Since North Korea mounted a deadly artillery attack on the South Korean island of Yeonpyeong on Nov. 23, these seasoned businessmen have had jitters over the fate of their factories built in the western North Korean border town of Kaesong.

Considered the last remaining symbol of reconciliation between the divided countries, the joint industrial complex houses more than 120 South Korean firms employing 44,000 North Korean workers.

Holding a commercial fair at the National Assembly, representatives from eight companies and officials from their association mingled with two dozen lawmakers and scrambled to tout their products as bearing the messages of hope and peace.

“We have achieved a level of quality that enables us to compete with any other industrial complexes in the world,” Bae Hae-dong, chief of the association of South Korean factories, said in a speech. “Yet, we remain easily affected by inter-Korean political circumstances. We especially deplore the situation that has arisen since North Korea attacked Yeonpyeong.”

The shelling of the small fishing community killed two marines and two civilians in the most indiscriminate attack on South Korean soil since the 1950-53 Korean War that ended in a truce.

A travel ban imposed on North Korea a day after the attack remains in place, allowing only a limited amount of raw materials to be sent to Kaesong and hamstringing manufacturing operations there.

“We are suffering a 10-15 percent decline in production due to the ban,” said Kim Ssang-kyu, general manager at Pyxis Inc., which produces jewelry cases and other accessories.

Sung Hyun-sang, president of Mansung Corp., which makes women’s clothing, claimed the damage in production amounts to as much as 50 percent.

“We understand the ban is for the sake of our safety, but we’re sure the North Koreans won’t hurt us. They know how important we are” to their cash-strapped economy, Sung said.

“We can only worry and pray for now,” an official at Shinwon, which produces men’s suits, said, asking not to be named because his remark could be taken sensitively.

About 410 South Koreans remained in Kaesong as of Thursday, a drop from 760 on Nov. 23 when the artillery exchange erupted between the Koreas, according to the Unification Ministry in Seoul.

The Kaesong complex produced its first articles — kitchen pans — in 2004 even though the two Koreas had agreed four years earlier on the project in an effort to lessen border tension.

Combining South Korean capital and know-how with the cheap labor in North Korea, the park recently reached a total of US$1 billion in production. Supporters of the estate say its significance goes far beyond economic benefits.

“Kaesong has been a safety pin whenever the security on the Korean Peninsula sagged to a dangerous level,” Kim Choong-whan, a legislator with the ruling conservative Grand National Party (GNP), said in a speech.

Park Joo-sun, who is with the liberal Democratic Party (DP) and sponsored the fair, expressed hope that the park will survive the crisis sparked by the North’s shelling.

The fair was scheduled before the crisis, organizers said. The lawmakers who attended it included Park Jie-won, a DP lawmaker who led the organization of the 2000 summit, and Lee Sang-deuk, President Lee Myung-bak’s older brother who is a GNP legislator.

“Sir, please help us,” Bae told the influential lawmaker touring the booths set up at the fair.

Gently embracing Lee with his arm in a show of friendship, another businessman smiled widely and whispered to Lee, “This is the lifeline of peace.”

In a brief interview on the sidelines, Lee downplayed the economic damage the South Korean firms said they have incurred since the travel ban on North Korea came into effect on Nov. 24.

“They should and can withstand this. It is a risk they were willing to take,” he said as he stepped onto the elevator taking him to his office inside the building.

Vice Unification Minister Um Jong-sik, who admitted in a speech that the companies were suffering drops in production, would not say how long the ban will stay in effect.

“All things and situations must be considered before we can make a decision,” he said after a long pause, when asked if South Korean artillery drills planned for next week in the Yellow Sea would prompt the ministry to extend the ban.

“For now, we’re doing our best to listen to these companies and address their needs as much as we can,” he said as he left the fair with two bags full of clothing he bought from Mansun Corp.

South Korea and the United States ended their four-day joint naval drills mobilizing an American aircraft carrier in the Yellow Sea on Wednesday, a move they believed would intimidate North Korea into calling off further acts of provocation.

The U.S. has 28,500 forces stationed in South Korea, a legacy of the Korean War in which it led U.N. forces to fight against North Korea. Since a U.S. commander drew a line separating the waters of the Koreas at the end of the war, the North has denied its validity, triggering a series of deadly naval clashes there with the South.

North Korea says any further artillery drills by the South on Yeonpyeong, less than 10 kilometers from the North Korean coast, are bound to violate its waters because the Northern Limit Line is null.

The communist state maintains that it fired at Yeonpyeong because it had been provoked by South Korean forces shooting artillery shells at its side across from Yeonpyeong.

Read the full story here:
Businessmen plead for help as tension threatens their factories in N. Korea
Yonhap
Sam Kim
12/2/2010

According to the Donga Ilbo:

North Korea has re-frozen and re-seized South Korean facilities at the Mount Kumgang resort that were reopened in the latest reunions of inter-Korean separated families.

An official at the South Korean Unification Ministry said Sunday that the North attached “frozen” labels on dining and container-type lodging facilities and a vehicle maintenance plant at the resort owned by Hyundai Asan Corp. of South Korea.

Pyongyang will also likely attach “seized” labels on a family reunion center owned by the South Korean government where the reunions took place.

You can read about the family reunions here.

Read the full story here:
NK Re-freezes S. Korean Facilities at Mount Kumgang
Donga Ilbo
11/15/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-11-13-1
11/13/2010

The construction cost for six inter-Korean cooperative industrial parks like the Kaesong Industrial Complex would carry a construction bill of 44 billion Won. According to “Analysis of Examples of Inter-Korean Cooperation in the Construction Field and the Direction of Industrial Park Development within North Korea,” a recent report by the Construction Economy Research Institute of Korea, “Promotion of the North Korean construction market by the [South Korean] construction industry would not only increase the limited demand for the South Korean construction [field], but will also provide new growth to our economy.”

According to the report, there has been almost no cooperative construction project within the construction field since 1988. On the other hand, tourism, industrial parks, physical fitness and religious projects have provided opportunities for construction companies. These projects generally call for construction equipment, materials, technicians and designs from South Korea, and land, labor, aggregate, etc. from the North. If six industrial parks on the same scale as the KIC were to be built, it would cost 43.09 billion Won. Of this, 4.07 billion won would cover government costs, while the actual cost of construction would be 39.02 billion won.

If the KIC, currently undergoing the first phase of construction, were to complete all three phases of the original plan, the 19.9 square-kilometer complex would house 2,000 businesses. The research institute calls for the completion of phases 2 and 3 in the KIC, as well as the construction of industrial parks at Rajin-Sonbong, Sinuiju, Haeju, Nampo, and Wonsan.

Rajin-Sonbong and Sinuiju are both ‘Free Economic Trade Zones’, and as special administrative zones, they offer large-scale industrial plots in an effort to attract foreign capital. In addition, it was agreed at the second inter-Korean summit, in October 2007, that Haeju would be developed. Furthermore, a light-industrial complex in Nampo, on the West Sea, and a heavy and chemical industry in Wonsan have been established.

The industrial zones, however, constitute only part of the construction demand. Roads and rails connecting the complexes, port facilities, power generation plants, cities to support production workers, and other derivative projects would also need to be constructed. In other words, the building of an industrial zone would lead to significant peripheral construction demand, as well.

Assuming that inter-Korean tensions were eased and North Korea decided to open itself up to the South, if construction on the six industrial zones could begin by the middle of next year, it is expected that they could all be completed by 2021. In addition, the construction and operation of the six zones could provide the impetus for quickly improving the North Korean economy, while also boosting the importance of South Korea to the North’s economy.

In order to see this accomplished, the research institute found that the government needs to boost activity in the KIC; expand the distribution network between the KIC, Kimpo, and Kangwa; guarantee free management authority in the KIC; iron out customs and transportation procedures; ensure a steady supply of North Korean laborers; and strengthen the ties between the KIC and North Korea’s domestic economy.

If, in the future, North Korea is to open its doors to cooperation, it is expected that foreign companies will also participate. Therefore, when considering long-term profits, it is necessary to spur interest in North Korea’s construction market. The research institute suggested that it was also necessary to construct a training center to teach North Korean construction workers the technical skills needed to ensure maximum potential.