North Korean Economy Watch

The Daily NK reports that South Korean businesses have delayed moving into the zone, or canceled their plans outright:

78.5 percent of those firms which received lots at the Kaesong Industrial Complex in the second round of the first stage of distribution in June last year have not begun construction of their facilities. 62.4 percent of them have not even hired a firm for construction,” said the Korea Federation of Small and Medium Business (KFSB) in a report released on April 27. For the report, the KFSB selected 85 firms out of all those firms which received lots and conducted a survey on how these firms are preparing their move into the Complex.

Companies distributed with lots in June last year are required to begin construction of their facilities within two years after the initial distribution contract. It is true that these firms have enough time to build their facilities. However, a number of firms have expressed that they would not move into the Complex.

The report says, “13 out of a total of 167 firms have already told the KFSB that they would not move into the Complex, and five of them have canceled the contract.”

59 percent of the firms including those 13 said that they would relinquish their rights to move into the complex because they are unable to raise enough money. 64 percent of these firms said that the reduced government funding has contributed to their financial difficulties.

Read the full article here:
South Korean Firms Postpone Their Move into the Kaesong Industrial Complex
Daily NK
Choi Choel Hee
4/28/2008

On April 23, the Korea Institute for International Economic Policy (KIEP)hosted, “The Lee Myung-Bak Administration’s Policy toward North Korea: Denuclearization or Disengagement.”  In this seminar they essentially answered this question with a ‘yes’.

According to the Daily NK coverage of the event:

[Dong Yong Seung, the Chief of the Security and Economics Department of the Samsung Economic Research Institute stated,] “While economic exchange between North Korea and China has been business-to-business, in the case of Kaesong, the exchange has been controlled from a single control tower, the North Korean regime. That is, the condition has been set up for government-to-government economic exchange to facilitate North Korean government’s planned economy. Economic cooperation in the style of South Korea’s has been obstructing North Korea’s rational transformation.”

In a sense, he is arguing that South Korea’s support for the Kaesong Zone yields results more similar to foreign aid than private economic exchange.  If this is the case, South Korea, and just about everyone else, could learn from China’s strategy for investing in North Korea.

As Judge Posner put it:

All the problems that foreign aid seeks to alleviate are within the power of the recipient countries to solve if they adopt sensible policies. If they do not adopt such policies, then foreign aid is likely to be stolen by the ruling elite, strengthening its hold over the country, or otherwise squandered. What we can do for poor countries is reduce tariff barriers to their exports. With money saved from eliminating foreign aid, we could compensate our industries that would be hurt by import competition from poor countries and thus reduce political opposition to tariff reform.

From Yonhap:

North Korea on Tuesday asked South Korea not to bring poultry products to the inter-Korean industrial complex in Kaesong, a North Korean border town, in an attempt to prevent the introduction of bird flu into the communist state, the Unification Ministry said.

The ban from the North Korean quarantine office in the Kaesong complex includes birds, poultry and eggs, and will go into effect on Saturday, ministry spokesman Kim Ho-nyoun said.

There have not been any cases of bird flu reported in North Korea.

South Korea sends some 8.5 tons of chicken and 127,000 eggs every month to eateries in the complex, the ministry said.

If South Korean chicken has been taken off the menu in the Kaesong Zone, maybe they will replace it with some of that new low-cost American beef that should be on its way soon! 

I won’t hold my breath.

The full story can be read here:
N. Korea bans S. Korea from bringing poultry, eggs to Kaesong
Yonhap
4/22/2008

The Donga Ilbo reports that the DPRK going to supply water to the the Kaesong Industrial Complex by diverting it from a river that flows into South Korea:

North Korea is confirmed to be trapping water behind the walls of the Hwang River Dam in the upper stream of the Imjin River, something which will lead to a water shortage in certain parts of South Korea.  

The multi-purpose dam has a water storage capacity of 300 million to 400 million tons, much more than that of the Hantan River Dam (270 million tons), the Paldang Dam (244 million tons) and the Cheongpyeong Dam (180 million tons).

North Korea is expected to supply water for industry and drinking to the Gaesong Industrial Complex from the Hwang River Dam via the Ryesong River.

North Korea can directly control 420 million to 520 million tons of water with the Hwang River Dam in addition to its fourth “April 5 Dam,” which can store 30 million tons of water in the upper stream of the Imjin River.

The (South) Korea Water Resources Corp. said, “When North Korea suddenly traps or discharges water, South Korea cannot respond to such actions with just the Gunnam Flood Control Dam and the Hantan River Dam.”

Rad the full article here:
N.Korean Dam to Cause Water Shortage in S.Korea
Donga Ilbo
4/22/2008

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.

According to Business Week German auto parts manufacturer, Prettl, became the first non-Korean firm to start building a plant inside a joint inter-Korean factory complex in North Korea–breaking ground Wednesday.  Kim Min-kyung with the Kaesong Industrial District Management Committee claims the factory will be open in December and employ 550 North Koreans.

Other facts:

Two Chinese companies also signed contracts last year to run factories in the area but have not started construction, Kim said.

A total of 69 South Korean companies are currently operating in the zone, employing some 23,220 North Korean laborers, according to the management committee.

The full article can be found here:
German firm breaks ground in North Korea
Business Week
3/5/2008

Writing in today’s Asia Times, Dr. Leonid Petrov analyses the complexity of Russia, Rok, DPRK, and Chinese relations:

Russia and North Korea:

Territorial claims, in one form or another, involve almost all countries adjacent in this region with the exception of Russia and Korea. The Joint Russian Federation-DPRK Commission for the Demarcation of State Borders has recently completed its work by documenting and marking the 17-kilometer frontier. This strip of uninhabited and swampy land in the mouth of the Tumannaya (Tuman-gang) River plays an exceptionally important geopolitical role. It not only provides the two countries with land access to each other, but also prevents Chinese access to the East Sea (Sea of Japan).

China and North Korea: 

Here, some 50km north of the small port that forms the core of North’s Rajin-Seonbong Special Economic Zone, the interests of Russia and China are now at stake. Russia is rapidly repairing the railroad track, and China (in a similarly speedy manner) is constructing a new automobile highway, both leading from their respective borders to the port of Rajin. Russia, investing at least 1.75 billion rubles (US$72 million) into this project, seeks to strongly connect Rajin (and the rest of northern Korea) to its Trans-Siberian Railroad. China, in turn, hopes to divert the growing cargo traffic to its own territory, offering the efficient network of railroads for delivery of South Korean and Japanese goods to Central Asian and European markets. What position will the government of North Korea take in this clash of ambitions?

Russia and South Korea (energy and trade):

In 2007, the volume of the export of “black gold” from Russia to South Korea reached 38.13 million barrels (2.7 times more than in the previous year). The relative proximity of the Russian oil and gas fields is an attractive factor for Korean companies who actively search for alternatives to Middle East oil suppliers. This year South Korea will for the first time start importing natural gas from Russia. The expected volume of delivery during 2008 is 1.5 million tons (or 5.1% of South Korea’s annual demand).

and

Trade relations between Russia and Korea are steadily growing. According to customs statistics, last year Russia recorded the sharpest increase of South Korean imports (56.2% more than in 2006). Due to the inflow of “petro-dollars” the new class of nouveaux riches in Russia began actively buying Korean automobiles, cell phones, television sets and LCD monitors. South Korea exported to Russia goods worth US$8.1 billion (including $3.296 billion of automobiles, $859 million of mobile phone equipment, motor vehicles and spare parts worth $659 million). As for trade with North Korea, in 2006 Russia occupied third place after China and South Korea and absorbed 9% of the total $3.18 billion spent by the North on imports.

More on Russia/South Korea energy talk here. 

The whole article deserves reading here:
Russia lays new tracks in Korean ties
Asia Times
Leonid Petrov
3/5/2008

Institute for Far Eastern Studies
NK Brief No. 08-3-7-1
3/7/2008
 
North Korea’s latest demand at the Kaesong Industrial Complex (KIC) is a 100 USD per person registration fee for South Korean workers residing in the complex’s dormitories. The North demanded the fee early in 2007 to cover registration and issuance of registration certificates regarding workers visiting or residing in the complex, and negotiations have been underway the entire year.

An unnamed source close to the South Korean government stated, “At the end of January, the North unilaterally decided on the KIC visiting and residing fees, and when they were not complied with [the North] notified [the South] that they would ban entrance” to the complex, however, “despite this, currently entrance into the complex is freely obtainable.”

The North set a 35 USD fee for registering a short-term stay of up to 90 days, and a 100 USD fee for registering a one-year residency, according to the source. A Unification Ministry official acknowledged, “The fee demanded by the North is not exorbitant, but from the perspective of the businesses in the complex, negotiations on reasonable measures were in progress.”

North Korea is making its demands based on the ‘Kaesong Industrial Zone Entrance, Dwelling and Residence Regulation’ enacted in December 2003. According to this regulation, fees must be paid for issuance and reissuance of registration papers when applying for short term stays up to 90 days, long term visits over 90 days, and residency of one year or more. Currently, there are over 800 South Korean employees who would need to pay fees for visiting or residing at KIC.

Details are starting to emerge on North Korea’s recent anti-corruption drive.   

North Korean authorities have been investigating the chief of a North Korean committee in charge of inter-Korean economic cooperation for months after seizing $20 million from his house, a report said Friday.

Quoting an unidentified Chinese source informed on North Korean affairs, the Dong-A Ilbo newspaper said Pyongyang authorities are intensifying their investigation into Jung Woon-eop and 80 other officials of the committee over where the money came from.

It is possible that this is just a good old fashoned purge.

It is also possible that this campaign is the first stage in a policy shift.

The full article can be found here:
NK Official Suspected of Embezzling Funds From Seoul
Korea Times
Jung Sung-ki
02-22-2008

How pervasive is the flow of outside information in North Korea?  Typically stories in the media answer this question as though geography is the determinate variable: Cities near the Chinese border are the most influenced by heterodox ideas (since cell phones, clear television signals, and smuggling have been commonplace for years), and cities in the south (along the DMZ) are the most isolated (aside from Kaesong).  North Korea’s internal travel restrictions prevent foreign ideas from spreading.  This view was recently repeated by Andrei Lankov.

“The Kaesong exception” is thought to be correlated to the growth of the the Kaesong Industrial Zone.  The theory goes that the thousands of North Koreans who are employed in Kaesong (who work in South Korean facilities for South Korean managers) pick up bits of outside information at the margin and share it with their friends and family back home.  It is not an unreasonable theory.   

A new story in the Daily NK, however, presents evidence which points to ideological contamination on a nationwide scale (irrespective of geography).  The story claims that the city of Haeju is not only thoroughly exposed to South Korean radio and television – it is a production hub of a pirate video market:

“We can receive the TV broadcast of KBS (Korean Broadcasting System) and SBS (Seoul Broadcasting System) fine in Haeju. Sometimes, we can watch MBC (Moonhwa Broadcasting Corporation) as well. I watched Dae Jo Yong (a popular TV drama from KBS) on TV. However, I wanted to watch it again, so I bought a CD and watched it several more time.” He said, “We can get copies of South Korean TV programs from China. However, a great number of copies are also produced in Haeju.”

In a nod to communist efficiency, the subject interviewed in the Daily NK story even claims that in Haeju it is easier to pick up South Korean television signals than those from North Korea! 

With a “manufacturing” facility in Haeju, black market DVDs or VCDs can be copied and distributed throughout the south east even if security is tighter along the Chinese border.  Additionally, these DVDs/VCDs would be cheaper and more widely distributed because they are produced locally (as opposed to using Chinese labor/capital) and will require fewer middlemen to get them across the border and into the hands of consumers.  If this has been going on for some time, then it is safe to assume that most urban centers from Haeju to Pyongyang have regular access to South Korean media! 

Of course a decline in acceptance of the state ideology means the government must rely on external controls (rather than an individual’s self-control) to maintain the system.  The good news is that external controls can be avoided through technolgy, corruption, or both: 

“In the border areas with China and South Korea such as Hwanghae and Kangwon Province, the North Korean authorities try to prevent people from watching S. Korean TV by soldering and pre-tuning TV sets to Chonsun (North Korea) Central TV. Lately, the authorities also attempt to restrict the usage of remote control by covering the sensor with silver paper.

However, North Korean people circumvent the regulation. Instead of giving away their remote control to the authorities, they purchase an extra and watch the TV as they please after removing the silver paper. After all, the authorities’ efforts to control TV channels turn out to be futile for those who have remote control TV sets.

The full article can be found here:
North Korean People Copy South Korean TV Drama for Trade
Daily NK
Lee Sung Jin
2/22/2008