North Korean Economy Watch

According to Yonhap:

Unification Ministry spokesman Chun Hae-sung told reporters that the government has urged about 200 companies to refrain from signing new deals or supplying resources to North Korea.

“We thought there were possibilities the companies may suffer unexpected losses under the uncertain and murky circumstances” on the Korean Peninsula, Chun said.

Last month, North Korea confiscated or froze South Korean assets at a joint mountain resort on its east coast in anger over Seoul’s refusal to resume cross-border tours.

The move prompted South Korea to pledge retaliatory measures. Inter-Korean relations further eroded amid suspicions that an elusive North Korean submarine attacked a South Korean warship on March 26, killing 46 crew members.

Chun said the ministry warning did not apply to the more than 110 South Korean companies operating in the North Korean border town of Kaesong, where they employ about 42,000 North Korean workers to produce labor-intensive goods.

Inter-Korean consignment trade, in which vendors here supply raw materials to North Korea to be assembled into final products, amounted to US$254 million last year, Chun said. The vendors have favored factories in Pyongyang and the western port city of Nampo.

A multinational investigation is under way in South Korea to examine the suspected North Korean attack on the South Korean corvette Cheonan near the western inter-Korean border. North Korea denies any role.

Observers say the South Korean retaliatory measures are likely to come after investigators announce their results, which are expected as early as next week.

Also according to Yonhap:

North Korea’s moribund economy is projected to lose about US$370 million a year and about 80,000 jobs if inter-Korean trade is entirely suspended, a Seoul-based civic group said Sunday.

…

“If inter-Korean trade is fully halted, North Korea will lose $230 million a year in trade of agricultural goods,” the civic group said in a statement.

There would be also a loss of $49 million for the North if the Kaesong complex is shut down, the group said. Other losses came from already-suspended tourism between the two Koreas.

And according to the Choson Ilbo:

The government has worked out a package of sanctions to take if North Korea is found to have been behind the sinking of the Navy corvette Cheonan on March 26. It will also be kind of counterblow to the North’s seizure and freezing of South Korean property in the Mt. Kumgang resort area late last month.

A senior government official on Wednesday said the sanctions formulated at the initiative of the Unification Ministry include banning sand imports from the North which were worth some US$70 million to the North in 2008. The imports were banned after the North launched a long-range rocket in April last year but were resumed in October.

South Korean firms that have already paid can proceed but no fresh deals can be struck.

Another target may be fisheries products. Of the total W1.06 trillion (US$1=W1,142) worth of worth of imports from the North last year, fisheries products were second with W173 billion or 16.3 percent after textiles (W477 billion or 44.8 percent).

A ministry official said, “Fisheries products are sold by companies under the North Korean military or government that specialize in earning dollars, so a ban would deal a blow to the regime.” But the regime does not cream off much from textile exports because South Korean firms depend chiefly on the joint Korean Kaesong Industrial Complex. Most of the money funneled to the North is meant as wages for North Korean workers.

The downside is that hundreds of importers of North Korean fisheries products would suffer. The government is also worried about skyrocketing prices. North Korean merchant ships could lose their right to pass through the Jeju Strait, granted them under an inter-Korean maritime agreement concluded in 2004.

A ban would mean higher fuel costs as the ships would have to make a detour through the high seas, a government official said.

The ministry submitted a report on the sanctions package to Cheong Wa Dae right after the North announced last month it was seizing South Korean property in Mt. Kumgang, but the government at the last moment decided to put it off.

“It seems that the government will make an announcement about a response to the sinking of the Cheonan and the North’s seizure of property in Mt. Kumgang next week, when the findings of the Cheonan investigation are out,” the official said.

Read the full stories below:
S. Korea moves to curb trade with N. Korea
Yonhap
Sam Kim
5/13/2010

Seoul Prepares Sanctions Over Cheonan Sinking
Choson Ilbo
5/13/2010

N. Korea to suffer dearly from halt in inter-Korean trade: civic group
Yonhap
5/16/2010

According to Yonhap:

North Korea invited a group of Chinese investors to its joint factory park with South Korea early this month, raising suspicions about its intent amid strained inter-Korean relations, an official here said Tuesday.

About 20 business executives, led by senior officials of North Korea’s state investment group, visited the industrial complex in the border town of Kaesong near the west coast on May 1, a Unification Ministry official in Seoul said.

More than 110 South Korean firms operate there to produce labor-intensive goods by employing 42,000 cheap but skilled North Korean workers. The joint park, which began operating in 2004, is considered the last remaining major symbol of reconciliation between the divided Koreas.

“We’re not clear about what the North is trying to achieve by inviting the Chinese investors,” the Unification Ministry official told reporters on the condition of anonymity.

The official said the investors visited two companies in the factory park and asked general questions about their operations while being escorted by North Korean authorities.

Under an agreement with South Korea, North Korea is allowed to draw investors from other countries. The visit comes after North Korea either seized or froze South Korean assets at a joint mountain resort on its east coast last month.

On April 9, North Korea said it would also “entirely review” the Kaesong venture with South Korea if relations between the two sides do not improve.

And according to the Choson Ilbo:

The businessman who has been put in charge of wooing foreign investment to North Korea visited the inter-Korean Kaesong Industrial Complex on May 1 along with some 15 investors from China and Hong Kong.

Sources said Pak Chol-su, who heads the Taepung International Investment Group, toured a handful of firms and a water purification plant based in the complex as part of the one-day visit. They were escorted by a deputy head for the complex development project.

North Korea hired Pak, an ethnic Korean from China, in January as president of Taepung to attract foreign investment and to develop the North’s industrial complexes. Kim Yang-gon, the director of North Korea’s Workers’ Party’s United Front Department who heads the board of the company’s directors, accompanied North Korean leader Kim Jong-il on his recent trip to China.

Pak is also assistant chief of a state development bank North Korea opened recently to handle international financing operations.

There are rumors that North Korea is seeking to build industrial complexes in Sinuiju and other locations, said Cho Bong-Hyun, a North Korea analyst with the Industrial Bank of Korea. “It’s possible that Pak took Chinese investors to the Kaesong Industrial Complex to demonstrate that Chinese capital could be invested in North Korean labor.”

The South Korean Ministry of Unification remains publicly uninterested.  According to KBS:

South Korea’s Unification Ministry says it does not give much weight to a North Korean investment group’s reported visit to the Gaeseong Industrial Complex in North Korea with a group of Chinese investors.

A ministry official told reporters Tuesday morning that Seoul does not consider the Taepung International Investment Group a company officially representing the North Korean government and thus is not overly concerned about the visits.

The official added that recently the North has often been taking Chinese investors on tours of Gaeseong.

Stars and Stripes (h/t NKnews.org)
Jon Rabiroff and Hwang Hae-rym,
4/29/2010

Kim Na-rae regularly travels three miles into enemy territory inside North Korea to work as a clothing embroidery designer — ignoring threats that the leadership there will someday turn Kim’s homeland into a “sea of fire.”

She is one of the 1,000 or so South Koreans who routinely venture across the Demilitarized Zone into North Korea to work at the Kaesong Industrial Complex, even though the two countries are technically at war and come close to resuming hostilities a couple of times each year.

Last week, South Korean President Lee Myung-bak met with two former presidents, Chun Doo-hwan and Kim Young-sam, who reportedly suggested shutting down Kaesong in response to North Korea’s suspected role in the March 26 sinking of the Cheonan, a South Korean warship.

The square-mile-plus complex — home to about 120 South Korean companies and more than 43,000 workers — was developed under former South Korean President Kim Dae-jung’s “Sunshine Policy” of promoting North-South relations and business opportunities.

It was launched during the administration of former President Roh Moo-hyun.

However, long-term plans to expand the complex to more than 25 square miles, 2,000 companies and 600,000 workers are frequently stalled by continuing friction between the North and the South.

The future of the 5-year-old complex is once again in doubt.

In a statement released in early April through the official Korean Central News Agency, the North said it would “entirely re-evaluate” its involvement in the Kaesong Industrial Complex if relations continue along a confrontational path.

Last week, South Korean media reports — citing an unnamed South Korean Unification Ministry official — said North Korean military officials who inspected the complex expressed concerns the South could use high-rises there to spy on the North or sneak troops into the country through the complex’s water system. The inspection intensified speculation the North might end or suspend its participation in the complex.

In a dispute last week, the North confiscated five buildings owned by South Korea at Diamond Mountain — a jointly operated tourist resort in North Korea that, much like the industrial complex, was designed to benefit South Korean businesses and the North Korean economy.

The North said it was seizing the buildings as compensation for losses it has sustained since the South stopped sending tours in 2008 after a North Korean soldier shot a South Korean tourist who reportedly wandered near a restricted area. The North said the shooting was accidental.

During its short history, the  industrial complex “seems to hang there in limbo … swinging back and forth depending on the political winds at the time,” according to David Garretson, an international relations professor at the University of Maryland’s University College in South Korea.

For her part, Kim said she plans to continue working, trying to shut out the political posturing.

“I was very nervous and afraid about going into North Korea at first,” she said. “But I’ve found out [North Koreans] are more pure and naive than South Koreans. They don’t easily get angry. They just work hard.”

Cheap labor

When the complex opened in December 2004, benefits for both countries were clear.

The impoverished North would open a flow of cash into the country through land leases and wages that factories paid to tens of thousands of North Korean workers.

Businesses in the South would get access to low-paid workers for the labor-intensive production of clothes, electronics equipment, kitchen appliances and more.

If not for Kaesong, those businesses would have to look to open factories in such countries as Vietnam, Cambodia or Indonesia, according to Ok Sung-seok, president of the Nine Mode Co. and vice-chairman of the Kaesong Industrial Park Corporations Association.

Kaesong factories now produce goods worth more than $250 million a year. North Korean workers there make about $65 a month, but can earn as much as $90 by working overtime in addition to their regular 45-hour workweeks, Ok said.

South Koreans work primarily in managerial positions, and their pay varies depending on their employer. Most work three or four days a week, and while some return to their homes each day, many stay overnight between workdays in dormitorylike accommodations.

Canadian Navy Lt. Cmdr. Hugh Son, the United Nations Command Military Armistice Commission’s corridor control officer, said Kaesong workers have told him there are no armed North Korean guards manning the complex, but there is always “a presence” of security personnel.

Kwak Sang-bae, president of the Chung Song Trade Co. at Kaesong, said every business in the complex has a North Korean government official assigned to oversee and represent North Korean workers.

To Ok, the arrangement at Kaesong goes beyond commerce.

“I’ll never forget the touching moment of seeing South Koreans and North Koreans working together, side by side … when my factory first opened,” he said. “Cultivating and spreading the spirit of freedom to the Kaesong people is very inspiring.”

Ok fears further growth in factories could be jeopardized “because of the latest aggravated, unstable situation between the two Koreas.”

Convoy crossings

Because relations between the two Koreas have been tense even in the best of times, transportation between South Korea and the industrial complex is complicated.

For the project to begin, both countries had to clear what is now the Western Transportation Corridor — a yearlong effort that, on the South Korea side alone, required the removal of 1,700 land mines, Son said.

Now 20 DMZ convoys cross each day, with workers from the South going back and forth and materials heading North and manufactured goods heading South. Everybody must clear customs and immigration in both countries, going both ways, and no one is allowed to cross the DMZ without being granted clearance at least three days in advance, Son said.

After manifests are checked and immigration and customs are cleared, vehicles heading north line up for inspection. South Korean and U.N. vehicles then escort them as a convoy from the southern boundary of the DMZ to a point close to the Military Demarcation Line — the official border between the two countries and the midpoint of the DMZ.

After the convoy crosses the border, two North Korean military jeeps take over escorting duties to the industrial complex.

The corridor has been closed to vehicles on occasions when tensions between the two countries have been high. Son said the last time was for two days during the 2009 U.S.-South Korea Key Resolve/Foal Eagle exercise, an annual event the North routinely condemns as an act of aggression.

Small talk

Ok said North Korean and South Korean workers at the complex are free to talk with each other about anything, except politics or government.

“We usually talk about our families, like how your children study well at school, or about our lives,” he said. “Listening to them, I cannot help thinking that there is a huge difference in the standards of living between us.

“And the lack of food makes them not grow tall enough. They are generally shorter than us.”

Kwak said that when his company opened a men’s clothing factory in the complex in 2007, Moon Pies were handed out to all the workers.

None of the North Koreans ate their snack.

“Instead, they put these very small pies into their pockets to bring home so they could give them to their children, even though they were hungry themselves,” he said. “I got choked up.”

Nationalism does sometimes find its way into conversations.

Yu Eun-jae, who is in charge of distribution for a cell phone parts manufacturer in the complex, said he stopped sharing details of his personal life at work, because a North Korean worker kept saying how far superior his country’s education system is compared to South Korea’s.

“ ‘Going to universities in North Korea is free,’ ” the worker would say, according to Yu. “ ‘How can you send your children to universities that are so expensive in South Korea?’ ”

Kwak said he believes North Korean workers at the Kaesong factories enjoy an atmosphere of freedom they would not find in state run businesses in the North.

Still, he added, “I am afraid and worried that we could be in danger if hostilities get worse. But, as a businessman, I am trying to do my best under the circumstances.”

Garretson doesn’t believe either country will “pull the plug” on the complex, because too much would be lost for both sides.

“It is a point where they meet, so there’s going to be friction,” he said.

The complex for both sides “is very profitable. At the same time, the communication is there for both sides,” said Son, the Canadian lieutenant commander with the U.N.

“I’m ethnically Korean … and I hope things work out,” he said. “I would love to come back here one day and take a tour of North Korea.”

According to the Donga Ilbo:

North Korea seeks to directly handle tours to the Mount Kumgang area after forcing South Korea out of the venture, said a source on North Korean affairs yesterday.

Korea Taepung International Investment Group, an agency under the North’s powerful National Defense Commission, has reportedly recruited Chinese companies to help operate the tour since January this year.

The source said, “Negotiations have significantly progressed in certain aspects,” adding, “I understand the North Korean leadership is considering directly operating the Mount Kumgang tour by getting Taepung or an agency under the National Defense Commission to hire multiple Chinese companies as agencies after forcing the Hyundai Group out of Mount Kumgang and Kaesong.”

Another informed source said, “Since Taepung is an agency that holds overall authority over attracting investment for the North’s national development, the group is believed to be advising and supervising efforts to resume the Mount Kumgang tour as well.”

On this, a South Korean government source said, “Even if the North severs ties with Hyundai Asan Corp., complicated legal action will continue over the North’s violation of the contract,” adding, “No Chinese company will seek to serve as a comprehensive business operator, so the new plan appears to be the most practical alternative for North Korea.”

If Taepung or an agency under the defense commission starts to operate the tour directly, the tour program will likely be operated under a completely different system.

The tour’s South Korean operator, Hyundai Asan, has wielded comprehensive and monopolistic rights to the venture, but North Korea appears to have taken over as the operator, with multiple foreign companies taking part.

An agency under the North’s defense commission or military will likely step forward to operate the tour in lieu of Pyongyang’s Asia-Pacific Peace Committee under the ruling Workers’ Party or the Landmark General Development Bureau under the North Korean Cabinet.

And according to Yonhap:

Dozens of South Korean business officials will visit North Korea this week to comply with Pyongyang’s demand that they be present when the communist state freezes their assets at a joint mountain resort, officials said Monday, amid fears of further confiscation.

North Korea already confiscated five South Korean government-run facilities, including a family reunion center and a fire station, at its Mount Kumgang resort on the east coast last week.

The move reflected Pyongyang’s anger over Seoul’s refusal to resume cross-border tours that were halted in 2008 after the fatal shooting of a South Korean tourist by a North Korean guard near the resort.

North Korea insists it has done everything to explain the shooting and guarantee safety for future South Korean visitors. South Korea doubts the genuineness of the gestures, demanding an on-site probe participated in by its officials and tangible safety measures.

The tours earned millions of U.S. dollars for the sanctions-hit North Korean regime before they were suspended. The North Korean demand for their resumption comes as the isolated state struggles to curb its economic troubles that deepened under U.N. sanctions imposed for its two nuclear tests, the latest in May last year.

An official at Hyundai Asan, the chief South Korean operator of the now-suspended tours, said 40 people from 31 companies, including his own, applied for permits to visit North Korea on Tuesday.

The North last week demanded “real estate proprietors and agents” attend the implementation of its plan to freeze their assets, which include hotels, a golf course and a variety of shops.

Officials at the Unification Ministry in Seoul said they plan to grant the permits.

“It is our basic stance that we respect the decisions of the companies,” spokesman Chun Hae-sung said.

Dozens of South Korean firms possess 360 billion won (US$320 million) worth of real estate in the mountain tourist zone.

During a meeting with Hyundai Asan officials stationed at the resort Monday morning, North Korea did not specify which companies should attend the freeze this week, a ministry official here said.

“The North Korean authorities remained ambiguous,” the official said, declining to be identified. “That will leave the door open for anyone wanting to visit North Korea this week.”

South Koreans fear Pyongyang may be taking steps to confiscate more South Korean assets. The North seized the Seoul government-run facilities 10 days after freezing them and expelling personnel.

South Korea has pledged retaliatory measures without being specific. A senior Unification Ministry official, who spoke on the condition of anonymity, said Monday the measures would be announced by early May.

South Korea also warned North Korea will be to blame for any further deterioration of relations between the divided states.

The Korea Herald speculates on how the South Korean government might retaliate:

The government is reportedly considering limiting the volume of agricultural and marine products from North Korea or tightening regulation of imports in other ways.

Certain North Korean items, such as sand, hard coal and mushrooms, already require the unification minister’s approval each time someone wants to bring them into the South. Seoul could expand the number of such items, making the import process more troublesome.

Currently, South Korean materials going into the joint industrial park in the North’s border town of Gaeseong and products rolled out from factories there account for more than 60 percent of inter-Korean trade.

Last month’s inter-Korean trade volume amounted to $202 million, 63 percent of which were goods going in and out of the Gaeseong park.

Since cross border tours to Mount Geumgang have been stalled, most of the remaining inter-Korean trade volume (35 percent) consists of agricultural and marine products.

Although the growth of inter-Korean trade has slowed under the Lee Myung-bak administration, South Korea is still the North’s second largest trading partner after China, according to the Unification Ministry.

Inter-Korean trade accounts for about 30 percent of the North’s trade with other countries, while China takes up about half.

The Seoul government could also further restrict nongovernmental aid to the North, which it has limited ever since Pyongyang launched a rocket in April last year.

It could also engage to the international community about the North’s “wrongful measures.”

Read the full stories here:
N. Korea to Directly Take Over Mt. Kumgang Tour
Donga Ilbo
4/26/2010

S. Koreans to visit N. Korea as Pyongyang moves to freeze their assets
Yonhap
Sam Kim
4/26/2010

Seoul may cut trade with N. Korea
Korea Herald
Kim So-hyun
4/25/2010

According to Yonhap:

A group of North Korean officials, including military officers, were inspecting an inter-Korean factory park in the North this week, a Seoul official said Tuesday, amid concerns Pyongyang may be moving to put the brakes on the long-running symbol of reconciliation.

The inspection, which began Monday with an abrupt notice, was reminiscent of a similar visit in December 2008. Six days later, the communist state temporarily banned South Korean access to it.

Eight North Korean officials, including a senior director of the National Defense Commission (NDC), inspected a South Korean company and some facilities such as a substation and roads in Kaesong on Tuesday, Unification Ministry spokesman Chun Hae-sung said.

The NDC is the highest seat of power in the North, chaired by leader Kim Jong-il. The visitors included uniformed officers who asked both South Koreans and North Koreans at the park rudimentary questions about their operations, Chun said.

“A wide range of questions was asked, such as items produced, the productivity of North Korean workers, the capacity of the sewage, and how certain facilities are maintained,” Chun told reporters.

More than 110 South Korean firms employ some 42,000 North Korean workers at the Kaesong industrial park, born out of the first inter-Korean summit in 2000. The park began operating in 2004.

Pyongyang said on April 8 that it would “entirely reevaluate” the park if relations between the sides do not improve, while ditching Seoul as a partner for joint tours to its eastern mountain resort.

The DRPK recently inspected the Kumgangsan resort before “seizing” several of the facilities.  The Kaesong Zone has been inspected several times before as well.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Nautilus Institute Policy Forum Online 10-015A
Aiden Foster-Carter
3/4/2010

Too many Kim Yong-ils

Korean names can set traps for the unwary. Amid a multitude of Kims, almost all unrelated, North Korea adds an extra twist. German speakers, and some others, tend to mispronounce the J in Kim Jong-il as a Y. Not only is this incorrect, but currently it can confuse; for North Korea’s Premier – head of the civilian Cabinet, as distinct from the Dear Leader who chairs the more powerful National Defence Commission (NDC) – is named Kim Yong-il.

To add to the confusion, another Kim Yong-il was until recently vice foreign minister (one of several), but in January became director of the ruling Workers’ Party of Korea (WPK)’s international department: a post apparently vacant since 2007. As such, this Kim Yong-il met his Chinese counterpart Wang Jiarui, head of the Chinese Communist Party (CCP)’s international liaison department, when Wang visited Pyongyang in early February. Since his promotion, Kim Yong-il 2 (as it may be best to call him) has been reported as frequently at Kim Jong-il’s side. This suggests he may see far more of the Dear Leader than does anyone else involved in DPRK foreign policy, including the man hitherto thought to be the eminence grise on that front: first vice foreign minister Kang Sok-ju, who negotiated the 1994 Agreed Framework with the US. It was Kang whom the current US special envoy on North Korea, Stephen Bosworth, demanded to meet when he visited Pyongyang in December, rather than the North’s main nuclear negotiator Kim Kye-gwan: a more junior deputy foreign minister.

Or is Washington behind the curve? That Kim Yong-il 2 is the DPRK’s new foreign affairs head honcho seemed confirmed on February 23, when he turned up in Beijing and went right to the top: going straight into talks with President Hu Jintao and separately with Wang Jiarui. This flurry of activity suggests two possibilities. Either Kim Jong-il will soon visit China, as he is overdue to do; or North Korea may return to the nuclear Six Party Talks (6PT), which have not met in over a year. Or perhaps both, if we are especially fortunate.

If both Kim Yong-ils are now leading players, perhaps one of them could change his name? That is not a frivolous suggestion. Some DPRK officials do this, for no clear reason. Often the change is small, so this is not a case of deception. Thus Paek Nam-sun, DPRK foreign minister – meaning chief meeter and greeter rather than top negotiator – from 1998 until his death in 2007, was originally Paek Nam-jun. Ri Jong-hyok, who as vice-chairman of the Asia-Pacific Peace Committee (APPC) now handles relations with the South, was Ri Dong-hyok in the 1980s when this writer knew him as head of North Korea’s mission in Paris.

(For completeness, yet another Kim Yong-il was Kim Jong-il’s late half-brother. He died of liver cirrhosis in 2000 aged only 45 in Berlin, where he had a diplomatic posting tantamount to exile – as his elder brother Kim Pyong-il, the DPRK ambassador to Poland, still does.)

Jong and Yong both say sorry

The past month saw both Chairman and Premier Kim doing something almost unheard of in Pyongyang. Apparently they both said sorry, although some reports got the two muddled up.

On February 1 Rodong Sinmun, daily paper of the ruling Workers’ Party of Korea (WPK), reported Kim Jong-il as lamenting his failure to fulfil his late father Kim Il-sung’s pledge, to which he had also alluded shortly before on January 9, that all North Koreans would eat rice and meat soup (everyday fare for even the poorest South Korean, be it noted). This time Kim said: “What I should do now is feed the world’s greatest people with rice and let them eat their fill of bread and noodles. Let us all honour the oath we made before the Leader and help our people feed themselves without having to know broken rice [an inferior version]”.

Given Kim Jong-il’s own notoriety as gourmet and gourmand, his professed “compassion” for his less fortunate subjects’ deprivation may induce queasiness. Yet even this not-quite-apology glosses over the truth. Broken rice? They should be so lucky. As readers of Barbara Demick’s excellent and heartbreaking new book Nothing to Envy will know, rice of any kind – whole or broken – is a rare luxury for most North Koreans. In the late 1990s a million or so starved to death; even today most remain malnourished. One refugee who fled to China saw her first rice in years in the first house she came to – in a dog’s bowl. That is the true reality.

Worse, all this was and is avoidable: the result of stupid and vicious policies, not the natural disasters that the regime blames. The real cause was the government’s failure to adapt in the 1990s after Moscow abruptly pulled the plug on aid. This hurt other ex-Soviet client states too. Cuba went for tourism; Vietnam tried cautious reform; Mongolia sold minerals. North Korea, bizarrely, did nothing – except watch its old system break down and growth plunge.

In a speech at Kim Il-sung University in December 1996, when famine was seriously biting, Kim Jong-il lashed out at the WPK and uttered this petulant but very revealing whinge:

In this complex situation, I cannot solve all the problems while I have the duty of being in charge of practical economic projects as well as the overall economy, since I have to control important sectors such as the military and the party as well. If I concentrated only on the economy there would be irrecoverable damage to the revolution. The great leader told me when he was alive never to be involved in economic projects, just concentrate on the military and the party and leave economics to party functionaries. If I do delve into economics then I cannot run the party and the military effectively.

Evidently Bill Clinton’s famously apt watchword, which helped him win the presidency in 1992, had not breached North Korea’s thick walls and heads. It’s the economy, stupid! The paternal advice was dead wrong. (The full speech can be read on the much-missed Kimsoft website. Unsurprisingly it is not part of the DPRK’s official canon of the dear leader’s works, but the scholarly consensus is that it is genuine. A slightly different version appears here.)

Redenomination disaster

Mass starvation, you might hope, would prompt some soul-searching and fresh thinking. From mid-2002 North Korea did essay cautious market reforms, but recently it has tried to squash Pandora back in her box. The latest such crass effort, a currency redenomination that deliberately wiped out most people’s meagre savings, was discussed in December’s Update.

By all accounts this has backfired badly, sparking runaway inflation (which it was supposed to stanch) and even riots. Forced on the defensive, the regime has issued an unprecedented apology. This being North Korea, it has not done so publicly; there are limits. Nor, in 2010 as in 1996, is Kim Jong-il about to take the rap, despite some newswires confusing J with Y.

But reliable intelligence claims that on February 5 Premier Kim Yong-il called all leaders of neigbourhood groups (inminban) to Pyongyang. The lowest unit in the DPRK’s still tight system of socio-political control, each comprises 20-40 households. This suggests that over 10,000 people heard the premier say what no leader had ever said to them before: sorry. In his words: “I offer a sincere apology about the currency reform, as we pushed ahead with it without sufficient preparation and it caused a great pain to the people… We will do our best to stabilize people’s lives.” The audience’s reaction is not recorded.

The situation on the ground remains confused, but markets appear to be functioning again unhindered. Good Friends, a seemingly well-informed South Korean Buddhist NGO, said on February 18 that after examining a report on food shortages and conditions nationwide by the Office of Economic Policy Review, the WPK Central Committee issued an ‘Order for Absolutely No Regulation Regarding Foodstuffs’. All markets are to reopen as they were before recent government crackdowns, and under no circumstances must local authorities try to regulate food sales – “until central distribution is running smoothly.” There may be a sting in that tail, but for now this is a complete, humiliating government U-turn and climbdown.

This is an astonishing episode, which history may record as pivotal. If the leadership learns its lesson and finally accepts that the market economy is as ineluctable as gravity, then the DPRK might conceivably survive on a reconstituted economic base and social contract, like today’s China or Vietnam. But if Kim Jong-il (or whoever) keeps trying to square the circle, under the delusion that correct politics is a substitute for sound economics, there is no hope.

Sea shells

Relations with South Korea remain an odd blend of sabre-rattling and dialogue. Four times in the past month, starting on January 25 and most recently on February 19, the North has declared a series of no-sail zones for varied time periods. Some of these adjoin two ROK-held islands close to the Northern coast, Baengnyong and Daechong. For three days (January 27-29) the Korean People’s Army (KPA) fired volleys of artillery shells near the Northern Limit Line (NLL): the de facto western sea border since 1953, which the North rejects.

Though no shells actually crossed the NLL, on the first day the South called this provocative and fired back – but again only within its own waters south of the line. By late February, a Southern defence spokesman called the latest shelling “a routine situation that is part of the North’s winter military exercise”, adding that this may go on till the end of March. Routine or not, a report submitted to the ROK National Assembly’s Defence Committee on February 19 said Pyongyang has reinforced its military along the west coast of the peninsula and has strengthened military drills.

Kaesong and Kumgang remain unsettled

The shelling did not stop the Koreas talking about their two joint venture zones just north of the Demilitarised Zone (DMZ). But they got nowhere, beiing far apart on the agenda, format and venue for talks. On the Kaesong Industrial Complex (KIC) – see last month’s Update for more details – the North suggested that the South’s issues – it wants smoother cross-border passage – were best left to military-level talks, which in the past have handled issues relating to the border and security. The South agreed, proposing February 23 at the border village of Panmunjom: the venue for all military meetings hitherto. The North then counter-proposed March 2, at Kaesong; but on February 22 the South said it will insist on Panmunjom, rather than set the precedent of holding a military meeting inside North Korea. With both venue and agenda still in dispute, the chances of progress on the substantive issues looks remote.

Mount Kumgang tours remain suspended

Separately, South Korea with some misgivings accepted the North’s request for talks on resuming tours to the Mount Kumgang resort, suspended since a Southern tourist was shot dead there in July 2008. At the talks held in Kaesong on February 8, North Korea asked for tours to restart from April 1. It breezily declared that the South’s three conditions – a probe into the shooting, efforts to ensure no repetition, and a cast-iron safety guarantee – had been met. But as the North well knows, the South’s key demand is to send in its own investigating team – which the North resolutely refuses. The Northern side proposed continuing the talks on February 12, but the South declined unless the North accepts their three conditions first.

More arms are interdicted

UN sanctions imposed last June after North Korea’s second nuclear test seem to be biting. In February South Africa told the Security Council that in November it inspected a ship headed for the Congo Republic (Congo-Brazzaville). The French owners reported suspicions about cargo they took on in Malaysia from a Chinese vessel. Seizing the containers, South Africa found that what the manifest called “spare parts of bulldozer” were in fact tank components. The shipping agent, and likely origin, is North Korean. China said it will investigate its own vessel’s role in the affair. UN resolution 1874 bans almost all DPRK weapons exports.

More ambiguously, on February 11 Thailand dropped charges against the crew of a plane seized in December and found to contain 35 tonnes of weapons from North Korea, including five crates of Manpads (man-portable air defence systems) which terrorists can use to shoot down aircraft. Next day all five were put on a flight to Almaty. Four are Kazakhs, and their government had asked that they be sent home to be tried. It will be dismaying if they are not.

According to the Associated Press:

Military officials from the two Koreas communicated through new fiber-optic cables to help facilitate the travel of 330 South Koreans heading to an industrial complex in the North on Wednesday, Unification Ministry spokeswoman Lee Jong-joo said.

South Korea has sent fiber-optic cables and other equipment to the North to help its communist neighbour modernize its military hot lines with the South, she said.

The new hot lines replaced outdated copper cable hot lines that will remain as spare lines, said Lee, the spokeswoman.

The new hot lines will serve as a key mode of communication for border crossings for people travelling to and from the joint industrial complex at the North Korean border town of Kaesong, she added.

I assume the upgrade to fiber optic means that the bureaucracy of border crossing has been computerized.  Rather than reading information across the phone line border officials can now send it electronically (including photos) to speed up processing on the North Korean side of the border.

Read the full story here:
Divided Koreas open new, updated military hot lines to facilitate border crossings
Associated Press (via Winnipeg Free Press)
12/29/2009

According to Yohnap:

Production at the Kaesong complex reached US$27 million in October, up 12.1 percent from $24 million a month earlier, the Unification Ministry said. The October figure also represents a 16.9 percent increase from a year ago.

The overall increase was attributed notably to strong output from machinery and electronics manufacturers, which climbed 26.2 percent and 25.5 percent, respectively. Foodstuff and textile goods also enjoyed 24.9 percent and 8.6 percent increases, respectively.

Exports from the complex, however, shrank 9.1 percent from a month ago to $3.11 million, mostly due to a decline in machinery shipments, according to the ministry.

There are currently 116 South Korean firms operating in Kaesong, matching their capital and technology with the cheap but skilled labor of 42,000 North Korean employees.

Read the full article below:
Production at Kaesong complex rises in October
Yonhap
12/29/2009

Institute for Far Eastern Studies (IFES)
NK Brief No.09-11-30-1

In an effort to seek new ways to develop the inter-Korean joint industrial complex in Kaesong, it is expected that the first joint complex between China and Vietnam will be inspected in the middle of next month. According to a high-ranking official in the South Korean Ministry of Unification, “If the Kaesong Industrial Complex (KIC) is to be made into an internationally competitive industrial complex, [we] need to take a close look at the processes and structure of the international market,” and, “In order to develop the KIC, we decided to inspect a foreign industrial complex, and the North has agreed.”

This inspection was agreed upon during the second round of inter-Korean working level talks in June, and is being looked at as a breakthrough in restarting talks between officials from the North and the South. The source added, “The thought is that the inspection will be of a China-Vietnam industrial complex,” and, “If this overseas inspection goes well, the 3-C problem (Communication, Conveyance, Customs) and issues of visits and sojourns by South Koreans in the complex, dormitories for the North Korean workers, the construction of roads for coming to and from work, and other issues will be advanced.”

The inspection team will include 10 officials from North Korea and 10 from the South, and plans to visit the site for ten days beginning on the 12th of next month. The South Korean delegation is expected to include representatives from the Ministry of Unification, the Ministry of Knowledge Economy, Korea Land Corporation, and members of the KIC management committee. The agreement between the two Koreas to inspect an overseas industrial zone is seen as a sign that inter-Korean relations are improving. It appears that North Korea is continuing to work toward improving inter-Korean relations.

At the very least, it looks like this inspection will foster an atmosphere in which Seoul and Pyongyang can resolve all of the problems, listed above, surrounding the KIC. In June of 2007, 14 Koreans, 7 from the North and 7 from the South, spent ten days and nine nights inspecting the joint Chinese-Vietnamese industrial complex, so expectations are that this visit will further boost inter-Korean relations and KIC competitiveness.

This story was also reported in the Joong Ang Ilbo:

The Unification Ministry announced yesterday that 10 officials from ech country will visit China and Vietnam for about 10 days in mid-December. Ministry spokesman Chun Hae-sung said the two Koreas will continue to discuss detailed itineraries and the makeup of the delegations. Chun added that the trip will be financed by the South’s inter-Korean cooperation fund. It is the third such joint trip to overseas industrial sites, but the first during the Lee Myung-bak administration. The previous two trips took place in June 2005 and March 2007.

The two Koreas have held four rounds of mostly fruitless working-level discussions on Kaesong this year and wrangled over land use fees and wage increases. During the second meeting in June, the South proposed a joint overseas trip, and Chun said the North recently agreed. “We hope the trip will allow the two Koreas to build a consensus on stable development of the Kaesong complex,” he said. “The officials will study legal structures, incentives designed to draw investments and customs clearance. We expect Kaesong to grow into a globally competitive complex.”

While it appears intent on improving inter-Korean ties at Kaesong, Seoul is in no hurry to resume suspended tourism to the North’s Mount Kumgang.