North Korean Economy Watch

By 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.

According to the Choson Ilbo,

The North Korean regime wants to divert some of budget for the all-powerful military to the civilian sector and increase exports of mineral resources to China in its Quixotic quest to become “a powerful and prosperous nation” by 2012.

A senior member of the Workers Party who attended a meeting held in Chongjin, North Hamgyong Province on Monday was quoted by Radio Free Asia as saying, “This year, the party decided to divert some of the budget earmarked for the munitions industry to the people’s economy to develop the light industry.”

“People will undergo a sea change in their lives next year when we reach the goal to become an economic power,” the U.S.-funded broadcaster quoted a senior party official from North Pyongan Province as saying. “There’ll be big investments.”

The North did not even reduce military spending even during the famine of the mid to late 1990s, when more than a million people starved to death, telling people to “tighten belts until the peninsula is reunited.” The regime’s annual military spending is estimated at about US$1.7 billion.

A South Korean security official said the North managed to overcome a food shortage early last year by releasing some rice from its military stockpiles, “but it may not be as easy this year.”

Meanwhile, the regime has been increasing exports of mineral resources to China to earn hard currency.

“In 2009, Kim Jong-il banned exports of coal after receiving a report that factories weren’t working due to coal shortage, but the regime sold $300 million worth of coal to China in 2010,” a North Korean source said.

Coal accounted for 30 percent of the North’s total exports to China of about $900 million last year.

A Chinese businessman dealing with the North said in early December last year, a delegation from Resources Development Corporation of the North’s National Defense Commission agreed with the Chinese province of Liaoning on the development of 350 million yuan worth of graphite in the North. He added Chinese officials last November looked around Pyoksong, Yonchon and Haeju in Hwanghae Province, which have abundant graphite deposits.

The regime ordered officials to earn hard currency by selling coal from Pukchang, South Pyongan Province, and iron ore from Unyul, Hwanghae Province, to China, a member of a North Korean defectors organization said.

Read the full story here:
N.Korea Diverts Military Budget to Light Industry
Choson Ilbo
1/7/2011

According to the Hankyorey:

A report on major North Korean indicators released by Statistics Korea on Wednesday revealed that South Korean products are becoming increasingly popular in North Korea, and that there are hardly any North Korean urban youth who do not watch South Korean TV dramas or movies.

In the report, Statistics Korea said it is becoming a fad for young people in major North Korean cities like Pyongyang and along the border with China to watch South Korean television dramas and films using MP3 players or laptop computers. Statistics Korea said MP3 players with 1G of memory cost 60,000 North Korean Won (estimated $419), while a used laptop costs about 2 million North Korean Won. A memory chip with two or three movies costs 10,000 North Korean Won if it is an original, and 5,000 North Korean Won if its a copy.

The report also said many South Korean products are in circulation in North Korea, including blenders, portable heaters, gas ranges, butane cans, lunch trays, gas heaters, rice cookers, dishrags and gloves. According to the report, South Korean shampoo and conditioner is popular with the wives of high-ranking North Korean officials in Pyongyang. Some 470g bottles of South Korean shampoo and rinse go for 40-50 yuan (8,000-10,000 South Korean Won) in Pyongyang. The report said the popularity of South Korean products was also reflected in other goods. South Korean necklaces are sold for about $500 and earrings for about $70-80, while South Korean products like perfume, deodorant, car air fresheners, refrigerator deodorizer and bathroom air fresheners are also selling well.

South Korea’s nominal GNI in 2009 was $837.2 billion, 37.4 times that of North Korea’s $22.4 billion. North Korea’s economic power, all told, is no more than the level of the South Korean city of Gwangju (about 22 trillion Won). South Korea’s per capita income of $18,175 was 17.9 times that of North Korea’s $960. South Korea also conducted $686.6 billion in total trade, 201.9 times that of North Korea, which conducted only $3.4 billion. The only sectors in which North Korea topped South Korea were production of iron ore and coal and length of railroads. North Korea’s iron ore production was 4.955 million tons, ten times that of South Korea (455,000 tons), and its coal production was 25.5 million tons, 10 times that of South Korea (2.519 million tons). North Korea also had 5,242km of railroads, 1.4 times that of South Korea’s 3,378km. North Korea is also believed to have 7 quadrillion Won in underground mineral wealth.

I have been unable to locate the original on the Statistics Korea page.  If any readers can find it, please let me know.

Read the full story here:
In limited N.Korean market, furor for S.Korean products
Hankyoreh
Hwangbo Yon
1/6/2011

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

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
1/4/2011

Institute for Far Eastern Studies (IFES)
NK Brief No.10-12-3-2
12/3/2010

North Korean trade with China has jumped 26.7 percent during the first eight months of the year, with the bulk of its imports made up of crude oil, and its largest export being coal. Despite the increasingly severe food shortages in the North, food imports from China were actually down 7.5 percent, while on the other hand, fertilizer imports shot up by 162 percent.

The Korea Trade-Investment Promotion Agency (KOTRA) looked into the Chinese government’s import and export figures and determined that North Korean exports to China during the first eight months of the year were worth 650,000 USD, 20.6% more than during the same period last year, while DPRK imported 1.345 billion USD-worth of goods (30% increase), for trade worth a total of 1.995 billion USD, 26.7 percent more than 2009.

“Mineral fuel and mineral oil” topped the list of North Korean imports (321,000 USD), with crude oil (229,000 USD) and oil (63,000 USD) making up 90.7 percent of imported goods. However, while crude imports were 53 percent more expensive, the amount of oil imported only rose by 2.3 percent; the sharp increase in expenditure was due to climbing international oil prices. The second- and third-largest imports were listed as “nuclear reactor, boiler, and machinery” (127,000 USD) and “electromagnetic machinery, sound and video equipment” (106,000 USD). Other imports included cars and car parts, steel and steel goods, plastic and plastic goods, artificial filament, fertilizer, and grain. A KOTRA official stated that while “nuclear reactor” was listed among the goods imported by the North, there is no way to verify the Chinese statistics.

North Korea’s grain import expenditures increased by five percent, to 34,000 USD, but overall grain imports fell 7.5 percent, to 102,000 tons, due to increased costs. More specifically, rice import expenditures were up 8.4 percent to 16.6 million USD, but the amount of rice imported fell by six percent, to 38,400 tons. Corn expenditures dropped by one percent to 16.3 million USD while the amount imported fell by ten percent, to 62,000 tons. The cost of barley imports grew 190 percent, to 353,000 USD, with the amount of barley brought into the country up 89 percent to 1,011 tons. 277,000 tons of fertilizer were imported, 162 percent more than last year, at a cost of 40 million USD, 85 percent more than 2009. Almost all of the fertilizer was nitrogenous.

North Korea’s exports to China were made up largely of mining and fisheries. Coal topped the list (191,000 USD), although the amount sent across the border was 31 percent less than last year. Iron ore was second, and was not only down by 34 percent, it brought in 134 percent less than 2009, as it was worth only 111 million USD. Textiles and accessories worth 81 million USD, steel worth 64 million USD, and mollusks worth 32 million USD were also sent to China.

Click image to see all the prices

According to the Daily NK:

Winter is a tough time for average North Koreans, with a number of demanding economic issues to deal with. This year, as the traditional season for making “kimchi”, the indispensible side dish on any Korean dining table, approaches, ingredient prices in the market are become a focus for concern.

This is only the second winter since the currency redenomination of November 30th, 2009. Since then, prices have fluctuated unpredictably throughout the year due to various economic and political uncertainties. As a result, the overall situation now is not radically different from the period of high prices before the redenomination.

According to one inside source from North Hamkyung Province who spoke with The Daily NK on November 9th, “Wealthy people will have already finished preparations for heating and kimchi by the end of October; however, those belonging to underprivileged groups have not even prepared the kimchi for winter yet.”

According to the source, Chinese cabbage, the core constituent of the most popular form of kimchi, was being sold for as much as 100 won/kg and white radish for 60 won/kg in the market in Hoiryeong in North Hamkyung Province in recent days. The core seasonings for many forms of kimchi, garlic and dried red chili pepper powder, were being sold for 3,800 and 4000 won/kg respectively.

On October 25th, 2009, shortly before the currency redenomination, Chinese cabbage was being sold for 200 won, white radish for 150 won, garlic for 3,000 won and dried red pepper powder for 7,000 won in the same market. Thus, many of the effects of the currency redenomination appear to have been disguised by price inflation.

For a family of four, 500kg of Chinese cabbage and 300kg of white radish is needed to see them through the winter. To meet that requirement in full would, at current prices, require 50,000 won for cabbage and 18,000 won for white radish. Add in the price of the seasonings, including salt and green onion in addition to garlic and red pepper powder, and the total price is close to 100,000 won.

Other aspects of winter life are no less problematic. Heating is one example. For a household burning coal, a couple of tons are burnt between November and March. Currently, the price of coal in Hoiryeong market is around 20,000 won per ton. Meanwhile, houses which are heated with wood need roughly enough to fill two ‘Seungli-58′ trucks, or approximately five tons. Such a quantity costs 50,000~60,000 won (7,000 won/cart in Hoiryeong) at the current market price.

Another key factor in a comfortable winter is vinyl for shielding houses against the winter wind. This is now selling for 400 won/m. Most North Korean houses have three windows, to which people living in North Hamkyung and Yangkang Province apply two layers of vinyl, meaning that each household needs ten meters on average, including that to cover the door.

Therefore, taking Hoiryeong market as the average, people need a minimum of 150,000 won to prepare for the winter. When the average North Korean worker’s salary is between 1,500~3,000 won, it is clearly very hard for most to endure the winter in comfort.

According to the source, “The conditions in a household are revealed by the amount of dried red pepper powder in their winter kimchi. An affluent family’s kimchi is red and appetizing, but an poor family’s kimchi is like white kimchi with a few pieces of dried red pepper powder on the top.”

Read the full story here:
The Chilly Economic Wind of Winter
Daily NK
Yoo Gwan Hee
11/10/2010

Daily NK
Min Cho Hee
5/11/2010

In a move sure to add weight to suspicions that North Korean industry is in the midst of a very serious funding crisis, a source has reported to The Daily NK that the Chinese partner has taken unprecedented power in a new mining joint venture in North Hamkyung Province.

The inside source reported on Sunday that when Saebyul Coal Mining Complex, a North Korean mining management organization, sealed a contract between Gogunwon Coal Mine, Ryongbuk Youth Coal Mine and a Chinese enterprise, it agreed to hand over an unheard of degree of discretion in affairs of personnel management, materials and working methods to the Chinese enterprise.

The source explained, “Now, the Chinese enterprise has authority over staffing, food distribution, wages and materials. Accordingly, it has reduced the administrative staff and drastically improved productivity.

According to the source, the Chinese are guaranteed operational independence free from the control and instruction of the Saebyul Party committee, and take 60% of net profits. If true, this is a new model of collaboration and cooperation in business between China and North Korea.

The source added, though, “The number of people in the Party committee has also been reduced, though it is unlikely to be got rid of completely due to the nature of the North Korean system.”

He said, “Since last year, North Korea has been trying to attract Chinese investment and three or four Chinese companies have been in negotiations over mine development in this way.”

The Chinese enterprise plans to convey the lignite produced in the mines to China, process it there and sell it domestically.

The source noted, “North Korean workers are delighted with this method of collaboration. They get guaranteed wages and food, and the working environment has also improved thanks to new, stronger mining timbers, so productivity has increase.”

In the cafeterias at the mines, they serve 900g of rice to everyone, and pork and eggs, which workers like. According to the source, “Workers want to take meals served in the cafeteria home for their family members. In this worker-friendly mood, Party cadres are unable to complain.”

Gogunwon Coal Mine and Ryongbuk Youth Coal Mine are both located in the “Gogunwon Workers” district of Saebyul, North Hamkyung Province. They both contain good quality coal seams, and are among the best coal mines in North Korea.

Another source from North Korea suggested on Monday that North Korea is losing a lot of control of the economy in its northern provinces, saying, “The purse strings in the border regions of our country have basically been handed over to China, and ‘our socialist pride’ is in the hands of China. Any factory where they produce even a small amount of goods has been invested in by the Chinese”

According to KCNA:

Report on Implementation of 2009 Budget and 2010 Budget
 
Pyongyang, April 9 (KCNA) — Deputy Pak Su Gil, vice-premier and minister of Finance, delivered a report on the results of the implementation of the DPRK state budget for last year and its state budget for this year at the 2nd Session of the 12th Supreme People’s Assembly held on Friday.

According to the report, the state budget for last year was successfully implemented and, as a result, the state budgetary revenue was overfulfilled 1.7 per cent, an increase of 7 per cent over the previous year.

Ministries, national institutions, management bureaus and complexes overfulfilled the national plans for budgetary revenue and all provinces, cities and counties across the country also overfulfilled their plans for local budgetary revenue.

Last year’s plan for state budgetary expenditure was carried out at 99.8 per cent.

An investment from the state budget was focused on the development of metal industry while a huge financial allocation was made for the power and coal industries and the railway transport.

8.6 per cent more funds than the previous year were spent for capital construction and expenditure was increased for agriculture and light industry.

A 7.2 per cent greater financial disbursement than the previous year was made for the field of science and technology, surpassing the level of the latest science and technology in domains of space technology, nuclear technology and CNC technology and putting the key industries of the national economy on a high scientific and technological basis.

A large amount of fund went to the field of cultural construction and 15.8 per cent of the total state budgetary expenditure was spent for national defence.

The reporter said that the scale of revenue and expenditure in the state budget for this year has been set on the principle of improving the people’s standard of living to meet the requirements of the policy of the Workers’ Party of Korea on conducting a great offensive to bring about a decisive turn in the above-said work.

This year’s plan for state budgetary revenue is expected to grow 6.3 per cent over last year. The revenue from the profits of state enterprises, the main source of state budgetary revenue, is expected to go up 7.7 per cent over last year, that from the profits of cooperative organizations 4.2 per cent, that from the fixed asset depreciation 2.5 per cent, that from real estate rent 2 per cent and that from social insurance 1.9 per cent.

This year’s plan for state budgetary expenditure is expected to show an 8.3 per cent increase over last year.

The spending for the light industry is expected to go up 10.1 per cent, that for agriculture 9.4 per cent and that for metal, power and coal industries and railway transport 7.3 per cent as compared with last year.

The expenditure for the machine-building industry is expected to go up and an 8.5 per cent bigger financial allocation will be made for scientific researches and the introduction of new technologies.

A 6.2 per cent bigger financial disbursement than last year is expected to be made to more successfully enforce the popular policies, a proof of the advantages of Korean-style socialism centered on the popular masses.

15.8 per cent of the total state budgetary expenditure for this year is expected to be spent for national defence.

It is expected that a large amount of educational aid fund and stipends will be sent for the children of Koreans in Japan this year, too.

In order to successfully implement this year’s state budget, all domains and units of the national economy should work out enterprising and realistic business strategy and management strategy and tenaciously carry them out by relying on a high degree of mental power of the producer masses and thus fulfill the plans for budgetary revenue without fail, stressed the reporter.

And according to the Choson Ilbo:

North Korean leader Kim Jong-il can freely dispose of 20 percent of his country’s budget, a former secretary of North Korean Workers’ Party has said that. Hwang Jang-yop told the Asahi Shimbun, “Only 30 percent of the budget is spent on public services, while 50 percent is earmarked for military spending.” Hwang defected to South Korea in 1997.

Hwang was interviewed by the daily during his visit to Japan on April 4-8. “Kim Jong-il’s dictatorship is 10 times worse than his father’s. People have a painful life,” he said.

Asked if the North is likely to abandon its nuclear weapons program, he said, “There is no such possibility. But the North won’t use the weapons. They’re a means to maintain the regime.”

To the question why Kim’s eldest son Jong-nam was passed over for the succession, he said, “At first, Kim Jong-il thought of choosing his eldest son as his successor. But he seems to have changed his mind as he fell in love with Ko Young-hee, the mother of Jong-un, his third son, after Jong-nam’s mother Song Hye-rim died.”

Commenting on the North’s bizarre abductions of Japanese citizens in the 1970s and 80s, he said, “The North needed native Japanese to train agents who would work in Japan.”

Read the full story here:
Kim Jong-il ‘Gets 20% of N.Korea’s Budget for His Own Use’
Choson Ilbo
4/12/2010

Photo by Eric Lafforgue

North Korean claims record production gains through ‘150-day battle’
Institute for Far Eastern Studies (IFES)
NK Brief No. 09-10-12-1
10/12/2009

It has been boasted that North Korea’s ‘150-day Battle’ to boost the economy (April 20-September 16) resulted in record-breaking jumps in DPRK production numbers, and it has been suggested that that by 2012, some enterprises will “attain production numbers higher than the best numbers recorded at the end of the 1980s.” This claim was made by Ji Young-il, the director of the Chosun University Social Science Research Institute, which is run by the pro-Pyongyang “General Federation of Korean Residents in Japan.”

In “Professor Ji Young-il’s Monthly Economic Review: The 150-day Battle and Prospects for Building an Economically Powerful Nation,” an article in the federation’s newspaper, Choson Sinbo, the author wrote, “There are more than a few enterprises that have set production goals for 2012 at more than three times the current level of production.” He also claimed that some enterprises in the mining, energy and railroad transportation sectors had set goals of as much as 6 times today’s production numbers.

Professor Ji went on to write, “Basically, it is an extraordinary goal ensuring growth of 1.3-1.5 times (a growth rate of 130-150%) per year.” He also explained that surpassing production rates as high as those seen in the late 1980s is one of the fundamental markers on the road toward “opening the door to a Strong and Prosperous Nation.”

Citing North Korea’s “Choson Central Yearbook,” he gave production numbers in various sectors of the DPRK economy at the end of the 1980s: electricity, 55.5 billion kWh (1989); coal, 85 million tons (1989); steel, 7.4 million tons (1987); cement, 13.5 million tons (1989); chemical fertilizer, 5.6 million tons (1989); textiles, 870 million meters (1989); grain, 10 million tons (1987).

Director Ji claimed that during the recent ‘battle’, production in the metals industries was up several times that of the same period in previous years, while energy producers generated several hundred million kWh of electricity, coal production was up 150%, and cement and other construction materials were up 140%. He pointed out that in 14 years of the Chollima movement, beginning in 1957, during which socialist industrialization took place in the North, the yearly average production growth was 19.1%, and he stated that the annual growth of 9 to 10% in industrial production over the past several years was a noteworthy record.

Moving to the agricultural sector, Director Ji also noted that while overseas experts have critiqued this year’s harvest, there has been a definite breakthrough in grain production with land cultivation hitting previously unseen levels over the past several years.

Previous 150-day battle stories below:
(more…)

According to the Financial Times:

North Korea’s mineral wealth is receiving close scrutiny, with South Kor­ea’s government this week valuing reserves at $6,000bn (€4,070bn, £3,670bn). Encouraged by data on metals, Goldman Sachs last month predicted the economy of a unified Korea could rival Japan’s by 2050.

…

Trade with China is growing, reaching $2.8bn last year from about $2bn in 2007. But military authorities in North Korea are perceived as hostile to the changes in society and infrastructure that foreign investment could bring.

“If the North opens its mineral resources to foreign countries, that is tantamount to taking a military, social and political gamble, jeopardising their security,” said Lim Eul-chul, of Seoul’s Institute of Far Eastern Studies.

A South Korean diplomat closely involved with nuc­lear talks doubted Pyong­yang would allow China to make big investments inside its border. “They cannot permit that kind of influence,” he said.

Although they were long communist allies, North Korea and China have a mutual mistrust, partly tied to territorial claims.

Still, limited foreign investment in the sector is not impossible. Colin McAskill, executive chairman of Koryo Asia, says he has signed a letter of intent and memorandum of understanding to invest in North Korean metals and argues his model would not interfere with sovereignty issues that concern Pyongyang.

Switzerland’s Quintermina has posted reports on its website saying it is looking to extract magnesite in North Korea.

Chinese investors are believed to have some metals interests and are also involved in coal mining.

“The Chinese companies that have tried to do business in North Korea complain a lot that the regulations change frequently and that the power supply is erratic,” said a Chinese academic in Beijing.

One quote in this article struck me as a little off:

A South Korean diplomat closely involved with nuc­lear talks doubted Pyong­yang would allow China to make big investments inside its border. “They cannot permit that kind of influence,” he said.

First of all, China has already made plenty of investments inside the DPRK and the Chinese government and companies already exert influence.  There is a difference between having influence and being in control.  Secondly, China is the largest market for North Korean exports.  Even though they might not “own” the North Korean assets from which they purchase the goods, the North Koreans are limited in terms of who will/can trade with them.  In this sense China earns surplus through either bulk purchase discounts or monopsony power.

Read the full story here:
China eyes N Korea’s mineral wealth
Financial Times
Christian Oliver
10/6/2009