North Korean Economy Watch

Asia Times
Ting-I Tsai
10/6/2007

Business in Changbai county of Jilin province in northeast China is booming. The area, which faces North Korea’s Hyesan City across the Yalu River, has seen its exports rise 28.5% year-on-year in the first eight months of this year, the beneficiary of logjams created by China’s brisk trade with North Korea further downstream to Dandong – the busiest border city in northeast China bordering North Korea’s Shinuiju across the Yalu River.

As ice is melting between North Korea and the United States, more and more Chinese businessmen have been rushing to the border with the secretive communist country, looking to cash in on its trade and investment potential.

“Traffic across the river has been so busy,” said Han Lihsin, who founded a China-Korea trade website to promote business with China’s reclusive neighbor in April last year. “It is not only trucks from China that have to line up to go through customs, North Koreans have also sent their own trucks to pick up goods.”

According to statistics from Chinese Customs, bilateral trade between North Korea and China reached US$1.7 billion in 2006, a 7.58% increase over the previous year. It has grown another 16.7% in the first eight months of this year to $1.25 billion. Chinese investment in North Korea, meanwhile, had reached $38 million by the end of 2006.

China’s main exports include agricultural products, consumer electronics, textiles and fuel, but North Korean traders are taking advantage of the Internet to diversify their purchases. On China’s business promotion websites, buyers claiming to be from North Korea are asking for items as varied as wine coolers, necklaces, leather suitcases, soybean oil, pencil cases and “plastic containers for aromas or perfume”.

Whether North Koreans now have more money and are able to consume more remains a hotly debated issue among Chinese traders. But they agree that North Korean customers are now more sensitive to product quality and brands. “It’s not just about being cheap anymore. Products are required to be affordable with guaranteed quality,” said Tang Fuyou, manager of Dandong-based Tigereye62.com.

To overcome North Korean customers’ resistance to Chinese products, Tang says suppliers now market products with brand names and descriptions printed in English on the packaging. Small “Made in China” markings are placed in unobtrusive spots. “That way, goods can be sold for good prices,” he said, adding that South Korean and Japanese products are still too expensive for North Koreans.

Used televisions, washing machines, refrigerators and air conditioners are at the top of North Korean shopping lists. Hoping to ride the wave of this new demand for big-ticket household goods, China’s leading home appliance exporter Haier has reportedly been operating across the border since January of this year.

Traders aren’t the only ones looking to profit from North Korea. Burdened by soaring labor costs and high land prices, Chinese businessmen are finding this virgin territory to be a potential paradise.

Xu You, chairman of the Changbai-based China-North Korea investment association, suggested that his joint-venture wood factory pays 10 yuan (US$1.3) per month to its North Korean workers. Trader Wang Wei, whose Hsienhe pharmaceutical manufacturing company is planning to build a new factory in North Korea’s Nanpo, suggested that monthly salaries there average about 50 yuan.

Ambitious North Korean officials might not appreciate the intricacies of capitalist operations, but they have skillfully extended their networks for soliciting investment by touting the country’s advantages of cheap land and labor. North Korean websites based in China are advertising a broad range of investment opportunities, including in the areas of energy, restaurants and hotels, agriculture, mining, manufacturing and general infrastructure.

Among the approximately 100 projects circulating on these websites, hotels and electricity generation seem to be particular targets. One calls for a $30-45 million investment in Pyongyang’s yet finished tallest building, the Ryugyong Hotel, while another requires a $50-60 million investment for the Taedong-gang Hotel. Stakes in expansions of fuel-fired power plants are being offered for $100-200 million, and, hoping to take advantage of green energy, projects to develop wind and solar power also appear but minus a price tag.

As for manufacturing, projects to make elevators, freezers, electronic watches, shoes, sewing machines and even disposable diapers all require foreign investments in the form of machines, technology and raw materials.

At the urging of North Korean officials, investors Xu and Wang are now involved in pitching investments south of the Yalu to other Chinese prospects. According to Wang, Pearl River delta-based Chinese businessmen have expressed the most interest in relocating their factories, with 30 to 50 investment projects currently under negotiation.

Among those still concerned about the high uncertainty of operating in North Korea, some have chosen to set up an office in Pyongyang and bide their time until a timely opportunity emerges.

Aware of the growing significance of the bilateral commercial relationship, China’s central government and three provinces near the North Korean border – Liaoning, Jilin and Heilongjiang – have all made efforts to boost bilateral cooperation.

In March 2005, Chinese Premier Wen Jiabao signed an investment-protection agreement with his North Korean counterpart, and the two nations inked five bilateral economic cooperation agreements between 2002 and 2005. During North Korean leader Kim Jong-il’s visit to China in January 2006, Wen introduced new economic-cooperation guidelines.

In July of this year, Chinese Foreign Minister Yang Jiechi noted during his three-day visit to Pyongyang that economic cooperation was an important part of China’s relations with the North, and said China would continue to promote cooperation by following the previous agreements and guidelines.

Provincial governments, meanwhile, have been promoting cross-border trade by attending and holding trade shows and building new trade zones. Jilin’s Hunchun, Jian and Tumen are the cities along the North Korean border most aggressively pursuing free-trade zones that would allow visa-free access and offer duty-free facilities.

North Korea introduced economic reforms in 2002, but with embargoes imposed by the United States and Japan and Pyongyang’s economic conservatism, the reforms have accomplished little and the economy continues to struggle. In an acknowledgement of those problems, Dear Leader Kim Jong-il in January of reportedly vowed to make 2007 North Korea’s economic development year.

Tang, the Chinese businessman operating in Dandong, noted that his company is about to be appointed by North Korea’s trade authority to assist the operations of some 200 North Korean companies in China. He believes, however, that patience is required when dealing with the communist, reclusive nation.

“Even when North Korea and the US normalize their relationship, more time will be needed for economic reform,” he said, “Chaos would follow if the system is transformed too quickly.”

Yonhap
10/5/2007

Leaders of the two Koreas discussed issues relating to oil field development and exploration at the latest summit in Pyongyang, South Korea’s top economic policymaker said Friday.

“The oil development issue was discussed at the summit, and North Korean leader Kim Jong-il expressed keen interest in the South’s oil field and gas exploration projects,” Finance Minister Kwon O-kyu said in a press briefing.

“South Korea also discussed the development of resources in North Korea, including oil fields.”

Kwon said the oil development issue may continue to be discussed at talks of the proposed Joint Committee for Inter-Korean Economic Cooperation, a committee to be formed through upgrading the status of the existing Inter-Korean Economic Cooperation Promotion Committee in an effort to accelerate bilateral economic cooperation.

Kwon played down concerns about potential financial burdens on the government from proposed inter-Korean business projects.

At the three-day summit, ended Thursday, the two Koreas agreed on a range of cross-border business projects, including creation of a special economic zone at the North’s western port city of Haeju, development of an existing port of Haeju, and expansion of an industrial complex in the North Korean border town of Kaesong.

The two also agreed to jointly repair and maintain the North’s dilapidated expressway linking Kaesong and Pyongyang, as well as the North’s railway between Kaesong and Sinuiju on the North’s western Chinese border.

The two countries also decided to construct an inter-Korean joint shipbuilding complex in Nampo, near Pyongyang.

South Korea will be able to finance the development of Haeju port through a proposed 2 trillion won (US$2.2 billion) overseas port development fund, which will be created by the nation’s port authority, Kwon said.

In a related note, Maritime Minister Kang Moo-hyun said in a meeting with reporters that about 220 billion won will be spent for the development of the port which will have eight berths, including two container berths.

The government will also able to attract international cooperation for repairing the railways since it is part of a wider international railway project of Trans-Siberian Railway, he said.

South Korean shipyards, which hold a combined 45 percent share of the global market, by investing in the envisioned shipbuilding complex will be able to maintain their competitiveness through access to North Korea’s cheap labor, Kwon said.

In case of the summit’s impact on domestic financial markets, Kwon declined to make concrete predictions, but said rising expectations of improving profitability and competitiveness by domestic businesses might be able to boost investor spirits.

Associated Press (Via the New York Times)
10/3/2007

North Korea will provide a complete list of its nuclear programs and disable its facilities at its main reactor complex by Dec. 31, actions that will be overseen by a U.S.-led team, the six nations involved in disarmament talks said Wednesday.

Chinese Vice Foreign Minister Wu Dawei said that as part of the agreement, Washington will lead an expert group to Pyongyang ”within the next two weeks to prepare for disablement” and will fund those initial activities.

”The disablement of the five megawatt experimental reactor at Yongbyon, the reprocessing plant at Yongbyon and the nuclear fuel rod fabrication facility at Yongbyon will be completed by 31 December 2007,” said Wu, who read the statement from the six nations to reporters, but did not take any questions.

The Bush administration welcomed the agreement, calling it significant progress.

”These second-phase actions effectively end the DPRK’s production of plutonium — a major step towards the goal of achieving the verifiable denuclearization of the Korean Peninsula,” said Gordon Johndroe, spokesman for the White House’s National Security Council.

The complex at Yongbyon has been at the center of North Korea’s nuclear weapons programs for decades and is believed to have produced the nuclear device Pyongyang detonated a year ago to prove its long-suspected nuclear capability.

Since then, Pyongyang rejoined the six-nation disarmament negotiations that involve the United States, China, Japan, Russia and South Korea as well as North Korea. Under a broad agreement reached in February, North Korea pledged to disable its nuclear programs in return for 1 million tons of heavy fuel oil or other assistance.

Wednesday’s statement outlines the next steps in the February deal. Although negotiators tentatively agreed on the statement Sunday after four days of talks, it was forwarded to their capitals for approval, leading to a delay in its public release.

The statement also said the U.S. and North Korea will ”increase bilateral exchanges and enhance mutual trust” but did not set a specific timetable for when Washington will remove Pyongyang from a list of countries that sponsor terrorism — a key North Korean demand. Arrangements will be made in future meetings between the two on normalizing their relations, the statement said.

In addition, the statement reiterated the five other countries’ commitment to deliver the fuel oil and other energy and economic assistance as spelled out in the February deal.

Shortly after Wednesday’s deal was announced, however, Japan said it would not provide aid to North Korea or lift its economic sanctions against the country because of a dispute over North Korea’s past abductions of Japanese citizens.

”There will be no immediate action from Japan. We will wait to see what North Korea does next,” Foreign Minister Masahiko Komura said. ”Japan’s policy remains unchanged. We will consider aid once we see progress on the abductions issue.”

Tokyo wants Pyongyang to account for its abduction of Japanese nationals in the 1970s and 1980s — a main sticking point for the two countries, which have no diplomatic ties.

Joong Ang Daily
Brent Choi
10/2/2007

At 10 a.m. on June 28, I boarded a Koryo Air flight at Seoul’s Gimpo Airport, bound for Pyongyang. It took only one hour for the flight, organized by the non-governmental organization Movement for One Corea, to arrive at Pyongyang’s Sunan Airport, a two-story building bearing a large photo of the late North Korean leader Kim Il Sung ― not exactly an impressive sight for an airport.

There were 14 aircrafts at Sunan, including one helicopter. Seven were jets and six were old-style propeller planes. Most seemed in disrepair and sat beneath large covers. There wasn’t a single foreign plane there, a reminder of how isolated North Korea has become.

Four tourist buses came to fetch us. Each one carried about 30 visitors. About half were members of the Movement for One Corea. The rest were paying customers like me who had forked over around 2.5 million won ($2,750) for the tour of the North.

Several North Korean guides, who seemed rather shy, met us. They warned us not to take photos while the bus was moving and not to approach local people.

That afternoon our group toured Pyongyang. We first went to Mansudae to see a giant statue of Kim Il Sung. The guides lined up visitors in four groups and bowed low before the statue, in the manner of a Japanese person stooping before their emperor. Less than a tenth of our party followed the guides’ example.

Most were more impressed by the sheer size of the statue and wanted to take a picture. My roommate, a man named “Jo,” the head of a sewing factory, started taking pictures like crazy, using four different cameras.

I was a North Korea specialist for one of the major dailies in South Korea for almost a decade. In the eyes of the journalist that I am, North Korea seemed to have long ago lost sight of the balance between the spiritual and physical worlds.

Wherever we went there were slogans saying “Revolution” and anti-Japan exhortations, along with praise for Kim Il Sung and Kim Jong-il by female guides who spoke as if they were still living the 1930s.

The North’s excessive deification of the two Kims seemed ironic, given that its ideology is based on Marxist-Leninism.

I stayed at the Yanggakdo Hotel near the Taedong River. It was in a relatively good state with abundant food and clean rooms. But it was reserved for foreign visitors. The rest of Pyongyang still seemed to be struggling with the “Arduous March” that began in the 1990s. The grey, sordid building next to ours seemed like it hadn’t been repainted or repaired in any way for at least 10 years. The roads were also bumpy with cracks.

Passersby, men in gray suits and women in traditional hanbok, all looked tired and depressed and looked at the ground. Only the little children shot occasional glances toward our modern foreign bus, a rare sight in Pyongyang.

Our dialogue with the guides proved to be one of the most interesting aspects of the five-day trip.

At first the visitors and guides gave basic introductions and began talking about non-contentious issues like the weather. After “testing the waters,” the North Korean guides then began to ask about South Korea’s political situation including the upcoming presidential election, while the South Koreans barraged the guides with questions about nuclear programs. Not everyone was engrossed in politics. Some guys asked about local women.

The guides I met this time differed from those I encountered in the past. When I visited Mount Kumgang in 1998, all the guides were over 50 and would start arguments with visitors over things like unification and the presence of U.S. forces.

The guides in Pyongyang were much younger, mostly in their 30s. It seemed like a rapid generational change is under way in the North, with the older generations who survived the struggle against Japan or the Korean War, and even those who grew up under Kim Il Sung in the 1970s and 1980s being supplanted by those in their 30s and 40s, the so-called “Arduous March” generation who were teenagers during the famine years of the 1990s.

Our young guides were from this group and displayed a strong loyalty toward Kim Jong-il. They belonged to the elite class of the country, having graduated from Kim Il Sung University.

These guides didn’t bother to hide the tough conditions faced by North Koreans. When I asked about the food situation, they replied that everything was “tense” and rations were suspended from time to time. When that happened they came to Pyongyang Market a couple of times a week to purchase rice. If that was the life of young elites from the ruling Workers’ Party, I was afraid to ask about the common people.

However, from the bus window I could see people flocking to fish in rivers, lakes and just about any little puddle they could find that might contain some food.

The energy supply wasn’t good either. We went to Mount Myohyang on the third day. During a two-hour ride from Pyongyang I saw only nine cars; two Mercedes that belonged to high officials, four of our tour buses, two trucks and an old bus.

Pyongyang is divided into 10 administrative districts. At present they receive electricity in turns. Even the Juche Tower on the Taedong River turns off its lights at 11 a.m. Outside Pyongyang the hardships must be far more severe.

One of the guides insisted that the “war-mongering” United States had provoked the North into developing a nuclear program. He added that the United States can never be trusted. It sounded like the North would never give up on its nuclear program.

It seemed like even these new, young guides didn’t really understand the contradictions and problems within the regime. I told the young quides that to end its isolation and improve its economy, the country must improve relations with the United States by giving up its nuclear program and adopting some of free market principles.

The young people in the North didn’t seem to understand this. For example, I asked one guide about prices ― a basic of the market economy.

He said prices are determined by “the state authority.” He and his colleagues knew nothing about concepts like marginal cost or profits. I realized it was useless to mention interest rates, inflation or foreign exchange.

The guides were also nostalgic for the past. “In the ’80s we were able to buy cheap rice, fish and clothing,” one pretty guide told me, adding that the North’s goal is to return to this “golden era of socialism.”

The guides knew next to nothing about life overseas. Only two out of 10 guides had visited Seoul. Nobody else had been outside North Korea and nobody spoke English or Chinese.

On the other hand, they were both “well-informed” and “ignorant” about the situation in Seoul. They seemed to know all the little details of the nomination race between Grand National Party candidates Lee Myung-bak and Park Geun-hye, yet they lacked the political common sense to interpret them. To them the Grand National Party was a synonym for “the bad party,” just as Washington was a synonym for evil.

A tailor’s shop on the third floor of the Yanggakdo Hotel was the most popular place for tourists. Complete suits were priced at $130, half the cost of a similar garment back in Seoul. I bought one and it was no different from those made by skilled tailors in the South.

The problem was that the tailor had limited raw materials. When the tourists heard about the shop 100 of them rushed to place an order, but it could only satisfy the first 20 people.

I couldn’t understand this. The tailor could have earned much-needed foreign currency. But she lacked the fabric and staff and she needed permission from above to get more of either. “North Korea has truly screwed up its distribution of resources,” one professor on the trip said.

Another example of the “screwed-up” economy was our hotel. The Yanggakdo was built in 1995 and is supposed to be the best in Pyongyang. It has 47 stories and 1,001 suites, yet only 300 rooms were occupied during our stay ― a 70 percent vacancy rate.

“If this was Seoul, you’d probably be fired for leaving the place this empty,” I told the hotel manager. He wasn’t the least bit impressed. “My duty here is to make sure everyone is comfortable. It’s the state’s responsibility to bring in the guests,” he replied.

I came to realize that the inefficient management of the North Korean regime stems from this “instruction policy” in which everything is determined by one person ― Kim Jong-il, the Chairman of the National Defense Commission.

North Korean society revolves around instructions given by Chairman Kim ― literally.

On the fourth day we went to Okryugwan, a famous naengmyeon cold noodles restaurant, where the food lived up to its reputation. I complimented the guide and she said the tasty noodles were thanks to “The Dear Leader.”

According to the guide, Kim instructed the cook how to make the soup and where the vinegar should be added, in the soup or in the noodles. I thought she was kidding but her expression told me otherwise.

Then I learned that Kim Il Sung University teaches that the Goryeo Kingdom (918 to 1392) was the first kingdom to unite the Korean Peninsula, instead of the Silla Kingdom (57 BC to AD 935) as believed by the South. Until the ’60s, the North learned the same thing as the South but then instructions to change came from above.

Having the same leader intervene in every little decision from food to history is bound to extinguish the creativity and richness of people and culture.

North Korean propaganda is also a source of inefficiency. Around 75 percent of television news was filled with the late leader Kim Il Sung’s past activities or praise for current leader Kim Jong-il. The media in South Korea is an agent for change, because it shows new developments around the world. In the North it blocks society from growing up.

North Korea’s Juche ideology is about self-reliance, but the people of this country long ago lost the ability to stand on their own feet. They blindly hang on to every word and action of their single leader.

Back on the plane, two thoughts crossed my mind.

First, how long will the North be able to withstand this inefficient regime? Second, if the North is able to maintain its backward-looking society through isolation and propaganda, perhaps it will last longer than anyone imagines. Only the future will tell.

Korea Times
Yoon Ja-young
10/2/2007

The second inter-Korea summit is expected to lay the ground not only for the establishment of a permanent peace on the peninsula but for further re-rating of the Seoul stock market, analysts said.

They said that Seoul stocks, burdened so long with the so-called “Korea discount” due to geopolitical concerns, will get a fresh boost as President Roh Moo-hyun entered North Korea for a summit with the North’s leader Kim Jong-il.

The main index KOSPI closed above 2,000 points again Tuesday as it closed at 2,014.09 points, up 51.42 points, or 2.62 percent, on the balmy news from north on top of the bullish New York bourse.

Most analysts agree that the summit will have a positive effect on the bourse in the long term. They advise investors to pay attention to stocks that have to do with social overhead capital (SOC) projects in North Korea.

Samsung Securities said the summit will be a great boon for the bourse in the long run. “The political events between the two countries haven’t affected stock prices much. Opinions diverge regarding its effect in the short term, but it would greatly contribute to the revaluation of local stock market in the end,” said Ahn Tae-kang, an analyst at Samsung Securities.

The world was surprised when the two countries announced the summit plan in 2000 April, and the whole nation watched the historic scene on TV when former President Kim Dae-jung was greeted by North Korean leader Kim Jong-il in Pyongyang two months later.

The stock market soared after each of these events, yet change was not always predictable. When North Korea conducted nuclear tests in 2006, on the contrary, stocks continued to rise as foreign investors sought buying shares on cheap prices.

It is different this time, according to analysts. “It would be a remarkable bullish factor once the two come out with a concrete plan on economic cooperation and SOC,” said Lee Seon-yeob, an analyst at Goodmorning Shinhan Securities. It would be only symbolic if without concrete agreements, he feared, but it would still be meaningful, according to Lee.

“The two can talk about setting up special economic zones, which can give rising momentum to North Korea related stocks and improve overall investor sentiment,” Kiwoom Securities said in a report.

Samsung Securities’ Ahn cited decreasing geopolitical risk and consequent reevaluation of stocks, the economic cooperation between the two and decreasing cost of unification after North Korea’s adoption of a market system and opening of the market as meanings of the summit. “The growing possibility of the sovereign credit ratings raise and Seoul index’s incorporation into developed world indices and the risk premium decrease are some of the positive effects,” he said.

He advised investors to concentrate on large cap blue chips that will benefit from infra projects in North Korea. Hyundai Engineering & Construction, POSCO, Hyundai Merchant Marine, Hyundai Elevator, KEPCO, and Hyosung were among his top picks.

Goodmorning Shinhan’s Lee said cited SOC related businesses, including construction and power transmission as the ones to benefit from the summit. “In the first summit, all stocks related with North Korea skyrocketed, but not this time. Investors are taking out the ones that will have a visible benefit. Investors seem to know how to make a good investment,” Lee said.

North Korea-related shares rise on summit
Joong Ang Daily
Kim Bo-yung
10/2/2007

With just a day left before the second epoch-making inter-Korean summit, North Korea-related shares surged on the Korean stock market yesterday.

The power facility industry enjoyed a moderate increase. Geumhwa PCS Co. advanced 5.5 percent, and Doosan Heavy Industries & Construction Co. climbed 2.37 percent.

The electric wire sector also posted a bull run as LG Cable and Taihan Electric Wire Co. surged 5.3 percent and 2.8 percent.

Nam Hae Chemical Corporation, a local agrichemical product manufacture, increased 5.6 percent.

However, the companies that have penetrated into the Kaeseong Industrial Complex suffered a loss.

Romanson Co. tumbled 3.3 percent and JY Solutec Co. slid 0.8 percent.

The share prices of Ewha Technologies Information, Cheryong Industrial Co. and KwangMyung Electronic, potential beneficiaries of electricity transmission from South to North Korea, dropped by 6 to 13 percent.

The second inter-Korean summit is expected to improve investment sentiment, generating strong gains across the board.

However, some market watchers warn investors not to make impulsive investments in North Korea-related shares.

“Although investment sentiment surrounding the stock market is [expected] to improve once the inter-Korean summit kicks off, it will only have a short-term effect,” said Oh Hyun-seok, the investment information manager at Samsung Securities.

Korea Times
Jane Han
10/2/2007

Economic cooperation topping the agenda for the inter-Korean summit, plus the van of corporate decision makers traveling to the North together, begs the question: Will the trip bear fruit for two-way business?

Chung Mong-koo of Hyundai-Kia Automotive Group, Chey Tae-won of SK Group, Koo Bon-moo of LG Group and Hyun Jeong-eun of Hyundai Group, who are among the 18 CEOs accompanying President Roh Moo-hyun as part of a special entourage, showed signs of hope as they departed for Pyongyang on their three-day trip that started Tuesday.

“I hope the talks will go well and further the ongoing business between the two Koreas, while opening doors to new areas as well,” said Hyundai Chairwoman Hyun.

Unification Minister Lee Jae-joung was also optimistic as he detailed some of the items, including North Korea’s expansion of social overhead capital (SOC) and construction of railroads, which may be discussed among leaders of both sides.

“As there has been much progress in the peninsula over the past seven years, we’re hoping that this experience will set a milestone in history,” he said in a television interview.

These hopes may be translated into reality through at least two scheduled business leader meetings during the summit period.

“The definition of economic cooperation between the two Koreas, so far, has implied one-way support from Seoul,” said Koh Il-dong, a research fellow of the Korea Development Institute (KDI). “But now, it’s time to break free of that old understanding and move toward real cooperation.”

And “real cooperation” is what the North bound corporate executives are looking to, as they hint some of the possibilities they have in mind.

Among the top three business topics expected for discussion _ natural resource developments, roadway and railway distribution system expansions and dockyard construction _ Hyundai-Kia Automotive Group is said to be interested in building railroad cars through its shipping affiliate Glovis, and also measure the feasibility of SOC businesses, while POSCO showed interest in forestation.

Although company officials said forestation is just a possibility, as the steel maker has shown its interest in securing carbon credit overseas, industry insiders say the opportunity will be advantageous for POSCO if cooperation comes through.

And as speculations rose that SK Group may be considering communication and energy projects in the North, company officials said plans are open for review if the right offer is made.

LG and Samsung, which are said to be mulling over their specialty areas of electronics, seem to be in the same scouting stages as others.

“Each company needs to be given the time and circumstances to carry out through market research,” said Dong Yong-sueng, a research fellow of the Samsung Economic Research Institute (SERI), implying that those are some of the accommodations that must be worked out if business is to happen.

Contrary to the high hopes, economic experts pointed out that some corporations would be wary of cooperating with North Korea, as it may ruin their reputation in the global market.

Summary: For the next 4 to 5 years, the North Korean mining sector is likely to continue to be dominated by the production of coal, iron ore, limestone, magnesite, and zinc. Because of growing demand for minerals by China and the Republic of Korea, their investment in North Korea’s mining sector is expected to increase and to extend beyond their current investments in apatite, coal, copper, and iron ore into other minerals, such as gold, magnesite, molybdenum, nickel, and zinc. North Korea’s real GDP is expected to grow at between 1% and 2% during the next 2 years.

Other highlights:

• North Korea ranked third in production of magnesiate in the world.  Its value-added product–magnesia clinker, which is used as a refractory metal–was marketed world wide. 
• According to Corporate social Responsibility Asia (CSR Asia), North Kroea ranked virtually last in environmental sustainability in the world, despite the country’s enactment of major laws for environmental protection, such as the Land Law of 1977, the Environmental Protection Law of 1986, the Forrestry Law in 1982, and the Law on Protection of Useful Animals in 1998.
• On the basis of North Korea’s industrial structure in 2004 (the last year in which data is available), the mining sector accounted for about 8.7% of North Korea’s gross domestic product.
• Recoverable coal reserves in North Korea were estimated to total about 8 billion metric tons in 2006.  Coal production reportedly dropped to about 23 Mt/yr in 2006 from 37.5 Mt/yr in 1985 mainly because of outdated mining equipment and technology.

Download the full version here: USGS.pdf

Chosun Ilbo (h/t Tim Beal)
9/19/2007

The government is seeking to incorporate the cost of electricity supply for the Kaesong Industrial Complex in North Korea into South Korea’s own electricity fee system. Combining the two would allow losses from the Kaesong complex worth several billions of won a year since 2005 to be absorbed by the overall scheme. But that would mean the South Korean public has to shoulder the cost.

Grand National Party lawmaker Eom Ho-sung on Tuesday released official documents exchanged between the Unification Ministry and power monopoly KEPCO. “According to a feasibility study by Deloitte HanaAnjin accounting firm commissioned by KEPCO, electricity transmission to Kaesong costs the South an annual W19.3 billion (US$1=W930) and an estimated total of W966.8 billion by 2054,” he said. It cost the South W5.8 billion in the 2005/2006 fiscal year.

Electricity used at Kaesong is rated as industrial-use costing W4,190-5,520 per kilowatt, cheaper than for South Korean homes, so a loss is inevitable. According to the documents released Tuesday, the ministry told related departments in June to review a way to compensate for the fee loss at Kaesong, by using the Inter-Korean Cooperation Fund to fill in for the past loss and combining the Kaesong fees with the domestic electricity bills in the future.

Yonhap
9/13/2007

The United States is preparing to provide heavy fuel oil to North Korea as part of incentives it pledged for Pyongyang’s denuclearization, the State Department said Thursday.

Sean McCormack, the department spokesman, said the notification this week to Congress of such intent was “done with an eye towards” North Korea fulfilling its commitments.

“What it does is, it prepares us in the case we do need to fulfill some commitments” on the part of the U.S., he said.

South and North Korea, the U.S., China, Russia and Japan are members of the so-called six-party talks that in February struck an agreement to eventually dismantle Pyongyang’s nuclear weapons and programs. The communist state would receive in return political and economic benefits, including diplomatic normalization with Washington and Tokyo.

One of the economic incentives is 1 million tons of heavy fuel oil to be provided by the five parties. South Korea already delivered 50,000 tons as North Korea shut down its primary nuclear facilities, fulfilling the first phase of the denuclearization deal.

The second phase requires North Korea to disable the facilities and declare all of its nuclear stockpile.

Reuters reported Wednesday that the U.S. administration sent the legislative notification this week, saying it was prepared to give North Korea US$25 million in heavy fuel oil.

According to the document cited by Reuters, the administration deems the initial progress in the six-party talks “sufficient justification to begin preparations for a first shipment by the United States.”

McCormack said while there is preparation, the actual aid is still predicate on North Korea’s fulfillment of its promises.

“If North Korea does in fact follow through on their commitments as stated under the understanding of that phase two commitment, then the other parties have some commitments,” he said. “This would be part of the U.S. fulfilling that commitment, although it’s not done yet.”

After a bilateral nuclear deal in 1994 between Pyongyang and Washington, the U.S. had annually shipped 500,000 tons of heavy fuel oil to the North as energy assistance. The shipment was stopped after the U.S. accused North Korea in 2002 of cheating by running a secret uranium-based weapons program.

Korea Times
Andrei Lankov
9/9/2007

On Aug. 24, 1962, the Soviet Ambassador to Pyongyang, Vasilii Moskovski, met the North Korean foreign minister, Pak Song-chol. The issue to be discussed was nuclear non-proliferation, one closely related to the nuclear test ban treaty, then in preparation. Moscow was an enthusiastic backer of the treaty, and wanted support from its allies. Relations with North Korea were deteriorating fast, but still some supportive gesture from the North was hoped for.

However, Comrade Pak was straightforward: a non-proliferation treaty was a bad idea. He explained the reasons for his skepticism. He asked a Soviet diplomat: “Who can impose such a treaty on countries that do not have nuclear weapons, but are perhaps successfully working in that direction?” Having said that, the North Korean foreign minister continued, “The Americans hold on to Taiwan, to South Korea, and South Vietnam, they blackmail the people with their nuclear weapons, and so rule over those lands and do not intend to leave. Their possession of nuclear weapons, and the lack thereof in our hands, objectively helps them, therefore, to eternalize their rule.”

Indeed, soon Ambassador Moskovski learned that the North Koreans were trying to acquire nuclear technology. As a matter of fact, recently de-classified Soviet papers confirm that in late 1963 Moskovski heard something to this effect more or less every month.

In August 1963 the East German ambassador informed Moskovski that “the [North] Koreans … are asking whether they could obtain any kind of information about nuclear weapons and the atomic industry from German universities and research institutes.”

In September 1963 Soviet geologists, then employed as technical consultants to the North Korean uranium mine, told Ambassador Moskovski that “the Korean side incessantly tries to obtain information about the deposits and quality of the uranium ore mined in the Soviet Union.” They also noticed that the amount of the uranium ore extracted in the North far exceeded the modest demands of its small-scale research program.

In October 1963, another Soviet scientist told the ambassador about a recent conversation on the same subject with a Korean engineer. The engineer asked whether Koreans were able to create an atomic bomb. The Soviet scientist said that the economy of the DPRK could not cope with such a task. But, according to an Embassy document, “the Korean said that it would cost much less in the DPRK than in other countries. If we tell our workers, he declared, that we are taking up such a task, they will agree to work free of charge for several years.”

This new evidence, recently obtained and published by Balazs Szalontaj and Sergei Radchenko, finally confirms what has been long suspected by many (and known to the few) _ from its inception, the North Korean nuclear program was military in its nature.

Actually, North Korea was to some extent involved in nuclear politics as early as the 1940s. It has large deposits of a particular monazite, a mineral that was seen as potentially useful for the Soviet nuclear program. The Soviets demanded payments in monazite for their sales to the North. Eventually, the engineers were disappointed with the properties of the mineral, and abandoned their plans to use it as a source of nuclear material. Russia still does not know what to do with the large stockpiles of monazite it still has from the 1940s.

The North Koreans were mining for uranium as well. There were two major quarries operated with Soviet technical support. The quality of the uranium remained low, but its production was still seen as necessary for the sake of the future.

In 1959 the DPRK signed an agreement on nuclear research with the USSR (soon afterwards, a very similar agreement was signed with China as well). The Soviet Union was becoming very strict about non-proliferation, and the agreement was probably seen as a potential safeguard, to make sure that North Korean ambitions would not result in a military nuclear program.

Needless to say, such a program was indeed what they wanted, and the North Koreans had many ways to outsmart the Soviet supervisors _ not least, by skillfully exploiting the deepening rivalry between Moscow and Beijing, and so it was that Soviet assistance helped Pyongyang launch its first research reactor in 1965.

It seems that the nuclear weapons were not much feared _ generally, in line with Mao’s mad dictum about the `paper tiger.’ In 1962, for example, the East German ambassador had a remarkable talk with Yi Chu-yon, then a Politburo member and one of North Korea’s top leaders.

Yi Chu-yon suggested that it was a good time to start a Third World War. He said that “now, when the USSR has such powerful means of waging war, with missiles that can strike all ranges, perhaps it would be better not to wait, but to strike the imperialists.” Yi Chu-yon received some support, since, according to the East German diplomat, “other Korean comrades who accompanied us also insistently advocated a military resolution of all contradictions between capitalism and socialism.”

Hence, North Korean nuclear ambitions have remained a constant for nearly half a century. However, it took a couple of decades to get things moving. The North was, indeed, too poor for such an undertaking, and no amount of drum-beating nationalism could compensate for lack of resources and technology. At the same time, none of the great power allies was enthusiastic about helping Pyongyang arm itself with nukes.

Nonetheless, work continued, and by the early 1980s the first rumors of the North Korean nuclear weapons project began to spread along the people in the know.