North Korean Economy Watch

UPDATE 2 (2013-5-23): Many NGOs are now unable to transfer funds to the DPRK. According to Reuters:

Aid agencies helping millions of people in North Korea could be forced to pull out after a Chinese bank cut ties with main foreign exchange bank, a humanitarian group said on Wednesday.

…

Some aid workers are now resorting to bringing in cash in person, putting them at personal risk. It is thought some agencies have only enough reserves to last a couple of months.

“All agencies with offices in Pyongyang are affected and everyone is extremely concerned,” Mathias Mogge, director of programmes for German aid group Welthungerhilfe, told the Thomson Reuters Foundation.

“This could eventually reduce our ability to carry out projects or even force a complete close down. If all the agencies had to pull out, it would affect millions of people,” said Mogge, who has just returned from the secretive country.

See here also.

UPDATE 1 (2013-5-10): Additional Chinese banks are cutting ties with the DPRK. According to the Asahi Shimbun:

China’s four largest state-owned commercial banks have suspended money transfers to North Korea as part of sanctions against Pyongyang’s missile launch and nuclear test.

The action was based on a direct instruction from a government agency, sources close to the banks said.

The Bank of China, the Industrial and Commercial Bank of China, the China Construction Bank and the Agricultural Bank of China took the step following North Korea’s third nuclear test in February, the sources said.

“North Korea came under sanctions over issues including the launch of ballistic missiles,” said a senior official at a branch of the China Construction Bank.

A source close to the Bank of China, which trades heavily in foreign currency, said the bank received instructions from a government agency that manages foreign currency trade.

…

A Chinese trading company in Dandong, a city in Liaoning province bordering North Korea, has been unable to transfer money to North Korea, a source close to the company said.

North Korean workers in China are also believed to be having difficulties sending money home.

However, the effectiveness of these financial sanctions remains to be seen since the amount of money North Korea’s Foreign Trade Bank has handled is unknown.

Much of the trade between China and North Korea is settled in cash or barter, a diplomatic source in Beijing explained.

An official at a Chinese trading company also said money can be brought into North Korea by human couriers.

The Financial Times offers additional information:

Nevertheless, the blockade is far from watertight. A smaller bank based in northeastern China across the border from North Korea said it was still handling large-scale cross-border transfers, an indication that Beijing is not willing to entirely cut off North Korea.

Here is additional coverage in the Hankyoreh.

ORIGINAL POST (2013-5-7): According to the New York Times, the Bank of China has cut ties with the DPRK’s Foreign Trade Bank:

The state-controlled Bank of China said on Tuesday that it had ended all dealings with a key North Korean bank in what appeared to be the strongest public Chinese response yet to North Korea’s willingness to brush aside warnings from Beijing and push ahead with its nuclear and ballistic missile programs.

…

Ruan Zongze, a former Chinese diplomat in Washington who is now a vice president of the China Institute of International Studies in Beijing, said the Chinese government was responding to a recent United Nations resolution imposing further sanctions on North Korea after its nuclear and ballistic missile tests and was not responding to American pressure. He noted that the Chinese government had recently encouraged state-controlled enterprises to follow the resolution in their dealings with North Korea.

…

In a single-sentence statement on Tuesday afternoon, the Bank of China said it has “already issued a bank account closing notice to North Korea’s Foreign Trade Bank, and has ceased accepting funds transfer business related to this bank account.”

A spokeswoman for the bank declined to say whether money in the account would be frozen or returned to North Korea. The spokeswoman, who insisted that her name not be used in keeping with bank policy, said the account had been closed by the end of April.

The Bank of China was the overseas banking arm of China’s central bank until the 1980s and is still majority-owned by the Chinese government, playing an important role in diplomatic and financial policy.

…

Mr. Cai said that the move by the Bank of China appeared to be “predominantly symbolic,” but later added, “It could have practical consequences, because North Korea is already under such heavy international sanctions, and China is such an important economic channel for it.

“If China narrows the door to North Korea, then its economic operations or financial flows could be affected,” he said. “But primarily this appears to be a way of China showing its views about their behavior, so that North Korea is more likely to rethink its actions.”

Here is additional coverage in the Washington Post.

Here is additional coverage in the Los Angeles Times.

Here is additional coverage in the Wall Street Journal.

Here is additional coverage in the Hankyoreh.

Read the full stories here:
China Cuts Ties With Key North Korean Bank
New York Times
Keith Bradsher and Nick Cumming-Bruce
2013-5-7

4 major Chinese banks halt money transfers to North Korea
Asahi Shimbun
2013-5-10

Institute for Far Eastern Studies (IFES)
2013-4-25

After North Korea’s currency revaluation in 2009, North Korean currency is still unstable and North Korean markets near the DPRK-China border are reportedly filled with Chinese merchandise, with transactions being conducted mainly in Chinese yuan.

An online newspaper, the Daily NK, reported that markets in the city of Hyesan (Ryanggang Province) and surrounding areas are using Chinese yuan as the primary currency for transactions rather than local North Korean won.  Rice prices are standard indicators of inflation in North Korea and even rice was reported to be exchanged in yuan.  As the monetary value of domestic currency continues to fall, North Korea is experiencing hyperinflation and North Koreans are showing a preference for the more stable Chinese yuan over won.

With an exception of rice, vegetables, and seafood, manufactured goods including confectioneries, the daily necessities for sale in these markets are mostly from China.  As well, some South Korean items such as instant noodles, Choco Pies, and butane gas are sold openly in the markets.

Border areas have a higher rate of Chinese yuan usage than inland areas, as for years traders have been buying Chinese goods with Chinese yuan to sell in the domestic markets.  However, with the unstable domestic currency, more and more North Koreans have been using Chinese yuan over the last three years.  Some report goods bought with North Korean won must be converted to the CNY exchange rate.

As of mid-April, the exchange rate of 100 CNY to KPW was 130,000. However, Pyongsong and Pyongyang cities used mainly US dollars and local won in equal rates.

A video recording obtained by the Daily NK unveiled the landscape of the marketplace and nearby alley markets of  Hyesan and surrounding areas.  Items for sale include jackets, mufflers, gloves, coats and other winter clothing as well as cosmetics, perfumes, toothpaste, toothbrushes and other daily goods. Transactions were being made in Chinese yuan.

North Korean authorities are waging a crackdown against the use of the yuan in the markets but merchants continue to use yuan in secret.

The high number of Chinese goods in North Korean markets can be attributed to the failed production system of the people’s economy of North Korea, which began to tumble in the late 1990s. As the regime began to invest excessively in its military sector, production in the manufacturing sector declined.

Although North Korean products appear in the markets, most people prefer Chinese goods due to their better quality.

A recent article in the official state economics journal of North Korea, Kyongje Yongu (Journal of Economic Research), criticized the “trade companies for focusing on only one or two countries,” expressing concerns that, “the whole nation may experience political and economic pressure from trade companies that restrict foreign trade to only one country.”

Kim Jong Un has also expressed official disapproval against “import syndrome” of the people and regarded it as an obstacle hindering the development of North Korea’s light industry.

Although no specific country was named, it is believed that China makes up over 80 percent of North Korea’s total foreign trade. North Korea continues to show vigilance against its rising dependence on China.

Previously, I posted information on the Jaeil Credit Bank in the DPRK. Today, with the help of a much-appreciated reader, I offer some hard-currency deposit and saving information from the Pyongyang Civil Cooperative Bank (민사협조은행). The interest rates and time-to-maturity intervals are identical to the Jaeil Credit Bank, however, the marketing material for the Civil Cooperative Bank does a better job of explaining the how interest payments are calculated.

Pictured above is a marketing flyer for the bank taken in Pyongyang. Below is a translation of the flyer:

외화저금안내
Currency savings guide

보통저금 [Usual saving] 1%
정기저금(6개월) [Regular Saving (6 month)] 2.5%
정기저금(1년) [Regular Saving (1 year)] 6%
정기저금(2년) [Regular Saving (2 year)] 7%
정기저금(3년) [Regular Saving (3 year)] 7.5%
정기저금(5년) [Regular Saving (5 year)] 8%
정기저금(10년) [Regular Saving (10 year)] 9%

Civil Cooperative bank provides to its customers the best credit and financial services. It is our general policy to treat your account information as confidential and it will not be shared with the third parties.

Now a regular savings saver can withdraw their interest prior to maturity and the entire principal amount can also be withdrawn before the due date (maturity).

How to Calculate Savings interest
1. Interest of usual savings and regular savings will be calculated until the day before and if withdraw prior to maturity regular savings will also be considered as usual savings.

2. One year is 360 days and one month is calculated as 30 days.

3. If the maturity date of the regular savings passes the entire amount including the interests will be extended under the same condition.

4. If the bank changes the interest rate, the original interest rate will be applied until the date of the change and the new rate will be applied for the principal and extended.

Interest calculation and payment (if withdraw prior to maturity)
1. In case of 6 months savings 0.5% , in case of 2 years savings; until 6 months 0.5%, after that 1%, in case of a 3 years savings; until 6 months 0.5%, till 2 years 1% and in case of 5 years savings; until 6 months 0.5%, till 2 years 1%, till 3 years 1.3% and the rest 1.5%, if 10 years savings; until 6 months 0.5%, till 2 years 1%, 3 years 1.3% , 5 years 1.7% and the rest 2% of interest will be calculated and paid.

2. If customers, who already have withdraw the interest prior to maturity from the regular savings, want to withdraw the entire principal of part of it, interest will be calculated as described above with out the withdrawn interest from the principal.

Business hours: Mon-Fri 9.30 am – 5 pm

Reuters offers a tale of how remittances from defectors in the South are making life easier for their family members who remain in the DPRK (a topic discussed here before). According to Reuters:

Next morning, she wired 15,000 yuan ($2,400) to the broker’s account at a bank in China, near the border. His wife confirmed receipt of the funds, informed her husband, and the defector’s brother got money in North Korea, a state where the average income is estimated at just $1,200 a year.

Brokers typically charge up to 30 percent fees for such transactions, but by and large, they work well.

“I heard it only took 15 minutes for my brother to get the money (after funds were wired),” said the defector, who is officially listed as dead in North Korea. “Two days later, my brother called me back saying ‘Thank you. We will spend your money wisely’.”

…

Some 70 percent send money home to the country they fled, says the Organization for One Korea, a South Korean support and research institute on North Korean defectors. Annual flows are estimated at $10 million a year as defectors try to help out families in a country where many are malnourished and lack access to basic healthcare.

…

Incoming funds from South Korea have become so significant that they have been dubbed the “Mount Halla Stream”, named after the tallest mountain in South Korea, said Kang Cheol-hwan, the author of “The Aquariums of Pyongyang,” a survivor’s account of North Korean gulags.

This has helped offset a decline in funds from ethnic Koreans living in Japan that dominated in the mid-1980s and was known as the “Mount Fuji Stream”.

“In the past, pro-Pyongyang people in Japan and some Korean Americans sent money but they grew old and strong sanctions from Japan also took a toll. So the generation providing remittances has changed and it is now the defectors in South Korea who are doing it,” said Kang.

I have also interviewed a few former North Koreans about remittances. They all report it is common and brokers charge about 30%.

Read the full story here:
Insight: A secret plea for money from a mountain in North Korea
Reuters
2012-7-11

Click image above to see large view of Narae Card.

Back in March of 2011, I posted some information on the DPRK’s Narae Debit Card. It is one of two debit card systems functioning in the DPRK of which I am aware (here is information on the Koryo Bank Debit Card).

Some time has passed since Narae’s launch, however, and Dr. Seliger reports that use of the debit card in Pyongyang is growing. As evidence he sends along a list of Pyongyang establishments that are accepting the card.

You can see a rough English translation of the names of these shops and hotels here (doc).

It is worth pointing out, again, that the Narae card stores balances in hard currency.

UPDATE 1 (2012-7-15):  South Korea claims the DPRK missed a deadline for explaining how it intended to repay South Korean “loans”. According to Yonhap:

North Korea missed the deadline Sunday for notifying South Korea of how it will repay millions of dollars in loans provided in the form of food in 2000, resulting in Seoul having the right to declare Pyongyang has defaulted on its debt, an official said.

South Korea sent the North a message on June 15 that the communist nation was supposed to have paid back US$5.83 million in the first installment of a 2000 food loan worth $88.36 million by June 7. The North was required to respond to the message in 30 days.

That deadline passed on Sunday with the North remaining silent, giving South Korea the right to declare the North has defaulted on the debt, according to a government official in Seoul.

But South Korea is unlikely to go ahead with the declaration any time soon as it would have little effect on the North. The communist nation remains largely outside of the international financial system and the prospect of national default is unlikely to force it to repay its debt.

Officials said they are considering sending Pyongyang a message again calling for debt repayment.

Widespread views are that it won’t be easy for the North, which is still struggling with food shortages, to pay back its debt, but officials said the country could repay the debt in kind as it did before. In 2007 and 2008, the North repaid some debt with $2.4 million worth of zinc ores.

After the two Koreas held their first-ever summit in 2000, South Korea provided the North with a total of US$720 million in loans of rice and corn until 2007. Including interest accrued on the loans, the North is required to repay some US$875 million by 2037.

Such aid has been cut off after the South’s President Lee Myung-bak took office with a pledge to link any assistance to the North to progress in international efforts to end Pyongyang’s nuclear weapons programs.

The Daily NK also covered the story.

ORIGINAL POST (2012-6-8): According to Yonhap:

North Korea has not shown any signs of repaying the loans South Korea extended in food grains since 2000 although the initial day of the scheduled repayment passed as of Thursday. The South Korean government provided North Korea grain loans worth US$725 million for seven years until 2007, including 2.4 million tons of rice and 200,000 tons of corn. The total principal and interest North Korea should repay for the next 20 years is estimated at $875.32 million.

North Korea was scheduled to pay South Korea $5.83 million by Thursday for the loans extended to it in 2000. Korea Eximbank, which is in charge of trade finance with the North, notified its counterpart the Chosun Trade Bank of North Korea of the repayment obligation Monday but North Korea had not responded of Friday.

The former South Korean governments led by President Kim Dae-jung and Roh Moo-hyun provided an estimated 1 trillion won (US$850 million) to North Korea from 2000 to 2007 under the sunshine policy. South Korea provided an additional 1.37 trillion won to North Korea to finance the construction of a light water reactor in order to suspend North Korea’s nuclear development. All the loans to the North were taxpayer’s money.

…

North Korea should show sincerity in the repayment of these loans for the sake of its future. If it fails to do so, the North will encounter substantial difficulties in accessing further loans from the international community. North Korea also has failed to repay loans it borrowed from the old Soviet Union. Russia reportedly had to reduce 90 percent of the Norths loans, worth $11 billion.

If North Korea has difficulties repaying its debts to South Korea in cash, it should sincerely discuss alternative measures to repay the loans with the South Korean government.

The South Korean government should positively consider measures to get the money back in kind, such as in mineral resources. North Korea should understand that if it fails to show the minimum sincerity on the repayment of its debts, it will experience much more difficulty in attracting economic assistance from the outside world.

The Choson Ilbo reports this additional information:

In 2007 and 2008, South Korea also gave the North $80 million worth of raw materials to produce textiles, shoes and soap. At the time, North Korea repaid 3 percent of the loan with $2.4 million worth of zinc ingots. Repayments of the remaining $77.6 million become due after a five-year grace period, so North Korea must start repaying $8.6 million a year every year for 10 years starting in 2014.

Seoul also loaned Pyongyang W585.2 billion (US$1=W1,172) from the Inter-Korean Cooperation Fund so it could re-connect railways and roads with the South that were severed in the 1950-53 Korean War. And it provided W149.4 billion worth of equipment to the North. The North must repay that loan in 20 years with a 10-year grace period at an annual interest of 1 percent.

It also seems unlikely that South Korea will be able to recoup W1.37 trillion plus around W900 billion in interest it provided North Korea through an abortive project by the Korean Energy Development Organization to build a light-water reactor.

The loans amount to a total of around W3.5 trillion, which the South will probably have to write off.

The Daily NK also reported on this story.

Read the full story here:
North Korea should show sincerity in repaying South Korea loans
Yonhap
2012-6-8

N.Korea Misses 1st Loan Repayment Deadline
Choson Ilbo
2012-6-8

According to the Hankyoreh:

Prosecutors carried out a large-scale investigation of companies involved in inter-Korean trade over the past year. They were seeking evidence of violations of the Inter-Korean Exchange and Cooperation Act (IKEC Act) in their remittances to North Korea. Around 200 such companies were found to have been fined.

The fined companies argue that their penalties are attributable to differing interpretations and application of the law by the Lee Myung-bak administration. The same actions were not deemed problematic under the administrations of Kim Dae-jung and Roh Moo-hyun (1998-2008). Those governments took a softer line on North Korea; things changed significantly when the conservative Lee Myung-bak government took office in 2008.

The Inter-Korean Economic Cooperation Promotion Committee, under chairman Jeong Yang-geun, estimated that as many as 200 companies involved in inter-Korean trade had been fined as of late May. A biggest change was the Lee government’s May 24 measures, put in place after the March 2010 sinking of the Cheonan warship. The measures suspended almost all transactions with North Korea.

Companies that were already on the brink of bankruptcy were stuck with fines ranging from one million to eight million won. Companies with high transaction volumes were fined the legal limit of 10 million won (about US$8500).

They were accused of violating Article 13, Item 1 of the Exchange and Cooperation Act, citing Article 4 of a Jan. 2008 Unification Ministry notice stating that anyone sending a third-party remittance to North Korea through a Chinese bank account must receive separate permission from the Unification Minister.

The president of Company “H,” identified by the initial “K,” has been called and visited several times since late last year by police public security officers and detectives from in and around Seoul and elsewhere investigating items brought in from North Korea. In April, he was summoned to a police station in South Gyeongsang province.

K had been involved in transactions since before the Kim and Roh administrations. He said there were no problems because the items in question were subject to blanket approval by the Unification Minister and had already passed through normal procedures.

The president of Company T, identified as Lim, was investigated on the same charge between January and April of this year. He confessed being cowed by the demand to travel from Seoul to a police station in Incheon and report to the security division there. He said he wasted time and suffered hardship submitting three rounds of documentation at the police’s request. Five companies had already been investigated by that same police station, Lim said.

“The police asked for an authoritative interpretation, and the officials at the Unification Ministry couldn’t make a proper judgment about whether there had been a violation. It was as though they had no idea such a rule existed,” he added.

The president of Company C, who goes by the initial “G,” paid a visit to Korea Exchange Bank in late 2007 to send a remittance to pay for sand, and was told that a third-party remittance was not possible. G went to the Bank of Korea. There, he was told they wouldn’t be able to do a remittance either. So he put one of the employees there in touch with the Unification Ministry. After that, he was able to notify the Bank of Korea and send remittances within their limit without a problem.

Some time around March of 2011, police launched an investigation and began calling him in. He asked them just what kind of permission he was supposed to receive. There was no information in the Jan. 2008 ministry notice about the procedure or documents for remittances. He also asked what kind of law for exchange and cooperation the IKEC Act was. G was fined according to another law after lawfully sending the remittance according to the Foreign Exchange Transactions Act.

Experts and attorneys countered that the transactions in question were already approved according to Article 13, Item 4 of the IKEC Act, which empowers the Unification Minister to issue blanket approvals to “items involved in transactions with North Korea, forms of transactions, and methods of payment.” And since North Korea does not have an international financial system, nearly all the companies’ remittances took the form of third-party transactions through Chinese banks.

Experts and attorneys said the fines could only be interpreted as prosecutors taking issue with the very notion of money being sent to North Korea. The businesspeople in question had also agreed with the ministry to follow a normal procedure of reporting third-party remittances to the Bank of Korea in accordance with the Foreign Exchange Transactions Act, they said.

An attorney for Corporation “T” said, “Not only is there ample room for debate about judicial authorities punishing activities deemed lawful by Article 13, Item 4 of the IKEC Act on the basis of the Unification Minister’s notice, but it also shows a disregard for what the ministry has recognized over the past years.”

Indeed, a trade company sent a question to the ministry asking whether any of the 500 firms it knew to be involved in inter-Korean economic cooperation had requested approval from the minister for third-party remittances to North Korea. None, the ministry replied.

The ministry was also found not to have taken any follow-up measures on documentation or procedures in its presiding offices after specifying in its notice that the minister’s approval was required for third-party remittances.

University of North Korean Studies professor Yang Mu-jin, a onetime secretary to the Unification Minister, said, “After the May 24 measures, now they’re killing these businessmen twice.”

But a senior ministry official said there was no problem with application of the law in the prosecutors’ investigation, although it was done without prior discussion with the ministry.

Another senior official said the notice was issued “in the interest of ensuring transparency in remittances to North Korea.”

Those on the receiving end of the fines said the measures were tantamount to using the Exchange and Cooperation Act to kill off the companies involved in exchange and cooperation.

“They’re about to keel over anyway because of the state inter-Korean relations are in,” one said. “What good is the law once all the companies are gone?”

Unification Ministry figures show a steady increase in the amount of North Korean items brought in through inter-Korean trade (including consignment processing), rising from US$258 million win 2004 to a peak of US$645 million in 2007. The level stayed above US$600 million as recently as 2008, the first year of the Lee administration.

But as relations with North Korean headed downhill, the numbers plummeted below US$500 million starting in 2009, finally bottoming out at US$4 million in 2011 after relations were severed with the May 24 measures.

Read the full story here:
When it comes to trading with North Korea, it’s no longer business as usual
HK
Kang Tae-ho
2012-6-7

Dr. Seliger has sent in some interesting information on financial products being advertised to North Koreans. I will post it over the next few days.

Today we will look at the marketing materials for the  Jeil Credit Bank in Pyongyang:

Here is what the marketing poster says:

외화저금안내 Currency savings guide

저금종류 리자률                (년리)% Interest Rate
Types of savings              (per annum)%

보통저금
Usual saving 1%

정기저금(6개월)
Regular Saving (6 month) 2.5%

정기저금(1년)
Regular Saving (1 year) 6%

정기저금(2년)
Regular Saving (2 year) 7%

정기저금(3년)
Regular Saving (3 year) 7.5%

정기저금(5년)
Regular Saving (5 year) 8%

정기저금(10년)
Regular Saving (10 year) 9%

제일신용은행은 자기의 이름 그대로 경영전략과 자금관리에서 신용을 제일 생명처럼 여기고 있으며 개인저금잔고를 절대로 남에게 보여주거나 알려주지 않습니다.
Jeil Credit Bank, as the name of itself, consider credit of management strategies and money management as our life and does not show or share ones account information to others.

제일신용은행의 저금자들은 저금하는 날 혹은 저금 만기 전 임의의 날에 리자를 먼저 찾아 쓸 수 있으며 저금만기날이 아니라도 언제든지 필요하면 저금한 돈을 전부 되찾을 수 있습니다.
Jeil credit bank customers can withdrawal the interest before maturity at any time and if needed, all of the money from the savings can be withdrawn before maturity.

제일신용은행은 싱가포르와 50년간 합영계약을 맺고 있는 은행입니다.
Jeil Credit Bank has a 50 years joint venture contract with Singapore.

영업시간 월요일부터 금요일까지 오전 10시~12시 20분, 오후 14시~16시 20분
Business hours: Mon-Fri 10 am – 12.20 pm, 2 pm – 4.20 pm

제일신용은행
Jeil Credit Bank

Chico Harlan writes in the Washington Post:

Recent North Korean defectors in South Korea sometimes joke that their transition to capitalist life begins with two key steps. First, they buy a smart phone. Then, they get a lesson about phone banking.

With those two things, defectors can then transfer money back to North Korea, where many still have family or friends. The money doesn’t go directly to the North; rather, it’s channeled through a series of brokers, routed through China, and trimmed by handling fees and commissions.

But as underground systems go, this one is quite functional. Some 50 percent of North Korean defectors have transferred money back home. Those who try once almost always do it again.

Just a decade ago, almost no money flowed back to the North in the form of remittances. But the number of defectors here has skyrocketed, and the amount of cash they send back home has surged as well.

Some 23,000 defectors now live in South Korea, with the number jumping more then 2,500 every year. (Just 12 years ago, a total of 1,400 North Koreans lived in the South.)

The defectors don’t make much money — about $1,000 per month on average — but that doesn’t stop them from sharing it generously, shipping it back to a country where $1,000 can feed a family for a year.

According to a January 2011 survey from the Database Center for North Korean Human Rights, some 56 percent of defectors who send money give more than $900 (1.01 million won) annually. Another 12.5 percent give more than $4,500 (5.01 million won) annually.

North Korea scholar Andrei Lankov, in this April 2011 essay, estimated that the total money given each years totals $10 million–an enormous influx of cash into the extremely impoverished North.

One recent defector, Ju Kyeong-bae, described during a recent interview at his apartment in Seoul how he transfers money to his friends in the North, who live in a village some 25 miles from the Chinese border.

First, one of his friends — let’s call him Mr. Jeong — calls Ju from North Korea, using a Chinese cell phone that gets a signal from towers just beyond the border.

Mr. Jeong provides a telephone number for a broker in China. Ju calls the broker.

The broker then gives Ju the name of a bank in South Korea, along with a particular account number.

Ju determines the amount of money he wants to send, punches a few buttons on his iPhone, and transfers the money, which then pinballs from the South Korean bank to a Chinese bank, using two brokers.

The Chinese bank account belongs to a businessman (let’s call him Mr. Kim) who does frequent work in North Korea — and who holds lots of private wealth stashed away in the North. When Ju’s money lands in Mr. Kim’s account, Kim just lets it sit there. He never withdraws it and takes it across the border. Rather, he distributes money he already has stashed in North Korea to Mr. Jeong, who in turn gets it to the person Ju’s payment is intended for.

Mr. Jeong then places another call to Ju — a confirmation.

“Some of the middle men, I never even know their names,” Ju said. “It’s all based on trust. If you don’t trust the system, you’re better off not even sending money.”

According to the 2011 survey of defectors, the commission on transfers is generally between 21 and 30 percent. It’s almost never higher than 50 percent. Some 90 percent of defectors say they receive a phone call from their friend or family member confirming that they received the payment.

One of every two defectors thinks his or her money transfers will spark admiration toward the South. About one in every 10 thinks the money will raise resistance against North Korean society.

South Korea technically bans the transfers, but an official at Seoul’s Ministry of Unification, which handles North Korea policy, says that the government has little incentive to stop the remittances.

“They fall into a gray area,” said the official, requesting anonymity because he was unauthorized to speak about the policy on record. “We always say no money should be sent to North Korea in case it is diverted for military purposes. But in this case, we’re not talking about huge amounts. And it’s for humanitarian purposes. So long as that’s the case, we won’t pursue it.”

Additional posts on remittances:

1. ROK moves to control inter-Korean remittances (2011-5-26)

2. ROK seeks to gain greater control of sanctioned cash flows to DPRK (2011-05-25)

3. Remittances from North Korean defectors (2011-4-21)

4. Defectors remit US$10m a year to DPRK (2011-2-23)

Read the full story here:
North Korean defectors learn quickly how to send money back home
Washington Post
Chico Harlan
2012-2-15

According to the Daily NK:

On February 10th, Choson Central News Agency (KCNA) reported fresh amendments to North Korea’s laws governing foreign investment.

KCNA revealed, “Chosun’s law on the registration of foreign-funded enterprises has changed. 34 articles in 6 chapters of the law, which was made according to a December 21st, 2011 decision of the Standing Committee of the Supreme People’s Assembly to cover the founding, residence, taxation and customs of businesses, have been amended.”

As is ordinarily the case, specific amendments were not included in the report.

On February 9th, North Korea also announced revisions to its Foreign Investment Bank Law issuing exemptions from consumption tax. Last month also saw revisions to banking as well as labor and financial management laws.

The amendments appear aimed at assuaging the fears of Chinese enterprises over issues such as the threat of expropriation. Indeed, China is said to have last month rejected initial laws governing the management of special economic zones at Hwanggeumpyeong and Wihwa Island nr. Shinuiju for a variety of reasons.

Read the full story here:
NK Investment Laws Get Another Makeover
Daily NK
Kim Tae Hong
2012-2-13