North Korean Economy Watch

From Yonhap:

S. Korean lender Nonghyup plans to open branch on N. Korea’s Mt. Geumgang in September

SEOUL, June 22 (Yonhap) — South Korea’s National Agricultural Cooperative Federation(Nonghyup) said Thursday it plans to open a branch at the Mount Geumgang resort in North Korea in September.

Nonghyup will open the Mount Geumgang branch on September 15 with three South Korean employees and two North Korean employees, it told the National Assembly’s Agriculture, Forestry, Maritime Affairs and Fisheries Committee.

The state-run financial institution received approval on May 4 to open the branch at the resort from South Korea’s Unification Ministry.

Nonghyup plans to build a two-floor building for its branch and to operate it 365 days a year without holidays.

In 2004, Woori Bank launched a branch in an industrial complex in the North Korean city of Kaesong, the first case of a South Korean lender setting up a branch in the North.

Korea Herald
Chris Gelken
6/20/2006

North Korea is open for business and for the past four or five years has consistently shown that it wants to go forward by welcoming international investment. That is the bullish opinion of Roger Barrett, managing director of Beijing-based Korea Business Consultants.

Barrett was in Seoul to meet with executives of the newly formed Chosun Development and Investment Fund, which recently won regulatory approval from Britain’s Financial Services Authority to begin approaching potential investors.

“Being first into a market isn’t always the best thing to do unless you really understand the risk and rewards. I believe those who are involved in setting up this fund have substantial experience in emerging and developing markets, so I feel very positive,” Barrett told The Korea Herald.

The emergence of this fund came as no surprise to Barrett, despite recent and ongoing political tensions with the North.

“It has been talked about for some time. We have been in touch with investors who have been seeking ways to expand their portfolio of projects in a managed way, and the approval of the fund by the British Financial Services Authority is a big green light to move forward.

“It presents investors with an exciting new opportunity in a market that is little understood,” Barrett said.

The financial sanctions imposed on North Korea last September may have frightened off some potential investors, but not Barrett or his company’s senior investment manager, Adrian Cortez.

“This fund represents one of the first times that North Korea will be exposed to international financial standards,” Cortez said. “I mean even Gaeseong is still more of an agreement between South and North Korea. But now for the first time you have a group of international investors that are going to apply international standards of due diligence. Of course there are going to be problems going into it, but we don’t see them as insurmountable.”

Barrett added that the recent difficulties of moving investments into the North and moving profits out, has eased.

“The bank we work with is the Daedong Credit Bank. As you would expect, they have a diverse range of correspondent banks,” Barrett said.

“Although things were shut down in Macau by what are easily referred to as U.S. sanctions, we have many clients and partners operating from Asia and Europe who are not directly affected.”

Some international investors may also be deterred by recent claims of exploitation of North Korean workers in foreign-invested firms, in particular at the Gaeseong Industrial Park just north of the heavily fortified border.

“You have the quotes that make great soundbites, you have this huge disparity in wages, but with proper monitoring – which the North is reluctant to do but is still being talked about – we may find that the fair wage is $4 a day,” Cortez said. He added that even at that rate some critics may not be satisfied, “but that may actually be a good livable wage for them considering many of their other expenses are cared for.”

Barrett pointed out that many of the workers’ expenses are actually covered by the government.

“In a communist society like the DPRK they get free medical care and education. They actually get quite a lot from the government including housing,” he said, drawing a comparison between the North today and where China and Vietnam were 20 or 10 years ago.

And Barrett believes the North can emulate the success stories of China and Vietnam.

“I am very confident because I believe a market of 23 million people, the same size as Taiwan or Malaysia, presents a lot of opportunity for business combined with the fact that there are a lot of resources of interest to overseas investors.

“All of those factors I think will drive business, trade and investment in a way that everybody can benefit. And I think that is the way forward,” Barrett said.

This was the key-note address By Nigel Cowie from an information meeting hosted by the European Business Association, Pyongyang, May 4th, 2006.

Introduction
My name is Nigel Cowie, I’m GM of DCB, and I’d like to take this opportunity to address with you the recent financial allegations and actions against the DPRK by the US Treasury. Where they have acted against specific companies, I can’t make any comment, except perhaps that we have not seen any evidence of any wrongdoing by them, because I don’t know anything about those cases, but I can tell you what they mean in the case of our bank and the budding legitimate foreign business community in the DPRK which we serve.

May I quickly first say a few words of introduction about me and about Daedong Credit Bank, our customers and their activities, before moving on to the US financial allegations and measures; and then address the use of cash in the DPRK, as this is important with regard to the financial allegations, then address the allegations themselves.

Daedong Credit Bank
Daedong Credit Bank is a majority foreign-owned, and foreign-managed joint venture commercial bank, providing standard, high street banking services in foreign currency to foreign-owned or invested commercial business customers—current accounts, remittances, foreign exchange and lending. Most of our customers are importing goods. These may be the consumer goods on sale in the hard currency shops, or larger scale commodities, mainly food related; also raw materials, in the case of the joint venture companies. A very few are exporting, mainly perishable goods like seafood and agricultural products, where they need to receive payment before goods arrive. However, we are not allowed to operate accounts for state-owned companies, and since these are the ones handling high value exports like minerals, most of our remittance business consists of outward remittances to pay for imports.

Financial Measures
On 15 September last year, the US Treasury announced the designation of Banco Delta Asia, Macau, as a “primary money laundering concern” in connection with transactions for DPRK customers, and proposed steps to deny the bank access to the US financial system. BDA immediately suspended all transactions with its DPRK customers and shortly thereafter voluntarily handed over management to the Macau Monetary Authority. The balances of these customers were transferred into special suspense accounts pending the outcome of various audit and other investigations. These investigations have now been completed, although the results have not been made public, and it is still not clear if and when the balances will be released.

Subsequently, other overseas banks closed the accounts of their DPRK bank customers, after receiving warnings from the US Treasury.

When we asked them, one of our correspondent banks explained that “This was an across-the-board policy decision due to external developments/factors, as you may be aware of, where present or future requirements may preclude us from our ability to service the accounts in an efficient manner.”

However, US Treasury Department Under Secretary Stuart Levey is quoted in Newsweek last week as saying that as more business people and governments learn about the risks of dealing with the DPRK, the campaign will have a “snowballing-avalanche effect.”

In this regard, he would appear to be true. We have heard from foreign customers conducting legitimate business here, who have been told by their bankers overseas to stop receiving remittances from the DPRK, otherwise their accounts will be closed.

Cash—a Key Point
Now, the way most of these customers get paid by local buyers is in cash. They bring the cash to the bank, we check the cash for counterfeits and credit it to their accounts with us. Then at the end of the month or whenever, we remit the funds out to their suppliers overseas. But because they are mainly importing, we tend to accumulate cash here in Pyongyang, and sometimes have to physically deliver it to banks overseas. There is nothing in any way tainted with this cash, and it is not counterfeit, it represents funds from legitimate business activities by legitimate customers, and the only reason it comes in cash is because of the peculiar circumstances in the DPRK.

An expert compares counterfeit and genuine bills
Irrespective of whether or not any illegal activities went on, other banks in the DPRK will have the same problem, whereby they have to make cash deposits overseas.

We have the most updated equipment, as well as highly experienced cashiers, for detecting counterfeit notes. While we do come cross them, they are not that common. And, contrary to many perceptions, it is possible to detect the so-called “supernotes.”

All the banks in the DPRK, so far as I am aware, view counterfeit notes as a nuisance, as, just like anywhere else, people have to have confidence in the cash they are handling. When the “supernotes‚ first appeared, our staff worked closely with those of Daesong bank and the Foreign Trade Bank to find ways of detecting them.

Banco Delta Asia
DPRK banks have, as the Treasury announcement correctly observed, been using Banco Delta Asia for decades. One of the reasons for that is because they were prepared to provide banking services to DPRK customers, but also because they accepted cash transactions.

Mongolia story
One further incident occurred specifically to us, which I would like to relate, and you can draw your own conclusions.

At the end of last year, we opened new accounts with Golomt Bank of Mongolia, in Ulaanbaatar. We discussed in detail with them procedures for handling cash transactions in a legally correct manner, as well as providing them with a copy of our anti-money laundering procedure manual, a manual that, incidentally had been accepted by our other correspondent banks.

On 21 February, our designated couriers transported a cash deposit to Mongolia, consisting of USD1 million and JPY20 million; the couriers were met, as previously agreed, by Golomt Bank officials together with local police at Ulaanbaatar International Airport. However, the couriers were then detained by Mongolian intelligence agents who took them, and the cash, to the Bank of Mongolia (central bank); the couriers were accused of importing counterfeit currency.

DCB’s couriers were detained outside the Bank of Mongolia for most of the night, whilst the intelligence agents claimed to be checking the authenticity of the cash. The next day they alleged that USD61,700 was suspected to be counterfeit; the alleged fakes were sent, together with two additional notes randomly taken from each remaining USD10,000 bundle of cash, for further examination at an unspecified location.

On 22 February the Mongolian press carried false reports, based on a leak, to the effect that “North Korean diplomats had been intercepted smuggling USD1 million and JPY200 million (not JPY20 million) into Mongolia”. These reports were subsequently carried by international news agencies.

Our Treasurer was dispatched to Mongolia, where he was subsequently joined by me, to protest this action and demand the return of the funds.

On 7 March, after holding the cash for 14 days claiming they were still checking it, the intelligence officials in a meeting with us finally conceded that all the notes were genuine; the cash was released. The money was deposited with the Golomt Bank of Mongolia on 9 March, as had originally been intended.

By the way, I would like to add that this is not a complaint against the Mongolian authorities. All the meetings I attended were most cordial, and I had the impression that all the officials I met were just trying to do their job. At the final meeting with Mongolian intelligence, they appeared rather embarrassed that they had been given incorrect information.

Effects of these Moves on DCB
Once again, I can only speak for DCB, and don’t know what Banco Delta Asia was doing with other customers. For our part, we are only conducting legitimate business, but have nonetheless been seriously affected by these measures. A large amount of our, and our customers‚ money—not just in USD, but in all currencies—has effectively been seized, with no indication of when they’ll give it back to us.

This makes it more difficult to manage the bank’s working capital, as well as that of those customers whose money was frozen. It has subsequently resulted in a sharp fall in turnover—more than 50%, I estimate—as customers’ own working capital is tied up, and they are reluctant to continue using the banking system in case something like this happens again.

It has also obliged us to expend great efforts to find new bank accounts, and make our side of the story heard to protect our and our customers‚ business. It has also greatly increased the cost of operations as the banking transactions have become more complicated.

So, there is a clear effect on legitimate business. I can’t speak about the illegitimate business, because we don’t have any, but I would imagine that anyone conducting illegal business could find a way around this, because they don’t have to comply with internally instituted procedures like we do. For example, I was approached by someone overseas offering to take cash deposits of any size we like, and have it re-sent on to wherever we want in consignments of less than $10,000 so that they are not spotted by overseas banks’ money laundering detection procedures. I declined this offer because we are not about that sort of banking.

Which brings me to the point that there is a danger of legitimate businesses being squeezed into routes that are more normally used by real criminals, and the result of these actions against banks doing business with the DPRK being that criminal activities go underground and harder to trace, and legitimate businesses either give up, or end up appearing suspicious by being forced to use clandestine methods.

Suggestion
We and other EBA members are trying to make an infrastructure for normalizing economic relations with outside world, this not helping.

During a March 7 interview with Arms Control Today, Michael Green, until recently President George W. Bush’s National Security Council senior director for Asian affairs, stated that The United States will continue to take action against illegal North Korean activities regardless of the six- party talks’ status. But he added that Washington thinks such measures complement the talks by forcing Pyongyang to turn to legitimate economic activities for revenue.

Our point is that that may be impossible.

The US Treasury department’s full report on Banco Delta Asia, as reproduced in the Federal Register (20 September 2005) states that “It is difficult to determine the extent to which Banco Delta Asia is used for legitimate purposes. Although Banco Delta Asia likely engages in some legitimate activity, the [Treasury] Secretary believes that any legitimate use of Banco Delta Asia is significantly outweighed by its use to promote or facilitate money laundering and other financial crimes.

I would far rather get everything out in the open, reporting full details of all our transactions to any monitoring authorities that need to know, that way there is nothing to hide, all parties are satisfied, and everything is legal, open, transparent and respectable.

I am quite sure that the other DPRK banks would be willing to do the same. Indeed, at a meeting on 7 March between US Treasury officials and the DPRK’s deputy Director-General for North America, Mr Li Gun, Mr Li proposed that the DPRK be allowed to open a USD bank account with a US bank—something we also would support.

This is a slightly abbreviated text of the original talk, posted at Japan Focus on May 6, 2006

Will this have repercussions in the south’s credit rating?

From the Daily NK:

On May 22, an official of Moody’s Investor Service, a Credit Rating Agency, announced that despite Kim Jong Il’s visit to China early this year, North Korea did not show indications for internal economic reformation.

On May 22, Vice-president Thomas Byrne of Moody’s Investor Service rated the possibility of North Korea towards economic reformation negative in the North Korean Economic Outlook Symposium held by Institute for Corean-American Studies(ICAS) in the Rusell Senate Building.

Vice-president Byrne estimated that North Korea failed to adjust its currency and exchange rate, and its trade environment was not improved, so that rather its economic situation was worse. Plus, he emphasized that North Korea did not show any signs of internal economic reformation.

He said about Gaesung Industrial Complex that, “If 5 more complexes like Gaesung Industrial Complex develop, we can see North Korea be in the economic reformation’s process, yet the Complex is no more than a symbol”. He emphasized that if North Korea has a strong resolute for economic reformation, “it should follow the economic model of South Korea because the way to Seoul is easier than the train to Shanghai for it”.

Vice-president Byrne warned that if South Korea would continue to support North Korea economically, it would face economic crisis soon.

While saying that, “The difference between the approaches of South Korea and the U.S is not great enough to make an impact on the credit rating of South Korea”, he stated, “Due to North Korea, South Korea always gets a lower credit rating than its original rating”.

Meanwhile, a special correspondent informed that North Korean-Chinese trader Lee Dae Kil(pseudonym, 49) who recently came back from North Korea showed a negative opinion about North Korean economy.

Mr. Lee said that, “There has been little profit in spite of trades with North Koreans for a few years”, and “North Koreans buy and sell only for living, not for investment for profits. He said that, “The North Korean government does not show even such efforts”,.

Mr. Lee said that, “After it was known that the U.S blocked banks banking with North Korea, dollar transactions sharply decreased”, and “There were people who even asked me about what happened outside”.

PYONGYANG ― In a rare visit to this reclusive communist country, a group of South Korean government officials, journalists, businessmen and economic experts attended a series of investment promotion events arranged this week by the North Korean government.

At a trade fair, South Koreans toured bustling booths set up by North Korean and foreign firms, and witnessed North Koreans buying goods there with U.S. dollars in their hands ― an indication that Pyongyang’s limited foray into capitalism, which began in 2002, is slowly progressing in the North’s strictly controlled economy.

The delegates on Wednesday visited the 9th Pyongyang International Trade Fair, where 196 companies from 12 countries set up booths. The delegates were allowed to look around the fair freely. Of the participating firms, 21 were from North Korea and the rest came from 12 other countries, including China, Russia, Spain, Sweden, Syria, Italy and Thailand.

At the fair, Jeil Trust Bank, a North Korean bank, advertised its savings account programs for foreign currency deposits. Cars, bicycles, tires and machinery made in the North were also displayed.

About 1,000 Pyongyang residents and North Korean businessmen also attended the fair, and most flocked around the sales booths of Chinese appliances. Some North Koreans purchased handbags, pots and other goods, making payments with dollars.

The 72-member delegation also visited a glass manufacturing facility southwest of Pyongyang on Wednesday. Daean glass factory, completed in October, was built with a $20 million investment from China. About 30 Chinese technicians are also training North Korean workers at the plant.

“In early 2000, North Korea decided to shut down all its glass factories, and decided to build a new plant,” Pak Jong-ung, deputy manager of the plant, said. “China learned about the plant and invested in it.”

The South Koreans also toured a ship repair plant in Nampo, South Pyeongan province. At the Yongnam factory, Cha Son-mo, senior North Korean maritime affairs official, gave a presentation. “Last year, we finished the second dock, capable of repairing a 50,000-ton ship,” Mr. Cha said. “Please use our facility to promote inter-Korean economic exchange.”

Jeong Nam-su, senior planning manager of STX Corporation, a South Korean ship maintenance firm, said the facility was better equipped than he expected. “It is also surprisingly modernized,” Mr. Jeong said. “I am considering asking the North Korean factory to repair one or two ships after I return to the South.”

On Tuesday, the group attended an investor-relations session hosted by the North’s Trade Ministry, with simultaneous translations into Chinese and English available. About 70 foreign investors attended. It is the first time South Koreans were invited to such an event. Rim Tae-dok, the trade ministry’s councilor, gave the presentation, promising tax benefits and land leases at low prices.

The delegation visited Kim Chaek University of Technology and Kim Il Sung University and toured Mount Myohyang. The group, which began its trip on Monday, will return to Seoul Saturday.

From the Korea Herald:

the ROKs Ex-Im Bank has focused on bolstering economic cooperation with developing countries and promoting reconciliation and cooperation with North Korea. Ex-Im Bank is the official inter-Korean settlement bank for South Korea with Foreign Trade Bank of North Korea as its counterpart.

A number of initiatives were carried out to promote better operation of the state-run lender’s Economic Development Cooperation Fund and the Inter-Korean Cooperation Fund.

Active policy dialogues with partner countries, for example, has significantly increased effectiveness through simplified procedures and co-financing approaches with multilateral development institutions. The Inter-Korean Cooperation Fund supported infrastructure projects such as the construction of roads and railways connecting the two Koreas, while providing humanitarian aid to North Korea. The fund also provided loans to South Korean firms involved in trade with North Korea.

From the Korea Times:
http://times.hankooki.com/lpage/opinion/200407/kt2004070616242354140.htm 

The Currency of Currency
By Andrei Lankov

Communists have always professed to abolish money _ and for a while they took the promise seriously. The first years of the Communist rule in Russia were marked by bold experiments aimed at the abolition of the currency which was to be replaced by some “direct labor exchanges.” However, the ensuing bitter experience was a harsh lesson, and so in later eras Communist regimes only paid lip service to the anti-monetary rhetoric. They did not reject their earlier promises to completely do away with money, but this was to be done at some unspecified point in a distant future.

Thus, the establishment of Communist governments often began with currency reform _ and North Korea was no exception to this rule.

For the first few years after Liberation, the North Koreans continued to use Japanese banknotes and coins. However, in December 1947, the nascent Communist authorities launched a currency reform. Needless to say, this was done with complete Soviet endorsement, and the practical management of the reform was entrusted to a Soviet-Korean financial expert, Kim Chan.

Within the week from Dec. 6 to 12, 1947, all the old banknotes had to be exchanged for new ones. According to then contemporary Soviet reports, trade on the Korean markets came briefly to a complete halt as shopkeepers panicked. Only in January, with the new banknotes, did shops resume normal trade.

The 1947 banknotes were printed in the USSR. There were four denominations; 1, 5, 10 and 100 won. These early banknotes were peculiar in many regards. First of all, they were issued before the official proclamation of the DPRK _ and thus did not bear the name of the state which issued them. They only carried the inscriptions ‘Democratic Korea’ and the name of the issuing institution _ “the Central Bank of North Korea.” Another peculiarity was the use of Chinese characters, soon to be banished from North Korean life.

In 1949, the banknotes were augmented with currency for small transactions. This “small change” was issued not as coins, but as paper money _ with values of 15, 20, and 50 chon (a chon is 1/100 of the North Korean won). However, rampant inflation soon made these small banknotes unusable.

The Korean War created complete havoc with the currency systems of both Koreas. In February 1959 Pyongyang launched a new currency reform. This time, the “old” won were exchanged for the “new” at the rate of 100:1 (what used to be a hundred won became one won). This was necessary to encourage stability and make the Korean currency more manageable. Indeed, until the dramatic changes which followed the Great Famine of 1996-1999, it had been easier to handle the North Korean currency than its South Korean counterpart: in the North nobody had to operate with five- or six-digit numbers for every small transaction!

The 1959 banknotes depicted industrial and agricultural landscapes. As a rule the front side of each banknote showed something industrial, while the reverse side had largely agricultural topics. There were six types of the banknotes, valued at 50 chon (0.5 won), and 1, 5, 10, 50, and 100 won. In addition, the first North Korean metal coins were issued as well _ with denominations of 1, 5, and 10 chon (50 chon coins were subsequently issued as well). The coins were made of a light aluminium-based alloy, and they all had a similar design: the DPRK’s coat of arms on the reverse, and the denomination on the front. In this respect the coins largely followed the patterns of the coinage in other Communist countries.

The next reforms took place in 1979. While the old coins remained in circulation, banknotes were replaced. The new banknotes (once again, with the values of 1, 5, 10, 50, and 100 won) had a dramatic and highly politicized design. The 100-won banknote was decorated with a portrait of Kim Il Sung, who thus became the second Korean leader to be depicted on a Korean banknote in his lifetime. The dubious honor of being the first goes to the South Korean President Syngman Rhee, who put his face on South Korean banknotes as early as 1950. The reverse of the 1979 100-won banknote depicted Kim Il Song’s childhood home in Mangyongdae.

The 50-won banknote had representations of a worker, a farmer (the only female in the picture), a soldier, and an intellectual (the latter lurking in the back); all of whom were holding high the symbolic torch of Kim Il-sung’s chuche ideas.

The 1979 banknotes remained in use until 1992 when another currency reform introduced the present system of Korean coins and banknotes. But that is another story…

Foreign Trade Bank of Korea
FTB Building, Jungsong dong, Central District, Pyongyang, North Korea
Phone: +850 2 18111
Fax: +850 2 3814467

Dae-Dong Credit Bank  
Ansan-dong BoTongGang Hotel, Pyongchon, Pyongyang, North Korea
Phone: +850 2 3814866
Fax: +850 2 3814723
 
Credit Bank of Korea  
Chongryu 1-Dong, Munsu Street, Otan-dong, Central District, Pyongyang, North Korea 
Phone: +850 2 3818285
Fax: +850 2 3817806

Woori Bank  
Busok-Dong 1st Floor 101 Gaesunggongdan, Bondong-Ri, Gaesung City, Hwanghae-Do, North Korea
Phone: +8 850 9118
Fax: +8 850 9119

The International Industrial Development Bank  
Jongpyong-dong, Pyong chon District, Pyongyang, North Korea
Phone: +850 2 3818610
Fax: +850 2 3814427

Korea Daesong Bank  
Segori-dong, Gyongheung Street, Pyongyang, North Korea
Phone: +850 2 818221
Fax: +850 2 814576
 
Korea Daesong Bank  
Segori-dong, Gyongheung Street, Pyongyang, North Korea
Phone: +850 2 818221
Fax: +850 2 814576

Changgwang Credit Bank  
Saemaeul-1 Dong, Pyongchon District, Pyongyang, Korea (North)
Phone: +850 2 18111999 ext
Fax: +850 2 3814793

Bank of East Land  
BEL Building, Jonseung-Dong, Pyongyang, Korea (North)
Phone: +850 2 18111
Fax: +850 2 3814410

Korea Joint Bank  
Ryugyong 1 dong, Pothonggang District, Pyongyang, Korea (North)
Phone: +850 2 3818151
Fax: +850 2 3814410

Central Bank of Korea
58-1 Mansu-dong, Sungri str, Central District, Pyongyang, Korea (North)
Phone: +850 2 18111 Ext: 81
Fax: +850 2 3814624

Well, I dont know how, but my personal email address has been on the distribution list of the Rainbow Trading Company…a Tokyo based shop that specializes in North Korean art and books.  The owner, Jun Miyagawa, does not seem to be Korean, and I have never spent more time in Tokyo than to pass through several times on my way to the countryside.

Still, I just thought I would let you know that he is selling a complete set of North Korean Currency (1,5,10,50,100,200,500,1,000,5000W) for $66.50.

If you add up all of the denominations, you get 6866Won.  Using the market exchange rate of 3,000W=$1USD, the sum value of these notes is $2.28.  This is a markup of 2816% (not including postage).

Remember this when you purchase North Korean currency from ebay.  Also, When I was visiting, I was told that they have trouble with counterfiters in China.  It is likely the money you are buying has never been to the DPRK, unless it is from an actual visitor that you can verify.

You know you have arrived when you are covered by the Washingon Post:

Two Koreas Learn to Work as One: New Industrial Park Matches South’s Capital and Know-How With North’s Low-Cost Labor
By Anthony Faiola, Washington Post Foreign Service
Tuesday, February 28, 2006; Page A10

Here are the highlights:

Layout

• Kaesong Industrial Park is two-thirds the size of Manhattan.  Only a fraction of its real estate currently developed.  15 factories already operating. One is called Shinwon Textile Factory. (Source)
• A South Korean telephone company has installed the first 340 of 10,000 planned phone lines.  Because of the communist state’s chronic shortages of electricity, the South Koreans have had to run power lines across the border to serve their factories.  The goal (starting next month) is 154000 kilowats (source).
• Some company representatives concede that the North Koreans are not always ideal business partners.
• A tall green wire fence marks the zone’s 8.6-kilometer-long boundary (Source)
• South Korea is assuming all the financial risk, having invested more than $2 billion  (source). Kim Dong-keun, president of the South Korean Committee, which co-manages the zone, says the 489 South Koreans who work in Kaesong receive special training on interacting with North Koreans.   For South Korean managers, Kaesong is considered a hardship posting.  As a result, many of them receive as much as $2,500 extra pay per month (Source). No South Korean money is accepted here, even at a Family Mart convenience store set up for the exclusive use of South Korean employees (Source).
• 50 year leases were auctioned off last summer. On Average, there were 4 South Korean companies vieing for each spot. 

Labor Relations and Statistics

• After the first busloads of North Korean workers arrived at the gates 16 months ago, weeks passed before people from the two societies could even understand each other’s dialect.  They had to explain virtually every aspect of modern life to his fresh-faced communist charges — down to how to use the factory’s Western-style toilets.
• The workers put in long hours at often grueling tasks, but life here nonetheless seems a cut above the poverty that is common in most of North Korea. 
• Although the zone currently employs about 6,000 North Koreans here, officials in Seoul project that an additional 15,000 North Koreans will start work as more than 20 South Korean companies move in. By 2012, plans call for as many as 700,000 employees — 4.5 percent of North Korea’s entire workforce.
• Thousands of workers live in on-site dorms, while others arrive by bus from Kaesong. South Koreans are not permitted beyond a bright green perimeter fence that is guarded by armed soldiers and separates the complex from nearby towns.
• North Korean workers are paid a fixed salary of $57.50 a month. That is about 20 times less than the pay of a South Korean worker of the same skill level, but it is a welcome sum in North Korea.  It is unclear how much of that money actually goes to the North Korean workers. The dollar-denominated checks issued by the South Korean companies are paid to a North Korean government agency. Na Un Suk, director general of North Korea’s Central Special Economic Zone Control Agency, said the government makes deductions for room and board provided to the employees before paying them varying amounts in North Korean currency.  The Los Angeles Times reports that workers get $8/month.  About double the average salary (Source).
• Although South Korean managers have some say in promoting workers, they have little role in choosing who arrives on their doorstep. Many employees are from Kaesong city — the ancient capital of the Goryeo kingdom that first united much of the Korean Peninsula. But all are picked by officials from the North Korean government.
• North Korean workers are forbidden from any contact with South Koreans except when necessary on the job.  They enter and leave the zone through a single checkpoint manned by North Korean soldiers. (Source)
• Managers from South Korea live in single-story temporary quarters that resemble military barracks. Typically, they go home twice a month.  “It’s very difficult,” says Kim Ki Hong, general manager of a branch of the only South Korean bank in the zone. “We cannot go outside,” says Mr. Kim. “We are almost prisoners.”(Source). Southerners also have their own cafeteria and their own medical clinic, all off limits to the North Koreans (Source). 
• In response to queries about their wages, a young North Korean woman murmurs, “I cannot say anything,” and another says only, “We get enough.”
• Everyone here has at least a high school education. Many of them are college grads. But the most convenient is the fact that they all speak Korean. It’s easier to train them,” said Ryu Nam-Ryul, a section manager at Taesung Industry
• North Korean patriotic music in praise of Kim blares over the loudspeakers.

Taxes

• Gaesong has also exempted foreign companies from corporate income taxes in the first five years, and gives a 50 percent reduction for three more years. (source)
• Independent labor unions are banned.

Production

• Taesun Hata is exporting compact casings for Clinique and eye shadow holders for Bobbi Brown from its multimillion-dollar plant.
• Southern companies make shoes, textiles, auto parts and kitchen implements
• A branch of a major South Korean bank is open for business, as is a Family Mart convenience store staffed by two North Korean women.
• Inter-korean trade surged 50% since last year, over $1 billion.

Political goals

• The Zone is also key to South Korea’s strategy for lessening what is bound to be a massive economic jolt if it reunites with the North. North Korea’s per-capita income is roughly $1,800 a year, 10 times less than the South’s.
• Officials say Kaesong is also meant to keep on course a program of market-oriented restructuring that the North is undertaking in its domestic economy.
• South Korean companies have received low-interest loans and security guarantees from the South Korean government to locate in Kaesong.
• South Korea no longer has to go to south east Asia for manufacturing.  they can undertake low-cost production in North Korea and undercut Chinese prices.(Source).  It takes only three hours to deliver the products from Gaesong to the South Korean warehouse, whereas it would take more than one week from China.(source)
• “Our workers here are not motivated by material satisfaction. We are motivated by the fact that this is a national business project. We are one nation, and this is an important part of our unification process,” Na Un-Suk, director general of the Central Special Economic Zone Control Agency.

Future plans

• South Korea’s state-run Korea Land Corp. and Hyundai Asan, the North Korea business arm of Hyundai Group, said Tuesday they plan to build a hotel at an industrial complex in the North by June next year. The two companies will invite a private enterprise to construct the hotel to resolve a shortage of accommodation at the complex in the North Korean border city of Kaesong.  To that end, the state land developer and Hyundai Asan will set up a joint venture to take charge of the hotel, they said. (Yonhap)
• To grow as planned, the park will have to win access to world markets. South Korea hopes that products made here will be eligible to enter the United States under any free-trade pact that may be negotiated with the United States (Source).