North Korean Economy Watch

Asia Times
(abridged)
11/30/2006

United Nations Security Council Resolution 1718 has had no impact on the economic activity in the remote northeastern corner of North Korea where Russians and Chinese are building transportation infrastructure for future industrial-development projects. As was planned before the nuclear test, the Russians began repairing a dilapidated railway line, while the Chinese continued with their highway-construction project.

There were no delays in the normal operations of the Kumgang (also transliterated Geumgang) project, a joint tourist venture on the border between two Koreas. Every day many hundreds of South Korean tourists travel about 20 kilometers into the North to visit the picturesque mountains and spend a few days there, leaving their currency in the accounts of the North Korean government. The project has always been a major money-earner for the cash-hungry North. The Americans tried to stop Kumgang operations, but the South Koreans refused, and business continued as usual.

It was reported this month that a number of the North Korean workers employed by South Korean companies in Gaesong industrial park exceeded the 10,000 mark. Gaesong industrial park is the largest cooperative venture between two Koreas. It is the place where South Korean capital and technology use cheap North Korean labor to produce internationally competitive stuff – or at least this is what is supposed to be going on there.

In spite of optimistic talk, so far the project has been a money-losing enterprise for the Southerners, and most companies stay in Gaesong only because their government is willing to back them financially.  Still, Seoul, even when it talked tough, did not do anything to slow down the project. On the contrary, the Gaesong project is growing fast, and so, one might suspect, are revenues it provides to the Pyongyang regime.

By now it has become patently clear. No international sanction regime against North Korea worthy of its name is in place, and there is no chance that such regime will emerge in future. China, Russia and, above all, South Korea do not want to punish North Korea for going nuclear.

China is not happy about a nuclear North Korea, but probably sees it a lesser evil than a unified Korea that is likely to be under US influence and will perhaps even have US military bases. Beijing does not want this. It also does not want a collapse of another state under communist rule – this might be a bad news for domestic propagandists.

And last but not least, in recent years Chinese companies have moved into North Korea, taking over mining and infrastructure, so such gains need be protected as well. At the same time, the North Korean nukes are not seen by Chinese strategists as an immediate problem: the Chinese assume (correctly, perhaps) that these weapons will never target China and will not be transferred to China’s enemies. So for China, keeping North Korea afloat is a strategic imperative.

Russia is not a major player in the Korean game nowadays, but it has some leverage as a potential “blockade breaker”. Without sincere cooperation from Russia, no efficient sanctions regime will be possible, and such cooperation seems unlikely. Moscow does not want the North Korean regime to collapse. The country’s leader Kim Jong-il is potentially useful for numerous diplomatic combinations, and also as a deterrent against the Americans, who are increasingly seen by President Vladimir Putin’s Moscow as dangerous global bullies.

However, it is South Korea whose policy is decisive in these issues. Indeed, in recent years North Korea was kept afloat by generous Southern aid, with some 500,000 tons of grain and a large amount of other supplies being sent north every year. This aid saved countless lives in the North, but it also contributed to keeping the regime in control.

It has been clear for a decade that South Korea, in spite of all the rhetoric, does not want unification to happen too fast or too soon. The German experience demonstrated how vastly expensive unification might become, and Koreans have good reasons to believe that their situation is much worse than that of Germany. After all, the per capita gross national product in East Germany was roughly half of the West German level, while in the case of North Korea, per capita GNP is less than one-tenth of the South Korean level.

Judging by the experience of the 1990s when the North Korean regime was more isolated than now, economic pressures alone will not necessarily lead to its collapse. During the great famine of the late 1990s, between a half-million and a million people starved to death without causing any inconvenience to the regime. There are no reasons to believe that sanctions would achieve much either, apart from producing another famine and many more deaths.

In contrast, the ongoing exchanges bring to North Korea information about the outside world, and this information is subversive by definition, making more and more people wonder whether something should be done about their country’s political and economic system, so clearly inefficient and anachronistic. Thus the current situation surrounding the so-called “sanctions” might be a rare case when the hypocrisy and duplicity of so-called “collective diplomacy” is doing more good than harm.

Early this month a market riot happened in the remote North Korean city of Hoeryong. Perhaps for the first time since 1945, a large group of North Koreans openly and vocally protested an unpopular decision of the local administration. This was a minor incident, but in the long run it might be more significant than all the meaningless invectives delivered by the well-dressed people in the UN Assembly Hall.

USA Today
11/29/2006
Ted Bridis

The Bush administration wants North Korea’s attention, so like a scolding parent it’s trying to make it tougher for that country’s eccentric leader to buy iPods, plasma televisions and Segway electric scooters.

The U.S. government’s first-ever effort to use trade sanctions to personally aggravate a foreign president expressly targets items believed to be favored by Kim Jong Il or presented by him as gifts to the roughly 600 loyalist families who run the communist government.

Kim, who engineered a secret nuclear weapons program, has other options for obtaining the high-end consumer electronics and other items he wants.

But the list of proposed luxury sanctions, obtained by The Associated Press, aims to make Kim’s swanky life harder: No more cognac, Rolex watches, cigarettes, artwork, expensive cars, Harley Davidson motorcycles or even personal watercraft, such as Jet Skis.

The new ban would extend even to music and sports equipment. The 5-foot-3 Kim is an enthusiastic basketball fan; then-Secretary of State Madeleine Albright presented him with a ball signed by Michael Jordan during a rare diplomatic trip in 2000.

Experts said the effort — being coordinated under the United Nations — would be the first ever to curtail a specific category of goods not associated with military buildups or weapons designs, especially one so tailored to annoy a foreign leader. U.S. officials acknowledge that enforcing the ban on black-market trading would be difficult.

The population in North Korea, one of the world’s most isolated economies, is impoverished and routinely suffers widescale food shortages. The new trade ban would forbid U.S. shipments there of Rolexes, French cognac, plasma TVs, yachts and more — all items favored by Kim but unattainable by most of the country.

“It’s a new concept; it’s kind of creative,” said William Reinsch, a former senior Commerce Department official who oversaw trade restrictions with North Korea during Bill Clinton’s presidency. Reinsch predicted governments will comply with the new sanctions, but agreed that efforts to block all underground shipments will be frustrated.

“The problem is there has always been and will always be this group of people who work at getting these goods illegally,” Reinsch said. Small electronics, such as iPods or laptops, are “untraceable and available all over the place,” he said. U.S. exports to North Korea are paltry, amounting to only $5.8 million last year.

The Distilled Spirits Council of the United States, the trade group for the liquor industry, said it supports the administration’s policies toward North Korea. The Washington-based Personal Watercraft Industry Association said it also supports the U.S. sanctions — although it bristled at the notion a Jet Ski was a luxury.

“The thousands of Americans and Canadians who build, ship and sell personal watercraft are patriots first,” said Maureen Healey, head of the trade group. She said it endorsed the ban “because of the narrow nature of this ban and the genuine dangers that responsible world governments are trying to stave off.”

Defectors to South Korea have described Kim giving expensive gifts of cars, liquor and Japanese-made appliances to his most faithful bureaucrats.

“If you take away one of the tools of his control, perhaps you weaken the cohesion of his leadership,” said Robert J. Einhorn, a former senior State Department official who visited North Korea with Albright and dined extravagantly there. “It can’t hurt, but whether it works, we don’t know.”

Responding to North Korea’s nuclear test Oct. 9, the U.N. Security Council voted to ban military supplies and weapons shipments — sanctions already imposed by the United States. It also banned sales of luxury goods but so far has left each country to define such items. Japan included beef, caviar and fatty tuna, along with expensive cars, motorcycles, cameras and more. Many European nations are still working on their lists.

U.S. intelligence officials who helped produce the Bush administration’s list said Kim prefers Mercedes, BMW and Cadillac cars; Japanese and Harley Davidson motorcycles; Hennessy XO cognac from France and Johnny Walker Scotch whisky; Sony cameras and Japanese air conditioners.

Kim is reportedly under his physician’s orders to avoid hard liquor and prefers French wines. He also is said to own an extensive movie library of more than 10,000 titles and prefers films about James Bond and Godzilla, along with Clint Eastwood’s 1993 drama, In the Line of Fire, and Whitney Houston’s 1992 love story, The Bodyguard.

Much of the U.S. information about Kim’s preferences comes from defectors, including Kenji Fujimoto, the Japanese chef who fled in 2001 and wrote a book about his time with the North Korean leader.

Washington Times
11/24/2006

The international Red Cross signed a “historic” agreement with North Korea this week to help the impoverished country tackle the impact of famine and natural disaster.

The three-year agreement was signed by the International Federation of Red Cross and Red Crescent Societies on the sidelines of a regional conference in Singapore that ended yesterday.

It is aimed at improving preparedness in the isolated communist nation and bolstering the North Korean Red Cross’s ability to help people vulnerable to disease, hunger and natural calamities.

The federation said it currently assists about 8.7 million people in five North Korean provinces. Under the agreement, projects such as water, sanitation and first aid will be given additional support in places such as Ryonpori, an hour’s drive north of the capital Pyongyang.

Simon Missiri, head of the federation’s Asia and Pacific department, said the agreement harmonized assistance being given by mostly European Red Cross societies to their North Korean counterpart.

The Swedish Red Cross, for example, supports water-sanitation projects, the British assist community disaster-preparedness programs, and the Dutch focus on distribution of drugs to hospitals and clinics.

“So what we did is that in order to harmonize our cooperation we negotiated an agreement where each member commits to support certain programs of the [North Korean] Red Cross,” Mr. Missiri said.

He said the main objective of the accord is to “support the vulnerable people” in the North and build up the capacity of the North’s own Red Cross.

While the situation there was not discussed during the four-day conference here, aid agencies have in the past said many North Koreans are reduced to eating roots because there is little else to live on.

A decade ago, famine killed at least one million people in North Korea, and the country is still reliant on massive international food aid.

After Pyongyang’s nuclear weapons test on Oct. 9, aid and rights groups said they feared the international community would cut back on donations.

At the Singapore meeting, North and South Korean delegates sang together, witnesses said.

It is thought to be one of the rare international meetings in which citizens from the two Koreas, which are still technically at war, let their hair down and allowed music to unify them if only for a fleeting occasion.

During the conference’s final dinner on Wednesday evening delegates from the two Koreas took to the stage and sang a “song of hope,” recalled Winston Choo, Singapore Red Cross chairman and host of the meeting.

“The two delegations stood up and stood side by side as Koreans … They went to the stage. (There) was a big applause,” he said. “In humanitarian work, we have one common aim, that is to help humanity.”

Joong Ang Daily
11/17/2006

China has not cut off oil supplies to North Korea, nor will it stop oil and food assistance to its ally as a means of exerting political pressure, Chinese officials were quoted as telling a group of U.S. scholars.

The Americans in the group also said Wednesday that Chinese officials seemed to have a different understanding from the North Koreans about how U.S. financial sanctions would be dealt with at the next round of six-nation talks.

The Chinese reportedly said they were “surprised” that Pyongyang had told the group it expected those sanctions to be lifted.

Siegfried Hecker, a visiting professor at Stanford University, said he asked Chinese foreign ministry officials if Beijing had cut off heavy fuel oil to North Korea as reported.

“The answer was that China did not cut off heavy fuel oil to North Korea. That’s the direct answer that we received,” he said at a news conference.

Mr. Hecker was part of a four-member delegation that was in Pyongyang Oct. 31-Nov. 4. He is a former director of the Los Alamos National Laboratory, a U.S. nuclear weapons center, and has visited North Korea three times.

The other members of the team were Jack Pritchard, former U.S. point man on North Korea policy and now head of the Korea Economic Institute in Washington, D.C.; Robert Carlin, a former North Korea analyst now at the Korean Peninsula Energy Development Organization; and John Lewis, a Stanford University professor.

There was speculation that Beijing had ended the fuel aid to the North in September, when Pyongyang showed signs of preparing for its first nuclear test. The aid suspension was believed to be China’s way of pressing its ally to forgo the test.

Mr. Hecker said Chinese officials were clear that Beijing did not and would not stop fuel and food donations, arguing that North Korea would only “grow stronger” if pressured.

The team arrived in North Korea on the day the communist regime, after a year’s boycott, agreed to return to the six-nation nuclear talks that also involve South Korea, the United States, China, Russia and Japan.

Pyongyang left the table to protest punitive measures taken by the U.S. Treasury against Macao’s Banco Delta Asia for allegedly laundering money for the North.

North Korean officials told the American visitors that they expected discussions and a conclusion of the sanctions issue at the next six-party talks, according to Mr. Pritchard.

But Chinese officials, when told of Pyongyang’s position, “expressed some surprise,” Mr. Hecker said.

“They indicated, obviously, differences of opinion as to what was agreed on,” he said.

From Yonhap
11/6/2006

Seoul to resume flood aid for N. Korea if separated family reunions restart

South Korea may resume its humanitarian assistance for impoverished North Korea following an improvement in inter-Korean relations, the head of South Korea’s National Red Cross said Monday.

The Red Cross chief’s remarks come amid international efforts to punish the communist nation for its nuclear test on Oct. 9. Pyongyang agreed last week to return to international negotiations over its nuclear weapons program.

“I believe the Red Cross societies of the North and the South would be able to discuss the issue of resuming shipments of (South Korea’s) remaining flood recovery aid to the North once the most desperate humanitarian issue (between the two Koreas), which is the issue of separated family reunions, is resolved,” Han Wan-sang told reporters.

Han’s remarks came partly in response to an alleged offer by North Korea’s No. 2 official Kim Yong-nam to hold Red Cross talks to discuss the resumption of separated family reunions. The offer was made public by a group of legislators and officials from South Korea’s minor opposition Democratic Labor Party (DLP) who visited Pyongyang last week.

North Korea unilaterally called off a scheduled round of the Red Cross-sponsored programs to reunite families separated by the division of the Koreas in July. The cancellation came after Seoul’s suspension of its regular humanitarian assistance, mostly rice and fertilizer, for the communist nation following the North’s launch of seven ballistic missiles earlier that month.

Analysts here believed the North would demand the resumption of Seoul’s humanitarian aid for the communist state in return for holding a new, or delayed, round of separated family reunions as the North Korean official, who serves as president of the Presidium of the Supreme People’s Assembly, was quoted as telling the visiting DLP officials that the Koreas must jointly work to resolve various humanitarian issues between the two.

Han said the reunions must be held without any conditions, also adding that the resumption of his country’s regular economic assistance for the North is a political issue.

He, however, said the sides could discuss resuming at least part of Seoul’s humanitarian assistance to the North at the next round of the separated family reunions when, or if, they are held.

“But issues that can be discussed from a humanitarian perspective can be discussed while pursuing other humanitarian projects,” he said.

The South Korean government pledged to give the one-time flood recovery aid, consisting of some US$50 million worth of rice, medicine and construction equipment, to the North in August, but has delayed its shipments since the North’s Oct. 9 nuclear test.

The Unification Ministry refused to comment on the North’s alleged offer, saying it has yet to receive any official report from the opposition party or an offer from the communist state.

The Koreas have held 14 rounds of separated family reunions since the historic inter-Korean summit in 2000, but over 90,000 people from the South alone remain separated from their loved ones since the end of 1950-53 Korea War.

The countries officially remain in a state of war as the Korean War ended with a cease-fire, not a peace treaty.

The Plight of North Koreans in China and Beyond
International Crisis Group
10/26/2006
PDF Here: Perilous Journeys.pdf

Executive Summary

Scores of thousands of North Koreans have been risking their lives to escape their country’s hardships in search of a better life, contributing to a humanitarian challenge that is playing out almost invisibly as the world focuses on North Korea’s nuclear program. Only a little over 9,000 have made it to safety, mostly in South Korea but also in Japan, Europe and the U.S. Many more live in hiding from crackdowns and forcible repatriations by China and neighbouring countries, vulnerable to abuse and exploitation. If repatriated to the North, they face harsh punishment, possibly execution. China and South Korea have held back, even during the Security Council debate over post-test sanctions, from applying as much pressure as they might to persuade Pyongyang to reverse its dangerous nuclear policy, in part because they fear that the steady stream of North Koreans flowing into China and beyond would become a torrent if the North’s economy were to collapse under the weight of tough measures. While there is marginally more hope Beijing will change its ways than Pyongyang, concerned governments can and must do far more to improve the situation of the border crossers.

Even without a strong response to the 9 October 2006 nuclear test that targets the North’s economy, the internal situation could soon get much worse. The perfect storm may be brewing for a return to famine in the North. Last year, Pyongyang reintroduced the same public distribution system for food that collapsed in the 1990s and rejected international humanitarian assistance, demanding instead unmonitored development help. Funding for remaining aid programs is difficult to secure, and summer floods have damaged crops and infrastructure.

Hunger and the lack of economic opportunity, rather than political oppression, are the most important factors in shaping a North Korean’s decision to leave “the worker’s paradise”. A lack of information, the fear of being caught by Chinese or North Korean security agents and financial limitations are more significant barriers than any actual wall or tight security at the border. China compensates for the virtual absence of border guards with a relentless search for North Koreans in hiding. In

October 2006, Chinese authorities began to build a fence along the frontier and conduct neighbourhood sweeps to find and arrest the border crossers. Despite these formidable obstacles, the willingness among North Koreans to risk their lives to escape is growing stronger, and arrivals in the South are likely to hit a record this year. The most important pull factor shaping the decision to leave is the presence of family members in China and, increasingly, South Korea. The nearly 9,000 defectors in the South are able to send cash and information to help their loved ones escape. To a lesser but significant extent, information is beginning to spread in the North through smuggled South Korean videos, American and South Korean radio broadcasts, and word of mouth – all exposing North Koreans to new ideas and aspirations.

Most North Koreans do not arrive in China with the intention of seeking official asylum, but because Beijing is making it ever more difficult for them to stay, a growing number are forced to travel thousands of kilometres and undertake dangerous border crossings in search of refuge in Mongolia or South East Asia. The mass arrests of 175 asylum seekers in Bangkok in August 2006 and a further 86 on 24 October provide vivid examples of host country hospitality being stretched to the limits.

The vast majority of North Koreans who have made it to safety resettle in South Korea. In most instances, this is a choice motivated by language, culture and the promise of being reunited with family members. In a growing number of cases, the overly burdensome procedures for being granted asylum anywhere else is the deciding factor. With the exception of Germany, the governments that have pressed most vigorously for improving North Korean human rights, namely the U.S., the European Union member states and Japan, have taken in only a handful of asylum seekers.

A loose network of makeshift shelters focused on humanitarian aid has evolved into a politically-charged but fragile underground railroad on which some North Koreans can buy safe passage to Seoul in a matter of days, while others suffer years of violence and exploitation. If they are to minimise the exploitation of the most vulnerable and enhance the much-needed aid this network delivers, concerned governments must commit to a sustainable solution.

None of the policies proposed in this report would create unmanageable burdens for any government. Unless North Korea’s economy collapses completely, the numbers of its citizens crossing international borders will continue to be restricted by many factors, not least Pyongyang’s tight controls on internal movement and the financial cost of securing an escape route. However, it is time to back up strong words and resolutions about the plight of North Koreans with actions, both because humanity demands it and because if the international community cannot quickly get a handle on this situation, it will find it harder to forge an operational consensus on the nuclear issue.

Donga:
10/25/2006

A North Korean government-sponsored company has reportedly been selling products to North Korean citizens using the nonprofit aid products received from the international community, including South Korea during the Yongchon disaster of April 2004.

Members of a North Korean aid organization located in Dandong City, Liaoning, China stated that 70 to 80 percent of relief products including blankets and medical tools were not sent to the citizens of Yongchon.

(more…)

From the Joong Ang Daily:
Bank sees North pain if sanctions take hold
10/24/2006
Choi Hyung-kyu, Ser Myo-ja

The Bank of Korea said yesterday, in a report prepared for a legislator, that international financial sanctions on North Korea could deal a heavy blow to the North’s shaky economy.

In an assessment for Representative Yim Tae-hee of the Grand National Party, the central bank said a 30-percent reduction in foreign currency inflows to North Korea would lower economic activity by three-quarters of a percentage point. A halving of North Korea’s external trade, the paper said, would reduce economic growth by nearly 5.5 percentage points; a 70-percent falloff in trade would drop economic output by 8.25 points.

Estimates of economic activity in centrally planned economies are difficult at best, however, and North Korea’s secrecy makes such estimates even more tenuous.

“When international financial institutions join in the sanctions and cut the influx of the annual $800 million in foreign currency to the North, Pyongyang will face serious trouble,” Mr. Yim said.

He added, without citing sources, that the North earns about $300 million through legitimate activities, such as inter-Korean economic cooperation deals and remittances from North Koreans abroad, adding that counterfeiting and drug trafficking bring in about $500 million more annually.

Christopher Hill, the U.S. assistant secretary of state for Asia, arrived in Hong Kong on Saturday to meet, among others, William Ryback, the deputy chief executive of the Hong Kong Monetary Authority.

“The U.S. team asked the Hong Kong authorities to cooperate in its effort to freeze North Korean assets in Hong Kong and Macao,” a Hong Kong source said yesterday. “Hong Kong gave a positive answer.”

Another Hong Kong government source said Mr. Hill also asked the government there to help inspect suspect North Korean ships.

“A North Korean ship under a U.S. intelligence watch is on its way to Hong Kong,” the official said. “Mr. Hill asked the authorities to inspect the boat thoroughly when it enters port here.”

USA Today
Barbara Slavin
10/22/2006

At a kindergarten in Hyangsan, a small city near North Korea’s capital, dozens of colorfully dressed children put on a calisthenics display this month for visitors from the U.N. World Food Program.

The children, full of corn porridge and high-protein biscuits provided daily by the aid agency, jumped, stretched briskly and looked healthy, said Jean-Pierre DeMargerie, the top program official in North Korea. Kids in the front rows looked especially good, he said. “Those 20-30 yards back were not as well groomed or dressed.”

“It’s always difficult to get a clear picture,” DeMargerie said. “The North Koreans don’t like to expose those that might be sick or weak. You build your assumptions on a relatively small sample.”

North Korea, one of the world’s most isolated nations, is a hard society to fathom even for the few foreigners who visit regularly. Whether it is on the verge of economic collapse or resilient in the face of decades of adversity and deprivation remains a matter of conjecture.

Little can be seen clearly

The shroud that keeps North Korea hidden makes it virtually impossible to judge whether the limited sanctions the United Nations imposed in retaliation for an apparent nuclear weapons test Oct. 9 will have any effect on the regime of Kim Jong Il.

The Bush administration hopes the sanctions and international rebuke, particularly from China, North Korea’s main source of trade and investment, will prompt Kim to halt his nuclear program and resume negotiations on a diplomatic solution. “I think (the North Koreans) were surprised by a 15-0” vote on sanctions by the U.N. Security Council, Secretary of State Condoleezza Rice said Saturday. “We’ll see whether or not they are prepared.”

DeMargerie and a half-dozen others who visited North Korea recently say it is better off than a few years ago and may be able to withstand sanctions.

The sanctions could reduce the amount of hard currency North Korea receives, but market reforms in place since 2002 and stockpiling of excess cash, food aid and fuel may give Kim a cushion to defy the U.N.

In 2005, North Korea “received a surplus of a half-million to 600,000 tons of grain” from China and South Korea, said Kenneth Quinones, a former U.S. intelligence expert on North Korea who teaches at Akita International University in Japan. “It looks like most of that went into storage.” North Korea also had a decent harvest this year after two consecutive bumper crops, he said.

Marcus Noland, a Korea specialist at the Institute for International Economics in Washington, said millions of dollars in Chinese investment went into North Korea during the first half of 2006, more than the country could absorb.

Signs of progress are evident to Steve Linton, 56, who has made more than 50 trips to North Korea in the last 15 years. The son and grandson of Christian missionaries, Linton heads the Eugene Bell Foundation, which has delivered medical equipment to about 70 hospitals throughout the country.

“It used to be that people were visibly thinner in the spring,” when food from the previous year’s harvest had run out and new crops were about to be planted, said Linton, who last visited North Korea in May. Now, he said, “that distinction has pretty much disappeared.”

Linton has noticed that North Koreans are better dressed and that there are more bicycles in a country where a decade ago, nearly everyone traveled on foot. “It’s not lightning speed, but it’s gradual change,” he said.

Emerging markets

Pyongyang, a gloomy capital of bland concrete high-rises and little commerce a decade ago, has a few dozen shops and many sidewalk stalls selling ice cream, cookies, flowers, even videocassettes, said Simon Cockerell, manager for Beijing-based Koryo Tours, which organizes trips to North Korea.

Cockerell said there are four or five billboards for cars, the first commercial advertising in the country. Electricity blackouts, once common, are rare in the capital, he said.

Other indicators of an economic cushion include:

•A resumption of a state-run rationing system that hands out about half a pound of grain daily to city residents, who make up 70% of North Korea’s 22 million people. DeMargerie said North Korean officials told his organization that rationing, which collapsed during a famine in the 1990s, resumed last year. It provides corn or rice to make porridge, a mainstay of the North Korean diet.

•Diversification of oil suppliers. China provides about 80% of North Korean fuel, and Iran and Indonesia supply most of the rest, Quinones said. That gives supply alternatives should China carry out threats to restrict deliveries. Noland said North Korea also may have stockpiled diesel fuel that South Korea provided in 2004.

Noland, who spent several weeks in China last summer along the 880-mile border with North Korea, said economic progress is notable for one group of new entrepreneurs: managers of shuttered state-owned factories who are trading coke, coal and iron ore for cheap Chinese consumer goods and food, which they then sell to fellow North Koreans.

“A lot of small-scale activity in North Korea is done by state-owned enterprises,” Noland said. “They have transformed themselves into retailers. I call it the ‘Wal-Martization’ of the North Korean economy.”

Troubles remain

On the negative side, trade with China, which totaled more than $1.5 billion last year, is down about 30% this year because of the difficulty of transferring funds to North Korean bank accounts, said Nam Sung Wook, head of North Korean Studies at Korea University in Seoul. The problem stems from U.S. action last year to freeze North Korean accounts in a bank in the Chinese enclave of Macau linked to counterfeiting and money laundering.

“There is some confusion among traders in Dandong,” a Chinese city across the Yalu River from North Korea that has become a center of cross-border commerce, Nam said. He forecasts negative growth for the North Korean economy this year after 2.2% growth last year. Even so, new sanctions “will not collapse the North Korean economy,” he said.

Those likely to suffer most are salaried urban professionals, said Nam, who visited Pyongyang in July. He said he heard grumbling from technocrats and professors, whose average monthly pay comes out to about $33 at the official exchange rate but only $5 on the black market.

North Korea also has massive infrastructure needs that make it difficult to sustain economic gains. DeMargerie said only 20%-25% of households have access to clean running water, and the sanitation system is becoming a serious health hazard.

Still, Noland predicted, “They can make it through the winter. They are hunkering down and believe they can survive until the world accepts them as a nuclear power.”

Rice conceded that sanctions are no certain solution. “I think we’ll be at this for a while,” she said. “I can’t tell you how long.”

Yonhap:
10/19/2006

China has closed three customs offices in northeastern China that handle trade with North Korea following Pyongyang’s nuclear test on Oct. 9, a report by the Communist Party-owned Global Times said Thursday.

The daily said the closures involved border offices in Donggang and Shanghekou, both in Liaoning Province, and one in the city of Tumen, in Jilin Province. Before the actions were taken, Beijing formally operated a total of four customs points with its neighbor.

It said at present only the customs point of Dandong, facing the North’s border city of Shinuiju across the Amnok River, was open to handle bilateral trade.

The paper also said that as of Tuesday, the number of vehicles coming over to Dandong stood at under three, compared to between 20 and 30 in the past.

The Global Times did not say if the closure or lack of vehicle traffic is due to the tensions surrounding North Korea’s nuclear weapons test. It added that Chinese merchants have started to ask for money in advance before shipping goods to North Korea, which is different from past practices when the delivery was sometimes made in advance of payment.

China, which is one of the five permanent members of the U.N. Security Council, signed off on a resolution last week authorizing economic sanctions to be imposed on North Korea. Pyongyang had disregarded warnings by Beijing not to test its nuclear device, which has raised speculation that the close ties that existed between them may have become frayed.

Related to the strained business ties, another Chinese weekly magazine claimed that a Chinese bank that provides funds to construction firms has stopped transactions with North Korea’s trade bank starting this year. The United States had been urging financial institutions around the world not to make transactions with North Korea that could help that country’s illicit trade and alleged money-laundering practices.

Another Chinese newspaper claimed that authorities have tightened their inspection of all cargo leaving North Korea since last week.