North Korean Economy Watch

According to the Joong Ang Daily:

North Korea has unilaterally raised rental fees for offices of foreign embassies and international agencies by 20 percent this year, at the same time that it tightens its grip on communications at the establishments, sources said.

A source privy to North Korean affairs said last week that the North Korean Foreign Ministry sent notices to the foreign offices last October and the increase took effect at the beginning of this year. The source also said commodity prices in markets specifically set up for foreigners have soared.

“Following the currency reform last November, the North may have wanted to earn some foreign currency by raising the rents and commodity prices,” the source said. “As far as I know, diplomats and their families are angry that the North has violated diplomatic protocols.”

Pyongyang has diplomatic offices for 25 nations, plus the office for World Food Program among other the United Nations agencies. Most rent out space in buildings owned by North Korea.

Pyongyang-based diplomats have also been asked to celebrate North Korean holidays by purchasing flowers or writing congratulatory messages.

“On Kim Jong-il’s 68th birthday last month, the North asked the diplomats to buy wreaths, made up of ‘the Kim Jong-il flowers,’ and write messages praying for Kim’s health under the ambassador’s name,” one source explained. The source did not know if the diplomats complied.

North Korea is also cracking down on the flow of information within foreign missions and agencies. The North rejected a request by a UN agency to use the Internet to send documents to UN headquarters. When diplomats make international phone calls, North Korean interpreters are there to listen in on the conversation, sources said.

“The North may want to block any details on Kim Jong-il’s health, disruption after the currency reform or other domestic affairs from reaching the outside world,” a South Korean government official said.

One Western diplomat, asking for anonymity, recently complained to a South Korean government official that diplomats in Pyongyang can’t talk to each other freely for fear of others listening in, and that they only vent their frustration when they’re out of North Korea.

In addition to making money from the foreign embassies in Pyongyang, the DPRK earns revenue from its embassies abroad.  See here, here, here, here, here, and here.

Most Pyongyang embassies (aside from Russia and China) are located in Munsudong (satellite image here). Recent photos of Pyongyang’s diplomatic quater here.

This is a fascinating topic.  What are the rental rates now?  How are they determined?  If anyone has an idea, please let me know.

Read the stories below:
Diplomats in North face price hike
Joong Ang Daily
Lee Young-jong
3/15/2010

According to Yonhap:

North Korea brought in 13,834 tons of grain from the neighboring ally in January, a 3.6-fold increase from 3,869 tons in January last year, said Kwon Tae-jin, a senior researcher on the North’s agricultural sector at the South’s Korea Rural Economic Institute in a posting on his blog.

Rice accounted for about 61 percent or 8,425 tons of the North’s grain import from China, followed by corn with 3,448 tons, beans with 1,553 tons and wheat with 304 tons, Kwon said, citing data from the Korea International Trade Association.

“The big rise in imports of corn and beans, which the North didn’t bring in last year, appears to be not only because corn harvests were not good, but it also suggests the North increased imports over concerns about possible food shortages,” he said.

Kwon also said that the North’s regime could have increased imports to enlarge state food rations after last year’s currency reform caused strains on the country’s food supply system.

North Korea has relied on foreign handouts to feed its 24 million population after natural disasters and mismanagement devastated its economy. The situation worsened in recent years as South Korea halted regular food aid to the North after President Lee Myung-bak took office in early 2008 under a policy to link aid to Pyongyang’s process in ending its nuclear weapons programs.

… 

The U.N. food agency, Food and Agriculture Organization, said early this month that the North is expected to be short of about 1-1.2 million tons of food this year.

I think the data for this story came from this KITA web page, but I can’t be sure since my Korean is exceptionally limited. Here is a description of the KITA page in English.

On a personal note, I wish the major South Korean media outlets  would get into the habit of posting links to their sources.  It is not difficult to do this.  

Read the full article here:
N. Korea’s food imports from China more than triple in January: expert
Yonhap
3/12/2010

According to the Choson Ilbo:

“Wealthy people in Pyongyang prefer goods to cash as they have lost confidence in the North Korean currency since the reform,” it said. “Demand for South Korean goods, which are considered best quality, has more than doubled.”

The broadcaster quoted a Korean-Chinese trader dealing with the North as saying, “Growing numbers of people want to smuggle South Korean products and sell them in the North despite a crackdown by North Korean customs.” It said the widespread perception among North Koreans is that South Korean goods are of much better quality than Japanese or Chinese products.

Sinuiju Customs Office lets small quantities of South Korean goods that do not seem to be for sale pass through on condition that they do not carry “Made in Korea” labels, but is strict about seizing larger quantities.

Favorite products include luxury goods like necklaces and earrings, electronic home appliances such as TV sets, DVD players, digital cameras, and notebook computers, toiletries, air fresheners, and clothing.   

Pyongyang is believed to be home to an estimated 1,000 dollar millionaires, the radio station said. 

I am a bit skeptical about this story.  Given the DPRK’s monetary history, I understand the need of North Koreans to “get out of cash,” but the number of individuals hoarding South Korean goods has to be small.  Jewelry aside, manufactured goods are not a reliable store of value.  They are hard to hide, difficult to transport, they break down, and require electricity.  As for televisions, South Korean TVs operate on NTSC (like the US) and North Korea uses PAL (presumably the “South Korean” TVs are made for the Chinese market and operate on PAL–thanks Gag).  

Why not stick with Yuan?

Also, Japanese goods have been considered the paragon of quality in the DPRK for decades.  Is it realistic to assume that attitudes towards South Korean goods have changed so much so quickly? 

UPDATE: A strong counterpoint to my intuition comes from Dr. Lankov.  He notes:

Well, in the USSR of my youth many people did just that. They hoarded industrial goods, in spite of all above mentioned shortcomings. TV sets, VCRs, furniture, glassware, even books. There was a major difference, though: in the the USSR it was strictly illegal and, indeed, risky, to be possession of foreign currency.

Also see this IFES report. 

Read the full story here:
Wealthy N.Koreans Hoard S.Korean Goods
Choson Ilbo
3/11/2010

Choson Ilbo
3/10/2010

Curbing North Korea’s illicit arms trade is difficult since the renegade country launders containers carrying weapons three or four times, a defector who was in charge of illicit arms deals told the Chosun Ilbo on Monday.

The defector revealed that a factory in Jagang Province, which is believed to produce tractors, is the center of the communist country’s weapons production, including chemical warheads. The defector, who is under police protection, did not want his identity to be revealed fearing reprisal attacks against family members still in the North.

Foreign Forwarders Transport Weapons
Five departments of the North Korean government are involved in arms exports: the military arms production wing of the Workers’ Party, the Second Academy of Natural Sciences, the Surveillance Division of the People’s Armed Forces, Operational Department of the Workers’ Party and the Second Economic Committee. He said the Economic Committee, which is directly under the control of the powerful National Defense Commission, is the biggest.

The military arms production wing procures materials for the Yongbyon nuclear plant and North Korea’s nuclear weapons program. “The General Bureau of Atomic Energy only produces yellow cake [the seed material for higher-grade nuclear enrichment], while the arms production wing is in charge of the Yongbyon facility,” the defector said. The Second Academy of Natural Sciences exports missiles and also provides after-sales service for exported products by upgrading performance and exchanging components.

“The main client is the research center of Iran’s Revolutionary Guard, while experiments are conducted in unison,” he said. Iran successfully test-fired a rocket on Feb. 3 which is believed to have been powered by the same engine as North Korean Rodong missiles.

But international sanctions against North Korea make it difficult to export weapons by conventional means. “This is where the Surveillance Division of the People’s Armed Forces comes in,” the defector said. Its “traders,” who studied at Pyongyang University of Foreign Studies, are fluent in English and Chinese and sign deals with “forwarders” from other countries. Through this process, North Korea sends containers across the Apnok (or Yalu) River to China one third or half filled with weapons. “The forwarder who received this cargo enters a port in a third country, where the containers are filled with freight unrelated to weapons and the paperwork is completed,” he said.

These “laundered” containers are laundered again in Hong Kong, Singapore or other ports. “The containers are mixed with other cargo in those transit points. They are searched, but not thoroughly,” the defector added. “Even if customs or other officials roll their sleeves up and search for weapons, how can they possibly find the arms among the mountains of other containers headed to other countries?”

‘Tractor Factory’ Is Weapons Production Base
North Korea’s main weapons production base is Kanggye General Tractor Plant No. 26. Before the Korean War, the plant was based in Pyongyang and made Soviet-designed PPSh 41 submachine guns but has since been relocated. Over 10,000 workers there manufacture ammunition and even chemical weapons. The People’s Armed Forces is in charge of chemical weapons production. “The Bio-chemical research center affiliated with the military is located next to the Kanggye plant,” the defector said. “The toxic gases produced at the research center are loaded onto warheads manufactured at the plant.”

North Korean leader Kim Jong-il makes a point of visiting the factory two to three times a year. He last paid a visit on Dec. 9, 2009.

AK-47 Rifles and Ammunition Are Top Sellers
“Small arms ammunition are hot export items and the Second Economic Committee even built a factory in Ethiopia,” the defector said. The rugged AK-47s, which can operate flawlessly even in the sand-filled battlefields of the Middle East, are extremely popular, he said.

Anti-tank missiles are more complicated to manufacture, so the blueprints are in Russia, while North Korean factories are merely subcontractors. North Korean arms are believed to be exported to Bangladesh, Indonesia, Pakistan and the Philippines. “North Korean weapons with engines [such as tanks] are extremely poor quality, but those carrying warheads are not bad,” the defector said. Around 20 percent of the parts used to make export versions of missiles are imported. But missiles for domestic use are made using mostly North Korean-made parts, so there is a difference in performance. “North Korea tried to import Harpoon anti-ship missiles from Taiwan,” he added. “This probably has something to do with the South Korean Navy’s use of the Harpoon missiles.”

Dear Choson Ilbo: We have very good satellite imagery of Kanggye. Please tell us where the Kanggye General Tractor Plant is!  Here are three guesses as to where the plant is: guess 1, guess 2, guess 3.  Kim Jong Il has a villa in Kanggye here.  Here is his private train station near Kanggye.

According to Yonhap:

North Korea’s trade appears to have dropped for the first time in 11 years in 2009 as its trade with China, South Korea and other major business partners declined, a South Korean state-run think tank said Wednesday.

The Korea Development Institute said in a report that Pyongyang’s trade with foreign countries were projected to have contracted “at least” 5 percent last year compared with a year earlier, citing statistics provided by China’s customs authorities.

“North Korea’s trade data have yet to be officially compiled but its trade with China and South Korea, its two major business partners, shrank last year (based on China’s statistics),” the report said. “Trade with the European Union also declined. Based on the statistics, its total trade is sure to fall last year.”

North Korea’s trade with China, its biggest business partner, amounted to $2.68 billion last year, down 4 percent from a year earlier, while its trade with South Korea dropped 8.4 percent, the report showed. The two nations accounted for 81.7 percent of Pyongyang’s annual trade.

“Even if its trade with all other nations held unchanged, North Korea is expected to see a decline considering trade figures with China and South Korea,” the report said. “This would mark the first contraction in 11 years since 1998.”

North Korea’s trade has been on a steady increase over the past decade with the amount estimated at $5.64 billion in 2008, up from $2.39 billion in 2000, the report showed.

The Korea Development Institute regularly publishes analysis of the North Korean economy—in Korean. I believe the data cited in this story comes from this February 2010 report, however I am not exactly sure. If any Korean readers can confirm this, I would appreciate it.

UPDATES in the comments.

According to the Choson Ilbo:

China has gained the use of a pier at North Korea’s Rajin Port for 10 years to help development of the bordering region and establish a logistics network there.

Lee Yong-hee, the governor of the Yanbian Korean Autonomous Prefecture in China’s Jilin province, made the announcement to reporters after the opening of the People’s Congress at the Great Hall of People in Beijing on Sunday.

He was quoted by the semi-official China News on Monday as saying, “In order for Jilin Province to gain access to the East Sea, a private company in China in 2008 obtained the right to use Pier No. 1 at Rajin Port for 10 years. Infrastructure renovation is currently underway there.”

In an interview with Yonhap News on Monday, Lee said, “We’re considering extending the contract by another 10 years afterward.”

Jilin abuts the mouth of the Duman (Tumen) River in the southeast but its access to the East Sea is blocked by Russia and North Korea. “We hope that an international route to the East Sea will be opened via Rajin Port,” he added.

Lee did not specify which Chinese company obtained the right and which North Korean agency awarded the concession. The Chinese Foreign Ministry on Feb. 25 said business investment in the North Korea-China border area is a normal business deal and does not therefore run counter to UN sanctions against the North.

According to Yonhap:

South Korea is keeping a close watch over North Korea’s efforts to draw greater foreign investment to one of its ports, as the move might indicate Pyongyang is opening up to the outside world and signal its return to stalled international nuclear talks, officials said Tuesday.

The North has agreed to give a 50-year lease on its Rajin port to Russia, and the country is also in talks with a Chinese company on extending its 10-year lease by another decade, according to an official from China’s Jilian Province, currently in Beijing for the National People’s Congress.

The North’s opening of the port on its east coast has a significant meaning for China as it will give the latter a direct access to the Pacific, but it also means millions of dollars, at the minimum, in investment for the cash-strapped North.

Officials at Seoul’s foreign ministry said the North’s opening of its port or its economy was a positive sign, but that it was too early to determine whether the move will also have a positive effect on international efforts to bring North Korea back to the nuclear negotiations.

“We are trying to confirm the reports, though they appear to be true because they were based on China’s official announcement,” an official said, asking not to be identified due to the sensitivity of the issue.

“We are trying to find out the exact details of the contracts (between North Korea and Russia and China),” the official added.

Additional information 

1. A previous report indcated that there were 250 Chinese companies registered in Rason.  The North Koreans reportedly closed out the insolvent and inoperable businesses. I do not know how many are there now. Read more here.

2. The Russian government recently built a Russian-gauge railway line from Kashan to Rason. Read more here.  It will be interesting to see if China upgrades roads and railways which could connect Rason to China.

3. Rason is sealed off by an electric fence. Read more here.

4. Many other stories about Rason here.

Read the full stories here:
China’s Jilin Wins Use of N.Korean Sea Port
Choson Ilbo
3/9/2010

Seoul closely watching N. Korea’s opening of port to China: officials
Yonhap
Byun Duk-kun
3/9/2010

The Financial Times published a thorough article on the DPRKs eforts to raise hard currency through tobacco re-exports:

North Korean and other Asian trading entities started re-exporting State Express 555 cigarettes, manufactured by British American Tobacco, in February last year, just months before North Korea’s second nuclear test in four years prompted the United Nations to impose tougher sanctions on Pyongyang.

BAT sold the so-called “NK 555s”, made and packaged in Singapore for the North Korean market, to a Singaporean distributor for shipment to Nampo, a port near Pyongyang.

However, at least 15,000 cases worth $6.3m (€4.6m, £4.2m) rebounded out of Nampo to ports in Vietnam and the Philippines, according to documents seen by the Financial Times, to go to other markets where they commanded a higher price.

While the UN banned luxury goods exports to North Korea, member nations have been allowed to compile their own sanctions lists, which critics say created loopholes.

The US, Japan, Australia and Canada banned a broad range of tobacco products. Meanwhile, the European Union and Singapore sanctioned only cigars, which allowed BAT to continue exporting NK 555 cigarettes to North Korea. BAT said it halted exports of the cigarettes from Singapore to North Korea after discovering a diverted cargo of NK 555s in August.

International tobacco companies frown on “grey market” or “parallel” exports of their products to markets for which they were not intended. But national customs authorities target counterfeits rather than so-called “diverted real product”.

…

BAT has maintained some business ties to the country. It still supplies its former Pyongyang joint venture, from which it divested in 2007, with materials to make and sell cheaper Craven A cigarettes on the domestic market.

BAT says 175m NK 555s were exported to North Korea in 2008. They were made and packaged in Singapore which, like the EU, banned exports of cigars but not cigarettes.

The London-based company sold the NK 555s to SUTL Group, a family-controlled distributor in Singapore, for onward shipment to the North Korean port of Nampo.

“When we became aware of the diversion, we immediately launched an investigation,” Pat Heneghan, global head of BAT’s anti-illicit trade division, told the FT. “We certainly didn’t like what we found.”

While there was no evidence of any involvement by SUTL in the diversion, Mr Heneghan said BAT still had “a very hard discussion with the distributor”. SUTL declined to comment.

There is no evidence that the re-export of NK 555s by a number of unidentifiable North Korean entities and other small trading companies across Asia was illegal.

While tobacco companies consider the re-routing of legitimate cigarettes from their intended market as “illicit”, they are not necessarily “illegal” in the eyes of customs authorities focused on counterfeits and smuggling.

“In August last year, BAT discovered a diverted NK 555 shipment in Singapore, which we assumed could be for transhipment to other markets in Asia,” said a BAT spokeswoman. “But we were unable to inspect the shipment as we could not demonstrate any breach of Singapore law to the authorities.”

On April 10 2009, the NK 555 re-exports were discussed in an e-mail sent by a Singapore-based cigarette trader to a potential buyer in Manila.

“We have to confirm by next week,” wrote Bert Lee of Compass Inc. “Empty containers will have to start moving into Nampo . . . So kindly speak and plan with your buyer and let me know if you want to take up this new NK 555 Blue.”

Compass began to sell cases of NK 555 to a Hong Kong-based trading company in early 2009. E-mails and shipping documents show the cigarettes were first diverted to Dalian, a Chinese port, and then shipped on to Singapore before finally landing in Haiphong in Vietnam.

While the trail ran cold in Haiphong, people tracking the shipment suspected its ultimate destination was China.

“They sell it to someone who can handle it for the China market,” said one person involved in the trade, who asked not to be identified.

Invoices sent from Compass to its Hong Kong buyer in February 2009 do not reveal the North Korean source of the NK 555s. But Mr Lee left no doubt about the cigarettes’ provenance.

“Stocks are now in NK and sample already send [sic] out to us,” he wrote to his potential buyer in Manila. “I hope we can work on this New Blue [555] and controlling the market and stocks as soon as possible.” Mr Lee did not reply to phone calls, e-mails and faxes from the FT.

“As a trader, we just get the product and buy and sell,” said one Compass executive who declined to identify himself or comment on the NK 555 shipments when contacted by telephone. “Where it goes, who knows?”

Read previous tobacco posts here. Read previous BAT posts here.

To date I have been unsuccessful in locating the BAT factory in the DPRK.  If any readers have knowledge of its whereabouts, I would appreciate it. 

Read the full article here:
N Korea draws on tobacco for cash
Financial Times
Tom Mitchell, Pan Kwan Yuk
3/8/2010

According to the Choson Ilbo: 

Chinese-made solar reading lamps are selling like hot cakes in North Korea. According to a North Korean source, the reading lamps sell for 10,000 to 20,000 North Korean won, a price several times the average monthly wage.

The customers are chiefly parents with children preparing for college entrance exams. Due to do the poor power supply, North Korea except for some parts of Pyongyang is plunged into pitch darkness every night, making it impossible to study. The solar-powered reading lamps provide a measure of independence from the power grid.

In the North, background determines if youngsters can enter college, and not all parents can afford to concentrate their energy on their children’s education. But relatively well-to-do families provide tutoring for their children by employing students of prestigious universities, such as Kim Il Sung University or Pyongyang University of Foreign Studies, in efforts to prepare their children for college entrance exams.

Read the full article here:
N.Korean Parents ‘Zealous’ About Children’s Education
Choson Ilbo
3/8/2010

According to the Washington Post:

The Obama administration, concerned that Burma is expanding its military relationship with North Korea, has launched an aggressive campaign to persuade Burma’s junta to stop buying North Korean military technology, U.S. officials said.

Concerns about the relationship — which encompass the sale of small arms, missile components and technology possibly related to nuclear weapons — in part prompted the Obama administration in October to end the George W. Bush-era policy of isolating the military junta, said a senior State Department official, speaking on the condition of anonymity because of the sensitivity of the subject.

Senior U.S. officials have since had four meetings with their Burmese counterparts, with a fifth expected soon. “Our most decisive interactions have been around North Korea,” the official said. “We’ve been very clear to Burma. We’ll see over time if it’s been heard.”

…

Underlining the administration’s concerns about Burma is a desire to avoid a repeat of events that unfolded in Syria in 2007. North Korea is thought to have helped Syria secretly build a nuclear reactor there capable of producing plutonium. The facility was reportedly only weeks or months away from being functional when Israeli warplanes bombed it in September of that year.

“The lesson here is the Syrian one,” said David Albright, president of the nongovernmental Institute for Science and International Security and an expert on nuclear proliferation. “That was such a massive intelligence failure. You can’t be sure that North Korea isn’t doing it someplace else. The U.S. government can’t afford to be blindsided again.”

Burma is thought to have started a military relationship with North Korea in 2007. But with the passage of a U.N. Security Council resolution last June banning all weapons exports from North Korea, Burma has emerged “as a much bigger player than it was,” the senior U.S. official said.

In a report Albright co-wrote in January, titled “Burma: A Nuclear Wannabe,” he outlined the case for concern about Burma’s relations with North Korea. First, Burma has signed a deal with Russia for the supply of a 10-megawatt thermal research reactor, although construction of the facility had not started as of September.

Second, although many claims from dissident groups about covert nuclear sites in Burma are still unverified, the report said that “there remain legitimate reasons to suspect the existence of undeclared nuclear activities in Burma, particularly in the context of North Korean cooperation.”

Previous posts about the Myanmar-DPRK relationship can be found here. 

Read the full story here:
U.S. increasingly wary as Burma deepens military relationship with North Korea
Washington Post
John Pomfret
3/4/2010

According to TVNZ:

North Korean experts were in Vietnam this week to advise the government on - no, not uranium enrichment - choreography for an extravaganza celebrating Hanoi’s 1,000th anniversary, state media said.

The delegation was led by Song Pyong Won, deputy director of the Arirang performance department in North Korea’s Ministry of Culture, and included experts in mass performance, stage design, sound and lighting, reported the website of the newspaper Saigon Tiep Thi (sgtt.com.vn).

“This is the advance team that will make preparations for the various art performances, including card flipping to make images and words, as well as stage design, sound and lighting for the opening ceremony,” the newspaper said.

Hanoi will mark its 1,000th anniversary on October 10 this year.

Song hoped “through this visit the delegation would gain a precise grasp of the basic material conditions in Vietnam, like human resources, so that the staged programme can be the most unique and best possible,” the article said.

The group met representatives of Vietnam’s Ministry of Culture, Sports and Tourism and planned to visit various anniversary event venues, including the 40,000-seat My Dinh Stadium. It would also visit other sites, such as Ho Chi Minh’s mausoleum, it said.

Read the full story here:
N Korea teaches Vietnam how to party
TVNZ
3/5/2010