North Korean Economy Watch

The Joongang Ilbo reports some recent statistics from, the Kaesong Industrial Zone and some trade statistics between the two Koreas and China.

Inter-Korean and China trade (Joongang Ilbo):

Exactly two years ago, on May 24, 2010, in the aftermath of the deadly sinking of the Cheonan warship, the Lee Myung-bak administration imposed sanctions against North Korea that forbade all inter-Korean trade and South Korean investments in the North.

[…]

Statistics from the Korea International Trade Association show that the volume of inter-Korea trade in 2011 dropped by 10.4 percent, falling to about $1.7 billion from $1.9 billion in 2010. The Kaesong Industrial Complex, which was exempted from the sanctions, accounted for most of the inter-Korean trade.

In contrast, the volume of trade between North Korea and China surged by 62.4 percent in 2011, from $3.4 billion in 2010 to $5.6 billion.

“After stopping trade with South Korea, factories in Pyongyang and Nampo cities turned to Chinese companies and now work for them,” a South Korean businessman said on condition of anonymity. “It took so much time and money for us to teach North Korean employees and now Chinese companies enjoy the fruits of our labor.”

The North Korean government responded to the South Korean sanctions:

As talks between the two authorities have been halted, North Korea has unilaterally decided to raise taxes on income and management of the complex.

In fact, the North Korean regime earns significant money from the complex. South Korean firms pay the North Korean government an average of $126.4 per month for each North Korean worker. The government then distributes 5,000 won of North Korean currency and some food coupons to each employee per month. This wage is desirable compared to other worker payments in the North.

Analysts calculate that the regime is holding at least $50 million from the $77.8 million of the North Korean employees’ annual income.

At current black market rates, there are appx 4,450 DPRK won to for US$1.

The article notes, however, that the Kaesong Industrial Zone continues to grow:

Located only three kilometers away from the Military Demarcation Line, the inter-Korean complex has 123 South Korean companies and about 51,000 North Korean employees.

…

Currently, the South Korean government is implementing a scheme to build more roads and infrastructure for South Koreans crossing the border to commute to the complex (see here and here).

“Although Kim Yong-chol, former head of the policy planning office of the North’s powerful National Defense Commission, who has exerted a huge influence on operating the Kaesong complex, repeatedly threatened to shut down the complex since the May 24 sanctions, he’s recently been more cooperative, saying ‘Let’s make it better,’” a high-ranking government source told the JoongAng Ilbo.

Unlike the frosty inter-Korean relations, the sales performance of the joint industrial complex is positive. For the past three years, 55 South Korean firms additionally moved into the complex and the annual output value surpassed $400 million in 2011, jumping from $180 million in 2007.

Last year’s volume is 30 times that of the $14.91 million in 2005, when the complex made its first yearly outputs. The total output value since 2005 has accumulated to $1.5 billion.

[…]

Currently, roughly 160,000 people are living in Kaesong city and approximately one out of three are working in the complex

The article also reports on additional DPRK-China projects that are not necessarily a result of higher barriers to commerce between the two Koreas (dredging, mining, labor mobility, and SEZs):

“A Chinese firm based in Yanji is now implementing a 60-kilometer-long (37-mile) dredging project in the Tumen river bed,” a government-affiliated research official said.

“It’s not simple dredging work, but a plan to mine the iron ore buried nearby.”

“In the river bed, about 30 percent of the sand contains iron ore,” the official said.

The regime also exports their labor forces to their closest ally.

“Most of the local people left for South Korea to get a decent job and the average wage for a Chinese worker is increasing,” a Chinese factory manager in Yanji said. “So we are planning to hire North Korean workers instead.”

Pyongyang and Beijing are also focusing on developing the two special economic zones, Rason and Hwanggumpyong in northeastern North Korea.

When Chen Deming, the Minister of the Chinese Ministry of Commerce of China, and South Korean Trade Minister Park Tae-ho had a bilateral meeting on May 2 to start negotiations on the Korea-China free trade deal, they included a provision stating the two countries will allow preferential tariffs on goods produced in designated zones.

“Hwanggumpyong is like a Kaesong Industrial Complex to China,” a South Korean authority said. “The Hwanggumpyong zone has the same function as Kaesong, composed of China’s capital and technology and North Korea’s land and labor forces.”

In the Rason Economic Zone, China has finished construction paving the 53-kilometer-long road connecting the Rason zone and a local tax office in Wonjong-ri, a North Korean village close to China.

The Chinese government also arranged a harbor near the Rason area, constructing a pier that can accept a three million-ton ship and building a bus route between an express bus terminal in China and the zone.

“If China uses the Rason harbor, they can save $10 per metric ton,” Jo Bong-hyeon, a senior official at the Industrial Bank of Korea, said. “It’s really good business for China, enough to invest money on building infrastructure in the zone.”

Read the full story here:
Kaesong complex running well despite sanctions
JoongAng Ilbo
2012-05-23

According to the Daily NK:

The popularity of South Korean culture is so high in North Korea that dramas aired on one day in the South are being made into DVDs in northeastern China the next and, by the third day, are cropping up on the fringes of North Korean markets. The North Korean people are then watching these dramas over and over again, sharing them with close friends and swapping them for others with trusted confidantes. In the process, the fashions worn by the stars of these dramas become objects of considerable envy.

It is thus inevitable that South Korean clothes would be popular among the North Korean people more generally. As a Yangkang Province source told the Daily NK recently, “Even households that are not doing that well are going out in South Korean clothes, while the demand for Chinese goods is more limited.”

In particular, the source went on, “Since the start of this year, there have been noticeably more people selling South Korean clothes in the markets, because that is what people want to buy.” Prices reflect this, the source said; for example, South Korean t-shirts sell for nearly double the price of the Chinese equivalent.

Despite the fact that selling South Korean products is deemed treasonous by the North Korean authorities, the practice continues. People refer to the illicit clothes in creative ways to avoid official censure; for instance, ‘Clothes with no label’ or ‘Clothes from the house below’. And indeed the clothes do not have labels, because they are removed in order to get through customs on the Sino-North Korean border.

According to the source, “People believe that Chinese clothes are not good enough, to the extent that they need some additional needlework before they can even be worn. South Korean clothes are the opposite; good design and good quality. Even without the label, people know whether they are seeing a South Korean or Chinese item.”

This phenomenal demand for South Korean clothes first started when North Korean defectors began to send South Korean clothes through smugglers to family. One such defector recently received orders from her family back in North Korea, namely “send as many South Korean clothes as you can because I can sell them all in the market.”

“She used to tell me not to send anything that might get her in trouble,” the source recalled. “Nothing tight-fitting, bright colored, revealing or with English letters on. But that is not the case anymore.”

▲ South Korea seizing the ‘hanbok’ market

The preference for South Korean clothes not only refers to daily wear, it also extends to North Korea’s traditional ‘hanbok’. Cha Kwang Ok, a woman of 40 who recently defected said, “Last year I went to my cousin’s house in Pyongyang and saw people in the city wearing hanbok, but they looked different to the ones they usually wear in Chosun. I thought to myself at the time, ‘Pyongyang’s economy has really developed’; they were the South Korean style hanbok.”

North Korea’s traditional hanbok jacket has a narrow ‘dongjeong’ (thin white cloth-covered paper collar) and is of a single color. It features embroidered flowers, and there are only two different styles. In contrast, South Korean hanbok, as worn by queens in the many, many historical dramas produced by South Korean broadcasters, have a wider dongjeong and are of multiple colors.

Han Yong Kwon, age 46 and originally from Pyongyang, defected to South Korea in 2011. In her estimation, “Even as late as 2010 I could not see women wearing South Korean-style hanbok in Pyongyang, so seeing them appearing now in the so-called ‘Capital of the Revolution’ is evidence that the ‘Korean Wave’ is spreading rapidly in North Korea.”

Additional evidence for the same can even be found in the Chosun Art Film Studio-published 2012 calendar, wherein there is a picture of a model wearing the same hanbok as South Korean actress Lee Young Ae wore in the 2003 drama ‘The Great Jang Geum’, showing that even North Korean state entities no longer seem to regard the colorful hanbok as particularly South Korean.

Read the full story here:
South Korea Seizing Clothing Market
Daily NK
Kang Mi Jin
2012-5-21

According to the AP (via Washington Post):

Myanmar’s president has confirmed that his country bought weapons from North Korea during the past 20 years and assured his South Korean counterpart that it will no longer do so.

In a meeting with visiting South Korean President Lee Myung-bak, Myanmar President Thein Sein said his country never had nuclear cooperation with North Korea but did have deals for conventional weapons, Lee’s presidential Blue House said in an announcement Tuesday.

Thein Sein told Lee that Myanmar will no longer buy weapons from North Korea, honoring a U.N. ban, South Korean presidential official Kim Tae-hyo told reporters traveling with Lee, according to Blue House officials in Seoul.

Lee is on an official visit to Myanmar, the first by a South Korean president since North Korean commandos staged a bloody 1983 attack on visiting South Korean dignitaries.

Myanmar cut off diplomatic relations with North Korea after the attack, but restored them in 2007 as it sought allies in the face of international sanctions over its human rights record and failure to install a democratic government. Myanmar also began buying weapons from North Korea, and was suspected of obtaining nuclear weapons technology as well.

Myanmar is taking steps to emerge from international isolation after decades of military rule ended last year. Those changes were highlighted Tuesday when Lee met opposition leader Aung San Suu Kyi, who was held for years under house arrest but is now a member of Parliament.

Suu Kyi said after the 45-minute meeting that South Korea and Myanmar have much in common in having had to “take the hard road to democratic leadership.”

Lee, speaking through an interpreter, said he and Suu Kyi had agreed that “democracy, human rights and freedom must never be sacrificed because of development.”

He said he had praised Thein Sein’s contribution to democratization when he met the Myanmar president on Monday.

He also said he told Thein Sein that he hoped his government “will refrain from any activities” with North Korea that could be considered in violation of U.N. Security Council resolutions. He described this as a formal request.

A U.N. resolution bars countries from obtaining all but small arms and light weapons from North Korea.

Lee on Tuesday made a brief visit to the site of the 1983 bombing, Martyr’s Mausoleum, a monument to Suu Kyi’s father, Myanmar independence hero Gen. Aung San. The attack left 21 dead, 17 of them South Korean, but failed to kill its target, then-President Chun Doo-hwan, who arrived late and was not harmed.

A statement from Lee’s office said he also agreed to expand South Korean financial assistance to Myanmar.

It said South Korea agreed to help Myanmar develop human resources, build a think tank and invite Myanmar students to South Korea in an effort to share its successful experience in economic development.

Previous posts involving Myanmar here. Recent highlights include the M/V Light Saga and articles by Bertil Linter.

Read the full story here:
South Korea says Myanmar has promised to stop buying arms from North Korea
AP via Washington Post
2012-5-15

By Michael Rank

Companies in the Dandong area are no longer at the mercy of fluctuating foreign exchange rates and can now settle their accounts with North Korean companies in renminbi, according to a Chinese website.

Until recently companies conducting border trade with North Korea had to settle their accounts in US dollars, euros or yen, but in August 2010, 600 Dandong companies were permitted to do so in renminbi, and this has now been extended to all companies involved in  border trade, investment and service industries, the report said.

It didn’t mention North Korea by name, but said the new rules apply to companies conducting border trade with any country, so they presumably apply Russia as well as the DPRK.

According to Yonhap:

First quarter bilateral trade between North Korea and China reached an all-time high of US$1.37 billion, Voice of America reported Tuesday, citing data from China’s Ministry of Commerce.

The volume for the January-March period marked a surge of 40 percent from a year ago, when a record $972 million was reported in the two-way trade.

North Korea’s first-quarter exports to China rose 40 percent to $568 million, while its imports of Chinese goods also increased at the same rate to $800 million, according to the data.

As a result, Pyongyang’s quarterly trade deficit with China increased to $232 million, up from $170 million a year ago.

Read the full story here:
N. Korea-China trade hits record high in first quarter
Yonhap
2012-5-1

UPDATE 1 (2012-4-25): Better late than never!  The statue of Kim Jong-suk has finally been unveiled. According to KCNA:

A hall where stands a wax replica of anti-Japanese war hero Kim Jong Suk was opened at the International Friendship Exhibition House of the DPRK.

Standing in the hall is a wax replica depicting woman commander of anti-Japanese guerillas Kim Jong Suk in uniform of the anti-Japanese guerrilla army on the table land full of azaleas in full bloom against the background of Mt. Paektu.

The gifts she received from personages and people of various countries are on display there.

An opening ceremony took place on Tuesday.

Present there were Kim Ki Nam and Choe Thae Bok, members of the Political Bureau and secretaries of the Central Committee of the Workers’ Party of Korea, and others.

Present there on invitation were staff members of the Chinese embassy here and the chief of the hall of wax replicas of great persons in China and his party.

Choe Thae Bok expressed deep thanks to personages of the Chinese hall for representing the wax replica of Kim Jong Suk.

He said the noble life of Kim Jong Suk was the most brilliant one of an outstanding woman revolutionary.

Zhang Molei, chief of the hall, in his speech bitterly grieved over the demise of leader Kim Jong Il, saying it was their wish to successfully represent the wax replica of Kim Jong Suk so they could please leader Kim Jong Il.

Expressing the will to do more things to contribute to the building of thriving socialist nation in the DPRK, he expressed belief that the Korean people would overcome difficulties and win great victory under the leadership of the dear respected Kim Jong Un.

The participants paid tribute to Kim Jong Suk and looked round the gifts on display.

You can see video of the unveiling here (KCNA, YouTube).

ORIGINAL POST (20120-10-19): According to the Korea Times:

China plans to send North Korea a life-size statue of Kim Jong-il’s biological mother as a gift, a local newspaper said, citing a North Korean document.

The waxwork statue of Kim Jong-sook, reportedly proposed by Kim Jong-il and accepted by China, will be shipped to the North in early December, Dong-a Ilbo said Saturday.

This year marks the 70th anniversary of the marriage between Kim Il-sung, the founder of North Korea, and Kim Jong-sook.

The project will be carried out by the China Waxwork Museum for Great Figures, which in the past also built famous Chinese individuals such as Mao Zedong and Jiang Zemin, the report said.

The North Korean Embassy in Beijing thanked the museum for carrying out the task which will “further enhance ties between the peoples of the two countries,” the report said, citing a North Korean embassy document dated July 15, which it obtained.

The newspaper didn’t say how it obtained the document.

Once completed, the statue will be sent to North Korea by a 10-member Chinese delegation and will be placed next to the wax statue of Kim Il-sung, which was also donated by China in 1996, it said.

Read the full story here:
China to donate statue of Kim Jong-il’s mother
Korea Times
10/16/2010

Andrei Lankov writes in The Asian:

However, the decades-long experience of dealing with North Korea leaves little doubt: international sanctions do not work. When the sanctions were first introduced after the October 2006 nuclear test and tightened after the second 2009 nuclear test, many a hardliner believed that this was the way to press the North Korean government into a corner and make them consider denuclearization. In academic articles, newspaper pieces and blog entries, many a hawk was ready to interpret pretty much every piece of news that emanated from the North as a sign of ‘sanctioning beginning to bite’.

But what has happened to the North Korean economy over the past five to six years? Contrary to expectations, the era of sanctions has been, rather, a time of mild economic recovery and growth. The expectations of hardliners therefore have as yet, come to nothing.

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According to Yonhap:

Despite rising cross-border tension, the trade between South and North Korea surged 36 percent from a year ago to US$320 million in the first two months of this year, government data showed on March 16.

The data provided by the Korea Customs Service indicated that the trade via the inter-Korean industrial complex has not been affected by tensions on the Korean Peninsula.

South Korea slapped sanctions on the North in May 2010 in retaliation for the deadly sinking of a South Korean warship earlier that year, though it keeps intact the complex in the North’s western border city of Kaesong.

The complex, a key outcome of the inter-Korean summit in 2000, marries South Korean capital and technology with cheap labor from the North. It is now home to more than 120 South Korean small and medium-sized companies.

Tensions have flared anew in recent weeks as the two Koreas traded militaristic rhetoric against each other over Seoul’s defamation of the dignity of North Korea’s new leader Kim Jong-un and his late father, former leader Kim Jong-il.

Read the full story here:
Inter-Korean Trade Surges 36 Percent This Year
North Korea Newsletter No. 202 (March 22, 2012)
Yonhap

According to Business Week:

Gaeseong, which is within sight of South Korean and U.S. guard posts along the Demilitarized Zone, was developed as a joint special economic zone in 2005 and now employs about 50,000 North Koreans, according to the Unification Ministry in Seoul.

More than 120 South Korean companies, including Daewha Fuel, underwear maker Good People Co. and watchmaker Romanson Co. (026040) paid the North Korean government about $60 million to $70 million last year to cover labor costs for workers, said Park Soo Jin, the deputy spokeswoman at the Unification Ministry. Authorities in Pyongyang then paid the employees in local currency and vouchers, she said.

Trade Minister Bark Tae Ho said on March 14 that he will try to persuade the U.S. and European Union to recognize products made in Gaeseong as South Korean.

Singapore Tariffs
The EU and South Korea have agreed to establish a committee this year to examine the issue, Tomasz Kozlowski, ambassador for the EU delegation in Seoul, said in an e-mailed statement. Aaron Tarver, a spokesman at the U.S. Embassy, said in an e-mail that the trade pact does not include any products from North Korea, including those from Gaeseong, without commenting further.

Singapore has reduced tariffs covering more than 4,000 products from Gaeseong under its bilateral trade pact with South Korea, said Lee Sang Mok, Deputy Director at Korea Customs Service. Some products are also covered by agreements with the 10-member Association of Southeast Asian Nations, India, Peru and the European Free Trade Association consisting of Switzerland, Iceland, Liechtenstein and Norway, Lee said via e- mail and telephone.

The value of output from Gaeseong jumped from $14.9 million in its first year to $402 million in 2011, according to the Unification Ministry. During the past seven years, its production totaled $1.5 billion. That compares with $40 billion for North Korea’s annual gross domestic product, according to the CIA World Factbook.

“The U.S. seems to want more progress in North Korean nuclear and human rights issues before including Gaeseong in FTA,” IBK’s Cho said.

…

Yoo of Daewha Fuel Pump said he plans to spend 1 billion won ($885,000) this year to boost capacity in Gaeseong by 50 percent and forecasts sales to jump to 65 billion won this year from 45 billion won in 2011. His company, which also makes parts in plants in South Korea, supplies automakers including Hyundai Motor Co., Honda Motor Co. and Nissan Motor Co., he said.

The minimum monthly base salary paid by companies at Gaeseong is about $64, according to the Unification Ministry’s Park. Yoo, who was speaking at Incheon near Seoul, estimated labor costs would be 20 times higher in South Korea and three times higher in China.

“The security issue is of course a big risk but every business has a risk,” Yoo said. “Gaeseong has survived all the clashes and threats, including the sinking of a warship and the shelling of a South Korean island”.

Read the full story here:
North Korea’s Gaeseong Pushed for Inclusion in FTA
Business Week
Eunkyung Seo and Sangwon Yoon
2012-3-22

Marcus Noland wrote a fantastic primer in Foreign Policy on North Korean statistics. Most of the article can be found below:

Last month, the South Korean news agency Yonhap ran a story about a report from a major South Korean think tank stating that North Korea’s GDP grew 4.7 percent in 2011. That think tank, the Hyundai Research Institute, used a combination of United Nations infant mortality data for 198 countries over the 2000-2008 period and North Korean crop data to estimate annual North Korean per capita income. While infant mortality and food availability correlate with income, one cannot meaningfully estimate year-to-year income changes with these two pieces of information alone.

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