North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No.10-07-08-2
7-8-2010

As inter-Korean commerce has all but dried up in the wake of the Cheonan incident, trade between North Korea and China appears to have continued to grow. According to Chinese customs statistics released on July 6, trade with North Korea from January to May amounted to 983.63 million USD; 18.1 percent more than the 833.07 million USD reported for the same period last year.

North Korea imported 727.192 million USD-worth of Chinese goods (29 percent increase over the same period last year), but exports dropped by 4.9 percent, amounting to only 256.438 million USD. This indicates a 60 percent increase in North Korea’s trade deficit with China, which was 470.757 million USD in the first part of 2009. With South Korean sanctions against the North halting all inter-Korean trade outside of the Kaesong Industrial Complex following the sinking of the Cheonan, it is expected that Pyongyang will become even more economically dependent on Beijing.

During this period, crude oil accounted for most of North Korea’s imports from China, as Pyongyang bought 254,000 tons (slightly more than the 247,000 tons in early 2009). However, due to rising international fuel prices, this oil cost the North 157.097 million USD, a 76 percent increase over what Pyongyang spent during this period last year.

In addition, rice (24,400 tons), corn (31,400 tons), beans (20,500 tons), flour (34,000 tons) and other necessary food imports totaling 11,300 tons reflected a 41 percent increase over the same period in 2009. The cost of fertilizer imports also jumped sharply, amounting to 81,943 tons, or 115.6 percent more than the 38,004 tons imported from January to May 2009. Increasing imports of food and fertilizer are a result of the growing agricultural difficulties being faced in the North. Based on current prices, aviation fuel imports also grew by 46.8 percent, freight trucks by 98.7 percent, automobile fuel by 47.4 percent, and bituminous coal by 137 percent.

The top ten official imports of Chinese goods by North Korea were as follows: crude oil (21.6 percent); aviation fuel (3.1 percent); freight trucks (2.9 percent); automobile fuel (2 percent); bituminous coal (1.9 percent); fertilizer (1.8 percent); beans (1.6 percent); flour (1.6 percent); rice (1.5 percent); and corn (1.1 percent).

North Korea’s exports to China were mainly underground natural resources. The top ten exported goods were: iron ore (17.1 percent); anthracite (16 percent); pig iron (9.6 percent); zinc (5 percent); Magnesite (3.6 percent); lead (2.4 percent); silicon (2.3 percent); men’s clothing (2.2 percent); frozen squid (2.1 percent); and aluminum (1.9 percent).

According to Kyodo (Via Breitbart):

Police on Thursday arrested the operator and an employee of a trading company in Sakaiminato, Tottori Prefecture, on suspicion of illegally exporting pianos to North Korea in violation of a ban on the export of “luxury” items to the country, investigative sources said.

The company is suspected of having exported several pianos worth some 4 million yen from February to the fall of 2009 to North Korea via Dalian in northeastern China, in violation of the foreign trade control law, according to the sources.

Japan banned the export of luxury items to North Korea in November 2006 in response to the country’s first nuclear test a month earlier and expanded the ban to cover all exports to North Korea in June last year, due to Pyongyang’s second nuclear test and unresolved issues including the abduction of Japanese nationals.

In late May, the Tottori prefectural police raided the company’s office and other related locations and have since analyzed confiscated materials such as account ledgers, the sources said.

According to the corporate registry, the company was established in June 2006, with 10 employees. It sells and exports secondhand goods and also engages in the collection and delivery of industrial waste.

Police arrest 2 for illegal ‘luxury’ exports to N. Korea
Kyodo (via Breitbart)
7/8/2010

According to Bernama (Malaysia):

China will build a huge centre to recycle wastes from Russia and North Korea, in a city that borders the two countries, local authorities said Wednesday.

The centre is expected to recycle nearly three million tonnes of scrap machines, cables, appliances, vehicles, mobile phones, batteries, plastics and other wastes each year, Xinhua reported.

Northeast China’s Jilin Province has approved the recycling centre in Hunchun City. It will cover 135 hectares of land and the facility’s combined floor space will top 500,000 square meters, an official with the publicity department of Hunchun City Government said.

The project is expected to create nearly 10,000 jobs, and its annual output value will reach 15 billion yuan (US$2.21 billion) after it becomes operational, said the spokesman.

However, the spokesman did not elaborate further on the details regarding construction of the centre.

Read the full story here:
China To Recycle Waste From Russia, North Korea
Bernama
7/7/2010

A (much appreciated) reader in Germany sent me an interesting article from the German publication Nachrichten fuer Aussenhandel (News for Foreign Trade), which is a government-sposored daily paper promoting foreign trade. 

The full article is available in German below, but in summary, the Vice Major of Rason, Mr. Chae Song Hak has started an initiative to promote the Rason free trade zone. The zone can be reached visa free and investors can obtain all required permits locally within the zone—without having to involve the central Government in Pyongyang.  Rason also, independently sets duty rates and local prices (I suppose for labour as well as for utility- and other local services) as well as applicable exchange rates within the zone.

If there are any German readers who care to provide a bit more informaiton about this article, I would appreciate it. 

Click image below for full story (in German and in JPG format):

According to Yonhap:

North Korea could take more provocative acts before the November summit of the Group of 20 nations in South Korea if history is any indication, a Japanese investment bank said on June 4.

Nomura International warned that North Korea may display more “bad behavior” similar to the March sinking of South Korea’s 1,200-ton corvette Cheonan, of which North Korea stands accused.

“Experts are wondering whether North Korea’s bad behavior… may be no coincidence,” said Alastair Newton and Kwon Young-sun, two Nomura economists, explaining that North Korea has done similar acts when South Korea hosted global events.

North Korean agents bombed a Korean Air jet in mid-air 10 months before the 1988 Seoul Olympics, killing all 115 passengers and crew members on board, while naval ships of the two Koreas clashed in the Yellow Sea in 2002, the year South Korea co-hosted the World Cup event with Japan.

“Especially given the domestic stresses and strains from which North Korea appears to be suffering at present, we should be braced for the possibility of more of the same — and, possibly, worse — for some time to come,” the economists said in a 40-page report titled “North Korea: Through a Glass Darkly.”

The economists expected that tensions on the Korean Peninsula will ease somewhat shortly, but were skeptical whether there will be practical progress in the global efforts to denuclearize the secretive regime.

“If the six-party talks resume — and we believe they may as China in particular looks to keep Pyongyang in check without risking regime collapse — we are doubtful that North Korea will be prepared to make or deliver on meaningful concessions in response to the demands of the international community,” the report said.

Nomura said it sees a low probability of North Korea’s imminent collapse, especially in the run-up to Kim Jong-il’s succession and the 100th anniversary of the birth of Kim Il-sung, the leader’s father and the founder of the regime, in 2012.

At the same time, the bank doubted the political status quo in Pyongyang is sustainable for more than a short period.

While placing a relatively low probability on the reunification of the two Koreas in the foreseeable future, the Nomura report said the cost of the reunification will be heavy and burdensome.

In order to reduce the possible costs, the Nomura economists suggested of adopting “less ambitious and more realistic” methods — such as the “one country, two systems” model used by China and Hong Kong.

You can download the Nomura report here (PDF).

Additional reports and statistics on the DPRK economy can be found here.

Congressional Research Service (CRS) reports can be found here.

Other unrelated studies can be found on this post as well.

According to the AFP:

North Korea’s economy is expected to continue shrinking this year after South Korea cut off most trade in protest at the sinking of a warship, a report said Tuesday.

“The North is very likely to see its economy shrink this year,” said the report from South Korea’s state-run Korea Development Institute (KDI), without estimating a figure.

“Our outlook is based on a forecast that its external trade will likely post a setback.”

The communist state’s economy contracted 0.9 percent in 2009, according to an earlier report from the South’s central bank.

The South in May announced a ban on most trade after a multinational investigation concluded that a North Korean torpedo sank the warship in March with the loss of 46 lives.

The KDI said at the time the ban would cost the impoverished North hundreds of millions of dollars a year, noting that Pyongyang posted a 333 million dollar trade surplus with its neighbour last year.

The South’s central bank says the North’s economy shrank 1.1 percent in 2006 and contracted by 2.3 percent in 2007, but grew 3.1 percent in 2008 until contracting again last year.

A further shrinkage this year could spark an economic crisis, Tuesday’s report said.

“North Korea’s economy could be hurled into a very precarious situation,” it said.

“As experienced by the nation in the mid-1990s, a crisis could more likely be prompted by consecutive contractions for a relatively long period of time, rather than a one-off steep economic downturn.”

The North’s economy fell deep into trouble in the 1990s after the break-up of the Soviet Union and the loss of its crucial aid.

The country suffered famine in the 1990s which killed hundreds of thousands and it still grapples with severe food shortages.

Since 2005 the regime has been reasserting its grip on the economy, with controls or outright bans on private markets.

A currency revaluation last November, designed to flush out entrepreneurs’ savings, backfired disastrously. It fuelled food shortages as market trading dried up and sparked rare outbreaks of unrest.

The North was forced to suspend its campaign against free markets.

The United Nations in June last year tightened sanctions following the North’s missile launches and nuclear test earlier in the year.

Read the full story here:
N.Korea economy to shrink on trade cutoff: report
AFP
7/5/2010

According to Yonhap:

Trade between North Korea and China in the January-May period increased 18 percent compared to last year, a sign that Pyongyang continues to expand economic ties with Beijing amid soured relations with Seoul, figures showed Tuesday.

North Korea imported US$727.2 million worth of goods from China and exported $256.4 million in the five-month period this year, according to figures recently released by Chinese customs authorities and obtained by Yonhap News Agency.

Read the full story here:
Trade between N. Korea, China rises, signaling closer economic ties
Yonhap
Sam Kim
7/6/2010

According to Yonhap:

South Korea is inspecting its major ports to keep North Korean products from entering its soil after Seoul banned trade with the communist state over the sinking of a warship, an official said Thursday.

The ban took effect in late May when Seoul announced that a multinational probe found Pyongyang responsible for the March 26 sinking of the 1,200 Cheonan corvette. Forty-six South Korean sailors died in the sinking for which North Korea denies any role.

According to KBS:

Japan is reportedly planning to implement on Sunday its special law on cargo inspections of ships with suspected illicit ties to North Korea.

Kyodo News reported Friday that the law allows inspections of cargo if there are suspicions that nuclear weapons or missile-related goods are being transported by ships that visit North Korea. Consent from the country to which the vessel belongs will be required for inspections of ships from a third nation.

The law passed the Japanese parliament in May 2009 after sanctions were adopted by the United Nations Security Council in response to North Korea’s nuclear tests.

The Japanese government also plans to hold joint drills in the waters off its island of Kyushu under the assumption that a North Korean-related ship appears in Japanese waters.

UPDATE: According to the State Department web page:

Philip J. Crowley
Assistant Secretary, Bureau of Public Affairs
Washington, DC

Question Taken at the June 23, 2010 Daily Press Briefing
June 28, 2010

Question: Has a determination been made whether to put North Korea back on the list of State Sponsored Terrorism? Was the Cheonan incident a factor?

Answer: The standards for designating a country as a state sponsor and rescinding the designation are set out in the three separate statutes: Section 620A of the Foreign Assistance Act (22 USC 2371), Section 40 of the Arms Export Control Act (22 USC 278), and Section 6(j) of the Export Administration Act (50 USC app 2405(j)). All three statutes provide for the Secretary of State the authority to designate countries the governments of which “repeatedly provide support for acts of international terrorism.” Therefore, the Secretary of State must determine that the government of North Korea has repeatedly provided support for acts of international terrorism. The United States will follow the provisions of the law as the facts warrant, and if information exists which indicates that North Korea has repeatedly provided support for acts of terrorism, the Department will take immediate action. As a general matter, a state military attack on a military target would not be considered an act of international terrorism.

PRN: 2010/867

ORIGINAL POST: According to Daily Yomuri (Japan):

U.S. President Barack Obama’s administration has decided not to relist North Korea as a state sponsor of terrorism, U.S. sources said Tuesday.

Since South Korea concluded last month that one of its patrol ships was sunk by North Korea in March, some U.S. lawmakers have stepped up calls to reinstate North Korea as a state sponsoring terrorism.

U.S. State Department spokesman Philip Crowley also admitted government officials were considering putting North Korea back on the U.S. list of state sponsors of terrorism. But the administration refrained from doing so, as given the current circumstances, it was judged difficult to meet the conditions needed for relisting, the sources said. The administration also wants to avoid provoking Pyongyang to the extent it conducts a third nuclear test.

State sponsors of terrorism, as defined by the U.S. State Department, are “countries determined to have repeatedly provided support for acts of international terrorism.” To be considered for the list, it must be proved that the country in question had decisive influence on terrorist groups as they obtained funds, weapons, materials and secure areas for conducting operations.

U.S. officials examined North Korea’s suspected involvement in supplying weapons to radical Palestinian Islamic group Hamas, but had yet to obtain evidence necessary for relisting North Korea, the sources said.

Read the full sotry here:
U.S. spares N. Korea ‘terror sponsor’ status
Daily Yomuri
Keiichi Honma
6/24/2010

According to Yonhap:

South Korea is considering providing about 100 billion won (US$84 million) of rescue funds to hundreds of its companies hamstrung by a ban on cross-border trade with North Korea, a senior government official said Wednesday.

The ban has been in effect since a month ago after South Korea concluded from a multinational investigation that North Korea was to blame for the deadly March 26 sinking of its Cheonan warship.

Read the full story here:
S. Korea mulling huge rescue funds for troubled inter-Korean trade firms
Yonhap
Sam Kim
6/23/2010