North Korean Economy Watch

From the Asia Times:
Business as usual across the Yalu
10/17/2006
Ting-I Tsai

Pyongyang’s proclaimed successful nuclear test, which has sparked anger and fear around the world and prompted passage of more UN sanctions, is not deterring Chinese business people living on the border from doing business with North Korea. They are confident that Beijing will not enforce really harsh punishments.

“For North Korea, reform and development is still its goal. It is just a matter of time. We are still keen on doing business there,” said Zeng Chengbiao, chairman of the Zhongxu Group which is based in Shenyang, capital of Liaoning province. Zeng has been planning to operate a department store in Pyongyang and is also interested in investing in mining there. Zeng said his company is preparing to announce a major investment after the Chinese Lunar New Year in February.

Zeng is a typical example of the hundreds of Chinese business people who remain enthusiastic about trading with or investing in North Korea, despite the international furor and unconfirmed reports about Pyongyang’s running out of electricity and food while major players in the Security Council debate punishments for North Korea’s nuclear test.

A sense of normality in Pyongyang and continuing routine bilateral interactions with China could be the reasons for these businessmen’s calm. “Everything is the same as usual. Lots of my clients are in town for business [after the test’s announcement],” said an anonymous Beijing-based trader, who has dealt with North Koreans for more than a decade.

In the Chinese city of Dandong on the North Korean border, and even in Pyongyang, Chinese businesspeople and citizens all claim confidence. “I checked with my friends at the customs, and they said that goods are in and out as usual,” said Liu Yen, a church worker from Dandong.

In Pyongyang, Chinese traders are still answering calls made to their North Korean 10-digit mobile phones, hoping to find more sources for soybean oil, sugar, monosodium glutamate and flour. Michel Ji, representative of Jilin Cereals, Oil, Foodstuffs, Import and Export Group in Pyongyang, who has been traveling back and forth between the two nations for four years, said that his company has imported up to10 million tons of sugar, MSG and oil from North Korea. Prices of products from China, he said, are still too high.

“There will definitely be sanctions, but none of them will affect people’s livelihoods,” Ji said.

Since Pyongyang initiated economic reforms in July 2002, Chinese businessmen have crowded into North Korea – perhaps the last virgin territory for capitalism. China’s non-financial direct investment in North Korea was about US$14.37 million in 2005 and $14.1 million in 2004, according to the Chinese Commerce Ministry.

Bilateral trade reached almost $1.4 billion in 2004, and jumped to about $1.6 billion in 2005, while during the first eight months of 2006 it hit $1 billion.

Some 40 Chinese companies from Liaoning province alone have just returned from North Korea after attending the second Pyongyang Autumn International Commercial Exhibition. A Pyongyang-Tianjin joint-venture bicycle manufacturing company, which reportedly produces 300,000 bicycles annually, dominates North Korean’s bicycle market, while more companies are waiting for the two governments’ approvals for investing in the slowly opening nation.

Shortly after Pyongyang’s announcement of its nuclear test, Tokyo declared a total ban on North Korean imports and prohibited North Korean-flagged ships from entering Japanese ports. North Korean nationals are also prohibited from entering Japan, with few exceptions.

Over the weekend, the Security Council approved the US-sponsored resolution for imposing punishing sanctions against North Korea. The sanctions demand that the North abandon its nuclear weapons program and orders all countries to prevent North Korea from importing or exporting any material for weapons of mass destruction or ballistic missiles. It orders nations to freeze assets of people or businesses connected to these programs and bans individuals from traveling there.

Furthermore, the resolution calls on all countries to inspect cargo leaving and arriving in North Korea to prevent any illegal trafficking in unconventional weapons or ballistic missiles. The final draft was softened from language authorizing searches, but was still unacceptable to China – the North’s closest ally – which said it would not carry out any searches.

“China will not go too far,” predicted Cui Yingjiu, a Beijing-based retired academic who was Kim Jong-il’s classmate during his studies at Pyongyang’s Kim Il-sung University in the early 1960s. Aside from concern about China’s national interests, analysts in Beijing also doubt the significance of any harsh punishment, as they believe the North Korean economy is relatively independent.

“They can still live by simply eating grass. What would these economic sanctions really do?” said Niu Jun, professor at the Peking University’s School of International Relations, who visited North Korea in July.

Shortly after the UN resolution passed, US ambassador to the UN John Bolton told reporters that the next step was to start work on implementing the resolution. But none of the current moves are scaring away Chinese businessmen.

BBC
10/16/2006

Australia is to ban North Korean ships from entering its ports in response to its claimed nuclear bomb test, the foreign minister has announced.

Alexander Downer told Parliament the move would help Australia make a “quite clear contribution” to other sanctions agreed by the UN on Saturday.

The UN resolution imposes both weapons and financial sanctions on the North, but despite the unanimous vote, disagreements have emerged between the members of the council.

Beijing has indicated that it still has reservations about carrying out the extensive cargo inspections that Washington says are called for in the resolution.

Ship inspections

Australia is one of the few countries to have diplomatic relations with North Korea, but its trade ties are limited. In 2005, imports amounted to A$16m ($12m).

“If we are to ban North Korean vessels from visiting Australian ports then I think that will help Australia make a quite clear contribution to the United Nations sanctions regime.”

Japan, which banned North Korean ships from its ports last week, is looking at whether it can provide logistical support for US vessels if they start trying to inspect cargo ships going to or from North Korea.

The restrictions imposed by Japan’s pacifist constitution may require the government to pass new laws to allow that to happen.

In a further diplomatic drive, US Secretary of State Condoleezza Rice is due to arrive in Japan on Wednesday.

She reportedly intends to reassure the country that Washington will provide adequate protection in the event that North Korea obtains a viable nuclear weapon – a message she will later take to South Korea.

‘Heavy responsibility’

The UN resolution against North Korea was agreed after lengthy negotiations.

It imposes tough weapons restrictions, targets luxury goods and imposes a travel ban on some North Korean officials.

It also allows the inspection of cargo vessels going in and out of North Korea for banned materials, although the resolution was weakened slightly at China and Russia’s insistence, to make this provision less mandatory.

Beijing’s UN envoy, Wang Guangya, said immediately after the vote that China urged countries to “refrain from taking any provocative steps that may intensify the tension”.

Both Russia and China are concerned that inspections could spark naval confrontations with North Korean boats.

But the US ambassador to the UN, John Bolton, told American television that China had voted for the sanctions and therefore “China itself now has an obligation to make sure that it complies.”

From Reuters:
North Korea’s Kim Jong-il can withstand sanctions
10/16/2006
Jonathan Thatcher

North Korea’s elite, from one of the world’s poorest countries, may soon have trouble importing the fine cognac they reportedly favor but they are unlikely to buckle under new U.N. sanctions, analysts said on Monday.

Longer term, the resolution unanimously agreed by the U.N. Security Council on Saturday will pinch an already damaged economy but it is the masses who will likely be most hurt.

“The regime has shown it doesn’t mind if its people feel the pain,” said one diplomat in Seoul of the North Korean government, which is routinely accused of human rights abuses and up to 10 percent of whose population died during famine in the 1990s.

Under the Security Council resolution over Pyongyang’s reported nuclear test, nations can stop cargo going to and from North Korea to check for weapons of mass destruction.

It blocks trade with the secretive country in dangerous weapons, heavy conventional weapons and luxury goods. And it asks governments to freeze funds connected with its WMD program.

“The practical effect is questionable,” said Professor Nam Sung-wook of Korea University, an expert on North Korea.

“They (the countries supporting sanctions) are in bed together but they’re all dreaming different dreams,” he said.

Analysts said that the way China — the nearest the isolated North has to an ally — interprets the sanctions will be very different from Japan, which has demanded tough action.

In an interview with Reuters at the weekend, former President Kim Dae-jung and architect of        South Korea’s policy of engagement with the North, said the sanctions would have little effect.

“North Korea is already very familiar with poverty. The country can also get support, at least in order to survive, from countries such as China.”

The U.N. World Food Program’s Asia regional director, Anthony Banbury, said his concern was that the overall environment, including action by the North, was making it more difficult to reach people just as aid needs rise.

“I can guarantee you that right now there are severe food shortages. There is no question that there are large numbers of North Koreans … who are facing quite severe food problems,” he said by telephone from Bangkok.

RISK OF DANGEROUS VACUUM

The diplomat said no one, least of all China or South Korea, wanted a sudden collapse of North Korea’s government that could create an even more dangerous vacuum in a country with one of the world’s largest standing armies.

“In the short-run, I don’t think the sanctions will have a significant impact. They’ll have political and symbolic implications,” said Park Young-ho, a senior researcher at the Korea Institute for National Unification.

But over time there will be a negative impact on the economy and that, Park said, could put North Korean leader Kim Jong-il and his government under greater pressure to rattle the world with another test.

Peter Beck, Korea analyst in Seoul with the International Crisis Group, said he doubted the U.N. resolution would have any noticeable impact other than to give the North an excuse to ignore the        United Nations and conduct a second nuclear test.

“I do not think it will have any impact on putting pressure on the regime or increasing the prospects for regime change,” Beck said.

There was a great picture in the New York Times today.  The article was about the politics of a UN trade embargo in response to the nuclear test.  I was disappointed that the article was not about the story of the bikes being exported from Japan.  Who is importing them into the DPRK?  How are the funds transferred?  Is there a title? How are they being distributed in the DPRK?  Who is insuring them?  Who is buying them and where did they get the money?  This would have been a far more interesting article.  

Although stories of counterfitting currency and cigarattes, or exporting missles and drugs dominate news headlines, one story that never gets covered in the media, probably because it is so mundane, is how thousands of traders, motivated by nothing but self-interest and survival, are undertaking significant risks which are easing the hardships of the poor citizens of North Korea.  Will stopping this sort of trade make anyone better off? 

Image caption: Bicycles being loaded Friday onto a North Korean ship in Maizuru, west of Tokyo. A proposed Security Council resolution would restrict cargo. 10/14/2006

Financial Times
10/13/2006
Anna Fifield

As the countries of the United Nations wrangle over the sanctions to be imposed on North Korea following its nuclear test this week, doubts are being cast on the effectiveness of whatever measures are agreed.

With China and South Korea fearing the collapse of their volatile neighbour, and with a large proportion of North Korea’s income coming from illegal trade, even targeted sanctions would have a limited impact. The regime has already survived the death of its founder and a famine that killed up to 10 per cent of its population.

Rüdiger Frank, a North Korean economy specialist at the University of Vienna, said: “I don’t think there is any more room for more sanctions from the usual suspects. To be effective, China and South Korea have to join.

“But a nuclear North Korea is even more risky in case of collapse than just a humanitarian catastrophe, so why would they increase the chance of a collapse.”

North Korea says its missile launches in July and the nuclear test were “self-defence” in response to US financial sanctions imposed in September last year to curb alleged counterfeiting and money laundering.

Now the US, Europe and Japan are all calling for a tough UN resolution and authorisation for countries to interdict shipments to and from North Korea, both of which China is opposing.

The dispute over the extent of sanctions reflects differences over the purposes of the measure. While the US and perhaps Japan are eyeing regime change, China and South Korea would be happy with a change in behaviour.

Marcus Noland, of Washington’s Institute for International Economics, said economic sanctions were seldom effective in changing behaviour.

“If the sanctions were going to have any shot at working they would have to be comprehensive sanctions, as suggested by Japan,” he said. “That package was big enough to potentially have an impact and it also had the benefit of simplicity, but they would also imply a significant degree of hardship for ordinary people.”

But the suggested targeted sanctions were too weak to be effective and because of their complexity, they almost invited circumvention, Mr Noland said.

“Weak sanctions may be counterproductive because President Bush and President Roh [of South Korea] warn that they will not tolerate a nuclear test but they are not imposing the penalties or incentives to back it up. That might tempt North Korea to push the envelope even further,” he said.

Much of the crisis can be traced back to North Korea’s dire economic situation. The differences between the North and South Korean economies could not be more stark. The mineral-rich north had always been the industrial heartland and the more fertile South was traditionally the rice bowl.

Indeed, the South’s gross domestic product did not overtake the North’s until the early 1970s but now at $700bn (£377bn, €558bn), it is about 40 times larger than that of the North’s.

Economic reforms that Pyongyang begrudgingly introduced in 2002, which liberalised prices and wages, have led to some changes in North Korea’s decrepit economy and trade has grown exponentially.

The South’s Korea Trade Investment Promotion Agency estimates the value of North Korea’s legal foreign trade crossed the $3bn mark last year, the highest since the Soviet Union collapsed in 1991, with trade with China comprising more than half of the total.

But it is North Korea’s sizeable illegal trade that will further dilute any economic sanctions. Analysts suggest North Korea earns about one-third of its revenues from aid, one-third from conventional exports and the remainder from criminal activities.

Crime is such a fundamental part of North Korea’s economy that David Asher, co-ordinator of the US State Department’s North Korea working group from 2003 to 2005, calls the country the “Soprano state”.

“North Korea is perhaps the only country in the world whose embassies and overseas personnel are ex-pected to contribute income to the ‘Party Centre’, not rely on central government funds for their operations,” said Mr Asher in a speech at the Wilson Centre last November.

Several North Korean diplomats have been caught carrying narcotics through eastern European countries in recent years. In 2004, a North Korean ship carrying $150m worth of heroin was seized in Australia.

Pyongyang has also been producing and distributing counterfeit US dollars, cigarettes and pharmaceuticals, especially the erectile dysfunction drugs Viagra and Cialis.

Counterfeit cigarettes are said to depart regularly from the North Korean ports of Rajin and Nampo for shipment through China and South Korea to the rest of the world, and tobacco companies have identified factories producing counterfeit cigarettes in North Korea.

But the international community is now most concerned about the prospect of North Korea trading missile and weapons of mass destruction technology, a concern that is only likely to be heightened with sanctions.

Jon Wolfsthal, of the Centre for Strategic and International Studies in Washington, said: “North Korea is probably going to want to hold on to their precious weapons technology. But if the US squeezes them, that increases the risk that they might sell weapons to ensure their survival.”

Yonhap:
10/12/2006

A senior North Korean official said Thursday his country will take “strong countermeasures” against Japan if it implements new sanctions against the communist country, Japan’s Kyodo News said.

“We will take strong countermeasures,” Song Il-ho, North Korea’s ambassador on diplomatic normalization talks with Japan, said in an interview with Kyodo News. “The specific contents will become clear if you keep watching. We never speak empty words.”
The threat came after Japan decided to impose additional economic sanctions against North Korea for its claimed nuclear test Monday, imposing a ban on all imports from the communist country and banning its ships from entering Japanese ports. North Korean nationals will be prohibited from entering Japan, according to Japanese officials.

The sanctions are in addition to the measures already in place following Pyongyang’s missile tests in July, prohibiting the flow of funds and technology from Japan to 15 entities suspected to have links with North Korea’s weapons of mass destruction programs.

Japan’s additional measures are “more serious in nature” compared to sanctions imposed or considered by other countries, Song said. Pyongyang will take countermeasures by calculating Japan’s failure to adequately repent for its colonization of the Korean Peninsula from 1910 to 1945, he added.

He also said Pyongyang is watching closely what Japanese Prime Minister Shinzo Abe, who took office last month, plans to do regarding relations between the two countries.

“We are watching his words and actions since becoming prime minister in a careful manner,” Song was quoted as saying.

Joong Ang Daily
Lee Young-jong, Shin Eun-jin, Sohn Hae-yong
9/20/2006

North Korea has filed claims with British and Russian reinsurance companies after four disasters in the North, and seeks millions of dollars in compensation, a source in Seoul said yesterday. His comments were confirmed by government officials.

The sources said the claims were filed by Minjok Insurance General Company, and asked for payments related to two rail crashes and two other incidents.

Reinsurers help policy-issuing insurance companies spread the risk involved in their policies to other insurance companies around the world. Companies buy “packages” composed of parts of many policies, and share in both the policy payments and claims made under those policies.

The reinsurers reportedly received permission from Pyongyang to conduct investigations at the accident sites before paying the claims; those visits have already taken place, these sources said, adding that the visits were made to places normally off-limits to foreigners.

One of the incidents was the sinking of a passenger ship traveling between Wonsan and Heungnam, both east-coast ports. Half of the ship’s 200 passengers lost their lives, Minjok reportedly told its reinsurers. Industry officials here estimated that the insurance payment would be in the millions of dollars. Another incident was a train accident in South Hamkyong province in April, which resulted in the deaths of 270 soldiers and 400 civilians. Rumors had circulated in Seoul about the latter accident, but those rumors were dismissed at the time by South Korean government officials.

Another train crash occurred near Nampo, a west-coast port, in April. Dozens were reportedly killed in that crash. Little is known about a helicopter crash near Pyongyang in May, these sources said.

“North Korea has been in a bad plight since September 2005, after its assets in Banco Delta Asia in Macau were frozen and the United States announced financial sanctions,” a Seoul official said. “It is my understanding that the North is also trying to press claims linked to flood damage this summer.”

One observer said the North’s rare disclosure of disasters indicates how serious Pyongyang’s cash crunch is. “It means that Pyongyang is more interested in gaining tangible benefits despite the risk of airing its dirty linen in public,” said Yang Moo-jin, a North Korea-watcher at the University of North Korean Studies in Seoul.

Others said Pyongyang may be learning to tweak global financial systems. “North Korean entities have been involved in competition to earn foreign currency, and now one of them is focusing on loss recovery through insurance,” said Lee Yeong-hun, a North Korea economic specialist at the Bank of Korea.

Experts said reinsurance payments to the North are outside the scope of any financial sanctions. “The North is operating all of its legitimate dollar-earning channels at full capacity,” a Seoul official said.

From Yonhap:
9/14/2006

South Korea’s vice unification minister on Thursday said his country would continue its economic cooperation with North Korea, adding that increased cooperation between the divided Koreas is the key to peace and stability on the Korean Peninsula.

“Economic cooperation between the North and the South is playing a key role in various ways to manage the situation on the Korean Peninsula stably,” Vice Unification Minister Shin Un-sang said.

The remarks came as part of a congratulatory speech at the opening of a symposium here on inter-Korean economic cooperation, co-hosted by the Citizens’ Coalition for Economic Justice and the National Unification Advisory Council.

Shin said inter-Korean economic cooperation has significantly reduced tension on the Korean Peninsula by replacing, or removing, the North’s heavy artillery unit in the border town of Kaesong with a joint industrial complex for South Korean firms.

He also claimed the North would now have to think twice before performing any acts that could heighten or cause tension on the Korean Peninsula as increased economic cooperation gives it a greater interest in pursuing peace and stability.

“Inter-Korean economic cooperation is playing a role in preventing additional tension (on the Korean Peninsula). Various forms of economic cooperation between the two, including the Kaesong industrial complex, are helping the North and South Korea to move toward (promoting their) mutual interests,” Shin said.

Relations between the Koreas improved significantly after their leaders met in an historic summit in Pyongyang in 2000. The amount of inter-Korean trade increased to over US$1 billion last year from $290 million in 1995, according to Kim Chun-sig, director of the ministry’s inter-Korean economic cooperation bureau, who also joined Thursday’s symposium.

The government believes that economic cooperation with the North also helps open the reclusive state to the outside world by offering chances for its people to meet with South Korean officials and businesspeole, as well as being an opportunity to witness the South’s advanced economy.

From the Korea Liberator and Sunday Morning Herald:

You can download the game here.

9/7/2006

South Koreans will be able to enjoy one of their favorite games on computer using a program written in communist North Korea released here Thursday.

“Silver Star 2006” –a North Korean-made computer program of the chesslike board game called Baduk in South Korea and more widely known as GO–was launched in South Korea as part of an agreement reached with the North in July, said ForOneBiz, the South Korean distributor.

The program can be downloaded for 33,000 won (US$35; euro27), part of which will be paid to the North as royalties, ForOneBiz said.

The company said it also plans to share its technology know-how with the North to improve the software.

The level of technology development in the impoverished North is a far cry from the neighboring capitalist South, which boasts the world’s highest per capita broadband connections.

As part of North Korean government controls on outside information reaching its people, outside Internet access is provided only to high-ranking officials and elite.

The game released this week isn’t the first time for a North Korean computer program to go on sale in the South. In March, North Korean software was launched here for the first time to help with input of repetitive words and provide various symbols and sound effects when people use word processors or send e-mail.

The two Koreas remain divided since the 1950-53 Korean War ended in a cease-fire, not a peace treaty. However, relations have warmed in recent years since a 2000 summit between leaders of the North and South, and the two sides are involved in a number of joint projects.

Korea Times
9/6/2006
Kim Tae-gyu

Starting today, a South Korean venture start-up will market a North Korean paduk computer game, Silver Star 2006, here that is arguably the most advanced program for paduk, also known as go.

ForOneBiz yesterday announced the scheme to launch Silver Star 2006 that has won the FOST Cup, the annual computer paduk championship participated in by global contenders, for the past three consecutive years.

“In June, we reached an agreement with the North’s Samcholli General Corp. to debut Silver Star 2006 here,” ForOneBiz chief executive officer Kim Byung-su said.

“We inked a commission-based deal, not the conventional lump sum-based ones. We will take roughly 90 percent of sales income while the remaining 10 percent will go to Samcholli,” he added.

The price of the program, which can be downloaded at the Web site of ForOneBiz (www.i-silverstar.com) or ordered by calling (02) 2115-6035, is 33,000 won ($34.5).

The Silver Star series, called Unbyol in Korean, was developed by the North’s state-run Korea Computer Center in the 1990s. Experts say it has the most outstanding algorithm for baduk.

“We plan to improve Silver Star 2006 further by cooperating with North Korea. It will work because the North has a competitive edge in software while the South today leads the world in offline baduk techniques,” Kim said.

This is not the first time for North Korean software to go on sale in the South.

Earlier in March, the Seoul-headquartered BH Partners began selling the Speed-K4.0, a computer program developed by the North Korean agency, at its Web site (www.bhpartners.co.kr).

People can download the input software, which helps them easily type in sentences from a word processor or e-mail, at 5,500 won.