North Korean Economy Watch

Daily NK
Kim Song A
3/12/2007

Inter-Korean Economic Cooperation “Motive on driving a stable complex”

A claim has been made suggesting that North Korea will reallocate 3,000 workers from Pyongyang to Kaesung Industrial Complex.

Representative Kim Kyu Chul of the Citizen’s Solidarity for Inter-Korean Economic Cooperation revealed on the 11th, “North Korea’s Guidance Bureau for Developing Central Special Economic Zone informed the plan to the South Korean government and enterprisers who are moving in the zone and asked them to provide employees with accommodation.”

Representative Kim informed “In the past, the North has employed workers from other regions to maintain stable human resources… For the first time, workers from Pyongyang will be employed at Kaesung Industrial Complex. These people will be amongst the 18,000 skilled workers already working at Kaesung.”

Furthermore, Representative Kim disclosed his opinion, “The motive behind the North’s recent plan is its determination to establish a more stable Kaesung Industrial Complex and to minimize insecure business aspects related to human resources.”

In response, a South Korean governmental official said “The issue of worker’s accommodation has been a case continuously faced by the North” and added “We cannot know the North’s specific intentional plan for human resources but we will keep in contact to discuss these practical affairs.”

Presently, 11,740 North Korean and 689 South Korean full-time employees are working at Kaesung Industrial Complex. In the case a 3,305km square of factories site on the first phrase is completed as scheduled for this year, then 300 or so companies will be able to lease the area. Consequently, the number of North Korean workers needed at Kaesung Complex will exceed 80,000.

In addition to this, the Korea Industrial Complex Corporation announced that apartments approx. 22.5km square would be on the market until the 14th, for 40 or so companies interested in the factory complex. The Korea Land Corporation will also begin inspections next month in order to find a location for a 1,752km square factory site.

Daily NK
Kim Min Se
3/7/2007

90% daily goods made in China, 50% circulated by Chinese merchants

While some prospect that North Korea may be an affiliated market of China’s 4 provinces in the Northeast, the real focus is on the merchants who actually control North Korea’s markets. Recently, North Korean citizens have been asserting that markets would immobilize if Chinese merchants were to disappear.

Lately, Chinese merchants are nestling themselves with their newly found fortune in North Korea, undeniably to the envy of North Korean citizens.

In a recent telephone conversation with the DailyNK, Kim Chang Yeol (pseudonym) a resident of Shinuiju said “Most of the tiled houses in Shinuiju are owned by Chinese merchants in Shinuiju are upper class and the rich.” Unlike Pyongyang, tiled houses in Shinuiju are greater in value than apartments. In particular, the homes owned by Chinese merchants are luxurious and impressing.

Kim said “At the moment, 90% of daily goods that are traded at Shinuiju markets are made in China.” What Kim means by 90% of goods is basically everything excluding agricultural produce and medicinal herbs. Apparently, about half of the (90% of) supplies are circulated by Chinese merchants.

Kim affirmed that the market system could be shaken if supplies were not provided by the Chinese merchants. Hence, Chinese merchants have elevated themselves in North Korea’s integrated market system, to the extent that the market could break down without their existence.

In addition to this, Chinese merchants are playing a vital role in conveying information about the external world into North Korea. Even in 2004, it was Chinese merchants to first telephone China through mobile phones relaying the news about the Yongcheon explosion. As a result, rumors say that the movement of Chinese merchants can either be a “cure” to the economic crisis in which the North Korean government seems unable to fix, or “poison,” as more and more foreign information flows into the country.

How many Chinese merchants are there in North Korea?

A report by China’s Liaoning-Chosun Newspaper in 2001 sourcing data from North Korea, states that immediately after WWII, approximately 80,000 overseas Chinese were residing in the Korean Peninsula. Then following the Korean War and the formation of a Chinese government, the majority of people, approximately 60,000 Chinese, returned home. In 1958, statistics show that 3,778 families of overseas Chinese were living in North Korea, totalling 14,351 people.

These Chinese engaged in business related to farming, home made handicrafts and restaurant business, and in the late 50’s, lost all this due to the implementation of economic planning and dictatorial regime. Since then, the majority of merchants continued to return to China until the early 80’s.

In 2001, Liaoning-Chosun Newspaper confirmed that approximately 6,000 Chinese were living in North Korea. Of this figure, more than half were residing in Pyongyang, approx. 300 families living in North Pyongan and approx. 300 families residing throughout Jagang and northern districts of South Hamkyung.

At present, there are 4 middle and high schools for children (11~17 years) of Chinese merchants, located in Pyongyang, Chongjin, Shinuiju and Kanggae. In addition to these schools, there are a number of elementary schools (for children aged 7~11 years) located sporadically throughout each province.

Wang Ok Kyung (pseudonym) a resident of Shinuiju attended Chongjin Middle School for children of overseas Chinese in 1981~86. Wang said “At the time, there were about 40 students in each year. Now there is only about 5~6 students.” Nowadays, many Chinese children complete their elementary studies in North Korea, but the general trend is to send the children to China for middle school. She said “In order to enter a Chinese university, students must have completed their middle school studies in China and must be fluent in Chinese. He/she can also go to private institutes in China.”

Fortunes made through trade between North Korea-China during the food crisis

Even until the early 80’s there were no such thing as a wealthy North Korean-Chinese merchant. They were no different to North Korean citizens.

However, in the 80’s, many people began importing and selling goods such as socks, handkerchiefs, hand mirrors and cards from China, literally through their sacks. As the 90’s approached North Korean-Chinese merchants began to experience great wealth, the time where North Korea-China trade fundamentally kickstarted.

Today, Son Kwang Mi (pseudonym, 52) falls under the top 10 wealthiest Chinese merchants in Dandong, characterizing an unique rags to riches story. In the past, Sun lived in Chongjin and was one of the first figures to trade with China in the 80’s.

In the beginning, Son was so poor that she had to sell her watch received as a wedding gift in order to buy goods to sell.

Fortunately, Son found her money smuggling gold. In North Korea, gold is considered a public good or simply put Kim Jong Il’s personal inheritance, so private trade of gold is strictly regulated. Nonetheless, there are still some laborers who export gold secretly and a great number of people still collect gold through dubious ways. In particular, after the 80’s as North Korea began to experience economic decline, more and more people sold gold secretly.

Hence, a small number of Chinese merchants infiltrated the market of secretly trading gold with China. Chinese smugglers were able to take advantage of North Koreans by greatly raise their market margins, as the supply of gold and North Koreans wanting to sell their gold was high yet the demand in North Korea low.

Son said “Of the Chinese merchants in North Korea, 60% earned a great fortune at that time through illicit trade.”

She says that there were two opportunities for overseas Chinese to make a great fortune. The first was in 1985~89 through illicit trade of gold and the second, during North Korea’s mass food crisis in 1995~98.

“During the mass famine, everything in North Korea was in shortage and so Chinese merchants began to provide the daily necessities of life. At the time, if you brought large amounts of goods such as fabric and sugar, you could make a profit of 1 million Yuan (US$137,000),” she said.

Son was fortunate enough not to miss these two opportunities which led her to great wealth and allowed her to possess a fortune of 50 million Yuan (US$6.31 million).

Chinese merchants can relatively enter and exit China freely. Also, with the ability to speak Chinese fluently and the possibility of staying in the homes of many relatives in China, the occupation possesses ideal conditions.

Yonhap
3/6/2007

North Korean diplomats have recently been limited to taking only one of their children with them when assigned abroad amid reports of some diplomats seeking asylum out of their impoverished homeland, an informed source said Tuesday.

The measure is a revival of a decades-old regulation, which has been temporarily suspended since 2002, the source said while speaking on condition of anonymity.

“North Korea is said to have ordered its diplomats and officials overseas to send all but one of their children back to Pyongyang,” the source said.

“It appears North Korea believes there is a greater chance of defection by these expatriates as they now have all of their family members overseas,” the source added.

Defections by North Korean diplomats or their families are rarely publicized, but government officials say they are not unprecedented.

South Korea usually maintains a tight lid on defection cases involving ranking North Korean officials out of fear they may provoke the communist nation, thus making future defections by others more difficult.

More than 10,000 North Koreans have defected to South Korea since the end of the 1950-53 Korean War while as many as 300,000 others are believed to be hiding in China or other neighboring countries.
NK Diplomats Ordered to Send Kids Home
Korea Times
Lee Jin-woo
3/6/2007

North Korean diplomats and those who work at overseas branches of state-run trading companies have been ordered to send their children home except for one child by the end of this month, sources said.

The order was issued on Feb. 14, after a one-month-and-a-half notice, the source said, speaking on condition of anonymity.

In the early 1990s, the North ordered its students abroad to return home during the collapse of the Soviet Union and the breakdown of the Berlin Wall.

But this was the first time for Pyongyang to call home the children of diplomats and officials at trading companies.

The measure is a revival of a decades-old regulation, which has been temporarily suspended since 2002. The ban was lifted in 2002 to help more children pick up foreign language skills in a more advanced educational system.

The North has decided to return to its previous policy to prevent possible mass defection of its diplomats and white collar workers abroad with their families in the reconciliatory mood, including the ongoing efforts to normalize the diplomatic ties between Pyongyang and Washington, experts on North Korean affairs said.

Neither primary school students nor college students, however, are allowed to stay overseas.

“Diplomats and workers at state-run trading companies are allowed to keep only one child, who is old enough to attend either junior high or high school, but primary school children and college students are banned from staying overseas,’’ Hong Soon-kyung, a North Korean defector, told The Korea Times.

A former senior North Korean diplomat, Hong serves as chairman of an association of North Korean defectors in Seoul.

Hong said it was because the Stalinist state does not want its young generation to be influenced, or brainwashed, by U.S.-style market economy.

He said North Korean college students are allowed to study only in China, the North’s closest ally.

“Those North Koreans who go overseas for physical labor have not been allowed to bring any child, not even one,’’ he added.

Under the order, some 3,000 North Korean children in some 50 countries will have to return home, sources said.

Yonhap
2/25/2007

Wages paid for North Korean labor in an industrial complex in the North’s western border town of Kaesong surged nearly 50 percent in the second half of last year, despite the communist country’s missile and nuclear tests, government data showed Sunday.

According to a report submitted by the Unification Ministry to the National Assembly, North Korean employees’ wages in the Kaesong industrial complex amounted to US$4.23 million in the second half of last year, up 48 percent from the first half’s $2.87 million.

“Even after the North’s missile tests and nuclear test (in October), the hard currency, which the international community takes issue with, continues to end up in the hands of the communist regime while the payment for the Kaesong workers also is expanding,” said Chin Young, a lawmaker of the main opposition Grand National Party, who released the report.

The Kaesong industrial complex is one of two major cross-border projects along with a joint tourism project at the North’s scenic Mount Geumgang.

In the joint industrial complex, South Korean businesses use cheap North Korean labor to produce goods. More than 20 South Korean factories employ a total of 11,189 North Korean workers in Kaesong.

The North, meanwhile, conducted missile tests in July and its first nuclear test in October in defiance of opposition from the international community.

Those incidents prompted a setback in inter-Korean relations and raised concerns that the money paid to the North in the industrial park could be funneled to the communist regime, an allegation that Pyongyang denied.

The report showed wages paid to the North Korean workers have been on the increase in the past few years. In 2004, they stood at $390,000 but rose to $2.76 million in 2005 and $7.10 million in 2006.

Daily NK
Kang Jae Hyok
2/23/2007

Although North Korea tried to create a festive atmosphere in celebration of Kim Jong Il’s 65th birthday, the voices of Pyongyang citizens express hardship and exhaustion.

Recently, Lee Myung Sup (pseudonym, 69) who lives in Pyongyang went to Namyang-district, Onsung, North Hamkyung province, in search of his brother who resides in China to get help.

In a telephone conversation with the DailyNK on the 21st, he said “Nowadays, it is even hard for people in Pyongyang to live. Although rations are given, it is not enough to live on.”

Lee informed “Compared to the country, rules and regulations are even stricter in Pyongyang to the point all men must go to work. Alternatively, the majority of housewives utilize the markets and trains to travel to the rural districts selling goods.”

“Even the people in Pyongyang must engage in trade, otherwise they have nothing to eat but rice porridge. While the elite are living lives more privileged than the times of the ‘march of suffering,’ the common worker in Pyongyang is indifferent to the citizens in the country” he said.

According to Lee, a month’s worth of rations given to the citizens in Pyongyang always fall short of a week’s amount of food. This is because a week’s worth of rations in North Korea is removed and redirected as distributions for the military.

Coal and stones used to solve the heating problem

The average monthly wage for a worker in Pyongyang is 4,000~5,000 (approx. US$1.2~1.6) won. At the markets, 1kg of rice is 1,100 won and hence this wage is equivalent to 4kg of rice. While all necessities including food, vegetables, daily needs and medicine can be purchased at the market, Lee says that at least 10,000 won (approx. US$3.2) is needed per month.

He said “It has already been 10 years since heating rations for were suspended” and added “Large stones placed under the floor are heated up to warm the home and coal is also used to cook rice and further heat the room, even in apartments.” He said that during the winter, each household required at least 2,000kg of coal

Already, many average North Korean citizens find it hard to live if they do not trade, however the situation has now arisen where the “revolutionary city” of Pyongyang and its citizens are experiencing the same conditions.

Even during the food crisis in the `90’s, many people in Pyongyang found pride in the fact that they lived in the revolutionary city. However, 10 years on, the privileges of a Pyongyang citizen has but merely disappeared and the adversities of the people increasing as they find their own way to survive.

The people of Pyongyang who once faced the period of their honorable father, Kim Jong Il have now become common citizens.

RIA Novosti (Hat Tip DPRK Studies)
1/29/2007

A suspect in the case of a North Korean national beaten to death in a Russian Far Eastern city has been arrested, an aide to the regional prosecutor said Monday.

The man’s body was found in a hostel housing North Korean construction workers in the Pacific port of Vladivostok, near the North Korean border, Friday. Forensic experts said the man died of a brain injury.

“A forensic psychiatric expert examination has been ordered for the suspect in the case, to determine whether he is sane,” Irina Nomokonova said, adding that the suspect was a Russian citizen.

Witnesses said Friday the victim had returned to the hostel with bruises on his face, saying he had fallen accidentally. But several hours later, his North Korean colleagues found him dead.

Two other people from the Communist nation were battered to death in Vladivostok in December in an attack investigators said was carried out by a group of teenagers.

Local police say attacks on foreigners have become more frequent in the Primorye Territory, which borders on China and North Korea and is home to thousands of migrant workers from those countries.

In 2006, 247 attacks were made on people of foreign appearance in the region, compared to 181 the previous year. The statistics reflect a rise in xenophobic sentiment in the country as a whole.

Bloody interethnic clashes in northwest Russia last fall prompted authorities to impose restrictions on the number of foreign workers, effective as of this year.

Joong Ang Daily
Lee Young-jong
12/13/2006

North shows an interest in Kaesong legal systems

North Korea has shown interest in introducing the legal taxation and accounting systems used in the market economy at the Kaesong Industrial Complex, Vice Unification Minister Shin Un-sang said yesterday.

Speaking at an academic forum sponsored in Seoul by the North Korean Law Research Institute to discuss how to establish the systems in the complex, Mr. Shin said, “North Korean officials’ perceptions in regard to establishing market-economy legal systems for the Kaesong Industrial Complex are changing. In the past, they have shown negative perceptions, but lately they have expressed a high interest and sympathized with the necessity of those systems.”

The vice unification minister said establishing a legal framework in line with international standards is essential for the stable development of the complex.

In the complex, 15 subregulations on taxation, labor and so on have been enacted since it opened in December 2004. Currently, about 10,000 North Koreans work in 18 South Korean companies in the complex.

Meanwhile, Jay Lefkowitz, the United States’ special envoy on human rights in North Korea, said last week that Seoul needed to use the complex as a pretext to pressure Pyongyang on human rights issues by opening it up for international inspection.

He said Seoul was one of the few countries to have enough leverage to pressure the North.

Korea Times
Lee Jin-woo
12/12/2006

Kaesong to Test Market Economy

Vice Minister of Unification Shin Un-sang said Tuesday North Korea is interested in introducing a market-style economy in the joint inter-Korean industrial complex in Kaesong, North Korea.

“It’s been true that North Korea has been quite reluctant about introducing market economy-based regulations,” Shin said during a seminar on inter-Korean relations and North Korean law held in Seoul. “However, they recently agreed on the need to develop new legal conditions for the Kaesong Industrial Complex, especially in terms of taxation and accounting.”

The vice minister said the new regulations for Kaesong have great symbolic meaning in that they would significantly help North Korea better understand the legal system of a market economy, which is different from their Stalinist system.

Shin predicted that if the market system is working successfully in Kaesong, North Korea would expand the capitalist system in the rest of the country although he was unsure when the expansion would be made.

Shin, however, said there would be a number of stumbling blocks that the two Koreas have to deal with, as the two nations’ legal systems differ in many respects.

The two Koreas abide by a special law comprising some 15 lower-level regulations on minimum wages and basic taxation, mainly aimed at the management of the joint inter-Korean venture.

The number of North Koreans working for the 18 South Korean firms at the industrial complex surpassed 10,000 last month, according to the Ministry of Unification.

It’s been 34 months since Hyundai Asan, the South Korean developer of the joint industrial park, first hired a group of 42 North Korean construction workers in February 2004, the ministry said.

Daily NK
12/8/2006

The North Korean authorities started to prohibit national companies employees’ sales activities while being absent from their workplaces.

According to a telephone interview with the Daily NK on Wednesday, an inside source said “From December 1, those who receive daily ration of 700g are strictly banned from participating in sales activities in private markets,” and “office employees are ordered to come back to their original company.”

The policy is aimed at those who receive 700g of daily ration, including laborers, office workers and public officials.

However, few of them actually are actually receiving rationing; even though their names are put on local party committee’s ration list, only senior party officials, security officers and workers of a few main national companies. In other words, North Korean workers are being forced to show up at work and prevented from sales activities although they will not receive salary.

Given the situation that most of factory workers depend on sales, smuggling, private farming and brokerage, the measure by the North Korean authorities would definitely threat livelihood of many people.

“Subject to 700g ration” is a common term to designate adult male citizen who are older than 17 and liable to be stationed in a workplace.

And family members dependent on the adults are subject to receive 300g of rationing; housewives, children, the elderly and handicapped citizens are classified as not eligible to work and, therefore, receiving 300g ration.

Recipients of 300g of ration were allowed to sell in private markets

Since the economic slowdown, actual amount of rationing is reduced from 700g to 534g. Other sources told the Daily NK that only recipients of 300g of ration were allowed to sell in private markets.

Thus, since mid-November ‘Central Party anti-socialist activity inspection team’ has been deployed to north Hamkyong province’s border region and local party organs and market management offices have started to regulate sales activities.

From now on, every vendor must provide documents to prove that they are not eligible to work and subject to receive 300g of ration to local governments’ labor departments and market management offices.

In the mid 90s during the March of Tribulation, rationing system collapsed and factories stopped operating. And since then, laborers have sought living on their own.

A 39-year old former defector from Hoiryeong, north Hamkyong province expected “single mothers responsible for their families’ living” would be hit most severely by the policy. The defector added “the women who lost their husbands are categorized as 700g ration recipients but do not receive any salary from their companies,” and “if they are prohibited from business, more women would cross the border from next year.”

Mr. Park, an NGO activist helping North Korean refugees in northeast China, said ‘the policy will only end up in an empty phrase’ as resumption of nation-wide rationing did so a year ago.

“I think Kim Jong Il miscomprehends the situation,” Park said with uneasy voice. “He might be under an illusion that recommencement of rationing system is working well and, therefore, it is time to make a national mobilization of labor forces to industrial production.”

Donga (Hat tip to One Free Korea)
12/4/2006

The European Parliament has begun an investigation in response to allegations that the North Korean government dispatched hundreds of workers to European countries and forced them to send their wages home.

Last Saturday, the Mainichi Daily of Japan reported that the European Parliament planned to finish its investigation by next spring and issue a report thereafter. For the investigation, the parliament is also considering questioning people in countries where North Korean workers stay.

It is estimated that the number of workers that the North Korean government sent to overseas countries such as the Czech Republic, Poland, Russia, the Middle East, and Africa is anywhere from 10,000 to 15,000. Currently, 400 North Korean workers, mostly women, are staying in the Czech Republic and working in sewing factories in the suburbs of Prague, the capital of the Czech Republic.

Their monthly salaries are well above the country’s minimum wage of about 285,000 won. However, the European Parliament estimated that a large part of their salaries is deposited into a collective bank account controlled by the North Korean government. In addition to this, the North Korean government takes away more of workers’ salaries by forcing them to buy propaganda videos produced by the government.

The Mainichi Daily also covered the case of one North Korean man who is working for a shipbuilding company located in Gdansk in the northern part of Poland. The story reported that North Korean workers’ salaries goes to the bank account of a North Korea’s state enterprise first, and in the end only 30 or 40 percent of it is left in the hands of workers.

A source from a company that arranges North Korean workers to go to factories in Poland said, “They get paid 4,000 Zloty, or about 1.3 million won, a month, which is sent to the bank account in Poland of a North Korea state enterprise, and workers are only receiving 400,000 or 500,000 won a month.”

István Szent-Iványi, vice-chairman of the delegation for relations with the Korean Peninsula in the European Parliament, said, “North Korean workers are treated like slaves now because they are working under inhuman conditions and thoroughly monitored by their government.”

However, one senior North Korean worker (aged 45) at a shipbuilding company in Gdansk said, “We are well fed now and enjoy a glass of beer every day. Every day seems to me like my birthday and the North Korean Embassy in Warsaw even delivers kimchi to us.”

The Mainichi Daily hypothesizes that North Korea may be sending workers oversea as a way of overcoming financial crisis.

Joong ang Daily
11/20/2006

Hyundai Asan Corp., a South Korean company spearheading inter-Korean economic projects, said yesterday it is considering slashing jobs or wages at a scenic North Korean mountain resort that has been opened to Koreans.

The restructuring underscores how Hyundai Asan is struggling with a falling number of tourists to Mount Kumgang on North Korea’s east coast amid growing security concerns over the communist neighbor’s nuclear test in early October.

North Korea has opened the mountain to Koreans since 1998 as part of the South Korean government policy of engaging North Korea and helping Pyongyang’s moribund economy.

“The number of tourists is sharply falling to less than 100 people a day, due to the North’s nuclear test and seasonal factors,” said Hyundai Asan Chief Executive Yoon Man-joon, who was visiting the mountain resort to mark the eighth anniversary of the tourism project.

“We are now studying a number of ways to narrow losses, including a reorganization of the workforce,” he told reporters.

After the North’s missile tests in July and nuclear test last month, the tourism project is now facing its biggest challenge with the daily number of tourists dropping as low as 80, Hyundai Asan officials say. Hyundai Asan is delaying its plan to open the inner part of the mountain to South Korean tourists to March or April next year because of the falling number of tourists, Mr. Yoon said.