North Korean Economy Watch

From the Daily Telegraph, via NKZone:

Russia is facing criticism after secretly offering to sell North Korea technology that could help the rogue state to protect its nuclear stockpiles and safeguard weapons secrets from international scrutiny.

Russian officials touted the equipment at an IT exhibition in Pyongyang a fortnight ago – just days before the Communist state caused international alarm by launching a salvo of short and long-range missiles into the Sea of Japan.

In what appear to have been unguarded comments, Aleksei Grigoriev, the deputy director of Russia’s Federal Information Technologies Agency, told a reporter that North Korea planned to buy equipment for the safe storage and transportation of nuclear materials, developed by a Russian government-controlled defence company.

The company, Atlas, also received interest from the North Koreans in their security systems and encryption technology – which were kept from display at the exhibition for security reasons.

In remarks made to the Russian Itar-Tass news agency – hastily retracted after publication – Mr Grigoriev said that the main aim of the June 28 exhibition was “establishing contacts with the Korean side and discussing future co-operation”. Last week Russia, along with China, opposed a draft UN Security Council resolution, proposed by Japan and backed by America, that would bar missile-related financial and technology transactions with North Korea because of the missile tests.

As tensions over the missile tests mounted, the US government yesterday deployed its USS Mustin, equipped with so-called Aegis missile-tracking technology that is geared towards tracking and shooting down enemy missiles, to Yokosuka, home port to the US Navy’s 7th Fleet.

On Friday, George W Bush called for the issue of the missile tests to be put before the Security Council. He said he wanted to make clear to Kim Jong Il, the North Korean leader, “with more than one voice” that the rest of the world condemned Wednesday’s launches.

Sources close to the proposed sale of the equipment – which would have civil and military uses – said that it was evidence of Russia’s secret support for its Soviet-era ally, which was once a bulwark against Chinese influence in the Far East. It was reported that the North Korean military interest in the exhibition stemmed from the dual purpose of many of the products and technologies on display.

After the show, which led to plans for further meetings between the Russian and North Korean delegations, Mr Grigoriev said Pyongyang’s primary interest in buying the equipment was to combat the “threat posed by international terrorism”. However, the Russian embassy in Pyongyang immediately denied the report, claiming that it was “disinformation”. Mr Grigoriev subsequently denied ever having spoken to the journalist concerned.

Disclosures of a possible deal are at odds with official Russian policy towards North Korea’s nuclear programme. On June 22, North Korea’s ambassador to Russia, Park Yi Joon, was summoned to the foreign ministry in Moscow and informed that -Russia “strongly objects to any actions that can negatively influence regional stability and worsen nuclear crisis on the Korean Peninsula”.

There was also some anger domestically at Russia’s opposition to the UN sanctions resolution. Although the Russian foreign ministry expressed anger that Moscow had not been notified of the launches, it went no further than issuing an anodyne statement expressing concern that the tests endangered Pacific Ocean shipping and “violated the commonly accepted world practice of giving a warning”.

Western experts were not surprised that the two countries might be discussing sensitive military deals.

Nicholas Eberstadt, a North Korea expert at the American Enterprise Institute, a think tank in Washington, said that Russian policy towards North Korea had long been influenced by the desire to restore its Cold War-era influence.

“Russia often seems more ambitious to restore that influence than to play a positive role in international affairs,” he said. “We’ve got no reason to doubt that Moscow is playing a double game with North Korea. It’s not entirely surprising considering Vladimir Putin himself came up with the harebrained suggestion some years ago that Moscow, as a protector and provider for the North Korean regime, launch a North Korean satellite.”

Mr Eberstadt suggested that any controversial business deals would be politically costly for the Kremlin. “If Moscow wishes to be on the record as the sole defender and apologist for the world’s remaining revisionist and nuclear-proliferating regimes, then it would be interesting to see how its European friends would react.”

From the Joong Ang Daily:

Flows of aid to stop until crisis abates
South willing to meet North only on missiles, weapons
July 08, 2006

A senior government official said that Seoul would withhold promised aid to the North until the missile crisis is over. That decision did not include a delay in the provision of the last promised fertilizer shipment to North Korea, however; a ship left port yesterday bound for North Korea with the last 20,000 tons of that assistance.

Although the Unification Ministry said that it would not cancel the ministerial talks, which are to be held in Busan from Tuesday through Friday, there is no guarantee that they will actually be held. A former senior ministry official noted that Pyongyang could well boycott the talks themselves in a tit-for-tat response to Seoul’s rejection of working-level military talks it proposed two days before it launched seven missiles on Wednesday. In response to those launches, Korean conservatives have also publicly burned the North Korean flag, another sore point with Pyongyang.

The additional promised 100,000 tons of fertilizer and 500,000 tons of rice aid would not be sent to the North. “We made public what we want to address at this meeting so that the North will hear it,” he said. Echoing the former official’s comments, he added, “It is difficult to say whether the North will actually come.”

While Seoul was pondering how to respond to the missile launches, Pyongyang warned against retaliatory sanctions. Kyodo News Agency reported yesterday that Song Il-ho, the North’s representative for normalization talks with Japan, demanded that Japanese sanctions imposed after the missile tests be lifted. From Yonhap:

North Korea warned on Saturday that Japan could face “stronger physical measures” after it banned a Pyongyang ferry from entering its ports for six months in response to the communist state test-firing seven missiles last week.

Song Il-ho, North Korea’s ambassador in charge of normalizing diplomatic ties with Japan, told a pro-Pyongyang newspaper in Japan that, “If anyone tries to put us under pressure, we will have no choice but to take stronger physical measures.”

Regarding the sudden ban on the North Korean ferry Mangyeongbong 92, he said, “Such (an) anti-humanitarian measure is causing a significant anti-Japanese sentiment among our people,” Song was quoted as saying by the Chosun Sinbo.

Washington Post
Colum Lynch and Anthony Faiola
7/06/06

Japan imposed limited economic sanctions on the North, including a measure prohibiting its officials, ship crews and chartered flights from entering Japan.

A draft U.N. resolution, formally introduced by Japan, would also require states to prevent the transfer of money, material or technology that could “contribute” to Pyongyang’s ballistic missile program or advance its capacity to develop nuclear explosives or other weapons of mass destruction.

In addition, Japanese officials indicated they might be prepared to halt millions of dollars in remittances that are sent annually to North Korea from Koreans living in Japan.

As for China’s response:

Several observers warned that even if Beijing agreed to some form of censure, it would remain reluctant to impose tough economic sanctions out of fear that such measures could destabilize North Korea and spark a crisis on their shared border.

“I don’t think China will take at this moment stronger political or economic action against North Korea,” said Chu Shulong, a political science professor at Tsinghua University and expert in international security. “We Chinese believe basically, fundamentally it is not our problem, the missile launch problem. It’s a problem between North Korea and the U.S., it’s a problem between the DPRK and Japan, it might be a problem between North Korea and South Korea. But basically it’s not a China problem.”

North Korea experts said the options for the Bush administration remain limited, particularly if the Chinese and South Koreans were reluctant to impose tough economic sanctions. Instead, many said, it was more likely that Japan and the United States would seek to continue isolating North Korea by slowly tightening economic sanctions.

Joong Ang Daily
Kim Hyung-soo
7/6/2006
 
However concerned politicians may be about North Korea’s missile test, many Korean companies that deal with the reclusive state are saying it has had minimal impact on business. So far.

Hyundai Asan, which does much of its business in North Korea ― including the Mount Kumgang tour and operating the Kaesong industrial complex ― said it was business as usual. Hyundai Asan said only 50 people canceled their trip to Mount Kumgang yesterday, while 700 people went as planned.

“As the government has already mentioned, private businesses are not subject to restrictions because of the North Korean missile problem,” a Hyundai Asan official said.

The South Korean company stressed that although it has faced problems in the past because of developments in the North, its businesses there have never been forced to stop.

“Business in North Korea should be consistently maintained, as it could be a solution that could solve the strained relationship between the two Koreas,” the official said.

Hyundai Asan said they were more concerned that the North’s recent actions could end up reducing the number of tourists in summer, the high season for travelers.

ShinWon, which manufacturers clothing at Kaesong industrial complex, said the plants there were operating as usual.

“The only difference was that our headquarters in Seoul called to ask what the atmosphere was like in Kaesong,” said a South Korean ShinWon worker at Kaesong.

Despite the firms’ apparent sangfroid, experts were quick to point out the possible long-term consequences. “[The launch] could reduce the credibility of the Korean economy and affect foreign investments,” said an official at the Korea Chamber of Commerce and Industry. “The future of economic cooperation between the two Koreas has become more uncertain.”

“Poor security is the economy’s biggest negative factor,” said Lee Dong-eung at the Korea Employers Federation. “At times like this society needs to remain calm and unified.”

Though many foreign investors who visited Kaesong last month stressed that politics and business should be kept separate, it remains to be seen how the missile launch will affect foreign sentiment toward the industrial complex. 

from the Joong Ang Daily:

South Korean workers loading fertilizer sacks yesterday at a dock in Ulsan. The ship and another ship from Yeosu, South Jeolla province, will head today to Haeju Port and Nampo Port to transport the last 20,000 tons of 200,000 tons of fertilizers South Korea promised to send to North Korea. Despite North Korea’s missile tests, the South Korean government decided to send the last fertilizers as a humanitrian aid.

From the Joong Ang Daily:

In Seoul yesterday, Lee Jong-seok, the unification minister, told the opposition Grand National Party’s interim leader, Kim Young-sun, that it would be “difficult” to continue economic aid to North Korea if it tested a missile.

But he said that Seoul’s action would be “limited sanctions” only. He did not elaborate, except to say that operations at the Kaesong Industrial Complex would not be affected.

North Korea has asked for 450,000 tons of fertilizer this year, of which 150,000 tons has been already been delivered. Another 200,000 tons is being readied for shipment.

A Unification Ministry official said plans to ship the remaining 100,000 tons of fertilizer and shipments of rice could be withheld if the North’s missile lifts off. “We have told the North that there will be consequences and we are firm on this,” the official said.

Nautilus Institute
Alexander V. Vorontsov
6/8/2006

The “Songun Chongch’i” or military-first politics mantra adopted by North Korean leader Kim Jong-il as a guideline for domestic governance and foreign policy has elicited mostly negative responses from Korea-watchers. Many view songun as the final phase in the deterioration of North Korea and a serious threat to neighboring states saying that an impoverished country of 24 million inhabitants supporting a military of more than 1 million soldiers is incapable of modernization and economic reform. They argue that greater military participation in politics creates a dual-pronged threat: the army may appropriate a greater share of already-dwindling state funds to increase its readiness and effectiveness; and the generals, supposedly the most militant sector of the policy-making structure, will have a louder voice in foreign policy formulation, which could lead to hostile rhetoric towards South Korea.

A less alarmist interpretation of military-first politics is that Kim Jong-il is trying to maintain the existing order, to strengthen his regime based on personal authority, and consolidate control of military forces with the goal of preventing an overthrow of the state.

So, is military authority a curse or a blessing? The lessons from history are ambiguous, as states ruled by the military have experienced both prosperity and hardship. But some argue that South Korea represents a relatively positive example in which it has experienced a national revival because of a period of military rule.

In 1961, Park Chung-hee, a colonel in the ROK army, seized authority South Korea in a bloodless coup and established a rigid dictatorship with his military comrades. Though politics became more repressive, the national economy grew exponentially and General Park is remembered by many as the “father of the South Korean economic miracle.” Few dispute that this economic growth planted the seeds for the ensuing process of democratization. So it is hardly accidental that, in recent years, Kim Jong-il has started to speak favorably of General Park and his role in the modernization of the Republic of Korea.

The implementation of songun in the mid-1990s increased the role of the Korean People’s Army (KPA) in daily life. The army began to participate even more in social and economic decision-making, from large-scale infrastructure development to providing its own food. While military personnel are required to serve for ten years, they spend most of their service participating in different areas of the country’s socio-economic life. Thus, the army is now not as heavy economic burden, and is serves as an important resource and catalyst for developing the national economy.

The movement to the military-first policy has accompanied a gradual transformation of North Korea’s planned economy to the direction of a mixed economy. The result may eventually be a network of large, less state-controlled corporations that share close ties with government agencies, similar to the “chaebol” that Park Chung-hee created in South Korea. Because of this, the North Korean military is now involved in different spheres of economic activity, including foreign economic ties and trade operations, and will likely play a key role in this ongoing process of privatization.

With songun also come changes in ideology. This change and its underlying goal of building a powerful and prosperous state – “kangsong taeguk,” are justified by flexible and creative interpretations of the bedrock ideal of self-reliance – “juche,” a nationalist ideology developed by revolutionary leader Kim Il-sung. The songun concept replaces the proletariat and the vanguard Communist Party with the army as the driving force in society. This innovation is significant because the army is typically a less ideological and more pragmatic institution than the Party.

The army’s role in society is not the only example of Kim Jong-il’s liberation from orthodox ideologies. Since the early 1990s, North Korea has shifted its emphasis from socialist ideals to historical and spiritual values. This is reflected in the use of Confucian norms in public policy and everyday life, and legitimizing the state through reference ancient Korean kingdoms. Again, the parallels with Park Chung-hee are very strong. Kim Jong-il has also sought to reduce the prevalence of the personality cult. From early 2004, for example, there could be only one portrait of Kim Il-sung in public places. Similarly, Kim Jong-il is to be described only by his official positions, rather than the use of laudatory epithets such as “Dear Leader.”

Songun should not be automatically dismissed as an ideological dead-end. As the experience of South Korea under Park Chung-hee demonstrates, military rule can have positive effects on society under certain conditions.

From Yonhap:

North Korea continues to buy raw materials and components from various foreign sources for ballistic missiles despite announcing in 1998 that it would suspend missile tests, according to a recent U.S. intelligence document.

“North Korea is nearly self-sufficient in developing and producing ballistic missiles, yet continues to procure the required raw materials and components from various foreign sources,” the report said.

The “Report to Congress on the Acquisition of Technology relating to Weapons of Mass Destruction and Advanced Convention Munitions” was submitted by the office of the director of national intelligence to Congress earlier this month.

The report said that in 2004, North Korea continued to abide by its voluntary moratorium on flight tests adopted in 1998 and reaffirmed in May a pledge made in September 2002 to extend the moratorium beyond 2003.

The 15 intelligence services, including the Central Intelligence Agency (CIA), also expressed caution about the kind of sensitive material North Korea could potentially sell.

“We remain concerned about North Korea’s potential for exporting nuclear materials or technology. At the April 2003 trilateral talks in Beijing, North Korea privately threatened to export nuclear weapons. During the third round of six-party talks on the North Korean nuclear issue in June 2004, Pyongyang included a ban on nuclear transfers in its nuclear freeze proposal,” the report said.

It added that inspectors from the IAEA (International Atomic Energy Agency) recovered two tons of uranium hexaflouride from Libya in May 2004 that was linked to the North.

Froom the Daily NK: 
5/18/2006

Approximately one million crossed the DPRK/PRC border back and forth during the food shortage. Today, the border area is where most recent, accurate information about North Korea can be obtained.

China stationed soldiers from Shunyang military district to the North Korea-China border three years ago. The border line of North Korea including Yalu River and Tumen River is 1,376.5 km. North Korea-China border is 1,360km, and North Korea-Russia border line is 16.5km.

North Korea has 100-110 thousand strong ground forces on the border area in order to control the inflow of information from outside and the illegal smuggling and border transgression of North Korean defectors. It means that each soldier guards 14m.
Ground Forces on the border increased rapidly after the treaty of friendship between China and South Korea

The reinforcement of the border in the 1990s has much to do with the change in international politics including the demise of the Cold War the growth of friendship between China and South Korea. Until the early 1990s when North Korea sustained the “blood alliance” with USSR and China, North Korea only focused on increasing the military power on north of the 38ty parallel.

Kim Jong Il said in regards to the treaty of friendship between South Korea and China, “38th parallel is outpost for the military power, while the [chinese] border is outpost for the ideology”. North Korea reorganized the military to reinforce the border control.

In 1992, the Department of Military Mobilization in various parts of North Korea recruited high school and middle school students, office workers and farmers to organize the border control.

In 1992, the responsibility for border control and coastal defense was delegated from National Security Agency to Border Control Command under Ministry of People’s Armed Forces. The Coast Guard was assigned under military base under Ministry of People’s Armed Forces in each district. Border Control Command was located in Ganggye, Jagang Province, but was moved to Pyongyang in 2002.
The Military Force of the Border Control

A North Korea defector Heo Yong Sun (43) who used to be a border guard says there are 4 Brigades, including Division 10 (located at Baeksa dong) in ShinEuiJoo, Brigade 32 in Chongjin, Brigade 37 in Jagang Province, Brigade 44 in Yanggang Province. Division 10 at ShinEuijoo has 14 battalions, which is qualified for division.

Mr. Heo says the border control brigades have 11 battalions on average. One brigade operates 4,000-5,000 soldiers and one battalion has 350 soldiers. There are 3 companies of 100 soldiers under battalions, and companies cover platoons and guard posts of 30 soldiers.

Mr. Lee Chul Young (34) who used to be a commander of a military district of Border Control and entered South Korea in 2004 says, “There are cavalry brigade and tank brigade under the Border Control Command, and the military force amounts to over 10~30 thousand soldiers. Companies have 250~300 soldiers and one battalion has more than 1,000 soldiers, which shows that the scale of military force is different from other People’s Armed Forces.

The smallest unit of Border Control is a platoon. One platoon is in charge of 3km, and one platoon has 12 guard posts. Guard posts have round of inspections during the day, and at nights, 2~3 soldiers are on a stakeout. They are on guard in three shifts a day.

For night time guards, 3~4 soldiers are mobilized including the commander of the platoon, and one agent from National Security Agency is included. A post for the stakeout is a half-underground cave where the soldiers can have a 120 degree view on China.

Border guards are equipped with AK Automatic Rifle-58 and 68. A commander and high level soldiers are equipped with cartridge and low level soldiers are supplied with blank cartridge. On the border, gunfire is preferably restricted, and when someone wanted by the National Security Agency intrudes the border line, gunfire is allowed.

One advisor from National Security Agency was assigned for each platoon since 1999. However, the advisors encouraged illegal border transgressions with bribery, which caused the Ministry of People’s Armed Forces to assign one advisor at each company since May 2002.

Border guards aim to “Earn Three Hundred Thousand Won” causing costs to rise for transgressions.

The biggest wish for the border guards is to make money while in the military. They are on the lookout for border transgressors rather than protecting the border from intrusion of spies. Until 1990s, the soldiers tried to “earn thirty thousand Won”, but it changed to three hundred thousand won because the currency depreciated.

Border Control Command shifts around the border guards at Pyongan, Yanggang and Hamkyung Province every two years in order to prevent frequent corruption of the soldiers. It is understood that two years is enough time for the soldiers to get down to cooperating with the locals to receive briberies.

Mr. Lee Chul Young said, “On fortunate days, it is possible to earn couple hundred thousand won. Commanders are involved in smuggling through Foreign Currency Earning Organizations, and lower officials make small money through controlling the border transgressors”.

The cost for border transgression rose after the order to control the border. In 2004, the transgressions cost 300 Yuan($40), but it rose to 500 Yuan ($65) and to 800 Yuan ($120) now.

North Korean defectors who crossed the Tumen River recently said, “You have to pay 500~1,000 Yuan for lower officials and more than 1,000 Yuan for the Commanders (Generals)”.

Transgression in the winter is the cheapest. However, around March when the ice melts on the river, the border guards have to go through the difficulty of wearing rubber pants and helping the transgressors cross the river, which costs more than 1,000 Yuan.

According to the Daily NK:

The North Korean military has 1.2 million regular forces, although the exact strength of the military has not been revealed (Some estimate the size at 1.7 million). But if you add the “Pacification corps” and the “Red Guard” composed of workers and peasants, and 8 the million effective reserves, everyone belongs to the military except for the old, sick and young.

For men, military service lasts 10 years.  For women, it is 6-8 years. Between 1987-8, conscription lasted 13 years, but after that, it was reduced back to 10.

The biggest cause of stress for the soldiers is not being allowed to have relationships. For this reason, senior students are having secret relationships with women in the nearest village. There are many who prepare for the end of their terms by saving up resources for marriage and getting engaged.

Such activities are risky, particularly if the relationship results in pregnancy.  Such soldiers are ‘discharged from service due to family hardships’.  These soldiers will never being able to become high officials.  

The second source of stress is money. Before the 1990s, joining the Korean Workers’ Party was the highest honor and it was the purpose of serving in the military. Today, money is preferred to party membership. This is why conscripts try to strategically choose departments where they can maximize their revenue.

In the past when joining the party was important, people preferred a forward unit and a special branch of the army, but now they prefer border guards and coast guards.  In the 1990s, the border guards aimed to “make 3-500,000W ($100-$167)”, but now they aim to “make 3 million won” ($1,000).