North Korean Economy Watch

Korea Herald
12/27/2006

North Korea, desperate for foreign currency under U.S.-imposed sanctions, has started to sell its gold reserves on international markets, a Japanese newspaper said Tuesday.

The United States last year blacklisted a Pyongyang-linked bank in Macau, infuriating the communist regime which walked out of disarmament talks for 13 months during which it tested an atom bomb.

Since the US crackdown on the bank, North Korea has earned 28 million dollars in foreign cash by exporting gold to Thailand, which had not imported gold from Pyongyang for the previous five years, the Yomiuri Shimbun said.

North Korea exported 500 kilograms of bullion to Thailand in April and another 800 kilograms a month later, the conservative Japanese daily said without identifying its sources.

North Korea’s central bank, Choson Central Bank was also re-listed on May 12 for trading on the London Bullion Market, said the newspaper, quoting a spokesman for the London market.

The North Korean central bank, which can issue currency, joined the London gold market in 1976 but was de-listed in June 2004 due to inactive trading, the newspaper said.

The Yomiuri, citing South Korean data, said North Korea was estimated to have between 1,000 and 2,000 tons of gold reserves.

The United States blacklisted Macau’s Banco Delta Asia in September 2005, saying it suspected that 24 million dollars in North Korean accounts were linked to counterfeiting or money-laundering.

The accounts have been frozen and other Asian banks have taken similar moves.

The financial sanctions were a main topic during six-nation talks, aimed at persuading North Korea to end its nuclear program, which ended in deadlock last week in Beijing.

KCNA
12/26/2007

Efforts are being made to ardon this year with fine labor feats at collieries throughout the Democratic People’s Republic of Korea. The coal production is ever growing these days thanks to the enthusiasm of coal-miners who have turned out to implement the tasks set forth in the joint editorial for this year and joint slogans.

The Sunchon Area Youth Coal Complex has given precedence to tunneling to create reserve coal cutting faces, thus opening a bright prospect for coal production.

The February 8 Jikdong and Chonsong Youth Coal Mines, which take the Lion’s share in the complex, are making use of rational cutting and transporting methods to turn out more coal than before while saving materials.

All the coal mines of the Tokchon Area Coal Complex including the Tokchon, Sochang Youth and Toksong Coal Mines are carrying on the daily tunneling assignments at over 150 percent with the application of advanced tunneling method, creating reserve coal fields.

A collective innovation is taking place at coal mines of the Onsong and Kaechon Area Coal Complexes. They have introduced into production innovative mining and blasting methods to suit the conditions of coal fields and rock quality.

The Kujang Area Coal Complex is concentrating efforts on big coal mines with good cutting conditions and big production capacity while improving transport conditions.

The workers of the Anju and Pukchang Area Coal Complexes provide thermal-power generations and other fields of the national economy with a large amount of coal with high sense of responsibility and pride of being the pilot of the national economy.

Yonhap
12/24/2006

Chinese firms have bought a controlling stake in one of the largest copper mines in North Korea, industry sources said Sunday.

Sources familiar with business cooperation between North Korea and China said Hebei-based Luanhe Industrial Group and another privately owned company signed a deal that gives the firms control over Hyesan Youth Cooper Mine in Yanggang Province.

Bloomberg (Hat Tip DPRK Studies)
12/11/2006
Stuart Biggs

Banco Delta Asia S.A.R.L., the Macau, China-based bank accused by the U.S. of money laundering for North Korea, said it bought gold from the communist state in a filing to the U.S. Treasury.

North Korea has made the unfreezing of about $24 million in assets held at Banco Delta Asia a pre-condition to returning to six-nation talks over its nuclear weapons program that broke off in September 2005. The U.S. alleged that the bank helped North Korean officials accept “surreptitious” multi-million dollar transactions, some linked to drug trafficking.

Banco Delta Asia, in an Oct. 18 letter to the U.S. Treasury Department by law firm Heller Ehrman LLP, said the bank “purchased a large share of the gold bullion produced by North Korea” prior to the allegations and no longer does so.

“Money could have been laundered, but there is no specific evidence that the bank was aware that it was being used for this purpose, nor that it facilitated any criminal activities,” the letter said. The bank “paid insufficient attention to maintaining its own books.”

Banco Delta Asia also said North Korea’s Tanchon Commercial Bank, described by the U.S. as the Pyongyang government’s main financial agent for sales of arms and ballistic missiles, remained a customer for three months after Tanchon was blacklisted by the U.S. in June 2005 “due to shortcomings in the information technology systems.”

The bank said it put in place new managers after the U.S. action and closed North Korean-related accounts, hired an outside firm to set up procedures against money laundering and asked the Treasury to reconsider its ruling.

“The Bank has not done any business with North Korean or North Korean-related entities for over a year and pledged not to do any in the future,” the letter said.

The six-party negotiations may resume on Dec. 18 or 19, Yonhap News Agency reported, citing unidentified South Korean government sources.

Asian Survey
November/December 2006, Vol. 46, No. 6, Pages 898-916
Jae Cheol Kim
Professor of International Studies at the Catholic University of Korea, Seoul.

PDF here: chinainDPRK.pdf

Conclusion:
China’s investment efforts suggest that it has begun to engage North Korea economically. By investing, the Chinese leadership has attempted to push the North to embrace economic reforms, which in turn could improve the North Korean economy and reduce the country’s potential for political instability. In order to lead the North to embark on reform policies, Beijing has tried to provide it with seed money and technology by encouraging Chinese companies to invest. This suggests that despite expectations and allegations from the West that China might abandon its long-time ally, China is committed to supporting North Korea.

The Chinese investment, however, has increasingly been influenced by commercial considerations. Officials in Beijing have stressed that economic exchanges with the North must be mutually beneficial. Chinese companies, which have become responsible for the majority of the investment, have paid increasing attention to market share and natural resources. That China has increasingly tried to gain economic advantage in the North suggests that Sino-North Korean relations are being transformed from being ideology-motivated to interestmotivated.

Despite a stiff increase over the past couple of years, it is hard to say that Chinese investment is either full-fledged or irreversible. Because the instability of North Korea prevents Chinese entrepreneurs from fully embracing the country, Chinese investment must be seen as a pilot project, with Chinese companies and entrepreneurs testing the water. Looking to the future, Chinese investment in North Korea is likely to increase. Despite problems, the Chinese leadership will probably continue to encourage further investment in an effort to exploit developmental opportunities while simultaneously curtailing the flow of direct aid to the North. In addition, China’s dynamic economic growth will propel its overseas investment. As China’s capital account is gradually liberalized, cash-rich Chinese companies will look for markets and resources abroad to fuel their development. The potential appreciation of the yuan will further force firms to relocate factories producing low-end products to countries where the labor cost is lower. Seen from this perspective, North Korea is a good candidate for future Chinese investment—if there is no major turbulence in bilateral relations.

Highlights:
North Korea has been reluctant to follow China’s path of reform and opening because it worried that the policy may create political problems. In an apparent response to China’s recommendation in the late 1990s for reform, for instance, Kim asked Beijing to respect “Korean-style socialism.” But China’s support for reform is not unconditional. Although Chinese leaders have repeatedly urged the DPRK to embrace market-driven reforms (even taking Kim Jong Il is on tours to see the results of China’s economic reforms), when North Korea decided to set up a special economic zone in Sinuiju, apparently without prior consultation with Beijing, China aborted the project by arresting Yang Bin, whom North Korea had designated head of the zone, in October 2002.

China, however, does not want to see turbulence on the Korean Peninsula, which could not only lead to the economic and political collapse of a socialist regime on China’s border but could also threaten regional stability. China thus has tried to sustain the Pyongyang regime by providing economic assistance–believing that reform and opening would not only revive the North Korean economy but also reduce the need for regular aid to prop up the regime, Chinese Premier Wen Jiabao said that the Chinese government would encourage more of its companies to invest and establish their businesses in North Korea.

For Chinese firms, the prime minister’s statement amounted to a government directive, with some entrepreneurs understanding that Wen’s statement was a signal for Chinese companies to invest.  Organizations were formed to smooth such investment, including the Shenyang Municipal Association of Entrepreneurs (Shenyangshi Qiyejia Xiehui), Dandong Municipal Economic Consultation Center for the Korean Peninsula (Dandongshi Chaoxianbandao Jingji Zixun Zhongxin), and Beijing Sino-Korea Economic & Cultural Exchange Company (Beijing Chaohua Youlian). They organized explanatory meetings on investment, drawing numerous applicants.

Beijing attempted to boost investors’ confidence by signing an “Investment Encouragement and Protection Agreement” with Pyongyang in March 2005 when Premier Park Bongju visited Beijing. The framework for economic and technological cooperation was made clearer through the signing of an “Agreement on Economic and Technological Cooperation” that October. Chinese officials have given financial incentives and guarantees to firms that invest in North Korea. China’s state-run banks have not only provided companies with investment capital but also have underwritten Chinese investment for joint ventures. Beijing granted preferential treatment to products processed in the North, allowing them better access to the Chinese market. Products that were processed in the Rajin area with Chinese materials and then imported to China, for instance, were labeled domestic trade and were thus exempted from customs inspection.

The deputy CEO of Beijing Sino-Korea Economic & Cultural Exchange Company, a Beijing company that helps Chinese companies invest in the North, has been quoted as saying that whether a company is able to invest in North Korea depended not on the company’s will but on whether the North would accept it or not. Foreign investors, he added, needed to meet the criterion of “political reliability.” In practice, concerns about political contamination limit North Korea’s economic cooperation with South Korea, whose government has eagerly pushed economic integration with the North. North Korea’s opening therefore means an opening toward China, and this in turn gives Chinese companies very rare advantages.

Labor costs in the DPRK are low [compared to China], running only 70–80 yuan (about US$10) per month.  Building a factory is very cheap, up to one million yuan (about $120,000).  Chinese entrepreneurs see that what North Korea needs is largely light industrial products. Because brand consciousness there is weak, these investors believe that many Chinese companies, even small- and medium-sized ones, can compete in the North Korean market.  The scope for making profits is bigger in North Korea than in China because manufacturers can charge more for similar products in the North. For example, the price of a cigarette lighter is three to five yuan ($0.36 to $0.60) in Pyongyang but only 0.5 yuan ($0.06) in Wenzhou, China.

Although big state-owned companies account for the majority of Chinese outward investments, they rarely invest in North Korea, leaving this to small- to medium-sized companies. In the past, most Chinese investors were Korean-Chinese merchants from two areas in China: Liaoning Province and the Yanbian Korean Autonomous Prefecture. They do not expect that they can make profits in the North Korean market right away; rather, they plan to be ready for when the North opens to the world, by moving into the market early.

Chinese investment projects in North Korea are not only small in number but also weak in scale. There are no detailed data available on their average size, but they likely are no exception to the fact that China’s outward investment is generally characterized by its small scale and low level of technology.

Although North Korea wants capital in such sectors as home appliances, construction materials, electronic communications products, and machine building, Chinese investment is heavily concentrated in the sectors where China’s needs lie, such as resource extraction, or where its companies can make a profit, such as service sectors. The official Chinese guideline for outbound investment, noted above, recommended investment only in such manufacturing sectors as textiles, clothing, and food products, leaving aside other sectors for which North Korea wants investment.

The North lacks basic frameworks needed for drawing in foreign investment. Policies, laws, and regulations about tax, for instance, are not in place. There is no well established market mechanism for running the economy. The government is still heavily involved in economic management; therefore, potential investors need to have personal networks to open doors, a point that worries potential Chinese investors.  North Korea lacks a sound political environment for enticing foreign investment. The country’s economic policies, especially those related to reform, shift continuously, raising questions about the official commitment to reform.

Pyongyang Department Store No. 1
Zeng Changbiao, chief executive officer (CEO) of the Zhongxu Group, in a much publicized deal in 2004, signed a contract to run Pyongyang’s Department Store No.1 for 10 years. He said his main motive for investing was to take over the North Korean market. He wants to be dominant in the North Korean retail business by securing and expanding market share. But it is not clear whether the contract was put into practice.  An article in a journal published by the National Development and Reform Commission, a ministry-level organization of the Chinese government, suggested that little had changed at the department store by the middle of 2005. South Korean officials also say that the store is still run by North Korea. Zhongxu Group’s Zeng received the lowest tax rate—5% income and 5% import—in the North Korean tax system.

This is one of three big department stores that were being run either by the Chinese alone or jointly.  Shenyang Municipal Association for Trade Promotion opened Daesong Market in Pyongyang, the first wholly foreign-owned company in a non-science sector.

Musan
China has shown an interest in joint resources development projects. The best known case is the project to develop the Musan iron mines. It is not easy to draw an exact picture of Chinese investment in the mines because many press reports suggest different stories. According to a Korean report, a Chinese company from Jilin Province planned to invest about $500 million in the mines. Ta Kung Pao, a Hong Kong newspaper, reported that three companies from Jilin—Tonghua Iron & Steel Group (Tonggang), Yanbian Tianchi Company, and Sinosteel Corporation (Zhonggang)—contracted rights to exploit the Musan iron mines for 50 years. According to the report, the Chinese companies were going to invest 7 billion yuan (about $865 million) and planned to produce 10 million tons of iron ore each year.  In the case of the Musan mines, 2 billion yuan (about $240 million) out of the 7 billion China committed to invest was allocated to building roads and railways from Musan to Tonghua in China. Sizable investment levels might help Jilin secure access to seaports in North Korea.

Similarly, the Chinese press has reported that the Musan iron mines development project was canceled by officials in North Korea, embarrassed by publicity over the deal because it highlighted the degree of foreign investment, a subject that Pyongyang would prefer to handle quietly.

Raijin
Rason International Logistics Joint Company-Rason International secured the exclusive rights to run the No. 3 and No. 4 piers of Rajin port for 50 years. In order to secure the rights, China committed to investing 30 million euros ($36 million) to build an industrial park, tourism facilities, and a road from the trade district of Rason city to Rajin Port. North Korea in turn committed to providing China with 5 to 10 square kilometers of land to build the industrial park.

From the Choson Ilbo:
Chinese Banks Restricting Cash Flow to N.Korea
10/17/2006

Major Chinese banks are currently stopping or restricting remittances or payments to North Korea after the North’s announcement of what it claims was a nuclear test, it emerged Monday. Chinese banks in Dandong, where cross-border trade is concentrated, recently started restricting banking transactions with North Korea, an official with the South Korean Embassy in China said. The restrictions, in fact, started in March this year, when the U.S. imposed financial sanctions on Macau’s Banco Delta Asia after designating it Pyongyang’s “primary money laundering concern.”

But not all Chinese banks are doing so, each bank and branch having its own policy. Sources say it does not look as if the Chinese government is ordering them to do so; rather banks have started doing so on their own. Rumor is spreading among traders doing business with North Korea in China that all financial accounts with North Korea including those by North Korean traders in China could be frozen.

North Korean workers in China are leaving the country in droves after North’s claimed nuclear test. A businessman operating a sewing factory in Shenyang, China, said, “Some 100 North Korean workers in my factory returned home three days ago because the Chinese authorities didn’t renew their work permit.” Banks in Dandong and Shenyang, where many businesses trading with North Korea have accounts, are seeing an increasing number of them not receive payments for exports to the North. “Since the U.S. froze North Korea’s accounts in the Macau bank, it takes three or four times longer for us to get paid for imports to the North, and this is hurting us badly,” a businessman trading with the North said. “We can’t do business with the North any longer.”

As official trade between the North and China shrinks, smuggling between the two countries is thriving, local people say. An ethnic Korean in Dandong said if a North Korean vessel ships 1,000 tons of iron ore to a port here, it officially reports only 100 ton of them and smuggles the rest. Smuggling covers almost everything from iron ore to bronze, TVs, computers, petrochemical products, antiques and maritime products. That is why many feel how determined the Chinese authorities are in cracking down on smuggling will determine the success of sanctions against the North. Locals say they have not heard of any Chinese crackdown on smuggling to and from the North, nor do they expect one.

China clearly stated its opposition against military action in the UN resolution against the North over its claimed nuclear test, calling for “an appropriate level” of sanctions. Beijing says the ultimate goal should be getting the North to return to the six-party talks on its nuclear program, not forcing regime collapse. Some expect China to reduce, rather than stop, its supply of oil to the North.

Meanwhile, China is preparing for an emergency in North Korea. It is setting up barbed-wire fences along the border near the Yalu and Tumen rivers where the military units of the provinces there took charge of guarding the area three years ago. The barbed-wire fences are being extended near Changbai County and the Tumen River. A Chinese official said the fences “were put up after consultations with the North because we needed to draw up a clear border between us and North Korea because of the narrowness of the river or newly built roads.” But some say the main goal is to prevent a mass exodus of North Koreans when the regime falls apart. Experts say another reason China is building up its military strength and carrying out more military exercises near the border with the North is to prepare for regime collapse in the north. The new 60-km long road along the Yalu River is also said to serve strategic military purposes.

From NK Zone:

DPRK/PRC border controls have been eased at an iron mine which a Chinese company now runs. Xinhua news agency reported that the border post at Sanhe in Jilin province was now open 12 hours a day instead of eight and a “green channel” had been introduced to reduce customs delays.

Sanhe is opposite the Hoeryong iron mine which is run by a Heilongjiang company under a deal signed in June. The report dated Oct 1 gave no further details of the agreement.

Hoeryong is about 70 km northeast of Musan, said to be North Korea’s largest iron mine, with which Tonghua Steel is planning to sign a seven billion yuan ($880 million), 50-year exploration deal. Chinese officials said last year an agreement would be signed soon but there has been no word of a deal being signed.

Michael Rank story here and the Nautilus Institute last month released two reports on Chinese-NK economic ties. Report and Presentation 1.  Report 2.

Policy Forum Online 06-70A: August 23rd, 2006
DPRK’s Reform and Sino-DPRK Economic Cooperation

Analysis by Li Dunqiu
CONTENTS

I. Introduction
II. Analysis by Yi Li Dunqiu
——————————————————————————–
I. Introduction
Li Dunqiu, Director of Division of Korean Peninsular Studies at the Institute of World Development Center of Development Studies, writes, “Sino-DPRK economic cooperation is growing in depth and width but both sides adopt a low-profile and practical attitude… In fact Chinese enterprises, both private and state-owned, are looking for greater room for their future development as a result of the constantly improving market economy in China. Amid such backdrop, the DPRK naturally becomes their target…It is not difficult to see that laws of the market economy are the most fundamental reason behind Chinese enterprises’ investment in DPRK.”

The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Nautilus Institute. Readers should note that Nautilus seeks a diversity of views and opinions on contentious topics in order to identify common ground.

II. Analysis by Li Dunqiu
– DPRK’s Reform and Sino-DPRK Economic Cooperation
by Li Dunqiu
DPRK’s change is by no means accidental. It has its profound international and domestic backgrounds. DPRK has made tremendous efforts in shackling off the shadow of the Cold War and integrating into the constantly changing international community, but with little result. Leaders of DPRK have no choice but to explore a new way that suits its country. Amid this backdrop, DPRK is slowly but steadily promoting its reform, which is low-profile but pragmatic.

From the end of 1990s, DPRK has begun to make adjustments to its economic theories and policies, putting forward such new views and propositions as pragmatism, building a strong socialist country, focusing science and technology, new concepts and improving economic management modes. A series of “Measures to Improve Economic Management Order” was issued on 1 July 2002. The adjustment this time, comparing with previous ones, was strong in enforcement and wide in the areas involved, thus injecting new impetus in its economic recovery and development. Though DPRK’s economic reform is only introducing rational elements of the market economy to make up pitfalls of its planned economy with the prerequisite of adhering to the latter, it should be commended as a major innovation in DPRK’s theories and practice in building socialism. Early this year, we saw new phenomenon from the DPRK side. It started with Kim Jong Il ‘s visit to China accompanied by premiers of the State Council in mid-January to learn the successful experience of China’s reform and opening up, followed by Chang Song-taek’s eleven-day China inspection tour accompanied by over thirty high-ranking economic officials, and then Cabinet Premier Pak Pong Ju’s elaboration of this year main tasks in economic work on the Fourth Plenary Session of the Eleventh Supreme People’s Congress. These new changes were not only widely reported but also aroused great interest among the international community in the country’s economic changes.

I. DPRK’s Guiding Principle Undergoing Quiet Changes.

Basic Theories of DPRK’s Economic Reform

At present DPRK has not yet established systemic theories to guide its economic reform. But Chairman Kim Jong Il has proposed new ideas which have become the basis for its economic reform.

Pragmatism

It was first proposed by Kim Jong Il after he became General Secretary of the DPRK Labor Party. There is no works which systematically elaborates Pragmatism. But according to economists from DPRK, pragmatism has two meanings, i.e. to bring actual benefits for the people, and to be profit-oriented instead of suffering losses. The former is the principle while the latter is the detailed content.

To follow the rule of pragmatism in economy is to seek economic benefits and for companies to make profits. To this end, the Fiscal Law amended by DPRK in April 2004 changed the ultimate goal of companies from “reducing cost” to “increasing net income”, so as to help them be profit-oriented. At present, pragmatism is the principle that must be followed in all DPRK’s economic work. Its economists have vividly compared it with China’s “seeking truth from facts”. It is fair to say that pragmatism will become theoretic basis for people in DPRK to liberate their minds and promote economic reform.

Theory with Economic Development at the Core

The strategy that DPRK has established with economic development at the core is mainly embodied in its goal of “building a strong socialist country”. Entering into the new century, DPRK has proposed three targets including building its country into a strong military, political and economic power. It maintains that it has already achieved the first two with the third one yet to achieve. As a result, the goal of “building a strong socialist country” means that economic development is its core task at the moment.

Theory of “New Thinking”

Labor News, DPRK People’s Army and Young Pioneers DPRK, in their joint editorials on the New Year Day of 2001, put forward the “new thinking”, stressing that “priorities at the moment were fundamental changes in ideas, ways of thinking, styles of struggle and work to meet requirements of the modern times”. Chairman Kim Jong Il also pointed out that, having entered the modern times, it is necessary to update thinking according to the new times instead of living the old way on the basis of the past, and that they should boldly abandon those that should be abandoned instead of being restricted to the old ideas and sticking to the past and the outdated. “In the 21st century efforts should be made to approach and solve all questions with new ideas and from new height.” In addition, DPRK’s Labor News pointed it out in its editorials that “they should be bold in reform”, “further improve DPRK’s economic management system to meet the requirement of the new environment and new atmosphere”, and that priorities for the Labor Party in the 21st century is to ensure that the ideas, ways of thinking and working styles conform with the requirement of the new century.

Approach the Word “Reform” with Prudence

Though DPRK introduced elements of the market economy through constitutional amendments in 1998 and consequently adopted some reform measures, it strongly dislikes such words as “reform” and “opening up” and they are forbidden in the adjustment of its economic policies.

Despite this, the essence is “reform”, though different in word, evidenced in their newly issued policies for economic adjustment which were targeted at the outdated demands and practices that were divorced from reality. DPRK’s Labor News pointed it out in an article entitled “On the Rules of Socialist Economic Development” on 21 November 2001 that “those who manage the economy, i.e. people of DPRK, do not have enough experience, there are still room for improvement and perfection due to short history of socialism, and that the economy cannot be developed if those that are outdated, backward and separated from reality are not abandoned.” It is clear that this kind of “abandoning” has the implication of “reform”. Therefore it is reform unsuitable for DPRK instead “reform” itself that it is opposed to. In fact it is nonetheless progressing with economic reform both in theory and in practice in spite of it all. It was not until June 2003 that DPRK’s Central News Agency finally used the word “reform” though it quickly dropped the word again. The reason behind its prudence with the word “reform” is because it once openly expressed its opposition to and criticism against reform in China and former Soviet Union in its major official media.

Learn Reform Experience from Foreign Countries

DPRK’s supreme leader Kim Jong Il has visited China for four times since 2000, most of which were aimed at inspecting China’s economy. His unofficial visit to China from 10 to 18 January 2006 and inspection of China’s economic work in Beijing, Hubei and Guangdong Provinces attracted great attention from the international community.

The nine-day visit in China was rich in content, clear in objective and profound in significance. Kim brought his team to Beijing, Wuhan, Yichang, Guangzhou, Zhuhai, Shenzhen and they listened carefully to introductions made by government officials and companies managers in those provinces and cities, with the aim of learning and drawing upon China’s experience. He was deeply touched and impressed and even had “sleepless night” when he arrived in Beijing following the tour in China’s south. He said that he was unwilling to see the current situation in DPRK and hoped to see further progress in its economic and social development by absorbing the vigor and vitality from the market economy while continuing its planned economy; that he hoped to learn from China and do a good job in DPRK’s future economic development by combining its national conditions with actual situation. It was the first time for him to voice such opinions, indicating that leaders of DPRK were transforming their mode of thinking, acknowledging and accepting China’s development concepts; and that they were exploring laws of economic development in order to prepare for profound and comprehensive reform with DPRK style.

It is more important to note that the visit gave him a chance to see the fact that China’s reform had neither weakened the leading role of the Chinese Communist Party nor aroused social upheaval. It had instead enhanced the reputation of the Communist Party and its international influence, which removed his worry that reform and opening up might undermine the stability of the authorities. Shock waves continued among the high-level officials after he came back from the visit. Unprecedented views were voiced and new explanations made on major theoretic questions like what was socialism, how to evaluate capitalism. High-level officials were asked to theoretically keep abreast with the times and unify their thinking.

Only two months later, Chang Song-taek, First Deputy Minister of the Department of People’s Group and Capital Construction of the Central Committee of the DPRK Labor Party, headed an “expert team” of over thirty high-ranking economic officials to the places that Kim had just visited. His 11-day visit was yet another demonstration of DPRK’s aspiration to learn from China. In addition, DPRK also sent various economic delegations to China to study its experience in reform. It started to send trainees to China, Viet Nam and countries in Europe since its economic reform in 2002, equipping them with knowledge of market economy, finance, trade and hi-tech in particular. It thus started its nationwide campaign from the top down to study economics.

II. DPRK’s Economy and Current Policy Options

From 2000 DPRK has gained positive economic growth from the previous negative one. Of course the rate was very low, around 0.5%–1% for six years in running. Some estimated that growth rate in 2005 reached 2%, an opinion shared by some DPRK officials though genuine figures were hard to obtain in the country. DPRK’s economy has recovered and is poised to continue its steady growth in 2006.

There are two sets of mechanisms in DPRK, i.e. the military and the civilian. The most important economic sectors are controlled by the military, a noticeable feature of its economy. Strength and efficiency of the factories run by the military are higher than their civilian counterparts. Take the Taean Glass Factory for example. It was built with the assistance of the Chinese Government. At first a civilian factory was designated but its workers were low in efficiency and poor in quality, with which the Chinese side became dissatisfied. Consequently a military factory took up the role and all went well afterwards. With good cooperation, the project was successfully completed. This example showed that talents of economic development are mostly with DPRK’s military. It is therefore, like China in its first phase of reform and opening up, formulating policy to transform some military factories into civilian ones to support local economic growth.

All signs show that economic work has become the priority of DPRK. Leaders of the country and the Labor Party are concentrating their time and efforts on economic work. Main measures for this year are as follows:

Agriculture is the main task of this year’s economic development.

The Fourth Plenary Session of the Eleventh Supreme People’s Congress was convened on 11 April, on which Premier Pak Pong Ju delivered a report entitled Review of Work in 2005 and Plan for 2006. He stressed that the central task of the economic development for this year was “to develop agriculture in a decisive manner to successfully solve the food problem for the people in DPRK”.

In recent years DPRK has always taken agriculture as the “primary task” of its economic development. In order to solve food shortage it launched “Potato Revolution” and “Seed Revolution” in 2001, advocating the growth of agricultural crops with short mature periods and great harvests. Agricultural technicians cultivated new breeds of potatoes with no virus and high yields, in order to “supplement rice with potatoes”. Thanks to increased government input in agricultural production and development in agricultural science and technology, grain production has risen in recent years, reaching 4.6 million tons in 2005, the highest in ten years. With experience accumulated and benefit gained, DPRK has realized the importance of agriculture. It will continue to take it as the priority and central task of this year’s economic work. It is especially notable that when Kim Jong Il visited China last January, he went to the Crop Institute of the Chinese Academy of Agricultural Science, a sign which fully vindicated the importance attached to agricultural science and technology.

Work Hard to Develop Foreign Trade and Attract Foreign Investment.

Premier Pak Pong Ju stressed in his above-mentioned report that it was necessary to work hard to develop foreign trade and actively explore foreign markets to achieve diversification and multi-lateralization of trade in accordance with the changing environment and practical demands. DPRK has enhanced foreign trade up to an unprecedented height, which was a new change itself. Though US had begun its financial sanction against DPRK since the end of last year, its foreign trade increased by a large margin in 2005, reaching 3 billion USD in total, the highest since 1991. Trade between DPRK and ROK reached 1.05 billion USD in 2005 and this figure was not included in the total volume. It is estimated that this year DPRK will actively explore new markets in the EU and ASEAN countries while continuing to grow its trade with China and ROK.

China is DPRK’s largest trading partner. Sino-DPRK trade reached a historic high at 1.58 billion USD in 2005, up 14%. China’s export accounted for two thirds of its total. DPRK mainly imported food and energy from China, up by 35.2% annually and reaching 1.08 billion USD in 2005. Growth in Sino-DPRK trade was partly attributed to decrease in bilateral trade between DPRK and Japan, which stood at 0.194 billion USD in 2005, down by 23%.

Meanwhile DPRK is working actively to introduce foreign investment, including capital and technology. It organized two international commodities fairs, one in the 1980s and the other in the 1990s, to be followed by annual fairs every spring since 2000. The fairs were then held twice every year since 2005, one in spring and one in autumn.

The 9th Pyongyang Spring International Fair was grandly held from 15 to 18 May 2006. The total area of the exhibition hall was 16.5 thousand sq meters and it hosted 217 companies from 13 countries and regions in the world including China, the Netherlands, France and Germany. Products on display ranged from chemicals, electronics, pesticides, agricultural machines to cosmetics, pharmaceuticals and foods. Of the 196 foreign participating companies, 179 were Chinese, with 80% from China’s Liaoning Province. Contractual value topped 100 million Euros.

Ms Choe Lian-shi, Division Chief of DPRK’s Bureau of International Exhibition, said in her interview with the Xinhua New Agency that the main purpose for such fair was to help DPRK companies to know the world and for the world to know DPRK’s market. It was also to help DPRK companies establish links with their foreign counterparts in order to promote export, explore international markets and introduce advanced foreign technology to promote its economic development.

She pointed out that during the fair held last year, contracts, both for import and export and joint ventures, valued 70 million Euro, among which, export contracts amounting 30 million Euro, import contracts 32 million Euro and joint venture 8 million Euro.

She also stressed that Chinese companies took up the bulk of the participants. They came this time with the China Committee for the Promotion of International Trade, which made them more orderly and organized. All this showed that economic relations between China and DPRK were constantly developing and trade has become more active.

Apart from this DPRK also cooperates with the relevant sides in China to hold commodity fair and trade and investment talks in Beijing, Dandong and other cities in China several times a year.

Recently DPRK has organized some companies suitable for foreign markets to go outside the country to conduct foreign trade and economic cooperation. Construction companies in DPRK like Foreign Construction Co. sent thousands of experts and technicians to scores of countries and regions including Russia, Bangladesh, Kuwait and Libya to engage in project and labor contracting. Mansudae Overseas Development Group undertook to build bronze statues, monuments and other works of arts, and fit out buildings and parks in over 70 countries and regions to earn foreign currencies for the country. President statues in the seven African countries like Equatorial Guinea, Togo and Gabon, monument of the people’s heroes in Ethiopia, and the grain museum in Malaysia were all works of the company. DPRK Industrial Tech Co. opened branches in China and other countries to conduct trade in new technology, inventions and patents by replying on the institute and production bases attached to DPRK’s Academy of Sciences.

Improve Modes of Economic Management

Premier Pak Pong Ju also stressed in the report that efforts should be made to improve modes of economic management, to ensure practical benefits while reflecting socialist principles. DPRK has carried out factory and company reform through market price instead of planned price. It will also partially give up the state plan in production and sale. These measures are not only suitable for small- and medium-sized factories and enterprises but also for large-sized ones. Governments may purchase products from them according to market prices. They are also allowed to introduce foreign capital, establish joint-ventures or earn profits through trade within their capacity.

Speed up Development of Science and Technology

Another agenda of the Fourth Plenary Session of the Eleventh Supreme People’s Congress was extremely noticeable. It was the report entitled Speed up Development of Science and Technology to Build a Strong and Prosperous Country, delivered by Choe Thae Bok, Secretary General of the Central Committee of DPRK’s Labor Party. Development of Science and Technology as one of the priorities of DPRK’s future development, the report was regarded as indication of the importance attached to science and technology development and its aspiration to embrace the information society. A strategic goal of its science and technology development is to become a major software country by 2022.

It is not common for DPRK’s Supreme People’s Congress, its highest body of power, to add on the agenda the development of science and technology. Media in DPRK have stressed on many occasions that the 21st century is a century of science and technology and a century of information, and that without the development of science and development it is impossible to achieve the goal of “building a strong and prosperous country”. The Supreme People’s Congress deliberated carefully and adopted the report, fully testifying its importance on science and technology and the fact that science and technology development had become a nationwide consensus.

Special Economic Zones remains an important option for DPRK.

Kae-song Industrial Park is a successful cooperation between DPRK and ROK and the two sides have decided to expand its scale on the current basis. Covering an area of 10,000 sq meters, it is planned to expand to 1 million sq meters. Many small- and medium-sized enterprises in ROK intend to invest and start business in the park as labor price in China’s coastal region in the south east is rising. Products manufactured there can be regarded as ROK-made and exported to a third country.

The DPRK Government might copy China’s special economic zones to establish new such zones along the border areas between China and DPRK. It is reported that DPRK planned to establish a new economic zone on the Bidan Island on the lower reaches of the Yalu River and build it into a future financial center. The establishment of such zones remains an important option for DPRK but it is also very prudent due to previous failure.

III. DPRK’s Energy and Mineral Recourses

DPRK has severe shortage of energy, especially oil. 90% of its oil supply comes from China. It also has oil trade with Russia but the amount is trivial as it does not have enough foreign currency. Russian oil companies sell oil to DPRK at price lower than international market price. DPRK has almost no oil reserve to speak of. It is currently working actively with China to exploit oil in its West Sea.

Electricity is also in short supply in DPRK though its supply is slightly better compared to oil. DPRK is rich in water recourses so the Government tries to develop small hydro power stations. And in accordance with the principle of those who develop will benefit, local governments are encouraged to build such projects according to their own conditions, and with good results. It is claimed by DPRK officials that the country is in fact equipped with conditions to build large hydro power stations. That’s why Kim Jong Il and other high-level officials in DPRK visited China’s Three Gorges Hydro Power Project in Yichang early this year. But because of its tension with US and its fear of conflicts or wars, the Government only encourages small- and medium-sized hydro power stations before its relations with US has improved. In addition, it also stresses thermal power since it is rich in coal and able to provide sufficient fuel. Consumption of coal ranks the first among all energy, to be followed by hydro power.

DPRK is now studying new energy and hopes to convert it into actual use in production and life, i.e. solar power and biogas.

There are four important recourses in DPRK: rich forest resources; important mineral resources like abundant coal, iron ore, graphite, gold, silver, lead, zinc, magnesite, all of which now allow the participation of foreign companies; 8600-kilometer coasts with no pollution, which are rare in the world and hold great potentials for fishing, aqua-culture, processing of sea food once foreign capital and technology are channeled in; rich tourist resources, that may become one of its future pillar industries.

DPRK has abundant mineral recourses, with over 360 kinds confirmed and 200 kinds economically viable. It is noticeable that the reserve of its magnisite ranks the first in the world, accounting for 56% of the world’s total. Its top ten minerals include tungsten, molybdenum, graphite, heavy spar and fluorite. The reserve of copper and ilmenite is calculated in tens of millions of tons and that of white jade, jadeite, black jade and sand jade is also abundant. Since it has such a large reserve of metal and energy mines, 70% of its industrial raw materials and fuels are self-sufficient. But there is no oil and pitch coal (raw material for charcoal), both of which are necessary for iron and steel industry though anthracite and brown coal are abundant. Coal, iron ore, lead and zinc core, limestone and magnisite take up the bulk of DPRK’s mineral industry but only 30% of the capacity is utilized due to restrictions of outdated equipment and poor technology. Iron ore is exploited in over 20 mines represented by Musan Mine. With a reserve of 1 billion tons, it is a famous open mine in the world and the largest in a country with an iron output of 8 million tons. Production of iron ore grew by 2-3% since 1970s, as a result of expansion and development of iron mines. But the growth has slowed down recently due to poor results of prospecting and outdated equipment. Foreign capital is now being introduced.

DPRK’s coal is divided into anthracite and bituminous coal. The former is mainly located in Pyongan-namdo and Pyongan-bukto while the latter in Hamgyong-bukto and Hamgyong-namdo. According to administrative division, there are four major coal mines in DPRK, namely Pyongan-namdo Mine, Pyongan-bukto Mine, Hamgyong-bukto Mine and Hamgyong-namdo. Currently there are over 100 national coal mines, 70 anthracite mines and 30 bituminous coal mines, and over 500 small- and medium-sized local mines.

In the 80-kilometer belt in the south of Pyongan-namdo stretching from east to west with Pyongyang at the center, the reserve of anthracite is abundant. Notable mines include Samsin (Samsindon, Daefon-gu) , Sadon (Sadon-gu), Ryongzen (Ryongzen-gu), Haelyong (Ladonza-gu, Haelyong, Gangdon-gun), Gangdon (Gangdon-gun), Gangso (Gangso-gun), Zencun (Zencun-gun), Wonstun (Wonstun-gun). There is anthracite in 668 sq kilometers in the north of Pyongan-namdo. Main coal mines there include those in Donstun, Syongbun, Jaenam, Joyang of Ganstun, Ganstun, Bonstun, Yamzum, Wyonlae, Xinlyon, Sonam of Bugstun-gun, Xiandon, Xinstun of Ensam-gun, Stunzen, Yongdae, Sunstun, Mujindae, Gigdon, and Ryongden, Ryongmun and Ryongcel of Kujang-gun, P’y?ngan-bukto.

Bituminous coal is mostly concentrated in the North Mine (north of Aoji) and South Mine (south of Chongjin) in Hamgyong-bukto and Anju Mine in Pyongan-namdo. Largest coal mines in the north include Aoji Mine in Undok-kun, Obun Mine in Musam, Hue Ryon Mine. There are seven ore strata that are 2-5 meters in depth in Anju Mine, producing brown coal of 5300kcal. With an annual output of 7 million tons, it is thus the largest mine in DPRK.

DPRK’s proven coal deposits are 14.74 billion tons, 11.74 being anthracite and 3 billion tons brown coal. Recoverable reserve, allowed by the current technology, is about 7.9 billion tons. Its coal production has dropped since the end of 1980s due to restrictions of technology and equipment. (See the table below for annual production since the 1980s)

*Unit: 10,000 tons

IV. Rapid Growth of Sino-DPRK Trade and Economic Cooperation

Sino-DPRK trade and economic cooperation grows at an eye-catching pace. With trade accounting for 40% of its total and investment 70%, China has thus become DPRK’s largest trading partner and source of investment. DPRK has been more dependent on China in food and energy supply. Main ports between the two countries have become or are becoming major vehicles of bilateral trade and economic cooperation. The friendly visit by Chinese President Hu Jintao to DPRK in October 2005 and Kim Jong Il’s China visit in January this year have further promoted political and economic cooperation between the two countries and injected new impetus in bilateral trade.

Trade between China and DPRK has increased by 14%, reaching 1.6 billion USD. DPRK import commodities like oil and corn from China, worth 1 billion USD, and export commodities like coal and iron ore to China, worth 0.5 billion USD. According to the statistics from Dandong Customs, 1.86 million tons of import and export went through the Dandong Port in 2005 at a value of 0.84 billion USD, up both in quantity and value by 10%, with 0.45 billion USD in China’s favor. It is estimated that DPRK will continue to expand trade with China this year. The two countries have planned to build a new road bridge across the Yalu River to meet the demands of the constantly growing trade.

Sino-DPRK Trade Volume from 1997 to 2005

*Unit: 100 million USD

Year DPRK’s Total Foreign Trade DPRK’s Trade with China China’s Export China’s Import

In recent years Chinese businessmen have accelerated their investment in DPRK. Those who took the lead in investing DPRK mainly came from Zhejiang, Jilin, Liaoning, Jiangsu and Guangdong Provinces with Zhejiang businessmen taking up the bulk. In 2003, 40 businessmen from Wenzhou, Yiwu, Dongyang, Cixi and Hangzhou headed by Lu Yunlei, agreed on cooperation intent with the operators of Pyongyang No. 1 Store. Guhui Trading Co. lead by Lu, obtained, unexpectedly, operating right of 15,000 sq meters of the store and corresponding 9,000 sq meters of warehouse. The deal was signed on 6 August 2003. Lu commented that what he valued was the market potentials in a country that was opening up. Lu also disclosed that he would invest several million of RMB to renovate the store and that operating space in the store would cover 10,000 sq meters, divided into over 300 booths to be further rented to Chinese businessmen to wholesale and retail small Chinese commodities, daily necessities in particular. The Zhejiang businessman commented opportunities in DPRK like this: “It is better to have our presence in the country but don’t expect too much from the first phase”.

It was the private companies that gave rise to the first wave of investing in DPRK. The second wave in 2005 was mostly generated by large state-owned enterprises, in areas like heavy industry, energy, mineral recourses and transportation, different from the first one.

At present DPRK has agreed to the joint-venture between China National Metals and Minerals Import and Export Corporation and its ??Coal Mine. This is not only the first established by China outside DPRK’s special economic zone but also represents an important measure by DPRK to open its recourses. Rydongden Coal Mine is the largest anthracite mine in DPRK. Covering an area of 18.8 sq kilometers, it has a reserve of 0.15 billion ton, 0.125 billion of which is recoverable. Its annual output is 1 million tons, equal to a medium-sized coal mine in China.

According to report issued by the Development and Reform Committee of Jilin, the province has reached a “barter” agreement with DPRK, transmitting electricity to the country in exchange of the mining rights of its Youth Copper Mine. With a total investment of 0.22 billion RMB, it is a typical experiment by DPRK to exchange electricity with mineral recourses. Jinlin Tonghua Iron and Steel Group will obtain 50-year mining rights in Musan Iron, the largest in DPRK, at a price of 7 billion RMB. Musan Iron, located in Hamgyong-bukto is the largest open mine in Asia, with proven reserve of iron powder about 7 billion tons. With iron content as high as 66%, it is able to be smelted directly.

Gold reserves in DPRK are also very rich. Guoda Gold Shareholding Co. Ltd., in Zhaoyuan, Shandong Province signed an agreement in 2004 with DPRK on gold exploration and smelting project. According to the agreement, a joint-venture would be set up for gold mining in ??? and bring back the ore to the company for smelting. ??? Gold Mine, which was set up quite early, has a considerable reserve and at least 150 tons can be recoverabled. But due to the lack of capital and outdated technology, operation of the mine has been at a standstill.

In September 2005 DPRK sold the 50-year exclusive operating rights of Najin wharf to Huichun, Jilin, in order to get the latter’s support for building a road from Tongsungu, Wonstunli, Kasung-si, to Najin Port. Sources from the Administrative Committee of the Border Economic Cooperation Zone in Huichun, Jilin, disclosed that the sale this time of the wharf in Najin Port was more of a corporate instead of government act. It was said that Fan Yingsheng, a real estate developer from Hunan, was the mastermind behind the deal and he alone would channel half of the 60 million Euro in payment.

Capital from Hong Kong is also coming. Early investments were mainly channeled to hotels, restaurants and the entertainment industry. But according to a recent report from Hong Kong media, a local businessman Qian Haoming reached a 3-billion USD agreement with the DPRK Government and China’s Ministry of Railway to build a railway from Tumen, border city in China, to Chongjin, port in DPRK. The agreement signifies that the deadlock between railway authorities of the two countries is being broken. There used to be three pending questions with the DPRK railway, i.e. overstock, arrears and withholding of Chinese cargo carriages. This forced the Chinese railway authority to take measures to restrict transportation between the two countries, like intermittent loading and goods limits. Statistics show that over 2000 carriages were held up in DPRK in 2004, 260 of which were for coal. It is reported that Hong Kong International Industry Development Co. Ltd., headed by Qian Haoming, promised to provide 500 to 1000 carriages to DPRK as required by the agreement.

Preliminary agreements have been reached at the moment between China and DPRK concerning minerals, railway and port lease. Sino-DPRK economic cooperation is growing in depth and width but both sides adopt a low-profile and practical attitude. It is necessary to point out that such development has aroused concern from relevant countries in North East Asia, which mistake China for having political motives. In fact Chinese enterprises, both private and state-owned, are looking for greater room for their future development as a result of the constantly improving market economy in China. Amid such backdrop, neighboring country DPRK naturally becomes their target. There are plenty of Chinese enterprises with strength ready to come into DPRK, more active than the government policy allows. During the National People’s Congress last march, delegates from local enterprises proposed a motion to the Central Government, calling for policy and legal guarantees for expanded and deepened economic cooperation with DPRK, including the establishment of special economic zones and free trade areas. It is not difficult to see that laws of the market economy are the most fundamental reason behind Chinese enterprises’ investment in DPRK.

From the Korea Herald:

JEJU – The two Koreas yesterday agreed on a set of contracts to stimulate North Korea’s light industries and mining operations, but only when “conditions are met.” South Korean officials say the expression is a diplomatic term being used to describe the North’s obligation to allow the test run of trains on two cross-border rail links.

Economic delegates from Seoul and Pyongyang ended their four-day meeting on Jeju Island early yesterday morning, working out a nine-point agreement on various economic cooperation plans.

The talks were held against a background of hostility in the South following North Korea’s unilateral cancellation of the landmark testing of cross-border railways on May 25.

After marathon talks, the two sides managed to achieve a reluctant consensus on how to describe Pyongyang’s duty to revive the cancelled railway test-runs in return for a package of business cooperation deals.

The two sides resorted to indirectly referring to Pyongyang’s railway obligation by using the term “when conditions are met,” instead of using more direct language. Some observers said the “ambiguous” preconditioning leaves room for Pyongyang to pull out from the agreement later on.

The North apparently faces opposition from the military authorities who are apparently against opening the railways to the South. The North Korean military has demanded the two Koreas first conclude a full military guarantee.

“The implication of the agreement is that if there is no test run for the railways, there will be no economic support,” said Kim Chun-sig, spokesman for the South Korean delegation, during a press briefing.

Underscoring that the agreement is strong enough to encourage North Korea fulfill its part of the bargain, Kim said that the two Koreas would soon begin to discuss the military guarantees.

Based on the agreement, South Korea will provide some $80 million worth of raw materials needed for the destitute state to manufacture garments, shoes and soaps from August this year. North Korea will repay 3 percent of the loans in the form of minerals such as zinc. The interest rate was set at a low 1 percent.

The two Koreas also agreed to jointly develop North Korean mines and designate an organization to take charge of the project within one month from now.

Seoul officials argue that this agreement raises the level of inter-Korean cooperation to a mutual and commercial relationship from one-sided aid from Seoul to Pyongyang.

Other agreements included a joint excavation of aggregates in the Han River estuary that is located along the demarcation line, and to open working-level contacts from June 26-27 to discuss how to prevent the Imjin River from flooding nearby areas.

The two Koreas also saw eye-to-eye on advancing their joint businesses into third countries.

Another working-level meeting on the Gaeseong industrial park will be held from June 20-21.

The next Economic Cooperation and Promotion Committee meeting will be held in September in Pyongyang.

South Korean delegation was headed by Vice Finance Minister Bahk Byong-won and the North Korea team was led by Ju Tong-chan.

By Lee Joo-hee

From Yonhap:

The following is the full text of a joint press statement issued by South and North Korea at the end of their four-day economic cooperation meeting on the southern South Korean island of Jeju, Tuesday.

South and North Korea held the 12th meeting of the Inter-Korean Economic Cooperation Promotion Committee in Jeju Island on June 3-6, 2006.

During the meeting, the two sides discussed the issues to further develop the inter-Korean economic cooperation project in the interest of the Korean people in the spirit of the June 15 joint declaration, and agreed on the followings.

1. South and North Korea agree to adopt an accord on South-North Cooperation in Light Industry and Natural Resource Development and enforce it at the earliest possible time in favorable conditions.

2. South and North Korea agree to discuss and then implement a project to extract sand from the Han River’s estuary as military safety measures are taken.

3. South and North Korea agree to make necessary conditions for making the Kaesong Industrial Park globally competitive. To that end, the two sides will hold the second meeting of working-level officials for Kaesong industrial park construction and discuss ways of introducing an ID system, simplifying customs and passage procedures, securing a stable source of workers and building dormitories and convenient facilities to solve problems stemming from an increase in the number of workers.

4. South and North Korea agree to hold the first working-level meeting in Kaesong on June 26-27 to prevent flooding in shared areas near the Imjin River to review each other’s survey reports, discuss joint survey plans and ways of establishing a flood warning system.

5. South and North Korea agree to cooperate actively in preventing such natural disasters as flood, forest fires and yellow dust storms and discuss concrete issues at a working-level meeting in Kaesong sometime in July.

6. South and North Korea agree to discuss their advance into third countries in the field of natural resource development at a working-level meeting in Kaesong sometime in July.

7. South and North Korea agree to exchange economic observation delegations when an accord on South-North Cooperation in Light Industry and Natural Resource Development takes place.

8. South and North Korea agree to discuss and finalize the schedules of working-level meetings for fishery, science and technology cooperation, as well as a timetable for business arbitration committee talks, visits to Kaesong and Mount Geumgang and exchange of lists and other things, in the form of exchanging documents.

9. The 13th meeting of the Inter-Korean Economic Cooperation Promotion Committee will be held in Pyongyang in September 2006 and the date will be determined after consultation in the form of exchanging documents.

From Hankyoreh:
Why Is Danchon in North Korea Important?
South Korea Proposes Joint Developments with North Korea

South Korea suggested to the North a plan to designate Dancheon, South Hamgyeong Province, as a “special joint resource development district” in the 18th South-North ministerial talks held at Pyeongyang at the end of April. According to a statement, the South and North agreed to “consider a program to jointly develop resources,” but it is obvious that Dancheon is a candidate to become the third joint special economic zone, after the tourist district of Mt. Kumgang and the Kaesong Industrial zone.

In the early stages of the 1994 Agreed Framework regarding the curtailing North Korea’s nuclear program in exchange for investment, North Korea proposed to the U.S. that it invest in two mines and a port in the Dancheon area. Peter Hayes, executive director of the U.S.-based public policy think tank Nautilus Institute, expressed regret that the U.S. missed an opportunity to make the North dismantle its nuclear weapons program, in an article published May 2 on the institute’s web site. Is it possible for Dancheon to become another symbol of South-North cooperation? Since the North has suggested the development of the zone to the U.S. in the past, the North will surely accept the South’s interest in the project.

Why Dancheon?

If the two Koreas designate a special district for joint resource development, government officials and experts agree that Dancheon is an ideal place. In short, the area has infinite potential. Dancheon has deposits of 25 kinds of minerals, including zinc, magnesite, lead, gold, silver and asbestos.

There also are mining industry-related factories. The Dancheon refinery, which came into operation in 1985, produces 100,000 tons of zinc in a year, and the Ryongryang plant processes the raw slag that can be supplied to brick factories.

Many experts say that Dancheon has a better distribution infrastructure than other mining areas. Dancheon has its own port, and Cheongjin and Sinpo ports are just 40km and 80km away from Dancheon, respectively.

Benefits for both Koreas

The South imports all of the zinc and magnesite it uses. If the special economic zone program succeeds, the Dancheon area will provide the South with a steady flow of needed minerals.

Politically, the success of the project could bring about a certain degree of ‘restraint effect’ against foreign capital in the North, including putting a check on China, which has been of late coveting the mineral resource potential of the North.

If the North increases the operating status of its mines, currently between 20 and 30 percent of total employment capacity, with the help of capital and technology from the South, the project will both generate more jobs and help the North earn foreign currency. With this kind of success, a “special district” would mean a win-win economic cooperation.

Obstacles remain

The largest problem is whether the North Korea will accept the program. Fortunately, Dancheon is known to have no military facilities. But it is not clear if the military will agree to the terms of a special economic district, which means a near-complete opening of the area to the South. Due to this, the statement issued in the recent ministerial meeting regarding further development did not specify the Dancheon area, analysts point out.

Experts forecast that even if the two Koreas agree to develop another special district, it will take a long time before goods can be produced. In addition, the North will have to settle a few problems before the project can get underway, such as legislation concerning foreign investments and ownership.

A cost problem exists, as well. In light of the previous cases of Kaesong and Mt. Kumgang, the South will have to provide almost all the infrastructure necessary to develop the special district. An industry official has estimated the cost at more than one trillion won (about one billion US dollars), due to the condition of the North’s transportation routes and electricity grid.