North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-2-13-1
2/13/2008

As South Korean materials used in light industry make their way to the North, some DPRK factories appear to returning to normal manufacturing operations. A source in North Korea recently reported, “Raw rubber, talcum (used for soap), perfumes, textiles, and other ROK raw materials made their way to a Sinuiju shoe factory and cosmetics factory, and production has returned to normal.”

South Korea is providing raw materials for light industry worth 80 million USD in return for mined goods from the Danchun and Kumduk areas of North Korea. According to the source, “9 containers of soap powder came to the soap department of the Sinuiju cosmetics factory. The factory is in full operation and most workers are reporting for work…Workers are receiving monthly wages and food rations, and [they] almost never come out to the traditional market.”

The workers at the Sinuiju cosmetics factory are mostly women, and up until now there were no materials or power, so there could be no production and business was off. However, since the middle of last November, as materials began to flow in, this factory was identified as a ‘special’ factory, power was turned back on, and the manufactured goods began to roll out. An inside source also reported that the goods have already begun to turn up on Sinuiju markets. “Sneakers began appearing in Sinuiju’s Chaeya and Chinsun Markets; The quality is good, and the residents have received them well … The response seen is that it is thanks to the South Korean shoe materials that the quality is good. Chinese shoes are not able to compete, and are not selling well.”

The source went on to report that the scent of laundry detergent was nice, and that it was only being used to wash undergarments. “Everyone knows that the light industrial raw materials are from South Korea …Everyone already knows that South Korea has flourished, so they publicly praise ROK goods.”

As production normalizes at the Sinuiju shoe factory, cosmetics factory, and other light industrial factories, factory workers are becoming objects of envy. Among residents, some worry about not being able to enter the factories, because in the factory, monthly wages and rations are received, and some products can be stolen and privately sold.

Goods now found in Sinuiju markets include some given to factory workers based on their piece rates, and some that are snuck out and find their way to vendors. However, in this first stage of production normalization, the North is not yet at a level at which large-scale rationing to the people is possible.

Kang: North Korean Trade Potential
Council on Foreign Relations
12/17/2007

Last December, David C. Kang, a professor of government at Dartmouth College and an adjunct professor at Tuck Business School, discussed the North Korean economy for the Council on Foreign Relations. I have excerpted some of his comments below.

His view on the new North-South cargo train service:

It doesn’t have huge economic significance in the overall GDP of North Korea. But it does have major economic significance in the fact that what North Korea had to do in order to let a train go through was an awful lot of adjustment[…]in terms of linking up the railroad, all the ministries had to prepare.  The old [Korean Energy Development Organization] had this problem as well. [W]hen they wanted Americans and South Koreans working in North Korea to build this light-water reactor, [they] had to set up protocols [Post offices, phone calls, where they were going to stay, etc]. It is pretty significant in terms of how much they had to adjust.

He quoted the following figures on North - South trade:

From $200 million in 1998, to now exceeding $1.7 billion in 2007.   South Korea’s total trade volume is $250 billion.

His opinion on the direction of the North Korean economy:

At this point what we’re seeing is very initial steps on the part of North Korea as they try to open up reform and yet maintain control. At the same time, they are being forced into a number of institutional changes and mind-set changes that are the first step forward in this process.

His view of North Korea’s comparative advantage:

Most of the companies that have gone in—the South Korean companies that have gone in—are assembly and light manufactures, such as or textiles and light consumer goods. This is the sort of obvious point of departure. It’s not hugely capital intensive in terms of building factories, and can take advantage of North Korean cheap labor and South Korean technological advantages.

There are a lot of potential mineral resources in North Korea, which would require a whole infrastructure of legal reforms to happen before anyone would take care of them. But at this point the safest bets are the ones that are on the order of assembly and light manufactures in the North and then exporting them out.

His view of South Korea’s long term goals:

If there’s unification, or even better relations, and South Korean companies can use cheap North Korean labor, instead of having to send those factories to China or Vietnam—not only do they speak Korean, they’re culturally similar, and the labor would be cheaper.

[I]f you could reconnect the railroads, from Japan, through Pusan [South Korea], up through North Korea, then out to China and Russia, you would be linking up all these economies in a much more efficient way than they are now. So everybody wants that. But obviously there’s the political problem. And even on the infrastructure side, the North Korean rail system is so old and so decrepit, that basically it would have to be rebuilt from zero. But the potential upsides are massive, in the long run.

His view of China’s engagement:

China has been essentially as deeply involved in economic engagement with North Korea as has South Korea—and by some measures, actually more so. Whereas South Koreans just do this assembling, some Chinese companies are moving in and building full factories in the North. There’s a lot of interest in Chinese-North Korean economic relations on both sides.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-12-1-1

Much time and energy has been devoted recently to the promotion of a scheme to further develop North Korean natural resources. In July 2005, the Committee for the Promotion of South-North Economic Cooperation agreed to cooperate in the joint development of the North’s underground resources, and in July of last year a project was launched. A total of 17 agreements with the North have been reached, through which target mines have been selected and inspection methods, time-frames, and other details have been worked out. Many difficulties were faced during negotiations, but through continuous information gathering, it was decided that there was sufficient cause to invest in the project, so a proposal was made and the very first inter-Korean resource development enterprise was launched.

Since last August, forty-seven experts in mining, infrastructure, and other areas have carried out general as well as detailed inspections of all aspects of the Kumduk Zinc Mine and Ryongyang and Daeheung magnesite mines, including infrastructure such as railway and road access, harbor facilities, and electrical capacity. The North was convinced to allow photography and surveying of mining sites, as well as the 90km of rails and roads stretching between the mines and Danchun Station and the nearby Kim Chaek Harbor. Through these surveys, enough information was gathered to satisfy investors, and to publish three volumes worth of inspection reports and pictures.

The Danchun region mining project is one that has been thouroghly prepared through long negotiations and numerous inspections and surveys. Now, based on the results of last year’s surveys, the project’s feasibility study is scheduled to be completed by the end of March. The on-site inspections confirmed the quality and marketability of the mining resources, and the potential for mining development.

In addition, because the mines are currently operational, the risk is much lower than that of an exploratory project. It was assessed that only some parts of the power and railway systems need improvement. Of course, full investment in the project would come about only after completion of the feasibility study currently underway.

A DPRK natural resource development project is necessary for both North and South Korea. For the South, mineral resources can be expanded through investment in production, while the North can benefit economically by increasing production through South Korea’s capital infusion and the introduction of mining technology.

This venture can also play an important role in accomplishing the denuclearization and development plans of the incoming Lee Myung-bak administration. Direct investment in locations in North Korea is the preferred method for advancement of the North’s resources. In particular, investment into energy infrastructure necessary for the processing and transport of these mined goods is preferred over other forms of investment. It is important for South Korea to invest in developing the North’s resources before other outside investors take advantage of the opportunity.

Institute for Far Eastern Studies
NK Brief No. 08-1-29-1

It is being reported that North Korea’s Chungnyun Mine, in Hyesan, Ryanggang Province, is facing severe economic difficulties due to floodwater. Hyesan mines produce 80 percent of all North Korean copper, and the North had estimated that it will be able to continue mining copper there for the next forty years. Chinese firms in Hebei’s Luan River region had wanted to import 51 percent of Hyesan Chungnyun Mine’s product, but the deal fell through due to opposition from North Korea’s committee overseeing its second (military) economy.

In 1996, during the North’s ‘Arduous March’, electricity was not provided to the mine, leading to flooding in the mineshafts. Since 1998, Kim Jong Il has budgeted 8.2 million USD to dewater the mine, and the mine was recovered using electricity and equipment provided by China.

The mine resumed operations in May, 2004, and in March of last year even an ore-dressing plant and crushing facility were constructed, indicating that there were high expectations that production would grow. However, as water filled up at the dam for the near-by Samsoo Powerplant, completed in May, the mines began to flood again.

There was no end to criticism that the powerplant, located in Jangan-Ri, Hyesan, Ryanggang Province, was to be constructed on a limestone foundation that would leech massive amounts of water, however, as a result of its construction, despite this opposition, water leaks out of the power station and has flooded the mine.

In the event that North Korea abandons the Hyesan Chungnyun Mine, it will be faced with the difficulty of needing to import the large amounts of copper required by the manufacturing industry. As this mine began to flood, North Korea has begun to import most of the copper necessary for its economy from Chile.

Currently, there is no feasible way to technically restore the mine, so as senior authorities in the North are demanding that the mine be saved at any cost, those in charge of operations are said to be uneasy.

Daily NK
Moon Sung Hwee
1/21/2008

Tens of thousands of a Shock Brigade (state construction workers) of North Korea are forced to build roads under minus 20 degree Celsius weather to prepare for Kim Jong Il’s unforeseen visit to the area, an inside source told the Daily NK.

The informer said, on the 3rd of January, “Since mid December, thirty thousands of Shock Brigade for the Propaganda of the Party Ideology (shortly June 18 Shock Brigade) had been poured into building road in Samsoo, Yangkang Province.”

He added that the Shock Brigade was connecting road between Wangduk Station in Hyesan (exclusively for Kim Jong Il) and Samsoo Power Plant. Kim Jong-Il was rumored for planning on surprise visit to the power plant. The road would be 22 km in length.

There was actually a road built in 2003 between Wangduk and Samsoo Power Plant. However, the road was ordered to be renovated due to Kim Jong Il’s dissatisfactory remark on it in his March 2006 visit to the area.

During the 2003 road construction, the Hyesan city government mobilized tens of thousands of residents plus June 18 Shock Brigade to finish it on time. Nevertheless, as Kim Jong Il showed discontent, Yangkang Provincial party officials and June 18 Shock Brigade officers were criticized harshly.

The problem was that the road was through downtown Hyesan, and a section of it was to meandering, thus dangerous to protect “the Comrade General.”

“After that, June 18 Shock Brigade, who just finished constructing Hyesan-Dancheon road, were reinforced and put to refurbish the Kim Jong Il’s private road,” the informant added.

The road currently under construction is to connect Wangduk and Samsoo Power Plant while circumventing populated area of Hyesan. And, of course, since the road is built as a “Number 1 Road,” it is solely for Kim Jong Il’s use, not even for party officials let alone ordinary people.

According to the informant, condition of road construction is harsh. Workers of the Shock Brigade are forced to work in bitter cold. When asked about disgruntlement of the workers, the informant replied, “This sort of hardship happens every time the General visits a certain area. Who can argue with the General’s order?”

In the 1980s Pepsi went on sale in the Soviet Union [as did eventually Coke].  Since the hard currency needed to buy the syrup was scarce, the Soviets traded it for Vodka (which they presumably had plenty of)–At least this is what I was able to piece together when I visited the USSR as a teenager.

Yonhap (January 4, 2008) reports that North Korea has adopted the same basic strategy to repay its external debts.  This is a positive move on the part of the North because it is the first time the North has made an effort at repaying its external bills.

(excerpt from Yonhap)  The South-North Korea Exchanges and Cooperation Support Association said 500 tons of North Korean-produced zinc, worth about US$1.2 million, arrived in the port of Incheon on Thursday and was unloaded on Friday. It was the second repayment by the communist country for economic assistance provided by Seoul.

Although the amount agreed upon by both countries for 2007 has been paid in full, the installment represents only 3 percent of the North’s total debt to South Korea [appx. USD$80 million]. Pyongyang had agreed to pay Seoul with $2.4 million worth of mineral ore to reimburse it for aid.

[…]reportedly mark[ing] the first time the North has redeemed any of its debt.

Yonhap
12/27/2007

South Korea plans to develop two resource rich regions in North Korea that can benefit both countries and fuel cross-border economic cooperation, the government said Thursday.

The blueprint calls for more funds to be funneled into North Korea so prospective developers can conduct geological surveys and compile detailed data for future reference, the Ministry of Commerce, Industry and Energy said.

Resource-poor South Korea imports most raw materials to operate its heavy industry-centered economy. Lack of social infrastructure and mining knowhow have prevented North Korea from fully developing resources.

(more…)

The most authoritative map of North Korea on Google Earth
North Korea Uncovered v.7
Download it here

This map covers North Korea’s agriculture, aviation, cultural locations, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the sixth version.

Additions to the latest version of “North Korea Uncovered” include: A Korean War folder featuring overlays of US attacks on the Sui Ho Dam, Yalu Bridge, and Nakwon Munitians Plant (before/after), plus other locations such as the Hoeryong Revolutionary Site, Ponghwa Revolutionary Site, Taechon reactor (overlay), Pyongyang Railway Museum, Kwangmyong Salt Works, Woljong Temple, Sansong Revolutionary Site, Jongbansan Fort and park, Jangsan Cape, Yongbyon House of Culture, Chongsokjong, Lake Yonpung, Nortern Limit Line (NLL), Sinuiju Old Fort Walls, Pyongyang open air market, and confirmed Pyongyang Intranet nodes.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.

Daily NK
Lee Sung Jin
12/11/2007

The number of day labor jobs offered by private parties is gradually increasing in the North. Unlike those with full time jobs at State-run factories, individuals with day labor jobs work by the day.

According to inside sources and many defectors who came to the South earlier this year, individuals looking for day labor jobs normally work as gold miners, construction workers in cities, as luggage carriers for train passengers and maids.

In North Korea, these day laborers are called “Bulbulee (which means a person sweats for labor),” “Sakbari (which means a person waiting for wages)” or “Ilkkun (workers).” It is reported that there are day labor hiring centers in big cities and around the closed mining areas.

Daily laborers’ wages vary based on the type of work. Laborers working at gold mines are provided with housing and food and get paid 1,500 North Korean won per day. In the city construction sites, skilled laborers such as plasterers earn 2,000 won daily whereas unskilled laborers make less than 1,000 won. Daily laborers are making good money compared to factory workers whose average monthly wages fall between 3,000 and 5,000 won.

Kim Yong Chul (pseudonym), a defector who used to work as a day laborer at a mine in Hoichang of South Pyongan Province said, “Since 2004, day labor hiring centers started to appear in the jangmadang (market) of Hoichang. Employers hired young men and women in good health on the spot and took them to workplaces.” He used to work at a mine well-known across the country since the Japanese colonial period. Mr. Kim said, “Day laborers not only dug for gold but were also mobilized to build or fix houses for their employers.”

In Hoichang, there are some gold mines closed by the authorities that were thought to be tapped out. In the mid 1990s, some locals dug the mines again and made a great fortune. Years later, around 2003, these locals began looking out for workers and started hiring individuals from other provinces. Now the county has a great number of day laborers from various provinces working at mines.

Good Friends, the Seoul-based relief organization dedicated to North Korea, said in a recent report, “On October 23rd at around 10 A.M., a gold mine in Hoichang of South Pyongan Province collapsed, leaving three miners dead and two wounded.” In the North, private parties are banned from trading gold and pine mushrooms by law, and only the State can make these types of transactions. However, it is well known that many officials in charge of enforcing the ban frequently take bribes and allow those who pay them to dig for gold in closed mines.

Gold miners usually stay underground between 15 to 30 days each time they begin a mining operation. The miners dig up the ore, crush it using a machine called a Maguanggi (ore-polishing machine) and apply mercury to extract gold. The whole process is done in underground tunnels, and the processed gold is sold to gold dealers in Pyongsung and Sinuiju.

Individuals who run the crushing machine are laborers from other provinces, and most of them are females. With food and housing provided by their employer, they make 1,000 won daily. If they work year-round this way, they can earn decent money.

45-year-old Park Jong Moo (pseudonym) who came to the South this year said, “I earned 2,000 won per day when I worked as a plasterer, building a house for a man who made his money from trade in Chongjin City.”

Mr. Park’s son worked as a cargo porter at the Chongjin railway station. Since there were so many “Sakbari (referring to cargo porters working for daily wages)” at the station, competition among “Sakbari” was fierce. Normally, these porters made less than 1,000 won per day.

It is becoming popular among party cadres and the new wealth to have a maid who does housework and takes care of children. These people introduce the maid to their neighbors as a ‘distant relative’ because having a maid is unthinkable in the Socialist North. While performing maid services and getting paid for the work that she does, the maid pretends to be a family member and acts as if she is merely helping out with the housework.

A source inside the North said, “There was once a party official in Chongjin who employed a girl as a maid after having paid her parents. When the official was accused of having a maid, the official said she was a ‘relative.’”

Regarding the rise in day laborers, an expert on North Korea says, “Those North Koreans who made a fortune from mining or trade privately employ laborers to further expand their businesses…However, since the regime will never allow the rich to become too powerful, it will begin to regulate the employment activities of private parties at the proper time.”

Daily NK
Lee Sung Jin
11/26/2007

An insider North Korean source said in a phone conversation on the 22nd, “With long-term suspension of exports for the break in China’s investment in North Korea’s iron ore production, the lives of citizens and the Musan Mine laborers have become extremely difficult. There have been talks that this might be the 2nd March of Tribulation (Mass starvation period in the 1990s).”

The South Korean Chamber of Commerce and Industry released a report, the “North Korean Underground Resource Joint Development Strategy” on the 21th saying that China has cleared with a clean stroke North Korean minerals, Musan Mines being a representative example.

The report introduced the contract which gave 50-years-mining rights to the Musan Mine in North Hamkyung, which is North Korea’s best iron ore, for 70 hundred million Yuan (approximately DSD950 million) to China, which can take 10 million tons of iron ores from Musan every year for 50 years.

However, investment in Musan Mine, which was considered the China’s representative investment in North Korean underground resources, was ruptured due to the fact that opinions surrounding on the retrieval ways of shares and investment funds could not be narrowed down. Accordingly, Musan Mine laborers going through difficulty with the operation of the mine have fallen into a severe hardship in living.

The South Korean intelligence authorities confirmed the veracity of the breakdown in investment negotiation early June of this year.

North Hamkyung Province’s Musan Mine is a strip mine containing 30 hundred million tons of coal reserves, 13 hundred million tons of coals capable of digging and several hundred tons of steel concentrate, has offered these materials to the Kim Chaek and Sungjin Steel Mills, but with the unreliable operation of these mills, mining came to a halt in early 2000.

In 2005, the North Korean government closed an investment contract with the Chinese Tonghua Steel Group Consortium and China’s investment in Musan Mine began the fall of that year. As the exports of iron ore started, the North Korean authorities resumed the provision system to mine laborers and their families.

With the influx of many goods including food, gasoline, and construction materials as a reward for exporting iron ore to China, the lives of citizens in Musan have stabilized in these last two years.

However, the volume of production was known to have rapidly decreased with the cease in iron goods export to China and the rupture in joint investment with China.

The source said, “With the cease in iron ore exports to China, provision to the miners have ceased, which has incurred significant damage. We are in the ‘March of Tribulation’ again. When we are barely able to get by, something else occurs.”

The source introduced the current situation of withdrawal for Musan Mine laborers, “With only 500 thousand won (approximately USD 152), a person can get out of mining. It takes 100,000 won at the mina labor department and another 100,000 won to receive a diagnosis at mine hospitals and about 300,000 won to receive approval from the Safety Agency and the county labor department leaders as bribes. The despair of people are so heavy that people hope to come out of mining, even with the granting of provisions.”