North Korean Economy Watch

According to the Donga Ilbo:

South Korea held two rounds of secret talks with North Korea at an inter-Korean industrial complex in Kaesong at Pyongyang`s request late last year on joint development of rare earth metals in the North. Called the “vitamins of high-tech industries,” rare earth metals are minerals necessary for making smartphones, notebook computers and hybrid vehicles.

The North’s proposal to hold the meetings was made after the South stopped almost all inter-Korean economic cooperation in May 2010, soon after a South Korean naval vessel was sunk by a North Korean torpedo. Whether this will lead to the resumption of inter-Korean economic cooperation remains to be seen.

The Korea Resources Corp., a South Korean state-run resources developer, said Sunday that it held working-level talks with officials of the North’s National Economic Cooperation Federation at the Kaesong Industrial Complex in September and December last year.

In the second contact, the federation handed over four rare earth samples to the South Korean side. An analysis showed that the samples were a type of rare earth metals used to manufacture LCD panels and optical lenses.

A South Korean official who participated in the talks said, “The North strongly proposed that the two Koreas jointly develop coal mines as well as rare earth metals.”

The resources corporation tried to brief North Korea on the results of the sample analysis. No further talks have been held since, however, due to changes in Pyongyang’s political situation following the death of leader Kim Jong Il on Dec. 17 last year.

Still, the corporation said it maintains a “hotline” with its North Korean counterpart and plans to develop resources in the North. CEO Kim Shin-jong briefed South Korean President Lee Myung-bak on the results of the sample analysis in February. He said, “The president encouraged us to carry on after we reported that North Korean rare earth metals are economically promising.”

The South Korean resources development industry estimates that North Korea has 42 types of minerals, including rare earth metals at nearly 700 mines under development. Their value is estimated at nearly 6,984 trillion won (6,133 billion U.S. dollars). In particular, the industry says that while China has made rare earth metals a strategic resource, the North has up to 20 million tons of rare earth deposits. China’s rare deposits are estimated at 55 million tons, accounting for about half of the world’s total.

A South Korean official involved in economic projects in the North said, “We cannot rule out the possibility that inter-Korean economic cooperation projects will be resumed, as (the North`s No. 2 man) Jang Sung Taek and (military bigwig) Choe Ryong Hae, who are known as pragmatists, have rapidly emerged as powerful men,” adding, “Resource development is what the North needs the most and the South can approach this without political burden.”

The Wall Street Journal’s Korea Real Time adds additional details:

North Korea makes occasional claims to have large deposits of rare earths, a potential source of hard currency for the impoverished nation. There are no reliable data on North Korea’s rare earth deposits.

China controls about 95% of the world’s rare-earth production. Rare-earth minerals are used in products ranging from consumer electronics to batteries to defense systems.

Kores invested 6.25 billion won ($5.5 million) in 2003 to jointly develop a graphite mine in North Korea. The project has capacity to produce as much as 3,000 tons of graphite annually and the deal allows Kores to take half of the annual produce for 20 years, according to the official. So far, Kores has collected 850 tons of graphite.

Economic ties between North and South Korea remain almost completely suspended following two attacks on South Korea in 2010 by the North that killed 50 people.

Additional information below:
1. The graphite mine mentioned above is called the Janchon Graphite Mine.  You can learn more about it here.

2. More on rare earths in the DPRK can be found here.

Read the full stories here:
Koreas held 2 secret talks on rare earth metals last year
Donga Ilbo
2012-7-23

South, North Korea Discussed Rare Earth Mining
Wall Street Journal’s Korea Real Time
2012-7-24

According to Yonhap:

North Korea’s mineral exports to China have tripled this year compared to a year ago, a study showed Sunday.

A joint study of Chinese data by Yonhap News Agency and Seoul-based IBK Economic Research Institute showed that China imported 8.42 million tons of minerals from North Korea from January to September this year, worth US$852 million.

Over the first nine months of last year, China brought in 3.04 million tons of minerals from the North for $245 million.

Most of the minerals were anthracite coals, the data showed. This year, of 8.42 million tons, 8.19 tons were anthracites.

China is the sole major ally and the biggest economic benefactor for North Korea, a reclusive regime under international economic sanctions following its nuclear and long-range missile tests.

Cho Bong-hyun, an analyst at the IBK institute, said North Korea may be trying to earn much-needed hard currency as it aims to become a powerful and prosperous country by 2012.

“Last year, North Korea ordered its institutions to meet their goals in foreign currency income by this year,” Cho said. “Since exporting minerals is a military business, we can see that the military is trying to meet its target. In addition, the steep mineral export growth was attributable to the lifting of the cap on the amount of mineral exports, as ordered by North Korean leader Kim Jong-il.”

China appears to be trying to stockpile mineral resources at affordable prices, Cho added. North Korean anthracites were traded at an average of $101 per ton, whereas the international standard for quality anthracites is $200 per ton.

“Given that North Korean coals are of very good quality, trade with China must have been made at a fairly low price,” Cho said.

Meanwhile, sources said North Korean authorities last month entirely halted its coal exports, as the impoverished country fears a shortage of energy resources during the upcoming winter.

From January to September this year, China exported 732,000 tons of minerals to North Korea, most of them crude oil.

Here is the IBK web page.  If anyone can find a copy of this report and send it to me to post, I would appreciate it.

Additional information:
1. The economics lessons: A. The more isolated the DPRK’s economy from the global trade and financial system, the greater monopsony power Chinese firms can exert on their North Korean trading partners. B. The rents earned in the current DPRK-China trade regime are visible and have organized constituencies.  Unfortunately the much greater gains that could be reaped if the North Korean economy was more open, integrated, and dynamic remain unseen and their potential beneficiaries remain unknown and unorganized.

2. The Nautilus Institute published a very interesting paper by Nathaniel Aden on China DPRK trade back in June. See it here.

3.  Here is the most recent US Geological Survey report on the DPRK’s mineral sector.

Read the Yonhap story here:
N. Korea’s mineral exports to China tripled from last year: study
Yonhap
2011-11-6

Pictured above (Google Earth): The Musan Mine, the DPRK’s largest.  See in Google Maps here.

According to the JoongAng Daily:

During his surprise May visit to China, North Korean leader Kim Jong-il secured free fertilizer and discounted food to help alleviate the impoverished country’s chronic food shortages.

A source in Beijing who monitors North Korea-China relations told the JoongAng Ilbo on Monday that Chinese officials agreed to provide 200,000 tons of fertilizer free of charge as well as 500,000 tons of corn at a discount in exchange for rights to North Korea’s abundant natural resources.

“When 200,000 tons of fertilizer is planted on North Korean soil, it can bring about a three-fold increase in the harvest,” the source said. “This can be the equivalent of giving 600,000 tons of food.”

The source added that China agreed to sell the 500,000 tons of corn for half of the international rate, which would be $30 per ton.

The corn, the source said, had already crossed the border into North Korea from northeastern China.

In exchange, Kim will allow China access to his country’s natural resources.

“The two parties agreed to participate in the extraction of buried rare earth minerals in Musan in Hamgyong Province,” the source said. “It’s quite a profit for China as it is thirsty for materials.”

North Korea is estimated to have around 20 million tons of rare earth minerals, which are vital in the production of high-tech goods.

The Beijing-based source said the agreement gives China the responsibility for the cost of building roads to transport the natural resources as well as lending equipment.

In exchange, North Korea will hand over 50 percent of the extracted rare earth minerals free of charge to China, with the rest to be sold to China at international market rates.

Meanwhile, other sources said that Kim also received a health checkup during his stay in China.

“When Kim Jong-il was visiting Yangzhou, he received a special examination from an oriental medicine doctor that the highest Chinese elite have gone to over the years,” a source familiar with North Korean issues said

The source added: “Kim Jong-il has never trusted China’s Western medicine. I heard from a Chinese official that Kim received an oriental medicine diagnosis by taking his pulse and that it did not involve drawing blood.”

Additional Information:

1. Here is a post linking to all the major DPRK food stories this year.

2. The media has reported on other DPRK food barter deals with Cambodia and Myanmar.

3. The role of the Musan Mine in DPRK-PRC relations has been quite interesting.  Here are previous posts on the mine.

Read the full story here:
North got fertilizer on Kim’s trip to China
JoongAng Daily
Chang Se-jeong
2011-8-19