Archive for the ‘Choson Exchange’ Category

Choson Exchange October trip findings

Monday, November 7th, 2011

From the Choson Exchange web page (November 5):

In October 2011, John Kim, a board director of the Choson Exchange, visited the Rajin-Sonbong Special Economic Zone. The following is a summary of some of his findings based on site visits and talks with senior officials in the SEZ. An longer account of his travels and impressions will be available soon. This information helps elaborate on our report from August.

Rajin Port
The Rajin Port employs 1400 workers. The Chinese have conducted feasibility tests regarding two new piers, but currently the port houses three piers with 9-9.5 meters draft. A 30,000 metric ton coal storage warehouse was built at Pier 1 by the Chinese, who moved 80,000 metric tons through the facility in five shipments from January to September. Pier two, largely dedicated to container shipment, is currently dormant and a Swiss company is currently using Pier 3 to ship manganese and talc out of the region. The Russians also have a 49 year lease agreement signed in 2008.

Oongsang [Ungsang] Port
Oongsang Port exported Russian lumber until 1985, but remains largely quiet now except for the occasional fishing boat. The present draft of 7 meters constricts any major future activity, so the North Koreans hope to bring in over $100M to widen the draft to 9 meters. After Rajin Port activity surpasses capacity there, Oongsang Port will become the next regional hub for drybulk activity.

Sonbong Port
Originally opened in the early 70’s, the draft within the port is 7 meters, but a fully laden Very Large Crude Carrier containing 270,000 metric tons of oil can offload at an offshore facility further out at sea. Two pipes, 63 cm in diameter, run for 9km underground before reaching the storage facility at “Victory Petrochemical”, a simple refinery that was designed to refine crude and send oil products (gasoline, naphtha, jet fuel, diesel and fuel oil) back to the port for export. In addition to this two way flow, fuel oil also arrived sporadically at the port as part of aid packages from 1994 to 2008.

Sonbong Power
This power plant was originally designed to take fuel oil from Victory Petrochemical as feedstock and generate power to feed back to Victory. Since the refinery has been offline, Sonbong Power has at times provided electricity to the region, but with fuel oil prices close to $700/metric ton and current electricity prices at 6.5 eurocents/kwh, the economics of running the plant do not work leaving the 800 workers employed here largely idle.

Victory [Sungri] Oil Refinery
Literally translated as “Victory Chemical Plant”, this refinery was completed in 1973 with a 40,000bbl/day crude distillation unit that typically yields 40~50% residual fuel oil for an average crude feed. Investment into upgrading capacity in the international market has led to an eroding of margins for simple refineries like Victory. Currently the refinery is idle and would need over $500M in investment to become competitive.

Hye Song Trading Company
Mr Kim visited a Sewing Factory owned by Hye Song, which runs 8 such factories employing 2000 workers. Output is recorded for the entire year on a bulletin board at the front entrance of the company. All employees except the handyman were women.

Cell Phone use more prevalent
The number of cell phone users in the DPRK crossed 1 million earlier this year and one official commented that the overwhelming majority of urban households have at least one cell phone. This particular official had 4 phones for a household of 3. Foreigners are allowed to use cell phones on a different network, and users of the domestic and foreign network can not call each other. All usage is prepaid.

Handset Type: Local
Purchase Cost: 1570-2200 RMB
Usage Cost: 250 minutes and 20 text messages, while each additional minute is charged at 60 NKW (about .1 RMB/min)

Handset Type: Foreigner
Purchase Cost: 1800-2400 RMB
Usage Cost: Does not include any free minutes and are charged at 2RMB/min

Banking System has room for growth
There are two banks in Rason, the Central Bank, which is focused on domestic transactions, and the Golden Triangle Bank, which is focused on foreign currency transactions. Transactions for goods and services are conducted almost entirely in cash, usually in RMB or NKW. Mechanisms for savings are credit have room for development. As banks take a fee to deposit and withdraw cash, merchants prefer to hold money in cash (usually RMB). Credit is also available almost exclusively through friends or family.

Bottlenecks
A number of issues require solving if Rason is serious about attracting large scale foreign investment. Among these are reliable access to travel visas, reasonable communications costs with the outside world, a more mature banking system with savings and credit mechanisms and favorable tax treatment with a consistent legal framework. The mere fact that Rason is experimenting with market reform is encouraging, and Mr Kim is optimistic about economic development in the region and the nation as a whole.

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Choson Exchange Update

Thursday, October 13th, 2011

According to Choson Exchange:

In August this year, Choson Exchange, a non-profit focused on economic policy, business and legal knowledge exchange with North Korea (DPR Korea), implemented a study trip for DPRK policymakers to exchange policy ideas and experience in Singapore with policymakers. Thanks to the sponsorship of the Swiss Cooperation Office DPR of Korea, we were able to implement an insightful and engaging series of discussion with participating Koreans. We focused our program on younger Koreans, with 6 of the 7 North Koreans being under 40 years old, out of which 2 were under 30 years old. 3 institutions were represented in the visit, which involved 10 intensive days of meetings and discussions.

In particular, some of the young participants we selected for the program were able to ask astute questions on development issues and coordination among economic agencies. During the post-trip debriefing, participants highlighted specific aspects of Singapore’s economic development experience which they found particularly interesting and relevant for their country. They also gave feedback on policy ideas which they believe could be adapted to their country. Choson Exchange followed up on the discussions with consultations in Pyongyang 5 days after the program ended.

We would like to thank speakers who volunteered their time and experience at this event in their personal capacities. Speakers included:

– The former Chairman of Singapore Airlines, Singapore Stock Exchange, Temasek Holdings, Development Bank of Singapore, Nepture Orient Lines and Permanent Secretary at various Ministries

– The former Minister for Finance and Minister in the Prime Minister’s Office

– The Chief Economist for Bank of America Merrill Lynch in Southeast Asia

– The CEO of Centennial Asia Advisers and former Chief Economist for SocGen Asia-Pacific

– Directors and Economists at various Ministries in Singapore

– Private sector speakers or hosts from McKinsey & Co., Bain & Co., Goldman Sachs and Capital Group

We would also like to thank Member of Parliament Lily Neo for hosting dinners for the visiting delegation.

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Road to Rason (38 North)

Tuesday, August 30th, 2011

38 North
Andray Abrahamian
2011-8-29

A bus bumps and bruises its way along the unpaved road, carrying would-be investors to Rason’s First Rason International Trade Exhibition which ran from August 21-25, 2011, in Sonbong. The windows are open, until a crimson humvee barrels past, its powerful suspension dancing on the road, leaving behind a plume of beige dust. The bus windows snap shut, the still air quickly gets hot and more than one of the passengers wishes we were Chinese high-rollers, being whisked to the Emperor Casino and Hotel, which sits beautifully on Korea’s East Sea, overlooking Bipa Island and flanked by lush green mountains and crystal waters.

The passengers of the humvee-part of the casino’s fleet-will long be checked in and gambling their fortunes away by the time we complete our two and a half hour journey. However, it won’t always be this way. Rason’s 50km road to the border is finally being upgraded. Indeed, the 2.5 hour journey took 3.5 hours in June. Since then, the road has been widened, the first stage of the construction plan, allowing for traffic to flow both directions more easily and smaller passenger vehicles to overtake the more cumbersome truckers who ply the road.

Its construction is an important sign in the development of the Rason Special Economic Zone. Rason, an amalgamation of the names of the area’s two biggest cities, Rajin and Sonbong, could theoretically be a vibrant hub for both logistics and manufacturing. It is located in the far Northeast of the Democratic People’s Republic of Korea, bordering Russia and China. It has abundant, cheap labor and the region’s northernmost ice-free port. It has been a legal entity since the early 1991, but has struggled to reach its potential in the face of ambivalence from Pyongyang and difficult geopolitical circumstances.

Local administrators have bold plans for this experiment in economic opening-up and to develop as the Rason Municipal People’s Committee has imagined, an efficient road link with China’s Northeastern provinces is vital. For about a decade, improvements to the road have been “under discussion” and “coming soon,” but it is now undeniably underway. Work began in May of this year…READ MORE HERE

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Why North Koreans Deserve Opportunities to Study Abroad

Thursday, July 28th, 2011

Chronicle of Higher Education
Geoffrey See (Choson Exchange)
2011-7-28

In the early 1980s, Theodore Schultz, a Chicago economist and Nobel laureate, visited a China that was just opening up. Impressed by his translator during the trip, he offered the young man an opportunity to attend the University of Chicago’s doctoral program in economics. Thirty years later, the young man, Justin Lin, who helped built one of the top economics department in China at Peking University, became the first chief economist of the World Bank from Asia. Without that scholarship, things might have turned out very differently for Justin Lin, Peking University, and the World Bank.

Today, we have North Korea, an isolated country with young people equally curious about business, finance, and economics, and in a system similar to China’s in the 70s or 80s. On my first trip to Pyongyang, in 2007, a student from Kim Il Sung University, North Korea’s leading university, told me that she wanted to join a trading company to prove that women can be great business leaders. She asked if I could bring economics or business textbooks for her the next time I visited the country. Her example shows there is a hunger for knowledge in the isolated country. And with international-education opportunities, some of these people could become globally integrated and enlightened leaders.

For universities that seek to educate the leaders of tomorrow who will have an impact on the world, supporting North Korean students contributes immensely to this mission. By equipping intelligent and dynamic North Koreans with knowledge and networks, universities can give them an enormous head start in shaping the future of their country.

Choson Exchange, an academic-exchange organization I started, recently selected three talented North Koreans under 30 years of age for scholarships to study business, finance, and economics overseas through a rigorous process. We brought in a managing partner from a top-tier management-consulting company to conduct due diligence to first select high-quality financial, policy, and other institutions with clear emphasis on training young employees. We asked these institutions to nominate young candidates for a scholarship program, and we put the nominees through several rounds of interviews. We were surprised at the quality of the candidates. All three recipients we selected spoke excellent English, and were able to discuss in English the merits of different fiscal incentives and legal structures, or the need for legal reforms in tackling corruption. Two of them spoke other foreign languages.

Perhaps we should not be surprised. North Korean students benefit from a cultural and political emphasis on education. In addition, the dearth of opportunities for North Koreans to study overseas allowed us to pick from a pool of incredibly bright students. For universities competing to lure in high-potential individuals, North Korea provides low-hanging fruit. Unfortunately, many administrators at universities believe, without bothering to meet candidates, that no North Korean could be good enough for their programs.

North Korean candidates will need scholarships. And universities, in this period of cost-cutting, are understandably hesitant in providing scholarships to candidates from a country most people have little interest in. But the two or three places a university can provide amount to an insignificant cost. Even if universities could not care less about North Korea, they should recognize the potential for such a program to attract donor, academic, or corporate interest from South Korea when the political relationship between the two Koreas improves.

Universities undoubtedly will have concerns about such a program. North Koreans are unlikely to be able to apply to universities through the usual process, which will require flexibility on the university’s part in devising an alternative but equally rigorous process. This will probably require creative partnerships with nonprofits or companies in Pyongyang.

Universities are also rightfully concerned that such opportunities will disproportionately benefit the progeny of the North Korean elite, who they might not believe deserve such opportunities. While candidates will likely be upper- to upper-middle class Koreans who have access to the best educational resources in the country, this is not necessarily incomparable to students coming from other developing countries where getting high-quality English education is often the preserve of those with resources. The very richest and most elite of North Koreans (a small pool) do not require scholarships for their sons and daughters. They already send their progeny to France or Switzerland for education.

With a combination of luck, good processes, and a supportive university, perhaps sometime down the road, the next chief economist for the World Bank could come from North Korea. And the person would be able to tell you how he or she changed how business and economics is studied in the country.

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DPRK emulates China’s FDI legal framework

Tuesday, July 26th, 2011

Evan Ramsatad writes in the Wall Street Journal’s Korea Real Time Blog:

Choson Exchange, which has previously concentrated on academic avenues into North Korea, this week published a report on the legal framework North Korea has developed for accepting foreign direct investment.

It resembles China’s structure to a large degree, including requiring that outsiders work with a local business to make an investment and are subject to review by a special commission and potentially other government bodies.

The 14-page report is based chiefly on research from a recent trip to Pyongyang. There, they listened to government officials explain the structure they’ve set up and the places they’d most like to see be developed by foreign investors.

At the top of the list: Rason, the port city in the northeast part of the country that Russia has built a rail line to and China is building a four-lane highway to. Already, Switzerland has reportedly invested in a berth at the city’s port and Norway and other countries helped develop a wind energy project just outside the city.

The report’s conclusion is that North Korea’s foreign investment laws “provide a logical if bureaucratic framework” for foreigners to approach the country. But Choson Exchange said a big ambiguity remains: will North Korea be fair?

To get investor confidence, the group said North Korea “will need to establish a practice of applying and enforcing its laws fairly and consistently, even where the result is not always in the best interest of the DPRK or its state-owned entities.”

The full report published by Choson Exchange can be found on their web page here (PDF).  According to the summary:

In June, Choson Exchange took a fact-finding and training needs-mapping trip to Pyongyang. The main impetus for the trip was to get a better understanding of the legal structure that the DPRK has in place to govern inbound foreign investment. We found a legal structure that draws heavily on China’s experiences. Our full findings are in this report.

Key points include:

– Investment projects categorized into encouraged, permitted, restricted and prohibited categories.

– As in China, foreign enterprises require a local business vehicle to conduct FDI; the primary business vehicles available in the DPRK are limited liability corporate bodies and representative offices.

– The JVIC (Joint Venture and Investment Commission) and other government bodies (if applicable) will review the business scope, capitalization and other aspects of a proposed corporate body prior to incorporation.

– Investment in Rason will be particularly encouraged. According to JVIC, corporate bodies established in Rason can also apply to do business elsewhere in the DPRK.

– The operations and governance of DPRK corporate bodies are set out in law, including scope of activities, investment scale, limited liability, location, management, staffing and repatriation of profits.

– Domestic and Foreign arbitration is the primary mechanism for resolving commercial disputes between DPRK and foreign parties.

– Some ambiguities remain. Will laws be enforced uniformly and consistently?

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Some publications and reports

Tuesday, July 5th, 2011

Below are some very interesting reports and publications. All well worth reading:

Foreign Assistance to North Korea
Congressional Research Service (CRS)
Mark E. Manyin, Mary Beth Nikiti
Download here (PDF).  See other CRS reports on the DPRK here.

_________

U.S.-DPRK Educational Exchanges: Assessment and Future Strategy
The Freeman Spogli Institute
Edited by: Gi-Wook Shin, Karin J. Lee
Read the whole book  here (PDF)

_________

Beyond Good Intentions: The Challenges of Recruiting Deserving Young North Koreans
38 North
Goffrey See, Choson Exchange

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Choson Exchange looking for volunteers

Sunday, May 1st, 2011

From the Choson Exchange Facebook Page (May 1, 2011):

We are looking for volunteers with an interest in North Korea and the right skill sets to lead workshops in Pyongyang in the September-October period, and for North Koreans outside of Pyongyang in the July-August period.

Those with the following skill sets would be most appreciated and are welcome to email us at CEteam@chosonexchange.org to discuss volunteering opportunities. Those with relevant experiences outside of these areas are welcome to join our mailing list and Facebook page to stay in touch about future opportunities:

Economic Policy
1. Fiscal & Monetary Policy
2. Business Environment Development
3. Investment Policy & Sourcing

Banking
1. Risk Management – Credit, FX, Market, Liquidity, Operational…etc.
2. Asset-Liability Matching
3. Banking IT Systems

Entrepreneurship
1. Developing Business Plans
2. Feasibility Studies

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Choson Exchange Update

Sunday, March 6th, 2011

From the Choson Exchange web page:

We are looking to build our knowledge pool in the areas of contract negotiations, microfinance and bond markets as there have been requests for knowledge assistance in these areas from Pyongyang. We are told that North Korean firms need to negotiate more effectively with their Chinese counterparts, and require legal training to do so. The fundamentals of micro-finance and bond markets are also of interest to some financial organizations.  We expect initial programs for these areas to take place in April to May this year.

The executive director of Choson Exchange, Geoffrey See, also wrote the following article in the East Asia Forum:

Choson Exchange recently prepared a program for North Korean students to learn business, finance and economics overseas through university courses and internships.

They consulted a range of North Koreans on how it should structure such a program and ‘the Australia National University’ often came back as the model to follow. Up until 2006, ANU hosted North Korean trainees studying economics under programs supported by international and Australian aid agencies. The Australian exchange program was clearly well-regarded by outward-looking North Koreans.

But what would Australia gain from such programs?

A resolution to the constant series of crises on the Korean peninsula is obviously in Australia’s interest. Conflict on the Korean peninsula can destabilize the region and in a worst-case scenario draw China and the United States into a military conflict involving Australian troops. This would cause incalculable harm to the Asia-Pacific economy because of its impact on all the major Northeast Asian economies, not to mention the human cost of conflict. Australia also has long and particular historical interests in commerce with North Korea.

There are some things that Australia can facilitate for North Korea which is in their mutual interest, but which neither the United States nor South Korea can provide anytime soon. The opportunity for North Korean students to study economics, business or law in Australia in long-term university programs is one such crucial shared interest. Yet such programs are currently impossible because of autonomous sanctions in place since 2006 that deny visas to visiting North Koreans. This policy is counter-productive. It trades off the ability to shape longer-term outcomes on the Korean peninsula for short-term public displays of opprobrium. The only countries whose sanctions can hurt North Korea are the countries that actually trade with it. This policy is also unusually harsh of Australia. The United States takes a more nuanced stance by allowing visits by North Koreans for some purposes while publicly preventing political delegations to express its political support for US allies, chiefly South Korea. Similarly, Australia can publicly express its disapproval of current North Korean activities alongside efforts to develop exchanges that shape a future that goes beyond the present stalemate.

These educational exchanges provide Australia with an effective way to shape longer-term dynamics on the Korean peninsula. One way the Korean crisis will end peacefully is when North Korean elites calculate that benefits of economic integration with the rest of the world are great enough to make the costs of confrontation unsustainable. Overseas education can shift this cost-benefit calculus because it equips a new generation of North Korean leaders with the knowledge and the networks to benefit from international trade and integration.

Choson Exchange recently placed a North Korean student in an internship with an international consulting firm. Without such networks, the opportunity would not have materialized. The student also needed coaching on how to explain why his prospective-employer might find value in taking him on. He assumed that a good score on an international English test was the qualification he needed even though most selective employers see fluency as a minimum threshold, rather than a core selling point. This experience helped us see things from the North Korean perspective: there are hardly any commercial benefits to speak of when one lacks knowledge and networks to realize those benefits.

Now is the time to help build this knowledge and network base. North Korea has been active over the past year setting up institutions to promote economic development. This includes the State General Bureau of Economic Development, the Daepung Group, and the State Development Bank. Choson Exchange has led finance workshops with the State Development Bank, and Bank managers agree that training is needed and appreciated. By helping to educate the next generation of North Korean businessmen, economists, financiers or lawyers who will eventually fill these institutions, Australia can play a role in shaping these emerging institutions in North Korea, institutions that could have important ramifications for how North Korea interacts with the rest of the world in the future.

Australia has the opportunity to redefine how such exchanges are conducted. To maximize impact in developing institutions in Pyongyang, we need to think in terms of a “talent pipeline.” We need interlinked programs targeted at different age-groups: training workshops targeting senior or middle management at these institutions, overseas scholarships targeted at university students or recent graduates, and a way to bring both groups together to help maximize opportunities for scholarship recipients to move into the emerging institutions.

Australia has the base from which to take initiatives with North Korea. The North Korean institutions that are looking outwards explicitly seek to build on what has been done with Australia, and specifically through the Australian National University program for training in economics. A comprehensive settlement of the Korean problem is much more likely if we begin again to put this infrastructure in place and help with institutional development in North Korea.

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Choson Exchange looking for DPRK student mentor

Wednesday, December 15th, 2010

According to the Choson Exchange web page:

At the request of North Korean counterparts, we are exploring opportunities for young North Koreans fluent in English to participate in an informal internship or research assistantship in the fields of business (esp. finance), economic development, or law to gain professional understanding and exposure to these fields. The organization should be located in London.

Ideally, we hope to attach them to a mentor from an established organization willing to take a strong interest in the educational and professional development of the intern. The mentor is likely to have a strong interest in North Korean issues. The period of internship can last up to a year. While compensation is not necessary (but much appreciated), the host should be able to cover transportation costs to and from work as well as lunch expenses at the minimum.

The program can be informal and non-contractual in nature. Please feel free to contact CEteam@chosonexchange.org if you have leads on possible hosts.

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Paul White published September 2010 DPRK Business Monthly

Monday, September 27th, 2010

You can download the PDF here.

Topics discussed include:
Kim Jong Il Praises China’s Economic Advance
“NK Keen on Investment in Mining”
DPRK Pavilion Day Marked at Shanghai Expo
NGO Initiatives in DPRK: Triangle Génération Humanitaire (France)
Choson Exchangers Train NK in Finance, Economics, Law
ROK Civic Bodies Seek to Help NK Flood Victims
Seoul’s NK Trade Ban Hits ROK Firms Hard
Can North Korea embrace Chinese-style reforms?
Pyongyang Night Life Buzzing
Hamhung Makes Economic Strides
Pomhyanggi Cosmetics Enjoy Popularity
P’yang Hosts International Film Festival
New Numerical-control Machine Tool
Climate Map to Aid Agriculture
New Rice Strain Suitable for Double Cropping
Online Medical Service Working Well
NK’s New Money-Making Venture: Video Games
Day-care Center Opens for Kaesong Complex Children
Seoul to Allow More of its Citizens to Work at Kaesong

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