North Korean Economy Watch

Institute for Far East Studies (IFES)
NK Brief No. 08-7-22-1
7/22/2008

On July 18, the North Korean Cabinet publication, “Democratic Choson’, revealed that the cabinet had recently adopted the ‘Border Bridge Trade Complex Management Activities Provision’.

According to the newspaper, the provision spells out to whom the rules and regulations must be applied regarding the orders and management activities of the border bridge trade complex. In addition, “by being adopted, the provision firmly creates regulations on foreign economic activities that cross over border bridges and has prepared the legal support for unceasing improvements of the border bridge trade complex’s management activities.”

North Korea relies on border trade with Chinese areas such as the city of Dandong, in Liaoning Province, and the Yanbian Korean Autonomous Prefecture, as cross-border trade shot up to over 200 million USD last year.

Institute for Far Eastern Studies
NK Brief No. 08-7-17-1
7/17/2008

Recent transformations in the North Korean economy and society have led the government to draft policies to link the social welfare matrix to the social security law. The ‘Democratic Chosun’, a publication of the Central Peoples’ Standing Committee and the Cabinet, has on five occasions (April 3 and 4, May 14, 16, and 23, 2008) run articles titled, “Regarding the Social Security Law,” explaining recent changes to the law and its affects on the North’s social welfare.

This law contains six sections and 49 articles, the purpose of which is to strictly establish the structure and methodology of the nation’s social security system, and to protect the health of the people while providing them with secure and happy lives. Details of the law have not yet been made available.

North Korea established the National Social Security Law on August 30, 1951, although it was not actually enforced until after the April 14, 1978 Socialist Labor Law was passed. North Korea’s social security system is a means with which to control the country’s socialist economy, and also acts to restrict the lives of the people, as well. From when the September 8, 1948 Constitution was passed right up until today, North Korea has provided its people with social insurance and social security systems. Society’s sick, feeble, and handicapped receive treatment assistance or material support from the social insurance system.

By looking at past transitioning countries, one can see that transforming systems and quickly changing social and economic structures lead to linking of social security with social welfare in order to protect the society’s weak. In North Korea, the passing of the July 1, 2002 Economic Management Reform Measures and other sudden changes in the social and economic environments raised concerns regarding the issue of protecting the country’s most vulnerable. Combined with the North’s food shortages, the protection of the society’s elderly, children, pregnant, and other vulnerable elements has become a special issue of concern for North Korean authorities.   

NKeconWatch commentary:
This article surprised me.  Aside from this post, IFES updates are pretty well researched.  Does anyone really believe that the dejure intent and defacto incidence of legislation in North Korea are the same?  You would have to be completely ignorant of life in any communist country to actually believe the statement, “From when the September 8, 1948 Constitution was passed right up until today, North Korea has provided its people with social insurance and social security systems. Society’s sick, feeble, and handicapped receive treatment assistance or material support from the social insurance system.”

Not only is health care under-supplied in the DPRK, it is also not provided free-of-charge.  I am told by people who have had to obtain health care in the DPRK that you generally have to pay bribes to get access.  This was the reality of life in most communist countries. Here is a much better analysis of the supply of health care in the DPRK. 

As for the concern of North Korean authorities to maintain a social safety net during a difficult economic transition, this is no doubt true for a number of DPRK policy makers.  But the people who actually make decisions are still siding with security hawks who refuse to give aid workers and NGOs the freedom they need to effectively help people.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-6-17-1
6/17/2008

According to an article run in the June 10 issue of the Rodong Sinmun, the newspaper of the North Korean Workers’ Party, economic independence “is not closing the doors and solving everything 100 percent on our own,” and stressed the fundamental rule of ‘selling what is present and buying what is missing’, otherwise known as comparative advantage*, as the key to advancing overseas foreign economic relations.

The newspaper article, titled, “The Main Principle for Maintaining the Basic Path Toward Construction of a Powerful Economic State,” explained, “In every country there are limited resources, and at the level of advancement of the economy as well as science and technology, and on the principle of trading based on what is available and what is necessary in each sector, it is normal to give what one has and receive what one does not in order to advance the economy.”

This fundamental rule of strategic trade can also be seen in the July 2005 agreement reached at the 10th meeting of the South-North Economic Cooperation Promotion Committee. At the time, the two Koreas agreed to mobilize natural resources, funds, technology, and more as much possible, based on what was available in each state, in order to advance joint national projects.

The newspaper stressed that “not mobilizing domestic preparations and possibilities and relying entirely on outside [powers] to advance the economy is, in the end, putting the fate of the economy in someone else’s hands…by fully mobilizing in-country forces and potential as a base, resolving necessary issues through foreign economic relations is just secondary.” The article added that the country “must stand by this principle to build a strong economy with an independent strength that would not waver even if there were global economic waves,” and that this would, “increase and guarantee the physical livelihoods of the people.”

The article closed by noting, “the important, fundamental issue as [North Korea] maintains the basic path toward the construction of a powerful economic state…is keeping the economic structure’s distinctive qualities alive while technically reviving the people’s economy,” and furthering the development of heavy industries and national defense industrial sector.

_______________

*North Korean Economy Watch: “This is not the definition of comparative advantage.  Click here for wikipedia.”

Institute for Far Eastern Studies (IFES)
5/6/2008

Even North Korea’s North and South Hwanghae Provinces, an area known as the DPRK’s ‘Ricebowl’, now appears to be suffering severe rice shortages, with prices at the end of last month hitting 4,000~4,500 DPRK Won per kg, more than three times the cost of a kilogram of rice last February, according to a June 5 report by Good Friends, a human rights group focusing its efforts on North Korea.

According to Good Friends’ latest newsletter, prices across South Hwanghae Province all rose to 4,500 DPRK Won on May 30, and at the same time, prices in South Hwanghae rose to over 4,000 DPRK Won per kg. In Sariwon, North Hwanghae Province, rice was 1,350 DPRK Won/kg in February, rose to 1,700 DPRK Won/kg in March, climbed again to 2,200 DPRK Won/kg in April, then shot up to 2,500 DPRK Won/kg on the 10 th of last month, 3,500 DPRK Won on the 25 th, and 4,200 DPRK Won on the 30 th. As the average monthly wage of a North Korean laborer is thought to be around 3,000 DPRK Won, rice selling at 4,000 DPRK Won/kg is well out of reach.

Corn prices in the Sariwon region at the end of last month was 1,950 DPRK Won/kg, 270 percent higher than the 720 Won prices seen in February, and the newsletter reported that prices throughout North and South Hwanghae Province were generally 1,950-2000 DPRK Won/kg. In particular, the newsletter stressed that at one military base in the Hwanghae area, rations have run so short that officers with children under the age of 12 will be ordered to send their families to their parents’ or in-law’s house until rations are reissued in November.

The newsletter drives the point home by pointing out, “These officers that send their families will take their meals on base…this is the first time since the ‘arduous march’ that there has been an order to send families [away] because of this kind of ration shortage.”

Institute for Far Easter Studies (IFES)
NK Brief No. 08-5-22-1
5/22/2008

Earlier this month, the South Korean government announced that it would seek to relax regulations concerning cooperative ventures and exchanges with North Korea. Currently, South Korean companies, organizations or individuals wishing to enter into business agreements with North Korean partners were required to get government permission not only for the project, but for the individuals involved in the project.

On May 8, the Ministry of Unification announced plans to abolish the system granting (or denying) permission to individuals involved in these ventures, and to maintain only the system through which it grants authority to carry out specific projects.

Cross-border traffic faced similar red tape, as permission was required not only for goods being imported or exported, but for the importers and exporters themselves. The new plan includes measures for these import and export regulations to be loosened so that it is only the goods that need review, not the people involved in the trade. In addition, trucks and other equipment used to carry goods across the border will be certified for a period of five years, more than twice as long as the current two-year licensing system.

The government is also moving to ease requirements calling for South Korean citizens to report all contact with North Koreans, and instead to require reports on conversations only if the topic falls outside that of the approved project.

Reflecting the growing amount and diverse nature of inter-Korean cooperative projects, and the ROK government’s policy of encouraging such exchange, this new proposal is aimed at reducing the red tape and paperwork hassles necessary to launch and carry out these projects by reducing the amount of information required by the applicant and the volume of cross-checking required by government offices. At the same time, the proposal calls for the introduction of fines for those found to be filing false applications or reports.

If this proposal does not get mired in the Cabinet or other committees, it is expected to reach the floor of the National Assembly sometime in June.

Update from Dr. Petrov:

Among the foreign companies attending the 11th Pyongyang Spring International Trade Fair in the DPRK last week was Phoenix Commercial Ventures Ltd.

Representatives from Phoenix Commercial Ventures attended the fair and manned a stand representing member companies of the European Business Association in Pyongyang, together with members of the management team from Sinji JVC and Hana Electronics JVC (joint venture companies formed with Phoenix) and Daedong Credit Bank - Phoenix’s banking partner in the DPRK - (since 2000 Daedong Credit Bank has been 70% owned and managed by a company run by professional fund managers. The remaining 30% is held by Korea Daesong Bank).

Nigel Cowie (CEO of Phoenix, General Manager and CEO of Daedong Credit Bank and Vice President of the European Business Association) said: “The trade fair provides an ideal venue and opportunity for companies to showcase their products and services, as well as providing an excellent networking opportunity. Phoenix Commercial Ventures and Daedong Credit Bank are proud to have participated in this regular event, which provides a springboard for economic development and growth”.

“Although the fair provides the opportunity for participants to establish new contacts for trade relationships, we also wanted to emphasise investment opportunities. Something that is often overlooked is that it is perfectly possible to create and run successful joint ventures in the DPRK. We have shown this with Daedong Credit Bank, which has been operating successfully for 13 years, and with Hana Electronics, which has been doing the same for five years, and are in the process of repeating the process with Sinji JVC, our youngest joint venture,” concluded Nigel Cowie

An extensive gallery of photos from the trade fair can be viewed on the Phoenix website.

ORIGINAL POST:
DPRK holds it’s largets ever Pyongyang International Trade Exhibition
Institute for Far Eastern Studies (IFES)
(NK Brief No. 08-5-19-1)
5/19/2008

From May 12th to the 15th, North Korea held the eleventh annual Pyongyang International Summer Product Exhibition in the Three-Revolution Exhibition Center. The trade show hosted over 180 foreign businesses, making it the largest convention to date.

Companies from North Korea, China, Taiwan, Russia, the Netherlands, Germany, Syria, Switzerland, Australia, England, Italy, Spain, Vietnam, Thailand, France, Finland, and several other countries participated in the show, displaying a wide range of manufacturing machinery, electrical and electronic equipment, conveyor systems, petrochemical materials, medical supplies, daily necessities, foodstuffs, and other goods.

With more than 120 Chinese companies and more than 30 vendors from Taiwan, North Korea’s largest-ever convention was host to over 50 vendors more this year than the previous record of over 130, set last year.

With a large-screen television positioned at the entrance of the hall displaying multimedia advertisements and a range of large-scale billboards and advertising displays for North Korea’s domestic companies set up around the exhibition center, there was also a distinct sense of commercialism in the air.

In particular, there were several booths selling the wares of large Chinese industries, as well as several affiliates of the Haier Group Co. Ltd., representatives from TCL Electronics Co. Ltd. , sales staff from China Hong Kong Manufacturers Co. Ltd. and other main offices directly participating in the event.

The Pyongyang International Product Exhibition has been held in the summer annually since 1998, and since 2005, a convention has also been held each fall.

UPDATE POST: No your eyes do not deceive you!  According to Yonhap,  Orascom Telecom (the people behind the DPRK’s latest efforts at building a moile network) also appear to be partnering with the DPRK on completing the Ryugyong Hotel:

North Korea resumed the construction of a highrise hotel building in Pyongyang last month, which was suspended for nearly 20 years due to funding problems, informed sources here said Monday.

“North Korean authorities restarted the construction of Ryugyong Hotel in April,” the sources said, quoting those who recently returned from trips to Pyongyang.

Orascom Telecom Holding of Egypt is North Korea’s partner for the construction, the sources said. “If completed, the hotel will be used as an accommodation for foreign investors and visitors, a business center and an international convention center among others,” a source said.

The 330-meter hotel is expected to be the world’s tallest when completed.(Yonhap)

Whatever they do, it will not be as cool as this. 

Here is the IFES take:

ORASCOM and DPRK to complete Ryugyong Hotel Construction
Institute for Far Eastern Studies
NK Brief No. 08-5-20-1
5/20/2008

Sources recently returning to China from Pyongyang have reported that North Korea has resumed efforts to complete the 105-story Ryugyong Hotel. With only 20 buildings in the world taller than the 330-meter structure, it would be by far the largest building in all of North Korea.

Baekdu Mountain Architects and Engineers began building the highrise in 1987 but halted construction in 1992 amid economic hardships and rumors of structural deficiencies. The North has been seeking foreign investment of up to 300 million USD to complete the structure.

Traders in Shenyang, China with ties to Pyongyang say the North has now found that funding, partnering with Egypt’s Orascom Group. Orascom has publicized significant investment plans for North Korea in the last twelve months. Orascom Telecom Holding announced on January 30 of this year that it had been granted the first-ever commercial license to provide WCDMA 3G technology-based cellular service to North Korea, and put forth plans to invest 400 million USD to create a nationwide infrastructure.

This deal followed on the heals of Orascom’s first venture into DPRK investment, announced in mid July, 2007, when Orascom Construction Industries purchased a 50 percent stake in the North’s Sangwon Cement Factory near Pyongyang. This venture involved the injection of 115 million USD, which is being used to modernize the facility and increase production capacity from 2.5 million tons to 3 million tons per year.

In addition to Orascom Telecom Holding and Orascom Construction Industries, the Orascom Group also includes Orascom Hotels and Development and Orascom Technology Solutions.

Read the full article here:
N. Korea resumes construction of luxury hotel  
Yonhap
5/19/2008

ORIGINAL POST:
Orascom Completes 3G Test Call in North Korea
Cellular News
5/19/2008

Orascom Telecom has announced the successful completion of the first call on the CHEO network in North Korea. Orascom  says that the success of this trial network using WCDMA technology represents the first step in providing coverage throughout the country.

CHEO, a subsidiary of Orascom Telecom, is looking to launch its full commercial mobile services within the second half of 2008.

Earlier this year, the company said that it expects to sign up an initial 100,000 subscribers when it launches its new GSM network in North Korea. Speaking on a conference call, CEO Naguib Sawiris said that the service would start in three main cities in the country and the company will then pause to assess the impact.

The company aims to spend an initial US$200 million on the network over the next twelve months, with US$100 per year for the two years after that.

Orascom’s license was granted to the company’s subsidiary CHEO Technology JV Company (”CHEO”) which is controlled by Orascom Telecom with an ownership of 75% while the remaining 25% is owned by the state owned Korea Post and Telecommunications Corporation. The terms of the license allows CHEO to offer services to its customer throughout the country, the duration of the license is 25 years with an exclusivity period of four years.

Regulators in the country met with their counterparts in China in March to discuss controlling mobile radio frequencies along the border between the two countries.

Plans by South Korean companies to build a CDMA network in the capital city in 2002 were cancelled following diplomatic pressure by the USA.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-5-13-1

Small and mid-sized Chinese companies are now looking toward North Korea. The Chinese press reported on May 5 that the industrial union of Dungta, a small city of just over 500,000 located south of Sunyang in Liaoning Province, recently spent seven days looking into opportunities in the North on the invitation of the Choson Bongwha Company.

The purpose of this recent invitation appears to be that North Korea is looking to improve small and mid-sized industrial activity by allowing foreign entities to set up shop. The North was seeking investment for an oil paint factory, a textile factory, and a rolling mill. The Chairija factory in China’s Dungta City is planning to invest three million euros (aprox. 470 million won) to set up a paint manufacturing facility in the DPRK.

The reason Chinese businesses are looking toward North Korea is that even in China wages have been growing sharply, and as labor laws are amended it has become more difficult to hire employees, driving up production costs and lowering the competitiveness of exports. Cheap and easy labor in North Korea is turning the eyes of many Chinese companies.

The importance of this latest visit by the Chinese industrial representatives was reinforced by the invitation by the Choson Bongwha Company, which specializes in commission-based textile production. This appears to be related to the North Korean authorities’ plan of boosting the standard of living throughout the country by hosting Chinese heavy industries. Recently in the North, companies have joined in partnerships with Chinese businesses to manufacture lighting and cigarettes, showing that Chinese businesses are also interested in enhancing their presence in North Korea’s domestic market.

Just as South Korea’s small and medium-sized businesses have turned to China in order to stay competitive, now Chinese companies are eyeing North Korea’s cheap labor force in order to maintain their edge.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-4-21-1
4/21/2008

The March issue of “Rimjingang”, a magazine publishing stories on life inside North Korea as reported by defectors and those still inside the DPRK, contains an eye-opening report on activities in North Korea’s markets.

Since 2003, North Korean authorities have legalized DPRK markets throughout the country. The previously existing farmers’ markets were remodeled into ‘combined’ general markets and all traders were permitted to sell their wares. After the legislation was passed, even in Pyongyang general markets emerged in each neighborhood.

According to the magazine, more than 60 markets have been set up, with each market housing around 50 traders. The use of mannequins at clothing stores and attractive price tags used to catch the eye of the shopper are in force. These days, it is not even surprising to hear cassette players extolling the virtues of a particular vendor’s goods. Sellers here do not speak abruptly to customers as they might in a State-run store. In markets, one can hear respectful language used even to children. These are not ideas taught by the labor bureau, but rather independent ideas put to use by the sellers.

Stalls selling a variety of seafood can also be found in a number of markets. Mackerel, squid and flatfish from the East Sea are among the surprisingly fresh products on display. This seafood is not on display courtesy of the North Korean government, but rather is delivered by private entrepreneurs running refrigerated trucks from the coast to Pyongyang. According to the magazine, a number of delivery services are in operation, providing goods to the highest level of North Korean society.

Around Pyongyang, a number of flower sellers have also popped up in the capitalist markets. It is custom to give flowers whenever there is an event in honor of Kim Il-sung or Kim Jong-il; but these days it is also popular for couples to give each other flowers as gifts. Even before the emergence of these markets, there was nothing that couldn’t be found in Pyongyang as long as someone had the money to purchase it.

Currently, women under the age of 39 are prohibited from working in markets, and efforts to extend this restriction to women under 49 have raised tension with many women trading in the markets. ‘Good Friends’, an organization aiding North Korea, has reported that recently thousands of women have organized in protest against security forces in the farmers’ market in Chungjin.

From Yonhap:

A North Korea-registered cargo ship carrying coal arrived in South Korea’s port city of Ulsan Sunday amid increased cross-border tensions, according to maritime police.

The 2,496-ton freighter Changseong carrying a 29-member crew docked at the port, South Gyeongsang province, around 10:20 a.m. earlier in the day.

The ship carried 4,000 tons of coal, the first batch of 12,000 tons to be delivered by April 25, the police said.

And how much are they paying? IFES has the answer…

North Korea, in keeping with rising international coal prices, appears to have hiked up the export price of heating briquettes twice in the last three months. A North Korea insider in Shenyang, China recently reported, “North Korea’s Trade Bureau Price Control Division raised export prices at least twice as this month came around, so the export price soared up to 50 USD per ton,” and, “As the rising international coal price trend continues, there is a high probability that North Korean heating briquette prices will also rise further.”

Last year, North Korean heating briquettes were exported at 30 USD per ton, but as 2008 rolled around and international prices suddenly shot up, DPRK coal prices rose by over 50 percent, putting a significant burden on Chinese importers. However, Chinese importers still prefer DPRK briquettes as shipping costs from alternatives such as Vietnam or Indonesia still make North Korean imports relatively inexpensive.

It has been reported that the DPRK Trade Bureau has approved the export of briquettes to China at below-official prices of 44~45 USD per ton in cases in which there is Chinese capital or equipment has been invested in the coal mine. These charcoal briquettes are North Korea’s largest export item, with China importing 170 million USD-worth in 2007 alone.

So if South Korea was lucky enough to get China’s price (an assumption that might not be the case): 12,000 tons (by April 25) x USD$50/ton= $600,000

Read the full articles here:
N. Korean cargo ship visits Ulsan  
Yonhap
4/13/2008

DPRK coal briquet export prices jump this year
Institute for Far Eastern Studies (IFES)
(NK Brief No. 08-4-10-1)
2008-04-10