North Korean Economy Watch

Joong Ang Daily
Limb Jae-un
10/8/2007

Days after both Koreas vowed to heighten cooperation, a lawmaker said yesterday in a report that the Kaesong Industrial Complex, the experimental site combining South Korean technology and North Korean labor, has been unprofitable so far.

In addition, the Ministry of Construction and Transportation said in a report yesterday that repairs to the airport on Mount Paektu will cost 280 billion won, or $304 million.

One of the agreements signed at the inter-Korean summit Thursday calls for allowing South Korean tourists to visit the scenic mountain on the Korea-China border.

“In terms of the runway length, Samjiyon Airport can accommodate large airplanes, such as a Boeing 747, but the condition of the airport is bad,” said an official of the construction ministry, who asked for anonymity. The airport, located on a plateau 1,000 meters, or 3,280 feet, above sea level, needs advanced navigation facilities, he said.

Despite the optimistic discussions during last week’s summit, inter-Korean economic cooperation has so far had dismal results, according to a report from Grand National Party Representative Lee Han-koo. Thirteen out of 16 companies operating at the Kaesong Industrial Complex are currently in the red, he said. Their debt is four times higher than their assets, he said. The combined assets of the 16 companies is only 4.5 billion won and their average annual sales is 790 million won.

“The biggest problem of the economic cooperation is that the relevant information has been held back from the public,” Lee said.

Meanwhile, a top European official said North Korea must go through serious reforms to become a viable investment destination for Europe.

North Korea is unattractive for Europe because “the conditions for investment are not safe enough and the regulatory environment is not predictable,” Guenter Verheugen, the EU Industry and Enterprise Commissioner, said in an interview with The Associated Press on Saturday.

Joong Ang Daily
Jo Dong-ho
10/9/2007

The summit meeting was quite successful. Some say it was because North Korea’s nuclear program was not on the agenda. Relinquishing its nuclear ambitions is the North’s card for normalizing ties with the United States and receiving rewards.

Costs cannot worry us either, because South Korea’s economy has grown so much that we can now pave a road even for a village on a remote mountain. If the size of government projects for culture cities or innovation cities were reduced, we would have trillions won, or billions more dollars, available.

As an economist, I would like to focus on roles of the government and the market discussed in the summit meeting. The ultimate question of economics can be summarized as how the market and the government will divide their roles to get maximum benefits out of limited resources.

The economics of past 200 years concludes that the best way is for the private sector to make independent decisions in economic activities and for the government to manage the rules so that those activities will be carried out fairly and smoothly. This can be likened to the relationship between players and referees in a sporting event.

The same principle applies to economic cooperation between South and North Korea.

Easing military tension, which will reduce the risk of investing in North Korea, is something that only the government can do. Repairing railways and roads is also the responsibility of the government. To improve transportation, communication and customs are the same. The private sector cannot do those jobs on its own.

However, building a shipyard or developing tourism on Mount Baekdu is for the private sector to carry out. But as these projects were agreed upon in the summit meeting, they must be carried out without feasibility studies. These projects were being discussed even before the summit meeting.

Private companies have been interested in them for years, but they have not made the decision to pursue them for many reasons, including low profits. Now the leaders of the two Koreas have made an agreement so these projects must be carried out. North Korea will probably make more unreasonable demands. The South Korean government will have to provide subsidies, and that will increase the burden on the South Korean people.

Some may find it disturbing that I criticize a few projects when there were many other good agreements reached. But these projects show the South Korean government’s basic view on economic cooperation with the North.

In fact, in all the projects agreed upon, there is a vague guideline for the division of roles between the government and the market. The same is true with the agreement to complete the first step of construction at the Kaesong Industrial Complex earlier than planned and to start the second step. The Hyundai Asan Corporation and the Korea Land Corporation are the ones doing the industrial park project, not the government.

These companies have their reasons for managing the industrial park project in its first stages. The government cannot and should not agree to implement the project at a faster speed. After North Korea tested its nuclear bomb, there was pressure to halt that project. Then the government said it could not intervene because it was led by the private sector. But the government has now agreed to complete it at an earlier date.

Some maintain that these agreements will improve inter-Korean relations so there is no use in dividing the government and the market. But it is more important that economic cooperation between South and North Korea improves properly than quickly. Let’s say the improvement of economic cooperation between South and North Korea is of the utmost value so the government can lead economic projects. But there must be good reasons for the government to intervene in the market.

The government has said until now that it supported economic co-operation with the North in an attempt to induce North Korea to open its doors and reform its economy. But that no longer sounds like enough. When providing assistance, the supporter must make sure that the party that receives assistance tries to stand on its own. But the president said we should not mention this in the summit meeting.

Six months ago, at an event for businessmen in the fisheries industry, the president said the government would provide support if need be, but what is most important is their own will and efforts.

One of President Roh’s strengths is that he is not afraid to say what he needs to say. That he could not say what he had to say to Kim Jong-il is what is most regrettable about the meeting.

Until recently, I was only aware of two recordings of Kim Jong il’s voice.  The first was his proclamation, “Long live the Korean People’s Army,” to a crowded Kim il Sung square.  The second recording was made by kidnapped South Korean film director Shin Sang-ok.  

This week, we got a third from the inter-Korean summit.  Click here to see it on Youtube. 

Joong Ang Daily
Kim Soe-jung
10/5/2007

President Roh Moo-hyun’s two-night, three-day visit to North Korea concluded with a friendly luncheon with North Korean leader Kim Jong-il followed later by enthusiastic cheering on the streets.

After signing a declaration at 1 p.m. yesterday, Roh and Kim dined together for about two hours at Paekhwawon State Guest House, clinking glasses, sipping wine and having a friendly conversation.

“President Kim Dae-jung also sat on this seat,” Kim said to Roh, sitting next to him at a round table.

“There have been reports that I have diabetes or heart problems but that’s not true at all,” Kim said.

“There have been reports about even my slightest movements. I think they are novelists, not journalists,” he said, drawing laughter from the audience. “But it does not feel bad to be widely covered.”

Roh and Kim said goodbye to each other about 3:15 p.m. at the front door of the guest house. “This is it,” said Kim. “Take care,” the two leaders said to each other.

Roh left the guest house where he stayed during the visit after leaving a message in the guestbook reading, “Thank you for the warm welcome. I appreciate it.”

Before the luncheon, Roh and First Lady Kwon Yang-sook visited an auto plant in Nampo city, about a 50-minute drive from Pyongyang. The plant produces about 1,000 vehicles per year, with 216 employees.

Roh and Kwon got in a sedan called “Junma,” manufactured with auto parts from South Korea’s Ssangyong Motors, and started the car. But the car did not move. Hyundai Motor Group Chairman Chung Mong-koo helped the president, but the car still did not move.

After the 20-minute visit to the plant, Roh went to a memorial tower to commemorate Seohaegapmun, a seawall built in 1986.

He wrote, “North Korean people are great,” at the guestbook there.

After the luncheon, Roh attended a ceremony to plant a pine tree he had brought from the South at a botanical garden in Pyongyang.

Kim Yong-nam, the nominal head of the communist country, and Roh scattered soil from Mount Halla in the South and Mount Paektu in the North around the root of the tree. They watered it with water from lakes in both mountains.

Roh left Pyongyang amidst cheering from the city residents carrying pink azalea bouquets.

On his way home, Roh visited the Kaesong Industrial Complex for the first time as the country’s president.

He arrived back in Seoul after 9 p.m. last night.

Joong Ang Daily
Ser Myo-ja and Kim Han-byul
10/5/2007

Thank you for flying, we’ll be landing in North Korea soon.

That announcement could be heard on a regular basis as the inter-Korean summit agreement laid out the groundwork for the first regular air route between North and South Korea.

Passengers will be allowed to fly from Seoul to an airport on Mount Paektu, on the North Korea-China border, according to the deal.

President Roh Moo-hyun and North Korean leader Kim Jong-il said the new air route is intended to boost inter-Korean tourism to the mountain. In 2005, Kim promised such a program to Hyundai Asan Chairwoman Hyun Jeong-eun during her visit. With cooperation from the Korea National Tourism Organization, Hyundai Group’s North Korea business arm began preparing for it, although nothing substantial now exists.

Standing 2,744 meters (9,002 feet), Mount Paektu has been worshiped by Koreans throughout history as the place of their ancestral origin, according to the foundation legend.

“The air route will be the starting point for new aviation cooperation between the two Koreas,” said Ahn Byung-min, a North Korea expert at the Korea Transport Institute. “The runway of Samjiyon Airport in the mountain has been repaired a bit, but other facilities, including the terminal, need more work.”

Since Kim’s promise to Hyun, the South has provided material to repair the military airport, located 1,300 meters above sea level.

Hyundai Asan welcomed the agreement yesterday, saying it has already researched various tour packages and promotional strategies. The company said it will consult with the government to expedite the beginning of the tour.

Tourism industry sources said tourists take no trips in the winter. So if everything somehow came together and the airport was fully upgraded, the earliest the trip could be offered is next spring.

Yun Chi-sul, owner of the travel agency Mount Paektu.com, said, “May is still wintertime on Mount Paektu. Some trips have been canceled even in early June.” He has sold tour packages to the North Korean mountain since 1998 by using routes from China.

South Korea’s two major airlines, Korean Air and Asiana, also welcomed the news, expecting increased demand. About 100,000 South Koreans visit the mountain via China each year by using air and car routes to the mountain. Direct air travel is expected to cut the travel time to about an hour.

The Ministry of Construction and Transportation said more detailed agreements need to be worked out between the two Koreas for the flights to actually be operated. Whether the North will allow a plane to fly above its inland areas or force it to detour above the Yellow Sea is still unclear.

Roh and Kim also agreed yesterday to send inter-Korean cheer teams to the 2008 Beijing Olympics via the Gyeongui Line, which links Seoul and Shinuiju in the North. It will be the first non-ceremonial use of the restored inter-Korean railroad, the leaders said.

“We will have to wait and see how far the railroad can be used for the travel,” said Ahn, of the Korea Transport Institute. “The North probably will feel a burden in allowing a civilian train from Seoul to run through the entire country.” The train trip from Seoul to Beijing will be 1,614 kilometers (1,002 miles).

The 518.5-kilometer-long Gyeongui Line, completed in 1906, was severed during the Korean War. The two Koreas agreed to restore the railroad in 2000 at the ministerial talks, and the South has spent 545.4 billion won ($588.7 million) for railroad construction, including 180.9 billion won worth of material and equipment sent to the North. After several setbacks, the two Koreas tested the restored railroad on May 17 of this year.

Joong Ang Daily
10/5/2007
Moon Gwang-lip

A raft of economic deals, including easing restrictions for South Korean companies hoping to invest on the western part of North Korea, new rail lines and more effective cooperation between the two countries filled yesterday’s agreement.

President Roh Moo-hyun and his North Korean counterpart Kim Jong-il agreed to accelerate the expansion of the Kaesong Industrial Complex in the North Korean border city.

Some economists and businesspeople in the South hailed the accord as a possible initial step toward developing the entire western section of North Korea.

Lim Soo-ho, a researcher at Samsung Economic Research Institute, said the agreement will provide a driving force for the two Koreas to produce “substantial” economic exchanges.

“The agreement to upgrade the dialogue channel for economic cooperation shows the North’s willingness to push forward with wider inter-Korean economic exchanges,” Lim said.

In the joint declaration made yesterday on the final day of Roh’s three-day visit to Pyongyang, the two Koreas agreed to upgrade the Inter-Korean Economic Cooperation Promotion Committee, the discussion channel between the two nations, from a vice minister-level group to a minister-level group.

Lim said the North’s willingness to make deals “has already been shown by its agreement to improve the ‘three-tong.’ ”

Three-tong refers to the poor conditions of passage (tonghaeng in Korean), communication (tongsin) and customs clearance procedures (tonggwan), which have been singled out as the biggest hurdles for the North in attracting outside investment into the Kaesong Complex, where more than 20 South Korean firms employ about 15,000 North Korean workers.

In the agreement, the two leaders agreed to “promptly complete various institutional measures” to tackle those areas.”

Currently, entry to the Kaesong Industrial Complex is only granted several days after it is requested. Cell phones and the Internet are not available in the area due to a lack of facilities. It also takes considerable time to clear customs.

In other accords, the two Koreas agreed on development projects in west coast areas of the North, including the establishment of cooperative complexes for shipbuilding in Anbyon and Nampo.

In addition, they agreed to create a “special peace and cooperation zone in the West Sea” encompassing Haeju. Civilian ships from North and South Korea will be allowed to pass through the Northern Limit Line, the de facto sea border between the two countries.

It was also agreed that freight rail services would be opened between Munsan and Bongdong.

“The agreements may be seen as the North preparing to develop its whole west coast region as an extension of the Kaesong Complex,” Lim said. “That is a positive sign for businesses interested in investing in the North.”

Business groups in the South welcomed the agreements, calling them substantial.

“I believe the inter-Korean summit this time will relieve businesses, at home and abroad, of concerns over uncertainty regarding investment in North Korea and encourage them to extend their investment in inter-Korean economic cooperation,” Yoon Man-joon, CEO of Hyundai Asan, which has exclusive rights to South Korean tourism to the North, was quoted as saying by Yonhap.

In a visit to Kaesong Industrial Complex last night, Roh said he won’t take political advantage of the new economic opportunities.

“The Kaesong Industrial Complex is a place where the two Koreas will become one and share in a joint success, not to make the other party more reformed and accessible,” Roh said. “We will work hard to make workers more comfortable working here. I wouldn’t call it reform or openness.”

He said reform and openness is considered good in the South.

The government said it is still too early to hazard a guess about the cost of putting the new plans into action.

“We cannot figure out yet how much money is needed to implement the new agreement,” said an official of the Ministry of Budget and Planning, who refused to be identified. “But we guess a lot of money is not needed for next year, as it is just a preparation period.”

Still, the government has earmarked 1.3 trillion won ($1.4 billion) for next year’s inter-Korean economic cooperation projects.  Of that, 900 billion won has been set for use by the government, with 430 billion won available to businesses involved in implementing the new agreement.

Joong Ang Daily
Ser Myo-ja and Chung Ki-hwan
10/5/2007
The Northern Limit Line remains in place, but vessels from both North and South Korea will be allowed to cross the “special peace and cooperation zone” in the Yellow Sea, according to yesterday’s agreement.

The deal for a joint fishing zone along the maritime border between the two Koreas angered South Korean fisherman and conservatives.

“We oppose the plan,” said Kim Jae-sik, a 46-year-old fisherman representing Yeonpyeong Island in the Yellow Sea near the border. “We will lose our fishing sources when large ships from the two Koreas flock to the area.”

The joint fishing zone is intended to avoid accidental military clashes, the two leaders said. The top defense officials from the two countries will meet in Pyongyang next month to discuss military measures, including safety guarantees inside the zone.

The inter-Korean deal also agreed to open a direct maritime route in the Yellow Sea to allow travel by Korean civilian vessels. The North’s Haeju Harbor will open for that purpose. The deal did not mention the limit line.

South Korean conservatives said they are concerned that the South has yielded to the North’s longtime challenge to the de facto maritime border.

Grand National Party Chairman Kang Jae-sup said, “I am concerned that the plan for establishing a joint fishing zone and the peace waters is a shortcut to incapacitating the Northern Limit Line.”

The Korea Veterans Association also issued a statement in opposition. “The North has initiated two sea battles so far to disable the line,” the association said. “Without a national consensus, no agreement should be made at the defense ministers’ talks next month regarding NLL.”

North Korea has never agreed to the limit line, which was established by a a United Nations commander in 1953. In 1999, the two Koreas’ navies clashed in a battle after the North crossed the line. Another sea skirmish took place in 2002 with the loss of six South Korean soldiers.

Experts also expressed concern that the military border was pushed aside in the name of economic cooperation. “Building the peace zone in the Yellow Sea and allowing the North’s civilian vessels to directly travel in the western waters on the Haeju route have provided an opening for the North to nullify the Northern Limit Line,” said Yoo Ho-yeol, a North Korean studies professor at Korea University.

Ahn Byung-min, a North Korea expert at the Korea Transport Institute, pointed to the economic gains for the direct sea route. “Inter-Korean maritime shipments have had to detour until now, but the direct route will save a lot of time and logistics costs,” Ahn said. “In terms of the economy, it is a very constructive agreement.”

Fishermen at the northern-most Baeknyong Island worried their movements will still be restricted while North Koreans freely come down to catch fish. “Since the 1970s, the North Koreans frequently violated the border and operated in the southern area,” said Choi Jong-nam, a Baeknyong fisherman. “What if things do not change for us?”

Yonhap
10/5/2007

South Korean electronics giant Samsung Electronics Co. will consider investing in North Korea if the communist country provides better infrastructure and business-related regulations as promised in an agreement reached during the just-ended inter-Korean summit talks, the company’s top executive said Friday.

“We will review investment opportunities in the North if Pyongyang provides systems and regulations needed for safe business operation there, and guarantees improvement in the passage of civilians, customs clearance and communications as promised, along with a stable supply of electricity and water,” Yun Jong Yong, head of Samsung Electronics, said in a statement issued after returning from Pyongyang.

Yun and other business leaders accompanied President Roh Moo-hyun for the second-ever inter-Korean summit talks.

As they wrapped up the three-day summit, President Roh and his North Korean counterpart, Kim Jong-il, on Thursday agreed to a number of inter-Korean business projects, including accelerating the expansion of an industrial complex in the North’s border city of Kaesong, where more than 20 South Korean small- and medium-sized enterprises run facilities.

They also agreed upon improving related regulations for the passage of civilians, customs clearance and communications, which many businessmen have cited as challenges hindering operation in the North.

Yun said the leaders of the two Koreas had more “tangible” negotiations — especially on inter-Korean economic cooperation — than then South Korean President Kim Dae-jung had with the North Korean leader at the previous meeting held seven years ago.

Since the 1990s, Samsung Electronics has been engaged in business in the North, including software development projects, but has made little large-scale investment in the communist country.

Yonhap
10/5/2007

Leaders of the two Koreas discussed issues relating to oil field development and exploration at the latest summit in Pyongyang, South Korea’s top economic policymaker said Friday.

“The oil development issue was discussed at the summit, and North Korean leader Kim Jong-il expressed keen interest in the South’s oil field and gas exploration projects,” Finance Minister Kwon O-kyu said in a press briefing.

“South Korea also discussed the development of resources in North Korea, including oil fields.”

Kwon said the oil development issue may continue to be discussed at talks of the proposed Joint Committee for Inter-Korean Economic Cooperation, a committee to be formed through upgrading the status of the existing Inter-Korean Economic Cooperation Promotion Committee in an effort to accelerate bilateral economic cooperation.

Kwon played down concerns about potential financial burdens on the government from proposed inter-Korean business projects.

At the three-day summit, ended Thursday, the two Koreas agreed on a range of cross-border business projects, including creation of a special economic zone at the North’s western port city of Haeju, development of an existing port of Haeju, and expansion of an industrial complex in the North Korean border town of Kaesong.

The two also agreed to jointly repair and maintain the North’s dilapidated expressway linking Kaesong and Pyongyang, as well as the North’s railway between Kaesong and Sinuiju on the North’s western Chinese border.

The two countries also decided to construct an inter-Korean joint shipbuilding complex in Nampo, near Pyongyang.

South Korea will be able to finance the development of Haeju port through a proposed 2 trillion won (US$2.2 billion) overseas port development fund, which will be created by the nation’s port authority, Kwon said.

In a related note, Maritime Minister Kang Moo-hyun said in a meeting with reporters that about 220 billion won will be spent for the development of the port which will have eight berths, including two container berths.

The government will also able to attract international cooperation for repairing the railways since it is part of a wider international railway project of Trans-Siberian Railway, he said.

South Korean shipyards, which hold a combined 45 percent share of the global market, by investing in the envisioned shipbuilding complex will be able to maintain their competitiveness through access to North Korea’s cheap labor, Kwon said.

In case of the summit’s impact on domestic financial markets, Kwon declined to make concrete predictions, but said rising expectations of improving profitability and competitiveness by domestic businesses might be able to boost investor spirits.

Korea Times
Kim Tong-hyung
10/5/2007

It will be quite a long time before Pyongyang earns its stripes as a hip and happening city if it ever does. But, judging by the glimpses revealed during the three-day summit, it seems that not all is gray and grim in the North Korean capital.

First lady Kwon Yang-suk and other South Korean officials ran into a room full of headsets Wednesday at Pyongyang’s Grand People’s Study Hall as students managed to keep a straight face scribbling down English conversations played on tape.

“Repeating is the best,” said a North Korean student when asked what is the secret to learning English, providing no relief to his peers in the South who hear the same thing until their eardrums wear out.

Perhaps improving cooperation between the two Koreas will do little to better the foreign language skills of students from either side of the border who grab English books with the same enthusiasm as a kid force-fed vegetables.

However, it seems clear that Pyongyang’s youngsters of today are more concerned about internationalization than they appeared in the first inter-Korean summit seven years ago.

South Korean delegates went on to tour the Kim Chaek University of Technology where they found students, mostly studying English, searching for video files and text stored in computers.

The university’s library has 420 desktop computers, 2 million books and more than 10 million electronics books that can be accessed via a local area network (LAN) connection or from telephone modems at home.

North Korean officials were eager to show their elite students studying English to South Korean authorities, quiet a surprise from a country dominated by the “Juche,” or self-reliance, ideology.

And at least on the educational front, it seems that computers are becoming a part of everyday life for Pyongyang’s younger generation, although they are far behind their tech-savvy southern neighbors who have television on their cell phones.

Not every picture of change in Pyongyang was staged. South Korean correspondents have sent photos of young North Korean women gliding through the streets in clothes that seemed to be ripped from Vogue magazine. Some even had heavy mascara that would qualify them for a Johnny Depp pirate movie.

Bright colors of yellow and pink were easily seen among the women waving their hands to the limousine convoy of South Korean delegates upon their Pyongyang arrival.

Surely, North Korean fusionists have come a long way since their universally pale makeup and grayish attire seen by South Korean reporters during the 2000 summit.

Even North Korean government officials involved in the formal talks looked a little more contemporary than last remembered, with many of them suited up in tailor-cut, three-button suits.

The security officials looked better too. Gone were the bodyguards with big hats, khaki uniforms and oversized gun holsters who flocked around former South Korean President Kim Dae-jung back in the first talks.

Instead, North Korean bodyguards today were dressed in black suits and moved with a hand on their earpieces, making them hardly distinguishable them from their South Korean counterparts.