North Korean Economy Watch

…and it is stunningly clear. 

We can finally see the galss starting to go up on the Ryugyong Hotel:

Click image for larger version

I also blogged a few weeks ago about new housing construction near the Potongang Gate (see here).  Well this project is nearing completion (at least from the outside).

Click image for larger version

We can also see the new Pyongyang Folk Village taking shape (39° 3’40.12″N, 125°49’28.42″E).  Here is an overview of the facility:

Here are the replicas of Pyongyang landmarks under construction:

As I mentioned in a previous blog post, there seem to be replicas of different burial mounds, the West Sea Barrage, Monument to Party Founding, Ryugyong Hotel, Mangyongdae Children’s Palace, and much more.  There even appears to be a miniture Korean Penninsula that visitors can walk around.

According to the Donga Ilbo:

North Korea seeks to directly handle tours to the Mount Kumgang area after forcing South Korea out of the venture, said a source on North Korean affairs yesterday.

Korea Taepung International Investment Group, an agency under the North’s powerful National Defense Commission, has reportedly recruited Chinese companies to help operate the tour since January this year.

The source said, “Negotiations have significantly progressed in certain aspects,” adding, “I understand the North Korean leadership is considering directly operating the Mount Kumgang tour by getting Taepung or an agency under the National Defense Commission to hire multiple Chinese companies as agencies after forcing the Hyundai Group out of Mount Kumgang and Kaesong.”

Another informed source said, “Since Taepung is an agency that holds overall authority over attracting investment for the North’s national development, the group is believed to be advising and supervising efforts to resume the Mount Kumgang tour as well.”

On this, a South Korean government source said, “Even if the North severs ties with Hyundai Asan Corp., complicated legal action will continue over the North’s violation of the contract,” adding, “No Chinese company will seek to serve as a comprehensive business operator, so the new plan appears to be the most practical alternative for North Korea.”

If Taepung or an agency under the defense commission starts to operate the tour directly, the tour program will likely be operated under a completely different system.

The tour’s South Korean operator, Hyundai Asan, has wielded comprehensive and monopolistic rights to the venture, but North Korea appears to have taken over as the operator, with multiple foreign companies taking part.

An agency under the North’s defense commission or military will likely step forward to operate the tour in lieu of Pyongyang’s Asia-Pacific Peace Committee under the ruling Workers’ Party or the Landmark General Development Bureau under the North Korean Cabinet.

And according to Yonhap:

Dozens of South Korean business officials will visit North Korea this week to comply with Pyongyang’s demand that they be present when the communist state freezes their assets at a joint mountain resort, officials said Monday, amid fears of further confiscation.

North Korea already confiscated five South Korean government-run facilities, including a family reunion center and a fire station, at its Mount Kumgang resort on the east coast last week.

The move reflected Pyongyang’s anger over Seoul’s refusal to resume cross-border tours that were halted in 2008 after the fatal shooting of a South Korean tourist by a North Korean guard near the resort.

North Korea insists it has done everything to explain the shooting and guarantee safety for future South Korean visitors. South Korea doubts the genuineness of the gestures, demanding an on-site probe participated in by its officials and tangible safety measures.

The tours earned millions of U.S. dollars for the sanctions-hit North Korean regime before they were suspended. The North Korean demand for their resumption comes as the isolated state struggles to curb its economic troubles that deepened under U.N. sanctions imposed for its two nuclear tests, the latest in May last year.

An official at Hyundai Asan, the chief South Korean operator of the now-suspended tours, said 40 people from 31 companies, including his own, applied for permits to visit North Korea on Tuesday.

The North last week demanded “real estate proprietors and agents” attend the implementation of its plan to freeze their assets, which include hotels, a golf course and a variety of shops.

Officials at the Unification Ministry in Seoul said they plan to grant the permits.

“It is our basic stance that we respect the decisions of the companies,” spokesman Chun Hae-sung said.

Dozens of South Korean firms possess 360 billion won (US$320 million) worth of real estate in the mountain tourist zone.

During a meeting with Hyundai Asan officials stationed at the resort Monday morning, North Korea did not specify which companies should attend the freeze this week, a ministry official here said.

“The North Korean authorities remained ambiguous,” the official said, declining to be identified. “That will leave the door open for anyone wanting to visit North Korea this week.”

South Koreans fear Pyongyang may be taking steps to confiscate more South Korean assets. The North seized the Seoul government-run facilities 10 days after freezing them and expelling personnel.

South Korea has pledged retaliatory measures without being specific. A senior Unification Ministry official, who spoke on the condition of anonymity, said Monday the measures would be announced by early May.

South Korea also warned North Korea will be to blame for any further deterioration of relations between the divided states.

The Korea Herald speculates on how the South Korean government might retaliate:

The government is reportedly considering limiting the volume of agricultural and marine products from North Korea or tightening regulation of imports in other ways.

Certain North Korean items, such as sand, hard coal and mushrooms, already require the unification minister’s approval each time someone wants to bring them into the South. Seoul could expand the number of such items, making the import process more troublesome.

Currently, South Korean materials going into the joint industrial park in the North’s border town of Gaeseong and products rolled out from factories there account for more than 60 percent of inter-Korean trade.

Last month’s inter-Korean trade volume amounted to $202 million, 63 percent of which were goods going in and out of the Gaeseong park.

Since cross border tours to Mount Geumgang have been stalled, most of the remaining inter-Korean trade volume (35 percent) consists of agricultural and marine products.

Although the growth of inter-Korean trade has slowed under the Lee Myung-bak administration, South Korea is still the North’s second largest trading partner after China, according to the Unification Ministry.

Inter-Korean trade accounts for about 30 percent of the North’s trade with other countries, while China takes up about half.

The Seoul government could also further restrict nongovernmental aid to the North, which it has limited ever since Pyongyang launched a rocket in April last year.

It could also engage to the international community about the North’s “wrongful measures.”

Read the full stories here:
N. Korea to Directly Take Over Mt. Kumgang Tour
Donga Ilbo
4/26/2010

S. Koreans to visit N. Korea as Pyongyang moves to freeze their assets
Yonhap
Sam Kim
4/26/2010

Seoul may cut trade with N. Korea
Korea Herald
Kim So-hyun
4/25/2010

UPDATE: Here is a satellite image of the completed project:

UPDATE: Mansudae Street construction is now visible on Google Earth.  Below I have included before and after pictures.  If you open them in separate browsers, you can click back and forth between images to compare.

ORIGINAL POST: As capitalist countries are struggling with falling property values and a glut of housing inventories, Pyongyang is experiencing a housing construction boom (previously covered here and here). In North Korea, however, the housing boom is not the result of an “unexpected” asset bubble but rather a deliberate government policy to achieve a “strong and prosperous country (Kangsong Taeguk)” by 2012 — the year the earth is predicted to be destroyed according to the Mayan calendar.

As part of this construction boom, the North Koreans are (re)building a substantial number of housing units on Mansudae Street east of the Potong River Gate and north of the Russian Embassy.  Kim Jong il recently gave an “on-the-spot-guidance” visit there, so using information provided in the coverage of his tour, I was able to map out the areas to be torn down and rebuilt.

First, here is the image from Kim’s visit (courtesy of Daylife and Reuters):

(click image to enlarge)

Using this and other information, I was able to map out the construction areas in Google Earth.  Here are some pictures to explain the scale of the work (click images to enlarge):

Construction area

(red=demolish/rebuild; white=preserved)

Previous real estate posts can be read here.

Previous construction posts can be read here.

If you would like to make an effort at improving on my work, you can download my Google Earth overlay here and use it yourself. Some of the buildings in the construction area are specifically identified in North Korea Uncovered.

UPDATE: Here are some pics of the construction site:

According to KCNA:

Report on Implementation of 2009 Budget and 2010 Budget
 
Pyongyang, April 9 (KCNA) — Deputy Pak Su Gil, vice-premier and minister of Finance, delivered a report on the results of the implementation of the DPRK state budget for last year and its state budget for this year at the 2nd Session of the 12th Supreme People’s Assembly held on Friday.

According to the report, the state budget for last year was successfully implemented and, as a result, the state budgetary revenue was overfulfilled 1.7 per cent, an increase of 7 per cent over the previous year.

Ministries, national institutions, management bureaus and complexes overfulfilled the national plans for budgetary revenue and all provinces, cities and counties across the country also overfulfilled their plans for local budgetary revenue.

Last year’s plan for state budgetary expenditure was carried out at 99.8 per cent.

An investment from the state budget was focused on the development of metal industry while a huge financial allocation was made for the power and coal industries and the railway transport.

8.6 per cent more funds than the previous year were spent for capital construction and expenditure was increased for agriculture and light industry.

A 7.2 per cent greater financial disbursement than the previous year was made for the field of science and technology, surpassing the level of the latest science and technology in domains of space technology, nuclear technology and CNC technology and putting the key industries of the national economy on a high scientific and technological basis.

A large amount of fund went to the field of cultural construction and 15.8 per cent of the total state budgetary expenditure was spent for national defence.

The reporter said that the scale of revenue and expenditure in the state budget for this year has been set on the principle of improving the people’s standard of living to meet the requirements of the policy of the Workers’ Party of Korea on conducting a great offensive to bring about a decisive turn in the above-said work.

This year’s plan for state budgetary revenue is expected to grow 6.3 per cent over last year. The revenue from the profits of state enterprises, the main source of state budgetary revenue, is expected to go up 7.7 per cent over last year, that from the profits of cooperative organizations 4.2 per cent, that from the fixed asset depreciation 2.5 per cent, that from real estate rent 2 per cent and that from social insurance 1.9 per cent.

This year’s plan for state budgetary expenditure is expected to show an 8.3 per cent increase over last year.

The spending for the light industry is expected to go up 10.1 per cent, that for agriculture 9.4 per cent and that for metal, power and coal industries and railway transport 7.3 per cent as compared with last year.

The expenditure for the machine-building industry is expected to go up and an 8.5 per cent bigger financial allocation will be made for scientific researches and the introduction of new technologies.

A 6.2 per cent bigger financial disbursement than last year is expected to be made to more successfully enforce the popular policies, a proof of the advantages of Korean-style socialism centered on the popular masses.

15.8 per cent of the total state budgetary expenditure for this year is expected to be spent for national defence.

It is expected that a large amount of educational aid fund and stipends will be sent for the children of Koreans in Japan this year, too.

In order to successfully implement this year’s state budget, all domains and units of the national economy should work out enterprising and realistic business strategy and management strategy and tenaciously carry them out by relying on a high degree of mental power of the producer masses and thus fulfill the plans for budgetary revenue without fail, stressed the reporter.

And according to the Choson Ilbo:

North Korean leader Kim Jong-il can freely dispose of 20 percent of his country’s budget, a former secretary of North Korean Workers’ Party has said that. Hwang Jang-yop told the Asahi Shimbun, “Only 30 percent of the budget is spent on public services, while 50 percent is earmarked for military spending.” Hwang defected to South Korea in 1997.

Hwang was interviewed by the daily during his visit to Japan on April 4-8. “Kim Jong-il’s dictatorship is 10 times worse than his father’s. People have a painful life,” he said.

Asked if the North is likely to abandon its nuclear weapons program, he said, “There is no such possibility. But the North won’t use the weapons. They’re a means to maintain the regime.”

To the question why Kim’s eldest son Jong-nam was passed over for the succession, he said, “At first, Kim Jong-il thought of choosing his eldest son as his successor. But he seems to have changed his mind as he fell in love with Ko Young-hee, the mother of Jong-un, his third son, after Jong-nam’s mother Song Hye-rim died.”

Commenting on the North’s bizarre abductions of Japanese citizens in the 1970s and 80s, he said, “The North needed native Japanese to train agents who would work in Japan.”

Read the full story here:
Kim Jong-il ‘Gets 20% of N.Korea’s Budget for His Own Use’
Choson Ilbo
4/12/2010

According to the Hankyoreh:

According to the final report on North Korea’s 2008 census, the population of the country listed under the category of ‘sex’ is 11,721,838 men and 12,330,393 women, for a total population of 24,052,231. However, under the category of ‘region,’ the totals are 11,059,489 men and 12,290,370 women, for a total population of 23,349,859. In other words, some 702,372 people are missing from the second total.

What accounts for the difference? One clue is the fact that the total population by region omits the population residing in military camps, which is included in the population under the category of sex. Additionally, men accounted for 94.3 percent of the omitted population, or 662,349 people, while women represented just 5.7 percent, or 40,023 people. According to age, some 96.4 percent of the omitted total, or 676,737 people, were in the population aged 15 to 29. In particular, people aged 20 to 24 accounted for 57 percent, or 400,052, of the omitted number. In short, this means that men aged 15 to 29 were systematically left out of the estimates for total population by region. Seoul National University Professor Park Keong-suk, who analyzed the census results, said, “This appears to indicate an attempt by North Korean authorities, for security reasons, to avoid clear information coming to light on the distribution of population at military camps by region.”

In any event, the results of the census, which included military camps in examination, essentially confirm a population of 702,372 people residing at military camps in North Korea. Does this mean that the total scale of the North Korean People’s Army is just over 700 thousand troops? It is still too early to reach any conclusions. According to a statistic on “distribution of economically active population aged 16 and older by region,” a total of 699,020 people (425,319 men, 273,701 women) were listed as being employed in the areas of public administration, national defense and social security. These figures do not include residents at military camps, and due to a lack of detailed information, it is impossible to confirm how many of these 699,020 people are employed in the area of national defense.

Thus, while a precise determination is impossible, it can be estimated that the scale of the Korean People’s Army is 702,372 troops plus some additional, unspecified number. This differs markedly from South Korean Ministry of National Defense estimates, which put the size of North Korea’s regular army at 1.19 million people as of December 2008. In view of the fact that 27 percent of enlisted men in the South Korean military as of 2008 were noncommisioned and commissioned officers with addresses outside their bases, analysts say there are grounds for viewing the Defense Ministry’s estimates on the scale of the North Korean army as inflated.

I translated some of the data into excel so I could start playing with it.  Here are the DPRK’s top ten largest cities by population:

It should be noted that the number of residents listed in Pyongyang are for the Province of Pyongyang–not just the city center.

Here is some more thoughtful analysis of the census data by the Wall Street Journal and links to the census reports.

Sangim Han
Bloomberg
3/10/2010

North Korea’s cash-strapped government is offering to swap sand, resources licenses and rental income in return for concrete, steel and fuel, according to Munhwa Ilbo newspaper.

The government sent letters to companies in China and South Korea asking them to invest $320 million in a construction project in the capital, Pyongyang, the Korean-language paper reported. In addition to the investment, the government is seeking 30,000 tons of diesel and gasoline, 50,000 tons of steel bars and 300,000 tons of cement, the paper said, citing one of the letters.

In return, the letters offer investors long-term rental income, the rights to resource development and sand. North Korea’s finances are being squeezed by United Nations sanctions imposed because of the country’s nuclear weapons program.

The letters were sent to the companies via an investment group, the paper said. The government wants to build 100,000 homes in Pyongyang, it said.

Institute for Far Eastern Studies (IFES)
NK Brief No.09-12-21-1
12/21/2009

The Korean Central Broadcasting Station (KCBS) announced on December 16 that the North Korean Supreme People’s Assembly Standing Committee has revised the North’s Real Estate Management Law, the Commodities Consumption Level Law, the General Equipment Import Law, and other laws related to economic management. This on the heels of the November 30th announcement, when authorities announced across-the-board currency reform measures, apparently in an attempt to regain control of the country’s market economy.

The KCBS reported that the Real Estate Management Law “regulates fundamental issues of real estate registration and inspection, use, and payment of user fees,” but offered no further details.

Since 2006, North Korean authorities established new offices in each city, county, and region throughout the country. These offices were responsible for surveying property, occupied and vacant, claimed by organizations and businesses, as well as recording the size of each structure on these lands.

In the mid-1990s, with the onset of serious food shortages, food rations to workers were halted and North Korean authorities from every branch and level (including the military, railway, business enterprises) were encouraged to distribute foodstuffs in ways more beneficial to themselves. These authorities planned to resolve food distribution issues through agricultural moves.

The new Real Estate Management Law appears to be aimed at labeling land used for private purposes as strategic nationalized land and strengthening the state’s ability to collect real estate taxes. However, the broadcaster failed to explain in detail how this restructuring would occur.

By enacting the Commodities Consumption Level Law, North Korean authorities can control the basis at which goods are injected into each production sector. This appears to be in preparation for taking cost-reduction measures for enterprises related to production in each region. The broadcaster explained that there were legal demands for the enactment and enforcement of regulations on the level of consumption.

The General Equipment Import Law newly regulates import plans, contracts, and the use of goods by factories, schools, hospitals, ships and broadcasters in an effort to control quality. In each sector, the measure prevents double-investment and controls consumption competition.

As these economic control measures are focused on factories and other bases of production along with importers, it appears that, in conjunction with the recent currency reform, North Korean authorities are attempting to control production quality on all levels. For example, as the North is suffering ongoing supply difficulties due to a lack of materials, the law on consumption levels is an attempt to restrict goods by forcefully managing demand. The law on imports appears to be in an effort to regulate general-use goods in light of the increased reliance on foreign equipment.

Institute for Far Eastern Studies (IFES)
NK Brief No.09-11-23-1
11/23/2009

Companies in the inter-Korean joint Kaesong Industrial Complex (KIC) have recorded a growth since North Korea abolished restrictions on traffic to and from the complex, as well as on the number and length of visits by South Korean workers.

According to the South Korean Ministry of Unification, companies in the KIC recorded September exports worth 3.42 million USD, 21.5 percent higher than the 2.82 million USD-worth of goods exported in September 2008. From May 2008 to July of this year, KIC exports were lower than the previous year every single month, but finally showed a 29% jump in August, the first time in 15 months. The increase in the value of the complex’s exports was helped by exports of machinery and household electrical appliances now being produced there.

There are currently 116 companies operating in the KIC, but according to the Ministry of Unification, at the end of September there were only 40,848 North Korean laborers working there, and the problems revolving around hiring more workers are clouding future prospects for the complex. As there are only around 40,000 North Korean workers living in Kaesong City and the surrounding area, it appears that the KIC cannot currently accommodate any new businesses. This poses a dilemma for the 18 construction projects currently underway, and puts on hold another 105 projects that have been allotted land within the KIC, but have not yet begun construction of any factories.

Furthermore, despite the fact that managers in the KIC are trying to maintain a sense of stability in order to attract further orders, if the North decides to close the door on friendly policies, the beginning of next year could see a reversal of the growth. The KIC is, at best, enjoying an ‘uneasy peace.’

KIC officials say that the primary issue at the moment appears to be whether roads to and from the complex will be constructed and whether the inter-Korean agreement reached during the Roh Moo-hyn administration to provide dormitories for 15,000 workers will be implemented. According to a survey of businesses, companies already in operation and/or under construction want to hire an additional 26,000 workers. However, with the current government closely linking the North Korean nuclear issue with inter-Korean relations, the road and dormitory construction, which would cost tens of millions of dollars, would have to be based on progress toward denuclearization, the likelihood of which, at this point, is cloudy.

The incumbent government also seems to put more weight on maintaining the current, relatively stable state of things in the complex than on further developing the group project. One problem they are working to solve is that officials managing the KIC are now prepared to rent out space in one ‘apartment-style factory’ in which many different companies operate production facilities under one roof, but are having difficulties finding willing clients, while current tenants complain about close quarters and a lack of space.

Kangsong Taeguk 2012 comes to Hyesan! According to the Daily NK:

According to an inside source, the North Korean authorities have, at the behest of Kim Jong Il, been using the “Mt. Baekdu Tourism Fund’ for improving areas in and around the city of Hyesan in Yangkang Province.

The source relayed the news in a phone conversation with The Daily NK on the 11th, saying, “Recently, many changes have been taking place in Hyesan. At the General’s suggestion, the ‘Mt. Baekdu Tourism Fund’ was channeled to the city, and has been used to dramatically improve the road to and beautify the area around the Samsu Powerplant, as well as creating parks around the Kim Jong Suk Performing Arts Theater.”

In May 2007, after five years under construction, the North Korean authorities held a ceremony for the completion of the Samsu Powerplant. Subsequently, in preparation for an onsite inspection by Kim Jong Il, the beautification of the area around the plant was completed and a new, 24km section of the No. 1 Road running from nearby Wangduk Station (one of a number for the exclusive use of Kim Jong Il) up to the powerplant was constructed.

Construction of the road was apparently extremely difficult, involving removing mountainsides and filling in streams to facilitate the construction of the road, part of that which connects Hyesan with Samjiyeon.

North Korea mobilized around 100,000 people in the period between January 2007 and May 2008 for the work, including 30,000 members of the June 18th Shock Troop, workers from a nearby collective farm, Hyesan Factory and other enterprise laborers.

The construction funds, said to be in the region of $800,000, were sent directly, in cash, to the Party Provincial Secretary and the Provincial Trading Bureau in 2007. They even brought in iron rods, gasoline and diesel fuel from China.

It is apparently difficult for even the vehicles of officials to pass down the No. 1 Road due to the existence of an Escort Bureau checkpoint.

The source also explained about other projects, “Separate from this construction, the project to renovate the road which goes around Wangduk to the Chundong district of Hyesan (where the No. 10 Army Corps Headquarters is located) also began recently (in 2009), and $80,000 has been invested in a beautification project in the area around the Kim Jong Suk theater.”

The road construction project connecting Wangduk and the Samsu Powerplant and the project to repave the existing road from Wangduk Station to the No. 10 Army Corps Headquarters in Chundong were both completed between May 2008 and the end of the “150-Day Battle” in preparation for Kim Jong Il’s inspection of army units in the area.

The beautification of the area around the newly constructed Kim Jong Suk Theater is also noteworthy. The surrounding area contains the No. 7 and No. 8 apartments, which until recently were extremely worn out. Additionally, when an 8-floor apartment next to the No. 7 apartment collapsed in July 2007, some 30 people are said to have lost their lives.

The authorities, while remodeling the No. 7 and No. 8 apartments in an effort to clean up the area, renovated dilapidated apartments and even started a project to lay down Chinese paving blocks in the area.

The Daily NK’s source could not be sure what the original source of the funds was, but confirmed in particular that “it was first tapped under the General’s instructions. Most officials are aware of this.”

On a related note, work on the incomplete Mt. Baekdu-Samjiyeon Railway has still not resumed since its interruption in May. This would seem to indicate that even the Mt. Baekdu Tourism Fund was insufficient for the work.

Read the full story here:
Intensive Public Works Reported in Hyesan
Daily NK
Lee Sung Jin
11/20/2009

Institute for Far Eastern Studies (IFES)
NK Brief No.09-11-20-1
11/20/2009

The recent hike in narcotics prices in North Korea appears to be due to rising prices on homes and in markets.

According to Daily NK, “Recent narcotics prices have grown considerably,” and, “If narcotics prices rise, market prices rise across the board.”

As North Korean officials crack down on narcotics production and distribution, the availability of Philopon and other narcotics has been sharply reduced. This reduction in supply is driving up prices.

Drug prices in North Korea first jumped sharply in February of last year, as officials began cracking down on production centers in Hamheung and Pyeongseong.

These raids were said to sharply reduce narcotics production, and in the same month the price of one kilogram of “Ice” shot up to 1,000 won (approx. 2,700 USD), and then again to as much as 2,000 won in April. As soon as narcotics prices rose, housing prices also increased and the price of all factory-produced goods in markets went up. It is as if inside North Korea, the rise in narcotics prices causes the price of everything to increase.

As late as fall 2007, a kilogram of Philopon ran for 5 million won, and could be easily found by those who were looking. By 2008, however, as officials cracked down harder on Philopon producers and dealers, the price had risen exponentially.

Another factor impacting drug prices in North Korea is the sharply growing number of users in China. Despite the efforts of Chinese police, they have been unable to curb the growing flow of narcotics across the border and into the border regions.

In October 2009, one kilogram of Philopon ran from between 50-70 million won, depending on the quality. When smuggled into China, the drugs bring between 150-200 thousand yen (80-100 thousand DPRK won), which when exchanged for ROK currency equals between 30-40 thousand won.

In North Korea, drugs determine housing prices, with the most expensive house in an average city going for the price of one kilogram of Ice. Rising housing costs drive up prices in markets, so that now a kilogram of rice sells for 2200 won.

The price of rice generally falls after the harvest season, but this year remained relatively unchanged. In April of last year, food prices shot up from 2000 to 3000 won for a kilogram of rice, and while this was also related to food shortages, the rising cost of narcotics played a large role.

The reason narcotics prices have such an impact is due to the particular nature of drug sales in North Korea. Drug peddlers deal in cash with narcotics producers, but as cash can be hard to come by, these dealers put up houses as collateral before taking the drugs to China.

In addition, most Chinese renminbi and U.S. dollars circulating in North Korean markets are from the cross-border drug trade, and the fees charged by money-handlers in North Korean markets drive prices up considerably.