North Korean Economy Watch

According to Yonhap:

Trade between the United States and North Korea reached US$2.45 million in October, a U.S. report showed Saturday.

The bilateral trade volume was comprised completely of aid goods offered by the U.S. to the communist state, the Voice of America (VOA) reported citing data compiled by the U.S. Department of Commerce.

The VOA said the Department of Commerce did not give specifics on what kinds of goods were shipped to North Korea, but the goods traded are considered humanitarian aid products as the two countries are not engaged in commercial trade.

In the first 10 months of the year, the bilateral trade reached $6.24 million, compared with $1.90 million a year earlier, the report said.

Here is a list of DPRK/US engagement stories in 2011.

Read the full story here:
U.S.-N. Korea trade reaches US$2.45 mln in Oct.
Yonhap
2011-12-10

UPDATE 75 (2011-12-5): The ROK will donate US$5.65 million to N. Korea through the UN. According to Yonhap:

South Korea said Monday it will donate US$5.65 million (about 6.5 billion won) for humanitarian projects in North Korea through the U.N. body responsible for the rights of children.

The donation to the United Nations Children’s Fund, or UNICEF, will benefit about 1.46 million infants, children and pregnant women in North Korea, according to the Unification Ministry, which is in charge of relations with the North.

Seoul’s contribution will be used to provide vaccines and other medical supplies as well as to treat malnourished children next year, said the ministry.

There have been concerns that a third of all North Korean children under five are chronically malnourished and that many more children are at risk of slipping into acute stages of malnutrition unless targeted assistance is sustained.

“The decision is in line with the government’s basic stance of maintaining its pure humanitarian aid projects for vulnerable people regardless of political situation,” Unification Ministry spokesman Choi Boh-seon told reporters.

South Korea has been seeking flexibility in its policies toward the North to try to improve their strained relations over the North’s two deadly attacks on the South last year.

Despite the South’s softer stance, North Korea recently threatened to turn Seoul’s presidential office into “a sea of fire” in response to South Korea’s military maneuvers near the tense western sea border.

South Korea donated $20 million for humanitarian projects in North Korea through the UNICEF between 1996 and 2009.

Last month, the South also resumed some $6.94 million worth of medical aid to the impoverished communist country through the World Health Organization.

…

Separately, South Korea also decided to give 2.7 billion won ($2.3 million) to a foundation to help build emergency medical facilities in an industrial complex in the North Korean border city of Kaesong.

UPDATE 74 (2011-12-2): The Choson Ilbo reports that the DPRK’s food prices are rising after the 2011 fall harvest, however, the price increase is not due to a shortage of output, but rather political directives. According to the article:

The price of rice in North Korea is skyrocketing, contrary to received wisdom that it drops after the harvest season. According to a source on North Korea on Wednesday, the rice price has risen from 2,400 won a kg in early October to 5,000 won in late November.

North Korean workers earn only 3,000-4,000 won per month.

This unusual hike in rice price seems to be related to preparation of next year’s political propaganda projects.

A South Korean government official said, “It seems the North Korean government is not releasing rice harvested this year in order to save it up” for celebrations of regime founder Kim Il-sung’s centenary next year, when the North has vowed to become “a powerful and prosperous nation.”

UPDATE 73 (2011-11-24): According to the Daily NK, DPRK television is calling on people to conserve food:

With barely a month left until 2012, the year in which people were promised a radical lifestyle transformation to coincide with the North Korea’s rebirth as a ‘strong and prosperous nation’, programs calling upon people to conserve food are now being broadcast by Chosun Central TV and the fixed-line cable broadcaster ‘3rd Broadcast’.

Chosun Central TV is broadcasting the programs as part of ‘Socio-Culture and Lifestyle Time’, which begins directly after the news on Thursdays at 8:40pm. The majority of the content is apparently now about saving food.

A Yangkang Province source told The Daily NK on Wednesday, “Recently the head lecturer from Jang Cheol Gu Pyongyang Commercial University, Dr. Seo Young Il, has been appearing on the program both on television and the cable broadcasting system, talking about saving food.”

In one such program, Professor Seo apparently noted, “In these days of the military-first era there is a new culture blossoming, one which calls for a varied diet,” before encouraging citizens to eat potatoes and rice, wild vegetables and rice and kimchi and rice rather than white rice on its own, and then adding that bread and wheat flour noodles are better than rice for lunch and dinner.

It is understood that older programs with titles such as ‘A Balanced Diet is Excellent Preparation for Saving Food’ and ‘Cereals with Rice: Good for Your Health’ are also being rebroadcast, while watchers are being informed that thinking meat is required for a good diet is ‘incorrect’.

Whenever North Korea is on high alert or there is a directive to be handed down from Kim Jong Il, both of Chosun Central TV and the 3rd Broadcast are used to communicate with the public. For this reason, some North Korea watchers believe the recent food-saving campaign may reflect a particularly weak food situation in the country going into the winter.

According to the source, one recent program showed a cookery competition involving members of the Union of Democratic Women from Pyongyang’s Moranbong District. During which, one woman was filmed extolling the virtues of potato soup, saying “If we follow the words of The General and try eating potatoes as a staple food, there will be no problem.”

Read all previous posts on the DPRK’s food situation this year blow:

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Story 1 (Daily NK): Ministry strikes out currency swap (2011-12-1):

The Ministry of Unification has concluded that the currency redenomination implemented by the North Korean government two years ago was, as is already widely accepted, an utter failure in most regards.

According to the ministry, which revealed its assessment today, North Korea intended to use the currency redenomination to weaken the role of the markets, generate supplies of capital for the construction industry and adjust the amount of domestic currency in circulation, but ended up achieving the opposite.

Instead, the overall economy slowed, while markets have now made a comeback, recovering to their state they were in before the event.

The process was simple. Straight after the currency redenomination, the flow of commodities rapidly froze up due to contracting supply and weakening purchasing power. According to the Ministry of Unification, factories and enterprises that relied heavily on materials and capital from the market were fatally undermined. This immediately added to extant difficulties securing daily necessities, and forced the authorities to tolerate the markets once again. Commodity flows are still in the process of recovering.

But worse, the value of the domestic currency fell and people’s preference for US Dollars and Chinese Yuan deepened further, setting exchange rates and prices in a continuously increasing inflationary spiral.

This can be seen in the case of rice, a good proxy for overall economic conditions. In 2009, rice cost between 20 and 40won, but within a year had increased abruptly to approximately 1,500won, and as of November, 2011 was more than 3,000won. Despite the 100:1 ratio of the redenomination, prices have returned to their level before the currency redenomination.

The North Korean authorities even attempted to ban the use of foreign currency in January, 2010, causing various problems which resulted in the withdrawal of the plan in the following month. In December, 2009, a US Dollar was worth 35 North Korean won, but by a year later had soared to 2,000 won, and is currently worth 3,800 won.

The North Korean authorities said the currency redenomination would improve the lives of the people, but in truth because of hyperinflation people’s lives have actually gotten more difficult.

At the time of the currency redenomination, they emphasized care for the common worker, giving them wage increases and cash payments; a one-off bonus (500won per person) to laborers and an additional payment to farmers (150,000won per person). However, nominal wages subsequently increased 100 times, and with a lack of food, necessities and soaring inflation, made the people’s lives worse.

The average worker’s salary is now 3,000won, but the living expenses of a family of four are approximately 100,000 won per month.

In conclusion, an official from the Ministry of Unification declared, “As long as there is deepening popular distrust of the North Korean authorities, it looks like the power to implement future policy will weaken. The decisions made by the authorities that decreased the quality of people’s lives deepened the distrust.”

“The seizure of property, which in the short term alleviated polarization, ended up causing more poverty among the general population and had a relatively minor effect on the people who hold a lot of foreign currency.”

“North Korea tried to restore their socialist economy via the currency redenomination, but in reviewing the comments and perspectives of various North Korea experts and defectors we can see that the currency redenomination was an overall failure.”

That being said, he noted, “There is a limit to the ability of collective discontent to turn into collective political organizing.”

Story 2 (Yonhap): Botched currency reform destabilizes N.K. rice prices, exchange rates (2011-12-1):

North Korea’s currency reform has failed to stabilize rice prices and its currency while the nation still endures lack of food and supplies, Seoul’s Unification Ministry said Thursday.

The North carried out a massive currency reform two years ago to try to rein in galloping inflation, squash free market activities and tighten state control over the economy. The measures failed to halt massive inflation and worsened food shortages and public backlash.

The North Korean won was traded at 35 won to one U.S. dollar in markets right after the currency reform in late 2009. But one dollar was traded at around 3,800 won in November, up from around 2,000 won in 2010, according to the ministry.

The ministry, which handles inter-Korean affairs, also said rice prices have risen to pre-currency reform levels in a sign of food shortages in North Korea.

A kilogram of rice cost up to 40 won in 2009 before skyrocketing to about 3,000 won in November, the ministry said in an assessment of the North’s currency reform.

The dire assessment comes as the North is struggling to achieve its goal of building a prosperous nation by next year, the centennial of the birth of the country’s late founder, Kim Il-sung, the father of current leader Kim Jong-il.

The rice prices started to soar in Pyongyang on rumors that Kim failed to secure much aid during his trip to Russia in August, Good Friends, a Seoul-based private relief agency, said in September.

Rice is a key staple food for both South and North Koreans.

The botched currency reform is “expected to further deepen public distrust of the authorities and undermine their control on the people,” the ministry said in an assessment report.

Still, North Koreans are unlikely to display any collective action, because there is no organized political force, the ministry said.

Kim has been ruling the country with an iron fist, and tolerates no dissent.

There have been reports of growing discontent in the communist country over chronic food shortages and political oppression, though no organized opposition has emerged to challenge the leader.

Story 3 (Daily NK): Rice and Yuan zooming up in Ryanggang (2011-11-28):

The price of North Korean rice and the Yuan exchange rate have both reached post-2009 record levels in Yangkang Province, with domestic rice surpassing 4,000 won/kg and 1 Chinese Yuan selling for 720 North Korean won on November 28th.

Although a geographically remote location when seen from within North Korea, Yangkang Province act as a barometer for the situation in other areas because it stands alongside the capital Pyongyang and the Shinuiju-Dandong area as one of the most marketized, active trading locations of all.

Speaking with Daily NK today, a source from the province commented, “In the daytime on the 27th, the Yuan price, which had risen to 780 won, fell back to 720 won; however, the discomfort of the people is continual,” before adding, “Because of the rising exchange rate, the rice price also went up to 4,000 won.”

According to the source, as the price of North Korean rice hit 4,000 won/kg, that of Chinese rice also reached 3,200 won and sticky rice 5,000 won.

This means that the price of rice in Hyesan, the provincial capital, has now risen 500 won in two weeks, while the value of the North Korean won has depreciated by 120 won over a similar period.

The cause of the problem stems from a number of sources, but at the top of the list is a lack of faith in the North Korean won and the continual desire on the part of people who hold currency not to do so in domestic money.

As a result, the source said that traders are not selling their products, preferring instead to watch for changes, and with customers less likely to buy at such inflated prices, the overall effect is that trading volumes in the market have fallen drastically.

He explained, “There is even one rumor out there suggesting that by year’s end the price of the Yuan will have reached 1,000 won and that before long rice will have gone over 5,000 won. Rice traders are not selling their stock, saying that ‘if it gets more expensive, I’ll sell’, and so those citizens who are unable to get food together are looking pretty uneasy.’

Meanwhile, the new price records present a sense of cruel irony for a country about to commemorate the 2nd anniversary of the November 30th, 2009 currency redenomination.

“This is all the fault of the government, which organized the currency redenomination and destroyed the value of Chosun money,” the source agreed, complaining, “The price of everything is soaring, so the time has come where we can’t even buy blocks of tofu to eat.”

UPDATE 32 (2012-1-27): According to an article in the New York Times, inter-Korean trade and aid declined in 2011:

On Friday, the South’s Unification Ministry said that South Korean aid to the North fell to 19.6 billion won, or $17.5 million, last year [2011], down more than 51 percent from a year earlier [2010].

Inter-Korean trade fell by more than 10 percent [from 2010 to 2011] to about $1.5 million in 2011, the ministry said.

UPDATE 31 (2011-12-10): According to the Korea Times, the potential food aid is not being auctioned off.  It is being sent to South America. According to the article:

Seoul will send baby food originally offered as aid to North Korea to El Salvador following Pyongyang’s refusal to accept delivery, to help the South American country deal with damaging floods, officials said Friday.

The delivery consists of 190,000 packs of baby food that were part of a $4.4 million flood aid package to the North, which the Stalinist regime rejected two months ago amid high tension.

It was slated to depart from the port city of Busan via cargo ship for El Salvador, which has appealed for help to deal with floods that displaced tens of thousands earlier this year.

Seoul offered the aid, which also included biscuits and instant noodles, to help the North deal with torrential summer rains. But Pyongyang demanded cement and equipment instead and eventually shunned the offer altogether.

The rerouting of the items underscores lingering tension despite efforts to warm ties and eventually resume regional dialogue on dismantling the North’s nuclear program. Regional players want the situation on the peninsula to improve before the talks begin.

Pyongyang’s silence over the aid put a damper on the early signs of improvement. President Lee Myung-bak has been exercising a softer line since September, when he tapped close aide Yu Woo-ik as unification minister, including expanding humanitarian activities and cultural exchanges.

But the North, apparently seeking rice and other forms of massive aid, has recently slammed the flexible policy as political pandering to the South Korean public, which is gearing up for elections next year.

Such remarks come even as the unification ministry continues to approve northbound aid, including $5.65 million worth for infants, children and pregnant women through the United Nations Children’s Fund (UNICEF). Consultations are ongoing over how to provide more of the baby food. Seoul has also attempted to auction some of it off through a government website.

The North Korean regime is thought to be doing all it can to secure food and other handouts ahead of next April, when it will celebrate the 100th anniversary of the birth of its founder Kim Il-sung. Watchers say that the North is liable to alternate pressure and peace offensives to secure as much aid as it can through inter-Korean and multilateral channels.

UPDATE 30 (2011-12-6): According to the Korean Herald the first auction of potential food aid (See Update 27 below) did not go so well, so Seoul is trying again:

South Korea plans a second attempt to auction off baby food originally intended for North Korean children, officials said Tuesday.

The move comes after nobody bid for 540,000 packs of baby food on Onbid, an auction Web site run by the state-run Korea Asset Management Corp.

South Korea plans to issue a second public notice and adjust the prices, said an official handling the issue at the Unification Ministry. He did not elaborate on further details.

The baby food is part of 5 billion won ($4.4 million) worth of emergency relief aid South Korea had planned to ship to North Korean flood victims earlier this year.

South Korea dropped that plan in October after differences between the two Koreas on the items to be sent. South Korea had insisted it would deliver baby food, biscuits and instant noodles to the North, instead of the cement and equipment its communist neighbor had requested.

Separately, South Korea has been in talks with local private relief agencies over how to donate another 290,000 packs of baby food to other countries, according to another ministry official.

She declined to give further details, saying consultations are taking place.

UPDATE 29 (2011-12-5): The South Koreans will donate US$5.65 million to the DPRK via UNICEF.  Accoring to Yonhap:

South Korea said Monday it will donate US$5.65 million (about 6.5 billion won) for humanitarian projects in North Korea through the U.N. body responsible for the rights of children.

The donation to the United Nations Children’s Fund, or UNICEF, will benefit about 1.46 million infants, children and pregnant women in North Korea, according to the Unification Ministry, which is in charge of relations with the North.

Seoul’s contribution will be used to provide vaccines and other medical supplies as well as to treat malnourished children next year, said the ministry.

There have been concerns that a third of all North Korean children under five are chronically malnourished and that many more children are at risk of slipping into acute stages of malnutrition unless targeted assistance is sustained.

“The decision is in line with the government’s basic stance of maintaining its pure humanitarian aid projects for vulnerable people regardless of political situation,” Unification Ministry spokesman Choi Boh-seon told reporters.

South Korea has been seeking flexibility in its policies toward the North to try to improve their strained relations over the North’s two deadly attacks on the South last year.

…

South Korea donated $20 million for humanitarian projects in North Korea through the UNICEF between 1996 and 2009.

Last month, the South also resumed some $6.94 million worth of medical aid to the impoverished communist country through the World Health Organization.

..

Separately, South Korea also decided to give 2.7 billion won ($2.3 million) to a foundation to help build emergency medical facilities in an industrial complex in the North Korean border city of Kaesong.

More than 47,000 North Koreans work at about 120 South Korean firms operating in the industrial zone to produce clothes, utensils, watches and other goods. The project serves as a key legitimate cash cow for the impoverished communist country.

UPDATE 28 (2011-12-1): Distribution of private aid monitored in N.Korea. According to the Hankyoreh:

“North Koreans know that the wheat flour aid they received came from South Korea.”

These were the words of Cho Joong-hoon, director of the Unification Ministry’s humanitarian assistance division, during a meeting with reporters Wednesday at the Central Governmental Complex in Seoul upon his return from a recent visit to North Korea to monitor the distribution of aid.

“The name of the South Korean private aid group, the manufacturing company, the date, and the address were all printed on the packages of flour,” Cho said.

Arriving in North Korea on Sunday with Kim Min-ha, co-chairman of the private group Ambassadors for Peace, and three others, Cho visited three sites to observe the distribution of the 300 tons of flour provided in aid. The site were the Namchol Kindergarten, February 16 Refinery Kindergarten, and Tongmun Nursery in Chongju, North Pyongan.

It was the first visit to any part of North Korea besides Kaseong and Mt. Kumkang by a government official in the one year since the Yeonpyeong Island artillery attack on Nov. 23, 2010.

Cho said that the distribution, storage, preparation, and supply of the flour were monitored and that everything was confirmed to be proceeding as planned.

On the situation on the ground, Cho said, “Judging simply from the nursery and two kindergartens, the children’s nutritional condition does not appear to be good.” Cho noted that no heating was being supplied to the facilities despite the cold weather.

Cho said that while North Korean authorities did not official request food aid, a request was made under unofficial circumstances.

Cho also noted that construction efforts were under way on a highway connecting Pyongyang with Sinuiju.

“It is not very far from Pyongyang to Chongju, but I think the trip took about four hours because of the detour around the highway construction,” he said.

Analysts said this appears to be linked to hurried infrastructure building efforts, including highway servicing and construction, amid recent moves by North Korea to rebuild its economy through a stronger economic partnership with China.

UPDATE  27 (2011-11-29): Seoul auctions off “unwanted” DPRK food assistance. According ot the Korea Times:

South Korea has taken steps to auction off some baby food originally intended for North Korean children, an official said Tuesday.

The move comes nearly two months after South Korea dropped a plan to send 5 billion won ($4.3 million) worth of aid to North Korean flood victims, citing no response from the North as the reason for the change of plan.

South Korea had insisted it would deliver baby food, biscuits and instant noodles to the North instead of cement and equipment requested by the North.

South Korea’s Red Cross, which handles relief aid to the North, gave public notice of a bid for 540,000 packs of baby food on Onbid, an auction website run by the state-run Korea Asset Management Corp.

Separately, South Korea has been in talks with local private relief agencies over how to donate the other 290,000 packs of baby food to foreign countries.

Unification Minister Yu Woo-ik has ruled out rice aid to the communist country unless Pyongyang admits to last year’s deadly provocations.

South Korea suspended unconditional aid in 2008 and imposed sanctions on the North last year in retaliation for the sinking of a South Korean warship that was blamed on the North.

The North has denied involvement in the sinking that killed 46 sailors. It also shelled a South Korean border island in November 2010, killing four South Koreans.

Still, South Korea has selectively allowed religious and private aid groups to deliver humanitarian and medical assistance to North Korea.

Also on Tuesday, a Unification Ministry official and four civilians were to return home after a rare trip to the North aimed at ensuring that South Korea’s recent private aid had reached its intended beneficiaries.

UPDATE 26 (2011-11-25): According to Yonhap, ROK officials are traveling to the DPRK to monitor food aid:

A South Korean official and four civilians left for North Korea on Friday on a rare mission to ensure that recent aid from Seoul had reached its intended beneficiaries, an official said.

The trip comes a day after North Korea threatened to turn South Korea’s presidential office into “a sea of fire” in anger over Seoul’s massive military maneuvers near the tense sea border.

…

The Unification Ministry official and four civilians were to arrive in the North’s capital later Friday via Beijing, according to the Unification Ministry, which handles inter-Korean affairs.

It is first time that North Korea has allowed a South Korean official to travel to the isolated country to monitor aid since a conservative government took power in Seoul in 2008.

They are scheduled to visit a day care center and two other child care facilities in the northwestern city of Jongju to monitor how 300 tons of flour were distributed to children and other recipients, according to a civic group.

Ambassadors for Peace Association, a civic group that is partly funded by the Unification Group, donated the flour to Jongju, the birthplace of Unification Church founder Moon Sun-myung.

The civic group said the monitors also plan to discuss details on another 300 tons of flour aid before returning home Tuesday. Some members of the civic group are associated with the controversial Unification Church.

Read previous posts on the ROK’s aid to the DPRK in 2011 below:

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Institute for Far Eastern Studies (IFES)
2011-11-23

North Korea has reportedly stopped coal export temporarily to manage fuel shortage during the winter season.

According to Chinese traders from Shenyang, their North Korean trade counterparts informed them that they recently received official orders from the government to stop exporting coal. Except for those orders previously received, coal from North Korea will not be leaving the country for the time being.

The export volume of coal has continuously increased this year, consequently causing a domestic shortfall in the supply of coal. In fear of power and fuel shortages for the winter season, North Korea is believed to be taking precautionary measures to preserve energy supply, especially with hydroelectric power generators not in operation.

From this year, North Korea has drastically increased coal export to China. From January to July, China has imported about 816,700 tons of North Korean anthracites, nine times more than the previous year. Anthracites made up 46.3 percent of the all the exports to China.

The amount of North Korean anthracites that entered China via Donggang Port (located in Dandong City, Liaoning Province) reached over 77.7 million USD. The city of Dandong is located across from Sinuiju. Separated by the Amnok River (Yalu River), it is the trade hub between China and the DPRK, with over 70 percent of total bilateral trade taking place in the city, as anthracite coal as the main object of trade.

With the international price of coal on the rise and operation of hydroelectric power plants in decline, dependence on thermoelectricity is growing, which explains the recent climb in China’s anthracite import.

Toughened international sanctions and halted trade with South Korea has made North Korea turn to natural resource trading with China to bring in hard currency.

In August 2009, North Korea halted coal exports when it was faced with extreme power shortage. However, coal trade was resumed the following April.

Massive amounts of coal were exported to China to earn foreign currency, but this has created serious energy shortage affecting the operations of factories and other industrial facilities.

During the field guidance visit to the February 8 Vinalon Complex, Kim Jong Il emphasized that “Raw materials must be adequately supplied to normalize the production of factories.”

However, most North Korean traders agreed that such suspension would not be prolonged for a lengthy period, since North Korea, who is heavily dependent on mined resource exports including coal and steel, cannot afford to enforce a trade embargo for long. Many expect the trade to resume by next spring.

According to Yonhap:

South Korea will create an exclusive unification account as part of its efforts to prepare for a future merger with North Korea, Seoul’s point man on Pyongyang said Wednesday.

The government plans to set up the unification account in an inter-Korean cooperation fund that is currently worth about 1 trillion won (US$869 million).

The fund already has a separate account earmarked for inter-Korean projects, according to the Unification Ministry in Seoul, which handles North Korean affairs.

Unification Minister Yu Woo-ik made the announcement during a meeting with South Korean reporters on the last day of his three-day trip to Beijing.

The development underscored Seoul’s longstanding commitment to unifying with North Korea. The envisioned account, which needs parliamentary endorsement, is part of South Korea’s efforts to help cushion the cost of re-unification with one of the poorest countries in the world.

A state-run think tank has estimated that the initial costs for the integration of the two Koreas could range from 55 trillion won (US$47 billion) to 249 trillion won ($216 billion).

The estimate, which is projected to cover the first year of integration, was based on the assumption that the two neighbors could be unified two decades from now, according to the Korea Institute for National Unification.

Yu said the government does not have an immediate plan to levy a tax on citizens to help finance the potential unification, though he left open the possibility of collecting a tax.

South Korea has been working on details of a so-called unification tax since last year when President Lee Myung-bak floated the idea of using taxpayer money to help finance unification.

Seven out of 10 South Koreans believed that the costs of unification would outweigh its benefits, according to a recent telephone survey, in the latest sign of public concern over re-unification’s economic burden.

The National Unification Advisory Council, a presidential advisory body on unification, released the results of last week’s poll of about 1,000 people.

The Korea Herald also reported on this story.

Here are some previous posts on reunification costs:

1. KINU study looks to mineral wealth to cover unification costs

2. DPRK risk ‘biggest drag on Seoul’s credit rating’

3. OECD on Korean unification costs

4. Reunification costs

5. Working through Korean unification blues

6. 3 Million NK Refugees Expected in Crisis: BOK

Read the Yonhap story here:
S. Korea pushes to create independent unification account
Yonhap
2011-11-23

You can download a PDF of  the Bank of Korea’s report here.

I have a collection of previous Bank of Korea reports on the North Korean economy here.

Yonhap reports on the findings:

The North Korean economy contracted for the second straight year in 2010 due to tougher international sanctions and sluggish agricultural production, the South Korean central bank estimated Thursday.

The Bank of Korea (BOK) estimated that the communist country’s economy shrank 0.5 percent on-year last year, compared with a 0.9 percent contraction in 2009. The data stood in sharp contrast to the 6.2 percent expansion of the South Korean economy in 2010.

The North Korean economy grew 3.1 percent in 2008 on one-off factors after shrinking 1 percent in 2006 and 1.2 percent in 2007, when heavy flooding hit its agricultural production and its relations with the international community deteriorated.

“Last year, the North Korean economy contracted as economic conditions at home and abroad worsened amid energy shortages and international sanctions and its manufacturing sector remained sluggish,” said Park Yung-hwan, an official at the BOK.

North Korea suffers chronic food and energy shortages due to years of isolation, mismanagement and natural disasters. The communist state has relied on international handouts since 1995 to help feed its more than 20 million people.

Last year, inter-Korean relations turned sourer following the North’s deadly sinking of a South Korean warship in March and its shelling of a border island in November.

The North’s agricultural and fishery industry contracted 2.1 percent last year from a year earlier, more than double the 1 percent fall of 2009. Its manufacturing sector declined 0.3 percent in 2010.

North Korea’s nominal gross national income (GNI) amounted to 30 trillion won (US$26.5 billion) last year, which is only 2.56 percent of South Korea’s GNI of 1,173 trillion won.

Meanwhile, inter-Korean trade grew 13.9 percent on-year to $1.91 billion, the BOK said.

Park said although chilly inter-Korean relations and following economic sanctions cut off trade such as humanitarian aid, shipments of goods produced at the Kaesong industrial complex rose.

The value of North Korean products shipped the South reached $1 billion last year, up 11.7 percent from the previous year. South Korean shipments to the North grew 16.6 percent to $868.3 million.

Bloomberg reports on the findings here:

North Korea’s economy shrank for two consecutive years as cold weather and rain hurt farming and power and raw material shortages cut industrial output, South Korea’s central bank said.

Gross domestic product contracted 0.5 percent in last year after a 0.9 percent decline in 2009, according to an estimate published by the Bank of Korea in Seoul today. Measured using nominal gross domestic product, a figure that isn’t adjusted for inflation, North Korea’s GDP totaled 30 trillion won ($26.5 billion) in 2010, compared with South Korea’s 1,173 trillion won, the central bank said in an e-mailed statement. North Korea’s per capita income was 1.24 million won while South Korea’s was 24 million won, according to the estimate.

“Major industries were hampered by bad weather, poor energy and raw material supply, and the international economic sanctions on the country,” the Bank of Korea said.

North Korea has relied on economic handouts since the mid-1990s when an estimated 2 million people died from famine, according to South Korea’s central bank. The United Nations and the U.S. last year increased economic sanctions imposed on the country as a result of its nuclear weapons activities after attacks that killed 50 South Koreans.

South Korea, whose economy is 40 times larger than North Korea’s, plans to set up a fund as early as this year to begin raising as much as 55 trillion won to pay for eventual reunification with North Korea, the South Korean Unification Minister Yu Woo Ik said in an interview with Bloomberg earlier this week.

Nuclear Program

The fund would meet the minimum cost of unification estimated by external researchers, assuming it takes place within the next 20 years and is a peaceful transition. Yu said the cost may be as high as 269 trillion won, or almost a quarter of South Korea’s 2010 gross domestic product.

North Korea and South Korea remain technically at war after their 1950-1953 conflict ended in a cease-fire. Six-nation talks on North Korea’s nuclear program, involving China, Japan, Russia, the U.S. and South Korea, haven’t convened since 2008. U.S. and North Korean officials resumed direct talks last month.

The UN increased sanctions banning trading in weapons and restricting financial transactions after North Korea carried out its second nuclear test in May 2009. The country’s first test occurred in 2006.

Intelligence Reports

The nation’s economy has contracted during four of the last five years, according to data collected by the Bank of Korea.

North Korea doesn’t release official economic data. South Korea’s central bank releases an annual estimate of North Korea’s economic growth, based on information from the National Intelligence Service of South Korea and other related organizations.

North Korea’s population rose to 24.19 million last year from 24.06 million in 2009, about half of South Korea’s. Inter- Korean trade rose 13.9 percent from a year earlier to $1.9 billion last year, South Korea’s central bank said.

North Korea relies on China to prop up its economy, with bilateral trade accounting for 83 percent of the country’s $4.2 billion in international commerce last year, according to the Seoul-based Korea Trade-Investment Promotion Agency.

North Korea’s exports, except for shipments to South Korea, rose 42.5 percent to $1.5 billion last year, driven by minerals, base metals, and textiles, according to the Bank of Korea. Imports increased 13.2 percent to $2.7 billion in 2010, the central bank said.

Agriculture and fisheries account for 20.8 percent of North Korea’s industry compared with 2.6 percent in South Korea. Manufacturing took about 22 percent in North Korea, less than South Korea’s 31 percent, according to the central bank.

The Institute for Far Eastern Studies (IFES) published the following:

The North Korean economy is facing a minus growth rate for two years straight as a result of worsening climate conditions and a slumping manufacturing industry.

The Bank of Korea (BOK) announced that North Korea’s real GDP last year decreased 0.5 percent against the previous year. According to the bank’s estimation, North Korea’s GDP recorded a 3.1 percent increase in 2008, a plus growth since the financial crisis. However, it fell into the minus growth range for two consecutive years from 2009.

South Korea’s economic growth, on the other hand, recorded an increase of 0.3 percent in 2009 and 6.2 percent in 2010, and the difference in growth between North and South Korea went from 1.2 percentage points to 6.7 percentage points, demonstrating about 5.6 times disparity between the two states.

In the BOK report, the North Korean economy is experiencing minus growth in agriculture, forestry and fishing industries, which are suffering from the extreme weather and sagging manufacturing industry — a consequence of the heavy focus placed on light industry.

The cold-weather and typhoon damages last year negatively impacted the agricultural production, recording a decrease of 2.1 percent against the previous year.

As for the mining industry, metallic and nonmetallic production increased despite the decrease in coal production, which fell 0.2 percent from the year before.

In spite of the increase in production in the heavy chemical industry, the manufacturing industry suffered from a decline of 0.3 percent, with waning production in light industry.

However, the service sector showed a 0.2 percent rise with improvement in the wholesale-retail and hospitality industries and increased businesses in transportation, communication, finance, insurance, and real estate.

The BOK has been publishing “GDP of the DPRK” and “Economic Growth of the DPRK” every year in June since 1991 based on information from the National Intelligence Service (of the ROK). This year’s report, however, was not released until just this month.

Contradictory to the report, some experts are claiming that there is a high possibility North Korea recorded a plus growth rate. Despite the BOK’s report that coal production fell 2 percent from the previous year, the Korea Institute of Unification Studies assessed that production of coal and iron ore recorded slight increases due to the improvements and expansion of facilities and power supply in the mining industry.

In addition, the BOK report’s view of North Korea’s economic revitalization is inconsistent with the testimonies and reports from domestic and overseas experts and officials who recently visited the North.

Some experts argue that, if the statistics provided by the BOK showing increased growth in the social and service sector were factual, “the construction plan of 100,000 house units in Pyongyang should create added value and continue to stimulate economic growth.”

The Daily NK also reported on the Bank of Korea findings.

The Financial Times also reported on the findings.

Here is the response in KCNA:

KCNA Commentary Terms ‘DPRK′s Economic Meltdown’ Absurd

Pyongyang, November 10 (KCNA) — Dishonest persons in the United States and south Korea are busy talking nonsense about the DPRK’s economic situation.

They have asserted that the economy in the DPRK has been on the decline for two consecutive years and that a certain country distributed a document recommending investors to be “careful” in their investment in the DPRK.

All these are sophism aimed to distort the true picture of the DPRK’s self-supporting economy.

The recent two years, mentioned by them, are a stirring period in the DPRK in which unprecedented miracles and innovations have been wrought in the efforts to improve the people’s standard of living and build socialism.

In this period the DPRK witnessed the successive completion of its plans for economic modernization, so ardently desired and accelerated by it with much efforts. In other word, it ushered in an epochal phase in building an economic power.

Today the DPRK’s economy is at the highest tide of its development ever in history.

Significant progress has been made in putting the national economy on a Juche-oriented, modern and scientific basis.

Epochal changes equivalent to the industrial revolution in the 21st century are taking place in the DPRK.

The DPRK entered a higher stage of socialist economic construction in which knowledge promotes the modern industry.

The Ryonha General Machinery Plant pushed back the frontiers in 11-axes processing. It is leading the world in CNC technology and machine-building industry.

The Juche-based steel-making system was perfected and Juche fibre and Juche fertilizer are being churned out in the country.

The DPRK also succeeded in nuclear fusion and made a signal progress in bio-engineering development.

The day is near at hand when a light water reactor entirely based on domestic resources and technology will come into operation in the DPRK.

Solid foundations have been laid for providing the people with rich material and cultural life and are now paying off in the country.

All these are a great fruition of the era of advance for great surge in which the Workers’ Party of Korea and the DPRK government secured powerful nuclear deterrent and, on this basis, concentrated efforts on the economic construction and the improvement of people’s living standard.

Our country has tremendous economic foundations and potentials and abundant resources, and it is in eco-geographically excellent location as a center in the Asia-Pacific region. Accordingly, other countries’ zeal for investment in it is growing higher with each passing day.

Signal turn is being brought in the development of its economic relations with neighboring countries.

This being a hard fact, some dishonest forces are getting hell-bent on smear propaganda. It is an absurd and reptile deed intended to hinder other countries’ investment in the DPRK and intercept its external economic relations. Lurking behind such deed is an ulterior scheme to sow discord in between the DPRK and China and between the DPRK and Russia the relations of which are developing on good terms day by day.

The talk about “DPRK’s economic meltdown” is little short of a false rumor floated by those who are astounded at the DPRK’s vigorous advance toward the victory in 2012.

The economic meltdown or collapse can be seen in the U.S. which has about 20 million destitute persons or in south Korea where more than 40 persons commit suicide everyday due to unemployment and destitution.

Poor sophism made by the hostile forces of the U.S. and south Korea means that they admitted themselves their defeat in the showdown with the DPRK.

It is the disposition and tradition of the army and people of the DPRK to advance with self-pride full of conviction despite the enemies’ despicable smear campaign.

The DPRK will as ever boost cooperation with all other countries friendly to it while more strikingly displaying the potentials and might of its independent economy.

UPDATE 1: Marcus Noland also made a few comments on the report.

UPDATE 2: Some additional analysis here.

Read the stories here:
N. Korean economy shrinks for 2nd year in 2010: BOK
Yonhap
2011-11-3

North Korea’s GDP Shrank in 2010, South’s Central Bank Says
Bloomberg
2011-11-3

Visits: According to the Daily NK, 116,400 North Koreans have visited China this year:

116,400 North Koreans visited China officially between January and September, 2011, according to new statistics released by the National Tourism Administration of China.

The statistics reveal that 55,000 of them visited to find work; 27,000 for a business trip; 3,000 were tourists; and 100 were visiting relatives. 24,000 did not record the purpose of their visit.

45,000 of them traveled by boat; 24,900 by airplane; 14,300 by train and 3,700 entered on foot.

The largest proportion was between the ages of 45 and 64 (52,000); 47,000 were between 24 and 44. 95,000 were men, and 14,900 were women.

According to the same statistics, the highest number of visitors to China in the same period came from South Korea (3.2 million trips), followed by Japan (2.6 million trips). Overall, North Korea ranks 11th out of the 15 countries in Asia.

Trade: According to the Associated Press:

China’s trade with its close ally North Korea nearly doubled in the first seven months of the year compared with the same period in 2010, state media reported Sunday.

The 87 percent increase to $3.1 billion was announced at the start of a visit to the North by Chinese Vice Premier Li Keqiang that reaffirms strong ties between the communist neighbors.

…

North Korea relies heavily on China for food and fuel aid and many consumer products. Chinese companies are the main investors in North Korean mining, and the sides recently signed agreements on road building and jointly developing an industrial park on an island near the Chinese city of Dandong.

“The economic and trade cooperation between the two countries has shown great potential, with bilateral trade and investment volume reaching new highs,” Xinhua said, citing the Chinese ambassador to Pyongyang, Liu Hongcai.

Bilateral trade between China and North Korea still is dwarfed by economic ties between China and South Korea. China is South Korea’s largest trade partner.

Trade between Beijing and Seoul rose more than 20 percent in the first eight months of the year to $159 billion and is expected to hit about $250 billion for all of 2011.

It should go without saying that officially reported merchandise trade between the PRC and DPRK understates the economic relationship between the two nations.   What goes unreported is illicit border trade, aid, military assistance and other forms of financial support.

Read the full stories here:
China says trade with NKorea has nearly doubled
Associated Press
2011-10-22

According to the Choson Ilbo:

The Weekly Chosun has obtained detailed official records of some 2 million adult residents of the North Korean capital Pyongyang from a source in the North Korea-China border area. The data, which contains the names, date of birth and home addresses of 2,108,032 Pyongyang residents, was compiled by the North’s State Security Department in 2005.

The data does not include children up to age of 17 or an estimated 10,000 members of the elite including relatives of leader Kim Jong-il, or of soldiers stationed in Pyongyang from provincial areas, according to the source.

But it does include people in four districts that were excluded from the Pyongyang administrative area last year. According to official data published by South Korea’s Unification ministry based on the North’s Central Yearbook in February, Pyongyang’s population shrank by about 500,000 as a result of administrative restructuring. But the list shows only about 197,000 adults living in those four districts in 2005.

The difference of 300,000 is too big to make sense, even if the omitted child population is taken into consideration.

The most remarkable aspect of the data is the shortage of men. There are a mere 870,000 men on the list compared to 1.22 million women.

What caused the imbalance is not known but it is possible that many men are soldiers and therefore not counted. Another guess is that there are more women in the capital because they are shipped there for mass rallies.

A former senior North Korean official who defected to the South in 2007, said, “More than six out of every 10 Pyongyang residents are female. It’s mostly the elite who are allowed to live in Pyongyang. A lot of men have been moved out to the suburbs, but the women are mobilized for mass events, which explains the gender imbalance.”

Based on analysis of the records, the average marriage age is 27 years old. More than 80 percent of adults in Pyongyang were registered as married, compared to South Korea, where single households are on the rise. Some 410,000 or 20 percent of the total population in Pyongyang were unmarried and under 27 years old. Divorcees accounted for about 1 percent of the total population with 21,000, although North Korean defectors say divorce and remarriage rates there are gradually increasing.

About 830,000 or more than one-third are party members — a very high ratio considering that the total number of party members across North Korea is about 2 million.

The remaining 1.28 million seem to be either prospective members or family of members. They are said to be working mainly in party-affiliated organizations.

A defector from Pyongyang told the Weekly Chosun, “It’s hard for non-party members to live in Pyongyang. Many people are in the process of becoming party members, even if they haven’t been admitted yet. They consider it an honor. So really most people in Pyongyang are in the party.”

According to the data, there are 124 registered foreign nationals in Pyongyang from 15 countries including the U.S., Japan, China, the former Soviet Union or Russia, the Czech Republic, Canada, France, and Lebanon. Japanese citizens top the list with 86, but they are likely to be ethnic Koreans. About one person from every European country lives in Pyongyang.

Read the full story here:
Official Data Shed New Light on Pyongyang Population
Choson Ilbo
201-1-23

Pictured above (Google Earth): The towns mentioned in the article below from which the Kaesong Industrial Zone could draw more labor: Pongchon (봉천), Kumchon (금천), and Phyongsan (평산).

Institute for Far Eastern Studies (IFES)
2011-10-20

According to South Korea’s Ministry of Unification (MOU), the “May 24 Sanctions” that went into effect after the sinking of the naval boat Cheonan was relaxed and began to permit the resumption of construction of businesses in the Kaesong Industrial Complex (KIC). In addition, plans to build fire stations and emergency medical facilities in the area are also currently underway.

After South Korean Grand National Party chairman Hong Jun-pyo visited KIC on September 30, 2011, the ROK government has reached the following decisions: 1) to allow the resumption of halted factory constructions; 2) to build a fire station and emergency medical facility; 3) to resume repair work for commuting roads for KIC employees; and 4) to extend the operations of commuter buses.

This means seven companies that received permits in the past to begin construction but stopped after the sanctions went into effect would be able to resume the halted construction projects.

According to the Ministry of Unification, the seven companies include three metal and machinery, three textile, and one electronic factories, taking up a total area of 103,527 square meters. The total site of production facilities of stage 1 businesses in the KIC reaches 2,171,900 square meters, in which the currently operating 123 companies take up 783,471 square meters. With the sanctions lifted, the total area of businesses in operation will reach 885,950 square meters.

In addition, five companies awaiting construction for expansion will have to wait a little longer. The authorities announced to discuss this issue at a later date, looking positively on their construction to resume shortly as well.

Also the MOU announced to push forward with the establishment of fire stations and emergency medical facilities, “to protect the properties and health of businesses and employees of the KIC. The plans to break ground for fire station will begin in mid-November and is expected to be completed by late next year.”

The layout for the KIC fire station was completed in December 2009 and 3.3 billion USD has been budgeted to fund the construction. The station will be constructed on a steel frame on a 3,305 square-meter lot with the total floor space to be around 2,182 square meters.

The Kaesong Management Committee has been operating a “fire/police station” from April 2005. But with occurrences of accidental fires since last winter, it has reinforced the number of fire engines and manpower – currently at a total of eight fire trucks and 36 fire fighters.

Medical facilities in the KIC will also be completed by the end of 2012 once the construction begins early next year. About 3 billion USD is set for this project.

Currently at the KIC, Green Doctor’s Cooperation Hospital is in charge of providing medical and health services in the KIC, with South Korea Green Doctor’s Kaesong Hospital treating the South Korean employees and North Korean Comprehensive Clinic treating the North Korean employees exclusively. The South Korea Green Doctor’s Kaesong Hospital is currently operated by volunteers at a clinic level. The hospital was in the process of improving the facilities to more than ten beds. However, this project was halted after the May 24 sanctions went in effect.

On another note, the MOU also announced that maintenance work for the road connecting Kaesong City to the KIC would begin. The road is normally used by North Korean employees of the KIC. It was also announced that the number and operation of commuter buses would increase to help with the commute. The buses operate in the 20 km radius; the plan is to increase that to 40 km. Since September 2010, the number of buses increased to 400.

There are plans to extend the service to cover the areas of Kumchon, Bongchon, and Pyongsang. However, the roads to these areas are unpaved and extension of transportation services to these areas will require negotiations with the North Korean authorities.

Although these measures will alleviate some of the problems faced by the businesses in the KIC, the MOU still stands firm on its position that North Korea must take responsibility and make formal apology for the Cheonan incident in order for a fundamental resolution of the situation to occur.