North Korean Economy Watch

Myanmar severed diplomatic relations with the DPRK after North Korean agents attempted to assassinate South Korea  president Chun Doo Hwan on his October 1983 visit to Rangoon.

Diplomatic relations between the two countries were restored in April 2007.  Shortly after, North Korea was accused of selling rocket launchers to Myanmar’s SPDC (Orwellian acronym for: State Peace and Development Council)–formerly known as SLORC (State Law and Order Restoration Council).

Now the AFP reports that trade has expanded into natural resources, with which Myanmar is abundantly blessed:

Military-run Myanmar is to begin exporting rubber to North Korea, in a further warming of relations between the reclusive governments of the two countries, a weekly newspaper reported Tuesday.

“They will start by importing at least 10,000 tonnes within the first year,” Khaing Myint of the Myanmar Rubber Planters and Producers Association was quoted as saying by the Myanmar Times.

“We are extremely pleased to add another client nation to our export destinations for our rubber. We expect the first batch to be delivered in October,” Khaing Myint reportedly said.

Read the full article here:
Myanmar to begin rubber exports to North Korea
AFP
8/19/2008

The most authoritative map of North Korea on Google Earth
Download it here

This map covers North Korea’s agriculture, aviation, cultural locations, markets, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the eleventh version.

Additions include: Mt. Paegun’s Ryonghung Temple and resort homes, Pyongyang’s Chongryu Restaurant, Swiss Development Agency (former UNDP office), Iranian Embassy, White Tiger Art Studio, KITC Store, Kumgangsan Store, Pyongyang Fried Chicken Restaurant, Kilju’s Pulp Factory (Paper), Kim Chaek Steel Mill, Chongjin Munitions Factory, Poogin Coal Mine, Ryongwun-ri cooperative farm, Thonggun Pavilion (Uiju), Chinju Temple (Yongbyon), Kim il Sung Revolutionary Museum (Pyongsong), Hamhung Zoo, Rajin electrified perimeter fence, Pyongsong market (North Korea’s largest), Sakju Recreation Center, Hoeryong Maternity Hospital, Sariwon Suwon reservoir (alleged site of US massacre), Sinpyong Resting Place, 700 Ridges Pavilion, Academy of Science, Hamhung Museum of the Revolutionary Activities of Comrade Kim Il Sung, South Hamgyong House of Culture, Hamhung Royal Villa, Pork Chop Hill, and Pyongyang’s Olympic torch route. Additional thanks go to Martyn Williams for expanding the electricity grid, particularly in Samjiyon, and various others who have contributed time improving this project since its launch.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.  Additionally, this file is getting large and may take some time to load.

Excerpt from the Choson Ilbo:

Asan said Thursday it paid US$675,250 to North Korea to cover costs accrued by 10,380 South Korean tourists who visited the mountain resort on July 1-11, until the tours halted after a South Korean tourist was shot and killed by a North Korean soldier at Mt. Kumgang.

Asan sends the payment at the end of each month, at the rate of $30 per person for a one day tour, $48 for two days or $80 for three days. Later this month, Asan will pay a further $928,560 to the North to cover the cost of trips to another tourist destination, Kaesong City. The cumulative payments Asan made to the North for the first six months of the year amounts to $10.7 million for the Mt. Kumgang tour, and $5.1 million for the Kaesong tour.

Read the full story here:
Asan Pays N.Korea for July Tours
Choson Ilbo
08/08/08

Despite tensions between North and South Korean this year, South Korea is still delivering promised energy aid to the North:

Under a six-nation accord signed last year, South Korea has started delivering energy assistance to North Korea.

This week’s shipment included 600 tons of round steel bars.

Seoul has so far provided assistance worth 124,000 tons of heavy fuel oil.

Read the full story here:
South Korea supplies the North with energy
Birmingham Star
08/08/08 

In the last several months the Daily NK has reported on North Korea’s anti-corruption campaigns, particularly in Sinuiju and Hyesan, major DPRK/China trade hubs. Additionally, we have seen stories of how the Chinese are making life harder for resident North Koreans in the run up to the Olympics.

These measures, both of which should have an adverse impact on trade volume between the two coutries—and thus on tax revenues—made this recent report in the Daily NK all the more surprising. China’s Yanji Customs House (along the North Korean border) has reportedly seen a 226% increase in tax revenue this year from trade with North Korea.

How can China and the DPRK make life difficult for traders/entrepreneurs and still see an increase in the value of traded goods and corresponding tax revenue?  According to the article:

Jilin Newspaper in China reported on the 4th that “[…]For the first half of this year, tax revenues vis a vis North Korea totaled 34.22 million Yuan, up 226.2 percent from the year before.

The newspaper continued, “During this period, entrepreneurs in Yanji imported 64 thousand tons of iron ore from North Korea; that is a 2.3 percent increase from the same period a year ago. Accordingly, the tax amount of collected was 29.13 million Yuan, which is 66.1 percent of the total tax revenue derived from North Korea.”

The Yanji Custom House covers seven border gateways with North Korea, such as Juanhe-Wonjeongri, Shazi-Saebyul, Tumen-Namyang, Sanhe-Hoiryeong, Kaishantun-Sambong, Naping-Musan, and Guchengli-Samjangri.

According to the Yanji Custom House statistics, the Naping-Musan border gateway, where iron ore collected from the Musan mine enters China, is the first ranked for commercial traffic, and Guchengli-Samjangri, the gateway for North Korean timber, is second.

Tonghua Steel Group, Yanbian Tianchi Trade Incorporated Compay, and Zhonggang Group purchased 50-year mining rights for North Korea’s Musan mine in 2005. Since late 2007 they had been discussing a seven billion Yuan additional investment in it but that failed due to conflicting views on cooperative investment rate proportions, methods of withdrawing invested funds and other issues. As a consequence of the stalled investment, the Musan mine’s exports to China have not grown relative to last year’s figures.

So most of the trade that goes through Yanji is in raw natural resources, particularly iron ore and timber, and trade in these resources seems to be carried out by Chinese companies and is probably supported (protected) by senior policy makers on both sides of the border.  Rather than looking at politics as an explanation, it might simply be another result of rising global commodities prices.

The tax windfall could come from one of two sources: A volume (unit) import tax (ex: $1 for each ton of iron) or an ad valorem import tax (ex: tax on the monetary value of the goods).  It is not likely they impose much of an export tax to make a difference.

If China imposed a unit tax, the revenue gains would have to come from surging imports.  In this case, it would be likely that the Chinese companies had fixed-price contracts with their North Korean suppliers, and that  the increase in global commodity prices simply made DPRK iron ore comparatively very cheap.  When (if?) global iron prices fell, we would expect to see China decrease imports from North Korea.  But according to the article, iron imports are up only 2.3%—not enough to explain the surge in revenue.

It is more likely that China imposes an ad valorem tax on North Korean imports and the contracts between the Chinese companies and North Korean suppliers are set at (near) market prices.  Simply put, taxing the monetary value of increasingly valuable imports has been beneficial for the Chinese government.  Even though production at the Musan Mine has not increased much, revenues are probably way up.

Given the status of the Musan Mine as the DPRK’s largest, it is likely that funds raised from this mine are firmly under control.  It would be interesting to know the customs receipts in Dandong, Laioning Province, across the river from North Korea’s Sinuiju.  Sinuiju seems to have suffered the brunt of the DPRK’s anti-corruption drive, and it is the main railway and trade artery between North Korea China.  Most of the companies targeted for inspection were in Sinuiju.  Have Chinese tax collections/trade rebounded there?

Read the full story here:
226% Rise in Tax Revenues at Yanji Custom House
Daily NK
Lee Sung Jin
8/6/2008

Update 3: The second shipment of US food aid has arrived in North Korea.  Also, DPRK has suffered terrible rains in August.  Story here and here. 

UPDATE 2: The Daily NK reports some good news on the DPRKs food production:

With the stabilization of food prices in North Korea, which had skyrocketed during the first half of the year, the potato harvest which began at the end of June has been lifting the food burden of the citizens.

A source from North Korea said in a conversation with the Daily NK on the 26th, “In the border regions of North Hamkyung Province the first round of harvesting was successful. Accordingly, the price of new potatoes has fallen below 300 won since mid-July.”

The source added, “In the market in Hyesan, Yangkang Province, potatoes cost 280 won per kilogram. Newly-harvested barley has also been appearing; it’s a huge help to the civilians.”

Until the first week of June, the jangmadang price of potatoes in North Korea was 300 won in Pyongyang, 400 won in Hoiryeong, and 450 won in Chongjin per kilogram.

Regarding the price of rice and corn, the source continued, “In the North Hamkyung and Yangang Provinces, the price of rice is 2,200~2,400 won (per kg) and the price of corn 1,200~1,400 won. Originally, during the collective farm’s harvest distribution in December, 4kg of potato was equivalent to 1kg of corn, so the prices of rice and corn are not actually any more expensive now.”

UPDATE 1: Here (link) are the results of the UN World Food Program/FAO June DPRK survey. Some highlights:

The RFSA covered 53 counties in eight provinces (Ryanggang, North Hamgyong, South Hamgyong, Kangwon, North Hwanghae, South Hwanghae, South Phyongan, Pyongyang). Experts visited hundreds of households, child institutions and hospitals across the country in the most comprehensive assessment on food and nutrition conducted in DPRK since 2004. Key findings indicate:

1. Food availability, accessibility and utilization have deteriorated sharply since 2007.
2. Close to three quarters of the households have reduced their food intake.
3. More malnourished and ill children are being admitted to hospitals and institutions.
4. Diarrhoea caused by increased consumption of wild foods was one of the leading causes of malnutrition amongst children under five.

The experts found that the majority of the families surveyed have cut out protein from their diet, and are living on cereals and vegetables alone. Food prices have soared — rice now costs almost three times more than a year ago, and maize has quadrupled. Heavy reliance on support from relatives as a means of coping with food shortages is widespread in areas such as North Hamgyong Province, one of the worst affected regions.

Donors to WFP’s current programme in DPRK include the United States (US$60 million), Republic of Korea (US$20 million), Russian Federation (US$8 million), Switzerland (US$6.6 million), Germany (US$3.4 million), Australia (US$4.2 million), UN CERF (US$2.3 million, for CERF see: http://ochaonline.un.org), Multilateral funds (US$1.9 million), Cuba and Italy (US$1.5 million each), Canada, Denmark, Ireland, Luxembourg and Norway (US$1 million each), Finland (US$737,000), Turkey (US$150,000), Greece (US$ 45,000) and private donors (US$17,000).

ORIGINAL POST: North Korea’s food crisis has been out of the headlines since US food aid arrived a couple of weeks ago followed by the destruction of the Yongbyon cooling tower, six-party talks progress, ASEAN non-aggression treaty, and Kumgang shooting incident.  But now that the UN World Food Program is preparing operations, the crisis is back in the news.  From the Wahsington Post:

The main U.N. aid agency in North Korea, the World Food Program, will resume emergency operations there in the next two weeks to help feed more than 5 million people over the next 15 months at a cost of $500 million, said Jean-Pierre de Margerie, the agency’s country director in Pyongyang.

“The situation is indeed very serious,” de Margerie said at a news conference in Beijing.

The resumption of emergency operations, which were scaled back in 2005 on a request from the North Korean government, was decided after a U.N. survey last month showed the most severe and widespread hunger among North Koreans in a decade. The survey was taken after the Pyongyang government, in an unusual gesture, officially acknowledged a growing hunger crisis and appealed for international aid.

and

[…] the United States recently pledged to give North Korea 500,000 tons of food over the next six months, most of which will be distributed by the World Food Program as part of its emergency effort. De Margerie said the first delivery, 37,000 tons of wheat, arrived in a North Korean port two weeks ago, and more shiploads are expected soon.

In contrast to past practice, the North Korean government has been willing to allow U.N. aid workers more leeway to monitor delivery of the new food supplies, de Margerie said. Similarly supple oversight rules were negotiated by the United States as a condition for its 500,000-ton donation.

The ballooning food crisis began mainly because of flooding last summer that damaged fields, leading to insufficient crops and soaring food prices. At the same time, de Margerie said, imports dropped dramatically this spring, particularly from South Korea and China.

This exacerbated a perennial shortfall of around 20 percent, or 1.6 million tons, in the amount of food needed to adequately nourish North Korea’s 23 million inhabitants. As a result, prices of such staples as rice, eggs and corn doubled, tripled and even quadrupled, de Margerie said.

Now, de Margerie said, resumption of emergency operations will aim at getting food to between 5 million and 6 million people by September, which is considered a critical period because this autumn’s crops will not have entered the government-run distribution system. Quick donations of about $20 million are needed to get the new program running swiftly, he added.

And where are these funds going to come from.  Well, New Zealand has made public its intentions to fund the effort:

New Zealand will provide half a million dollars to the United Nations to help North Korea which is facing a food shortage.

New Zealand previously gave $500,000 via the Red Cross after last year’s floods.

New Zealand established diplomatic relations with North Korea in 2001.

According to Yonhap:

The areas undergoing the crisis include the Hamgyong and Ryanggang provinces, the site said, adding that the World Food Programme plans to launch a new project to address the food needs in these northeastern regions. 

Read the full stories here:
U.N.: Millions Hungry in North Korea
Washington Post Foreign Service
Edward Cody
7/30/2008

NZ to give aid to North Korea
National Business Review
6/29/2008

Northeastern NK in serious food crisis: UN Web site
Yonhap
7/26/2008

From Dr. Leonid Petrov in the Asia Times:

Russia cooperation with North Korea
Since the early 2000s, overall relations between Russia and the DPRK have been improving. The DPRK’s importation of refined oil from Russia saw its first increase in 2002-2003 (from $20 million to $96 million) and was caused by the beginning of the US-DPRK nuclear confrontation and the subsequent demise of the international Korean Peninsula Energy Development Organization project that was to construct a light water reactor nuclear power plant in North Korea.

During 2004-2005, petroleum trade between Russia and North Korea grew from $105 million to $172.3 million. Until the six-party talks produced their first results, in the list of Russia’s exports to the DPRK, oil products dominated at 63%. Rampant corruption in both countries also let a trickle of Russian oil to be smuggled to North Korea unaccounted for.

In 2006, Russia was the DPRK’s third-largest trading partner after China and South Korea and absorbed 9% of the total $3.18 billion spent by the North on imports (approximately $286 million). The Kremlin’s approval of international sanctions against the former communist ally was accompanied by the curtailment of trade with the North. At the time of North Korea’s nuclear test in October 2006, Russia’s trade statistics showed that exports of petroleum had dropped 91.1% compared to the same period of the previous year.

The pragmatic mood in bilateral relations prevails, and these days Russia delivers oil and food to North Korea only in accordance with its obligations associated with progress at the six-party talks. This year, Russia has already delivered 100,000 tonnes of fuel oil to the DPRK in two batches and, according to Russian Deputy Foreign Minister Alexei Borodavkin, a top Russian envoy to the six-party talks, will deliver another 100,000 tonnes by October 2008. In June, the Russian government announced it would provide 2,860 tonnes of flour to the DPRK. According to an official KCNA news agency report, this food aid arrived at the border city of Sinuiju in the DPRK’s northern Pyongan province in early July.

Recently, for the first time in the post-Soviet era, North Korea saw a major Russian investment. In the city of Pyeongseong, the Russian auto plant KamAZ opened its first assembly line, specializing in the production of medium-size trucks named “Taebaeksan-96″. Although less than 50 trucks were assembled in 2007, this cooperation became an important milestone in the development of bilateral relations. While the project doesn’t violate United Nations sanctions on North Korea, it shows Moscow’s drive to expand its influence in the country. Ironically, the more trucks assembled the heavier North Korea’s dependence on imported fuel, engine oils and other petrochemical products.

The importance of the DPRK’s Rajin-Seonbong special economic zone to Russia’s national interests continues to grow. The state-run monopoly OAO Russian Railways is currently upgrading its railway connections with North Korea in Khasan-Tumangang, investing at least 1.75 billion roubles (US$72 million) into this project, and plans to participate in an ambitious plan to rebuild a trans-Korean railway. By connecting Rajin (and the rest of northern Korea) to its Trans-Siberian railroad, Russia hopes to benefit form the transit of South Korean and Japanese cargo which could be sent via its territory to Central Asian and European markets. Pyongyang seems to endorse these plans and other Russian initiatives, but does not commit any financial resources.

Eighty percent of overall bilateral economic trade between Russia and North Korea consists of cooperation, barter and investment-in-kind between the regional areas. The most active Russian regions trading with the DPRK are Eastern Siberia and the Far East. Maritime province (Primorsky Krai) itself exports to North Korea more than $4 million worth of refined oil per year. There are no oil fields in Maritime province and oil has to be borrowed through a chain of federal bureaucratic structures from the oil-rich areas of Eastern Siberia. Instead of money, the local governments agree to receive the labor of North Korean workers.

North Korean laborers in Siberia and the Far East were common under the Soviet system and they are still visibly present. In 2004, the Russian Federal Immigration Service issued 14,000 visas for foreign laborers, of whom North Koreans numbered 3,320 in 2005 and 5,000 in 2006. Since the DPRK has no other way to pay in goods or services, its government started paying for oil imported from Russia by dispatching thousands of laborers at zero cost. Following strong demand from local companies, just in 2006 regional authorities of Primorsky Krai agreed to issue an extra 5,000 working visas to North Koreans. This openness is contrary to local government policy that normally restricts the entry of labor from China.

DPRK citizens are sent to Russia to work as woodcutters and builders but some have also managed to find work in the agricultural and marine industry. Through the presence of these laborers, Russia has enjoyed a partial repayment of the DPRK’s post-Soviet debt through North Korean workers being contracted to work in mines and lumber mills in Russia’s Far East.

The wages they are able to make in Russia are far greater than what they would make at home. However, the foreign worker quota is set not by provincial governments but by Moscow, which often tries to put a stop to these programs due to the complexity of the matter. Part of this opposition stems from the fact that the North Korean workers in Russia still fall under DPRK laws and, therefore, are subject to intrusive supervision.

Among the most difficult but negotiable issues in the way of Russia-North Korea cooperation remains the problem of external debt. During the Soviet era, the DPRK incurred a debt of approximately $8 billion, which Pyongyang still owes to Moscow but cannot repay. This debt remains a stumbling block in most negotiations on new aid and development programs. However, this debt can potentially make trilateral Russian-Korean relations closer and stronger.

In January 1991, soon after the opening of diplomatic relations with South Korea, Moscow received $3 billion from Seoul in the form of a three-year loan. The collapse of the Soviet Union left this loan largely unpaid. The new Russian government in the 1990s provided South Korea with armaments worth $150 million to be counted as payment in kind for the remaining debt. In 2003, after bilateral negotiations on this issue were completed, part of this Russian debt was canceled and the remainder was rescheduled to be paid over the next 23 years.

Taking into account its own debts to the South, Russia could easily write off a significant portion of North Korean debt. To resolve this question, a certain agreement between all three parties is needed. To engage in a mutual and reciprocal round of debt cancelation, Russia might choose to see the North and the South as one country. Such an agreement would have unblocked the road for broader cooperation between Russia and the two Koreas, and simplified Russia’s energy cooperation with China and Japan.

The full article is worth reading here:
Russia is key to North Korea’s plight
Asia Times
Leonid Petrov
7/24/2008

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

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

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

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

According to Yonhap:

Russia will deliver another 100,000 tons of fuel oil to North Korea by October as a reward for the country’s shutdown of its nuclear power facilities, Itar-Tass news agency reported Wednesday, quoting a top Russian envoy to the six-party nuclear talks.

North Korea has been promised energy aid equivalent to a million tons of heavy fuel oil as part of economic and political rewards for declaring all its nuclear programs and disabling its main nuclear plants under a six-party deal on ending the North’s nuclear activities.

“We’ve fulfilled our promises — delivered 100,000 tons of fuel oil in two batches by the middle of the year,” Russian Deputy Foreign Minister Alexei Borodavkin was quoted as telling journalists in Beijing Wednesday. “We are preparing to fulfil our obligations further and send another 100,000 tons by October,” he said.

Read the full article here:
Russia to send more fuel oil to N.K. by October: report
Yonhap
7/9/2008

According to Yonhap (citing a Ministry of Unification report), trade volume between the two Koreas increased 23% to US$880 million (up from $718.2 million) in the first half of 2008.  This is due to an increase in commercial trade (not official exchanges), which were up 47% to $823.6 million from $558.7 million.  Commercial trade comprises 94% of trade volume, up from 78% last year. The number of firms conducting inter-Korean trade reached 526, up from 324, and and they manufactured 736 items (up from 686).

Goods traded in larger volume than a year ago: plate glass, clams, brackens and textiles from the Kaesong complex.

(UPDATE) Much of this is due to brisk activity in the Kaesong Industrial Zone, which employs 30,084 North Koreans (as of July 4, 2008), up from 225 in 2004.  The zone comprises 72 South Korean firms. 

Total production at the complex has been on a steady rise from US$15 million at the end of 2005 to $373.8 million as of the end of May, up 147 percent from last year, the Kaesong Industrial District Management Committee said.

“Such a rise in production is notable in that 33 of the 72 firms in the complex are start-ups operating there for less than one year,” said Kim Min-kyong, a public relations official of the committee.

To learn more, read the full articles below:
Number of N.K. workers at Kaesong complex tops 30,000
Yonhap
Shim Sun-ah
7/8/2008

 Inter-Korean trade rises sharply in first half despite political chill
Yonhap
Shim Sun-ah
7/7/2008