North Korean Economy Watch

Institute for Far East Studies (IFES)
NK Brief No. 10-10-4-1
10/4/2010

Trade between the two Koreas in the first half of 2010 totaled 980 million USD, 51.3 percent more than the 650 million dollars-worth of trade last year. North Korea’s trade with China was also up, by 16.4 percent, to 1.28 billion USD. Kim Jong Il has made two trips to China and the North has taken other steps to boost cross-border trade with the Chinese.

According to a recent report comparing inter-Korean trade to that between North Korea and China, North-South trade in 2007 equaled 91 percent of Pyongyang’s trade with Beijing, but as inter-Korean relations chilled, that number fell to 65 percent in 2008. This year, that number climbed back up to 77 percent, largely because the Kaesong Industrial Complex, which has avoided political entanglement, has grown 96 percent since last year. Textiles and home electronics top the list of goods in inter-Korean trade, while minerals are the top item traded across the DPRK-PRC border.

North Korea’s import of South Korean goods increased by 63 percent to 430 million USD, while the North’s Chinese imports rose a mere 25 percent, but still totaled 930 million USD. 36 percent of South Korean exports to the North are raw materials for North Korean textile production, while 120 million USD-worth of electronics make up the second-largest export industry. Making up the largest sector, 27 percent (250 million USD) of North Korea’s imports from China are made up of minerals and crude oil, while textiles make up 12 percent and base metal resources make up 8 percent. South Korean imports have also grown 43 percent, to 550 million USD, since last year. In comparison, Chinese imports from North Korea shrunk one percent to 340 million USD. Clothing and other ready-for-market textiles made up 44 percent of North Korean exports to the South, while electrical and electronic goods made up 17 percent. Coal, iron, and other key resources made up 51 percent of DPRK exports to China, while zinc and other base metals make up approximately 20 percent.

According to Yonhap:

North Korea’s economic dependence on its strongest ally China is growing as its economy slips further into deeper isolation from the international community for its nuclear ambition, a report said Friday.

According to the report compiled by the Samsung Economic Research Institute, bilateral trade with China accounted for 52.6 percent of the North’s cross-border trade last year.

“North Korea’s so-called self-reliant economy is collapsing, and China is emerging as the communist state’s key supplier of economic goods,” the report said.

The report said China’s investment in North Korea surged to US$41 million in 2008 from a meager $1.1 million in 2003. China is also planning to spend $2.37 billion on construction of a transportation network that links the two countries, it said.

But the report said it is hard to characterize the countries’ economic ties as “subordinate,” as the North is also involved in trade with South Korea and other countries.

As with most Yonhap stories, they do not provide a link to the report, or even its name, so I cannot say much about the numbers. 

Here is the English webpage of the Samsung Economic Research Institute.  I have been unable to locate this partuclar study, but maybe you will have better luck.

Yonhap also tells us that the Chinese are working to create a trade zone along the North Korean border.  According to the article:

China is seeking to build an economic zone in the northeastern region bordering North Korea, aiming to promote trade with the world’s most reclusive country, officials said Friday.

Thirteen cities in the Dongbei region, commonly known as Manchuria, issued a joint proposal Thursday to build the “Yalu River Economic Zone” and to boost trade with North Korea. The Yalu River or the Amnok River in Korean is a river on the border between China and North Korea.

The participating cities include Dandong, Dalian, Tonghua and Mudanjiang, all of which are located either in the Liaoning province, the Jilin province or the Heilongjiang province. The three provinces make up the Dongbei region.

North Korea has long been reported as planning to build a free economic zone near the bordering river. A number of ports already exist on the river, used for border trade between the two countries.

Dandong in Liaoning Province, which borders the North Korean city of Sinuiju, has become the largest logistics hub for North Korean trade, handling 70 percent of bilateral trade.

Read the full Yonhap stories here:
N. Korean economic reliance on China further growing: report
Yonhap
10/1/2010

China eyes economic zone for trade with N. Korea
Yonhap
Kim Young-gyo
10/1/2010

According to Arirang News:

South Korea’s Unification Ministry on Wednesday finally endorsed the Inter-Korean Cooperation Fund worth 8 billion won, or roughly 7 million US dollars in an effort to help North Korea recover from the aftermath of summer floods.

The total cost of aid to be sent is about 12.2 million dollars with about 7 million donated by the Council for the Promotion of Inter-Korean Exchange and Cooperation, chaired by Unification Minister Hyun In-taek and the rest coming from Seoul’s agriculture ministry.

The money will buy 5-thousand tons of rice to be shipped on October 25th from Gunsan Port to the North Korean city of Sinuiju.

Other aid includes 10-thousand tons of cement, three million cases of cup noodles and medicine.

Read the full story here:
S. Korea Endorses US$7 Mil. Inter-Korean Cooperation Fund
Arirang News
9/30/2010

According to Yonhap:

Trade between South and North Korea surged in the first half of the year despite high tensions over the communist nation’s alleged sinking of a South Korean warship in March, a trade organization said Wednesday.

South Korea’s exports to the North soared 63 percent on-year to US$430 million in the January-June period with North Korea’s exports to the South jumping 43 percent to $550 million, according to the Korea International Trade Association (KITA).

Read the full story here:
Inter-Korean trade jumps in H1 despite soured relations
Yonhap
9/29/2010

According to Yonhap:

North Korea’s rice reserves may total 1.1 million tons, which could feed the country for 110 days, a government source said Tuesday.

The source, who declined to be identified, said the estimate is based on continuous monitoring of rice stockpiles by the intelligence agencies in South Korea and the United States.

He said that while the total amount can be determined, it is hard to say if the rice is being reserved for the military or for the general population.

“Due to the nature of modern warfare it is pointless to separate if rice reserve will be used by the military or the civilian population in emergency situations,” the official said. He also declined to say if Pyongyang maintained 300 storage areas as claimed by some independent organizations.

Related to the rice reserve that North Korea may possess, an official from the National Intelligence Service (NIS) claimed in a meeting of lawmakers earlier in the day that recent remarks by Rep. Kim Moo-sung, who said Pyongyang held 1 million tons in rice reserves for the military, was not groundless.

Kim is the floor leader of the ruling Grand National Party and made the remark to point out that the North had the means to alleviate food shortages on its own to a certain extent.

The NIS official added that rice aid to North Korea must be based on clear cut strategies reflecting overall circumstances.

The Lee Myung-bak administration put the breaks on helping North Korea after a South Korean tourist was shot dead in a mountain resort in July 2008. The sinking of a South Korea Navy ship March further cooled inter-Korean relations with Seoul, making clear that it will effectively cut most exchange programs with the North.

Before 2008, Seoul regularly shipped 300,000-400,000 tons of rice to the North along with substantial amounts of fertilizers.

Read the full story here:
N. Korea’s rice reserves may total 1.1 mln tons: source
Yonhap
9/28/2010

Michael Rank writes in the Guardian:

If Pyongyang is North Korea’s showpiece city – albeit an empty and forbidding place – then the country’s interior is something else altogether.

In this desolate city [Rason] 800 kilometres from the capital, the main square turns to a sea of mud in the rain, and there are no street lights so it’s impossible to avoid the puddles at night.

Rason is 50km from the border with China, over a twisting dirt track through the mountains, but it could be another planet.

The cities on the Chinese side are frenetic with activity, skyscrapers sprouting like mushrooms in the rain and traffic jams unavoidable. Rason couldn’t be more different, stuck in a Stalinist time warp. Traffic chiefly consists of ox carts and Chinese lorries. Roads are repaired by teams of workers armed with shovels and picks.

Tourists are a rarity, just 20 so far this year and none at all in 2009, according to Simon Cockerell of Beijing-based Koryo Tours, which specialises in travel to North Korea.

Officially this is a “free economic and trade zone”. In practice that special designation doesn’t appear to make much difference.

The overwhelming majority of those who do venture in are Chinese, many of them lured by the area’s only apparent growth industry – a glittering casino and hotel built by a Hong-Kong multimillionaire.

The Emperor casino was supposed to have shut its doors in 2005 after a senior Chinese transport official gambled away more than 3.5 million yuan (£340,000), much of it public money.

But a few dozen Chinese were observed gambling in the smoky windowless rooms on the top floor of the venue on a recent evening.

Near the casino there is a small island that is linked to the mainland by a short causeway where tourists can relax over a seafood lunch consisting of raw sea urchins, chargrilled octopus and squid washed down with Chinese beer.

Not that Rason is awash with produce. In the 1990s, an acute famine killed many thousands. Although the worst is over, millions continue to go hungry and in Rason a British- charity, Love North Korean Children, makes enormous efforts to ensure that children in the area get enough to eat.

The charity feeds 2,500 children a day, and the youngsters in the Hahyeon nursery school looked well nourished when this reporter visited. But George Rhee, the charity’s founder and powerhouse, stressed that without the steamed buns his bakery provides “all these children would go hungry”.

Rason’s remoteness means it is easier to evade the central government’s relentless grip and benefit from trade, legal and illicit, with nearby China.

North Korea officially maintains the fiction that all economic activity is state-run. It therefore bans foreigners from visiting private markets which help to relieve dire shortages of even staple foods.

Yet during our visit, the Guardian was encouraged to shop in the market for crab for supper, which was cooked in a local restaurant. Apart from seafood, the market also sells cigarettes and alcohol imported from China.

For travellers who like to learn about their surroundings from the locals, North Korea is probably not the best destination.

The Guardian was closely manmarked by minders and ignored by locals. Local officials have been hoping to attract more tourists to Rason by building a golf course and racetrack, but it is hard to imagine these ever materialising in such an isolated and impoverished location.

Read the full story here:
North Korea: beyond the capital lies a different world
The Guardian
Michael Rank
9/26/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-09-20-1
9-20-2010

The South Korean Ministry of Unification announced on September 14 that the number of ROK workers allowed in the Kaesong Industrial Complex, previously limited to fewer than 600, would be increased by two to three hundred. In response to the sinking of the ROKS Cheonan, the South Korean government limited inter-Korean economic cooperation through the May 24 Measure, sharply cutting the number of South Korean workers in the joint industrial complex from around 1,000 down to 500. However, after companies in the complex voiced complaints over production losses caused by the measure, the government slightly raised the number of workers allowed, to 600, in mid-July. With this latest decision, the number will return to almost as many as were working prior to the May 24 Measure. This is the first sanction among those passed on May 24 to be practically rescinded.

A spokesperson for the Ministry of Unification stated, “Companies in the KIC have been complaining about growing difficulties in maintaining quality and of worker fatigue due to the reduction of employees [allowed in the complex],” and announced that the ministry had decided to increase the number of workers since it sees no physical threat to them. This announcement came as inter-Korean relations, which took a sharp turn for the worse after the sinking of the ROKS Cheonan, appear to be improving, with North Korea returning South Korean fishermen seized last month, the ROK Red Cross decision on September 13 to send disaster relief in response to flooding in the North, and working-level discussions on a reunion for separated families being held. However, the spokesperson also stated that although the number of workers allowed to travel to North Korea was being increased, no new or additional investments were being allowed in the KIC, as originally dictated by the May 24 Measure.

Even before the announcement to increase the number of workers in the KIC, the South Korean government had shown flexibility when it came to the May 24 Measure; contracts made before the measure were honored, and North Korean manufactured and agricultural goods have continued to be imported under agreements reached before the sanctions. The government was flexible on humanitarian aid, as well, continuing to provide assistance to the most destitute in North Korea despite the decision to suspend aid on principle. Medical aid, particularly to prevent the spread of Malaria, has also continued. Recently, the South Korean government decided to allow the ROK Red Cross to send 5,000 tons of rice and 10,000 tons of cement, worth approximately 100 million won, to North Korea in response to massive flooding. This is the first time since the Lee Myung-bak administration came to power that any rice aid has been sent to the North. It is very likely that it will be sent as private-sector aid.

Seoul continues to ban visits to North Korea, but private-sector organizations have been allowed to travel to the Kaesong region. Despite the May 24 Measure, exceptions have been made for South Koreans involved with economic cooperation in the KIC and the Mount Keumgang areas. Among the sanctions passed in May, the ban on North Korean ships operating in South Korean waters and the ban on new investment in the North are still being enforced, but the suspension of inter-Korean exchanges, travel to the North, and provision of humanitarian aid have all been eased.

Among the Ministry of National Defense measures, the only psychological warfare tactic employed has been through radio broadcasts, while the distribution of leaflets and the broadcasting over loudspeakers were canceled after North Korean protests. Joint U.S.-ROK anti-submarine warfare exercises in the West Sea were postponed, while the U.S. put on a show of force with the deployment of an aircraft carrier to the East Sea in late July. Maritime interdiction drills led by the ROK military are planned for mid-October. The South Korean government insists that the May 24 Measure continues to stand unchanged, yet the enforcement and execution of the details is less than uniform.

The government’s position is that the restriction on workers in the KIC was not a sanction aimed at North Korea, but rather, a measure to protect South Korean workers; therefore, easing this restriction cannot be seen as a lifting of the May 24 Measure. Ultimately, it appears that a slight improvement in inter-Korean relations has led to a small amount of flexibility in implementing the May 24 Measure, but that the government will continue to enforce the measure until North Korea takes responsibility for sinking the ROKS Cheonan.

Samaritan’s Purse, the US-based, religious charitable organization, has published some pictures of their recent delivery of flood relief supplies to Sinuiju.

Here is one photo:

You should check out the other photos in the set here.

Here is a video they produced before takeoff.

Samaritan’s Purse is delivering a portion of the US government’s $750,000 flood relief campaign.

Additional information:
1. South Korean aid in response to the flood. China sends aid.

2. Video of Sinuiju. Official Chinese and DPRK photos of the flooding.

3. Here are previous posts about Samaritan’s Purse in the DPRK.

Here is the report (in Korean) on the KFI web page.   Here is that page translated with Google Translate.

The report was also carried in the English language media. 

According to Reuters:

The cost of reunifying the two Koreas, split since shortly after World War Two, would tot up to about 3,500 trillion won ($3 trillion), the Federation of Korean Industries said on Tuesday.

Not one of 20 economists surveyed by the federation expected reunification in the next five years but almost half said it would happen in 10 to 20 years.

Nearly half also said the largest cost associated with reunification would be in efforts to cut the wealth gap between the wealthy South and the impoverished North.

“The costs to minimize the gap between South and North Korea over the long-term are expected to be greater than the initial cost of reunification,” the federation said in its report.

South Koreans earn an average about $19,230 a year while North Koreans earned about $1,065 in 2008, according to South Korea’s Unification Ministry.

Concerns about the costs prompted South Korean President Lee Myung-bak to propose a “reunification tax” last month.

“In the short term the shock to the Korean economy will be great but in the long-term reunification will be positive,” the survey said.

The two Koreas are still technically at war as hostilities in 1950-53 Korean War conflict ended in a truce, not a peace treaty.

Yonhap also covered the report:

Most of the experts also said the divided Koreas will likely be reunified within the next 30 years, according to the survey conducted by the Federation of Korean Industries (FKI), the largest business lobby in South Korea.

The questions raised by the FKI came after President Lee Myung-bak proposed introducing a new “unification tax,” which he said will help lessen the financial burden of reuniting with the communist North.

Of the 20 experts surveyed, 63.1 percent said the reunification of the two Koreas will cost more than that of Germany, about $3 trillion. The amount includes the initial costs of stabilizing the nation following a reunification, but also the costs of eradicating any economic and social disparities between the two Koreas.

Half of the respondents said the country needed to begin discussing ways to pay such enormous costs of reunification, while 20 percent said such discussions must begin immediately.

“It also showed every respondent saw the need for such discussions as no one answered such discussions were unnecessary,” FKI said in a press release.

None of the respondents said the reunification will take place within the next five years, but 95 percent, or 19 out of the people surveyed, said the two Koreas will likely be unified before 2040.

They all agreed the unification with North Korea will be a great burden on the South Korean economy in its near future, but a great opportunity in the long term.

Here are links to previous posts on this topic.

Read the full stories here:
The cost of reunifying Korea? About $3 trillion
Reuters
9/14/2010

Experts say Korean unification will cost over US$3 trillion
Yonhap
9/14/2010

According to the Choson Ilbo:

The United States is offering $750,000 in emergency aid to North Korea to help aid recovery from devastating floods.

The U.S. Special Envoy for North Korea Human Rights, Robert King, told VOA Wednesday that the money will be given to three U.S. non-governmental organizations — Samaritan’s Purse, Global Resource Services, and Mercy Corps.

He said the organizations will use the money primarily for medical supplies and will fly the aid into Pyongyang beginning later this week.

Read the full story here:
U.S. Offers Flood Aid to N.Korea
Choson Ilbo
9/2/2010