North Korean Economy Watch

International Journal of Korean Unification Studies
Vol. 14, No.2, 2005, pp 52-84.

PDF Here: transformation of class structure.pdf

Abstract
This study examines how North Korea’s class structure transformations influenced the social transformations, and seeks to understand the structural characteristics of North Korea by examining in detail the existing shape of each social class. This study found that North Korea’s socialist transformation was the process of dismantling every social class, such as the landowners, farmers, commerce and industry, and intelligentsia classes, etc. The 1946 land reform dismantled the landowner class, the 1958 agricultural collectivization dismantled the farmers class, and the 1958 nationalization of commerce and industry did the same to the petty bourgeoisie. The only class remaining in North Korea is the managers of the governing class. There was no class differentiation, only dismantlement. Thus, with social classes dissolved, the governing class remains as the monolithic class monopolizing social, economic, and political power in North Korea, with no other social power to act as a balancer. This type of class structure may constitute the social conditions of political dictatorship in North Korea.

Highlights:
In North Korea, the fundamental ownership relations of the traditional class structure were dismantled in the name of socialist construction. The victims of this construction were the traditional classes of landowner, petty bourgeoisie, farmer, and intellectual.

When the 1946 Land Reform Law was passed, it was enacted in a month.  The law provided for government confiscation of land properties over 5 chongbo (1 chongbo=2.45 acres).  When completed, 1,000,325 chongbo of 1,982,431 under cultivation at the time.  At the time, land owned by the Japanese state, Japanese people, and religious organizations was barely 4%.  the remaining 96% was in the hands of Korean landowners and tenants.  It affected 405,603 of the 1,121,295 registered farming households.  4 in 10 households had land confiscated in part or whole.  Ten years after land reform, many were again prospering, and theor political influence became noticeable.  Kim il Sung sought to reassert control over them.  In 1958, land reform was reversed and farms were colectivised.

Nationalization of industry, traffic, transportation, communications and bank finances, including over 1034 important factories and businesses.  In 1947 80.2% of industry was held in state control.  Private commerce made up the rest.  After the Korean War, private enterprise production consisted of small-scale mills, metal workshops, rubber factories.  by May 1957, the number of private industrial enterprises was 633.  By August 1958, this activity was completely eliminated.

To purge the intellectuals (who were educated in the old ways) Kim il Sung proposed, “we have to speed up the construction of socialism, and fo rthat purpose, we have to fight against the conservatism of the intellectuals.” This started with technicians and economic managers.  Then dissident writers.

All social powers were ousted: Landowners, farmers, businessmen, and intellectual classes.  All menas of production were nationalized and socialiazed, so all became employees of the state, and the state became the sole employer.  North Korea’s new system consists of the rulers and everyone else (two groups).

To prevent remanats of the past from gaining influence, North Korea classified each individual according to their family background, and discriminated on this classification (starting in 1957).

Yunan and Soviet factions were purged in the August Faction Incident in 1956.  Cabinet Decision 149 mandates that ousted individuals be put in area 20km from the sea coast and demarcation line, 50km away from Pyongyang and Kaesong, 20km away fro mother cities and limited residential areas.  These individuals received a special stamp on their ID cards and were registered with the social security agency.

The North Korean managerial (ruling) class is an exclusive group which has institutionalized a system so that it may keep its privileges.  Only the sons and daughters of the core class can become promoted within the managerial class.  Children of Cadres only marry children of cadres.

Core class is 3,915,000 people in 870,000 households.  Wavering is 3,150,000 in 700,000 households.  Hostile is 7,930,000 in 173,000 households.

In the workplace, all indivduals are obliged to be part of one of three organizations: the party, the Youth League, or the Workers Union.

Supplies are divided into special numbers.  1,2,3,4, etc.  Those in higher positions are afforded higher rank in distribution.  “How could Party Secretaries, who don’t do anything,obtian objects of a 4 level?”

Private relationships are only possible through the party.

Self-criticism sessions are carried out every week.  Since these are routine, people know each other and act accordingly.  Becuase everyone has to criticize each other they tend to do so in a modest way.

Peasants most angry.  Laborers and office workers have time to do business on the side, but peasants do not.  Some bright peasants do tend private plots.

People complain openly now.

While the core class focused on inner-systemic solidarity when faced with a crisis, the wavering and hostile classes were the first to enter the black market.  After business expanded in the country side like wildfire the government brought the businesses into the open in July 2002.  The marginalized societies led the change in values.  Reportedly the collude with the regulatory authorities and security guards, borrow and rent vehicles for biusiness.

Only those sub-classified as Manyongdae line (Kim Il Sung’s lineage), Baektusan line (Kim Jong Il’s lineage), and Ryongnamsan line (People who graduated with Kim Jong Il from Kim Il Sung University) are able to receive official government posts.

Of the total population, 10% makes up the power-holding ruling class.  Another 40% make up a lower social rung doing business and making deals.

UNFAO
4/21/2005

North Korea (DPRK) is applying knowledge gained from a forestry project on sustainable development of upland water catchments and use of marginal agricultural land to help reduce soil erosion, protect natural resources and increase agricultural output in the country, FAO said today.

“In a country that largely depends on agriculture for self-sufficiency and has seen its agricultural production devastated by floods and droughts in the recent past, an integrated and participatory approach to watershed management is essential,” said Thomas Hofer, an FAO forestry expert.

“Applying watershed management throughout the country, planting trees in the uplands and developing integrated approaches to the use of natural resources will help diminish soil degradation and the dangers of downstream sedimentation,” Hofer said.

Trees help retain water in the soil, preventing water from flowing downstream all at once during heavy rains and keep moisture in the soil during low rainfall. Their roots also cling to the soil, making it more difficult for soil to erode.

Forests, soil erosion and agricultural output

Soil erosion and sedimentation from floods and droughts between 1994 and 2000 have caused massive destruction and reduced the country’s agricultural output in the last decade. In 1995 and 1996 alone, 16 percent of its arable land was damaged by floods The floods also destroyed irrigation and transportation infrastructure as well as 30 out of 90 tree nurseries.

To compensate for the drop in agricultural output, forests have been extensively exploited and converted into agricultural land on steep slopes of marginal lands, which are vulnerable to soil erosion. Forests were also felled for fuelwood and to earn foreign currency from the sale of forest products.

As a consequence, one quarter of North Korea’s non-agricultural land on hills and mountains is bare today.

Tree nurseries and training

To put an end to this vicious cycle and offset the progressively diminishing forest quality and agricultural output, in 2001 FAO launched at the request of the government a watershed management project to reverse degradation of upland resources by addressing the decline of natural forest cover.

FAO has also helped the government to analyze the situation of upland resources, to collect data on forest land degradation and to identify measures to conserve and develop forest and other natural resources. It has rehabilitated damaged nurseries and established new ones for reforestation. Two small-scale pilot and demonstration sites for long-term management of watersheds have been established and country people have been trained to apply their newly-gained knowledge from the sites for replication elsewhere.

Based on the experience of the project, North Korea is now developing a watershed management plan for the Taedong River, which flows through the capital, Pyongyang.

“By applying elsewhere what we have learned from the pilot sites, we hope to see sustainable use of natural resources and greater agricultural output in the country,” Hofer said.

UNFAO
11/23/2004

Despite its best harvest in ten years, the Democratic People’s Republic of Korea (DPRK) will post another substantial food deficit in 2005 and require external aid to support more than a quarter of its 23.7 million people, two United Nations agencies said today.

A report by the Food and Agriculture Organization (FAO) and the World Food Programme (WFP) projected domestic cereals availability in the 2004/05 marketing year (November-October) at 4.24 million tonnes, including milled rice and potatoes – a 2.4 per cent increase on 2003/04.

However, it warns that insufficient production, a deficient diet, lower incomes and rising prices mean that 6.4 million vulnerable North Koreans – most of them children, women and the elderly – will need food assistance totaling 500,000 tonnes next year.

Good weather improves 2003 harvest

The 2004 rice paddy harvest was estimated at 2.37 million tonnes, up from 2.24 million tonnes in 2003, thanks primarily to favourable weather, a low incidence of crop pests and diseases, and improved irrigation in the country’s cereal belt. Maize output was unchanged at 1.73 million tonnes.

Forecasting total cereal needs for 2004/05 at 5.13 million tonnes, the UN agencies projected an import requirement of almost 900,000 tonnes. Given anticipated concessional and commercial imports of 400,000 tonnes, the residual gap will be about 500,000 tonnes.

Most of the 16 million people receiving subsidized cereals from the government-run Public Distribution System (PDS) averaging 300 grams per person per day – half a survival ration – cannot make ends meet. They turn to more expensive private markets yet “they are still not able to cover their basic energy requirements,” FAO and WFP said.

Despite good harvest, external food aid needed

The report, which followed a joint assessment mission by the Rome-based food agencies in September and October, says, “the continuing national shortage is still a problem” so “external food aid is in part seen within the context of overall domestic availability.”

It also noted that, increasingly, “the most critical problem for poor households is their lack of access to basic and nutritious food because of declining purchasing power.” As a result, assistance to the food-insecure population “should now be determined more by their household food gap than the national food gap in cereal production.”

“A balanced diet is out of reach for all but a few PDS-dependent households,” the report says. “The situation remains particularly precarious for children in kindergartens, nurseries, orphanages and primary schools, pregnant and nursing women, and elderly people.”

Price of food on new private markets up dramatically

While the prices of state-subsidized rice and maize rationed through the PDS have remained low and stable (at 44 and 24 won a kilo, respectively), prices in private markets have risen dramatically since the introduction of economic reforms in mid-2002.

Last month, rice cost as much as 600 won a kilo in such markets – almost 30 per cent of a typical monthly wage – compared to the 2003 average of 120 won; maize was 320 won a kilo, up from last year’s peak of 110 won. In September, one Euro bought 1600 won on the parallel market.

“The ability of low-income families to obtain food from the market is severely restricted due to their deteriorating purchasing power affected by under- or unemployment and sharp rises in food prices in the market,” according to the report.

An unintended consequence of reform has been the problem of higher food prices, which has been compounded by widespread and steep cuts in already meagre wage earnings as ailing enterprises in predominantly industrial DPRK shed labour.
Food rations meet just half a person’s minimum needs

The typical wage earner’s family now spends one-third of its monthly income on PDS rations that meet only half its minimum caloric needs. Another one-third is spent on non-food essentials – rent, heating and clothing. The remainder is insufficient to purchase enough food in private markets to meet the rest of the family’s very basic needs.

Much of the population, consuming very little protein, fat or micronutrients, suffers from critical dietary deficiencies. Fresh vegetables and fruit are either scarce or very expensive outside of the July-September period.

Traditional coping mechanisms such as animal husbandry, the cultivation of household gardens and hillside plots, the gathering of wild foods and transfers from relatives in the countryside, afford some relief to hard-pressed urban residents. Small-scale income-generating activities, notably petty trade and services, allowed under an easing of restrictions on private and semi-private enterprise are other sources of much needed income.

Better farm machinery and improved soil fertility needed

To deal with the chronic, structural food deficit, the FAO/WFP report recommended that the international community enter into a dialogue with the DPRK government toward the eventual mobilization of the economic, financial, and other resources needed to promote sustainable production and overall food security.

The report also proposed examination of investment projects on soil fertility and better farm machinery to allow further expansion of the country’s double-cropped area.

WFP has provided the DPRK with almost four million tonnes of food assistance, valued at $1.3 billion, since 1995.

KIEP has published the North Korea Development Report 2003/04 (follow the link to download all several hundred pages!)

Summary: As a result of North Korea’s isolation from the outside world, international
communities know little about the status of the North Korean economy and its
management mechanisms. Although a few recent changes in North Korea’s economic system have attracted international interests, much confusion remains as to the characteristics of North Korea’s recent policy changes and its future direction
due to the lack of information. Therefore, in order to increase the understanding of readers in South Korea and abroad, KIEP is releasing The North Korea Development Report in both Korean and English. The motivation behind this report stemmed from the need for a comprehensive and systematic investigation into North Korea’s socio-economic conditions, while presenting the current status of its industrial sectors and inter-Korean economic cooperation. The publishing of this second volume is important because it not only supplements the findings of the first edition, but also updates the recent changes in the North Korean economy. The topics in this report include macroeconomics and finance, industry and infrastructure, foreign economic relations and inter-Korean economic cooperation, social welfare and science & technology.

This report also covers the ‘July 1 Economic Reform’ launched two years ago and
subsequent changes in the economic management system. The North Korea
Development Report helps to improve the understanding of the contemporary North
Korean economy.
Table of Contents  
 
Part I Macroeconomic Status and Finance
Chapter 1 Current Status of the North Korean Economy and Its Prospects
Chapter 2 National Financial Revenue and Expenditure
Chapter 3 Banking and Price Management

Part II Industrial Management and Problems
Chapter 4 The Industrial Sector
Chapter 5 The Agricultural Sector
Chapter 6 Social Overhead Capital
Chapter 7 Commerce and Distribution Sector
Chapter 8 The Defense Industry

Part III International Economic Activities
Chapter 9 Foreign Economic Relations
Chapter 10 Special Economic Zones
Chapter 11 Inter-Korean Economic Relations

Part IV Social Security and Technology Development
Chapter 12 Social Security and Social Services
Chapter 13 Science and Technology Sector

Part V The Recent Economic Policy Changes
Chapter 14 The Contents and Background for the Recent Policy Changes
Chapter 15 The Features and Problems of the Recent Economic Policy Changes
Chapter 16 Prospects and Future Tasks of the July 1 Economic Reform  

Washington Post
John Pomfret
1/27/2003, Page AOl

Nuclear Crisis May Have Roots in Economic Failure

Six months after North Korea announced unprecedented wage and price increases to jump-start its miserable economy, runaway inflation is emptying millions of pocketbooks and bottlenecks in production are causing widespread shortages, according to Chinese and North and South Korean sources.

The black market price of rice, the staple of the Korean diet, has jumped more than 50 percent over the past three months in most parts of the country while tripling in others, according to North Koreans, Chinese businessmen and Western aid agency workers. Some factories in poorer parts of the country, such as the heavily industrialized east coast, have stopped paying workers the higher salaries that were a cornerstone of the reforms, recent North Korean arrivals to China said. Others have taken to paying workers with coupons that can be exchanged for goods, they said, but there are no goods in the stores to buy.

“Theft new economic policy has failed,” said Oh Seung Yul, an economist at the government-funded Korea Institute for National Unification in Seoul. “The hopes that were raised in July are today pretty much dashed.”

The apparent failure of North Korea’s attempt to promote economic activity and improve living standards constitutes an important backdrop for its recent threats to resume a nuclear weapons program, according to the sources.

On one hand, Oh and others said, North Korea’s isolated government needed a scapegoat. On the other, according to Chinese sources close to the secretive government of Kim Jong Ii, Pyongyang has determined that it risks economic collapse without security guarantees and access to international lending institutions such as the World Bank and International Monetary Fund, to which the United States holds the keys. So Kim manufactured a crisis to win concessions, they said.

“Now the economic situation is more precarious than before the reforms. They can’t do this halfway,” said Cui Yingjiu, a Chinese Korean economist and adviser to the North Korean government. “They risk social chaos and economic collapse.”

The crisis has been exacerbated by a drop in the humanitarian aid that had kept North Korea on life support since 1995. Because of a shortage of donations, the World Food Program has cut back the number of North Koreans it is assisting this year from 6.4 million to 3.5 million of the country’s estimated 22.6 million inhabitants. In September, the elderly and primary school-age children on the west coast were cut off. In October, kindergarten-age children, pregnant women and nursing mothers there lost out. In November, nurseries were scratched from the list.

“It’s a tough call deciding who has to be deprived,’ said Gerald Bourke, an official with the World Food Program in Beijing. Bourke said the recent “very rapid inflation” of rice prices is “putting food way beyond the pale for a lot of people.”

The World Food Program has 25,000 tons of food in North Korea and pledges of 75,000 additional tons, he said. It needs 511,000 tons this year.

North Koreans traveling over the border to Yanji, about 700 miles northeast of Beijing, said an initial wave of hope triggered by the changes announced in July is gone in almost all parts of the country except the capital, Pyongyang.

Lee Xiangyu, a North Korean refugee in China, was arrested by Chinese border police and returned to North Korea last summer, when the changes began. After a short stint in jail, the 19-year-old returned to her home town, Musan, along the border with China. By October, she said, the lumberyard where her father worked had stopped paying him and other workers the huge raises they had received as part of the effort to promote some aspects of a free-market economy.

But prices continued to rise. “There was no money in my house, and now the prices are so high,” she said. Lee sneaked back into China in December. “It’s not like it was in 1997 when people were starving to death,” she said, speaking of the famine that cost hundreds of thousands of lives. “But it’s worse in a way. Because everybody had hope for a little while and now they are desperate again.”

North Korea’s announcement of economic reforms was front-page news, in part because the measures fit into a series of other moves that led some observers to conclude Kim was ready to lead his country out of isolation. The steps included expression of regret following a clash between North and South Korean naval forces in June, the suggestion that North Korea would hand over Japanese Red Army members wanted in Japan for hijacking a Japanese airliner in 1970, an informal meeting in July between North Korean Foreign Minister Paek Nam Sun and Secretary of State Cohn L. Powell, transportation links between North and South Korea, a summit between Kim and Japanese Prime Minister Junichiro Koizumi and talk of establishing as many as five special zones for foreign investment.

The economic changes included raising prices and wages, devaluing the North Korean won against the dollar and cutting state subsidies for failing businesses. Wages were increased between 900 percent and 1,500 percent. Prices, which are in theory set by the state, went up as well. Rice went up 4,000 percent, corn 3,700, pork 700, diesel fliel 3,700, electricity 5,900, apartment rent 2,400 and subway tickets 900.

The government announced that factories with bloated workforces could effectively lay off unnecessary workers so they could concentrate on making things again — a step North Korean industry had not taken since economic troubles began in 1995.

The main motivation for increasing the price of rice was to prompt farmers to plant more food. But Cui, who attended a conference on North Korea’s economic changes last fall in Pyongyang, said farmers were not happy.

“Grain prices went up, but so did prices for inputs like fertilizers and seeds,” he said. ‘So all gains were canceled out.”

Another issue, Cui said, is electricity. North Korea has good hydropower resources, but as farmers become interested in planting more crops, they will want to use water in reservoirs for irrigation, not for power generation. “There are a whole series of these conundrums and Catch 22s,” Cui said.

He said North Korean factories have yet to begin producing goods people want to buy. That is why trucks rolling into China from the Dandong border crossing, 350 miles southwest of Yanji, now carry clothes, television sets, shampoo and other consumer goods.

The changes befliddled Western and Chinese economists from the beginning. Chinese experts noted that when China undertook its first major economic reform in 1979, it increased the price of grain by only 25 percent. Second, they said, when China began this process, 80 percent of its population lived in rural areas, so there was a huge pooi of potential beneficiaries from the liberalized agricultural policies. But North Korea is highly industrialized: Two-thirds of its people live in cities.

Marcus Noland, at the Institute for International Economics in Washington, speculated that the changes were either a desperate attempt to jump-start a half-dead economy or a backhanded attack against North Korea’s nascent private economy. Increasing prices would reduce the value of currency held outside the state system, breaking the back of private entrepreneurs.

But then again, he said in a recent paper, “the possibility that economic decisions are being made by people who do not grasp the implications of their actions should not be dismissed toohastily.”

Correspondents Doug Struck and Peter £ Goodman in Seoul contributed to this report

From the BBC:
9/5/2002

North Korea has announced that it will open up its companies to more foreign investment, as part of a new policy to liberalise its economy.

The Korea Trade-Investment Promotion Agency (Kotra) said that it would now allow foreign investors to take stakes in Korean companies of more than 50%.

“In the case of joint ventures, foreign companies could take only up to 50% of stake in the past, but now there is no problem if their stake goes above the level,” Kotra said, quoting North Korea’s vice trade minister Kim Yong-sul.

The country is hoping that the rule change will encourage Japanese and South Korean businesses to take a greater stake in the North Korean economy.

Economic sea-change

In the past few months, North Korea has devalued its currency and abolished a convertible version of the won used in transactions with foreigners.

The country has also raised prices and wages, and placed more emphasis upon companies being profitable.

Changes to the foreign ownership rules were explained at a conference in Tokyo, which was attended by about 50 Japanese businessmen.

“The measure is an effort by Pyongyang to expand trade and business with other countries,” Kim Sang-shik, a Kotra official, said.

He added that North Korea had attracted $120m (£76.7m) of foreign investment to a special trade zone at the end of 2000 – more recent figures were unavailable.

Socialist profits

The new economic policies aim to wean factories and companies in North Korea off state subsidies and become self-sustained.

North Korea’s planned economy has been in place since the communist state came into being in 1947.

People in the country have been afflicted by droughts and numerous natural disasters, acerbated by an inefficient economy.

The economy grew by 3.7% in 2001, after a 1.4% expansion the previous year, according to estimates from the Bank of Korea – the South Korean central bank.

Following the ownership rule change, Kotra said it expected more South Korean companies to take stakes in companies across the border.

Trade between the two neighbouring countries increased by 8.9% year-on-year to $215m in the first half of this year.

Plans to build railway and road links between the two Koreas were agreed last month.

BBC
8/21/2002

A North Korean engineer who said he was forced to travel to South Korea against his will on a boat with 20 defectors has returned home to the Stalinist state.

Boat engineer Ri Kyong-song, 33, told South Korean officials that he had been detained against his will and wanted to be reunited with his family in the North.

Mr Ri walked back into North Korea on Wednesday, passing through the truce village of Panmunjom inside the Demilitarized Zone separating the two Koreas.

“Long live our great general!” Mr Ri called out as he crossed, referring to the North’s leader Kim Jong-il,

The 20 other North Koreans have sought asylum in the South.

The group had left North Korea by boat on Saturday and spent two days at sea before being intercepted by South Korean maritime officials.

It was the first direct maritime defection between the two Koreas in five years.

Tied up

South Korean officials said Mr Ri had made it clear that he was forced to travel to the South against his will and wanted to join the rest of his family in the North.

He told investigators that he had been imprisoned and tied up on the boat by other families who wanted to defect from the Communist state.

The head of the North Korean Red Cross had urged officials in the South to allow Mr Ri’s swift return on humanitarian grounds.

Both nations still remain technically at war, and share one of the world’s most heavily fortified land frontiers.

But despite the difficulties, the number of North Koreans reaching the South and seeking asylum continues to roughly double each year.

Nearly 600 have defected to the South this year, escaping food shortages and political repression in the North.

Aid groups estimate that tens of thousands of North Koreans are sheltering illegally in China, which shares a porous border with the North.

Beijing does not recognise them as refugees and has tended to send those caught back to North Korea.

UN PAN
Bertil Lintner
Suh-Kyung Yoon

Pak Ku Po and his companion would not make it in international business circles.  They have no name cards and one of them does not even want to give his name. They claim they know nothing about the place where they are based–“we’re just newcomers here”–but promise to be more forthcoming “the next time we meet.”  Their secretiveness is perhaps understandable as they work for Zokwang Trading, a state-owned North Korean company in Macau, which in the past has been accused of being involved in the distribution of counterfeit money, arms smuggling and terrorist training. North Korea had been accused of state-sponsored terrorism long before Afghanistan decided to give shelter to Osama bin Laden and the seeds of the present conflict in Central Asia were sown.

But now things are supposed to have changed, and Zokwang and other North Korean trading companies–and there are many of them throughout East Asia–claim they are legitimate business operations. Pak, for instance, says that Zokwang is involved mainly in the export of North Korean ginseng to Asian countries, and sweaters and other knitwear to France and Canada. Over the past few years, North Korea has embarked on a vigorous commercial drive across the globe, and, for the first time, it is making serious attempts to attract foreign investment. Is Pyongyang finally turning to capitalism to save the world’s last Stalinist state?

The main question is whether this change in attitude will, in the long run, also change North Korea’s economy and society–as similar initiatives by the Chinese communists in the late 1970s have begun to transform China. Or will more hard currency in the state’s coffers only serve to delay the collapse of one of the world’s most atavistic regimes, thus prolonging the suffering of the North Korean people? And have North Korean businesses overseas really become legitimate? Or are they still peddling fake bank notes, drugs and ballistic-missile technology? This is an important issue going forward because the United States has made it clear it will track down all sources of funding for terrorists in future–and now that other sources are drying up,lesser-known alternatives may come into vogue.

There is little doubt that the sale of ballistic-missile technology in violation of the Missile Technology Control Regime and, more generally, the export of weapons to terrorist organizations and the states that harbour them, is far more lucrative than all of Pyongyang’s legitimate commercial ventures put together. But it is equally true that the international war on terrorism will only make such sales more difficult with every passing day.

Ri To Sop, North Korean consul general at the recently established diplomatic mission in Hong Kong, is firm in his assurances. “Our Dear Leader has told us that this is a new millennium, and that we should not do things in the old way. There will be changes. Just wait and see,” he says. The “Dear Leader,” North Korea’s reclusive supremo, Kim Jong Il, visited China in May this year, where his hosts took him to see the stock exchange in Shanghai. In July, he embarked on a 10-day epic train journey through Siberia to Moscow and St. Petersburg, where he visited sites commemorating the 1917 communist revolution, but also held talks with Russia’s new, born-again capitalist leadership. The trip was hailed by South Korean Foreign Minister Han Seung Soo: “[This is] a very positive development because it is an indication that North Korea is willing to open up.”

The main force behind North Korea’s commercial drive is, perhaps not surprisingly, the country’s powerful military. In June, a North Korean defector described the North Korean People’s Army as the country’s biggest “foreign-exchange earner.” From early spring this year, servicemen have been made to engage in a variety of export-oriented projects including mushroom harvesting, gold mining, medicinal-herb collection and crab fishing.

The ruling Korean Workers’ Party is also reported to be operating more than 40 restaurants in six countries as a means of raising hard currency. The first North Korean eatery opened in Austria as early as in March 1986, but in recent years more have followed in China, Russia and Indonesia. According to South Korean intelligence, North Korea will soon open restaurants also in Bulgaria and Australia.

Even more imaginatively, the Dongkong Foreign Trade Corporation in the Chinese city of Dandong, just across the border from North Korea, acquired in September the exclusive right to sell North Korean medicines in the international market–including a brand called Cheongchun No. 1, which is a home-made North Korean version of Viagra.

EFFORTS PAYING OFF
In Thailand, a North Korean-owned company, Wolmyongsan Progress Joint Venture, has for years been engaged in mining activities near the Burmese border in Kanchanaburi, west of Bangkok, while Kosun Import-Export, which is based in the Thai capital itself, is permitted to trade in rice, rubber, paper, tapioca and clothing.  Kosun is located in a discreet office on the top floor of an eight-storey building in a Bangkok suburb. The company is also involved in property, apparently owning the building and renting out flats and office space.

At first glance, it seems that North Korea’s dive into the world of capitalism is paying off. North Korea does not release any trade or economic figures, but according to data collected by South Korea’s state-run Korea Trade-Investment Promotion Agency, or Kotra, from the North’s main trading partners–China, Japan, Thailand and Hong Kong–its external trade in 2000 jumped by 33.1% to $1.96 billion from a year earlier.  It was the second straight year that North Korea saw its trade volume expand and that, too, at a much higher rate than the modest 2.6% increase in 1999.

Kotra is now actively promoting more trade with North Korea. In April this year, the agency published a fact book on how to do business in the Stalinist state, complete with useful phone numbers in Pyongyang and the complete text, in English, of all new laws relating to foreign trade and investment. South Korea’s interest in the development of the impoverished north is understandable. Since South Korean President Kim Dae Jung undertook his historic journey to Pyongyang in June last year, the question of a reunification of the Korean peninsula has become much more urgent–and the South Koreans are painfully aware of the wide income gap between the North and the South.

“Unless we help North Korea develop and strengthen its economy, both countries would collapse if they were reunited,” says a South Korean diplomat on condition of anonymity. “The South would not be able to take care of the North. The gap is just too wide today.” The cost of reunification was first discussed in South Korea shortly after East and West Germany–at a tremendous price–became one country in 1990. According to Marcus Noland, a researcher at the Institute for International Economics, Washington, South Korea would have to invest as much as $3.17 trillion in order to avoid an abrupt influx of people to the South and to upgrade living standards in the North–significantly more than West Germany had to pay to raise living standards in East Germany to an acceptable level.

A closer look at Kotra’s upbeat trade figures for North Korea also reveals a somewhat less rosy picture. In 2000, North Korea exported $556 million worth of machinery and chemical goods–while importing $1.4 billion worth of food, computers and vehicles. The North’s perennial trade deficit is expected to worsen this year as the country has to increase imports of rice, corn and other grains. According to the Bank of Korea, North Korea’s foreign debt totals $12.3 billion and Pyongyang’s credit rating is the lowest in the world.

There is no doubt that it is the dire straits that North Korea has found itself in which have forced its government to resort to commerce, not any real change of mind in the inviolability of the country’s austere socialist system. According to a study by Heather Smith and Yiping Huang of the Australian National University, the present food crisis in North Korea was caused by the disruption in trading ties with former communist allies in the late 1980s. The former Soviet Union ceased providing aid in 1987. More devastatingly, they emphasize, both the former Soviet Union in 1990 and China in 1993 demanded that North Korea pay standard international prices for goods, and that it pay in hard currency rather than through barter trade, as previously had been the case. This affected petroleum imports to the degree that they declined from 506,000 tonnes in 1989 to 30,000 tonnes in 1992.

Subsequently, North Korea embarked on its overseas capitalist ventures. According to a Western diplomat who follows developments in North Korea, the country’s embassies abroad were mobilized to raise badly needed foreign exchange. This, he says, was done partly in the name of the diplomats themselves, or through locally established trading companies, which in reality are offshoots of bigger, Pyongyang-based state trading corporations. “Not only do the embassies have to be self-sufficient, they are also expected to send money back to the government in Pyongyang,” the diplomat says. “How they raise money is immaterial. It can be by legal or illegal means. And it’s often done by abusing diplomatic privileges.”

The sad truth is that the North Koreans are desperate and prepared to do anything to make money, and Bangkok seems to be emerging as a centre for many of their activities. Western intelligence officials based in the Thai capital are aware of the import and sale of luxury cars, which are brought in duty-free by North Korean diplomats. Another way of raising money is to insure a cargo consignment at a disproportionate level, and then report the goods lost. “This is usually done through international insurance markets, and there is little the companies can do but to pay up,” the diplomat says.

And earlier this year, fake $100 notes turned up in Bangkok. The police believed that the North Korean embassy was responsible as some of its diplomats were caught trying to deposit the forgeries in local banks. The North Korean diplomats were warned not to try it again. In a more novel enterprise, the North Koreans in Bangkok were reported to be buying second-hand mobile phones–and sending them in diplomatic pouches to Bangladesh, where they were resold to customers who cannot afford new ones.

And even where businesses tend to be more legitimate, North Korea has managed to attract some rather unusual investors. As early as 1991, the North Koreans established a “free economic and trade zone” in Rajin-Sonbong along the Tumen River near the border with China and Russia. Some 746 square kilometres were set aside for “foreign capitalists”–but there have been very few takers apart from pro-Pyongyang ethnic Koreans from Japan, who have invested because of patriotic duty rather than any expectations of quick returns. In fact, there is only one major foreign investor in the entire zone: Hong Kong entrepreneur Albert Yeung Sau Shing, who controls the Emperor Group, which has interests in gold, securities, property and entertainment in Hong Kong and China as well as a banking venture in Cambodia.

In October 1999, Yeung opened the $180 million Seaview Casino Hotel in Rajin-Sonbong. Although locals are banned from entering the establishment, the Emperor Group is betting that wealthy Chinese and Russians will come there to gamble. The casino has 52 slot machines and 16 gaming tables offering everything from blackjack and baccarat to roulette. In Hong Kong, Yeung is best remembered for his acquittal at his dramatic trial for criminal intimidation in 1995 when all five witnesses called by the prosecution testified that they did not remember anything. Yeung was accused of having kept a former employee prisoner after threatening to break his leg. Even the victim himself said he could not remember what had happened.

In the same year, Macau gambling tycoon Stanley Ho also opened a casino in North Korea, but in the capital itself. Ho’s $30 million Casino Pyongyang is located in the Yanggakdo Hotel, where his partner is Macau businessman Wong Sing-wa. His company, the Talented Dragon Investment Firm, in 1990 became Pyongyang’s unofficial consulate in Macau with authority to issue North Korean visas.

Wong, who has interests in several Macau casinos, made headlines in early 1998, when a Lisbon-based weekly newspaper, the Independent, protested over his presence in a delegation from Macau that was being received by the Portuguese president. The paper cited a Macau official as saying that Wong had “no criminal record, but we have registered information that links him to organized crime” in Macau.

With such business partners, it is obvious that the North Koreans have a long way to go before they acquire a better understanding of how capitalism really works. Nor has North Korea, despite its efforts, managed to attract a large number of new investors.  In July this year, a delegation of representatives from 17 Hong Kong companies went to North Korea on a trip initiated by the new consulate in the special administrative region. But though they showed some interest, no commitments were made.

LITTLE BUSINESS INTEREST
In October, the Singapore Confederation of Industry sent a 25-member delegation to North Korea to look into business opportunities, but little investment is expected from there as well. In recent years, only one Singapore company, Maxgro Holdings, has concluded a joint-venture agreement with North Korea. Maxgro intends to plant 80 million paulownia trees on 20,000 hectares of state-owned land and the project is meant to produce wood for furniture, veneers and musical instruments. But at a value of only $23 million, it is hardly going to turn things around in North Korea.

And, as the fake dollars in circulation in Bangkok show, old habits die hard. In fact, North Korea’s main export item remains ballistic-missile technology. There are especially two North Korean companies that have attracted the attention of Western diplomats: the Changgwang Sinyong Corporation and the Lyongaksan General Trading Company.

In the 1990s, Changgwang was sanctioned by the U.S. government for exporting ballistic-missile technology to Pakistan. In July this year, Changgwang was once again sanctioned by Washington, this time for providing Iran with the same technology. According to Western diplomats, Lyongaksan, which like Changgwang is controlled by the North Korean military, sends people under commercial cover to countries such as Syria and Libya, where they in reality sell weapons systems. According to a report which the Seoul-based Korean Institute for Defence Analyses released in April, North Korea has exported at least 540 missiles to Libya, Iraq and other Middle East countries since 1985.

Libya recently bought 50 Rodong-1 missiles with a range of 1,000 kilometres. Cash-starved North Korea has not hesitated to sell weapons to whoever wants to buy them, including terrorist groups. A video of an attack last year by the Liberation Tigers of Tamil Eelam on a Sri Lankan navy vessel shows speedboats which appeared to be of North Korean origin. The rebels also appeared to be using a North Korean variant of the Russian 107 millimetre Katysha rocket launcher. And in late 1990, North Korea sold Burma 20 million rounds of 7.62 millimetre rifle ammunition, which intelligence sources say ended up in the hands of the United Wa State Army, a drug-trafficking group which is active in the Burmese sector of the golden triangle.

While the world is focusing on the terrorist threat from Afghanistan, North Korea’s potential for mischief has been almost overlooked. But in testimony on April 17 this year, Deputy CIA Director John E. McLaughlin warned: “North Korea’s challenge to regional and global security is magnified by two . . . factors . . . first the North’s pursuit of weapons of mass destruction and long-range missiles, and its readiness–and eagerness–to become missile salesman to the world. And second, the economic and humanitarian disaster that has afflicted the people of the North–a catastrophe whose effects will endure for generations, no matter how the Korean situation finally plays out.”

Unlike North Korea’s more mainstream trading companies, its sale of ballistic-missile technology and military hardware raises millions of dollars, which–minus commissions for the North Korean “businessmen” in the field–flow back into Pyongyang’s coffers. “There is no evidence to suggest that this money is used to put food upon the tables of North Korea’s starving people,” quips a Western diplomat.

North Korea, which depends on international aid to feed its people, has imported $340 million worth of military hardware over the past decade, according to South Korean security officials. This may be less in absolute terms than what South Korea spends on its military. But the much-poorer North spends 14.3% of the country’s GDP on its military compared to the 3.1% spent by the South.

So, for the time being, missiles rather than mushrooms make up the backbone of the North Korea’s exports. If some capitalist seeds have been sown during the present drive to shore up the economy, it will take some time for a new business mentality to emerge. Kim Jong Il, it seems, is not yet about to become another Deng Xiaoping.  But in a world ever more concerned with the spread of biological, chemical and nuclear weapons, states that are known, or suspected, to possess them will find themselves facing intense scrutiny–if not outright isolation. North Korea, thus, has very good reason to come in from the cold.

UNFAO
10/26/2001

The Democratic People’s Republic of Korea is likely to record its best harvest for six years, but with domestic food production still well below consumption requirements, the country will again need substantial external assistance in 2002, two United Nations agencies said today.

Favourable weather during the main growing season, bigger budgetary allocations for agriculture, greater use of farm machinery and increased supplies of donated fertiliser should enable DPRK to produce some 3.54 million tonnes of cereals in 2001/02 (including rice in milled terms and potatoes in cereal equivalent (2001/02), up 38 percent on the previous year’s harvest and its highest output since 1995/96, according to a report by the UN Food and Agriculture Organization (FAO) and the World Food Programme (WFP).

Relatively good and well-distributed rainfall from mid-June to end-August benefited the main 2001 crops, overcoming the adverse effects of a prolonged spring drought, experts from the Rome-based agencies who undertook an assessment mission to the country from 25 September to 5 October concluded.

Rice production was forecast to reach 1.34 million tonnes (milled basis) in 2001, 22 percent more than last year, and the maize harvest projected to rise by 42 percent to 1.48 million tonnes.

The overall 3.54 million tonne estimate for 2001/02 includes yet-to-be-planted winter/spring wheat, barley and potato crops that in recent years accounted for 10-15 per cent of the country’s annual output. “The production estimate may need to be revised once the harvest outcome of these crops is known,” the FAO/WFP report noted.

But it pointed out that in addition to perennial droughts and floods, critical shortages of fertiliser, agro-chemicals and farm machinery persist, and there is little scope for expanding the cultivable area beyond its present level of some two million hectares.

Notwithstanding the significant recovery this year, “domestic production will fall well below the minimum food needs and the country will again have to depend on substantial external food assistance next year as its capacity to import commercially remains highly constrained,” the report said.

Estimating total cereal utilization needs in 2001/02 at 5.01 million tonnes, it therefore projected a deficit of 1.47 million tonnes (down from 2.2 million tonnes in 2000/01). “With commercial imports anticipated at 100,000 tonnes, 1.37 million tonnes will need to be covered by food aid and concessional food imports.”

On the basis of vulnerability assessments the report recommended that about 610,000 tonnes of food aid, including 525,000 tonnes of cereals and 85,000 tonnes of other food items be mobilised for population groups deemed to be most at risk: small children, pregnant and nursing women, and the elderly – especially in urban areas. It said bilateral aid and concessional food imports should meet the balance.

“The uncovered deficit is large and must be viewed very seriously. It needs to be emphasised that unless the international community responds positively and substantially, millions of people of DPR Korea, including large number of children, old people, pregnant women and lactating mothers will face hunger over prolonged periods with severe consequences for their health and welfare,” the joint report says.

“The crucial food aid safety net needs to be maintained until sustainable food security is achieved through the recovery of the economy and the rehabilitation of the agriculture sector, for which substantial international assistance will be needed,” the report concluded.

UNFAO
11/13/1997

Despite an improved harvest in North Korea, the country will enter 1999 with a large food deficit and will need to import 1.35 million tonnes of food grain, including 1.05 million tonnes as food assistance to meet the minimum nutritional requirements of the population, according to a joint report by the UN Food and Agriculture Organization (FAO) and the UN World Food Programme (WFP).

The report, based on the findings of a crop and food supply assessment mission that toured the country extensively last month, forecasts North Korea’s cereal production for 1998/99 at 3.5 million tonnes, some 30 percent higher than last year’s severely reduced crop.

But this harvest is only enough to cover minimum consumption needs for eight months. Apart from foreign exchange constraints that limit commercial imports, the general economic decline in the country and natural disasters have seriously compromised national food security.

“The food situation in DPR Korea (North Korea) remains precarious and the country urgently needs to address the underlying problems in the economy and agriculture if it is to avert serious problems in the future,” said the assessment team leader Mr. Abdur Rashid.

The report recommends that out of the 1.05 million tonnes of food aid needed, some 480,000 tonnes be targeted mostly to children, hospital patients and pregnant and nursing women. The remaining cereal shortfall of 574,000 tonnes will be needed to help the general population meet its minimum needs.

The report calls for immediate attention to be “focused on improving agricultural input supplies, mainly fertilisers, spare parts and fuel” to “enable the country to produce enough food to meet its minimum needs.”

“It is imperative that the international assistance to agriculture be increased substantially from its current low levels,” the report said, because “future food security in DPR Korea (North Korea) will crucially depend on solutions that address the major economic difficulties. In the absence of these, even without natural hazards, the food supply situation will remain highly precarious as the productivity in agriculture falls and the capacity of the country to finance commercial food imports dwindles and barter trade becomes a progressively less viable option.”

“Despite favourable weather this year, food production has not recovered sufficiently enough to avert serious food shortages,” said WFP’s Senior Program Coordinator for North Korea, Mr. Saeed Malik, adding, “The food crisis has been compounded by a complete run-down of the country’s economy.”

The natural disasters that struck North Korea from 1995 to 1997, including two years of flooding followed by serious drought and a typhoon, aggravated the underlying structural problems of the economy. The situation worsened further with the loss of favourable economic ties with the former USSR and other centrally planned economies in eastern Europe which had provided North Korea with large amounts of aid and trade benefits.

Today, the agriculture sector faces a lack of spare parts for broken machinery, shortages of fuel, irrigation difficulties and a shortage of pesticides. But, the shortage of fertiliser is the most serious problem for domestic food production, according to the report. North Korea’s three fertiliser factories have a total capacity of over 400,000 tonnes of nitrogen nutrient which could be enough for self-sufficiency, but the factories are obsolete, poorly maintained and face shortages of spate parts and raw materials, mainly fuel, causing fertiliser availability for 1998 to dwindle.

“The capacity of North Korea to provide adequate food for its population is constrained by the shortage of agricultural inputs such a fuel and fertiliser needed to produce food domestically and the reduced capacity of the economy to supplement domestic food production through commercial imports,” said the report, adding: “Food security in the country critically depends on general economic performance and the efforts to increase domestic food production.”

Other recommendations in the report include:

· Rehabilitation and development of the irrigation system and improved water management;

· Crop diversification to enhance soil productivity and reduce risk of crop losses in any one year due to adverse weather conditions;

· Research into effective crop rotation schemes including legumes to promote soil fertility and productivity; and,

· Research on seed improvement, and early and short-maturing and less chemical fertiliser dependent crop varieties.

· In the context of these recommendations, the UN Development Programme-led Round Table in support of Agricultural Recovery and Environmental Protection is an important initiative towards a strategic approach.