North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No. 11-03-07
3/7/2011

The number of male workers in Kaesong Industrial Complex (KIC) increased according to the Ministry of Unification (MOU). Since the establishment of the complex, women made up 84-85 percent of the total work staff. But from last May, the number fell below 80 percent and currently is around 74 percent.

In contrast, the number of male workers steadily increased from 15 percent from last year to 26 percent, an increase of over 10 percent.

Out of the new hires of all of last year, 56 percent were male. Even sewing factories generally dominated by female employees began to accept male workers.

Many of the South Korean companies in Kaesong preferred young female workers over male for higher work efficiency; but with declining manpower, more male workers are being hired than previously.

An official from the MOU stated, “We are facing difficulties with labor supply lately,” and added, “Many are even coming from Pyongyang in addition to the nearby areas of Kaesong.”

The total production output of Kaesong Complex reached 323.32 million USD last year, an increase of 26 percent against the previous year.

Kaesong is a popular employment spot for the North Koreans due to its higher wages and extra perks including coupons exchangeable for daily necessities and free coffee and snacks.

The MOU official also noted that even in times of troubled inter-Korean relations, North Korean officials and workers on several occasions have expressed their hopes for the KIC to continue. “KIC is a space we acquired from the North for the purpose of fulfilling our national strategy. We need to be more proactive in utilizing this opportunity to its full potential.”

On the other hand, North Korea sent a letter proposing working-level talks on the industrial complex to the South earlier last month. In the letter the North expressed, “We hope for your active support to resume the working-level talks of the Kaesong Industrial Complex at the earliest possible date to revitalize the currently stagnant business. We look forward to your positive response.”

On January 8, the DPRK officially proposed for the resumption of KIC working-level talks at the earliest possible date through a statement made by the spokesperson of the Committee for the Peaceful Reunification of Korea. Specifically, late January or early February was suggested.

On January 18, the Central Special Zone Development Guidance of North Korea also proposed through its representative for working-level talks related to the KIC to be held in Kaesong on February 9.

The request from the DPRK is analyzed to be an attempt to relax restrictions prohibiting new businesses and investments in the KIC from the “May 24 Sanctions” that the South Korean government put into effect in 2010 following the sinking of the South Korean naval corvette Cheonan in March of last year.

Institute for Far Eastern Studies (IFES)
NK Brief No.11-02-18
2/18/2011

Despite the severed inter-Korean relations, Kaesong Industrial Complex related trade reached USD 1,442,860,000, surpassing last year’s figure (USD 940 million) by 53.4 percent.

Trade at Kaesong continuously rose since 2004, almost reaching USD 1 billion by 2009. Then it sharply jumped over the one billion mark last year in 2010.

A closer look at the numbers is as follows: 2004 (USD 41.69 million); 2005 (USD 176.74 million); 2006 (USD 298.79 million); 2007 (USD 440.68 million); 2008 (USD 884.40 million); 2009 (USD 940.55 million); 2010 (USD 1.44 billion).

This rise in trade brought the total trade figure up to USD 1.912 billion by 2010, an increase of 13.9 percent against last year’s total of USD 1.679 billion.

The number of total workers in North Korea reached 42,397 in March 2010, steadily increased to 44,958 in October, and reached 45,332 by November.

However, after the Cheonan incident, South Korea issued a suspension on inter-Korean trade, causing a drop in general trade and processing on commission.

General trade declined by 54 percent from 2009 to USD 117, 860, 000 while processing on commission was down by 22.5 percent to USD 317, 560, 000.

Consequently, the composition of the inter-Korean trade changed, contributing to the proportion of the trade in Kaesong to increase to 75.5 percent from 56 percent in 2009. General trade on the other hand, fell from 15.3 percent to 6.2 percent and processing on commission dropped from 24.4 percent to 16.6 percent from 2009.

In addition, commercial transactions — such as general trade and processing on commission — in Kaesong comprised 98.8 percent of total inter-Korean exchange while noncommercial activities like humanitarian assistance only reached 1.2 percent.

Also in 2010, a total of 13,119 South Koreans visited North Korea, which is an increase of 7.9 percent from the previous year (12,616 people). This is due to the rise in the number of people visiting the Kaesong Industrial Complex.

According to the Ministry of Unification, 94.5 percent (123,023) of the total visitors to the DPRK had involvement with the Kaesong Industrial Complex. This is an increase of 7.9 percent from 2009 (111,811 people).

In comparison, most of the noneconomic related visits to the DPRK declined since the Cheonan incident including socio-cultural exchanges and humanitarian assistance. With the implementation of the May 24 sanctions against North Korea, noneconomic related visitation to North Korea decreased 23 percent from 2,313 people to 1,773 from the previous year.

According to Yonhap:

In another reflection of frayed inter-Korean relations, South Korea last year used the smallest amount of funds earmarked for exchanges with North Korea since the sides held their first summit in 2000, the Unification Ministry said Sunday.

The ministry, the main South Korean government arm handling affairs involving North Korea, spent 86.25 billion won (US$76 million), or 7.7 percent of the 1.12 trillion won designated as the “South-North Cooperation Fund,” officials said this week.

The fund was created in 1991 to support humanitarian and economic exchanges between the divided Koreas, which remain technically at war after the 1950-53 Korean War ended in a truce.

Last year’s spending was the smallest since 2000 when the sides held their landmark summit talks and agreed on a wide range of cooperation projects as part of their reconciliation efforts.

But the cross-border ties deteriorated to the worst level in more than a decade when the North bombarded a South Korean island and was also found responsible for sinking a warship last year.

South Korea has suspended humanitarian aid and cross-border trade in retaliation, pressing North Korea to apologize if the impoverished communist country seeks to restore their relations.

The cooperation fund’s implementation rate had ranged from 37 to 92.5 percent between 2000 and 2007, but nosedived after a conservative government took power in 2008 with a hard-line policy on the North. That year, the rate stood at 18.1 percent before dropping further to 8.6 percent in 2009.

Read the full story here:
Spending on inter-Korean exchanges lowest since 2000: ministry
Yonhap
1/23/2011

According to Yonhap:

South Korea has spent only 5.6 percent of its funds earmarked for promoting humanitarian and economic ties with North Korea this year, the unification ministry said Sunday, as inter-Korean relations tumbled to their worst in decades.

As of the end of November, the ministry said it had endorsed spending worth some 62.6 billion won (US$54.4 million) from its South-North Cooperation Fund, or 5.6 percent of the total allocated for this year.

Just over half the sum, or about 32.8 billion won, went toward financing loans for inter-Korean trade and economic cooperation, while another 27.8 billion won was spent on improving exchanges among families separated across the border and other humanitarian projects.

The low spending rate apparently reflects the ban on cross-border exchanges following the deadly March sinking of a South Korean warship, blamed on a North Korean torpedo attack, and escalated tensions on the peninsula since the North’s artillery attack on a southern island last month.

The fund’s implementation rate ranged from 37 to 92.5 percent between 2000 and 2007, but nosedived after President Lee Myung-bak took power in 2008 with a hard-line policy on the North. That year, the rate stood at 18.1 percent before dropping further to 8.6 percent in 2009.

Read the full story here:
S. Korea spends 5.6 pct of inter-Korean cooperation fund
Yonhap
12/26/2010

According to Yonhap:

North Korean leader Kim Jong-il paid more visits to factories and other economy-related sites than to military units and other locations this year in a sign that the autocratic leader is trying to improve internal unity, Seoul’s Unification Ministry said Monday.

Kim has made a total of 148 “field guidance” trips across the country this year, with 58 of them, or 40 percent, made to economic sites and 33 visits to military units, ministry spokesman Chun Hae-sung told reporters.

In particular, Kim made 16 public appearances in November, and only one of them was a visit to the military while seven were to economic sites, a ministry official said on condition of anonymity.

“This is seen as an attempt to promote internal unity or to demonstrate he is in charge,” the official said.

Kim’s sister, Kim Kyong-hui, and his brother-in-law, Jang Song-thaek, accompanied Kim on most of the field trips in November, the official said.

Since the North’s deadly shelling of South Korea’s Yeonpyeong Island on Nov. 23, Kim has made a dozen public appearances, with seven of them to economic sites.

Kim’s heir-apparent and youngest son, Kim Jong-un, accompanied his father on 28 of the 148 field trips this year, according to the ministry.

Read the full story here:
Kim Jong-il focuses on economic sites for ‘field guidance’ trips this year
Yonhap
12/6/2010

According to the AP:

The number of North Koreans defecting to South Korea has surged in recent years because of economic suffering in the North, with more than 10,000 defections over the past three years, South Korea’s Unification Ministry said Monday.

About as many North Koreans have defected to the South since the end of 2007 as the number who had fled over the entire previous period since the 1950-53 Korean War ended with an armistice, the ministry said in a statement. The overall total stands now at 20,050.

Ministry official Han Dong-ki said the rise in defections reflects North Korea’s worsening economy.

North Korea has relied on outside food aid since natural disasters and mismanagement wrecked its economy in the mid-1990s, when an estimated 2 million people died of famine. The North’s economic troubles are thought to have worsened following a botched attempt at currency reform last year.

Most defectors reach South Korea after crossing over a shared border with China, where activists say tens of thousands of North Koreans are hiding. About 2,500 defectors arrived in the South in 2007, and the number has risen each year since. More than 2,900 defected last year, the ministry statement said.

Many North Korean defectors have trouble adjusting to their new lives in the South, which is one of Asia’s richest countries. They report job discrimination and difficulty finding work, and say they aren’t being paid fairly or getting promotions.

South Korea runs resettlement centers where North Korean asylum-seekers take a three-month course that teaches them computer skills and such everyday lessons as how to use ATMs and shop in supermarkets. South Korean intelligence officials typically question defectors for about three months before they are sent to the centers.

The two Koreas share a common language, but there are often differences in word meanings after more than a half-century of division following the war. The South is also awash in Western influences compared to the isolated North.

The Unification Ministry said it is working to help defectors resettle in the South more smoothly, offering greater tax reduction and medical benefits.

Defectors are a point of friction between North and South Korea. Two North Korean army majors were sentenced to prison in South Korea earlier this year for plotting to assassinate a high-profile defector. The defector later died of heart failure, and police said there was no connection between his death and the plot.

North Korea denies involvement, accusing South Korea of staging the arrests to stoke public anger against the North.

The defector, Hwang Jang-yop, was one of the North’s most powerful officials when he fled in 1997. He was chief architect of North Korea’s guiding “juche” philosophy of self-reliance and had tutored North Korea’s supreme leader, Kim Jong Il, on the ideology.

UPDATE 1: The New York Times also published a story on this trend.

UPDATE 2: The Economist offers coverage.

Read the full story here:
Number of NKorean defectors to SKorea tops 20,000
AP (via Washington Post)
Kim Hyung-Jin
11/15/2010

According to TradingMarkets.com:

Top South Korean steelmaker POSCO pledged Thursday to provide more jobs to North Korean defectors struggling to settle in their newfound capitalist homeland.

Under a memorandum of understanding (MOU) signed with the Unification Ministry, POSCO promised to hire more defectors at its “social enterprise” subsidiaries set up in part to help the underprivileged.

POSCO’s Songdo SE, one such firm, now employees 105 people from the needy classes of society, including 35 defectors from North Korea, and plans to increase the number of defector employees to 50 by next year.

The firm is in charge of building maintenance for POSCO Engineering & Construction’s new headquarters and POSCO Global R&D Center located in Songdo Free Economic Zone in the western port city of Incheon.

“What is most important for North Korean defectors is to help them to stand on their own economically,” Unification Minister Hyun In-taek said in a speech at the MOU signing ceremony attended by some 200 people, including the 35 defectors employed at Songdo SE and POSCO CEO Chung Joon-yang.

Chung said that Songdo SE will put priority on hiring North Korean defectors living in Incheon.

Since the 1950-53 Korean War, nearly 20,000 North Koreans have defected to the South to escape from hunger and political suppression in their communist homeland. But many of them have a hard time getting decent jobs due to their lack of South Korean-style education and social discrimination.

Read the full story here:
POSCO pledges to provide more jobs to North Korean defectors
TradingMarkets.com
11/9/2010

According to Yonhap:

The Unification Ministry said Monday it will ask law enforcement authorities to look into allegations that government officials took bribes in exchange for helping local traders bring in agricultural products from North Korea.

Rep. Choi Jae-sung of the main opposition Democratic Party claimed last week that the trading firms used the bribes after the ministry rejected their request to import shiitake mushrooms from North Korea for violating import conditions.

Choi claimed that multiple officials of a government agency, which he did not identify, exercised influence to help the traders win approval for the import, and received money in kickbacks. The lawmaker did not say how much money was given to them.

On Monday, Unification Ministry spokesman Chun Hae-sung said that the ministry will refer the case to investigation authorities but denied that the ministry was involved in the alleged bribery.

Read the full story here:
Unification ministry calls for investigation into bribery allegations over inter-Korean trade
Yonhap
10/25/2010

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

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.