North Korean Economy Watch

The Korea Development Institute (KDI)  recently published a report titled “5.24 조치 이후 남북교역과 북중무역의 변화: 데이터와 시사점”. The Daily NK translates this title to “Inter-Korean Trade and Changes in North Korea-China Trade after the May 24th Measure”. This report is part of KDI’s monthly series “KDI North Korea Economic Review” (KDI 북한경제리뷰) which you can check out on their web page.

You can download a PDF of this report here (PDF).

Here is what the Daily NK had to say about the report:

North Korea-China trade volumes have been increasing dramatically in the period 2009-2011, something which South Korean analysts tend to cite as a side-effect of the May 24th Measure.

The Korea Development Institute (KDI), in its recently released analysis, ‘Inter-Korean Trade and Changes in North Korea-China Trade after the May 24th Measure’, asserted, “North Korea-China trade in 2010 increased 29% (to $3.5billion) over the previous year. In 2011 the recorded amount was $5.6 billion, 63% more than the previous year.”

“Trade volumes have been going up drastically due to the 2010 May 24th Measure, and most of that trade has been North Korean exports to China,” it went on. “After the May 24th measure in 2010, North Korea’s exports to China increased 50% ($1.2 billion) compared to 2009. And in 2011 an increase of 107% ($2.5 billion) was recorded over 2010.”

In addition, “North Korea’s 2010 exports to China rose 21% compared to 2009, and in 2011 rose 39% compared to 2010. As North Korea’s exports to China led North Korea-China trade in 2010, North Korea’s trade deficit with China is also now declining.”

In 2001, North Korean exports to China were worth a mere $166 million, while imports weighed in with $570 million. In 2011, the last year on record, exports were worth $2.4 billion and imports $3.1 billion.

I cannot really comment on the story since my Korean is not good enough to read the report.

Read the full story here:
Trade Volumes Blamed on May 24th
Daily NK
Mok Yong Jae
2012-5-29

According to the Hankyoreh:

South Korean businesses have suffered losses of up to ten trillion won (US$8.3 billion) from the cutbacks in inter-Korean economic cooperation under the Lee Myung-bak administration, figures show.

The losses taken by South Korean firms are fives times the 1.8 trillion won (US$1.7 billion) North Korea’s estimated losses. The results show an unintended effect of Seoul’s May 24 sanctions, which were meant to punish North Korea economically for the shooting death of a tourist at the Mt. Kumkang resort, the sinking of the Cheonan warship, and the shelling of Yeonpyeong Island. North Korea has offset these losses with increased cooperation with China.

Read more below…

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The Joongang Ilbo reports some recent statistics from, the Kaesong Industrial Zone and some trade statistics between the two Koreas and China.

Inter-Korean and China trade (Joongang Ilbo):

Exactly two years ago, on May 24, 2010, in the aftermath of the deadly sinking of the Cheonan warship, the Lee Myung-bak administration imposed sanctions against North Korea that forbade all inter-Korean trade and South Korean investments in the North.

[…]

Statistics from the Korea International Trade Association show that the volume of inter-Korea trade in 2011 dropped by 10.4 percent, falling to about $1.7 billion from $1.9 billion in 2010. The Kaesong Industrial Complex, which was exempted from the sanctions, accounted for most of the inter-Korean trade.

In contrast, the volume of trade between North Korea and China surged by 62.4 percent in 2011, from $3.4 billion in 2010 to $5.6 billion.

“After stopping trade with South Korea, factories in Pyongyang and Nampo cities turned to Chinese companies and now work for them,” a South Korean businessman said on condition of anonymity. “It took so much time and money for us to teach North Korean employees and now Chinese companies enjoy the fruits of our labor.”

The North Korean government responded to the South Korean sanctions:

As talks between the two authorities have been halted, North Korea has unilaterally decided to raise taxes on income and management of the complex.

In fact, the North Korean regime earns significant money from the complex. South Korean firms pay the North Korean government an average of $126.4 per month for each North Korean worker. The government then distributes 5,000 won of North Korean currency and some food coupons to each employee per month. This wage is desirable compared to other worker payments in the North.

Analysts calculate that the regime is holding at least $50 million from the $77.8 million of the North Korean employees’ annual income.

At current black market rates, there are appx 4,450 DPRK won to for US$1.

The article notes, however, that the Kaesong Industrial Zone continues to grow:

Located only three kilometers away from the Military Demarcation Line, the inter-Korean complex has 123 South Korean companies and about 51,000 North Korean employees.

…

Currently, the South Korean government is implementing a scheme to build more roads and infrastructure for South Koreans crossing the border to commute to the complex (see here and here).

“Although Kim Yong-chol, former head of the policy planning office of the North’s powerful National Defense Commission, who has exerted a huge influence on operating the Kaesong complex, repeatedly threatened to shut down the complex since the May 24 sanctions, he’s recently been more cooperative, saying ‘Let’s make it better,’” a high-ranking government source told the JoongAng Ilbo.

Unlike the frosty inter-Korean relations, the sales performance of the joint industrial complex is positive. For the past three years, 55 South Korean firms additionally moved into the complex and the annual output value surpassed $400 million in 2011, jumping from $180 million in 2007.

Last year’s volume is 30 times that of the $14.91 million in 2005, when the complex made its first yearly outputs. The total output value since 2005 has accumulated to $1.5 billion.

[…]

Currently, roughly 160,000 people are living in Kaesong city and approximately one out of three are working in the complex

The article also reports on additional DPRK-China projects that are not necessarily a result of higher barriers to commerce between the two Koreas (dredging, mining, labor mobility, and SEZs):

“A Chinese firm based in Yanji is now implementing a 60-kilometer-long (37-mile) dredging project in the Tumen river bed,” a government-affiliated research official said.

“It’s not simple dredging work, but a plan to mine the iron ore buried nearby.”

“In the river bed, about 30 percent of the sand contains iron ore,” the official said.

The regime also exports their labor forces to their closest ally.

“Most of the local people left for South Korea to get a decent job and the average wage for a Chinese worker is increasing,” a Chinese factory manager in Yanji said. “So we are planning to hire North Korean workers instead.”

Pyongyang and Beijing are also focusing on developing the two special economic zones, Rason and Hwanggumpyong in northeastern North Korea.

When Chen Deming, the Minister of the Chinese Ministry of Commerce of China, and South Korean Trade Minister Park Tae-ho had a bilateral meeting on May 2 to start negotiations on the Korea-China free trade deal, they included a provision stating the two countries will allow preferential tariffs on goods produced in designated zones.

“Hwanggumpyong is like a Kaesong Industrial Complex to China,” a South Korean authority said. “The Hwanggumpyong zone has the same function as Kaesong, composed of China’s capital and technology and North Korea’s land and labor forces.”

In the Rason Economic Zone, China has finished construction paving the 53-kilometer-long road connecting the Rason zone and a local tax office in Wonjong-ri, a North Korean village close to China.

The Chinese government also arranged a harbor near the Rason area, constructing a pier that can accept a three million-ton ship and building a bus route between an express bus terminal in China and the zone.

“If China uses the Rason harbor, they can save $10 per metric ton,” Jo Bong-hyeon, a senior official at the Industrial Bank of Korea, said. “It’s really good business for China, enough to invest money on building infrastructure in the zone.”

Read the full story here:
Kaesong complex running well despite sanctions
JoongAng Ilbo
2012-05-23

According to Yonhap:

First quarter bilateral trade between North Korea and China reached an all-time high of US$1.37 billion, Voice of America reported Tuesday, citing data from China’s Ministry of Commerce.

The volume for the January-March period marked a surge of 40 percent from a year ago, when a record $972 million was reported in the two-way trade.

North Korea’s first-quarter exports to China rose 40 percent to $568 million, while its imports of Chinese goods also increased at the same rate to $800 million, according to the data.

As a result, Pyongyang’s quarterly trade deficit with China increased to $232 million, up from $170 million a year ago.

Read the full story here:
N. Korea-China trade hits record high in first quarter
Yonhap
2012-5-1

Andrei Lankov writes in The Asian:

However, the decades-long experience of dealing with North Korea leaves little doubt: international sanctions do not work. When the sanctions were first introduced after the October 2006 nuclear test and tightened after the second 2009 nuclear test, many a hardliner believed that this was the way to press the North Korean government into a corner and make them consider denuclearization. In academic articles, newspaper pieces and blog entries, many a hawk was ready to interpret pretty much every piece of news that emanated from the North as a sign of ‘sanctioning beginning to bite’.

But what has happened to the North Korean economy over the past five to six years? Contrary to expectations, the era of sanctions has been, rather, a time of mild economic recovery and growth. The expectations of hardliners therefore have as yet, come to nothing.

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According to Yonhap:

Despite rising cross-border tension, the trade between South and North Korea surged 36 percent from a year ago to US$320 million in the first two months of this year, government data showed on March 16.

The data provided by the Korea Customs Service indicated that the trade via the inter-Korean industrial complex has not been affected by tensions on the Korean Peninsula.

South Korea slapped sanctions on the North in May 2010 in retaliation for the deadly sinking of a South Korean warship earlier that year, though it keeps intact the complex in the North’s western border city of Kaesong.

The complex, a key outcome of the inter-Korean summit in 2000, marries South Korean capital and technology with cheap labor from the North. It is now home to more than 120 South Korean small and medium-sized companies.

Tensions have flared anew in recent weeks as the two Koreas traded militaristic rhetoric against each other over Seoul’s defamation of the dignity of North Korea’s new leader Kim Jong-un and his late father, former leader Kim Jong-il.

Read the full story here:
Inter-Korean Trade Surges 36 Percent This Year
North Korea Newsletter No. 202 (March 22, 2012)
Yonhap

Institute for Far Eastern Studies (IFES)
2012-3-15

The economic trade between China and North Korea has been robust since early this year. China’s Ministry of Commerce announced on February 29 that bilateral trade between the two countries just in January 2012 reached 418 million USD, an 18 percent jump over the same period last year. North Korea’s exports to China increased 7 percent to 139 million USD, while imports also increased 24 percent to $278 million USD.

Coal is North Korea’s largest export item to China — totaling almost half of total exports — and the total export sales are roughly worth 70 million USD. In contrast, crab and seafood exports to China were greatly reduced. This can be analyzed as one of North Korea’s measures to stock up on food to provide to its residents for the upcoming centennial birthday celebration of Kim Il Sung on April 15 (otherwise known as the Day of the Sun in the DPRK).

However, North Korea’s rice imports from China this past January plummeted 90 percent against the previous year. China’s Ministry of Commerce announced in the January 2012 Agricultural Import-Export Statistical Report that North Korea imported 614 tons (236,000 USD) in January compared to 18,140 tons (630 million USD) the same month last year, a drop of more than 94 percent. On the other hand, corn imports — the most popular grain import from China — tripled to 1,809 tons (596,000 USD) compared to last year’s import figure of 600 tons (174,000 USD).

Upon evaluation, China’s exports to North Korea appear to have increased one billion USD every three years. Based on the data collected from Chinese customs, the Korea Trade-Investment Promotion Agency (KOTRA) analyzed that China’s exports to North Korea were reported to have steadily increased from 1.08 billion USD in 2005, 2.03 billion USD in 2008, to 3.10 billion USD in 2011.

The major export items of China were crude oil and minerals, machinery, electrical equipment, vehicles and parts, and plastic products. These five categories showed steep growth from 30 to 60 percent against the previous year. Last year, China exported crude oil worth 518 million USD and petroleum products valued 192 million USD, which is a 59.1 percent and 83.4 percent rise, respectively.

In addition, 46.8 million USD of aviation kerosene and 58.31 million USD of aviation gasoline were exported to North Korea. Other export items such as fertilizers (134.4 percent) and grains (71.2 percent) steadily increased every year. KOTRA also confirmed China’s trade with North Korea peaked both in exports and imports last year, and the total trade volume towered at 5.64 billion USD. Last year, China’s exports to North Korea totaled 3.17 billion USD and imports from North Korea were 2.47 billion USD.

Trade regions that demonstrate robust economic activities include not only Dandong and Shinuiju but Hunchun, Rajin-Sonbong (currently being jointly developed) and Yanji (China)-Namyang (North Korea) areas. Trade volumes are increasing centered around these areas with expansion of bilateral economic cooperation projects and import of North Korean underground resources. Yanbian Prefecture put forth construction plans to build a new Tumen River Bridge connecting the two countries from this year, announcing the desire to continue to promote trade and economic cooperation with North Korea.

Marcus Noland wrote a fantastic primer in Foreign Policy on North Korean statistics. Most of the article can be found below:

Last month, the South Korean news agency Yonhap ran a story about a report from a major South Korean think tank stating that North Korea’s GDP grew 4.7 percent in 2011. That think tank, the Hyundai Research Institute, used a combination of United Nations infant mortality data for 198 countries over the 2000-2008 period and North Korean crop data to estimate annual North Korean per capita income. While infant mortality and food availability correlate with income, one cannot meaningfully estimate year-to-year income changes with these two pieces of information alone.

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According to the Daily NK:

The North Korean authorities have ordered the formation of ‘Day of the Sun Gift Preparation Committees’ at the provincial Party level and subordinate ‘Day of the Sun Gift Subcommittees’ at the city and county scale, Daily NK has learned.

A Yangkang [Ryanggang] Province source who spoke with Daily NK on the 6th explained, “The ‘Day of the Sun Gift Preparation Committee’ was formed at the start of this month by the provincial Party Committee to prepare for the Suryeong’s birthday, and groups of areas were banded together to form the ‘Day of the Sun Gift Subcommittees’.”

“There was no distribution for February 16th,” the source recalled. “Possibly because the central Party received reports of popular discontent about this and asked some searching questions of provincial cadres, now they are running around trying to get ready for April 15th holiday distribution.”

“Enterprise traders are mostly bringing in soy bean oil, soap and towels via Chinese customs. They are printing ‘Day of the Sun 100th Anniversary’ on the towels,” he added.

The formation of the committees has also reportedly had a noticeable influence on levels of public expectation of the April 15th festivities, representing as it does the first time that ‘Gift Preparation Committees’ have been formed since they disappeared without a trace in the mid 1990s.

“They are already saying that each household is going to receive a huge gift for this Day of the Sun, so people are really expecting a lot,” the source said, adding, “The rumor among jangmadang traders is that every house is going to get a DVD player made by Hana Electronics in Pyongyang.”

As the source noted, the move comes following significant public discontent at the lack of gifts on February 16th (Kim Jong Il’s birthday).

On February 21st, Daily NK reported new of that discontent, citing a Yangkang Province source as saying, “There was a flood of criticism about the total lack of holiday distribution for Gwangmyungsung Day, so they began telling every organ, enterprise and people’s unit meeting, ‘That is because we are close to the 100th anniversary of the Suryeong’s birth, and the Party is preparing big gifts for that.’”

North Korea began giving snacks, rice and other foodstuffs to the people every year on the birthdays of Kim Il Sung and Kim Jong Il, along with things like school uniforms and blankets every 5th and 10th year, in the 1970s. However, the system ceased to function in the 1990s as the country was gripped by famine and economic disintegration.

Meanwhile, sources also report that with the arrival of the early spring lean season, a time when many people on the Korean Peninsula have traditionally struggled to find sufficient sustenance, prices in the market are beginning to creep up.

According to the Yangkang Province source, “Until late last week the Yuan price was 607 won, but now it is up to 635 won. The price of rice has also gone from 3,300 won to 3,800 won.”

Read the full story here:
North Forms Party 4.15 ‘Gift Preparation Committees’
Daily NK
Lee Seok Young
2012-3-5

According to Yonhap:

North Korea’s trade volume with China jumped nearly 20 percent in January, compared to the same period last year [January 2011], a report said Friday, indicating sustained bilateral economic relations.

Citing data released by China’s Ministry of Commerce, U.S. broadcaster Voice of America said trade between China and North Korea reached US$418 million in the cited month, up 18 percent from a year ago.

The North’s January exports to China reached $139 million, an on-year increase of 7 percent, while imports expanded 24 percent to $278 million, according to the report.

Coal was the North’s biggest export item for the Chinese market, totaling $70 million, it added.

Here is a link to the original VOA article.  Hat tip to a friend.

Read the full story here:
N. Korea-China trade jumps 18 pct in Jan.: report
Yonhap
2012-3-2