North Korean Economy Watch

Yonhap
4/24/2007

The South Korean government said Tuesday that it plans to invite U.S. companies to an investor relations (IR) gathering at the Kaesong industrial complex in North Korea this year.

The event, planned for October, will permit American businessmen to see firsthand the growth of the industrial park that is being built with South Korean capital, the Ministry of Commerce, Industry and Energy said.

The complex is one of the crowning achievements of the June 2000 summit meeting between the leaders of South and North Korea.

More than 20 South Korean companies are making shoes, clothing, watches and mechanical parts in the industrial park just north of the 248-kilometer-long demilitarized zone separating the two Koreas.

“The IR trip is not directly related to the recently agreed-upon free trade pact between South Korea and the United States,” said Hong Suk-woo, deputy minister for trade and investment.

Washington said it does not consider Kaesong part of South Korea and cannot extend preferential treatment to products made there.

In addition to the IR trip, the official said plans are under way to arrange one or two TV programs to be aired with English captions to provide information to foreign businessmen.

“The government is also considering a 24-hour English-language radio broadcasting that can provide timely information to foreign living in South Korea,” Hong said. China, Japan and Germany have such radio programs.

He said the ministry and related agencies plan to set up joint project teams to aggressively target specific companies for investment in the country.

“Government ministries, 16 regional administrations and the Korea Trade-Investment Promotion Agency will form teams that will work as one to attract investments,” he said.

The deputy minister said the 16 regional governments plan to set up three foreign corporate investment teams each by the end of the month so they can begin contacting prospective partners. Particular attention will be paid to attract investment in hightech areas including chemicals, electronics, semiconductors and machinery.

He said without going into details that some foreign companies have expressed interest in investing in South Korea.

Hong said the government expects foreign direct investment to reach $11 billion by the year’s end, roughly the same as last year’s $11.2 billion.

Daily NK
Han Young Jin
4/5/2007

On the 30th, Huanqiushibao, an international affiliated magazine of the Chinese People’s Daily, noted the above statement on Russia’s recent movement to invest in North Korea.

The paper said, “The Russian natural fuel gas business has already completed the preparation for providing energy support and is planning to manufacture petroleum in North Korea.”

“Russia has pioneered the Chungjin-Siberia railroad for a long time” and “if they retain the Eurasia continental rail, then they will gain an annual economic profit of four hundred million dollars,” the paper commented.

Further, the paper said that “Russia is finishing its preparation of surplus concentration in the Wondong (Far Eastern region) to export to North Korea.” As a provision of support to invest in North Korea, Russia is also driving the construction of the Kraskino-Chungjin 50,000 kv railway line for exporting Korea remodeling business and concentration of energy in Wondong to three thermal generating plants in the North.

The paper relays a Russian economic expert’s voice to expand investment in North Korea

Prekofts, Russia’s Wondong Economic Research Institute Chair, said, while emphasizing the importance of investment expansion, “We cannot limit items to invest in North Korea to resource and energy areas. China has already built a glass factory in North Korea. Why can’t we do what China is doing?”

Russia Considers Cancellation of 80 percent of North Korean debt

The paper said, “According to the numbers of the Russian government authorities, the 2006 trade figure with North Korea amounted to 210 million dollars and has been reduced by 13 percent compared to the previous year.” In the midst of such a situation, Russia has sufficiently considered the development potential of the North Korean market and is establishing a plan to encroach on the market according to the forecast that “it will be advantageous for the pre-acquiring party.”

According to the paper, President Putin commented, “The economic power with the world’s fastest rate of financial progress is overwhelmingly the Asia-Pacific region.”

The paper also said that because Russia considers of importance the strategic position of North Korea for connecting Europe and Asia-Pacific countries, it has considered the forward-looking way of remitting 80 percent (64 hundred million dollars) of North Korea’s 80 hundred million dollar debt.

The current system of exchange between North Korea and Russia is the former exporting labor power and agricultural goods and latter exporting energy, oil, and raw materials.

The paper reported that there has been opposing public opinion regarding Russia’s investment in North Korea. Because North Korea is not economically well-off, short-term recovery of investment gains is difficult.

The paper pointed out that a Russian merchant Merikonoft, who engages in international trade, said the following, “I do not have immediate plans to invest in North Korea. North Korea does not have laws for protecting foreign capital, so doing business is a type of exploration.”

Yonhap
4/5/2007

Commercial trade between South and North Korea rose 40 percent to US$187.08 million year-on-year in the first quarter, a top unification official said Thursday.

The increase was mainly attributed to an influx of zinc bullion, sand, fishery items, shoes, clothing and watches into a joint industrial complex in the North Korean border city of Kaesong.

“But noncommercial trade between the two sides rose a mere 6.7 percent to $278.11 million in the first quarter because of the halt in government and civic aid to the North,” Vice Unification Minister Shin Un-sang said in a press briefing.

Last week, South Korea sent the first batch of its promised 300,000 tons of fertilizer aid as well as flood relief supplies to the North.

Shortly after the North conducted missile tests in July, the South suspended food and fertilizer aid along with its emergency aid to the impoverished North. In retaliation, the communist nation suspended inter-Korean talks, family reunions and the construction of a family reunion center.

In March, the two Koreas agreed to resume humanitarian aid and family reunion events just days after North Korea promised to take steps to shut down its main nuclear reactor and eventually disable it in return for energy aid from South Korea, the United States, China, Russia and Japan.

Bloomberg
Bradley Martin, Allen Cheng
3/6/2007

Chinese entrepreneur He Ho was burned by his first North Korean investment, a bakery in the shabby border city of Sinuiju. He lost his entire $20,000 when the plan to make the city a special economic zone stalled in 2003.

If another opportunity comes along, though, “I’ll be the first to go in,” the 34-year-old said in an interview in Dandong, the bustling Chinese city facing Sinuiju across the Yalu River. “North Korea’s a good investment because so many things are lacking.”

Business executives in Dandong, one of the main conduits for trade in and out of North Korea, see opportunity in the recent six-nation agreement to end Kim Jong Il’s nuclear-weapons program. They think the 65-year-old North Korean leader will now focus on fixing his country’s nearly flattened economy and may revive plans for a special economic zone — an area designed to promote foreign investment, with fewer rules and regulations than elsewhere in the country — on the western border with China.

“Most of North Korea’s trade with China is via Dandong, so a special zone in this corridor could make sense,” said Marcus Noland, senior fellow at the Peterson Institute for International Economics in Washington. “This could be the North Korean equivalent of the Chinese coastal SEZs in the early years of the Chinese reform.”

No Guarantee

There’s no guarantee against another disappointment for entrepreneurs like He Ho, said Peter Beck, Seoul-based Northeast Asia project director for the International Crisis Group, a Brussels-based organization that works to resolve crises around the world.

“The eternal optimist in me hopes that Kim will see the light and recognize the direction in which he needs to lead the economy,” Beck said in a telephone interview. “But the jury’s still out.”

At the same time, “the North Koreans have been talking about putting a special economic zone in the far northwest aimed at China for a decade,” said the Peterson Institute’s Noland. “If they get the politics right, this venture could work.”

China is North Korea’s top trading partner, with 2006 exports of $1.23 billion and imports of $468 million, according to its Ministry of Commerce.

A little over a year ago, Kim visited six booming Chinese cities, including the special economic zone of Shenzhen, bordering Hong Kong. North Korea’s Central News Agency described the nine-day trip as a visit to places “where the cause of modernization is being successfully carried out.”

Executives’ Speculation

Business executives in Dandong speculate that North Korea will develop a new zone in Cholsan County, a peninsula on the east side of the mouth of the Yalu some 50 to 60 kilometers (31 to 37 miles) south of Dandong and Sinuiju. China’s commerce and foreign ministries and North Korea’s embassy in Beijing didn’t respond to faxed requests to comment on their plans.

In 1991, North Korea built a special economic zone at Rajin-Sonbong, in the remote northeast of the country, which has failed to attract much foreign investment because of its location.  Another zone near the southern border at Gaeseong, only 60 kilometers from Seoul, has proven more popular, especially with South Korean manufacturers in search of low-cost labor.

In 2002, North Korea announced plans for the zone in Sinuiju, which would have included export factories and casinos to lure gamblers from China. Kim named Dutch-Chinese businessman Yang Bin governor of the zone. China, which hadn’t given its approval, squelched the plan by arresting Yang and jailing him in 2003 on charges of fraud and illegal land use.

Strained Relations

Kim’s test of a nuclear device in October, which strained relations with the Beijing government, didn’t halt commerce on the border, according to Shen Yuhai, general manager of Dandong Jade Ocean Trade Co. “We didn’t stop trading at any time,” he said in a recent interview.

Shen’s office overlooks a busy parking lot where Chinese customs officials examine trucks departing neon-lit, high-rise Dandong for the run-down and darkened Sinuiju.

The trucks cross on the Friendship Bridge’s single lane in the morning with manufactured goods and return in the evening, either empty or carrying minerals, silkworm cocoons and seafood, Shen said. Four trains a week cross in each direction, connecting the North Korean capital of Pyongyang with Beijing.

China is supplying its neighbor with “daily necessities, home electrical appliances and, in this season, farming tools and chemical fertilizer,” said Shen.

While business is booming, he said he’s still cautious about the risks. He requests payment in yuan, dollars or euros, not North Korean won, and accepts bank transfers only after business relations have been established.

Even then, he said, “sometimes we are cheated.”

–With additional reporting by Hideko Takayama in Tokyo and Lee Spears and Dune Lawrence in Beijing.

For a copy of a list of banned goods to North Korea: http://www.state.gov/t/isn/76138.htm

Korea Times
Park Hyong-ki
3/7/2007

The outlook for inter-Korean trade this year seems bright, as North Korea agreed to dismantle its nuclear weapons programs at the six-party talks in Beijing last month.

According to a survey conducted by the Korea International Trade Association (KITA), about 45 percent of South Korean companies doing business with North Korea were optimistic that the volume of inter-Korean trade will grow this year. The survey was conducted on 150 firms in February.

Some 35 percent believe that the bilateral trade will remain the same as last year’s, while only 15 percent showed negative responses toward this year’s trade, saying that the volume will “drastically” decrease.

Only two companies said they will pull out of North Korea this year, while five companies were undecided.

Last year, inter-Korean trade amounted to about $1.3 billion, up 28 percent from 2005. Key trading commodities were agricultural, chemical and textile products.

Despite North Korea’s nuclear and missile tests as well as chilly inter-Korean relations last year, South Korean companies operating in the Kaesong Industrial Complex saw their sales grow 69 percent to $298 million.

The Kaesong site is one of the major cross-border projects symbolizing economic ties between the two Koreas, which utilize North Korea’s cheap labor and South Korea’s technological skills.

The Ministry of Unification is hoping to attract about 2,000 manufacturers to Kaesong by 2012. Currently, there are 55 South Korean firms operating in the joint economic zone, which account for 22 percent of overall South-North business, according to the trade association.

The other joint business _ the Mt. Kumgang tour managed by Hyundai Asan _ suffered from the aftermath of North Korea’s nuclear weapon test. The tourism project recorded only $57 million in sales, down 35 percent from the year before.

Specifically, a total of 477 South Korean companies participated in inter-Korean trade last year, down from 523 firms in 2005, due to heightened risks following Pyongyang’s nuclear test.

About 44 percent of those surveyed said that the test had negatively affected their business with the North. The report showed that only 39 percent reaped a “little” profit last year while doing business with North Korea.

Half of firms upbeat for North trade
Joong Ang Daily
3/8/2007

Almost half of South Korean companies doing business with North Korea said they have a bright outlook for inter-Korean trade this year due to expectations for better ties with the North, a poll said yesterday.

According to a survey of 67 companies conducted by the Korea International Trade Association, 45 percent of the respondents said inter-Korean trade will likely increase this year. Thirty-five percent expected trade to remain at the same level as last year while 15 percent said it will likely decline.

The poll also said 75 percent of local companies operating in the industrial park in the North’s border city of Kaesong had an optimistic outlook for trade. The industrial complex, mainly for smaller South Korean firms, is considered a model for reconciliation and cooperation between the two Koreas. Currently, 21 garment and other labor-intensive South Korean plants are operating there, employing about 11,000 low-paid North Korean workers.

The survey said among the firms that forecast inter-Korean trade to rise, 17 percent said their continued trust in North Korean firms was the reason for their upbeat outlook, while 16 percent and 14 percent said it was a rise in new orders and expectations for inter-Korean reconciliation. The survey was conducted before a deal on dismantling North Korea’s nuclear program was reached, reflecting that local firms have maintained a positive view toward inter-Korean trade. The agreement calls for Pyongyang to shut down and disable its main nuclear reactor and dismantle its atomic weapons program.

Daily NK
Kim Min Se
3/5/2007

North Korea customs at Shinuiju is under strict control by Central Committee of North Korea Workers Party.

An inside source from Shinuiju said on the 4th, “Authorities are currently undergoing investigations at Shinuiju customs, looking for tax evasions and illicit acts. The parties subject to these crimes include customs officers at Shinuiju customs and merchants engaging in North Korea-China trade.”

The source added that the investigations had virtually terminated North Korea-China trade between Shinuju and Dandong.

Shinuiju customs is critically important for North Korea as 80% of food and daily necessary goods between North Korea and China are imported and exported from here.

According to Kim Young Hee (pseudonym), a North Korea-China tradeswoman in Shinuiju, “Trade merchants have given up on trade and are in a state of panic because of authorities making investigations at Shinuiju.”

Kim said “At times like this, keeping is a low profile is the way to survive” and expressed her concern, “They have made orders to arrest at least 10 people. Who knows, anyone could be unlucky and caught.” She said “Like there is any trade merchant who does not engage in some sort of illegal act” and retorted “Simply obtaining a permit from authorities is generating money.”

“Prior to authority investigations, on average 50~100 cars would pass through Shinuiju-Dandong, per day. Now the figures have drastically reduced with only 5~10 cars passing through” she said.

Kim continued “There is not an article that falls through the cracks of authority officers. All goods approved by customs, whether it be minerals to seafood is confirmed by authorities… All things are left up to the hands of authority officials.”

On the other hand, the source also informed that despite recent investigations placing trade between North Korea and China in a state of lull, apparently counteracting effects such as dramatic rises in Shinuiju markets have not yet occurred.

Yonhap
2/28/2007

Russia and North Korea will resume meetings of their trade and economic cooperation committee late next month, ending an over six-year suspension, Russian government officials here said Wednesday.

The joint panel’s last meeting was held in Pyongyang in October 2000, the officials said.

The upcoming meeting, the fourth of its kind, will be held in Moscow from March 22-23, and discussion will focus on Pyongyang’s financial debt to Moscow, according to the officials.

The North’s debt reportedly amounts to US$8 billion dollars, and a considerable part of it is expected to be written off.

Russia, N. Korea to discuss debt payment, other issues in Moscow
Novosti (Hat Tip DPRK Studies)
2/27/2007

Russia and North Korea will meet March 22-23 in Moscow to discuss debt repayment by the reclusive regime and other economic matters, a Russian official said Tuesday.

Russia and North Korea agreed February 27 on a timeframe for the intergovernmental bilateral commission on economic, scientific and technical cooperation to hold its first session since 2000, Yevgeny Anoshin, press secretary of the Russian half of the commission, said.

Konstantin Pulikovsky, the former presidential envoy in the Far Eastern federal district and now head of the Russian technical standards body, Rostekhnadzor, will lead the commission on behalf of Russia, Anoshin said.

“The intergovernmental commission will yield real results only if Russia’s and North Korea’s finance ministries find during February an acceptable solution to the repayment of Pyongyang’s debt to Russia,” Pulikovsky earlier said.

According to Russian experts, North Korea owes more than $8 billion to Russia, including interest.

In addition to the debt repayment, the commission is expected to focus on Korean labor in Russia, plans to continue building the trans-Korean railroad and connecting it to the Trans-Siberian rail, and the possibility of delivering and refining Russian crude in North Korea.

Representatives of Russia’s economics, transport and finance ministries and the rail monopoly Russian Railways will attend the commission’s session, Anoshin said.

Reuters (Hat tip DPRK studies)
2/26/2007

Senior officials from South and North Korea resume talks on Tuesday, seven months after dialogue broke down in acrimony over Pyongyang’s missile tests.

Following are key points in the ties between the two:

STILL AT WAR

– An armistice ending the 1950-53 Korean War dominates the relationship between the two Koreas. Nearly 1.2 million North Korean soldiers and South Korea’s 680,000 troops remain in a tense military standoff despite political and commercial ties that have warmed since 2000.

– The two have enough missiles and artillery pointed at each other to largely destroy major cities on both sides of the Korean peninsula.

POINTS OF EXCHANGE

– An industrial park in Kaesong just a few minutes’ drive from the heavily-fortified border is home to 21 companies employing about 12,000 North Korean workers.

– About 1.4 million South Koreans have visited the Mount Kumgang resort in the North just above the border on the east since the tours began in 1998. Roughly a quarter of a million made the visit in 2006 even as tension spiked following the North’s missile and nuclear tests.

– About 102,000 people crossed the border last year, not including Kumgang tourists and most of them South Koreans visiting the North for business. The total exchange of people was 269,336 as of the end of 2006.

TRADE

– Cross-border trade was $1.35 billion in 2006 up from $1.05 billion a year ago, largely from the strength of the Kaesong industrial park.

HUMANITARIAN AID

– South Korea has supplied between 200,000-350,000 tonnes of fertiliser a year to the North since 2000.

– It has also shipped up to 500,000 tonnes of rice a year to the North in the form of low-interest, long-term loans. Food aid has been suspended since the North’s missile tests in last July.

REFUGEES, PRISONERS OF WAR AND ABDUCTEES

– South Korea believes more than 1,000 of its people are still alive in the North either as civilian abductees or as prisoners captured during the Korean War.

– North Korea has said 10 South Korean POWs and 11 civilians were alive there.

– More than 1,000 North Koreans each year have fled hunger and persecution in the North and sought refuge in the South. In the first six months of last year, 854 arrived in the South for a total of 8,541. (Source: South Korean Unification Ministry, Kaesong Industrial District Management Committee, Reuters)

Korea Times
2/9/2007

North Korea purchased about 15,000 metric tons of rice from China late last year, reflecting a severe food shortage in the communist state, according to South Korea’s state-run trade agency Friday.

The impoverished communist country imported 7,423 tons of rice in October, 3,910 tons in November and 3,928 tons in December, the Korea Trade Investment Promotion Agency (KOTRA) said.

The amount of rice imported over the three-month period is about 2.6 times more than that of the same period in 2005, and it accounted for almost half of its annual rice imports totaling 38,479 tons, KOTRA said.

“North Korea’s massive rice imports following the harvest season means that its food situation is so severe. Due to the imported rice, North Korea’s market rice prices are stable so far,’’ said Kwon Tae-jin, a senior researcher at the state-run Korea Rural Economic Institute.

Another North Korea expert said the communist country might have had to take such measures because of United Nations sanctions on the North following its nuclear weapon test in October as well as South Korea’s suspension of its food and fertilizer aid to North Korea since July.

Yonhap
2/2/2007

China has made little investment in North Korea since the North conducted its first nuclear device test in October last year, but their two-way trade volume rose 21.6 percent year-on-year over the past few months, informed sources said Friday.

“Over the three months since the October test, China made no investment in the North except in some low-budget mining development. But North Korea’s dependence on China in terms of trade increased sharply,” a senior government official said, asking to remain anonymous because of the sensitivity of the information.

Another source said from October to November in 2006, the trade volume between North Korea and Japan declined 75 percent year-on-year to US$7.9 million, illustrating the full range of the impact from United Nations sanctions over the North’s surprise nuclear test, they said.

Japan has shown the strongest response to the North’s nuclear test and long-range missile launches last year, banning North Korean goods and citizens from entering the country as well as barring its ships from Japanese ports.

In all of 2006, the trade volume between North Korea and China rose 7.5 percent year-on-year to $1.69 billion, while two-way trade between North Korea and Japan decreased 34 percent to $119 million in the first 11 months of last year, the source said.

“North Korea can make financial dealings only via Russia and a few other countries because it has a lot of trouble in doing financial transactions and wooing investments since the United States imposed financial sanctions on the North in September 2005,” he said.

The U.S. cut off Macau-based Banco Delta Asia’s access to the U.S. financial system, alleging that North Korea used the bank to counterfeit U.S. dollars and engage in other financial wrongdoing.

North Korea boycotted the six-party talks on its nuclear disarmament until December, saying that the U.S. should discuss ways to lift the sanctions on the sidelines of the six-nation talks involving the two Koreas, the U.S. China, Japan and Russia.