North Korean Economy Watch

A couple of days ago, we had an interesting exchange in the comments that I want to make sure readers have an opportiunity to see:
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Werner Koidl Says: 
 
In that Asia Times report Dr. Petrov wrote:
“… Last year the Russian auto plant KamAZ opened its first assembly line in North Korea, specializing in the production of medium-size trucks named “Taebaeksan-96″. …”

I would be interested in more details about that KAMAZ truck assembly line in North Korea ! Where ?, joint venture ?, size ?
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Leonid Petrov Says: 
 
Concerning the “Taebaeksan 96″ truck assembling plant, the KamAZ set it up last year (2007 or Juche 96) in the town of Pyeongseong. The terms of this deal with NK were really “friendly” and last year KamAZ was having no or very little profit. The production volume last year was very limited (45 or 48 trucks). However, it’s just the beginning of such cooperation.

There is one technician-representative from KamAZ who manages the assembling process. He stays in Pot’onggang HTL and commutes to Pyeongseong. Many North Korean drivers and technicians seem to be technically ignorant (i.e. not knowing how to change the engine oil, etc.), so they need a new technological culture to be introduced. Russians train them well and the North Koreans are grateful.
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Gag Halfrunt Says:

Now that explains the brochure for the Taebaeksan 96 I’d noticed on the Korean Friendship Association’s exports page. I was wondering how anyone could be making money from sticking badges on KamAZes and trying to sell them on. In any case, the export potential for the Taebaeksan 96 must be close to zero, since anyone outside the DPRK who wants a KamAZ can buy one assembled by KamAZ itself.

Trying to drum up interest in the DPRK as an investment destination, the KFA say, “All business made directly with the government, state-owned companies. No middle agents.” This is amusing, because, on the Pyeonghwa car brochure on the KFA website, they’ve sneakily deleted Pyeonghwa’s own contact details and replaced them with the KFA’s email and web addresses. I think this qualifies them a “middle agent” standing between Pyeonghwa and any potential export customers…
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Werner Koidl Says:
 
The link “brochure for the Taebaeksan 96″ given by Gag Halfrunt seems to indicate that the KamAZ Taebaeksan-96 is assembled in a joint venture with Ryongwang [Ryongbong] Trading Company of North Korea. Ryongwang Trading is also the joint venture partner of Pyeonghwa Motors (Unification Church) to assemble the “Whiparam” in Nampo. And Ryongwang Trading company is also business partner of “Kohas” company from Switzerland. And because of its connections to Ryongwang this Swiss company got in troubles with the US administration.

Writing in today’s Asia Times, Dr. Leonid Petrov analyses the complexity of Russia, Rok, DPRK, and Chinese relations:

Russia and North Korea:

Territorial claims, in one form or another, involve almost all countries adjacent in this region with the exception of Russia and Korea. The Joint Russian Federation-DPRK Commission for the Demarcation of State Borders has recently completed its work by documenting and marking the 17-kilometer frontier. This strip of uninhabited and swampy land in the mouth of the Tumannaya (Tuman-gang) River plays an exceptionally important geopolitical role. It not only provides the two countries with land access to each other, but also prevents Chinese access to the East Sea (Sea of Japan).

China and North Korea: 

Here, some 50km north of the small port that forms the core of North’s Rajin-Seonbong Special Economic Zone, the interests of Russia and China are now at stake. Russia is rapidly repairing the railroad track, and China (in a similarly speedy manner) is constructing a new automobile highway, both leading from their respective borders to the port of Rajin. Russia, investing at least 1.75 billion rubles (US$72 million) into this project, seeks to strongly connect Rajin (and the rest of northern Korea) to its Trans-Siberian Railroad. China, in turn, hopes to divert the growing cargo traffic to its own territory, offering the efficient network of railroads for delivery of South Korean and Japanese goods to Central Asian and European markets. What position will the government of North Korea take in this clash of ambitions?

Russia and South Korea (energy and trade):

In 2007, the volume of the export of “black gold” from Russia to South Korea reached 38.13 million barrels (2.7 times more than in the previous year). The relative proximity of the Russian oil and gas fields is an attractive factor for Korean companies who actively search for alternatives to Middle East oil suppliers. This year South Korea will for the first time start importing natural gas from Russia. The expected volume of delivery during 2008 is 1.5 million tons (or 5.1% of South Korea’s annual demand).

and

Trade relations between Russia and Korea are steadily growing. According to customs statistics, last year Russia recorded the sharpest increase of South Korean imports (56.2% more than in 2006). Due to the inflow of “petro-dollars” the new class of nouveaux riches in Russia began actively buying Korean automobiles, cell phones, television sets and LCD monitors. South Korea exported to Russia goods worth US$8.1 billion (including $3.296 billion of automobiles, $859 million of mobile phone equipment, motor vehicles and spare parts worth $659 million). As for trade with North Korea, in 2006 Russia occupied third place after China and South Korea and absorbed 9% of the total $3.18 billion spent by the North on imports.

More on Russia/South Korea energy talk here. 

The whole article deserves reading here:
Russia lays new tracks in Korean ties
Asia Times
Leonid Petrov
3/5/2008

During the late 1990s, North Korea suffered a terrible economic collapse which resulted in famine and massive social dislocation.  During this time, most ministries and state-owned companies  were cash-strapped and unable to maintain their operations.  Out of desperation they turned to private investment for much needed revenues by outsourcing many basic services. (Individuals who were capable of taking up such opportunities were probably small in number at the time, but apparently now compose a healthy sub-section of the population.)

Outsourcing has benefited both the government and private entrepreneurs.  Outsourcing allows state-owned companies to receive capital financing from private individuals as well as a share of joint-venture revenues (tax revenues).  Private entrepreneurs need a legal business environment where they know they will not be subject to ex-post expropriation of profits.  Leasing the name of a government body gives them some of this legal cover.  This system is no doubt tolerated because it allows the government create space for entrepreneurship (and tax revenue) within the existing state structure while still maintaining de jure control of the means of production.   

According to the story in the Daily NK, the regulations for establishing a legitimate passenger bus company under this system (or “coach” company for readers in Her Majesty’s Commonwealth) are fairly strict.  Once an individual acquires a bus (appx US$6,000-10,000), he has to register it with the government body for whom he is working.  Revenues are then split 70/30 (the government taking 30%) for three years, after which the individual is required to “donate” the privately acquired bus to the state-owned enterprise.  This policy literally gives North Korean entrepreneurs just three years to recoup their investments!

The response of the North Korean business community was predictable:  investors sell the buses before the three years are up or they forge registration papers.  This is not hard to do in the DPRK.  In fact if you have just one other associate who owns a bus in similar condition, all you need to do is trade with him every three years and re-register the new vehicle. 

Word of this game has finally reached the top and they have responded by increasing their share to 70% of passenger bus revenues–leaving just 30% for the purchaser of the vehicle.  It is unclear from the story if investors are still required to “donate” their busses after three years, but realizing that the confiscation of buses was not enforceable, the North Korean government probably just opted for a larger share of the revenue over time.

The good news is that it is not likely that many people pay 70% of revenues either.  After-all, someone has to collect these taxes and he has needs too.  Sounds like some kind of arrangement could be reached…

You can read the full story here:
North Korea Regulates Operation of “Service Car”
Daily NK
2/18/2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-2-12-1
2/12/2008

South Korean businesses currently involved in inter-Korean economic cooperation are facing many difficulties, both due to and in spite of the system in place, so that at the moment, investment in North Korea does not look much more appealing than in Vietnam or China.

The Korea Chamber of Commerce carried out a survey, titled “Business Perspective on the Direction of South-North Economic Cooperation Policy”, targeting 300 successful businesses (170 companies responded) and 200 companies currently involved in inter-Korean economic cooperation (132 companies responded). According to the results of the survey, 79.4 percent of companies involved in inter-Korean cooperation responded that they are “currently facing systemic and procedural difficulties.”

More specifically, 44.7 percent pointed to the “3-C” (commute, communication, and customs) issues, 22.4 percent pointed to “claim resolution procedures,” 14.3 percent highlighted “difficulties with financial transactions,” 11.8 percent chose the “ban on the import of strategic materials,” and 5 percent indicated that “limited markets” were the main issue.

In addition, 58 percent of responding companies noted issues not related to the system set up for inter-Korean cooperation. 36.6 percent pointed to difficulties resulting from the “lack of understanding of market economics,” 28.7 percent noted a “lack of supervision by managers,” 24.8 percent chose “uncooperative, highly tense attitudes,” and 8.9 percent pointed out “demands for quick production.”

When asked about the relative attractiveness of investment in North Korea if the current situation were maintained, as compared to Vietnam and China, only 27 percent responded, “more attractive”, while 53.7 percent, or twice as many companies, responded that investment was “impossible.”

However, 58 percent responded that, in the event the North’s nuclear issues were resolved, investment in North Korea would be “more attractive than China and Vietnam”, while only 21.7 percent responded that investment in the North would still be “impossible.”

The overall impression of these companies regarding inter-Korean cooperation is that “improvement of inter-Korean relations offers opportunities for new enterprises and is a positive influence on the South Korean economy” (65.3 percent), and 19 percent felt that cooperation would “in the future, serve as a springboard for the relaunch of the South Korean economy.” 15.7 percent of responding companies felt, however, that “there would be no substantial positive influence on the economy.”

Currently, a resolution to the North Korean nuclear issues is the most important factor, but it is imperative that pledges of the incoming ROK administration such as strengthening investment security, preparing claim resolution measures and other issues to placate business interests, and nurturing North Korean exporters, are institutionalized.

Daily NK
Moon Sung Hwee
1/21/2008

Tens of thousands of a Shock Brigade (state construction workers) of North Korea are forced to build roads under minus 20 degree Celsius weather to prepare for Kim Jong Il’s unforeseen visit to the area, an inside source told the Daily NK.

The informer said, on the 3rd of January, “Since mid December, thirty thousands of Shock Brigade for the Propaganda of the Party Ideology (shortly June 18 Shock Brigade) had been poured into building road in Samsoo, Yangkang Province.”

He added that the Shock Brigade was connecting road between Wangduk Station in Hyesan (exclusively for Kim Jong Il) and Samsoo Power Plant. Kim Jong-Il was rumored for planning on surprise visit to the power plant. The road would be 22 km in length.

There was actually a road built in 2003 between Wangduk and Samsoo Power Plant. However, the road was ordered to be renovated due to Kim Jong Il’s dissatisfactory remark on it in his March 2006 visit to the area.

During the 2003 road construction, the Hyesan city government mobilized tens of thousands of residents plus June 18 Shock Brigade to finish it on time. Nevertheless, as Kim Jong Il showed discontent, Yangkang Provincial party officials and June 18 Shock Brigade officers were criticized harshly.

The problem was that the road was through downtown Hyesan, and a section of it was to meandering, thus dangerous to protect “the Comrade General.”

“After that, June 18 Shock Brigade, who just finished constructing Hyesan-Dancheon road, were reinforced and put to refurbish the Kim Jong Il’s private road,” the informant added.

The road currently under construction is to connect Wangduk and Samsoo Power Plant while circumventing populated area of Hyesan. And, of course, since the road is built as a “Number 1 Road,” it is solely for Kim Jong Il’s use, not even for party officials let alone ordinary people.

According to the informant, condition of road construction is harsh. Workers of the Shock Brigade are forced to work in bitter cold. When asked about disgruntlement of the workers, the informant replied, “This sort of hardship happens every time the General visits a certain area. Who can argue with the General’s order?”

Daily NK
Park Hyun Min
12/28/2007

The future dream of North Korea’s teenagers is no longer to become party leaders or soldiers, or even join the Party, but to become “merchants.”

“Good Friends,” an aid organization for North Korea, said through “Today’s News on North Korea” No. 104 on the 27th, “Most of the elementary and senior middle school students nowadays, upon being asked what they would like to do post-graduation, say they would like to be merchants.”

The source relayed, “Many of their peers have stopped going to school and have started doing business. It is too burdensome for some students to attend school, so they sell noodles or vegetables by sticking around the jangmadang (markets) and contribute to their families’ livelihoods.”

(more…)

Institute for Far Eastern Studies (IFES)
NK Brief No. 07-12-17-1
12/17/2007

North and South Korea are poised to allow Internet, telephone, and cellular services to be available in the Kaesong Industrial Complex (KIC) and at the Kumgang Mountain Tourist Resort beginning next year. The 7th Defense Ministerial Talks opened on December 12 at the ‘Peace House’ on the South Korean side of Panmunjum, and at the meeting, North and South Korea reached an agreement regarding communications, transportation, and customs.

According to the agreement, Pyongyang has given permission for the use of Internet landlines and cellular phones in the two largest inter-Korean cooperative projects. However, while the South Koreans pushed for the inclusion of “mobile phones” in the agreement, the North insisted on “wireless telephone communications”, suggesting that they hope to use dual-use wired telephones rather than mobile cellular phones.

In addition, under the agreement, North and South Korean rail and road traffic will be allowed to cross the border daily from 7:00am to 10pm, with the exception of Sundays and official holidays. Currently traffic in the area is limited to 7am~6pm in the summer, and 8am~5pm in the winter months.

The two sides also agreed to new procedures aimed at simplifying customs inspections and reducing delivery delays. From now on, the two sides will exchange lists of goods being moved, after which time any specific good that is flagged will be inspected. Currently, both sides are required to supply a list of goods to be pass through the area three days in advance, and every piece is individually inspected, complicating customs procedures.

The agreement was signed ROK Defense Minister Kim Jang-soo and Kim Il-chul, minister of the DPRK People’s Armed Forces, and went into effect on December 13. With this agreement, exchange and cooperation in the KIC and Kumgang Mountain resort are expected to even more actively grow.

The most authoritative map of North Korea on Google Earth
North Korea Uncovered v.7
Download it here

This map covers North Korea’s agriculture, aviation, cultural locations, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the sixth version.

Additions to the latest version of “North Korea Uncovered” include: A Korean War folder featuring overlays of US attacks on the Sui Ho Dam, Yalu Bridge, and Nakwon Munitians Plant (before/after), plus other locations such as the Hoeryong Revolutionary Site, Ponghwa Revolutionary Site, Taechon reactor (overlay), Pyongyang Railway Museum, Kwangmyong Salt Works, Woljong Temple, Sansong Revolutionary Site, Jongbansan Fort and park, Jangsan Cape, Yongbyon House of Culture, Chongsokjong, Lake Yonpung, Nortern Limit Line (NLL), Sinuiju Old Fort Walls, Pyongyang open air market, and confirmed Pyongyang Intranet nodes.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.

Korea Times
Andrei Lankov
12/2/2007

About a century ago, in the early 1900s, no major political movement could rival the Marxists in their commitment to gender equality. It was the time when women could not vote anywhere (well, anywhere apart from New Zealand and Australia), when their property rights were strictly limited, married unemployment was seen as the most natural state for “weaker vessels”, and most professions were not for women. In those days, the early Communists vocally demanded equal political and economic rights, equal pay, and also insisted that women should be given access to all professions, including the most manly ones.

When the Communists took power, for a brief while they tried to keep their promise. In the Communist Russia of the 1920s there were highly publicized cases of female air force pilots, military officers, and ambassadors. However, this drive did not last: Communism in power proved to be very patriarchal, and by the 1940s the earlier demands for gender equality were quietly scaled down in all Communist states.

Of all these states, North Korea probably proved to be most patriarchal, especially after its turn to nationalism in the late 1950s. Nationalism often goes hand in hand with anti-feminist sentiments, and North Korea was no exception. Soon North Korean women learned that they should know their proper place (of “wise mothers and kind wives”, of course) and be careful about their behavior, least it threaten public decency and morality.

This “proper” behavior was enforced through a number of restrictions: certain types of activity were denied women. North Korea has its own version of the “glass ceiling”, not allowing women to rise above a certain level. However, there are also bans on some mundane daily activities which for some reason are proclaimed to be “unbecoming of women”.

To start with, women are not allowed to smoke. In North Korea, female smoking is an absolute taboo, at least for young and middle-aged women. Female smokers in the South are disapproved of, but in the North the approach to the transgression is much tougher. As one defector put it: “A North Korean woman must be crazy to take up smoking”. There have been reports about women being sent into exile for their persistence with the smoking habit. I am slightly skeptical about these reports, but it is clear that in smoking a woman risks some serious “criticism” during an ideological study session, and this is not a good turn of events in North Korean society. This is in stark contrast with males’ behavior, since most North Korean males are chain smokers.

However, older women are exempted from this ban, and there are many North Korean women who begin smoking when they turn 50 or soon afterwards.

Pyongyang, the “capital of revolution” is somewhat notorious for many bans of seemingly normal things which are declared improper and unbecoming. Some of these bans are gender specific. For example, in Pyongyang and other major cities, for a long time women were not allowed to wear trousers. It was OK to work in trousers, but once the shift was over, decent North Korean women were supposed to dress in a “womanly manner” – that is, to change into a skirt. Those who appeared on the street dressed in trousers could be sent home by a police patrol. Once again, the ban did not apply to older women, and in the mid-90s trousers were partially pardoned.

In general, “proper female modesty” has always been extolled. In 1982 Kim Il-sung, while addressing the North Korean rubber-stamping parliament issued a warning: “It does not conform with the socialist lifestyle if women wear dresses without sleeves or a dress that shows their breasts!” North Koreans tried to ensure that the skirts were of an appropriate length to “conform to the socialist lifestyle”. Even nowadays, in the days of relative openness, skirts should safely cover the knees of the wearers.

Driving is not regarded as an activity suitable for a woman, and women are never issued a driving license. Of course, the number of private cars is very small, and their owners are naturally overwhelmingly male. It is remarkable that in the past, back in the 1970s and 1980s, even foreign women could encounter difficulties if they applied for a driving permit in Pyongyang. Obviously, North Korean officials could not comprehend how the female brain would be able to master such a technology.

However, the most bizarre of all these bans is one which deals with cycling. Bicycles were prohibited in Pyongyang for decades, and the ban was lifted only around 1992. However, this relaxation was not for everybody. In 1996, authorities decided that the bicycle was not suitable for women. The official press explained that “beautiful national customs” do not permit such debauchery. Allegedly, this judgment was the decree of Kim Jong-il himself.

At first, police worked hard to enforce the ban, and some female riders had their bikes confiscated, but then things cooled down and some women began to defy the prohibition.

However, it is increasingly clear that these and other bans are enforced by police with ever diminishing zeal. The North Korean dictatorship is running out of steam, not least because its own servants do not believe the official slogans anymore.

Yonhap
12/1/2007

North Korea has nearly finished repairing roads and bridges that were destroyed by floods earlier this year, a pro-North Korea newspaper reported on Saturday.

According to the Chosun Sinbo, a newspaper published in Japan, the impoverished North has also built new roads and bridges while repairing severed routes.