North Korean Economy Watch

This morning the International Herald Tribune published an interesting AP story on Air Koryo, North Korea’s state airline.

As has been mentioned before, Air Koryo recently began upgrading its fleet–but guess who will seemingly be on the first flight? 

The airline also has taken delivery of its first new jet in years. South Korea’s Yonhap news agency, quoting diplomatic sources in China, reported Thursday that North Korea’s reclusive leader Kim Jong Il was likely to fly to Vietnam and China on the new plane next week.

Kim is widely believed to shun air travel. His previous trips abroad by luxurious special train were shrouded in secrecy and reports speculating on his destinations beforehand were not always accurate.

And although the economy at large is not doing so well, Air Koryo business is brisk. 

“The golden days are now[.]  They’re busier than ever,” says Nick Bonner of Koryo Tours. (paragraph edited)

In 1998, his Koryo Tours — which despite being similarly named for an ancient Korean dynasty is unrelated to the airline — escorted just 98 tourists to North Korea. The number doubled to 200 in 2006 and last year jumped to a still minuscule 1,100. Some of his customers also get into the country by train, a much longer trip.

Bonner said a roundtrip ticket on Air Koryo between Beijing and Pyongyang costs 2,550 Chinese yuan (US$365; €230) for economy and 4,340 yuan (US$621; €390) for business class.

What are Air Koryo’s most recent routes:

Air Koryo now has just three regularly scheduled international routes. Domestic service is said to be virtually nonexistent.

It flies roundtrip three times a week between Pyongyang and Beijing and twice a week to the northeastern Chinese city of Shenyang, an important source of trade for North Korea.

The other is return service once a week to Vladivostok. A flight to Khabarovsk, another city in the Russian Far East, stopped in 2005. The airline also had flew to Bangkok and Macau in recent years.

About the fleet upgrade: 

Perhaps illustrative of Air Koryo’s improving fortunes, in December it acquired a twin-engine Tu-204-300 jet manufactured by Russia’s OAO Tupolev, adding to its fleet of other Tupolev, Antonov and Ilyushin jets and turboprops.

Tupolev mentions the deal on its Web site, though did not disclose financial terms when asked.

A non-North Korean with intimate knowledge of the airline, who refused to be identified, confirmed the deal, adding North Korean pilots were receiving training in Russia with the craft set to begin operations at the end of April.

Although the article insinuates that economics are largely behind the fleet upgrade, a little nudging by China certainly did not hurt.  China gave Air Koryo a deadline to meet Beijing safety standards.  But despite China’s concern for air safety, Air Koryo still has one of the best records in the business:

Though concerns about safety have been raised — Air Koryo is banned from flying in the European Union — the carrier has apparently had just one major accident, a crash in West Africa in 1983 when the airline was known under a different name.

The plane, an Ilyushin 62 carrying 23 people, was en route to Conakry, the capital of Guinea, on an “international non-scheduled passenger” flight, when it went down in the Fouta Djall mountains, according to the Aviation Safety Network Web site. All aboard perished.

Air Koryo made its first flight to South Korea in August of 2000 to ferry 100 separated family members for temporary reunions with long-lost relatives in the South. The airline has made occasional flights to South Korea for special purposes as relations have warmed in recent years.

The article does not mention the other (minor) mishap in 2006:

On August 15, 2006 aircraft from Air Koryo (Tupolev 154B-2) on an international scheduled passenger flight from Beijing, China (Beijing Capital Airport) to Pyongyang, North Korea (Sunan International Airport) experienced a runway mishap (exited runway) during landing rollout after landing in bad weather at Sunan International Airport. No injuries were reported and damage to plane was minor. (Wikipedia)

Read the full article here:
North Korea’s quirky Air Koryo survives and, increasingly, appears to thrive
International Herald Tribune (AP)
4/18/2008

UPDATE: Yonhap reports that the food shortage was also discussed at the cabinet meeting:

North Korea has recently convened a Cabinet meeting to discuss food shortages, China’s Xinhua News Agency said Sunday, as international concerns grow over the North’s economic woes.

The North’s Cabinet recently held an enlarged session and decided to address the chronic shortages of food and consumer goods, the news agency said, citing a recent edition of the cabinet daily Minju Joson.

DPRK budget expenditures grow 2.5% this year
Institute for Far Eastern Studies (IFES)
NK Brief No. 08-4-16-1
4/16/2008

On May 9, the sixth round of North Korea’s 11th Supreme People’s Assembly opened, at which this year’s budget expenditures were announced to be 2.5% greater than last year. It was also reported at the assembly that the Cabinet would pursue a new 5-year plan to develop the nation’s science and technology sector by 2012.

Despite officially holding a seat on the Assembly, General Secretary Kim Jong Il did not attend this year’s assembly meeting. In addition, there was no mention during the assembly of inter-Korean, U.S.-DPRK or other foreign relations.

Cabinet Deputy Prime Minister Roh Doo-chul announced this year’s budget, stating that “this year, in order to strengthen national defense, and while building strength, to decisively advance the people’s economy and existing industry as well as improve the lives of the people, the national budget expenditure plan will be expanded to 102.5% of last year.”

According to this statement, this year’s budget is estimated to be 451.5 trillion won (3.2 billion USD). An estimated 15.8%, or 71.3 billion won (510 million USD), is slated for national defense. Last year’s national defense budget was 15.7%, or 69.2 billion won (490 million USD), of the national budget.

North Korea has also decided to increase budget allocations for energy, coal, and metal industries as well as the railway sector by 49.8% as compared to 2007, and will focus investments on staple industries. In the past, the North had stressed the importance of the ‘four main sectors’ of improvement in the people’s economy, including energy, but this year the government will actually focus investment on these sectors.

Cabinet Prime Minister Kim Young-il stated, “From this year until 2012, we will proceed forward with a new 5-year plan for the development of national science and technology…As we systematically increase national investment in this sector, we will raise the sense of responsibility and the role of technicians and raise the level of science and technology development as quickly as possible.”

In 2012, North Korea will celebrate the 100th anniversary of the birth of national founder Kim Il-sung, and has set a goal of constructing an economically powerful nation by that year.

Read the Yonhap story here:
N.K. discusses food shortage in Cabinet meeting
Yonhap
4/20/2008

(UPDATE 2: 1/12/2009) Last of the children of the Japanese Red Army will return to Japan:

The 14-year-old son of one of the Japanese men who hijacked a Japan Airlines airplane and defected to North Korea in 1970 will travel to Japan next week, the last of the children of the hijackers to move to Japan from the country. A supporter of the hijackers’ family members left for Pyongyang on Saturday, where he will meet with the boy and accompany him to Japan via Beijing on Tuesday.

The boy is the son of Moriaki Wakabayashi, 61, who is on the international wanted list for hijacking the plane. The supporter left the Chinese capital after obtaining a special traveling permit from the Japanese Embassy for the boy, who was born in North Korea and does not have a Japanese passport. Family members of the nine hijackers began returning to Japan in 2001. Those remaining in North Korea will be the four of the nine hijackers still living in the country and two wives who are on the international wanted list for their alleged involvement in the kidnapping of Japanese nationals for North Korea. (Japan Today, 1/10/2009)

(UPDATE: 5 days after NKeconWatch posts the press release)

From the Japan Times (h/t OneFreeKorea)

Asked in a telephone conversation whether the hijackers called for help from the European Parliament, Ford said, “The only help they seemed to want was to publicize their offer.”

Ford said the meeting was set up by his North Korean hosts when discussing barriers to the removal of North Korea from the U.S. list of state sponsors of terrorism.

He said he has informed the Japanese government of his meeting with the hijackers.

“This is an opportunity that I hope the Japanese government will take to move closer to normalize relations between Tokyo and Pyongyang,” Ford said.

Of the nine hijackers who sought asylum in the North, three have died and two who later returned to Japan were convicted.

Read the full article here:
EU lawmaker meets North fugitives
Japan Times
4/15/2008

Press Release:

Monday 7 April 2008

Glyn Ford (Labour MEP for South West England), met in Pyongyang with Moriaki Wakabayashi and Takahiro Konishi two of the four remaining Japanese hijackers in North Korea. Moriaki Wakabayashi and Takahiro Konishi, who hijacked Japan Airlines Yodo Flight 351 from Tokyo to Fukuoka in 1970 declared that they are willing to return to Japan to face trial. 

Following the meeting with the hijackers, Glyn Ford MEP, said: “All four hijackers are now willing to return to Japan.  This offer is only conditional on the dropping of arrest warrants against three of them for possible complicity in the abductions of Japanese citizens to North Korea in the 1980s. Their return would mean that the last remaining obstacle to the US removing its terrorist state designation of North Korea would have been removed consequently allowing progress to be made towards a final settlement of the current nuclear crisis on the Korean Peninsula.”

He continued “This is an opportunity that I hope the Japanese government will take to move closer to normalise relations between Tokyo and Pyongyang. If US Army deserter and defector Robert Jenkins can return to Japan after only serving a token 30 days in jail I see no reason why the Japanese government should refuse to accept an offer that might well lead to the four remaining hijackers, all now in their late 50s and 60s, facing up to 12 years in prison.”

In January Glyn’s book North Korea on the Brink: Struggle for Survival was published by Pluto Press. It will be published in Tokyo in June by Daiichihoki and in Korea by Humanitas.

Daily NK
Moon Sung Hwee
4/8/2008

April 8th is Postal Service Day in North Korea. Each province has a branch office of the Ministry of Posts and Telecommunications and Communication Maintenance Bureau. The postal system manages the distribution of letters, telegrams, telephone calls, TV broadcasts, newspapers and magazines. Additionally, they mint stamps and also operate an insurance agency in name only.

In the late 1990s, the national postal system was completely ruined

In North Korea, postal service offices are set up in each “ri”—a small village unit–, of each county to deliver letters, parcel posts and telegrams. Following the March of Tribulation in the late 1990s, the delivery system was completely destroyed and its formal structure was left in tatters. Even in the 1980s when the North Korean economy and people’s lives were relatively stable, it took around 15 days to two months on average to deliver a letter from Pyongyang to a rural village.

In the case of a telegram, it took generally 3 or 4 days to reach a postal office in a rural area. In the late 1980s, to guarantee efficiency within the telegram delivery system, the authorities supplied the offices with second-hand bicycles from Japan.

After the March of Tribulation, letters disappeared due to train delays and frequent blackouts, and the telegram service was virtually incapacitated due to the lack of electricity.

Telephones were restricted to control the outflow of national secrets

North Korea uses a separate electricity supply for its telephone system. Even if there is a power blackout in a village, villagers can still use the telephone network. In 1993, fiber-optic cables were installed and the use of mail and telegram services began to decline. North Korean people call fiber optic cable a “light telephone.”

North Korea built an automatic telecommunicates system by developing multi-communication technology with imports of machinery and by inviting engineers from China in 1998.

In 2003, authorities allowed cadres to use telephones in their houses and in 2005, they also allowed people to use the telephone at home as long as they paid 2,000 North Korean won (approx. USD0.6) a month (a monthly salary is 1,500 won per laborer).

In August, 2007, the government tightened regulations regarding the telephone system. People could make calls only within their province. Authorities said the reason was to prevent the outflow of national secrets.

The Ministry of Posts and Telecommunications controls TV and other broadcasting. There is no cable TV in North Korea. Authorities set up an ultra-short wave relay station in each county to relay television broadcasts.

North Korea signed a contract with Thailand for satellite broadcasting and installed U.S.-made transmission and relay facilities in 2000.

People can now listen to “Chosun Central Broadcasting,” but in rural areas, it is difficult to recieve signals because the broadcasting facilities and cables have already begun to deteriorate.

People sarcastically say a “newspaper is not about news but about “olds.” The authorities pay special attention to the successful delivery of the Workers Party Rodong Shinmun bulletin. To deliver Rodong Shinmun from Pyongyang to each province or even to each city and county by train, it normally takes 4-5 days. Sometimes, it takes more than a week.

People also say they use an “oral-paper” to get information because rumors are faster than the Rodong Shinmun.

Postal service workers were dragged to prison camps

In 1992, the Minister and all related officials of Posts and Telecommunications were fired, and the Minister, the Vice Minister and their families were sent to political prison camps for having wasted national finances for the import of factory machinery to produce fiber-optic cables from the U.K.

They submitted a proposal to Kim Jong Il to buy factory machines in order to earn foreign currency through the production and export of fiber optic cables. However, in the end they eventually bought worn-out machines from the U.K. and failed to earn profits. In addition, they embezzled some of the funds.

In 2001, in Lee Myung Soo Workers-District of Samjiyeon, Yangkang Province, two office workers and a manager of a relay station broadcasted Chinese TV programs that they were watching to residents by mistake, so they were sent to a political prison camp and their families were expelled to a collective farm.

Agents of the National Security Agency are stationed at the Ministry of Posts and Telecommunications in order to scrutinize mail, parcels, to tap telephone wires and to supervise residents.

The Ministry regularly dispatches professional engineers to the 27th Bureau, to the airwaves-monitoring station, and to the 12th Bureau, which was newly established to censor mobile phones.

On Postal Service Day, Chosun Central Agency often delivers praise for the development of North Korea’s postal system and facilities under the General’s direction.

However, most ordinary citizens will not be able to watch or read about it in time, for the lack of paper, electricity, infrastructure, and delivery systems.

UPDATE: It looks like the  DPRK’s market for scrap metal has a human cost.

From the Daily NK:

Train wrecks which occurred in Yangkang Province last month were found to be caused by stolen railroad spikes, a source from the province said.

“The train derailed because somebody had stolen railroad spikes. Four passenger coaches fell into ravine, claiming hundreds of casualties,” said the source in a phone interview with DailyNK on April 9.

[T]he source said that the March 24 accident took place in Youngha-ri, Woonheung of Yangkang Province, not in Yanghwa-ri, Shinpo of South Hamkyung Province as reported by Daily NK on April 4.

The full update can be read here:
North Korean Train Wreck Caused by Missing Railroad Spikes
Daily NK
Lee Sung Jin
4/14/2008

ORIGINAL ARTICLE: 

Several Hundred Casualties in Train Incidents
Daily NK
Lee Sung Jin
4/7/2008

On the 24th and 27th of March, there were two cases of trains overturning, killing or seriously wounding hundreds of people in the workers’ area of Goeup, Kim Hyung Jik (a county), Yangkang Province and in Shinpo, South Hamkyung Province.

A source from North Korea, during a telephone conversation with Daily NK on the 4th, revealed that “At the end of last month, on the Hyesan-Manpo Line and Hyesan-Pyongyang Line, the two trains overturned after leaving Hyesan, causing a few hundreds casualties.”

The source said that “On the 27th of March, the No. 2 train on the Hyesan-Pyongyang was overturned around Yanghwa-ri in Shinpo and a few days earlier than that, on the 24th, the train on the Hyesan-Manpo – bringing people visiting the revolutionary memorial site – was also overturned in Kim Hyung Jik (formerly Hoochang).”

However, the cause, the whole story of the incidents, the exact spots and total casualties were not reported. The instruction to immediately produce coffins was conveyed to each city and county, according to the source.

The source explained the incident in Kim Hyung Jik on the 24th. In Goeup in Kim Hyung Jik, a carriage of trains fell off the tracks and 4 passengers and crew were killed, with dozens of passengers wounded.

The incident site in Yanghwa-ri in Shinpo is located near the light water reactor being supposed to be supported by KEDO in Kangsang-ri. Both Yanghwa and Kangsang-ri are located in Geumho Special Zone.

The source was concerned that “Due to these continuous incidents, people worry that the authorities might end up pressing espionage charges against innocent residents.”

Acheon Global Corp.  has obtained the exclusive right to use the Ryongnam Ship Repair Factory in the western port city of Nampo

The right to enable the firm to gain domestic and overseas investment in its ship repair and steel-structure manufacturing businesses in North Korea, Acheon officials said.

According to KCNA (12/29/2006), the site has been recently refurbished:

The Ryongnam Ship Repair Factory of the Democratic People’s Republic of Korea has been reconstructed on an expansion basis. The factory successfully constructed a large dock, three wharves to repair big cargo ships, a combined repair workshop, an acetylene generating workshop, oxygen generating workshop, a heavy oil power plant, a wind and solar power station over the last four years.

The newly built Dock No. 2 can repair several ships of tens of thousands of tons simultaneously.

The repair processes are automatized and controlled by computer. There are in the dock a horizontal jib crane, gantry crane and general control room. It is divided into the main sluice, operated by computer, and the middle one.

The combined repair workshop which covers the floor space of over 17,000 square meters specializes in making ship-body pipes while repairing propellers and power system.

The acetylene generating workshop does not produce any industrial spent water.

The wind and solar power station turns out stabilized electricity for the general control room, dwelling houses and cultural welfare facilities. Its expansion on a modern basis has consolidated the material and technical foundation for developing water transport.

Read the full article here:
Local firm to use N.K. ship repair yard
Yonhap
3/23/2008

According to Reuters, Air China on Monday launched service to North Korea, making it the world’s only foreign airline to fly regularly to Pyongyang.

The Beijing-Pyongyang flight route was postponed by three months after Air China said preparatory work took longer than expected.

Air China will fly the return trip three times per week, making Pyongyang a Star Alliance destination, the airline grouping led by Singapore Airlines, Lufthansa and United Airlines.

Air China said previously that it saw the financial potential in the route, primarily from the Chinese tourist business.

I predicted that Air China would primarily service Chinese customers, with Westerners sticking with Air Koryo, the North Korean airline. In separate conversations with Koryo Tours and Walter Keats both tour operators expressed a preference for Air Koryo because of its flexibility and unique atmosphere, neither of which Air China can easily match. 

The time-warp effect travelers feel when boarding an Air Koryo flight, however, might be soon diminished.  Largely at the insistence of Beijing, Air Koryo has recently updated its fleet to meet international safety standards.  Although the stewardesses appearance and speaker announcement welcoming arrivals to the land of “juche paradise” will likely remain the same, the 1950’s era deco interior will certainly take on a more conventional feel. 

Source material here:
Air China launches flights to North Korea
Reuters
Simon Rabinovitch
3/31/2008

In the words of Alejandro himself:

[The] Korean Friendship Association concluded its first busines [sic] delegation, headed by Mr. Alejandro Cao de Benos, Special Delegate and KFA President, in collaboration with the DPRK Committee for Cultural Relations, Ministry of Trade and the DPRK Chamber of Commerce. The group included companies from Australia, France, Spain and Lebanon in different sectors like ship building, foodstuff production, medicine, IT and infrastructure, etc. The visit was a big success and 75% of the investors signed letter of intentions and contracts. All of the participants agreed that DPR Korea has a huge potential and new market with many interesting opportunities with the lowest taxes and wages but with the most skilled, motivated workforce. The companies fullfiled [sic] all their plans and resolved the questions during the visit and they had meetings with their Korean counterparts as well as with the officials of Trade, Chamber of Commerce, Banking authorities and logistics.

They visited a Foodstuff factory,  Heavy Machinery complex, Ostrich farm as well as the ‘Kaesong Industrial Zone’ in the border with South Korea, were they had a briefing by the Director representative of Hyundai-ASAN.

After that, the investors visited a South Korean cable-making factory and a garment manufacturing plant specialized in high quality sport brands.

From KFA we congratulate the companies that concluded agreements and established Joint Ventures in the DPRK and wish them success in their projects.

From a follow up post on the KFA forum, one of the attendees appears to be Mr. Kevin Liu, head of Asian Division of London-based Exclusive Analysis.

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:
———————–

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 ?
———————–

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.
———————–

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…
———————–

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