North Korean Economy Watch

Daily NK
Kang Jae Hyok
2/20/2006

Every year when spring arrives, North Korea faces yet another food crisis. 10 years after the “march of suffering,” North Korea has still made little change.

The greatest change that has occurred is by the North Korean people. The most of North Koreans have surpassed the ‘march of suffering’ and have survived by relying on themselves

In comparison to last year, the Korea Rural Development Administration (RDA) estimated that North Korea had experienced a loss of 1.8% (60 thousands tons) in agricultural production at 4.48 million tons of cereal. The World Food Program (WFP) also predicted similar figures at 4.3 million tons.

On the other hand, a national North Korea aid organization Good Friends reported that only 2.8 million tons of agricultural production had been made and that if any less than 1.5 million tons of food aid was supported, North Korea would be faced with another severe food crisis.

In the 90’s foreign aid could block mass starvation

During the “march of suffering” that began in the mid-90’s, food distributions were suddenly terminated. Nonetheless, people went on working, starving, believing that food distributions would begin once again.

However, one month passed then two, and still the distributions did not resume. In the end, the number of deaths from starvation began to arise. Yet, North Korean authorities did not respond with any countermeasures. As a result, in 3~4 years, 3mn North Korean citizens died of starvation.

Nonetheless, the tragic mass starvation that occurred at the time could have been stooped if it weren’t for the irresponsible acts of North Korean authorities. We can view this by analyzing the figures denoting the amount of aid supplied from 1995~1999.

Year   1995   1996   1997   1998   1999
Production of food
         3490   2500   2680   2830   4280
Aid from FAO
           980   1070   1440   1490   1190
Aid from S.Korea
           960   1050   1630   1030   1070
Food distributions in North Korea
         4450   3550   4120   3860   4450
       ~4470 ~3570 ~4310 ~4320 ~5476
Death rate 
               615    1704     549 
         (Unit: 1,000 tons, million persons)
 
Table of North Korea’s food production and foreign aid in the 90’s in comparison to the death rate. (Good Friends 06.12.22)

According to the table above, South Korea and the Food and Agriculture Organization of the United Nations (FAO) aided North Korea with 2mn tons of food annually from 1995~1999.

If we consider that only 10,000 tons of food is needed to provide the whole of North Korea a day, then there would be no reason for a shortage in food distributions with a total of 3.7mn tons of food aid being supplied. According to the table above, annual aid provided to North Korea was 3.55mn tons at the minimum and 4.45mn tons maximum. This equates on average at 4.09mn tons of supplies.

However, during this period 3mn people died of starvation and 30mn people defected from North Korea. Contrary, there has never been a time where so much foreign aid was supplied to North Korea. Why then at a time where greatest aid was given to North Korea, was there the greatest number of deaths?

One of the essential reasons behind this occurrence was the fact that foreign aid never reached the provinces of North Hamkyung, Yangkang and Jakang where food was most needed. If food aid had been distributed to the areas most dire of starvation, then at the least, this incident would not have occurred.

At the time, most of the aid was distributed preferentially to soldiers, authorities and powerful ministers in Pyongyang. On the whole, aid to North Korea had been sent via ship through Nampo, Haeju and Wonsan harbor, then supplied to Pyongyang and South Pyongan province.

During the 90’s, transportation of cargo was practically immobilized due to the shortage of electricity and lack of fuel which ultimately led to the suspension of locomotives. On the whole, goods are transported via railroad, however, in the 90’s, both passenger and freight trains had come to a halt.

Basically, it takes about a fortnight to travel return, from Wonsan, Gangwon province to Najin, North Hamkyung on train 21. The Pyongyang-Tumen River train which departs from Pyongyang to Sunbong, North Hamkyung on train 1, also takes more than 10 days travel return.

Back then, it took twice as long to for a freight train to reach its destination in comparison to a passenger train. 10,000 tons of foreign aid that arrived at Wonsan harbor took 2~3 months to transport from North Hamkyung to Chongjin. In other words, it would take more than 2 years to distribute 100,000 tons of food to Wonsan in Gangwon province to Chongjin in North Hamkyung province. Hence, it is pointless to rely on railroad to distribute goods.

Losses incurred while transporting aid

Further, 30~40% of goods go missing while being transported. Every time a cargo train stops, guards responsible for the goods sell rice to traders at wholesale prices so they can use the profits to live. Also, street kids and thieves often steal the goods so that the intial 1,000 ton of rice is often depleted to 600~700 tons upon arriving at its destination.

The problem is that North Korean authorities well aware of this fact that are unwilling to modify the routes or assert change. Ultimately, foreign aid is distributed throughout the regions of Pyongan province where the situation of food is relatively good in comparison to the rest of North Korea.

As rice only lands in the hands of people living in Pyongyang and Pyonan where influential ministers and Kim Jong Il’s elite reside, it can only be analyzed that this situation is occurring under specific motives. In the end, the majority of deaths occurred in Hamkyung, Yangkang and Jakang, and the situation has remained the same until today.

Following the missile launch and nuclear experiment, last year South Korea and the international community suspended food aid to North Korea, and in Feb 13th, the third phase of 5th round 6 Party talks ended with the South Korean government confirming that food aid would resume.

Undoubtedly international food aid is important but unless rice is distributed to the areas in most need, a similar situation to the 90’s will occur once again.

More importantly and urgently, aid must be delivered directly to the provinces of Yangkang, Hamkyung and Jangang. Thinking that North Korean authorities will wisely distribute food aid throughout the country is merely a South Korean fallacy.

Yonhap
2/19/2007

North Korean leader Kim Jong-il has ordered most Japanese cars in the communist country seized in a sign of his growing discontent with Japan imposing severe sanctions after the North’s detonation of a nuclear bomb last October, informed sources said Monday.

“After he paid tribute to the Kumsusan Memorial Palace on Jan. 1, he saw a Japanese car that wasn’t working blocking the road and gave a National Defense Committee edict to seize Japanese cars,” a source familiar with the North Korean situation said, asking to remain anonymous. North Korea’s founding leader Kim Il-sung’s embalmed body lies in the memorial in Pyongyang.

Choson Ilbo
2/2/2007
 
Russia is trying to strengthen ties with North Korea, citing a “China threat” in Korea and the Far East. The Gudok, the daily newspaper of Russian Railways, said in an article Tuesday, “If China takes control of Najin port in North Korea, Russia may suffer huge losses in the project to link the TKR (Trans-Korea Railway) and the TSR (Trans-Siberian Railway).”

Gudok is published by Vladimir Yakunin, the president and CEO of Russian Railways and one of the closest allies of Russian president Vladimir Putin. Sources say the report can be viewed as Russia’s official position as it tries to expand its influence with Pyongyang.

“China has completed feasibility studies for Najin port and is now doing repairs and upgrades to wharfs and container unloading facilities,” the article said. It said that because the port lies at the start of the Najin-Hasan Railway and does not freeze throughout a year, Russia must take hold of it.

“China has already requested that the UNDP, or UN Development Program, give the Chinese the right of free passage in the UNDP-initiated Tumen river development project. What China aims to achieve is to establish its own port in North Korea as a foothold to advance into the Pacific Ocean,” the article said. The newspaper urged the Russian government to respond aggressively.

Sources with the Korean government said Thursday, “The Russian government suggested late last year that it would pursue a railway modernization plan on a 54km stretch of the Najin-Hasan line with its own money, without support from South Korea, if we expand container transportation on the route between Busan and Najin.”

Currently only North Korean trains are in service on that stretch of railway. Russia has been working on the line since July, converting its narrow gauge to the standard that supports container transportation.

North Korea, which has sent around 10,000 construction workers and loggers to the Far East region, is welcoming closer cooperation with Russia. When president Putin announced last Saturday that Russian would spend 100 billion rubles (W3.7 trillion) to hold the Asia Pacific Economic Cooperation summit in Vladivostok in Russia, North Korean consulate-general Shim Kuk-ryeong in Nachodka said, “North Korea is ready to join major construction projects as soon as Vladivostok’s infrastructure development project starts.”

Russia’s efforts to expand its influence with North Korea can be seen as falling within the context of Putin’s recent emphasis on the Far East. Late last year, Putin said, “Russia’s security is now being threatened with the illegal migration of Chinese into the Far East.”

Daily NK
Kim Min Se
1/25/2007

Since 2002’s 7.1. economic reform measures, North Korea’s markets have become most vital part of peoples life. North Korean market system operates from ‘general market’ with huge process chain to small local ‘yard market’ in the remote countryside. And, in between, there are always some brokers.

An importer buys goods from China and transports them through cargo trains or trucks to large cities in North Korea, such as Hamheung, Chongjin, Pyongsung or Nampo. Wholesale traders take those products and resell to local businesspeople. In North Korean jargon, such process is called “running.”

Usually imported goods from China or North Korean domestic ones take three steps of circulation; one or two laps of ‘run’ is added in case of mountain area.

Wholesale is mostly carried out by cars. Since oil and vehicles are not enough, sometimes wholesalers rent cars by themselves.

A forty one-year old trader working in Dandong, China, Kim, said that he purchases goods from Chinese factories firsthand. If the amount of import is huge, Kim uses freight. If not, a few trucks are fine for him. At maximum, Kim bought 60 tons of texture from China at once and resold it to North Korean wholesaler in one month.

In Hyesan, Yangkang province, 38-year old Choi, a broker of mainly Chinese cloths and shoes, sells his stuff to nearby Chongjin. Choi told the Daily NK “There are two types of so-called running; first run and second run. “Running” requires a lot of capital like money for vehicles. So the person must be patient and cautious when buying and selling something.”

According to the interview with Kim, using vehicle in wholesale business takes from 3.5 million NK wons (roughly 1,000 US dollars) to 35 million wons. The money includes not only car rental but also “transportation permit” application fee. Transportation permit is required when vehicle and personnel move inter-province, and costs relatively large amount of cash.

Kim keeps about twenty percent of total sales as his profit. The other 80% is comprised of original price of goods, car tax, gasoline and multifarious types of ‘extra expenses,’ or bribe.

The “first run” business is apportioned to a few with privilege in North Korea. Those who can earn cooperation from Security Agency and police are able to do the first run. Without bribery, it is impossible to obtain various permits that are essential for any businessperson.

In addition, to trade with overseas Chinese merchants, one must possess enough wealth and credit. Credit enables North Korean businessmen to buy goods in China with comparatively low price. Those first runners are, in most cases, wealthy North Koreans with ten thousand US dollars cash on their hand at any moment.

Yonhap
1/25/2007

North Korea has called upon South Korea to implement an earlier agreement to help revive its light industry in return for tapping into the communist nation’s natural resources, a senior unification official said Thursday.

During Unification Minister Lee Jae-joung’s first visit to the Kaesong Industrial Complex since he took office in December, Ju Dong-chan, head of the North’s Kaesong development agency “asked the minister to honor the agreement, saying it is not an aid, but only swapping of natural resources and raw materials,” the official said anonymously.

In July 2005, South Korea agreed to provide the North with US$80 million worth of raw materials to help it produce clothing, footwear and soap starting in 2006. In return, the North was to provide the South with minerals such as zinc and magnesite, after the mines are developed with South Korean investments, guaranteed by the Pyongyang government.

But the agreement was never carried out as North Korea abruptly cancelled scheduled tests of two cross-border railways in May 2006. North Korea’s subsequent missile and nuclear weapons tests further clouded hopes to implement the accord.

“Lee agreed in principle to honor the accord, but he held the position it is more important to create a favorable environment for carrying out the agreement,” the official told reporters.

Asked about the North’s denial of reports that it scrapped plans to change its partner for tours of Kaesong, the official said it is purely a matter of business, which does not require the intervention of the government.

Just hours after Lee returned to Seoul from Kaesong, an unidentified spokesman for the Korean Asia-Pacific Peace Committee (KAPPC) said the North “has no formal agreement with the Hyundai side over the issue of tour of Kaesong.”

Despite its earlier contract with Hyundai Asan, North Korea requested a new deal with Lotte Tours Co. in 2005. However, the South Korean government said the change can happen only when Hyundai Asan voluntarily concedes or pulls out of the business.

Daily NK
Kim Min Se
1/23/2007

What is the gender ratio in Korean People’s Army?

A 28-year old recent defector Kim and a 38-year old former KPA Air Force engineer Choi said that female members of KPA could take up to ten percent of the total armed forces from administrative positions to front battalions.

Kim testified “Most of small-caliber anti-aircraft guns are operated by women and there are even all-female independent brigades and regiments.”

“North Korean authorities encourage women to be enlisted in coastal artillery by advertising ‘recruiting songs.’”

Kim also said that virtually all of the North Korean train tunnels and bridges were guarded by women forces armed with 14.5mm machine gunnery.

Korean People’s Army, according to the South Korean Ministry of Defense’s White Paper, boasts 1.17 million soldiers, and the government in North Korea has increasingly enlisted women since the population shrank in mid-90s.

Kim is a former female member of the KPA 4-25 Training Camp (equivalent to a corps) 331st Brigade 6th Mechanized Battalion. She had served since 1997, the peak of starvation period. At that time many North Korean parents sent their daughters to the army for them to avoid hunger.

Female officers have been mass-recruited since 1995 among women NCOs of proven party loyalty and good family background. They were trained for two years and then stationed in each unit.

For the enlisted, both men and women are conscripted at their age of 17 while the female soldiers receive trainings specialized in anti-aircraft guns.

However, some others, as their male compatriots, are more fortunate, due to their superb ancestral or family background, to be stationed in army hospitals or other more comfortable places than coastal artillery.

“In more recent days,” another defector Choi said, “even aircraft pilots of Soviet-built IL-28 Bombers are filled with women.”

North Korean enlisted women usually serve six to seven years, in contrast with ten to thirteen years of men’s service.

Female veterans automatically become KWP member as they are discharged and enjoy higher chance to be selected as junior party official, but not as preferable marriage partner.

Daily NK
Yang Jung A
1/17/2007

Recently, infectious diseases have been spreading throughout North Korean regions with North Korean authorities in a state of emergency, sources informed.

A source revealed in a phone conversation with the DailyNK on the 15th “There are 4 different diseases spreading throughout North Korea. Scarlet fever, typhoid, paratyphoid and typhus fever” and said “North Korean regions including Pyongyang are under extreme caution.” However, the source informed that figures indicating the number of deaths caused by the diseases had not yet been released.

He said “Scarlet fever originated in the province of Yangkang last October and has spread to Pyongyang, prevailing throughout the country” and added “though it could be easily treated with antibiotics, the nation cannot give us the supplies and we cannot go to the hospital as the cost of medicine has risen.”

Though it is not the right season for these illnesses to be spreading, the source revealed his thoughts that the diseases had dispersed due to the contamination of drinking water.

He said “As electricity is only supplied 1~2 hours a day, the water pump does not function properly and so water can only be derived from the tap for 1 hour, once a week” and “As a result, people resorted to the mountains and river for water and despite it being winter, it seems the diseases spread this way.”

In the conversation, the source residing in North Korea said “Chongjin is in a severe crisis” and “Undoubtedly schools and enterprises found to be infected have closed doors. Train operations have also been suspended, so all movement has been stopped.”

Also, he reported “As all modes of transportation have been suspended beginning with the trains, whenever transport is used, health permits (certifying that you have no infectious disease) are verified and so travel has become regulated.”

“The whole city has been infected with the disease and has become immobilized” explained the source.

In addition, he said “About 300~400 people from each district have been found to be infected with the disease and are receiving treatment at home. In Chongjing alone, it is likely that more than 3,000 people are disease infected with the majority of people infected with scarlet fever.”

Further, he informed “More and more of the lower class are dying of starvation and are becoming street dwellers as they cannot work due to their sickness” and said “in order to prevent people from dying of starvation, each district is accommodating 200 people in the hospitals.”

Daily NK
Kim Young Jin
1/16/2007

Though train operations terminated in some parts of North Korea due to the spread of scarlet fever has resumed, operations have not yet fully normalized due to power failure, an inside source alerted on the 14th.

The majority of North Korean people live off trade and hence if trains cannot be utilized to transport people and goods this has a significant impact on lives of North Korean people.

Kim Young Sook (pseudonym) who trades with Chinese businessmen and resides in Yangkang, Haesan disclosed “I am upset because I anticipated to bring some goods from Hamheung since I heard that the trains terminated due to scarlet fever had resumed, but it has been a week and the trains have not yet arrived.”

People who depended on sending sea produce such as octopus and pollack from the regions of the east coast to China as a daily living have been expressing concerns as the trains were put on hold, Kim said.

Kim said “Many times a day I go to the station to find out about the trains. One station worker says that the train had already passed Hamheung, another says that the trains only reach Gilju. I cannot know what the truth is.”

“A person I know who works at the station told me that the trains stopped midway due to a lack of electrical power. This is a major problem if it is true” she added.

If only 1,800V of electrical power is supplied on a North Korean train with an engine that officially requires 3300V and yet is still put into operation, then the turning motor decreases, the steam pipe overheats and breaks down simply resulting in greater damage. In North Korea, it is common that a train suddenly stops in the middle of nowhere while in operation.

In the mid-90’s, long distance train routes such as Shinuiju-Chongjin and Pyongyang-Onsung operated once a week, or once every 10 days due to a lack of power.

In addition to this, electrical goods obtained with much difficultly have merely become a worry and animosity due to the grave power failure, Good Friends recently reported in their newsletter.

The newsletter reported “People living in the district of Sapo, Hamheung argue what use are electrical goods when there is no electricity and are frustrated as they cannot receive any information as they cannot watch T.V.” and relayed the words of a woman participating in the People’s Units “If we are to listen to the principles of the authority, we need to listen to the T.V. or radio but since there is no electricity, how are we to know of the authority’s plan.”

Yonhap
1/15/2007

Four infectious diseases have stricken a North Korean city on the east coast, affecting up to 4,000 people, a source claimed Monday.

“Chongjin is overrun by scarlet fever, typhoid, typhus and paratyphoid. About 3,000 to 4,000 are suffering from the diseases,” the source said, asking to remain anonymous.

The source reported the infected people are mostly under 40 years of age. North Korean health authorities have halted railway operations to prevent the spread of disease and have imposed travel bans.

“When scarlet fever erupted late last year, North Korean authorities also imposed travel bans across the country,” the source added.

Good Neighbors International, a South Korean civic organization which provides aid to North Korea, confirmed that the rapid spread of disease in the North has resulted in school closings and travel bans.

Another source also claimed that Chongjin has only one hospital equipped with 150 beds in each district, but about 600-700 patients are seeking treatment in one district.

Last Thursday, South Korea’s unification minister said the government will not provide any medical aid to North Korea to help stem the spread of scarlet fever in the communist country.

But a South Korean civic group already shipped 36 types of medicine such as penicillin and antibiotics, worth approximately US$5 million, to the impoverished North.

Last month, the Join Together Society, a humanitarian aid group in Seoul, shipped a total of 400,000 injectable doses of penicillin to the North.

Scarlet fever is not an intrinsically serious communicable disease, but if not treated properly it can become as serious as cholera or typhoid.

Asia Times
1/10/2007
Ting-I Tsai

North Korea’s nuclear test has been a hot topic among analysts around the world. But inside the isolated Stalinist state, getting a hold of a pair of running shoes, a bicycle or a television set is still what most excites ordinary citizens.

And Chinese businesses continue to cash in on these material desires by selling goods manufactured at home or in North Korea at prices higher than their quality justifies, sparking much criticism.

When Pyongyang publicized its intention to initiate economic reforms in July 2002, most people had doubts about how far the policy would be taken. Four years later, the regime is still struggling to implement its reforms, but it has at least partly satisfied some of the daily demands of citizens by allowing more Chinese products to be manufactured in North Korea and more Chinese goods to be imported.

Shoes, bicycles, TV sets, beverages and clothes made in China or by Chinese companies in North Korea are helping to satisfy demand, but some disreputable Chinese companies are ruining their country’s reputation by dumping factory seconds and damaged goods on the market.

Over decades of isolation, North Koreans have been suffering not just from food shortages, but from a scarcity of basic consumer goods. In past years, Pyongyang has reportedly asked the South Korean government to donate thousands of tons of soap and clothes, as well as material for the production of 60 million pairs of shoes. In a visit to Pyongyang in November, products such as Colgate toothbrushes, toothpaste and a Japanese facial cleaner were carefully displayed in glass cases bearing price tags equivalent to US$2.60-$5.90, well beyond the financial reach of all but a few North Koreans.

After years of studying China’s experiences, Pyongyang is now gearing up to solicit foreign investment and advanced technologies to modernize its decades-old manufacturing base.

Supply and demand
“Because the supply can’t satisfy the demand, prices of most of the Chinese products simply soar in the North Korean market,” said Su Xiangzhong, chairman of a Tianjin company that founded a beverage-manufacturing joint venture, Lungjin, with a North Korean.

Trade between the two countries increased by 35.4% in 2004, followed by a 35.2% increase in 2005. By the end of October 2006, bilateral trade had reached $1.38 billion, a 4% increase over 2005.

Beijing-based Winner International Industries Ltd was one of the Chinese companies that foresaw North Korea’s consumption potential in 2000. By then, the company had co-founded a joint-venture running-shoe and clothing-manufacturing presence in North Korea. With advanced machinery from Taiwan, its shoe-manufacturing division is now capable of producing 8 million pairs of running shoes, according to an official from the company, who declined to identify himself. The clothing-manufacturing division, he said, has been a supplier to South Korean and Japanese companies. However, he added that orders from the two countries had recently decreased for unknown reasons.

Leather shoes for soldiers are of high quality, but they are not available to the average person. In Pyongyang shops catering exclusively to foreigners, a pair of leather shoes could cost as much as $326. The North Korean government is still soliciting foreign investment and purchasing shoemaking equipment via Chinese companies.

To get around in a country with underdeveloped public transportation, getting a pair of shoes is not enough. Taking advantage of that situation, Tianjin’s Digital Co started making bicycles in Pyongyang in October 2005, after the North Koreans agreed to let the Chinese take a 51% controlling share in the joint venture, virtually a monopoly, for 20 years.

It is estimated that the nation’s demand for bicycles is about 7 million, according to the Chinese media. The company now manufactures some 40 models and 60,000 bicycles annually, with the most popular model costing $26. In coming years, it plans to produce 300,000 bicycles annually and construct another three bicycle plants.

Aside from daily necessities, there are few entertainment options for North Koreans, which means there is a high demand for TV sets. Nanjing Panda, a TV maker, appeared to be the only Chinese company to foresee the emergence of the North Korean market when it invested $1.3 million there in 2002. After four years of operation, its 17-inch black-and-white and 21-inch color TV sets are reportedly the hottest items available in Pyongyang. With Panda products beginning to dominate the local market, it is becoming increasingly difficult for others to import TV sets into North Korea, according to Chinese business people.

The Panda joint venture is now digging up another potential gold mine by manufacturing personal computers (PCs) in North Korea.

In 2003, Chinese non-financial investments in North Korea amounted to just $1.12 million. That total, however, soared to $14.13 million in 2004, and reportedly reached $53.69 million in 2005. According to the Chinese media, there are now about 200 Chinese investment projects operating in North Korea. A Pyongyang-based foreign businessman described the Chinese investors as “by far the largest group by country doing business there, in all kinds of fields – plus they are from one of the few countries with the protection and representation of a big embassy”.

In March 2005, Chinese Premier Wen Jiabao signed an investment-protection agreement with his North Korean counterpart, and the two nations inked five bilateral economic-cooperation agreements between 2002 and 2005.

During North Korean leader Kim Jong-il’s visit to China last January, Wen introduced new economic-cooperation guidelines.

Despite these positive moves, controversy over the role of Chinese businesses has emerged. A Pyongyang-based Western businessman suggested that quite a few disreputable companies “go there with the intention of getting rid of old or damaged goods they can’t sell in China, and rip off North Koreans, who have no way to get their money back”.

“Also, a lot of fake goods come from China,” he added.

Still, more and more Chinese business people are rushing to Pyongyang. Su Xiangzhong, chairman of a Tianjin-based company, noted that his firm is creating a new beverage brand, like China’s Wahaha, in Pyongyang. North Koreans are also very interested in cooperating with Chinese enterprises in manufacturing and mining.

Chinese-made clothes for women and children, low-end and generic-brand household products and sundries, color TVs and PCs are popular products in North Korea.

Li Jingke, a Dandong-based Chinese businessman who runs the China-DPR Korea Small Investor Association, suggested that natural-resource exploitation and manufacturing are the best industries for foreigners to invest in, adding that more investment-friendly policies would likely be introduced in April. By then, he said, Chinese business people might need to become more concerned about unprofessional conduct.

“When North Korea introduces more liberalized policies, competent companies from everywhere will enter the market, which would likely eliminate the existence of those Chinese businessmen who don’t have modern commercial ideas in mind,” Li said.