North Korean Economy Watch

From Xinhua via NKZone:

China and North Korea have signed an agreement to facilitate transportation through and environmental protection of a border river.

According to the agreement inked last Friday in Changchun, capital of northern China’s Jilin Province which neighbors North Korea, the two sides will cooperate on the management of navigation buoys and the dredging of part of the Yalu River.

During a nine-day meeting, traffic officials from both sides also discussed measures to prevent environmental damage caused by the dredging works.

The two sides also agreed to tighten management of cargo ships plying the river, according to sources who attended the meeting.

Chosun
7/21/2006 (not sure of year)

Mammoth Underground Square and Road in Pyongyang

The Pyongyang subway has two generally-unknown facilities: a mammoth “underground square” in preparation against war, and an “underground road” between the subway stations, linking the Mount Kumsu Memorial Palace and the Sunan Airport in the suburbs of Pyongyang.

The underground square, built as a bunker command post for the Supreme Command of the People’s Armed Forces and a space for storing manpower and equipment during a war, is located in Anhak-dong, near the Nakwon Subway Station, famous for the Central Zoo at the foot of Mount Taesong. The square is said to be comparable in area to the Kim Il Sung Square, which can accommodate a rally of over 100,000 people.

The underground square is learned to have been constructed by the General Military Engineer Corps of the People’s Armed Forces in the 1970s when the second phase of the Pyongyang subway was built, linking the five stations of Hyoksin, Chonsung, Samhung, Kwangmyong and Nakwon. The command post in the underground square is said to be replete with state-of-the-art communications equipment and billeting facilities, and a host of 10-ton trucks including Soviet-made Zils and Japanese Isizus are kept in the square to transport troops and arms to be shipped by the subway under an emergency.

The underground road between subway stations connects the late national founder and president Kim Il Sung’s palace and the current Mount Kumsu Memorial Palace, with the Sunan Airport. It was said to have been built in case Kim Il Sung had to be evacuated by plane. The Mount Kumsu Memorial Palace is connected to the Kwangmyong Subway Station. The underground road is said to have been maintained even after the death of president Kim Il Sung in 1994 under the judgment that it can be of use in the event the North Korean military leadership, headed by Kim Jong Il, should need to move to Sunan Airport from the underground square in the case of a war.

from the Joong Ang Daily:

South Korean workers loading fertilizer sacks yesterday at a dock in Ulsan. The ship and another ship from Yeosu, South Jeolla province, will head today to Haeju Port and Nampo Port to transport the last 20,000 tons of 200,000 tons of fertilizers South Korea promised to send to North Korea. Despite North Korea’s missile tests, the South Korean government decided to send the last fertilizers as a humanitrian aid.

This is weird.  (Hat tip to Lost Nomad)

China sends the DPRK food aid via train.  The DPRK keeps the train and sends the crew back across the border  sans-train.

[F]ood and fuel supplies sent to North Korea have been halted, not to force North Korea to stop missile tests or participate in peace talks, but to return the Chinese trains the aid was carried in on. In the last few weeks, the North Koreans have just kept the trains, sending the Chinese crews back across the border. North Korea just ignores Chinese demands that the trains be returned, and insists that the trains are part of the aid program. It’s no secret that North Korean railroad stock is falling apart, after decades of poor maintenance and not much new equipment. Stealing Chinese trains is a typical North Korean solution to the problem. If the North Koreans appear to make no sense, that’s because they don’t. Put simply, when their unworkable economic policies don’t work, the North Koreans just conjure up new, and equally unworkable, plans. The Chinese have tried to talk the North Koreans out of these pointless fantasies, and for their trouble they have their trains stolen. How do you negotiate under these conditions? No one knows. The South Koreans believe that if they just keep the North Korean leaders from doing anything too destructive (especially to South Korea), eventually the tragicomic house of cards up north will just collapse. Not much of a plan, but so far, no one’s come up with anything better.

KCNA
7/4/2006

General Secretary Kim Jong Il gave on-site guidance to the newly built Pyongyang Taesong Tyre Factory. The factory has a total floor space of more than 2,000 square meters and all its production processes are automated.

After being briefed on the factory in front of a huge painting showing a panoramic view of the factory, he went round various production processes to learn in detail about its construction and production there.

Watching tyres being manufactured through streamlined production processes and automated workshops, he expressed satisfaction over the successful construction of the factory. It is a great achievement that constructors have built the factory meeting the need of the new century in a short span of time, he said.

A rapid increase in the number of vehicles requires the increased production of different kinds of tyres, he said, underscoring the need to boost the production of tyres of diverse sizes.

Noting that an effective use of the existing production capacity would make it possible to increase the manufacture of tyres, he called on the factory to wage a vigorous drive to operate in full capacity so as to keep the production going at a high rate and, at the same time, raise the quality of products, while paying attention to the maintenance of equipment and technical management.

Praising the workers of the factory for keeping its inside and outside neat and tidy, he said that the working class in the DPRK should take the lead also in introducing the culture created by soldiers in the Songun era.

Joong Ang Daily
6/22/2006

In the ground floor ballroom of the Yanggakdo Hotel annex in Pyongyang, the North Korean Chamber of Commerce hosted a trade information and investors’ relations conference on May 16. Senior North Korean trade ministry officials gave presentations on North Korea’s economic policy and investment climate. Rim Tae-dok, chief counselor of the trade ministry, said Pyongyang protected property rights of foreign investors and guaranteed the independence of their management. The North Korean official stressed that foreign investors would enjoy tax benefits and that the legal process of establishing companies in the North has been largely simplified.

Another senior North Korean official, Kim Ha-dong, also gave a presentation about Pyongyang’s export policy. Mr. Kim, a senior researcher at the trade ministry, said the communist country had been issuing permits for exports and imports after only a short review process. He encouraged investors to participate in trade.

The North Korean presentations were not very different from those given in any capitalist country, but the concept of “self-reliance” was prominent.

“We will build a self-reliant economy of Koreans and carry out trade on top of that,” Mr. Kim said. He added that North Korea’s self-reliance must not be damaged or controlled by foreign economies through trade.

During the JoongAng Ilbo’s 10-day survey of the reclusive communist country’s economic sites, Pyongyang’s dilemma ― self-reliant socialism versus economic development by attracting foreign investments ― was apparent. Some North Korean officials showed skepticism about China’s model of partially opening its economy, claiming that their country had to be run in a different manner.

“I have toured special economic zones in China several times,” said Ju Tong-chan, the North’s chairman of the National Economic Cooperation Committee. “But we have different ways of managing our economy than China, and I believe we should run our special economic zones in different ways. We are still researching our options, but we will not do it that [Chinese] way.”

China was able to expand its economy at high speed after the central government opened up the economy. It gave local governments enough independence to run business autonomously in their areas and attract foreign investment. But Mr. Ju was obviously unconvinced by the success of China’s model. The opening of the economy could boomerang, becoming a threat to the North’s system, he worried.

On factories and farms, North Koreans were still caught up – or at least gave the outward appearance of being caught up ― in a personality cult centered on the nation’s founding family. At cooperative farms and factories, the senior managers’ introductory briefings were always about the lessons taught by Kim Il Sung, North Korea’s first president, and Kim Jong-il, who succeeded him but did not assume the title of national president. These managers’ presentations began with the number of visits by the Kims to the site. There were always paeans to the communist regime’s “military first” policy and slogans to that effect were emblazoned everywhere, making it clear that the military and politics take priority over the economy.

North Korean officials were also reluctant to lay out all pertinent information to investors and journalists.

Kim Yong-il, 45, the manager of the port at Nampo on the country’s west coast, refused to cite specific numbers about the port’s freight-handling capacity. He said only that it could deal with “large amounts” of cargo.

Mr. Rim, the trade ministry chief counselor, said North Korean politics were extremely stable, which guaranteed the security of foreign investments. He gave no data or examples to support that claim of stability, however, and completely ignored the question of North Korea’s nuclear programs and how they might or might not affect stability.

Reacting to the journalists’ remarks that South Korean firms were reluctant to invest in the North because it has been difficult to make profits there, Mr. Ju, the chairman of the National Economic Cooperation Committee, said, “Why is money the priority? Inter-Korean business must be about something more than just monetary calculations.”

He was also visibly upset about Seoul’s policy on economic cooperation. “We made extremely sensitive military restricted areas at Mount Kumgang and Kaesong available to the South,” Mr. Ju said. “But the South has just given us a lot of excuses and failed to cooperate.”

He continued, “To nurture the Kaesong Industrial Complex into a world-class production facility, electronic and advanced technology industries are crucial. But labor-intensive industries are the majority in Kaesong. In this information era of the 21st century, the South has failed to bring in computers for administrative use in Kaesong.”

He also vented some spleen about the United States, asking the journalists why Seoul was so careful not to irritate Washington. He cited the U.S. restrictions on the re-export without prior approval of so-called “dual-use” goods, those with civilian and military applications, to countries it has blacklisted, including North Korea. Other international accords, such as the Wassenaar Agreement, also prevent South Korea from providing the North merchandise and commodities that have “strategic” applications.

But Mr. Ju sounded firm about continuing operations at Kaesong. “It is the nucleus of inter-Korean economic cooperation, and we must make it a success first. Then we can move on to other projects.”

He also dismissed the U.S. concerns that workers in Kaesong were laboring under harsh working conditions, but seemed to sidestep the basic question. “It is a matter that we should deal with,” Mr. Ju said. “Since we manage businesses differently, we are trying to come up with the best resolution to make direct [wage] payments to the workers.”

South Korean economists and businessmen who listened to similar presentations and looked at some of the North’s accounts were troubled by Pyongyang’s rigidity in opening up the economy. That, they said, coupled with the simmering nuclear weapons problem, is the most serious obstacle to attracting foreign investments. Unless U.S. diplomatic ties with North Korea are established, investing in facilities in North Korea and selling “made in North Korea” products on global markets would be difficult and risky, they agreed.

“If a foreign investor wants to visit a factory in the North that he has put money into, he has to obtain an invitation every time, and his schedule and movements in the North are strictly controlled,” said Kwon Yeong-wuk, the trade promotion director at the Korea International Trade Association of Seoul. “Under such circumstances, the North should not expect much in the way of foreign investments.” He said Pyongyang had a “my way or the highway” approach to the economy: If you’re here, follow our rules. The rigidity, he reiterated, is a serious obstacle to investors.

Other experts and businessmen in South Korea said Pyongyang’s attitude toward inter-Korean business in particular makes it hard to earn profit. They complain about the stress North Korean officials put on the concept that business between the two Koreas should be based on the maxim “blood is thicker than water” and not on market principles. An official at North Korea’s National Reconciliation Council argued that South Korean conglomerates should make large investments there based on that concept.

A South Korean businessman who has been looking for business opportunities in the North said he has run into a series of dead ends. “South Korean firms are doing businesses in the global market,” he said. “The largest market is the United States, and not many people would want to give that up to do business with the North.” He added that North Korea’s cheap but skilled manpower is an attractive point, but that poor infrastructure, extremely low purchasing power and the difficulty of obtaining raw materials make China and Vietnam much more attractive investment locales. Kim Yeon-chul, an academic at Korea University in Seoul, agreed with that assessment. “Large companies in South Korea have already automated their production facilities, so labor costs are not important in deciding on investments,” he said. “North Korea must improve other conditions instead of stressing the merits of its manpower or blaming outside causes.”

Korea Herald
Jin Hyun-joo
6/20/2006

A senior United Nations official expects that North Korea will join the U.N.’s initiative to connect rail links between the Korean Peninsula and Europe by November.

Kim Hak-su, executive secretary of the United Nations Economic and Social Commission for Asia and the Pacific, told The Korea Herald that Pyongyang has recently shown positive signs of joining the Trans-Asian Railway Network project.

A test run of container trains on the transcontinental route is possible if North Korea signs the agreement this time during a ministerial conference on transport slated for Nov. 6-11 in Busan, South Korea, said Kim.

The communist nation’s possible participation in the “modern Silk Road” could add momentum to the currently stalled inter-Korean railways projects, observers say.

“North Korea will be expected to sign this one. Every sign shows that they’ll participate. Hopefully in November this year if it is concluded, we are planning a container demonstration run starting from Busan, Seoul, Pyongang, Shinuiju, Beijing and to the West,” he said in an interview with The Korea Herald.

The trans-Asian railway network consists of about 81,000 kilometers of rail routes connecting 28 countries from Asia to Europe. Of the five routes needed for the railway, only the trans-Korean leg is missing. The conceived route’s four other railways run through China, Siberia, Mongolia and Manchuria.

UNESCAP is spearheading the ambitious project as part of its efforts to promote economic and social development in the region.

In 2001, North Korea did not sign a multinational agreement on the implementation of test runs of container block-trains on some routes of the trans-Asian railway.

“If it (the plan) materializes, I will volunteer at the moment to ride on the train first,” the 68-year-old Kim said.

He said other countries’ active participation in the project will pressure the North to join in the move.

“There is what we call a peer countries’ group. Other countries sign, then DPRK will (feel) the pressure.”

Regarding Kim’s optimism for the North’s participation in the project, Na Hee-seung, an adviser with the presidential committee for Northeast Asian cooperation initiatives, said, “Chances are half and half. Hopes are raised, however, as railway issues were actively discussed between the North and other countries this year.”

The multilateral efforts to draw the North to the trans-Asian network will also pave the way for the inter-Korea railway to run, Na added.

“The multilateral action can help resolve the inter-Korean (railway) issue,” he told The Korea Herald.

Late last month, North Korea abruptly cancelled test runs on cross-border railroads which were reconnected in 2003. The railway has been left idle because of the North Korean military’s objection to a test run.

Kim visited Korea last weekend to attend the inauguration ceremony of the first U.N. agency set up in Korea. UNESCAP is headquartered in Bangkok, Thailand.

UNESCAP opened its first Information and Communication Technology for Development Training Center in Incheon, South Korea, with the aim of bridging the gap between IT haves and have-nots in the Asia-Pacific region.

The center will provide training to policy makers, ICT professionals and others from 62 member countries while sharing best practices in the area of ICT development.

Microsoft Corp. also signed a memorandum of understanding with UNESCAP pledging $1 million in support, including software, equipment and cash contributions.

From the Joong Ang Daily:

A senior maritime official in North Korea told visiting journalists from the JoongAng Ilbo that his government wants to modernize and open Hungnam Port on the nation’s east coast to expand inter-Korean economic exchanges. Since 2000, a sea route connecting Incheon with the North Korean port of Nampo has been open for direct shipping along the west coast; Pyongyang evidently wants to replicate that success on the east coast, perhaps in a bid to increase investment or to reduce logistics problems in distributing aid shipments from South Korea.

Hungnam is about 10 kilometers (6 miles) from Hamhung, North Korea’s second-largest city.

“We put priority on one port on the west coast and another on the east coast,” said Cha Son-mo, the maritime operations director of the North Korean Ministry of Land and Sea Transportation. He spoke to the journalists on May 12, during a tour of North Korean economic sites arranged by the newspaper with North Korean authorities.

The comments were the first public indication of Pyongyang’s interest in such a project. Mr. Cha is the equivalent of an assistant minister in South Korea.

“Chongjin and Rajin are essential for freight to and from China and Russia,” he said. “For inter-Korean maritime cooperation, Hungnam should be modernized first. We also plan to upgrade facilities at other places.”

He also confirmed reports that North Korea has been negotiating with China to attract investment to modernize the Rajin and Chongjin ports, both in North Korea’s extreme northeast.

“Through Rajin, China wants to ship goods produced from its three northeastern provinces to South Korea, Japan and Europe,” Mr. Cha said. “And Rajin alone may not be enough, so it wants to modernize and expand operations at Chongjin.” He added that China had proposed to build roads connecting China with the two ports; negotiations are in progress, he said.

Mr. Cha also greeted the visiting journalists during their tour of a ship repair facility in Nampo two days later, giving a detailed briefing on the Yongnam Ship Repair Factory. “While we are focusing on repair operations, our next goal is ship cannibalization and shipbuilding,” he said. “We strongly hope that the two Koreas can cooperate in this field.”

He said North Korea had invested $100 million in the factory, a huge amount in this cash-strapped country. The plant had been modernized to allow it to repair one 50,000-ton ship and two 20,000-ton ships simultaneously.

The shipworks also recently found a partner in the South. Responding to a bid by North Korea last July, Hanaro Shipyard was set up in South Korea in December by Jeong Chan-bae, specifically to work with the Yongnam repair yard.

“South Korean ships all use repair bases in China and Vietnam because there is no place to repair vessels,” said Jeong Chan-bae, the president of Hanaro Shipyard. “But repair prices in China went up sharply recently, so we decided to use the North Korean facility.”

Citing North-South maritime cooperation accords, Mr. Cha also said there was no legal problem to concern South Korean ship owners about using repair services in the North. He is also the chief negotiator for the maritime talks between the two Koreas. “Our repair service prices will be an average of 30 percent less than those in China,” he said.

He also appeared on the scene to guide a separate group of South Korean economists and businessmen who visited the factory on May 17. After that tour, Jeong Nam-su, an executive of South Korea’s STX Shipbuilding, was cautiously positive about the facility. “It is hard to find a place to repair ships in South Korea,” Mr. Jeong said. “The quality and technology of the Yongnam factory has not yet been evaluated, but it has some positive prospects.”

From the Korea Times:

South Korea’s chief delegate for the inter-Korean economic talks yesterday reaffirmed the North will not be getting any new economic support unless it pushes ahead with the railways test-run.

In a radio interview, Vice Finance Minister Bahk Byong-won said, “We created a structure in which the additional economic cooperation is only possible after the railways test-run.”

The two Koreas closed their 12th Economic Cooperation and Promotion Committee meeting in Jeju on Tuesday with a nine-article agreement on support for light industries, natural resources development and others.

The two sides concurred such agreements will only be implemented when “conditions are met,” which they verbally confirmed referred to the cancelled cross-border test-runs.

North Korea abruptly cancelled the scheduled testing last month, prompting an angry response from the South.

The South, remaining steadfast to its policy of engaging more economically with its communist neighbor, believes staunch military authorities to be behind the cancellation.

“(The North’s) military authorities are closely connected with the procedures of implementing many of the inter-Korean agreements. And the (preconditioning) clause refers to just that,” Bahk said, emphasizing that the North Korean military must take visible measures such as preparing a military guarantee for the railways operation.

The two railways, on the east and west of the Korean Peninsula, run through heavily fortified borders. It would be the first time in over five decades that the trains run.

“Although we said ‘conditions’ in the agreement, both sides made clear when we read out the agreement that the conditions referred to the railways test to avoid any conflicting interpretations in the future,” Bahk said.

(angiely@heraldm.com)

By Lee Joo-hee

From the Joong Ang Daily:

South Korean delegates at the inter-Korean economic talks here won a victory of sorts early yesterday morning; North Korea agreed to Seoul’s linkage of the completion of test runs of the newly reconnected railroads across the Demilitarized Zone to its offer of raw materials for the North’s light industries.

But in what apparently was a face-saving gesture to the North, the linkage was not made explicit in the joint announcement of the results of the four-day meeting. South Korea agreed to supply a package of raw materials for the North’s shoe, soap and textile industries worth $80 million, which will be delivered “when necessary conditions are met.” The agreement said nothing more about the conditions, but the rail tests, most recently cancelled by North Korea the day before they were to be conducted last month, were clearly the point at issue. Kim Chun-sig, the Seoul delegation’s spokesman, made that explicit. “The trial train runs are linked with the supply of raw materials, and the agreed announcement was issued with that understanding by the North.” He said agreement to the linkage was not easily won from the North; Seoul’s delegates stressed the uproar that would break out here if that condition were not attached.

The aid will be in the form of a loan to be repaid in kind ― North Korean natural resources ― over a 15-year period with an interest rate of 1 percent. The two delegations met the press to announce the agreement, saying they had signed a nine-point agreement and a 10-point supplemental document dealing with the aid package.

In the agreement, the aid is to be delivered in August. Mr. Kim said that meant that the necessary military-to-military agreement on safeguards required before travelers cross the Demilitarized Zone must be in place and the rails tests completed.

The strings attached to the aid package are something of a departure for the Roh administration, which has been tolerant ― far too tolerant, critics in the South contend ― of North Korea’s penchant for accepting aid donations while failing to keep promises it had made in return. Pyongyang’s cancellation of the railroad tests in late May was, apparently, too much for Seoul to stomach politically. The tests were cancelled the day before they were to take place, and the North blamed “political instability” in the South and the lack of a military safeguards agreement that the North itself has blocked.

A Seoul delegate said proudly, “Unlike in the past, we focused on enforcement of the agreement and secured some leverage over North Korea.” The two sides made some modest progress on other issues. They agreed to conduct negotiations on a joint project to mine gravel from the mouth of the Han River inside the Demilitarized Zone. They agreed that military-to-military agreements would be necessary for safety and security reasons. The project had been suggested by Seoul in April, and reflects the dwindling supply of such material here because of South Korea’s 30-year construction boom.

Other agreed meetings will address administrative procedures at the Kaesong Industrial Complex, flood control on cross-DMZ rivers and exchanges of weather data, especially on the yellow dust storms that originate in China’s Gobi Desert.