Saenuri Party lawmaker Yoon Sang-hyun, a member of the National Assembly`s foreign affairs, trade and unification committee, released Wednesday an analysis of closed trade data between North Korea and China, saying the North`s imports of luxury goods via Chinese customs reached 446.17 million U.S. dollars in 2010 and 584.82 million dollars last year. The figure was 272.14 million dollars in 2008 and 322.53 million dollars in 2009.
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Imports were especially pronounced for high-end cars, TVs, computers, liquor and watches. Inbound shipments of luxury cars and associated components almost doubled to 231.93 million dollars last year from 115.05 million dollars in 2009. Ship exports increased more than 20 times from 17.48 million dollars from 840,000 dollars over the same period.
Artworks and antique imports reached 580,000 dollars last year, more than 10 times the figure of 50,000 dollars in 2009. Perfume, cosmetics and fur saw their inbound shipments double. Among items that saw sharp drops in imports were leather products and musical instruments.
In 2006, the United Nations banned member countries from exporting luxury goods to North Korea under U.N. Security Council Resolution 1718, entrusting them to decide on the items. South Korea also designated 13 luxury goods for the export ban in 2009. China has yet to designate its items, and North Korea is growing more dependent on imports from China.
A total of 295 North Koreans are staying in South Korea’s overseas diplomatic missions worldwide on their way here, government data showed Thursday.
According to the report that Seoul’s foreign ministry submitted to the National Assembly for regular audit, Seoul’s overseas missions are currently protecting 295 North Koreans, who are waiting to be admitted into the South. In general, such defectors stay one to two months in Seoul’s overseas missions, the ministry said.
More than 2,000 North Koreans have settled in the South over the past five years, with 2,081 coming here in 2008, 2,401 in 2010 and 2,706 last year, according to the data. As of July this year, 915 North Koreans had arrived here, it showed.
The UN believes that North Korea’s elderly population will double in the next 40 years, casting an economic shadow over the country’s future.
The United Nations Fund for Population Activities (UNFPA) revealed over the weekend that 13% of the population of the country, approximately 3.32 million, is currently over 60, but that it believes this will double to 23% of the population, 6.12 million, by 2050.
Meanwhile, the number of people over 80 will increase by more than 2.5 times, UNFPA believes.
At the same time, UNICEF announced last April that North Korea’s young population will greatly reduce, with just 3 million people in their teens by 2050, a reduction of 24% over today’s number.
Northeast Asia has the fastest-aging population in the world; more than 30% of the world’s population over 65 is said to be living in the Northeast Asian region encompassing South Korea, North Korea, China, Japan and Russia.
Writing in the Daily NK, John Cha offers a brief model of the North Korean economy as envisioned by Kim Jong-il:
According to our former teacher Hwang Jang Yop, the economic model that is in place now is a brainchild created by [Kim Jong-il] based solely on his greed for power and control.
In the mid 1970s, [Kim Jong-il], then a young understudy to the throne, devised a three-tiered economy: the Party; the military; and third, the general masses. These units are separate, independent and don’t interact with each other.
The Party economy is operated and managed by the Chosun Workers’ Party. It consists of the most lucrative enterprises in mining, shiitake mushrooms, light manufacturing, fisheries, and other industries that produce foreign currency. Kim the 2nd kept his hand in the Party economy and amassed his personal fortune, which he used to reward his loyal followers, through it. As a result, Party elites enjoy the ‘life of Riley’; the best food, housing, clothing and education for their children. They are able to accumulate wealth.
The military economy consists of production and the sale of arms and munitions, as well as heavy construction projects like roads, railroads, tunnels and power plants. The military sector manages these enterprises, generates its own revenue and feeds a huge army. Military elites do fine as well. They live in fine houses, drive nice cars and so on.
Finally, the general public ends up with whatever is left over. There is no trickling down of any sort. Average workers and farmers scrap for what’s left and barely manage to subsist on their own with no help forthcoming from the Party or the military. The latest typhoons and floods shrank their food supply to a dangerous level, and people worry about the second coming of the famine, not to mention perennial shortages of fuel and electricity.
This anecdote is third hand by its own admission, but if true it is an interesting insight into the mental model under which the former North Korean leader was making policy decisions. I wonder what economic models, if any, have been taught to the new leader.
You can read the full article here:
Who Can Kill the 3-Tiered Economy? Daily NK
John Cha
2012-10-4
UPDATE 43 (2015-6-17): Gazprom official claims pipeline not feasible. According to NK News:
The deputy CEO of Russia’s Gazprom told reporters that connecting South Korea to Russian gas supplies is economically attractive but politically infeasible on Tuesday.
The long-gestating pipeline project would extend through the DPRK and provide natural gas to energy-hungry South Korea.
But Alexander Medvedev, speaking from a press conference in Moscow yesterday, said the project was too difficult in the current climate.
“The level of communications, the level of cooperation is not that which would make it possible to speak of advancing to the feasibility study stage, let alone implementing a project to supply gas via North Korea.”
Despite the political hurdles, the project is still interesting from an economic standpoint.
“From the economic standpoint, this would probably be the most efficient option for supplying gas to Korea … There is demand for pipeline gas,” Medvedev added.
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Despite the numerous roadblocks, the deputy CEO of the world’s largest gas producer remained hopeful that political changes could move the project forward.
“The opportunity remains all the same, but it depends on a resolution of the political issues between the DPRK and the Republic of Korea. There are certain positive signals, but there are negative signals too,” Medvedev said at the press conference.
Post 42 (2014-6-18): According to Leonid Petrov, “Russian GAZPROM postpones Trans-Korean gas pipeline construction project ‘due to unstable political situation in South Korea'”. Here is the source (in Russian).
Post 41 (2014-3-29): According to Yonhap, the Russians and the North Koreans held talks on a number of issues including the Kaesong Industrial Complex, Iron Silk Road, and the gas pipeline. No information on the pipeline was made public.
Post 40 (2013-11-13): The Russians and South Koreans most recently discussed the Russia – South Korea gas pipeline at a presidential meeting in Seoul. No decisions were made. Read more here.
Post 39 (2012-10-4): The Choson Ilbo reports that the pipeline talks are delayed because DPRK is asking for transit rates above the international norm:
A South Korean government source said talks have dragged on because the North is demanding a transit fee that is two to three times more than international rates.
Based on a method of calculation used by Ukraine — about $2 per 1,000 cubic meters of natural gas for 1 km of pipeline — a reasonable fee would be about US$150 million a year given the estimated amount of gas South Korea would import from Russia and the 700-800 km of the gas pipeline running through the North. But the North reportedly demanded $300-500 million a year.
“It’s likely that the North asked for such a high price in the first place to gain the upper hand in future talks,” the source added. “There have been no full-fledged talks yet. At the moment, Pyongyang, Seoul and Moscow are just trying to read each other’s minds.”
Post 38 (2012-2-27): The Daily NK reports on details being discussed in the pipeline talks:
The Republic of Korea Ambassador to Russia, former chief nuclear negotiator Wi Sung Lac, says there has been progress on a gas pipeline connecting Russia, North Korea and South Korea.
“At the moment it is at the stage of enterprises discussing commercial conditions, and I am aware that there has been progress. North Korea and Russia are also discussing issues of transit and transit fees via working-level consultations,” he explained to reporters on a visit to Seoul today.
Wi would not be drawn on what kind of progress has been achieved, saying, “It’s about commercial details and so is hard to explain, but it appears there has been progress on supply quantities and supply conditions.”
Post 37 (2012-2-20): Gazprom reports “progress” in talks with North Korean government. According to Bloomberg:
OAO Gazprom, Russia’s natural gas exporter, said it made progress in talks to supply Korea Gas Corp. (036460) through a pipeline across North Korea, the Moscow-based company said today in an e-mailed statement.
Gazprom and Kogas, as the Korean company is called, plan to meet again in Moscow next month to continue talks, Gazprom said.
According to Ken Gause, KPA Unit 10215 is the military cover designation of the 국가안전보위부 — the Ministry of State Security (MSS) [a.k.a. State Security Department (SSD), National Security Agency (NSA), State Political Security Department (SPSD)].
Checking the Google Earth imagery, we can in fact see the statue under construction at the MSS headquarters in front of the General Bureau Building.
Pictured above (Google Earth: 39.074311°, 125.767690°): Tarps covering the newly unveiled Kim Jong-il statue. Image date: 2012-6-20.
You can see a video of the unveiling on North Korean television below. This is the first time, of which I am aware, that the MSS headquarters has been shown on television:
These are all interesting data points. Do you think they offer reasonable journalistic evidence that the DPRK is practicing inflationary public finance?
First, Yonhap reports on DPRK food imports from China (2012-9-29):
North Korea’s grain imports from China slipped 16.3 percent on year in the first eight months of this year, in an apparent sign that the North may diversify its supply channels of grain, a Seoul researcher said Saturday.
North Korea imported 181,264 tons of rice, flour, corn and other grains from China in the eight-month period, compared with 216,535 tons for the same period last year, said Kwon Tae-jin of the state-run Korea Rural Economic Institute.
The decline in grain imports from China may be attributed to a rise in food aid from China and purchases from non-China markets such as Europe and South America, Kwon said.
“Including imports from non-China markets, North Korea’s total grain imports appeared to rise this year,” Kwon said in a report posted on his Web site, adding Pyongyang may “diversify its import channels.”
At the same time the Daily NK reports that food prices continue to rise (2012-10-2):
Internal sources informed Daily NK over the holiday that on September 29th the price of rice was 6,700 won/kg in Pyongyang, 7,000 won/kg in Onsung, North Hamkyung Province and 6,500 won/kg further west in Hyesan, Yangkang Province.
Not only do these prices far exceed those of Chuseok 2011, they even far exceed those of earlier this year.
The Hyesan source explained that on the day before the Chuseok holiday (Saturday) the atmosphere in the market was thus rather uncomfortable. “It was very slack,” she said. “People couldn’t buy anything easily, so most just seemed to be looking.”
Secondly, Yonhap reports that despite situations like those experienced by Xiyang or in Musan, mineral exports to China are up (2012-10-2):
North Korea’s exports of mineral resources recorded a 33-fold jump over the past decade with China remaining the biggest importer of the North’s iron ore and coal, a report showed Tuesday.
North Korea’s mineral exports stood at a meager US$50 million in 2001, accounting for 7.8 percent of its total exports, according to the report by Seoul’s Korea Trade and Investment Promotion Agency.
The mineral exports soared to $243 million in 2005 and $1.65 billion in 2011, accounting for 59.4 percent of the North’s total exports last year, the report said.
South Korea has estimated the total values of mineral deposits in North Korea at some $6.3 trillion.
Last year, North Korea exported $1.17 billion worth of anthracite coal and $405 million worth of iron ore, with China importing almost 100 percent of anthracite coal and iron ore, it said.
Steve Hanke (Johns Hopkins University) posted some information on the Cato Institute blog about the DPRKs legacy of hyperinflation:
North Korea’s communist economic legacy—in addition to starvation—is hyperinflation. North Korea is one of only 40 countries in the world that have experienced hyperinflation. In our recent Cato Working Paper, Nicholas Krus and I concluded that a North Korean episode of hyperinflation occurred from December 2009 to mid-January 2011, with an estimated peak monthly inflation rate of 496 percent, in March 2010. At this rate, prices were doubling every 14.1 days. Alas, the horrors of hyperinflation will linger, generation after generation. What a legacy.
The North Korea/China border region is often portrayed as a place of recent North Korean migration that started in the wake of famine of the early 1990s. This common knowledge is, however, only partially true and obscures as much as it illuminates: It ignores and is ignorant of the pre-existing fluidity of legal and illegal migration between the northern DPRK and the northern provinces of China. Importantly, the dominant narrative fails to understand that what was very new about the 1990s was not inter-country migration itself but the reversal of migration flow patterns. Prior to the 1990s, migration between the two countries was mainly a one-way traffic of ethnic Koreans of Chinese nationality heading south towards North Korea.
NKIDP e-Dossier no. 11, “Explaining North Korean Migration to China,” is introduced by Hazel Smith, Woodrow Wilson Center Fellow and Professor in Humanitarianism and Security at Cranfield University, and features 11 translated Chinese documents which provide evidence of historical cases of legal and illegal migration between the DPRK and China.
Back in March 2011, KCNA posted this video clip to their web page:
Unfortunately for the North Koreans, actions speak louder than words.
The North Koreans appear to be worried that the unwanted attention brought about by the Xiyang story will have a negative effect on investment in the country’s special economic zones along the Chinese border. In order to combat these growing negative perceptions among Chinese investors, the North Koreans have begun holding a series of invitation-only seminars to tout the benefits of investing in Hwanggumphyong and Rason.
Here is coverage of the seminar in the Global Times (PRC) of the most recent seminar:
The officials told Chinese investors attending a seminar in Beijing that North Korea will allow the Chinese yuan to be used in business transactions, offer tax incentives to targeted industries and ease visa requirements.
North Korea is hoping to spur development of the Hwanggumpyong and the Wihwa Islands, two special economic zones on the Yalu River, which also runs through the Chinese border city of Dandong, Liaoning Province, reported the Beijing News. Favorable policies regarding the Rason Economic Trade Zone, which is closer to Jilin Province, were also discussed.
A North Korean official told the seminar that his country hopes to transform the economic zones into “world-class business districts.”
More than 200 Chinese companies, including State-owned enterprises and private corporations, participated in the seminar.
China’s Vice-Minister of Commerce Chen Jian said cooperation between China and North Korea on the development of the new economic zones is going smoothly.
Despite the enthusiasm from officials on both sides, entrepreneurs expressed concern over the veracity of the country’s legal framework needed to protect their investment.
“North Korea has significant iron ore and coal reserves, but I wouldn’t rush to invest unless I am sure it can be protected by their law,” a Chinese mining entrepreneur who requested anonymity told the Global Times.
What the People’s Daily article did do was make clear how the two sides foresee the function of the SEZ areas. Rasun, it said, “will focus on the development of raw materials, equipment, high tech products, light industry, the service sector and modern agriculture.” Conversely, Hwanggeumpyong and Wihwa Island “will focus on the development of information industries, tourism, modern agriculture and garment manufacturing.”
The Chinese Ministry of Commerce has also moved to back efforts to stimulate interest in the SEZs.
The Hankyoreh offers some additional details on this and previous seminars:
Cars pulled up one after another on Sept. 26 in front of the Bridge Art Center in downtown Beijing, where a big blue sign read “Introduction to the Choson (North Korea) investment environment and counseling on investment areas.” The Chinese corporate executives who stepped out of the vehicles filed into the venue for a briefing on investment in North Korea.
The North Korean Committee for the Promotion of Economic Cooperation and China’s private GBD Public Diplomacy and Culture Exchange Center staged the event over two days in the hope of attracting investment by introducing “promising investment areas” for Chinese entrepreneurs.
The event was invite-only. Attendees walked around the venue, where they were asked not to take pictures. A screen at the front of the conference room displayed videos on the Rason and Hwanggumpyong special economic zones and the tax breaks available to investors. Around 100 Chinese businesspeople sat in their chairs to watch.
At the entrance was a list of around thirty participating North Korean businesses. Many were in areas such as natural resource development (iron and gold mining), seafood farming, and garments. Trade companies also stood out on the list, including the Daesong General Trading Corporation and the Jangsu Trading Company. Thirty-six officials from state-run North Korean businesses provided information about 43 investment projects. The afternoon saw one-on-one talks between North Korean officials and Chinese executives.
A senior official with GBD said hundreds of Chinese businesses would be participating on Sept. 26 and 27.
“There are quite a lot of Chinese businesses interested in investing in North Korea,” the official said.
On the invitations, the organizers touted the investment briefing as an “important opportunity for Chinese businesses to invest in North Korea.”
“Choson’s new leader Kim Jong-un declared that economic development and improving people’s livelihoods are important goals of the Workers’ Party of Korea,” they read.
This is just one of many such briefings that North Korea has organized all over China. On Sept. 7, a counseling session was held in Changchun, Jilin province, for “North Korea Day and China-Choson trade investment projects.” Another investment briefing on Sept. 9 was staged concurrently with the 16th China International Fair for Investment and Trade in Xiamen, Fujian province. A joint China-North Korea economic trade briefing on Oct. 14 in Dandong, Liaoning province, is scheduled to include counseling sessions for the three areas of trade, investment, and labor between 60 North Korean national trade company officials and 100 Chinese businesspeople.
Meanwhile, the Chosun Investment Office of Joint Venture and Investment Committee, North Korea’s body for attracting foreign investment, signed a contract in Beijing on Sept. 22 with China Overseas Investment to set up an exclusive North Korea investment fund of 3 billion RMB, or about US$476 million.
China’s private investors have shown much interest amid signs of change from Pyongyang, but sources said this had not yet led to actual investments.
“In staging investment briefings, North Korea is showing that it has decided on a course of change for the sake of the economy and the public welfare,” said a source in Beijing.
“In China, people have kept asking for Pyongyang to establish more laws and regulations to allay the fears of businesses investing there, so it’s going to take some time to see the kind of investment North Korean really needs for its own economic development beyond things like mining,” the source added.
But after listening to a presentation from Chinese and North Korean officials at one of Beijing’s most expensive hotels laying out the supposed allure of the two zones, the head of one company gave an emphatic “no” when asked if she was convinced.
“We’re not thinking about it at the moment,” said Li Guilian, chairwoman of Dalian-based clothing company Dayang Trands. “We might go and have a look at Hwanggumphyong, but I don’t think we’ll invest.”
She nodded her head vigorously when asked if she thought it was risky investing in such an isolated and backward country.
“Investors need first of all to consider the environment. If there’s a problem with the environment, then there’s no way people are going to commit money,” Li told Reuters.
