North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
2011-10-13

North Korea’s Daepung International Investment Group, Ltd (Daepung Group) has announced its “Main Target Areas for Economic Development,” with plans to attract foreign investments for the next decade.

Daepung Group presented the “The DPRK’s Main Areas of Economic Development (2010 to 2020)” which included an outline of “Main Targets of Economic Development.” In it were specific plans outlining economic development projects. The projects are separated into industrial, transportation, energy and agricultural development sectors.

North Korean media has reported on the “Ten-year Strategy Plan for National Economic Development,” which was passed by the DPRK Cabinet earlier this year. As a part of the national economic development strategy plan, North Korean authorities commissioned the Daepung Group to fully take the lead in achieving the major targets of the national economic development plan which include substructure construction, agriculture, power, coal, oil, and metal; with heavy emphasis placed on basic industries and regional development as the main sectors for development.

The industrial districts under the target for development are Kim Chaek Mine and Refinery Complex, Chongjin Heavy Industrial Complex, Nason [Rason] Petrochemical Industrial Complex, and Nampo IT Industrial and Technology Complex.

Among the four, Chongjin Industrial Complex will be developed in an area of 50 square kilometers and investments running over 18 to 20 billion USD will be brought in over the next ten years for the construction of a shipyard, automobile manufacturing, electric equipment, and machinery factories and as well as a heavy industrial complex. As for the Nason Petrochemical Industrial Complex, it will be developed in an area of 20 square kilometers over the next ten years with similar amount of investments put in to construct a 20 million-ton capacity oil refinery, 1.2 million-ton capacity ethylene factories, and 1 million-ton fertilizer factories. The initial investments for the following projects are expected to be worth 1.5 million, 1.4 billion, and 8 billion USD, respectively.

Nampo IT Industrial and Technology Complex is expected to be developed at a 30 square kilometer site and is expected to receive 10 to 12 billion USD worth of investment over the next ten years. The development plans for Nampo will mainly focus on research and a combination of different industries in the areas of optical science, microsystems, information media, environmental biology, microelectronic and electronic information, energy science, and renewable energy development.

Kim Chaek Mine Refinery is expected to occupy about 500,000 square kilometers of land and 8 billion USD worth of investment will be brought in to build large-scale facilities such as a 120 million-ton harbor and 5 million-ton iron manufacturing factories. In the first stage of its development, Kim Chaek Iron and Steel Complex was to receive a capacity upgrade of 3 million tons, its harbor a 200,000-ton upgrade, and Musan Iron Ore Mine a 7 million-ton reconstruction upgrade from 2009 to 2011, with the cost expected to be worth 3 billion USD. However, the status of these reconstruction projects has not yet been confirmed.

According to the source, construction of transportation network will take place over the next ten years which includes building of double tracks in the railroad stretching 2,386 km, with the total distance running at 4,772 km. It is expected to cost about 9.6 billion USD. The specific route plans include tracks running from Pyongyang to Nason (780 km), Kim Chaek to Haesan (180 km), Pyongyang to Kaesong (186 km), for trains to run at the speed of 120 to 140 km/hr. In addition, other railroad linking projects are underway.

As for the highway routes, the Pyongyang-to-Nason highway will run about 870 km, Pyongyang to Shinuiju 240 km, Pyongyang to Kaesong 180 km, and other connection roads to mines are expected to stretch about 1,200 km. The entire cost of construction and reconstruction of highways is estimated to be about 15 billion USD.

Although most of the railway and roads have already been built, they are in serious need of repair and widening. This also includes linking the Tumen and Tonghua cities of China to North Korea.

In addition, there are also plans to upgrade Pyongyang International Airport, with an investment of 1.2 billion USD to be used to expand the airport’s capacity to accommodate up to 12 million people a year.

Agricultural development will mainly focus on increasing the size of agricultural pesticides factories to a capacity of 30,000 tons as well as improving the farming machinery and livestock industries.

As for electrical power development, 4 billion USD will be invested over the three years to develop coal mines which will be capable of producing 40 million tons. Specifically, mines in Anju will be upgraded to produce 30 million tons, mines in Bukchang 5 million tons, mines in Ryongdong 2 million tons, and mines in Onsong 5 million tons.

In addition, ten 60 kW thermoelectric power plants will be built across the nation including two in Pyongyang, two in Chongjin, four in Bukchang, two in Anju, one in Kim Chaek, and one in Najin. The plan is to secure 600kW of electric power over the five-year period by investing 50 billion USD.

In a written document, out of a total of 100 billion USD of investments, Daepung Group is planning to allocate 10 billion USD to the Industrial Development Bank, 54.5 billion USD to the Industrial Bank and 35.5 billion USD to basic energy and power sectors. The Industrial Development Bank was established in 2010 and has registered capital of about 10 billion USD and loan volume of 120 billion USD.

North Korea’s Daepung Group is pursuing the economic development plans under the guidance of the State General Bureauof Economic Development, as a part of the larger effort of the “Ten-year Strategy Plan for National Economic Development.” Although it is premature to measure the specific results of the plan, it is clear that focus has been placed on attracting more investments from China.

According to Choson Exchange:

In August this year, Choson Exchange, a non-profit focused on economic policy, business and legal knowledge exchange with North Korea (DPR Korea), implemented a study trip for DPRK policymakers to exchange policy ideas and experience in Singapore with policymakers. Thanks to the sponsorship of the Swiss Cooperation Office DPR of Korea, we were able to implement an insightful and engaging series of discussion with participating Koreans. We focused our program on younger Koreans, with 6 of the 7 North Koreans being under 40 years old, out of which 2 were under 30 years old. 3 institutions were represented in the visit, which involved 10 intensive days of meetings and discussions.

In particular, some of the young participants we selected for the program were able to ask astute questions on development issues and coordination among economic agencies. During the post-trip debriefing, participants highlighted specific aspects of Singapore’s economic development experience which they found particularly interesting and relevant for their country. They also gave feedback on policy ideas which they believe could be adapted to their country. Choson Exchange followed up on the discussions with consultations in Pyongyang 5 days after the program ended.

We would like to thank speakers who volunteered their time and experience at this event in their personal capacities. Speakers included:

– The former Chairman of Singapore Airlines, Singapore Stock Exchange, Temasek Holdings, Development Bank of Singapore, Nepture Orient Lines and Permanent Secretary at various Ministries

– The former Minister for Finance and Minister in the Prime Minister’s Office

– The Chief Economist for Bank of America Merrill Lynch in Southeast Asia

– The CEO of Centennial Asia Advisers and former Chief Economist for SocGen Asia-Pacific

– Directors and Economists at various Ministries in Singapore

– Private sector speakers or hosts from McKinsey & Co., Bain & Co., Goldman Sachs and Capital Group

We would also like to thank Member of Parliament Lily Neo for hosting dinners for the visiting delegation.

Institute for Far Eastern Studies (IFES)
2011-10-5

Dai Yulin, secretary of the Dandong Committee of the Communist Party of China, said in his interview with the China Daily on September 28 that concrete plans for the joint development projects between China and North Korea in the Hwanggumpyong and Rajin-Sonbong regions will be announced at the end of the year.

This past June, Dai stated both countries agreement to jointly develop Hwanggumpyong and Rajin-Sonbong as an economic development zone and reported smooth progress in its plans.

According to Secretary Dai, “The joint management committee between China and North Korea has already been formed to promote the Hamggumpyong development project. Both countries are getting up steam to advance the project.”

In addition Dai explained, “China has secured 10 square kilometers of national land to be used to support the joint development of Hamggumpyong.” He also added, “A think tank comprised of 72 experts was also established to advise and buttress the project.”

When DPRK Cabinet Premier Choe Yong Rim visited China last month, Dai commented, “Choe’s visit to China is underlined with North Korea’s strong interest in economic reform. All the high level officials in the economic sectors accompanied him on the trip.”

While visiting China for five days, Choe met with Premier Wen Jiabao and expressed strong motivation for strengthening trade and cooperation with China, especially to improve its infrastructure. He stated, “For those Chinese companies investing in North Korea, we will provide special accommodations to encourage more investments.” In response, Wen Jiabao commented, “China will do all it can to support North Korea, so that they may seek development method most appropriate for them.”

After the meeting between the two top officials, the two nations came to an agreement to cooperate in trade, investment, and infrastructure, resources and agriculture development.

Prior to meeting with Wen, Choe visited Lanxing Chemical Industrial Machine Co. After he paid his courtesy visit to President Hu Jintao of China in Beijing, he continued to make economic related visits to Baoshan Steel Group, Bailian Xijiao Goods Purchasing Center, and industrial facilities in Jiangsu Province.

After North Korea designated Hwanggumpyong Island as a free trade zone, China has signed a 50 year-lease agreement to develop the island. Despite being a “joint development” in name, in actuality, China has the exclusive development rights based on Chinese capital.

However, North Korea is requesting for revision of the name to “co-development between China and the DPRK,” a request that China is expressing some uneasiness over. The initial agreement was to “lease Hwanggumpyong Islands to China,” which gave exclusive and autonomous development and management rights to China in the zone.

China has articulated on many occasions the Hwanggumpyong project must be strictly based on market principles and expressed apprehension that Chinese businesses may be unwilling to invest in the area if North Korea continues to pursue to change it as a joint development.

Dr. Bernhard Seliger of the Hanns Seidel Foundation writes in to notify us about the DPRK’s new Koryo Bank (고려은행) debit card.

Click image above to see the front and back of the card.

There is an information flyer available in the DPRK:

According to the translator this is what it says:

Electronic Paying Card (Debit Card)

1. Introduction
* Electronic Paying Card is a cash card with which cardholders can make a payment when buying a merchandise or receiving a service instead of money. We provide the very best customer service, convenience and security.
* Cardholders (including foreign cardholders) can freely make a payment in foreign currency at electronic paying card affiliates.

2. Instruction
*Issuing a card and making a deposit: Card is issued at Koryo card issuing branches. Foreign currency is converted into equivalent North Korean won at a current exchange rate (purchasing price) when cardholders or to-be make a deposit. Issuing a new card is free of charge. Issuing a card, cardholders should register a private password to prevent use of a third party. Using the card cardholders should remember the password to verify identity.

*Procedure of the payment: Card holders are allowed to purchase goods and services within the available balance of the account. Card payment machine verifies identity by crosschecking with the password you enter. If the information is confirmed to be correct upon identification, merchants or acquirers proceed to make the payment. After purchasing, the balance is diminished by the payment.

*Cash Withdrawal: Cardholders who want to withdraw a part or the entire of the remaining balance can be served at Koryo Bank Card issuing branches. The exchange rate is the current selling price.

3. Notice: Cardholders observe the followings as regards to using the card.
*Due to its delicate electronic procedure while the card is to be used, it is recommended not to damage the electronic part of the front.
*Remembering and entering the password correctly is important, since the payment procedure is suspended after 3 times of password errors.
*If the card is destroyed or lost, cardholders should go to the Koryo bank where the card is issued and report the loss and the damage.
*With verifying identity and the balance of the card, a new card is issued.
*Cardholders shall remain liable for the loss incurred by their negligence.

4. Questions and hot line
*When there is a question, a loss, duplication or a lost electronic paying card, Call 462-6315.

Koryo Bank

This is not the only debit card available to foreigners in the DPRK. Dr. Seliger also wrote in earlier this year to inform us of the DPRK’s Narae (나래) debit card.

Here are previous posts on Koryo Bank.

In an email from Paul Tija:

In the current financial and economic situation, companies face many challenges. They must cut costs, develop new products and find new markets. In these fields, North-Korea could be an interesting option. It is opening its doors to foreign enterprises, its labor costs are the lowest of Asia, and its skilled labor is of high quality. It established free trade zones to attract foreign investors and there are several sectors, including textile industry, agro business, fishing, shipbuilding, logistics, mining/rare metals and Information Technology that can be considered for trade and investment. Most of the North-Korean trade is currently taking place with its neighbours and the amount of production of the South-Korean factories in North-Korea continues to increase. The trade between North-Korea and China jumped from US$1,97 billion in 2007 to $3,47 billion in 2010. A growing number of European firms are exploring the country as well – for example companies currently producing in China, and where the wages are rising fast.

In early November, I will lead a Dutch business mission to North-Korea (already fully booked), but a second mission will take place as well, from 13 – 19 November. Do you want to explore new business opportunities for your company? Then join me on this unique trade and investment mission. The program includes individual matchmaking, company visits, network receptions and dinners. Furthermore, we will meet European business people who are working and living in North-Korea. At the beginning of the tour, in Beijing, we will take part in the seminar: “Doing business with DPRK” (tentative). After the trip to Pyongyang, we will return to Beijing, where you can take a connecting flight or extend your stay in China.

The program of this mission has been attached. In case you are interested to participate: please contact us as soon as possible, so we can start the visa-application procedure. If you are not able to join, then it is also possible for us to do marketresearch and to take part in local meetings in Pyongyang on your behalf.

See the Brochure and itinerary here (PDF).

With best regards, Paul Tjia (director)
GPI Consultancy, P.O. Box 26151, 3002 ED Rotterdam, The Netherlands
E-mail: paul@gpic.nl
tel: +31-10-4254172
fax: +31-10-4254317
Website: www.gpic.nl
Twitter: twitter.com/PaulTjia
LinkedIn: nl.linkedin.com/pub/paul-tjia/1/445/958

A recent story in the Donga-Ilbo asserts that prostitution and other forms of “adult business” are on the rise in the DPRK. Of course the article mentions neither when this specific trend became noticeable (from last year or from five years ago) nor does it mention the locality or magnitude of the trend.  Of course the claim is impossible to determine with any precision since such comprehensive time-series data is not available from the DPRK.  We do not even have good data on prostitution arrests, which would certainly understate the actual size of the industry. I believe it is fair to assume from the abundance of open sources, however, that prostitution has increased significantly in the DPRK since the arrival of the Arduous March.

Though we do not have any hard data, an interesting anecdote in the Donga-Ilbo  story (which I believe might be true) points not only to a general unofficial public acknowledgement of prostitution, but also shows a “North Korean sense of humor” about the situation:

Rumors say the term “8/3 couple,” meaning people engaged in extramarital affairs, is spreading widely. 8/3 refers to the day in August 1984, when then North Korean heir apparent Kim Jong Il instructed authorities “to use by-products from factories or workplaces to produce daily necessities for people.” The term is changed to sarcastically mean “pseudo” and “fake.”

From the interviews I have done with North Korean defectors, I have learned that “8.3” references are a “common” put-down…meaning either “fake” or “low-quality”. It is entirely plausible to me that this term has made the transition to categorizing the prostitution industry as well.

You can read the full story here:
N. Korean women turning to prostitution, porn to earn money
Donga-Ilbo
2011-10-10

Pictured above (Google Earth): a Pre-renovation satellite image of what is now the Huichon Ryonha General Machine Plant, one of two known factories which produce CNC machines.

I have posted several times on the DPRK’s growing use and promotion of CNC technology (here and here). In his most recent column in the Asia Times, Andrei Lankov mentions his exposure to this technology from his younger days in the Soviet Union:

An interesting confirmation of the trend is the current fad for CNC (Computer Numerical Control) technologies – computer automation at factories. The CNC craze is often associated with Kim Jong-eun, the most likely heir to the North Korean throne. Indeed there is good reason to believe that this is the case, but it doesn’t really matter whether this fad is sponsored by Kim Jong-eun or someone else. Rather, what is important is that this naive belief in the power of intelligent machinery that will miraculously transform the North. (See Happiness rolls over us like a wave, Asia Times Online, Feb 26, 2010)

Incidentally, when the present author was a Soviet teenager, back in the 1970s, he frequently read similar stories in the then-Soviet media. The Soviet leadership of the Leonid Brezhnev-era also invested some hope in the miraculous power of CNC technology. CNC is actually quite a sound idea and works very well if used in the right social and economic conditions.

However, such conditions were absent in the Soviet Union of the 1970s and are also seemingly completely absent from North Korea of today.

So, Pyongyang’s expectation for CNC, mobiles and computers are unfounded. These technologies, or for that matter any other technology, are unlikely to have any serious impact on the future of North Korea as long as the country’s social and political system remains unchanged. However, North Korea’s leadership cannot see or accept this.

The heavy official promotion of CNC stems from what Lankov calls “technological fetishism” (which would be a good band name), a condition he describes this way:

The logic behind technological fetishism is not that difficult to understand. The root cause of economic stagnation experienced by Stalinist regimes is the intrinsic inefficiency of the Stalinist economic model. But the potentates of such regimes as well as their henchmen could not admit such things – at least, openly.

For Stalinist leaders, the social system was perfect, or at least had to be presented as such. Therefore the only conceivable reason for obvious economic difficulties had to be technological issues. Being hard-core modernizers, Stalinists shared the modern belief in the power of technology as a force that could change people’s lives.

So by DPRK official logic, now that the DPRK has overcome imperialist economic blockades of the motherland and acquired vital CNC technology, economic growth lies just around the corner. Unfortunately for the people of the DPRK, real economic progress is always just ahead–but never now.

Pictured above (Google Earth): Kaesong Industrial Zone (Sept. 2009)

According to Reuters:

South Korea said on Tuesday it will allow 120 of its firms to restart building a joint industrial park with North Korea, a fresh sign of tensions between the rival countries easing.

Construction of five factories can resume, and work to build seven new ones can go ahead, South Korea’s Unification Ministry said, 17 months after stopping activity in protest at what the South said was an attack by the North on one of its ships.

The South Korean firms employ about 46,000 North Korean workers at the Kaesong industrial park to make clothes, utensils and watches, taking advantage of cheaper labour and property than is available in the South.

According to the Choson Ilbo:

[The Ministry of Unification] will also build a fire station and hospital at the complex, repair a highway linking the city of Kaesong with the industrial complex, and add 45 buses to shuttle North Korean workers to and from the facility.

Previous posts on the Kaesong Zone can be found here.

Read the full story here:
S.Korea allows work at factories in North to restart
Reuters
2011-10-11

On October 8, 2010, the DPRK held a large-scale fireworks show on the Taedong River.  The current Google Earth imagery of Pyongyang, taken on October 6, 2010, shows the infrastructure used in the fireworks show:

Click the image to see a larger version in a different window. On the left side of the river near Kim Il-sung Square is a series of new water jets (water cannons) these are used to shoot decorative patterns of water through the air (accompanied by colorful lasers!). The system is approximately 117 meters long, and according to satellite imagery, was installed sometime between December 19, 2009 and October 6, 2010—though footage on Youtube dates to July 18, 2010).  It appears to be a permanent installation which supplements the previously-built dual water cannons that were already in the Taedong River.

In addition to the new water jets, we can see three floating platforms (barges) from which the fireworks were launched. These are temporary structures which can be assembled and disassembled with relative ease. Each platform is approximately 119 meters long. Given available satellite imagery it is unclear where these barges are kept for the remainder of the year.

If any readers have the time or interest in finding out what this kind of hardware would cost in the US, I would be interested in knowing.

This new fireworks system is apparently made possible by the productive powers of CNC technology.  According to KCNA:

New Fireworks Developed

Pyongyang, October 6 (KCNA) — More than 100 kinds of new fireworks have been developed in the Democratic People’s Republic of Korea.

They, based on the three elements of the modern fireworks technology — software, ignition control device and firecrackers — have reached a high level in color, brightness and formative artistry.

All the technologies and materials needed for the new fireworks have been developed and made in Korea.

The fireworks, multi-dimensional in fire cycle, rhythmic display and bursting point and scope in the air, fully represent the feelings of the Korean people.

Meanwhile, a CNC-based fireworks displaying system has been established and a device developed to definitely guarantee fireworks display in any atmospheric conditions.

The new fireworks, which have been successfully tested on several occasions, will make their debut in the forthcoming holiday of the Korean people.

Here is what KCNA had to say about the fireworks show which tookplace two days after this picture was taken:

Firework galas celebrating the 65th anniversary of the founding of the Workers’ Party of Korea were held here Friday evening.

The bank of the River Taedong facing the Party Founding Memorial Tower and the plaza of the Mangyongdae Schoolchildren’s Palace, the venues of the firework galas, and other areas of Mangyongdae District and different parts of the capital city were crowded with Pyongyangites who came to watch the nocturnal sky in October to be beautifully decorated with fireworks.

Speeches were made by Kim Ki Nam and Choe Thae Bok, who are members of the Political Bureau and secretaries of the Central Committee of the WPK.

The speakers said that the firework galas would be a festival of glory in glorifying the long history and immortal exploits of the party and a grand canvas of victory stirring up the pride and self-esteem of the service persons and people of the DPRK working fresh miracles and exploits in the era of Songun as befitting the descendants of President Kim Il Sung.

They noted that the firework galas would be held by use of Korean style modern means for displaying fireworks developed in such a unique manner as to ensure formative artistic effect as required by the Korean people’s ideological and emotional desire and sentiment.

Fireworks were displayed in succession in the air over the Party Founding Memorial Tower and the Mangyongdae Schoolchildren’s Palace, gorgeously adorning the nocturnal sky of the capital city while songs “Long Live the Workers’ Party of Korea” and “Under the Banner of the Party” reverberated far and wide.

The spectacular sceneries presented by fireworks in the sky represented the highest glory extended by all the servicepersons and people to General Secretary Kim Jong Il.

An endless fire went up depicting the logo of the WPK to the tune of songs including “We Sing of the Party” and “The Care of the Party Is the House We Live in,” “The Workers’ Party Is Our Guide”.

Fireworks were ceaselessly displayed in the sky presenting fantastic sceneries demonstrative of the high level of formative art, adding to the festive atmosphere.

Watching the firework galas were senior officials of the party, army and state, chairpersons of friendly parties, delegates participating in the national celebrations of the 65th birthday of the WPK, anti-Japanese revolutionary fighters, officials of the party, armed forces and power bodies and working people’s organizations, servicepersons of the Korean People’s Army and the Korean People’s Internal Security Forces, officials in the fields of science, education, culture and arts, public health and media, heroes and heroines, those related to the anti-Japanese revolutionary struggle, bereaved families of the revolutionary martyrs, persons of merit and other working people.

Invited there were members of congratulatory groups of overseas compatriots, delegations and visiting groups of Koreans from different parts of the world including the congratulatory group of Koreans in Japan, the chief of the Pyongyang mission of the Anti-Imperialist National Democratic Front, delegations and delegates of groups for the study of the Juche idea and diplomatic envoys of different countries, representatives of international organizations, members of the military attaches corps and other foreign guests here.

UPDATE 1 (2012-1-13): A reader sent in a picture taken from the recently published Architekturführer Pjöngjang (Order from Amazon here, and more on the book here and here). The book was published in May 2011, but inside is a picture containing the already renovated Mansu Hill Revolutionary History Museum.  You can see the picture here:

The caption on the photo reads  “Wall painting of Pyongyang from a birdseye view in the Paektusan Institute (photo taken 2007)”.

Thanks to a reader for sending this to me!

ORIGINAL POST (2011-10-11): A recent visitor to the DPRK took the following picture of the Korean Revolutionary History Museum on Mansu Hill:

See original photo here.  If you compare it with the photo I took in 2004, you can see that there appears to be some serious renovations going on:

I wonder what new revolutionary feats are being added to the museum’s displays?

Additionally, the Kim Il-sung statue is no longer under wraps, so it appears that it was covered for its protection from construction debris, not because it was being altered in any substantial way.