North Korean Economy Watch

Socialist Haircut: Steve Gong has become the first non-North Korean (of whom I am aware) to receive one of the DPRK’s tradmark “socialist haircuts“:

Kim Il-sung Prize: The CNC Instrument Automatic Streamline is the 2011 winner of the prestigious Kim Il-sung prize.

According to KCNA:

Kim Il Sung Prize was awarded to the CNC instrument automatic streamline, according to a decree of the Presidium of the DPRK Supreme People′s Assembly issued Wednesday.

The streamline was newly developed by workers of the Unsan Instrument Factory and technicians of the Ryonha Machine Management Bureau.

Maybe the CNC machine will use the award funds to take the workers out to dinner!

You can learn more about the DPRK’s CNC campaign here.

Previous non-human award winners include: Arirang and the “light comedy,” Echo of Mountain [sic].

Some Culture: Suhang Pavilion, Jongsong Worker’s District (종성로동자구: 42°45’47.78″N, 129°47’40.13″E)

According to KCNA:

Pyongyang, August 3 (KCNA) — Suhang Pavilion which is located in Jongsong workers’ district in Onsong County, North Hamgyong Province, DPRK is valuable architectural heritage permeated with the wisdom and patriotism of the Koreans.

The pavilion is the only three-storied wooden building of loft-form in Korea. It was built as the general’s terrace of the walled town against foreign invaders in the early days of Ri Dynasty.

It is about 14.8 meters high. It dwindles from down to top to give a safe feeling. It, with hip-saddle roof and single eaves with plain pillar supporting device, has pillars arranged in a peculiar way.

The pavilion was used as frontier guard post at ordinary times and as commanding post of battle in a contingency.

It was called Roechon Pavilion at first. Later it was renamed Suhang Pavilion in the meaning that Koreans beat back foreign invaders and captured their boss to bring him to his knees there in 1608. The present building was rebuilt in the latter part of Ri Dynasty.

Today the pavilion, which was repaired as it was after the liberation of the country, serves as a cultural recreation place of the working people.

Pictured Above: Google Earth satellite image of the Hambuk Shipyard, Chongjn (Source: Daily NK)

According to the Daily NK:

A 33m-long submarine is being assembled at a munitions factory in Chongjin, North Hamkyung Province, a source has revealed.

This is the first time that news of submarines being assembled at Hambuk Dockyard has come to light. The source from Chongjin said, “Since they have been keeping totally silent about it, it was not revealed. But they have been assembling and producing submarines for a long time.”

The source went on, “The submarine is being assembled at the munitions factory at Hambuk Dockyard.” He explained further, “They brought the 33m-long main body of the submarine from Bongdae Boiler Factory in Shinpo, South Hamkyung Province and are installing the innards like electronic devices.”

The time when the main body was brought to Hambuk Dockyard was around the time of the Party Delegates’ Conference on September 28 last year, according to the source.

At that time, munitions factories under the Second Economic Commission in charge of weapons production decided to commemorate February 16th with weapons production achievements.

The source said that in a convention of factory workers, cadres read out a resolution, “Let’s face the glorious Party Delegates’ Conference with achievements of high political passion,” and “After completing the assembly of a submarine before February 16th, let’s offer gifts of loyalty to the General.”

However, he explained the current situation, “Since the economic situation has gotten worse and workers are frequently absent, it has not been completed yet. Their enthusiasm has gradually disappeared.”

He also said, “Some of the workers who were involved in the production process stole imported equipment such as cables, high-tensile paint and manometers and sold them in the market in secret, causing a commotion.”

Hambuk Dockyard is one of the three biggest dockyards in North Korea alongside Najin and Yudae. There, the 7,500 workers can produce freight vessels up to a displacement of 14,000 tons.

Meanwhile, Shinpo Boiler Factory is a front company run by Shinpo Dockyard. The dockyard produces fishing boats and has around 1,500 workers. Since 1980, they have produced submarines, mini-submarines and hovercraft.

Read the full story here:
Submarine in Production in Chongjin
Daily NK
Im Jeong Jin
2/15/2011

The Woodrow Wilson Center’s Asia Program and NKIDP hosted a panel on the North Korean diaspora in North East Asia.

Panelists include:
Apichai Shipper, Visiting Scholar, University of California, Los Angeles;
Hazel Smith,Professor, Cranfield University, U.K.;
Suzanne Scholte,President, Defense Forum Foundation

I have not seen the panel yet, but it is in the queue for this weekend.

Watch the entire event here.

Picture above from Marcus Noland

Marcus Noland writes at his new blog that the DPRK’s attack on Yonpyong triggered a depreciation of the North Korean Won:

A common trope among North Korea watchers is that North Korea has the asymmetric capacity to inflict damage on South Korea. By raising tensions, North Korea can disrupt South Korea’s financial and foreign exchange markets and even deter foreign investment. North Korea, by contrast, is immune from the consequences of such actions because of its authoritarian system and closed economy,

While this argument has some intuitive plausibility, past nuclear and missile tests do not appear to have generated long-lasting effects. In the recent case of the Yeonpyeong shelling, however, the North Korean provocation appears to have boomeranged, tanking the North, not the South, Korean market.

The episode points to a basic problem confronting the North Korean economy: the high level of financial repression (and economic repression more broadly) contributes to thin, underdeveloped markets that are more prone to panics and wild swings in prices.  The disastrous currency reform has already primed market participants to be wary of the domestic currency, and macroeconomic instability in its wake has not helped either. The North Korean leadership may not be swayed by such considerations but we are doubtful that the leadership can be entirely sanguine either: exchange rate movements of this magnitude have implications across a range of markets, including the cost of imported food, and thus affect core supporters as well as the general population. North Korea’s provocations appear to be doing more damage to its own economy than to South Korea’s, no doubt one reason for the current push from Pyongyang to re-engage.

The data Noland lays out here paints an compelling picture. It would be interesting to think about the chain of causality in this model so we can be certain that the relationship between the won’s depreciation and the shelling of Yonyong is not merely coincidental.  Theories anyone?

There is a paper in here for an ambitious researcher.  I would like to know more about the DPRK’s domestic monetary policy; how the currency black market works in relationship with official fiscal and monetary policy; movements in the domestic price level; and the effects of the won’s depreciation on food imports (-?) and total exports (+?).

According to Bloomberg:

North Korea’s exports to China jumped 51 percent to $1.2 billion last year, led by iron ore, coal and copper, Chinese government data show. China’s sales to its ally rose 21 percent to $2.3 billion from a year earlier, with supplies of wheat and oil helping ease chronic shortages of fuel and food. Two-way trade fell 4 percent in 2009, when the United Nations tightened sanctions after Kim’s regime carried out a second nuclear test.

The revival in commerce contrasts with U.S. efforts to isolate North Korea after a year in which 50 South Koreans died in attacks that roiled markets. Kim needs China to meet a pledge to put “rice with meat soup” on every table and build a “thriving nation” by 2012, the centennial of his father and the nation’s founder, Kim Il Sung.

“Even if North Korea’s front door is firmly locked, there is every reason to think the regime can gain what it needs to survive with impunity as long as the back door is open to China,” said Scott Snyder, an adjunct senior fellow for Korea studies at the New York-based Council on Foreign Relations. China’s trade risks making sanctions “ineffective,” he said.

…

China sold $325.8 million of crude oil to North Korea last year, up 37 percent from 2009. China’s coal imports jumped 54 percent to $394.4 million, while iron ore purchases doubled to $195 million, according to China’s customs department.

Two-way trade of $3.5 billion was still dwarfed by China’s $207.2 billion commerce with South Korea.

London’s Telegraph added this little nugget to the story:

However analysts added that the North’s two-way trade of $3.5 billion – dwarfed by China’s $207.2 billion commerce with South Korea – would still give the regime little more than life support.

Read the full stories here:
North Korea Exports to China Show Birthday-Boy Kim’s `Back Door’ Reprieve
Bloomberg
Bomi Kim
2/16/2011

Pictured above: The Choson Ilbo and Radio Free Asia claim this area behind the middle and high schools in Muhung 1-dong, Taedonggang-guyok (문흥1동, 대동강구역, 39.028720°, 125.786633°)  contains tanks operated by the Pyongyang Guard Command.

According to the Choson Ilbo:

The North Korean Army’s Guard Command, a military unit tasked with protecting leader Kim Jong-il, is hiding scores of tanks in Pyongyang to quell any popular uprising, Radio Free Asia claimed Tuesday.

The U.S.-funded radio station quoted a defector from Pyongyang as saying, “There is a battalion of about 50 tanks from the Guard Command in the Taedong River area in eastern Pyongyang. They stage a field exercise about once a year.”

He said the tanks used to move only at the night to escape public notice. “All are hidden underground. I heard from families of officers of the tank battalion that there are also tanks in an underground near Moranbong,” a hill in downtown Pyongyang.

Kim Kwang-jin, another defector who works for the U.S. Committee for Human Rights in North Korea, said there used to be a battalion of tanks in an underground area beneath the Kumsusan Assembly Hall while Kim Il-sung was alive, but he was unsure whether it is still there.

Read the full story here:
Tanks ‘Ready to Be Used Against Uprising in Pyongyang’
Choson Ilbo
2/16/2011

Martyn  Williams, who is keeping a closer eye on the DPRK’s use of the internet than anyone else, informs us that the DPRK appears to be setting up a web page for a LRIT Maritime system (Long Range Information and Tracking of ships).

When I read Martyn’s blog post, I was lost–so I did some background research on LRIT. According to Wikipedia:

IMO – the International Maritime Organization – is the United Nations specialized agency with responsibility for the safety and security of shipping and the prevention of marine pollution by ships. The IMO’s primary purpose is to develop and maintain a comprehensive regulatory framework for shipping and its remit today includes safety, environmental concerns, legal matters, technical co-operation, maritime security and the efficiency of shipping. IMO is governed by an Assembly of members and is financially administered by a Council of members elected from the Assembly. The work of IMO is conducted through five committees and these are supported by technical subcommittees. Member organizations of the UN organizational family may observe the proceedings of the IMO. Observer status is granted to qualified non-governmental organizations.

According to the IMO web page:

As part of the international maritime community’s wide-ranging response to the growing threat from terrorism world-wide, the International Maritime Organization (IMO) decided to establish a new system for the global identification and tracking of ships. Following a major effort to identify appropriate technologies, establish the necessary global legal regime and achieve political consensus concerning the collection, distribution and use of the data, IMO has established a system for the Long-Range Identification and Tracking of Ships (LRIT).

1.2 The LRIT system consists of shipborne LRIT information transmitting equipment, Communication Service Provider(s), Application Service Provider(s), LRIT Data Centre(s), the LRIT Data Distribution Plan and the International LRIT Data Exchange. Certain aspects of the performance of the LRIT system are reviewed or audited by the LRIT Coordinator acting on behalf of all Contracting Governments to the International Convention for the Safety of Life at Sea (SOLAS). IMSO has been appointed to be the LRIT Coordinator.

…

1.4 Under new SOLAS Regulation V/19-1, ships will be required to report their position (LRIT information) automatically, to a special shore data collection, storage and distribution system, at least four times a day. LRIT information is provided to Contracting Governments and Search and Rescue services entitled to receive the information, upon request, through a system of National, Regional, and Co operative LRIT Data Centres, using where necessary, the International LRIT Data Exchange.

So just to clarify, “LRIT is a recent amendment to Chapter V of the International Convention for the Safety of Life at Sea 1974 (SOLAS), which introduces new mandatory position reporting obligations for SOLAS vessels. It came into force on January 1st, 2008, with compliance required by December 31st, 2008. It demands that SOLAS vessels automatically transmit their identity and position with date/time at 6-hour intervals. They must also be capable of answering requests from member states and LRIT data centers for immediate position reports and be able to change the time interval between reports to a maximum frequency of every 15 minutes.”

Adopting the LRIT system helps the DPRK shipping industry when it comes to mitigating the risks of piracy in the Gulf of Aden and the Strait of Malacca.  I would have expected that the adoption of an LRIT system would financially handicap the DPRK’s illicit weapons shipments since tracking vessels will be made much easier, but the mere fact that the DPRK is developing the system probably means the  North Koreans do not see a financial threat from it.

According to Yonhap:

Half of North Korean defectors’ households in South Korea earn less than 1 million won (US$893) per month, a poll said Wednesday, underscoring the economic difficulties they continue to face in the capitalist society here.

The National Police Agency, which conducted a survey of 12,205 households between August and October last year, said 50.5 percent of them fell into that income range. About 23 percent of them earn less than 500,000 won a month, it added.

The figures contrast with South Korea’s per capita income, which stands at around US$20,000. The survey also coincides with another that said earlier this month that the average monthly income of North Korean defectors with jobs here was 1.04 million won and that 38 percent of them were part-timers.

More than 20,000 North Koreans have defected to the South since the end of the 1950-53 Korean War. The defections have taken place mostly since the 1990s, and the border between the two Koreas remains heavily fortified.

Nearly 40 percent of the defectors surveyed by the National Police Agency said they were living under tough economic conditions. Fourteen percent complained of cultural differences and 13 percent of difficulties in getting jobs.

Defectors undergo several months of resettlement training once they arrive here from the impoverished communist state, mostly via China. South Korea also tries to cover their initial expenses of resettlement and provides them with citizenship.

Read the full report here:
Half of North Korean defectors’ households earn below 1 million won a month: poll
Yonhap
2/16/2011

According to the Choson Ilbo:

The U.S. State Department cut the entire budget for promoting democracy in North Korea from a 2012 budget proposal submitted to Congress on Monday. Since 2008, the department allocated US$2.5-3.5 million a year to the Economic Support Fund to support organizations working for democratization and human rights there, but it did not allocate a penny to the fund this year.

“Many government agencies are cutting their budgets, and so is the State Department,” said a diplomatic source in Washington. “It has drastically cut funds for other countries such as the Philippines as well.”

But Radio Free Asia quoted a State Department official as saying it is possible that Washington will keep supporting the North through an emergency relief fund.

Read the full story here:
US Scraps Budget for Promoting Democracy in N.Korea
Choson Ilbo
2/16/2011

Pictured above are Kim Jong-il’s two birthplaces. On the left is Vyatskoye, Khabarovsk Krai, Russia, where Kim Il-sung was reportedly stationed with the Red Army and where Kim Jong-il is believed to have actually been born.  Learn more here.  On the right is Kim Jong-il’s official birthplace southeast of Mt. Paektu and the nearby “Jong-il Peak”.  Both images via Google Earth.

But although Kim’s birthday is supposed to usher in a period of celebration, by most accounts times are tough in the DPRK.  According to the Associated Press (via Washington Post):

But this year many North Koreans are hungry, and a brutal winter is threatening the early spring harvest. The country is coping with natural disasters: foot-and-mouth disease has devastated its livestock and heavy flooding swamped precious farmland last year. There is also the ever-present tension with neighboring South Korea; conservative lawmakers in the South planned to mark Kim’s birthday Wednesday by floating balloons filled with anti-Kim propaganda across the border.

…

North Korean diplomats have been asking for food aid when meeting officials in foreign countries, a South Korean intelligence official said. North Korea’s food shortage is grave, and the North is likely looking to stockpile food to distribute to citizens next year, said the official, who spoke on condition of anonymity because he wasn’t authorized to talk to reporters.

The North has also reached out to the U.N. World Food Program, saying it needs help because of the severe winter and a bad vegetable harvest. On Monday, the United Nations said it had begun a new assessment of North Korea’s food needs and planned more than 300,000 tons of humanitarian assistance.

These signals seem to point to skimpy holiday gift distributions to everyone outside Pyongyang and senior party/military leaders. However, with the rise of markets, these gifts have meant less and less over the years.

Though according to KCNA, the North Koreans are in a celebratory mood nonetheless.  Pyongyang held a rally, a figure skating competition (with Japanese participation), a synchronized swimming  show (Footsteps was played), Kimjongilia flower exhibition, an art show, and a photography exhibition all in celebration of Kim’s birthday.

The AFP also reported on some other activities highlighted by the official North Korean media:

Aircraft delivered gifts on eight islands in the Yellow Sea as part of an annual handout of candy, chewing gum and cookies to all children, the agency reported.

Spring has even come early to the leader’s claimed birthplace at Mount Paekdu on the border with China, the agency said Monday, and a solar halo appeared above Jong-Il Peak there.

Although times are tough for the vast majority of North Koreans, I still see the DPRK as relatively stable, so maybe Kim and his supporters have something to celebrate after all.

Here is additional coverage of KJI’s birthday:
Hankyoreh
AFP
BBC
Daily NK
Donga Ilbo
Yonhap
New York Times
KCNA: Natural wonders