North Korean Economy Watch

There have been several news reports this week that Pyongyang has gotten smaller as periphery areas were transferred to another province.  I was a little confused by this news because I first read about it back in July 2010.

But anyhow, since there are not any good maps out there of the reapportionment, I will post this one I made on Google Earth:

The red and green areas combined represent Pyongyang’s boundaries up until the change.  The red areas, kangnam-gun, Junghwa-gun, Sangwon-gun, and the Sungho district, are all now counties (gun, 군 ) in North Hwanghae province.

Update (2/25/2011): The Daily NK writes about this as well.

To read speculation as to why these changes were made, check out the stories below:

N. Korea halves Pyongyang in size in apparent economic bids: sources
Yonhap
Sam Kim
2/14/2011

Pyongyang Downsized
Choson Ilbo
2/15/2011

Meng Jianzhu, state councilor of the People’s Republic of China and minister of public security, is visiting the DPRK.  According to North Korea’s official news outlet, KCNA:

Meng warmly congratulated Kim Jong Il upon his reelection as general secretary of the WPK and Kim Jong Un upon his election as vice-chairman of the Central Military Commission of the WPK at the historic Conference of the WPK, hailing the successful solution of the issue of succession to the Korean revolution.

This is interesting for two reasons.

Reason number 1: As far as I am aware this is as close as KCNA has come to identifying Kim Jong-un (김정은) as the explicit successor of Kim Il-sung’s revolution.  Though the signals over the last few months strongly suggested KJU’s trajectory in that direction, I am not aware of any NK media reports saying specifically “KJU is the chosen successor”. Maybe after several months of shakeups and signaling, Pyongyang’s power-brokers have gotten all their ducks in a row–so making an explicit succession statement at this point will not be domestically controversial or arouse serious disloyal intentions.

Reason number 2: According to Yonhap, Xinhua did not report China’s endorsement of the DPRK’s succession plan to the Chinese people. You can read Xinhua’s report here.  Yonhap also reported that later in the day Chinese Foreign Ministry spokesman Ma Zhaoxu declined to comment on the issue.

UPDATE 1: China’s Global Times DID report on China’s endorsement of the DPRK’s succession–in English.  I am still trying to find out if they have done so in Chinese.

UPDATE 2: Russia’s ITAR-TASS reports that the DPRK and China also signed a security agreement.

Back in 2006, Kim Jong-il’s second known son, Kim Jong-chol (김정철), was photographed at an Eric Clapton concert in Germany.  Well, according to Yonhap, he is still a fan today:

Kim Jong-chol, the second son of Pyongyang leader Kim Jong-il, was seen at a concert by world-renowned guitarist Eric Clapton in Singapore, a South Korean broadcaster reported on Tuesday.

Kim, dressed in black pants and a T-shirt, was accompanied by some 20 men and women at a concert hall in Singapore on Feb. 14, two days ahead of his father’s birthday, according to Korea Broadcasting System (KBS).

UPDATE: some pictures and apparently Kim Jong Chol’s sister: Choson Ilbo, Daily NK

Read the full story here:
N. Korean leader’s 2nd son seen in Singapore: KBS
Yonhap
2/15/2011

According to the Donga Ilbo:

North Korea has reportedly appointed Vice Trade Minister Jo Jong Ho as chairman of a civic committee for Rajin-Sonbong Special City, a major post in the North, to succeed Kim Su Yol, who was dismissed late last year.

Jo is a member of a group that supports Kim Jong Un, the youngest son of North Korean leader Kim Jong Il and heir apparent, and reportedly has helped set the North’s new economic policy.

A source on North Korean affairs said Sunday, “Jo Jong Ho has been named the new chairman of the people’s committee, a post which has remained vacant after the dismissal of former chairman Kim due to sluggish foreign investment.”

“Since Jo used to work with former Trade Minister Im Kyong Man, chief secretary of the ruling Workers’ Party for Rason City, he will likely enjoy a harmonious working relationship with Im.”

Pyongyang has apparently deployed a key member of the power elite among supporters’ groups of Kim Jong Un to an important economic region to lay the foundation for a successful power succession based on economic achievements.

The source said, “The North deployed a Kim Jong Un supporter at a time when Pyongyang is striving to establish the structure for power succession,” adding, “Since Jo is fluent in English, activities to attract foreign investment from overseas enterprises will likely gather momentum.”

Read the full story here:
NK appoints heir apparent`s supporter to key post
Donga Ilbo
2/14/2011

According to the Daily NK:

Overall average prices in North Korea have doubled since the end of last year.

Sources say that the reason behind the price rises is insufficient supplies within North Korea coupled to the effect of relatively strict crackdowns on the smuggling of goods in from China.

Rice is now reportedly 2,000 won per kilo (as of the 11th). Late last year it was between 900 and 1,000 won.

In late January, rice even reportedly reached 3,000 won in some areas. A source explained why, “There were rumors that state rice stores were empty, because even those people who are targeted for state distribution didn’t get any food in late January in some areas.” So, he went on, “Around that time, wholesalers colluded to fixed the price at 3,000 won.”

Thereafter, the source said, “Now, rice has dropped to around 2,000won,” explaining that, “When the price went up, the supply increased, so the price was amended again.” According to the latest research by The Daily NK, rice is now selling for 2,000 won in Pyongyang and Shinuiju, while in Nampo it is 1,900 won and 1,800 won in Hyesan..

Corn, which generally costs half as much as rice, now sells for between 1,000 and 1,200 won, which is exactly double the price at the end of last year. Pork, which sold for 3,500 won per kilo in December last year, now goes for 6,500 won.

Sugar is even worse, having tripled: late last year it was 1,700 won per kilo, but has now reached more than 5,000 won. Red chilli pepper powder has also gone up from 7,000 won per kilo to 15,000 won.

Even though the North Korean authorities emphasized improving light industrial and agricultural production in the New Year’s Common Editorial, in reality the country is experiencing serious inflation due to a lack of goods in the markets. Therefore, it seems inevitable that people’s lives will get harder.

Read the full story here:
Inflation on the Rise in 2011
Daily NK
By Park Jun Hyeong
2/13/2011

Lankov writes in the Korea Times:

When North Koreans talk about their arts, they never fail to mention that it follows the traditions of “socialist realism.” But what is “socialist realism” in visual arts?

This style itself was invented in the Soviet Union of the 1930s and reached its height in the late 1940s when it was imported to the North by ethnic Korean Soviet painters (of whom Pak Wol-ryong was probably most prominent) and Korean students who studied in the USSR.

Most of our readers have some ideas about this style: photographic-like images of heroic workers, brave soldiers and wise leaders engaged in the socialist construction or in struggle against the scheming counter-revolutionaries, imperialists and other assorted villains (the villains appearing as ugly as their reactionary thoughts). In its North Korean variety, the style became even more syrupy, with soldiers’ uniforms in the trenches depicted as if freshly ironed and spotlessly clean.

The topics must be lofty and politically inspiring. In February 2007 North Korean artists had a major exhibition which presented some 500 works. The KCNA, the North Korean wire agency explained what was great about this triumph of creativity and artistic freedom (I use the original translation, helpfully provided by Pyongyang propagandists):

“The works truthfully depicted the revolutionary exploits of the three generals of Mt. Paektu (The ‘Three Generals’ being Kim Jong-il, his father and his mother) and their personality as peerlessly great persons and the national pride and honor of the army and people of the DPRK who hold Kim Jong-il in high esteem as their benevolent father.

Among the works are Korean painting ‘Frontline at night,’ oil painting ‘All 30 millions of people should be ready to fight’ and sculpture ‘Always believing in the people,’ which arouse viewers’ deep reverence and longing for President Kim Il-sung. There are also Korean paintings ‘Calling them proud scenes of the Army-first era,’ ‘I miss my soldiers’ and ‘Long journey for happiness’ and oil painting ‘Our General visits land of Samsu’ that vividly portrayed the immortal feats and the noble popular traits of Kim Jong-il who has made a long journey of the Army-first revolution.”

Great works, indeed! Needless to say, not just everybody can deal with such lofty topics. Under the North Korean system, a painter has to obtain a special certificate to have the right to depict the Three Generals (that is, the ruling family). Those who have received the said certificate are known as “number one artists” and the works which depict the Leaders are, as you might guess, also known as “number one works”.

Most of the number one works are produced by the “Mansudae Creative Group” which include about one thousand artists and some 2,700 supporting personnel. It occupies a large complex in Pyongyang. The group’s major task if to produce number one works, but it is also charged with making some art for export, as a way to earn a bit of foreign currency.

Not all North Korean painters are good enough to become number one artists, but in a close imitation of the Soviet model, all North Korean artists are required to join the Artists’ Union which is charged with both supervising and taking care of them. Only members of the Artists’ Union can be engaged in professional work, but this is also an agency which provides them with wages and social security. In the past, until the collapse of the North Korean economy in the 1990s, the painters were reasonably well paid, and painters from the Mansudae group were among the best paid professionals in the country.

There are grades for the artists as well. The best are given the title of “people’s artist” while slightly less prominent are “merited artists”. This echoes the Soviet system, once again. It is estimated that some 50 persons were deemed worthy of the people’s artist title while 300 or so have been recognized as merited artists.

The first recipient of the people’s artist title was Chong Kwan-chol, a graduate of a Japanese arts academy who spent all his life after 1945 depicting the heroic deeds of the anti-Japanese fighters and soldiers fighting the Yankee imperialists.

However, a better look at the most recent works of Pyongyang artists might indicate that something is changing. There is a slight deviation from the old mixture of syrupy romanticism and photography-like realism. Something similar to this could be noticed in the Soviet art of the 1960s when it began to drift away from the old conventions of socialist realism. Is something like this happening in North Korean as well? Who knows? We must wait and see.

Read the full story here:
‘Socialist realism’
Korea Times
Andrei Lankov
2/13/2011

According to Voice of America:

US news broadcaster Voice of America has reported that the American government allowed 3.1 million US dollars worth of goods to be exported to North Korea last year.

Out of the 18 export cases 15 of them were humanitarian goods such as food and medical items, while the other three were portable generators.

Currently there are various export restrictions placed on North Korea by the US due to the North’s nuclear programs and its human rights abuses.

But the American government allows certain exports for humanitarian purposes such as blankets, shoes and medicine on a case-by-case basis.

Read the full story here:
US Allowed $3.1 Million Worth of Exports to N. Korea : VOA
Arirang News
2/12/2011

Institute for Far Eastern Studies (IFES)
NK Brief No. 11-02-08
2011-02-08

In last month’s New Year’s Joint Editorial, North Korean authorities reaffirmed the national drive to strongly develop the country’s light industrial sector by 2012, the 100th anniversary of the birth of Kim Il Sung. On February 2, the Choson Sinbo, the newspaper of the pro-North Korean residents’ league in Japan, proclaimed that all efforts were being focused on delivering high-quality light industrial goods by April of next year.

North Korea’s minister of light industry, forty-seven year old Hu Chul San, was interviewed by the paper’s Kook Jang Eun. Hu stated that light industrial zones already in operation would be further bolstered and the provision of raw materials would be prioritized for celebrations surrounding the 100-year birthday of the country’s founder.

The North Korean regime has set 2012 as the year in which it will “open the doors to a great and prosperous nation,” and Kim Il Sung’s April 15 birthdate has been set as the first target for economic revival. Just as in 2010, this year’s Joint Editorial called for light industrial growth and improvements in the lives of the North Korean people as the ‘strong and prosperous nation’ goal is pursued.

Minister Hu gave one example of the expected boost in production, stating that all students, from elementary school to university, would receive new school uniforms by next April. “Originally, school uniforms were issued to all students once every three years, but as the nation’s economic situation grew more difficult, [the regime] was unable to meet the demand.” He promised that for the 100-year anniversary, “Rationing would take place as it did when the Great Leader was here.”

The minister also explained that all preparations for distributing light industrial goods to the people next April needed to be completed by the end of this year, since Kim Il Sung’s birthday fell so early in the spring. He stated that a strong base had already been established for the production of high-quality goods, and that many organizations had already mass-produced high-quality goods for the celebration of the 65th anniversary of the Korean Workers’ Party founding last year, offering the Pyongyang Sock Factory, the Sinuiju Textile Mill, the Botong River Shoe Factory, and the Pyongyang Textile Mill as examples.

When asked how North Korea would resolve raw material shortages, the minister explained that since the February 8 Vinalon Complex began operations last year, Vinalon and several other types of synthetic materials were available. The Sunchon Chemical Complex and other industries were also providing synthetic materials to light industrial factories throughout the country, strongly supporting indigenous efforts to increase production. He added, “Raw rubber, fuel and other materials absent from our country must be imported,” but that “national policies were being implemented” to ensure steady supply.

Minister Hu admitted that there was no shortage of difficulties, but that every worker was aware of the importance of meeting the April deadline, and that because raw material shortages were being resolved, light industries were now able to press ahead with full-speed production.

Writing at his new blog, Marcus Noland argues that KOTRA overstates the percentage of the DPRK’s trade coming from China.

According to Noland, there are several problems with KOTRA data that makes it less than ideal for drawing policy conclusions.  KOTRA counts DPRK-ROK trade as a domestic exchange, not international trade.  Once corrections are made for South Korean trade and a few other tweaks, China’s share of North Korean trade falls from appx 80% to 30%.

In a different but related story, Yonhap reports on research findings by Drew Thompson, director of China Studies at the Nixon Center.  According to the report:

China’s investment in North Korea was less than US$100 million between 2003 and 2009, indicating Beijing’s investment projects in the reclusive country are still relatively small, a U.S. scholar said Thursday.

Drew Thompson, director of China Studies at the Washington-based Nixon Center, said Chinese investment in North Korea totaled $98.3 million over the seven-year period, compared to $1.2 billion in South Korea during the same period.

It was also less than China’s investments in other neighboring states, including $273 million in Thailand, $473 million in Vietnam, $729.8 million in Myanmar and $890.7 million in Mongolia over the same period.

The majority of Chinese investors in North Korea are small and medium enterprises, though some smaller firms enjoy brand recognition, such as Nanjing Panda Electronics Co., China Minmetals Corp. and Wanxiang Group, the scholar said.

The majority of Chinese investors in North Korea are not state-owned enterprises (SOEs) controlled by the Chinese central government, but privately owned companies and provincial-, prefecture- and municipal-owned SOEs.

Of the 138 Chinese-North Korean joint ventures established between 1997 and August 2010, 41 percent engage in mining, 38 percent in light industry, 13 percent in services and 8 percent in heavy industry, he said.

Thompson said Chinese investors in North Korea are geographically concentrated in the two northeastern provinces bordering North Korea.

Twenty-eight percent of Chinese companies involved in joint ventures are from Jilin, with 34 percent from Liaoning. The rest are from other regions, including Beijing, Shandong and Shanghai.

Jilin and Liaoning share a 1,400 kilometer border with North Korea and are increasingly focused on foreign trade and on achieving competitive economic advantages through their proximity to North Korea.

“(North Korea’s) joint ventures with China are an important aspect of the bilateral relationship, because in addition to propping up the regime in Pyongyang, they contribute to economic development in China’s northeastern ‘rust belt,'” the scholar said in an emailed note.

China’s northeastern region is seen as the country’s rust belt, covered with obsolete and unprofitable factories.

According to the Asahi Shimbun:

Although they feel responsible for the future of their country, they generally work alone in a foreign land. Their family members are kept “hostage,” and they must resort to secretive tactics to bypass international sanctions to feed their leaders’ voracious appetite for Japanese products.

Yet being a trade agent is a favored occupation among North Koreans.

The job allows individuals to live a fairly free life outside of North Korea and can lead to the accumulation of wealth. That is, if everything goes well.

“In the past, the symbol of the wealthy were those Korean nationals who returned from Japan,” a trade agent said. “However, with the suspension of travel by the Man Gyong Bong-92 (cargo-passenger ship that sailed between Japan and North Korea), it has now become the time for trade agents.”

North Korean trade agents in China are under the strict control of Pyongyang.

To be chosen as a trade agent, individuals must have the right background, including not having any family link to the old capitalist class or relatives who are considered anti-state.

They must have also worked for a government institution or major state-run company.

Prospective agents are scouted by trading companies and are only approved by the government after a rigorous background check by state security, Foreign Ministry and other authorities.

Many seeking to become trade agents use their personal connections or even bribes, according to sources.

Trade agents allowed to work in China must leave behind at least one family member in North Korea to deter the agents from defecting.

One trade agent from Pyongyang established a base in a condominium in the central part of a Chinese city. At the start of every day, the agent bows to portraits on the walls of Kim Il Sung, the founder of North Korea, and his son, Kim Jong Il, to pray for successful business.

“We have the burden of the nation on our shoulders. We have to use any means possible to turn a profit,” the agent said.

About 300 North Korean trading companies have been confirmed. They are all affiliated with North Korean government agencies or the military.

Sources said Pyongyang has dispatched nearly 1,000 trade agents to Beijing and 600 or so to Shanghai. Major regional cities are also home to between 100 and 200 North Korean trade agents.

Every night, the trade agents must contact supervisors dispatched by the North Korean government to offices in various cities in China. The agents report on their business activities as well as on their personal movements. Those reports are then transmitted to the headquarters of the trading company that dispatched the agents and to related government agencies.

Every Saturday, the agents must gather at the regional offices for study sessions on the instructions and policies of the Workers’ Party of Korea.

Depending on the experience of each agent and the size of the operation, between $5,000 (412,000 yen) and $60,000 from profits are transferred to North Korea. The trade agent has to use whatever is left over for future business and daily life.

Many agents barely eke out a living, and those who cannot fulfill the government-set quotas are recalled.

The trade agents sell North Korean mining resources, such as coal and iron ore, lumber and seafood. They buy foodstuffs, pharmaceutical drugs, daily necessities and equipment from China.

According to Chinese government statistics, North Korea’s total trade with China in 2009 reached about $2.68 billion, an increase of 5.5 times over 2000. As North Korea becomes more isolated, its trade dependence on China has soared to 73 percent.

The more elite trade agents are dispatched by state-run trading companies to major Chinese cities, such as Beijing, on long-term commercial visas.

Although they are company employees, the North Koreans are unlike the agents working for Japanese trading companies, who may have a large support staff.

The elite North Korean agents often work alone and handle large projects with huge piles of money handed to them by Pyongyang.

After North Korea conducted its first nuclear test, Japan banned exports of luxury items, such as expensive foods, cars and precious metals, from November 2006. After Pyongyang’s second nuclear test in 2009, Japan banned all exports to North Korea.

Despite the sanctions, high-quality Japanese products remain very popular in North Korea. That means the elite trade agents must find ways around the strict sanctions to buy Japanese products and secretly transport them to North Korea.

Generally, the agents make it look like the Japanese products have been purchased by a Chinese entity.

According to sources, the agents often have Japanese products transported to a bonded district in a Chinese port where duties do not have to be paid. Those products are then loaded onto another ship bound for North Korea.

Another method is to have Japanese products pass Chinese customs and traded among a number of Chinese companies before being purchased for shipment to North Korea.

“Japanese companies have become much more cautious because of the total export ban, so it has become harder to obtain Japanese products. Still, there are ways to purchase such products,” said a Chinese worker who trades with North Korea.

Sources said North Korean demand is particularly strong for Japanese-made pharmaceutical drugs, medical equipment, cars and cosmetics.

“Although Chinese products are cheap and readily available, their reputation is not good because the quality is bad,” a Chinese source said. “There is strong demand among the affluent for Japanese-made drugs and foods.”

The North Korean leadership understands the importance of the traders and their roles.

Sources said that when Kim Jong Il visited China last year, he heard about complaints from Chinese companies that they were not receiving payments from North Korean trade agents.

After returning to North Korea, Kim Jong Il is said to have ordered trade officials to settle the unpaid accounts to restore trust in North Korea.

The sources said sudden payments of such unsettled accounts became more frequent from late last year.

Read the full story here:
Trade agents do the dirty work for Pyongyang
Asahi Shimbun
Daisuke Nishimura
2/10/2011