North Korean Economy Watch

UPDATE (2011-5-31): New Google Earth imagery, dated 2009-5-27, reveals the Sunchon Vinalon Complex area continues to shrink:

Here is an overview of the facilities in question.  Note the two yellow boxes:

Below are images from the complex in the yellow box on the left (March 2004 – May 2009):

Below are images from the complex in the yellow box on the right (March 2004 – May 2009):

ORIGINAL POST (2010-5-25): The Sunchon Vinalon Complex was launched in 1985.  It was intended to produce 100,000 tons of Vinalon as well as methanol, vinyl chloride, sodim carbonate, caustic soda, nitrogenous fertilizers, albuminous feed.  In October 1989 the government announced that the first-stage had gone into production (50,000 tons of vinalon).

Using Google Earth imagery and clandestine video footage we can see, however, that much of the Sunchon Vinalon Complex, what I believe is that largest industrial complex in the DPRK (in terms of geographic size), is now a shrinking pile of scrap materials.

Below is an overview of the Sunchon industrial area.  It is composed not only of the Sunchon Vinalon Complex, but also the Sunchon Thermal Power Plant and Sunchon Cement Complex.  I believe the Sunchon Vinalon Complex is actually composed of three distinct hubs. The two I will be looking at are highlighted in red in the below satellite overview image:

The  red box on the right has seen the most changes.  Between 2004 and 2006 it was nearly entirely stripped:

The red box on the left has been stripped as well–though not nearly to the same extent:

Recently KBS broadcast clandestine video shot at the Sunchon complex and someone posted a short clip on the web.  You can watch it here.  Below I have matched the clandestine video segments with the satellite imagery which shows just how derelict the facility has become. Satellite image dates are in the upper right hand corner.

The third zone of the complex seems unaffected over the years.  You can see it here.  I suspect this is the successfully launched “first stage”.

Additional Information:

1. Google Books has a blurb about the complex from North Korea: A Strange Socialist Fortress.  See the blurb here. I own this book and recommend it.

2.  Global Security asserts that the facility produces chemical weapons.

3. Here are all of the KCNA stories that mention the Sunchon Vinalon Complex (Courtesy of the invaluable STALIN Search Engine)

4. The Sunchon Vinalon Complex is the second vinalon facility to be constructed in the DPRK.  The first is the 2.8 Vinalon Complex in Hamhung.  This facility was recently reconstructed and opened after falling into disrepair during the Arduous March.

UPDATE 4:  Global Security gives a rundown of the steps the DPRK is already taking:

North Korea has begun to freeze ties with the South, which already halted most trade with Pyongyang in retaliation for the sinking of a South Korean warship. The North has denied responsibility for the attack on the vessel and is accusing the South of launching a “smear campaign” against it.

Pyongyang has expelled eight South Korean government officials from a joint factory park in the North. And, it is threatening to block what little cross-border traffic exists.

The Unification Ministry in Seoul says hundreds of South Korean managers and other workers from the South were allowed to enter the industrial complex in the west coast Kaesong border city, Wednesday.

But ministry spokesman Chun Hae Sung tells reporters North Korea quickly acted on other aspects of its threat to cut all communications ties with the South.

He says Pyongyang Wednesday halted contact between the Red Cross delegations in the truce village, Panmunjom, and the North Korean Navy contacted the South to inform it that all marine communications between the two Korea’s are now cut.

Relations between the two Koreas have deteriorated steadily since the Cheonan, a South Korean naval vessel in the Yellow Sea, exploded a month ago, killing 46 crew members. An international investigation concluded last week that the coastal patrol warship was hit by a North Korean torpedo.

South Korea’s defense ministry tells VOA News that plans to send tens of thousands of leaflets northward by ballon have been delayed because of wind conditions, but they could go aloft as early as Thursday. Officials say the leaflets are intended to inform North Koreans about the sinking of the South Korean naval vessel. The North views Southern pamphleteering as hostile propaganda.

South Korea’s military is using loudspeakers along the border, silenced for six years, and re-instituting FM broadcasting to the North.

North Korea’s state television newscaster announced such propaganda will not be tolerated.

The North Korean newscaster says it will open fire on the South Korean loudspeakers and destroy them.

Pyongyang says a resumption of the propaganda campaign will also compel it to totally shut down the Kaesong industrial complex, where more than 100 South Korean firms employ about 42,000 North Korean workers.

The two countries have no diplomatic relations and technically remain at war following a 1953 truce which ended the three-year Korean War.

The United States, which has 28,000 troops in South Korea, has hurriedly announced plans for several joint military exercises in the coming month. In the past, Pyongyang has strongly condemned U.S.-South Korean drills, claiming they are preparations for an invasion of the North.

UPDATE 3: Pyongyang confirms it wants to keep running the Kaesong Zone.  According to Yonhap:

North Korea has said it wants to keep a joint industrial complex with South Korea going and will ban southern firms from taking factory equipment out of the zone, a Unification Ministry official said Monday.

An unidentified North Korean official made the remark Sunday to a South Korean staffer at a joint commission handling the operation of the factory park in the North’s border town of Kaesong, the official said on condition of anonymity.

The remark represents a softening of Pyongyang’s stance on the project as it contrasts with a threat to shut a cross-border route leading to the zone in anger over a series of steps South Korea announced in retaliation to the North’s sinking of a southern warship.

It also appears to reflect the North’s concern that the park’s closure would leave tens of thousands of its workers there without jobs and the regime without a key source of hard currency that has helped prop up the North’s moribund economy.

UPDATE 2:  Pyongyang has scrapped a joint-Korean agreement which ensures the safety of South Koreans crossing the Military Demarcation Line and threatened to close the Kaesong Zone if Seoul resumes propaganda broadcasts.  According to the Korea Times:

“Seoul will take stern measures if Pyongyang harms South Korean workers staying at the Gaeseong Industrial Complex, even by a tiny amount,” Lee Jong-joo, a spokeswoman at the Ministry of Unification, said.

The remark came a day after the communist North issued a statement that it would scrap an inter-Korean pact to ensure the safety of South Koreans crossing the Military Demarcation Line (MDL), which separates the two Koreas.

On Wednesday, Pyongyang also threatened to close the industrial park if Seoul begins broadcasting anti-North Korea propaganda through loudspeakers along the Demilitarized Zone (DMZ).

“We can neither let North Korea harm our citizens in retaliation to the resumption of psychological warfare against it, nor tolerate such rationale,” the spokeswoman said.

UPDATE 1:  According to the Washington Post work is continuing at the Kaesong Industrial Zone:

There was a semi-hopeful signal Wednesday that rising animosity over the sinking of a South Korean warship may not shatter all economic ties between the two Koreas.

Production continued at the Kaesong Industrial Complex, a six-year-old factory park just north of the heavily armed border that separates North and South Korea.

At the last remaining symbol of economic cooperation between the two countries, about 45,000 North Koreans went to work as usual for 121 South Korean companies located in the complex.

North Korea had threatened Tuesday that it would severe all relations with South Korea. Its move was in retaliation for trade and other sanctions that Seoul imposed Monday on Pyongyang for its apparent role in a stealthy submarine attack that torpedoed a South Korean ship and killed 46 sailors.

The North denies sinking the ship and threatens war if there is any move to punish it. But its actions at Kaesong were nearly not as uncompromising as its rhetoric.

North Korea allowed several hundred South Korean managers and engineers to cross the border Wednesday and go to work.

It did kick out at least eight South Korean government officials and cut North-South phone lines for some manufacturers. But one company official said that North Korean workers were allowed to work and South Korean managers were allowed to manage.

“The situation at Kaesong at this moment is that nothing much has changed,” said Song Ki-suk, former chairman of Korea Micro Filter, a South Korean auto parts company that employees 350 North Koreans.

…

Still, it appears that North Korea wants Kaesong to operate. The industrial park injects more than $60 million a year in rent, fees and worker salaries into the country’s moribund economy.

I would take issue with the last paragraph.  I am pretty sure that the vast majority of hard currency transfers from South to North mean very little to the broader North Korean economy.  Those revenues are held pretty tight.  However, jobs at the Kaesong Zone are among the most desired in the country and there is no doubt that the complex has improved life in the Kaesong Region.

Read the full story here.

ORIGINAL POST: On Monday the South Korean government announced it was severing nearly all trade relationships with the DPRK.  One notable exception to this policy was the Kaesong Industrial Zone.  Today, however, the DPRK announced that it is reciprocating. According to Reuters:

The following are key points from the text of the report issued by the North’s KCNA news agency.

“The Committee for the Peaceful Reunification of Korea, accordingly, formally declares that from now on it will put into force the resolute measures to totally freeze the inter-Korean relations, totally abrogate the agreement on non-aggression between the north and the south and completely halt the inter-Korean cooperation.

“In this connection, the following measures will be taken at the first phase:

“1. All relations with the puppet authorities will be severed.

“2. There will be neither dialogue nor contact between the authorities during (South Korean President) Lee Myung Bak’s tenure of office.

“3. The work of the Panmunjom Red Cross liaison representatives will be completely suspended.

“4. All communication links between the north and the south will be cut off.

“5. The Consultative Office for North-South Economic Cooperation in the Kaesong Industrial Zone will be frozen and dismantled and all the personnel concerned of the south side will be expelled without delay.

“6. We will start all-out counterattack against the puppet group’s ‘psychological warfare against the north.’

“7. The passage of south Korean ships and airliners through the territorial waters and air of our side will be totally banned.

“8. All the issues arising in the inter-Korean relations will be handled under a wartime law.

“There is no need to show any mercy or patience for such confrontation maniacs, sycophants and traitors and wicked warmongers as the (South Korean President) Lee Myung Bak group.”

The Choson Ilbo reports on some of the economic implications if the Kaesong complex was closed:

It would cost about US$500 million to shut the joint-Korean Kaesong Industrial Complex in the North, the government estimates.

A government official on Sunday said the estimate includes insurance payouts from the Inter-Korean Economic Cooperation Fund for South Korean businesses operating at the industrial park if the North decides to shut the industrial park or if Seoul decides to pull out South Korean staff for safety reasons.

The North has earned more than $96.81 million in cash from wages from 2004 to March this year. It expects to earn another $40 million this year.

“Some 100 of 121 South Korean firms at the industrial park are insured with the Inter-Korean Economic Cooperation Fund,” a Unification Ministry official said. “The indemnity insurance will compensate for up to W7 billion (US$1=W1,199) or up to 90 percent of their investment.”

But no firm that voluntarily withdraws before the North or the South shuts the industrial park is entitled to insurance payouts. An executive of a firm operating at the industrial park said, “The total investment South Korean firms made in the industrial park probably exceeds W1 trillion.” That means the $500 million estimate by the government is too low, and despite the insurance limit of W7 billion, quite a few firms have invested more than W20 billion, he added.

It is difficult for early starters to withdraw given that they are making profits now and the amount of their indemnity insurance has shrunk due to depreciation of their properties.

But many latecomers are ready to leave if there is an adequate compensation, though the ministry official said none have yet told the government they want to pull out.

The North Korean media have been repeatedly reporting a statement issued last Friday by the North’s Committee for the Peaceful Reunification of the Fatherland saying it considers itself at war and will respond resolutely to any action the South takes over the sinking of the Navy corvette Cheonan on March 26. It also threatened to cut off all ties with South Korea and scrap a bilateral non-aggression pact.

In 2007 the DPRK’s top trading partners were (in order) China, South Korea, Thailand, Russia, India, Brazil, Singapore, Germany, Netherlands, Taiwan, Algeria. In 2008, China and South Korea accounted for more than 80% of the DPRK’s total trade (China 67%).  Inter-Korean trade was nearly zero until 1988.

According to teh Associated Press (5.25.2010):

South Korea is waging psychological warfare against North Korea today after a six year pause, and Pyongyang says its troops are bracing for war amid tensions over the sinking of a warship.

South Korea is blaring radio broadcasts into the North and placing loudspeakers at the border to blast out propaganda to punish Pyongyang.

Although the South Korean government has been out of the game for the last six years, plenty of others have been broadcasting into the DPRK: Free North Korea Radio, Open Radio for North Korea, Radio Free Chosun, Voice of America and  Radio Free Asia.   

According to Reuters:

The state-run Korea Trade-Investment Promotion Agency (KOTRA) said North Korea’s trade, including commerce with South Korea, fell 9.7 percent to $5.09 billion last year from 2008.

Excluding trade with the South, foreign commerce feel 10.5 percent to $3.41 billion last year, KOTRA said in a statement.

It said trade with China, the North’s sole supporter, amounted to about $2.7 billion.

The prospect of further sanctions as a result of the sinking of a South Korean naval vessel by a suspected North Korean torpedo in March would slow trade even more, KOTRA said.

“North Korea’s trade this year is seen shrinking further and depending more on China due to the U.N.’s continuous sanctions against the North and possibilities of further measures,” KOTRA said.

North Korea does not announce its own trade data and KOTRA said it compiled the data from the agency’s overseas offices.

Last week, Seoul released the findings of a report which concluded that a North Korean submarine had fired a torpedo that sank the Cheonan corvette, killing 46 sailors.

South Korea has repeatedly said it would not strike back at the North, aware that would frighten away investors already jittery about the escalating tension on the divided peninsula.

Washington has called for an international response, which could range from fresh U.N. Security Council sanctions on North Korea, although those might be opposed by China, to a statement of condemnation by the world body.

A range of international sanctions have been levied against North Korea in recent years for its missile and nuclear tests.

And according to Leon Sigal in 38 North:

… North Korean trade increased in the two years following the 2006 UN sanctions. Inter-Korean trade totaled $1.8 billion in 2007—about a 33 percent jump from 2006—then rose again to $1.9 billion in 2008. China trade also grew to roughly the same level in 2007, then shot up to $2.78 billion in 2008. North Korea’s total trade increased by more in 2008 than in any other year over the past decade and its economy grew by 3.7 percent according to the Bank of Korea.  

The most recent UN sanctions enacted in 2009 have had similar results. In response to the threat of sanctions, Pyongyang went ahead with a test-launch of a long-range rocket and a second, more successful, nuclear test. The UN Security Council, in response, enacted Resolution 1874 imposing sanctions on the DPRK. The prime target of the new sanctions was the bank accounts of North Korean entities involved in nuclear and missile trafficking. Given the many ways to circumvent the banking system, however, and the reluctance of governments to interpret Resolution 1874 as liberally as the United States did, it is still unclear how much of an impediment this will prove to be. As the Congressional Research Service concluded, “[F]inancial sanctions aimed solely at the DPRK’s prohibited activities are not likely to have a large monetary effect.”

Luxury goods were also a focus of the most recent U.N. sanctions—in the dubious belief that consumerism is as rampant among privileged North Koreans as it is in Georgetown or that Kim Jong Il’s hold on the elite can be loosened by denying them Rolexes or Mercedes imported from China. A Congressional Research Service analysis of Chinese trade statistics for 2008 indicates that Beijing’s exports of luxury consumer goods to North Korea was between $100 million and $160 million, mostly financed by Chinese credit. That trade is not likely to have dropped enough to make any appreciable difference on the loyalty of elites long accustomed to tight belts and even tighter social controls.

Again, the overall economic impact of the sanctions appears to have been limited. Overall, according to U.S. estimates, North Korea’s economy again grew at a 3.7 percent rate in 2009,[7] probably because of a more bountiful harvest. While North Korean exports to China are difficult to estimate because of the introduction of the new currency, imports from China in 2009 dropped sharply to below the 2007 level. Some of the drop was due to the global recession and price deflation.[8] Trade with South Korea fell 8.5 percent in 2009 but still totaled $1.7 billion—five times what it was a decade ago. Trade with Japan was cut to a pittance, though it is difficult to ascertain the extent to which cash remittances from Koreans in Japan still manage to circumvent sanctions. For instance, Tokyo discovered that the DPRK was exporting sanctioned food items such as mushrooms to China and they were then sold to Japan at higher prices. The only losers may have been Japanese consumers.

As for international cooperation to curb the North’s arms sales, the net effect is probably overstated. In 2005, even before sanctions were imposed, the global market for missiles—the big-ticket item—had dried up, as buyers like Iran and Pakistan opened their own production lines, although technological assistance still generated revenue for Pyongyang. Since the UN arms embargo, at least four shipments of arms have been interdicted. Their total value, never mind net profit, fell far short of the estimated $500 million a year North Korean arms sales are supposed to generate. How many of its exports evaded capture is not known.

Read the full stories here:
Sanctions hit North Korea’s crumbling economy: report
Reuters
Cheon Jong-woo
5/23/2010

Looking for Leverage in All the Wrong Places
38 North
Leon V. Sigal

Andrei Lankov writes in the Korea Times:

Kim Jong-il’s recent visit to China was somewhat unusual: instead of going straight to Beijing, Kim visited a number of sites which are associated with China’s economic development.

He went first to the port city of Dalian and spent time there inspecting the harbor and hi-tech centers located nearby (including even a semi-conductor plant operated by Intel). While in Beijing, he continued such visits.

Had this happened a few years ago, we would expect a wave of optimistic speculation: such interest in modern technology would have been interpreted as a sure indicator of North Korea’s readiness to launch Chinese-style reforms. This time, it seems that even the optimists have become tired of making prophecies which never come true.

Nonetheless, the trip once again demonstrated a peculiar feature which the North Korean regime shares with the now-extinct Leninist regimes of Eastern Europe. The Pyongyang leaders have an almost religious belief in the miraculous power of modern technology.

They hope that all their problems can be easily and quickly fixed once a proper technology is found and applied (of course, application has to be done by state). However, the social dimensions of the economic problems are ignored.

It sounds very non-Marxist: after all, the founding fathers of Communism explicitly stated that it is the social structure and property relations, not technology, which determines the economic productivity. But their supposed disciples would never agree that the economic woes of the Communist countries were brought by the less than perfect social system.

This unwillingness is understandable: social change might become dangerous for those who are in power. Therefore they have a vested interest in presenting their system as perfect.

So, if there are problems, those problems should have an easy technocratic decision ― and the only force which can find and introduce such decision is, of course, the regime in power.

When in the early 1950s the Soviet agricultural industry was clearly in trouble, Stalin decided to do something about it. His solution was a program of planting forest strips which would decrease soil erosion.

Stalin was also much interested in the grotesque promises of Trofim Lysenko, a notorious charlatan who was talking about “educating” plants into yielding greater harvest.

Lysenko also enjoyed the support of Khrushchev, Stalin’s successor. Khrushchev’s pet technology was corn production, and insisted that the nationwide switch to this wonder plant would miraculously raise productivity.

However, corn, being a Mesoamerican plant, did not grow well near the polar circle, and plants did not show any sickness of being susceptible to `education’. Russia, once a major exporter of grain, became an increasingly voracious importer of food.

Of course, the problems of the Soviet agriculture were caused not by the insufficient attention paid to corn production. It was the social problems that made the Soviet agricultural system so inefficient: farmers, being badly paid employees of the government-run farms, had no reason to work diligently.

When they toiled the small patches of their own land, which they were legally allowed, they showed a remarkable level of productivity. But this was not what the Soviet government was willing to see.

It was Mao’s China, though, which produced the weirdest examples of belief in wonder technologies. It reached its height during the Great Leap Forward in the late 1950s.

Mao wanted small furnaces to be built everywhere: during the Great Leap even schools and farms were required to make their own steel in the backyard furnaces. Predictably, the home-made steel was useless because of the low quality.

Simultaneously, Mao told the farmers to use “close cropping.” Seeds were sown far more densely than normal on the “politically correct” assumption that “seeds of the same class would not compete with each other” (of course, crops were ruined).

The farmers were also ordered to plough two meters deep, since this would “encourage plants to develop extensive root systems.” The result was famine which killed between 20 and 30 million people. However, it seems that Mao and his henchmen never abandoned their belief in miraculous technologies.

North Korea is no different. Its leaders also are firm believers in the power of technology, if this technology is carefully selected by the state and introduced by its agents. Kim Il-sung, being a son of a farming family, paid special attention to the agriculture.

Among other things, he was a great enthusiast for terrace fields. He wanted to transform the barren hills of North Korea into rice-producing areas, and kept reminding his officials that no efforts should be spared to do so.

Predictably, the result was a disaster: in the 1990s terrace fields were washed away by floods while the few remaining became unusable since a large electric pump would be necessary to provide those high-rise fields with water.

Kim Jong-il shares the belief in wonders, but in his case the major hope is modern industrial technology, preferably related to computers (an approach clearly influenced by gadgetry).

The Dear Leader reputedly said that it was a great folly not to study computers, and most of his technological initiatives are clearly related to IT.

Since last year, for example, the Pyongyang streets have been covered with posters which tell about wonders of the CNC technology (in an unusual twist, the English acronym is used). CNC stands for “computer numerically controlled” technology and, to put it simply, describes computer-controlled industrial equipment.

It is remarkable that the present author heard the same slogans many decades ago, in the 1970s. Indeed, the Soviet leaders also had much hope about the CNC and worked hard to introduce it as a cure for the Soviet economy ― with the predictable lack of success.

Therefore, not much should be read from Kim Jong-il’s visit to Intel. He might dream of computer-operated giant plants, but he lives under severe political constraints, and these constraints ensure that North Korea will remain a very inhospitable environment for high technology (apart from some ultra-cool gadgetry for the chosen few, of course).

This might be changed only if the system itself will be changed, but this is clearly not what Kim wants.

Read the full story below:
Waiting for a miracle
Korea Times
Andrei Lankov
5/24/2010

According to the Washington Post:

South Korean President Lee Myung-bak said Monday that his country is stopping all trade and most investment with North Korea and closing its sea lanes to North Korean ships after the nation’s deadly attack on a South Korean warship.

Lee also called for a change in Pyongyang’s Stalinist regime.

The tough measures, announced in an address to his nation, were bound to ratchet up pressure on the isolated Pyongyang government and add a new flash point in U.S. relations with China.

“Fellow citizens, we have always tolerated North Korea’s brutality, time and again. We did so because we have always had a genuine longing for peace on the Korean Peninsula,” he said. “But now things are different. North Korea will pay a price corresponding to its provocative acts.”

Lee then said that “no North Korean ship will be allowed to make passage through any of the shipping lanes in the waters under our control” and that “any inter-Korean trade or other cooperative activity is meaningless.”

A senior U.S. official, traveling with Secretary of State Hillary Rodham Clinton in China, said the United States will back “all the steps the South Koreans are going to announce.” In an indication of the seriousness with which the Obama administration views the drama between the North and South, home to nearly 29,000 U.S. troops, he added: “We have not faced something like this in decades.” Lee apparently has ruled out military action because he does not want to trigger an all-out war.

The official said that, based on talks over the past two days, Chinese officials have not accepted the results of a South Korean investigation — backed by experts from the United States, Australia, Britain and Sweden — that implicated North Korea in the attack on the 1,200-ton Cheonan that killed 46 sailors. As such, it is unclear whether Beijing will support Lee’s measures or his call, also made in the speech, to take the issue to the U.N. Security Council.

China’s reluctance to agree with the report underscores the challenges the United States faces as it seeks to forge closer ties to Beijing. The U.S. official also noted Sunday that China and the United States still do not see eye to eye on the details of planned economic sanctions on Iran for its failure to stop its nuclear enrichment program. Of specific concern, he said, are disagreements between Beijing and Washington about how investments in Iran’s oil and gas sector will be treated. China has committed to investing more than $80 billion in Iran’s energy sector; tightened sanctions against Tehran could threaten those investments.

…

Tough options for China

The attack and its aftermath also threaten China’s place in the region and could force it to make an unwanted choice between South Korea and North Korea — two countries that it has handled deftly since normalizing relations with Seoul in 1992. South Korea wants China, which is a permanent member of the Security Council, to back Seoul’s call to take the Cheonan issue to the council. So does the United States, the U.S. official said.

But that could risk hurting Pyongyang, and China appears committed to maintaining the North Korean regime above all.

“For China,” the U.S. official said, “they are in uncharted waters.”

China reacted slowly to the Cheonan’s sinking, waiting almost a month before offering South Korea condolences. Then it feted North Korea’s Kim in May, apparently offering him another large package of aid, Asian diplomats said. China’s attitude has enraged South Korea.

Michael Green, a national security official during George W. Bush’s administration, said the Cheonan crisis highlights just how differently China views its security needs than the rest of the players in Northeast Asia. For years, as China worked with the United States, Russia, South Korea and Japan to try to persuade North Korea to give up its nuclear weapons programs, these differences were obscured. But the Cheonan’s sinking has changed that.

According to Yonhap, the Kaesong Industrial Zone will be spared from the chopping block:

South Korean Unification Minister Hyun In-taek said Monday that Seoul will still maintain the joint economic project in Kaesong despite the attack, but will “respond with resolute measures” to any bid by the communist neighbor to undermine the safety of its workers.

“If North Korea ignores our careful consideration to preserve the complex even under current circumstances, and subsequently threatens the safety of our citizens there, we will never tolerate any harm to our citizens,” Hyun said.

Hyun was speaking at a joint press briefing with the foreign and defense ministers following President Lee Myung-bak’s nationally televised speech condemning the North for the ship sinking.

Hyun was apparently referring to the half-year long detention of a South Korean worker in Kaesong last year amid deteriorating political ties between the countries.

Also according to Yonhap, some aid projects will be maintained:

Lee announced his government will suspend all trade and exchange programs with the North except for the Kaesong project, while maintaining minimum levels of humanitarian aid for infants and children living in the impoverished communist country.

“Under these circumstances, any inter-Korean trade or other cooperative activity is meaningless,” the president said, adding that North Korean ships will no longer be allowed to use South Korean waterways as short-cuts.

Yonhap reports:

A suspension of inter-Korean trade would deal a “direct blow” to North Korea by blocking its major source of hard currency needed to govern the reclusive and impoverished country, a Seoul think tank said Monday.

The state-run Korea Development Institute (KDI), however, noted in a report that such a move could fail to achieve its intended goal if other global powers like China do not agree, highlighting the importance of securing international cooperation.

…

“North Korea’s trade with the South has accounted for up to 38 percent of its total trade volume and makes up 13 percent of its gross domestic product. With the dollars obtained through inter-Korean trade, the North has expanded its businesses with China. It (the trade with the South) also helped Pyongyang to cushion any negative external risks such as sanctions by Japan, while acquiring dollars needed to govern the country,” the report said.

“If we push for a measure to suspend the trade, it could translate into a decline in its trade with China and make it tough to find other business partners as a result, dealing a direct blow to its regime by blocking it from obtaining dollars,” it added.

The report noted that a trade ban by the Seoul government would have a maximum level of impact if China follows suit, which it expects could place Pyongyang under a situation where “it has to think about its life or death.”

Currently, the North depends on South Korea and China for up to 80 percent of its external trade and 35 percent of its GDP, according to the report. Especially, China provides many strategically important materials such as oil to the North.

The report said that if China decides to support the North, it would reduce the overall impact but it will still destabilize its regime in the long term by making it heavily dependent on its closet ally and fast-emerging global economic power.

“It would weaken the regime’s principle not to depend solely on a single country even for its trade based on the so-called juche (self-reliance) doctrine. Also China’s support would prompt opening of the reclusive nation to outside, making it more difficult for the regime to keep its tight grip on domestic market and those who want and push for market opening,” the report said.

“In summary, a political choice by China would have some impact but in the end, a trade suspension with the South would cause a significant amount of pain to the country. We need to have to push for such an action with self-confidence if there is a consensus, while taking diverse efforts to persuade China over such a measure, while establishing an international cooperative framework with the United States and Japan as well,” it added.

Business Week (Bloomberg) reports on the impact of UN sanctions last year:

UN sanctions imposed on North Korea after its second nuclear test in May 2009 caused the North’s international commerce to shrink 9.7 percent last year, according to the Seoul-based Korea Trade-Investment Promotion Agency. Stripping out South Korea’s one-third share, China accounted for 78.5 percent of North Korea’s commerce, the agency said. North Korea, whose leader Kim visited China earlier this month, doesn’t release trade data.

The New York Times also has good coverage

The full text of President Lee’s speech can be found here.

All previous posts on the Cheonan are here.

Read full article here:
South Korea to halt all trade with North Korea over sinking of Cheonan warship
Washington Post
John Pomfret
5/24/2010

Biological Conservation, May 2010
Lina Tang, Guofan Shao,Zhengji Piao, Limin Dai, Michael A. Jenkins, Shaoxian Wang, Gang Wue, Jianguo Wuf, Jingzhu Zhao

Download the PDF here.

Abstract:
Forest degradation in protected areas has been monitored around the world with remote sensing data, but degradation processes undetectable by widely used satellite sensors have been largely overlooked. Increased human pressures and socioeconomic development make forest protection more challenging, particularly for forest ecosystems that lie across national borders because of the differences in national socioeconomic policies and conditions within them. Here with Landsat data, Google Earth images, and field observations, we show that, in two adjacent biosphere reserves across the border of China and North Korea, over one half of primary forest landscapes have been deteriorated by exploitive uses, including seed harvesting and systematic logging. The combined effects of detectable and hidden degradation processes have further damaged forest ecosystems in the core areas in the two biosphere reserves, threatening sustainable biodiversity conservation in the region. It is urgent to develop cross-border collaborative conservation strategies that can help combat both detectable and hidden degradation processes at a regional scale.

I watch a lot of North Korean television either by seeking out content or receiving it through friends.  I have decided to post some of it to YouTube (apologies to readers in China) so that I can blog about it.  This first clip is from North Korean television (this month) and the subject is women’s fashion.

Click on image to watch the 5 minute television show.

I am not a fashion critic, so let a thousand flowers bloom–but I should add that clothing lies within the portfolio of the KWP Light Industry Bureau which is controlled by Kim Jong-il’s sister.

UPDATE: This video was featured in an article on Radio Free Asia.  It has a lot more information.

While figuring out how to use YouTube I also stumbled on another discussion of North Korean fashion by Suk-young Kim, associate professor of theater and dance at the University of California, Santa Barbara, and author of Illusive Utopia: Theater, Film, and Everyday Performance in North Korea and translator of Long Road Home: Testimony of a North Korean Camp Survivor. See her discussion on Youtube by clicking on the image below.

Geoffrey Cain writes in Time:

Few investors can boast the one-of-a-kind global pedigree of Felix Abt. Since 2002, the Swiss businessman has found his calling as a point man for Western investments in — of all places — North Korea, where he helped found the Pyongyang Business School in 2004. He also presided over the European Business Association in Pyongyang, a group in the capital that acts as a de facto chamber of commerce. A few years ago, that position led him to help set up the first “European Booth” featuring around 20 European companies each year at the Pyongyang Spring International Trade Fair, an annual gathering of 270 foreign and North Korean companies currently underway in the hermit kingdom until Thursday.

Yet Abt, 55, who lives in Vietnam and therefore won’t be attending the trade fair this year, laments the giant cloud hanging over the country: in recent years, political turmoil on the peninsula has raised the stakes even further for doing business in North Korea — even for the country’s main patron, China. Though investors have always faced the prospect of sanctions, he says, the situation has worsened after the United States ratcheted up sanctions on the government in 2006 on allegations that it was counterfeiting U.S. dollars. And in 2006 and 2009 the Kim Jong-il regime tested two small nuclear bombs, prompting heavier sanctions from the United Nations in 2006. Recently, tensions with Seoul have spiked over the March sinking of a South Korean corvette in waters near the North.(See pictures of the rise of Kim Jong-il.)

Those measures hit home for Abt. While he was running a pharmaceutical company in Pyongyang called Pyongsu in the mid-2000s, he learned that the U.N. Security Council had imposed sanctions on certain chemicals — a move that could have forced him to completely stop manufacturing medicine. Thankfully, he adds, he had already secured a large stock of the substance beforehand. “Whatever business you are involved in,” he says, “some day you may find out that some product or even a tiny but unavoidable component is banned by a U.S. or U.N. sanctions because it can, for example, also be used for military purposes.”

Those dilemmas haven’t stopped Abt. In 2007, he co-founded an information technology firm in Pyongyang called Nosotek, whose 50 or so employees design software applications for the iPhone and Facebook. The venture has already seen its share of success: one of its iPhone games ranked first in popularity for a short while on Apple’s Top 10 list for Germany — though he can’t name the software out of concern for protecting his contractors from bad publicity.(See pictures of North Koreans at the polls.)

For some companies, the stigma of a “Made in North Korea” label matters less than the competitive edge gained from having low overhead costs and a diligent workforce whose wages remain less than outsourcing powerhouses like China, Vietnam and India. In the past, North Korea has attracted the interest of multinational corporations looking for cheap labor in fields as diverse as electrical machinery and cartoon animation. Yet few multinationals show their faces at this month’s fair, a decline from the early 2000s when Abt says they were appearing regularly to look for opportunities in electricity, infrastructure, transportation and mining.

Not all foreign ventures in the North are driven by profit margins alone. The 2005 animated Korean movie Empress Cheung, a popular fantasy film drawn jointly by South and North Korean animators, brought attention to the animation industry in North Korea. Nelson Shin, head of the Seoul-based animation studio that started the project, claims he worked with North Korea for a greater cause than cheap labor. “It wasn’t so much because of cost efficiency as because of cultural exchange between the two Koreas,” he says.

For a country so poor, North Korea has churned out a remarkable number of talented engineers and scientists who fuel some of these small sectors (along with its controversial nuclear weapons program). In the 1960s and 1970s, the government pushed the country to become self-sufficient through development projects, a part of its ideology of “Juche” that promotes absolute autonomy from foreign powers. The communist regime of Kim Il-sung prided itself on its universities and public housing system, in particular. “It was an advance from pre-World War II days,” says Helen-Louise Hunter, a former CIA analyst now in Washington, D.C., who researched North Korea during those decades. “Kim Il-sung was genuinely interested in improving his people’s standard of living, and was off to a good start in a couple of areas compared to South Korea in those early days.”

Yet North Korea fell behind after the South’s own military dictators put their country into industrial overdrive throughout the 1970s and 1980s. Then the Soviet Union collapsed in 1989, depriving North Korea of valuable aid. Then came a famine in the mid-1990s that delivered the final blow, leaving up to 3 million people dead and crippling the capacities of the already isolated state.

Today, the pariah regime of Kim Jong-il is allegedly known to raise money through illicit activities like trafficking narcotics and money laundering. But it’s not known how much those activities figure into the country’s GDP of $28.2 billion in 2009 and its $2 billion worth of exports in 2008, the most recent year data is available. “Not that much income comes from illegitimate operations if you mean drugs and counterfeited dollars,” says Andrei Lankov, a North Korea expert at Kookmin University in Seoul. “More come from arms sales, though, but I would not describe this as an illegitimate trade.”

Abt shakes off the image of Pyongyang being the center of a mafia state. He sees himself and other foreign investors as the potential movers and changers of Kim’s hermit regime. “Cornering a country is ethically more questionable than engagement,” he says. “Foreigners engaging with North Koreans are change agents. The North Koreans are confronted with new ideas which they will observe and test, reject or adopt.”

Read the full story here:
Can North Korea Be Safe for Business?
Time
Geoffrey Cain
5/20/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-05-19-1
5/19/2010

On November 11, 2009, North Korea enacted a ‘Real Estate Management Law’ consisting of six sub-sections and 47 articles. The new law revised the terms for sale and use of real estate, banning the unapproved rental of property and allowing the state to collect a ‘usage fee’ (rent). In addition to the law on real estate management, immediately after the North’s currency reforms at the end of last November, the government enacted or revised a total of 11 laws related to the economy, including the Food Administration Law, Agricultural Law, Goods Consumption Standards Law, and the Labor Law. This raises the question of whether the regime is strengthening its economic control mechanisms.

According to the Socialist Property Management Law of 1996, only ‘enterprises, institutes, and groups’ were allowed the use of properties, but the latest Real Estate Management Law includes individuals as those allowed to use property.

North Korea’s KCNA reported the enactment of the new law on real estate in the middle of last December, but only revealed that “basic issues of real estate’s registration and inspection, use and collection of rents are regulated,” while the more detailed contents were revealed in a three-part series of articles on the Real Estate Management Law that ran in the Minju Chosun, which was published by the Cabinet and Presidium of the Supreme People’s Assembly between March 17 and April 3.

In North Korea, where all real estate is property of the government, the sale or rent of properties between individuals or groups is, on principle, not possible, but after the July 1, 2002 Economic Management Reform Measure, the regime’s inability to provide housing led to significant growth in the size of the black market for real estate.

On a related note, during the 4th session of the 11th Supreme People’s Assembly, which opened in April 2006, a campaign to assess properties throughout the entire country and establish a system of rent was revealed, after which ‘property usage fees’ were included in the annual national budget.

Ultimately, the enactment of this law on real estate strengthens the state’s control over the socialist economy and over the country as a whole. From South Korea’s perspective, it appears the integrated land tax, property tax and other similar systems are North Korea’s attempt to prepare an important legislative precedent for expansion of the state coffers.

However, the portion of the newly-enacted Real Estate Management Law that really catches the eye is the authorization of ‘individuals’ to rent real estate. While it takes on the form of property leasing, it is also an expanded measure in that it permits individuals to use socialist property. Giving individuals the right to use real estate increases productivity and helps ease the North’s current economic woes.

According to the Minju Chosun, the new law “says one must not buy and sell real estate, and the nature and use of property cannot be changed without permission from the management authorities, so that property cannot be handed over to or lent to other organizations, enterprises, groups or individuals.”

The law also stipulates that a property rents will be paid to a ‘State Pricing Establishment Organization’, and that the intended use for the property must be registered, after which rents will be set in either goods or currency, and if rents are not paid in currency, they can be paid in kind.

In particular, this law stipulates, “Land is not to be abused or used in a way that makes it barren,” and that any historic or revolutionary landmark, or idolation of Kim Il Sung or Kim Jong Il must be thoroughly protected.

Through a special measure by the Cabinet, a National Real Estate Management Committee was established, and management offices and chains of command were established for the cabinet.