North Korean Economy Watch

Francoise Nicolas has written a data-driven survey on the DPRK’s changing trade and investment relationships.  The paper can be downloaded here (PDF).  This paper has also been added to my DPRK Economic Statistics page.  Here is the paper’s conclusion:

This brief analysis of the current external economic relations of the DPRK leads to a number of conclusions.  First, the North Korean economy maintains very limited exposure to the outside world and, as a result, to external influence.  In terms of volume North Korea’s trade is miniscule, even in relation with the size of its economy.  This is also the case for foreign direct investment inflows.

Secondly, although North Korea is less isolated than often thought, its trade and investment flows are very heavily polarized both geographically and sectorally, limiting de facto their potential impact.  In contrast to what was the case during the Soviet era, North Korea’s main economic partners are not ideological partners but neighboring economies, namely China and South Korea.  They are major partners in trade as well as in FDI.  Russia still plays a non negligible role but is in no way comparable to what was the case before the demise of the Soviet bloc.

Thirdly, North Korea’s external economic relations are very much dictated by political considerations.  Politics accounts both for the choice of partners and for the nature of the economic relations.

Fourthly, and more importantly, the very distinct nature of the DPRK’s connection with the rest of the world, and primarily with its two major economic partners, sets it apart from other transition economies and in particular from China, but also from Vietnam.  In the case of North Korea, economic openness, although announced time and again as an official objective, cannot be seen as an instrument for enhancing competitiveness or as part of a development strategy.  The recent, renewed signs of reform in the direction of increased openness should thus be interpreted with utmost caution.

Fifthly, the structure of the country’s external trade is indicative of an economy in survival mode.  The substantial aid component in the inter-Korean trade and FDI relationship undoubtedly further substantiates such a claim.  Surprisingly, relations between North Korea and China are more often based on a market-economy logic, although this only holds true for trade flows and not FDI flows.  The Probability of change through trade appears still very limited.

Lastly, the role the European Union may play in the region remains very much an open question but the margin of maneuver is limited.  Given the state of play described earlier, it would be extremely naive to believe that a European engagement strategy vis-à-vis the DPRK could contribute to economic change.  In addition the country’s lack of attractiveness for potential investors is a further obstacle.  However, the persistent uncertainty and the lack of visibility over the political and economic evolution of the DPRK should not deter European investment in the region and, far to the contrary, should provide a strong incentive to closely monitor the economic moves made in Pyongyang.

UPDATE: Here is a satellite image of the completed project:

UPDATE: Mansudae Street construction is now visible on Google Earth.  Below I have included before and after pictures.  If you open them in separate browsers, you can click back and forth between images to compare.

ORIGINAL POST: As capitalist countries are struggling with falling property values and a glut of housing inventories, Pyongyang is experiencing a housing construction boom (previously covered here and here). In North Korea, however, the housing boom is not the result of an “unexpected” asset bubble but rather a deliberate government policy to achieve a “strong and prosperous country (Kangsong Taeguk)” by 2012 — the year the earth is predicted to be destroyed according to the Mayan calendar.

As part of this construction boom, the North Koreans are (re)building a substantial number of housing units on Mansudae Street east of the Potong River Gate and north of the Russian Embassy.  Kim Jong il recently gave an “on-the-spot-guidance” visit there, so using information provided in the coverage of his tour, I was able to map out the areas to be torn down and rebuilt.

First, here is the image from Kim’s visit (courtesy of Daylife and Reuters):

(click image to enlarge)

Using this and other information, I was able to map out the construction areas in Google Earth.  Here are some pictures to explain the scale of the work (click images to enlarge):

Construction area

(red=demolish/rebuild; white=preserved)

Previous real estate posts can be read here.

Previous construction posts can be read here.

If you would like to make an effort at improving on my work, you can download my Google Earth overlay here and use it yourself. Some of the buildings in the construction area are specifically identified in North Korea Uncovered.

UPDATE: Here are some pics of the construction site:

The image below was taken on Jan 27, 2009.  The coordinates are 39° 9’33.50″N, 125°40’35.96″E.  The writing is appx 8.4m tall and 22.7m in width.

강성대국 reads “Kangsong Taekuk” which loosely translates to “A strong and prosperous nation”

PSCORE (People for Successful COrean REunification) is a non-profit, non-religious, non-partisan NGO based in Seoul & Washington, DC. According to their web page, they “strive for mutual understanding and harmony between the two Koreas and aim to provide a platform to discuss topics such as democratization, human rights and social issues.”

Well the team at PSCORE just sent me some North Korea map locations to add to the next version of the Google Earth project.  I am looking forward to sorting these out over the weekend, but just so you don’t have to wait on me, I have posted them on line for you to download yourself. 

Click here to download the PSCORE Google Earth locations.

Click here to learn more about PSCORE.

Andrei Lankov writes in the Wall Street Journal about the growing role women have come to play in the North Korean economy.  According to the article:

A joke making the rounds in Pyongyang goes: “What do a husband and a pet dog have in common?” Answer: “Neither works nor earns money, but both are cute, stay at home and can scare away burglars.”

North Korea is still a strongly patriarchal society, so the popularity of jokes deriding men is a surprising sign of shifting attitudes. The cause is also a surprise—women are running the country’s booming unofficial economy.

A decade ago North Korea went through a man-made social disaster which exceeds everything East Asia has experienced since Mao’s ill-conceived experiments of the 1960s. An estimated 600,000-900,000 people perished in the 1990s famine, which was largely a product of the government’s unwillingness to reform the economy. The social and economic structure of a Stalinist society collapsed. Antiquated iron mills and power plants ground to a halt, and the rationing system did not provide enough food for the average citizen to survive.

Facing this challenge, North Korean society reacted in an unusual way: It rediscovered the market economy. Unlike China, where capitalism was re-introduced from above by Deng Xiaoping and his fellow reformers, in North Korea its growth has been largely spontaneous. Nonetheless, by 2000 market exchange, both illegal and semilegal, came to play a decisive role in the lives of North Koreans.

This worried the Kim regime’s leaders, who understand full well how the marketplace undermines their political control. In recent years they launched a number of policies aimed at undermining markets. The recent currency reform was meant to deliver another blow to the markets by annihilating the capital of private businesses. It backfired, though, and the economic situation worsened considerably.

However, the nemesis of the regime, the market vendors of North Korea, are by no means the kind of street toughs one might encounter in the black markets of other countries. North Korea’s “new capitalism” of dirty marketplaces, ancient charcoal trucks and badly dressed vendors has a distinctly female face. Women are overrepresented among the leaders of the growing post-Stalinist economy—at least at its grassroots level, among the market traders and small-time entrepreneurs.

This is partly due to a distinctive feature of North Korean society. Until around 1990, markets played a very slight role in the North Korean economy. Almost everything was rationed by the state. In those days, the North Korean state required every able-bodied male to be employed by some state enterprise. However, some 30% of married women of working age were allowed to stay at home as full-time housewives.

When in the early 1990s the old system began to fall apart, men continued to go to their jobs. At first glance this might appear irrational, since most state-run factories came to a standstill, subsidized rations were not delivered and an official monthly salary would barely buy one kilo of rice.

Nonetheless, North Koreans expected that sooner or later things would eventually return to what they thought of as “normal”—that is, to the old Stalinist system. They were not aware of any alternative. They also knew from experience that people who showed any disloyalty to the state—for instance those who cooperated with South Korean authorities during the Korean War—were discriminated against for the rest of their lives. Even the children of such “unreliable elements” faced many official restrictions. So men believed that it would be wise to keep their “official” jobs for the sake of the family’s future.

The situation of women was different. They had time, and their involvement with private trade was seen as less dangerous—precisely because of the patriarchal nature of a society where only males’ behavior really mattered. In some cases women began by selling household items they could do without or homemade food. Eventually, these activities developed into larger businesses, and today at least three-quarters of North Korean market vendors are women.

For many North Korean women, the social disaster of the 1990s has become an opportunity to display their strength and intelligence. In recent months those women have become the primary target of government policies designed to destroy private enterprises. But the experience of the last two decades suggests that the women are likely to continue wearing the pants.

Read the full article here:
Pyongyang’s Women Wear the Pants
Wall Street Journal
Andrei Lankov
4/16/2010

Michael Rank

China Southern Airlines is planning flights to Pyongyang from the northeastern city of Changchun from June, a Chinese website reports.

It said flights will begin on June 20, but did not say how frequent the service will be or give any further details.

It said the Korean National Travel Company was in talks with the Jilin provincial tourism bureau about tours to North Korea from either Changchun, the provincial capital, or the border city of Yanji.

China Southern has operated Beijing-Pyongyang flights in the past does not do so at present.

According to KCNA:

Report on Implementation of 2009 Budget and 2010 Budget
 
Pyongyang, April 9 (KCNA) — Deputy Pak Su Gil, vice-premier and minister of Finance, delivered a report on the results of the implementation of the DPRK state budget for last year and its state budget for this year at the 2nd Session of the 12th Supreme People’s Assembly held on Friday.

According to the report, the state budget for last year was successfully implemented and, as a result, the state budgetary revenue was overfulfilled 1.7 per cent, an increase of 7 per cent over the previous year.

Ministries, national institutions, management bureaus and complexes overfulfilled the national plans for budgetary revenue and all provinces, cities and counties across the country also overfulfilled their plans for local budgetary revenue.

Last year’s plan for state budgetary expenditure was carried out at 99.8 per cent.

An investment from the state budget was focused on the development of metal industry while a huge financial allocation was made for the power and coal industries and the railway transport.

8.6 per cent more funds than the previous year were spent for capital construction and expenditure was increased for agriculture and light industry.

A 7.2 per cent greater financial disbursement than the previous year was made for the field of science and technology, surpassing the level of the latest science and technology in domains of space technology, nuclear technology and CNC technology and putting the key industries of the national economy on a high scientific and technological basis.

A large amount of fund went to the field of cultural construction and 15.8 per cent of the total state budgetary expenditure was spent for national defence.

The reporter said that the scale of revenue and expenditure in the state budget for this year has been set on the principle of improving the people’s standard of living to meet the requirements of the policy of the Workers’ Party of Korea on conducting a great offensive to bring about a decisive turn in the above-said work.

This year’s plan for state budgetary revenue is expected to grow 6.3 per cent over last year. The revenue from the profits of state enterprises, the main source of state budgetary revenue, is expected to go up 7.7 per cent over last year, that from the profits of cooperative organizations 4.2 per cent, that from the fixed asset depreciation 2.5 per cent, that from real estate rent 2 per cent and that from social insurance 1.9 per cent.

This year’s plan for state budgetary expenditure is expected to show an 8.3 per cent increase over last year.

The spending for the light industry is expected to go up 10.1 per cent, that for agriculture 9.4 per cent and that for metal, power and coal industries and railway transport 7.3 per cent as compared with last year.

The expenditure for the machine-building industry is expected to go up and an 8.5 per cent bigger financial allocation will be made for scientific researches and the introduction of new technologies.

A 6.2 per cent bigger financial disbursement than last year is expected to be made to more successfully enforce the popular policies, a proof of the advantages of Korean-style socialism centered on the popular masses.

15.8 per cent of the total state budgetary expenditure for this year is expected to be spent for national defence.

It is expected that a large amount of educational aid fund and stipends will be sent for the children of Koreans in Japan this year, too.

In order to successfully implement this year’s state budget, all domains and units of the national economy should work out enterprising and realistic business strategy and management strategy and tenaciously carry them out by relying on a high degree of mental power of the producer masses and thus fulfill the plans for budgetary revenue without fail, stressed the reporter.

And according to the Choson Ilbo:

North Korean leader Kim Jong-il can freely dispose of 20 percent of his country’s budget, a former secretary of North Korean Workers’ Party has said that. Hwang Jang-yop told the Asahi Shimbun, “Only 30 percent of the budget is spent on public services, while 50 percent is earmarked for military spending.” Hwang defected to South Korea in 1997.

Hwang was interviewed by the daily during his visit to Japan on April 4-8. “Kim Jong-il’s dictatorship is 10 times worse than his father’s. People have a painful life,” he said.

Asked if the North is likely to abandon its nuclear weapons program, he said, “There is no such possibility. But the North won’t use the weapons. They’re a means to maintain the regime.”

To the question why Kim’s eldest son Jong-nam was passed over for the succession, he said, “At first, Kim Jong-il thought of choosing his eldest son as his successor. But he seems to have changed his mind as he fell in love with Ko Young-hee, the mother of Jong-un, his third son, after Jong-nam’s mother Song Hye-rim died.”

Commenting on the North’s bizarre abductions of Japanese citizens in the 1970s and 80s, he said, “The North needed native Japanese to train agents who would work in Japan.”

Read the full story here:
Kim Jong-il ‘Gets 20% of N.Korea’s Budget for His Own Use’
Choson Ilbo
4/12/2010

UPDATE: Mike has a lot more.

ORIGINAL POST: According to Kyodo News:

North Korea’s Ministry of People’s Security, the country’s police organization, has slightly changed its name, leading observers to believe that it may now fall under the command of the National Defense Commission instead of the Cabinet as before.

If anyone can find additional information, please let me know.

The full article is here (for a fee):
N. Korea’s police organ changes name, affiliation
Kyodo News
4/15/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-04-15-1
4/15/2010

As North Korean tours to Keumgang Mountain and other trips aimed at South Korean visitors are all currently frozen, trips into the DPRK by Chinese tourists are beginning to grow. On April 10, a North Korean official revealed that Chinese group tours would be warmly welcomed by Pyongyang, and on April 12, a group of approximately 400 Chinese visitors and officials arrived in the North. Pyongyang and Beijing reached an agreement on tours last February. Cho Seong-kyu, director of the Choson International Tours, stated that his office, responsible for tours for foreigners to North Korea, is preparing a tour course to Pyongyang, Kaesong, Myohyang Mountain and Nampo for Chinese visitors. He explained that since 1988, 20,000 Chinese tourists annually visit Pyongyang, and that many more tour courses were being prepared.

For the past four years, the Chinese government has banned group tours to the DPRK, but that restriction has been completely lifted. Now, tourist trains are being operated and the range of tours offered is growing. Group tours to North Korea were banned in 2006 after Chinese officials were found to have been inappropriately gambling during their trips, but tours will resume on May 12. With 800 Chinese tourists set to board a DPRK-bound train leaving from Hangzhou, it appears that many Chinese are interested in tours of North Korea. On March 18, China’s National Development and Reform Commission and its Bureau of Travel and Tourism released a “Northeast China Tourism Industry Development Plan,” in which it revealed the plan to permit tours to North Korea. Following last year’s measures to improve industry in the northeast provinces, Beijing is now aiming specifically to bolster the tourism industry in the region by arranging overland tours to Russia and North Korea, as well as developing other new domestic and international tour destinations.

In addition to the existing tour to Sonyang-Dandong-Pyongyang, new routes from Baishan (Jilin Province)-Changbai-Hyesan and Yanji-Hunchun-Fangchuan-Rajin/Chungjin have been included. Until now, tour courses to North Korea were limited to Dandong-Sinuiju-Pyongyang, Sanhezhen-Chungjin/Mount Chilbo, and Mount Baekdu-Samjiyon-Pyongyang. As Rajin Port is opened, the Bureau of Travel and Tourism also plans overland trips to the city, in conjunction with a ferry shuttling Chinese tourists to Vladivostok, South Korea, and Japan. In addition, the Yanbian Autonomous Prefecture is promoting the development of a longer tour, from Hunchun through Rajin, on to Pyongyang and even down to Panmunjom.

North Korea has announced the seizure of South Korean property at the Keumgang Mountain tourist resort, and now Chinese travel agents are signing contracts to sell tours to the resort developed mainly by Hyundai-Asan and South Korean government investment. North Korean authorities have offered six-month contracts allowing the Chinese tour operators to book Keumgang tours, guaranteeing them access to hotels and other facilities in the resort area. Over 1,000 Chinese tourists have already booked tours to Keumgang, to begin after April 20.

North Korea froze South Korean government assets in the resort, including the Visitors’ Center, a spa, and a duty-free store, and deported South Korean employees in a first stage of measures to pressure the South into restarting cross-border tours. On April 13, the North stepped up the measures, freezing Hyundai-Asan and other South Korean private-sector assets, ordering the deportation of employees related to these businesses as well. Korean Central Broadcasting reported on April 8, “Because of south Korean authorities, Hyundai’s tourism agreement and contract have become invalid,” announcing that domestic and international tours would begin again with a new tour operator.

And according to the Choson Ilbo:

The first tour groups from across China started off on their way to North Korea on Monday. China has organized group tours of North Korea since 1988, but they were available only to provinces bordering the North such as Liaoning and Jilin.

But on Monday, a group of 395 Chinese tourists left for North Korea by air or train from Beijing, Shenyang and Dandong, the China National Tourism Administration said. They will gather in Pyongyang before starting an eight-day tour of tourist spots in the capital like the Kim Il-sung statue and Mansudae, as well as Kaesong, Panmunjeom, Mt. Myohyang and Nampo.

Mt. Kumgang is not included in their itinerary, despite threats by the North to find another partner for visits to the scenic resorts. South Korea declined to resume tours there in the wake of the fatal shooting of a tourist in 2008 unless the safety of travelers is guaranteed.

However, some Chinese travel agents are offering tour programs that include Mt. Kumgang.

According to the Choson Ilbo:

A North Korean source saw around 30 identical vehicles crossing the bridge across the Apnok (or Yalu) River into Sinuiju at around 9 a.m. The vehicles were the Chinese compact sedan F3 manufactured by BYD, referred to as the “people’s car” in China due to its popularity. Around 100 cars reportedly crossed the border into North Korea on Tuesday alone. Starting last week, North Korea brought in more than 200 cars, including luxury foreign cars, jeeps and large vans. The total value of the imported cars is believed to be around US$5 million.

The North Korean regime often seeks to ensure the loyalty of senior officials by handing out the latest foreign-made cars on Kim Il-sung’s or Kim Jong-il’s birthday, but the Chinese-made cars imported this time are believed to be gifts for the middle ranks. “To my knowledge, the latest cars are gifts for mid-level officials at North Korea’s prosecution and state security agency and have been allocated to specific people in different regions,” the source said.

North Korea watchers believe the cars were bought to boost the morale of such officials, who were hit hard by the botched currency reform in December. “Failing to take care of mid-ranking officials could jeopardize the transfer of power to Kim Jong-il’s third son Jong-un,” said one North Korea expert. “The purpose of the gifts is to appease discontent.”

Judging from the pictures, it looks like the cars were driven across the Sinuiju/Dandong Sino-DPRK Friendship Bridge.  Satellite image here. 

So it appears the Kim Jong il uses automobiles in the same way foreign governments use international aid in North Korea–to “purchase” influence and support.  If the strategy works on a domestic level (within the DPRK), why does it have so much trouble on an international level?  Feel free to discuss.   

Read the full story here:
Kim Jong-il Imports Hundreds of Cars for Loyal Officials
Choson Ilbo
4/14/2010