North Korean Economy Watch

Yonhap
6/25/2007

North Korea Monday reconfirmed its pledge to denuclearize under a February agreement, saying its funds held in a Macau bank have been transferred to the North to clear away the major obstacle to the implementation of the nuclear disarmament deal.

In an interview carried by the North’s official Korean Central News Agency (KCNA), a spokesman for the North Korean Foreign Ministry also said the funds will be used for humanitarian purposes, as promised.

The announcement came one day before a delegation of the International Atomic Energy Agency (IAEA) is scheduled to arrive in Pyongyang on Tuesday for discussions on shutting down and disabling the North’s nuclear facilities as the first step in the denuclearization program.

The spokesman confirmed that the North would soon get on with implementing the six-nation agreement signed on Feb. 13 in which the communist nation promised to shut down and seal its nuclear facilities at Yongbyon.

“As part of efforts to that end, (North Korea) is set to start negotiations on the shutdown of the nuclear facility and its verification with a working-level delegation of the IAEA in Pyongyang from June 26,” the spokesman said.

The spokesman confirmed the transfer of the funds to North Korea. “As the money frozen in Macau’s Banco Delta Asia has been transferred as we demanded, the troublesome issue of the frozen funds has been resolved.”

The released money is planned to be used to improve the livelihood of the people and other humanitarian purposes as agreed between the North and the United States, added the unidentified spokesman.

North Korea’s US$25 million in the Banco Delta Asia had been frozen since late 2005, when the U.S. blacklisted the bank as a “primary money laundering concern” because of its alleged link to the North’s alleged illicit financial activities that included counterfeiting U.S. bills and money laundering.

Washington finalized the ruling earlier this year, but agreed to the release of the North Korean funds in March on condition that the money be used for humanitarian purposes.

The transfer of the money to a North Korean account in a Russian bank was completed Saturday, according to the Russian Foreign Ministry.

This is the first time for Pyongyang to acknowledge the end of the banking dispute, which Washington had declared over in March, then again in April when the Macanese financial authorities unblocked the BDA funds for withdrawal.

North Korea refused to honor the February agreement until the money was released.

“The reason we were so serious about the (release) of the frozen funds was not because it’s a large amount but because it is the key symbol of (U.S.) hostile policy toward us,” the North Korean official said.

In a statement carried by the KCNA Saturday, an unidentified spokesman for the North Korean Foreign Ministry said the country has agreed to “start implementing the (Feb. 13) agreement” as soon as the BDA issue is settled.

The statement followed a two-day trip starting Thursday by Washington’s chief nuclear negotiator Christopher Hill to Pyongyang where he held “comprehensive and productive” discussions with his North Korean counterparts on the nuclear issue.

Daily NK
6/25/2007

It was known that Kim Jong Il received Percuteneous Transarterial Coronary Angioplasty (PTCA), a heart malady treatment by German doctors.

Early last May, Japanese weekly “Shukan Gendai” reported that Kim Jong Il suffered from a myocardial infraction and received a “percutaneous transluminal coronary recanalization bypass” surgery at the Kim Man Yoo Hospital in Pyongyang. “Bonghwa Treatment Center, through the Kim Jong Il family, is in charge of treating top North Korean officials and of course, the Kim Jong Il family, but due to the lack of surgical equipment in the ancient city, surgeries related to heart diseases are treated at the Kim Man Yoo Hospital, which has the top of the line materials and technology from Germany,” reported ” Shukan Gendai.”

However, upon inspecting the hospital system where the ranking system is actively used, there is possibility that he received treatment from the Bongwa Treatment Center, not at the Kim Man Yoo hospital. At the Bongwa Treatment center, “the top treatment facility,” for use by Kim Jong Il, can be found.

Lee Young Kook’s (45), a former guard of Kim Jong Il who defected to South Korea, memoir “I was Kim Jong Il’s guard” (Zeitgeist) introduces in detail North Korea’s hospital ranking system. According to the book, North Korea divides the civilians into 10 ranks by class and implements a “hospital ranking system” which treats members of each rank separately.

The place where North Korea’s top-level officials, including Kim Jong Il, receive treatment is the Bongwa Treatment Center, located in Shinwon-dong in Botong River-district. It is a hospital where heads of government (general-level) and the Party Committee chiefs’ immediate family members are treated. The Bongwa Treatment Center has a general department and a special department. The general department treats the medical needs of chief-level leaders and the special department treats Party Political National Committee Members, committee member candidates, Central Party Committee Secretary, and Vice-Premier of the Cabinet and above.

The reason for the high possibility of Kim Jong Il receiving treatment at the Bongwa Treatment Center is that this hospital has a “Number 1 treatment center,” which treats Kim Jong Il and his relatives. It is known that the treatment center is known to be overseen 24 hours by the Ministry of Security, which is in charge of Kim Jong Il’s security.

The hospital, which is ranked second, is the Namsan Treatment Center, which is adjacent to the Pyongyang Maternity Hospital in Daedong River-district, Munsu-dong in Pyongyang. It also oversees the Assistant-Chief (Vice Minister) of the Cabinet and the Central Party Committee’s Vice-Head, Lieutenants General of the People’s Army, and the immediate family of Foreign Ambassadorial Talks’ dispatched delegates. The resident diplomat in Pyongyang also receives treatment at this hospital

The third-ranked hospital is the Pyongyang Medical College Hospital and the Chosun (North Korea) Red Cross Central Hospital. The treatment departments of this hospital are in charge of Central Party Committee’s Department Head, Assistant Department Head, and the immediate family of the Cabinet’s middle management.

Hospitals ranked immediately below are the Kim Man Yoo Hospital and Pyongyang’s No. 1 Hospital. The members of the Central Party Committee and superintendents, the department chiefs, and their families can be seen at this hospital. If the rank of Kim Man Yoo Hospital, which “Shukan Gendai” reported as the place where Kim Jong Il received his surgery, is to be classified, then it would fall into the 4th rank.

Besides this, there is the No. 2 Treatment Center and the Staff Treatment Center, which treats the members of the People’s Army and their families. Average laborers and farmers receive treatment at the factory treatment centers or at the dong (neighborhood) or li (village) treatment centers.

North Korea is a society, which absolutely protects the safety of Kim Jong Il. It has not clearly revealed whether or not Kim Jong Il received surgery, what kind of a surgery he had, and where he received it. Subsequently, one cannot exclude the possibility of him having received surgery, not at a hospital, but at the Workers’ Party’s office building, which is located at Kim Jong Il’s oval office, at a mansion located in Pyongyang City, or at a third location.

Washington Post, Page A18
Colum Lynch
6/24/2007

Over the past six months, the Bush administration has repeatedly criticized the U.N. Development Program for channeling millions of dollars in hard currency into North Korea to finance the agency’s programs, warning that the money might be diverted to Pyongyang’s nuclear weapons program.

But the United States also has funneled dollars to Kim Jong Il’s regime over the past decade, financing travel for North Korean diplomats and paying more than $20 million in cash for the remains of 229 U.S. soldiers from the Korean War. And in a bid to advance nuclear talks, the Bush administration recently transferred back to North Korea about $25 million in cash that the Treasury Department had frozen at Banco Delta Asia, a Macao-based bank that the United States had accused of laundering counterfeit U.S. currency on behalf of North Korea.

Such transactions emphasize philosophical differences in the administration over the wisdom of engaging with North Korea and highlight the compromises that the United States, the United Nations and others face in dealing with Pyongyang.

“The U.S. has no moral high ground,” said Michael Green, a former special assistant to President Bush who served as senior director for Asian affairs in the National Security Council. “In terms of bribing Kim Jong Il, UNDP is a minor offender.”

North Korea’s regime has skillfully extracted hundreds of millions of dollars in bribes from foreign companies and governments, and has persuaded South Korea and China to supply billions of dollars’ worth of food and fuel with virtually no oversight. South Korea reportedly paid hundreds of millions to bribe the North Korean leader to attend a 2000 summit, and China agreed in 2005 to build a $50 million glass factory for North Korea in exchange for its participation in six-nation nuclear talks.

Such payments are “part and parcel of doing business in North Korea,” said L. Gordon Flake, executive director of the Mansfield Foundation, a nonprofit organization that promotes U.S. relations with Asian countries.

Since 1995, the United States has provided the North Korean regime with more than $1 billion worth of food and fuel in the hopes of forestalling famine — and of restraining Kim’s nuclear ambitions. In an effort to promote diplomatic contacts between the two countries, the Energy Department has channeled money to U.S. nonprofit agencies and universities, including a $1 million grant to the Atlantic Council to cover travel costs for informal talks between U.S. and North Korean diplomats.

U.S. military officials routinely traveled to North Korea’s demilitarized zone between 1996 and 2005 to give cash to North Korean army officers for the recovery of the remains of 229 of the more than 7,000 U.S. troops missing in North Korea since the Korean War. “There was a painstaking transfer process: cold, hard cash, counted carefully, turned over carefully,” said Larry Greer, spokesman for the Pentagon’s Prisoner of War/Missing Personnel Office.

Greer insisted that the payments, which covered labor, material and other expenses, were in line with recovery operations in other parts of the world. But he and other officials said North Korea frequently tried to inflate the costs and once requested that the U.S. military build a baby-clothing factory. The United States demurred, he said.

The Bush administration dramatically scaled back U.S. assistance to North Korea in 2002, but it continued to finance the effort to recover remains of Korean War veterans until 2005, when the U.S. military said it could no longer ensure the safety of U.S. recovery teams. Between 2002 and 2005, the United States flew a seven-member North Korean team, at a cost of $25,000 a year, to Bangkok for discussions about future recovery missions, according to the Congressional Research Service.

“It’s pretty close to a ransom of remains,” said James A. Kelly, U.S. assistant secretary of state for East Asian and Pacific affairs, adding he had little confidence that Washington could account for how the money was spent. “I personally didn’t like it, but I didn’t feel it was enough to get into a big squabble with the veterans organizations that felt strongly about it.”

Mark D. Wallace, the U.S. representative to the United Nations for administration and reform, lambasted the U.N. Development Program earlier this year for engaging in similar practices. For instance, he faulted the UNDP for flying a North Korean official in business class to New York at a cost of $12,000 to attend a meeting of the U.N. agency’s board of directors.

His complaints triggered a preliminary U.N. audit this month that confirmed that the UNDP had failed to abide by its rules by hiring workers handpicked by the North Korean government and paying them in foreign currency.

The UNDP operated for years “in blatant violation of U.N. rules [and] served as a steady and large source of hard currency” for the North Korean government, Wallace said. The UNDP’s efforts, he added, have been “systematically perverted for the benefit of the Kim Jong Il regime, rather than the people of North Korea.”

The controversy led the UNDP to suspend its North Korean operations in March after the government refused to allow it to independently hire staff members. The World Food Program and the U.N. Children’s Fund — which also pay government-supplied workers in foreign currency — remain active in North Korea.

Wallace has expanded his inquiry, alleging in congressional briefings that North Korea diverted nearly $3 million in UNDP cash to purchase real estate in France, Britain and Canada. He also contended that the UNDP received tens of thousands of dollars in counterfeit U.S. currency and imported sensitive “dual use” equipment into North Korea that could be used for a weapons program. The United States claims to possess internal UNDP documents to back up the claims but has refused to turn them over.

UNDP spokesman David Morrison said that the allegations “don’t seem to add up” and that the United States has not substantiated its assertions. He said the agency can account for the $2 million to $3 million it spends each year on its North Korea programs. UNDP officials said the dual-use equipment — which included Global Positioning System devices and a portable Tristan 5 spectrometer available on eBay for $5,100 — was part of a weather forecasting system for flood- and drought-prone regions.

“We have been subject to all manner of wild allegations about wide-scale funding diversion,” Morrison said.

U.S. officials said there is no link between criticism of the UNDP and U.S. efforts to restrain North Korean nuclear ambitions. “If I were a conspiracy theorist, I would think that way, but there is really no connection,” said a senior U.S. official who tracks the issue.

Korea Times
Andrei Lankov
6/24/2007

The recent refugee crisis in China attracted much attention to the situation around the border between the two countries. Indeed, in recent decades the porous border with China has provided the major exit opportunities for both would-be defectors to the South and refugees escaping the food shortages and poverty of the North.

Most Communist countries guarded their borders against both intruders who tried to get in, and against defectors who wanted to run away from the not-so-perfect Communist paradises. From this point of view, the border with China constitutes a serious challenge. It follows two rivers _ the Amnok and the Tuman (Chinese read the same characters as Yalu and Tumen). Both are shallow in the upper streams, and completely freeze every winter. Thus, a determined defector or smuggler can always find his or her way across the border. At least until the late 1950s _ despite of the persistent efforts of both Korean and Chinese security agencies _ smugglers systematically crossed into China and back.

In the 1950s it was not only smugglers who moved across the border. Some of that human traffic included a number of North Korean dignitaries who chose to run away to China instead of being purged. One of the most famous incidents of this kind took place in early September 1956. On August 31 of that year a group of prominent North Korean leaders openly challenged Kim Il-sung’s policy at the plenary meeting of the KWP Central Committee. They wanted to replace him with a more moderate leader, but their proposal was voted down and they were immediately put under house arrest. They appeared to be doomed, but their ingenuity helped them to find a way out (they were former underground activists, after all!). In the middle of the night the rebels managed to secretly leave the house and then drove away in a car provided by a sympathetic friend. They easily reached the border and then proceeded to China where they were eventually granted asylum. Their example was later followed by other dissenting officials.

There was a movement from China as well. At the end of the 1960s, when the “cultural revolution” was at its height, some ethnic Koreans from China fled to the DPRK which in those years was a more stable and prosperous society. Since the relations with China were quite bad in the late 1960s, these refugees were not extradited and stayed in the North.

The ethnic composition of the region is favourable for those who, for whatever reason, want to make a clandestine border crossing. There are two million ethnic Koreans in China, and most of them live close to the border. Many ethnic Koreans have relatives in North Korea, and a small number of them are even technically DPRK citizens _ the so-called chogyo (in 1997 the number of chogyo was estimated at 6,000 or some 0.3 percent of the Korean population in the region).

On the other hand, in the DPRK there are a small number of ethnic Chinese or huaqiao. The ethnic Chinese from the DPRK and ethnic Koreans from the People’s Republic were allowed to visit their relatives throughout the 1970s and 1980s, when the governments of both countries tried to minimize the foreign contacts of their citizens. Their status was unique _ and widely used for commercial purposes. This trade, however, seldom if ever required illegal border crossings. In most cases, the traders arrived with proper visitor’s visas and large sacks of merchandise.

Generally speaking, the border with China was never protected well, especially when compared with the DMZ, arguably the world’s most heavily protected border. This was deemed unnecessary. The North Korean authorities believed that the runaways would be, in all probability, apprehended by the Chinese police and then extradited back to the North. Of course, occasionally the Chinese might have made a political decision about granting asylum to a disgruntled cadre, but it was too unusual a circumstance to warrant an expensive upgrade of the border protection system. In essence, the Chinese police served as a better deterrent to those with defection in mind than North Korean guards.

And there was not much incentive to run away _ at least for commoners. North-East China was one of the poorest parts of the PRC, and until the late 1980s North Koreans enjoyed much higher standards of living than their brethren across the border.

Things changed dramatically in the early 1990s. From that time, the movement across the border _ both legal and illegal _ began to increase until it developed into a full-scale refugee crisis soon after 1995.

Joong Ang Daily
6/23/2007

In a landmark ruling, a court in Seoul yesterday cleared the way for North Korean defectors who left spouses in their communist homeland to remarry in the South.

The Seoul Family Court accepted requests by 13 defectors to divorce their spouses in North Korea.

Married North Korean defectors have so far been legally barred from remarrying in South Korea because they are already married in the North.

Under a new law on the protection of North Korea defectors revised in January, people who have obtained South Korean citizenship after defection now can file for divorce “if it is unclear whether their spouse lives in the South.”

The test case is the first of 429 lawsuits that have been lodged with the same court on the issue since 2003.

Judge Lee Heon-yeong said North Koreans have a legitimate reason for being unable to continue marriages formed in North Korea, since the current inter-Korean division is unlikely to change in the near future.

The ruling is expected to speed up the process and to increase the number of similar applications.

The number of divorce suits has grown since March, 2003 as the defectors were required to report the name of their spouse for census registration.

Daily NK
Park Hyun Min
6/23/2007

Power transmission lines not used since May 1948 have been reopened to supply electricity to North Korea. The Ministry of Commerce, Industry, and Energy and the Korea Electric Power Corporation (KEPCO) held a commemoration ceremony for the completion of the Pyonghwa (Peace) Substation on June 21st. The substation will supply electricity to a first-phrase zone (3,3mn square meters) in the Kaesung Industrial Complex. Kim Young Joo, the Minister of Commerce, Industry, and Energy, Lee Won Gul, the CEO of KEPCO, and Lee Yoon Sung, a member of National Assembly participated in the ceremony.

Natural sources of electricity were abundant in North Korea before the Korean War because most electronic power facilities built during Japanese colonial period were concentrated in the North. Southern provinces of the Korean peninsula received electricity from the North through the 154kV power-transmission line between Pyongyang and Susaek Substation in Seoul until May 14, 1948.

The new substation was completed at a cost of 35bl dollars. The line runs 16km from Munsan Substation in Paju, Gyeonggi, South Korea, through the DMZ, and terminates at the Kaesung Complex. It consists of 48 pylons, 154kV power-transmission wire, and outdoor substations in Kaesung. The substation is supplying 100 thousand kilowatts of electricity to approximately 300 factories located in the first-phrase zone of the Kaesung Complex. As demand increases, the amount of electricity supplied by KEPCO could double. KEPCO has already been supplying electricity to specific factories in the Kaesung Complex since March, 2005.

In his congratulatory speech, Kim Young Joo compared “the historic linkage of power transmission lines to repairing blood vessels between the South and North, which were ruptured in May 14th, 1948.” He added that “Completing the construction of Pyonghwa Substation will strengthen the foundation of Korean Peninsula peace. North-South cooperation can flourish by supplying a stable source of electricity to the Kaesung Complex.”

Daily NK
Kim Min Se
6/22/2007

It has been reported, colourful clothes and accessories such as gold rings are current hot trend among North Korean women, unlike their conservative dressing ritual in the past.

This transformation has been clearly revealed by Daily NK’s recent encounter with North Korea-China traders and their main importing goods for North Korea.

On the 18th, Choi Myong Hee (pseudonym), who has been trading the indispensable from Dandong, China, to North Korea, talked about this new trend in North Korea as meeting one of our reporters at some place in downtown Dandong.

Choi said “Recently white-based yellow and red floral prints have been going very well” “And also animal prints with puppies or ducks have been good,too. On the other hand, human-figured prints have not been doing well”

According to Choi, colourful looks have been the latest mode among North Korean women in big cities like Pyongyang. In particular, accessories have been a big trend.

Currently, Choi has been selling light industry goods such as clothing. However, it is accessory trading she has made a sizable profit nowadays. The accessories she has bought in Shenyang or Dalian, China at 5~8 Yuan (US$ 0.6~1) have been sold at 10~15 Yuan (US$ 1.3~2 ) in department stores and markets in Pyongyang.

Choi admitted “Accessory trading requires less cost and makes greater profit. Especially, I have never had a problem transporting them because of their efficient size.” we were told, she normally imports 10,000 various kinds of accessories to North Korea, mainly necklace and hair clips, and her major clienteles are women in Pyongyang.

Choi declared that necklaces, rings and hair clips have become common accessories for most of North Korean women. In fact, she has been trading accessories quite a few times on the sly.

“Still, necklaces and bracelets with religious symbols such as a cross or charms are prohibited” she remarked. In addition “Too much dazzling or abnormal looking necklaces are also forbidden.. So, it is crucial to import most favored design and colour.”

It is considered this radical change of North Korean women has resulted from increasing flexibility of the population because of the stimulated market as trading has been the only way to provide maintenance due to the fall of rationing system.

Besides, the influence from Chinese accessory fashion is observed to be one of the major factors as growing numbers of North Koreans have been visiting China.

Moreover, this changing trend of North Korean women, who have begun to dress up with colourful clothes and accessories, is perceived as a reflection on women’s natural desire, admiration on beauty.

Bloomberg (Hat Tip One Free Korea)
Saori Kuji
6/18/2007

The de facto embassy of North Korea in Japan may lose its headquarters after a Tokyo court ordered it to pay 62.7 billion yen ($508 million) to a government-run bad loan agency to cover unpaid debt.

The Tokyo District Court today ruled the General Association of Korean Residents in Japan must repay the government-run Resolution and Collection Corp., which took over non-performing loans advanced by credit companies associated with the pro-Pyongyang group. The court ruled the RCC can seize the group’s headquarters in central Tokyo in lieu of payment.

“This is clearly a huge blow for the organization,” Motoi Tamaki, chief director at Tokyo’s Modern Korea Institute, said. “The group is one step away from complete dissolution.”

The association represents about 50,000 North Koreans who live in Japan and acts as a representative for North Korea, which has no formal ties with the Japanese government. The group has channeled funds to the reclusive regime in North Korea, according to members.

The RCC told the court the funds were a portion of loans extended by now-collapsed credit unions, or Chogin, that were associated with Chongryon, which is liable for the debt because it received the money.

“Public funds were pumped into the fallen credit unions. It is entirely reasonable for the RCC to try to collect the money,” Prime Minister Shinzo Abe said in a comment on today’s court ruling.

Collapsed Deal

Chongryon made headlines last week when it emerged that a former head of Japan’s domestic spy agency signed a contract to buy the group’s headquarters in central Tokyo. The deal collapsed because of the RCC legal action and because the former official, Shigetake Ogata, wasn’t able to raise the funds.

Ogata said he set up an investment company called Harvest to buy the property to help Chongryon, which is called Chosensoren in Japanese.

“The ruling puts pressure on resident North Koreans and this is what I was afraid of,” Ogata said at a press conference today. “This ruling will be conveyed to North Korea and there will be retaliation against Japan which is not good for Japan’s national interest.”

North Korea test fired a long-range missile over Japan in 1998 and last year tested a nuclear device and other missiles, raising tensions in North Asia. The issue of Japanese citizens kidnapped by North Korean agents in the 1970s and 1980s is also impeding attempts to normalize ties.

Channeling Funds

Japanese prosecutors raided Ogata’s home in connection with the attempted purchase, Asahi newspaper reported on June 14. Prime Minister Shinzo Abe and Toshio Yanagi, director general of Japan’s Public Security Intelligence Agency, criticized the former spy head’s action.

“I cannot say much about it since the issue is still under investigation,” Ogata said.

Chongryon, founded in 1947, was set up to represent the interests of North Koreans resident in Japan and many of them donated money and goods to the organization and schools run by the group.

Some of the funds were funneled to the Stalinist regime in North Korea, which regularly criticizes Japan.

“I realized that Chosensoren was just a slave of Pyongyang and they didn’t help us at all,” Kim Jong Il who changed his citizenship to the South 10 years ago said. Kim is no relation to the North Korean leader Kim Jong Il. “They spied on us and took our money to support Pyongyang. We observe this court ruling with disgust.”

Korea Herald
Matthew Lamers
6/21/2007

“Would you rather pay $1,000 a month for a laborer in South Korea, or would you rather pay $60 a month for a laborer in North Korea? It is up to you.”

When Byun Ha-jung, general manager at Hyundai Asan, put that question to a bus full of potential investors visiting North Korea, a sputter of chuckles filled the air.

But he was serious.

Yesterday, Hyundai Asan invited just over 100 guests to tour North Korea’s Gaeseong industrial park, just a few kilometers away from the Demilitarized Zone.

The potential benefits of investing in Geaseong are enormous. Up for grabs for almost anyone willing to front the cash, are factories for 43,900 won ($47.32) per square meter, even cheaper than in China, and an educated and hard working labor force that demands only about $2 a day.

Development of the complex has been steaming ahead and senior vice president of Hyundai Asan, Jang Whan-bin, said that the reason is that South Korean corporations are essentially being squeezed by rising labor costs in China and elsewhere. “It is difficult to compete with Chinese companies. Some South Korean companies that have moved production facilities to China will have to return to Korea” to maintain competitiveness, “and Gaeseong is the best alternative.”

Gaeseong’s laborers are a fraction of the cost in comparison to workers in developing countries like China and Vietnam. The minimum wage for North Korean workers in the industrial park is $50 a month for a six-day work week. Each worker is entitled to 14 days holiday per year, and maternity leave is up to 150 days, 60 of which are paid.

In 2004, the first 255 North Koreans were hired to work in the complex and as of February 2007 there were over 11,000. That number is expected to swell north of 70,000 before the first phase of the complex’s development is completed.

Han Cheon-seung, co-CEO of Citigroup Global Markets Korea, said that the North is “one of the last frontiers for development. The workers’ quality is quite high here. I think this project is really going to work.” Han added that he thinks the biggest draws for Gaeseong are labor, quality and the Korean connection. “Labor is about 1/30 of the cost here,” and the logistics of having factories located on the peninsula “is much easier than having factories in Vietnam or China.”

“About 7,000 companies have moved abroad – 2,000 of those to China – but Gaeseong is much closer to home and there is no language barrier. One very important question is – can we trust the North Korean government.”

A pertinent question indeed. It is often quipped that the only thing reliable about the North’s government is its unpredictability.

Still, some potential investors were not fazed at all by the geo-political tension between South and North Korea. Others voiced great surprise that a project like Geaseong has been as successful as it has. “What impresses me is the (cooperation) for reunification, roads and railroads being reconnected, for example … In Germany, the Berlin Wall came down and that was it,” said Knut Kille, a native German, now executive vice president of Robert Bosch Korea.

Regarding the North’s nuclear programs, Hyundai Asan’s Jang said, “The overall development of the country is the most important thing. I am not concerned with only the nuclear issue.”

Korea Times
Ryu Jin
6/21/2007

South Korea began large-scale supply of electricity to the inter-Korean industrial park in North Korea’s border town of Gaeseong, Thursday, opening the way for power transmission through high-voltage cables between the two sides for the first time in about six decades.

Power distribution to the industrial complex has so far been carried out through pylons for more than two years, but now it will be distributed by a transformer substation.

South Korea’s state-run Korea Electric Power Corp. (KEPCO) said it has completed the construction of the Pyeonghwa (peace) Substation in Gaeseong to provide factories in the first-phase, 3.3-million-square-meter site of the joint industrial complex with ample electricity.

According to the Ministry of Commerce, Industry and Energy, the newly built substation receives 100,000 kilowatts of electricity — enough to serve up to 30,000 households — from the South via 154-kilovolt transmission cables that cross the Demilitarized Zone (DMZ).

Since March 2005, KEPCO provided the industrial complex with 15,000 kilowatts of electricity through 22.9-kilovolt power lines. But, in late 2004, the two Koreas agreed on the larger-scale power supply for the industrial park.

Construction of the substation and erecting the 48 pylons that carry the power lines for 16 kilometers across the DMZ began in April last year with a budget of 35 billion won ($37.7 million).

Currently, 23 South Korean companies — mostly small- and medium-sized enterprises — operate in the complex, located some 60 kilometers northwest of Seoul, with an additional 16 preparing to start operations.

Officials managing the joint industrial park hope to lure up to 300 South Korean firms and possibly some foreign companies once the first phase of construction is completed later this year.

“Coming just after the reconnection of the railroads last month, the reconnection of the power transmission line between the two Koreas has a historic meaning linking the blood vessels of the two sides,’’ said Minister of Commerce, Industry and Energy Kim Young-ju in a ceremony.

In May 1948, North Korea unilaterally cut off power to the South, which consumed an average 103,000 kilowatts of electricity a month before the suspension. Two years later, the Korean War (1950-53) broke out and most links between the two Koreas remained severed until the late 1990s.

Exchanges and cooperation between the two sides, including various cross-border economic projects such as the Gaeseong industrial park and Mt. Geumgang tourism projects, have expanded drastically since the first-ever inter-Korean summit in June 2000.

Deputy Energy Minister Ahn Chul-shik said the electricity will be used only in the industrial complex and that any outside use will be contingent upon separate arrangements between Seoul and Pyongyang.

North Korea has the capacity to generate up to 7 million kilowatts of electricity, according to KEPCO, but the poverty-stricken Stalinist state only produces around 2 million kilowatts due to a lack of fuel and dilapidated infrastructure.

South Korea has the capacity for 67.5 million kilowatts and produces up to 61.5 million kilowatts during peak summer months, according to the ministry and the state-run electric power corporation.