North Korean Economy Watch

Joong Ang Daily
Seo Ji-eun
3/24/2007

Automobile statistics from the Korea Customs Service show that South Korea imported 778 cars from North Korea from 2003-2006. Is it true that the North exports its cars to the South? Not entirely.

Under related regulations, when South Korean cars are shipped to the North for use in inter-Korean business, including commerce at Mount Kumgang and the Kaesong Industrial Complex, the cars are classified as “exports” to the North. For the same reason, when passenger cars, commercial vehicles, and trucks from South Korea break down or wear out in the North, they return to the South in the form of “imports.”

North Korea has a handful of car manufacturing factories, but there is only one still in operation, Pyeonghwa Motors. The plant is run by the 70-30 joint venture between South and North Koreas and started mass production in April 2002. It has churned out an annual average of 600 vehicles in all segments, except for trucks and large buses, for exclusive supply to North Korea. According to a Pyeonghwa Motors spokesman, the carmaker accounts for the majority of vehicle demand, with some used cars unofficially imported from Japan.

Special-purpose vehicles, including dump trucks, account for most of the vehicles sent back from North Korea to the South. Other vehicles crossing the border are multi-purpose cars, trucks and vans.

According to Yonhap:

North Korea is considering establishing a special economic zone on two small islands bordering China to help resuscitate its moribund economy, a South Korean source said Friday.

The North has been pushing to form a free trade zone on the Bidan and Wihwa islands on the Yalu River on the western border between North Korea and China, and has sounded out South Korean companies on their investment plans for the area, the source privy to inter-Korean economic projects said.

“The North has been mulling building the zone since early last year but hasn’t made headway in the wake of its nuclear test. The idea is being considered again now, however, as conditions became favorable following the Feb. 13 agreement,” the source said on condition of anonymity.

The source referred to a landmark six-party agreement in which North Korea promised to begin dismantling its nuclear programs in return for aid. The agreement, signed by the two Koreas, the U.S., China, Russia and Japan came four months after the North defiantly tested a nuclear weapon, prompting worldwide condemnation.

The economic zone is to specialize in such sectors as trade, distribution, light industries, tourism and finance, the source said.

In 2002, the North designated Sinuiju, a city bordering China, as a special economic zone, but the plan fell through after Beijing arrested its governor Yang Bin, a Chinese-Dutch entrepreneur, on bribery and kickback charges. Since then, the plan has been put on hold amid the North Korean nuclear standoff and China’s alleged opposition.

North Korea has been resorting to outside handouts since mid 1990s, when its state-controlled economy collapsed due to mismanagement and natural disasters.

Read the full story here:
N. Korea considering building special economic zone on two islands
Yonhap
3/23/2007

Daily NK
Kim Song A
3/23/2007

A North Korean missionary organization revealed that about 1,000 undergrounds existed in North Korea, totaling 135,000 members nationwide.

In an interview with Radio Free Asia (RFA) on the 21st, Pastor Issac Lee of Cornerstone Ministries International, a Korean-U.S. missionary based organization said, “About 100,000 people (North Korean Christians) are being detained in prisons or are unknown, but about 35,000 North Koreans are accessible to the Cornerstone.”

Pastor Lee said, “When I visited a U.S. missionary organization in 1984, they already had a list of 3,500 names and addresses” and estimated, “There will most probably be about 1,000 underground churches in North Korea today.”

He said, “Rather than arresting spies, greater focus is placed on capturing Christians” and explained, “It is estimated that approximately 20,000 detainees are being imprisoned in North Korean gulags. Some reports have suggested that more than half these prisoners have been detained for religious reasons. Other reports claim this figure to be at least 10% or 20,000 prisoners in custody.”

Additionally, he said, “There is a large number of Christians who die in the gulags or experience greatest torture as they are the ones to express their faith.”

Regarding the Bongsu Church and Chilgol Church created by North Korean authorities, he said, “I do not doubt that these churches are mere puppets fabricated by the North Korean government…It is a controlled show by the Chosun Christian Alliance to fill the spaces in this movement.”

Since 1985, Cornerstone Ministries International began its missionary movement in North Korea and has been sending revised version bible in simple North Korean, as well as spreading pamphlets and fostering for greater awareness of the real situation of underground churches in North Korea.

Daily NK
Kim Young Jin
3/23/2007

Many North Koreans are saying that making money is different to the past. With the sudden wave of North Korea’s Jangmadang (integrated markets) spreading throughout the nation and with the whole population diving in trade, competition is soaring high. Individualism has intensified so much that the average person openly remarks that family and friends mean nothing when it comes to money.

In mid-March, Kim Jae Chun (pseudonym, 42) of Musan, North Hamkyung province, went to visit his relatives in Yanji, China. He said, “Nowadays, you cannot make a profit by operating small-trade… Selling goods has become tough as there are so many vendors now, even around the areas of Jangmadang, though their stores may not be legitimate.”

Kim’s wife sells rice nearby the Jangmadang in Musan. Up to a year ago, she would easily sell 10kg of rice. These days, she is lucky to sell even half. Normally, 100won (10% of the rice) remains as profit after selling 1kg of rice (1,000won). Simply put, Kim’s wife income has reduced from 1,000won to 500won.

Kim said, “People who own large-scale businesses sell expensive products targeting the rich or elite officials. Though these goods are different, nowadays, it has become hard to make money with rice, noodles or by selling a couple of clothing items.”

Nonetheless, Kim did agree that some business was better than no business. At the least, trade meant that you would not die of starvation.

He explained, “If you want to earn big cash at Jangmadang, you need to possess goods with greater value. If you want to earn even more money, people say, go to the integrated markets.”

“Lately, as people become experienced in trade, the more they are becoming obnoxious. Maybe it’s because they only think about money, it seems like a battlefield. There are even cases where friends and family become distant or ignored altogether. Why should we help each other out they argue since everyone has it touch,” he said.

When inquired whether or not relatives neglecting each other was an incident which had started during the food crisis, Kim responded, “Back then, it was because people really didn’t have anything. The problem is that today, people are not willing to help, even if they have something to share. People neglecting one another during the times where distributions were terminated is different to people who now only think about money.”

Lim Gil Man (pseudonym, 44) who had traveled with Kim from Chongjin agreed with Kim. He said, “In the past, people acted the way they did because they were starving to death. Today, people either stick by others with power or engage in corruption, with more and more people focused on making money.”

“Despite this, selling itself is not so bad. Compared to the times where we were all poor, at least now since there are some rich people, we can sell goods, and we have come to live more independently.”

As competition increases between North Koreans, it is expected that profits will continue to decline. The general populace of merchants trading in the North Korea-China region suspect that unless North Korean authorities propose reform measures to control the spread of markets, this wave of marketing will produce negative effects, with the possibility of rising antagonism amongst the people.

KCNA
3/22/2007

The Democratic People’s Republic of Korea has directed much effort to the work for protecting the water environment. The protection of water environment is very important in solving the water issue, which is raised as a serious socio-economic one in the world today. 

In recent years, the DPRK has instituted the Law on Preventing the Pollution of the River Taedong (provisional), Law on Barrages, Law on Appraising Environmental Influence and Law on Land Program to intensify the legal control over water environment and augmented the state investment in the field. 

It is concretizing and constantly renewing the already instituted water environmental standards and is pushing ahead with the work for introducing the authentication system in the protection and management of water environment. 

Besides, it deepens the research for the prevention of pollution along with the work for grasping the pollution resources and restricting the permissible discharge of contaminated materials in order to improve the water quality of rivers and streams. 

A river is divided into three parts, upper, middle and lower, where water quality observation posts have been set up to examine water quality. Meanwhile, the contaminated water of the lower-stream is displaced with the fresh water of the upper-stream in spring. 

A work for preventing the pollution by the rapidly increased water plant is consolidated in the lower part of the rivers where lock gates were built. 

In order to improve the quality of the contaminated water of the border rivers, activities for joint observation and for taking prevention measures are being conducted with the neighboring countries. 

Along with this, the country also deepens the research into the prevention of oil outflow, the main contamination material in the sea, and the disposal of ballast water of foreign-flagged ships and regularly conducts the examination of underground water quality. 

The country is further intensifying the supervision over water environment for consolidating the success already made in the efforts for improving the water quality.

KCNA
3/21/2007

Kim Chaek University of Technology has developed a new kind of water quality improver.   The machine is made with the application of the cutting-edge science and technology such as nano technology.  The kernel of the improver is a filter bar. A bar is capable of refining 2,500 liters of water as “spring water”.

The filter bar, made with nano materials, consists of a layer for removing floating matters and microorganism, a layer for deodorizing smell, a layer for absorbing heavy metals and two physical filter layers. 

The new improver is superior to other kinds of water purifiers in various points.  It eliminates heavy metals, floating matters and microorganism harmful to the human body.  The water purified by the improver is clean and low in chemical combination. It supplements microelements to and improves the digestion function of the human body, thus effectively preventing various diseases.

Daily NK
Kwon Jeong Hyun
3/21/2007

A North Korean restaurant “Pyongyang-kwan” in China is facing a similar predicament as another restaurant in the same area “Pyongyang Moran-kwan,” where a female employee “Lee” was repatriated back to North Korea last October having been arrested for fleeing the restaurant. As a result, North Korean authorities made the restaurant accountable and repatriated all the employees back to North Korea, which inevitably led to the restaurant closing its doors.

In 2000 also, some female employees fled a restaurant “Pyongyang” in Yanji. As a result, the business was terminated and has yet to restart operations again.

The majority of North Korean restaurants located in China are run by entrepreneurs who have signed a contract with North Korean authorities. While the Chinese are responsible for business and property lease for the restaurant, North Koreans bestow the female workers and extract 40% of the net income.

As more and more waitresses break away from restaurants, North Korean authorities are continuing to withdraw the remaining restaurant employees, as is their custom. Consequently, if all North Korean employees are removed, the restaurant has little choice but to shut down.

North Korean workers sent overseas must undergo a meticulous selection period. North Korean authorities select graduates as their ideal candidates and even if a minor detail is undesirable, the candidate is discarded. Furthermore, North Korean authorities dispatch independent National Security Agents to regulate the overseas workers. Normally, 2~3 security agents are residing at the restaurant also.

Korea Herald
3/20/2007

‘Pyongyang pledges to use funds for education, humanitarian purposes’

The United States and North Korea have resolved a dispute over $25 million in frozen North Korean funds, clearing the way for progress in dismantling the North’s nuclear programs, U.S. officials said Monday.

The U.S. nuclear envoy, Christopher Hill, said six-party talks – which resumed Monday – could now “move on to the next problem, of which there are many.”

U.S. Deputy Assistant Treasury Secretary Daniel Glaser said the funds would be transferred into a North Korean account at the Bank of China in Beijing to be used for education and humanitarian purposes. Glaser said Pyongyang had proposed the arrangement.

The funds, some of which U.S. authorities suspect may be linked to counterfeiting or money laundering by cash-starved North Korea, had held up progress in nuclear disarmament talks.

“North Korea has pledged … that these funds will be used solely for the betterment of the North Korean people,” Glaser said.

“We believe this resolves the issue of the DPRK-related frozen funds,” Glaser said using the acronym for North Korea’s formal name, the Democratic People’s Republic of Korea.

Under last month’s deal, North Korea – which conducted its first atomic test in October last year – would get badly needed energy aid and diplomatic concessions in return for shutting down its nuclear programs.

North Korea was given 60 days from the signing of the agreement to close its main nuclear reactor at Yongbyon and allow International Atomic Energy Agency (IAEA) inspectors back into the country to supervise.

In return, North Korea would initially receive 50,000 tons of heavy fuel for energy.

The impoverished state would eventually receive 1 million tons of heavy fuel or equivalent energy aid if it permanently disbanded its atomic weapons program.

Hill said he now expected the initial provisions of the February accord to be implemented on schedule.

“We look forward to that process continuing in the next 30 days, so that we will have the shutdown of the Yongbyon facility and the sealing of it and the monitoring of it by IAEA personnel,” he said.

Hill also insisted that the United States had achieved its goals in taking action against North Korea for money laundering and counterfeiting, despite allowing the $25 million to go back to Pyongyang.

“What this means is that the North Koreans understood our concerns (and were) prepared to cooperate with us to make sure the money is used appropriately,” he said.

South Korea, which has already said it will provide the initial batch of 50,000 tons of fuel oil, welcomed Monday’s development.

“Since the issue has been resolved, there will be no big obstacles… during the initial 60-day stage for disabling North Korea’s nuclear facilities,” chief South Korean envoy Chun Yung-woo told reporters.

Japan’s chief envoy, Kenichiro Sasae, expressed similar optimism but cautioned that the focus should remain on the much tougher task of permanently putting an end to North Korea’s nuclear program.

“What is important is that this is not the end… we must work by holding a broad view, a long-term view. We must not be caught up on day-to-day movement,” Sasae said.

Yonhap
3/20/2007

South Korea will spend about $250,000 to foot the bill for the training of North Korea’s visiting under-17 football squad, the Unification Ministry said Tuesday.

In a show of thawing ties between the two Koreas after a recent North Korean denuclearization deal, the squad arrived earlier Tuesday on the southern island of Jeju for a month of training. The North Koreans are preparing for the FIFA U-17 World Cup, which South Korea will host this summer.

“We decided to tap into the inter-Korean cooperation fund to pay for their accommodations and others,” a ministry official said on customary condition of anonymity.

It is the first visit by a North Korean sports team to the South since a squad took part in an East Asian regional football competition in August 2005.

The 23 players and nine coaches arrived from a training session in the Chinese city of Kunming, and the squad is scheduled to play friendly matches against university and high school teams before meeting the South Korean under-17 team on March 30. 

South and North Korea agreed to resume joint projects, including South Korea’s rice and fertilizer aid, at their first ministerial meeting in seven months.

They are to hold family reunions via video link at the North’s Mount Geumgang resort on March 27-29. Face-to-face reunions for families separated by the sealed border since the end of the 1950-53 Korean War will be held on May 9-14.

Inter-Korean relations have warmed considerably since the 2000 summit of their leaders, but tension persists since the rival states are still technically in a state of war, as no peace treaty was signed at the end of the Korean War.

South Korea suspended its food and fertilizer aid to North Korea after it conducted missile tests in July. A possible resumption of the aid was blocked due to the North’s nuclear bomb test in October.

The latest six-party talks — involving the two Koreas, the United States, China, Japan and Russia — opened in Beijing on Monday as the U.S. agreed to release $25 million in North Korean frozen funds at a Macau-based bank, a stumbling block to North Korea’s first steps toward nuclear dismantlement.

Daily NK
Han Young Jin
3/20/2007

(UPDATE: On Oct. 23, [2008] the State Department blacklisted two North Korean companies, Korea Mining Development Corp. and Korea Taesong Trading Co., for violating U.S. bans on the sale of equipment used in building missiles or other weapons of mass destruction to Iran and Syria. Citation: “North Korean Plane Was Grounded at U.S. Request “, Wall Street Journal, Jay Solomon, 11/1/2008 )

Daesung Trading Company and Maebong Company, Two Pillars of North Korea’s foreign currency

In the 80~90’s, the aim of the People’s Army of North Korea was to make foreign currency and consequently, each division of the government began to operate trading companies. However, there were many kinds of trading companies.

The Maebong Company under the General Staff which was established in the 80’s, Birobong Trading Company, Yongsung Trading Company, Manpoong Trading Company and Danpoong Trading Company founded in the 90’s, all under the top 5 trading companies in North Korea. Of these, Maebong Company is the most well-known; once also known as Kwangmyung Trading Company until 2000.

Following “Military First Politics,” Maebong Company became one of North Korea’s active traders with Daesung Trading Company belonging to the Worker’s Party Division 39.

One of the reasons that the military became directly involved in foreign currency came from the fact that the nation was unable to acquire the necessary war supplies itself due to the economic crisis. Further, as the Soviet Union and the East European bloc collapsed, trade was changed from bartering goods to dollars and hence, North Korea was in a dire state of insufficient currency.

Presently, the Maebong Company’s main office is in Pyongyang with branches throughout the country such as the border districts of Shinuiju, Haesan and Hoiryeong.

In order to attract powerful Chinese traders, Maebong Company only appoints those who have experience with foreign money as regional directors such as North Korean citizens with relatives in China. After giving the title of regional director, a permit is given. Though the regional director is registered as a tradesman for the military, actually he/she is in fact not a soldier.

With a certificate which states their position of foreign tradesmen, regional directors have the privilege of freely entering and exiting China.

Trading branches in each city, trading with Japan in the opensea

Trading partners are mostly China and Japan. Traders from Maebong Company dealing with China exchange goods such as second hand cars, medicinal herbs, silk cocoons and seafood.

With copies of Kim Jong Il’s orders distributed by Maebong Company, trading partners are able to transport secured goods supplied by foreign currency directors as far as the border regions without much difficultly from security posts.

One defector from Shinuiju said “In 1995, hundreds of trading companies were established in Shinuiju… Maebong Company was one of these companies which served as a shabby storage factory stocking 10tons of flour and medicinal herbs in which people could exchange for aluminum. At that time, these people who were called foreign currency directors wore overcoats made of dogs fur and rode second hand bicycles made in Japan.”

At one point, Maebong Company illegally sold second hand cars along the border region and gained considerable income. Nowadays, medicinal herbs and minerals are more popular and whereas more of the traders from the West Coast export seafood such as shells and razor clams to China, expectedly, export seafood to Japan occurs mainly on the East Coast.

Conceal illegal foreign currency, smuggling of gold prohibited

In 1997, authorities conducted a thorough investigation against traders in order to straighten the chaotic mess created by border tradesmen. After the investigation, Kim Jong Il ordered every trading company to be merged under the control of each agency. As a result, trading companies which had once been organized by the military divisions were disintegrated and became incorporated as part of the Maebong Company, now an integrated trading group.

After becoming a director for Maebong Company in Hoiryeong, “Kim” who had once lived a tough life is now known to be one of the richest people living in the area, frequently traveling to China.

According to one defector who had worked under the Korea Service Bureau of Workers’ Party division 16, there were 6 employees at the Hoiryeong Maebong Company located in Manghyang, which planned to earn $100,000 annually. Also, additional funds are kept in celebration of national events such as Kim Il Sung and Kim Jong Il’s birthday.

There is a great number of Maebong Company employees who engage in corrupt activity and ultimately are defaced. There is a saying in North Korea, “earning foreign currency is educational punishment,” meaning that though earning foreign currency is an occupation preferred by the many, it does at the same time involve greatest risk. In 1997, an investigation was made targeting central authorities. Many of these directors in charge ended up receiving severe punishment.

Once, “Park” a director of Shinuiju Maebong Company was convicted under the suspicion of depositing foreign currency into a Chinese bank and while undergoing the preliminary hearing was known to have attempted self-injury by swallowing a spoon. On another occasion, ‘Kim’ of Chongjin Maebong Company was known to have been executed for being involved in a case of smuggling gold.