North Korean Economy Watch

KCNA
3/9/2007

Efficient large-sized incubators and fowl pellet fodder machine have been manufactured in the DPRK, enjoying a great popularity. 

The newly-made incubator with capacity and incubation rate higher than the existing one is of great significance in intensifying the duckling production. 

It, which consists of hatching chamber, air-supplying apparatus, egg-rolling apparatus, damp-producer and air-cooler, deals with tens of thousands of eggs at a time. 

The air-supplying apparatus keeps the temperature and humidity even in the hatching chamber, and the egg-rolling apparatus is movable. 

The fowl pellet fodder machine makes different sizes of pellet fodder for mother ducks and ducklings. 

Assorted feed produced by the machine boosts the weight-increasing rate per unit of feed by 40 percent and the utility rate of feed by 13 percent compared with the previous one.

Joong Ang Daily
Yeh Young-June and Ser Myo-ja
3/9/2007

The United States has already agreed to take North Korea off Washington’s list of states that sponsor terrorism and a follow-up development will happen soon, Kim Gye-gwan, North Korea’s vice foreign minister, said yesterday.

The United States is expected to release a new list in April. Mr. Kim said no conditions were placed on North Korea’s removal from the list.

After two days of talks in New York with his American counterpart, Christopher Hill, Mr. Kim arrived at Narita International Airport in Tokyo last night and spoke to reporters briefly on his way back to Pyongyang.

“Spring is coming, so the atmosphere will change,” Mr. Kim said, describing the first round of normalization talks as “constructive.”

He also said the discussion included North Korea’s cooperation in the investigation of a highly enriched uranium-based nuclear arms program.

Mr. Kim said he and Mr. Hill also discussed the possibility of arranging a foreign minister-level meeting among the two Koreas, China, Japan, Russia and the United States. “It will probably take place around April,” Mr. Kim said. “It is, however, not to upgrade the six-party talks. It is for the six ministers to get together to give momentum to the six-party talks.”

Asked whether Pyongyang will make more demands after financial sanctions on North Korean accounts in a bank in Macao, China are lifted, Mr. Kim said, “Just think that things are going well. Don’t try to know too much about it.”

Bloomberg
Bradley Martin, Allen Cheng
3/6/2007

Chinese entrepreneur He Ho was burned by his first North Korean investment, a bakery in the shabby border city of Sinuiju. He lost his entire $20,000 when the plan to make the city a special economic zone stalled in 2003.

If another opportunity comes along, though, “I’ll be the first to go in,” the 34-year-old said in an interview in Dandong, the bustling Chinese city facing Sinuiju across the Yalu River. “North Korea’s a good investment because so many things are lacking.”

Business executives in Dandong, one of the main conduits for trade in and out of North Korea, see opportunity in the recent six-nation agreement to end Kim Jong Il’s nuclear-weapons program. They think the 65-year-old North Korean leader will now focus on fixing his country’s nearly flattened economy and may revive plans for a special economic zone — an area designed to promote foreign investment, with fewer rules and regulations than elsewhere in the country — on the western border with China.

“Most of North Korea’s trade with China is via Dandong, so a special zone in this corridor could make sense,” said Marcus Noland, senior fellow at the Peterson Institute for International Economics in Washington. “This could be the North Korean equivalent of the Chinese coastal SEZs in the early years of the Chinese reform.”

No Guarantee

There’s no guarantee against another disappointment for entrepreneurs like He Ho, said Peter Beck, Seoul-based Northeast Asia project director for the International Crisis Group, a Brussels-based organization that works to resolve crises around the world.

“The eternal optimist in me hopes that Kim will see the light and recognize the direction in which he needs to lead the economy,” Beck said in a telephone interview. “But the jury’s still out.”

At the same time, “the North Koreans have been talking about putting a special economic zone in the far northwest aimed at China for a decade,” said the Peterson Institute’s Noland. “If they get the politics right, this venture could work.”

China is North Korea’s top trading partner, with 2006 exports of $1.23 billion and imports of $468 million, according to its Ministry of Commerce.

A little over a year ago, Kim visited six booming Chinese cities, including the special economic zone of Shenzhen, bordering Hong Kong. North Korea’s Central News Agency described the nine-day trip as a visit to places “where the cause of modernization is being successfully carried out.”

Executives’ Speculation

Business executives in Dandong speculate that North Korea will develop a new zone in Cholsan County, a peninsula on the east side of the mouth of the Yalu some 50 to 60 kilometers (31 to 37 miles) south of Dandong and Sinuiju. China’s commerce and foreign ministries and North Korea’s embassy in Beijing didn’t respond to faxed requests to comment on their plans.

In 1991, North Korea built a special economic zone at Rajin-Sonbong, in the remote northeast of the country, which has failed to attract much foreign investment because of its location.  Another zone near the southern border at Gaeseong, only 60 kilometers from Seoul, has proven more popular, especially with South Korean manufacturers in search of low-cost labor.

In 2002, North Korea announced plans for the zone in Sinuiju, which would have included export factories and casinos to lure gamblers from China. Kim named Dutch-Chinese businessman Yang Bin governor of the zone. China, which hadn’t given its approval, squelched the plan by arresting Yang and jailing him in 2003 on charges of fraud and illegal land use.

Strained Relations

Kim’s test of a nuclear device in October, which strained relations with the Beijing government, didn’t halt commerce on the border, according to Shen Yuhai, general manager of Dandong Jade Ocean Trade Co. “We didn’t stop trading at any time,” he said in a recent interview.

Shen’s office overlooks a busy parking lot where Chinese customs officials examine trucks departing neon-lit, high-rise Dandong for the run-down and darkened Sinuiju.

The trucks cross on the Friendship Bridge’s single lane in the morning with manufactured goods and return in the evening, either empty or carrying minerals, silkworm cocoons and seafood, Shen said. Four trains a week cross in each direction, connecting the North Korean capital of Pyongyang with Beijing.

China is supplying its neighbor with “daily necessities, home electrical appliances and, in this season, farming tools and chemical fertilizer,” said Shen.

While business is booming, he said he’s still cautious about the risks. He requests payment in yuan, dollars or euros, not North Korean won, and accepts bank transfers only after business relations have been established.

Even then, he said, “sometimes we are cheated.”

–With additional reporting by Hideko Takayama in Tokyo and Lee Spears and Dune Lawrence in Beijing.

For a copy of a list of banned goods to North Korea: http://www.state.gov/t/isn/76138.htm

Yonhap
3/8/2007

Red cross officials from South and North Korea are to meet this week on resuming the construction of a family reunion center on the North’s scenic mountain bordering the South along the east coast, South Korean officials said.

The one-day meeting, slated to be held at the North’s Mount Geumgang resort on Friday, will also address the next family reunions via video link to be held on March 27-29.

Last week, the two Koreas agreed to resume reunion events for families separated by the border since the end of the Korean War. The next face-to-face family reunions will be resumed in early May.

Shortly after the North conducted its missile tests in July, the South suspended food and fertilizer aid. In retaliation, the communist nation immediately suspended inter-Korean talks, family reunions and the construction of the family reunion center.

“The construction has been put on hold for about eight months, so we will have to resume construction after checking whether there are technical problems. The construction will likely be completed next year, far later than the originally scheduled April of this year,” a South Korean Red Cross official said on condition of anonymity.

High on the agenda will be discussions on when to resume construction, how to check the facilities needed for construction, and how to provide supplies and dispatch engineers, the official said. The South Korean delegation will be headed by Hwang Jeong-ju, while Pak Yong-il will lead the North Korean team.

The two sides started the construction at a village near the scenic mountain resort in August 2005. The envisioned 12-story building will house two reunion halls and serve as the venue for family reunion events.

The two Koreas have held 14 rounds of family reunions. More than 90,000 people from South Korea alone have remained separated from their loved ones since the end of the 1950-53 Korean War.

International Herald Tribune
Donald Greenlees
3/8/2007

Last August, Colin McAskill, a British businessman, agreed to buy a small bank in North Korea. On the face of it, Daedong Credit Bank was not a brilliant investment.

The agreement that McAskill signed with the management of Daedong Credit at a hotel in Seoul came as the bank was caught in the grip of financial sanctions that had virtually cut off North Korea from the global financial system.

Financial institutions around the world were shunning any links to North Korean banks, making it almost impossible to transact business.

Daedong Credit was using couriers to carry cash in and out of the country in amounts as high as $2.6 million because it could not make electronic transfers to other banks.

Since September 2005, Daedong Credit had also been fighting to recover $7 million that had been frozen in a Macao bank as part of efforts by the United States to put a financial squeeze on North Korea over alleged illicit financial transactions. This was a big sum for Daedong Credit. When McAskill had examined the bank’s books, its total assets were just $10 million.

None of this has deterred him. He said during an interview in Hong Kong that he planned to execute the sale agreement within the next two weeks and take full control of the only foreign-managed bank in North Korea. The Hong Kong- based Koryo Asia, chaired by McAskill, will take control of the banking license and a 70 percent stake owned by British investors through a Virgin Islands company. The remaining 30 percent is held by the state-owned Daesong Bank. “I think it’s a magnificent deal,” McAskill said, although he would not disclose the purchase price. “The bank has been running for 12 years. It is trusted and it has been profitable since day one.”

Despite McAskill’s optimism, the future of Daedong Credit has been under a cloud since the imposition of the U.S.- orchestrated banking embargo on North Korea 18 months ago and the viability of the business remains precarious.

Even amid signs of a thaw in relations between Pyongyang and Washington, the start of a bilateral dialogue that began in New York on Monday and an agreement in six-nation talks in Beijing on Feb. 13 to start to denuclearize the Korean Peninsula, analysts say banks in North Korea will struggle to restore contacts with the global financial system.

The trigger for the financial embargo of North Korea was a declaration by the U.S. Treasury Department under section 311 of the Patriot Act that the Banco Delta Asia, based in Macao, was a “primary money laundering concern” because of its links to a number of North Korean banks, individuals and companies alleged to have engaged in product and currency counterfeiting, drug trafficking and weapons proliferation.

The U.S. and Macanese authorities began separate investigations into Banco Delta Asia and the bank was placed under Macao government supervision.

Along with about 50 North Korean banks, trading companies and individuals, Daedong Credit had its account frozen. The total amount put into “suspense accounts,” according to Banco Delta Asia, was about $25 million, with Daedong Credit accounting for the largest share. Since then, almost all foreign banks that had correspondent relations with Daedong Credit have severed contact for fear of being excluded from the U.S. financial system.

Jack Pritchard, president of the Korea Economic Institute in Washington, said it was unlikely that the United States would send an explicit signal to the financial community to resume trading with North Korea, regardless of whether Pyongyang starts to address concerns about its foreign financial transactions.

He said that although a portion of the frozen money was likely to be released soon, there would not be a “100 percent reversal” of the American stance on financial transactions with North Korea.

Daedong Credit is likely to be one of the first North Korean account holders in Banco Delta Asia to get its money back from the Macao Monetary Authority where it has been earning no interest.

In recent months, McAskill has circled the globe from his home in London acting under a mandate from Daedong Credit to persuade officials in Washington and Macao to release the account. At 66, McAskill has spent 28 years doing business with North Korea, including as a consultant to North Korean banks on debt negotiations and helping to operate North Korean foreign gold sales. He said that at no stage in his meetings with officials from either the U.S. or Macao governments had he seen any specific reason for freezing the Daedong Credit money or been told of any specific allegation about its origins.

McAskill has produced what he calls a “dossier of proof” to establish the identity of all the customers whose money is frozen and the sources of the money. Since it was founded by the failed Hong Kong finance group Peregrine in 1995, Daedong Credit has filled a valuable niche serving the foreign community in Pyongyang. It has about 200 customers among foreign-invested joint ventures, foreign relief organizations and foreign individuals, according to McAskill. The biggest single amount frozen in Macao is $2.6 million belonging to British American Tobacco, which owns a cigarette plant in North Korea.

“We irrefutably established that the money was legal,” McAskill said. “The U.S. Treasury have been going around the world saying to banks ‘close this account, close that account’ but not offering any proof of wrongdoing.” He said his due diligence of Daedong Credit had convinced him that it was a “fully legal, legitimate operation” that did not manage state accounts or had ever been connected to illicit practices.

One of the Treasury’s main allegations against Banco Delta Asia is that it facilitated the spread of counterfeit $100 bills. But McAskill said Daedong Credit had put $49 million into Banco Delta Asia in 2005 and all that money had been forwarded to HSBC for verification.

Only three of the $100 notes belonging to Daedong Credit were confiscated because they were “suspect,” he said.

McAskill has charged the Treasury with harassment after two correspondent banks — one in Vietnam and the other in Mongolia — informed Daedong Credit late last year that they would immediately close accounts because of pressure from the United States.

But it is likely to prove difficult to persuade banks, nervous about the effect on Banco Delta Asia of the long- running Treasury investigation, to take the risk of dealing with a North Korean counterpart, regardless of the pedigree of its shareholders and board.

Last week, at a meeting in Macao, McAskill was finally told by the head of a government-appointed committee supervising Banco Delta Asia, Herculano de Sousa, that it was likely that the money in Daedong Credit would be returned by the end of March.

In the meeting, McAskill told de Sousa that once the funds were freed, Daedong Credit intended to leave the money in Banco Delta Asia and resume operating its old account.

But Banco Delta Asia has informed the U.S. Treasury that as part of its cleanup both the administrative committee and the shareholders were adamant that they no longer would do business with any North Korea entities. In doing so, the bank hopes to avoid the United States making good on a threat to ban Banco Delta Asia from having any correspondent relationships with U.S. banks.

Still, McAskill insisted that Daedong Credit has not broken any law in Macao or elsewhere and that there were no grounds for it to be forced to close its account.

“I am not going to take my money back and cut and run,” he said.

Daily NK
Kim Min Se
3/7/2007

90% daily goods made in China, 50% circulated by Chinese merchants

While some prospect that North Korea may be an affiliated market of China’s 4 provinces in the Northeast, the real focus is on the merchants who actually control North Korea’s markets. Recently, North Korean citizens have been asserting that markets would immobilize if Chinese merchants were to disappear.

Lately, Chinese merchants are nestling themselves with their newly found fortune in North Korea, undeniably to the envy of North Korean citizens.

In a recent telephone conversation with the DailyNK, Kim Chang Yeol (pseudonym) a resident of Shinuiju said “Most of the tiled houses in Shinuiju are owned by Chinese merchants in Shinuiju are upper class and the rich.” Unlike Pyongyang, tiled houses in Shinuiju are greater in value than apartments. In particular, the homes owned by Chinese merchants are luxurious and impressing.

Kim said “At the moment, 90% of daily goods that are traded at Shinuiju markets are made in China.” What Kim means by 90% of goods is basically everything excluding agricultural produce and medicinal herbs. Apparently, about half of the (90% of) supplies are circulated by Chinese merchants.

Kim affirmed that the market system could be shaken if supplies were not provided by the Chinese merchants. Hence, Chinese merchants have elevated themselves in North Korea’s integrated market system, to the extent that the market could break down without their existence.

In addition to this, Chinese merchants are playing a vital role in conveying information about the external world into North Korea. Even in 2004, it was Chinese merchants to first telephone China through mobile phones relaying the news about the Yongcheon explosion. As a result, rumors say that the movement of Chinese merchants can either be a “cure” to the economic crisis in which the North Korean government seems unable to fix, or “poison,” as more and more foreign information flows into the country.

How many Chinese merchants are there in North Korea?

A report by China’s Liaoning-Chosun Newspaper in 2001 sourcing data from North Korea, states that immediately after WWII, approximately 80,000 overseas Chinese were residing in the Korean Peninsula. Then following the Korean War and the formation of a Chinese government, the majority of people, approximately 60,000 Chinese, returned home. In 1958, statistics show that 3,778 families of overseas Chinese were living in North Korea, totalling 14,351 people.

These Chinese engaged in business related to farming, home made handicrafts and restaurant business, and in the late 50’s, lost all this due to the implementation of economic planning and dictatorial regime. Since then, the majority of merchants continued to return to China until the early 80’s.

In 2001, Liaoning-Chosun Newspaper confirmed that approximately 6,000 Chinese were living in North Korea. Of this figure, more than half were residing in Pyongyang, approx. 300 families living in North Pyongan and approx. 300 families residing throughout Jagang and northern districts of South Hamkyung.

At present, there are 4 middle and high schools for children (11~17 years) of Chinese merchants, located in Pyongyang, Chongjin, Shinuiju and Kanggae. In addition to these schools, there are a number of elementary schools (for children aged 7~11 years) located sporadically throughout each province.

Wang Ok Kyung (pseudonym) a resident of Shinuiju attended Chongjin Middle School for children of overseas Chinese in 1981~86. Wang said “At the time, there were about 40 students in each year. Now there is only about 5~6 students.” Nowadays, many Chinese children complete their elementary studies in North Korea, but the general trend is to send the children to China for middle school. She said “In order to enter a Chinese university, students must have completed their middle school studies in China and must be fluent in Chinese. He/she can also go to private institutes in China.”

Fortunes made through trade between North Korea-China during the food crisis

Even until the early 80’s there were no such thing as a wealthy North Korean-Chinese merchant. They were no different to North Korean citizens.

However, in the 80’s, many people began importing and selling goods such as socks, handkerchiefs, hand mirrors and cards from China, literally through their sacks. As the 90’s approached North Korean-Chinese merchants began to experience great wealth, the time where North Korea-China trade fundamentally kickstarted.

Today, Son Kwang Mi (pseudonym, 52) falls under the top 10 wealthiest Chinese merchants in Dandong, characterizing an unique rags to riches story. In the past, Sun lived in Chongjin and was one of the first figures to trade with China in the 80’s.

In the beginning, Son was so poor that she had to sell her watch received as a wedding gift in order to buy goods to sell.

Fortunately, Son found her money smuggling gold. In North Korea, gold is considered a public good or simply put Kim Jong Il’s personal inheritance, so private trade of gold is strictly regulated. Nonetheless, there are still some laborers who export gold secretly and a great number of people still collect gold through dubious ways. In particular, after the 80’s as North Korea began to experience economic decline, more and more people sold gold secretly.

Hence, a small number of Chinese merchants infiltrated the market of secretly trading gold with China. Chinese smugglers were able to take advantage of North Koreans by greatly raise their market margins, as the supply of gold and North Koreans wanting to sell their gold was high yet the demand in North Korea low.

Son said “Of the Chinese merchants in North Korea, 60% earned a great fortune at that time through illicit trade.”

She says that there were two opportunities for overseas Chinese to make a great fortune. The first was in 1985~89 through illicit trade of gold and the second, during North Korea’s mass food crisis in 1995~98.

“During the mass famine, everything in North Korea was in shortage and so Chinese merchants began to provide the daily necessities of life. At the time, if you brought large amounts of goods such as fabric and sugar, you could make a profit of 1 million Yuan (US$137,000),” she said.

Son was fortunate enough not to miss these two opportunities which led her to great wealth and allowed her to possess a fortune of 50 million Yuan (US$6.31 million).

Chinese merchants can relatively enter and exit China freely. Also, with the ability to speak Chinese fluently and the possibility of staying in the homes of many relatives in China, the occupation possesses ideal conditions.

Joong Ang Daily
3/8/2007

North Korea yesterday asked for 300,000 tons of fertilizer in aid, the Unification Ministry said, days after the two Koreas agreed to resume humanitarian projects.

“Chang Chae-on, president of the North’s Red Cross, sent a fax message to his South Korean counterpart Han Wan-sang, requesting 300,000 tons of fertilizer and wanting to know how much and what type,” said Yang Chang-seok, a ministry spokesman.

Mr. Yang said the shipment will be sent to the North in late March or early April, after the details have been worked out.

Mr. Yang estimated the aid will cost 100 billion won. “The government earmarked 108 billion won for that purpose this year.”

The North has also asked for rice and Red Cross officials will discuss the resumption of rice aid during a new round of economic talks to be held in Pyongyang on April 18 to 21.

Korea Times
Park Hyong-ki
3/7/2007

The outlook for inter-Korean trade this year seems bright, as North Korea agreed to dismantle its nuclear weapons programs at the six-party talks in Beijing last month.

According to a survey conducted by the Korea International Trade Association (KITA), about 45 percent of South Korean companies doing business with North Korea were optimistic that the volume of inter-Korean trade will grow this year. The survey was conducted on 150 firms in February.

Some 35 percent believe that the bilateral trade will remain the same as last year’s, while only 15 percent showed negative responses toward this year’s trade, saying that the volume will “drastically” decrease.

Only two companies said they will pull out of North Korea this year, while five companies were undecided.

Last year, inter-Korean trade amounted to about $1.3 billion, up 28 percent from 2005. Key trading commodities were agricultural, chemical and textile products.

Despite North Korea’s nuclear and missile tests as well as chilly inter-Korean relations last year, South Korean companies operating in the Kaesong Industrial Complex saw their sales grow 69 percent to $298 million.

The Kaesong site is one of the major cross-border projects symbolizing economic ties between the two Koreas, which utilize North Korea’s cheap labor and South Korea’s technological skills.

The Ministry of Unification is hoping to attract about 2,000 manufacturers to Kaesong by 2012. Currently, there are 55 South Korean firms operating in the joint economic zone, which account for 22 percent of overall South-North business, according to the trade association.

The other joint business _ the Mt. Kumgang tour managed by Hyundai Asan _ suffered from the aftermath of North Korea’s nuclear weapon test. The tourism project recorded only $57 million in sales, down 35 percent from the year before.

Specifically, a total of 477 South Korean companies participated in inter-Korean trade last year, down from 523 firms in 2005, due to heightened risks following Pyongyang’s nuclear test.

About 44 percent of those surveyed said that the test had negatively affected their business with the North. The report showed that only 39 percent reaped a “little” profit last year while doing business with North Korea.

Half of firms upbeat for North trade
Joong Ang Daily
3/8/2007

Almost half of South Korean companies doing business with North Korea said they have a bright outlook for inter-Korean trade this year due to expectations for better ties with the North, a poll said yesterday.

According to a survey of 67 companies conducted by the Korea International Trade Association, 45 percent of the respondents said inter-Korean trade will likely increase this year. Thirty-five percent expected trade to remain at the same level as last year while 15 percent said it will likely decline.

The poll also said 75 percent of local companies operating in the industrial park in the North’s border city of Kaesong had an optimistic outlook for trade. The industrial complex, mainly for smaller South Korean firms, is considered a model for reconciliation and cooperation between the two Koreas. Currently, 21 garment and other labor-intensive South Korean plants are operating there, employing about 11,000 low-paid North Korean workers.

The survey said among the firms that forecast inter-Korean trade to rise, 17 percent said their continued trust in North Korean firms was the reason for their upbeat outlook, while 16 percent and 14 percent said it was a rise in new orders and expectations for inter-Korean reconciliation. The survey was conducted before a deal on dismantling North Korea’s nuclear program was reached, reflecting that local firms have maintained a positive view toward inter-Korean trade. The agreement calls for Pyongyang to shut down and disable its main nuclear reactor and dismantle its atomic weapons program.

KCNA
3/6/2007

The hospital attached to Pyongyang University of Medicine has proved successful in the micro-operation of completely fractured arms and legs.

Researchers of the microsurgery laboratory under the Clinical Institute have developed a special suture needle, key of microsurgery, by themselves, and ultramicro-surgery technology. They are successfully stitching inner, middle and outer membranes of one-millimeter-thin blood vessels separately through the zoomed view of an operation microscope.

They have also succeeded in linking dozens of neural glands of the hair-like nerve trunk.

They have conducted thousands of micro-operations including one hundred and scores of operations for fractured limbs and skin, neural gland and living bone transplantation operations since they linked the fractured arm of a patient 15 year ago.

The researchers, basing themselves on the already-made successes, are developing cutting-edge fields of surgery from traumatic orthopedic surgery to blood vessel surgery, facial orthopedic surgery and visceral organ transplantation.

Choson Ilbo
3/6/2007

Two tons of rice cultivated on North Korean soil with help from South Korean agriculture experts has reached the South’s port city of Incheon.

The rice came from a one-hundred-hectare field near Pyongyang planted with a mix of South and North Korean rice last year. The paddy yielded over 50,000 tons of rice and the shipment that arrived in Incheon was of the South Korean variety. It will be donated to a number of welfare groups as well as civilians who were displaced during the Korean War.

The project is one of several agricultural and cultural exchanges run by Gyeonggi Province which signed an agreement to cooperate with North Korea in 2004.