North Korean Economy Watch

Korea Herald
Chris Gelken
6/20/2006

North Korea is open for business and for the past four or five years has consistently shown that it wants to go forward by welcoming international investment. That is the bullish opinion of Roger Barrett, managing director of Beijing-based Korea Business Consultants.

Barrett was in Seoul to meet with executives of the newly formed Chosun Development and Investment Fund, which recently won regulatory approval from Britain’s Financial Services Authority to begin approaching potential investors.

“Being first into a market isn’t always the best thing to do unless you really understand the risk and rewards. I believe those who are involved in setting up this fund have substantial experience in emerging and developing markets, so I feel very positive,” Barrett told The Korea Herald.

The emergence of this fund came as no surprise to Barrett, despite recent and ongoing political tensions with the North.

“It has been talked about for some time. We have been in touch with investors who have been seeking ways to expand their portfolio of projects in a managed way, and the approval of the fund by the British Financial Services Authority is a big green light to move forward.

“It presents investors with an exciting new opportunity in a market that is little understood,” Barrett said.

The financial sanctions imposed on North Korea last September may have frightened off some potential investors, but not Barrett or his company’s senior investment manager, Adrian Cortez.

“This fund represents one of the first times that North Korea will be exposed to international financial standards,” Cortez said. “I mean even Gaeseong is still more of an agreement between South and North Korea. But now for the first time you have a group of international investors that are going to apply international standards of due diligence. Of course there are going to be problems going into it, but we don’t see them as insurmountable.”

Barrett added that the recent difficulties of moving investments into the North and moving profits out, has eased.

“The bank we work with is the Daedong Credit Bank. As you would expect, they have a diverse range of correspondent banks,” Barrett said.

“Although things were shut down in Macau by what are easily referred to as U.S. sanctions, we have many clients and partners operating from Asia and Europe who are not directly affected.”

Some international investors may also be deterred by recent claims of exploitation of North Korean workers in foreign-invested firms, in particular at the Gaeseong Industrial Park just north of the heavily fortified border.

“You have the quotes that make great soundbites, you have this huge disparity in wages, but with proper monitoring – which the North is reluctant to do but is still being talked about – we may find that the fair wage is $4 a day,” Cortez said. He added that even at that rate some critics may not be satisfied, “but that may actually be a good livable wage for them considering many of their other expenses are cared for.”

Barrett pointed out that many of the workers’ expenses are actually covered by the government.

“In a communist society like the DPRK they get free medical care and education. They actually get quite a lot from the government including housing,” he said, drawing a comparison between the North today and where China and Vietnam were 20 or 10 years ago.

And Barrett believes the North can emulate the success stories of China and Vietnam.

“I am very confident because I believe a market of 23 million people, the same size as Taiwan or Malaysia, presents a lot of opportunity for business combined with the fact that there are a lot of resources of interest to overseas investors.

“All of those factors I think will drive business, trade and investment in a way that everybody can benefit. And I think that is the way forward,” Barrett said.

Korea Herald
Jin Hyun-joo
6/20/2006

A senior United Nations official expects that North Korea will join the U.N.’s initiative to connect rail links between the Korean Peninsula and Europe by November.

Kim Hak-su, executive secretary of the United Nations Economic and Social Commission for Asia and the Pacific, told The Korea Herald that Pyongyang has recently shown positive signs of joining the Trans-Asian Railway Network project.

A test run of container trains on the transcontinental route is possible if North Korea signs the agreement this time during a ministerial conference on transport slated for Nov. 6-11 in Busan, South Korea, said Kim.

The communist nation’s possible participation in the “modern Silk Road” could add momentum to the currently stalled inter-Korean railways projects, observers say.

“North Korea will be expected to sign this one. Every sign shows that they’ll participate. Hopefully in November this year if it is concluded, we are planning a container demonstration run starting from Busan, Seoul, Pyongang, Shinuiju, Beijing and to the West,” he said in an interview with The Korea Herald.

The trans-Asian railway network consists of about 81,000 kilometers of rail routes connecting 28 countries from Asia to Europe. Of the five routes needed for the railway, only the trans-Korean leg is missing. The conceived route’s four other railways run through China, Siberia, Mongolia and Manchuria.

UNESCAP is spearheading the ambitious project as part of its efforts to promote economic and social development in the region.

In 2001, North Korea did not sign a multinational agreement on the implementation of test runs of container block-trains on some routes of the trans-Asian railway.

“If it (the plan) materializes, I will volunteer at the moment to ride on the train first,” the 68-year-old Kim said.

He said other countries’ active participation in the project will pressure the North to join in the move.

“There is what we call a peer countries’ group. Other countries sign, then DPRK will (feel) the pressure.”

Regarding Kim’s optimism for the North’s participation in the project, Na Hee-seung, an adviser with the presidential committee for Northeast Asian cooperation initiatives, said, “Chances are half and half. Hopes are raised, however, as railway issues were actively discussed between the North and other countries this year.”

The multilateral efforts to draw the North to the trans-Asian network will also pave the way for the inter-Korea railway to run, Na added.

“The multilateral action can help resolve the inter-Korean (railway) issue,” he told The Korea Herald.

Late last month, North Korea abruptly cancelled test runs on cross-border railroads which were reconnected in 2003. The railway has been left idle because of the North Korean military’s objection to a test run.

Kim visited Korea last weekend to attend the inauguration ceremony of the first U.N. agency set up in Korea. UNESCAP is headquartered in Bangkok, Thailand.

UNESCAP opened its first Information and Communication Technology for Development Training Center in Incheon, South Korea, with the aim of bridging the gap between IT haves and have-nots in the Asia-Pacific region.

The center will provide training to policy makers, ICT professionals and others from 62 member countries while sharing best practices in the area of ICT development.

Microsoft Corp. also signed a memorandum of understanding with UNESCAP pledging $1 million in support, including software, equipment and cash contributions.

Update: Chavez  has postponed his visit to the DPRK. 

Bloomberg:

Venezuela’s Chavez Says Visit to North Korea Planned, No Dates

Venezuelan President Hugo Chavez said he still plans to visit North Korea but gave no dates for a possible visit.

Chavez, 51, said last month he planned to visit North Korea during a tour starting today that will also take him to Argentina, Belorussia, Russia, Qatar, Iran, Vietnam and Mali. North Korea was subsequently dropped from his agenda without any reason being given.

“It’s still in our plans” to visit North Korea, Chavez said during a press conference today before leaving for Argentina. He gave no indication when a visit could take place.

North Korea earlier this month defied international appeals led by the U.S., China, Japan and South Korea and test-fired seven missiles, including a Taepodong 2 that may be able to reach Alaska. Some Venezuelan officials, including Deputy Foreign Minister Mari Pili Hernandez, said North Korea had a right to test the missiles.

Chavez criticized countries such as the U.S. for condemning North Korea’s missile tests, while not criticizing Israel’s incursion into Lebanon.

While in Moscow, Venezuela will sign several defense accords, including one for the purchase of Sukhoi Su-30 military jets, and others to manufacture Russian munitions in the country, Chavez said.

State oil company Petroleos de Venezuela will also sign an agreement in Mali to help that African nation explore for oil, Chavez said.

Venezuelan Foreign Minister Ali Rodriguez also suffered a “pre-heart attack” today and was hospitalized, Chavez said. Rodriguez, 68, formerly served as secretary general of the Organization of Petroleum Exporting Countries and president of state oil company Petroleos de Venezuela SA.

from the Korea Herald 6/27/2006:

Venezuelan President Hugo Chavez confirmed last week he plans to visit North Korea next month.

During a visit to Panama, Chavez told reporters that he will be going to the North to discuss science and technology cooperation.

He is most likely to fly to Pyongyang at the end of next month on the occasion of his planned trip to Russia on July 25.

North Korea and Venezuela have been giving signs that they were getting chummier since last year.

Last September, Yang Hyoung-sup, deputy head of the Presidium of the Supreme People’s Assembly of North Korea visited Venezuela, followed by a trip by an economic delegation in November which returned a trade pact.

Venezuela set up its first-ever permanent ambassadorial post in Pyongyang since their bilateral ties were forged in 1974. Venezuela’s Foreign Ministry delegation traveled to the North in May.

Observers say such flurry of exchanges can be the two countries’ “strategic alliance” against the United States.

North Korea, for its part, is protesting Washington’s financial block of its foreign currency exchange channel in Macau, and threatening a missile launch that could hit parts of Alaska.

Pyongyang has long been citing Washington’s “hostility” and “threat of attack” as its reason to build up nuclear weapons programs, or in boycotting nuclear talks.

The United States branded the North part of an “axis of evil” in 2001.

In the meeting next month in Pyongyang, Chavez is likely to see eye-to-eye with North Korean leader Kim Jong-il their alliance against the United States.

While Venezuela, the world’s fifth-largest oil-rich country, can offer energy resources to deprived North Korea, North Korea can offer conventional type weapons and missiles to Venezuela, which is looking to fortify its military power.

But observers hinted the strategic alliance may fall short of turning into a long-term comradeship.

“In order to create the anti-U.S. frontline sought by the North and Venezuela, there must be participation from European countries. As there is high possibility of their alliance splitting, it must be watched whether their cooperation will continue,” Prof. Kim Ki-jeong of Yonsei University was quoted as saying by Yonhap News.

from the Joong Ang Daily:

After North Korea began a capitalist experiment by adopting economic reform measures in 2002, incentive payments have become common at communal farms, following the lead of factories in urban areas. After the North Koreans quickly grasped the essence of capitalism ― the more they work, the more they earn ― productivity at North Korean farms has increased, and some workers have become the rich in a famine-stricken country.

Paek Kun-su, a 72-year-old farmer at the Chilgol Farm near Pyongyang, met with the JoongAng Ilbo on May 14, during a trip to the North by a team from the newspaper, which was allowed to tour a large number of economic sites last month.

Chilgol Farm is one of North Korea’s representative state-run farms, the authorities there said. After Mr. Paek developed a new variety of rice that yields more with less fertilizer, he was given 15 million North Korean won ($100,000) as a bonus. That was an extravagantly large sum in the North, where a public servant with 30 years of service receives a monthly salary of 6,000 won. A North Korean worker at the Kaesong Industrial Complex receives about $60 a month, and even that is higher than the average salary in the North, so Mr. Paek’s windfall was worth about 160 times that figure.

Mr. Paek said his rice variety, called only “Number Six” in a bow to socialist realism, yielded more than 4 tons per acre in last year’s crop. He also stressed that the new rice variety requires less fertilizer than the ones it replaced and is resistant to attacks by insects. “It can be planted where the temperature is low,”Mr. Paek said. “It can be planted anywhere on the west coast of Korea and anywhere south of Kilju, North Hamgyong province, on the east coast.”

Those claims, however, may require some caution in accepting. For example, the average rice yield in the United States is estimated at about 3.5 tons per acre; the figure in Korea is 2.2 tons.

Mr. Paek said he introduced the new rice variety at a national science and technology fair on May 5. He was selected from more than 50,000 participants as the grand prize winner.

He said he was once a director at North Korea’s rice research institute, a part of the Academy of Science for Agriculture. During his career as a scientist, he said, he won six awards, including medals and a television set, but never a cash prize.

“I am very happy to contribute to increasing crop production in our country and helping resolve food shortages here,” he said, adding that he began developing the new strain of rice in the mid-1990s, after seeing large number of his countrymen dying of hunger.

Mr. Paek’s windfall is out of reach for almost all North Koreans, but many farmers do seem to enjoy better living conditions after the incentive payment system was established. At the Chongsan Cooperative Farm in South Pyongan province, Ko Myong-hee, a 46-year-old manager, said farmers there are living in stable conditions. The JoongAng Ilbo toured the farm on May 14.

Ms. Ko said the farm’s 600 workers produced 8,000 tons of rice in addition to other crops, vegetables and fruits. The farm has about 1,470 acres of rice paddies and 980 acres of fields and orchards. (The difference between that farm’s rice output and Mr. Paek’s claimed yields is startling.)

North Korean farms usually complete their harvest in October, and the government purchases the crops. Milled grains are purchased at 40 won per kilogram, and raw grain at 20 won per kilogram.

Ms. Ko said the Chongsan Cooperative Farm’s workers each received an average of 500,000 won in cash last year in addition to the food they consumed. The incentive payment translates to about 40,000 won per month, about eight times higher than the salary of a Pyongyang office worker. A factory worker in the North with high skills can earn as much as 20,000 won per month, including incentive payments.

“During the famine of the mid-1990s, production went down sharply, but we managed to survive,”Ms. Ko said. “Recently, we improved our crop varieties and the quality of farming land, and production went up after that.”

An official at the National Reconciliation Council, which arranged the visit, said farm villages had suffered relatively less from the severe famines of a decade ago. “Those who had relatives in farming villages received a lot of help from them back then,” he said.

With slowly improving farming conditions, North Korea began last month a revived campaign to mobilize the nation’s workers for agriculture. Another National Reconciliation Council official said a similar campaign last year was successful; “Students older than 12 years and other laborers were mobilized to support farms in this rice planting season,” he said.

North Korea has been living on foreign food aid for more than a decade, and the country is struggling to end its perennial food crisis. “We have high pride, and you can imagine how bad the situation used to be when we asked the international community to help us,” the National Reconciliation Council official said. “But we cannot live on foreign aid forever.”

The country focused on building irrigation waterways to improve farming conditions, officials said. During the JoongAng Ilbo’s visit to the Academy of Agricultural Science, it saw 2,600 researchers working to develop more productive and hardier seeds and more effective fertilizers. The seed improvement project largely focuses on rice and potatoes, the academy said.

“We aim to reach 8 million tons of annual food production by 2007,” a researcher at the academy said.

Ri Il-sop, the science exchange director at the academy, said rice farming in the North used to employ “dense planting” methods until recently, but a test of “thin planting” has been conducted with new varieties of seeds. “The test has been successful so far,” Mr. Ri said. “We can farm easily and save seed with the new methods.”

Another senior researcher at the academy, Pak Sok-ju, said providing information about land conditions and weather is also an important project of the academy. He said other necessary data include things such as the length of the planting season around the nation and the effects of fertilizer usage. “We are developing the program to find a new way of farming in the information age,” Mr. Pak said.

While the North Korean government has called such efforts “an agricultural war,” experts in South Korea said the famine-stricken country still had other crucial tasks at hand. An energy crisis and a shortage of farming tools and fertilizer are crushing burdens, they said, adding that mobilizing manpower and improving seed quality cannot alone resolve the underlying problems in keeping North Korea from being able to feed itself.

Korea Times
Seo Dong-shin
6/19/2006

Chang Sun-sup, who has been on the forefront of the multinational project to build two light water reactors (LWRs) in North Korea for the past decade, Monday resigned as administrator of the Office of Planning for the Light Water Reactor (LWR) Project at South Korea’s Unification Ministry.

His resignation follows the official termination of the decade-long Korean Peninsula Energy Development Organization (KEDO) project and an agreement to liquidate it by South Korea, the United States, Japan, and the European Union (EU) earlier this month.

Allegations of North Korea’s covert pursuit of highly enriched uranium in 2002 put the KEDO project on repeated suspensions before its official termination three weeks ago.

Chang, 71, was the oldest public servant in the South Korean government. He began his career in 1963 at the Ministry of Foreign Affairs and Trade, and was ambassador to Denmark and France before heading the LWR project in 1996.

Highly respected for his language and diplomatic skills, Chang reached retirement age in 1999, but retained his Unification Ministry post.

Joong Ang Daily

The government said yesterday it would give loan guarantees of up to 10 billion won ($10.5 million) to companies operating in the Kaesong Industrial Complex in North Korea.

The guarantees, offered as a means of encouraging more manufacturing activity there, will be available beginning late this year.

The Korea Credit Guarantee Fund, a government-owned fund, will guarantee loans extended by banks and other financial institutions. The guarantees will be limited to seven years, and will carry a price tag of a maximum of 3 percent of the loan amount.

The decision was made at a meeting presided over by Han Duck-soo, the economic deputy prime minister.

Finance Ministry officials said such guarantees are limited to 3 billion won for small and medium businesses operating domestically. Those “ordinary” guarantees are also available to exporters and trading companies who want to open or expand domestic facilities.

Companies operating in Kaesong are also eligible for direct loans of up to 5 billion won from official inter-Korean economic cooperation funds.

North Korea has grumbled about the slow pace of building up the Kaesong complex; part of the problem, the ministry said, is that there is some hesitation by companies and difficulty in obtaining loans because of the perceived political risk and the difficulty in using assets located in North Korea as collateral for loans in the South. Those questions, coupled with what the ministry hopes will be a surge in interest in manufacturing at the complex, were the spurs for the new guarantee program, finance officials said.

Seoul is pushing its trade partners to treat goods made in Kaesong as domestic Korean products, a request accepted by some but rejected by others, including the United States. Some trade experts also worry that the new guarantee program could be seen as government subsidies to manufacturers, which could be illegal under international trade rules.

Fifteen companies are operating at the complex now; another 23 are preparing to start.

Yonhap
6/16/2006

Japan’s parliament on Friday passed a bill that requires the government to impose economic sanctions on North Korea unless it improves its human rights situation and resolves the issue of its abduction of Japanese citizens in past decades.

The new law will take effect in one month after going through the due administrative process. The enactment received approval from the ruling Liberal Democratic Party and its coalition New Komeito Party and the major opposition Democratic Party.

The enactment is the third in a series of economic sanctions Tokyo has imposed to cause North Korea to return Japanese citizens who were abducted from the late 1970s to the early 1980s. Japan revised pertinent laws in 2004 to enable the government to ban money transfers to North Korea without U.N. approval and restrict North Korean ships from entering Japanese ports in 2004.

The new law on North Korean human rights stipulates the abduction issue as a “national duty” that the government has to take. It says if Pyongyang does not make progress on the issue, Tokyo should mobilize economic sanctions on the communist country, provide help for North Korean defectors and offer financial aid to non-governmental organizations helping the defectors. The law set a week in December as a publicity week for the government to enlighten the public on the North Korea issue and required the government to submit an annual report on its efforts to deal with it.

Earlier in the day, the European Parliament passed a resolution that called on the international community to make efforts to improve the human rights situation in North Korea. The resolution, passed in a plenary session in Strasbourg, France, particularly urged Pyongyang to release information about the whereabouts of Son Jong-nam, a 48-year-old North Korean man who was arrested for spilling tales about the situation in the North to his brother in China and sentenced to death.

From the BBC:

Japan’s parliament has passed a bill calling for economic sanctions against North Korea unless a dispute over kidnapped Japanese citizens is solved.
The North Korea Human Rights Bill calls for sanctions to be imposed if no progress is made on the abduction and other human rights issues.

It could be enacted by Friday, as both ruling and opposition parties back it.

But the bill does not specify how progress would be assessed or set a deadline for imposing sanctions.

Japanese Prime Minister Junichiro Koizumi has been cautious on the issue of imposing sanctions against North Korea in the past, analysts say.

“The government will take into consideration international trends comprehensively,” the bill said.

The sanctions would include money transfers from North Koreans in Japan, an important source of funds for the North.

‘Worst phase’

The bill was passed just hours after North Korea warned Japan against continuing to bring up the abduction issue.

As already clarified by the DPRK more than once, the ‘abduction issue’ had been completely settled

North Korean spokesman

A spokesman from the North Korean Foreign Ministry said that relations between the two nations were at “the worst phase in history”.

The spokesman said the blame lay with Japan for its attempts to internationalise the abduction issue, state news agency KCNA reported.

Pyongyang has admitted kidnapping 13 Japanese citizens in the 1970s and 80s and used them to train its agents.

Five of the 13 abductees were allowed to return to Japan in October 2002, but North Korea said that the other 8 people had died.

It says the issue has now been resolved.

“As already clarified by the DPRK more than once, the ‘abduction issue’ had been completely settled thanks to its sincere efforts,” the Foreign Ministry spokesman said.

But Japan believes North Korea is not being completely honest about whether the abductees are still alive and how many of its citizens it abducted.

The issue has sparked public anger in Japan and has dogged relations between the two countries for years.

Joong Ang Daily
6/16/2006

Seven North Korean teachers attended a middle school class here yesterday to watch the presentation of lessons on Korean reunification prepared jointly by North and South Korean educators.

This is the second year that teachers on both sides of the DMZ have collaborated on lessons to mark the anniversary of the 2000 inter-Korean summit, but it was the first time North Korean teachers have watched the presentation of the material in the South.

At the Mujin Middle School library yesterday, 36 second-year students met Kim Song-chol, the head of the North Korean Educational and Cultural Workers’ Union, six other teachers and two North Korean reporters. Kwon Su-hee, 27, an ethics teacher at the school, presented the lesson.

Bolstered by a video clip of the meeting of the two Korean leaders, Kim Jong-il and Kim Dae-jung, in 2000, Ms. Kwon described the background and repercussions of the meeting. Another video clip showed North Korean students in their classrooms.

“Children in North Korea are not different from you,” the video’s narrator said. “They are your friends with innocent smiles and dreams.”

Some students, however, appeared puzzled by the material. “I couldn’t fully understand the class,” one said, “but I think that North and South Korean students would have more in common if we studied the same things.”

Kim Young-sik, the principal of Moranbong First Middle School in Pyongyang, said, “I felt like I was watching students at my school. We should make this joint class work, because Korean unification depends on our students.”

From the Daily NK:

‘Good Friends’, an organization for aiding North Korea, revealed on a newsletter of the 14th that, “The North Korean upper-class families usually live in the houses valued at from 27 million to 40 million won and have a bed valued at 300,000 won($100) and furniture at 800,000 won($267)”, and “some have housemaids in their houses”.

Furthermore, the upper-class families furnish with VCRs, vacuum cleaners and electronic heaters besides six home appliances (Refrigerators, sewing machines, TVs, washers, recording machines and electronic fans) that general North Koreans wish to have once in their lifetimes.

Plus, it added, “They spend 30,000 won in purchasing rice, pork, egg, Alaska pollack, various fruits and vegetables a month, and their total expenditure a month including other expenses amounts for more than one million won”.

It explained, “In the case of North Hamkyung province, their main sources of income are generally black market, drug traffics, curio dealing, wholesale carrying food and industrial products by car to Najin or Chonjin”, and “To get guaranteed, generally they closely connect with officials working at judicial authorities”.

According to the newsletter, however because most of the North Koreans maintain subsistence level, the gap between the rich and the poor are increasing.

It newsletter further explained that, “The gap between the rich and the poor varies according to areas, countries or cities”, and “This gap results from the distributional differences produced by productivities of each factory, operations, electronic situation, operational conditions of trains or cars, and demand difference of food, industrial products and necessities according to areas”.

Of the cities, Pyongyang is the most advanced city, Sariwon, Hamhung, Chongjin, Hoiryeong, Rajin, Shinuiju, Pyongsung are the second advanced cities, and the other cities are at the level of the subsistence.

In the case of North Hamkyung province, the upper middle class lives in houses valued at 1,500,000 won to 4 million won, and spend 100,000 won to 150,000 won in rice, pork, eggs, and some alcohol a month. Their main sources of income are some black markets, crossing a river, helps of relatives living in China, or business.

The low class can not even see rice, and generally lives on rice mixed with corns, corn noodles, vegetable soup. Their expenditure a month is around 30,000 won to 40,000 won.

Their main sources of income are trifling jobs such as vegetable sale, house repair or cleaning night soil. Although they want to do their own businesses, they have no money to do. Salaries are their only source to get some money, but they are not paid on time.

The lowest class of the elderly, the disable and Kotjebi(Street children) lives barely. They usually sleep in buildings, under bridges, garbage dumps, or riversides. Recently the people of the lowest class are increasing. 

From the Joong Ang Daily:

A senior maritime official in North Korea told visiting journalists from the JoongAng Ilbo that his government wants to modernize and open Hungnam Port on the nation’s east coast to expand inter-Korean economic exchanges. Since 2000, a sea route connecting Incheon with the North Korean port of Nampo has been open for direct shipping along the west coast; Pyongyang evidently wants to replicate that success on the east coast, perhaps in a bid to increase investment or to reduce logistics problems in distributing aid shipments from South Korea.

Hungnam is about 10 kilometers (6 miles) from Hamhung, North Korea’s second-largest city.

“We put priority on one port on the west coast and another on the east coast,” said Cha Son-mo, the maritime operations director of the North Korean Ministry of Land and Sea Transportation. He spoke to the journalists on May 12, during a tour of North Korean economic sites arranged by the newspaper with North Korean authorities.

The comments were the first public indication of Pyongyang’s interest in such a project. Mr. Cha is the equivalent of an assistant minister in South Korea.

“Chongjin and Rajin are essential for freight to and from China and Russia,” he said. “For inter-Korean maritime cooperation, Hungnam should be modernized first. We also plan to upgrade facilities at other places.”

He also confirmed reports that North Korea has been negotiating with China to attract investment to modernize the Rajin and Chongjin ports, both in North Korea’s extreme northeast.

“Through Rajin, China wants to ship goods produced from its three northeastern provinces to South Korea, Japan and Europe,” Mr. Cha said. “And Rajin alone may not be enough, so it wants to modernize and expand operations at Chongjin.” He added that China had proposed to build roads connecting China with the two ports; negotiations are in progress, he said.

Mr. Cha also greeted the visiting journalists during their tour of a ship repair facility in Nampo two days later, giving a detailed briefing on the Yongnam Ship Repair Factory. “While we are focusing on repair operations, our next goal is ship cannibalization and shipbuilding,” he said. “We strongly hope that the two Koreas can cooperate in this field.”

He said North Korea had invested $100 million in the factory, a huge amount in this cash-strapped country. The plant had been modernized to allow it to repair one 50,000-ton ship and two 20,000-ton ships simultaneously.

The shipworks also recently found a partner in the South. Responding to a bid by North Korea last July, Hanaro Shipyard was set up in South Korea in December by Jeong Chan-bae, specifically to work with the Yongnam repair yard.

“South Korean ships all use repair bases in China and Vietnam because there is no place to repair vessels,” said Jeong Chan-bae, the president of Hanaro Shipyard. “But repair prices in China went up sharply recently, so we decided to use the North Korean facility.”

Citing North-South maritime cooperation accords, Mr. Cha also said there was no legal problem to concern South Korean ship owners about using repair services in the North. He is also the chief negotiator for the maritime talks between the two Koreas. “Our repair service prices will be an average of 30 percent less than those in China,” he said.

He also appeared on the scene to guide a separate group of South Korean economists and businessmen who visited the factory on May 17. After that tour, Jeong Nam-su, an executive of South Korea’s STX Shipbuilding, was cautiously positive about the facility. “It is hard to find a place to repair ships in South Korea,” Mr. Jeong said. “The quality and technology of the Yongnam factory has not yet been evaluated, but it has some positive prospects.”