North Korean Economy Watch

Discussion from the Korea Times:

“Yes” Reasons:
-Prolonging the life of the Kim Jong-il regime at the expense of its people
-The North cheats its own workers by not giving them their full pay. There are no unions in Kaesong Industrial Park and workers are expected to work unpaid overtime regularly
“No” Reasons:
-Mini-Marshall Plan
-Workers there earn $58 per month and work under excellent conditions and are much better off than North Korean workers elsewhere.

Other factoids:
Kim Dong-Keun, president of the complex’s Industrial Management Committee said “The North Korean workers are very diligent with high manual skills. Their productivity level is on average 80 percent that of their South Korean counterparts.”

A manager at Hyundai claimed, “Workers’ income at the complex is about 5-10% that of South Korean workers, which is much more than North Koreans generally earn. And they work under better conditions, too”

The story of Mr. Shin Sang ok and is wife Choe Eun Hui is pretty incredible.

Here is the full story in Wikipedia.

Here is a clip of his Pulgasari

Here is his obituary in the Economist:

Mr Shin was a South Korean movie director. In 1978, Mr Kim, a movie buff, had him kidnapped and whisked to the hermit kingdom to make its revolutionary film industry less awful.

Before then, Mr Shin was best known for giving South Korean audiences their first on-screen kiss. During the 1950s and 1960s he made dozens of films, several of which depicted Korean women’s struggles against patriarchal convention. His favourite leading lady was his wife, the dazzling Choi Eun-Hee. In the 1970s Mr Shin’s career waned, and it came to an abrupt halt when he upset South Korea’s military government by complaining about censorship. His movie company was swiftly shut down.

Mr Kim, then the unacknowledged heir apparent to the world’s first hereditary communist monarchy, saw his opportunity. First, he had Ms Choi lured to Hong Kong, kidnapped and shipped to a North Korean port. Ever the gentleman, he turned up at the dock to greet her. “Thank you for coming, Madame Choi,” he said, as if she were stepping off a cruise ship.

Although they had recently divorced, Mr Shin was naturally alarmed at his ex-wife’s disappearance. He followed her trail to Hong Kong, where he too was abducted. In North Korea, he was put up in a comfortable guest house, but insisted on trying to escape. One day he borrowed a car, drove to a railway station, hid among crates of explosives and crept aboard a freight train. He was caught the next day, and soon found himself in a hellish prison camp.

Even there, however, he was protected from afar. When he tried to starve himself to death, officials force-fed him through a funnel. A guard told Mr Shin that he was the first attempted suicide he’d ever seen saved—so he must be very important.

After four years, Mr Shin won his release through a series of abjectly apologetic letters to Kim Jong Il and his father, President Kim Il Sung. He was brought to a dinner party in Pyongyang, the capital, and face-to-face with his ex-wife, who had not known until that moment that he was in North Korea. “Well, go ahead and hug each other. Why are you just standing there?” said the Dear Leader, who then suggested that they re-marry. They did as they were told.

At last, Mr Shin’s talents could be put to good use. Mr Kim was worried that films produced in decadent, capitalist South Korea were better than those produced in the North. Perceptively, he explained to Mr Shin that this was because North Korean film workers knew the state would feed them regardless of the quality of their output. In the South, by contrast, actors and directors had to sweat to make films the public would pay to see. Mr Kim wasn’t saying that there was anything wrong with socialism, of course, but he gave Mr Shin millions of dollars, a fancy marble-lined office and more artistic freedom than any North Korean director had ever enjoyed before.

Films fit for Cannes
Mr Kim did not want Mr Shin to make crude propaganda. Oh no. He wanted films that would win awards at international festivals. And although the tubby tyrant had previously argued, in his book “On the Art of Cinema”, that good movies should glorify the party, the system, his father and himself, he realised that this was not a fail-safe formula for wowing the judges at Cannes.

So he let Mr Shin shoot some watchable films, including “Pulgasari”, a Godzilla-inspired affair about a metal-eating monster who helped 14th-century peasants overthrow their feudal lords. The director and his wife were obliged to give a press conference explaining that they had willingly defected to North Korea, but otherwise they were treated far better than most of the Kim dynasty’s hapless subjects. Mr Kim must have thought that was good enough to keep them loyal, for he allowed them to travel. As soon as they saw a chance to dodge their bodyguards, during a promotional trip to Vienna in 1986, they fled to the American embassy and sought asylum.

Mr Shin was at first reluctant to go home, for fear that South Korea’s security police might disbelieve his fantastic tale and suspect him of communist sympathies. Fortunately, he and his wife had made, at mortal risk, clandestine tape recordings of conversations with Mr Kim. These, and the couple’s memoirs, are among the most useful accounts we have of the secretive (and now probably nuclear-armed) Dear Leader’s personality: charming, shrewd, quirky, malevolent.

Mr Shin continued to make films until shortly before he died. His last years were frail; he had a liver transplant in 2004. Ms Choi survived him, and his last film, about an old man with Alzheimer’s, is yet to be released.

From the Daily NK:

Computer Prices (Mar 14, 2006):
-17inch Pentium Ⅲ is US$110~120 retail ($90 wholesale price)
-A printer is US$65~70
-10 Floppy discs are 5,000W
-A keyboard is US$20
-A mouse is US$5

Snack prices (March 28, 2006)
-roast chicken is 6,500-8,000W
-roast duck is 9,000~12,000W
-750g of noodles are 2,400W
-box of Korean noodles is 6,750W
-1kg of potatoes is 400W
-1kg of Beans is 700W
-1kg of wheat flour is 750W (690W at wholesale price)
-400g of Milk is 5,000W
-1kg of Butter powder is 5,000W
-25g of Baking powder is 400W
-1kg of Chinese noodles of 2,000W
-1kg of dried cuttlefish is 8,800W.

Entertainment Costs (March 28, 2006)
-movie admission fee is 50W
-comic book is 1,500W, to borrow 100W
-Swimming pool is 70W
-bath admission fee is 2,500W
-5,000W ($1.67) /huor to use a Karaoke singing room
-1,000W ($0.33) /hour to use a computer in an internet café

Other Prices
–sanitary napkin is 500W, 600w, and 1,000w
-Skin lotions of three kinds are 42,000w
-Aloe cosmetics of three kinds are 42,000w
-A set of cosmetics (a skin cream and a skin lotion) is 10,000w (made in South Korea), 3,500w (made in China)
-Small gas cooking stove is 27,000w (made in South Korea / 25,000w in a wholesale price
-An electric bicycle is 150-200w.

North Korean inflation has increased following consecutively excessive issues of the 500W, 1,000W, and 5,000W notes.

Cities that can provide North Koreans with leisure facilities to enjoy are only Pyongyang, Shinuiju, Chongin, Hamhung, and Rasun. These cities possess big theaters, amusement parks, and swimming pools. Especially Shinuiju, which is close to China, has been introduced with foreign cultures and commodities very quickly. Shinuiju residents are also in the highest economic class of the North Koreans. Thus, Shinuiju has internet cafes, singing rooms, saunas, massage rooms, and comic bookstores.

The investigation was carried out by traders visiting Shinuiju in March and attaining the price levels concerned and then DailyNK gathered the information and cross-examined it.

Also, another trader emphasized that, “The official wage of North Korean workers is about 3,000 won. At the same time, the price for using a singing room per hour is 5,000 won. It shows how badly North Korea has been transformed,” adding that, “Shinuiju is the city where traders doing business with big money from North Korea and China gather. Such singing rooms, PC rooms, and saunas are just for them.”

Items marked by dollars in the price index below are usually paid in dollars, not North Korean won. A Chinese businessman who participated in the price investigation informed us that, “Currently in North Korea, the dollar is used frequently enough to be called ‘common currency’ and has more exchange value,” adding, “As trading costly articles, their paying in dollars makes them win credits.” He also said that, “That the dollar is exchanged into North Korea won is welcomed, yet to exchange the won into dollars is often impossible, even double the value.”

Now, in the early of April, the exchange rate of the dollar in North Korean black markets is roughly 3,000 won against the dollar.

From the Australian:

Myanmar has decided to restore diplomatic ties with North Korea, more than 20 years after the DPRK staged a deadly bomb attack in Rangoon.

The diplomat said no official announcement had been made and an announcement might come only when the Myanmar junta names its ambassador to Pyongyang.

Analysts said the restoration of ties between two of the world’s most secretive regimes could have benefits for both.  Burma is looking for arms suppliers to circumvent Western sanctions, while North Korea has eyed Burma’s offshore natural gas reserves.

“They want to get military equipment from North Korea because under western pressure they cannot get weapons from the West,” said Win Min, a Burmese military researcher based in Thailand.

“Now they can get (weapons) from China and they are trading with India. So the more places they can get weapons, the better for them,” he said.

The United States considers both Burma and North Korea as “outposts of tyranny”, which gives them some shared goals in working around US foreign policy, the analyst said.

“Pyongyang, which the military regime admires for its defiant attitude against the United States, can surely become a diplomatic asset,” he said.

Burma broke off diplomatic ties with North Korea in 1983 after it masterminded an attempt to assassinate South Korea’s then-president Chun Doo Hwan while he was on an official visit to Rangoon.  North Korea staged a bomb attack on Chun’s delegation as they visited the Martyr’s Mausoleum, near the famous Shwedagon pagoda, on October 9, 1983.  Chun survived the attack but the blast killed 17 of his entourage, including four cabinet ministers, while 17 others were injured. Four Burmese officials also died in the blast.

Two of the North Korean bombers were captured and one of them is still serving a life sentence in Burma’s notorious Insein prison.

From the Asia Times: 

The only currency used in the complex is the US dollar.

No foreign investors have yet signed up for the zone

Washington requires high-tech products destined for North Korea that include US intellectual property to undergo stringent export controls. This has irritated many in the South – particularly after the process delayed the transfer of telecommunications equipment. It also appears highly unlikely that Kaesong-built products will be included in a free-trade agreement between Seoul and Washington that is under negotiation.

Officials of the complex say they have assisted local villagers with heating briquettes and rice, but there is otherwise neither trade nor contact across the fence, indicating that the experience of capitalism is strictly insulated. This assumption is buttressed by relations inside the complex: despite talk of inter-Korean fraternity, social contact between Northern and Southern workers is non-existent.

While the railways between the two Koreas were reconnected in early 2004, theoretically linking Seoul and Sinuiju on North Korea’s Chinese border, it is uncertain when trains will start to run through Kaesong.

“There will be talks on opening the line in July, but it is not certain,” said a South Korean official at Dorasan Station, a giant steel-and-glass edifice on the southern side of the border. The lack of rail transport complicates his firm’s logistics costs, said Stafild’s Moon, whose head office is on the south coast of the peninsula, in Busan.
 

From the Daily NK:

The deputy director of Yanbian Korean Autonomous Prefecture in Jilin Province recently said he plans to “establish permanent trade relation with North Korea and pursue multinational tourism projects which connects China-North Korea-Russia through Tumen River Area Development Project”. He also said, “the government of Yanbian Korean Autonomous Prefecture will more actively pursue cooperation with North Korea during the 11th Five-Year Plan(2006~2010)”.

The Korean Autonomous Prefecture decided to establish 2 level highway between Rajin, North Korea and Yuanzheng maritime customs, Hunchun, China and to reconstruct the tailway between Rajin and Onsung in North Hamkyung Province.

Lee Yong Nam at Department of Trade in North Korea said, “economic trade between North Korea-China is improving with the attention of leaders in each country. Intimate economic cooperation will be maintained by all means possible”.

China gained exclusive right to use and develop Rajin port in North Korea, as compensation for establishment of high way in Wonjung-Rajin in North Hamkyung Province. China was excused from all the custom formalities of labor and equipments related to the establishment and development of highway and port, from which they saved 4 million Yuan per year.

Through the trading zone between North Korea-China in Tumen River area, China plans to export food, fertilizers, electronics, textile, plastic goods, cigarrete, mechanical devices. Yanbian Korean Autonomous Prefecture had 11 million 430 thousand dollars trade surplus from trade with North Korea in the first half of last year. A government official at the local government said, “trade surplus will increase drastically when the trading zone between North Korea- China is established” with excitement.

The Tongil (Reunification) Market is the most famous in the west.  It made a cameo appearance in the wonderful documentary A State of Mind, and is fairly easy to spot on google earth.

Here are its origins (innacuracies listed at bottom), according to the Nautilus Institute:

Following DPRK leader Kim Jong Il’s instruction in March 2003, which allowed for the transformation of farmers’ markets into consolidated markets, the Unification Market opened as the largest market in Pyongyang on September 1st of the same year. With 1,500 booths spanning over 6000 sq. meters, the market is divided into three zones — agriculture produce and fish products, food and clothing, and metal utensils and appliances — with each zone housing a management office, money changer, and a food court, which offer a variety of conveniences to the customer.

What kinds of goods can be found for sale in Pyongyang? Towards the end of last February, one Chinese reporter introduced us to merchants selling luxurious Chinese clothing and flower-pattern dresses at the ‘Unification Market’, North Korea’s representative market located near Pyongyang’s Rakrangku Station.

These days, the Unification Market is jam-packed with people looking for quality designer clothes and shoes, which are mostly made and brought in from China. Also abundant are the peddlers: mainly North Korean women in their forties who (to this reporter) were not distinguishable from the average middle-aged Chinese woman. Despite being a whirlwind of activity, these colorfully dressed women — white hats, pink clothes, and floral-print aprons — still managed to radiate grace.

According to the reporter, “Through recent investments by Chinese retailers, China is introducing modern fashion lines, designs, and dyeing technology, and this is having a huge effect on the clothing worn by North Koreans as well. These days, North Korean clothes are reflecting current fashion trends.”

A look around the market revealed that although vegetables were 20 percent more expensive than in China, seafood and clothing was 20 percent cheaper. Take into account, however, that the average monthly income of a North Korean farmer is 3,000 – 10,000 DPRK won (approx. 20 – 70 USD), and goods in the Unification Market are not particularly cheap. Be that as it may, after observing not just a few people coming and going with goods in hand and full shopping baskets, it was surmised that “the lives of ordinary North Korean citizens” — or at least those residing in Pyongyang — “are definitely improving.”

As economic recovery continues, the demand for electrical appliances seems to be growing among ordinary households. The very first Chinese appliance to enter the North Korean market, the Sinbi refrigerator, now occupies 40 percent of the market share, and can be easily found even in government facilities.

Innacuracies:

The North Korean Won trades officially at about 100W to US$1.  In the Tongil Market and in markets throughout the country the exchange rate is closer to 3,000W/US$1. 

Additions:

The DPRK does not allow people to take pictures of the market.  I am not sure why.  There are plenty of official photos on line.  Prices are freely bargained and transactions are conducted in Won.  Venders pay a flat fee to set up shop in the market.  They sell chinese knock-offs of fancy western colognes inside.  Car Parking is not free…30W.  The bike shed is.

From Chosun Ilbo:

U.S. Treasury Department Under Secretary Stuart Levy said its ongoing financial sanctions against North Korea put “huge pressure” on the regime that could have a “snowballing … avalanche effect.  

Washington identified Macao-based Banco Delta Asia as Pyongyang’s “primary money-laundering concern” last September. since then the bank has folded.  According to Newsweek, “In today’s interconnected financial world, an official U.S. move to blacklist a foreign bank would be the kiss of death, since any financial institution doing business in dollars needs to hold accounts in correspondent U.S. banks in order to complete transactions.” Washington believes it has finally found a strategy that is putting real pressure on the regime — going after its sources of cash, all across the world.

Kim Jong il is reported to have told Chinese President Hu Jintao during a visit to China in January that his regime might collapse due to the U.S. crackdown on its financial transactions. [but this could be a bargaining chip to use aginast China…help us, or the US gets the peninsula].

“Numerous U.S. government agencies, including the FBI, Treasury, State Department and CIA, have been working for three years to curtail Pyongyang’s vast network of black-market activities” and “to cut off the financial conduits by which the proceeds are laundered.”

North Korea complains the sanctions imposed by the U.S. made its legitimate financial transactions impossible, and is boycotting six-party talks on its nuclear program as a result.

Institute for Far Eastern Studies (IFES)
2006-3-30

The Sinuiju Special Administrative Region (SAR) project lost momentum in September 2002 when its first governor-to-be, Chinese-born Dutch businessman Yang Bin, was arrested in China. North Korean leader Kim Jong Il’s visit to China at the beginning of this year, however, appears to have triggered a turnaround. With Kim’s China trip focused on the revision of economic policies, the rejuvenation of Sinuiju SAR development plans came into the spotlight.

Most South Korean press have run pieces, based on the stories of North Korean defectors and Chinese residents in Dandoong and other border areas, alluding to the fact that there is change in the air around Sinuiju. A North Korean businessman in Dandoong was quoted as saying, “No official word has come down from central [authorities], but they are busy preparing the Sinuiju SAR,” while rumors are spreading among area residents that “Sinuiju is the next Hong Kong.” Under the direction of central authorities, foreign currency management groups are rapidly being moved into Sinuiju, while ordinary residents are being relocated to other regions only to be replaced by residents of Pyongyang and other areas who are in the process of moving in.

As special enterprises are being promoted as of late, each organization and group is reacting differently. The most reluctant promoters are the People’s Committee and regional administrative organs. As orders come down, some administrators are required to immediately pack and relocate to southern Sinuiju, an underdeveloped area not even comparable to Sinuiju proper. Authorities had chosen the site as far back as 1986, and while development was fully promoted, only factories were built up. Housing, roads, and other indirect social capital facilities are still lacking. While regional authorities may have decided to build up southern Sinuiju, it will take another ten years of hard work to do so.

On the other hand, the outlook for city authorities is considerably brighter. This is because in the future, they will have the opportunity to rise up though organizations run by special administrative businesses. Up until now, instructions have come through the Regional People’s Committee, security bureau and defense authorities, but even though they own the facilities, they can still receive orders directly from the central government. Because of this, regional officials are still influenced by the temperament of local and central party politics while being faced with increasing pressure from city authorities to transfer power to them. While some factories — like the Sinuiju Cosmetics Factory, Sinuiju Shoe Factory, Sinuiju Synthetic Fiber Plant, and other large factories — are preparing for foreign capital support and cooperative ventures, most administrators appear to be pushing for keeping the status quo.

There are still many concerns. As the SAR is being set up, central officials are being dispatched to fill roles as factory officials; central officials without any personal interest. A similar sort of dispatch of central officials took place in the Rajin-Sonbong Special Economic Zone in the past.

Most small- and medium-sized enterprises and regional factories are beginning to transform into trading companies. There are currently around one hundred fifty such trading offices in Sinuiju. In the future, if Sinuiju is officially designated as a SAR, it appears that a great many more trade offices will appear.

Other news from Sinuiju insiders is that the People’s Committee, People’s Security Force, National Security and Defense Bureau and other central government departments that have received Kim Jong Il’s permission to trade have already opened offices in Sinuiju, employing people in the area and busily seeking out people with connections in China in order to find trading partners.

It appears by looking at the relocation currently underway that the goal is to move residents within the same timeframe that was required for the first round of relocations in 2002, when residents were moved to Chunma, Kwaksan, Dongrim and other areas around the outskirts of Sinuiju. There are problems here as well, as the government wants to relocate residents from Pyongyang and other regions to Sinuiju. At issue is the fact that while the number of residents who can move in needs to equal the number relocated out of the area, some North Koreans have already used connections with the central and regional party affiliates in order to move to the region.

In addition, the housing market is active, with housing prices in central downtown areas having already skyrocketed. While officially owned by the state, dwellings are unofficially “sold” through the use of “modification fees”: apartments run from 25 to 30 million won (8 to 10 thousand USD), while two-three story condominiums in “Chinatown” in the Namsang district run in the tens of thousands of dollars.

However, complications have arisen. Many residents being moved out have decided to get rid of their houses, but this has proved more difficult than expected. Some have put up their house for sale but have been unable to find a buyer. There are also those who were caught in the midst of sales through “real estate offices” when a crackdown by authorities resulted in their expulsion. A source stated that the administrative authority of the city security bureau in charge of relocating residents is undermanned and takes different measures to direct different groups of residents, while pressing for the expulsion of what it deems as “lesser” or unemployed people.

From the Korea Times:
http://times.hankooki.com/lpage/opinion/200407/kt2004070616242354140.htm 

The Currency of Currency
By Andrei Lankov

Communists have always professed to abolish money _ and for a while they took the promise seriously. The first years of the Communist rule in Russia were marked by bold experiments aimed at the abolition of the currency which was to be replaced by some “direct labor exchanges.” However, the ensuing bitter experience was a harsh lesson, and so in later eras Communist regimes only paid lip service to the anti-monetary rhetoric. They did not reject their earlier promises to completely do away with money, but this was to be done at some unspecified point in a distant future.

Thus, the establishment of Communist governments often began with currency reform _ and North Korea was no exception to this rule.

For the first few years after Liberation, the North Koreans continued to use Japanese banknotes and coins. However, in December 1947, the nascent Communist authorities launched a currency reform. Needless to say, this was done with complete Soviet endorsement, and the practical management of the reform was entrusted to a Soviet-Korean financial expert, Kim Chan.

Within the week from Dec. 6 to 12, 1947, all the old banknotes had to be exchanged for new ones. According to then contemporary Soviet reports, trade on the Korean markets came briefly to a complete halt as shopkeepers panicked. Only in January, with the new banknotes, did shops resume normal trade.

The 1947 banknotes were printed in the USSR. There were four denominations; 1, 5, 10 and 100 won. These early banknotes were peculiar in many regards. First of all, they were issued before the official proclamation of the DPRK _ and thus did not bear the name of the state which issued them. They only carried the inscriptions ‘Democratic Korea’ and the name of the issuing institution _ “the Central Bank of North Korea.” Another peculiarity was the use of Chinese characters, soon to be banished from North Korean life.

In 1949, the banknotes were augmented with currency for small transactions. This “small change” was issued not as coins, but as paper money _ with values of 15, 20, and 50 chon (a chon is 1/100 of the North Korean won). However, rampant inflation soon made these small banknotes unusable.

The Korean War created complete havoc with the currency systems of both Koreas. In February 1959 Pyongyang launched a new currency reform. This time, the “old” won were exchanged for the “new” at the rate of 100:1 (what used to be a hundred won became one won). This was necessary to encourage stability and make the Korean currency more manageable. Indeed, until the dramatic changes which followed the Great Famine of 1996-1999, it had been easier to handle the North Korean currency than its South Korean counterpart: in the North nobody had to operate with five- or six-digit numbers for every small transaction!

The 1959 banknotes depicted industrial and agricultural landscapes. As a rule the front side of each banknote showed something industrial, while the reverse side had largely agricultural topics. There were six types of the banknotes, valued at 50 chon (0.5 won), and 1, 5, 10, 50, and 100 won. In addition, the first North Korean metal coins were issued as well _ with denominations of 1, 5, and 10 chon (50 chon coins were subsequently issued as well). The coins were made of a light aluminium-based alloy, and they all had a similar design: the DPRK’s coat of arms on the reverse, and the denomination on the front. In this respect the coins largely followed the patterns of the coinage in other Communist countries.

The next reforms took place in 1979. While the old coins remained in circulation, banknotes were replaced. The new banknotes (once again, with the values of 1, 5, 10, 50, and 100 won) had a dramatic and highly politicized design. The 100-won banknote was decorated with a portrait of Kim Il Sung, who thus became the second Korean leader to be depicted on a Korean banknote in his lifetime. The dubious honor of being the first goes to the South Korean President Syngman Rhee, who put his face on South Korean banknotes as early as 1950. The reverse of the 1979 100-won banknote depicted Kim Il Song’s childhood home in Mangyongdae.

The 50-won banknote had representations of a worker, a farmer (the only female in the picture), a soldier, and an intellectual (the latter lurking in the back); all of whom were holding high the symbolic torch of Kim Il-sung’s chuche ideas.

The 1979 banknotes remained in use until 1992 when another currency reform introduced the present system of Korean coins and banknotes. But that is another story…