North Korean Economy Watch

Welcome to the future home of NKeconWatch.com, the first blog that will be dedicated exclusively to analyzing the North Korean economy.  This sight has just been established and I am currently adding material and learning some basic web programming before the official launch.

If you have any suggestions or questions, please send email to: “NKeconWatch1@gmail.com” (and remove the “1”).

Thanks to Will Wilkinson for providing invaluable assistance in getting this project launched.

This web page was launched in January 2006 and since then it has been supported entirely by myself and some tech-savvy friends who have been generous enough to help with programming, organization, and technical issues.

Your donation is much appreciated by all who have made NKeconWatch.com a vibrant and comprehensive source for information on the DPRK!

Best,

Curtis

By Kwon Jeong Hyun, Dandong of China
From the Daily NK:

Hotels:
An anonymous Chinese who resides in Pakchun-gun or North Pyongan province said, “state still maintains the hotel business, but there is an increase private hotels with best facilities. The hotels are mainly for the Chinese customers and the cost is about 5000Won($2.5) a night.”

“The state run hotels does not have good heating systems and lacking management, customers rarely go there. There is also an increase of house lodging business,” he said and further described how those who do private house lodging business come out at night to call customers into their houses. The cost of lodging is 100Won($0.05) a night.

Travel Permits: They used to be free, but limited.  Now for sale.
1.  Pyongyang travel permit seems fixed at 10,000W ($5)
2.  Province to Province travel varies based on destination: Jagang Province 7,000W($3.5), Chongjin 8,000W, and Pyongsung 6,000W
3.  within a province, price is less.

According to Yonhap: 

“An investigation by the Bush administration has found that North Korea’s government officially sanctions criminal products such as counterfeit American currency, narcotics and counterfeit cigarette brands,” the report said.

“The administration is divided over how to use this information, whether to pressure North Korean leaders to give up nuclear weapons, or give up power,” it said.

Years of U.S. investigations, involving 14 federal agencies, have found that the illicit activities are now generating more than half a billion U.S. dollars for Pyongyang, according to NPR.

North Korea is counterfeiting not only the greenback but also the Japanese yen, and well as producing heroin, methamphetamines, fake pharmaceuticals such as Viagra and Marlboro and other cigarettes brands, the report said.

The regime was even counterfeiting tax stamps attached to American cigarette packs.

“You name it, they are pretty much in it,” David Asher, former State Department official who was deeply involved in the North Korean investigations, told NPR.

Mitchell Reiss, who led the probe during his two years at the State Department policy planning office under the first Bush administration, said the scale and scope of North Korea’s illicit activities “surprised” him.

Speculation was rampant this week on the whereabouts of Kim jong il.  No one knew for sure really…First he was Beijing via his special train, then he was in Russia, others claimed it was Shanghai by air.  It turns out he was in southern China (by train). As usual, the “unofficial” trip, from January 10-18, and itinerary were made public just as Kim was to return home.(source)

According to the Washintgon Post:
Hundreds of uniformed and plainclothes police swarmed in and around the opulent White Swan Hotel in Guangzhou, capital of Guangdong province, putting up roadblocks leading to the hotel. In the early evening, two of the city’s most luxurious sightseeing ferries — “The Pearl of the Flower City” and “The Information Times,” named after a local paper — cruised slowly down the Pearl River, with Kim rumored to be aboard. Police cars lined roads on both sides of the river.

Where did he visit?
A Guangzhou branch of Sun Yat Sen Univeristy (source)
Yantian container port (source) (Guangzhou)
Wuhan and Yichang, Hubei province (source)
Beijing (source)
Three Gorges Dam (source)
High-tech factories and agricultural research institute (source)
Yantian Port (source)

What was the purpose? 
The visit has prompted speculation that China is advocating market reforms for Pyongyang and could also urge it to rejoin stalled nuclear negotiations. 

Mr Kim’s visit to the cradle of the Chinese boom could be a careful hint to the outside world that he is following Beijing’s lead, says the BBC’s Louisa Lim in Beijing. (source)

“There is a debate in North Korea as there was in China at one time about how far and how fast they should go,” said Chung Jae Ho, an international relations expert at Seoul National University. “But I think this is a signal that this is the right time for a new opening.”(source)

He said one possibility widely discussed among experts was that North Korea would try to create a capitalist-oriented trading zone on its western coast, near China, modeled at least loosely on Shenzhen, which borders Hong Kong.(source)

Kim also held meetings with President Hu Jintao and all other eight members of the governing Politburo Standing Committee as well as tours of two Chinese provinces.

U.S. Assistant Secretary of State Christopher R. Hill, made an unscheduled trip to Beijing and met with his North Korean counterpart, Vice Foreign Minister Kim Gye Gwan, in a session hosted by the Chinese, diplomats said. (source)

Kim Quote:
“The progress made in the southern part of China, which has undergone a rapid change, and the stirring reality of China deeply impressed us”

North Korea, the ‘Sopranos’ state
Asia Times
By Todd Crowell

When US Ambassador to South Korea Alexander Vershbow recently called North Korea a “criminal regime”, he was not speaking metaphorically. He was not talking about the North’s abysmal human-rights record, illegal missile sales or efforts to acquire nuclear weapons.

No, he was talking about crime – as in counterfeiting US banknotes and cigarette packages, money-laundering and drug-trafficking. These issues have suddenly risen to the forefront of Washington’s agenda and become a major stumbling block in the renewal of the six-party nuclear-disarmament talks.

In September, Washington named Macau’s second-largest bank, Banco Delta Asia, as being “a willing pawn for the North Korean government to engage in corrupt financial activities through Macau”. It said senior bank officials were working with Pyongyang “to accept large deposits of cash, including counterfeit US currency, and agreeing to place that currency into circulation”.

In mid-December, the US Treasury Department issued a formal advisory concerning North Korea’s illegal activities and cautioned US financial institutions to take “reasonable steps to guard against the abuses of their financial services by North Korea, which may be seeking to establish new or to exploit existing account relationships”.

It was reported this month that a delegation of agents from the US Secret Service, which is responsible for counter-counterfeiting as well as protecting the life of the president, will travel to Seoul to meet with South Korean authorities over counterfeiting. Visits of this nature are not usually broadcast in such a public fashion.

Meanwhile, Pyongyang says it won’t return to the six-party talks unless the US lifts restrictions against its financial institutions, including those directed at eight state-owned trading companies that Washington cited in October as being involved in weapons trafficking, especially banned missile technology.

Rumors of North Korean counterfeiting and drug-trafficking have been circulating in Asia for years. Anyone who lived in Hong Kong for many years has heard them from time to time. North Korean companies have a long history of operating in the former Portuguese enclave of Macau, which for decades served the regime as a key window to the outside world.

The Zokwang Trading Co was considered Pyongyang’s de facto consulate in Macau, and the relationship between Zokwang and Banco Delta Asia is no secret. As far back as 1994 the bank found thousands of bogus US$100 bills allegedly deposited by a North Korean employee. The director of the Zokwang Trading Co was held and questioned, but no charges were pressed.

There have been several more recent instances of alleged North Korean counterfeiting.

Last April, the Japanese media reported that a hundred or so fake $100 bills were found among a stack of used currency aboard a North Korean freighter that called at a Japanese port in Tottori prefecture. The captain was reported telling police, “We were asked to bring the money to Japan so that the money could be paid for cars and other items.”

Also in April, a large stash of bogus notes was uncovered in South Korea. The Chosun Ilbo, which reported the story, did not say where or under what circumstances the money was found, though it went into great detail over the quality of the notes and quoted experts as saying it was “highly likely” they came from North Korea.

In August, the Federal Bureau of Investigation reported two “sting” operations in the US, colorfully described as Operation Royal Charm and Operation Smoking Dragon. The US government indicted 59 people on charges related to smuggling counterfeit US currency, drugs and cigarettes into the country. The announcement did not specify their origin, but other accounts have speculated that they came from North Korea.

David Asher, head of the US administration’s North Korea Working Group, published a lengthy essay in mid-November in which he described what he called “an extensive criminal network involving North Korean diplomats and officials, Chinese gangsters and other organized crime syndicates, prominent Asian banks, Irish guerrillas and a KGB agent”.

“North Korea is the only government in the world today that can be identified as being actively involved in directing crime as a central part of its national economic strategy and foreign policy … in essence North Korea has become the Sopranos state – a government guided by [Korean] Workers Party leaders, whose actions attitudes and affiliations increasingly resemble those of an organized-crime family more than a normal nation.” The Sopranos is a popular US television series about an organized-crime family.

But why is Washington suddenly pushing decades-old suspicions at this particular time? In September, Christopher Hill, the senior US negotiator at the six-party talks, announced a breakthrough in the negotiations. North Korea had agreed in principle to disarm in exchange for recognition and aid. That same month the Treasury Department issued a warning against dealings with the Macau bank.

In October came the sanctions against the eight North Korean trading companies. Also in October, Vershbow arrived in South Korea, and the new US ambassador quickly developed a reputation for making provocative statements. In November, the six-party talks quickly foundered on Pyongyang’s demands to lift sanctions.

No doubt American officials would solemnly swear they are motivated by a desire to protect the integrity of the US currency and nothing else. But even if the allegations are substantially true, which probably is the case, isn’t this really penny-ante stuff set against the much larger issue of North Korea’s nuclear-weapons program?

None of the other participants in the six-party talks has expressed any public concern about Pyongyang’s crimes. That includes Japan, which not only is supposedly the target of counterfeit money but also is on the receiving end of drugs manufactured in North Korea. (Japanese estimate that nearly half of the country’s illegal drug imports originate from there.) Yet it has said nothing.

Last week, the Chinese Foreign Ministry was forced to deny a report printed in the South Korean media that its government had found evidence of North Korean money-laundering in Macau. “China has never indicated that the government had confirmed North Koreans using Macau for money-laundering,” the ministry statement said.

Vershbow has likened North Korea to Nazi Germany as being only the second state-sponsored counterfeiter. He was referring to an operation whereby concentration-camp inmates forged millions of US dollars and British pounds to disperse in England in an effort to ignite inflation there and harm their enemies’ economies.

Yet the highest figure I have seen for the North Korean counterfeiting is the $45 million (over a decade) reported in the Washington Times, which is nothing set against the vast sums of dollars sloshing around Asia. Indeed, I’ve never heard even a whisper that North Korean counterfeits were affecting world currency markets or the value of the dollar in the slightest way.

It’s hard not to believe that the US administration is again listening to more hardline elements after a brief ascendancy of the “realists” in the State Department. Their purpose is to neutralize the talks (how does a nation negotiate with a criminal gang, after all?) and shift the issue away from nuclear disarmament back to the nature of the regime – with the ultimate objective of toppling that regime.

Todd Crowell comments on Asian affairs.

According to Han Young Jin, Reporter, Defector from Pyongyang
in the Daily NK:

Interview 1:
Kang Min Jun (pseudonym, age 65), a former executive of “Keumgang Jewelry Processing Co.”, a North Korea-China state cooperative factory asserted that Kim Jong Il’s visit to China is a mere gesture.

“I participated in the National Economic Sector Officials Seminar held in Pyongyang, and it was before the 2002 7.1 Economic Measure was announced. The central party officials who came to educate us said, “Reformation and liberalization does not fit into our revolution reality so do not expect it to happen.” Unless the North Korean regimes changes, reformation and liberalization will remain as a dream,” Kang said.

“After his 2001 visit to China, Kim Jong Il praised China’s changes calling it, “heaven and earth reversed” and called on three hundred professors and experts from Pyongyang People’s Economy University and Wonsan Economics University and made them visit China and study economics. They came back and during their discussion for reformation, their study was abandoned due to the four principles the Party insisted never to be violated.”

The four principles Kang presented are as the following.
1.  Planned economy must never be abandoned.
2.  Private ownership by the people cannot be permitted.
3.  Liberalization of individual economy must not be allowed.
4.  The Public Distribution System (food distribution system) must not be abandoned.

Interview 2:
“Whenever he is in trouble, Kim Jong Il makes an event. Right now, Kim Jong Il is in a deep trouble. Nuclear issue, counterfeit issue, Banco Delta Asia fund freeze, human rights issue, food issue and all the problems are now come together. The only way to solve these problems is siding with China. If North Korea is determined to reform, it could be have just made foreign investment attraction policy instead of making a trip all the way to China.”

This web page is intended as a research resource for those who are gathering and publishing information on North Korea.  The editor of this site does not personally comment on many of the topics, unless the subject is something with which he has some first-hand experience. 

This site focuses on the North Korean economy (broadly defined), and does not dwell on foreign policy, human rights, military affairs, or defections.  These topics are thoroughly covered in other forums.  In a centrally-planned, highly-politicized economy like North Korea’s, it is difficult to separate political and economic analysis, but in such cases where separation is not possible, the editor’s comments will be expressed through the positive analysis of the Public Choice and New Institutional schools of economics.

If you agree or disagree with anything posted here, or simply have something to add that enriches other readers’ perspectives on any issue, please post your comments on the website.  The only thing the editor asks is that you post something intelligent and respectful.  Include citations to back up your claim(s) if possible. 

Five years down the line, the editor hopes this web site will be a popular source for discussion, research, publication, and general sharing of analysis on the North Korean economy. 

Finally, the editor extends an open invitation to scholars and business developers who specialize in North Korea to send any materials you wish to be posted on this site (many have already done so). This will save the editor time in finding your particular publication on line and will guarantee it is seen by the broader community of those interested in North Korean affairs. 

Please send materials, questions, and comments to the editor at NKeconWatch-(at)- gmail.com. 

About the Editor:
Curtis Melvin works in Arlington, Virginia, at the Mercatus Center at George Mason University, an organization which carries out a significant amount of research on entrepreneurship and institutional analysis in the developing world with an eye to understanding the institutional prerequisites that promote sustainable prosperity. 

Curtis has been interested in communist/socialist societies in general since he had the opportunity to visit the Soviet Union and several Warsaw Pact countries in his youth.  When traveling around the world in 1996 he picked up a Lonely Planet North East Asia guide book and got his first exposure to the DPRK.  In 2000 he began studying the country in earnest.  Thanks to opportunities offered by the  Korean Friendship Association, he was able to visit the DPRK in 2004 and 2005.

Curtis received his BBA in economics from the University of Georgia and MA in economics from George Mason University. 

Daily NK
Kim Young Jin
1/13/2006

The North Korean people feel they have reached a limit in enduring daily hardships.

The North Korean defectors recently found in China all say, “There is no other way to live unless (North Korea) opens up.” They are “tired of living.”

Last October, the North Korean state officially announced a restart of the food distribution system. It requested the halt of food aid from the WFP and demanded for a withdrawal of international rescue NGOs in Pyongyang.

However, the North Koreans who escaped to China testify that the empty promise for the good distribution system was never fulfilled.

Hur Chul Min who defected from Musan said, “They said they will distribute food starting in October, but all I got was 9 kg of corn in November.” Hur, who was a miner, must have received 900g of corn per day, which makes 27kg a month according to regulations. However, he received enough for only ten days.

The North Korean state last year put out a slogan saying, “Farming Prioritization” and the same slogan prevails this year. Hur says the only reason why the state returned the food distribution system is to earn loyalty from the people. The North Korean people already know all about it.

The following is the interview with Hur in full text.

– How is the situation of food distribution for Musan Mine this year?

On the October 10 holiday, they gave all the companies an order to make food cards. They said because farming this year was successful, they will give us food. They gave us food for ten days in November, but after that, they kept telling us to wait because there is not enough of food at the distribution centers. Those who started working again because the state promised food distribution, started to talk again, that they will only get “word distribution.”

– What do you mean by “Word distribution”?

It means they only give us words instead of food. People were deceived so many times that they no longer believe in the government promises.

– Did the government control of the people intensify?

The National Security Office orders the people to go to work. The people’s committee conducts family counts and reports the people who do not work. It is better to disappear from home. If you don’t come to work for two days, the mine patrol come to your home to take you. Even when you eat gruel, they demand you to work.

– How long did you work at Musan Mine?

I worked for 18 years. There was a lack in the workforce, so when I graduated middle school, I was “levied” to the mine by the state. None of my peers could go to the military. Starting in 1994, we did not receive any wages. Until 1997, we lived on grass. Starting in 1998, people started to sell things, and found ways to survive.

– Is it true that the farming last year was a success?

I do not know because I worked in a mine. After they ordered the “farming prioritization” policy, people were not allowed to stay jobless. Those who were selling things were forced to work. The road patrol caught those who hitchhiked to do their business. Those without travel permits were taken to the farms to pull out weeds.

– Did the situation improve after the 7.1 Economic Management Measure?

Immediately after the government implemented the 7.1 Economic Management Measure in 2002, the wages increased instantly. At the time my status was a level 4 technician, so I received 2,500 Won ($1.25) a month. Those who had level 6 status received 4,500 Won ($2.25). It made everyone happy at first. However, in less than two months, the price of goods increased more than 50 times.

Rice that used to cost 70 Won ($0.035) per kilo was now 1,200 Won ($0.6) per kilo. Meat enough for a meal cost more than 2,000 Won ($1). Wages were not given on time. They told us to consider the wages not given to have been saved, and gave us a ticket. They said, once the production takes place, they will give us the accumulated wages. But we never received them. Actually, after taking out support fees for the People’s Army and health insurance fees, there isn’t much left anyway. If you don’t have your own business, you will die.

– Have you ever received rice from South Korea?

I saw rice sacks that had “Republic of Korea” printed come into the Chongjin Port. However, for us, they are only cakes in pictures. They took all of them to the military in three days. On a day like that, you have so much rice in the market. The price of rice drops dramatically and those who can afford it buy a lot of rice to store. Their intention is to sell it when the price increases.

Now the people know why they are so poor. Whenever people gather, they openly say they want reformation and liberalization to take place at last.

Daily NK
Shin Ju Hyun
1/10/2006

Korea Exchange Bank double Assurance

For the verification of the North Korean-made counterfeit dollars, the so-called “Super Note,” The DailyNK bought these counterfeit dollars and requested examination of them at the Korea Exchange Bank (KEB).

The above photos are of the “Super Note,” which the The DailyNK bought in Dandong, China. They were taken to the KEB on January 5th at 3 pm for examination and identified it as a “Super Note made in 2003.”

The following is the process of how The DailyNK obtained the counterfeit bills made in North Korea and requested examination of it at the KEB.

The DailyNK correspondent in Dandong, China, on January 2nd, was introduced to a businessman who does trade business between North Korea and China through an acquaintance. The DailyNK asked the businessman, Mr. Lee, working for K Trade Company to buy him some counterfeit dollar bills recently made in North Korea.

Mr. Lee smiled and said, “That is not a problem.” He said half a day would be enough for him to buy some counterfeit bills. The correspondent set an appointment with Mr. Lee for the next day.

The next day, the DailyNk was able to obtain the “goods.” From a wad of bills, he pulled out a $100 bill. It cost him $80. He said, “If you buy directly from a North Korean tradesman, it first costs $80 then drops down to $70 on the second call.”

“This is a dollar bill I got directly from a North Korean tradesman, and it is in good condition,” said Mr. Lee. “I was asked to do a favor to sell the dollar bills at $70 each.” According to Mr. Lee, if you meet the same North Korean tradesmen more than twice, they all ask you to do them the favor of selling counterfeit dollars.

Mr. Lee said in the areas where North Korean trade companies are located, such as Dandong, Changbai, and Tumen, daily counterfeit dollar exchanges are made. In Dandong, there is the Sinheung Trade Company run by North Korea’s National Security Agency and the ‘** base of 3000 Bureau (General Federation of Rear Services) run by the Ministry of the People’s Armed Forces.

Mr. Shim, who accompanied the meeting added, “Besides counterfeit dollar exchanges, it is a well known fact that fake (Chinese) Yuan bills are circulated as well.”

North Korean Tradesmen, First Deals for Counterfeit Dollars, Second for Drugs

“The Chinese government seems to know about this. If the counterfeit money becomes a problem between North Korea and the US, then China will also decide to take a hard-line policy against the North Korean counterfeit Yuan,” said Shim. “After deals for the counterfeit money are made, then comes deals for drugs. Drug deals are made much more carefully.”

The correspondent mailed the “Super Note” to The DailyNK headquarters in Seoul on January 4th. The DailyNK reporters in Seoul visited Korea Exchange Bank on January 5th for examination.

On the afternoon of January 5th, Suh Taek Seok at the financial office sales department at the KEB headquarters said, “It is certain that the bill is a sophisticated Super Note.”

“Some Super Notes made in 2001 are often circulated, but 2003 bills are very rarely found in South Korea,” he added.

After the close examination, “Although at the basic level, the quality of paper and print technique is very complicated, this Super Note bill could be considered one of the most sophisticated ones to be found,” explained Suh.

“The Super Note made in 2003 were circulated only from October 2005, thus some of the banks out there with detection machines still could fail to verify them.”

“Counterfeit Money from the Early 80s”

Suh said, “Without knowing where the Super Note bills came from, it is difficult to predict in which country the bills were produced. However, if it is true that if the bills were produced in North Korea, the problem could become quite a sensitive matter.”

“Apart from the quality of the paper, for the $100 bill, where it says ‘UNITED STATES’ on the left side of the Franklin portrait, there are white lines on the letter “N” and the picture of the grapes under the eagles is not so clearly printed. There are many more differences between real and fake bills.”

It seems the way the counterfeit bills are circulated also varies. Kim Chan Goo, researcher at the Institute for Far Eastern Studies of Kyungnam University who was devoted to relations with North Korea for a decade since 1989 testified, “Eleven years ago when I visited Pyongyang, the guide asked me if I would like to $100 bill for 30 dollars. I bought it as a souvenir, and asked for examination at the KEB when I came back to South Korea. It was verified that it was a counterfeit.”

Kim still kept the bill as a souvenir. “There were many cases of South Korean trade/businessmen who were asked to buy and sell as a broker between the consumers and the North Korean tradesmen in Dandung. Looking back, it can be deduced that North Korea started counterfeiting dollars in the early 80s.”