North Korean Economy Watch

FDI Magazine
Stephen Timewell
12/12/2005

On my journey to Pyongyang a Beijing receptionist remarked that the Democratic People’s Republic of Korea (DPRK) is very much like China was 25 years ago. And as the motorcade of China’s president Hu Jintao passed thousands of flower-waving North Koreans on his visit to the world’s most secretive and politically isolated country at the end of October, he may well have agreed.

Visiting Pyongyang is like going back decades in a time machine, to a land with no advertising, no Nokia, Microsoft or McDonald’s billboards and almost no cars. Impressive grand avenues and massive public monuments dominate the landscape but there is no new construction or shops.

The streets are scrubbed clean by hand and are full of hundreds of orderly people wearing their ‘Great Leader’ badges and walking everywhere. Curiously, bicycles are discouraged because of bad accidents and the government encourages power walking for good health, or so I am told. In a country said to spend 30% of its GDP on defence, there is no visual military presence (or overt police presence) in the capital at all.

The ‘traffic ladies’ standing at major intersections are a welcome replacement for traffic lights but there are precious few cars to direct.

Questions greatly outnumber answers in this capital where visitors are duly dazzled by the spectacular grand mass gymnastics and artistic performance (called Arirang) by almost 70,000 children in the massive 150,000-seat May Day Stadium. But visitors are also aware of serious food shortages and cannot ignore the capital’s tallest building, a magnificent 105-floor pyramid tower with a crane on top, left unfinished many years ago, I was informed, due to financial problems.

Winds of change

Whether the DPRK is seen as the last Stalinist communist state or as a Confucian nationalist monarchy or even, as it describes itself, as a “powerful socialist nation”, visitors can feel the winds of change, particularly on the economic front. For more than 50 years the iconic stature of the late ‘Great Leader’ Kim Il Sung and that of his successor son Kim Jong Il have dominated the political landscape; the question going forward is how the country’s dire economic circumstances can be improved and whether the regime has the capability to create the new structures needed.

Pyongyang was playing host not only to Mr Hu but also to an increasing number of foreign delegations and journalists, all keen to understand the trends taking place in probably the last country to have massive pictures of Marx and Lenin hanging outside its Ministry of Trade. For many, however, the current focus is progress in the Six-Party Talks on the nuclear weapons programmes of the DPRK.

In the fourth round of talks in September between the two Koreas, China, Japan, Russia and the US a landmark agreement appeared to have been reached. “All six parties emphasised that to realise the inspectable non-nuclearisation of the Korean Peninsula is the target of the Six-Party Talks,” a joint statement said. “The DPRK promised to drop all nuclear weapons and current nuclear programmes and to get back to the non-proliferation treaty as soon as possible and to accept inspections from the International Atomic Energy Agency.”

At the time of going to press in November a fifth round of talks was expected to move a final agreement closer but detailed negotiations over implementation of the above agreement were not expected to be easy or to be concluded quickly. The DPRK, unsurprisingly, wants some payback, be it light-water reactors from the US or other economic incentives.

The core issue is that the DPRK’s publicly acknowledged plutonium programme, believed to provide enough radioactive material for about six bombs, is probably also the country’s key card in trying to rebuild the economy. Kim Jong Il needs to gain maximum advantage from giving up his nuclear threat, but even then, what does his economy have to offer?

Information hollow

For a financial journalist the DPRK represents a serious challenge. Understanding the economy and the banking sector of a country is never easy, but when no data is published by the government or the central bank it becomes significantly more difficult. I knew information was scarce but believed that the two very agreeable government minders, assigned to monitor my every move in my four-day visit, would be able to help me extract a simple list of banks operating in the country. No such luck. Although my visit was welcomed, the central bank (which acts as both the issuing bank and as a fully operational commercial bank in the traditional socialist model) failed to provide the list (or anything else), despite numerous requests.

Although the consensus after several interviews was that around 20 banks of various types exist, I can only vouch for the handful listed here. Clearly the Foreign Trade Bank (FTB) represents a pivotal bank in the financial system and Ko Chol Man, director of the FTB, was keen to explain the peculiarities of the DPRK banking system. “The domestic and foreign exchange settlement systems are completely separate. The central bank deals with the domestic market and money issuance and it also has a commercial banking role; the FTB has complete control over foreign exchange matters and trade and also holds the country’s foreign exchange reserves.”

Unlike other banking systems, the FTB in the DPRK acts as a clearing house for the foreign exchange activities of the banks in the country. It does not report to the central bank but, like all banks, reports to the State Fiscal and Financial Committee (SFFC), the overall banking regulator.

Mr Ko was pleased to note that the FTB had around 500 correspondent banks worldwide and, along with its 600 staff (including 11 branches) in North Korea, had six representative offices outside the country (including offices in Austria, Russia and China) and planned to establish a UK representative office in London. However, when asked for details of FTB’s banking activities he replied bluntly that no banking institution had published its figures in terms of activities or balance sheet. “We cannot give figures about the size of our assets because it is a regulation of the state. If the situation becomes better we can make them public but up to now it is impossible.”

Economic estimates

Despite the absence of official economic and banking data, various estimates help make the picture a little less murky. A recent Standard Chartered Bank report places North Korea’s nominal GDP at the end of 2004 at $22bn or $957 in GDP per capita terms for the country’s 23 million population; by comparison, South Korea’s nominal GDP is put at $680bn or $14,167 per capita for its 48 million population. While the unification of the two Koreas is seen as an important political objective, especially in Pyongyang, the startling economic gap between the two states could mean that the North becomes a huge burden on the South, and Seoul well recognises the economic problems that emerged from the reunification of Germany in the 1990s.

Meanwhile, Jong Msong Pil, of the Institute of Economy at the Academy of Social Science, explained how the economy had declined dramatically from a GDP per capita of $2500 in the mid-1980s to $480 per capita in 2000.

“The big drop was caused by the disappearance of the socialist market worldwide in the early 1990s; the collapse of our socialist barter trade system led to the failure of many enterprises and a decline in living standards,” he said.

Dr Jong noted that, following the hard times of the mid-1990s, the first target of the national economy has been self-reliance. He added that no economic data had been published since 2000. He believed, however, that 10% economic growth occurred in 2004 and, responding to reports from the World Food Programme (WFP) that a third of the population were malnourished, he said the food situation was improving. “In our country, all people have a job so for this reason no one has died of starvation or hunger. Our country is a socialist planned economy so the government takes care of people’s living.”

Acknowledging shortages in the past, Dr Jong said that in October the government had normalised the public food distribution system, which indicated the government was now supplying sufficient food.

Is the DPRK’s food crisis over? Driving around Pyongyang’s spacious avenues (with two minders) there was no visual evidence of malnutrition – but the capital is likely to be much better served than elsewhere. A supermarket was shown but the goods were only available for foreign currency, hardly food for the masses. Cha Yong Sik, deputy director general at the Ministry of Foreign Trade, said the government had not imported food on a commercial basis in 2005, unlike previous years, but neighbouring countries are still providing significant food aid. Richard Ragan, country director of the WFP, said food production in 2005 was up 10%, with cereals up 6.6%. But while the food situation may have improved, the DPRK is said to be still dependent on food aid.

Trade predictions

So what are the DPRK’s prospects? Much depends on the outcome of the nuclear negotiations but estimates from the Seoul-based Korea Trade-Investment Promotion Agency (KOTRA) say the DPRK’s trade volume in 2005 is expected to pass $3bn for the first time since the fall of the Soviet Union with the figure likely to reach $4bn if inter-Korean trade is included. Trade with China, the DPRK’s largest trading partner, grew by more than 40% in the first half of 2005, indicating Pyongyang’s growing dependency on Beijing.

Upbeat on trade prospects, Mr Cha explained that the recently opened Tae-an Friendship Glass Factory, built with a $32m donation from the Chinese government, would export 40% of its 300-ton capacity, mainly to Siberia. Also Pyongyang’s first autumn international trade exhibition in October included companies from six European countries, the focus being on the country’s mineral potential rather than its manufacturing abilities, which are a long way off.

As for banks, the group of up to 15 joint venture banks are helping to finance the country’s 150 or so international companies. But do not expect miracles. The latest, Koryo Global Credit Bank, set up in June, is a joint venture between the UK-based Global Group, headed by Hong Kong businessman Johnny Hon, with 70%, and the state-owned Koryo Bank with 30%. Established with a paid-up capital of e10m, KGC Bank is ambitious in its plans to engage the DPRK in trade and commercial relations with the rest of the world, especially Asia, the Middle East and Europe.

KGCB’s first correspondent banking relationship in Europe is with Germany’s Helababank. The bank, the first product of cooperation in the finance field between the DPRK and the UK, has a staff of five and is also interested in investing in property. It was also able to produce, at the instigation of US authorities, a comprehensive anti-money laundering file.

Another local venture is North East Asia Bank (NEAB), which was set up by ING Group in 1995 but is now wholly owned by the Korean BOHOM Group. Amazingly, Kim Hyon Il, NEAB’s president, produced a balance sheet showing total assets of e79m at the end of 2004 and a paid-up capital of e25m. He also showed me the bank’s newest product, a chip-based cash/debit card, the first in the DPRK. The card demonstrates perhaps that the country is slowly joining the real world – but with only 100 issued and only 13 outlets available, the service has a long way to go.

Political effects
 
At Daedong Credit Bank, chief executive Nigel Cowie explained how international politics can have a dramatic impact on banking even in the isolated DPRK. In September, just before the conclusion of the fourth round of the Six-Party Talks, the US Treasury accused Banco Delta Asia (BDA), a Macao-based bank, of aiding the DPRK in a series of ‘money laundering’ cases. The Wall Street Journal had said the Macao crackdown was Washington’s method of cutting off Pyongyang’s financial sources for its nuclear weapons programme.

Mr Cowie, a former HSBC banker, explained that all DPRK banks had accounts with BDA for the purposes of remitting funds and, as a result, the accounts were suspended pending an inquiry in mid-November. While Stanley Au, chairman of BDA’s parent, denied the US allegations and BDA’s involvement in any illegal business relations with DPRK banks, the damage is done. “It affects our customers because it affects people’s ability to remit money to and from the country. I imagine that this will cause people doing legitimate business to give up,” says Mr Cowie.

The nuclear negotiations remain critical to the country’s future and the Chinese, in particular, want them to succeed. But that is just a start. There is evidence that the DPRK is opening up and changing with reports that there are 300 open markets operating across the country, 30 in Pyongyang. But whether the DPRK follows the China model of 25 years ago and can restructure its ‘powerful socialist nation’ doctrine remains doubtful under the current leadership.

Choson Ilbo
12/5/2005

North Korean leader Kim Jong-il, a reputed film buff, has reportedly vowed his impoverished country’s movies will win the competition with U.S. films. The Washington Times on Sunday said the remarks were quoted by Kim Man-sok, the head of overseas sales at North Korea’s Pyongyang Film Studio.

The paper said the dear leader made the statement to encourage North Korean filmmakers during a visit on location. “We are not competing with U.S. and European films. We have to beat U.S. films,” it quoted him as saying. The daily concluded the North’s “first potential international blockbuster already is in the pipeline.”

Asia Times
Michael Rank
12/3/2005

From psychiatrist to international banker and gambling tycoon is an unusual career path, but Hong Kong-born Dr Johnny Hon says it makes quite a lot of sense. “Wealthy clients need a psychiatrist more than they need a banker,” he quipped. “Training in psychiatry makes you understand clients better. Most of them are elderly. They are concerned about their health and how to plan for passing their wealth down to their children.”

Hon, 34, was awarded a PhD in psychiatry from Cambridge University in 1998, but left medicine for finance after being recruited by the Dutch bank ABN AMRO as a private banker in Hong Kong. He didn’t stay with the Amsterdam-based bank long, however, and now has his own business empire, Global Group (Europe) plc, stretching from a joint venture bank in North Korea to a stake in a lottery in China, not to mention another bank in the Comoro Islands off Madagascar and an online gambling company in London.

Hon’s business ventures tend towards the exotic, but in an interview at his headquarters in London’s Docklands financial district he came across as measured and affable – even if I never did quite understand how he switched from a dissertation on the association between Down’s Sydrome and Alzheimer’s disease to international finance.

This has been a big year for Hon, who in June opened the Koryo Global Credit Bank in Pyongyang and in July announced the signing of a contract to co-manage the state sports lottery in the southwestern Chinese province of Guizhou.

Under the deal with Guizhou, Hon’s UK company, Betex, became the first non-Chinese company to become involved in gambling operations in mainland China (although numerous overseas gaming firms are involved in the Macau SAR). Gambling is illegal in China, with the big and fast-growing exception of state-sponsored lotteries, currently worth US$4.8 billion a year, although illegal gaming expenditures are estimated at 10 to 15 times as much, according to a recent Deutsche Bank report.

The Chinese government is aiming to cash in on the huge illegal gaming market through a vast network of video lottery terminals, and Deutsche Bank says “these measures will help lottery capture 40-50% of the illegal gambling market over the next three years”. Hon said his company had invested about 1.75 million British pounds ($3.05 million) in Guizhou, where there were currently 780 lottery sales points. These will be upgraded to give results in real time rather than be downloaded twice a day.

“So far we are involved only in Guizhou,” one of China’s poorest provinces, he said. “But we will hopefully speak to more provinces. Gaming in China has a lot of potential.” Underlining this potential, Deutsche Bank has cited the Peking University Center for Lottery Research as valuing illegal gambling activities in China – including underground casinos, slot machines, black market sports betting, and illicit lotteries – at around $75 billion. State lotteries are supposed to hand a proportion of their profits to charity and to sports development bodies, but corruption is said to be rife.

Hon said he was “taking a cautious approach” with his bank in North Korea, in which Global Group has a 70% stake and state-owned Koryo Bank has 30%. Stalinist North Korea is notoriously closed and secretive, but Hon said up to 200 foreign business people lived in Pyongyang and the country was gradually developing a market economy. He said he was “very bullish” about the future of North-South Korean economic cooperation, and stressed the potential of the Kaesong industrial zone, where a large number of South Korean companies have opened factories.

Hon noted that China’s economic reforms had been greatly boosted by overseas Chinese entrepreneurs from Hong Kong and Taiwan, who have cultural, linguistic and family ties with the mainland, and South Koreans and overseas Koreans could make a similar contribution to North Korea’s economic development.

“I keep telling my North Korean friends to make use of the huge resources and capital from South Korea,” Hon said. “Labor costs are even cheaper than China … People are well educated and have good discipline. They need the right economic policies.” Regarding North Korea’s relations with the West, Hon said: “There have been a lot of misunderstandings on both sides … There is a big gap in how they read the West and how we read them.”

Hon noted that Macau billionaire, Stanley Ho, had a casino in Pyongyang, and said that “maybe I will talk to him a bit about banking arrangements”. But he denied that he had any involvement with North Korea’s reported online lottery venture, which is aimed mainly at South Koreans. North Korea is highly puritanical and its citizens are barred from the Pyongyang casino, whose main customers are Chinese entrepreneurs and tourists.

Hon said he was motivated not simply by money, but also wanted to “make positive contributions” to impoverished Third World countries. “I came to the conclusion that you can do more good to help more people by making money first,” he added.

This was part of the reason why he founded a bank on the tiny, impoverished island of Anjouan in the Comoros in 2002. The Comoros, in which Anjouan has autonomous status, have endured 19 coups or attempted coups since gaining independence from France in 1975, and Hon wryly admitted that “at the moment the bank has caused me more problems than it is worth”. He founded the bank after he was “asked to help” by the president of Anjouan to assist in drafting new financial laws and setting up an offshore banking industry on the Indian Ocean island.

Global says it is the only company authorized by the government of Anjouan to market financial and banking licenses. But the company says some websites allege that this is not the case and that Global is challenging this in the courts.

Hon, a British citizen, was educated in Britain from the age of 13 and says on his website that in just six years he “has built up a mini conglomerate, with interests in banking, property development, gaming, finance and leisure and from which the combined turnover in 2005 is expected to reach well in excess of 1 billion British pounds. Even more remarkable is that whilst building the Global Group of Companies from scratch, he has managed to pursue so many other interests both charitable and political.”

On the charitable side, Hon was part of a team that provided North Korea with 120 wheelchairs after a large explosion on a railway line last year in which 169 people died. There was speculation, strongly denied by the North Korean government, that the explosion was a failed assassination attempt against the country’s all-powerful leader, Kim Jong-il.

On the political side, Hon is a business supporter of Britain’s governing Labour Party, and a signed photograph of Prime Minister Tony Blair “to Johnny and all at Global” is on prominent display in the company’s boardroom. In Britain, his gaming company, Betex, is seeking a listing on the Alternative Investment Market, which has a more flexible regime than the main stock exchange, while Hon is also actively seeking business partners for tourism ventures in the Caribbean. Hon said he employs 115 people worldwide, mainly in Britain but including about 10 in China and seven in North Korea.

His other interests include helping Chinese companies get a stock market listing in London. These companies span a wide range of sectors, from biotechnology to education and tourism. On his website he lists some 30 companies of which he is founder or director, and states that Global Group “is growing at a rapid rate, employing more and more staff and operating in more diverse areas than ever before. Under Johnny’s chairmanship the group is certain to go onwards and upwards.”

Hon definitely seems like a man to watch, and you never know in which exotic corner of the world he is going to turn up next.

Nautilus Institute
Andrei Lankov
12/1/2005

The recent news out of North Korea leaves no room for doubt. After a decade of grudgingly allowing small-scale free markets, Kim Jong Il’s regime is seeking to reimpose total control. Ironically this turning back of the clock is being aided by the “no strings attached” aid policies of two countries, China and South Korea, which claim to be trying to encourage reforms.

From early October, all trade in grain has been forbidden in the small private markets that mushroomed across North Korea when the state-run food distribution system largely collapsed during the famine of the 1990s. North Koreans are now expected to rely on a revived public distribution system for supplies of grain. Special teams of officials have fanned out to check farming households for any “excessive” supplies of grain they might try to sell in the private markets, and ensure they are left only with their officially allowed ration of 700 grams a day.

Internal travel controls are also being tightened. During the famine, authorities turned a blind eye to violations of the regime’s tough restrictions on freedom of movement, as starving North Koreans crisscrossed the country in search of food. Now these are being enforced once again, with North Koreans required to obtain a travel permit from police before they can travel elsewhere in the country.

Pyongyang’s moves in this direction should not come as a surprise. Allowing even a minimal degree of private enterprise reduces the regime’s absolute control over its citizens — especially if they are no longer dependent on the state for their food — and provides firsthand evidence of the existence of a more successful economic system. The Kim regime has seen how economic reform preceded the collapse of Communist regimes across Eastern Europe. It’s no coincidence that one of the questions most commonly heard in private conversations with members of the Pyongyang elite these days is about the fate of Communist cadres in the former East Germany. To avoid reforms is the surest survival strategy for Pyongyang’s ruling elite.

Throughout the past decade, the regime had no choice but to tolerate some degree of private economic activity, because of the collapse of its state-distribution system. But now that the North Korean economy has bottomed out and the famine appears to be over, largely due to generous aid shipments from the outside world, the Kim regime is in a position to get rid of changes that it never wanted in the first place. In addition to trying to curb the activities of private markets, it’s ordered most of the representatives of the international aid agencies that it reluctantly allowed into the country during the famine to leave by the end of the year.

The Kim regime can afford to act in this way because it knows that food aid from its two key patrons, South Korea and China, will keep flowing come what may. These now exceed shipments from elsewhere in the world. According to a recent report to the U.S. Congress, North Korea received 350,000 tons of food aid from South Korea and China in 2004 — compared with 325,000 tons from the World Food Program. Seoul also provides the North with much needed fertilizer, while China takes care of most of its energy needs.

China and, especially, South Korea claim to be supplying aid as part of a strategy of encouraging North Korea to embrace economic reform. That’s the ostensible aim of Seoul’s “sunshine policy” of one-sided concessions to the North, while Chinese leaders have shown visiting North Korean leaders around Shanghai and Shenzhen in an effort to encourage it to follow the same path. But, far from encouraging reform, North Korea’s recent actions show that it can take advantage of such unconditional aid to move in the opposition direction.

While Western countries insist on their aid being monitored by international relief agencies to try to prevent its diversion to the military, South Korea and China take a much more forgiving stance. Beijing wants stability on its borders, and would not be happy to see another nominally Communist regime collapsing. South Korea also wants to avoid the collapse of the Kim regime, since it would then have to foot the bill for an expensive and socially ruinous German-style unification. This means that both governments are ready to ship aid without asking too many awkward questions or demanding that it be closely monitored. Although ostensibly encouraging economic reform in North Korea, in reality both China and South Korea share the same short-term goal of preserving the status quo. They tacitly understand that means the regime must be able to continue to rely on its police and elite army units, and so needs to keep them well fed. That means turning a blind eye to the diversion of aid to the military, police and other members of the Pyongyang elite, even at the expense of the long-suffering North Korean people.

In the long run, this creates a paradox. Unless Seoul and Beijing are willing to foot the ever growing bills from Pyongyang indefinitely, they need to promote reforms there. However the North Korean regime has shown it has no interest in implementing reforms except when it is the only way to survive.

That creates an uneasy dilemma, which is shared by other foreign aid donors to North Korea. Stopping all aid could lead to renewed famine, especially in those areas of the country closed to foreigners. But excessive and unconditional aid is likely to halt all reforms, since the Pyongyang government would simply reverse to its old policies, using foreign aid to pay for the system’s inherent inefficiencies (and perhaps for a bit of luxury for Kim and his cronies). And recent events have clearly demonstrated have how counterproductive showering North Korea with aid can be.

The Banker and FDI magazine
12/1/2005

[excerpt]
Information hollow

For a financial journalist the DPRK represents a serious challenge. Understanding the economy and the banking sector of a country is never easy, but when no data is published by the government or the central bank it becomes significantly more difficult. I knew information was scarce but believed that the two very agreeable government minders, assigned to monitor my every move in my four-day visit, would be able to help me extract a simple list of banks operating in the country. No such luck. Although my visit was welcomed, the central bank (which acts as both the issuing bank and as a fully operational commercial bank in the traditional socialist model) failed to provide the list (or anything else), despite numerous requests.

Although the consensus after several interviews was that around 20 banks of various types exist, I can only vouch for the handful listed here. Clearly the Foreign Trade Bank (FTB) represents a pivotal bank in the financial system and Ko Chol Man, director of the FTB, was keen to explain the peculiarities of the DPRK banking system. “The domestic and foreign exchange settlement systems are completely separate. The central bank deals with the domestic market and money issuance and it also has a commercial banking role; the FTB has complete control over foreign exchange matters and trade and also holds the country’s foreign exchange reserves.”

Unlike other banking systems, the FTB in the DPRK acts as a clearing house for the foreign exchange activities of the banks in the country. It does not report to the central bank but, like all banks, reports to the State Fiscal and Financial Committee (SFFC), the overall banking regulator.

Mr Ko was pleased to note that the FTB had around 500 correspondent banks worldwide and, along with its 600 staff (including 11 branches) in North Korea, had six representative offices outside the country (including offices in Austria, Russia and China) and planned to establish a UK representative office in London. However, when asked for details of FTB’s banking activities he replied bluntly that no banking institution had published its figures in terms of activities or balance sheet. “We cannot give figures about the size of our assets because it is a regulation of the state. If the situation becomes better we can make them public but up to now it is impossible.”
Economic estimates

Despite the absence of official economic and banking data, various estimates help make the picture a little less murky. A recent Standard Chartered Bank report places North Korea’s nominal GDP at the end of 2004 at $22bn or $957 in GDP per capita terms for the country’s 23 million population; by comparison, South Korea’s nominal GDP is put at $680bn or $14,167 per capita for its 48 million population. While the unification of the two Koreas is seen as an important political objective, especially in Pyongyang, the startling economic gap between the two states could mean that the North becomes a huge burden on the South, and Seoul well recognises the economic problems that emerged from the reunification of Germany in the 1990s.

Meanwhile, Jong Msong Pil, of the Institute of Economy at the Academy of Social Science, explained how the economy had declined dramatically from a GDP per capita of $2500 in the mid-1980s to $480 per capita in 2000.

“The big drop was caused by the disappearance of the socialist market worldwide in the early 1990s; the collapse of our socialist barter trade system led to the failure of many enterprises and a decline in living standards,” he said.

Dr Jong noted that, following the hard times of the mid-1990s, the first target of the national economy has been self-reliance. He added that no economic data had been published since 2000. He believed, however, that 10% economic growth occurred in 2004 and, responding to reports from the World Food Programme (WFP) that a third of the population were malnourished, he said the food situation was improving. “In our country, all people have a job so for this reason no one has died of starvation or hunger. Our country is a socialist planned economy so the government takes care of people’s living.”

Acknowledging shortages in the past, Dr Jong said that in October the government had normalised the public food distribution system, which indicated the government was now supplying sufficient food.

Is the DPRK’s food crisis over? Driving around Pyongyang’s spacious avenues (with two minders) there was no visual evidence of malnutrition – but the capital is likely to be much better served than elsewhere. A supermarket was shown but the goods were only available for foreign currency, hardly food for the masses. Cha Yong Sik, deputy director general at the Ministry of Foreign Trade, said the government had not imported food on a commercial basis in 2005, unlike previous years, but neighbouring countries are still providing significant food aid. Richard Ragan, country director of the WFP, said food production in 2005 was up 10%, with cereals up 6.6%. But while the food situation may have improved, the DPRK is said to be still dependent on food aid.
Trade predictions

So what are the DPRK’s prospects? Much depends on the outcome of the nuclear negotiations but estimates from the Seoul-based Korea Trade-Investment Promotion Agency (KOTRA) say the DPRK’s trade volume in 2005 is expected to pass $3bn for the first time since the fall of the Soviet Union with the figure likely to reach $4bn if inter-Korean trade is included. Trade with China, the DPRK’s largest trading partner, grew by more than 40% in the first half of 2005, indicating Pyongyang’s growing dependency on Beijing.

Upbeat on trade prospects, Mr Cha explained that the recently opened Tae-an Friendship Glass Factory, built with a $32m donation from the Chinese government, would export 40% of its 300-ton capacity, mainly to Siberia. Also Pyongyang’s first autumn international trade exhibition in October included companies from six European countries, the focus being on the country’s mineral potential rather than its manufacturing abilities, which are a long way off.

As for banks, the group of up to 15 joint venture banks are helping to finance the country’s 150 or so international companies. But do not expect miracles. The latest, Koryo Global Credit Bank, set up in June, is a joint venture between the UK-based Global Group, headed by Hong Kong businessman Johnny Hon, with 70%, and the state-owned Koryo Bank with 30%. Established with a paid-up capital of e10m, KGC Bank is ambitious in its plans to engage the DPRK in trade and commercial relations with the rest of the world, especially Asia, the Middle East and Europe.

KGCB’s first correspondent banking relationship in Europe is with Germany’s Helababank. The bank, the first product of cooperation in the finance field between the DPRK and the UK, has a staff of five and is also interested in investing in property. It was also able to produce, at the instigation of US authorities, a comprehensive anti-money laundering file.

Another local venture is North East Asia Bank (NEAB), which was set up by ING Group in 1995 but is now wholly owned by the Korean BOHOM Group. Amazingly, Kim Hyon Il, NEAB’s president, produced a balance sheet showing total assets of e79m at the end of 2004 and a paid-up capital of e25m. He also showed me the bank’s newest product, a chip-based cash/debit card, the first in the DPRK. The card demonstrates perhaps that the country is slowly joining the real world – but with only 100 issued and only 13 outlets available, the service has a long way to go.

Political effects

At Daedong Credit Bank, chief executive Nigel Cowie explained how international politics can have a dramatic impact on banking even in the isolated DPRK. In September, just before the conclusion of the fourth round of the Six-Party Talks, the US Treasury accused Banco Delta Asia (BDA), a Macao-based bank, of aiding the DPRK in a series of ‘money laundering’ cases. The Wall Street Journal had said the Macao crackdown was Washington’s method of cutting off Pyongyang’s financial sources for its nuclear weapons programme.

Mr Cowie, a former HSBC banker, explained that all DPRK banks had accounts with BDA for the purposes of remitting funds and, as a result, the accounts were suspended pending an inquiry in mid-November. While Stanley Au, chairman of BDA’s parent, denied the US allegations and BDA’s involvement in any illegal business relations with DPRK banks, the damage is done. “It affects our customers because it affects people’s ability to remit money to and from the country. I imagine that this will cause people doing legitimate business to give up,” says Mr Cowie.

The nuclear negotiations remain critical to the country’s future and the Chinese, in particular, want them to succeed. But that is just a start. There is evidence that the DPRK is opening up and changing with reports that there are 300 open markets operating across the country, 30 in Pyongyang. But whether the DPRK follows the China model of 25 years ago and can restructure its ‘powerful socialist nation’ doctrine remains doubtful under the current leadership.

Perils of Investing in N. Korea Become Clear to a Pioneer
By Anthony Faiola and Joohee Cho
Washington Post

Hyundai Group pioneered South Korean economic development in North Korea, building hotels and restaurants and sending busloads of tourists across the DMZ. At the time, company officials argued that they were giving their communist northern kin a lesson in capitalism.

Now Hyundai is attempting to resolve a dispute with the North Korean government that has jeopardized more than $1 billion worth of investments. The dispute began in August after Hyundai Asan Corp., the subsidiary in charge of North Korean tourism operations, fired a top executive for allegedly misappropriating more than $1 million in company and South Korean government funds.  The dismissal was considered a heavy offense in Pyongyang, the North Korean capital, because the executive in question had been granted several rare meetings with North Korean leader Kim Jong Il. Top Communist Party officials last month abruptly announced a review of all concession rights purchased by the company while secretly courting one of Hyundai’s rivals, South Korea’s Lotte Group, to take over Hyundai’s North Korean operations. Lotte officials, concerned about North Korean business practices, decided they did not want to take over Hyundai’s business.

The dismissal was considered a heavy offense in Pyongyang, the North Korean capital, because the executive in question had been granted several rare meetings with North Korean leader Kim Jong Il. Top Communist Party officials last month abruptly announced a review of all concession rights purchased by the company while secretly courting one of Hyundai’s rivals, South Korea’s Lotte Group, to take over Hyundai’s North Korean operations. Lotte officials, concerned about North Korean business practices, decided they did not want to take over Hyundai’s business.

The actions by North Korea raised serious questions about the wisdom of investing there. Despite the dispute, however, the governments of both South and North Korea are lobbying foreign companies to move into a jointly developed industrial park opened earlier this year in the North Korean border city of Kaesong, where more than 20 South Korean firms employ 8,000 North Koreans. The governments describe the industrial park as an experiment with market reforms. The countries also held a joint trade fair at the economic summit of world leaders last week in the southern city of Pusan.

But since South Korea opened up friendly relations with the North in the late 1990s, more than 1,000 South Korean firms have gone bankrupt or lost significant investments in North Korea, according to South Korea’s Unification Ministry.

Most were small, low-tech enterprises involved in textile-making and rudimentary housewares. But the problems at Hyundai have shown that the fortunes of even the largest investors are linked to the whims of the North’s government.

If you visit Kumgang:
The resort has lost millions of dollars and was constantly hampered by North Korean activities. In 1999, for instance, North Korean agents arrested a vacationing South Korean woman after she suggested that the capitalist South — the 11th-largest economy in the world — enjoyed a higher standard of living than the impoverished North.

Joong Ang Daily
Yoo Kwang-Jong
11/24/2005

Organized efforts are ongoing in North Korea to hand over the hereditary communist regime to a son of current leader Kim Jong-Il, doplomatic sources here with strong connections in Pyongyang said yesterday.

North Korea has reportedly founded a department inside the governing Workers’ Party to promote Kim Jong-chol, the second son of Mr. Kim, as his successor. “When the Workers’ Party reorganized its departments in 2004, two new bureaus were opened under the organizational guidance department,” a source well-informed about Pyongyang affairs said.  “The bureaus handle matters about the regime’s succession.”

According to the source, 10 officials in their 30s work at each bureau, and are in charge of educating Kim Jong-Chol about party governance affairs.  While the two bureaus are publicly under the control of Ri Je-gang, a senior party official, Kim jong Il’s National Defense Commission oversees their operations directly, the source added.

Antoher source said the third generation father-to-son hand-over was seriously resisted in North Korea, but Pyongyang appeared to have decided on its course.  “with the Workers’ Party backing, the succession has become more and more visible,” the source said. 

Kim Jong-chol, 24, studied in Switzerland in the late 1990s.

Meanwhile, South Korea said it was checking a recent German media report that Kim Jong chol attended a presidential dinner for the visiting Chinese leader Hu Jintao in late October.  

Asia Times
Andrei Lankov
11/23/2005

It was a fine night in Pyongyang in mid-October as I walked a deserted street under the unusually bright stars of the North Korean sky (no industry means no pollution), accompanied by a knowledgeable expert on North Korea.

“Well, I do not understand what the hell they are doing,” said the expert, a former student of mine. “You should not be here, frankly. And those South Koreans, they are even more dangerous. The commander-in-chief is making a mistake, but it will take months before they realize how destructive the impact of the Arirang Festival is for their regime.”

The North Korean capital from August to late October hosted the Arirang Mass Games, a pompous and kitschy Stalinist festival for which 50,000 participants (largely students) were trained for months. The festival was attended by an unprecedented number of foreigners and South Koreans.

Pyongyang’s international hotels, usually half-empty, were completely booked, and five or six flights left the city’s international airport every day. This might not appear a particularly large number, but in more ordinary times the airport, by far the least busy capital airport in East Asia, serves merely four to five flights a week.

There were many Westerners. But most unusual and striking, perhaps, was the powerful presence of South Koreans. For the first time since the division of the country in 1953, pretty much every South Korean who wished to do so could travel to Pyongyang for a short stay.

Seoul tourist companies widely advertised a two-day trip to Pyongyang for the equivalent of US$1,000. This is expensive for a two-day, one-night package. But in Seoul where the average monthly salary is about $2,500, it is certainly feasible. Hence, between 500 and 800 South Koreans flew to Pyongyang daily. In mid-November the South Korean unification minister proudly stated that “about 100,000” South Koreans visited the North this year, and it seems a large number consisted of short-time visitors to the Arirang festival.

North Korean leader Kim Jong-il personally approved admission of the unprecedented numbers of foreigners. Nothing like this has been seen since the World Youth Festival of 1989, and even then no South Koreans (and only a few citizens of developed Western countries) were allowed in.

The reason for this openness is clear: tourists bring money. Obviously, earnings from the Arirang festival were very good, and Kim decided to use the opportunity to fill state coffers. The foreigners were allowed in without too many questions being asked, and the show was extended for a few additional weeks. It looked like easy money; the grandiose show would have taken place with or without fee-paying foreigners.

It is possible that Kim Jong-il was persuaded to open the doors so wide by officials who might have had hidden vested interest in the matter: the days of religious devotion to the official ideology are long gone, and bureaucrats are learning fast how to make their jobs profitable.

It seems, however, that in the long run opening the door will have serious political consequences. For me, on my first visit to Pyongyang in 20 years, it was quite clear that life in North Korea has changed, even if on the surface everything appeared almost the same as in 1985.

My first impression was that Pyongyang was frozen in time, remaining unchanged from the mid-1980s. Very few new buildings, all very moderate in size and design, have appeared over those two decades. Pyongyang still reminds me of a relatively poor Soviet provincial city of the 1970s and presents a striking contrast with booming Beijing, let alone Seoul.

Even the street crowd has not changed that much. Many people are still dressed in Mao jackets or worn military outfits, and there seems to be even less traffic than in 1985. The veteran expats say nowadays there are far more vehicles than in the late 1990s when the famine reached its height, but for me the reference point is 1985, not 1999. All visible changes were minor, such as the introduction of bikes, which until the 1990s were banned from the “revolutionary capital”.

The much-discussed private business was nowhere to be seen, since municipal authorities “cleaned” the city on the eve of the festival, driving away all private vendors along with their stalls and canteens. This was a part of the new political line of re-imposing state controls and cracking down on the non-official economy, but it also destroyed what might be the only serious visual difference between Pyongyang of 1985 and today. Markets continued their activity, but behind high walls and strictly off limits to foreign visitors (but not for expats).

At the same time, Pyongyang does not look destitute. It is a poor city, but not more so than many towns in the less-successful Chinese provinces. This confirms what defectors from North Korea often say. However, the defectors see this “moderate poverty” in an altogether different light, as “great prosperity”. As one recently said, “Pyongyang people are rich, this city lives very well, almost as good as some cities in [Chinese] Manchuria.”

The gap between privileged Pyongyang and countryside is wide. This was clear from a short countryside trip even though our destination was the city of Kaesong, a semi-privileged location. We traveled about a 100 kilometers on a relatively good highway that connects the two major cities, but encountered no more than two dozen vehicles. A couple of decades ago one could see mechanization in the fields, but now all work is done manually.

However, the impression that Pyongyang is “unchanged and unchangeable” is completely wrong. The material environment has not changed much, but the spirit is very different from what it was in 1985.

The most remarkable aspect was the relative freedom with which North Koreans talked to foreigners, particularly about their great interest in everything that happens outside the state borders. This does not necessarily mean that my North Korean interlocutors rushed to say something critical about the authorities – on the contrary, from time to time most of them murmured the ritual phrases about superhuman wisdom and omniscience of the commander-in-chief.

However, back in the 1980s no North Korean dared talk to a foreigner for more than a few minutes, and under no circumstances could the topics stray from the weather and, sometimes, the greatness of the leader. My impression of North Korea in 1984-85 when I lived there was that of a country where not everybody supported the government, but where everyone was scared to death to say otherwise. It would be an overstatement to say that nowadays the fear has gone, but it has certainly waned.

It was important that my interlocutors were ready to ask thorny questions about life in other countries and in particular about South Korea. They asked about salaries in Seoul, about changes in the former Soviet Union after the collapse of communism (“Are people better off or not?”), about the fate of East German bureaucrats after the German unification (“They went to prison, did they?”), and about the reasons for Chinese success.

Sometimes it seemed some of my interlocutors suspected that the South was well ahead of the North in terms of living standards. This suspicion is dangerous to the regime whose claims of legitimacy are based on its alleged ability to deliver better standards of living. The actual gap between the two Koreas is huge. Still, North Koreans are told they are lucky to live in the North, in the prosperous state of juche (self-reliance), and not in the South, which is a destitute colony of the US imperialists.

Since the 1980s, an increasing number of better-informed North Koreans are uncertain about these official claims. However, in the past it would have been unthinkable to ask a stranger such dangerous questions after just a few minutes of conversation. It was also risky to demonstrate interest in the outside world, but this seems not to be the case any more.

One of the most unexpected and important encounters occurred when I was visiting the Chinese embassy. A small crowd attracted my attention. People were carefully studying something inside a large window on the wall; some finished and went away, only to be replaced by others. Of course, I went closer, only to discover that the people’s attention was attracted by pictures hanging in the embassy’s “information window”. The pictures were large and colorful, but otherwise absolutely unremarkable. The photos and captions were no different from the stuff cultural attaches across the globe put on the walls of their embassies – the usual boring fare about growth of shrimp production, new computer classes and state-of-the-art chicken farms. However, in North Korea of 2005 such mundane matters attract a crowd. Those pictures gave a glimpse of outside life.

This small episode was a sign of what now is in the air in North Korea: people are eager to learn more about the outside world. They are less afraid to show their interest in what once was forbidden knowledge, and they are increasingly uncertain about the future.

It seems the arrival of the foreigners has provided North Koreans with far more food for thought. Among the visitors there were younger South Koreans influenced by the left-wing nationalism, which has become increasingly popular in Seoul. These visitors were sometimes willing to cheer the anti-US slogans, and this was discussed in the right-wing South Korean media as yet another sign of North Korea’s ideological penetration. However, it seems that the actual influence is going the other way.

Obviously, the decision to open the doors wide was made suddenly, so North Korean police and security were caught unprepared by the sudden influx of South Koreans. I witnessed the arrival of a new South Korean group to the Yanggak Hotel, and could not help but be impressed by the scene. Remarkable was the lack of the usual North Korean regimentation and the absence of segregation, which is the basic principle in handing all foreigners, especially South Koreans. The unruly and noisy South Korean tourists, fresh from the airport, virtually stormed into the hotel where many North Korean guests (obviously of high social-standing) were staying as well. The chaos created manifold opportunities for short-time encounters. Such encounters likely took place with the North Koreans learning a thing or two about the South.

Most of the South Korean tourists were in their 50s and 60s, obviously many had some personal connection to the North. (Between 1945 and 1953 about 10% of entire North Korean population fled south, and a much smaller but still significant number of leftist South Koreans escaped to Kim Il-sung’s would-be socialist paradise, leaving family members back home). Those of that era are most likely to look for contacts, and also are far more realistic than the young intellectuals who have been brainwashed by the leftist-nationalist ideologues.

The scale of the tourist mini-boom meant that for the first time in their lives many thousand of North Koreans could observe South Koreans closely, even often getting the opportunity to talk to them. This might have grave consequences to the regime. In past it was possible to explain away the good dress and fat complexion of the few South Korean visitors by insisting that they came from the elite. But now North Koreans saw the well-dressed, well-fed, self-assured South Koreans coming to the festival in droves, day after day, week after week? This was what drivers, guides, sales clerks and other North Koreans saw. It was what participants in the Arirang festival saw as well when they had a few minutes to look at the audience.

North Koreans could not help but conclude that the South has an unusually large supply of rich capitalists. And their presence at the Arirang games obviously means that South Koreans cannot be badly off: after all, the “running dogs of the US imperialism” are not supposed to come to such events.

Of course, most encounters were necessarily short, but dress and looks speak volumes and sometimes a few casual words are enough to change a North Korean’s world view dramatically. It is easy to imagine a South Korean woman in her 50s, whose husband is a skilled worker, complaining that her family has been unable to change a car for more than six years – and even easier to imagine the impact such a matter-of-fact remark would have on a North Korean to whom private cars are a symbol of ultimate luxury, something akin to the role of private jets in Americans.

Of course, the people who interacted with the South Koreans and foreigners overwhelmingly came from the elite. Good examples were our three interpreters – the granddaughter of the founding father of the political police, the granddaughter of a prominent negotiator who dealt with the Americans, and a daughter of an ambassador.

However, the arrival of so many South Koreans meant that a large number of less-privileged North Koreans also had access to the visitors, and at least overheard them talk. By North Korean standards a bus driver working for a tourist company holds a good job. Such a man (women are never allowed to drive in North Korea as it is believed to be dangerous for the public) is by no means a member of the inner circle of power, but he has friends and relatives with whom he can share his experience.

So, was my former student right? Was opening the door so wide to foreigners a mistake by Dear Leader Kim Jong-il, a master of survival who felt the allure of easy money and forgot the number one rule of his own policy – “stability is more important than development”?

Or perhaps he was misled by some officials who pocketed some of the revenues? Only time will tell how dangerous the entire affair was for the regime, which survives on isolation and myth-making. It seems the first conclusions are an indication: North Korea decided in early November to close its borders to all tours from mid-December until probably mid-January.

One might assume that they will use this break from tourists to reeducate their tour drivers and explain to them that South Koreans only look rich while really they are poor. Will this work? I doubt it.

Lankov is on a roll again:

“Theirs is a dirty rich house. They have all seven contraptions!” These seven gadgets are the major status symbols in the North. The list has been changing, but now, in the early 2000s, it comprises the following : TV set, refrigerator, washing machine, electric fan, sewing machine, tape recorder and camera.

Only a tiny fraction of all North Korean households own all these “contraptions”. In the mid-1990s, the average black market cost of the entire package was 30,000 won or, roughly, some 30 (!) times the monthly salary of an average worker.

Nowadays TV sets can be found in approximately 40 percent of North Korean households, but they are very unevenly spread across the country. In Pyongyang and major cities a majority of households obviously have a TV, while in the countryside they remain a rarity. No precise statistics about numbers of TV sets and their distribution has ever been released: from Pyongyang’s point of view even such innocuous information is a state secret.

Even though the North began colour broadcasting before the South, the old-style black-and-white TVs still outnumber colour sets. Most of the TVs are old, imported from the “fraternal socialist countries” (especially Romania and the USSR) or locally assembled. The elite families have Japanese sets which are seen as an important status symbol.

VCRs have begun to spread among the more affluent households.

Cameras are owned by roughly 20 percent of North Korean families. A vast majority of them are old Soviet-made manual cameras

Electric fans are relatively common. Of course, air conditioning is unheard of.

Meanwhile, washing machines and refrigerators remain luxuries. Washing machines have been locally produced since the 1970s, but even in Pyongyang few houses can boast owning such an appliance.

TV sets and some of the other “seven contraptions” used to be distributed through government shops where prices were low, although one had to wait years for permission to buy a particular item (without such permission no shop would sell it). However, neither washing machines nor fridges could be bought officially, even in the best of times. They had to be acquired via the black market. In recent years the distribution system has collapsed completely, and the black market provides the only way to become an owner of the “seven contraptions” – if you can afford to spend some 30 average annual salaries, that is…

Despite the famine, the number of people who can afford these gadgets seems to be growing. This reflects the steady increase of inequality in the North.

Los Angeles Times
Barbara Demick
11/20/2005

A South Korean activist gives birth while visiting Pyongyang for an anniversary event. Some in the South suspect the timing was contrived.

While watching child gymnasts tumbling in unison across the field of Kim Il Sung Stadium in a performance heralding the miracle of the North Korean economy, Hwang Seon felt a sharp cramp in her abdomen.

Within minutes, the 32-year-old South Korean tourist was whisked by ambulance across town to Pyongyang’s maternity hospital. There, doctors delivered a 7-pound, 6-ounce girl who has become an instant celebrity and rare source of optimism in this often-forlorn North Korean capital.

The baby is the first born in the North as a South Korean citizen. Her birth Oct. 10 has been hailed as a mystical sign that the half-century-long division of the Korean peninsula is coming to an end.

“Our precious unification baby girl,” is how North Korea’s official KCNA news agency put it.

Hwang, who was more than eight months pregnant when she traveled to North Korea, spent two weeks recuperating in the maternity hospital, where she was treated without charge to around-the-clock nursing care. Her meals included seaweed soup, a Korean traditional postpartum treatment.

North Koreans suggested naming the baby Tongil, or “Reunification”; but that sounded like a boy’s name, so the parents instead opted for Kyoreh, meaning “One People.”

“Everybody said her birth was a lucky omen for the Korean people,” said Hwang, a left-wing political activist who favors rapprochement with the North.

Hwang and her daughter are the best-known South Korean visitors to Pyongyang recently. But from late September until early this month, visitors from the South came in unprecedented numbers to view mass games marking the 60th anniversary of North Kore&s ruling Workers’ Party.

During October, 7,203 South Koreans flew to North Korea on nearly 100 nonstop flights connecting the estranged neighbors.

For the first time, planes bearing the insignia of South Korea’s leading carriers, Korea Air and Asiana Air, became regular sights on the tarmac of Pyongyang’s seldom-visited Sunani airport; North Korea’s national carrier, Air Koryo, likewise was a frequent visitor to Incheon. Previously, there were only occasional charter flights between the airports for special events.

South Koreans in Pyongyang stood out in their colorful Gor-Tex jackets like exotic birds against the monochsomatic North Korean landscape. Almost all carried digital cameras, a rarity in the North.

While North Koreans trudged through the empty boulevards on foot, the South Koreans were transported in fancy tour buses, some of which sported color television monitors and video recorders.

The South Koreans were not permitted to go out unescorted and had to wear large nametags around their necks. At one point, a disoriented man in his 80s, born north of the border, tried to wander out of a Pyongyang hotel in search of his home village, but was blocked by a courteous but insistent North Korean doorman, said a South Korean visitor who witnessed the encounter.

Overall, the South Koreans said, they got the impression that North Korea was on a charm offensive. For example, when some tourists complained about a scene in the mass games that showed North Korean helicopter commandos battling what seemed to be South Korean soldiers, the material was promptly cut out.

The mass games were blatantly designed to tug at the heartstrings of South Koreans. Named “Arirang” after a popular Korean folk song, the program was replete with sentimental tunes and operatic skits about separated families reaching for one another across barbed wire. The show used more than 100,000 performers, many of them holding colored cards to make up intricate mosaics.

Keeping on message, the finale used a backdrop of doves with a message: “The last wish of the father [referring to the late North Korean founder Kim Ii Sung] is reunification of the fatherland.”

When North Koreans speak of reunification, their meaning is radically different from what Americans might think in recalling the collapse of the Berlin Wall in 1989 and the absorption of the communist East by West Germany. Instead, the North Koreans describe a loose confederation under which their nation would keep its own system of government while receiving massive economic aid from the South.

“We don’t want what happened in Germany,” tour guide Pak Gyong Nam said as he showed visitors a 185-foot-high stone arch portraying two women in traditional Korean dress (one representing each Korea) touching hands across a broad thoroughfare known as Reunification Street. “We would be one country, but two governments.

“If Korea is reunified, South Korea will bring in technology and investment. We have great confidence in the future. If we are reunited, no problem.”

The sentiment explains in large part why North Koreans were so enthusiastic about the so-called unification baby.

“Have you heard about the South Korean woman who gave birth?” asked Kim Kyoung Kil, a North Korean lieutenant colonel who was escorting tourists at the demilitarized zone the day after Hwang and her newborn crossed on their way back to Seoul. “It means reunification is near. Only the Americans are preventing it.”

The reunification baby’s birth — which took place on the exact date of the 60th anniversary of the Workers’ Party founding — fits so perfectly into North Korean propaganda that many suspect it was contrived.

Hwang has issued a denial, saying that her due date was 20 days away when she made the trip and that she had scheduled a caesarean section in Seoul for the following week because of complications from a previous birth.

“Even my friends think it was planned, but it’s not so,” said Hwang, who lavished praise on the medical care and nursing she received. “They were very impressive…. Everybody was wonderfiul to me.”

Other South Korean tourists, most of whom were visiting on a two-day tour that cost $1,000, expressed mixed sentiments about their experience.

Student activists and union members who marched onto the field with a pro-reunification flag were greeted by wild applause from North Koreans in the audience.

But some of the southerners were dismayed by what they saw as an unabashed celebration of totalitarianism.

“Rather than being impressed by the extravagant brightness and precision of the mass games, I was shocked at how mechanical those people were and realized how oppressed they are,” said Lee Yong Hoon, a 62-year-old businessman from Suwon. “I realize we can’t rush into reunification until North Koreans can accept concepts of freedom and individuality.”

More than 1 million South Koreans have visited North Korea since 1998, but most have gone only to Mt. Kumgang, in a border-area enclave open to tourists.

The visits last month were the first mass influx of tourists to the North Korean capital. They coincided with a period of rapidly accelerating economic and cultural exchanges between the Koreas.

South Korea’s national assembly is expected Dec. 1 to approve a humanitarian and economic aid package for the North worth $2.5 billion — nearly double last year’s allocation. And the two announced this month that they might field a joint team for the 2008 Olympics in Beijing.

South Korea’s largesse has come under some criticism because of the North’s nuclear program, the subject of six-nation talks. The Bush administration, along with the conservative establishment inside South Korea, has taken the position that rewards should be deferred until the Pyongyang regime dismantles its nuclear weapons.

“Our government is in collusion with North Korea, creating the false illusion that all is quiet on the northern front, when it is not,” said Lee Dong Bok, a former South Korean intelligence official and assemblyman. By allowing its citizens to visit Pyongyang for mass games, he said, “South Korea is helping North Korea promote its propaganda.”

Technically, South Koreans need waivers from their country’s National Security Law — which prohibits support of North Korea— to visit Pyongyang.

Hwang Seon, the baby’s mother and a former student radical, served 34 months in South Korean prisons largely because she made an unauthorized trip to North Korea in 1998.

“The last time I came back [to South Korea] from North Korea, the National Intelligence Service was waiting for me to arrest me,” Hwang recalled. “This time, I held my baby in my arms and was welcomed back with flowers.”

Hwang’s husband was not able to meet his wife and new daughter upon their arrival home. He is in hiding, wanted by South Korean authorities on charges of pro-North Korean activities.