North Korean Economy Watch

When Jang Song-thaek was purged, the North Korean prosecutors provided a laundry list of offenses committed against the nation. Among his crimes, Jang was specifically criticized for his management of assets in the Rason Economic and Trade Zone. The public accusation stated, “Jang made no scruple of committing such act of treachery in May last as selling off the land of the Rason economic and trade zone to a foreign country for a period of five decades under the pretext of paying those debts.”

The unnamed “foreign country” in the quote is obviously China, and the subtext of the quote implies that Rason contracts signed under Jang’s protection are in danger of being violated as the North Koreans reorganize the allocation of rents among key leadership organizations. This has to be unnerving to the Chinese business partners that signed these contracts and have been investing in the zone. In a best-case scenario for the investors, the reorganization of patronage would simply mean that they are just making payments to different organizations, but otherwise, business is pretty much unchanged. However, if the North Koreans are taking the drastic step of invalidating contracts and confiscating property, then we would expect to see a significant slow down in development of the zone in the future.

Following news of Jang’s purge, initial reports indicated that both DPRK and Chinese members of the Rason Management Committee had departed the SEZ and that most activities have come to a complete halt. But there are not enough reports to firmly conclude this is the case. Now New Focus has published information on some of the changes taking place in the Rason SEZ. The usual caveats apply:

The Kim Il-sung villa in Rajin-Sonbong is no longer available for hire, according to a reliable source in the area. The de-listing happened in the course of a Ministry of State Security (MSS) surveillance operation in North Korea’s Rajin-Sonbong special economic zone.

The operation was instigated under orders from the Organisation and Guidance Department (OGD) of the Workers’ Party, as it tightens its grip on the zone in the aftermath of Jang Song-thaek’s purge and execution. Nevertheless, the operation is being conducted in a relatively discreet manner so as not to startle Chinese businessmen in the zone.

The talk among senior DPRK cadres is that although Rajin-Sonbong’s Party Secretary, Party Committee Chair and MSS Supervisor are Jang Song-thaek’s associates, they are being left alone for the time being because of their close personal relations with Chinese investors; but that following the Supreme People’s Assembly elections in March, they will be replaced.

Nevertheless, the highest ranking female cadre in Rajin-Sonbong, the Tourism Director, was taken away. This prompted rumours that she was Jang Song-thaek’s lover, but her circumstances make this very unlikely.

The International Club in Rajin-Sonbong closed after the purge of Jang Song-thaek and the coming and going of Chinese businessmen has also decreased. The Kim Il-sung holiday villa in Rajin-Sonbong, which had been rented by HK investing company Emperor Group, has now been confiscated.

This villa is a 70s construction built as a getaway for Kim Il-sung and was a prized landmark in Rajin-Sonbong, with even a commemorative monument to mark the villa’s location. When the Emperor Group set up a casino in the area, they asked for permission to hire the villa for its VIP guests. At first, the Rajin-Sonbong Party Committee refused because it was considered a sacred landmark related to Kim Il-sung.

The person who secured the deal for the Emperor Group was an ethnic Korean Chinese named Ri Bong-hui, director of a fuel oil company. He donated US$1 million as a brokerage fee and the rental permit was granted. Rumours have now been spread that this fee had gone personally to Jang Song-thaek.

Existing land lease agreements in the Rajin-Sonbong special economic zone have also been affected. These originally stipulated that at US$20 / m2, plots of land could be leased for 20-50 years, depending on their location. The agreements have now been invalidated on the grounds that the details had been mismanaged by Jang Song-thaek.

Further, personnel tax and operating tax have been re-calculated and a request has been made by Party authorities in Rajin-Sonbong for the appropriate payments to be made in yearly groupings. As the Rajin-Sonbong authorities have asked for ten years back payment, many small investors from China are complaining about their losses.

The fact that the new rulings are being applied only to smaller companies is said to be exacerbating their disgruntlement. Chinese firms making larger investments are currently exempt, but some are still worried that the new measures might be applied to the bigger investors in a second phase of rulings.

According to Yonhap:

North Korea’s exports of anthracite coal to China grew 15.5 percent in 2013 from a year earlier, data showed Friday.

North Korea shipped a total of US$1.37 billion worth of anthracite to China last year, compared with $1.19 billion sold to the neighbor a year earlier, according to the data from the Korea International Trade Association.

North Korea exported only $162.6 million worth of the coal to China In 2007, but the figure has grown every year since then, according to the data.

The total anthracite exported to China last year was measured at 16.5 million tons, up 39.7 percent from what was exported in 2012, the data also showed, indicating that the North sold the coal to China at cheaper prices last year.

In December alone last year, the North shipped $118.06 million worth of anthracite, almost the same amount as November’s $121.45 million.

This means North Korea continued anthracite exports to China after executing leader Kim Jong-un’s once-powerful uncle Jang Song-thaek in early December for allegedly attempting to overthrow the regime and committing anti-state crimes, including selling North Korean natural resources abroad at excessively low prices.

North Korea’s anthracite exports are one of its major income sources and China is virtually the only destination for the shipments.

Read the full story here:
N. Korea’s coal exports to China up 15.1 pct in 2013
Yonhap
2014-1-24

Institute for Far Eastern Studies (IFES)
2014-1-23

North Korea is promoting stable “political and military environment” as a necessary component to attract foreign investment and regional development through advancement in economic development zones (EDZs).

The Academy of Social Sciences’ newspaper (November 15, 2013 edition) published an article entitled “The Critical Issues in Advancement of Economic Development Zones to Construct a Powerful Economy.” Five major challenges were identified, which included the “creation of a favorable political and military environment.”

As the newspaper explained, “Investors take into consideration the political and military environment of the countries that they will invest in,” and “our fundamental objective is to ensure stability of investments through favorable political and military environment in the EDZs.” Other important issues raised in the article included the creation of a stable political situation, removal of the risk of war, and strengthening of military power.

This corroborates the reality that North Korea is faced with, as the country must create favorable political and military environment as the Kim Jong Un regime pursues its stated national goals of improving the lives of its people and the construction of a powerful economy.

In his New Year address, Kim Jong Un emphasized the need to improve inter-Korean relations and urged the South Korean government to positively respond to this effort. He also refrained from using confrontational remarks. North Korea seems to be demonstrating a willingness to manage the political atmosphere on the Korean peninsula.

North Korea is seeking to mollify the turmoil that followed the regime’s execution of Kim Jong Un’s uncle, Jang Song Thaek, last month, and to encourage favorable atmosphere necessary for economic development.

In addition, the newspaper described the four other major tasks for the advancement of EDZs: infrastructure maintenance of railway, roads, airfields, ports, power plants, water and sewage, hotels, and postal services; enactment of EDZ laws that take into consideration the interests of the state and the investors; provisions for preferential treatment for foreign investors; and business management and operation that fully take into consideration regional characteristics.

In May 2013 North Korea enacted its new EDZ law and announced plans to install special economic zones across the country. In November 2013 the names of 13 EDZs were announced*, with each one said to be tailored to its own area’s local characteristics and environment.

*NKeconWatch: 14 zones were announced.

UPDATE 2 (2014-1-21): According to Yonhap:

The number of North Korean visitors to China rose about 11 percent on-year to top 200,000 for the first time in 2013, Chinese government data showed Tuesday, in the latest sign that the flow of people between the allies was unaffected by geopolitical tensions.

About 206,600 North Koreans traveled to China last year, compared with 186,000 in 2012, the data from China’s National Tourism Administration showed.

It was the first time that the annual number of North Korean tourists to China exceeded 200,000 since the Chinese tourism administration began releasing data in 2005.

NK News reports additional data:

93,300 work visas were given to North Korean citizens[.]

Goeffrey See comments that part of the increase can be explained by repeat travelers.

Read the full story here:
N. Korean tourists to China rise 11 pct in 2013
Yonhap
2014-1-21

Work visas for North Koreans going to China up 17.2%
NK News
Oliver Hoffman
2014-1-21

UPDATE 1 (2013-7-18): According to the Japan Times:

The overall number of visitors to China dropped 5.2 percent to 12.75 million in the six-month period.

But North Korean visitors to China increased 11.7 percent to 99,100, the highest since 2005 on a first-half basis.

Nearly half of the North Koreans came to China to work, mainly at factories and restaurants. These North Koreans are low-cost labor for China, while the data signal that North Korea continues to actively use its manpower to earn foreign currency.

Read More here:
China sees 26% fewer Japanese visitors in first half but North Korean arrivals up by 12%
Japan Times
2013-7-18

ORIGINAL POST (2013-4-26): Number of DPRK visitors to China up 14% in first quarter 2013. According to Yonhap:

About 45,800 North Koreans traveled to China, the North’s closest ally, in the January-March period, compared with 40,200 recorded in the same period in 2012, according to the report by the Washington-based Voice of America (VOA), which cited data from China.

The increase is seen as showing that North Korea-China relations have not been disturbed by China’s recent shift to take an active role in implementing the U.N. sanctions against the North, adopted following the country’s December rocket launch and its third nuclear test on Feb. 12.

The majority of the North Korean travelers to China, 48.3 percent, crossed the border to work in the world’s second-biggest economy and 25.8 percent went there for business purposes, according to the report. Only 1.5 percent were on trips to China for tourism.

Out of the total visitors, 78 percent were male North Koreans while 44.5 percent of the total were aged between 45 and 64.

Read the full story here:
Number of N. Korean visitors to China up 14 pct in Q1
Yonhap
2013-4-26

According to the Hankyoreh:

The latest issue of the quarterly publication of North Korea’s Social Science Institute – published on Nov. 15, 2013, and viewed on Jan. 19 – included an article titled, “Major Issues Pertaining to Making the North Korean Economy Stronger by Establishing and Expanding Economic Development Zones.”

According to the North Korean article, there are five important tasks that must be accomplished if the new Zones are to be successful.

1. building infrastructure such as roads and railroads

2. enacting laws for the special economic zones that take into account the profit of the government and of investors

3. providing benefits for foreign investors

4. operating and managing projects in a way that is suitable to the characteristics of the zones

5. creating the right political and military environment

Read more here:
N. Korea connects politics and military to economic development
Hankyoreh
Choi Hyun-june
2014-1-20

Institute for Far Eastern Studies (IFES)
2014-1-20

North Korea is encouraging “localization” of raw materials in light industry and construction from this year to improve the lives of the North Korean people.

On January 7, RodongSinmun reported that various cabinet organizations were espousing the New Year’s address of Kim Jong Un. It reported that the Ministry of Light Industry’s executives and employees are engaging in discussions to explore ways to increase localization of raw materials in light industry factories.

A rally was held in Pyongyang earlier this month at Kim Il Sung Square where people pledged to accomplish the national tasks put forward by Kim Jong Un. Tong Jong Ho, Minister of Construction and Building-Materials Industry,delivered a speech that vowed to “make an unprecedented leap in localization of building materials (cement, glass, metals, and other construction materials),” by repairing building materials factories in all provinces.

The Choson Sinbo, pro-North Korean newspaper in Japan,reported on January 2 that at the New Year meeting at the Pyongyang Socks Factory, the plant manager, Lee Sung Hui, made a speech and promised to “raise the level of socks production and localization of raw materials to a higher level in Vinalon and PP fibers (synthetic) this year.”

North Korea is promoting light industry and construction as the key sectors to improve the living standards of the people and asserting localization of raw materials as a priority to make advancements in these fields.

In his New Year message, Kim Jong Un emphasized that lighting industry must play a “major part in improving the people’s standard of living” and that the construction sector is “an important front for solidifying the foundations of a thriving country and creating bases for the people’s happy life.” He called for modernization of factories in light industry and normalization of production, placing importance on increasing the proportion of locally-available raw materials.

Many experts analyze this year’s rising emphasis on the localization of raw materials as reflecting the intentions of the North Korean authorities to focus on pragmatically achievable policy goals first. Of course, increasing the proportion of locally-available raw materials requires the construction of domestic production base, which remains complicated because of international sanctions and lack of foreign currency — issues that cannot be easily resolved– among other limitations.

From 2012, North Korea’s launch of a long-range rocket and third nuclear test was accompanied with rising emphasis on the importance of localization. On December 3, 2013, Rodong Sinmun carried an article entitled, “Localization and National Pride,” that reported on the onsite inspection visits by Kim Jong Un to various economic sectors where he underscored the importance of “equipment, materials, and elements of localization” and “our strengths and technology.”

North Korea acclaimed that the launch of the long-range rocket in December 2012 was a “successful launch of a satellite based on 100 percent domestic science and technology.” Then in February last year, immediately following the nuclear test, it boasted that “Thrilling clap of independent nuclear thunder broke out based on 100 percent of our own wisdom and technology.”

Institute for Far Eastern Studies (IFES)
2014-1-20

North Korea is encouraging “localization” of raw materials in light and construction industries from this year to improve the lives of the North Korean people.

On January 7, Rodong Sinmun introduced that various Cabinet organizations were espousing the New Year’s address of Kim Jong Un. It reported, “The Ministry of Light Industry’s executives and employees are engaging in discussions to explore ways to increase localization of raw materials in light industry factories.”

Pyongyang City rally was held earlier this month at the Kim Il Sung Square pledging to accomplish national tasks put forward by Kim Jong Un. Tong Jong Ho, Minister of Construction and Building-Materials Industry delivered a speech that vowed to “make an unprecedented leap in localization of building materials (cement, glass, metals, and other construction materials),” by repairing building materials factories in all provinces.

The Choson Sinbo, pro-North Korean newspaper in Japan reported on January 2 that at the New Year Meeting at the Pyongyang Socks Factory, the plant manager, Lee Sung Hui made a speech and promised to “raise the level of socks production and localization of raw materials to a higher level in Vinalon and PP fibers (synthetic) this year.”

North Korea is promoting light and construction industries as the key sectors to improve the living standards of the people and asserting localization of raw materials should take precedence to make advancement in these fields.

In his New Year message, Kim Jong Un emphasized that the lighting industry had a “significant role in improving people’s lives,” and the construction sector was “at the frontline to providing a place of happiness for the people.”

In particular, he encouraged modernization of factories in light industry and directed normalization of production and placed great importance on localization of raw materials.

Many experts analyze the rising emphasis on the localization of raw materials this year reflect the intentions of the North Korean authorities to achieve realistic and achievable policy goals first. However, localization of facilities entail construction of domestic production base but this is met with limitations such as international sanctions and lack of foreign currency which is not an easy issue that can be resolved in a short period.

From 2012, North Korea’s launch of a long-range rocket and third nuclear test was accompanied with rising weight on the importance of localization of equipment and technology. On December 3, 2013, Rodong Sinmun carried an article entitled, “Localization and National Pride,” that reported on the onsite inspection visits by Kim Jong Un to various economic sectors where he underscored the importance of “equipment, materials, and elements of localization” and “our strengths and technology” on many occasions.

North Korea acclaimed the launch of long-range rocket in December 2012 was a “successful launch of a satellite based on 100 percent domestic science and technology.” Then in February last year immediately following the nuclear test, it boasted, “Thrilling clap of independent nuclear thunder broke out based on 100 percent of our own wisdom and technology.”

The latest issue of KPA journal came out a few days ago. You can download it here.

Topics include:

A comprehensive index of all articles published in KPA Journal is available here.

New products and price points! Sign up here! 

I joined the NK News service as a reader and as a regular contributor. From May 1, 2013 most of my original work will appear there.

North Korean Economy Watch will continue to be updated with generally available public information so it will continue to serve as a useful resource to journalists, academics, policy makers, and the NGO community.

All of my contributions can be found here, but below are links to individual posts: 

20. East Pyongyang’s new shopping mall.

19. Satellite imagery reveals major urban development in Rason.

18. Identifying the Ibiza of North Korea: Where Kim Jong-un met Rodman.

17. Three new railway updates.

16. Kim Jong-un holds guidance meeting at Kangdong compound.

15. North Korea’s Supreme Court: Where Americans go for sentencing.

14. DPRK expands tourist access to Kalma Penninsula (related story here)

13. First live picture of Kim Jong-un tweeted at new KPA cemetery in Pyongyang

12. Rason Trade Fair 2013

11. New Central Bank Headquarters in Pyongyang.

10. Wonsan International Airport. Follow-up here.

9. Contributed to James Pearson’s piece on Kim Jong Un’s yacht

8. North Korea’s ‘Torure’ rail transport system 

7. Kim Jong-un’s east coast guidance trips

6. New Yalu/Amnok River bridge

5. DPRK’s ski destinations

4. New residential construction in Chongjin. Follow story up here

3. DPRK’s Turf Institute

2. DPRK propaganda changes

1. DPRK’s drone testing site

According to Yonhap:

 A U.S. private relief agency plans to provide aid worth US$1 million to North Korea this year to help support North Korean children and other vulnerable people, a news report said Thursday.

World Vision Inc. also plans to provide clean water to more than 8,000 North Koreans in provincial areas while providing nutritional assistance to children under the age of six, according to the report by the Washington-based Radio Free Asia.

The Christian organization plans to expand its humanitarian project in other rural areas, the report said.

Read the full story here:
U.S. relief agency to give aid worth US$1 mln to N. Korea
Yonhap
2014-1-16