Archive for August, 2005

Welcome Back, Mr. Kim

Tuesday, August 30th, 2005

Korea Times
Andrei Lankov

For decades, Soviet newspapers regularly ran articles about the great friendship between Moscow and Pyongyang. Journalists extolled the achievements of the North Korean workers and the bravery of the North Korean soldiers. But these official musings did not mislead anybody. North Korea was deeply unpopular in the USSR in the 1960s and 1970s. Anti-communist dissenters saw it as an embodiment of everything bad about their enemy; the surviving Communist idealists saw the Kim Monarchy as an embarrassment to their cause; and the hawkish admirers of the strong state perceived Pyongyang as an untrustworthy and unappreciative ally.

In the late 1980s, when the Communist countries began to crumble, everybody in the USSR expected Pyongyang to collapse in the near future. Moscow foreign policy in the first post-Soviet years was based on the assumption that Russia should unconditionally join the Western world, and thus North Korea was seen as a partner both doomed and embarrassing.

Kim Il-sung Sung died a peaceful death in 1994, and the violent collapse of his regime never happened but this non-event even produced some literature in Russia. Lev Vershinin, a historian and also a good fiction writer, authored Endgame, a novel that described the violent collapse of an imaginary Communist dictatorship. The country of the novel had features that reminded readers of Romania, Cuba and North Korea. Even the geographic names were deliberately mixed _ against all laws of linguistic history, so the capital of this imaginary country had a Korean-sounding name of Taedongang, and the place of the Stalinists’ last stand was called Munchon.

Around the same time, Igor Irteniev, arguably the most popular Russian satirical poet of the 1990s, mockingly wrote of an event that everyone expected to take place soon: “I cannot sleep without a sedative in the darkness of the night, when I imagine what happens to Kim Il-sung in the blood-stained hands of the executioners.’’

But the mood began to change sometime after 1996. North Korea was still the butt of jokes, but new voices came to be heard in Russia as well. These voices presented a more positive approach to North Korea.

This reflected the general change of mood in Russia. An increasing part of its population began to see that the U.S.-led West not as a benevolent force but as a crafty rival, preying on Russia’s weakness. The pro-Western enthusiasm of the early 1990s was replaced by deep suspicions _ not only in the government offices but also in the popular psyche. Thus, the geopolitical opponents of the West, the assorted “pariah states,’’ began to attract some (rather undeserved) sympathy in Russia, and national egoism came to be seen as the only rational policy choice.

Official policy toward North Korea also began to change. By 1997-1998 it became clear that Pyongyang would not collapse any time soon, and the restoration of working relations with the North was a necessity, especially against the backdrop of Russia’s efforts to develop a more independent political line. Good relations with the Kim dynasty also could be useful as a negotiating chip in dealing with the Americans. In academic articles the critique of North Korea was hushed, and augmented with critique of Western insensibilities in dealing with this very peculiar society.

The concept of human rights does not play a major role in Russian politics. A period of idealistic enthusiasm in the early 1990s proved to be short, so few people take statements about human rights seriously. Neither the Russian government nor the Russian public shows much enthusiasm for crusades in the name of human rights in distant lands. It is well known that North Korea is notorious for its disregard of human rights, but Russians cannot care less. Their position is simple: first, it is North Korea’s internal affair after all; second, if North Koreans themselves live under such a regime, who are we to pass judgments on their behalf?

And there are, of course, people who are sincere admirers of the Kim regime, even if their numbers are very small (such people exist even in the West). For some Russian leftists, the regime is seen as a living example of Communist resilience, its alleged ability to survive if the leadership is “correct’’ and uncompromising. They did not question the right of the government to starve half a million or 1 million people in order to stay in power. They either deny the facts (half a million dead? Washington’s propaganda, of course!) or interpret them as voluntary sacrifices made by the patriotic Korean people. But actually, Korean domestic politics is not very important to them: it is the “anti-imperialist’’ stance of the North that really matters for the Russian Left, and make its prominent leaders even occasionally pay homage to the Great Leaders.

Of course, the general public is still skeptical of the North Korean regime and do not harbor many illusions about its true nature. But nobody in Russia wants to build policy on the basis of ideologies these days. You know, Russians have had enough of ideologies over the last century, so now they prefer interests, pure and simple…


In the Black Market

Tuesday, August 23rd, 2005

Korea Times
Andrei Lankov

The North Korea of the 1960s or 1980s was not a society of complete equality. It had its rich and poor. But the affluent people were affluent either because the party-state bureaucracy chose them, such as government officials and a handful of the most prominent scholars and writers, as well as people who were allowed to work overseas and were paid in hard currency, or allowed them to be affluent. For example, this was the case with the repatriates from Japan. From the late 1980s, the situation changed. Some people began to make money not because they were paid and showered with privileges, but because they learned how to use market capitalism.

The markets began to grow explosively around 1990, and North Korean “black capitalism’’ was conceived around this time. The first really rich people began to appear, even though they had to hide their success both from the authorities and their fellow countrymen. And one had to use whatever advantages one had, as competition was tough. In the late 1990s, the North Koreans used to say “there are only three types of people in North Korea: those who starve, those who beg and those who trade.’’

These early capitalists came from backgrounds that gave them advantages over other people who also took up trade. Most of them were officials who had useful connections. In the 1990s, a person who could command a truck easily made a huge amount of money by moving merchandise around the country and exploiting the large differences in prices between the regions. Managers of state enterprises could sell the production of their factories on the market. This was technically stealing, of course, but it was in an increasingly corrupt society there was a fairly good chance of not getting caught. Retail personnel at all levels channeled the goods through the “back doors’’ of their shops, away from the disintegrating public distribution system. Military and security personnel also had advantages, since for decades they had lived in what can be described as a “state-within-the-state,’’ beyond even the most nominal control of outsiders. Finally, “hard currency earning’’ officials made a lot of money: they have been running quasi-market operations from the 1970s and had both the necessary expertise and resources. After 1990, they began to use these resources for their own ends.

In addition to officials, generals and police officers, there were other groups of people who found themselves in an advantageous position in those early days of North Korea’s capitalist revival. These included the repatriates from Japan whose relatives back in the “capitalist hell’’ have always been encouraged to transfer money to the North. The repatriates had money, and some of them retained vestigial experience of operating in a market economy. Another group included ethnic Chinese, some of whom were Chinese citizens, and Koreans who had close relatives in China. For decades, both of these groups have been engaged in small-time cross-border commerce, and after the collapse of state control, they greatly increased the scale of their operations.

Even some humbler professions found themselves in relatively good times. Drivers, for instance, could take money for moving passengers and merchandise _ especially, after the quiet breakdown of the travel restriction system around 1997. They also augmented this money by selling and buying goods themselves and became a major source of income for train conductors.

Fortunes were made in trade, not in manufacturing, which remained largely controlled by the state. Money lending also provided good profits. In the mid-1990s, private lenders charged their borrowers with a monthly interest of some 30-40 percent. The associated risks were high, too; these private lenders had virtually no protection against the state or criminals, or above all, bad debtors.

The growth of grassroots capitalism had another unexpected effect: the empowerment of women. Like their counterparts in most other Communist countries, the North Korean authorities expected every able-bodied male to be employed in some state enterprise. It was illegal for men to remain unemployed. However, for married women, the approach was different. All Communist countries grudgingly admitted that a woman has at least a theoretical right to remain a full-time housewife. In the North, the share of housewives was unusually high: no precise data is available but it appears that some 30-40 percent of married women of working age stayed at home.

When economic disaster struck, this arrangement had unintended consequences. The men kept going to their factories and offices, even if their wages were becoming meaningless. They were afraid of the still formidable state machine, they wanted to keep the status traditionally associated with proper jobs and they also needed the rations _ as long as the rations were forthcoming. Women, especially housewives, were free to pursue completely different economic strategies. They took up market commerce with great enthusiasm and soon comprised a majority of North Korean vendors. This also meant that the women’s earnings became the major source of income in many Korean families.

This did not mean that women became prominent at the highest reaches of the new capitalist market. To occupy the key positions and make really good money, one had to have connections, capital and connections. Most of the people who had all of these things were male, but at the lower levels of the new semi-legal capitalist class, women came to play a significant role.


Investors show new interest in North Korea

Friday, August 12th, 2005

From the Herald Tribune:
Donald Greenlees

In May, Kelvin Chia, one of the first foreign lawyers to receive a license to practice in North Korea, took a party of Indonesian miners on an investment tour.
Visiting a coal mine outside Pyongyang, the group was surprised by the welcome from North Korean officials and found that the basic road and power infrastructure serving the mine site was in a better condition than they expected. Chia said the mining company – which he declined to identify for commercial reasons – is likely to soon enter a joint venture with the North Korean operator to further develop the mine.
Since being granted the right to open an office in Pyongyang last October, Chia, who is from Singapore, says his firm has been approached by about 20 companies from Europe, Southeast Asia and Australia with an interest in investing in communist North Korea’s shaky economy. Chia’s firm was the first wholly owned foreign legal practice in North Korea.
“I think there is an upsurge of interest in that country,” said Chia, who is based in Singapore but runs an office of two lawyers in the North Korean capital and has plans to expand.
Chia’s recent experience mirrors that of other hardy business people who have persisted with North Korea in the past decade, despite a nuclear crisis and U.S. commercial embargoes. Some business people equate the current level of investor interest with the early 1990s, when foreign companies, including some multinationals, started a spate of investments in the hope that North Korea’s largely self-imposed isolation would end.
While the latest round of six-nation talks to dismantle North Korea’s nuclear weapons program remains inconclusive, a handful of Asian and Western investors, some with earlier experience in doing business there, are again considering possibilities in defiance of Washington’s desire to use economic seclusion as a bargaining tool.
These investors, mainly manufacturers and miners, are being enticed back by low wages, plentiful mineral resources and a regime that appears increasingly prepared to support foreign investment and open its economy.
Pyongyang has signaled plans to open investment promotion offices within its embassies in Singapore and Malaysia, according to Chia, who maintains regular contact with North Korean officials. A revised foreign investment law, passed by the North Korean Supreme People’s Assembly in 2004, relaxed some conditions on foreign investment and permitted full foreign ownership of some ventures. The assembly has also strengthened intellectual property rights laws.
A South Korean government official said that Pyongyang also recently started to approve visas for foreign buyers to enter the joint North-South industrial park at Gaeseong, just north of the demilitarized zone. The official said 19 visas had been approved as of mid-July for buyers from Germany, Japan, China and Australia.
Investment in Gaeseong is restricted to South Korean companies.
Tony Michell, [Korean Associates Business Consultancy]a business consultant based in Seoul, has received permission to take a group of eight investors to North Korea in September in the first of what he said would be monthly investment missions. The first group will comprise European and Asian business people, none of whom are from China or South Korea, the countries with the largest investment in the North.
Michell, who introduced a number of companies to North Korea during the last upswing in investment interest from 1993 to 1995, said there had recently been “a revival of interest.”
“This comes up to the 1993 level of interest,” said Michell, managing director for Asia of the Euro-Asian Business Consultancy, adding that if the United States dropped its economic embargo “this would be a humdinger of an emerging market.”
Still, potential investors in North Korea have to weigh a long history of failure. Of the eight companies Michell introduced during the early 1990s, only one investment survives. An investment bank based in Hong Kong, Peregrine, entered a joint venture to establish Daedong Credit Bank in Pyongyang. Peregrine collapsed, but Daedong is marking a decade in business.
The experience of North East Asia Telecom, a Thai firm, is sobering. It set up a mobile phone network, but since May 2004 use of mobile phones has been suspended by the North Korean government as part of a security crackdown.
New investment largely dried up after October 2002 when U.S. officials claimed that North Korean officials had admitted during talks to possessing a nuclear weapons program. There is general agreement among investment advisers and economic analysts that if the nuclear impasse can be resolved foreign investment will accelerate.
The nuclear crisis erupted as North Korea was implementing a series of measures to open its economy and increase appeal to investors, like giving state-owned enterprises greater freedom to operate commercially, removing price controls and allowing its currency, the won, to be exchanged for the euro, which was adopted in December 2002 for all foreign currency transactions.
Analysts of the North Korean economy say those reforms remain largely on track and paved the way for an upsurge of direct investment in 2004 from China, North Korea’s main economic partner. Ahn Ye Hong, who studies the North Korean economy for the Bank of Korea, the South Korean central bank, said that investment from China rose from $1.3 million in 2003 to $173 million in 2004.
He said this investment was driven by China’s desire to “obtain as much of North Korea’s resources as it can,” particularly iron ore. He expects a further significant increase in Chinese investment this year.
The South Korean government is also seeking to increase direct investment in the North. Although the bulk of South Korean investment has gone into just two projects, Gaeseong and the Mount Geumgang tourism development, recent talks between the two Koreas explored the possibility of investment in upgrading or repairing mines that have fallen into disuse.
An official in South Korea’s Ministry of Unification said an inter-Korean economic cooperation meeting in Pyongyang between Sept. 28 and Oct. 1 would discuss the proposal further. The official, who requested anonymity due to restrictions on speaking publicly, said it was likely any South Korean involvement in redevelopment of the mines would be carried out by a joint enterprise between the government and the private sector.


Market Research

Tuesday, August 9th, 2005

Korea Times
Andrei Lankov

Once upon a time, North Korea prided itself on being the country that came the closest to the complete the eradication of markets, those notorious dens of private commerce and capitalist spirits. It seems that in the 1960s markets were indeed formally outlawed for a brief while. Later, they made a moderate comeback, but they remained marginal to the life of most North Koreans until around 1990.

And then things changed. The slow-motion collapse of the Stalinist economy began in the late 1980s, and in a few years this slide developed into a free fall. By 1996, the old economy of coal mines, mammoth plants, and chimney smokes was dead, rations were not forthcoming, and many North Koreans had to resort to commerce to survive. The markets began to grow.

There is a large volume of evidence about these markets, and now I would like to say a few words about one of them. This market was described in the Pukhan monthly by a former female vendor who recently defected to the South and now lives in Seoul. It is located in a relatively large North Korean city, somewhat close to the border with China.

This market began to operate on a large scale in the mid-1990s. Initially, the local authorities felt a great unease about this new institution, and even launched occasional eradication campaigns, which are still well remembered in the city. The victims were largely old ladies who were first to initiate the market trade.

The poor “halmonis’’ were dragged to the police station by policemen who occasionally shouted some appropriate slogans, like “down with speculation!’’ But such bizarre sights did not last long: by around 1996, the authorities gave in and ceased to fight the market which alone made survival of the population possible.

The market ground is a space some 50 to 100 meters-square, surrounded by a high wall made of crude cinder blocks (the sort of very large bricks that are widely used as construction material in the North). Inside the market, there are rows of stalls used by the vendors.

The gates are closed when the market is not in operation _ that is, between 5 p.m. and 7 a.m. The guards and managers ensure that nobody stays inside the market after hours. But this does not mean that trade only takes place inside the walled space of the officially allocated area. A great amount of bartering, both legal and semi-legal, happens outside the wall. There, trade lasts much longer, and the food stalls do not close until 10 or 11 p.m.

Outside the gates, one can also find a bicycle shed (guarded, of course, since bicycle theft is very common now), a storeroom where vendors can leave their merchandise for the night, and a canteen. There are also private canteens around, as well as some private storeroom facilities, but those institutions try to keep a low profile and not attract any excessive attention from the authorities.

Most of the goods on sale are imported from overseas, largely from China, but there are South Korean products as well. The latter are generally admired for their high quality, but often become the targets of bans and confiscations.

The market has a manager appointed by the local government, and the manager is assisted in his hard work by a staff of 6-8 people. There is also a police box permanently staffed by a policeman, as well as a small office of the Ministry for Protection of the State Security, the North Korean political police. Yes, a market has its own representative of this agency.

Once again, the Kims have out-Stalined Stalin: even in the most paranoiac times of recent Russian history one could not imagine a KGB operative being posted to every single countryside market! The administration enforces law and order, makes sure that nothing improper or forbidden takes place, and also collects the market fee that is paid by every vendor.

One of the major problems is the regular confiscations of prohibited goods (often this means goods produced in South Korea). During a check, a group of policemen goes along the stalls checking all goods in search for forbidden merchandise. Everything is put into a pushcart. The market is arranged in such a way that vendors cannot hide their merchandise from an inspector’s eye, so resistance is futile.

The confiscated goods are supposed to be sent to a special “commercial shop.’’ Such shops normally buy and sell the production of local handicraftsmen at market prices (as opposed to the fixed prices of the state commercial system, now almost defunct). There are rumors that some goods are taken by the market managers and police officers for their private use.

Well, quite likely… although for some minor transgression a payment of roughly 15 percent of the price of the confiscated merchandise will be probably sufficient to get the goods back. But from what is known, it appears that the North Korean officials do not overuse the right, more or less at their discretion, to confiscate goods for extracting bribes.

On an average day, the market (both its walled and open sections) attracts some 8,000 vendors and 50,000-60,000 shoppers. The vendors are predominantly female, and this reflects an interesting peculiarity of North Korea’s new capitalism: to a surprising degree it is dominated by women. But that is another story…


The Dear Director

Tuesday, August 2nd, 2005

Korea Times
Andrei Lankov

One of the few things known about Kim Jong-il in the West, from at least the 1980s, is that the North Korean dauphin is a movie fan, and that for a while he personally led the entire North Korean movie industry.

Indeed, movies titillated Kim Jong-il’s imagination when he was a student at the Kim Il-sung university in the early 1960s; he loved movies. Of course, his choice was not the boring North Korean films about exemplary steel workers and selfless military nurses who recited dreary monologues about their love for the party (not so for the Leader at that stage).

The young dauphin preferred Western movies, mostly imported from Europe or the U.S. via Moscow. Following the then Soviet approach, such ideologically suspicious movies were bought in very small quantities. They were not for public screening, but the private viewing of the top elite. It is well known that Stalin was a great movie fan.

Nothing like it has ever been heard about Kim Il-sung, but it seems that his eldest son spent long hours in a small viewing room of the Film Distribution Center, itself located on the second floor of an unremarkable apartment building in downtown Pyongyang.

This youthful passion for movies influenced his private life. The two major love affairs that Kim Jong-il had were with women from this theatrical-cinematographic milieu. But it also influenced his political career since the first job for the ‘rising son’ was to head the cinema production group in the Party Central Committee.

In a Communist party, the Central Committee is believed to be the center of everything, and the “ideological guidance” of the fine arts is one of its major tasks. In North Korea, following the Soviet prototype, this task was entrusted to the Agitation and Propaganda Department, which had a special arts section. Arts were seen as a part of propaganda, first and foremost. The cinema production group, headed by Kim Jong-il, belonged to this section.

Kim Jong-il assumed his leadership role in September 1967, when the cinema world was in turmoil. In September 1967, the North Korean Politburo, the party- state’s supreme council, held an urgent meeting on the premises of North Korea’s largest cinema studio. Movie industry leaders were subjected to sharp attacks because they allegedly condoned “anti-party activity” by producing a movie about Pak Kum-chol, a prominent statesman who had recently fallen from grace. Needless to say, this is the normal risk of being a movie producer or writer in a Stalinist society. You are required to worship heroes, but you never know if today’s hero will become tomorrow’s villain. The situation looked grim, praising the enemies of the people could not be taken lightly.

According to an apocryphal but perhaps true story, it was during the “studio” meeting of the Politburo that the then 25 year-old Kim Jong-il volunteered to take control of the cinema industry. Whatever his intentions, this decision saved many people in the industry from humiliation and death. Kim Jong-il staged large-scale self-criticism sessions, but more serious punishments were rare.

In fact, Kim Jong-il protected his beloved cinema world during the turbulent years of the “Kapsan purge,” which was probably the last large-scale purge of top leaders and their associates in North Korean history. After 1970, purges were largely isolated albeit frequent events, not large-scale campaigns as before.

Under Kim Jong-il’s guidance, the movie studios were refurbished. He arranged the best equipment to be imported from overseas. This sounds fine until one remembers that this meant the re-allocation of scarce hard currency reserves, which could be used for buying anything else, from medical supplies to new battle tanks. However, the crown prince loved cinema, and nobody dared question his demands. After all, new movie cameras are much cheaper than missile launchers.

Kim Jong-il’s years at the helm were marked by a serious improvement in the technical quality of North Korean cinema. The story lines remained as tedious as before, and perhaps even got worse: in general, the late 1960s was a period of increasing ideological repression in the North. But the same old boring stories of self-sacrificing workers, exemplary farm girls and, of course, selfless guerrillas were delivered with much better technical precision.

Guerrillas were particularly important since many major movies produced under Kim Jong-il’s guidance dealt with the anti-Japanese struggle of the 1930s. Sea of Blood, a guerrilla epic with a story line patterned after Gorky’s Mother, and Flower Girl were major examples of this trend. For Kim Jong-il this was important, since he reminded his father Kim Il-sung about the heroic days of anti-Japanese warfare, and by doing so he positioned himself as his father’s most trustworthy successor.

By the late 1960s, it became clear that a dynastic succession was in the offing, but there were few contenders who wanted to become heirs to the aging Great Leader. Kim Jong-il had the best chance from the very beginning, although he was not without rivals as well. But that is another story…


North Korean economic data

Monday, August 1st, 2005

A presentation by the Korea Economic Institute using Bank of Korea data

Presentation in PDF here: North Korea eocnomic data 2005.pdf