Archive for November, 2005

Hyundai and DPRK make up?

Thursday, November 24th, 2005

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.


Efforts begun to hand over North’s Reins

Thursday, November 24th, 2005

Joong Ang Daily
Yoo Kwang-Jong

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.  


North Koreans exposed to foreign masses

Wednesday, November 23rd, 2005

Asia Times
Andrei Lankov

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.


Materialism in the DPRK

Tuesday, November 22nd, 2005

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.


‘Unification Baby’ Seen as Omen by N. Koreans

Sunday, November 20th, 2005

Los Angeles Times
Barbara Demick

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.


Minerals, railways draw China to North Korea

Friday, November 18th, 2005

From the Asia Times:
By Michael Rank

Chinese companies are venturing into North Korea, and both countries hope to reap the rewards. North Korea’s heavy industry is in a desperate state, but Pyongyang is hoping that Chinese investment will come to its rescue, while China sees the North as a convenient source of minerals, from coal to gold.

China’s increasing investment also means that North Korea is casting off its rigid juche, or self-sufficiency, policy and overcoming its deep historical suspicion of its giant northern neighbor.

Border trade in consumer items from televisions to beer has been booming since the 1990s, but now the focus is turning to the industrial sector. Deals are being reached on mines, railways and leasing a North Korean port to a Chinese company, but North Korea is notoriously secretive and few details have been published outside China. The deals include an agreement to “completely open” North Korea’s railways to a Hong Kong millionaire, as well as moves to revive ailing coal, iron and gold mines.

Tumen-Chongjin rail link rumored
Hong Kong businessman Qian Haomin is reported to have reached a US$3 billion deal with North Korea that also involves the Chinese Railways Ministry building a new rail link between the Chinese border city of Tumen and the North Korean port of Chongjin. The agreement marks an end to long-running tension between the Chinese and North Korean state railway authorities over North Korea’s retention of up to 2,000 Chinese goods wagons and reluctance to repay loans.

The Hong Kong news magazine Yazhou Zhoukan recently reported that these issues had been resolved and that Qian’s grandly named company Hong Kong International has agreed to provide the North Koreans with 500 to 1,000 freight wagons. Qian told the magazine that “after six months of effort, there are now hopes of solving the railway transport bottleneck between China and North Korea”, and this would help to integrate the economy of the entire northeast Asian region.

Qian’s ambitions are not limited to railways. Not only has he expressed interest in investing in a North Korean coal mine, but Yazhou Zhoukan also reported that he hopes to set up a special economic zone in the North Korean border city of Sinuiju. He has clearly not been deterred by the unhappy case of Yang Bin, a Dutch-Chinese multi-millionaire who was made head of a similar development zone in 2002. Before Yang could take up his post, he was arrested by the Chinese authorities for tax evasion and other economic crimes and jailed for 18 years.

Qian, aged 41, is originally from the southern Chinese province of Guangdong and moved to Hong Kong in 1993. He has been involved in North Korea since the early 1990s, and has apparently established a fruitful relationship with Prime Minister Pak Pong-ju. He has said that “to invest in North Korea has been my dream” because three of his uncles fought in the Korean war; one was killed and one was seriously wounded. The Hong Kong investor has signed a plastics, tire and battery recycling agreement with North Korea and has expressed interest in investing in the country’s largest anthracite coal mine, which now produces only 1 million tons a year, compared with 3 million tons at its peak.

Tonghua Steel looks North
Meanwhile, state-owned Tonghua Steel or Tonggang, based in the northeastern city of Tonghua, expects to sign a 7 billion yuan ($865 million), 50-year exploration rights deal with the Musan iron ore mine, said to be North Korea’s largest iron deposit. Tonggang, Jilin province’s largest steelmaker, hopes to receive 10 million tons of iron ore a year from Musan as part of its plans to increase steel production from a projected 5.5 million tons in 2007 to 10 million tons in 2010.

The planned deal reflects China’s immense and growing appetite for steel. Although the country already produces 30% of global output, it is heavily reliant on imports and is concerned about rising prices. A Jilin provincial trade official said importing iron ore from North Korea was attractive because of low transport costs, which would increase Tonghua’s competitiveness.

Tonggang officials say they expect the deal to be signed soon, and that of the 7 billion yuan (US$866.1 million) pledged, 2 billion yuan will be invested in transport and power lines. Company president An Fengcheng said agreement had already been reached with China Development Bank on 800 million yuan worth of soft loans and 1.6 billion yuan of hard loans, while “the remaining investment will come in in stages”.

Rajin deal to give China Sea of Japan access
China’s export boom is one of the great economic success stories of the past 25 years, but it is constrained by a lack of suitable ports. In particular, the country lacks a port on the Sea of Japan, but after attempted deals with Russia came to nought, the inland Chinese border city of Hunchun has reached an agreement for a 50-year lease with the nearby North Korean port of Rajin.

The ceding of Rajin, an ice-free port with a handling capacity of 3 million tons a year, will give access to the sea to inland areas of northeast China which, at present, must send freight long distances by rail to the port of Dalian on the Bohai gulf. The agreement also provides for the construction of a 5-10 square kilometer industrial zone and a 67 kilometer highway, and envisages that the Rajin area will become a processing zone for Chinese goods which will then be re-exported to southeast China.

A Hunchun economic official stressed that the leasing of the port is “a business deal and not a government deal”. The South China Morning Post reported from Hunchun that the man behind the deal is Fan Yingsheng, a property developer from Hunan province who put up half the initial capital investment of 60 million euros (US$70 million). The sum could not be denominated in dollars for political reasons.

The paper quoted the United Nations Development Program as saying this sum would only be enough to build the road to Rajin, and far more would be needed to rejuvenate the port. The deadline for final agreement is December 30, 2006, and it remains to be seen if a final deal will be reached in time.

An unusually frank North Korean trade official noted the possible pitfalls as well as the advantages of such deals. Kim Myong-chol, head of the Korean Council for the Promotion of Foreign Trade, said the deals would have to involve importing “highly advanced technology and equipment”, and added: “These agreements are not easy to put into actual practice and can run into many problems so far as funding and bilateral cooperation are concerned.”

“Because the amount of money involved in these cooperative projects is quite large and [North] Korea will be investing ports, roads, etc, there are rather great risks in such investment, and in addition because the domestic Korean economy and its policies, laws and regulations, etc, are unclear, many problems are likely to arise in carrying out these plans,” Kim told a Chinese website.

Coal and gold
Such concerns may have been in the mind of the president of China Minmetals Corp, Zhou Zhongshu, when he signed “an agreement on setting up a joint venture in the coal sector of the DPRK” [North Korea]. The deal was signed in October when Chinese deputy premier Wu Yi visited Pyongyang, and is said to be the first of its kind. North Korean Vice Minister for Foreign Trade Ri Ryong-nam urged the Chinese side to “provide advanced technology and set up a good model for other joint ventures and cooperation between the two countries”.

North Korea also has substantial gold deposits, and a Chinese company plans to invest in a “semi-paralyzed” North Korean gold mine and refine the metal at its base in Zhaoyuan in Shandong province. Guoda Gold Co Ltd reached a preliminary agreement last year with Sangnongsan gold mine, which is said to have gold deposits totaling at least 150 tons.

Guoda deputy manager Lin Deming said his company was attracted to North Korea because of low labor, energy and transport costs as well as the “highly favorable” investment terms offered, but gave no details. Chinese investment in North Korea is certainly increasing, but final agreement on a number of deals has not yet been reached, and political factors such as uncertainty over Pyongyang’s nuclear weapons program may well discourage Chinese companies from moving too fast.

Michael Rank is a former Reuters correspondent in China, now working in London.


The North Korean Criminal State, its Ties to Organized Crime, and the Possibility of WMD Proliferation

Tuesday, November 15th, 2005

Nautilus Institute
David L. Asher

I am very pleased to be invited back to the Wilson Center to speak today. I enjoyed my time here this summer and want to thank my colleagues for the chance to be affiliated with the Center, which I consider the finest organization of its kind in Washington. I also wish to thank my former boss, Assistant Secretary Jim Kelly and the many members of our inter-agency team for kindly attending today. In particular, I want you to know of the extraordinary work that our friends and colleagues here from the United States Secret Service have done recently to safeguard our nation and our currency from a determined adversary.

I left the State Department in July and I want to be very clear that my remarks today are personal in nature. They in no way should be interpreted as representing the view of the US government, the Department of State or the Department of Defense. They also are drawn strictly from unclassified sources (the vast amount of information now in the public domain is indicative of the scale of the problem of DPRK criminality).

Let me make clear, I am a believer in the Six Party Talks. I applaud the efforts of my former colleagues, Chris Hill, Joe Detrani, and Jim Foster to effect positive diplomatic movement via direct dialog and clearly demonstrate to all the parties seated at the big table within the Diaoyutai State Guesthouse that the US is sincerely willing to join the international community in engaging North Korea to facilitate its denuclearization, its economic development, and its opening to the outside world. At the same time, given this objective, there should be no further room for tolerating the unacceptable and in many ways outrageous criminal and proliferation activities that the North Koreans continue to engage in.

Allow me to begin my remarks by laying out the major aspects of North Korean trans-national criminal activity. I will then look at the specific question of how the DPRK’s growing ties to Organized Crime groups and illicit shipping networks could be used to facilitate WMD shipments. I’ll propose a possible way to reduce this risk. I will conclude by frankly commenting on the nature of state directed criminality in the DPRK and its implications for international law and the DPRK’s status in the international community and the United Nations.

My research topic this summer at the Wilson Center was on the rise and fall of “criminal states” – government’s whose leaders had become intimately involved with trans-national criminal activity. I compared North Korea under Kim Jong Il with Serbia under Milosevic, Romania under Ceausescu, and Panama under Noriega. I won’t get into the details of this comparative research now but, suffice to say, the scale and scope of the other cases pale in comparison with present-day North Korea.

The rise of the criminal state in North Korea is no secret. It has occurred in full view of foreign governments and with increasing visibility to the world media. Over the last three decades agents, officers, and business affiliates of the DPRK have been implicated in hundreds of public incidents of crime around the globe. Incidences of illicit activity have occurred in every continent and almost every DPRK Embassy in the world has been involved at one time or another. This should be no surprise. North Korea is perhaps the only country in the world whose embassies and overseas personnel are expected to contribute income to the “Party Center,” not rely on central government funds for their operations. Such repeated illicit actions from diplomatic premises amount to a serial violation of both articles 31 and 41 of the Vienna conventions on Diplomatic Relations, which respectively convey that A. commercial, and most certainly, criminal activities for profit shall not be conducted by accredited diplomats or via accredited facilities and B. mandate that officials posted abroad must obey the laws of the nation to which they are posted. The DPRK routinely pays no attention to either critical provision of the Vienna conventions.

I am frequently asked “how much is this stuff going on?” Although it is hard to pin down the exact scale of the illicit activity we can make a rough guess. In 2003 the DPRK ran a trade deficit of at least $835 million and that if more broadly measured to exclude concessionary trade with the ROK was more like $1.2 billion. Even making a very bold estimate for informal remittances and under the table payments for that year, the DPRK probably ran a current account deficit of at least $500 million. Moreover, North Korea’s accumulated trade deficit with the ROK and China alone since 1990 is over $10 billion. North Korea has not been able to borrow on international markets since the late 1970s and has at least $12 billion in unrepaid debt principal outstanding. Yet, until recently – at least – it has managed to avoid self-induced hyper-inflation (which should have occurred given the need to reconcile internal and external monetary accounts, even in a communist country). Instead, the street stalls in Pyongyang and other North Korean cities seem to be awash in foreign made cloths, food, and TVs and the quality of life of the elite seems to have improved. What’s apparently filling the gap and accounting for the apparent improvements to the standard of living for the elite? The short answer as I see it: Crime. And if I am right, then the criminal sector may account for as much as 35-40% of DPRK exports and a much larger percentage of its total cash earnings (conventional trade profit margins are low but the margin on illegal businesses is extremely high, frequently over 500%).

Whatever the precise size of the criminal surplus, all analysts and law enforcement authorities agree that overseas illicit and weapons trading activities have become increasingly important sources of foreign exchange for the DPRK. These earnings have provided support to North Korea’s “military-first” economy and contributed to Pyongyang’s ability to resist demands from the international community for an end to its nuclear weapons program. They also apparently have persuaded the Kim Jong II regime it can affordably maintain its political isolation and resist the imperative for sweeping economic and social reforms that all other communist states have had to engage in. Given that periodic exposure of illegal dealings by North Korean officials overseas in the past has not resulted in serious or lasting consequences, Pyongyang may believe that an open door for global criminality exists.

Let’s review the scale and scope of the North Korean “soprano state.” As is well known the North Korean government is involved in a wide range of illicit businesses in partnership with organized crime groups or unilaterally. These include:

1. Production and overseas distribution of narcotics, in particular heroin and methamphetamines:

DPRK Narco trafficking continues as a major income generator, although less prominently perhaps than before. China continues to be the major market for North Korean drugs and the situation became so bad that in March of last year the Vice Minister of the MPS called a highly unusual “press conference” to announce his determination to cut into DPRK drug rings in Jilin province, on the border with North Korea (which some Chinese law enforcement officials have stated is “out of control”). Japan probably still comes in second. From 1998-2002 Japanese police interdicted nearly 1500 kg of meth that in six separate prosecuted cases was shown to have originated in the DPRK. This amounts to thirty-five percent of all methamphetamine seizures in Japan in that period and had a wholesale value of over $75 million and a street value of as much as $300 million. Given the chemical profile for DPRK produced meth (essentially of extremely high purity) several Japanese authorities I spoke with the week before last believe that a fairly large percentage of the meth coming in from Northern China today is consistent with DPRK origin. As elsewhere, in Japan to mask their fingerprints the North Koreans are going through triads, snakeheads, and other indirect channels. This has been less true with Heroin where North Koreans continue to be observed selling the drugs. The Australian seizure of 125 kg of Heroin worth $150 million off the Pong Su – a Worker’s Party linked vessel and with a KWP secretary on board – in my mind was hardly a random or isolated incident (it is not surprising given that the North Koreans had established an Embassy in Canberra the year before that one would assume needed to produce income for the center – it was Pyongyang’s way of saying “thanks very much”).

2. Production and international distribution of counterfeit currency, in particular the US dollar, as well as counterfeiting or illegally reproducing and selling numerous other items, in particular counterfeit cigarettes and pharmaceuticals.

Under International Law, counterfeiting another nation’s currency is an act of causus belli, an act of economic war. No other government has engaged in this act against another government since the Nazis under Hitler. North Korea has been counterfeiting the dollar and other currencies of importance the entire time it has been on the international engagement bandwagon. What does this say about the regime’s intentions?

As the recent DOJ indictment of Sean Garland and other members of the Official IRA for their partnership in the criminal distribution of counterfeit US currency reads: “Beginning in or about 1989, and continuing throughout the period of this Indictment, a type of high-quality counterfeit $100 FRNs began to be detected in circulation around the world. Their high quality made it particularly difficult for them to be detected as counterfeit by untrained persons. The United States Secret Service initially designated these counterfeit notes as “C-14342” and they came to be known as “Supernote” or “Superdollar.” Quantities of the Supernote were manufactured in, and under auspices of the government of, the Democratic People’s Republic of Korea (“North Korea”). Individuals, including North Korean nationals acting as ostensible government officials, engaged in the worldwide transportation, delivery, and sale of quantities of Supernotes.”

The Royal Charm and Smoking Dragon investigations that were concluded this summer revealed a willingness to sell millions of dollars in DPRK supernotes into the US by Asian OCs linked to the North Korea government. Whether this was a deliberate act of policy decided in Pyongyang or just business among crooks is hard to tell but it seems unusual that according to the public indictment the cost of the notes was less than 40 cents per dollar, far below the market value associated previously with the counterfeit supernotes, given their ability to be circulated without ready detection by the naked eye. One wonders how such a price could be obtained unless the notes were coming from a very high source inside the country in question.

The relatively sophisticated shipping methods for transporting supernotes uncovered in the FBI-USSS Royal Charm/Smoking Dragon investigations also needs to be given scrutiny, especially given our topic today. The following slides, reproduced from a Taiwanese newspaper article gives you a sense of how they move the notes around, falsely manifesting the cargo as a non-dutiable item (in this case as “toys”), falsifying port of origin information (to indicate a port in Northern China instead of in the DPRK), and cleverly concealing the contraband.

The production of counterfeit cigarettes also appears to be a very large and profitable business for North Korea and one with global reach. Indeed, Counterfeit cigarettes may well be North Korea’s largest containerized export sector with cargoes frequently coming from the ports of Najin and Nampo for shipment via major ports in China and the ROK throughout the world. Phillip Morris International, Lorillard, Japan Tobacco and others have identified numerous factories producing counterfeit cigarettes in North Korea. Affected industry participants have worked assiduously with relevant government authorities around the world to stop this trade. The numbers explain why. A forty foot container of counterfeit cigarettes might cost as little as $70,000 to produce and have a street value of 3-4 million dollars, so it’s not surprising that the North has focused on this business line-with its profits increased if tax stamps are forged (something that has been observed repeatedly of late, costing affected states such as California tens of millions in stamp revenue per year). A 1995 Associated Press article reported the seizure by Taiwan authorities of 20 shipping containers of counterfeit cigarette wrappers destined for North Korea. According to officials of the cigarette company whose label and trademark were being violated, the seized materials may have been used to package cigarettes with a retail value of $1 billion. Increasingly DPRK counterfeit cigarettes, counterfeit pharmaceuticals (especially counterfeit Viagra), and counterfeit currency are being moved in parallel. Royal Charm revealed that weapons, too, potentially even manpads might be run through the same channels. What could be next?

3. Smuggling sanctioned items, including conflict diamonds, rhino horn and ivory, and endangered species, utilizing official diplomatic means

I find this to be one of the most outrageous and unacceptable of the DPRK’s criminal acts, absolutely contravening international law, including the Convention on International Trade in Endangered Species of Wild Fauna and Flora. There are numerous notorious examples to cite. In the early 1980’s, five North Korean diplomats were forced to leave Africa for their attempts to smuggle rhino horns. The horns were transported from Luzaka to Addis Ababa to South Yemen. From there, they traveled to the consulate in Guangzhou, which ran operations in Macau, Zhuhai, and Hong Kong. This kind of activity has apparently not changed. As Stanford researcher, Sheena Chestnut, noted in a recent thesis, in the years since 1996, “at least six North Korean diplomats have been forced to leave Africa after attempts to smuggle elephant tusks and rhinoceros horns.” Ivory seizures directly linked to North Korean officials amounted to 689 kg in Kenya in 1999; 537 kg in Moscow in 1999; and 576 kg in France in 1998. I don’t have more recent data I can share publicly but I don’t think they have given up on the illicit ivory trade.

4. Money laundering for its own account and in partnership with recognized organized crime groups abroad:

The extent to which the DPRK uses banking partners around the world to launder funds has recently gotten a lot of attention in the wake of the Macau based Banco Delta Asia designation under Section 311 of the USA Patriot Act. The Treasury Department’s website paints a pretty clear picture: “One well-known North Korean front company that has been a client of BDA for over a decade has conducted numerous illegal activities, including distributing counterfeit currency and smuggling counterfeit tobacco products. In addition, the front company has also long been suspected of being involved in international drug trafficking. Moreover, Banco Delta Asia facilitated several multi-million dollar wire transfers connected with alleged criminal activity on behalf of another North Korean front company.”

5. Weapons smuggling and trading in WMD

Even while its customer base diminishes, North Korea defiantly remains in the business of selling MTCR class missiles and base technologies. It also continues to field more advanced systems domestically that could be exported. Logically speaking, as its stockpile of WMD grows so could its willingness to export technologies, systems, and even materials. Business and ideology conveniently mix in the minds of North Koreans, it seems, as they calculate where, when, and how to sell weapons and weapons systems.

Moreover, in the face of increased surveillance of DPRK flagged vessels, the threat of using conventional shipping means to move cargoes increases as does the incentive to use organized crime channels.

There are several thousand containers each year coming out of North Korea from its two main container cargo ports: Najin on the east coast and Nampo on the west coast. To get into the international maritime transport system, they have to go through friendly ports, typically in China, the ROK, and Japan. Virtually none of these containers in China is subject to inspection and few in the ROK. Japanese customs has made a bigger effort but it remains insufficient in regard to cargoes destined for non Japanese ports.

As we learned from the investigations concluded this summer, containers of counterfeit cigarettes, counterfeit currency, weapons, and other illicit items apparently produced in the DPRK or linked to a distribution chain it has ready access to have managed to make their way into the US. So could North Korean WMD if we don’t create a system to better scrutinize cargoes and enhance Maritime Domain Awareness to protect our SLOCs.

Unfortunately, neither the PSI no the CSI are attuned to addressing these threats. The Container Security Initiative is a worthy effort to move US customs outward, inspecting select cargoes destined for US waters overseas before they embark in our direction. I am impressed by the work being done by US Customs and ICE officers overseas to look into suspect cargoes and the dedication of personnel at the National Tracking center to identify ships and cargoes that may have not been covered by the CSI or fallen through the loop. Nonetheless, the CSI has no application to containers destined for non-US ports and, moreover, it is only operating in a small number of foreign venues. What happens to the majority of containers coming here or going elsewhere? Nothing.

Moreover, the hallowed Proliferation Security Initiative unfortunately remains much more talk that action. I support the initiative but it is not sufficient and does not substitute for a dedicated DPRK counter-proliferation policy. It is nice to see countries getting together to agree to intercept shipments but it is another to engage in such interdictions. There has not been one single PSI interdiction of a DPRK flagged vessel that I am aware of. Does this mean they have stopped sailing? A quick look at the “Lloyd’s List” database reveals this to not be true with many notorious North Korean vessels like the Sosang, which was interdicted shipping missiles to Yemen in December 2002 (before the PSI existed), still plying the high seas. What are these ships carrying? Moreover, I find the implicit premise that interdiction alone is adequate for stopping proliferation unsettling. Stopping a weapons shipment on the high seas is like stopping a drug shipment under dark of night-easier said than done. The odds are not good, especially when you face an adversary with access to near state of the art communications, excellent denial and deception, diplomatic immunities, and friendly criminal partners to facilitate its activities.

More decisive action is required, well beyond the PSI’s current scope. The AQ Khan network was brought down by a network disruption strategy that utilized all aspects of national power. Such a strategy may need to be mounted soon to stop a determined North Korea engaged in the weapons trading business.

Fortunately, there are some things in the area of peaceful international cooperation we can do to minimize the chance North Korean contraband, missiles, or WMD will get into the international distribution system. I propose that a special Container Security Initiative be created and applied to the DPRK, beginning in China and the ROK. Specifically, all containerized cargo out of North Korea should be mandated for inspection at the first international port of conveyance. Legitimate trade would be allowed to pass but illicit cargoes would be stopped. The US could not accept containers from ports that do not wish to join this special inspection regime. Such a regime would dramatically reduce the risk of weapons proliferation and cut into crime. Were all ships coming from the DPRK, whether bearing containers or not, subject to first order inspection the system would be even more effective. Given that DPRK trade represents a drop in the bucket for even major Chinese and Koreans ports, instituting such a regime should not be particularly onerous.

Down the road a more elegant solution is possible, whereby only smart containers can gain access to the international shipping system. The President recently announced a new policy on Maritime Domain Awareness (MDA). As Vice Admiral John Morgan has recently written, “MDA is the collection, fusion and dissemination of enormous quantities of data – intelligence and information to form a common operating picture (COP) – a web of integrated information which will be fully distributed among users with access to data that is appropriately classified.” Through the COP, specialists should eventually be able to monitor vessels, people, cargo and designated missions, areas of interest within the global maritime environment, access all relevant databases, and collect, analyze and disseminate relevant information.

This goal of Maritime Domain Awareness may sound overambitious, if not down right impossible. However, within the next five years, we likely will see the global deployment of such “smart-containers.” These sophisticated containers will be equipped with RFID tags that can not only broadcast the precise geo-location of the container but also be linked to relational databases that reveal detailed information on the container’s cargo: where it was loaded and by whom, when and where it was produced, and a host of other important information. IBM and Maersk have in fact just announced a pilot project to validate this smart container concept and allow the data to be trackable via an open information architecture.

In effect, driven by industry requirements even more than government regulations, by the end of the decade we can look forward to the development of a “world wide web of things” – the physical data tracking equivalent of the internet. Such a web promises to dramatically enhance supply chain management for multinationals, expedite and safeguard trade, and reduce counterfeiting. This is not science fiction: companies like Walmart have already demanded that their suppliers insert RFID tags into products with the goal of eventually being able to track in near real-time the status of virtually every asset in the company’s supply chain domestically and – relatively soon – globally.

Countries, ports, or companies not subscribing to smart container standards would be subject to automatic inspection or simply not be allowed to engage in international trade with countries participating in the initiative.


North Korea is the only government in the world today that can be identified as being actively involved in directing crime as a central part of its national economic strategy and foreign policy. As a result, Pyongyang is radically – and perhaps even hopelessly – out of synch with international law and international norms. In essence, North Korea has become a “soprano state” – a government guided by a Worker’s Party leadership whose actions, attitudes, and affiliations increasingly resemble those of an organized crime family more than a normal nation.

North Korea’s serial violation of international laws and agreements begs the question whether it should be allowed normal protections granted to states under the United Nations treaties.

Its reliance on illicit activity for maintaining what my former colleague Bill Newcomb has termed the “palace economy of Kim Jong Il” perhaps makes it very hard for North Korea to abandon such activities and also provides Pyongyang a means to avoid serious engagement with the outside world. Thus, unless and until the North finds itself censured for its involvement in such activities and its illicit finances come under great pressure it may have few incentives to be cooperative and come clean and act normal.

The North must cease its dealings with trans-national organized criminals, its illicit export of weapons, its nuclear reprocessing, its threats to engage in nuclear proliferation, etc. Instead it should accept the extremely reasonable terms the US, with the others parties in the talks, have offered for promoting a positive and peaceful transformation of relations in the context of full denuclearization. If it does then next month’s talks should represent a turning point in the history of our relations with the DPRK. If it does not, as I have shown the evidentiary ground exists for the DPRK’s comprehensive diplomatic isolation and a systematic denial in diplomatic privilege, if not as a pariah state with nuclear weapons but as a criminal state engaged in causus belli acts against the United Nations, its laws, and its principles. I hope Mr. Kim Jong Il makes the right decision.


An Employee from the Emperor Hotel in Rajin Out to Do Business in a Market Place

Monday, November 14th, 2005

Daily NK
Kim Young Jin

Employees from the Emperor Hotel in the city of Rajin in North Korea are said to make their livings by doing business in market places. The hotel is well known for its casino.

On the 13th day of this month I had an interview with a manager of the hotel, who I will call Kim Myung Chul (alias, 42 years of age) for the sake of his safety. “The hotel has had much difficulty paying wages to its employees since it closed its casino in February,” he said. “It laid off about half of its 300 employees, and even some of the remaining half had to open restaurants near the hotel or start business in market places for their livings.”

The Emperor Hotel is a five star hotel founded by the Emperor Group in Hong Kong that invested about 24 million dollars in it. It is well known for the finest casino in North Korea.

For the last two years, two high raking Chinese officials have lost a large sum of government money to the casino and the Chinese government complained to the North pressing it to close it. Thus, it was closed in February, and the hotel lost many Chinese tourists. The number of Chinese tourists had been almost 20 thousands a year before. Virtually the hotel is out of business now.

Chae Moon Ho, a former head of Traffic and Transportation Office of Yanbian Autonomous Prefecture in Jilin, China squandered 3,510,000 yuan (more than 434,000 dollars) of government money in the casino and was sentenced to 8 year imprisonment at the first trial. Mr. Wang, a former superintendent of highway construction, wasted 870,000 yuan (about 107,000 dollars) of government money in the casino and was taken into custody.

After these incidents, the Chinese government had prevented travel agencies around Yanbian area from holding North Korean tourism in March this year. It lifted the ban last September.

The following is some excerpts from the interview.

– When did you start to work for the Emperor Hotel?

I have been working in the hotel since 2000. People in Rajin call it Bipa Hotel or the Five Star Hotel. When the hotel was first opened, it was run in a capitalistic way. Even hostesses from Russia and China were recruited. But they have all returned now because they could no longer get paid. It took 3 years to complete its construction. I heard that it had been intended to be a 30 story building, but it is 7 stories high because the Emperor Group cut spending. Visitors were usually foreign gamblers and those Chinese who enjoyed fish and other seafoods.

– How is business now?

Business situation became very tough after the Chinese stopped coming. Usually thousands of Chinese people visited for the summer, and Russian and Chinese gamblers constantly came and went. But since the casino was closed and the Chinese stopped coming, it has been difficult for the employees to be paid. The hotel even laid off half of its employees. At frist 300 people were recruited, but there are less than 150 employees now. Among them, less than 50, mostly janitors, cooks, Karaoche coordinators, massagists, come to the hotel to work.

– Does the owner not pay the employees?

I do not know. Even though the owner is Emperor Group from Hongkong, the employees are controlled by the Administrative Committee of Rajin city. I suppose that wages must be distributed by the civil authorities. Anyhow, I have not been able to be paid since last spring.

– What kind of people are employed in the hotel?

High ranking people were eliminated from the recruit lest they be contaminated by capitalism brought in by foreign gamblers. For example, Kim Il Sung University graduates, partisans, workers involved with law and national defense and their family members were all eliminated. Mostly tall and good looking people from Rajin were accepted.

– How are the employees paid?

At first, we were well paid. We were not rationed but received wages. Until 2000, I received 300 yuan a month. At that time, 1 yuan($0.1237) was equivalent of 25 Chosun(NK) won($0.0125), and rice was quite cheap. Hence 300 yuan made a sound pay. Moreover, we were fed three times a day and allowed to sleep in the hotel, which was considerable benefits for us. But while business was getting difficult, employees were being turned into 8.3 workers one after another. Finally, payment started to be incomplete from last February. We could just take three meals a day thanks to the money the 8.3 workers gave to the hotel.

– What is 8.3 worker?

The hotel forced some of its employees to earn money all by themselves and to give some part of it to the hotel. 8.3 worker is called so because Kim Il Sung ordered the system during a factory visit on a third day of August.

– How do 8.3 workers earm money?

Some workers opened restaurants near the hotel, and others merchandize in market places. There are people like me who are out here in China and do business with old customers. Chinese tourists like to eat fish and other seafoods in Rajin. That’s why 8.3 workers like to open seafood restaurants near the hotel calling them branch restaurants of the hotel. There are more than 10 such restaurants near the hotel. There are also a few souvenir shops. If they earn money, they give some of it to the hotel. Those who merchandize are just like that. If you give some money to the hotel every month, you are not required to go there to work.

– Does the money go to Emperor Group?

No. It goes to the Administrative Committee of Rajin city. The hotel is just a Work Place: we are not under the owner’s control. We are required to take permission from the Administrative Committee to work outside the hotel.

– Do 8.3 workers make much money?

It is advantageous for business to be an employee for the hotel. We do not pay such heavy taxes as ordinary merchandizers do. It is also easier for us to occupy stalls in market places than for ordinary merchandisers.

– What is people’s life like in Rajin recently?

Outsiders envy Rajin and Seonbong because they compose the free trade zone, but the situation is on the contrary. The government takes more from Rajin and Seonbong because of the free trade. Rice is also more expensive. They are good places for the rich to live in but not for the poor.


North Korea Urges Women to Wear Dresses

Friday, November 11th, 2005

Associated Press

North Korea’s communist government is urging women in the country to wear traditional Korean clothes instead of pants, according to a North Korean monthly magazine.

“Keeping alive our dress style is a very important political issue to adhere to specific national cultural traditions at a time when the U.S. imperialists are maneuvering to spread the rotten bourgeois lifestyle inside North Korea,” the Joson Yeosung (Woman) magazine said, according to South Korea’s Yonhap news agency.

The magazine said exotic dress dampens the revolutionary atmosphere in society and blurs national sentiment and asked the public to reject clothes that aren’t North Korean style. Instead, it counsels women to wear Hanbok — the brightly colored, loose-fitting dresses that are traditional in the Koreas.

The campaign comes as North Korea struggles to tighten its control over an influx of outside influences, which it claims is part of a U.S. psychological offensive aimed at toppling the communist regime — a charge Washington denies.

Early this year, the North also launched a social campaign against men with long hair, calling them unhygienic, anti-socialist fools.

The North, which demands unquestioning allegiance of its citizens and controls all media, has stepped up the ideological education of its people to counter outside influences. However, the country’s loosely controlled border with China has led recently to increased traffic in smuggled recordings of music and videos from the outside.


Kumgang update from Lankov

Tuesday, November 8th, 2005

Here are the highlights:

1.  In June 2005, Hyundai conformed its 1 millionth visitor to Kumgang.
2.  January 1999, soon after the launch of the project, Hyundai Asan leaders stated that by the end 2004 there would be an accumulated 4.9 million visits to the North.
3.  Managers predicted that in 2004 alone some 1.2 million tourists would visit the Kumgang Mountain Project. The actual number of the visits in 2004 was 273,000
4.  The project was first conceived in 1989, when Chung Ju-yung, the founder of the Hyundai Group, became the first South Korean industrialist to visit the North.
5.  Financially, the North Koreans have been doing very well. According to the initial agreement, the Hyundai Group would build all the infrastructure in the zone (presumably including the fences to keep the South Korean visitors under control), and pay $12 million every month as fee for the use of the area. Some additional income was earned by the North through the sale of grossly overpriced local products and souvenirs.
6.  Contrary to initial expectations, South Koreans were not too eager to spend their short vacations behind barbed wire.
7.  in the late 1990s a cheapest three night package cost about 700,000 won
8.  In April 2001 the Hyundai Merchandise Marine Company halved the number of trips available. It was also having trouble making payments to the North Korean partners, too.
9.  However, the government simply could not allow it to collapse: by that time the Kumgang Project had acquired a huge symbolic importance. It was salvaged by a massive government intervention, and stayed afloat largely because the Blue House (and also a large part of the public) needed a symbol of cooperation, at whatever cost to the taxpayers.