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DPRK-China realtions a little bumpy

Thursday, July 20th, 2006

The United States is blocking all possible ways of transferring money to North Korea. Along with a United Nations resolution, Washington is putting pressure on companies and banks of all countries that have business transactions with North Korea to cut the relations. Japan has blocked money transfers to North Korea, banned a North Korean ferry from entering its ports, frozen North Korea’s assets and banned companies from having transactions with North Korea.

The hardest blow on North Korea was China’s approval of the UN resolution. As the only ally to North Korea, China has provided it with more than half the food and energy the North needs. It is North Korea itself that has made China change its stance.

North Korea-China relations these days are the worst since in June 1995. Back then, North Korea’s leader Kim Jong-il released a statement in the Rodong Sinmun, or Newspaper of the Workers that China had betrayed the spirit of socialist revolution by introducing a market economy. Although the head of North Korea depends heavily on China for the survival of his country, he recently told an American delegate that China was unreliable.

Posted in China, Japan, Political economy, South Korea, USA | Comments Closed

ROK halts DPRK humanitarian aid

Thursday, July 13th, 2006

The 2005 winners of the Nobel Prize in Economics were selected for “having enhanced our understanding of conflict and cooperation through game-theory analysis”. I would check out thier work in order to make sense of the current DPRK/ROK diplomatic posturing.

From the Washington Post:

South Korea on Thursday suspended humanitarian aid to North Korea until it agrees to return to international nuclear disarmament talks.

The action infuriated visiting North Korean officials, who immediately cut off high-level talks in South Korea and stormed back home.

The decision to postpone consideration of a North Korean request for 500,000 tons of rice marked the South’s first punitive action against its impoverished communist neighbor since it defied the international community and test fired seven missiles, including a long-range Taepodong-2, on July 4.

The move came as the administration of South Korean President Roh Moo Hyun has come under sharp public criticism at home for what many there viewed as a weak response by Seoul to the North’s missile tests.

South Korea on Thursday reiterated its deep opposition to a push by Japan and the United States to impose broader sanctions on North Korea through a draft resolution at the United Nation’s Security Council. Seoul has also vowed to maintain its “sunshine policy” of engagement, which has fostered the warmest ties between the Stalinist North and capitalist South since the Korean War divided them in two more than half a century ago.

But the decision to follow through with a previous threat to suspend food aid if North Korea tested missiles — a threat many experts doubted the South Koreans would stick to — displayed a new willingness by the South to use its significant economic clout to apply pressure on the North.

The North Koreans — for whom economic assistance by South Korea is topped only by China — appeared jolted by the decision. At talks being held in the South Korean city of Pusan that were originally scheduled to end Friday, Pyongyang’s delegation abruptly departed Thursday afternoon.

South Korea’s Yonhap news service reported that the North Korean officials left after circulating a statement calling the rupture the result of “reckless” attempts by South Korea to raise “irrelevant issues.” Those issues, South Korean officials said, were the recent missile tests and the North’s refusal to return to six-party talks on its nuclear programs.

The North bitterly condemned Seoul’s decision to suspend food aid, saying “the South side will pay a price before the nation for causing the collapse of the ministerial talks and bringing a collapse of North-South relations.”

South Korean officials, who in recent years have rolled out the red carpet for their visiting North Korean kin, this time offered them a simple meal and welcome bereft of customary sightseeing excursions and photo opportunities. When the North’s representatives understood they would not be returning with promises for more food aid, they simply left.

“The North Korean side expressed their position that additional negotiations would be unnecessary under the circumstance that additional humanitarian aid they need would be impossible,” Lee Kwan Se, a South Korean Unification Ministry official, told reporters.

For the United States and Japan, both pushing for a strong draft resolution at the United Nations that would ban international trade of North Korean missile and other military technology, the South Korean action was a rare diplomatic bright spot.

Christopher Hill, Washington’s top envoy on North Korea, left Beijing for Washington on Thursday after it became clear that Chinese efforts to persuade the Pyongyang government to come back to the six-party talks had apparently failed.

Before leaving, Hill said there was no indication that the North Koreans had changed their position to boycott the talks, which have been stalled since last November.

Japan, which has been deeply rattled by the North’s missile tests, vowed to continue pushing for a tough resolution that would impose sanctions on the North Koreas. But China and Russia back their alterative U.N. resolution unveiled on Wednesday. That draft would censure North Korea for its missile tests, but would endorse only voluntary measures aimed at restraining Pyongyang’s ballistic missile and nuclear weapons programs.

“The Chinese are as baffled as we are,” Hill told reporters in Beijing before departing. “China has done so much for that country and that country seems intent on taking all of China’s generosity and then giving nothing back.”

By Anthony Faiola
Washington Post Foreign Service

Posted in China, International Aid, International trade, Japan, Military, Political economy, South Korea, USA | Comments Closed

Summary of current and proposed trade sanctions on DPRK

Tuesday, July 11th, 2006

From the Korea Times:

You may be surprised to hear that North Korea is either in violation, or the target, of more than 13 U.S. laws, which include laws dealing with transfer of missile technology to other countries and human rights issues. Three of these laws, however, have direct bearing on U.S. economic sanctions against North Korea.

The first is the U.S. Export Control Act of 1949 that became the basis for the U.S. invoking a total embargo against North Korea on June 28, 1950, only three days after North Korea invaded South Korea. The second is the Trade Agreement Extension Act of 1951 that was the basis for banning the most favored nation (MFN) tariffs on North Korea’s exports to the United States. As you know, all member countries of the World Trade Organization have to abide by the MFN regulation that requires these nations to levy the same low tariffs to all member nations of the WTO. Without MFN, there is no way for North Korea to export anything to the U.S. because higher tariffs make them impossible to compete. The MFN is so widely spread that it is now known as the normal trade relation (NTR). North Korea was denied MFN tariff status on September 1, 1951.

The third is the Export Administration Act of 1979 that allowed North Korea to be branded as a terrorist state when its agents blew up KAL 007 on November 19, 1987. At the time of the explosion, Korean Air Lines 007 was in flight from Bagdad (Iraq) to Bankok (Thailand). The explosion killed 115 passengers and crew. On January 20, 1988, North Korea was placed on the list of countries supporting international terrorism.

Placement on the list made it impossible for North Korea to borrow development funds from international financial institutions such as the World Bank and the International Monetary Fund.

On May 25-28, 1999, former U.S. Defense Secretary William Perry visited North Korea and delivered a U.S. proposal. On September 13, 1999, North Korea responded positively by pledging to freeze long-range missile tests. On September 17, 1999, President Clinton agreed to the first significant easing of economic sanctions against North Korea since the end of the Korean War in 1953 by announcing the lifting of most export restrictions applied to North Korea in response to North Korea’s willingness to cease long-range missile testing.

Details of eased U.S. economic sanctions on North Korea were announced on June 19, 2000. Key provisions included that the ban on exports to North Korea had ended, that U.S. passports were valid for travel to North Korea, and that U.S. travel service providers were authorized to organize group tours to North Korea. Among the notable U.S. sanctions that were not lifted are the denial of MFN status and the placement on the list of countries supporting international terrorism.

You may wonder what more economic sanctions can be levied against North Korea beyond the three already in place. To answer this question, you need to know the extent of North Korea’s foreign trade.

Contrary to what you may have heard or believe, latest United Nations trade data indicate that North Korea has trade relations of imports, exports or both with no less than 108 countries, which exclude South Korea because inter-Korean trade is not recorded as trade data in the U.S. trade database. North Korea’s major trading partners in 2004 were, in order of the amount, China ($585,651,972), Japan (164,101,115), Germany ($100,739,000), Brazil ($73,412,125), and Mexico ($47,662,978) for exports, and China ($799,450,316), Russia ($204,818,560), Brazil ($169,921,763), India ($121,080,999), and Netherlands ($120,525,232) for imports. The total amount of North Korea’s exports for 2004 was $1,256,533,361, while the total amount of North Korea’s imports for the same year was $1,937,738,240, with the trade deficit of $681,204,879, representing no less than 54.2 percent of total exports.

Now you have an idea. The new economic sanctions may take the form of a multi-national ban of trade with North Korea. The new economic sanctions may also include a complete ban of any transfer of money to North Korea from many Koreans who live in Japan and support North Korea.

There is no doubt that a complete ban of North Korea’s foreign trade, if imposed, would easily lower the current North Korean GNP to the 1999 level when hundreds of thousands, if not millions, of North Koreans starved to death.

In view of the large number of countries engaged in trade with North Korea, it would be impossible to impose a complete ban on North Korea’s foreign trade without naval blockade, which may escalate tensions on the Korean peninsula so rapidly that China and South Korea may not be willing to go along with multilateral economic sanctions.

Posted in China, Chongryun, EU, International Aid, International trade, Japan, Russia, South Korea, USA | Comments Closed

What is the DPRK-China realtionship

Tuesday, July 11th, 2006

An interesting strategic analysis fo the DPRK/PRC realtionship in a regional competition context. From the Council on Foreign Relations:

Introduction

China and North Korea have been allies for more than half a century. Beijing is a key provider of food and fuel to Kim Jung-Il’s regime, and it is heavily invested in preventing a destabilizing regime collapse that would send North Korean refugees flooding across its northeastern border. But as Kim tests ballistic missiles and develops his nation’s nuclear weapons capacity, China may be rethinking its support.

How strong is the current relationship between North Korea and China?

China has supported North Korea since Chinese fighters flooded onto the Korean peninsula to fight for the Communist Democratic People’s Republic of Korea (DPRK) in 1950. Since the Korean War divided the peninsula between the North and South, China has given both political and economic backing to North Korea’s leaders: Kim Il Sung, and his son and successor, Kim Jung-Il. In recent years, China has been seen as one of the authoritarian regime’s few allies.

On July 4, North Korea test-fired a series of ballistic missiles despite explicit warnings from Beijing, Tokyo, and Washington. This led to an unusually public rebuke from Chinese officials, a sign of strain in the relationship. Despite their long alliance, experts say Beijing cannot control Pyongyang. “In general, Americans tend to overestimate the influence China has over North Korea,” says Daniel Pinkston, a Korea specialist and director of the East Asia nonproliferation program at the Center for Nonproliferation Studies in Monterey, California. At the same time, China has too much invested in North Korea to halt or withdraw its support entirely. “The idea that the Chinese would turn their backs on the North Koreans is clearly wrong,” says Adam Segal, the Maurice R. Greenberg senior fellow for China studies at the Council on Foreign Relations.

How does North Korea benefit from the relationship?

Pyongyang is economically dependent on China, which provides most of its food and energy supplies. North Korea gets about 70 percent of its food and 70 to 80 percent of its fuel from China. Beijing is Pyongyang’s largest trading partner, and an estimated 300,000 North Koreans live in China, many of them migrant workers who send much-needed remittances back home.

China is also a strong political ally. “As an authoritarian regime that reformed, they understand what Kim Jung-Il is most concerned with—survival,” Segal says. China has repeatedly blocked UN Security Council resolutions against North Korea, including some threatening sanctions. China has also hosted the Six-Party Talks, a series of meetings in which North Korea, South Korea, Japan, China, Russia, and the United States have tried to resolve the security concerns associated with North Korea’s nuclear weapons program. There and in other international forums, China is seen as a buffer between North Korea and the United States and Japan, which favor punitive sanctions and other measures to prevent Pyongyang from gaining nuclear weapons.

How does China benefit?

China’s support for Pyongyang ensures a stable nation on its northeastern border, as well as providing a buffer zone between China and democratic South Korea. North Korea’s allegiance is also important for China as a bulwark against U.S. military dominance of the region and the rise of Japan’s military. And China gains economically from its association with North Korea; growing numbers of Chinese firms are investing in North Korea and gaining concessions like preferable trading terms and port operations. Chinese trade and investment in North Korea now totals $2 billion per year. “They’re becoming a stakeholder in the North Korean economy,” Pinkston says.

What are the drawbacks to the relationship?

Pyongyang is not an ally Beijing can count on. Kim Jung-Il’s foreign policy is, like its leader, highly unpredictable. “North Korea is extremely difficult to deal with, even as an ally,” says Daniel Sneider, the associate director for research at Stanford’s Asia-Pacific Research Center and a former longtime foreign correspondent specializing in Asia. “This is not a warm and fuzzy relationship,” he says. “North Korean officials look for reasons to defy Beijing.” Some experts say the missile tests were just one example of North Korea pushing back against China’s influence. “”It was certainly a sign of independence [and] a willingness to send a message to China as well as everyone else,” Segal says. The Chinese, who favor “quiet diplomacy” with North Korea instead of public statements, took the unusual step of making public the fact that Wen Jiabao, the Chinese premier, warned North Korea not to launch their missiles. The fact that Pyongyang did anyway has hurt China’s image, other experts say.

What kind of leverage does Beijing have over Pyongyang?

Not as much as outsiders think, experts say. Beijing has bullied or bribed Pyongyang officials to get them to the negotiating table at the Six-Party Talks many times. “It’s clear that the Chinese have enormous leverage on North Korea in many respects,” Sneider says. “But can China actually try to exercise that influence without destabilizing the regime? Probably not.” Pinkston says that for all his country’s growing economic ties with China, Kim still makes up his own mind: “At the end of the day, China has little influence over the military decisions.”

What are China’s goals for its engagement with North Korea?

“For the Chinese, stability and the avoidance of war are the top priorities,” Sneider says. “From that point of view, the North Koreans are a huge problem for them, because Pyongyang could trigger a war on its own.” Stability is a huge worry for Beijing because of the specter of hundreds of thousands of North Korean refugees flooding into China. “The Chinese are most concerned about the collapse of North Korea leading to chaos on the border,” Segal says.

If North Korea does provoke a war with the United States, China and South Korea would bear the brunt of any military confrontation on the Korean peninsula. Yet both those countries have been hesitant about pushing Pyongyang too hard, for fear of making Kim’s regime collapse. “They’re willing to live with a degree of ambiguity over North Korea’s military capability,” Sneider says, as long as Pyongyang doesn’t cross the “red line” of nuclear testing. Even then, “the Chinese can live with a nuclear North Korea, because they see the weapon as a deterrent against the United States, not them,” agrees Segal. But North Korea’s military moves could start an arms race in Northeast Asia and are already strengthening militarism in Japan, which could push for its own nuclear weapons if North Korea officially goes nuclear.

How does Washington factor into the relationship?

The United States has pushed North Korea to verifiably and irreversibly give up its uranium enrichment activities before Washington will agree to bilateral talks. Experts say Washington and Beijing have very different views on the issue. “Washington believes in using pressure to influence North Korea to change its behavior, while Chinese diplomats and scholars have a much more negative view of sanctions and pressure tactics,” Pinkston says. “They tend to see public measures as humiliating and counterproductive.” Since U.S. officials have repeatedly refused North Korean invitations to establish bilateral talks, “the Chinese have some sympathy for the North Korean view that the United States is not interested in negotiating,” Segal says.

Pinkston says the adversarial Pyongyang-Washington ties will likely not improve. “I don’t think the relationship with the Bush administration is reparable,” he says. “It’s a complete disaster, and someone else has to pick up the pieces. We can only hope it doesn’t degenerate more, but that the status quo will be maintained” until a new U.S. administration takes over, he says. In the meantime, U.S. pundits and lawmakers who push China to take what it sees as destabilizing actions in its region—i.e. support punitive actions or sanctions against North Korea—”are living in a different world,” Pinkston says.

“There’s always been a difference between how the Chinese felt we should approach these negotiations and how the Bush administration felt about it,” Sneider says. “That tension has always been there, and both governments have gone out of their way to obscure that gap because they’re well aware that the North Koreans are good at exploiting those differences.”

What is likely to happen to the China-North Korea relationship?

Despite the tensions caused by the recent missile tests, the relationship will likely continue to be close. Each side has too much invested in the other to drastically change the situation, experts say. If North Korea continues to test missiles, it’s possible that China will react more strongly than it has in the past. Most of the nations involved in the crisis will try to bring North Korea back to the Six-Party Talks. But after that, it is unclear what happens next. “Everyone who deals with North Korea recognizes them as a very unstable actor,” Sneider says.

However, some experts say North Korea is acting assertively both in its relationship with China and on the larger world stage. “The North Koreans are developing a much more realist approach to their foreign policy,” Pinkston says. “They’re saying imbalances of power are dangerous and the United States has too much power—so by increasing their own power they’re helping to balance out world stability. It’s neo-realism straight out of an International Relations textbook.”

The China-North Korea Relationship
Esther Pan, Staff Writer

Posted in China, Japan, Military, Political economy, South Korea, USA | Comments Closed

Missle prompts Japan to tighten trade with DPRK

Thursday, July 6th, 2006

Washington Post
Colum Lynch and Anthony Faiola
7/06/06

Japan imposed limited economic sanctions on the North, including a measure prohibiting its officials, ship crews and chartered flights from entering Japan.

A draft U.N. resolution, formally introduced by Japan, would also require states to prevent the transfer of money, material or technology that could “contribute” to Pyongyang’s ballistic missile program or advance its capacity to develop nuclear explosives or other weapons of mass destruction.

In addition, Japanese officials indicated they might be prepared to halt millions of dollars in remittances that are sent annually to North Korea from Koreans living in Japan.

As for China’s response:

Several observers warned that even if Beijing agreed to some form of censure, it would remain reluctant to impose tough economic sanctions out of fear that such measures could destabilize North Korea and spark a crisis on their shared border.

“I don’t think China will take at this moment stronger political or economic action against North Korea,” said Chu Shulong, a political science professor at Tsinghua University and expert in international security. “We Chinese believe basically, fundamentally it is not our problem, the missile launch problem. It’s a problem between North Korea and the U.S., it’s a problem between the DPRK and Japan, it might be a problem between North Korea and South Korea. But basically it’s not a China problem.”

North Korea experts said the options for the Bush administration remain limited, particularly if the Chinese and South Koreans were reluctant to impose tough economic sanctions. Instead, many said, it was more likely that Japan and the United States would seek to continue isolating North Korea by slowly tightening economic sanctions.

Posted in China, Chongryun, International trade, Japan, Military, South Korea, USA | Comments Closed

Can I have the train also?

Wednesday, July 5th, 2006

This is weird. (Hat tip to Lost Nomad)

China sends the DPRK food aid via train. The DPRK keeps the train and sends the crew back across the border sans-train.

[F]ood and fuel supplies sent to North Korea have been halted, not to force North Korea to stop missile tests or participate in peace talks, but to return the Chinese trains the aid was carried in on. In the last few weeks, the North Koreans have just kept the trains, sending the Chinese crews back across the border. North Korea just ignores Chinese demands that the trains be returned, and insists that the trains are part of the aid program. It’s no secret that North Korean railroad stock is falling apart, after decades of poor maintenance and not much new equipment. Stealing Chinese trains is a typical North Korean solution to the problem. If the North Koreans appear to make no sense, that’s because they don’t. Put simply, when their unworkable economic policies don’t work, the North Koreans just conjure up new, and equally unworkable, plans. The Chinese have tried to talk the North Koreans out of these pointless fantasies, and for their trouble they have their trains stolen. How do you negotiate under these conditions? No one knows. The South Koreans believe that if they just keep the North Korean leaders from doing anything too destructive (especially to South Korea), eventually the tragicomic house of cards up north will just collapse. Not much of a plan, but so far, no one’s come up with anything better.

Posted in China, International Aid, Railways | Comments Closed

China And North Korea To Build Hydroelectric Dam

Thursday, June 29th, 2006

From Industry Week:

June 29, 2006 — China and North Korea have signed an agreement to build a hydroelectric dam on the Yalu river which borders the two nations, state media reported June 28. The deal was signed on Tuesday in Pyongyang between China’s Changchuan Hydroelectric Power Co. Ltd. of Jilin province and North Korea’s electric power and coal industry ministry.

China will fund the 350 million yuan (US$43.75 million) Wenyue Hydroelectric Project, while the infrastructure will be built in North Korea. The dam will have a capacity of 40,000 kilowatts although the electricity will be used in North Korea where power supplies are far more scarce.

Construction on the dam is expected to begin in September and will be completed in three years. The Chinese side will provide equipment for the dam.

Under the agreement the North Korean side will repay the investment on the dam to the Chinese side from proceeds from electricity sales.

Posted in China, Dams/hydro, Foreign direct investment | Comments Closed

China’s interest in the future of the DPRK

Wednesday, June 28th, 2006

from the Joong Ang:

Chinese specialists on Korean affairs have revealed greater concerns about the political stability in North Korea than at any other time since the height of the North Korean food crisis in 1996-97.

Chinese concerns do not necessarily mean that the political leadership in Pyongyang is near a collapse, but they reveal that China’s crisis is primarily about North Korea’s economic and political stability, not its nuclear weapons.

Chinese analysts are preoccupied with a fundamental dilemma in pursuing stability in North Korea: unless North Korea pursues reform and opens up, it cannot survive, but reform and openness could lead to political instability in North Korea, to the detriment of China’s own interests.

China’s primary objective is to prevent instability while simultaneously encouraging North Korea’s economic reform ― not to denuclearize North Korea as the United States desires or to promote South Korea’s unification aims. The exchange of summits in recent months between Hu Jintao and Kim Jong-il has strengthened China’s political influence in North Korea. Chinese investments in North Korea’s energy and other sectors and the widespread availability of Chinese products in North Korean markets have raised anxieties in Seoul that China is making North Korea into China’s “fourth northeastern province.”

China’s economic rise has given it new tools for promoting the stability of weak states on its periphery. Chinese government-led investments and cheap products are providing China with the decisive political influence to stabilize weak or failing state structures in neighboring countries such as Pakistan, Laos and Myanmar, as well as North Korea.

Chinese specialists recall their own experience with opening and reform, and fret that North Korea cannot claim a “peaceful environment” in which to pursue reform as long as there is nuclear confrontation with the United States. The Chinese want the United States to lessen tension and promote an environment conducive to North Korean economic reform.

North Korean leaders focus on the security threat from the United States, but the greatest enemy of the North Korean system is the penetration of external goods and information and the development of self-interest and individual choice as real options for the North Korean people. These bottom-up changes are eroding North Korea’s corporatist, leader-centered ideological controls and transforming the relationship between the individual and the state.

The rapid emergence of legal and illicit cross-border market interactions that have mushroomed outside state-level political controls in China or North Korea are the real threat to the North’s political stability. The seeds of North Korea’s demise, ironically, are likely to be “made in China,” not the United States.

Certainly, China prefers a Korean Peninsula that is friendly to China, or alternatively the maintenance of North Korea as a strategic buffer. Chinese analysts remain suspicious of American intentions. They believe a U.S.-North Korea confrontation is in America’s interest and that President Bush’s hopes for a peaceful, unified, free and democratic Korean Peninsula must be resisted.

Chinese analysts know that change in North Korea is inevitable, but they claim that there is no alternative to Kim Jong-il’s leadership, in which they have made a significant political investment. Despite North Korean efforts to restore political controls, disaffection with the top leadership that was almost unknown a decade ago is gradually spreading with the flood of external cultural influences that has invaded Pyongyang. This development is most worrisome to Chinese analysts concerned about North Korea’s stability.

It is no accident that Chinese military forces moved closer to the border with North Korea in recent years.

Military analysts admit that Chinese contingency plans are in place to intervene for “environmental control” to secure nuclear weapons and fissile materials in the event of regime instability, but the primary objective would be to protect China from the spillover effects of chaos in North Korea. Likewise, the United States surely has its own plans to secure North Korean “loose nukes” in the event of political instability, regardless of possible political or legal obstacles to such an intervention.

Given the low level of U.S.-Chinese military-to-military relations and high level of strategic distrust over the future of North Korea, there is no effective mechanism for official dialogue between the United States and China to mitigate the possibility of accidental conflict in the event that more than one state tries to secure “loose nukes” during political instability in North Korea.

The 2001 crisis involving an American intelligence aircraft brought down on Hainan Island revealed the risks that derive from poor channels of communication.

Regardless of whether or not North Korea’s regime is likely to fail or become unstable, there is a need to address such contingencies and clarify proper courses of action.

Advance discussions among the three countries might minimize the prospect of a conflict between special operations forces from the United States, China, and/or South Korea in any race to secure North Korea’s “loose nukes” during a period of regime crisis in the North.

Posted in China, Economic reform | Comments Closed

DPRK economic battle-groud between ROK/PRC

Monday, June 26th, 2006

From the Joong Ang Ilbo:

During the JoongAng Ilbo’s 10-day survey of North Korean economic venues in May, North Korea’s high dependence on China was very prominent. Noting that trend, North Korea experts in Seoul recommended that South Korea make efforts to increase its industrial investment in the North to assist the failing economy and allow it to make ends meet. Donating food and other aid, they said, was contrary to the aphorism, “Give a man a fish and he can eat for a day; teach him to fish and he can eat for a lifetime.”

Throughout the trip from May 11-20, North Korean officials proudly displayed a series of automated factories, calling them the models of the reclusive communist country’s modernization. The Daean Friendship Glass Factory was on the tour; officials said China had built the factory at no cost to North Korea. Similarly, production lines in several other plants were overwhelmingly “made in China.”

The March 26 Cable Factory in Pyongyang used Chinese machines; its raw materials appeared to be from China as well. The Pyongyang Cosmetic Factory, which produces cosmetics, toiletries and toothpaste, was also equipped with Chinese machines. The toothpaste production line used equipment from Nanjing Machinery, and the soap production facility was equipped by companies in Quingtao.

At the International Trade Fair in Pyongyang, most booths were set up by Chinese firms. Among the 217 companies that participated in the fair, more than 80 percent were Chinese or joint ventures that included a Chinese partner.

North Korea’s trade is also overwhelmingly skewed toward China: in 2004, nearly half of the North’s trade was with its neighbor. “North Korean industries are 90 percent dependent on China,” said Kim Suk-jin, a North Korean economy researcher at the Korea Institute for Industrial Economics and Trade.

That’s not entirely a bad thing, some economists here said; joining the world economy through China could become a catalyst for reform and opening of the North Korean economy. But they also said they were somewhat uneasy that China’s influence on the Korean Peninsula would become “unnecessarily” strong, reflecting deep-seated Korean unease about foreign influences on the peninsula. Referring to South Korea’s dependency on Japan in the 1960s and 70s for raw materials and facilities, they said that trade with Japan is still skewed in Japan’s favor.

Jeon Jong-mu, the president of HUM Construction Company, was in a party that traveled to North Korea for the international trade show with the journalists. He said North Korean officials had offered him the opportunity to participate in a project to mine aggregate ― rock, gravel and sand ―from the Chongchon River. In return for dredging the river, the offer reportedly went, the North would supply the material to his company.

According to the North Korean officials, the dredging is important to them because frequent flooding of the river damages nearby agricultural areas. “I thought the dredging work would be better for increasing rice production in the North than giving fertilizer,” Mr. Jeon said.

At the Chongsan Cooperative Farm, Ko Myong-hee, its manager, said no South Korean experts have ever visited there but that South Korea has provided it with rice and fertilizer. Lee Kyung-han, the manager of the Korean Standards Association, thought that was a symptom of a problem. He said experts from here should meet with their North Korean counterparts to improve productivity.

Others agreed that for the most part, the South has just been “giving fish” to the North. They said of the $1.6 billion in trade volume between the two Koreas, the South’s rice and fertilizer aid amounts to 35 percent. In the name of helping the poor, sick North Koreans, Seoul just ships rice, fertilizer and medicines.

Both Koreas should learn more about each other, said Kim Dong-ho of the Korea Development Institute. Some North Koreans believed that designating special economic zones would bring large foreign investments instantly, and complained that South Korean businessmen were not making investments in Kaesong Industrial Complex even after visiting the site. He said South Koreans also had a poor understanding of the North’s economy. He blasted the South Korean government and businesses here for making investments based on “rosy anticipations.”

Experts here said the government should focus more on building manufacturing facilities in the North. The March 26 Cable Factory in Pyongyang was modernized by a $2 million donation from North Koreans living overseas, said Kim Sok-nam, the plant’s manager. The Daean Glass Factory was also built with $24 million provided by China.

It would be asking too much, those experts said, to expect South Korean businesses to line up to make investments in the North after watching the woes of the Hyundai Group and the financial problems it faced after making its large investment in Mount Kumgang tourism.

If businessmen are reluctant to invest, perhaps the government should shift tactics. Rather than increase the amount of aid, which cost $365 million in rice and fertilizer alone in 2005, Seoul could offer investment assistance. That $365 million, after all, could have financed 15 Daean Glass Factory plants.

Mr. Lee of the Korean Standards Association proposed that government companies in the South might consider building factories in the North. Others agreed.

“The Kaesong Industrial Complex will take time to settle in,” said Kim Yeon-chul of the Asiatic Research Institute at Korea University. “On the other hand, Pyongyang, Nampo and other important economic venues in the North will be under China’s influence in as little as five years.”

Mr. Kim said South Korea should find ways to exercise its influence in core economic zones of the North. Instead of depending on the pioneer sprits of private firms, a state-run corporation in charge of industrial cooperation with the North should be formed to make profitable investments in the North’s industries, Mr. Kim suggested. “If such a firm existed, the South would have been able to carry out sustainable industrial projects in the North instead of providing light industry materials as aid,” he said. “There is a financial burden at the early stages, but that will eventually be reduced when the investment environment in the North improves, and the state-run corporation will be able to add resources from the international financial market on its own. That is why we need a state company for inter-Korean economic cooperation.”

Posted in Agriculture, China, Economic reform, Foreign direct investment, International trade, South Korea | Comments Closed

Price data

Monday, June 12th, 2006

From the Daily NK:

North Korean prices are continuing to rise.

At Sunam Jangmadang of Chongjin City, the price of rice is 1,200W/1kg, corn 300W, bottle of oil 2,000W, pork 2,500W and pants made from China 20,000W.

As it is spring, not only is it a time where the overall price of Jangmadang rice rises, but because the country is not distributing rations, the majority of people depend on the rice at Jangmadang. Also, rice sellers are watching this opening and are raising prices.

Lee who entered South Korea in 2003 says she has already sent money to her family by various means. The money sent through earnings from part-time jobs and resettlement money from the South Korean government, is becoming a lifeline for her family. Her families in North Korea depend on her to send money to live and get great relief from their daughters who live in South Korea.

Chinese 100yuan is 34,000won at Jangmadangi

Lee’s family who support their living by selling goods made from China, ceased trade because of soaring prices and control of Jangmadang by authorities.

Lee added, as it became harvest season and authorities restrained Jangmadang operations, there was even an incident last May at Chongjin where a lot of children were hospitalized after eating sweets and medicines made from China, and instruction was made in regards to strengthening the regulation of Chinese goods.

However, Chinese goods are in the majority and controlling Chinese commodities in North Korea is ‘shading the sun with the palm of your hand.’ Lee conveyed that to regulate the problem, police officers confiscate Chinese goods such as alcohol and cigarettes, and that oppression is worsening.

According to Lee, at present in Chongjin, Chinese 100yuan is 34,000 won for North Korean money. If this is converted to dollars, $1 calculates approximately 2,750won.

In March, the exchange rate at Musan Jangmadang was 100yuan to 37,125 won North Korean currency, in dollars $1 for 2,970won. The exchange rate for Yuan has decreased since March from roughly 100yuan to about 3,000won.

Local factory workers, majority mobilized to the village

The local industrial factory Lee’s brother works for in Chongjin, has recently closed factory doors and sends workers to the village. Compared to reports of North Korean publicity and media of central businesses in production at Pyongyang, standards of local industries are extremely inferior.

The reason, local industries could not extricate the aftereffects of acute shortages in equipment and materials following the economic breakdown in the mid-90’s.

According to defector of Chongjin, person ‘A’ laments “Recovery in factories is difficult as electric machines and electric lines are stolen and sold. Factories themselves want restoration but money is required, and isn’t it that there is no where money can appear.”

The most urgent is the problem of electricity. Most recently, as it is the farming season, all the electricity is mobilized for the water meter operations, with electricity servicing the villages approximately 10hours daily. However, as electricity is supplied to the villages, meanwhile the city is locked in darkness.

Posted in China, Emigration, Fiscal & monetary policy, General markets (FMR: Farmers Market), International trade, Price liberalization, South Korea | Comments Closed

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