North Korean Economy Watch

According to the Choson Ilbo:

Chinese President Hu Jintao told North Korean leader Kim Jong-il in strong terms to reform the North’s failed socialist economy and open up the country, a senior South Korean government official said Wednesday.

He made the call during a meeting when Kim visited China last week, using rather more direct terms than Chinese Premier Wen Jiabao had used during Kim’s last visit in May, according to the official. Wen told Kim, “I’d like to introduce to you China’s experience in the reform and opening drive.”

But the official quoted Hu as saying, “Socialist modernization is based on China’s three-decade-long experience in reform and opening. Although self-reliance is important, economic development is inseparable from external cooperation.”

According to a Chinese official, Kim too directly used the terms “reform and opening”  this time. He reportedly told Hu, “Since its launch of the reform and opening drive, China has achieved rapid development.”

Up until recently, top Chinese leaders had regarded the terms as taboo words at bilateral summits for fear of upsetting North Korea’s delicate feelings, but Wen first broke the taboo in May, and Hu in his advice to Kim even used language such as “enterprise,” “market mechanism” and “external cooperation.”

A diplomatic source in Beijing said China’s insistence on talking about reform shows how concerned China is with the North’s mismanagement of the economy.

China’s business media made upbeat observations about the North turning toward reform, quoting Kim as saying he was “deeply impressed” after touring major cities in China’s northeastern region such as Changchun, Harbin and Jilin.

In an editorial Tuesday, the Global Times, a sister newspaper of China’s official People’s Daily, wrote, “Living in the shadows of South Korea, Japan and the U.S., North Korea has to wrap itself up tighter in order to fend off military threats, and threats of political and cultural infiltration. North Korea’s opening-up will help relieve tensions in Northeast Asia. But, the knot does not only lie on the North’s side. Other countries in this region must redouble their efforts to untangle the knot.”

It is unclear whether Kim will listen. The North Korean leadership is afraid of any reform that could weaken its stranglehold, and at the moment tight control is essential if the regime is to officially establish Kim Jong-il’s son Jong-un as his father’s heir.

Kim has paid lip-service to the Chinese economic development model before. After returning from a trip in the early 2000s, he introduced some timid elements of the market economy but swiftly clamped down when markets became too brisk and a new class of successful businesspeople began to look like a threat to his regime.

Han Ki-bum, a former deputy director of the National Intelligence Service in charge of North Korean affairs, in his doctoral thesis quotes Kim as telling economic officials in June 2008, “If you think I’m talking about reform and opening as if I were going to introduce the market economy you’re completely mistaken.”

At the moment, Kim apparently wishes to stick it out, but the North’s dire straits amid international sanctions will make it difficult to ignore Chinese demands.

At the meeting, Hu pointed out that economic cooperation between the two countries would be a “win-win strategy” where “the government takes the initiative, enterprises play a leading role, and the market mechanism is set in motion,” according to the South Korean official.

“That means that if China gives the North something, it should also pay in return,” a South Korean security official speculated.

Read the full story here:
Hu ‘Told Kim Jong-il It’s Time for Economic Reform’
Choson Ilbo
9/2/2010

According to Medical News Today:

In a country where good news is scarce, a pioneering agroforestry project in the Democratic People’s Republic of Korea is restoring heavily degraded landscapes and providing much-needed food for communities living on the sloping lands.

Jianchu Xu, East-Asia Coordinator for the World Agroforestry Centre, which has been providing technical expertise and training for the project since 2008, said agroforestry – in this case the growing of trees on sloping land – is uniquely suited to DPR Korea for addressing food security and protecting the environment.

“What we have managed to achieve so far has had a dramatic impact on people’s lives and the local environment,” Jianchu explains.

“Previously malnourished communities are now producing their own trees and growing chestnut, walnut, peaches, pears and other fruits and berries as well as medicinal bushes,” Jianchu explains. “They have more food and vitamins and are earning income through trading”.

Following the collapse of the socialist bloc in 1989 and a lack of subsidies for agriculture in DPR Korea, famine and malnutrition became widespread in rural areas.

DPR Korea is a harsh mountainous country where only 16% of the land area is suitable for cultivation. In desperation in the 1990s, people turned to the marginal sloping lands but this had a price: deforestation for cropping land and fuelwood left entire landscapes denuded and depleted of nutrients.

In an effort to reverse the situation, an innovative and pioneering project began in 2002 involving the Swiss Agency for Development and Cooperation (SDC) and Korea’s Ministry of Land and Environmental Protection. The World Agroforestry Centre was later brought in to provide technical advice.

Suan County has since expanded to 65 user groups in seven counties, with several hundred hectares of sloping land now under sustainable management. And the project is still growing.

A system of establishing user groups with one representative from each family has enabled demonstration plots to be set up and a large number of households to benefit from knowledge about growing multi-purpose trees. Such trees can improve and stabilize soils as well as provide fertilizer, fodder or fruits.

Most of the people farming the sloping lands are pension workers with little agricultural experience. The agroforestry systems they are now implementing and the techniques they have learnt are significantly increasing tree cover on the slopes as well giving them a diversity of crops.

Several of the user groups have started their own nurseries so that they can be self-sufficient and produce their own planting materials.

Initially a European consultant was engaged to provide advice on sloping land management, but in 2008 SDC brought the World Agroforestry Centre’s China office into the project.

“With similar experiences and history, our Chinese staff were well-placed to work in DPR Korea,” explains Jianchu. “It was important to have people with an understanding of the technical, institutional and socio-political context.”

There are very few international organizations operating in DPR Korea, and most of these are providing emergency relief. “With our strong focus on capacity development, we have established a good reputation,” adds Jianchu. So much so that the Centre is now negotiating a memorandum of understanding with the government and there are plans to establish an office in the country.

According to Jianchu, one of the most important aspects to ensuring the project is sustained is capacity development at all levels.

“As well as the user groups, we are providing training to multi-disciplinary working groups comprising representatives from the national academy, agricultural universities, forestry research and planning institutes, and staff of the Ministry.”

“There is an enormous need to improve knowledge and skills in DPR Korea in the area of natural resource management and to nurture young scientists,” says Jianchu. SDC is now investing in this area. Each year over the past few years, a handful of students from DPR Korea have undertaken studies with the Center for Mountain Ecosystem Studies, jointly run by the World Agroforestry Centre and the Chinese Academy of Sciences and hosted by the Kunming Institute of Botany in China. Some could be considered for a doctoral program in the future.

To further support the up-skilling of DPR Korea scientists and the up-scaling of agroforestry, the Centre will soon publish an agroforestry manual. Work is also underway on an agroforestry policy for sloping lands management and an agroforestry inventory.

Read the full story here:
Agroforestry A Success In North Korea
Medical News Today
Kate Langford
8/31/2010

According to the AFP (h/t NKnews.org):

North Korea will receive emergency aid from China amid reports that the impoverished country’s food crisis would worsen this year.

China has decided to provide an unspecified amount of “emergency relief materials” to North Korea, its official Korean Central News Agency (KCNA) said late today.

“This measure will encourage the Korean people in their efforts to recover from the flood damage as early as possible and more energetically step up the building of a thriving nation,” it said.

The report followed a message of sympathy from China’s president Hu Jintao to North Korean leader Kim Jong-Il.

In the message, quoted by KCNA, Hu expressed deep sympathy and consolation over “the sad news that some parts of your country were hit by severe flood recently, causing causalities and property losses”.

The North has reported widespread flooding this summer which washed away homes, roads, railways and farmland, causing an unspecified number of deaths.

Heavy downpours last week swelled the Yalu river, which forms part of the border between China and North Korea, sending water spilling over its banks on both sides and inundating homes, roads and farmland.

After decades of deforestation, the North is particularly vulnerable to flooding. In 2007, it reported at least 600 people dead or missing from devastating floods.

Aid groups warned that this year’s flooding would aggravate the North’s chronic food shortages.

The North suffered a famine in the mid-1990s which killed hundreds of thousands. The UN children’s fund estimates one third of children are stunted by malnutrition.

A bungled currency revaluation last November, designed to flush out entrepreneurs’ savings, backfired disastrously, fuelling food shortages and sparking rare outbreaks of unrest.

In 2008 South Korea suspended an annual rice shipment to its impoverished neighbour as relations soured.

For its part, South Korea has also offered to send assistance.  According to Yonhap:

South Korea’s Red Cross on Thursday proposed providing aid to North Korea to help the communist neighbor recover from recent flood damages, an official said.

The proposal was made in a message delivered to a inter-Korean office in the North Korean border town of Kaesong, a Unification Ministry official in Seoul said, declining to be identified.

The ministry said earlier in the day that it was considering allowing emergency relief assistance to North Korea, but did not elaborate. The North, which remains technically at war with the South, had to evacuate a large number of people when heavy rains raised the level of rivers on its border with China and flooded its towns earlier this month.

“It’s not just the people in the Sinuiju border area that we’re considering providing aid to,” a Red Cross official said by phone, declining to be named. “We will follow the examples of 2006 and 2007 when we provided help, but the scale of aid this year will be determined upon exact assessments.”

“The emergency aid will mainly consist of noodles, water, milk and the likes,” the ministry official said, ruling rice out.

The aid, if accepted, could open room for improvement in the inter-Korean relations, which have soured since South Korea blamed North Korea in May for the sinking of its warship. Pyongyang denies involvement in the sinking that killed 46 sailors.

Read the full stories here:
North Korea to receive aid from China
AFP
8/26/2010

S. Korea’s Red Cross proposes sending flood aid to N. Korea
Yonhap
Sam Kim
8/26/2010

According to an article in the Korea Times:

Approximately 100 small Chinese companies out of 150 that have investments in North Korea are based in Jilin and Liaoning Provinces near the northeastern border with the North.

Read the full story here:
Investments in NK limit China’s policy choices
Korea Times
Kang Hyun-kyung
8/20/2010

According to Reuters:

A northeast Chinese border city that is a key portal with isolated neighbour North Korea has launched a pilot scheme to settle export deals in China’s yuan currency, the city’s official newspaper said on Thursday.

North Korea’s struggling economy has come under greater strain after a chaotic attempt to re-denominate its currency last year hurt private traders and alarmed Chinese merchants.

The yuan’s trial use appears intended to boost Chinese exporters’ confidence in doing more above-the-table deals with the North, often a perilous gamble even in smoother times.

Many Chinese traders doing business with the North already use the yuan, dollar, euro in cash or even barter to settle export of food, clothes, appliances and other cheap goods in often informal or convoluted transactions. Smuggling and illicit deals are common along the border, marked by the Yalu River, a few dozen metres (feet) wide in many parts.

The Dandong Daily reported that approved exporters in Dandong will be able officially to carry out business in yuan.

The Chinese government announced in June that all of its trading partners would be able to invoice and settle imports and exports in yuan, but so far such transactions have been primarily confined to trade between China and Hong Kong.

“This means that state-designated export businesses in Dandong that engage in external trade can use the renminbi to settle transactions,” said the Chinese-language Dandong Daily (www.ddrb.cn) of the scheme, which began on Wednesday.

The renminbi is another name for the yuan.

“This will reduce exchange rate risks and the costs of doing business, and smooth out enjoying export tax rebate policies, as well as improving capital utilisation,” said the report.

The scheme will also cover approved small-scale exports passing through customs posts at Dandong, it said.

The new scheme will allow exporters to enjoy rebates and other benefits for trade, but will also depend on North Korean importers being allowed to deal legally in yuan.

Dandong lies on the Yalu, and at night its neon-lit riverfront faces the darkness of the electricity-starved North.

…

North Korea’s dependence on Chinese goods and aid has deepened as Pyongyang’s ties with South Korea have frayed.

According to Chinese customs data, in the first six months of 2010, China’s trade with North Korea was worth $1.3 billion (835.6 million pounds), a rise of 15.2 percent on the same time last year.

China’s exports to the North grew by a quarter, but its imports fell by 4.8 percent, the customs data show. As much as 70-80 percent of that trade passed through Dandong, according to earlier Chinese news reports, citing local customs officials.

Read the full story here:
China city launches yuan trade scheme with North Korea
Retuers
8/19/2010

According to the Daily NK:

Trade between North Korea and China for the first half of 2010 was $1.29 billion, a 16.8% increase over the corresponding period of last year.

Using Chinese customs statistics, the South Korean embassy in China revealed the details of Sino-North Korean trade on Monday. According to the statistics, North Korean exports to China fell by 1.1% in the same period to $350 million, while imports from China increased by 25.2% to $940 million.

As a result, North Korea’s trade deficit with China was $590 million, a 48.5% increase over the previous year.

According to the statistics, North Korea imported 140,000 tons of food, 300,000 tons of oil and 100,000 tons of fertilizer during the period. Notably, flour imports rose by 383%.

Reduced inter-Korean trade and other economic exchanges following the Cheonan sinking and reduced international humanitarian aid due to UN sanctions were two of the most significant causes of the burgeoning reliance upon China.

Read the full story here:
Sino-North Korean Trade Deficit Rises
Daily NK
8/16/2010

According to Reuters:

China said Thursday it had offered to help North Korea tackle cross-border crime — two months after North Korean soldiers killed three suspected Chinese smugglers, raising tensions between the allies.

Beijing, Pyongyang’s most important ally and trading partner, said it had handed over military equipment to North Korea’s National Defence Commission during a visit by China’s Deputy Public Security Minister Liu Jing on Sunday.

China said in a statement that it was willing to work with North Korea in cracking down on cross-border crime and building up its law enforcement forces.

The statement gave o details of what type of equipment China had provided or which type of crimes could be targeted.

Read the full story here:
China offers to help N.Korea crack down on crime
Reuters
8/12/2010

Accroding to the Choson Ilbo:

North Korea apparently offered a tour to the Mt. Kumgang resort to some 20  Chinese embassy staff last month but did not tell South Korea’s Hyundai Asan, which built the facilities there and has the exclusive right to run the tours. A Unification Ministry official said this was “a clear violation” of Hyundai’s operating rights.

According to the website of China’s Foreign Ministry, the officials toured the scenic mountain resort for three days from July 21 at the invitation of North Korea’s Foreign Ministry. The officials toured sites in Mt. Kumgang that require permission from Hyundai Asan. “The splendid peaks and strange rock formations of Manmulsang, the spectacular scenery of the Haekum River, the flowing waters of the Kuryong Falls… listening to the tour guide made us feel like we were in Shangri-La,” a participant wrote. There is also a photo of them in front of the Kuryong Falls.

In 2000, Hyundai Asan paid US$500 million to North Korea for the exclusive right to operate seven projects in the North, including tours to Mt. Kumgang. But Hyundai Asan said it was unaware of the tour for the Chinese diplomats. “When our tourism operations ran smoothly, North Korea always informed us when they were bringing guests into Mt. Kumgang,” a Hyundai Asan staffer said. “It’s objectionable that they offered the tour without notifying us.”

In April, North Korea froze real estate in Mt. Kumgang belonging to Hyundai Asan and the South Korean government and said it would allow Chinese travel agencies to operate tours to the resort. When a number of Chinese travel agencies began offering tours, the South Korean government and Hyundai Asan protested, and in May Culture and Tourism Minister Yu In-chon sent an official letter to the Chinese government explaining that the freeze was a breach of contract and asked Beijing to take the resort off the list of travel destinations.

“The fact that Chinese diplomats, who must have been aware of the delicate situation, visited Mt. Kumgang is simply puzzling,” a South Korean official said.

Read the full story here:
N.Korea Takes Chinese Diplomats on Mt. Kumgang Tour
Choson Ilbo
8/5/2010

According to the AFP:

North Korea has found Chinese partners to make up for losses in trade with South Korean firms, weakening the impact of Seoul’s measures to punish the communist country, a report said Sunday.

South Korea banned most cross-border trade in May after a multinational investigation concluded that a North Korean torpedo sank one of Seoul’s warships with the loss of 46 lives.

Before the ban was announced, the North had produced goods after receiving raw materials from more than 500 South Korean firms, Yonhap news agency said.

“After the South Korean companies became unable to send the raw materials, North Korean factories have been manufacturing products ordered by China,” a source familiar with North Korean affairs told Yonhap.

Seoul partially lifted the ban to allow South Korean firms to proceed on deals which had been signed earlier.

“North Koreans said they already signed contracts with Chinese firms and told us they will manufacture the orders from the Chinese side first,” the source was quoted as saying.

Most of the goods made on consignment trade with China are for export to Europe, Yonhap said.

The ban would cost the impoverished North hundreds of millions of dollars a year, a state think-tank here said last month.

Washington announced further sanctions last month to stop the North from selling nuclear weapons or related material as well as blocking money laundering and other illicit activities.

Read the full story:
Trade ban prompts N.Korea to find Chinese partners: report
AFP
8/1/2010

According to Bloomberg:

North Korea signed an economic and technical cooperation agreement with China today, a week after U.S. Secretary of State Hillary Clinton announced further trade sanctions to halt the regime’s nuclear-weapons program.

Liu Hongcai, the Chinese ambassador to North Korea, and Ri Ryong Nam, the nation’s Minister of Foreign Trade, signed the agreement during a ceremony held in Pyongyang, according to the state-run Korean Central News Agency. It didn’t elaborate.

Clinton announced sanctions that target government officials and the foreign banks that help sustain the North’s weapons industry during a visit to Seoul last week. The U.S. has backed South Korean claims that the North torpedoed one of its ships and has been pressing for an international effort to put more pressure on Kim Jong Il’s regime.

China has so far refused to condemn North Korea for the attack on the Cheonan, which killed 46 South Korean sailors. China accounted for 79 percent of the North’s 2009 international trade, according to the Seoul-based Korea Trade-Investment Promotion Agency. China provides almost 90 percent of energy imports and 45 percent of the country’s food, according to a July 2009 report by the New York-based Council on Foreign Relations.

China’s Foreign Ministry had no knowledge of the agreement and the Commerce Ministry didn’t immediately respond to a fax seeking comments.

Read the full story here:
North Korea, China Sign Agreement for Economic, Technological Cooperation
Bloomberg
7/29/2010