North Korean Economy Watch

Updated from an Earlier Post.

From the Daily NK:

China-N. Korea, Slow Progress in ‘the Tumen River Free Trade Region’ Construction
‘Road-Ports Integrating Plan’ Disappeared… because of Passive Attitude of N. Korea 
Han Young Jin, Reporter
8/23/2006

On the 21st, ‘Chizingsbao’, a website related to Chinese investment, reported that the projects to construct ‘the Tumen River Free Trade Region’ and integrate ‘Road-Ports’ have faced problems because of North Korea’s passive attitude.

In the article ‘Slow Progress in N.Korea-China Free Trade Region Construction’, this website illustrated that, “A half year ago, the projects to construct free trade regions for foreign trades in Tomen and integrate “Road-Ports between China and N. Korea” had been hot issues. Yet now nobody talks about them.”

China has ambitiously carried out the project ‘Integrating Road-Ports between China and N. Korea’ that links Najin Port to Hunchun City adjoining three countries North Korea, China and Russia to reinvigorate foreign trades.

In the meanwhile, Tumen City has set up building ‘N. Korea-China Free Trade Regions’ in Rodongja district of Namyang, North Korea.

Cheng Guoli, vice-director of the Department of Temen Commerce, stated that, “We already got an approval to build free trade regions from the government of Jilin. As we know, officials of Onsung district also consented on the free trade region construction and reported to the North Korean government.”

However, he said that, “We have been waiting for a certain action of North Korea, yet until now no progress”.

In the website, Cheng Guoli revealed, “Tumen City will contract the construction of free trade regions to one company,” yet adding “revealing the name of the company is premature”.

Hunchun City also is in the same situation. Donglim Public Economic Trade Corporation promoting the project ‘Road-Ports between China and N. Korea’ revealed that, “We have prepared the construction of the integration, yet North Korea has not taken any actions for that.”

Donglim Public Economic Trade Corporation that was entrusted with the ‘Road-Ports between China and N. Korea’ made a contract with Nasun People’s committee, North Korea last July, and Bosae Public Incorporated Corporation of Hunchun Economic frontier also jointed the construct.

Donglim Public Economic Trade Corporation had set up the Huchun-Najin road construction under the collaboration with Design Center of Hunan University. It was to build a second rank road at 48km in length, yet North Korea did not even start on the construction yet.

Policy Forum Online 06-70A: August 23rd, 2006
DPRK’s Reform and Sino-DPRK Economic Cooperation

Analysis by Li Dunqiu
CONTENTS

I. Introduction
II. Analysis by Yi Li Dunqiu
——————————————————————————–
I. Introduction
Li Dunqiu, Director of Division of Korean Peninsular Studies at the Institute of World Development Center of Development Studies, writes, “Sino-DPRK economic cooperation is growing in depth and width but both sides adopt a low-profile and practical attitude… In fact Chinese enterprises, both private and state-owned, are looking for greater room for their future development as a result of the constantly improving market economy in China. Amid such backdrop, the DPRK naturally becomes their target…It is not difficult to see that laws of the market economy are the most fundamental reason behind Chinese enterprises’ investment in DPRK.”

The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Nautilus Institute. Readers should note that Nautilus seeks a diversity of views and opinions on contentious topics in order to identify common ground.

II. Analysis by Li Dunqiu
– DPRK’s Reform and Sino-DPRK Economic Cooperation
by Li Dunqiu
DPRK’s change is by no means accidental. It has its profound international and domestic backgrounds. DPRK has made tremendous efforts in shackling off the shadow of the Cold War and integrating into the constantly changing international community, but with little result. Leaders of DPRK have no choice but to explore a new way that suits its country. Amid this backdrop, DPRK is slowly but steadily promoting its reform, which is low-profile but pragmatic.

From the end of 1990s, DPRK has begun to make adjustments to its economic theories and policies, putting forward such new views and propositions as pragmatism, building a strong socialist country, focusing science and technology, new concepts and improving economic management modes. A series of “Measures to Improve Economic Management Order” was issued on 1 July 2002. The adjustment this time, comparing with previous ones, was strong in enforcement and wide in the areas involved, thus injecting new impetus in its economic recovery and development. Though DPRK’s economic reform is only introducing rational elements of the market economy to make up pitfalls of its planned economy with the prerequisite of adhering to the latter, it should be commended as a major innovation in DPRK’s theories and practice in building socialism. Early this year, we saw new phenomenon from the DPRK side. It started with Kim Jong Il ‘s visit to China accompanied by premiers of the State Council in mid-January to learn the successful experience of China’s reform and opening up, followed by Chang Song-taek’s eleven-day China inspection tour accompanied by over thirty high-ranking economic officials, and then Cabinet Premier Pak Pong Ju’s elaboration of this year main tasks in economic work on the Fourth Plenary Session of the Eleventh Supreme People’s Congress. These new changes were not only widely reported but also aroused great interest among the international community in the country’s economic changes.

I. DPRK’s Guiding Principle Undergoing Quiet Changes.

Basic Theories of DPRK’s Economic Reform

At present DPRK has not yet established systemic theories to guide its economic reform. But Chairman Kim Jong Il has proposed new ideas which have become the basis for its economic reform.

Pragmatism

It was first proposed by Kim Jong Il after he became General Secretary of the DPRK Labor Party. There is no works which systematically elaborates Pragmatism. But according to economists from DPRK, pragmatism has two meanings, i.e. to bring actual benefits for the people, and to be profit-oriented instead of suffering losses. The former is the principle while the latter is the detailed content.

To follow the rule of pragmatism in economy is to seek economic benefits and for companies to make profits. To this end, the Fiscal Law amended by DPRK in April 2004 changed the ultimate goal of companies from “reducing cost” to “increasing net income”, so as to help them be profit-oriented. At present, pragmatism is the principle that must be followed in all DPRK’s economic work. Its economists have vividly compared it with China’s “seeking truth from facts”. It is fair to say that pragmatism will become theoretic basis for people in DPRK to liberate their minds and promote economic reform.

Theory with Economic Development at the Core

The strategy that DPRK has established with economic development at the core is mainly embodied in its goal of “building a strong socialist country”. Entering into the new century, DPRK has proposed three targets including building its country into a strong military, political and economic power. It maintains that it has already achieved the first two with the third one yet to achieve. As a result, the goal of “building a strong socialist country” means that economic development is its core task at the moment.

Theory of “New Thinking”

Labor News, DPRK People’s Army and Young Pioneers DPRK, in their joint editorials on the New Year Day of 2001, put forward the “new thinking”, stressing that “priorities at the moment were fundamental changes in ideas, ways of thinking, styles of struggle and work to meet requirements of the modern times”. Chairman Kim Jong Il also pointed out that, having entered the modern times, it is necessary to update thinking according to the new times instead of living the old way on the basis of the past, and that they should boldly abandon those that should be abandoned instead of being restricted to the old ideas and sticking to the past and the outdated. “In the 21st century efforts should be made to approach and solve all questions with new ideas and from new height.” In addition, DPRK’s Labor News pointed it out in its editorials that “they should be bold in reform”, “further improve DPRK’s economic management system to meet the requirement of the new environment and new atmosphere”, and that priorities for the Labor Party in the 21st century is to ensure that the ideas, ways of thinking and working styles conform with the requirement of the new century.

Approach the Word “Reform” with Prudence

Though DPRK introduced elements of the market economy through constitutional amendments in 1998 and consequently adopted some reform measures, it strongly dislikes such words as “reform” and “opening up” and they are forbidden in the adjustment of its economic policies.

Despite this, the essence is “reform”, though different in word, evidenced in their newly issued policies for economic adjustment which were targeted at the outdated demands and practices that were divorced from reality. DPRK’s Labor News pointed it out in an article entitled “On the Rules of Socialist Economic Development” on 21 November 2001 that “those who manage the economy, i.e. people of DPRK, do not have enough experience, there are still room for improvement and perfection due to short history of socialism, and that the economy cannot be developed if those that are outdated, backward and separated from reality are not abandoned.” It is clear that this kind of “abandoning” has the implication of “reform”. Therefore it is reform unsuitable for DPRK instead “reform” itself that it is opposed to. In fact it is nonetheless progressing with economic reform both in theory and in practice in spite of it all. It was not until June 2003 that DPRK’s Central News Agency finally used the word “reform” though it quickly dropped the word again. The reason behind its prudence with the word “reform” is because it once openly expressed its opposition to and criticism against reform in China and former Soviet Union in its major official media.

Learn Reform Experience from Foreign Countries

DPRK’s supreme leader Kim Jong Il has visited China for four times since 2000, most of which were aimed at inspecting China’s economy. His unofficial visit to China from 10 to 18 January 2006 and inspection of China’s economic work in Beijing, Hubei and Guangdong Provinces attracted great attention from the international community.

The nine-day visit in China was rich in content, clear in objective and profound in significance. Kim brought his team to Beijing, Wuhan, Yichang, Guangzhou, Zhuhai, Shenzhen and they listened carefully to introductions made by government officials and companies managers in those provinces and cities, with the aim of learning and drawing upon China’s experience. He was deeply touched and impressed and even had “sleepless night” when he arrived in Beijing following the tour in China’s south. He said that he was unwilling to see the current situation in DPRK and hoped to see further progress in its economic and social development by absorbing the vigor and vitality from the market economy while continuing its planned economy; that he hoped to learn from China and do a good job in DPRK’s future economic development by combining its national conditions with actual situation. It was the first time for him to voice such opinions, indicating that leaders of DPRK were transforming their mode of thinking, acknowledging and accepting China’s development concepts; and that they were exploring laws of economic development in order to prepare for profound and comprehensive reform with DPRK style.

It is more important to note that the visit gave him a chance to see the fact that China’s reform had neither weakened the leading role of the Chinese Communist Party nor aroused social upheaval. It had instead enhanced the reputation of the Communist Party and its international influence, which removed his worry that reform and opening up might undermine the stability of the authorities. Shock waves continued among the high-level officials after he came back from the visit. Unprecedented views were voiced and new explanations made on major theoretic questions like what was socialism, how to evaluate capitalism. High-level officials were asked to theoretically keep abreast with the times and unify their thinking.

Only two months later, Chang Song-taek, First Deputy Minister of the Department of People’s Group and Capital Construction of the Central Committee of the DPRK Labor Party, headed an “expert team” of over thirty high-ranking economic officials to the places that Kim had just visited. His 11-day visit was yet another demonstration of DPRK’s aspiration to learn from China. In addition, DPRK also sent various economic delegations to China to study its experience in reform. It started to send trainees to China, Viet Nam and countries in Europe since its economic reform in 2002, equipping them with knowledge of market economy, finance, trade and hi-tech in particular. It thus started its nationwide campaign from the top down to study economics.

II. DPRK’s Economy and Current Policy Options

From 2000 DPRK has gained positive economic growth from the previous negative one. Of course the rate was very low, around 0.5%–1% for six years in running. Some estimated that growth rate in 2005 reached 2%, an opinion shared by some DPRK officials though genuine figures were hard to obtain in the country. DPRK’s economy has recovered and is poised to continue its steady growth in 2006.

There are two sets of mechanisms in DPRK, i.e. the military and the civilian. The most important economic sectors are controlled by the military, a noticeable feature of its economy. Strength and efficiency of the factories run by the military are higher than their civilian counterparts. Take the Taean Glass Factory for example. It was built with the assistance of the Chinese Government. At first a civilian factory was designated but its workers were low in efficiency and poor in quality, with which the Chinese side became dissatisfied. Consequently a military factory took up the role and all went well afterwards. With good cooperation, the project was successfully completed. This example showed that talents of economic development are mostly with DPRK’s military. It is therefore, like China in its first phase of reform and opening up, formulating policy to transform some military factories into civilian ones to support local economic growth.

All signs show that economic work has become the priority of DPRK. Leaders of the country and the Labor Party are concentrating their time and efforts on economic work. Main measures for this year are as follows:

Agriculture is the main task of this year’s economic development.

The Fourth Plenary Session of the Eleventh Supreme People’s Congress was convened on 11 April, on which Premier Pak Pong Ju delivered a report entitled Review of Work in 2005 and Plan for 2006. He stressed that the central task of the economic development for this year was “to develop agriculture in a decisive manner to successfully solve the food problem for the people in DPRK”.

In recent years DPRK has always taken agriculture as the “primary task” of its economic development. In order to solve food shortage it launched “Potato Revolution” and “Seed Revolution” in 2001, advocating the growth of agricultural crops with short mature periods and great harvests. Agricultural technicians cultivated new breeds of potatoes with no virus and high yields, in order to “supplement rice with potatoes”. Thanks to increased government input in agricultural production and development in agricultural science and technology, grain production has risen in recent years, reaching 4.6 million tons in 2005, the highest in ten years. With experience accumulated and benefit gained, DPRK has realized the importance of agriculture. It will continue to take it as the priority and central task of this year’s economic work. It is especially notable that when Kim Jong Il visited China last January, he went to the Crop Institute of the Chinese Academy of Agricultural Science, a sign which fully vindicated the importance attached to agricultural science and technology.

Work Hard to Develop Foreign Trade and Attract Foreign Investment.

Premier Pak Pong Ju stressed in his above-mentioned report that it was necessary to work hard to develop foreign trade and actively explore foreign markets to achieve diversification and multi-lateralization of trade in accordance with the changing environment and practical demands. DPRK has enhanced foreign trade up to an unprecedented height, which was a new change itself. Though US had begun its financial sanction against DPRK since the end of last year, its foreign trade increased by a large margin in 2005, reaching 3 billion USD in total, the highest since 1991. Trade between DPRK and ROK reached 1.05 billion USD in 2005 and this figure was not included in the total volume. It is estimated that this year DPRK will actively explore new markets in the EU and ASEAN countries while continuing to grow its trade with China and ROK.

China is DPRK’s largest trading partner. Sino-DPRK trade reached a historic high at 1.58 billion USD in 2005, up 14%. China’s export accounted for two thirds of its total. DPRK mainly imported food and energy from China, up by 35.2% annually and reaching 1.08 billion USD in 2005. Growth in Sino-DPRK trade was partly attributed to decrease in bilateral trade between DPRK and Japan, which stood at 0.194 billion USD in 2005, down by 23%.

Meanwhile DPRK is working actively to introduce foreign investment, including capital and technology. It organized two international commodities fairs, one in the 1980s and the other in the 1990s, to be followed by annual fairs every spring since 2000. The fairs were then held twice every year since 2005, one in spring and one in autumn.

The 9th Pyongyang Spring International Fair was grandly held from 15 to 18 May 2006. The total area of the exhibition hall was 16.5 thousand sq meters and it hosted 217 companies from 13 countries and regions in the world including China, the Netherlands, France and Germany. Products on display ranged from chemicals, electronics, pesticides, agricultural machines to cosmetics, pharmaceuticals and foods. Of the 196 foreign participating companies, 179 were Chinese, with 80% from China’s Liaoning Province. Contractual value topped 100 million Euros.

Ms Choe Lian-shi, Division Chief of DPRK’s Bureau of International Exhibition, said in her interview with the Xinhua New Agency that the main purpose for such fair was to help DPRK companies to know the world and for the world to know DPRK’s market. It was also to help DPRK companies establish links with their foreign counterparts in order to promote export, explore international markets and introduce advanced foreign technology to promote its economic development.

She pointed out that during the fair held last year, contracts, both for import and export and joint ventures, valued 70 million Euro, among which, export contracts amounting 30 million Euro, import contracts 32 million Euro and joint venture 8 million Euro.

She also stressed that Chinese companies took up the bulk of the participants. They came this time with the China Committee for the Promotion of International Trade, which made them more orderly and organized. All this showed that economic relations between China and DPRK were constantly developing and trade has become more active.

Apart from this DPRK also cooperates with the relevant sides in China to hold commodity fair and trade and investment talks in Beijing, Dandong and other cities in China several times a year.

Recently DPRK has organized some companies suitable for foreign markets to go outside the country to conduct foreign trade and economic cooperation. Construction companies in DPRK like Foreign Construction Co. sent thousands of experts and technicians to scores of countries and regions including Russia, Bangladesh, Kuwait and Libya to engage in project and labor contracting. Mansudae Overseas Development Group undertook to build bronze statues, monuments and other works of arts, and fit out buildings and parks in over 70 countries and regions to earn foreign currencies for the country. President statues in the seven African countries like Equatorial Guinea, Togo and Gabon, monument of the people’s heroes in Ethiopia, and the grain museum in Malaysia were all works of the company. DPRK Industrial Tech Co. opened branches in China and other countries to conduct trade in new technology, inventions and patents by replying on the institute and production bases attached to DPRK’s Academy of Sciences.

Improve Modes of Economic Management

Premier Pak Pong Ju also stressed in the report that efforts should be made to improve modes of economic management, to ensure practical benefits while reflecting socialist principles. DPRK has carried out factory and company reform through market price instead of planned price. It will also partially give up the state plan in production and sale. These measures are not only suitable for small- and medium-sized factories and enterprises but also for large-sized ones. Governments may purchase products from them according to market prices. They are also allowed to introduce foreign capital, establish joint-ventures or earn profits through trade within their capacity.

Speed up Development of Science and Technology

Another agenda of the Fourth Plenary Session of the Eleventh Supreme People’s Congress was extremely noticeable. It was the report entitled Speed up Development of Science and Technology to Build a Strong and Prosperous Country, delivered by Choe Thae Bok, Secretary General of the Central Committee of DPRK’s Labor Party. Development of Science and Technology as one of the priorities of DPRK’s future development, the report was regarded as indication of the importance attached to science and technology development and its aspiration to embrace the information society. A strategic goal of its science and technology development is to become a major software country by 2022.

It is not common for DPRK’s Supreme People’s Congress, its highest body of power, to add on the agenda the development of science and technology. Media in DPRK have stressed on many occasions that the 21st century is a century of science and technology and a century of information, and that without the development of science and development it is impossible to achieve the goal of “building a strong and prosperous country”. The Supreme People’s Congress deliberated carefully and adopted the report, fully testifying its importance on science and technology and the fact that science and technology development had become a nationwide consensus.

Special Economic Zones remains an important option for DPRK.

Kae-song Industrial Park is a successful cooperation between DPRK and ROK and the two sides have decided to expand its scale on the current basis. Covering an area of 10,000 sq meters, it is planned to expand to 1 million sq meters. Many small- and medium-sized enterprises in ROK intend to invest and start business in the park as labor price in China’s coastal region in the south east is rising. Products manufactured there can be regarded as ROK-made and exported to a third country.

The DPRK Government might copy China’s special economic zones to establish new such zones along the border areas between China and DPRK. It is reported that DPRK planned to establish a new economic zone on the Bidan Island on the lower reaches of the Yalu River and build it into a future financial center. The establishment of such zones remains an important option for DPRK but it is also very prudent due to previous failure.

III. DPRK’s Energy and Mineral Recourses

DPRK has severe shortage of energy, especially oil. 90% of its oil supply comes from China. It also has oil trade with Russia but the amount is trivial as it does not have enough foreign currency. Russian oil companies sell oil to DPRK at price lower than international market price. DPRK has almost no oil reserve to speak of. It is currently working actively with China to exploit oil in its West Sea.

Electricity is also in short supply in DPRK though its supply is slightly better compared to oil. DPRK is rich in water recourses so the Government tries to develop small hydro power stations. And in accordance with the principle of those who develop will benefit, local governments are encouraged to build such projects according to their own conditions, and with good results. It is claimed by DPRK officials that the country is in fact equipped with conditions to build large hydro power stations. That’s why Kim Jong Il and other high-level officials in DPRK visited China’s Three Gorges Hydro Power Project in Yichang early this year. But because of its tension with US and its fear of conflicts or wars, the Government only encourages small- and medium-sized hydro power stations before its relations with US has improved. In addition, it also stresses thermal power since it is rich in coal and able to provide sufficient fuel. Consumption of coal ranks the first among all energy, to be followed by hydro power.

DPRK is now studying new energy and hopes to convert it into actual use in production and life, i.e. solar power and biogas.

There are four important recourses in DPRK: rich forest resources; important mineral resources like abundant coal, iron ore, graphite, gold, silver, lead, zinc, magnesite, all of which now allow the participation of foreign companies; 8600-kilometer coasts with no pollution, which are rare in the world and hold great potentials for fishing, aqua-culture, processing of sea food once foreign capital and technology are channeled in; rich tourist resources, that may become one of its future pillar industries.

DPRK has abundant mineral recourses, with over 360 kinds confirmed and 200 kinds economically viable. It is noticeable that the reserve of its magnisite ranks the first in the world, accounting for 56% of the world’s total. Its top ten minerals include tungsten, molybdenum, graphite, heavy spar and fluorite. The reserve of copper and ilmenite is calculated in tens of millions of tons and that of white jade, jadeite, black jade and sand jade is also abundant. Since it has such a large reserve of metal and energy mines, 70% of its industrial raw materials and fuels are self-sufficient. But there is no oil and pitch coal (raw material for charcoal), both of which are necessary for iron and steel industry though anthracite and brown coal are abundant. Coal, iron ore, lead and zinc core, limestone and magnisite take up the bulk of DPRK’s mineral industry but only 30% of the capacity is utilized due to restrictions of outdated equipment and poor technology. Iron ore is exploited in over 20 mines represented by Musan Mine. With a reserve of 1 billion tons, it is a famous open mine in the world and the largest in a country with an iron output of 8 million tons. Production of iron ore grew by 2-3% since 1970s, as a result of expansion and development of iron mines. But the growth has slowed down recently due to poor results of prospecting and outdated equipment. Foreign capital is now being introduced.

DPRK’s coal is divided into anthracite and bituminous coal. The former is mainly located in Pyongan-namdo and Pyongan-bukto while the latter in Hamgyong-bukto and Hamgyong-namdo. According to administrative division, there are four major coal mines in DPRK, namely Pyongan-namdo Mine, Pyongan-bukto Mine, Hamgyong-bukto Mine and Hamgyong-namdo. Currently there are over 100 national coal mines, 70 anthracite mines and 30 bituminous coal mines, and over 500 small- and medium-sized local mines.

In the 80-kilometer belt in the south of Pyongan-namdo stretching from east to west with Pyongyang at the center, the reserve of anthracite is abundant. Notable mines include Samsin (Samsindon, Daefon-gu) , Sadon (Sadon-gu), Ryongzen (Ryongzen-gu), Haelyong (Ladonza-gu, Haelyong, Gangdon-gun), Gangdon (Gangdon-gun), Gangso (Gangso-gun), Zencun (Zencun-gun), Wonstun (Wonstun-gun). There is anthracite in 668 sq kilometers in the north of Pyongan-namdo. Main coal mines there include those in Donstun, Syongbun, Jaenam, Joyang of Ganstun, Ganstun, Bonstun, Yamzum, Wyonlae, Xinlyon, Sonam of Bugstun-gun, Xiandon, Xinstun of Ensam-gun, Stunzen, Yongdae, Sunstun, Mujindae, Gigdon, and Ryongden, Ryongmun and Ryongcel of Kujang-gun, P’y?ngan-bukto.

Bituminous coal is mostly concentrated in the North Mine (north of Aoji) and South Mine (south of Chongjin) in Hamgyong-bukto and Anju Mine in Pyongan-namdo. Largest coal mines in the north include Aoji Mine in Undok-kun, Obun Mine in Musam, Hue Ryon Mine. There are seven ore strata that are 2-5 meters in depth in Anju Mine, producing brown coal of 5300kcal. With an annual output of 7 million tons, it is thus the largest mine in DPRK.

DPRK’s proven coal deposits are 14.74 billion tons, 11.74 being anthracite and 3 billion tons brown coal. Recoverable reserve, allowed by the current technology, is about 7.9 billion tons. Its coal production has dropped since the end of 1980s due to restrictions of technology and equipment. (See the table below for annual production since the 1980s)

*Unit: 10,000 tons

IV. Rapid Growth of Sino-DPRK Trade and Economic Cooperation

Sino-DPRK trade and economic cooperation grows at an eye-catching pace. With trade accounting for 40% of its total and investment 70%, China has thus become DPRK’s largest trading partner and source of investment. DPRK has been more dependent on China in food and energy supply. Main ports between the two countries have become or are becoming major vehicles of bilateral trade and economic cooperation. The friendly visit by Chinese President Hu Jintao to DPRK in October 2005 and Kim Jong Il’s China visit in January this year have further promoted political and economic cooperation between the two countries and injected new impetus in bilateral trade.

Trade between China and DPRK has increased by 14%, reaching 1.6 billion USD. DPRK import commodities like oil and corn from China, worth 1 billion USD, and export commodities like coal and iron ore to China, worth 0.5 billion USD. According to the statistics from Dandong Customs, 1.86 million tons of import and export went through the Dandong Port in 2005 at a value of 0.84 billion USD, up both in quantity and value by 10%, with 0.45 billion USD in China’s favor. It is estimated that DPRK will continue to expand trade with China this year. The two countries have planned to build a new road bridge across the Yalu River to meet the demands of the constantly growing trade.

Sino-DPRK Trade Volume from 1997 to 2005

*Unit: 100 million USD

Year DPRK’s Total Foreign Trade DPRK’s Trade with China China’s Export China’s Import

In recent years Chinese businessmen have accelerated their investment in DPRK. Those who took the lead in investing DPRK mainly came from Zhejiang, Jilin, Liaoning, Jiangsu and Guangdong Provinces with Zhejiang businessmen taking up the bulk. In 2003, 40 businessmen from Wenzhou, Yiwu, Dongyang, Cixi and Hangzhou headed by Lu Yunlei, agreed on cooperation intent with the operators of Pyongyang No. 1 Store. Guhui Trading Co. lead by Lu, obtained, unexpectedly, operating right of 15,000 sq meters of the store and corresponding 9,000 sq meters of warehouse. The deal was signed on 6 August 2003. Lu commented that what he valued was the market potentials in a country that was opening up. Lu also disclosed that he would invest several million of RMB to renovate the store and that operating space in the store would cover 10,000 sq meters, divided into over 300 booths to be further rented to Chinese businessmen to wholesale and retail small Chinese commodities, daily necessities in particular. The Zhejiang businessman commented opportunities in DPRK like this: “It is better to have our presence in the country but don’t expect too much from the first phase”.

It was the private companies that gave rise to the first wave of investing in DPRK. The second wave in 2005 was mostly generated by large state-owned enterprises, in areas like heavy industry, energy, mineral recourses and transportation, different from the first one.

At present DPRK has agreed to the joint-venture between China National Metals and Minerals Import and Export Corporation and its ??Coal Mine. This is not only the first established by China outside DPRK’s special economic zone but also represents an important measure by DPRK to open its recourses. Rydongden Coal Mine is the largest anthracite mine in DPRK. Covering an area of 18.8 sq kilometers, it has a reserve of 0.15 billion ton, 0.125 billion of which is recoverable. Its annual output is 1 million tons, equal to a medium-sized coal mine in China.

According to report issued by the Development and Reform Committee of Jilin, the province has reached a “barter” agreement with DPRK, transmitting electricity to the country in exchange of the mining rights of its Youth Copper Mine. With a total investment of 0.22 billion RMB, it is a typical experiment by DPRK to exchange electricity with mineral recourses. Jinlin Tonghua Iron and Steel Group will obtain 50-year mining rights in Musan Iron, the largest in DPRK, at a price of 7 billion RMB. Musan Iron, located in Hamgyong-bukto is the largest open mine in Asia, with proven reserve of iron powder about 7 billion tons. With iron content as high as 66%, it is able to be smelted directly.

Gold reserves in DPRK are also very rich. Guoda Gold Shareholding Co. Ltd., in Zhaoyuan, Shandong Province signed an agreement in 2004 with DPRK on gold exploration and smelting project. According to the agreement, a joint-venture would be set up for gold mining in ??? and bring back the ore to the company for smelting. ??? Gold Mine, which was set up quite early, has a considerable reserve and at least 150 tons can be recoverabled. But due to the lack of capital and outdated technology, operation of the mine has been at a standstill.

In September 2005 DPRK sold the 50-year exclusive operating rights of Najin wharf to Huichun, Jilin, in order to get the latter’s support for building a road from Tongsungu, Wonstunli, Kasung-si, to Najin Port. Sources from the Administrative Committee of the Border Economic Cooperation Zone in Huichun, Jilin, disclosed that the sale this time of the wharf in Najin Port was more of a corporate instead of government act. It was said that Fan Yingsheng, a real estate developer from Hunan, was the mastermind behind the deal and he alone would channel half of the 60 million Euro in payment.

Capital from Hong Kong is also coming. Early investments were mainly channeled to hotels, restaurants and the entertainment industry. But according to a recent report from Hong Kong media, a local businessman Qian Haoming reached a 3-billion USD agreement with the DPRK Government and China’s Ministry of Railway to build a railway from Tumen, border city in China, to Chongjin, port in DPRK. The agreement signifies that the deadlock between railway authorities of the two countries is being broken. There used to be three pending questions with the DPRK railway, i.e. overstock, arrears and withholding of Chinese cargo carriages. This forced the Chinese railway authority to take measures to restrict transportation between the two countries, like intermittent loading and goods limits. Statistics show that over 2000 carriages were held up in DPRK in 2004, 260 of which were for coal. It is reported that Hong Kong International Industry Development Co. Ltd., headed by Qian Haoming, promised to provide 500 to 1000 carriages to DPRK as required by the agreement.

Preliminary agreements have been reached at the moment between China and DPRK concerning minerals, railway and port lease. Sino-DPRK economic cooperation is growing in depth and width but both sides adopt a low-profile and practical attitude. It is necessary to point out that such development has aroused concern from relevant countries in North East Asia, which mistake China for having political motives. In fact Chinese enterprises, both private and state-owned, are looking for greater room for their future development as a result of the constantly improving market economy in China. Amid such backdrop, neighboring country DPRK naturally becomes their target. There are plenty of Chinese enterprises with strength ready to come into DPRK, more active than the government policy allows. During the National People’s Congress last march, delegates from local enterprises proposed a motion to the Central Government, calling for policy and legal guarantees for expanded and deepened economic cooperation with DPRK, including the establishment of special economic zones and free trade areas. It is not difficult to see that laws of the market economy are the most fundamental reason behind Chinese enterprises’ investment in DPRK.

From the Joon Ang Daily:

Ties sour at North’s China border

Signs of discontent between those two closest of allies, China and North Korea, have begun to appear. Last month, despite Chinese urging, North Korea fired off a test salvo of seven missiles. Although the tests were generally considered to be a bid for international attention, they provided Japan with more domestic ammunition to change its constitutional bar on warfare as an instrument of national policy, a development China does not see as in its interests.

Some suggestions of those cooling ties can be seen in this Chinese border city. Recently, about 40 North Korean women were waiting in front of the customs office in preparation for returning to North Korea. One of the women said Chinese authorities had order the women, who had worked at a stuffed-toy factory, out of the country.

“We received a three-year approval originally to work there, but after less than a year we are going back,” the woman said. Customs officials said the women were working illegally, but other people here were skeptical. One noted that many Russians have no problems because of a lack of work papers. “When relations between China and North Korea were good, there were no problems,” one said. “These incidents are in line with the cooling ties in light of the North Korean missile launch.”

In all, about 300 North Koreans have been told to leave Dandung for their homeland. The head of a trading company here, who has been dealing with North Korea for 10 years, said another 300 North Koreans will be sent home from Dandung within a month.

A source in Beijing said the Labor Ministry headquarters told its subordinate offices earlier this month not to issue work permits to North Koreans who carry passports and visas issued to government officials. “In the past, these people were allowed to work, and given the fact that they already have a visa, this measure is probably a retaliatory move by Beijing,” this source said.

A South Korean trader with ties to the North and China said that custom checks at the border have been increased, resulting in longer delays in shipping goods. The Dandung Customs Office said concerns about drug trafficking was the reason for stepped-up measures, an explanation that some residents here say has no precedent.  

From the Daily NK:
8/17/2006

National Defense Commission’s Inspection Task Force Dispatched to Sino-Korean Border
By Kim Young Jin, Yanji of China
 
An inspection task force under the National Defense Commission (NDC) is deployed on the Sino-Korean border in order to review border security and to check defection from North Korea to China.

Kim Choon Il (a false name), a 36-year-old defector living in South Korea since 2003, said on Wednesday that in a telephone conversation with his family in North Korea on Tuesday, he was told that NDC’s inspection team came to the border area since the end of last July and inspection became much tighter.

Kim also said that the inspection task force, cooperating with local Workers’ Party office, National Security Agency, and police, blocked the Sino-Korean border.

This inspection task force is under the control of the highest state organ NDC, which surpasses the power of other previous inspection squads organized under the lesser authority.

Since the task force is directly responsible to Kim Jong Il, it is expected that the task force is granted some specific inspection guideline.

The NDC inspection squad was deployed after the UN resolution on North Korean missile crisis was passed. Also it was immediately after a flood killed thousands and created hundreds of thousands victims who lost their homes.

Dispatch of the inspection team is a measure against infiltration of outside ideology and culture and also to prevent massive defection due to recent internal and external crises.

North Korean authority sent a party inspection team to the border area in 1992 after China and South Korea normalized diplomatic relationship. Also, as the number of defectors increased since then, another inspection team under the combined control of five departments (army, security agency, prosecutor’s office, police and party) was sent.

NDC’s dispatch of an inspection task force represents the highest authority’s distrust of previous inspection teams’ activities. It’s been pointed out that due to corruption and bribery previous inspection squads were unable to root out crimes.

According to inside sources, NDC inspection task force’s primary mission is to thwart defection, leak of documents, infiltration of outsiders, guns trafficking and any other anti-socialist activities. It is confirmed that in Sino-Korean border area not only drug and counterfeit dollar bills but also guns and ammunition are smuggled.

The informant also reported that it is ordered illegal defectors and their families to be deported, and infiltrators from outside and missionaries to be executed publicly.

According to Han, a defector living in Inchon, South Korea, who is aiding North Korean refugee in China, among those who suffered flood, an increased number of them wants to escape to China or South Korea.

I stole this from Wikipedia: 

SiliBank is a financial institution based in Shenyang, Liaoning, China, closely related to the Democratic People’s Republic of Korea (DPRK).

The name “sili” means “true profit” in both Chinese and Korean.

In 2001 the bank began offering a limited electronic mail relay service to and from North Korea where Internet access with outside is limited. Along with Chesin.com, SiliBank appears to be one of only two e-mail gates to DPRK.

SiliBank maintains dedicated servers in Pyongyang and Shenyang, between which e-mail transmissions are exchanged once every 10 minutes (when the service commenced, this was hourly).

The fee for sending an e-mail to North Korea from abroad (as of May 10, 2003) costs 10 Eurocents per kilobyte for up to 40 kilobytes, and 0.2 Eurocents for each additional kilobyte in each e-mail transmission. The minimum charge per e-mail is 1 Euro. Customers must first pre-register with SiliBank with prepayment for estimated usage over a three-month period. SiliBank only allows e-mail relay between registered users of this service.

From the Donga:

China Fencing Border With N. Korea
8/12/2006

It was confirmed on August 11 that China has been building wires along its border with North Korea, around the source of the Duman River near Mt. Baekdu.

Speculations are that the wires are meant to prevent defection of North Koreans to China, or that they are aimed at drawing a clear Sino-Korea borderline in an apparent attempt to incorporate an ancient Korean kingdom into a Chinese historical timeline.

The border between North Korea and China has so far been marked with 21 boundary stones from Mt. Baekdu to the source of the Duman River.

The Chinese government was alleged to have kept fencing since the end of 2004 to prevent North Korean residents from defecting to China, but this is the first confirmation that the wires are actually in place near the mountain and the upper Duman River.

The wires are a series of 1.5 to 1.7 meters high and two to three meters wide T-shaped concrete pillars, similar to those along the Military Demarcation Line on the Korean peninsular.

Beijing reportedly claimed that the fence is there to stop North Korean defection. One Chinese source said that the Chinese government has set up wires near Mt. Baekdu around the Duman this summer and that it plans to extend them to Samhap and Yenbien where many North Korean defectors stay.

However, some raise doubts that the construction work is part of Chinese efforts to incorporate Korea’s ancient history into its own.

Given that Beijing fears that the Sino-DPRK border area will be absorbed into Korean influence in the process toward unification of the two Koreas, the world’s most populous country’s recent move could be interpreted as part of its “historic reorganization.”

Furthermore, Beijing tried to have Mt. Baekdu registered in UNESCO World Heritage and World Geopark, while developing its tourist programs near Mt. Baekdu.

Professor Kim Woo-jun at the Institute of East and West Studies said that China is set to make a clear-cut borderline on the occasion of the fifth anniversary of China’s Northeast Project ending next year. He went on to say that the wires are built up for both blocking defection and securing its sovereignty.

This view is widely held as many North Koreans pass the areas near Mt. Baekdu and the Duman River to flee their country.

Furthermore, the border fencing has something to do with the recent Sino-DPRK relations estranged by Pyongyang’s missile tests.

Professor Kim Tae-ho of the Hallym Institute of Advanced International Studies said that the change in the bilateral ties is transforming the concept on the areas between North Korea and China from “the frontier” to the “national border.” He also said that after the second North Korean nuclear crisis in October 2002, armed police border patrols were replaced with a standing army in September 2003.

from the Hankyoreh:

Pyongyang, Beijing halt visa waivers
Move a sign of chilled relations between the two
 
North Korea and China have reportedly reached agreement that visas must be obtained prior to arrival in the other country, except for visits for ’official affairs.’ Previously, travel between the two countries had been largely free of visa requirements.

A Chinese source familiar with North Korean affairs said that the dispute over visa regulations – which has caused a controversy between the two allies since the beginning of this year – was partly resolved when Pyongyang and Beijing agreed that North Korean laborers working in China will first have to get a permit of employment from China’s Ministry of Labor and Social Security. They so far have enjoyed ’no visa required’ status.

Under Beijing’s revised regulations on visa and employment, almost 50 North Korean restaurants located in Chinese major cities such as Beijing, Shanghai, Shenyang, Guangzhou, Qingdao, Yanji, and Dalian are expected to be hit more severely. Workers of these restaurants will be allowed to stay in China after obtaining a permit from the Chinese Labor Ministry.

In order to lower the unemployment rate, Chinese authorities are requesting foreign companies hire locals in positions except for technical posts. As a result, a large number of North Korean restaurants will have to close, or replace their employees with Chinese citizens. According to the source, four North Korea restaurants moved out of China last month.

Pyongyang has up to now issued three kinds of passports: those for public affairs, those for general affairs, and those for official business trips. North Koreans working at restaurants in China could enter China without visas, using passports for official business trips. However, from this year, China has required those passport holders to obtain visas in Pyongyang, as well.

Some sources note that the new visa measure indicates that the relationship between the two allies is changing from that of a closely linked socialist bond to that of ’ordinary’ nations.

From NK Zone:

Few details are available, but the zone will be in the Namyang Workers’ Zone in Unseong county, Hamgyeong Bukdo province in the extreme north of North Korea, opposite the Chinese city of Tumen

The report notes that there are roads and railways crossing the border and the area is a transit point for Chinese, Korean and Japanese goods and that citizens of third countries have access.

The agreement was signed at the Chinese embassy in Pyongyang between the head of the foreign affairs department of Hamgyeong Bukdo, Kim Cheol-geun, and the Chinese consul-general, Sun Xianyu

The report does not say if the agreement has NK central government approval, which is apparently a sticking point in the much bigger deal under which the Chinese city of Hunchun will lease the NK port of Rajin.

From the Korea Times:

Elusive Welcome Mat
By Andrei Lankov
 
It is believed that some 40,000 to 80,000 North Koreans live in Northeast China, earning money through unskilled work, or living with their Chinese partners. Some five years ago, their number was much greater _ perhaps, up to 250,000.

At first sight, defection to South Korea would be the most logical next step for these people. After all, the South Korean Constitution does not recognize the existence of North Korean state, thus every North Korean is, by definition, a citizen of the Republic of Korea (ROK), eligible to special rights and protection. However, such defections are rare _ only a few thousand North Koreans have move to the South over the last few years. Why?

The major reason is the unwillingness of the South Korean government to help refugees gain safe conduct to Korea. When a refugee manages to contact the South Korean embassy or consulate in China, he or she does not find support there. Those who have relatives in the South can use the expensive services of people smugglers (at least, $5,000 up front), but the majority have no chance to get to the South without some official support _ and this support is not forthcoming.

Among those who have been denied assistance there have even been some who would have been seen as god-given propaganda gifts 10 or 15 years ago. In 1996, for example, the South Korean Embassy in Beijing was visited by a family of six whose father, an exemplary “shock worker,’’ was once granted a rare honour _ to have his picture taken with Kim Il-sung himself. The diplomats advised the family that they were unable to do anything for them and wished the would-be defectors good luck. But they had no such luck _ they were arrested, deported back to the Democratic People’s Republic of Korea, and severely punished. A 36-year-old military officer from an elite security unit fled to China in 1996. He spent 1996-2002 repeatedly applying for permission to move to the South. He contacted the South Korean Embassy a number of times but every time the diplomats advised him “be patient and wait.’’

A defector once told a South Korean journalist: “When I first fled the North I thought that it would be easy to go to South Korea. With the help of ethnic Koreans I arrived in Qingdao [China] in August 1996. But at the Korean Consulate, on which I had pinned all my hopes, [I] was told: ‘Under the present circumstances, this is difficult.’ [I felt like] the heavens collapsed.’’

Only those who represent an exceptional propaganda value (or have had access to very important intelligence) can count on official assistance these days.

Are you going to have an outburst of righteous disgust about “heartless Seoul bureaucrats?’’ Alas, it is not that easy. There are good reasons why the South Korean officials act in such a way…

First of all, the ROK does not wish to create problems with China, which carefully maintains its neutrality in the Korean conflict and does not wish to become a transition zone for crowds of refugees heading for Seoul. South Korean officials are also wary of ethnic Koreans from China who might try to pass themselves off as North Koreans to get access to ROK citizenship.

Admittedly, those refugees who manage to cross the border again, and reach the South Korean missions in South East Asia might count on better treatment and help. But the way across China is expensive and dangerous, especially since the Chinese police are on the lookout for likely refugees from North Korea.

Nevertheless, it appears that the major reason behind Seoul’s passivity is not a set of diplomatic calculations but a tacit understanding that refugees _ largely uneducated peasants _ have little hope of adjusting to South Korean society. Indeed, the defectors seldom fare well in the South _ in spite of the generous if recently curtailed aid packages. Encouraging defection would entail a great increase in spending on the already large aid programs.

In addition, Seoul does not want to destabilize its ex-enemy. A large-scale exodus of North Koreans to the South would likely cause a serious political crisis in Pyongyang. This is exactly the scenario that South Korean diplomacy strives to prevent: in recent years the notion of “German-type unification’’ is seen as a nightmare, to be avoided at all costs. Economic considerations play a major role, but one should not forget the remote but real chance that a cornered Pyongyang would start a new Korean War as a last resort.

Are these considerations sufficient enough to justify inaction? Frankly, I do not know. Alas, in real life people often have to make difficult choices between two evils, and attempts to present such choices in black-and-white are likely to lead to more tragedies. Seoul’s policy toward the North in the recent decade has been a basket of choices between bad and worse _ even though politicians were wise enough not to call a spade a spade, guarding the feelings of the majority who prefer to comfortably see the world in black and white. But that is another story…

from the Daily NK:

Recently, concerns mounted that a counterfeit $100 “supernote” was being used as “official currency” between North Korean traders.

For a while, the supernote was used in areas of China in common trade and drug smuggling. The counterfeit money began circulating in Jangmadang and then North Korean markets, as “unofficial forms of trade”.

As of early this year, the supernote circulated amongst North Korean common traders was valued at $70, and by June, had spread throughout the whole nation. It appears that the counterfeit money is being accepted as “income currency”.

This information was obtained by North Korean and Chinese tradesmen residing both in and outside of North Korea.

On July 26th, Park Chul Woong (pseudonym, 34), a Korean-Chinese merchant in Dandong, China said “It has been a while since counterfeit money has been used as a form of transaction in North Korea. Now, tradesmen use the supernote amongst themselves to do business”.

Park said “Even if you make a small deal of $1,000, this still equates to 600 sheets of North Korean 5,000 won notes. (The largest North Korean bill) As people do not want to carry this amount of money with them, merchants use the counterfeit money instead”.

Also, Park said “Merchants do not deal with North Korean currency as they do not trust it. When inflation rises rapidly as in 2002, merchants sit around and discuss how the money has no value. However, there is nothing you cannot do with the dollar. As the dollar is scarce, merchants have resorted to using fakes.”

The traders complain that the North Korean currency has lost its value so much, that if they were to use the money for trade at markets they would have to carry numerous bags of it. They also said “Every day the market price fluctuates dramatically. The more you trade with North Korean money, the greater the loss.”

No control of counterfeit money
 
Last May, Kim Young Man (pseudonym, 38), a Korean-Chinese who went to Shinuiju for an Investment Conference, said “North Korea is unhestitantly using the counterfeit $100 note as real $70. It is of concern as to how far they will take this.”

He said “Even business employees of the National Security Office or the Department of the People’s Armed Forces General Logistics Bureau use counterfeit when paying Chinese tradesman for products such as seafood and hand-made goods. If North Korean authorities discover that counterfeit money is circulating in North Korea on such a large scale, chaos could ensue.”

Also, he said “Merchants generally carry dollars. Rich merchants store their real currency in safekeeping and use counterfeit money for “exchange”. He continued, “Although the whole world has eradicated counterfeit money, North Korea is still far behind”.

At Dandong’s economic development zone, a Chinese tradesman said “The U.S. alleges that it will eradicate the counterfeit money, but there has been little change. The value of the counterfeit money at $70 is not depreciating”.

On the one hand, tradesmen say “Apart from the supernotes manufactured by North Korean authorities, computer-made supernotes have been discovered and rejected as a means of business.”

At present, it is difficult to estimate how much counterfeit money is circulating around North Korea. However, if the counterfeit money is accepted amongst common traders at Jangmadang, this means that the counterfeit currency has reached a large scale and is spreading further.

This substantiates the failure of the North Korean authority’s implementation of foreign transaction of the Euro in December, 2002.

Last July, at the Interpol Conference on counterfeit money in Riom, France, North Korea was marked as “a hotbed of counterfeit money”. It is expected that the U.S. will take drastic measures to control the counterfeit dollars circulating throughout North Korea as official currency.

Joong Ang Daily
August 01, 2006

With North Korea more isolated than ever from the international community over its nuclear program and recent missile launches, Pyongyang is taking steps to tighten controls on its people in a bid to show it can defy the international community, North Koreans interviewed in Beijing said.

“It seems that we have to sing the revolutionary songs again,” said one North Korean in Beijing, saying it was time for his country to get mentally tougher. “Nobody listens to us, thus the only way left is to stick together,” the North Korean said.

If Pyongyang hoped to gain more concessions in nuclear negotiations and resolve the issue of financial sanctions imposed by Washington on Banco Delta Asia through its missile launch, the results have been the opposite.

A United Nations Security Council resolution backed by Pyongyang’s long-time ally, Beijing, was adopted. The Bank of China also froze North Korean accounts at its Macao branch, a Korean lawmaker has said.

In addition, a senior official of the United States Treasury Department said recently, Singapore and Vietnam have made commitments to clamp down on illicit North Korean financial activities such as money laundering.

A source in Seoul who is familiar with North Korea’s circumstances said yesterday that Pyongyang has decided to halt exchanges with the outside until April of next year. The Arirang Festival scheduled for this month has already been cancelled.

Experts said a series of economic measures aimed at reviving the North’s ailing economy, which have been underway since 2001, will also likely be put on hold.

“Inside the North, there are even some calling for a halt of the Kaesong Industrial Complex and the Mount Kumgang tours,” said the source, who added that large numbers of North Korean college students are submitting requests to enlist in the military.

Recently, a senior North Korean official on a visit to Beijing said the North is fully prepared to engage in “a march of suffering.” Recent rhetoric coming out of Pyongyang reflects a war-like atmosphere in the country. The state-run Rodong Sinmun has warned that “invaders would be swept away by the fierce anger of the country.”

A government official in Seoul yesterday admitted that in the short run, diplomatic efforts to lure Pyongyang back to nuclear negotiations would be tough. “We are in a difficult situation, but what else can we do but try?” said the official.