North Korean Economy Watch

From the Joong Ang daily:

North Korea and China have agreed to jointly build two hydroelectric power plants on the Amnok River, also known as the Yalu River in China, on the border between the two countries, Chinese media reported yesterday. The site is where the ruins of a 2,000-year-old walled city and 2,360 “massive tombs” of Korea’s ancient Goguryeo kingdom were recently found.

According to the local newspaper Jilin Daily, North Korean delegates from the Ministry of Power and Coal Industries and China’s central government, along with Jilin provincial officials, signed the agreement at Changchun, the capital city of Jilin province, on Sunday.

North Korea and China had planned in 1995 to construct the two power plants. According to the accord, China and North Korea will each build a dam with a power plant.

China will begin construction on its dam as early as late this year, Chinese media said. The North is expected to build its dam about 16 kilometers south of the Chinese power plant.

It will be interesting to see if the DPRK takes this laying down.  After all, this sacred mountain is the birthplace of the Dear Leader.

From the Donga:

The Japanese daily Mainichi Shimbun reported on May 9 that a private airport will be completed by the end of next year in Baisan, Jilin Province, the area with access to Mt. Baekdu (Chang Bai Shan in Chinese) located between China and North Korea.

As a result, competition will become intense between China and the two Koreas to attract tourists to the mountain and boost the image of the mountain as their own territory.

China seeks to take the upper hand in the development of Mt. Baekdu tourism by constructing the airport. South Korea, for its part, is rushig to kick off Mt. Baekdu tours via North Korea.

There is a growing concern in South Korea that Mt. Baekdu, a symbol of Koreans, might be registered as cultural heritage of China because China wants to put Mt. Baekdu on the list of World Heritage sites before the 2008 Beijing Olympics.

from NK zone:

Yanbian Taida has agreed to import 50,000 tonnes of North Korean coal, and plans to increase this if there is market demand, according to a yet another Chinese report. The company had imported 1,820 tonnes by March 7, worth $41,860, under a first such deal with Hunchun customs involving “concentrated customs declarations” (not sure what that is) which has relieved pressure at the Shatuozi border post. The coal came from Gogeonwon mine, just 17 km from the border.

From the Associated Press and Yonhap:

North Korea’s trade volume with foreign countries, excluding South Korea, rose marginally last year to reach its highest figure since 1991.  Trade is up 5% to $3 billion. The figure doesn’t include inter-Korean trade, which is considered “exchanges between the same ethnic group,” KOTRA said.

The [southern] Bank of Korea claims the DPRK’s economy has grown for six straight years. Modest economic reforms since 2002 have encouraged some private enterprise, allowing the limited emergence of an entrepreneurial class with money to spend on imported goods.

North Korea recorded a trade deficit of $1 billion last year, up 23%. Imports increased 9.1 percent to $2 billion, but exports fell 2.1 percent to $998 million, the agency said.

The trade agency attributed the drop in exports to plummeting overseas shipments of fisheries goods, one of the North’s key exports, and a 20% annual decrease in shipments to Japan.

The North’s imports grew on rising inbound shipments of energy-related natural resources as well as food from China. The neighboring nation’s increasing investments in the North also triggered a rise in machinery imports into the country, the agency said.

The rankings of the DPRKs trading partners remains unchanged: 1. China, 2. Thailand, 3. Japan and 4. Russia

CHINA:  Trade with China is up 14% from 2004 at $1.58 billion, 52.6% of North Korea’s total exports and imports last year.  Two-thirds of that trade was made up of North Korean imports, which grew 35.2% to $1.08 billion, much of it food and energy. 

“North Korea has to depend on China for most of its food and energy resources,” KOTRA said. “China has also been rapidly increasing its investment in North Korea in recent years, which leads to an additional boost to the amount of trade between the two countries.”

JAPAN:  Imports and exports between North Korea and Japan fell 23% to $194 million in 2005–the fourth straight year of decline since Pyongyang acknowledged abducting Japanese citizens in the 1970s and 1980s.

South Korea: Trade between the two Koreas reached an all-time high of $1.05 billion in 2005, boosted by commercial activity at a joint industrial complex in North Korea, KOTRA said. Including trade with South Korea, the North’s trade volume stood at $4.06 billion last year, with trade between the two Koreas accounting for 26% of the total, it said.

From the Daily NK:

The chief researcher of the SeoJong Institute, Yang Un Chul, presented his report entitled ‘The Political Economic Implications of Chinese Economic Cooperation with North Korea, ‘ and revealed that, “Recently North Korea has been isolated from the international community because of its nuclear weapons development program. This isolation has led to North Korea’s economic dependence on China. It has also caused some people to worry about the possible economic subornation of North Korea to China. However, this is just an unlikely scenario.”

Yang explained, “Recently the trade between North Korea and China has sharply increased. In 2004, its trade with China amounted to 40% of its total trade. As for Dandong, an advance trading partner with North Korea, in 2005 frontier trade grew dramatically enough to record a 26.5% growth rate.” Yang explained the concern over this this growth rate: “Due to such increasing support and investment, some people fervently insist that China is trying to economically transform and colonize North Korea into a fourth Northeast Chinese province (Jilin, Liaoning, Heilongjiang and North Korea).”

In his research, Yang points out, “The exceptional incidence that one country is in subordination to another country can only occur in a situation of very limited market availability.” He went on to explain that, “The fact that North Korea is dependent on China for food, energy and other necessities, is a result of North Korea’s choice to source only from China, despite the availability of resources from other markets.”

It is Yang’s assertion as well that, “The excessive precaution against China or even the exaggeration of China’s influence over North Korea, actually works against North Korea’s economic recovery.” Likewise, he states, “Since China currently has relatively more influence over North Korea than we do, its penetration of the North Korean economy – promoting liberalization and true economic reform – could be an effective way to promote North Korean economic development.”

Yang emphasized that, “Unlike in the past, the Chinese government is no longer able to control North Korea’s economic activity to serve Chinese interests. Instead, the Chinese government now faces the responsibility of trying to help North Korea develop a certain level of economic independence.”

“China knows that if North Korean economic cooperation could be established with the U.S. and South Korea, China’s burden would be more manageable and North Korea could reform more quickly,” Yang explained. However, he also noted that the reality of this level of international cooperation is highly unlikely, stating, “The problem is that since North Korea does not trust the intentions of the U.S. and South Korea, China cannot help but face the difficulty of taking on North Korea alone.”

Yang’s research contends that Chinese-style economic reforms are not the most efficient way to develop North Korea’s economy, however, they may be the only effective option at this time. He stated, “China’s main goal for assisting Norh Korea is simply to maintain the stability of the Northeast region. At the same time, China acknowledges the fact that it is unlikely North Korea will normalize relations with the U.S., and therefore North Korea, by default, will turn to China for economic guidance. The price of implementing the same style of reforms that has shaped 3 of China’s most backward provinces will be high, but the market growth and gradually increasing international influence over the North Korean economy that Chinese-style reforms can offer, are still the second best option for North Korea.”

On the other hand, Yang insisted that “It is not necessary to worry about Chinese companies occupying North Korea, as some South Koreans have raised concerns over.” Instead, he explained that companies are bound to carve out lucrative markets through investment and marketing, and that “Currently, due to the unique North-South relations, and the difficulty of investing in North Korea, Chinese companies should actually be encouraged to enter, invest in and sell commodities to North Korea; activity that will benefit both countries’ economies.”

Subsequently, Yang explained, “China’s influence over North Korea can be effective in teaching North Korea about international labor divisions and the principles of market economies. If China can bring about the concepts of reasonable pricing, and market and income redistribution, China’s intervention could be instrumental in discarding North Korea’s planned economy, and finally allowing a market economy to emerge.”

from the AFP:

North Korea received aid from China to help its fight against bird flu which has hit the impoverished state in recent years.

The Chinese aid, which included test kits, “will help prevent the spread of bird flu in the country via its border and trading ports,” the Korean Central News Agency said.

North Korea has recently launched public awareness campaigns against the avian influenza virus and has focused its efforts on isolating chickens and ducks from wild birds. No bird flu case has been reported so far this year.

The PDRK reported virus outbreaks in 2004 and 2005.

Early this year, a Japanese human rights activist said a North Korean woman had been infected in December. But Pyongyang has yet to confirm the case.

Yonhap
5/1/2006

China’s second-largest carrier China Southern Airlines Co. began a three-times-weekly flight service between Beijing and Pyongyang, Xinhua News Agency reported Monday.

The airline’s first airplane left Beijing at 1:05 p.m. (local time) and arrived in Pyongyang, the North’s capital, at 2:35 p.m., the report said.

According to the Nautilus Institute’s web site [Link broken since posing]:

“Under the direction of central authorities, foreign currency management groups are rapidly being moved into Sinuiju, while ordinary residents are being relocated to other regions only to be replaced by residents of Pyongyang and other areas who are in the process of moving in.”

The Sinuiju Special Administrative Region (SAR) project lost momentum in September 2002 when its first governor-to-be, Chinese-born Dutch businessman Yang Bin, was arrested in China. North Korean leader Kim Jong Il’s visit to China at the beginning of this year, however, appears to have triggered a turnaround. With Kim’s China trip focused on the revision of economic policies, the rejuvenation of Sinuiju SAR development plans came into the spotlight.

Most South Korean press have run pieces, based on the stories of North Korean defectors and Chinese residents in Dandoong and other border areas, alluding to the fact that there is change in the air around Sinuiju. A North Korean businessman in Dandoong was quoted as saying, “No official word has come down from central [authorities], but they are busy preparing the Sinuiju SAR,” while rumors are spreading among area residents that “Sinuiju is the next Hong Kong.”

The most reluctant promoters are the People’s Committee and regional administrative organs. As orders come down, some administrators are required to immediately pack and relocate to southern Sinuiju, an underdeveloped area not even comparable to Sinuiju proper. Authorities had chosen the site as far back as 1986, and while development was fully promoted, only factories were built up. Housing, roads, and other indirect social capital facilities are still lacking. While regional authorities may have decided to build up southern Sinuiju, it will take another ten years of hard work to do so.

On the other hand, the outlook for city authorities is considerably brighter. This is because in the future, they will have the opportunity to rise up though organizations run by special administrative businesses. Up until now, instructions have come through the Regional People’s Committee, security bureau and defense authorities, but even though they own the facilities, they can still receive orders directly from the central government. Because of this, regional officials are still influenced by the temperament of local and central party politics while being faced with increasing pressure from city authorities to transfer power to them. While some factories — like the Sinuiju Cosmetics Factory, Sinuiju Shoe Factory, Sinuiju Synthetic Fiber Plant, and other large factories — are preparing for foreign capital support and cooperative ventures, most administrators appear to be pushing for keeping the status quo.

There are still many concerns. As the SAR is being set up, central officials are being dispatched to fill roles as factory officials; central officials without any personal interest. A similar sort of dispatch of central officials took place in the Rajin-Sonbong Special Economic Zone in the past.

Most small- and medium-sized enterprises and regional factories are beginning to transform into trading companies. There are currently around one hundred fifty such trading offices in Sinuiju. In the future, if Sinuiju is officially designated as a SAR, it appears that a great many more trade offices will appear.

Other news from Sinuiju insiders is that the People’s Committee, People’s Security Force, National Security and Defense Bureau and other central government departments that have received Kim Jong Il’s permission to trade have already opened offices in Sinuiju, employing people in the area and busily seeking out people with connections in China in order to find trading partners.

It appears by looking at the relocation currently underway that the goal is to move residents within the same timeframe that was required for the first round of relocations in 2002, when residents were moved to Chunma, Kwaksan, Dongrim and other areas around the outskirts of Sinuiju. There are problems here as well, as the government wants to relocate residents from Pyongyang and other regions to Sinuiju. At issue is the fact that while the number of residents who can move in needs to equal the number relocated out of the area, some North Koreans have already used connections with the central and regional party affiliates in order to move to the region.

In addition, the housing market is active, with housing prices in central downtown areas having already skyrocketed. While officially owned by the state, dwellings are unofficially “sold” through the use of “modification fees”: apartments run from 25 to 30 million won (8 to 10 thousand USD), while two-three story condominiums in “Chinatown” in the Namsang district run in the tens of thousands of dollars.

However, complications have arisen. Many residents being moved out have decided to get rid of their houses, but this has proved more difficult than expected. Some have put up their house for sale but have been unable to find a buyer. There are also those who were caught in the midst of sales through “real estate offices” when a crackdown by authorities resulted in their expulsion. A source stated that the administrative authority of the city security bureau in charge of relocating residents is undermanned and takes different measures to direct different groups of residents, while pressing for the expulsion of what it deems as “lesser” or unemployed people.

Economic Reform and SEZ as Survival Strategy of DPRK
PDF: Deok Ryong Yoon.pdf
Deok Ryong Yoon

Introduction to & implications of Gaesong Industrial Complex Project
PDF: kaesong.faqs.pdf
Ministry of Unification

Gaeseong Industrial complex: Past, Present and Future
PDF: Dong-geun Kim.pdf
Speech by Dong-geun Kim, Chairman of Gaeseong Industrial District Management Committee

Gaeseong Industrial Complex : Frequently Asked Questions (FAQs)
PDF: kaesong.faqs1.pdf
Ministry of Unification, ROK

From the Daily NK:

Computer Prices (Mar 14, 2006):
-17inch Pentium Ⅲ is US$110~120 retail ($90 wholesale price)
-A printer is US$65~70
-10 Floppy discs are 5,000W
-A keyboard is US$20
-A mouse is US$5

Snack prices (March 28, 2006)
-roast chicken is 6,500-8,000W
-roast duck is 9,000~12,000W
-750g of noodles are 2,400W
-box of Korean noodles is 6,750W
-1kg of potatoes is 400W
-1kg of Beans is 700W
-1kg of wheat flour is 750W (690W at wholesale price)
-400g of Milk is 5,000W
-1kg of Butter powder is 5,000W
-25g of Baking powder is 400W
-1kg of Chinese noodles of 2,000W
-1kg of dried cuttlefish is 8,800W.

Entertainment Costs (March 28, 2006)
-movie admission fee is 50W
-comic book is 1,500W, to borrow 100W
-Swimming pool is 70W
-bath admission fee is 2,500W
-5,000W ($1.67) /huor to use a Karaoke singing room
-1,000W ($0.33) /hour to use a computer in an internet café

Other Prices
–sanitary napkin is 500W, 600w, and 1,000w
-Skin lotions of three kinds are 42,000w
-Aloe cosmetics of three kinds are 42,000w
-A set of cosmetics (a skin cream and a skin lotion) is 10,000w (made in South Korea), 3,500w (made in China)
-Small gas cooking stove is 27,000w (made in South Korea / 25,000w in a wholesale price
-An electric bicycle is 150-200w.

North Korean inflation has increased following consecutively excessive issues of the 500W, 1,000W, and 5,000W notes.

Cities that can provide North Koreans with leisure facilities to enjoy are only Pyongyang, Shinuiju, Chongin, Hamhung, and Rasun. These cities possess big theaters, amusement parks, and swimming pools. Especially Shinuiju, which is close to China, has been introduced with foreign cultures and commodities very quickly. Shinuiju residents are also in the highest economic class of the North Koreans. Thus, Shinuiju has internet cafes, singing rooms, saunas, massage rooms, and comic bookstores.

The investigation was carried out by traders visiting Shinuiju in March and attaining the price levels concerned and then DailyNK gathered the information and cross-examined it.

Also, another trader emphasized that, “The official wage of North Korean workers is about 3,000 won. At the same time, the price for using a singing room per hour is 5,000 won. It shows how badly North Korea has been transformed,” adding that, “Shinuiju is the city where traders doing business with big money from North Korea and China gather. Such singing rooms, PC rooms, and saunas are just for them.”

Items marked by dollars in the price index below are usually paid in dollars, not North Korean won. A Chinese businessman who participated in the price investigation informed us that, “Currently in North Korea, the dollar is used frequently enough to be called ‘common currency’ and has more exchange value,” adding, “As trading costly articles, their paying in dollars makes them win credits.” He also said that, “That the dollar is exchanged into North Korea won is welcomed, yet to exchange the won into dollars is often impossible, even double the value.”

Now, in the early of April, the exchange rate of the dollar in North Korean black markets is roughly 3,000 won against the dollar.