North Korean Economy Watch

From Asia Times:

North Korea has mass-produced computers with Pentium IV processors since 2002, a Russian journalist says in a new book. The confirmation came at a time when the United States and North Korea are in a war of nerves over US and international export control regulations that would ban 15 South Korean firms selected to operate in an industrial complex in the North’s city of Kaesong from bringing in “strategic materials,” including computers.

The South Korean companies said they must be permitted to bring computers with at least Pentium IV chips, which are essential for normal office work, citing earlier unconfirmed reports that the North already began to produce those kinds of computers.

“North Korea has produced computers with Pentium IV processors since 2002, which I saw during my visit to an electric appliance factory in Pyongyang,” Olga PMaltseva, a Vladivostok-based journalist, said in her new book about the North Korean leader, Kim Jong-il.

The Korean translation of the book, titled “A Waltz with Kim Jong Il” was published here on Monday.

“Seven hundred workers and technicians made 14,000 Pentium IV computers in 2002,” she said.

“The factory has produced tens of thousands of computers since 1986 and half of them were exported to Germany.”

There was a similar report by the Choson Sinbo, organ of the pro-Pyongyang General Association of Korean Residents in Japan, in May last year.

The newspaper reported at the time that a North Korean electronic appliance developer has been selling computers with Pentium IV processors in a joint venture with China’s Nanjing Panda Electronics Co since September 2002.

South Korea’s Korea Trade-Investment Promotion Agency (KOTRA) confirmed the report in August last year, citing data from its North Korean counterpart, the International Trade Promotion Committee.

The KOTRA said the North’s electronics firm “Achim (Morning)” and China’s Nanjing Panda have produced three types of Pentium IV computers.

The Russian author is believed to have visited the joint venture factory.

North Korea is classified as a “dangerous country” under the Wassenaar Arrangement, which replaced the Cold War era’s Coordinating Committee for Export Control to Communist Areas in 1996, and thus signatory countries cannot export items classified as “strategic materials” to the communist state.

The items include computers, various metal machinery, laser equipment, high-tech materials and electronic appliances with US-produced parts.

South Korea is among the 33 signatory nations.

An earlier report said the South Korean government is studying ways for the 15 domestic companies to use production equipment, materials and office supplies in Kaesong without conflicts with the U.S.

The Kaesong industrial complex, being built by the Korea Land Corp and Hyundai Asan Corp, a South Korea firm, is one of the most prominent symbols of inter-Korean reconciliation set in motion by the first-ever summit of the leaders of the two countries in 2000.

The developers are scheduled to open Kaesong’s main complex to hundreds of South Korean manufacturers in the first half of next year.

From the Office of the National Counterintelligence Executive:

North Korea: Channeling Foreign Information Technology, Information to Regime Goals Pyongyang is working with Koreans abroad and other foreign partners in information technology (IT) ventures, sending software developers overseas for exposure to international trends, granting scientists access to foreign data, and developing new sources of overseas information in a bid to develop the economy. Cellular telephones and Web pages are accessible to some North Koreans, while foreigners in Pyongyang have access to foreign television news and an Internet café. While such steps are opening windows on the world, however, Democratic People’s Republic of Korea (DPRK) oficials are largely limiting such exposure to areas required for economic development. Moreover, they are applying IT tools to develop new means of indoctrinating the public in North Korea and reaching audiences overseas.

Working With Foreign Partners in IT Ventures
North Korea is promoting cooperative ventures with foreign partners to develop IT, which DPRK media have repeatedly described as a priority area in science and technology. An editorial in the 10 November 2003 issue of the party newspaper Nodong Sinmun, for example, named IT as the first of three technical fields, along with nanotechnology and bioengineering, to which “primary efforts should be directed.”

North Korean media suggest that officials have grasped the potential of leveraging IT for national development. A recent article in the government’s newspaper asserted that (1) “IT trade surpasses the automobile and crude oil industries” and (2) “IT goods are more favorable in developing countries than they are in the developed nations” (Minju Choson, 7 March).

ROK analysts, such as those who compiled a survey of Pyongyang’s IT industry (Puhkan-ui IT Hyonhwang-mit Nambuk Kyoryu Hyomnyok Pangan, 1 January), have suggested that DPRK policies for promoting a domestic IT industry reflect the nation’s lack of capital, dearth of natural resources, and relative abundance of technical talent.  Hoonnet.com CEO Kim Pom-hun, whose extensive experience in North Korea includes residence in Pyongyang from December 2001 to October 2002, has assessed North Korean IT manpower as resembling “an open mine with the world’s best reserves of high-quality ore” ( Wolgan Choson, 1 January).

Pyongyang is partnering with Koreans in South Korea, Japan, and China, as well as Chinese, in ventures to develop both software and hardware, including:

• The Morning-Panda Joint Venture Company in Pyongyang, a partnership between North Korea’s Electronic Products Development Company and China’s Panda Electronic Group, which began making computers in late 2002.
• The Pyongyang Informatics Center (PIC) and South Korea’s Pohang University of Science and Technology (PUST), which are cooperating to develop virtual reality technology. In addition:
• The ROK’s Hanabiz.com and PIC launched the Hana Program Center in Dandong, China, in August 2001 (http://hanabiz.com/history.html) for joint software development and training of DPRK programmers.
•  IMRI—ROK manufacturer of computer peripherals—and CGS—a Tokyo-based software company affiliated with the pro-Pyongyang General Association of Korean Residents in Japan (GAKRJ, a.k.a. Chosen Soren)—joined hands in July 2000 to form UNIKOTECH (Unification of Korea Technologies) to develop and market software. Both partners maintain links to North Korean IT enterprises.
• The ROK’s Samsung Electronics and the DPRK’s Korea Computer Center (KCC) have been developing software together at a Samsung research center in Beijing since March 2000 (Chonja Sinmun, 15 October).

Venturing Overseas To acquire information on foreign IT trends and to promote their domestic industry, North Koreans have begun venturing overseas in recent years.

• State Software Industry General Bureau Director Han U-ch’ol led a DPRK delegation in late September 2003 to the China International Software and Information Service Fair in Dalian. The North Koreans joined specialists from China and South Korea in describing conditions in their respective IT industries and calling for mutual cooperation. Participants from China and the two Koreas expanded on the theme of cooperation at the IT Exchange Symposium, sponsored by the Dalian Information Industry Association, Pyongyang’s State Software Industry General Bureau, and Seoul’s Korea Advanced Institute of Science and Technology (KAIST). Dalian Alios Technical Consulting, a company run by Chinese Korean Yi Sung-nam, hosted the exchange (www.kotra.or.kr, 15 October, http://hanabiz.com, 9 October).
• Pyongyang opened, in April 2002 in Beijing, its first foreign exhibition of DPRK software products developed by Kim Il-song University, Korea Computer Center (KCC), PIC, and other centers of software development (DPRK Korea Infobank, 16 May 2002).
• KCC Deputy Chief Technician Kim Ki-ch’ol led a delegation of DPRK computer technicians to the World PC Expo 2001, held in September 2001 outside Tokyo. KCC has worked with Digiko Soft—a company run by a Korean resident of Japan—to develop commercial software. Through Digiko Soft, the expo was the first show in Japan “of computer software developed in [North] Korea” (Choson Sinbo, 22 October, 1 October 2001).
• KCC computer programmers Chong Song-hwa and Sim Song-ho won first place in August 2003 in a world championship software competition of go—an Asian game of strategy—held in Japan. KCC teams have visited Japan and China on at least eight occasions since 1997 to compete in program contests for go, taking first prize three times.

Gaining Access to Foreign Data North Korea has been acquiring foreign technical information from a variety of sources in recent years, benefiting from developments in technology, warming ties between the Koreas, and longstanding sympathies of many Korean residents in Japan.

• Authorities have held the annual Pyongyang International Scientific and Technological Book Exhibition since 2001, bringing foreign vendors and organizations related to S&T publications to North Korea (KCNA, 18 August).
• The Trade and Economy Institute, advertised as North Korea’s “sole consulting service provider” on international trade, has been exchanging information with “many countries via Internet” since September 2002 (Foreign Trade of the Democratic People’s Republic of Korea, 1 April).
• According to PUST President Pak Ch’an-mo, who has extensive DPRK contacts in academic and scientific circles, North Korea has been purchasing technical books from amazon.com and from South Korea (Kwahak-kwa Kisul, 1 April).
• Pro-Pyongyang Korean residents of Japan have long sent technical literature to North Korea.
• ROK organizations, including PUST and IT publisher youngjin.com, have been donating technical publications on IT in recent years to DPRK counterparts as a means of earning good will and contributing to the eventual unification of Korea (Chonja Sinmun, 11 August).

Cell Phones, Web Pages, and NHK
Within North Korea, the advance of IT technology has been suggested by a number of recent developments:

• Approximately 3,000 residents of Pyongyang and Nason have reportedly purchased cell phone service since November 2002 (The People’s Korea, 1 March).
• Installation of a nationwide optical-fiber cable network in 2000, launch of the Kwangmyong 2000 Intranet the same year, and establishment of computer networks have made available domestic access to extensive technical databases maintained by the Central Scientific and Technological Information Agency, the Grand People’s Study House, and other repositories of technical information.
• Via North Korea’s Silibank Web site (www.silibank.com), established in Shenyang, China, in September 2001, registered foreign users can exchange e-mails with DPRK members.
• In August 2002, Kim Pom-hun, CEO of the ROK IT company Hoonnet.com, opened an Internet café in Pyongyang, the only place in North Korea for the public to access the Internet. Most customers of the service, which uses an optical cable linking Pyongyang and Shanghai via Sinuiju, are foreign diplomatic officials or international agency staffers; steep fees reportedly keep most Koreans from going on line (Wolgan Choson, 1 January).
• Foreign guests in Pyongyang hotels have had access to foreign news broadcasts of Britain’s BBC and Japan’s NHK since May 2003, according to a Japanese television report (TBS Television, 2 September).

Limiting Information to Technical Areas, Harnessing IT for Domestic Indoctrination and Foreign Propaganda Development of the nation, rather than empowerment of the individual, appears to be driving DPRK efforts to develop domestic IT infrastructure and industry. Officials, scientists, and traders can now access and exchange information pertinent to their duties within the domestic Kwangmyong Intranet. Those with a “need to know” can even surf the worldwide Web for the latest foreign data. While Kim Chong-il reportedly watches CNN and NHK satellite broadcasts (Kin Seinichi no Ryorinin, 30 June) and supposedly surfs the Internet, the public has no such freedom to learn of the outside world without the filter of official propaganda.

Indeed, Pyongyang is using IT to indoctrinate the public and put its propaganda before foreign audiences. In addition to studying the party line through regular group reading of Nodong Sinmun in hard copy, a practice for indoctrinating members of work units throughout North Korea, the installation of computer networks now brings the newspaper to some workplaces on line, as the photograph below shows:

Moreover, Pyongyang has put its propaganda on the Internet.

• KCNA offers Pyongyang’s line in English, Korean, and Spanish at a Web site in Japan at www.kcna.co.jp.
• News and views of the General Association of Korean Residents in Japan and its affiliated organizations appear on the group’s site at www.chongryon.com.
• DPRK media, including newspapers Minju Choson and Nodong Sinmun, have appeared on sites originating in China, such as www.dprkorea.com and www.uriminzokkiri.com.

I suspect this has more to do with DPRK emigration than anything else…. 

BBC
Rupert Wingfield-Hayes
9/15/2003

The Chinese Government says it has transferred control of its border with North Korea from the police to the People’s Liberation Army.

But it is refusing to confirm media reports that it has also sent 150,000 combat troops to the border area in recent weeks.

A number of Hong Kong newspapers have reported that the extra troops were being deployed to seal off the border, and put pressure on the North Korean Government to end its nuclear weapons programme.

According to China’s foreign ministry, the change in border command is nothing out of the ordinary, and has in fact been planned for years.

But the timing seems more than a coincidence.

In recent months, China has become much more explicit in demanding that North Korea must end its nuclear weapons programme, and Beijing is growing increasingly frustrated by Pyongyang’s intransigence.

Talks hosted by China last month to try and break the deadlock over Pyongyang’s weapons programme got nowhere.

Few now doubt that China is actively preparing for every eventuality, including that of a possible North Korean collapse.

UPDATE 2 (2003-9-7): The BBC reports that Mr. Yang has lost his appeal:

A business tycoon once listed as China’s second richest man has lost an appeal against his 18-year sentence for fraud.

Yang Bin, known as China’s flower king, was found guilty in July of a string of economic crimes including bribery and illegal land use.

The High People’s Court of Liaoning province on Sunday also upheld fines against him and his companies totalling 8.3m yuan ($1m), said the official Xinhua news agency.

Yang is one of a number of high-profile businessmen to have fallen foul of the law in China over the last year.

Before his fall from grace, he was one of China’s most flamboyant businessmen, and was named by North Korea to head a free-market experimental zone across from the Chinese border.

Border arrest

A Dutch citizen, he built a business empire growing tulips amid the industrial decay of north-east China and by 2001 had a fortune close to $1bn.

However, much of Yang’s wealth had, it turned out, been based not on flowers but on illegal property development.

In what may have been a last bid to avoid prosecution, he accepted an offer from the North Korean government to run a new free trade zone inside the Stalinist state.

But last October, as he prepared to cross the border, Chinese police moved in and took him away.

UPDATE 1 (2003-7-14): Mr. Yang has been sentenced to 18 years by a Chinese court. According to the BBC:

A business tycoon once listed as the second richest man in China has been sentenced to 18 years in prison for fraud.
Yang Bin, known as China’s flower king, was found guilty of a string of economic crimes including bribery and illegal land use.

He is one of a number of high-profile businessmen to have fallen foul of the law in China in recent months.

Before his fall from grace, Yang Bin was one of China’s most flamboyant businessmen, and was named by North Korea to head a free-market experimental zone across from the Chinese border.

A Dutch citizen, he built a business empire growing tulips amid the industrial decay of north-east China.

By 2001 he was listed as China’s second richest man, with a fortune close to $1bn.

But with fame came suspicion and soon a government investigation.

Much of Yang’s wealth had, it turned out, been based not on flowers but on illegal property development.

False receipts were used to get his company listed on the stock market. As his empire began to crumble around him, Yang made what may have been a last bid to avoid prosecution.

He accepted an offer from the North Korean government to run a new free trade zone inside the Stalinist state.

But last October, as he prepared to cross the border, Chinese police moved in and took him away.

A spokesman for Yang, chairman of Hong Kong-listed Euro-Asia Agricultural (Holdings), said he planned to appeal.

Read the full story here:
China’s ‘orchid king’ gets 18 years
BBC
2003-7-14

ORIGINAL POST (2002-10-4): According to the Washington Post, Mr. Yang has been arrested.

Chinese sources, including journalists, said police detained Yang Bin, a 39 year old multimillionaire and flower mogul, on suspicion of tax evasion in the northern Chinese city of Shenyang.

A Chinese source said that the move did not mean China opposed North Korea’s fledgling efforts to reform its economy.  China, he said, was simply against the choice of Yang Bin to head the effort.

Nonetheless, Chinese economists said Yang’s detention constitutes an embarrassment for Kim Jong Il and could threaten reform efforts.

Within the last few days, Chinese journalists say, China’s Ministry of Propaganda has issued three circulars banning China’s press from in depth coverage of Yang.  Analysts in China say they believe this means Beijing is uncomfortable with his new status in North Korea.

The Sinuiju region draws its inspiration from the special economic zones that china established in the 1980s .

Yang said any foreigner could travel to Sinuiju without a visa as long as they had a a visa to return to China (as of Sept 30).  But those plans hit a roadblock on Thursday when North Korean authorities declined to allow foreign correspondents travel with Yang to the Zone.  Yang’s problems then started snowballing when an impromptu news conference he called to explain the visa restrictions was declared “illegal” by Chinese police.

Yang’s shares have been suspended from the Hong Kong Stock Exchange because the company has not made sufficient disclosures.

Yang has been reticent about how he got the North Korean appointment–one of the stranger events in Pyongyang’s checkered attempts to open to the outside world.  In an interview with a Chinese magazine, he said that he had been “Sharing my agricultural technology with the people of North Korea “for more than a year” and that “my selfless help won the trust of the Korean people.”

Yang struck up a friendship with Kim Jong-il several years ago.  Yang took his corporate jet to Pyongyang and worked hard to cultivate Kim.  Kim traveled to Shenyang to meet Yang.  Yang offered to donate greenhouses to North Korea which is desperate for ways to grow food, and Kim accepted.

Some Chinese economists and officials have privately criticized North Korea’s choice of Yang, saying he is emblematic of a type of Chinese businessman who amasses fortunes making use of connections and legal loopholes.

Yang has said he hoped to turn Sinuiju into a trading and manufacturing and trading hub.  Chinese cources, however, said that so far Yang has been approached only by developers looking to turn the area into a gambling and entertainment enclave for Chinese tourists.  Gambling is illegal in China.

Source:
The Fall of Mr. Yang
Washington Post
2002-10-4
Page A25

From the Washington Post

Flow of money, goods frustrates US drive to tighten isolation

Doug Struck

February 3, 2003

Once a month, Hiroshi Yano bundles together a few million yen, wraps the money in plastic with a Japanese customs seal, and put it on a ship to be handed over at sea to a boat captain from North Korea and delivered to the Stalinist government there.

It’s all legal: The money is payment for North Korean snow crabs that Yano imports for Japanese tables.  And Yano said he wants to continue the business, nukes or no nukes.

“We are just a private company doing trade.  We are independent of politics,” said Yano, manager of an import business that runs three ships to North Korean waters from this port town 350 miles west of Tokyo.

The payments are just one example of the many flows of money and goods that prop up the North Korean system and circumvent the isolation that the US and other countries have sought to impose.

The Bush administration’s strategy to tighten that isolation and compel North Korea to dismantle its nuclear weapons program may be undermined by the complexity and number of trade routes that snake in and out of North Korea.

The trade ranges from the global export of missiles to lone Korean smugglers who wade the river border into China to barter for their food.  It includes products as legal and innocuous as Yano’s snow crabs and as dangerous as smuggled drugs delivered to Japan’s coast line by unmarked ships.

[But each year] North Korea makes missile sales estimated to bring in anywhere from several hundred million to $1billion.  Its customers, intelligence agencies say include Libya, Iraq, Iran, Yemen and in the past, Pakistan. 

Japanese importers pay the North Koreans with bundles of cash or with bartered goods such as food, sports shoes or a bike for the sailors, or generators.  30,000 large crabs are worth about $4,000.

Seafood is the biggest component of Japan’s $370 million annual trade with North Korea, which brought the DPRK’s ships to Japan 1,200 times last year.

South Korea has $350 million in trade with the DPRK.  Most of it from sending textiles to the north and buying finished clothes. 

China reported its trade at $730 million, and that is just the legal trade.  It used to be food and oil, now it is everything: pots, pans, shampoo.

Many intelligence analysis believe that smuggling is orchestrated directly by powerful North Korean officials.  Japanese claim they manufacture methamphetamines.

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According to the Chosun Ilbo (2002-11-21):

It has been learned that North Korea recently opened a branch office of the (North) Korea Trade Bank in Dandong, China across the border from Sinuiju, a step tied with the designation of Sinuiju as a special administrative region. The only bank in the North specialized in foreign currency and responsible for exchange rates, the Korea Trade Bank opened its Dandong branch in October under the a judgment that promotion of economic cooperation with Dandong is a prerequisite to success for the Sinuiju capitalism experiment, said South Korean government officials.

The officials saw the step as indicating Pyongyang’s will to develop the Sinuiju SAR despite the detention of Yang Bin, the first administrative officer of the SAR. The Korea Trade Bank is empowered to conclude agreements with foreign financial institutions under accords reached between governments involved. The bank’s recent opening of its branch office in Dandong, accordingly, indicates that China, which originally opposed to the Sinuiju SAR, is in favor of it now.

The Korea Trade Bank’s Dandong branch is expected to handle not only inducement of foreign investments into the Sinuiju SAR, but also North Korean corporations’ exports to China via Dandong, observed the officials.

The article used as a source for this post has since been removed from the Choson Ilbo web page.

Time
Donald McIntyre
10/19/2002

Lee Mi Young crossed the Tumen River from North Korea into China a month ago. Now she is hiding in a safe house in China, getting help from a Chinese-Korean missionary, and hoping to start a new life. She is terrified to be talking to the first foreigner she has ever seen, more so because she is painting a negative picture of her country. She could be executed in North Korea for this conversation (Lee Mi Young is a pseudonym).

In her mid-30s, with pretty, bright brown eyes and carefully stenciled eyebrows, Lee says she left North Korea because she was tired of never having quite enough to eat. Things are better than they were during the famine of the mid-’90s, but they have begun to deteriorate since July when North Korea announced a series of economic reforms that many observers said signaled the start of a serious effort to fix the country’s collapsed command economy. The government raised the salaries of workers such as miners and teachers, increased the cost of state rations such as rice and allowed the North Korean won to fall to about 150 to the dollar, much closer to its real black-market value than the 2.5 won to the dollar at which it had previously been pegged.

Lee says that in her hometown north of Pyongyang (she prefers we don’t name it) the price of grain in the black market has risen, but people can’t afford to buy it: Although salaries have been raised, the government has only actually paid them once since July. People need to supplement meager government rations with rice bought at exorbitant prices on the black market. “This was a reform for the rich,” says Lee. “Things are worse than before.”

Kim Jung Il is still fully in control of the country, analysts say. There are periodic reports of small signs of dissent — anti-government leaflets and graffiti, for example. Some defectors say family members will complain among themselves and possibly with friends. But North Korean defectors say that everyone is aware that anybody caught protesting publicly will be sent to a harsh prison camp, where they will be joined by members of their family. Lee, the young woman who fled last month, says she saw an old lady standing in line waiting for rations in August who suddenly said: “It is so difficult to live here. I can’t stand this.” Almost immediately, a man came up, tapped her on the shoulder and led her away. Other members of her family later disappeared without explanation.

What has changed in the past few years is the amount of knowledge about the outside world flowing into the country. Hundreds of aid workers have been in and out of the country in recent years, bringing with them new ideas and information. Thousands of North Koreans have crossed across the Tumen River into China attempting to flee or simply looking for food. Many come back not only with food, but also bearing tales of the wonders of China’s booming cities and stores brimming with goods. According to one defector, Chinese-Koreans are bringing cell phones into North Korea, using them along the border and even leaving them behind for relatives to use — in a country where ordinary people don’t have landline phones in their homes.

For impoverished North Koreans, China’s flashy modern cities seem like paradise and many dream of going there. There is much more knowledge about South Korea as well. North Korean propaganda for years portrayed the South as a land of beggars oppressed by a rich elite. Many average North Koreans now know that isn’t true, according to defectors. One reason: North Korean sailors, traders and workers who have been to places like Cuba and Libya come back with video tapes of American action movies. These are secretly circulated, with eager audiences gathering at the house of the very rare family rich enough to have a VCR player, sometimes with an English-speaker on hand to translate the dialogue. A record 600 North Korea defectors arrived in Seoul last year — this year’s figure could top 1,000.

Some analysts argue the clash in the West Sea on June 29 (in which North Korea patrol boats fired on South Korea naval vessels, killing five sailors) was the work of disgruntled military leaders trying to warn Kim Jong Il to keep a lid on change. The conventional wisdom has always been that North Korea is afraid to open the door a crack because the system could unravel so quickly. Some defectors and aid workers report that there is a sense of instability and uncertainty in the country right now. Rather than the start of reform, we may be seeing a country starting to unravel already.

When I visited Pyongyang in August, it looked better than it had even six months earlier. There were open-air restaurants offering grilled meat — just like in Seoul — and people looked healthy and even vibrant. But the capital has always been an oasis reserved for party members and North Koreans loyal to the regime. Aid workers and diplomats say smaller cities lack regular electricity and people still can’t get enough to eat. They probably aren’t starving but malnutrition remains widespread.

North Koreans who live in the countryside may be marginally better-off than their urban cousins, because they are able forage for wild plants in the mountains and are allowed to grow vegetables on small private plots. Life is harsh for city dwellers dependent on the industrial economy. On the road from Pyongyang to the northeast corner of the country, you pass mile after mile of rusting factories — probably less than one third of the country’s factories are actually running.

A Korea-American businessman who visited the city of Kaesong recently was shocked to learn it had had no electricity for 10 days. The only electric lights shining at night in Kaesong those illuminating monuments to the late “Great Leader” Kim Il Sung. Many city have electricity at certain times of the day. Foreign reporters who visited Shinuiju last month, for the unveiling of a plan to turn it into a free economic zone designed to lure investors, were struck by the contrast with the neighboring Chinese city of Dandong. Dandong at night is a blaze of lights; across the river, Shinuiju is in near-total darkness. Apartment blocks in Pyongyang are lit at night these days, but there are few lights outdoors — except, of course, those illuminating the gigantic statue of the “Great Leader.”

To make a go of “special economic zones” such as Shinuiju, North Korea needs to massive foreign investment to rebuild its electrical grid and other key infrastructure. The country has never been self-sufficient in food and needs an industrial economy to make fertilizer to boost agricultural yield and to finance food imports to make up the shortfall. But the disappearance of foreign subsidies following the collapse of the Soviet Union saw a rapid de-industrialization — until the late 1960s, it had been ahead of South Korea economically. North Korea is now dependent on international food aid and donations of fertilizer, and desperately needs to get on the right side of the U.S. in order to get the loans it desperately needs from the World Bank — loans that the U.S. is now blocking. That has many South Korean analysts suggesting that the reason Pyongyang sudden nuclear confession is precisely that it hopes to put its nuclear weapons program on the table and trade it away for economic gains and security guarantees from Washington.

From the BBC:

North Korea has reportedly sent a delegation of bankers to China to study financial reform.  The eight-strong team from North Korea’s central bank has arrived in the Chinese capital on a three-month study tour, the Financial Times reported.  The bankers’ mission is the latest sign that communist North Korea may be considering fundamental reforms.

An executive of one of China’s top four commercial banks who has met the Korean team as saying they are “very keen to learn”. The Chinese banker added: “But it feels strange for us as we are students of financial reform too. The student has become the teacher.”

The North Korean team is thought to be visiting China’s top four commercial banks – the Bank of China, the Industrial and Commercial Bank of China, Agricultural Bank of China and China Construction Bank.

They have reportedly asked how many customers a bank would need, highlighting the fact that North Korea’s banking system is at a rudimentary stage.

From our friends at the U.S. Embassy in Seoul:

North Korean financial institutions
U.S. Embassy; Seoul, South Korea
Flash Fax Document Number: 5711
Date: April, 1995
——————————————————————————–

1. This cable summarizes information obtained from meetings with Korean Development Institute (KDI) officials as well as from two unclassified publications:
— “Status of North Korea’s financial system and expected reform in North Korea’s financial world in case economic integration takes place,” written by Dr. Chun Hong-Taek, and published by KDI in January 1994. Chun notes that his information is from open sources as well as interviews with South Korean companies that have done business with North Korea.

— “North Korean trading companies and financial institutions,” published by the National Unification Board (NUB) in October 1994. The NUB notes that the data in its publication is based on contract forms between South and North Korean trading corporations and other open sources, such as “Foreign trade of the DPRK” (published by the DPRK International Trade Promotion Committee, editions of January 1993 to June 1994) and “Directory of DPRK Foreign Trade Organizations,” (published in March 1994 by Japan’s East Asian Trade Society).

2. A few observations about the information:

— It provides a snapshot of individual North Korean financial institutions, such as a bank’s areas of specialization (if any), its address, key personnel, and its correspondent banks overseas. It does not provide information on current financial transactions.

— There are some differences in the information provided by the KDI and NUB, especially regarding subordination/jurisdiction. For example, the KDI publication notes that all banks are subordinate to the Central Bank, which itself is subordinate to the State Administration Council (SAC). The NUB, however, indicates that some banks are directly responsible to the Central Bank, while others are responsible to the SAC.

— Neither the KDI nor NUB publication lists any North Korean financial institution as having a correspondent agreement with Ashikaga Bank in Japan — a relationship that has been discussed in the press.

— Because of the date of information, newly created banks, such as the Ing-North East Asia Bank (reftel), are not included below.

— Likewise, the KDI and NUB include the names of several banks that may not be currently operating (such as Lyongaksan Bank), may have merged, or may have been renamed. 3. According to KDI officials and the two documents mentioned above, North Korean financial institutions include:

The Central Bank
4. Its title in English is the “Central Bank of the Democratic People’s Republic of Korea.” The CB is located In the central district of Pyongyang. Its telegraphic address is central bank. The CB operates 227 branches throughout North Korea, including P’yongyang, Ch’ongjin, Haeju, Hamhung, Hyesan, Kaesong, Kanggye, Namp’o, Najin, Sariwon, Sinuiju, and Wonsan. According to NUB, CB’s President is Chong Song-t’aek.

5. Established in 1946, the CB falls under the jurisdiction of the State Administration Council. Organizationally, the CB consists of three departments (Cadre Affairs, Material Supply, and Finance) and 14 Offices (coordination/planning, floating fund, Construction fund, repair fund, technology, currency control, banknote issue, fixed assets, savings/insurance, bookkeeping, inspection, business, and mobilization).

6. As a central bank, it is responsible for issuing bank notes, regulating currency in circulation, handling matters related to payment of accounts on a national level, making the government’s budgetary payments, and purchasing/managing precious metals. The Central Bank also operates as: a “special bank” by supplying state funds; a “commercial bank” by accepting deposits and lending money; a “state auditor” by exercising financial control in matters regarding the use of state funds; a “state property manager” by registering and evaluating the fixed assets of state institutions and enterprises; and as an “insurance institution” by handling domestic insurance matters–including property insurance for cooperative farms and factories and accident insurance for working Persons between 16 and 65 years old.

7. (FYI: according to KDI, there are four kinds of savings accounts available at the CB and north Korean Post Offices: ordinary savings accounts carrying 3.0 percent interest per year; long-term savings accounts carrying 3.6 percent interest per year; time deposit accounts carrying 4.0 percent interest per year; and a lottery-type deposit whereby the subscriber-if he/she draws a winning number in a lottery held every quarter–is paid a prize instead of interest.)

8. Funds lent by the CB to North Korean enterprises come from three sources, including the state budget, savings accounts, and insurance premiums. If an enterprise suffers a temporary cash flow problem while implementing Its projected economic plan, it can go to the CB because — according to KDI — the CB is the only supplier of state budgetary funds and money needed for financing national economic plans comes out of the state budget.

9. The NUB publication lists a firm named “Eunbyol Corporation of the Central Bank of the Democratic People’s Republic of Korea.” It is located in the central district of P’yongyang, its telex number is 5965 zu kp, and its telephone numbers are 33946 and 36882. According to the NUB, Eunbyol accepts orders for the manufacture of memorial coins. (Comment: The relationship between Eunbyol and the Central Bank is not further defined.)

Trade Bank (aka Korea Trade Bank)
10. The Korea Trade Bank’s (KTB) title in English is the “Foreign Trade Bank of the Democratic People’s Republic of Korea.” The bank is located in the central district of P’yongyang. Its telegraphic address is Mooyokbank Pyongyang; its telephone numbers are 32588, 34531, and 36508; its telex is 5460, 5465, 5477 and 36032 muyok bk kp; and its fax number is 814467. KTB’s president is Kim Ung-ch’ol, and its vice presidents are Kim Chun-ch’ol, Kim Myong-po, Pak Yang-sok, and Kim Yun-sik.

11. KTB was established in November 1959. The bank comes under the Central Bank’s jurisdiction, although KDI officials believe that the bank is now operating with less Central Bank oversight. According to KDI — KTB actually functions like a central bank’s foreign exchange department because its responsibilities include settling accounts in trade and invisible transactions, exercising control in matters regarding foreign exchange acquisition and disbursement, setting and announcing foreign exchange rates, and issuing foreign exchange convertible notes that can be used only by foreigners while staying in north Korea. According to NUB, KTB was once involved in trade with South Korea, such as selling gold and silver nuggets.

12. In order to settle its trade accounts overseas, KTB has correspondent agreements with foreign banks, including 18 banks in Japan, which (as of March 1993) the NUB identified as Sanwa, Tokyo, Sakura, Mitsubishi, Fuji, Daiichi-kangyo, Tokai, Sumitomo, Asahi, Saiwa, Hokkaido Takushoku, Nihon Kogyo, Nihon Long-term Credit Bank, Itsui Trust, Sokuri, Hyogo, Hokkuriku, and Norin Chuou Kinko. According to KDI, other foreign banks include Great Britain’s Lloyds and Standard Chartered, Germany’s Deutsche and Commerze, France’s BNP and Credit lyonnaise, Switzerland’s SBC and UBS, Austria’s Creditanstalt Bankverein and Girozentrale Vienna. KTB also has correspondent agreements with unidentified banks in Hong Kong.

Daesong Bank
13. This bank’s title in English is “Korea Daesong Bank” (KDB. It is located in the central district of P’yongyang. Its telegraphic address is Daesongbank Pyongyang; its telephone number is 43002; and its telex is 36023 and 37041 kdb kp. According to the NUB, KDB’s President is Kim Myong-hui, its vice president is Chang Kon-il, and its chief managing director is Ch’oe Su-kil. (comment: according to KDI, the KDB’s top managers traditionally hold high posts within the KWP, and these persons are typically more influential than other government officials.)

14. Established in November 1978, KDP comes under the Central Bank’s jurisdiction. The bank settles accounts for trading and shipping companies, such as Korea Daesong Trading Corporation, Korea Tonghae Shipping Company, and Korea Mangyong Trading Corporation. The bank was also once involved in trade with South Korea, such as selling gold and silver nuggets

15. (Comment: the KDI and NUB publications say that KDB is under the Central Bank’s jurisdiction, but the NUB write-up on Korea Daesong General Trading Corporation (KDGTC) notes that KDGTC operates a bank, most likely referring to Korea Daesong bank. Moreover, the NUB says That kdgtc itself is under the jurisdiction of the Daesong General Bureau, Office 39, KWP Central Committee.)

16. KDB operates a branch/affiliate in Vienna, Austria, named the Golden Star Bank. It also operates a branch of the Korea Daesong Trading Corporation in Hong Kong, according to KDI. In addition, KDB has correspondent relations with banks in Japan (Tokyo, Sanwa, and Sokuri), In the United Kingdom (Midland, National Westminister, and Standard Chartered), in Germany (Deutsche Bank) and in Switzerland (Swiss Bancorp). It also has correspondent relations with unidentified banks in Bombay, Frankfurt, Hong Kong, London, Paris, Singapore, Stockholm, and Vienna.

Changgwang Credit Bank
17. Its title in English is “Korea Changgwang Credit Bank” (KCCB). The bank is located in P’yongyang. Its telegraphic address is Changgwang credit; its telephone number is 31477; its telex is 36016 kccbc kp; and its fax number is 814414. According to NUB, the chairman of Korea Changgwang Credit Bank (KCCB) is Sin Ho and its president is Maeng Pok-sik.

18. According to NUB, KCCB was established on 25 February 1983 and deals in international financing – making exchange transactions in Beijing, Copenhagen, Frankfurt, Geneva, Hong Kong, London, Milan, Rome, Singapore, Stockholm, Tokyo, and Vienna. KCCBC also has 172 branches. (Comment: the NUB publication does not specify whether these branches are located in North Korea or overseas.)

19. (Comment: Although KDI’s banking document does not contain any details on KCCB or its activities, a KDI official told Emboffs that he considers KCCB to be the richest bank operating in North Korea — primarily because it is associated with the military (NFI).)

Koryo Commercial Bank
20. The bank’s title in English is “Koryo Commercial Bank Ltd.” This bank is located in Taedonggang District, P’yongyang. Its telegraphic address is Koryo bank; its telephone number is 32060; its telex is 36019 kcb kp; and its fax number is 814441. According to NUB, the bank was established in 1988, jointly financed by the DPRK and a Group of Korean residents in the United States. Its business reportedly is to issue “National Reunification Fund” bonds.

Credit Bank
21. The Credit Bank’s title in English is “Credit Bank Of Korea.” It is located in the Taedonggang District of P’yongyang. Its telegraphic address is credit bank; its telephone number is 814285; its telex is 5939 cbk kp; and its fax number is 817806. The president of Credit Bank is Pak Ki-chu.

22. Credit Bank was first established in September 1986. It was initially called the International Credit Bank, but its name was changed to its present form on 23 August 1989. Dealing in international finance, the Credit Bank does exchange transactions in cities around the world, including Amsterdam, Brussels, Frankfurt, Hong Kong, London, Milan, Moscow, New York, Paris, Tokyo, Vienna, and Zurich. The Credit Bank also was once Involved in trade with South Korea, selling gold nuggets to it.

Kumgang Bank
23. Kumgang bank is located in the central district, P’yongyang. Its telegraphic address is Kumgang Pyongyang; Its telephone numbers are 32029 and 32797; its telex is 5355 kgbk kp. Kumgang Bank settles accounts for export-import transactions of North Korean trading corporations, including Korea Pyongyang Trading Corporation and Korea Ponghwa General Trading Corporation.

24. According to the NUB, Kumgang bank was established in September 1978. Its subordination is not clear as the NUB says it is under the state administration council’s jurisdiction, while KDI says it is under the Central Bank’s. (Comment: to further complicate the issue, the NUB document notes in its write-up of Korea Ponghwa General Corporation (SEPTEL) that Ponghwa itself operates the Kumgang Bank.)

Nagwon Financial Joint Venture Corporation
25. According to the NUB publication, Nagwon was established in October 1987, jointly financed by Korea Nagwon Trading Corporation and a Japanese firm “Palace.” Its subordination is not clear as NUB says it is under the State Administration Council jurisdiction, while KDI says it is under the Central Bank’s. The bank accepts deposits, remits money, and provides financial services to joint venture projects, trading corporations, and companies run by overseas compatriots.

26. (Comment: The KDI publication does not provide information on this firm. Instead, it notes that a bank named Korea Ragwon Kumyung Company (aka Korea Ragwon Financing Company) operates in North Korea, but information on its activities is not available. It is not clear whether the NUB and the KDI firms are one and the same.)

Yongaksan Bank (aka Lyongaksan Bank)
27. This bank was established in February 1983. It settles trade accounts of trading companies, including Yongaksan Trading Corporation.

T’ongil Palchon Bank (aka Korea Tongil Paljon Bank)
28. (Comment: T’ongil Palchon means “reunification and development.” Based on the information below, this bank is probably the same as “United Development Bank” which was formed in November 1991 between Ruby Holdings (now known as China Strategic Investments) and Osandok General Trading Corporation.)

29. According to NUB and KDI, T’ongil Palchon Bank (TPB) is a joint venture between Hong Kong’s Ruby Holdings Company and North Korea’s Osandok General Bureau. The two publications differ regarding the bank’s financing and subordination: –NUB says that TPB was jointly financed; KDI indicates that Ruby Holdings financed 51 percent of TPB’s US $30 million capital, with Osandok financing the remaining 49 percent. (Comment: According to the KDI publication, China’s International Trust and Investment Corporation (CITIC) had an option to buy into the joint venture, but it is not clear whether CITIC ever did so.)

— The NUB says TPB falls under the State Administration Council’s jurisdiction; KDI says TPB is subordinate to the Central Bank.

30. According to KDI, TPB deals in general trade, including the import of advanced technologies (NFI). It also operates an affiliate, Korea International Trust Investment Corporation (KITIC). KDI notes that North Korea appears interested in learning market financing techniques because the holding company of the joint venture partner (Ruby Holdings) is Indonesia’s Sinarmas (phonetic) Business Group which owns the Bank International Indonesia. (Comment: KDI defines “financing techniques” as ones required for inducing foreign capital.)

Habyong Bank
31. Habyong Bank’s title in English is “Korea Joint Venture Bank” (KJVB). It is located in the Central District, P’yongyang. KJVB’s telephone numbers are 33052 and 39620; its telex is 36001 kjb kp; and its fax number is 814497. The bank’s vice president is Pak Il-nak, who the NUB document says is from the Chosen Soren.

32. KJVB was established in April 1989. The NUB and the KDI publications differ on the names of the joint venture partners:

— The NUB says that the bank was formed by the Chosen Soren and its affiliate, the Federation of Korean Traders and Industrialists in Japan. The North Korean partner is the State Administration Council’s Joint Venture Industry General Bureau.

— KDI notes that KJVB was jointly financed by the Chosen Soren’s Joint Ventures Promotion Committee and North Korea’s Korea International Joint Venture Company.

33. The bank functions as an international financial institution, providing financial assistance for North Korea’s joint venture projects and settling domestic and foreign accounts for joint venture companies. According to NUB, the bank also conducts economic surveys. KJVB operates branches in North Korea, including Hamhung, Sariwon, Sinuiju, Wonsan, P’yongsong, and Ch’ongjin. It also has correspondent relationships with some 30 foreign banks, including Japan’s Sokuri Bank, Hong Kong’s Maritime Commercial Bank, and China’s Bank of China.

Kukche Insurance Company
34. This firm’s title in English is “Korea Foreign Insurance Company” (KFIC). It is located in P’yongch’on District in P’yongyang. Its telegraphic address is chosunbohom; its telephone numbers are 36147, 38805, and 45501; and its telex number is 5464 bohom kp. KFIC’s president is Paek Myong-non, and its vice presidents are Yi Sang-chu and Pak Kun-pae.

35. According to NUB, KFIC handles insurance matters involving ships and export-import cargos and reinsurance issues involving foreign insurance companies. It also does business with some non-life insurance companies in Japan regarding reinsurance matters. KFIC operates branches at major ports, including Namp’o, Hungnam, Ch’ongjin, Najin, and Haeju.