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Kim Jong il taking in Chinese economy

Friday, January 20th, 2006

Speculation was rampant this week on the whereabouts of Kim jong il. No one knew for sure really…First he was Beijing via his special train, then he was in Russia, others claimed it was Shanghai by air. It turns out he was in southern China (by train). As usual, the “unofficial” trip, from January 10-18, and itinerary were made public just as Kim was to return home.(source)

According to the Washintgon Post:
Hundreds of uniformed and plainclothes police swarmed in and around the opulent White Swan Hotel in Guangzhou, capital of Guangdong province, putting up roadblocks leading to the hotel. In the early evening, two of the city’s most luxurious sightseeing ferries — “The Pearl of the Flower City” and “The Information Times,” named after a local paper — cruised slowly down the Pearl River, with Kim rumored to be aboard. Police cars lined roads on both sides of the river.

Where did he visit?
A Guangzhou branch of Sun Yat Sen Univeristy (source)
Yantian container port (source) (Guangzhou)
Wuhan and Yichang, Hubei province (source)
Beijing (source)
Three Gorges Dam (source)
High-tech factories and agricultural research institute (source)
Yantian Port (source)

What was the purpose?
The visit has prompted speculation that China is advocating market reforms for Pyongyang and could also urge it to rejoin stalled nuclear negotiations.

Mr Kim’s visit to the cradle of the Chinese boom could be a careful hint to the outside world that he is following Beijing’s lead, says the BBC’s Louisa Lim in Beijing. (source)

“There is a debate in North Korea as there was in China at one time about how far and how fast they should go,” said Chung Jae Ho, an international relations expert at Seoul National University. “But I think this is a signal that this is the right time for a new opening.”(source)

He said one possibility widely discussed among experts was that North Korea would try to create a capitalist-oriented trading zone on its western coast, near China, modeled at least loosely on Shenzhen, which borders Hong Kong.(source)

Kim also held meetings with President Hu Jintao and all other eight members of the governing Politburo Standing Committee as well as tours of two Chinese provinces.

U.S. Assistant Secretary of State Christopher R. Hill, made an unscheduled trip to Beijing and met with his North Korean counterpart, Vice Foreign Minister Kim Gye Gwan, in a session hosted by the Chinese, diplomats said. (source)

Kim Quote:
“The progress made in the southern part of China, which has undergone a rapid change, and the stirring reality of China deeply impressed us”

Posted in China, Economic reform | Comments Closed

DPRK “Soprano” State accusation

Wednesday, January 18th, 2006

North Korea, the ‘Sopranos’ state
Asia Times
By Todd Crowell

When US Ambassador to South Korea Alexander Vershbow recently called North Korea a “criminal regime”, he was not speaking metaphorically. He was not talking about the North’s abysmal human-rights record, illegal missile sales or efforts to acquire nuclear weapons.

No, he was talking about crime – as in counterfeiting US banknotes and cigarette packages, money-laundering and drug-trafficking. These issues have suddenly risen to the forefront of Washington’s agenda and become a major stumbling block in the renewal of the six-party nuclear-disarmament talks.

In September, Washington named Macau’s second-largest bank, Banco Delta Asia, as being “a willing pawn for the North Korean government to engage in corrupt financial activities through Macau”. It said senior bank officials were working with Pyongyang “to accept large deposits of cash, including counterfeit US currency, and agreeing to place that currency into circulation”.

In mid-December, the US Treasury Department issued a formal advisory concerning North Korea’s illegal activities and cautioned US financial institutions to take “reasonable steps to guard against the abuses of their financial services by North Korea, which may be seeking to establish new or to exploit existing account relationships”.

It was reported this month that a delegation of agents from the US Secret Service, which is responsible for counter-counterfeiting as well as protecting the life of the president, will travel to Seoul to meet with South Korean authorities over counterfeiting. Visits of this nature are not usually broadcast in such a public fashion.

Meanwhile, Pyongyang says it won’t return to the six-party talks unless the US lifts restrictions against its financial institutions, including those directed at eight state-owned trading companies that Washington cited in October as being involved in weapons trafficking, especially banned missile technology.

Rumors of North Korean counterfeiting and drug-trafficking have been circulating in Asia for years. Anyone who lived in Hong Kong for many years has heard them from time to time. North Korean companies have a long history of operating in the former Portuguese enclave of Macau, which for decades served the regime as a key window to the outside world.

The Zokwang Trading Co was considered Pyongyang’s de facto consulate in Macau, and the relationship between Zokwang and Banco Delta Asia is no secret. As far back as 1994 the bank found thousands of bogus US$100 bills allegedly deposited by a North Korean employee. The director of the Zokwang Trading Co was held and questioned, but no charges were pressed.

There have been several more recent instances of alleged North Korean counterfeiting.

Last April, the Japanese media reported that a hundred or so fake $100 bills were found among a stack of used currency aboard a North Korean freighter that called at a Japanese port in Tottori prefecture. The captain was reported telling police, “We were asked to bring the money to Japan so that the money could be paid for cars and other items.”

Also in April, a large stash of bogus notes was uncovered in South Korea. The Chosun Ilbo, which reported the story, did not say where or under what circumstances the money was found, though it went into great detail over the quality of the notes and quoted experts as saying it was “highly likely” they came from North Korea.

In August, the Federal Bureau of Investigation reported two “sting” operations in the US, colorfully described as Operation Royal Charm and Operation Smoking Dragon. The US government indicted 59 people on charges related to smuggling counterfeit US currency, drugs and cigarettes into the country. The announcement did not specify their origin, but other accounts have speculated that they came from North Korea.

David Asher, head of the US administration’s North Korea Working Group, published a lengthy essay in mid-November in which he described what he called “an extensive criminal network involving North Korean diplomats and officials, Chinese gangsters and other organized crime syndicates, prominent Asian banks, Irish guerrillas and a KGB agent”.

“North Korea is the only government in the world today that can be identified as being actively involved in directing crime as a central part of its national economic strategy and foreign policy … in essence North Korea has become the Sopranos state – a government guided by [Korean] Workers Party leaders, whose actions attitudes and affiliations increasingly resemble those of an organized-crime family more than a normal nation.” The Sopranos is a popular US television series about an organized-crime family.

But why is Washington suddenly pushing decades-old suspicions at this particular time? In September, Christopher Hill, the senior US negotiator at the six-party talks, announced a breakthrough in the negotiations. North Korea had agreed in principle to disarm in exchange for recognition and aid. That same month the Treasury Department issued a warning against dealings with the Macau bank.

In October came the sanctions against the eight North Korean trading companies. Also in October, Vershbow arrived in South Korea, and the new US ambassador quickly developed a reputation for making provocative statements. In November, the six-party talks quickly foundered on Pyongyang’s demands to lift sanctions.

No doubt American officials would solemnly swear they are motivated by a desire to protect the integrity of the US currency and nothing else. But even if the allegations are substantially true, which probably is the case, isn’t this really penny-ante stuff set against the much larger issue of North Korea’s nuclear-weapons program?

None of the other participants in the six-party talks has expressed any public concern about Pyongyang’s crimes. That includes Japan, which not only is supposedly the target of counterfeit money but also is on the receiving end of drugs manufactured in North Korea. (Japanese estimate that nearly half of the country’s illegal drug imports originate from there.) Yet it has said nothing.

Last week, the Chinese Foreign Ministry was forced to deny a report printed in the South Korean media that its government had found evidence of North Korean money-laundering in Macau. “China has never indicated that the government had confirmed North Koreans using Macau for money-laundering,” the ministry statement said.

Vershbow has likened North Korea to Nazi Germany as being only the second state-sponsored counterfeiter. He was referring to an operation whereby concentration-camp inmates forged millions of US dollars and British pounds to disperse in England in an effort to ignite inflation there and harm their enemies’ economies.

Yet the highest figure I have seen for the North Korean counterfeiting is the $45 million (over a decade) reported in the Washington Times, which is nothing set against the vast sums of dollars sloshing around Asia. Indeed, I’ve never heard even a whisper that North Korean counterfeits were affecting world currency markets or the value of the dollar in the slightest way.

It’s hard not to believe that the US administration is again listening to more hardline elements after a brief ascendancy of the “realists” in the State Department. Their purpose is to neutralize the talks (how does a nation negotiate with a criminal gang, after all?) and shift the issue away from nuclear disarmament back to the nature of the regime – with the ultimate objective of toppling that regime.

Todd Crowell comments on Asian affairs.

Posted in Banking, China, Counterfeiting, USA, Zokwang Trading Company | Comments Closed

what is stopping DPRK reform?

Wednesday, January 18th, 2006

According to Han Young Jin, Reporter, Defector from Pyongyang
in the Daily NK:

Interview 1:
Kang Min Jun (pseudonym, age 65), a former executive of “Keumgang Jewelry Processing Co.”, a North Korea-China state cooperative factory asserted that Kim Jong Il’s visit to China is a mere gesture.

“I participated in the National Economic Sector Officials Seminar held in Pyongyang, and it was before the 2002 7.1 Economic Measure was announced. The central party officials who came to educate us said, “Reformation and liberalization does not fit into our revolution reality so do not expect it to happen.” Unless the North Korean regimes changes, reformation and liberalization will remain as a dream,” Kang said.

“After his 2001 visit to China, Kim Jong Il praised China’s changes calling it, “heaven and earth reversed” and called on three hundred professors and experts from Pyongyang People’s Economy University and Wonsan Economics University and made them visit China and study economics. They came back and during their discussion for reformation, their study was abandoned due to the four principles the Party insisted never to be violated.”

The four principles Kang presented are as the following.
1. Planned economy must never be abandoned.
2. Private ownership by the people cannot be permitted.
3. Liberalization of individual economy must not be allowed.
4. The Public Distribution System (food distribution system) must not be abandoned.

Interview 2:
“Whenever he is in trouble, Kim Jong Il makes an event. Right now, Kim Jong Il is in a deep trouble. Nuclear issue, counterfeit issue, Banco Delta Asia fund freeze, human rights issue, food issue and all the problems are now come together. The only way to solve these problems is siding with China. If North Korea is determined to reform, it could be have just made foreign investment attraction policy instead of making a trip all the way to China.”

Posted in Economic reform, Foreign direct investment, Private property, Public Distribiution System (PDS), UN World Food Program | Comments Closed

Price information

Saturday, December 31st, 2005

Here is more commodity price information courtesy of Open Radio for North Korea:

Agricultural and houselhold commodities:
1) Rice
-Shin Eui Joo: The price rose from 850 won/kg (18th) to 900won/kg (31st)/ whole sale price: 620won/kg
-Bak Chun Gun: October: 1000won/kg, November 800won/kg (trading rice was banned in October with resumption of food distribution system, which caused the rising price.)
-Pyeongyang: Honammi 800won/kg Annammi 680won/kg

2) Corn
-Shin Eui Joo: 400won/kg (December)
-Bak Chun Gun: 350won/kg (November)

3) Pork
-Shin Eui Joo: 3,300won/kg (December)
-Bak Chun Gun: 3,500won/kg (November)

4) Beef: 7,000won/kg (Beef is seldom sold at markets, but was temporarily out in the black market for new year’s holiday season.)

5) Cooking Oil
-Shin Eui Joo: 2,300 won/kg (November)/Yellow Oil
-Bak Chun Gun: 2,500won/kg (November)/Yellow Oil

6) Seasoning
-Same in the region of Shin Eui Joo, Sah Ree Won, Bak Chun Gun: 2000won/bag(200g)

7) Underwear
-Bak Chun Gun: Brassiere: 4,000~6,000won, Children’s underwear: 5,000~6,000won
-Shin Eui Joo : Underclothes: 10,000~15,000won/piece, 20,000~30,000won/set

8) Socks
-Bak Chun Gun: 500~2,000won/pair (socks for winter)

9) Shoes
– Bak Chun Gun: high quality: 15,000won, poor quality: 3,000~4,000won/ Handmade: 2,500won

10) T.V
-Shin Eui Joo: the same as November

11) Price of house and rent
-Shin Eui Joo: One storied house (1 Room, 1 Kitchen): $600, Apartment (2 Rooms, 1 Kitchen): $1,500, Well-located apartment (3 Rooms, 1 Kitchen): $10,000~15,000(able to bargain), 100 Sq.m- apartment: $12,500 (90,000~100,000 Chinese Yuan)
-Sa Ree Won: 100 Sq.m apartment $8,750 (70,000 Chinese Yuan)
-Bak Chun Gun: One storied house (2 Rooms, 1 Kitchen): around $100, Three storied apartment: around $150~200

Footnotes:
1. A middleman receives 10% of the purchase as compensation. If one moves to a purchased house, one needs to receive a certificate which records that you are allowed to live in the house from a police officer in charge of registration in the neighborhood, usually the payment is one mal(10du/15kg) of rice.
2. Expense for making Kimchi(Bak Chun Gun): Chinese cabbage 200won/head, Red pepper powder 2500won/kg, garlic 3,000won/100heads, ginger 300won/kg, salt 350won/kg, sugar 1,000won/kg, salted anchovies 1,500won/kg, scallion is raised at home. Approximately 40,000~45,000won is expended for making 150 heads of Kimchi (usually consumed with rice, and is made with pepper, scallion and salted anchovies), for family of four.

Local Fees and Markets:
1) Electricity- Bak Chun Gun: 10won/lightbulb, 70won for black and white TV (per quarter)

2) Water- Bak Chun Gun: flat rate of 200won per house (per quarter)

3) Tax on land – Bak Chun Gun: 200won/2.5 Sq.m (per month)

4) Payment for spot at markets (Bak Chun Gun)

5) Exchange rate for Renminbi and US dollar
Shin Eui Joo: 2,900won/$ (November 1: 2,715)/ Rinminbi 360won/yuan (November 1:320)/ 3600won/Euro

Footnotes:
1. No payment at markets, but general tax is imposed. 20won/day for agricultural products, and tax for industrial products vary according to the goods.
2. Spots in Markets are rarely traded. For people starting their business at the market, relationship with the manager is important. When business with the manager was successful, managers make a spot for them by making others’ spots smaller.

Health Care and clothing:
1) Medicine for cold and antibiotics (Bak Chun Gun)
-Medicine for cold: Chung Yeong Poong 10won/pill (Adults consume 2 pills)/ Antibiotics: Penicillin 100won per ampoule/ Distilled water: 30won
-Antibiotics: when one receives an injection of 1 ampoule of Penicillin mixed with distilled water, the doctor is paid 100won aside from the price of medicine.

2) Bribe paid for medical examination and basic treatment (Bak Chun Gun)
-5000won for releasing a medical certificate, 350won for 1 injection (ex, glucose 500g), 100won for Penicillin

3) Stationaries (Bak Chun Gun)
-Won Joo Pil( Ball Pen): 250won, Notebook (paper made of straw): 5won/20pieces, Hand-made bag in North Korea, 2,000~3,000won, Uniforms used to be purchased at a flat rate set by the government with a coupon, but uniform is seldom sold at a shop these days. People usually purchase fabrics of appropriate color and size, and hand made the uniforms. (official state rate for elementary school uniform used to be 1,500won)

Monthly tuition and expense (Bak Chun Gun) :
-No monthly tuition is officially required, but some parents give some money to the teachers privately and school requires the students to prepare various materials.
– Club activity: the students need to pay 5,000won every month. (If one participates in cell activity, he/she is exempted from external labor or social labor ).
– Monthly payment is 10 bundles of firewood/Iron 3kg/Vinyl 1kg/Rubber 1kg
– -Students who fail to bring the materials are returned home without being allowed into the class.

Electricity:
-Shin Eui Joo: same as November
-Bak Chun Gun: Electricity was provided throughtout all day despite frequent blackouts occurred in the summer. / Since the beginning of the winter, electricity was provided only between 10:30pm~ 4am due to poor supply. (Mostly, candles are used at night. Candles are 40won each).
– Pyeongyang: electricity is provided for 24 hours, but blackouts occur often. Sometimes, 3~4 hours of blackout occur.

Water Supply:
-In case of Bak Chun Gun downtown, water pipes freeze in the winter. People dig wells for water.
-In case of Pyongyang, peripheral area is provided with water only once or twice a week. (The time when water is supplied is not announced beforehand. People have to watch the faucet on all the time).

Railway system and transportation fee:
-The fare for train from Bak Chun~ Won San with a transfer at Gaema Highland (Where Pyong Buk Sun and Gang Won Sun meets) is 35won, but most of the officials at the station hide the tickets and sell them for 1,000won.
-In order to buy train tickets, one needs to make a reservation a day ahead and stand in line to buy the ticket on the day. However, honored soldiers, soldiers on service and school teachers have priority, and it is hard for common people to buy tickets.
-What is interesting is that a lot of people take the train without paying the fare when moving from Bak Chun Gun to Ahn Joo Gun by Shin Eui Joo-Gae Sung train. It is because no body checks the tickets in this block.

Cars, buses and car fare between major cities:
-Pyongyang: same fare of 5won for subway, train without track
-Bus between Bak Chun ~ Shin Eui Joo runs once a day, and the fare is 2,500~2,800won. Additional 1,000won needs to be paid for one luggage.
-Shin Eui Joo~Nampo/ Roundtrip, once a day, 10,000won
-Shin Eui Joo~Won San/ Roundtrip, once a day/ 12,000won (10,000won possible after bargaining)
-Shin Eui Joo~Sa Ree Won/ Roundtrip, once a day/ 12,000won (10,000won possible after bargaining)
Footnote: No departure time is designated. The train leaves when the train is full.

Lodging:
-Shin Eui Joo: Same as before. Some of the private inns are as well organized as hotel. Chinese Koreans usually use them, and it costs 5,000won per night.
-Bak Chun Gun: State owned inns lacked heating system and was filled with lice, which is why they rarely exist now. Individuals run lodging facilities now (similar to lodging at a private residence)/ they come out to the station in order to invite guests, and it costs 100won per night.

Expense for obtaining travel document:
-Travel document: it costs 10,000won to travel from Bak Chun to Pyeongyang (ten box of cigarettes branded “Cat”)/ if using other ways, 6,000won~8,000won (Jagangdo 7,000won/Chungjin 8,000won/Pyeongsung 6,000won)/ 500won from Bakchun to Shin Eui Joo (Within a province)
-Travel document is not supposed to cost any money, but Municipal adminisrative committee, county administrative committee and officials in charge of the process publicly asks for money/ Only expense for travel documents to Pyongyang is flat rate of 10,000won, and expense for other provinces differ by person.
-Travel document to cross the river: Valid for one month, and cannot be extended/ costs around $100~200, which is not much more than passport or visa. (more money paid, the document is more quickly issued)/ Fee for travel document to cross the river is set for 20,000won by the government.
-When Chinese citizen visited North Korea with the document, extension is only available with a cost of $100 a day. (When one has good relationship with people of National Security Agency or any other relevant organizations, he/she can pay $50 a day) Because of the fee, they rarely extend the document.
-Passport and visa: DPRK passport is valid for 2 months and Chinese visa is valid for 90 days (In North Korea, expiration date on DPRK passport is more important than that on Chinese visa)/ Extension can be made twice, but extension is rarely requested by anyone (Specific reason for extension needs to be provided, which is a lot of work)/ Also, certificate of health is only valid for 4 months, which means that the passport cannot be extended twice/ fee for issuance of passport is set by the government for 40,000won (Some people say 150,000won). But actual expense is $100~500, and the expense varies depending on the region, person (interpersonal skills, ability, relationship with others) and the waiting time to get the passport (1 month~1year)/ Passport is issued in 1~2 months with a payment of $500 for Pyongyang, and 2~3months with a payment of $300 for other regions. / DPRK passport is valid for 2 months, but it is actually issued 1 month after the issue date.
-When visiting China to visit relatives, applicants for passport and travel document to cross the river are classified separately. In case of crossing Yalu River, if the applicant intends to stay in Dandong Province (Dandong, Bongsung, Donggang, Gwanjun) they need to apply for travel document, and if they intends to go farther than Dandong Province and for example, visit relatives in Shenyang and Fushun, they need to apply for passport.
-A case of procedure to obtain travel documents to cross the river and visa (with purpose of visiting the relatives)
-Application and procedure -> Mid March, Fill out the application (Hand $200 to officials at the office of foreign works: Confirmation of the relatives at the office of foreign works, military security office, and military police office, confirmation by a chair of women’s committee, Approval from Provincial Police Office and National Security Agency) -> Issuance of travel documents to cross the river in the beginning of November -> Two-day education in the beginning of November (First day: Exhibition on battle against espionage/ Second day: special education by the deputy of military security offic / Lastly, write out the oath) -> entered China on 23 November

Price of a business spot at the market (Bak Chun Gun)
-In case of the market at Bak Chung Eup, they don’t have the price of business spots.

Food Distribution System
-Bak Chun Gun: Distribution was carried out twice in the beginning and the end of October/ Distribution was halted in November/ The amount distributed was 15kg and did not meet the assigned amount of 57kg/ Official amount: 700g for workers, 300g for housewives, 500g for 15 year old child, 400g for 13 year old child/ rice/other crops ratio is 3:7
-Pyongyang: Food distribution was not halted except for the three months period of April~June 2005./ The amount distributed is 485g(official: 700g) for workers, 300g for housewives, 200g for students (official amount 300~500g)/ ratio of rice and other crops was 5:5. The ratio was sometimes 7:3 when things are better than the usual/ The price was 36won for Annammi, 54won for Honam rice (received from South Korea)/ Price at Yangjungso(Place where rice is gathered) was 20won less than market price/ Everyone is supposed to purchase rice from Yangjungso, but because of poor quality of rice, some well-off people buy rice at market.
-Shin Eui Joo and Sa Ree Won is similar to Bak Chun Gun.

Events, accidents, things to pay attention to

1) Penalty for listening to foreign broadcasting or watching illegal recordings
Case1> There was a public trial and punishment in July~August 2004 for 5 people for watching illegal recordings at a conference room of Gun Management Committee of Bak Chun Gun, located in downtown. / The penalty was expulsion of the family of the involved party to the mountains.
Case 2> A person who sold and showed VCD in Pyongyang in November 2005 was arrested. During investigation, the person committed suicide using a string on his bag while the investigator was absent. Reason for the suicide was not to harm the rest of his/her family/In Pyongyang as well, when one gets caught while watching illegal recordings, the penalty is usually an expulsion.

2) Wire telephone and charge for phone calls
– Installation of wire telephone: $200 at Sa Ree Won and Bak Chun Eup, $300 at Shin Eui Joo for obtaining a phone number as well/ customer needs to purchase the wire separately
-User of private wire telephone: There are relatively a lot of users of private wire telephone at Bak Chun Eup because there are a lot of Returnees from Japan and traders. Among 120 households, there are 11 households with telephone./ When somebody want to use wire telephone in a neighborhood, around 500won is paid.
-Common people use telegram for communication. 10won is charged for one page, and .5won is charged for each additional word.

3) Others
-Bak Chun Gun: There was a rumor that private cultivation would be allowed starting from this year, but instead of private cultivation, a group farming was adopted. Each group pay the assigned amount to the government, and the rest was left for the individuals to take care of. However, the groups needed to take care of fertilizer and pesticides which caused decline of the yield/ Phrase including “Communism” is gradually decreasing (example, “Communist Ethics” was replaced with “Socialist Ethics” in textbooks for elementary, middle and high school. “Rice is Communism” was replaced with “Rice is Socialism” as well/General atmosphere is that people do not believe what government and the party says.

-Pyongyang: Broadcasting criticized the resolution on situation of human rights in DPRK at the UN, but it is heard that the criticism has caused side effects/ Many of the people think that the resolution must have been adopted because there is a problem of human rights in DPRK/People in Pyongyang are known to be unhappy with Kim’s regime but have no way to change it. So they try to be patient and endure.

Posted in Agriculture, China, Communications, Emigration, Energy, General markets (FMR: Farmers Market), Hoteling, Price liberalization, Public Distribiution System (PDS), Transportation, UN World Food Program | Comments Closed

Education fights outside influences

Saturday, December 24th, 2005

From the LA Times:

More than 100 pages of written lectures smuggled out of North Korea this year reveal that the leadership is in a state of near-hysteria about outside influences seeping across the nation’s once hermetically sealed borders. The spread of “unusual lifestyles,” the lectures warn listeners, could render them “incapable of following revolutionary thoughts and sacrificing their lives” for Kim.

The documents also underscore the extent to which anti-Americanism gives meaning to the country and its people. More than 50 years after the end of the Korean War, the United States is blamed for all of North Korea’s woes, from food shortages to the infiltration of foreign culture.

In the last several years, trade between North Korea and China has surged, much of it not approved by North Korea’s leaders. Along with food and consumer goods, traders smuggle in DVDs, tapes, books and Bibles, radios and mobile phones. Once considered taboo, T-shirts with English lettering are pouring into North Korean markets from Chinese garment factories.

The regime fears not only critical material but depictions of other nations that would make North Koreans realize how poor they are in comparison.

“The enemies use these videos and specially made materials to beautify the world of imperialism … and to [spread] a fantasy of the free world,” one lecture says. North Koreans are urged to steel themselves against such corrupting influences by eating traditional foods, wearing traditional clothing and keeping their hair tidy.

Posted in China, Economic reform, Education, Film, International trade | Comments Closed

Pay Special Attention to North Korean Diplomats’ Passports

Thursday, December 22nd, 2005

Daily NK
Kwak Dae Jung
12/22/2005

On March 31st, 1970, Yodo of JAL (Japan Airlines) was hijacked on the way from Tokyo to Fukuoka. The hijackers were Japanese youngsters aged from the teens to twenties who dreamed of a simultaneous revolution of the world. They called themselves the Japanese Red Army (JRA).

They headed for North Korea. In fact, their planned destination had been Cuba, but North Korea suddenly came to their mind as the nearest Communist country they could reach with the hijacked domestic airplane. North Korea has protected these terrorists as political refugees since then.

News about the 9 hijackers of Yodo has not been reported except that they lived in the lodgings that North Korea provided near Pyongyang. In 1998, one of the hijackers was arrested in Japan. It was disclosed that he had smuggled himself into Japan three years ago.

In 1996, another hijacker was arrested. His name was Tanaka Yosimi. He was 21 years old when he took part in the hijacking. At the time of arrest, he was 47 years old. He was arrested not in Japan, nor in North Korea, but near the border between Cambodia and Vietnam. He carried a North Korean diplomat’s passport whose holder was named Kim Il Soo. In his suitcase were Super Notes the face value of which amounted to tens of thousands of dollars.

The former hijacker was arrested for passing forgeries after 25 years of hiding. The so-called Super Note is also referred to as Super K because its serial number starts with K. Super Notes are still found all around the world 10 years after his arrest. He had been closely followed by the U.S. Treasury’s Secret Service (SS), a special bureau to investigate forgery, since his several year operations in Southeast Asia had been sensed.

Tanaka Yosimi was judged not guilty regarding the counterfeit bills after a three year trial in Thailand. His consistent denial of possessing the forgeries seemed to work for him. However, he was sentenced to 12 years of imprisonment regarding his participation in the hijacking after he was taken to Japan in 2000.

Many forgeries were found in 1996

One reason to suspect North Korea counterfeiting dollars is that many people with a North Korean diplomat’s passport like Tanaka Yosimi were caught and arrested for having bundles of counterfeit U.S. dollar bills.

1996 saw many cases of arrests for passing North Korean forgeries. In March, while Tanaka Yosimi was arrested in Thailand, a North Korean official resident in Moscow, Russia was expelled because he was caught changing 800 thousand counterfeit U.S. dollars. An officer in the North Korean embassy in Hanoi was also caught carrying 3 million counterfeit U.S. dollars, and all his forgeries were confiscated by the Vietnamese authorities. Later the Vietnamese government returned the forgeries to North Korea because the North consistently claimed that the counterfeit bills were its property.

In December, a third-grade officer in the North Korean consulate in Ulan-Bator, Mongolia, was exiled because he was captured changing 100 thousand counterfeit U.S. dollars. 75 thousand counterfeit dollars were withdrawn, but the rest could not. Also in December, a North Korean trade counselor in Rumania was exiled because he was caught changing 50 thousand counterfeit dollars.

The following are the reasons why many forgery cases were disclosed in 1996: ▲ The method of how Super Notes can be identified has been found and widely known since they were first discovered in 1994. ▲ The U.S. information agency consistently chased them in cooperation with international societies. ▲ North Korea was pressed to pass them quickly because the U.S. changed its 100 dollar bill after 68 years of use.

In April, 1998, Gil Jae Kyung, who was the accountant in charge of Kim Jong Il’s slush fund, and who had died in 2000, was caught changing 30 thousand counterfeit dollars in Vladivostok, Russia. At the moment, he was carrying a passport on which the name of Lee Moon Moo was printed as its holder’s name. He insisted that he was Lee Moon Moo, a trade counselor in the North Korean embassy in Moscow. When his identity as Kim Jong Il’s private accountant was disclosed, it made sensational news.

American and Russian forgery inspectors had sensed Gil Jae Kyung’s passing forgeries several times and followed him for some months. On the other hand, in 1976 Gil Jae Kyung was expelled from Sweden because he was captured bootlegging narcotics. At the time, he was the North Korean ambassador to Sweden.

As seen from above, most North Korean forgery holders have been camouflaged as diplomats. If it had been a country other than North Korea, considerable diplomatic friction could have occurred, but North Korea was so notorious for international crimes that those countries concerned did not raise much complaint.

In August, 1995, a Japanese businessman was paid 10 thousand dollars with counterfeit bills for his trade with North Korea. The North Korean trade company said they had not known that, which seems to have been a mere excuse. It is resonable to assume that the North Korean trade company was connected with the North Korean forgery ring because it would be impossible to be able to hold a bundle of 100 counterfeit hundred dollar bills without any connection.

Posted in Counterfeiting, Illicit activities, Japan | Comments Closed

Is the DPRK tightening its grip or reforming?

Thursday, December 22nd, 2005

A writer with the Institute for Internaitonal Economics has published an oped in the Herald Tribune on December 22, 2005:

Here is the Summary:

Economy collapsed in 1990s with weather, end of Soviet aid, and bad policy
1995, DPRK asks for help..WFP feeds b/n 1/4 and 1/3 of population
as the state was unable to feed the people, bottom-up marketization grew
Now there is a revival of the PDS and controls on travel (which were suspended during the famine)
Grains can no longer be sold at market, and supplies are being seized
This incentivises farmers to harvest early, hoarding and running secret plots
A revival of the failed socialist model would not only mark a U-turn in North Korea’s reforms, but would also set the stage for a recurrence of humanitarian problems in the future.

Posted in Economic reform, UN World Food Program | Comments Closed

Banking steps towards the real world

Monday, December 12th, 2005

FDI Magazine
Stephen Timewell
12/12/2005

On my journey to Pyongyang a Beijing receptionist remarked that the Democratic People’s Republic of Korea (DPRK) is very much like China was 25 years ago. And as the motorcade of China’s president Hu Jintao passed thousands of flower-waving North Koreans on his visit to the world’s most secretive and politically isolated country at the end of October, he may well have agreed.

Visiting Pyongyang is like going back decades in a time machine, to a land with no advertising, no Nokia, Microsoft or McDonald’s billboards and almost no cars. Impressive grand avenues and massive public monuments dominate the landscape but there is no new construction or shops.

The streets are scrubbed clean by hand and are full of hundreds of orderly people wearing their ‘Great Leader’ badges and walking everywhere. Curiously, bicycles are discouraged because of bad accidents and the government encourages power walking for good health, or so I am told. In a country said to spend 30% of its GDP on defence, there is no visual military presence (or overt police presence) in the capital at all.

The ‘traffic ladies’ standing at major intersections are a welcome replacement for traffic lights but there are precious few cars to direct.

Questions greatly outnumber answers in this capital where visitors are duly dazzled by the spectacular grand mass gymnastics and artistic performance (called Arirang) by almost 70,000 children in the massive 150,000-seat May Day Stadium. But visitors are also aware of serious food shortages and cannot ignore the capital’s tallest building, a magnificent 105-floor pyramid tower with a crane on top, left unfinished many years ago, I was informed, due to financial problems.

Winds of change

Whether the DPRK is seen as the last Stalinist communist state or as a Confucian nationalist monarchy or even, as it describes itself, as a “powerful socialist nation”, visitors can feel the winds of change, particularly on the economic front. For more than 50 years the iconic stature of the late ‘Great Leader’ Kim Il Sung and that of his successor son Kim Jong Il have dominated the political landscape; the question going forward is how the country’s dire economic circumstances can be improved and whether the regime has the capability to create the new structures needed.

Pyongyang was playing host not only to Mr Hu but also to an increasing number of foreign delegations and journalists, all keen to understand the trends taking place in probably the last country to have massive pictures of Marx and Lenin hanging outside its Ministry of Trade. For many, however, the current focus is progress in the Six-Party Talks on the nuclear weapons programmes of the DPRK.

In the fourth round of talks in September between the two Koreas, China, Japan, Russia and the US a landmark agreement appeared to have been reached. “All six parties emphasised that to realise the inspectable non-nuclearisation of the Korean Peninsula is the target of the Six-Party Talks,” a joint statement said. “The DPRK promised to drop all nuclear weapons and current nuclear programmes and to get back to the non-proliferation treaty as soon as possible and to accept inspections from the International Atomic Energy Agency.”

At the time of going to press in November a fifth round of talks was expected to move a final agreement closer but detailed negotiations over implementation of the above agreement were not expected to be easy or to be concluded quickly. The DPRK, unsurprisingly, wants some payback, be it light-water reactors from the US or other economic incentives.

The core issue is that the DPRK’s publicly acknowledged plutonium programme, believed to provide enough radioactive material for about six bombs, is probably also the country’s key card in trying to rebuild the economy. Kim Jong Il needs to gain maximum advantage from giving up his nuclear threat, but even then, what does his economy have to offer?

Information hollow

For a financial journalist the DPRK represents a serious challenge. Understanding the economy and the banking sector of a country is never easy, but when no data is published by the government or the central bank it becomes significantly more difficult. I knew information was scarce but believed that the two very agreeable government minders, assigned to monitor my every move in my four-day visit, would be able to help me extract a simple list of banks operating in the country. No such luck. Although my visit was welcomed, the central bank (which acts as both the issuing bank and as a fully operational commercial bank in the traditional socialist model) failed to provide the list (or anything else), despite numerous requests.

Although the consensus after several interviews was that around 20 banks of various types exist, I can only vouch for the handful listed here. Clearly the Foreign Trade Bank (FTB) represents a pivotal bank in the financial system and Ko Chol Man, director of the FTB, was keen to explain the peculiarities of the DPRK banking system. “The domestic and foreign exchange settlement systems are completely separate. The central bank deals with the domestic market and money issuance and it also has a commercial banking role; the FTB has complete control over foreign exchange matters and trade and also holds the country’s foreign exchange reserves.”

Unlike other banking systems, the FTB in the DPRK acts as a clearing house for the foreign exchange activities of the banks in the country. It does not report to the central bank but, like all banks, reports to the State Fiscal and Financial Committee (SFFC), the overall banking regulator.

Mr Ko was pleased to note that the FTB had around 500 correspondent banks worldwide and, along with its 600 staff (including 11 branches) in North Korea, had six representative offices outside the country (including offices in Austria, Russia and China) and planned to establish a UK representative office in London. However, when asked for details of FTB’s banking activities he replied bluntly that no banking institution had published its figures in terms of activities or balance sheet. “We cannot give figures about the size of our assets because it is a regulation of the state. If the situation becomes better we can make them public but up to now it is impossible.”

Economic estimates

Despite the absence of official economic and banking data, various estimates help make the picture a little less murky. A recent Standard Chartered Bank report places North Korea’s nominal GDP at the end of 2004 at $22bn or $957 in GDP per capita terms for the country’s 23 million population; by comparison, South Korea’s nominal GDP is put at $680bn or $14,167 per capita for its 48 million population. While the unification of the two Koreas is seen as an important political objective, especially in Pyongyang, the startling economic gap between the two states could mean that the North becomes a huge burden on the South, and Seoul well recognises the economic problems that emerged from the reunification of Germany in the 1990s.

Meanwhile, Jong Msong Pil, of the Institute of Economy at the Academy of Social Science, explained how the economy had declined dramatically from a GDP per capita of $2500 in the mid-1980s to $480 per capita in 2000.

“The big drop was caused by the disappearance of the socialist market worldwide in the early 1990s; the collapse of our socialist barter trade system led to the failure of many enterprises and a decline in living standards,” he said.

Dr Jong noted that, following the hard times of the mid-1990s, the first target of the national economy has been self-reliance. He added that no economic data had been published since 2000. He believed, however, that 10% economic growth occurred in 2004 and, responding to reports from the World Food Programme (WFP) that a third of the population were malnourished, he said the food situation was improving. “In our country, all people have a job so for this reason no one has died of starvation or hunger. Our country is a socialist planned economy so the government takes care of people’s living.”

Acknowledging shortages in the past, Dr Jong said that in October the government had normalised the public food distribution system, which indicated the government was now supplying sufficient food.

Is the DPRK’s food crisis over? Driving around Pyongyang’s spacious avenues (with two minders) there was no visual evidence of malnutrition – but the capital is likely to be much better served than elsewhere. A supermarket was shown but the goods were only available for foreign currency, hardly food for the masses. Cha Yong Sik, deputy director general at the Ministry of Foreign Trade, said the government had not imported food on a commercial basis in 2005, unlike previous years, but neighbouring countries are still providing significant food aid. Richard Ragan, country director of the WFP, said food production in 2005 was up 10%, with cereals up 6.6%. But while the food situation may have improved, the DPRK is said to be still dependent on food aid.

Trade predictions

So what are the DPRK’s prospects? Much depends on the outcome of the nuclear negotiations but estimates from the Seoul-based Korea Trade-Investment Promotion Agency (KOTRA) say the DPRK’s trade volume in 2005 is expected to pass $3bn for the first time since the fall of the Soviet Union with the figure likely to reach $4bn if inter-Korean trade is included. Trade with China, the DPRK’s largest trading partner, grew by more than 40% in the first half of 2005, indicating Pyongyang’s growing dependency on Beijing.

Upbeat on trade prospects, Mr Cha explained that the recently opened Tae-an Friendship Glass Factory, built with a $32m donation from the Chinese government, would export 40% of its 300-ton capacity, mainly to Siberia. Also Pyongyang’s first autumn international trade exhibition in October included companies from six European countries, the focus being on the country’s mineral potential rather than its manufacturing abilities, which are a long way off.

As for banks, the group of up to 15 joint venture banks are helping to finance the country’s 150 or so international companies. But do not expect miracles. The latest, Koryo Global Credit Bank, set up in June, is a joint venture between the UK-based Global Group, headed by Hong Kong businessman Johnny Hon, with 70%, and the state-owned Koryo Bank with 30%. Established with a paid-up capital of e10m, KGC Bank is ambitious in its plans to engage the DPRK in trade and commercial relations with the rest of the world, especially Asia, the Middle East and Europe.

KGCB’s first correspondent banking relationship in Europe is with Germany’s Helababank. The bank, the first product of cooperation in the finance field between the DPRK and the UK, has a staff of five and is also interested in investing in property. It was also able to produce, at the instigation of US authorities, a comprehensive anti-money laundering file.

Another local venture is North East Asia Bank (NEAB), which was set up by ING Group in 1995 but is now wholly owned by the Korean BOHOM Group. Amazingly, Kim Hyon Il, NEAB’s president, produced a balance sheet showing total assets of e79m at the end of 2004 and a paid-up capital of e25m. He also showed me the bank’s newest product, a chip-based cash/debit card, the first in the DPRK. The card demonstrates perhaps that the country is slowly joining the real world – but with only 100 issued and only 13 outlets available, the service has a long way to go.

Political effects

At Daedong Credit Bank, chief executive Nigel Cowie explained how international politics can have a dramatic impact on banking even in the isolated DPRK. In September, just before the conclusion of the fourth round of the Six-Party Talks, the US Treasury accused Banco Delta Asia (BDA), a Macao-based bank, of aiding the DPRK in a series of ‘money laundering’ cases. The Wall Street Journal had said the Macao crackdown was Washington’s method of cutting off Pyongyang’s financial sources for its nuclear weapons programme.

Mr Cowie, a former HSBC banker, explained that all DPRK banks had accounts with BDA for the purposes of remitting funds and, as a result, the accounts were suspended pending an inquiry in mid-November. While Stanley Au, chairman of BDA’s parent, denied the US allegations and BDA’s involvement in any illegal business relations with DPRK banks, the damage is done. “It affects our customers because it affects people’s ability to remit money to and from the country. I imagine that this will cause people doing legitimate business to give up,” says Mr Cowie.

The nuclear negotiations remain critical to the country’s future and the Chinese, in particular, want them to succeed. But that is just a start. There is evidence that the DPRK is opening up and changing with reports that there are 300 open markets operating across the country, 30 in Pyongyang. But whether the DPRK follows the China model of 25 years ago and can restructure its ‘powerful socialist nation’ doctrine remains doubtful under the current leadership.

Posted in 1990s Famine, Agriculture, Banking, Central Bank, China, Daedong Credit Bank, Fiscal & monetary policy, Foreign Trade Bank, GDP statistics, General markets (FMR: Farmers Market), Institute of Economy, Koryo Bank, Mass games, Ministry of Foreign Trade, North East Asia Bank (NEAB), Public Distribiution System (PDS), State Academy of Sciences, State Fiscal and Financial Committee, Statistics, Trade Statistics, UN World Food Program | Comments Closed

‘Unification Baby’ Seen as Omen by N. Koreans

Sunday, November 20th, 2005

Los Angeles Times
Barbara Demick
11/20/2005

A South Korean activist gives birth while visiting Pyongyang for an anniversary event. Some in the South suspect the timing was contrived.

While watching child gymnasts tumbling in unison across the field of Kim Il Sung Stadium in a performance heralding the miracle of the North Korean economy, Hwang Seon felt a sharp cramp in her abdomen.

Within minutes, the 32-year-old South Korean tourist was whisked by ambulance across town to Pyongyang’s maternity hospital. There, doctors delivered a 7-pound, 6-ounce girl who has become an instant celebrity and rare source of optimism in this often-forlorn North Korean capital.

The baby is the first born in the North as a South Korean citizen. Her birth Oct. 10 has been hailed as a mystical sign that the half-century-long division of the Korean peninsula is coming to an end.

“Our precious unification baby girl,” is how North Korea’s official KCNA news agency put it.

Hwang, who was more than eight months pregnant when she traveled to North Korea, spent two weeks recuperating in the maternity hospital, where she was treated without charge to around-the-clock nursing care. Her meals included seaweed soup, a Korean traditional postpartum treatment.

North Koreans suggested naming the baby Tongil, or “Reunification”; but that sounded like a boy’s name, so the parents instead opted for Kyoreh, meaning “One People.”

“Everybody said her birth was a lucky omen for the Korean people,” said Hwang, a left-wing political activist who favors rapprochement with the North.

Hwang and her daughter are the best-known South Korean visitors to Pyongyang recently. But from late September until early this month, visitors from the South came in unprecedented numbers to view mass games marking the 60th anniversary of North Kore&s ruling Workers’ Party.

During October, 7,203 South Koreans flew to North Korea on nearly 100 nonstop flights connecting the estranged neighbors.

For the first time, planes bearing the insignia of South Korea’s leading carriers, Korea Air and Asiana Air, became regular sights on the tarmac of Pyongyang’s seldom-visited Sunani airport; North Korea’s national carrier, Air Koryo, likewise was a frequent visitor to Incheon. Previously, there were only occasional charter flights between the airports for special events.

South Koreans in Pyongyang stood out in their colorful Gor-Tex jackets like exotic birds against the monochsomatic North Korean landscape. Almost all carried digital cameras, a rarity in the North.

While North Koreans trudged through the empty boulevards on foot, the South Koreans were transported in fancy tour buses, some of which sported color television monitors and video recorders.

The South Koreans were not permitted to go out unescorted and had to wear large nametags around their necks. At one point, a disoriented man in his 80s, born north of the border, tried to wander out of a Pyongyang hotel in search of his home village, but was blocked by a courteous but insistent North Korean doorman, said a South Korean visitor who witnessed the encounter.

Overall, the South Koreans said, they got the impression that North Korea was on a charm offensive. For example, when some tourists complained about a scene in the mass games that showed North Korean helicopter commandos battling what seemed to be South Korean soldiers, the material was promptly cut out.

The mass games were blatantly designed to tug at the heartstrings of South Koreans. Named “Arirang” after a popular Korean folk song, the program was replete with sentimental tunes and operatic skits about separated families reaching for one another across barbed wire. The show used more than 100,000 performers, many of them holding colored cards to make up intricate mosaics.

Keeping on message, the finale used a backdrop of doves with a message: “The last wish of the father [referring to the late North Korean founder Kim Ii Sung] is reunification of the fatherland.”

When North Koreans speak of reunification, their meaning is radically different from what Americans might think in recalling the collapse of the Berlin Wall in 1989 and the absorption of the communist East by West Germany. Instead, the North Koreans describe a loose confederation under which their nation would keep its own system of government while receiving massive economic aid from the South.

“We don’t want what happened in Germany,” tour guide Pak Gyong Nam said as he showed visitors a 185-foot-high stone arch portraying two women in traditional Korean dress (one representing each Korea) touching hands across a broad thoroughfare known as Reunification Street. “We would be one country, but two governments.

“If Korea is reunified, South Korea will bring in technology and investment. We have great confidence in the future. If we are reunited, no problem.”

The sentiment explains in large part why North Koreans were so enthusiastic about the so-called unification baby.

“Have you heard about the South Korean woman who gave birth?” asked Kim Kyoung Kil, a North Korean lieutenant colonel who was escorting tourists at the demilitarized zone the day after Hwang and her newborn crossed on their way back to Seoul. “It means reunification is near. Only the Americans are preventing it.”

The reunification baby’s birth — which took place on the exact date of the 60th anniversary of the Workers’ Party founding — fits so perfectly into North Korean propaganda that many suspect it was contrived.

Hwang has issued a denial, saying that her due date was 20 days away when she made the trip and that she had scheduled a caesarean section in Seoul for the following week because of complications from a previous birth.

“Even my friends think it was planned, but it’s not so,” said Hwang, who lavished praise on the medical care and nursing she received. “They were very impressive…. Everybody was wonderfiul to me.”

Other South Korean tourists, most of whom were visiting on a two-day tour that cost $1,000, expressed mixed sentiments about their experience.

Student activists and union members who marched onto the field with a pro-reunification flag were greeted by wild applause from North Koreans in the audience.

But some of the southerners were dismayed by what they saw as an unabashed celebration of totalitarianism.

“Rather than being impressed by the extravagant brightness and precision of the mass games, I was shocked at how mechanical those people were and realized how oppressed they are,” said Lee Yong Hoon, a 62-year-old businessman from Suwon. “I realize we can’t rush into reunification until North Koreans can accept concepts of freedom and individuality.”

More than 1 million South Koreans have visited North Korea since 1998, but most have gone only to Mt. Kumgang, in a border-area enclave open to tourists.

The visits last month were the first mass influx of tourists to the North Korean capital. They coincided with a period of rapidly accelerating economic and cultural exchanges between the Koreas.

South Korea’s national assembly is expected Dec. 1 to approve a humanitarian and economic aid package for the North worth $2.5 billion — nearly double last year’s allocation. And the two announced this month that they might field a joint team for the 2008 Olympics in Beijing.

South Korea’s largesse has come under some criticism because of the North’s nuclear program, the subject of six-nation talks. The Bush administration, along with the conservative establishment inside South Korea, has taken the position that rewards should be deferred until the Pyongyang regime dismantles its nuclear weapons.

“Our government is in collusion with North Korea, creating the false illusion that all is quiet on the northern front, when it is not,” said Lee Dong Bok, a former South Korean intelligence official and assemblyman. By allowing its citizens to visit Pyongyang for mass games, he said, “South Korea is helping North Korea promote its propaganda.”

Technically, South Koreans need waivers from their country’s National Security Law — which prohibits support of North Korea— to visit Pyongyang.

Hwang Seon, the baby’s mother and a former student radical, served 34 months in South Korean prisons largely because she made an unauthorized trip to North Korea in 1998.

“The last time I came back [to South Korea] from North Korea, the National Intelligence Service was waiting for me to arrest me,” Hwang recalled. “This time, I held my baby in my arms and was welcomed back with flowers.”

Hwang’s husband was not able to meet his wife and new daughter upon their arrival home. He is in hiding, wanted by South Korean authorities on charges of pro-North Korean activities.

Posted in Mass games, Maternity Hospital, South Korea, Tourism | Comments Closed

Minerals, railways draw China to North Korea

Friday, November 18th, 2005

From the Asia Times:
By Michael Rank
11/18/2005

Chinese companies are venturing into North Korea, and both countries hope to reap the rewards. North Korea’s heavy industry is in a desperate state, but Pyongyang is hoping that Chinese investment will come to its rescue, while China sees the North as a convenient source of minerals, from coal to gold.

China’s increasing investment also means that North Korea is casting off its rigid juche, or self-sufficiency, policy and overcoming its deep historical suspicion of its giant northern neighbor.

Border trade in consumer items from televisions to beer has been booming since the 1990s, but now the focus is turning to the industrial sector. Deals are being reached on mines, railways and leasing a North Korean port to a Chinese company, but North Korea is notoriously secretive and few details have been published outside China. The deals include an agreement to “completely open” North Korea’s railways to a Hong Kong millionaire, as well as moves to revive ailing coal, iron and gold mines.

Tumen-Chongjin rail link rumored
Hong Kong businessman Qian Haomin is reported to have reached a US$3 billion deal with North Korea that also involves the Chinese Railways Ministry building a new rail link between the Chinese border city of Tumen and the North Korean port of Chongjin. The agreement marks an end to long-running tension between the Chinese and North Korean state railway authorities over North Korea’s retention of up to 2,000 Chinese goods wagons and reluctance to repay loans.

The Hong Kong news magazine Yazhou Zhoukan recently reported that these issues had been resolved and that Qian’s grandly named company Hong Kong International has agreed to provide the North Koreans with 500 to 1,000 freight wagons. Qian told the magazine that “after six months of effort, there are now hopes of solving the railway transport bottleneck between China and North Korea”, and this would help to integrate the economy of the entire northeast Asian region.

Qian’s ambitions are not limited to railways. Not only has he expressed interest in investing in a North Korean coal mine, but Yazhou Zhoukan also reported that he hopes to set up a special economic zone in the North Korean border city of Sinuiju. He has clearly not been deterred by the unhappy case of Yang Bin, a Dutch-Chinese multi-millionaire who was made head of a similar development zone in 2002. Before Yang could take up his post, he was arrested by the Chinese authorities for tax evasion and other economic crimes and jailed for 18 years.

Qian, aged 41, is originally from the southern Chinese province of Guangdong and moved to Hong Kong in 1993. He has been involved in North Korea since the early 1990s, and has apparently established a fruitful relationship with Prime Minister Pak Pong-ju. He has said that “to invest in North Korea has been my dream” because three of his uncles fought in the Korean war; one was killed and one was seriously wounded. The Hong Kong investor has signed a plastics, tire and battery recycling agreement with North Korea and has expressed interest in investing in the country’s largest anthracite coal mine, which now produces only 1 million tons a year, compared with 3 million tons at its peak.

Tonghua Steel looks North
Meanwhile, state-owned Tonghua Steel or Tonggang, based in the northeastern city of Tonghua, expects to sign a 7 billion yuan ($865 million), 50-year exploration rights deal with the Musan iron ore mine, said to be North Korea’s largest iron deposit. Tonggang, Jilin province’s largest steelmaker, hopes to receive 10 million tons of iron ore a year from Musan as part of its plans to increase steel production from a projected 5.5 million tons in 2007 to 10 million tons in 2010.

The planned deal reflects China’s immense and growing appetite for steel. Although the country already produces 30% of global output, it is heavily reliant on imports and is concerned about rising prices. A Jilin provincial trade official said importing iron ore from North Korea was attractive because of low transport costs, which would increase Tonghua’s competitiveness.

Tonggang officials say they expect the deal to be signed soon, and that of the 7 billion yuan (US$866.1 million) pledged, 2 billion yuan will be invested in transport and power lines. Company president An Fengcheng said agreement had already been reached with China Development Bank on 800 million yuan worth of soft loans and 1.6 billion yuan of hard loans, while “the remaining investment will come in in stages”.

Rajin deal to give China Sea of Japan access
China’s export boom is one of the great economic success stories of the past 25 years, but it is constrained by a lack of suitable ports. In particular, the country lacks a port on the Sea of Japan, but after attempted deals with Russia came to nought, the inland Chinese border city of Hunchun has reached an agreement for a 50-year lease with the nearby North Korean port of Rajin.

The ceding of Rajin, an ice-free port with a handling capacity of 3 million tons a year, will give access to the sea to inland areas of northeast China which, at present, must send freight long distances by rail to the port of Dalian on the Bohai gulf. The agreement also provides for the construction of a 5-10 square kilometer industrial zone and a 67 kilometer highway, and envisages that the Rajin area will become a processing zone for Chinese goods which will then be re-exported to southeast China.

A Hunchun economic official stressed that the leasing of the port is “a business deal and not a government deal”. The South China Morning Post reported from Hunchun that the man behind the deal is Fan Yingsheng, a property developer from Hunan province who put up half the initial capital investment of 60 million euros (US$70 million). The sum could not be denominated in dollars for political reasons.

The paper quoted the United Nations Development Program as saying this sum would only be enough to build the road to Rajin, and far more would be needed to rejuvenate the port. The deadline for final agreement is December 30, 2006, and it remains to be seen if a final deal will be reached in time.

An unusually frank North Korean trade official noted the possible pitfalls as well as the advantages of such deals. Kim Myong-chol, head of the Korean Council for the Promotion of Foreign Trade, said the deals would have to involve importing “highly advanced technology and equipment”, and added: “These agreements are not easy to put into actual practice and can run into many problems so far as funding and bilateral cooperation are concerned.”

“Because the amount of money involved in these cooperative projects is quite large and [North] Korea will be investing ports, roads, etc, there are rather great risks in such investment, and in addition because the domestic Korean economy and its policies, laws and regulations, etc, are unclear, many problems are likely to arise in carrying out these plans,” Kim told a Chinese website.

Coal and gold
Such concerns may have been in the mind of the president of China Minmetals Corp, Zhou Zhongshu, when he signed “an agreement on setting up a joint venture in the coal sector of the DPRK” [North Korea]. The deal was signed in October when Chinese deputy premier Wu Yi visited Pyongyang, and is said to be the first of its kind. North Korean Vice Minister for Foreign Trade Ri Ryong-nam urged the Chinese side to “provide advanced technology and set up a good model for other joint ventures and cooperation between the two countries”.

North Korea also has substantial gold deposits, and a Chinese company plans to invest in a “semi-paralyzed” North Korean gold mine and refine the metal at its base in Zhaoyuan in Shandong province. Guoda Gold Co Ltd reached a preliminary agreement last year with Sangnongsan gold mine, which is said to have gold deposits totaling at least 150 tons.

Guoda deputy manager Lin Deming said his company was attracted to North Korea because of low labor, energy and transport costs as well as the “highly favorable” investment terms offered, but gave no details. Chinese investment in North Korea is certainly increasing, but final agreement on a number of deals has not yet been reached, and political factors such as uncertainty over Pyongyang’s nuclear weapons program may well discourage Chinese companies from moving too fast.

Michael Rank is a former Reuters correspondent in China, now working in London.

Posted in China, Coal, Council for the Promotion of Foreign Trade, Foreign direct investment, Gold, Iron Ore, Labor conditions/wages, Railways, Rason Economic and Trade Zone (Rajin-Sonbong), Sinuiju Special Administrative Region, Steel, UNDP | 1 Comment »

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