North Korean Economy Watch

A reader sent me a link to this Chinese-language story about Chinese student experiences in the DPRK. You can read the article in Google Translate with decent results here.

Below are several facts I pulled from the article:

1. The Chinese ambassador held meeting at the embassy to calm Chinese students after the DPRK’s nuke test, but told them to prepare for contingencies by stocking up on water and instant noodles.

2. The Chinese can go to two DPRK universities: Kim Il-sung University and Kim Hyong-jik University of Education. NOTE: Although the article does not mention it, I personally also know a Chinese person who attended the DPRK’s University of Light Industry a few years ago.

3. It is not not easy for the Chinese to make NK friends

4. Chinese students have free reign of the city.

5. Chinese students share rooms with party member families.

6. Korean students envy Chinese student posessions: computers, e-books, etc.

7. Holding hands common at North Korean universities now, however, bith control is not visibly for sale anywhere…

8. North Korean studends enjoy “adult content”

9. The story mentions a relationship between a Chinese student and a North Korean.

More information is apparently available here (in Chinese).

Source:
在朝鲜留学的日子
作者:南方周末记者 张哲 雷磊 实习生 师小涵 沈茜蓉
2012-01-12 12:11:39

Lankov writes in the Korea Times:

This year, President Lee Myung-bak’s New Year address paid much attention to North Korea issues. The South Korean President warned the North against fresh provocations but the general tone of his speech was conciliatory.

Lee said that now is the time to put aside past problems and start to rebuild relations anew. Tellingly, he did not repeat that Seoul expects Pyongyang to apologize for the two military incidents of 2010 ― the sinking of the Cheonan and the shelling of Yeongpyeong Island.

Are there chances that Pyongyang will react to this charm offensive and rush to resume talks with Seoul? Don’t hold your breath ― such chances are very remote. Pyongyang decision makers understand perfectly well that an immediate detente is not in their long-term interests.

Pyongyang’s foreign policy goals are surprisingly easy to describe: They are regime security and obtaining unconditional aid (the former is an absolute priority with the latter a rather distant but still significant second). In other words, North Korea’s foreign policy makers want to squeeze as much aid as possible from the outside world but only so long as this aid comes without too many conditions which might have impact on regime security.

Since 2008, the North Korean state has found itself in a rather unpleasant situation: U.S. aid stopped almost completely while the amount coming from South Korea has dramatically decreased. In this new situation, North Korea has been left with just one aid provider ― that is, China. This is not a situation that Pyongyang’s elite is happy about.

Since the 1960s, North Korean diplomats have worked hard to ensure that their country would always have at last two overseas sponsors. It was preferable if the two sponsors had uneasy, if not hostile, relations, so that their rivalry could be used to ensure that only limited concessions would be given in exchange for aid.

For the early 1960s until the late 1980s, China and the Soviet Union were the sponsors. From the early 1990s, the Chinese continued and the Soviet Union was replaced by South Korea and the United States.

In order to decrease their dangerously high dependence on China, North Korean diplomats now want South Korea to resume large-scale aid ― in other words, to re-implement a version of the “Sunshine Policy,” the North Korean-directed policy of Kim Dae-jung and Roh Moo-hyun when they were president in 1998-2007.

North Korean leaders are careful observers of the ever-changing South Korean political scene. They have to be, since milking the South has long since become their major source of revenue. They hope that the coming parliamentary and presidential elections will be won by the Korean nationalist left.

This is understandable, since left-leaning politicians in South Korea have always been more willing to provide the North with aid, without asking too many awkward questions. In recent years, it seems that the left has lost part of its earlier enthusiasm for such a policy, but one should still reasonably expect that a left-leaning (or as it would proudly style itself, “progressive”) administration will indeed be more receptive to Pyongyang’s demands.

So what should North Korea do to increase the chances of the South Korean left-leaning parties? Pretty much the only thing they can do is to “not” help the right, and this is exactly the reason why the recent conciliatory remarks by President Lee are likely to fall on deaf ears.

While the North Korea issue is marginal in South Korean politics, the left-leaning opposition can blame the Lee administration for its real (or alleged) mishandling of the North and the resulting instability on the Korean Peninsula (admittedly, this type of electoral rhetoric has a kernel of truth to it). Therefore, if the North agrees to play according to Lee’s rules, it will help the South Korean “conservatives” in presenting themselves as people who, at the end of the day, know how to maintain stability on the Korean Peninsula.

Of course North Korea would be rewarded if it were to talk right now. But from Pyongyang’s point of view it makes a great deal of sense to wait another year, in anticipation of the electoral success of the South Korean left. If the left is not successful in the end, then they can still easily make a deal with the next right-leaning administration. It is telling that in recent months the presidential contenders of the right have also indicated that they would be softer in their approach towards the North.

Therefore we should not expect a dramatic diplomatic breakthrough anytime soon. Fortunately though, we also do not have to be that afraid of fresh North Korean provocations. Consideration of South Korean electoral politics will probably mean that the North will try to avoid clashes with the South.

Read the full story here:
N. Korea’s political calculations
Korea Times
Andrei Lankov
2012-1-15

According to the Korea Herald:

North Korea imported six times more mobile phones in 2010 than in 2009, a media report said Wednesday, indicating growing mobile penetration in the reclusive country.

North Korea bought 430,000 mobile phones from China in 2010, up from 68,000 phones the previous year, according to Washington-based Radio Free Asia (RFA). In 2010, the country spent US$35 million on importing mobile phones, seven times more than the $5 million outlay in 2009, the report said, citing recent data from the United Nations.

The number of mobile phone users in the communist country has grown rapidly in recent years, from about 90,000 at the end of 2009 to 430,000 a year later and more than 800,000 in the third quarter of last year, the report added, referring to data from Egypt’s Orascom Telecom.

Read the full story here:
N. Korean imports of mobile phones jumped 6 times from 2009-2010: RFA
Korea Herald
2012-1-11

According to ABC’s “The Drum“:

The Dandong Jinhua International Travel Service is just one of a handful of small companies organising tours out of Dandong, Liaoning Province, in the north-east of China.

Dandong, a city of almost 800,000 sits on the Chinese side of the historic Yalu River bridge – which was bombed by the United States at the start of the Korean War. By night, tourists stand on the foreshore taking snaps of the renovated brightly lit bridge that connects the two countries – and the total blackout that exists on the other side.

Staff at the travel company say usually they operate tours of about 60 people per day, or 30,000 per year. But during the Chinese National Holidays, which run for 10 days in October, almost 600 tourists returned in one day alone. The mass number of China travellers highlights how North Korea – known in the West as a reclusive nuclear-armed communist country – is still an attractive tourist destination for their neighbouring comrades.

Once in the reclusive country, there are heavy restrictions on what travellers can see and do.

Photos are limited to official tourist sites and the North Korean guides constantly put the hard word on anyone caught sneaking snaps out the bus or train windows. One the way out of North Korea at Sinuiju city, one Chinese tourist had ‘unsuitable’ photos deleted by the guards.

Tourists are also prohibited from straying too far from the group. On top of that the itinerary is tightly managed, meaning tourists only get to see a glimpse of what Pyongyang and a few other national hotspots have on offer.

Tours have also been met with some unexpected hiccups.

“On one winter trip the train had to stay overnight at the Sinuiju stop, with all the passengers on board. Everyone was so unhappy the North Korean guides gave them a Kim Il Sung pin”, says one tour organiser, adding that the national pins worn by all North Koreans are almost impossible for tourists to purchase.

Now trips are closed from November to January because there’s not enough electricity to run the trains.

…

Other travel groups also operate out of Dandong offering even more favourable prices than the Dandong Jinhua International Travel Service. Their four-day tour is 2,400 yuan ($370) and an additional 800 yuan to see the Mass Games – an enormous synchronised performing arts act, staged every summer in Pyongyang. It’s 4,800 yuan ($739) for foreigners, excluding Americans.

Read the full story here:
A North Korean holiday
ABC “The Drum”
Kitty Hamilton
2012-1-11

According to Yonhap:

South Korea has set aside more than 540 billion won (US$465 million) for humanitarian aid for North Korea this year, the Unification Ministry said Wednesday.

Most of the budget is earmarked for the South Korean government’s possible rice and fertilizer aid to its impoverished northern neighbor. It is also designed to provide aid to the North in case of natural disasters, according to the ministry, which handled inter-Korean affairs.

Read the full story here:
S. Korea sets aside more than 540 bln won for humanitarian aid for N. Korea
Yonhap
2012-1-11

According to the Korea Herald:

South Korea’s government last year executed the smallest amount of its inter-Korean cooperation fund in a decade, officials said Sunday, in another reflection of frayed relations with the communist North Korea.

The Unification Ministry, in charge of North Korean affairs, spent 42.6 billion won ($36.6 million), or 4.2 percent of the 1.1 trillion won fund designated as “South-North Cooperation Fund,” the ministry officials said.

The fund was used to support a Korean dictionary project, a humanitarian program by the United Nations Children‘s Fund as well as operating a facility for family reunions and an association for the inter-Korean industrial complex, they said.

Last year’s spending was the lowest level since 2000 when the two sides held their landmark summit talks and agreed on a wide range of cooperation projects as part of their reconciliation efforts.

Inter-Korean relations went to the lowest ebb in a decade after the North‘s two deadly provocations in 2010 that killed 50 South Koreans.

In 2008, when President Lee Myung-bak took office with a hard-line stance on North Korea’s nuclear program, the cooperation fund‘s execution rate plunged to 18.1 percent from 82.2 percent in 2007 under the liberal predecessor Roh Moo-hyun, the report noted.

The rate had remained at the 7 percent level between 2009 and 2010, it said.

The fund was created in 1991 to support humanitarian and economic exchanges between the divided Koreas, which remain technically at war after the 1950-53 Korean War ended in a truce. (Yonhap News)

Read the full story here:
Gov’t spending on inter-Korean projects lowest since 2000: ministry
Korea Herald
2012-1-8

Picture above via Wall Street Journal.  Click image for larger version.

Quoting from the article:

An examination of U.N. and Chinese trade data reveals that exports to North Korea of products including cars, tobacco, laptops, cellphones and domestic electrical appliances all increased significantly over the past five years. Most items crossed the border from China.

The data reveal glaring loopholes in the sanctions regime, demonstrating how China has stepped in as North Korea’s main supplier of goods considered luxuries as other countries have clamped down on such exports.

But the figures also hint at the emergence of a new entrepreneurial class in North Korea rich enough to buy imported goods. Some analysts say this group could represent the strongest impetus for economic reform, and potentially undermine the totalitarian grip of the Kim family dynasty.

Since 2007, North Korea’s imports of cars, laptops and air conditioners have each more than quadrupled, while imports of cellphones have risen by more than 4,200%, with the vast majority of items coming from China, according to the U.N. data. Chinese customs data show those trends continuing in 2011.

…

“The sanctions don’t work because as long as China allows the export of luxury goods, the North Korea elite will be paid with them to support the regime,” said Jiyoung Song, an associate fellow at London-based think tank Chatham House, who has studied North Korea since 1999.

At the same time, she added, “Things like DVDs and mobile devices will help to change North Korean society in a gradual manner by teaching them about the outside world, and showing them these things don’t just come through the benevolence of their leaders.” She said last year she interviewed a North Korean defector—the daughter of a trade official—who claimed she had been given an iPad and two laptops by the “Dear Leader,” as Kim Jong Il was known.

The growing demand for Chinese consumer goods is no longer confined to the political elite, according to Andrei Lankov, a leading expert on North Korea at Kookmin University in Seoul.

He estimated that the political elite consists of a few thousand key decision-makers and about a million people with midlevel or senior positions in the bureaucracy. Most of the rest of the population of 24 million receive an official monthly salary of $2 to $3 which they can top up to about $15 by selling things in private markets, he said.

More recently, though, a new entrepreneurial class of up to 1% of the population, or about 240,000 people, has emerged that is earning at least a few hundred dollars a month, said Prof. Lankov.

“This growing demand for luxury goods is being driven by the new bourgeoisie,” he said. He said he had met a defector who as early as 2008 claimed to have been earning $1,000 a month by importing tobacco from China and selling it in North Korea in fake packaging.

It is impossible to verify who precisely is driving the demand for Chinese consumer goods. North Korea does not publicize any kind of trade data, let alone allow independent market research. But other countries do report their exports to North Korea, and figures through the end of 2010 are compiled in the United Nations Commodity Trade Statistics Database, or UN Comtrade. China’s customs authorities provide data for its exports to North Korea through last November.

Among the exports of liquor to North Korea from Hong Kong in 2010 were 839 bottles of unidentified spirits, worth an average of $159 each, and 17 bottles of “spirits obtained by distilling grape wine or grape marc” worth $145 each, according to the U.N. figures.

In 2010, North Korea also imported 14 color video screens from the Netherlands—worth an average $8,147 each—and about 50,000 bottles of wine from Chile, France, South Africa and other countries, as well as 3,559 sets of videogames from China, the U.N. data show.

Some of this might have been to cater to the small number of tourists, diplomats and foreign businesspeople in the country. Many items, however, were clearly destined for North Koreans. Cars, for example, are one of the highest status symbols, and are often given as gifts by the state to loyal senior officials.

In 2010 alone, North Korea imported 3,191 cars, the vast majority from China—although one, valued at $59,976, placing it in the luxury category. came from Germany.

One of the most striking figures is a dramatic increase in imports of mobile telephones—ownership of which was once considered a crime. In 2010 alone, the country imported 433,183 mobile phones, almost all from China, and with an average value of $81 each. Egyptian telecoms company Orascom, which launched North Korea’s first and only mobile network in 2008, said that its North Korean network had 809,000 subscribers at the end of the third quarter of 2011.

Read the full story here:
Luxuries Flow Into North Korea
Wall Street Journal
Jeremy Page
2012-1-7

According to KBS:

The Voice of America reported on Wednesday that the World Food Program said North Korean authorities distributed 375 grams of food to every citizen in December.

A spokesman for the WFP quoted a North Korean government report saying that 200 grams of food were rationed per head in July through September. But it went on to explain that the amount increased to 355 grams in October, 365 grams in November and 375 grams in December.

The North Korean government cited the fall harvest as a reason for the increased food distribution. According to the WFP, the North Korean government aims to raise rations to 380 grams per head.

The WFP distributed 35-thousand-200 tons of food to three-point-one million North Korean people in December last year.

Read the full story here:

N. Korea Increases Citizens’ Food Rations
KBS
2012-01-05

UPDATE 2 (2012-12-29): According to Yonhap:

The National Assembly on Thursday approved a bill that would protect North Korean residents’ rights to inherit assets from family members living in South Korea but also strictly limit the transfer of those assets out of the South.

The government-proposed special bill on family relationships and inheritance between residents of the two Koreas passed a full-floor legislative session, the Justice Ministry said.

There are three N/S Korean inheritance cases that have made it into the media recently. Read about them here, here and here.

Read the full story here:
Parliament approves bill on N. Koreans’ right to inherit assets in S. Korea
Yonhap
2012-12-29

UPDATE 1 (2011-8-30): Cabinet approves bill on N. Koreans’ right to inherit assets in ROK.  According to Yonhap:

The Cabinet on Tuesday approved a bill that would protect North Korean residents’ rights to inherit assets from their families living in South Korea but also strictly limit the transfer of those assets out of the South, government officials said.

The government-proposed special bill on family relationships and inheritance between residents of the two Koreas will become law after obtaining parliamentary approval.

The move followed an unprecedented case last month involving four North Korean siblings who successfully claimed part of their late South Korean father’s multi-million dollar estate. A local court determined during mediation that their South Korean half-brothers and sisters must share the inheritance with their siblings from the North. More North Koreans are expected to follow suit.

The bill also requires North Korean inheritors to name a local manager for the assets within three months of inheritance and report changes in the property to the South Korean government.

The inheritors must get approval from the government if they want to take any inherited assets out of the country.

The strict restriction on the overseas transfers of the assets is aimed to ease mounting concerns that North Korean authorities could take advantage of the inheritance system, according to the Seoul government.

…

In addition, the bill included a provision recognizing double marriage by North Koreans who defected to the South after the inter-Korean division without divorcing their spouses in the North. Double marriage is otherwise banned under the South’s civil law.

Read the full story here:
Cabinet approves bill on N. Koreans’ right to inherit assets in S. Korea
Yonhap
2011-8-30

ORIGINAL POST (2011-8-11): According to KBS:

The Justice Ministry announced a revision to its special act on family relations and inheritance between South and North Koreans as the South Korean court recognized in January that North Korean residents have ownership rights to assets inherited from their families in the South.

The Justice Ministry has accordingly revised its preliminary notice legislation that it posted in January.

The revised version sets forth that the South Korean court designates a surrogate executor if a North Korean resident gains the right to assets in South Korea.

The earlier version required a relevant North Korean to designate a surrogate. However, the older version had been criticized as the executor of the estate could take the assets to a third country or to North Korea without the South Korean government’s permission.

Yonhap has more here.

The Financial Times indirectly brings up the impact of a basic economic lesson, the tragedy of the commons, in a recent story on the DPRK’s fisheries. According to the article:

Supply disruptions are a fact of life in doing business with North Korea. “They are always stopping work for different reasons, for the anniversaries of leaders’ birthdays or whatever,” said Sha Zhibiao, manager of a fish shop in Yanji, the biggest Chinese city near the north-eastern tip of North Korea.

The main transit point for the crabs is Hunchun, a bustling Chinese border town that is a few hours from the North Korean port of Rajin.

While the North Koreans queue for meagre state hand-outs of grain, the Chinese traders in Rajin eat at Chinese-run restaurants or cook for themselves with supplies they bring in.

Doing business with North Koreans is fraught with uncertainty, according to Lu Zhentie, Mr Gao’s partner. “We agree on a price and then at the last second if they find someone who will pay more they cancel the entire deal. We cannot trust them.”

Mr Lu said the North Korean fishermen operate individually – a sliver of private-sector enterprise in the state-run economy – and their crabs are sold in a grey market that local officials allow to exist. “We give them sometimes Rmb10,000 ($1,580) for a catch. Some have become rich, but I have no idea what they do with their money. Even those who are rich still wear clothes like this,” Mr Lu said, pointing at a tear in his trousers.

All three said that Chinese demand for North Korean crabs had boomed in recent years – and that the North Koreans were flirting with trouble in trying to satisfy it. Mr Lu pointed to small crabs in his tanks, saying that the North Koreans should have thrown these back into the sea to sustain their fishery. “If they keep taking all these out, I don’t know how much longer their resource will last,” Mr Lu said.

Although the bulk of the article deals with challenges to the DPRK business environment that result from a poor institutional environment  (unannounced policy changes and unenforceable contracts) towards the end of the article another important idea is indirectly introduced: The tragedy of the commons. The tragedy of the commons occurs when multiple individuals, acting independently and rationally, will ultimately deplete a common-pool resource, even when everyone knows that it is not in anyone’s long-term interest for this to happen.

In the past, over-fishing was probably not a problem in the DPRK as all activity was coordinated through the Ministry of Fisheries. If anything, incentives in the socialist economic system probably resulted in fishing at levels below the sustainability threshold.  Today, however, de-facto independent fishermen are able (and encouraged) to over-fish the DPRK’s waters so they can export their catch to earn hard currency. Over-fishing is probably not an outcome that anybody wants, however, in the absence of a credibly enforced fishing quota or private property rights in fisheries, rational individual fishermen (who are competing with each other) will be financially rewarded for catching more and increasingly smaller fish and crabs, because if they do not, the next guy (a competitor) will.

Read the full story here:
Crabs offer lifeline for North’s economy
Financial Times
2011-12-23