North Korean Economy Watch

Andray Abrahamin and John Kim worte a comprehensive summary of the current state of Rason. The article appears in The Diplomat:

In 1991, the North Korean government dubbed Rajin-Sonbong (Rason) a free trade zone to attract foreign capital. However, less than a decade later, the zone lost its free trade status. According to local businessmen, the party secretary of Rason, a relative of the late Kim Jong-il himself, was charged with corruption and eventually executed, a harbinger for the long period of isolation ahead. Since the end of 2009, signs of renewed commitment to Rason have sprouted. While it may be too early to say whether the region will succeed in drawing investment and reform, our recent trips to Rason lead us to believe that developments on the ground may eventually warrant a shift in foreign policy by governments around the globe.

China has long eyed Rason as a potential import/export center for the landlocked provinces of Jilin and Heilongjiang. However, from Rason’s inception, the Middle Kingdom held little influence or interest in the region’s success. In 2002, North Korea establishedanother special economic zone in Shinuiju and instated businessman Yang Bin, then China’s second richest man, as the SEZ’s Chief Executive. The Chinese authorities promptly placed Yang Bin under house arrest. Perhaps as a lesson learned from this episode, the North Koreans have made the Chinese government a major stakeholder in Rason’s development.

The Chinese have moved 80,000 metric tons of coal this year through a pier they leased at the Rajin port.They are also reportedly sending regular delegations of senior officials, including the Chairman of the China Development Bank, and they have invested $30 million to repave the road from the border town of Wonjong to the Rajin Port. This road was 60 percent paved during a visit in October, and recent reports from businessmen inside the region confirm that the road is now 95 percent paved, allowing for large trucks to pass through. The Chinese have also constructed a new road on their side of the border, part of the support this area has received after the Chinese central government designated it “The Changjitu Development Region” in November of 2009.Officials from the North explained that the Chinese will have a say in everything from zoning of real estate to port customs and investment policies.

Though Russia’s involvement doesn’t run as deep, it also maintains a keen interest in Rason’s ice-free port and has pledged an investment of $200 million to refurbish a railway from the border town of Khasan and to upgrade pier three at the Rajin port, which it has leased for 49 years. Rason’s third port at Oongsang was once a major exporter of lumber from the Soviet Union, and though Oongsang looks far from reviving the Soviet involvement of its heyday, Russia clearly has an interest in Rason’s success as well.

In addition to neighboring countries’ newfound interest in the zone’s success, the North Korean leadership has also shown a renewed desire in luring investment into the region. In December 2009, Kim Jong-il made a visit to the area, sent his former trade minister to run the region as party secretary, and reinstated Rason’s status as a special city, wresting it out of provincial control. Any potential investor who visits the SEZ would experience the thirst of the local government to develop the region, as reflected by the words of an official with the Rason Economic Cooperation Bureau, Rhee Sung Hye: “The future of my career depends on how much investment I can bring.”

At the national level there are also signs that the regime is increasing its focus on economic development as a source of legitimacy. In 2009, the Joint Venture Investment Commission was formed as a one stop shop for foreign investors, while the Taepung Group and State Development Bank were created to attract foreign investment. In the first half of 2011, Kim Jong-il made more appearances related to the economy and less related to defense than in prior years, and a focus on improving lives through focus on light industry and agriculture was emphasized in joint editorials that signaled policy direction at the beginning of 2010 and 2011.

The alignment of simultaneous commitment from North Korea, China, and Russia sets the scene for a North Korean special economic zone with higher chances of success than perhaps ever before. However, interest and desire may not necessarily translate into results without knowledge of markets and how to create a stable investment environment. After a recent tour of his 200MW fuel oil powered generation facility, the President of Songbong Power, Rhee Kang Chul, expressed that the reason for his plant’s inactivity and the subsequent blackouts in the region was the rise in feedstock costs. When asked about mechanisms for electricity pricing, Rhee responded that the government had set power prices at 6.5 euro cents/kwh, but he couldn’t provide further details on how the number was arrived at and when it might change again. Though Rhee was clearly an expert on the technical aspects of power generation, he hadn’t had the chance to consider that potential investors, after getting comfortable with country risk, would have little clarity on the revenue side of their equation. When this was expressed to the Vice Mayor of Rason, he replied, “We can change the price of electricity here. Rason is not under the same restrictions as the rest of the country.”

North Korea could theoretically piggyback off the market knowledge that their Chinese partners have gained over the last 30 years, but Rason’s neighbors are only likely to share when it suits their interests. In the case of Sonbong Power, Kang told us that every Chinese official who has visited stated that the most effective solution would be to pipe in power from the Chinese grid. “We plan to have a power line installed from the border by the end of 2013.” As power is as strategic asset like food or water, dependence on Chinese power clearly leaves the North Koreans in a vulnerable position.

China is clearly North Korea’s closest ally, but their relationship has a thorny history and Pyongyang is acutely aware of its reliance on big brother Beijing. With China’s rise, many other countries in the region are increasingly dependent on trade but increasingly cautious of dependence, welcoming a stronger presence from the United States, which is in the midst of a strategic pivot towards Asia.

In December 2009, the Asia Society and the Institute on Global Conflict and Cooperation published a report arguing that economic engagement of Pyongyang by the United States would result in creation of vested interests in continued reform, a changed perception of self-interest and a less confrontational foreign policy from North Korea. Against the backdrop of a more uncertain domestic environment after the death of Kim Jong-il, and the shifting dynamics in Asia generally, a North Korea that trades more and engages with the outside world may necessitate a change in foreign policy of governments around the world, most specifically the United States, South Korea, and Japan.

The Rajin-Sonbong SEZ has a checkered past and it would be naïve to say that North Korea is embarking on late 1970’s style Chinese economic reforms. However, we believe that the unprecedented alignment of interests in the region make it a likely starting point for any lasting directional change, which is why the world should watch Rason.

Read the full story here:
Why World Should Watch Rason
The Diplomat
John Kim & Andray Abrahamian
2011-12-22

UPDATE (2011-12-19): KJI’s financial manager appears on tour of Kwangbok.  According to Yonhap:

The head of a shadowy North Korean agency charged with managing slush funds for leader Kim Jong-il has again appeared in public after five months.

Recent footage from the North’s state television network showed Jon Il-chun standing closer to Kim than Kim’s heir apparent son, Kim Jong-un, on an inspection tour of a supermarket in Pyongyang.

Kim Jong-un is being groomed to succeed his father Kim Jong-il as the country’s next leader in what would be the country’s second hereditary power transfer.

Jon and Kim Jong-un were also seen standing side by side on an escalator at the Kwangbok Area Supermarket, according to recent photos released by the North’s official Korean Central News Agency.

Jon, who has rarely been exposed to media, was last seen on Kim’s trip to a factory in July.

He heads Office 39, which has often been referred to as Kim’s “personal safe” for its role in raising and managing secret funds for the North Korean leader.

The office is also believed to be involved in counterfeiting US$100 bills and drug trafficking.

Last year, the United States blacklisted Office 39 as one of several North Korean entities to come under new sanctions for its involvement in illegal activities such as currency counterfeiting.

ORIGINAL POST (2011-12-16): According to the Daily NK:

Chosun Central News Agency (KCNA) today reported news of an onsite inspection by Kim Jong Il, Kim Jong Eun and others to the Kwangbok District of Pyongyang, the city’s commercial center. The main site on the visit was reportedly the newly expanded and redesigned Kwangbok Department Store.

The redevelopment of the store was ordered by the elder Kim following his trips to China earlier this year, where he was repeatedly exposed to the full force of China’s commercial development.

According to KCNA, “To enhance the people’s welfare and improve their lives, upon the direct suggestion and boundless affection of the fatherly General with his perpetual concern for the people, Kwangbok Department Store, which was constructed in October, 1991, has been transformed anew into the commercial center of Kwangbok District.”

“From warehouse to sale, the realization of information technology and numerical control of all management operations guarantee accuracy and speed, and the store has been stocked to guarantee the utmost convenience of visitors,” it went on.

KCNA went on to say that Kim Jong Il listening to information from related officials, and subsequently declared himself satisfied with the way the store matched the people’s needs in all areas, from sales plans to the amount and quality of goods available.

“We must proceed with the kind of commercial activity that can sell to the people of the capital city those things that they would not be able to live without in their daily lives such as clothing, shoes, food, conveniences, family items, school goods and cultural things, and leave them with no complaint,” he emphasized.

Read the full story here:
Kim Satisfied with “Transformed” Store
Daily NK
Kang Mi Jin
2011-12-16

UPDATE 1 (2011-12-20): Due to the announcement of Kim Jong-il’s death on December 19, the lighting of the Christmas trees was cancelled.

ORIGINAL POST (BELOW):

Pictured above: How the DPRK should have responded to South Korean Christmas Trees

Last year I wrote a blog post about the large “Christmas tree” a South Korean church was erecting on a hilltop tower across the Han River from Jogang-ri, in Kaesong (37.752445°, 126.593120°). Here is a satellite image  (Google Earth) of the location:

This year, the South Korean government again rewarded the church with permission to raise the “Christmas tree”, and again, Pyongyang was not happy:

The North’s official website, Uriminzokkiri, called the plan “a mean attempt for psychological warfare” against the communist state and threatened to retaliate immediately if the lights are switched on.

…

The tree-shaped, 30-meter-high steel structure is illuminated by thousands of small light bulbs and can be seen from the North’s major city of Kaesong just north of the border, according to media reports.

“The enemy warmongers… should be aware that they should be held responsible entirely for any unexpected consequences that may be caused by their scheme,” it said.

“This issue… is not something to be ignored quietly,” it said.

My parents taught me that if someone is trying to annoy me–I should just ignore them.  Showing irritation will only invite further harassment. The DPRK chose to ignore this wisdom, and as a result, the South Koreans approved the construction of two additional “Christmas trees” along the border (three in total now). According to the Associated Press (via the Washigton Post):

The South Korean government allowed a Christian group to light a massive steel Christmas tree near the border last year for the first time in seven years as tensions flared in the wake of two deadly attacks blamed on the North.

That tree will be lit again this month, while South Korea has also decided to allow other Christian groups to light two other front-line Christmas trees, a Defense Ministry official said.

The decision is meant to help guarantee freedom of expression and religion, the official said on condition of anonymity, citing office policy.

…

South Korea’s military will bolster security near the three trees, located on the western, central and eastern portions of the border, the Defense Ministry official said. The trees will stay lit for 15 days starting Dec. 23.

So Christmas trees are increasing military tension along the DMZ. Fantastic. Since it is the holiday season, however, and we should all be feeling good about each other, etc., I wanted to offer the DPRK a more appropriate tactic to respond to the the South’s new “psychological warfare” techniques.  The DPRK already has one of the world’s tallest flag support structures erected near Panmunjom (The 160 meter edifice is technically not a flag pole)…why not just cover it in lights and put a big red star on top? It could even be powered with electricity from the Kaesong Industrial Complex (provided by the South). No South Korean organization could compete. The DPRK would win…it would have the “Tallest Christmas Tree in the World”! Of course, this would be escalation of a different sort.  The South Koreans would respond somehow…but the outcome would be preferable to military escalation!

Happy holidays and happy new year!

According to Yonhap :

North Korea has allowed a Chinese company to do business at its scenic mountain resort, a source said Tuesday, in an apparent attempt to revitalize the resort at the center of a dispute with South Korea.

The company plans to organize a cruise tour to Mount Kumgang on the North’s east coast for Chinese tourists from Hong Kong and other eastern Chinese ports, said the source familiar with the issue.

The company, which won permission to run the business until the end of 2026, also plans to run a casino, a duty free shop and a hotel in the resort, the source said.

The move comes just months after North Korea made a trial cruise from its northeastern port city of Rajin to the mountain resort to try to attract Chinese tourists.

North Korea has launched a series of tourism programs for the Chinese in an apparent bid to earn much-needed hard currency.

For a decade, South and North Korea jointly ran the tour program at the resort, a key symbol of reconciliation on the divided Korean Peninsula.

Still, Seoul halted the cross-border tour program following the 2008 shooting death of a tourist by a North Korean soldier near the resort.

Seoul has demanded a formal apology from Pyongyang for the incident, in addition to improved security measures for tourists, before resuming the tour program, a key cash cow for the North.

However, the North has expelled South Korean workers from the resort and disposed of all South Korean assets there after it unsuccessfully tried to pressure Seoul to resume the tour program.

South Korea has asked foreign countries not to invest or engage in tourism activities at the mountain resort as part of its moves to protect its property rights there.

Dear Yonhap: Would it have been too much trouble to give us the name of the Chinese company or tell us anything about it?

Read the full story here:
N. Korea permits foreign company to run business at its scenic resort
Yonhap
2011-12-3

UPDATE (2011-12-13): According to Radio Free Asia (in Korean), the Chinese government has agree to provide the DPRK with new meteorological equipment.  According to the article:

중국 정부가 유엔 산하 기구를 통해 북한에 첨단 기상관측장비를 지원하기로 결정한 것으로 밝혀졌습니다.

정아름 기자가 보도합니다.

중국정부가 지난 12일 북한에 컴퓨터를 통해 기상관측 정보를 받아보는 자동기상 관측장비(Automatic Weather Systems) 4대를 지원 하겠다는 의사를 유엔 산하 세계기상기구에 전달했습니다.

세계기상기구는 13일 자유아시아방송(RFA)에 이번 지원의 정확한 시점과 지원대상지역은 정해지지 않은 상태이라고 전했습니다.

Here is the article translated by Google Translate.

Jospeh Bermudez recently wrote about the DPRK’s hydro meteorological service.

ORIGINAL POST: According to the Korea Times:

A meteorological expert called for international assistance for North Korea, saying it was lacking in up-to-date meteorological equipment.

The Radio Free Asia quoted Avinash Tyagi, director of the climate and water department of the World Meteorological Organization (WMO), who visited North Korea in mid-March, as saying “equipment and computers used for weather forecasting were in urgent need of replacement.”

Tyagi’s visit with two other colleagues was the first by a WMO team in eight years.

They were supposed to visit the North last November in light of severe flooding last summer, but the trip was postponed.

The floods cost many lives and left many homeless in Sinuiju near the border with China, drawing immediate international humanitarian assistance, including from the South.

The expert said new equipment would help improve the food situation in the country and encouraged the international community to help. He added of the 186 observatories scattered through the country, only 27 were connected to the international meteorology network. Even the equipment there was outdated, made in the 1970 and 80s.

Food shortages are a chronic problem for North Korea, and this has got worse in recent years, which prompted the regime to run an unprecedented campaign to call for food aid from other countries.

More on the DPRK’s 2011 food situation here.

Read the full story here:
N. Korea in need of new meteorological equipment
Korea Times
4/1/2011

According to Yonhap:

Trade between the United States and North Korea reached US$2.45 million in October, a U.S. report showed Saturday.

The bilateral trade volume was comprised completely of aid goods offered by the U.S. to the communist state, the Voice of America (VOA) reported citing data compiled by the U.S. Department of Commerce.

The VOA said the Department of Commerce did not give specifics on what kinds of goods were shipped to North Korea, but the goods traded are considered humanitarian aid products as the two countries are not engaged in commercial trade.

In the first 10 months of the year, the bilateral trade reached $6.24 million, compared with $1.90 million a year earlier, the report said.

Here is a list of DPRK/US engagement stories in 2011.

Read the full story here:
U.S.-N. Korea trade reaches US$2.45 mln in Oct.
Yonhap
2011-12-10

Pictured Above (Google Earth): The Hwanggumphyong and Wiwha Island SEZ on the Yalu/Amnok River which separates the DPRK and PRC.

UPDATE 1 (2012-3-19): Read the laws governing the SEZs here.

ORIGINAL POST (2011-12-9): According to the Daily NK:

North Korea has enacted a law governing activities at Hwanggeumpyeong and on Wihwa Island, two new special economic zones in the vicinity of Shinuiju on the Sino-North Korean border.

Chosun Central News Agency revealed the news this morning, stating, “The Hwanggeumpyeong-Wihwa Island Economic Zone Act was adopted by the Standing Committee of the Supreme People’s Assembly of the Chosun People’s Democratic Republic.” It did not offer any further details.

The provisions of the new law are reported to have been circulated to various Chinese governmental and economic figures, and it is said to contain provisions reflecting successful elements in the development of China’s own special economic zones.

Naturally, one key part of the intent behind the new law’s enactment appears to be to reassure potential Chinese investors of the stability of the investment climate in North Korea.

At this stage, although there was a large opening ceremony for the zone in June this year attended by Workers’ Party figures including Jang Sung Taek, who plays a key role in the attraction of overseas investment to North Korea, the pace of construction remains limited.

However, there may not be long to wait. Dai Yulin, who heads the Municipal Committtee of the Chinese Communist Party across the Yalu River in Dandong told the China Daily back in September, “Concrete plans for the development of the Hwanggeumpyeong Special Economic Zone will be completed by the end of this year.”

Read the full story here:
SEZ Law Enacted by Supreme Assembly
Daily NK
Kim Tae Hong
2011-12-9

According to Yonhap:

South and North Korean linguistic experts have agreed to push to use the same spelling of place names, together with their Chinese counterparts, a Chinese scholar said Thursday.

The project is designed to promote better communication among South and North Koreans as well as ethnic Koreans in China.

The divided Koreas use the same alphabet known as “hangeul,” though decades of division following the 1950-53 Korean War resulted in dialectical differences and deviations in word meaning.

The two Koreas also spell differently in hangeul when naming places and countries, a phenomenon that often causes trouble in communication between South and North Koreans.

Most of the about 2 million ethnic Koreans in China can speak Korean, though they also use different dialects and spell the names of locations differently than Koreans.

North Korean linguistic experts have proposed unifying the spelling of place names on the Korean Peninsula and China, said Liu Yinzhong, a professor of Zhejiang Yuexiu University of Foreign Languages in China.

Liu, an ethnic Korean who studied at Kim Il-sung University in North Korea, said the project could help contribute to boosting mutual confidence and cooperation.

Chin Yong-ohk, an emeritus professor of Kyunghee University who is involved in the project, said Liu would visit South and North Korea to exchange ideas on the project.

South Korea has banned its citizens from visiting North Korea as part of sanctions on the North in retaliation for the sinking of a South Korean warship in 2010. The North has denied involvement in the sinking that killed 46 sailors.

South Korea has selectively allowed religious and private aid groups to visit the North as part of humanitarian projects.

Last month, the two Koreas held discussions in the North’s border city of Kaesong on resuming a separate project to publish a joint dictionary covering their different dialects.

The project, launched in 2005, was suspended last year after the North’s sinking of the South Korean warship.

Read the full story here:
Koreas push to use same spelling of place names
Yonhap
2011-12-8

According to Yonahp:

Top executives of more than 120 South Korean companies operating in the Kaesong Industrial Complex plan to meet in the North’s border city this week, in the first such meeting to discuss pending inter-Korean business issues, an organizer said Tuesday.

The CEO conference is scheduled to bring together the heads or local representatives of 123 South Korean firms and other related officials on Wednesday, said Bae Won-joo, one of the organizers of the meeting.

A Unification Ministry official said the meeting was designed to discuss issues related to the operation of the industrial complex. He did not give further details and asked not to identified, citing office policy.

Previous posts on the Kaesong Industrial Zone can be found here.

Read the full story here:
S. Korean businessmen to meet in N. Korea’s industrial park
Yonhap
2011-12-6

UPDATE 3 (2011-12-6): Accoridng to the Associated Press, six Americans from the Fuller Center are returning to the site to continue construction (just as the winter begins):

A group of Americans is in North Korea to kick off a project to build 50 homes for families working at a tree farm outside Pyongyang.

Six volunteers affiliated with the Fuller Center for Housing arrived Tuesday. Their trip comes at a time of improving relations between the U.S. and North Korea.

The 50-unit project will house the families of workers at a tree nursery in Osan-ri.

Participants with the nonprofit Fuller Center say they’ll be working side by side with North Koreans to build the homes.

They’re aiming to finish three homes this week, and other volunteers are expected to arrive in coming months to help complete the project.

In Americus, Georgia, Fuller Center President David Snell called the project a “true mission of peace.”

The United States and North Korea fought on opposite sides of the Korean War and do not have diplomatic relations. Diplomats from the two countries recently held talks about resuming six-nation nuclear disarmament talks.

Below is the most recent Google Earth image of the Fuller Center’s Osan-ri project dated (2011-5-3):

I have tagged the facility on WikiMapia and you can see it here. The satellite image shows that some progress has been made since the last photo was published in September 2010 (below).

Previous reports of USA-DPRK engagement in 2011 can be found here.

UPDATE 2 (2011-7-13): Google Earth released new imagery of this area today (July 13).  The imagery is dated 2010-9-14, and it shows quite a bit of progress on the Fuller Center’s project:

UPDATE 1 (2010-3-28): Radio Free Asia has reported (in Korean) that the development of the Fuller Center’s housing project in Osan-ri has been delayed.

After running the story through Google Translate it appears that the delay is due to bureaucratic hurdles with getting resources from China into the DPRK (please correct me if I am wrong).

Satellite imagery from March 2010 (Google Earth) shows that the project has been launched, but it has moved from its initial location to the east (just a tad):

A reader named “Bobby” wrote in, however, and told me the following:

The Google Translate version is a little wack but that’s pretty much what happened. The Korean version says that David Snell was originally going to buy the construction materials in China and deliver them directly to North Korea by truck but because there is too much to move they have to ship it by train. The delivery has been delayed because shipping it by train requires a lot of extra paperwork and customs obstacles. The workers can’t get visas until the materials arrive safely so they aren’t even able to enter the country yet.
(Also, I think you accidently blocked my name for commenting before.)

ORIGINAL POST (2009-12-18): The Fuller Center for Housing is a religious organization based in Atlanta, Georgia (USA) which seeks to provide adequate shelter across the globe.  The Fuller Center’s mission statement can be found here.

On November 11, the Fuller Center broke ground on their new project in the DPRK. According to Global Atlanta:

With help from U.S. volunteers, the Americus-based Fuller Center for Housing will work with the North Korean government to construct a 50-unit complex in a small farming community outside the capital city of Pyongyang.

The project will help alleviate a housing shortage caused by a 2006 typhoon that destroyed some 30,000 homes across the country.

North Korea is providing land, labor and heavy equipment for the project, a community of duplexes designed with a variety of measures to boost energy efficiency.

For example, the homes will have a wall of windows on the front. Facing south will allow in the most possible sunlight, reducing the use of electricity to light the homes, said David Snell, the Fuller center’s president.

The Paektusan Academy of Architecture, a government agency responsible for developing much of modern Pyongyang’s cityscape, designed the complex and will manage construction.

The two-bedroom, one-bathroom floor plans include a living room, dining room and an animal shed with multiple stalls on the back of the house. An upper-level attic space is designated as a “greenhouse” on a design posted on the Fuller center Web site.

The center is raising money for the homes from U.S. and European donors. Construction is slated to start in the spring, and the center will begin sending teams of six to eight American volunteers next summer.

Despite many Americans’ negative perceptions of North Korea, the center has started receiving volunteer applications before even officially opening the process, Mr. Snell said.

“The fact that it’s been a forbidden kingdom for all these years adds to the intrigue,” he told GlobalAtlanta.

Mr. Snell, who traveled to North Korea for the third time in the last 18 months to attend the groundbreaking, added that the center’s main mission is to build houses, but it often ends up bridging cultural divides in the conflict-ridden areas where it works.

“Absence of peace seems to be a common thread, so we’re starting to wonder if maybe we have a peacemaking component to our mission,” said Mr. Snell, who stopped in the Philippines and Peru to kick-start projects on his way home from North Korea.

Mr. Snell hopes to have an impact on relations between the U.S. and North Korea at a grassroots level. The nations are currently at odds over a raft of diplomatic issues, most notably North Korea’s evolving nuclear weapons program and belligerent antics on the international stage that befuddle American policy makers.

Such political differences won’t heal until people trust each other, and the housing project will give both countries’ citizens a chance to meet and work together for common good, Mr. Snell said.

“We all demonize our enemies, but I’m finding the Korean people to be just like you and me. We chuckle and laugh and tell stories, and they have the same aspirations for a better life and for peace,” Mr. Snell said. “This notion that we’re bringing peace is shared notion.”

The entire project has so far been an exercise in building trust. The idea came from Don Mosley, who heads Jubilee Partners, a refugee resettlement organization outside of Athens, and Han Park, an international affairs professor at the University of Georgia who has become a trusted unofficial liaison between the two countries.

More information, including YouTube videos of the groundbreaking and a map of the project,  can be found on the Fuller Center‘s web page (HERE).