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Pyongyang shouts at Seoul, but demand for money is louder.

Sunday, November 15th, 2009

Friday, November 13, 2009 (KCNA):

The head of the north side delegation to the North-South General-Level Military Talks on Friday sent the following notice to the south side, clarifying the truth behind the recent armed provocation in the West Sea and the principled stand of the Korean People’s Army on it in connection with the south side’s sophism making profound confusion of right and wrong over the incident:

It is the politically motivated shameless provocation to resort to a futile military adventure to preserve the illegal “northern limit line” still today when the times have changed.

Warships of the navy of the south Korean forces described the exercise of the right to self-defence by a patrol boat of the north side as “an act of trespassing on the above-said line” and preempted the firing of direct sighting shots and “shots aimed at destroying it”, not “warning shots” though they were well aware that the patrol boat and its crew sailed to confirm an unidentified object. This was an inexcusable deliberate and open military provocation.

The rash action perpetrated by them, firing thousands of bullets and shells with several warships involved at a time was a premeditated action of the rightwing conservative forces and bellicose military group of the south side to stem the trend of the situation on the Korean Peninsula which has shown a sign of detente through the third skirmish in the West Sea.

Upon the authorization, I notify the south side of the following principled stand of the KPA on the gravity of the incident:

1. The south side should make an apology to the nation for orchestrating the recent incident and putting it into practice and take a proper measure to promptly punish the prime movers of the incident as maniacs of confrontation with fellow countrymen and harassers of peace.

2. The south side should behave with discretion as required by the times and the desire of the nation, clearly mindful that its stand to preserve the “northern limit line” no longer works.

3. Reminding again that there exists in the West Sea of Korea only the extension of the Military Demarcation Line in the waters set by the KPA side, it will take merciless military measures to defend the extension from this moment.

4. The south side will be held fully accountable for having disturbed the reconciliation and unity of the nation and hamstrung the efforts to achieve peace and reunification and have to pay a dear price for them.

Just one day later–from the Associated Press:

A North Korean cargo ship entered South Korean waters Saturday — a sign that trade has been unaffected by a recent deadly naval clash off their western coasts, an official said.

The ship dropped anchor west of Seoul just one a day after North Korea’s military threatened to “take merciless military measures to defend” itself and warned that South Korea would be forced to pay a heavy price for the recent firefight over their disputed maritime border.

A Unification Ministry spokesman says, however, that neither side has taken any measures to restrict inter-Korean trade — one of few legitimate sources of foreign currency for the impoverished communist North.

The naval skirmish was the first in seven years and came ahead of a trip to Seoul by President Barack Obama, who arrives Wednesday. A senior South Korean military officer said one North Korean officer died in the fight and three others were wounded. South Korea suffered no casualties.

South Korea responded by putting its 680,000-member military on guard, though officials said they have seen no evidence of unusual North Korean moves.

The cargo ship, delivering silica to a South Korean company, passed through the disputed border Saturday and is scheduled to enter Incheon port on Monday, said a Port Authority official. He asked not to be identified because he was not authorized to speak to media.

The decision to permit the North Korean ship entry was made before the clash, Unification Ministry spokesman Chun Hae-sung said. North Korean ships have docked 35 times at the port the in the first nine months of the year, according to the Port Authority.

South Korea is the No. 2 trading partner of North Korea, with trade volume reaching $1.1 billion in the first nine months of this year, according to the Ministry, which handles inter-Korean affairs.

“Silica” is silicon dioxide, and it is more commonly known as sand. Read past posts about the DPRK – RoK trade in sand here.

UPDATE: According to the Washington Examiner:

The ship unloaded 1,750 tons of silica at Incheon Port, west of Seoul, and sailed back to the North later Monday, according to port official Lee Jin-wu. The ship departed from a North Korean port last Thursday, two days after the neighboring countries clashed along their disputed western sea border.

Posted in International trade, Mining/Minerals, Sand, Sea shipping, South Korea, Transportation | Comments Closed

South Korea stiffens import rules on N. Korean products

Tuesday, October 27th, 2009

UPDATE: Contrary to earlier reports (below) that South Korea was set to begin importing sand from the DPRK, it turns out that they are tightening import restrictions on goods from the DPRK. According to Yonhap:

The government has tightened rules on imports of sand, pine mushrooms and anthracite from North Korea, the Unification Ministry said Tuesday, in an apparent move to keep a close eye on cash flows into Pyongyang.

The three items have been allowed into South Korea only with a declaration to the customs office, but the toughened rules now require their importers to receive approval from the unification minister, said ministry spokeswoman Lee Jong-joo.

“Inter-Korean trade volumes of pine mushrooms, sand and anthracite have rapidly increased recently,” Lee said in a press briefing, without specifying the hike rates.

“This revision was prepared in consideration of two things — transparency of inter-Korean trade and keeping the import volume at a proper level,” she added.

Seoul has so far required approval from the unification minister, only when excessive imports of a certain item are feared to harm local producers. Those three items are not considered to fall into that category.

North Korean sand has been rumored to be linked to the country’s military. The concerns prompted Seoul to ban local sand importers from traveling to North Korea after it launched a long-range rocket in April, and such trips are not still allowed.

Last year, US$73.35 million worth of sand, $14,93 million of pine mushrooms and $25.1 million of anthracite were imported from North Korea. Sand was the largest imported item, while anthracite was 9th and pine mushrooms 18th.

With the tightened entry rules, the government can “make a judgment on the site about whether each business is appropriate and get sufficient information about them, thereby enhancing the transparency of inter-Korean trade and its soundness,” the spokeswoman said.

Read the full Story here:
South Korea stiffens import rules on N. Korean products
Yonhap
10/27/2009

ORIGINAL POST: RoK looking to import sand from DPRK (again)
According to Yonhap:

South Korea has suspended sand imports from North Korea since April, when the North test-fired a long-range rocket. Seoul had banned sand importers from traveling to the North.

South Korea first brought in North Korean sand for use at local construction sites in late 2002, as part of an inter-Korean accord signed by leaders of the two Koreas in 2000.

“The government is reviewing the resumption of imports of the North’s sand, given strong requests from businesses and the overall state of current inter-Korean relations,” an informed government official said, requesting to be unnamed.

The South Korean government is expected to decide soon whether to lift the travel ban on sand importers as well, according to officials.

Seoul reportedly placed the travel restriction on sand importers due to suspicions that payments for sand shipments were pocketed by military authorities in the North.

Read other stories about the sand trade here.

Read the full story below:
Seoul mulls resuming sand imports from N. Korea: sources
Yonhap
Tony Chang
10/22/2009

Posted in International trade, Mining/Minerals, Sand, South Korea | Comments Closed

DPRK-RoK trade increases in September

Monday, October 19th, 2009

According to Yonhap:

Inter-Korean trade grew for the first time in 13 months in September amid improving global economic conditions and eased cross-border tensions, customs data showed Monday.

According to data compiled by the Korea Customs Service, trade between South and North Korea amounted to US$173.17 million last month, up 2.6 percent from a year earlier when the global financial turbulence first began following the collapse of Lehman Brothers.

Also according to Yonhap however, the DPRK and RoK failed to agree on an aid-for-family reunions deal:

The two Koreas on Friday ended their day-long negotiations over further cross-border family reunions and other humanitarian issues without reaching any concrete agreement, with Pyongyang asking for resumption of aid by Seoul, officials said.

In the meeting arranged by Red Cross offices from both sides, South Korea proposed holding new rounds of reunions for families separated by the 1950-53 Korean War next month in both Seoul and Pyongyang, and again around February at the North’s Mount Kumgang resort.

But aid is not off the table. According to the Korea Times today:

The government has been reviewing whether to subsidize non-government organizations through the inter-Korean cooperation fund in order to provide aid to North Korea, according to the Ministry of Unification, Monday.

“The government is mainly checking plans to offer health and medical care,” ministry spokesman Chun Hae-sung told reporters. “But details have yet to be determined.”

Chun reiterated that Seoul is sticking to its existing stance that it will provide North Korea with humanitarian assistance regardless of the political climate.

According to government sources, the subsidy would total less than 1 billion won (about $853,000).

The plan, however, is not related to North Korea’s request for humanitarian aid made during the inter-Korean Red Cross talks last Friday, the sources said.

Seoul has also been reviewing whether to provide the reclusive state with government-level support such as food and fertilizer aid, according to ministry officials.

The inter-Korean cooperation fund has served as a lifeline for cross-border business projects, including the Gaeseong Industrial Complex and the Mt. Geumgang tourism program, which has been suspended.

It is also a main source of South Korea’s economic aid to the impoverished North.

The cash pot was introduced in 1990 in order to boost personal exchanges, economic cooperation and trust-building between the two Koreas.

In August, the ministry approved a plan to subsidize 10 civic groups with approximately 3.6 billion won ($3 million) from the fund for relief activities involving North Korean babies, pregnant women and other social minorities.

The government originally planned to distribute the money starting from April but North Korea’s provocations postponed the plan.

As reported before, the South Korean government has spent just 5% of the funds it budgeted for inter-Korean projects this year.

At the same time North Korea is soliciting aid from South Korean and Western religious origanizations. See here, here, and here in just the last few days.

Posted in International Aid, Kaesong Industrial Complex (KIC), Mt. Kumgang Tourist Special Zone, Religion, South Korea, Special Economic Zones (Established before 2013) | 2 Comments »

N. Korea [not] growing more tolerant of foreign movies

Tuesday, October 13th, 2009

UPDATE 2: (hat tip to a couple of appreciated readers) Park Soo-me reports on the proliferation of South Korean films in the DPRK:

“It’s safe to assume that a majority of North Korean residents have watched a South Korean film or a soap opera at least once,” said Kim, who left North Korea in 2004, and established a think-tank in Seoul called the “North Korea Intellectuals Solidarity.”

The group, which frequently communicates with their inside contacts in the North, recently broke revealing news that a group of North Korean students were caught watching “Haeundae,” a mega-hit South Korean disaster film locally released just over a month ago, at a computer lab inside a Pyongyang college.

The defector group cited an anonymous source in Pyongyang who told their reporter that the government is tightening a crackdown of digital files, as South Korean films smuggled through China are endangering the North’s dictatorial regime.

A student identified only as “Choi” said he had downloaded the film at his relative’s house in Cheongjin, a city about 50 miles from the Chinese border. He was arrested for promoting the ideology of his enemy state, not for circulating a pirated film.

Since the late 1990s, South Korean dramas and films were illegally traded in the North through local businessmen frequenting the Chinese borders. The phenomenon is not unlike that from the young Soviets in the 1970s, who secretly acquired rock ‘n’ roll records and American videotapes through its black market, despite the country’s ban on the cultural products of the capitalist state.

Last year, an insider from another defectors’ group based in Seoul broke news that DVD compilations of South Korean adult films and TV dramas are becoming popular in the North, as the sales of the average South Korean soap opera has declined in recent years. Such DVDs were found in a North Korean market in Cheongjin, the group said through its newsletter.

The situation in the North has gotten to the point where Oh Yang-yeol, a professor at the University of North Korean Studies in Seoul, published a paper on “Hallyu in North Korea: Now and Future.”

The term hallyu recalls the Korean wave of pop culture that hit Southeast Asia in the early 2000s. Oh’s paper stresses the spread of South Korean fashion, drama and music among the younger generation of North Koreans.

In a separate release by the Korean Institute of National Unification, experts have quoted North Korean defectors who have testified that South Korean melodramas like “Autumn in My Heart” and “Winter Sonata” have become a such hit in the North that a special squad was once organized to crack down on the violators.

But not all dramas smuggled into the North are soft, touchy-feely soap operas. Among the works that have been found and blacklisted by the Northern authorities include films like Park Chan-wook’s “Joint Security Area,” a story which is essentially built around a forbidden friendship between solders from the North and South who are stationed in the Demilitarized Zone that divides the two countries.

On the distribution side, South Korean films and TV dramas are appearing in the North faster and with a broader reach, as evident in the recent case of “Haeundae.”

“In the past, it normally took up to six months for a South Korean film to arrive in the North,” Oh said. “Now, it takes little over a month. In wealthier neighborhoods in Pyongyang we start to see local girls imitating the hairstyle and fashion of South Korean celebrities who starred in the latest TV dramas.”

Irritated by the spread of hallyu — often referred to as the “yellow wind” in the North — authorities have tightened censorship regulations and house inspections to encourage “ideological discipline.” But there is a limit as to what they can do.

Although limited to a privileged few, more computer-savvy Koreans in Pyongyang are finding easier alternatives to enjoy pop culture from the outside world, making the North’s isolation more difficult. Internet access is limited to an Intranet for most people in the North. But USB drives are becoming more common among local college and middle school students, and frequent traffic between North Korea and China is increasing opportunities for cross-border smuggling of pirated films from Hollywood and Seoul.

Read the full story below:
Pop culture making inroads into North Korea
Hollywood Reporter
Park Soo-mee
10/8/2009

UPDATE 1: Although the Donga Ilbo previously reported that the DPRK was growing more tolerant of foreign films (below), Channel News Asia reports the DPRK is clamping down:

The student in Pyongyang was caught on September 5 while watching a digital copy of “Haeundae” with his dorm friends, the North Korea Intellectuals Solidarity said in a newsletter posted on its website.

The student allegedly acquired a file of the film at a relative’s house in the northeastern port city of Chongjin and downloaded it onto his college computer, it said.

The case prompted authorities to launch an extensive probe aimed at preventing the spread of the movie, the group said, quoting a “correspondent” in the North.

The inspection revealed that tens of thousands of North Koreans have secretly seen foreign films, it said.

Defectors say South Korean pop songs and movies are popular in the isolated communist country, despite a steady campaign to weed out what state media has termed “decadent foreign culture and ideals”.

In December 2007, three North Koreans including a schoolteacher were sentenced to death for smuggling illegal adult films from China and South Korea, according to Good Friends, a Seoul-based aid group working in the North.

ORIGINAL POST: According to the Donga Ilbo:

Recently, the North has televised the shows “International Common Sense,” “Animals in the World,” and “Foreign Culture,” programs which had been abolished long ago. Those programs even show the daily lives of Westerners.

A few days ago, a video clip was aired in which North Korean singers in military uniform played the guitar and sang Italian songs. When broadcasting sports, Pyongyang used to simply air competitions in which North Korean athletes participated, but when airing the IAAF World Championship in Athletics in Berlin last month, the North summarized footage of major events and televised them.

North Korea’s attitude toward foreign movies has also changed. CD-ROMs containing foreign movies have been manufactured by the state-run Hana Electronics, which has sold them across the nation. Most of the CD-ROMs include foreign movies aired by Mansudae TV, which serves Pyongyang only.

A CD-ROM is priced at 1,500 North Korean won (41 U.S. cents) and a DVD goes for 7,500 won (2.07 dollars). CD-ROMs of cooking game programs as well as those on the lives of famous soccer players such as Diego Maradona and Franz Beckenbauer are also on the market.

The North has also embraced world-famous animated films. The Disney productions of “Cinderella,” “Pinocchio,” “Sleeping Beauty” and “Robin Hood” are available across the nation. The popular American cartoon “Tom and Jerry” is called “The Magic World of a Mouse” in the North.

The proliferation of foreign movies has also led to an increase in secret movie rental stores. Government-manufactured CD-ROMs can be rented out at 300 won (eight cents) per day and illegal movies can be borrowed at 500 won (14 cents) per day.

Yet most foreign programs broadcast in North Korea are created in China, which, in turn, has encouraged North Koreans to adopt the Chinese way of life. Mansudae TV routinely broadcasts Chinese soap operas like the drama “Unnamed Hero” and “Vertical Blow,” which shows the training of China’s special forces.

Despite the apparent liberalization of North Korean television, Pyongyang has toughened its punishment for those watching South Korean TV programs. In the past, punishment for watching a South Korean program was usually avoided through a bribe but the offense is now considered more severe than a drug-related crime.

Read the full story here:
N. Korea Growing More Tolerant of Foreign Movies
Donga Ilbo
9/19/2009

Posted in Animation, Domestic publication, Film, South Korea, Television | Comments Closed

Seoul signals increase to inter-Korean budget, but far from spending current budget

Wednesday, October 7th, 2009

UPDATE: Although South Korea has signaled willingness to increase spending in North Korea (below), it appears they have come nowhere close to spending their current budget. According to Yonhap:

South Korea has so far this year spent less than 5 percent of its annual budget earmarked to promote reconciliation with North Korea, the Unification Ministry’s data showed Wednesday.

The meager spending of the inter-Korean cooperation budget mirrored stagnant economic exchanges yet to be enlivened despite a recent thaw in political relations.

The data showed that South Korea has set aside 1.16 trillion won (US$990.94 million) for this year’s inter-Korean cooperation budget, which includes 43 billion won transferred from last year, to support joint business projects and provide industrial and humanitarian aid to the North.

The budget spending as of the end of September amounted to 55.9 billion won, 4.8 percent of the total, according to the data.

In a detailed breakdown of expenditures, the ministry spent 10.6 billion won, or 11.3 percent of the 93.8 billion won budget earmarked for the South Korean-run factory park in the North’s border town of Kaesong. Planned projects to build a dormitory for North Korean workers and modernize roads there have also not begun. The Kaesong park hosts about 110 South Korean firms with 40,000 employees from the North.

Humanitarian aid was the area in which funds were held back most. Out of the earmarked 819.8 billion won, the ministry has spent a meager 0.9 percent, or 7.7 billion won, so far. Unification Minister Hyun In-taek said in a parliamentary audit Tuesday that Seoul will decide when to resume its rice and fertilizer aid, crucial to food supplies in the North, after “considering the climate of future inter-Korean relations.”

For social and cultural exchanges, the ministry spent 2.2 billion won, or 25.3 percent of the earmarked 8.7 billion won. Loans for inter-Korean cooperation projects amounted to 11.3 percent, or 21 billion won out of 186.6 billion won.

ORIGINAL POST: According to Yonhap:

South Korea’s government proposed a 30 percent increase in its budget spending aimed at supporting inter-Korean economic cooperation projects for next year, the finance ministry said Tuesday.

According to the Ministry of Strategy and Finance, the budget set aside for inter-Korean economic cooperation next year will amount to 398.2 billion won (US$339.6 million), compared with 304.6 billion won assigned for this year.

Citation:
Seoul proposes 30 pct increase in budget for inter-Korean economic cooperation
Yonhap
10/6/2009

Posted in Foreign direct investment, South Korea | 2 Comments »

Russia-ROK gas deal on hold

Tuesday, September 29th, 2009

Last year we reported on an effort to bring Russian natural gas to South Korea via a pipeline that could either go through North Korea or across the East Sea (aka Sea of Japan). If the pipeline was to cross the DPRK, they stood to gain by leasing the land for the pipeline.

According to news this week, the plan has been indefinitely shelved. According to the story:

Plans to import Russian natural gas through a North Korean pipeline have been shelved due to strained inter-Korean relations, the head of South Korea’s state-run energy company said Tuesday.

Korea Gas Corp (KOGAS) (KSE:36460) president Choo Kang-soo said unless North Korea specifically asks for the pipeline to be built on its soil, Seoul will not pursue the piped natural gas (PNG) project but opt to import liquefied natural gas (LNG) directly from Russia by ship.

“An understanding has recently been reached with Russian partners on this issue,” the chief executive said, adding that recent developments like the nuclear standoff raised the importance of creating a “controllable schedule” for getting the gas on time.

He pointed out that the inability to control cross-border issues has made the PNG plan less viable.

Under a blueprint announced in 2008, Seoul said it wanted to import 7.5 million tons of Russian gas starting in 2015 to ensure a steady supply of fuel. Seoul had previously relied heavily on imports from Southeast Asian countries, which have since hiked up prices.

The deal, valued at more than US$100 million, called for a pipeline running from Russia’s far east to South Korea through North Korea.

Choo hinted that because Russia is eying both the Japanese and Chinese markets, it also prefers to transform its natural gas into LNG for overseas sales.

KOGAS, meanwhile, said that the total amount of fuel that will be imported from Russia will equal 20 per cent of South Korea’s projected natural gas needs in 2015. In 2007, the country bought 7.8 million tons of gas for home use alone, with more being spent on power generation and various fuel needs.

Russia has an estimated 38 billion tons of natural gas and announced plans to spend US$28 billion to link the Krasnoyarsk, Irkutsk, Yakutsk and Sakhalin gas fields into a unified gas supply system that can facilitate exports.

Statistically speaking, natural resource exports are bad news for good governance and economic development. This is because resource-dependent governments never need to develop the policies and institutions necessary to promote sustained entrepreneurship in the private economy from which they can extract tax revenue. Since non-democratic countries are supposed to love natural resource exports because they essentially translate into free hard currency, I am surprised the DPRK could not set politics aside and cash in on this deal.

Also, what does this say about Russia’s relationship with the DPRK?

Read the full story here:
S Korean plan to import Russian natural gas via N Korea on hold
TradingMarkets.com
9/29/2009

Posted in Energy, Natural Gas, Russia, South Korea | 2 Comments »

Goldman Sachs on Korean Unification

Monday, September 21st, 2009

UPDATE: Some interesting follow up from a member of Phoenix Commercial Ventures at the Gerson Lehrman Group web page:

Analysis
My colleagues and I are directors of a number of businesses (Phoenix Commercial Ventures) that have been based in the DPRK (aka North Korea) for a number of years. Goldman Sachs is correct to highlight the upside of business opportunities with the DPRK.

The DPRK (North Korea) represents one of the last “green field” economies in the world with exceptional investment opportunities. As such it provides an unparalleled opportunity for business professionals who know and understand the risks, the people and the country. As estate agents are fond of saying, it is a case of “location, location, location”.

1 Physical Location
The DPRK (North Korea) physically borders Russia, China and ROK; as such it is in a prime location in this most important of trade routes. Additionally, its location in Asia Pacific gives it access to one of the world’s wealthiest and most vibrant regions.

2 Resource Location
The DPRK has abundant mineral resources including; coal, gold, magnesium, nickel, copper, graphite, nephelite, zinc etc. The total value of which is estimated at being around $2.5 Trillion (IHT 21 Dec 2007).

The DPRK has a well educated (99-100% literacy), intelligent, hard working population whose wage rates are highly competitive.

The DPRK has a forward looking environmental policy that offers green investors opportunities to generate environmentally friendly power for supply locally and export elsewhere.

3 Historical Location
The recent improvements in geopolitical issues demonstrates that the time is right, in terms of historical context, for progress to be made with regard to the DPRK entering the world financial community and to benefit from world trade.

Practicalities
It is not difficult to set up shop, if you approach the DPRK with a well thought through serious business proposal/well researched business plan and are a professional with reputable/professional local contacts.

It should be emphasised that businesses in the DPRK are no more fond of having their time wasted than businesses anywhere else in the world, local businesses having had their time wasted tend to prefer to deal with professionals that they trust.

When setting up a business within the DPRK remember that you cannot manage solely by email and need people on the ground, as is the case with Phoenix Commercial Ventures. Organisations that do not have people on the ground in DPRK will fail.

One of the major challenges facing a newcomer to the local market is a very practical one – how to find a way to balance the need for pre-start-up feasibility studies requiring possibly large amounts of information from the local Korean partner, against the need to demonstrate to the local authorities that the investor is serious.

There have been many cases over the years of potential foreign investors making promises they cannot fulfil, and the Koreans have consequently become somewhat sceptical. It is therefore essential to promise only what you know you can deliver, and to deliver within the timeframe agreed.

The DPRK Government is actively encouraging foreign investment in areas such as mining, energy, agriculture and IT.

Investors in the DPRK are accorded generous tax concessions:

1. A reduced rate of tax of 10% (standard rate – 25%)
2. An additional tax exemption – whereby the investor is fully exempt from paying tax from the year of investment for 3 years, and 50% exempt for the subsequent 2 years
3. Any tax paid will be returned, if a subsequent investment is made

The DPRK is also undertaking small experiments with free market economy principles that would have been unthinkable a couple of years ago. There are now 24-hour stores operating in Pyongyang, several places providing computer access and a series of adverts on the TV.

Kim Yong-sul, DPRK Vice Minister for Trade, is quoted as saying at a Pyongyang meeting of overseas ethnic Korean businessmen October 25 2004:

“In the past, we only allowed foreign companies entry into specialized economic zones, but now, we will allow them to set up in other places around the DPRK.”

Misconceptions
There are a number of misconceptions harboured by some in the West about doing business in the DPRK. The one that we most frequently encounter is that people do not believe that it is possible, as a Westerner, to set up and run a company in the DPRK. This is patently untrue, the DPRK allows Western companies to set up and run joint ventures (JV’s) with a majority shareholding, with local partners and to remit profits; the government encourages foreign investment.

One of our (Phoenix Commercial Ventures Ltd) aims is to demystify the business environment, demonstrate that people can make successful and ethical joint ventures in the DPRK that provide a decent return, employ local people, engage with local professionals; thereby encouraging others of good repute to come and do the same.

Another misconception is that communications from outside the DPRK with people working in the DPRK are impossible. This is untrue. I can call via phone and email my colleagues directly from London.

Starting and running a JV in the DPRK requires the same approach as it would in any other country – it is the fact that it is a JV that is important, not that it is in the DPRK.

That means you have to have the good judgement to size up and choose a good partner with whom you are going to work well together, but then you have to do just that – work well together, with emphasis on each of those words.

If you start a joint venture where you are always suspicious of the joint venture partner, then you shouldn’t have started the JV in the first place, it will never succeed – that is exactly the same in any country.

It is absolutely essential to have resident foreign management, a joint venture cannot be run remotely from abroad. The quality of, and relationship with, the local staff is essential; as is that of the foreign management. The aim of the JV should be to bond the personnel into an independent unit, who are striving for the success of the JV, and to remove entirely any idea of ‘our side’ and ‘their side’ within the JV.

The Barclays Report
Goldman Sachs are not alone in viewing the future positively. In 2004 Barclays Capital Research issued an upbeat report about the DPRK:

“The North Korean economy does not seem about to collapse” (contrary to what many might think).

1. As time goes by we are likely to see “the development of an uneasy coexistence with the US”.
2. There are some signs of improvement in the North Korea’s economy, thanks to recent reforms. The growth will remain very slow, but the regime has built in “coping mechanisms” that will prevent collapse.
3. “A slow income growth could be supportive of political stability, because it would make it easier for the regime to control popular expectations.”
4.What the Chinese would call peaceful evolution is possible:

“Political and economic stability would, over the longer term, see the completion of the transition from a planned to a market economy and greater integration of North Korea into the global economy. This in turn, could support a long-term normalisation of North Korea’s diplomatic relations with the external world.”

Plus Ca Change
When we were exhibiting at the Pyongyang Spring International Trade Fair in May 2008, our CEO was at our stand and was approached by a young Korean lad who in perfect English said “Excuse me, am I disturbing you?”

It turned out that he wanted his photo taken.

The above may not seem much of an anecdote to those who have little understanding of the DPRK. However, those who do will realise the significance of that.

We are also attending the current four day international trade fair which opened this Monday in Pyongyang, with 120 companies from the DPRK and 14 other economies taking part.

The DPRK offers an unparalleled opportunity for business professionals who know and understand the risks, the people and the country.

ORIGINAL POST: (Thanks to a reader: Paper link at the bottom) A new paper by Goohoo Kwon at Goldman Sachs argues that the economy of a reunified Korea could be larger than France and Germany by the middle of this century. The paper is not available on line yet, but according to to an article about the GS paper in the Wall Street Journal:

Since the reunification of West and East Germany 20 years ago, South Korean leaders and economists have convinced many people here that reuniting with North Korea will be costly and disruptive. In the latest gloomy forecast, a government think tank last month said that the tax burden ratio, or proportion of tax revenue to gross domestic product, would need to rise by two percentage points and stay that way for 60 years to pay for reunification.

In the study released Monday, Goldman Sachs economist Kwon Goo-hoon says the risks of reunification need to be re-evaluated, particularly in the wake of the rapid development of countries like Vietnam and Mongolia that also had state-run economies like North Korea’s.

His study contains North Korean data that he acknowledges may not be accurate and assumptions about future behavior that may not pan out. Even so, its tone is more optimistic than previous studies that contributed to South Koreans’ ambivalence about unification.

In an interview, Mr. Kwon said he believed for a long time that unification would be too costly for the South. He based that view largely on what happened with the newly united Germany, where the currencies were quickly equalized, the border opened and huge transfer payments made from the former West to the former East Germany.

“People always look at Germany when they discuss unification of the Koreas, but if you look at China and Hong Kong, or more properly Eastern Europe, Mongolia or Vietnam, you see there are better ways of doing this,” Mr. Kwon said. “I think it’s a matter of education and dialogue.”

In March, the Bank of Korea published a report that said Hong Kong’s gradual integration with China beginning in 1997 and France’s handling of its former colonies after World War II were better models. Both that study and Mr. Kwon’s suggest the two Koreas maintain separate currencies and restrict crossings at the inter-Korean border, perhaps for decades as North Korea’s currency appreciates and its people grow wealthier.

Mr. Kwon’s study goes several steps further by suggesting that the huge growth potential of North Korea could help offset the slowing growth of South Korea, which is burdened by limited natural resources and a fast-aging population. By contrast, North Korea has huge mineral deposits and a population that is younger and growing twice as quickly as South Korea.

Using long-term growth forecasts Goldman Sachs has previously published for industrialized countries, Mr. Kwon concluded that the gross domestic product of a united Korea would be the world’s eighth-largest in 2050 at $6 trillion, surpassing France around 2040 and Germany and Japan later that decade.

Today, South Korea’s GDP is about $800 billion and North Korea’s is believed to be around $20 billion, though no data has been collected inside the North since the 1960s. Some economists believe its economic output is considerably less, while others note that most estimates tend to leave out the North’s well-known illicit activities such as narcotics production and currency counterfeiting.

Nearly all previous economic reports on Korean unification focused on the costs that South Koreans will face and ignore or play down investment and business opportunities that may also occur. Mr. Kwon said the tone of the discussion will change as economic and demographic pressures grow in the South and he wanted to produce an analytical framework ahead of that.

Further information:
Goldman Sachs Has a Different View of Korean Unification
Wall Street Journal
Evan Ramstad
9/21/2009

Global Economics Paper No. 188: A United Korea? Reassessing North Korea Risks
Goldman Sachs Slobal ECS Asia research
Goohoon Kwon, CFA
September 2009

Lots of North Korean economic info here.

Posted in Economic reform, Foreign direct investment, Phoenix Commerical Ventures, South Korea | 7 Comments »

2009 bad year for Kaesong Zone

Wednesday, September 16th, 2009

UPDATE 9/16/2009: Despite the downward trajectory that business in the Kaesong Zone seemed to be taking this year, things appear to have bottomed out. According to Yonhap, the Koreas have signed a Kaesong wage increase. According to the article:

South and North Korea agreed to a 5 percent wage hike at a joint industrial park on Wednesday, the Unification Ministry here said, in the latest sign of inter-Korean projects returning to normal.

North Korea earlier demanded a 400 percent raise in monthly wages for its workers at the South Korean-run park in Kaesong, just north of the border.

South Korea’s management office in Kaesong “signed an agreement on a 5 percent wage increase” with its North Korean counterpart, ministry spokesman Chun Hae-sung said in a brief statement.

The North voluntarily withdrew its earlier demand last week in a striking shift from its unyielding attitude in four rounds of negotiations from April to July. The demand called for monthly wages be raised to US$300 from the average $70-80, apparently in retaliation against Seoul’s hard-line policy toward Pyongyang.

The Kaesong park opened in late 2004 as an outcome of the first inter-Korean summit four years earlier. It houses 114 mostly small-sized South Korean firms producing clothing, electronic equipment, kitchenware and other labor-intensive goods with about 40,000 North Korean workers.

The venture is seen as a much-needed source of dollar income for the North, which is currently under U.N. sanctions for its May nuclear test that bans cash flows to the country.

The 5 percent rate hike will increase the minimum wage to about $58 from the current $55.

Separately, North Korea was conducting a door-to-door survey on South Korean businesses at the joint park, said ministry spokeswoman Lee Jong-joo.

North Korea asserted that the two-day survey that continues until Thursday was to examine the firms’ output and “listen to their complaints and difficulties regarding tax and accounting,” Lee said. Such on-site surveys have been done sporadically, she added.

Although tensions might have eased, it remains to be seen whether the business community can be coaxed into making serious capital investments in the DPRK.

Read previous Kaesong Industrial Zone news below:

(more…)

Posted in DPRK Policies, Economic reform, Foreign direct investment, Institute for Far Eastern Studies, International trade, Kaesong Industrial Complex (KIC), Labor conditions/wages, Light Industry, Manufacturing, South Korea, Special Economic Zones (Established before 2013) | 3 Comments »

The Hwanggang Dam incident (2009)

Tuesday, September 8th, 2009

UPDATE 3 (2009-9-17): South Korea rules out “water attack”. According to AFP:

South Korea’s new defence chief said Thursday there was no evidence that the sudden discharge of water from a North Korean dam which killed six southerners was a deliberate attack.

“We have no solid information to say the discharge was for a water attack,” Kim Tae-Young, appointed defence minister on September 3, said in a report to parliament.

He said the dam’s floodgates were opened after it was full of water.

The report tallies with accounts by the North, which said a sudden surge in the dam’s water level prompted an “emergency” release. Seoul officials had previously questioned the explanation of the incident which has strained cross-border relations.

In a related development Thursday, North Korea accepted a protest letter sent by South Korea’s parliament speaker Kim Hyong-O to his northern counterpart, Choe Thae-Bok, calling for a “sincere” apology from its neighbour and a full explanation.

He also suggested that Pyongyang should allow South Korean lawmakers to visit the site for an investigation. There was no immediate response from the communist country.

UPDATE 2 (2009-9-12): North Korean soldiers scouted the Imjin area before the water release. According to the AFP:

North Korean soldiers scouted the inter-Korean border a day before the North released millions of tonnes of water from a dam, killing six South Koreans, news reports said on Saturday.

Military officials have told legislators that about 10 North Korean soldiers left their observation post and came south close to the military demarcation line dividing the two countries, Yonhap news agency said.

“They reconnoitred the area for about two hours before they returned to the North,” a lawmaker told Yonhap.

UPDATE 1 (2009-9-10): According to Yonhap, South Korean Unification Minister Hyun In-taek said the incident appears to have been deliberate, although it was still not clear whether it was a “water attack.” South Korea said Thursday that it will soon decide whether to take legal action against North Korea for its unleashing of water from the dam.

ORIGINAL POST (2009-9-8): Several innocent North and South Koreans were tragically drowned this week along the banks of the Imjin River when the DPRK released approximately 40 million tons of water from its Hwanggang Dam.

According to Yonhap:

The Hwanggang Dam, some 40km north of the border, was reportedly completed in 2007 and can hold up to 400 million tons of water. More than 340mm of rain fell on the region in late August, according to the North’s state television.

The victims were about 25km south of the border when the floodwaters came.

South Korea’s alert system was also faulted. The military detected rising water levels but failed to notify the local government, leaving the campers unattended. Flood alert equipment along the riverside also failed to operate.

The Koreas have no formal accord on controlling the floodgates. Seoul has asked for pre-notification at inter-Korean talks in recent years but the two sides have not been able to settle on technical procedures.

There have been no consultations on the matter since the conservative Lee Myung-bak government came to power in Seoul last year.

If Yonhap and the BBC are correct, this is the Hwanggang Dam’s location (Google Maps). The satellite imagery is old. More interestingly, there is another dam on the Imjin River just above the DMZ. It is here. This adds an interesting wrinkle to the story. This means that either the second dam down river from the Hwanggang Dam was either overrun or it was also opened.

Posted in Electricity, Energy, Google Earth, South Korea | 2 Comments »

South Africa hosts DPRK gun show?

Wednesday, August 5th, 2009

According to Reuters:

South Africa’s arms control body has authorised an arms exhibit for North Korea and the possible sale of weapons to Iran, Syria and Libya which should be investigated, the main opposition party said on Tuesday.

The Democratic Alliance said a number of “dodgy” deals had “slipped through the cracks” when South Africa’s National Conventional Arms Control Committee (NCACC) last met in 2008.

David Maynier, a Democratic Alliance MP and shadow defence minister, said the NCACC had authorised a marketing permit for a South African-based company in the past three years to demonstrate and exhibit military support equipment for North Korea.

“The military support equipment was radar warning receivers used on antennae for submarines,” he told Reuters. Maynier declined to name the company but said it had exhibited the equipment “within the last three years”.

The NCACC was set up in 1995 to ensure arms trade and transfer policies conformed to internationally-accepted practices.

Maynier urged South African Justice Minister Jeff Radebe, the new head of the NCACC, to urgently investigate the alleged arms transactions with North Korea and other states.

Neither Radebe’s spokesman nor the official government spokesman were immediately available for comment.

Read the full article below:
South Africa arms body allows North Korea exhibit
Reuters
8/5/2009

Posted in International trade, Military, South Korea | Comments Closed

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