North Korean Economy Watch

Yonhap
1/15/2007

International aid for North Korea has increased over the past few months, but is still far behind the amount needed to help the country in its recovery efforts, the U.N. World Food Program (WFP) said Monday.

A tally as of Sunday showed the relief agency received slightly more than US$16.25 million in assistance from donor nations, up from $12.7 million in November. But the total accounts for only 15.9 percent of the $102 million the WFP says it needs for its protracted relief and recovery operation (PRRO) in North Korea.

In November, the WFP received 12.43 percent of the target amount.

Russia remained the biggest nation donor with $5 million, putting up 4.9 percent of the desired aid.

Switzerland increased its offer to $2.57 million from $2.2 million in November, and Ireland to $640,000 from $319,000.

The collected assistance includes $2.3 million carried over from the previous operation.

Private donations stayed the same at $8,470, while multilateral donation increased from $1.2 million to $1.9 million.

The WFP has been the main organizer of food aid to North Korea who, for the last decade, have depended on international handouts to feed its people. Pyongyang asked the relief agency to leave at the end of 2005, so the WFP now maintains a low-scale presence and has switched its efforts from food to development and reconstruction projects.

South Korean civic organizations and informed sources say there is now a contagion of infectious diseases like scarlet fever and typhoid in North Korea.

Korea Times
1/5/2007

North Korea finished constructing a hospital ward for patients with bird flu and other contagious diseases with financial support from the World Health Organization (WHO), a media report said Sunday.

The WHO had been helping North Korea to build the isolation ward inside a Pyongyang hospital since June, said the Chosun Sinbo, published by the General Association of Korean Residents in Japan.

In early 2005, North Korea reported an outbreak of avian influenza at several chicken farms in Pyongyang and asked for help from the international community.

“As part of preventive measures against the spread of contagious diseases, this ward was constructed in cooperation with the WHO,’’ the pro-Pyongyang newspaper said.

The report, however, did not give details on when the hospital ward would open officially.

According to the newspaper’s earlier reports, the isolation ward in Songsin Hospital will be a single-floor building with eight rooms covering 695 square meters of land.

Official Web Page:

Northeast Asia can be considered the last major economic frontier on the Asian continent.  The region has enormous economic potential, but this potential can only be realised through dynamic cooperation and sharing of resources.

Recognising Northeast Asia’s considerable potential and geopolitical significance, UNDP in 1991 agreed to support the initiative of the countries in the region to establish an institutional mechanism for regional dialogue and further cooperation.   For the past twelve years, the Tumen River Area Development Programme has facilitated economic cooperation among the five member countries: China, the Democratic People’s Republic of Korea (DPRK), Mongolia, the Republic of Korea (ROK), and the Russian Federation.  The member countries are equally represented in the Consultative Commission for the Development of the Tumen River Economic Development Area and Northeast Asia, which meets annually at Vice Ministerial level.

The main objectives of the Tumen Programme are to:

• attain greater growth and sustainable development for the peoples and countries in Northeast Asia, and the Tumen Region in particular;
• identify common interests and opportunities for cooperation and sustainable development;
• increase mutual benefit and mutual understanding;
• strengthen economic, environmental and technical cooperation; and
  work to ensure that the Tumen Region is attractive for international investment, trade and business.

The first phase of the Tumen Programme involved extensive planning and background studies.  An interim phase focused on investment promotion and development initiatives designed to build momentum for the region as a growth triangle.  The second phase built on the institutional framework for regional cooperation created by the multilateral agreements concluded in 1995.  The third – and current – phase continues to address factors fundamental to regional economic cooperation and is designed to ensure the sustainability of this regional cooperation framework.

Why the Focus on the Tumen Region?
The Tumen Region has great potential as a major entrepot for international trade because of the strategic location of the Tumen transport corridor, the strong complementarities of the Tumen River Area, vast natural and human resources, and the area’s accessibility to the resources and markets of Northeast Asia.

Northeast China and Mongolia are landlocked and therefore have a strong interest in access to ports in DPRK and the Russian Far East.  Overseas shippers also have a stake in the Tumen transport corridor, for it offers a much shorter route to affluent and new markets, and facilitates transit trade to a number of destinations.

The local governments in the Tumen Region have been steadfast supporters of the Tumen Programme since its inception.  It appears that central governments in Northeast Asia are now re-emphasising the value of the Tumen Region, particularly its strategic transport corridor.  Northeast Asian governments are rapidly improving the Tumen Region’s infrastructure network and transport services.  They are also working to create legal and institutional mechanisms conducive to cross-border trade and transport.  The Tumen Programme is actively facilitating the creation of an enabling environment through “soft” infrastructure and human capacity building.

Why is Regional Cooperation so Important?
Regional cooperation is a vital part of the development process and a building block for effective participation in world trade and capital markets.  For the Tumen Region, which partly consists of small and remote areas of large countries, economic cooperation is an effective way to avoid marginalisation.  Cross-border cooperation also helps resolve environmental issues and facilitates the adoption of international environmental standards.  Most importantly, enhanced economic cooperation in Northeast Asia helps improve political relations and stability, in turn vital elements for investment and economic growth.

It is worth recalling how remote and closed the Tumen Region was just a dozen years ago, to appreciate the full significance of its role as a frontier for economic cooperation in Northeast Asia.  Much has been achieved during the Tumen Programme’s existence, particularly in terms of opening borders and increasing interaction in a region that was, until recently, tense and largely closed.  A new trade and transport corridor has been created, which will – in time – evolve into an economic corridor with a significant impact on poverty reduction and improved living standards in the region.

The Future of the Tumen Programme
The prevailing political and economic climate in the region has altered dramatically since the start of the Tumen Programme in 1991.  The Soviet Union has dissolved, China and ROK have established diplomatic relations and a major trading partnership, and there has been a degree of rapprochement between DPRK and ROK.  The transition to stronger economic systems in the countries that relied on the Soviet Comecon trading system has reinforced the logic of economic cooperation in the Tumen Region.  The increased participation of DPRK, Mongolia and the Russian Far East, combined with the rapid expansion of the Chinese economy, will help the Northeast Asian economy grow.

Dynamic cooperation has found increasing expression in Northeast Asia, and relations in the region continue to improve, helped by stronger economic links.  Despite major improvements in the geopolitical circumstances of the region, however, much remains to be done.  The Tumen Programme is the only initiative that brings the member countries together on a sub-regional basis, and its existing institutional structure and multilateral agreements should be utilised to maximum effect to help Northeast Asia achieve peace and prosperity.

Yonhap
12/8/2006

A South Korean textbook publisher has donated a second-hand rotary press to North Korea to help the communist state publish school textbooks, Seoul-based UNESCO Korea said Friday.

“North Korea has requested that UNESCO assist with textbook printing presses and paper since 2000, and (South Korea’s) Daehan Printing and Publishing Co. expressed its intention to make the donation,” a UNESCO Korea official said.

The press was used in printing textbooks for South Korea’s elementary and secondary school students until 2000, the official said.

The donation is the second project UNESCO Korea has sought to help North Korean students. In 2002, UNESCO and Daehan Pulp Co. provided the North with 200 tons of paper for middle-school English textbooks there.

Yonhap
12/2/2006

North Korea completed its crop harvest, and results suggest the country will need at least 1 million tons of food aid from the outside, according to a report released Thursday by the U.N. Food and Agriculture Organization (FAO).

In “Crop Prospects and Food Situation,” the fourth such report put out by the FAO, North Korea was categorized as a nation with widespread lack of access to food.

“The 2006 cereal output is estimated lower than in the previous year, reflecting floods in July and October in parts of the country,” said the report.

“The total cereal import requirement in 2006/2007, including commercial imports and food aid, is expected to be at least 1 million tons.”

The 2006 harvest season was completed in October, the report said, but food rations for millions of people will remain reduced as a result of a suspension of food aid.

South Korea, on the other hand, was expected to have 3 million tons in cereal stock in 2007, slightly up from 2.8 million tons this year.

Asia Times
(abridged)
11/30/2006

United Nations Security Council Resolution 1718 has had no impact on the economic activity in the remote northeastern corner of North Korea where Russians and Chinese are building transportation infrastructure for future industrial-development projects. As was planned before the nuclear test, the Russians began repairing a dilapidated railway line, while the Chinese continued with their highway-construction project.

There were no delays in the normal operations of the Kumgang (also transliterated Geumgang) project, a joint tourist venture on the border between two Koreas. Every day many hundreds of South Korean tourists travel about 20 kilometers into the North to visit the picturesque mountains and spend a few days there, leaving their currency in the accounts of the North Korean government. The project has always been a major money-earner for the cash-hungry North. The Americans tried to stop Kumgang operations, but the South Koreans refused, and business continued as usual.

It was reported this month that a number of the North Korean workers employed by South Korean companies in Gaesong industrial park exceeded the 10,000 mark. Gaesong industrial park is the largest cooperative venture between two Koreas. It is the place where South Korean capital and technology use cheap North Korean labor to produce internationally competitive stuff – or at least this is what is supposed to be going on there.

In spite of optimistic talk, so far the project has been a money-losing enterprise for the Southerners, and most companies stay in Gaesong only because their government is willing to back them financially.  Still, Seoul, even when it talked tough, did not do anything to slow down the project. On the contrary, the Gaesong project is growing fast, and so, one might suspect, are revenues it provides to the Pyongyang regime.

By now it has become patently clear. No international sanction regime against North Korea worthy of its name is in place, and there is no chance that such regime will emerge in future. China, Russia and, above all, South Korea do not want to punish North Korea for going nuclear.

China is not happy about a nuclear North Korea, but probably sees it a lesser evil than a unified Korea that is likely to be under US influence and will perhaps even have US military bases. Beijing does not want this. It also does not want a collapse of another state under communist rule – this might be a bad news for domestic propagandists.

And last but not least, in recent years Chinese companies have moved into North Korea, taking over mining and infrastructure, so such gains need be protected as well. At the same time, the North Korean nukes are not seen by Chinese strategists as an immediate problem: the Chinese assume (correctly, perhaps) that these weapons will never target China and will not be transferred to China’s enemies. So for China, keeping North Korea afloat is a strategic imperative.

Russia is not a major player in the Korean game nowadays, but it has some leverage as a potential “blockade breaker”. Without sincere cooperation from Russia, no efficient sanctions regime will be possible, and such cooperation seems unlikely. Moscow does not want the North Korean regime to collapse. The country’s leader Kim Jong-il is potentially useful for numerous diplomatic combinations, and also as a deterrent against the Americans, who are increasingly seen by President Vladimir Putin’s Moscow as dangerous global bullies.

However, it is South Korea whose policy is decisive in these issues. Indeed, in recent years North Korea was kept afloat by generous Southern aid, with some 500,000 tons of grain and a large amount of other supplies being sent north every year. This aid saved countless lives in the North, but it also contributed to keeping the regime in control.

It has been clear for a decade that South Korea, in spite of all the rhetoric, does not want unification to happen too fast or too soon. The German experience demonstrated how vastly expensive unification might become, and Koreans have good reasons to believe that their situation is much worse than that of Germany. After all, the per capita gross national product in East Germany was roughly half of the West German level, while in the case of North Korea, per capita GNP is less than one-tenth of the South Korean level.

Judging by the experience of the 1990s when the North Korean regime was more isolated than now, economic pressures alone will not necessarily lead to its collapse. During the great famine of the late 1990s, between a half-million and a million people starved to death without causing any inconvenience to the regime. There are no reasons to believe that sanctions would achieve much either, apart from producing another famine and many more deaths.

In contrast, the ongoing exchanges bring to North Korea information about the outside world, and this information is subversive by definition, making more and more people wonder whether something should be done about their country’s political and economic system, so clearly inefficient and anachronistic. Thus the current situation surrounding the so-called “sanctions” might be a rare case when the hypocrisy and duplicity of so-called “collective diplomacy” is doing more good than harm.

Early this month a market riot happened in the remote North Korean city of Hoeryong. Perhaps for the first time since 1945, a large group of North Koreans openly and vocally protested an unpopular decision of the local administration. This was a minor incident, but in the long run it might be more significant than all the meaningless invectives delivered by the well-dressed people in the UN Assembly Hall.

Yonhap
China won’t unilaterally seek World Heritage status for Mt. Paekdu: Chinese Amb
11/17/2006

China’s top envoy to South Korea said Friday that his country will consult with a concerned country before seeking UNESCO World Heritage status for Mount Paekdu on its border with North Korea.

The remarks by Ning Fukui came amid growing concern that China has taken steps to solidify its historical claim over the highest peak on the Korean Peninsula, nearly half of which is in Chinese territory.

Joong Ang Daily
China tries to ease Paektu concern
11/18/2006

China’s top envoy to South Korea has said his country will consult with a concerned country, apparently referring to North Korea, before seeking World Heritage status for Mount Paektu on its border with the North, embassy officials said Friday. The World Heritage list is maintained by the United Nations Educational, Scientific and Cultural Organization.

The remarks by Ning Fukui came amid growing concern that China has taken steps to solidify its historical claim over the highest peak on the Korean Peninsula, nearly half of which is in Chinese territory.

“Even though China will put Changbaishan on the World Heritage list, it will do so in consultation with a concerned country,” the ambassador said in a speech during an academic forum at Seoul National University on Thursday, using the Chinese name for the mountain.

He did not directly mention North Korea during the speech, but has previously suggested several times that North Korea is the concerned country on the Mount Paektu issue.

In September, Beijing issued a directive to about a dozen hotels operating there, including four run by South Koreans and one by an ethnic Korean resident of Japan, to close their businesses and leave by the year’s end. The move was part of an initiative to make the Paektu area a World Heritage site nominated by Beijing, critics said.

In related news, northeastern Jilin Province, which administers the Chinese part of the mountain, unveiled an ambitious plan Friday that would make the mountain a 5A scenic spot, the highest of China’s tourism zone levels. China is bidding to host the 2018 Winter Olympics on its side of the mountain.

From Yonhap
11/11/2006

The leading U.N. relief agency still has only 12 percent of the donations it needs to help North Korea, with Russia being the largest contributor, according to its latest resources update.

The World Food Program (WFP) tally from Thursday showed that of the US$102 million required for recovery assistance for vulnerable groups in North Korea, it has received $12.7 million, or 12.43 percent of the targeted amount. (more…)

The Plight of North Koreans in China and Beyond
International Crisis Group
10/26/2006
PDF Here: Perilous Journeys.pdf

Executive Summary

Scores of thousands of North Koreans have been risking their lives to escape their country’s hardships in search of a better life, contributing to a humanitarian challenge that is playing out almost invisibly as the world focuses on North Korea’s nuclear program. Only a little over 9,000 have made it to safety, mostly in South Korea but also in Japan, Europe and the U.S. Many more live in hiding from crackdowns and forcible repatriations by China and neighbouring countries, vulnerable to abuse and exploitation. If repatriated to the North, they face harsh punishment, possibly execution. China and South Korea have held back, even during the Security Council debate over post-test sanctions, from applying as much pressure as they might to persuade Pyongyang to reverse its dangerous nuclear policy, in part because they fear that the steady stream of North Koreans flowing into China and beyond would become a torrent if the North’s economy were to collapse under the weight of tough measures. While there is marginally more hope Beijing will change its ways than Pyongyang, concerned governments can and must do far more to improve the situation of the border crossers.

Even without a strong response to the 9 October 2006 nuclear test that targets the North’s economy, the internal situation could soon get much worse. The perfect storm may be brewing for a return to famine in the North. Last year, Pyongyang reintroduced the same public distribution system for food that collapsed in the 1990s and rejected international humanitarian assistance, demanding instead unmonitored development help. Funding for remaining aid programs is difficult to secure, and summer floods have damaged crops and infrastructure.

Hunger and the lack of economic opportunity, rather than political oppression, are the most important factors in shaping a North Korean’s decision to leave “the worker’s paradise”. A lack of information, the fear of being caught by Chinese or North Korean security agents and financial limitations are more significant barriers than any actual wall or tight security at the border. China compensates for the virtual absence of border guards with a relentless search for North Koreans in hiding. In

October 2006, Chinese authorities began to build a fence along the frontier and conduct neighbourhood sweeps to find and arrest the border crossers. Despite these formidable obstacles, the willingness among North Koreans to risk their lives to escape is growing stronger, and arrivals in the South are likely to hit a record this year. The most important pull factor shaping the decision to leave is the presence of family members in China and, increasingly, South Korea. The nearly 9,000 defectors in the South are able to send cash and information to help their loved ones escape. To a lesser but significant extent, information is beginning to spread in the North through smuggled South Korean videos, American and South Korean radio broadcasts, and word of mouth – all exposing North Koreans to new ideas and aspirations.

Most North Koreans do not arrive in China with the intention of seeking official asylum, but because Beijing is making it ever more difficult for them to stay, a growing number are forced to travel thousands of kilometres and undertake dangerous border crossings in search of refuge in Mongolia or South East Asia. The mass arrests of 175 asylum seekers in Bangkok in August 2006 and a further 86 on 24 October provide vivid examples of host country hospitality being stretched to the limits.

The vast majority of North Koreans who have made it to safety resettle in South Korea. In most instances, this is a choice motivated by language, culture and the promise of being reunited with family members. In a growing number of cases, the overly burdensome procedures for being granted asylum anywhere else is the deciding factor. With the exception of Germany, the governments that have pressed most vigorously for improving North Korean human rights, namely the U.S., the European Union member states and Japan, have taken in only a handful of asylum seekers.

A loose network of makeshift shelters focused on humanitarian aid has evolved into a politically-charged but fragile underground railroad on which some North Koreans can buy safe passage to Seoul in a matter of days, while others suffer years of violence and exploitation. If they are to minimise the exploitation of the most vulnerable and enhance the much-needed aid this network delivers, concerned governments must commit to a sustainable solution.

None of the policies proposed in this report would create unmanageable burdens for any government. Unless North Korea’s economy collapses completely, the numbers of its citizens crossing international borders will continue to be restricted by many factors, not least Pyongyang’s tight controls on internal movement and the financial cost of securing an escape route. However, it is time to back up strong words and resolutions about the plight of North Koreans with actions, both because humanity demands it and because if the international community cannot quickly get a handle on this situation, it will find it harder to forge an operational consensus on the nuclear issue.

USA Today
Barbara Slavin
10/22/2006

At a kindergarten in Hyangsan, a small city near North Korea’s capital, dozens of colorfully dressed children put on a calisthenics display this month for visitors from the U.N. World Food Program.

The children, full of corn porridge and high-protein biscuits provided daily by the aid agency, jumped, stretched briskly and looked healthy, said Jean-Pierre DeMargerie, the top program official in North Korea. Kids in the front rows looked especially good, he said. “Those 20-30 yards back were not as well groomed or dressed.”

“It’s always difficult to get a clear picture,” DeMargerie said. “The North Koreans don’t like to expose those that might be sick or weak. You build your assumptions on a relatively small sample.”

North Korea, one of the world’s most isolated nations, is a hard society to fathom even for the few foreigners who visit regularly. Whether it is on the verge of economic collapse or resilient in the face of decades of adversity and deprivation remains a matter of conjecture.

Little can be seen clearly

The shroud that keeps North Korea hidden makes it virtually impossible to judge whether the limited sanctions the United Nations imposed in retaliation for an apparent nuclear weapons test Oct. 9 will have any effect on the regime of Kim Jong Il.

The Bush administration hopes the sanctions and international rebuke, particularly from China, North Korea’s main source of trade and investment, will prompt Kim to halt his nuclear program and resume negotiations on a diplomatic solution. “I think (the North Koreans) were surprised by a 15-0” vote on sanctions by the U.N. Security Council, Secretary of State Condoleezza Rice said Saturday. “We’ll see whether or not they are prepared.”

DeMargerie and a half-dozen others who visited North Korea recently say it is better off than a few years ago and may be able to withstand sanctions.

The sanctions could reduce the amount of hard currency North Korea receives, but market reforms in place since 2002 and stockpiling of excess cash, food aid and fuel may give Kim a cushion to defy the U.N.

In 2005, North Korea “received a surplus of a half-million to 600,000 tons of grain” from China and South Korea, said Kenneth Quinones, a former U.S. intelligence expert on North Korea who teaches at Akita International University in Japan. “It looks like most of that went into storage.” North Korea also had a decent harvest this year after two consecutive bumper crops, he said.

Marcus Noland, a Korea specialist at the Institute for International Economics in Washington, said millions of dollars in Chinese investment went into North Korea during the first half of 2006, more than the country could absorb.

Signs of progress are evident to Steve Linton, 56, who has made more than 50 trips to North Korea in the last 15 years. The son and grandson of Christian missionaries, Linton heads the Eugene Bell Foundation, which has delivered medical equipment to about 70 hospitals throughout the country.

“It used to be that people were visibly thinner in the spring,” when food from the previous year’s harvest had run out and new crops were about to be planted, said Linton, who last visited North Korea in May. Now, he said, “that distinction has pretty much disappeared.”

Linton has noticed that North Koreans are better dressed and that there are more bicycles in a country where a decade ago, nearly everyone traveled on foot. “It’s not lightning speed, but it’s gradual change,” he said.

Emerging markets

Pyongyang, a gloomy capital of bland concrete high-rises and little commerce a decade ago, has a few dozen shops and many sidewalk stalls selling ice cream, cookies, flowers, even videocassettes, said Simon Cockerell, manager for Beijing-based Koryo Tours, which organizes trips to North Korea.

Cockerell said there are four or five billboards for cars, the first commercial advertising in the country. Electricity blackouts, once common, are rare in the capital, he said.

Other indicators of an economic cushion include:

•A resumption of a state-run rationing system that hands out about half a pound of grain daily to city residents, who make up 70% of North Korea’s 22 million people. DeMargerie said North Korean officials told his organization that rationing, which collapsed during a famine in the 1990s, resumed last year. It provides corn or rice to make porridge, a mainstay of the North Korean diet.

•Diversification of oil suppliers. China provides about 80% of North Korean fuel, and Iran and Indonesia supply most of the rest, Quinones said. That gives supply alternatives should China carry out threats to restrict deliveries. Noland said North Korea also may have stockpiled diesel fuel that South Korea provided in 2004.

Noland, who spent several weeks in China last summer along the 880-mile border with North Korea, said economic progress is notable for one group of new entrepreneurs: managers of shuttered state-owned factories who are trading coke, coal and iron ore for cheap Chinese consumer goods and food, which they then sell to fellow North Koreans.

“A lot of small-scale activity in North Korea is done by state-owned enterprises,” Noland said. “They have transformed themselves into retailers. I call it the ‘Wal-Martization’ of the North Korean economy.”

Troubles remain

On the negative side, trade with China, which totaled more than $1.5 billion last year, is down about 30% this year because of the difficulty of transferring funds to North Korean bank accounts, said Nam Sung Wook, head of North Korean Studies at Korea University in Seoul. The problem stems from U.S. action last year to freeze North Korean accounts in a bank in the Chinese enclave of Macau linked to counterfeiting and money laundering.

“There is some confusion among traders in Dandong,” a Chinese city across the Yalu River from North Korea that has become a center of cross-border commerce, Nam said. He forecasts negative growth for the North Korean economy this year after 2.2% growth last year. Even so, new sanctions “will not collapse the North Korean economy,” he said.

Those likely to suffer most are salaried urban professionals, said Nam, who visited Pyongyang in July. He said he heard grumbling from technocrats and professors, whose average monthly pay comes out to about $33 at the official exchange rate but only $5 on the black market.

North Korea also has massive infrastructure needs that make it difficult to sustain economic gains. DeMargerie said only 20%-25% of households have access to clean running water, and the sanitation system is becoming a serious health hazard.

Still, Noland predicted, “They can make it through the winter. They are hunkering down and believe they can survive until the world accepts them as a nuclear power.”

Rice conceded that sanctions are no certain solution. “I think we’ll be at this for a while,” she said. “I can’t tell you how long.”