North Korean Economy Watch

Korea Times
Jung Sung-ki
12/11/2007

The first regular freight service for over half a century began Tuesday operating across the heavily fortified border between South and North Korea.

The daily freight service is the first tangible result of an inter-Korean summit in October between President Roh Moo-hyun and North Korean leader Kim Jong-il. The two leaders agreed on a package of cross-border economic cooperation projects including the train operation.

The last regular rail operation was in 1951, a year after the three-year Korean War broke out.

The freight service, agreed upon at the inter-Korean prime ministers’ talks last month, will connect South Korea with the joint industrial complex in Gaeseong, in the North.

Earlier this month, the militaries of both Koreas signed a written security guarantee for the cross-border service at working-level talks in the truce village of Panmunjeom, clearing a major hurdle for the agreement.

The new service is expected to slash the cost of transporting products to and from the business complex, just north of the border, considered a major achievement of Seoul’s “sunshine” policy of engaging the North over the past decade.

Several South Korean firms are operating in the economic zone, dubbed a testing ground for mixing South Korean capitalism and technology with North Korea’s cheap labor.

Previously, trucks moved raw materials and finished goods back and forth across the border.

South Korean officials hope the cargo train service will lay the groundwork for a regular train service for passengers and the railway will be linked through North Korea to the Trans-China and Trans-Siberian railroads.

A 12-car train carrying curbstones and other construction materials left left South Korea’s Dorasan Station at 8:20 a.m. and arrived at North Korea’s Panmun Station 20 minutes later. A joint ceremony was held at the North Korean station around 11 a.m. with the attendance of some 180 officials from both Koreas.

The train returned to the South later in the day with goods including shoes, clothes and watches made at the industrial complex.

“We are reconnecting the last vein that has been severed for 56 years,” Lee Chul, president of the Korea Railroad, told reporters at Dorasan Station. “This looks like a humble start, but I hope this link will serve as a stepping stone for the inter-Korean railways to be connected to Europe through the Trans-Siberian railway.”

Lee also expressed hope that South and North Koreans could travel together vial rail to Beijing to cheer for next year’s Summer Olympics.

Trains will run daily on weekdays from Dorasan Station in Munsan to Panmun, carrying up to 10,000 tons of cargo on each run. The train service begins at 9 a.m. and returns from the North Korean station at 2 p.m. Trains are restricted to a maximum speed of 60 kilometers per hour when traversing the closely guarded frontier.

The original agreement was to connect a 25 kilometer section of track from Munsan to Bondgong in the North, next to the industrial complex, but the plan was modified because of the lack of loading facilities at Bongdong Station, according to Unification Ministry officials.

In May, two trains crossed the border on two reconnected tracks on the western and eastern sides of the peninsula in a one-off test run.

The two Koreas are technically still at war since the 1950-53 Korean War ended in a truce, not a peace treaty.

Korea Times
Ryu Jin
12/11/2007

Namkwang Engineering & Construction, a South Korean company which has recently been stepping up efforts for inter-Korean economic projects, plans to form a joint venture with a North Korean firm for construction works in the North and other countries.

Namkwang E&C CEO Lee Dong-chul told reporters Tuesday that his company, along with 516 Construction Company in the North, will seek to win construction orders in foreign countries including Angola as well as North Korean cities such as Gaeseong and Pyongyang.

“We signed a memorandum of understanding (MOU) for joint projects with the North Korean firm late last month,’’ he said in a press meeting. “They could be operated in the form of a joint venture, depending on the final agreement to be signed early next year.’’

Lee added that Namkwang would largely provide capital and construction technologies to the proposed joint-venture company while the North Korean firm would supply labor.

Founded about 50 years ago, 516 Construction Company is the only construction firm in the North Korean border city of Gaeseong where an inter-Korean industrial complex is located. It has constructed apartments in the city with more than 3,000 workers.

“Currently, the firm is building a steel-frame factory in the Gaeseong Industrial Complex including reinforced concrete, tiles and plaster work under a contract with us,’’ Lee said. “Maybe we can take part in construction works in Angola and Libya jointly.’’

Namkwang, which recently got government approval for cross-border projects, has invested some 7.6 billion won ($8.23 million) since October to build the steel-frame factory which would be used for the second-phase construction of the Gaeseong Industrial Complex.

Lee said that his company would also redouble efforts to get more orders for overseas construction in such countries as Angola, Libya and Vietnam next year. Namkwang has received orders worth $1.1 billion along with NIEC, a joint venture in Angola, since 2005.

Established in 1947, Namkwang has carried out a lot of large-scale projects in South Korea and also advanced to foreign countries such as Saudi Arabia, Iraq and the Philippines for construction of buildings, roads, dams and harbors on the back of its unique technology.

Institute of Far Eastern Studies (IFES)
NK Brief No. 07-12-5-1
12/11/2007

North Korean authorities are increasing market regulation. Beginning December 1st, women under the age of 49 were prohibited from running businesses in Pyongyang. Age restrictions were placed on female merchants since the inter-Korean summit meeting in October, at first prohibiting those 39 years and under, but now includes anyone under the age of 49.

In North Korea, because males are officially required to be at their assigned workplace, women generally run the businesses. However, market regulations started being enforced in order to eradicate South Korean dramas, movies, and other so-called non-socialist elements from the marketplace.

According to the results from a Daily NK survey on the present state of the North Korean marketplace, although market activity has slowed, these new regulations are not being enforced aggressively outside of the cities, and businesses still continue to operate because the regulation officers are receptive to bribes.

Also, because of the direct link between business regulations and the issue of making a living, citizens’ voices of opposition are getting louder than ever. Let us explore the present state of the North Korean marketplace.

Although not an exact statistic, it seems that there are roughly two to four marketplaces within a city. In the case of the most-populated city, Pyongyang (19 districts), there is a marketplace in every district. Tongil-geori has two because of its large population. In Sinuiju, the bridgehead of trade between North Korea and China, there is one in South Sinuiju, and three in Sinuiju itself (Chaeha, Namjung, and Dongseo [The Peace Market]). In North Korea’s second largest city after Pyongyang, Chungjin, there are two marketplaces in the larger districts. In the case of counties, there is a town marketplace, and one to two smaller farmers’ markets.

The marketplace is generally active, except during the rice-planting and harvest period. However, it has become very stagnant recently due to the enforcement of restrictive measures like price regulations and age restrictions on merchants. For instance, in Pyongyang, there used to be around 50-60 merchants in one area, but now there are only 7 or 8. Now, It is that much more difficult to find good products at the market.

Stallholders’ daily earnings differ depending on their products. In the case of agricultural goods, merchants earn an average of 3,000 won per day, and around 5,000-6,000 won per day for marine products. Merchants who sell manufactured goods could make around 10,000 won.

In addition to the age restrictions, there are increasing measures regulating products sold at the marketplace. There are officers who patrol the marketplace enforcing regulations. Outside the marketplace, safety officers regulate the businesses. The level of control depends on the person, but if bribes are given, they tend to slack off.

With exception of large cities in North Hamkyong Province such as Hoeryeong, Musan, and Chungjin, market activity remains ‘business as usual’ in smaller cities and counties, despite the regulations.

Because everyone knows each other in small cities and counties, it is not possible for the regulations to be strictly enforced. Moreover, even in main cities, there are many merchants under the age of 40 who carry out their business, and if they are not able to in the marketplace, they are still able to sell products in alleys and other locations.

Yonhap
12/8/2007

North Korean leader Kim Jong-il has given warm encouragement to local workers developing Mount Paektu, the highest point on the peninsula that will be opened to South Korean tourists next year, the North’s broadcaster said Saturday.

South and North Korea agreed to open a direct flight route between Seoul and the North’s Mount Paektu during their second summit in October. The inter-Korean tour, set to start in May, is organized by South Korea’s Hyundai Group.

Kim “expressed his gratitude to officials and workers who have wholeheartedly supported the development of the Mount Paektu area,” the Korean Central Broadcasting Station, monitored in Seoul, said, naming technicians, researchers and factory workers involved in the project.

Hyun Jeong-eun, chairwoman of the Hyundai Group, agreed with North Korea during her visit to Pyongyang in early November to start in May sightseeing tours of the North’s 2,744-meter mountain, located on its border with China. A group of South Korean government officials and researchers have conducted an on-site inspection.

Mount Paektu will be the third inter-Korean tourism project organized by Hyundai Asan, a unit of the Hyundai Group in charge of North Korea business. North Korea opened its border city of Kaesong to South Korean tourists early this week, following the launch of a tourism program to the North’s east coast mountain of Geumgang nine years ago.

The Mount Paektu and Kaesong tour projects are part of agreements South Korean President Roh Moo-hyun and North Korean leader Kim Jong-il reached during their summit that sought to boost economic cooperation and reduce tension.

Click on the image to see a larger picture. Google Earth Coordinates:   38.374935°, 127.103343°

As many readers know, I have been mapping out North Korea on Google Earth for some time.  I have found numerous propaganda slogans displayed on hills and mountainsides throughout the country, but this recent discovery is by far the best example.  I would like to see this carving from the ground, so if anyone has pictures, please send them to me.

Institute for Far Eatern Studies
NK Brief No. 07-12-5-2
12/7/2007

Kim Yang-gon, head of the DPRK Workers’ Party Unification Front department, led a North Korean delegation to the South, and after two nights and three days, returned to the North on December 1. The last time a North Korean head of the KWP’s Unification Front department visited the South was seven years ago, when, in September 2000, Kim Yong-soon visited Cheju Island. Government authorities are saying that Kim’s trip to the South was publicized in order to facilitate the smooth implementation of the 2007 inter-Korean Summit Declaration

On the day Kim’s delegation arrived, the group visited the Songdo Free Trade Zone, where he and his delegation were moved by a presentation by officials explaining the value of an Inchon-Kaesong-Haeju ‘West Sea Belt’. On the second day, the group visited Daewoo shipyards in Koje, the Busan Customs House, and other facilities.

The trip was reminiscent of when DPRK Cabinet Prime Minister Kim Young-il led a group of more than thirty North Korean entrepreneurs to Vietnam last October, spending four nights and five days walking around tourist areas, an export-processing zone, port facilities, and other industrial areas.

The Unification Front department is but one department within the Workers’ Party responsible for policies toward the South and other countries. Unlike the foreign liaison department, Office 35, and the strategy office, the Unification Front operates openly, but distribution of propaganda leaflets, management of pro-North groups, enticement of overseas Koreans, and other activities are also underway.

The trip South by Kim’s delegation happened just before ROK presidential elections, and highlights the fact that there is barely a month left before North Korea must have its nuclear program frozen and fully disclosed. Kim’s trip to the ROK was promoted and publicized from the beginning, but little information was given to the press, other than coverage of tours of economic facilities.

Daily NK
Han Young Jin
12/7/2007

In North Korea nowadays, individual-use PCs concentrated in Pyongyang and Chongjin, Shinuiju and other large-size cities have been gradually increasing. The trend has been rapidly increasing due to the propagation of computers by North Korean party organizations, the administrative committee office and middle schools.

The computerized citizen registration project by the North Korean village office was completed around the Local People’s Assembly representative elections last July.

A source from Shinuiju, North Pyungan said in a phone conversation with DailyNK on the 5th, “Provincial organizations and the village office are taking on computer-based projects. Large-city wealthy people are also acquiring computers left and right due to their children’s education.”

The new-rich class, who have made huge profits from recent trade with China, believe gradually that “The outer society cannot do anything without computers. Our children have to learn computers, too, to not get behind.”

A majority of computers provided to North Korea are Chinese and South Korean-made and have entered through official trade with North Korea, but a portion has been going through smuggling. South Korean computers, with the exception of Korean software, are permitted. North Korea uses North Korean word processors, such as “Dangun” and “Changduk.”

A portion of the upper-class use the new model computers smuggled from China, but a majority use secondhand Pentium IV-processor or below imported from China. In North Korea’s Shinuiju, a computer (Pentium II) which includes a used CTR monitor is 100~120 dollars and a computer which includes LCD monitor is 300 dollars. The offering price for a used laptop is around 300 dollars.

He said, “People cannot connect to the internet via computers, but can use most programs set up on computers. The resident registration computerization project has been completed and in Pyongyang, networks between libraries are in operation.”

North Korea is the single country in the world that is not connected to an internet cable network. North Korea, while being endowed with the national domain suffix, “kp”, does not operate a domain. People cannot use internet, but can use software programs set up on individual computers such as MS-Word, Excel, and Photoshop.

In North Korea, after 2000, the import of used and new computers from China, Japan, and South Korea through individuals and companies increased dramatically. Around 2001, around 2,000 Samsung, LG and TriGem Computer were provided to North Korea’s main colleges such as Kim Il Sung University and Kim Chaek University of Technology.

Mr. Kim said, “Chosun (North Korea) people prefer LCD monitors, not CTR monitors. Computers that have been coming in North Korea are mostly made in China and South Korean computers such as Samsung, LG, and TriGem Computer have been widely distributed as well.”

Electronic Publications Service using Domestic Network Possible

North Korea prohibits internet, so computer education mostly focused on program usage are taught in colleges and high schools. In schools for the gifted and college computer majors nationwide, a new generation of software developers is being nurtured.

Major organizations in the area of software development are Chosun (North Korea) Computer Center (KCC), Pyongyang Program Center, and the Academy of Sciences.

Since 2002, North Korea has created a network connecting the libraries of Grand People’s Study House, Kim Il Sung University, and Kim Chaek University of Technology. The network has been expanded throughout Pyongyang and the provinces. Currently, a few high officials in Pyongyang can use reportedly the Grand People’s Study House’s electronic publications service at home.

Daily NK
Yang Jung A
12/5/2007

After the Inter-Korean Summit held in October, the North began to place age limits for females who can do business in the market. The regime has risen the minimum age from 35 to 49 years old. Since most men are enrolled in workplaces, it is mostly women who engage themselves in business activities and are therefore being targeted by the age limit.

According to a study conducted by DailyNK on North Korean markets, business activities have slowed due to the regulation of the market. However, if a woman bribes the officers in charge of enforcing the regulations, she can continue to do business. In the rural areas, it is known that the regulations are not strictly enforced.

The complaints of the North Korean people regarding the regulations are growing ever more intense because their livelihoods depend on market activity. Below is an overview of the current market situation in the North..

◆ Market Conditions

Although detailed statistics are not available, it is reported that there are around three to four markets in each North Korean city.

In Pyongyang, the city with the largest population, there is one market for every district (19 in all). On densely populated “Tongil (unification) Road,” there are two markets. Kangdong, administratively located within Pyongyang, has three markets. Additionally, there are small-scale markets, such as the No.67 Munitions-Factory market and Hari Plaza market. The one in Kangdong is relatively large.

Shiniju, known as the center of trade between North Korea and China, has three markets: Chaeha, Namjoong and Dongseo (aka Pyonghwa). South Shiniju has only one. There are two markets for each of the larger districts in Chongjin, the second largest city after Pyongyang. Overall, each town in each county has at least one market and each county has one or two small-scale farmer’s markets.

◆ Average income

In the past, markets were always bustling with people except during the rice-planting and harvest seasons. However, since the State has begun controlling prices and enforcing an age limit on merchants, the markets have become stagnant.

Around 50 to 60 merchants used to engage in business in each block of each market in Pyongyang. Now, there are only seven or eight merchants on each block. Therefore, nowadays, shoppers are finding it hard to buy quality products in the market.

The average daily earning for merchants depends on the types of items sold. Merchants who sell agricultural products make about 3,000 won, and those who sell sea products earn between 5,000 and 6,000 won. Those who trade industrial products are reported to make as much as 10,000 won per day.

◆ Prohibited sales items

The North Korean authorities are now exercising control over the types of products that can be sold in the market and have increased the list of banned items.

The list of prohibited sales items in Hamkyung Province, centering on Hoiryeong, is as follows: electric rice cookers, electric frying pans, automobile tires and parts, diesel fuel, gasoline, beef, medicines, electric blankets, VCRs (Even home-manufactured VCRs cannot be traded in the market. They are only available at State-run shops.), rubber belts, bearings, welding rods, electric motors, electrical wirings, alcohol, foreign films, and so on.

It has been reported that market managers exercise control inside-market activities, whereas security agents patrol outside of the market. The level of regulation depends on the individuals charged with enforcing the regulations. Bribed officials do their job only perfunctorily.

◆ People’s responses to market regulation

Unlike markets in major cities such as Hoiryeong, Musan, and Chongjin in North Hamkyung Province, markets in small cities and towns of the province operate as usual regardless of the State’s market regulations.

In small cities and towns, people know each other, and market managers and safety agents do not strictly enforce the state’s regulation as their counterparts do in big cities. Even in major cities, however, many merchants under the age of 40 continue to do business. If they fail to get inside the market, they do business in alleys adjacent to the market.

Many merchants complain about the market regulations, and some even get into altercations with market managers.

For instance, they violently stand against and even swear at the mangers, saying, “You guys live in comfort because you receive food from the State and take bribes from us. However, we live from hand to mouth each day here in the market. How could you then regulate the market?”

◆ Some servicemen secretly engage in business

Some poverty-stricken soldiers and officials as well reportedly steal rice distributed to the army and sell it to merchants. Unlike commoners, servicemen are tightly watched, so they cannot readily involve themselves in money making activities.

Some destitute low ranking soldiers clandestinely take their emergency rations and sell them in the market. Canned beef manufactured at Ryongsung Meat Processing Plant is sold at 3,500 won and Canned mackerel at 2,500 won in the market.

However, heavy punishment awaits servicemen who are caught engaging in illegal market activities. So, they covertly sell military provisions to only personal aquaintences.

Yonhap
12/5/2007

South and North Korea signed a security guarantee Wednesday for daily cross-border freight train service scheduled to start next week, the first substantial measure to follow up on agreements by the two countries’ leaders at their October summit, the Defense Ministry said.

The move came at a one-day meeting at the truce village of Panmunjom, which coincided with a separate meeting of deputy prime ministers of the divided nations here on boosting economic cooperation in line with the deal between South Korean President Roh Moo-hyun and his North Korean counterpart Kim Jong-il.

The cargo train will carry raw materials and manufactured goods between South Korea and the North Korean border city of Kaesong, where South Korea operates an industrial park for a number of its small labor-intensive plants.

The agreement calls for guaranteeing safe passage of the cargo rail service linking Munsan Station in the South to Bongdong Station, which serves as a gateway to the Kaesong industrial park, as agreed at the second inter-Korean defense ministerial talks.

“It will take effect at midnight on Dec. 11,” the ministry said at a briefing on the results of the talks. “The train will be allowed to run at a speed of 20-60km per hour. Train drivers and other crew will be banned from taking photos in the other side’s area.”

But the talks did not address the date for the next round of general-grade talks between the two sides or how to improve the operation of the Kaesong industrial complex, including ways to facilitate transportation, customs clearance and telecommunication services, according to the ministry.

The defense chiefs of the two Koreas agreed to support inter-Korean economic cooperation projects in their rare meeting last week in Pyongyang.

The two Koreas plan to run a cargo train every day on the reconnected rail line between Munsan and Bongdong starting on Tuesday. The 19.8-km route between the two border towns was severed during the 1950-53 Korean War.

The cargo service is expected to facilitate the movement of goods to and from the Kaesong industrial complex, a joint venture between the technology-savvy South and the labor-abundant North.

International Crisis Group
Asia Briefing N°71
4 December 2007

North Korea’s relations with Russia have been marked by unrealistic expectations and frequent disappointments but common interests have prevented a rupture. The neighbours’ history as dissatisfied allies goes back to the founding of the Democratic People’s Republic of Korea (DPRK) with Soviet support and the Red Army’s installation of Kim Il-sung as leader. However, the Soviets were soon written out of the North’s official ideology. The Sino-Soviet split established a pattern of Kim playing Russian and Chinese leaders off against each other to extract concessions, including the nuclear equipment and technology at the heart of the current crisis. Since Vladimir Putin visited Pyongyang in 2000, diplomatic initiatives have come undone and grandiose economic projects have faltered. Russia is arguably the least effective participant in the six-party nuclear talks.

The relationship between Putin’s Russia and Kim Jong-il’s North Korea has disappointed both sides. Putin has mostly been unable to assert himself as a prominent player in North East Asia, and North Korea has received neither the unalloyed political support nor the economic backing it seeks. Russia has more influence in the region than it did in the 1990s but not enough to change the equation on the Korean peninsula. Opportunities for economic cooperation have been limited, mostly by Pyongyang’s refusal to open its economy but also by Russia’s fixation on overly ambitious schemes that at best may take decades to realise. China’s more nimble investors have moved in much faster than Russia’s state-owned behemoths.

Moscow has been conservative in its political dealings with Pyongyang, playing a minor but thus far positive role at the six-party talks consistent with its concerns about proliferation and the risks of DPRK collapse. It regards the denuclearisation of the peninsula as in its interests, has relatively few commercial opportunities in the North and considers its relations with the other nations in the exercise more important in every way than its ties to Pyongyang.

While Russia has shown interest in building energy and transport links through the North, little progress has been made. Rebuilding railways on the peninsula will cost enormous sums, and overcoming the many obstacles will require years of negotiation. Investments have been hindered by the North’s unreliability and history of default on loans. Russia may eventually have to forgive billions of dollars of debt the North cannot repay. Energy is a major mutual interest but pipelines across the North are unlikely to be built soon; Japan and China are expected to be the main markets for Russian energy, while South Korea is reluctant to become dependent on the North for its supply. 

Pyongyang wants Russia to balance China’s growing influence but appears to recognise that Moscow will never provide the level of support it once did. The North has been keen to discuss economic cooperation but has lacked the political will to reform its economy sufficiently for foreign investment, even from a country as inured to corruption and government interference as Russia. It is equally interested in technical and scientific aid. Russian technology, equipment, and “know-how” have featured prominently in the history of both Koreas, and Pyongyang still seeks to resolve its economic problems by scientific and technical solutions. But there is unlikely to be much growth in bilateral cooperation unless the nuclear crisis is resolved peacefully, and the North opens its economy. 

This briefing completes Crisis Group’s series on the relationships between North Korea and those of its neighbours – China, South Korea, Japan and Russia – involved in the six-party nuclear talks. It examines Russia’s aims and ambitions in the region, as well as the responses from North Korea and is based on both interviews in Russia, Central Asia and South Korea and analysis of Russian and North Korean statements.