North Korean Economy Watch

Asia Times
Andrei Lankov
11/15/2007

For six decades, the myth of unification as Korea’s supreme goal has been enshrined in the official mythology of both nations. The lip service to this myth is still paid by virtually all political forces in both Koreas, but the actual policy of both Pyongyang and Seoul nowadays is clearly based on a very different set of assumptions and hopes: both sides try to avoid situations which might lead to unification.

There are good reasons for this quiet change of policy. The gap between the Koreas is too great; depending on which calculations you believe the per capita gross domestic product in the South is between 15 and 40 times higher than that of the North. Perhaps, nowhere in the world one can find two neighboring countries whose income levels would be so vastly different – and in this case the two countries happen to speak the same language.

The North Korean rulers know perfectly well that in a unified country they would be unable to keep their privileges, and also are likely to be held responsible for decades of gross human-rights abuses and economic mismanagement. South Koreans are no more willing to unify with their impoverished brethren – unification of Germany where the initial situation was much better, became an ordeal, so the unification of Korea would clearly become a disaster.

Therefore, South Korean politicians are doing everything possible to support the dictatorship in Pyongyang, assuming that “stability” in the North is necessary for South Korean economic prosperity. Sufficient to say that some 40% of all grain consumed in North Korea is either received from the South or produced with the help of the mineral fertilizer shipped by Seoul free of charge.

This policy is usually explained as a way to “create the environment for Chinese-style reforms”. This indeed might be its long-term goal, but for all practical reasons the major immediate outcome of massive South Korean aid is a continuous survival of the Pyongyang dictatorship. The statement that a “German scenario is unacceptable” has become a mantra of Seoul politicians.

However, over the past decades, Kim Jong-il’s regime has not shown the slightest inclination to reform itself. Obviously, the Pyongyang elite believes that the Chinese model, so enthusiastically extolled by the good-wishers from Seoul, is not acceptable for them. Perhaps they are correct in their fears. The existence of a rich and free South, always presented as another part of the same nation, makes the situation in Korea quite different from that of China or Vietnam.

Chinese-style reforms, if undertaken by Pyongyang, are bound to produce a certain openness of the country and certain relaxation of political control. As a result, the North Korean populace will soon learn about South Korean prosperity and will be less afraid of the regime’s repressive machine. It’s questionable to what extent the North Koreans would be willing to obey a government whose track record has been so bad after they see an attractive alternative of the South.

Hence, North Korean leaders have made a rational decision: to keep stability and their own privileges, in recent years they have used foreign aid to roll back the changes which happened in the mid-1990s. Instead of reforms, they now do everything possible to limit or ban private economic activity and reassert their control over society.

Despite the government’s resistance to reform, the North Korean system is gradually crumbling from below, and this slow-motion disintegration might turn into an uncontrollable collapse in any moment. A sudden death of even a serious illness of Kim Jong-il is almost certain to trigger a serious crisis. If this happens, all bets are off, but it seems that a collapse of the system, Romanian or East German style, is one of the most likely outcomes.

This is what people in the South fear most. Indeed, unification might indeed spell economic and social disaster for the rich South. There are different estimates of the “unification costs”, the amount of money that would be necessary to close the yawning gap between the two Korean economies. The most recent estimate was made public last October. A report prepared by a committee at the South Korean National Assembly states that if unification happened in 2015, it would cost US$858 million to raise North Korean per capita income to half of the South Korean level. This is guesswork, of course, but everybody agrees that the amount of money necessary for reconstruction of the impoverished North could ultimately be counted in trillions of US dollars.

The “unification cost” is a hot topic, but many problems are of a social nature and have nothing to do with money issues. For decades, North Korea has remained one of the world’s most isolated regimes whose rulers once perfected Stalinism to the level undreamt of by Joseph Stalin himself. The population, with the exception of a tiny elite, has very vague and distorted ideas about the outside world.

North Korea is a well-educated society, but the technology and science they teach at the colleges is of 1950s vintage. The average North Korean engineer has never used a computer. Society has been conditioned to perceive the total distribution of goods and services as the norm, and experts seem to agree that the average North Korean defector in the South has serious problems when it comes to making consumer or career decisions for oneself (no such decisions are necessary or even possible under the North Korean system).

So, it is easy to see why South Koreans are so afraid of unification. However, history does not flow in accordance with human desires. If the North Korean state collapses, South Koreans will have few choices but to prepare themselves for unification at time and under circumstances which they would not be too happy about.

As the East European revolutions of 1989-1990 (or, for that matter, of nearly all popular revolutions) have demonstrated, once changes begin, nobody can control the pace and direction of events. Now it is time to think what should be done if an emergency happens and the North Korean regime follows the fate of nearly all regimes which once were its models and aspirations – Albania, Romania and the Soviet Union itself. When a crisis starts unrolling, it doesn’t leave much time for rational thinking.

Alas, any open media discussion of this subject remains taboo in the South. There are fears that such discussions might annoy the North, undermining inter-Korean detente. The Korean nationalist left, now (barely) in power, still believes that the Chinese solution is possible and “progressive”, and also perceives any talks about regime collapse in the North as a reminder of the official anti-communism of the past. The right is slightly more realistic, but it seems that its supporters are not too eager to discuss the difficulties such a turn of events could bring about.

It will be a simplification to think that South Koreans are completely unprepared for such an eventuality. Seoul government agencies do not like to talk about it, but it is clear that somewhere in government there are secret files with short-term contingency plans, to be put in motion in case of a power collapse in the North. However, these plans deal with immediate consequences of the crisis, especially with handling of refugees, and not with the long-term strategy of reconstruction, and this strategy is actually the hardest part of the task.

The major task is to smooth the transition, to make the shock of unification less painful and more manageable. It seems that one of the possible solutions is a confederation. The idea of confederation has been suggested many times before, but in most cases it was assumed that the two existing Korean regimes would somehow agree to join a confederative state. Needless to say, one has to be very naive to believe that the North Korean rulers could somehow co-exist with South Korea, which even in its worst times was a relatively mild dictatorship committed to a market economy (and become a liberal democracy two decades ago).

Such confederation is plainly impossible. However, in this case we mean a different type of state union, a provisional confederation, whose sole and clearly stated task would be to lay the foundations for a truly unified state and to cushion the more disastrous effects of North Korea’s transformation.

Such a confederation will become possible only when and if the North Korean regime changes dramatically, and a new leadership in Pyongyang will have no reasons to fear the influence of the democratic and capitalist South. In other words, only a post-Kim government can be realistically expected to agree to such a provisional confederation. It does not really matter how this government will come to power, whether through a popular revolution, a coup or something else. As long as this government (most unlikely, bowing to pressure from below) would be genuinely willing to unite with the South, it might become a partner at these negotiations and a participant of the confederation regime.

The confederation regime should make North Korea a democracy, one that introduces political freedoms and basic political rights. There should be an explicit statement about the length of the provisional confederation regime, and 10 to 15 years seems to be ideal. A longer period might alienate common North Koreans who will probably see it as an attempt to keep them from fully enjoying the South Korean lifestyle while using them as “cheap labor”. On the other hand, a shorter period might not be sufficient for any serious transformations.

One of the tasks of such a provisional system will be to control cross-border movement. South Koreans are now haunted by nightmarish pictures of millions of North Koreans flooding Seoul and other major cities, where they will push the South Korean poor from unskilled jobs or resort to robbery and theft. Such threats are real, and the confederation will make it relatively easy to maintain a visa system of some kind, with a clearly stated (and reasonable) schedule of gradual relaxation. For example, it might be stated that for the first five years all trips between the two parts of the new Korea will require a visa, and North Koreans will not be allowed to take jobs or long-time residency in the South. In the following five years these restrictions could be relaxed and then finally lifted.

South Korean fears of a North Korean crime wave might be well-founded – notoriously tough North Korean commandos indeed make ideal mafia enforcers. However, the North Koreans also should be protected from the less scrupulous of their new-found brethren – for example, from South Korean real estate speculators. In the case of uncontrolled unification, South Korean dealers will rush to buy valuable property in the North, a task which will not be too difficult in a country where $10 a month is seen as a good income.

South Korean dealers vividly remember what happened in Kangnam, former paddy fields which were turned into a posh neighborhood in southern Seoul. In some parts of Kangnam land prices increased more than a thousandsfold within a decade or so, making a lucky investor super-rich, and there are good reasons to believe that the price of land in Pyongyang or Kaesong could sky-rocket as well.

However, it is easy to predict the resentment of those North Koreans who will lose their dwellings for what would initially appear to be a fortune, but soon will come to be seen as small change. If real estate speculations are left uncontrolled, in a few years entire North Korean cities could become the property of South Korean dealers – with predictable consequences for relations between northerners and southerners. Hence, the provisional confederation regime, while encouraging other kinds of investment, should strictly control or even ban the purchase of arable land and housing in the North by South Koreans.

Another painful issue is that of land reform, distributing the land of state-run agricultural cooperatives among individual farmers. One of the major challenges would be claims of land owners who lost their property during the North Korean radical land reform of 1946. A majority of the dispossessed landlords fled to the South in 1945-1953 when some 1.5 million inhabitants of the North crossed the border between the two Koreas. Their descendants now live in the South and, as both anecdotal evidence and some research testify, carefully kept the old land titles. It is just a minor exaggeration to say that an arable plot in the North usually has an aspiring landlord residing in Seoul. These claims remain technically valid since the Republic of Korea has never recognized the North Korean land reform of 1946.

For generations, the North Koreans have been told by their government that the collapse of the communist regime will bring back the nasty landowners who have been laying in wait in the South. If in this particular case the propaganda statements are correct, this would produce a very serious negative impression on North Koreans, further increasing their alienation and disappointment.

Under protection of the confederation regime, a land property system could be redesigned, or rather created from scratch. The recognition of the 1946 land reform and its results is a necessary first step. To placate former owners, some partial compensation might be paid, even though the present author is not certain whether grandchildren of former landlords, usually rich and successful men and women, are really in dire need of such compensation.

As the next step, the cooperative property should be distributed among its members, preferably among the people who are really present in their villages (perhaps, a free rent system might be the first step). At any rate, by the end of the confederation period, land and real estate in North Korean should be safely privatized, with North Korean residents (and, perhaps, recent defectors) being major or even sole participants in this process.

One of the more controversial parts of the package might be a general amnesty for all crimes committed under the Kim family regime. This is especially necessary because the fear of persecution seems to be one of the reasons which keeps the North Korean elite, including its lower ranks, united around the inefficient and brutal regime. They believe that collapse of the Kims’ rule will mean not only the bend of their privileges (which actually are quite small – only a handful of top officials enjoy a really opulent lifestyle in North Korea), but they are more afraid of judicial persecution and even mob violence.

It is not incidental that North Korean officials and guides in Pyongyang ask one foreign visitor after another about the fate of former East German bureaucrats. Indeed, despite considerable liberalization in recent years, the regime remains exceptionally brutal, and its officials have no illusions about this. Unfortunately, this fear of persecution has kept the murderous regime going for the past decade or so and led to many more deaths.

One might argue that such unconditional amnesties to all Koreans is probably “unethical”. Perhaps, but let’s face it: the sheer scale of the crimes committed makes any serious and fair investigation impossible. About half million people have been in prison during those decades, and many more exiled, and nobody will be capable of investigating all these cases carefully and impartially. A great number of people have been directly or indirectly involved with the human-rights abuses, and again, it is impossible to investigate a few hundred thousand former officials who by the nature of their job might have been responsible for some criminal actions. Hence, only partial, selective symbolical (and therefore largely politically motivated) justice can be served at best.

A general amnesty would solve two problems: first, it will make former North Korean bureaucrats less willing to resist changes; second, it would diminish the scale of intrigue and manipulations, since people would not be fighting to avoid the fate of arbitrarily chosen scapegoats. It should become part of the law, and to be taken seriously the amnesty should be made as straightforward and unequivocal as possible.

Of course, amnesty does not mean complete forgiveness. There might be restrictions for former party and secret police officials to occupy certain positions in a post-Kim Korea (a policy pioneered by Eastern Europe). It might be a good idea to create non-judiciary commissions to investigate former abuses, like it was done in post-apartheid South Africa. This commission might lead to truly awful discoveries, but the promise of amnesty should be kept even if it will become clear that North Korean prison camps were not much different from Adolf Hitler’s Auschwitz or Pol Pot’s Tuol Sleng in Cambodia.

The confederation treaty also should include some legal measures which will make certain that North Koreans will not remain the source of “cheap labor”, to be used (and abused) by South Korean businesses.

For example, the military of the two Koreas should be integrated first, and there should be large quotas reserved for former North Korean servicemen in the united army. Politically, the North Korean military might become a hotspot of social discontent: the 1.2 million-strong North Korean armed forces probably lack the skills necessary for modern warfare, but this force consists of professionals who have not known anything except the barracks life and intense nationalist indoctrination. If former military officers are given commissions in the post-unification forces, their skills and zeal will find a good and useful outlet. Otherwise, the very same people are likely to join the ranks of organized crime.

It is also important to provide large admission quotas for North Korean youngsters at major South Korean universities. Korean society is both hierarchical and meritocratic, and being a graduate of a major Seoul school is a necessary condition of entry for nearly all important jobs. It is not incidental that the entire life of a middle-class South Korean family is often designed to facilitate exam preparations for the children.

Unfortunately, for decades to come even the most gifted North Koreans will be unable to compete on equal terms with much better prepared South Korean students, and this means that they can realistically hope to get only to lower-level universities, usually in the North. Both actual and perceived quality of education in those schools will remain relatively low for decades, and this will ensure that North Koreans, even with “new” college-level education, will be permanently relegated to subaltern positions. Hence, affirmative actions are necessary, even if such measures are certain to provoke an hysterical outcry from Seoul and Busan parents.

The confederation regime will help to solve another important problem – that of the North Korean middle class. As East Europe demonstrated, a majority of active supporters of democracy and reform has come from local-educated urban groups, a close analogue of the Western “middle class”. The same is likely to happen in Korea.

However, the same people will become very vulnerable after unification. Who will hire an engineer who has not seen a computer? What can be taught by a social science teacher who spent his or her college years memorizing Kim Il-sung’s genealogical tree and the “Dear Leader’s” asinine pronouncement on everything, from rice planting to nuclear physics? Who will visit a former North Korean doctor whose medicine is essentially on the 1950s level?

During the confederation regime, special efforts could be made to re-educate those people, at least partially, preparing them for a new environment while still allowing them to continue their professional work in the North. Most of them will be unable to adjust, unfortunately, but at least the 10 or 15 years leniency will give a chance to the lucky and determined few, and will also provide others with time to find other ways to make a living.

The confederation model does have serious shortcomings. For example, there are good reasons to believe that the new North Korean political elite will consist largely of Kim-era officials (or their children) who will retain their old habits, including that of corruption and inefficiency. A Northern democratic government would be prone to populist decisions, based on pressure from below, and North Koreans are likely to have particularly naive views on how their society and economy can and should operate, so some mistakes introduced via popular vote might become ruinous and costly.

But no ideal solution is possible. One should not harbor too many illusions. The recovery of North Korea will be prolonged and painful. Even if unification happens tomorrow, the difference between the two Koreas will remain palpable until 2050, if not longer. Tensions, misunderstanding and even outright hostility between northerners and southerners are bound to continue for a long time.

There are no easy and simple solutions. But the current state of affairs cannot continue indefinitely, and it is time to think how unavoidable problems can be mollified. The current policy of Seoul administrations merely helps to postpone the problems created by Korea’s division, and the disastrous choices made by the North half of the country. But sooner or later, Korea and the entire world will have to face these problems – and solve them.

Bloomberg
Bomi Lim
11/13/2007

North Korea’s Daepung Investment Group will set up a $10 billion fund with China Development Bank to help Chinese firms operating in North Korea, Yonhap News reported, citing the company’s vice president.

The fund will be used to help Chinese companies build roads, railways and ports in North Korea, Daepung Vice President Bae Kyeong Hwan was quoted as saying. Bae didn’t say how much each country will contribute the fund.

Daepung also plans to set up a bank to attract investment from overseas, the report said.

China is North Korea’s biggest trading partner and an important provider of food and fuel. North Korea is isolated from most of the rest of the world and has received virtually no foreign investment.

Yonhap
11/13/2007

North Korea Tuesday expressed confidence in the recovery of its ailing economy devastated by years of mismanagement, economic embargoes and floods as multilateral talks on the North’s nuclear disarmament make progress.

“The circumstances for our revolution are changing in a very favorable way,” Rodong Sinmun, the organ of North Korea’s ruling Workers’ Party, said in an editorial. “The international prestige of the country is rising extraordinarily, and our economy is vigorously bouncing back with enormous energy.”

Pyongyang’s upbeat mood comes as Washington is moving to take the communist country off its list of terrorism-sponsoring countries and to lift its trading ban on condition that the North completes the disablement of its nuclear facilities and declares its nuclear programs by the end of the year under an agreement signed in early October.

North Korea started disabling its nuclear facilities in Yongbyon, north of Pyongyang, in early November.

In return for its actions, North Korea will receive 1 million tons of energy assistance from the other parties of the deal, including South Korea, the U.S., China, Japan and Russia.

The North has already received 100,000 tons of heavy fuel oil from South Korea and China. The end of the application of the U.S. Trading with the Enemy Act to the North will allow the communist state to participate in international economic activities.

“Only when we thoroughly achieve the combatant work in front of us this year, can we make a breakthrough for a new march toward the construction of economic power and decisively engage in next year’s combat,” the newspaper said.

Recent reports have painted a bleak picture of the North Korean economy. According to figures released by South Korea’s Bank of Korea, the North’s economy probably shrank 1.1 percent in 2006 compared to a year earlier because of the weakness of its agricultural and construction sectors. The decease in North Korea’s gross domestic product was a reversal of the 3.8 percent expansion in 2005 and the 6.2 percent rise in 1999.

Daily NK
Kwon Jeong Hyun
11/12/2007

North Korean authorities recently started regulating motorcycle operation in order to control private market.

Motorcycle is most preferred means of transportation especially for North Korean salespersons. And in North Korea, everybody must get a license from the government to operate cars, motorcycles or even bicycles.

North Korean authorities now give license to only Made in DPRK “Bugang Motorcycle,” which is considerably more expensive than those imported from China.

Choi, a 33 years old resident of Sinuiju visiting his relative in Dandong, China, said on last Thursday “getting operator’s license for Made in China motorcycles has become ridiculously difficult.” According to Choi, only domestic motorcycle owners receive license and popular dissatisfaction increased.

It seems that North Korean authorities want to stop growing of private market by making it impossible to operate motorcycle, a vital part of transportation of goods.

Choi added “even before, someone had to bribe police officer to get a license, but now, bribery doesn’t work for Chinese-built motorcycles at all.”

Why people prefer Made in China? “Korean motorcycles manufactured in Pyongyang cost 1,500 US dollars and often break down. However, Chinese ones cost only 600 dollars while perform far better.”

Choi complained that “some people who operated Chinese motorcycle without license got their bikes confiscated.”

The loots were sent to the Army troops on DMZ.

Chinese motorcycle has become prevalent since 2002 when North Korean residents whose relatives lived in China received it as gift and operated for commercial purpose.

According to Choi, “Motorcycle can carry a certain amount of goods to inlands and it is so convenient. Even if motorcycle is expensive, everybody wants to own one. People buy seafood on the coast and bring them to the cities or sell small commodities.”

For alluvial gold, price differs among regions, so transporting it fast with motorcycle is lucrative business.

Lee, defected Pyongyang last year, said “In the past, a few rich people bought used Japanese motorcycles like Honda or Yamaha, but now many people operate Chinese ones for commercial purpose.”

Bloomberg
Bradley Martin
11/2/2007

Fabien Pictet & Partners Ltd., a British money manager that specializes in emerging markets, plans to establish a fund focused on joint ventures in North Korea.

Fabien Pictet has applied to North Korea’s embassy in London for permission to visit Pyongyang to explore opportunities, Chief Executive Officer Richard Yarlott said in an interview. The closely held firm initially would buy into South Korean companies doing business in the north, he said.

“It would be very difficult to put more than $50 million directly into North Korea,” said Yarlott, 47, who helps manage $750 million of bonds and equities. “But it would be very easy to put $500 million into listed South Korean companies and then later, as we see specific private equity opportunities, go with them.” He declined to give further details.

A North-South agreement on economic cooperation, signed Oct. 4, may foster cross-border projects in industries such as mining and shipbuilding. Still, that prospect isn’t enough to lure billionaire investor Warren Buffett to a northern plunge.

“Things would have to change a whole lot before we can make investments,” said Buffett, chairman and CEO of Berkshire Hathaway Inc., during a visit to South Korea last week.

Buffett, who owns shares of South Korea’s Posco, Asia’s biggest steelmaker by market value, rates the nation’s stocks as “modestly cheaper” than most around the world. The benchmark Kospi index’s price-to-earnings multiple of 15.4 for current year estimated earnings is the lowest in Asia-Pacific after Thailand.

London-based Fabien Pictet, set up in 1998, invests in countries from Brazil to the Ukraine.

It started a South Korean equity fund, Three Kingdoms Korea Fund Inc., in 2004 partly to be ready for a northern push, Yarlott said.

LG Corp., Hyundai

South Korean companies — including units of LG Corp., the country’s fourth-largest industrial group, and Hyundai Corp. — have $2 billion to invest over the northern border, he said.

Three Kingdoms Korea has had a total return of 88.5 percent from April 30, 2004, to Sept. 28 this year. South Korea’s Kospi has risen 126 percent in the same period.

Foreign investment in North Korea has been legal since 1984 and repatriation of profits since 1992. The country doesn’t permit private ownership of assets and hasn’t established a stock exchange.

South Korea’s closely held Hyundai Asan Corp., which started a northern tourism business in 1998, has been reported to be struggling to avoid or reduce operating losses.

London-based Anglo-Sino Capital Partners Ltd., which in 2005 created Chosun Development and Investment Fund to focus on direct investment in North Korea, last month doubled its investment target, citing strong interest.

“We have raised the fund from $50 million to $100 million,” Colin McAskill, chairman in London of Koryo Asia Ltd., the Chosun fund adviser, said in an interview.

The fund will concentrate on direct transactions with North Korean companies that have been active internationally and have track records as foreign currency earners, he said.

Some investors say it’s too early to call North Korea an emerging market.

“I’m 77 years old and the thought that the day would come in my time — it’s very flattering but it’s a long way off,” said Buffett, also known as the “Sage of Omaha.”

Yarlott said the country was changing. “North Korea, like China, will develop a stock market,” he said.

“At this rate, even the sage will get a look-in.”

The most authoritative map of North Korea on Google Earth
North Korea Uncovered: Version 6
Download it here

This map covers North Korea’s agriculture, aviation, cultural locations, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the sixth version.

Additions to the newest version of North Korea Uncovered include: Alleged Syrian nuclear site (before and after bombing), Majon beach resort, electricity grid expansion, Runga Island in Pyongyang, Mt. Ryongak, Yongbyon historical fort walls, Suyang Fort walls and waterfall in Haeju, Kaechon-Lake Taesong water project, Paekma-Cholsan waterway, Yachts (3), and Hyesan Youth Copper Mine.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.

Washington Post
Blaine Harden
11/9/2007
Page A14

Choi Won-ho has made six trips to North Korea in the past two years, struggling each time to convince the reclusive government there that the time was ripe for a chicken franchise.

“I told those guys that Kentucky Fried Chicken would come sooner or later,” said Choi, president of a company that has franchised 70 chicken restaurants in South Korea. “I told them it would be better to have an indigenous Korean brand, with takeout delivery.”

To Choi’s astonishment, his pitch is now falling on receptive ears in Pyongyang. This month, he plans to open the first foreign-run restaurant in the North Korean capital in the history of the Stalinist dictatorship.

North Korea is opening up to much more than fast-food chicken.

A team of U.S. experts is in North Korea this week to start disabling three key facilities at the Yongbyon nuclear site — just 13 months after the government of Kim Jong Il stunned the world by exploding a nuclear device. The disabling process was off to “a good start,” a State Department official said Tuesday.

And as part of an extraordinary spurt of diplomacy, senior officials from Pyongyang have been touring Southeast Asia, the Middle East, Africa and Russia in recent months. In the same vein, relations with five countries have been initiated or renewed since summer.

Officials from the New York Philharmonic were welcomed this fall to Pyongyang, where they inquired about holding a concert next year, and a North Korean taekwondo team made its first visit to the United States in September. Last week, the U.S. Navy helped out a North Korean cargo ship that had been attacked by pirates off the coast of Somalia.

In the wake of a summit last month with South Korea, the North is also opening up to a new kind of tourism. It will allow nonstop flights from Seoul to a mountain resort called Mount Baekdu.

The decision — ballyhooed this week on the front page of a state-controlled North Korean newspaper — would for the first time in 62 years give travelers a direct connection from South Korea to the resort without a detour through China.

All this seems to add up to something of significance in the long effort to persuade North Korea to abandon nuclear weapons and emerge from decades of self-imposed isolation, according to Christopher R. Hill, assistant secretary of state for East Asian affairs and the principal U.S. negotiator in six-nation nuclear talks.

“In the past, North Korea often spoke of their isolation as a great benefit for their country,” Hill told reporters in Tokyo last weekend. “I think they’ve understood it now as something that is actually harming them, and that the best-case scenario for what they’re doing is to believe that perhaps it is part of an overall effort to open up.”

Hill said that not everyone in North Korea agrees that opening up is a good idea and that whatever happens is “going to be a slow process.” In Seoul, South Korean Defense Minister Kim Jang-soo told reporters that the North is continuing to buy weapons. “We cannot conclude that the threat from North Korea has been reduced,” Kim said.

But Hill sounded genuinely optimistic about the North’s recent gestures.

He said officials in China, which shares a border with North Korea and is its most important ally, have also noticed signs of economic reform in the North. “The Chinese, who probably know the DPRK best, believe that there is an effort on the part of the DPRK to open up,” Hill said, using the initials of the North’s official name, the Democratic People’s Republic of Korea.

North Korea’s recent high-level contact with Vietnam, another communist state that has opened its economy, is “very interesting,” Hill said. North Korea’s premier, Kim Yong Il, who is in charge of economic policy, traveled last week to the Southeast Asian country, where he visited a port, a coal mine and an industrial zone.

A breakthrough in the six-party talks occurred last month, when Pyongyang agreed to disable its nuclear-processing facilities and disclose all of its nuclear programs in exchange for aid, trade and a U.S. agreement to move toward removing the country from its list of states that sponsor terrorism.

The cause of that breakthrough, in the view of many Western and Korean analysts, was a burst of intense and pragmatic U.S. diplomacy after North Korea’s nuclear detonation last year.

Since Hill’s subsequent outreach to his diplomatic counterparts in North Korea, Kim Jong Il has come to believe that he can negotiate with the Bush administration, said Koh Yu-hwan, a professor of North Korean studies at Dongguk University in Seoul.

“The Bush administration is not going to be around for long, and North Korea is worried about losing momentum,” Koh said. The economy of the North desperately needs the outside investment that would come if the United States removes the terrorist listing, he noted.

If that designation is still in place when Bush leaves office in January 2009, officials in North Korea fear they will have to start all over with a new administration, costing them years, Koh said. “The North cannot wait that long,” he said. “The economy there is in too much trouble. The reason you see noticeable change in the North now is that they have an incentive to act.”

Even with that incentive, any opening up of North Korea is certain to be slow and quirky.

A case in point is Choi and his push north with fast-food chicken.

Choi received an e-mail this week from his joint-venture partners in Pyongyang demanding changes in the words and the font used in brochures for the chicken restaurant. The partners are from a government-owned company.

The e-mail said the brochures could not include any descriptions of chicken dishes derived from English. “Chicken fry-ee-doo,” a term widely used in South Korea, was unacceptable and must be changed to more authentic Korean language, the e-mail said.

The partners from Pyongyang also insisted that the chicken brochures be printed in the official North Korean national font.

Daily NK
Moon Sung Hwee
11/9/2007

The conservative wing in South Korea purported that the opening of the direct Seoul-Baekdu air route would not lead to reforms and open-door policies of North Korea as proved in the case of Geumkang Mountain sightseeing. Hyundai Asan Co. and Korean Asia-Pacific Peace Committee of North Korea have just made a contract for the direct airline staring May next year.

Individuals who travel Mt. Geumkang by land will pass Yuongwoong Middle School, and Onjeong-ri and Yangji village on both sides of the road, all of which are walled off from tourists. Even in Geumkang Mountain, many places are enclosed with iron railings and armed soldiers are guarding them.

Many defectors originally from the Mt. Baekdu areas say that the locals have relatively ease access to the mountain, and so the sightseeing tour of Baekdu Mountain would bring considerable impact on the locals.

The sightseeing tour of Mt. Baekdu passes through Lake Cheonji and Yimyungsoo Waterfall, both of which are popular visiting places for many locals, and Samjiyeon ski resort is located in nearby villages.

Furthermore, every year hundreds of thousands pay a visit to many revolutionary sites in Mount Baekdu. When the tour begins in May next year, the locals and visitors would inevitably run into South Korean tourists. Many people wonder what the North Korean authorities would do about the contact before tourism begins.

According to the Hyundai Asan Co., tourists will fly a direct airline to Samjiyeon Airport and stay at either Sobacksu Visitor’s Hall or Begaebong Hotel. Then, they will visit Sobaeksu Forest, Yimyungsoo Waterfall, Mangchun Peak, Jangkoon Peak and Cheonji Lake.

Tourists must pass through the downtown of Samjiyeon in order to get to Mount Baekdu from Samjiyeon Airport. Unlike Onjong-ri located nearby Geumkang Mountain, it is difficult to close off many places in the Baekdu Mountain areas especially those densely populated villages around Yimyungsoo Waterfall and Samjiyeon ski resort.

In July, 2005, Hyundai Corporation had also once made a contract with North Korea for the development of the Baekdu Mountain areas for tourism. But it was not successful back then because North Korea had a conflict with the Hyundai over economic cooperation and so grew reluctant to cooperate with the corporation as the day for a pilot sightseeing to Mt. Baekdu approached. Moreover, It was difficult for the North Korean authorities to ignore the fact that hundreds of thousands of people make a field trip to many revolutionary sites in the Mt. Backdu areas every year.

The Mt. Baekdu areas have many national treasures such as Mt. Baekdu Billet publicized as Kim Jong Il’s birthplace, the so-called “slogan tree” (referring to those cherished trees which are inscribed with anti-Japanese slogans and the eulogy for Kim Il Sung, and supposedly carved by Kim Il Sung’s soldiers during his anti-Japanese struggle), and many other historical sites and monuments. In fact, Mr. Baekdu is considered sacred and lies at the center of “Su-Ryeong Absolutism” (the idolization of the late Kim Il Sung). The North Korean authorities use the national treasures in Mt. Baekdu to mystify Kim Il Sung and Kim Jong Il.

The itinerary of North Korean people who make a field trip to Mt. Baekdu for two nights and three days is planned as follows. First, they arrive to Samjiyeon Pond by train, and visit Kim Jong Il’s birthplace and Samjiyeon Monument. Next day, they go to Lake Cheonji. On the last day, they pay a visit to the first slogan tree at Gunchang Billet and Begaebong Billet, and Yimyongsoo Waterfall. The problem is that the itinerary of North Korean field trippers is the same as that of South Korean tourists.

Therefore, it is not clear yet whether the North Korean authorities would really open the tourist route in the Mt. Baekdu areas for South Koreas as scheduled in May next year.

It seems that the North Korean authorities allowed the development of Mt. Baekdu because they now have the knowledge and skill to manage tourism business from years of experience of operating Geumkang Mountain tourism business. In addition, the North Korean authorities might have figured out that tourism business normally does not directly lead to reforms and open-door policies.

It is impossible for the North Korean authorities to relocate all residents in the Mt. Baekdu areas. Therefore, they will likely relocate those who have “bad family background” among the residents. (North Korea is highly stratified by class based on family background.) Moreover, the authorities will likely build a block wall designed to keep the residents from encountering South Korean tourists, and construct a new road for tourists.

However, if the itinerary of North Koreans overlaps with that of South Korean tourists, two groups will inevitably have an encounter with each other. Even if North Korean field trippers go on foot and South Koreans travel by bus, two groups will confront each other at tourist attractions such as Samjiyeon Pond, Samjiyeon Monument, Begaebong Peek, Gunchang, and Lake Cheonji.

The North Korean authorities may have North Koreans make a field trip to Mt. Baekdu between November and April during which Samjiyeon Airport has to be closed due to ice on the runaways, and therefore the sightseeing trip is unavailable.

In other words, Mt. Baekdu will be available for half a year for North Korean field trippers and for the rest half for South Korean tourists. However, that is not likely to be a solution since it is difficult to make a trip to Mt. Baekdu during winter due to bad weather conditions. Indeed, the authorities have been restricting the field trip to Mr. Baekdu during the winter period.

A defector from Yangkang Province said, “The authorities may build a new road for tourists or change the tourism schedule.” The defector added, “Once the tour begins, North Korean field trippers will take more interest in South Korean tourists than the legendary struggle for revolution by Kim Il Sung and Kim Jong Il.”

Asia Times
11/9/2007

[excerpt]
North Korea said this week it will allow a South Korean business group to start sightseeing tours of a scenic mountain on its border with China next year, as agreed at a recent inter-Korean summit of leaders.

Pyongyang’s contract with the Hyundai Group will enable South Koreans to visit the 2,744-meter-high Mt Paektu by direct flight. Currently, South Koreans can only visit the Chinese side of the mountain.

“Both sides agreed to start the tour of noted places on Mt Paektu from May of 2008,” the (North) Korean Central News Agency (KCNA)said of the contract signed between Hyundai Group chairwoman Hyun Jeong-eun and Choe Sung-chol, vice chairman of the Asia-Pacific Peace Committee, a North Korean state organization handling inter-Korean affairs.

Hyun, back from a five-day trip to North Korea, met reporters in Seoul and confirmed the contract. “Under the agreement, Hyundai Group will have exclusive rights to operate the tourism business to Mt Paektu for 50 years,” Hyun said, disclosing that she also met with the North’s top leader, Kim Jong-il, during her stay in the communist country.

The sightseeing tour of the tallest mountain on the Korean Peninsula expands Hyundai’s business with North Korea, which currently includes a cross-border tour of Mt Kumgang on the North’s east coast. More than 1 million South Koreans have visited the mountain since the tours started in 1998.

Most Koreans regard Mt Paektu as a holy area where their mythical leader, Tangun, descended from heaven and established a kingdom. North Korea claims that its current leader, Kim Jong-il, was also born there 65 years ago, an event heralded by the appearance of a double rainbow over the mountain and a new star in the heavens. (However, former Soviet Union records show he was born in Siberia, in 1941, where his father, Kim Il-sung, commanded the 1st Battalion of the Soviet 88th Brigade, made up of Chinese and Korean exiles.)

North Korea also claims that the mountain was a base for the independence movement against Japan’s colonial rule of Korea led by the communist nation’s founder, Kim Il-sung, in the early part of the 20th century.

Hyundai has been at the vanguard of business with North Korea since its founder, Chung Ju-yung, crossed the heavily armed demilitarized zone with truckloads of cattle in 1997. Hyundai’s business in North Korea also includes the Kaesong industrial complex, where about two dozen garment and other labor-intensive South Korean firms operate with the labor of more than 15,000 North Korean workers. The project started as a result of the first-ever inter-Korean summit in 2000.

Establishing tourism to Mt Paektu was a lifelong dream of Chung Ju-yung, who died in 2001. Chung handed over the group’s North Korean business arm to his fifth son, Mong-hun, who committed suicide in 2003 amid suspicions that the group was involved in the government’s secret transmittance of huge sums of money to Pyongyang in return for the 2000 summit. His wife, Hyun, immediately took charge of the business.

“My trip to the North was very productive,” Hyun said. “Details of the Mt Paektu business will be discussed at the working level.”

Speaking about her meeting with the North Korean leader, she said “I met him for the first time in two years. He asked about my daughter and we talked a lot about personal things.” Hyun said she is happy to realize her father-in-law’s dream.

In addition, the North’s Asia-Pacific Peace Committee decided to grant Hyundai Group the right to conduct tours of the Kaesong area. “Both sides agreed to start the tour of historic sites and scenic places in the Kaesong area from early December 2007,” the KCNA reported.

Meanwhile, the South Korean government, together with the Hyundai Group, plans to survey Mt Paektu this month to prepare for the start of tours next year, industry sources said. “The preliminary survey by government officials and Hyundai will thoroughly check Mt. Paektu,” said an official from Hyundai.

Institute for Far Eastern Studies (IFES)
NK Brief No. 07-11-8-1
11/8/2007

According to the November 6th issue of the Chosun Shinbo, a newspaper published by the General Association of (North) Koreans in Japan, North Korea has taken an opportunity at the “National Meeting of Secretaries of Cells of the Workers” Party” (Pyongyang, October 26~27), the first held in the last 13 years, to shift the focus of the Workers’ Party to “building a great economic nation”. North Korea also specifically reported the policy goal of building the North into an economic powerhouse by issuing reports through each of its media outlets. In the October 23rd edition of the Workers’ Party newspaper, Rodong Shinmun, Party officials called for a “struggle to create a great economic nation.”

According to the Chosun Shinbo, “By tasking the highest organs of the Party with focusing on the realization of economic policy, we are effectuating a shift in operations to cope with a new era,” and, “at this conference, the construction of the Party’s great economic nation was organized, and the project and plans for increasing the role of Party cells were discussed.”

Party cells are the smallest units of the Workers’ Party, and these cell secretaries are responsible for the front line of Party policy implementation. The Workers’ Party Central Committee’s congratulatory address at the conference stressed the need for a “united march to construct a great economic nation and improve the lives of the people,” and stated that the Party understood that economic issues were at the heart of Party cell concerns.

In the conference report, it was stressed that it was Kim Jong Il’s firm determination and will that “through Military-First politics, not only are the country and military number one in our ideology, but that we make economics number one as well, in order to live well without feeling envious of others.” According to the newspaper, “As the political environment surrounding North Korea is changing, when this conference’s decision to stress the goal of building a great economic nation is carried out by the highest organs of the Party, it will be an important shift in all Party undertakings.”