North Korean Economy Watch

Institute for Far East Studies (IFES)
NK Brief No. 07-8-22-1

The Bank of Korea released a report on August 17 that details economic estimates on a variety of sectors in North Korea. Overall, North Korea’s Gross Domestic Product (GDP) fell 1.1 percent during 2006, the first time since 1999 that the North has failed to increase its GDP. Inclement weather was one factor that played into a fall in agricultural production, and there also appears to have been little progress in the construction of public works in the country. Overall, North Korean GNI was 2.9 percent of that in the South, with per capita GNI at 1,108 USD, 6 percent of the 18,372 USD per capita GNI in South Korea.

The entire economy of the DPRK is approximately 1/35th that of the South, with the Gross National Income (GNI) a mere 1/17th the level seen in the ROK. This shows a growing divide between the two Koreas, as the comparisons in the previous year were 1/33rd and 1/16th, respectively. Due to the North Korean nuclear issues and other foreign relations problems faced during 2006, a worsening of diplomatic relations with other countries, energy shortages and other economic woes befell the North, putting the entire economy in a difficult situation.

The North showed a weakening of the agricultural and forestry industries, increasing production by a mere 2.4 percent, 2.6 percent down from 2005. Corn and other cereal production grew by 7 percent, but rice was down 6.4 percent, and bean production was down 6.6 percent from the year before, leaving overall grain output down 3.6 percent. On the other hand, shellfish and crustacean harvests grew by 1.5 percent, while timber and livestock harvests remained unchanged.

On the mining front, coal and other non-metal mined resources showed promising increases, but production of lead, zinc, and copper fell by 1.7 percent, compared to the 3.5 percent growth posted in the previous year. Despite promising increases in production of manufactured goods and growth in the chemical and heavy industries in 2005, last year North Korean production growth rates in these fields fell flat at a mere 0.4 percent, increasing production rates of fibers, clothing and shoes, but turning out less kitchenware and food-related products. Coal and fuel products looked favorable, but fabricated metals and machine parts, as well as nonferrous metal products grew at a rate of 1.1 percent, down from 5.4 percent.

Gas-fired electrical generation was up 17 percent, while hydroelectric power grew only 2.7 percent, falling from 4.4 percent in 2005. Other infrastructure projects were also on the decline, with only 49 km of road paved in 2006.

The number of foreign tourists declined, with visitors to Kumgang Mountain falling from 366,000 in 2005 to only 265,000 last year, adding to the 21.8 percent decline in the food and lodging sector, but the transportation and communication sector grew by 5.1 percent, leading to an overall gain of 1.1 percent in the service industry.

The gap in overseas trade between the two Koreas increased from 182-fold to 212-fold as North Korean foreign trade fell off 5.2 percent. Imports in the North were up 2.3%, although seafood imports were down 48.4 percent. The slack was made up by a 34.1 percent increase in the import of plastics, a 31.2 percent increase in imported chemical goods, and a 12.4 percent increase in imported machinery.

During 2006, inter-Korean exchanges grew 27.8 percent, reaching 13.5 billion USD. South Korean exports to the North grew 16 percent as Seoul increased rice and fertilizer aid, and exports to the Kaesong Industrial Complex grew. On the other hand, North-South cooperative projects grew 52.7 percent as South Korea increasingly imported North Korean zinc, sand, and other natural resources.

In order to give some perspective to the North Korean economic data, the Bank of Korea offered the following comparisons:

DPRK/ROK/Ratio
Population (thousand) 23,079/48.297/2.1
Economic Growth (2006) -1.1%/5.0%
Nominal GNI (100 million USD) 256/8,873/34.7
Per Capita GNI (USD) 1,108/18,372/16.6
Exports (100 million USD) 9.5/3,254.6/343.8
Imports (100 million USD) 20.5/3,93.8/151.0
Coal Production (10,000 tons) 2,468/280/0.11
Electrical Use (10,000 kW) 782/6,551/8.4
Electrical Production Capacity (100 mill. KW) 225/3,812/16.9
Petroleum Imports (10,000 bbl) 384/88,843/231.4
Cereal Production (10,000 tons) 448.3/530.0/1.2
Rice Production (10,000 tons) 189.4/468.0/2.5
Seafood Harvest (10,000 tons) 92.3/303.3/3.3
Iron Ore Mining (10,000 tons) 504.1/22.7/0.05
Nonferrous Metals Mining (10,000 tons) 8.6/187.7/21.8
Automobile Production (10,000) 0.44/384.0/872.8
Steel (10,000 tons) 118.1/4,843.3/41.0
Cement (10,000 tons) 615.5/4,920.9/8.0
Fertilizer (10,000 tons) 45.4/318.3/7.0
Chemical Products (10,000 tons) 2.9/145.7/50.2
Railways (km) 5,235/3,392/0.6
Roads (km) 25,544/102,061/4.0
Port Loading Capacity (10,000 tons) 3,700/69,213/18.7
Shipping Capacity (10,000 tons) 90.4/1,180.2/13.1

Daily NK
Kwon Jeong Hyun
8/21/2007

Escalating Rice Costs 1,900!!

As the month of August began, North Korea saw a sudden jump in its rice costs. While 1kg of rice reached a peak of 1,960won (around US$6.03) in Shinuiju, entering the second week of August, prices seemed to have stabilized around the 1,500won marker.

Due to the damages incurred from the recent flooding in North Korea, the cost of rice was something expected. In the second week of August, the DailyNK reported on the flood situation and the consequent price fluctuations. The following report will indicate the damages from the flood and food situation as well as the course of rice costs.

We discovered from a telephone conversation with Ahn Geum Soon (pseudyonm, 37) on the 10th, a trader who sells clothes in Shinuiju, North Pyongan that the cost of rice had suddenly escalated to 1,900won per kilo dropping back to 1,500won within a 10 day period.

Ahn said, “Even people who trade secretly in private or at Jangmadang (markets) are finding it hard to obtain rice as there simply isn’t enough going around” and informed, “There are some people who are already stocking up on rice as rumors suggest that the costs will go up a little more. These people are the ones to raise the prices.”

Regarding the cause in escalating rice costs, Ahn said, “I’m not sure. According to rumors, people with money are the ones hoarding the rice, but no one is really sure of the reason.”

“Some people are going through tough times with the sudden rise in rice costs but no one is dying of starvation. People who can’t afford rice eat corn. Even if the cost of corn rises, its only 500won” said Ahn and added, “Nonetheless, there are the occasional beggars living in the country and the city who die of hunger, but this is no different to the past.”

Kim Il Yong (pseudonym, 36) who lives in Taecheon, North Pyongan informed a reporter on the 11th, “Currently, the cost of rice is about 1,500won per kilo. There was a great difference in prices within a period of 10 days.”

Kim responded, “Some say that the costs are rising as South Korea and other foreign countries are not supporting us with rice, while others say that that prices are rising as there is not enough rice going around. I’m not sure what is going on.”

He continued, “There are rumors that rice prices will reach 2,000won. Nevertheless, there won’t be any cases where people die of hunger. Like we will reach that stage when potatoes have been picked and are being sold at Jangmadang and the corn harvest has begun.”

Kim who has relatives living in the Hamheung said in response to the claim by a South Korean support organization that 300 people have died of starvation, “Hamheung is comparatively a large city. Rumors would quickly spread if people were dying of starvation. 300 people can’t be dying of starvation.” He said, “My sister in-laws younger brother went to Hamheung 3 days ago. He said he hadn’t heard of any rumors of people dying of hunger.”

Another source in North Korea said in a conversation with a reporter on the 11th, “Up to a month ago, rice cost 850won per kilo” and commented, “There are a lot of coal mines at Dukcheon. It is known as a region where you can make money. Rations are distributed by the employer to the people who work at the mines and so it’s not so hard for them.”

Then he added, “It was a little tough in June as the employers stopped distributing rations for a while.”

Korea Times
Andrei Lankov
8/19/2007

Sometimes even Stalinist propaganda tells the truth. When the North Korean newspapers occasionally told grossly exaggerated horror stories about South Korean inflation, they stressed that nothing like that could possibly happen in North Korea. This was the case indeed. For nearly half a century, from the late 1950s to the late 1980s retail prices in North Korea remained essentially unchanged. One kilogram of rice cost 0.08 won in 1960. It was still the same price in 1990.

This was possible because almost nothing was actually “sold’’ in North Korea. Communist states often rationed goods distributed through retail trade, but in most cases it was only a handful of most prestigious goods that were subjected to rationing _ like, say, cars. North Korea went much further: by the early 1970s, retail trade in the North ceased to exist, being completely replaced by an elaborate public distribution system. Rations depended on a type of work performed, but also on one’s position within a complicated hierarchy of social groups, as well as one’s place of residence (inhabitants of major cities, and Pyongyang in particular, enjoyed much better rations than those in the countryside).

There were some markets, of course, barely tolerated by the government. But until the late 1980s markets were small, with their trade volume being almost negligible. It seems that most people were reasonably satisfied with what they could get from the state distribution system _ of course, it helped that they knew next to nothing about the situation in other countries, so they could not compare.

The situation began to change around 1990 when the old distribution system collapsed under the pressure of an economic crisis. From 1993-94 there were increasing problems with rations, and from around 1996 rations pretty much stopped altogether. Some food was still distributed in major urban centers, but even there the distributed amount was so meager that nobody could survive on rations alone. A large-scale famine ensued, with at least half to one million dead (the oft-cited figure of three million victims seems to be an exaggeration).

People turned to trade and handicrafts, and with this arrival of a market economy inflation became a North Korean phenomenon as well. Even in the 1980s market prices exceeded the official prices in the state shops. By the mid-1990s, the difference was much greater. In theory, rice still cost 0.08 a kilo, but by 2000 its price on the market reached 45-50 won. Official wages remained unchanged, however, so around 2001 the average salary was approximately 20 times less than the income necessary for physical survival. People had no choice but to augment their income.

The government understood that there was no way to restore the old system: a decade of economic crisis had undermined the basic machinery of distribution and obviously the system was beyond repair. Thus, in 2002 the much trumpeted “July 1 Reforms” were introduced.

It’s difficult to describe these measures as “reforms”–the government simply gave official recognition to the situation which had existed for quite a few years.

The distribution system (long defunct) was curtailed. There was a dramatic increase in the retail prices of basic goods and services _ obviously in an attempt to approximate the prices of the market. Thus, that one-kilo of rice which cost 0.08 won since July cost 44 won.

Wages increased as well. Obviously, the wage increase was not even, and some groups have gained _ or lost _ more than others. It was estimated that the average increase in wages has been approximately 2500 percent (that is, 25 times). At the same time, prices have increased 3000-4000 percent (that is, 30-40 times). This necessitated the issue of 1000 won bills _ the largest denomination in North Korean financial history since the 1959 currency reform. Later, 5000 won bills were issued as well.

But the measures had another effect. The increase in salaries meant that the market was instantly flooded with cash. Needless to say, the only outcome could be inflation. Some people speculated that this was the intention of the Pyongyang leaders who hoped to kick-start the economy in such a way. Perhaps. But I would not be surprised if in 15 or 20 years down the track we learn from interviews and talks with the planners of this reform that they did not really expect inflation. Pyongyang economic managers have not had much exposure to market theory, and are sometimes very naive in their understanding of these questions.

Indeed, by October 2002 the market price of rice had increased to 120 won per kilo. In 2003, the price doubled to 250-300 won, and now it is about 1000 won. Inflation has become a part of North Korean life.

What will happen next? Will the North Korean leaders manage to stabilize the situation, or will a new wave of economic crisis wipe out the entire North Korean system? We do not know yet. But it is clear that there is no return to old days when a kilo of rice could be had for 0.08 won _ that is, if you were lucky enough to live in an area where they distributed grain rations in rice, not in maize.

Joong Ang Daily
Lee Min-a
8/17/2007

Plenty of corporate leaders came along for the last inter-Korean summit, and the jockeying for which leaders will be selected this time has begun.

The Blue House said yesterday that it is looking for people who could play a substantial role in boosting North Korea’s economy.

“We don’t have any rule that says to exclude corporate leaders who went to Pyongyang last time, but we are hoping the new list will, if possible, first be filled with people who are already involved in North Korean businesses or who can play a substantial role in making investments there,” said Cheon Ho Seon, the Blue House spokesman.

About 200 people are expected to be in the entourage, up from 180 last time. The number of business leaders is expected to grow, too.

In 2000, corporate leaders going to Pyongyang included LG head Koo Bon-moo, then-SK head Son Kil-seung, late Hyundai chairman Chung Mong-hun, Samsung vice head Yun Jong-yong, then-Kohap head Chang Chi-hyeok and Rinnai Korea head Kang Sung-mo.

The Blue House is planning to invite corporate leaders to a financial seminar this week to discuss ways to help the North.

European Business Association
September 24-27, 2007

The European Business Association (EBA) in Pyongyang and DPRK Chamber of Commerce are orgaizing a booth for European business at the upcoming international trade fair in Pyongyang.  European companies are invited to make use of this opportunity to introduce their business to the North Korean market.

European companies interested in taking advantage of this opportunity are invited to visit the EBA website www.eba-pyongyang.org – please click through to membership for the statutes. The membership fee of 500 Euro will include the following services for companies who would not send their own representative to the trade fair:

• Poster display (maximum size DIN A2)
• Distribution of flyers (maximum size DIN A4)
  Feedback for Korean inquiries by e-mail: any contact request and any inquiry by a Korean company will be registered in a special format and will be supplied asap by   e-mail to your company.
• Photos documenting the participation of your company in the fair.

If a representative will take part, the joint European booth is of course open for him/her to be used during the fair and EBA will support and assist you actively in making contacts and business meetings with potential Korean partners. According to a special arrangement between the EBA Pyongyang and the DPRK Chamber of Commerce, the deadline for visa application has been extended for European businesses to August 20, 2007.

Learn more here

Yonhap
8/15/2007

North Korea, celebrating the 62nd anniversary of Korea’s liberation from Japan’s 1910-45 colonial rule on Wednesday, called on its people to make concerted efforts to build a strong socialist economy.

The Rodong Sinmun, the official newspaper of the North’s Workers’ Party, said in an editorial that there is no more urgent task than reconstructing the national economy and improving the people’s livelihood.

“On the economic front, the principles of socialism and utilitarianism should be thoroughly observed … All potentials and resources should be fully mobilized to boost production and construction,” said the paper.

“Food problem has to be addressed, while the light industry sector has to be revolutionized in order to mass-produce high-quality consumer products. Economic reconstruction and improvement of public livelihood are the most urgent tasks facing the nation.”

But the editorial still allotted much of its space to eulogizing the accomplishments of the North’s late founding leader Kim Il-sung and his Songun (military first) policy.

“The president’s plan for building a rich and powerful country is being carried out in all fields thanks to the Songun leadership of Kim Jong-il. The country in which the great Songun politics is being successfully applied will make ceaseless creations and leaping progresses and the president’s behest will come true in the socialist country,” said the paper, referring to the elder Kim as the president.

Institute for Far Easter Studies
NK Brief No. 07-8-14-1

The second inter-Korean summit meeting is coming up soon, scheduled to open on August 28 in Pyongyang, and interest is building regarding discussion on economic cooperation. It is true that the North is prioritizing political and military issues in order to shore up its government by normalizing relations with the United States. However, considering its serious economic woes, the ability of South Korea to offer a ‘gift package’ can significantly influence the success or failure of this summit.

It is not yet clear how economic cooperation will fit into the agenda, but Seoul and Pyongyang have been constantly discussing this issue, so some insight has been given. In particular, the ‘consumer’ North has been referring to domestic and international cooperation, and through Pyongyang’s requests, some clarity has been added to what goals could unfold during the upcoming meeting.

Energy Sector

The North Korean economy is saddled with severe shortages of electricity and fuel oil, causing production to slow and therefore stagnating consumption, putting the country into an ongoing vicious circle of economic depression. North Korea possesses facilities to produce 7.7 million kW of steam- and hydro-electric power, but in reality is incapable of operating these facilities at more than 30%.

The opinion that expansion of North Korea’s electrical infrastructure is necessary, not only for the North, but also for South Korea, is gaining strength. South Korean projects to develop North Korean mines and import its coal have been delayed due to a lack of electrical power. In the future, enterprises looking to set up in North Korea will also require a steady supply of electricity.

In what way the two Koreas will cooperate on energy is not yet known, but North Korea is sticking to its demand for light-water nuclear reactors. If construction were restarted on the reactors begun by the now-defunct Korean Peninsula Energy Development Organization (KEDO), North Korea could quickly have not only the energy production amount currently available, but an additional 2 million kW, as well.

North Korea’s power facilities are in a state of deterioration, but the number of facilities in the North are adequate for the current state of the economy, so a plan for the restoration of generation and transmission facilities, or the 2 million kW of electrical power offered by the South Korean government two years ago could be considered sufficient.

Natural Resource and Infrastructure Development

One other highly probable agenda item on inter-Korean economic cooperation will be development of natural resources. This is because a model in which North Korea’s relatively abundant underground natural resources are developed, and in which these resources being used by South Korean businesses, would create a ‘win-win’ result for both Seoul and Pyongyang.

According to a report given by the Korea Resources Corporation at a conference last year, North Korea possesses upward of forty different valuable minerals, including iron-ore. Analysis of these North Korean resources shows that a considerable amount of South Korea’s 40 trillion won (430 billion USD) worth of mineral imports per year could be brought in from North Korea instead.

As development projects in North Korea’s graphite mines are already underway, and the import of North Korean anthracite is being considered in order to meet quickly growing demand for charcoal in the South, cooperation in the natural resource sector appears to be one of the core points to inter-Korean economic cooperation.

As for North Korea’s railways, the heart of the country’s distribution infrastructure, completion of the section of track on the Kyungui Line between Kaesong Station and Moonsan Station, as well as the section of the East Sea Line between Mt. Kumgang Station and Jejin Station, means that the infrastructure for regular service between the two countries is now in place, although talks regarding the details of such regular service are not being held.

If regular service on these two lines between North and South Korea can be achieved, expensive transportation costs can be reduced, and of course, in the future, connection of the railway with continental rail networks such as the Trans-Siberian Rail and the Trans-China Rail would help to enable the Korean Peninsula to emerge as the hub of North East Asian distribution.

Furthermore, considering the fact that North Korea’s mining facilities and technology, as well as its ports, loading facilities, and other transportation infrastructure, are severely lacking, a plan linking development of natural resources to projects developing infrastructure also appears viable. It is also already known, to some extent, the nature of North Korean needs in its infrastructure sector, and if this upcoming summit closes successfully, it is expected that an inventory of these needs will become more concrete.

Vitalizing Kaesong Industrial Complex

The Kaesong Industrial Complex (KIC) is also an important undertaking. At the moment, a problem has arisen concerning the construction of a second KIC, but even if only the originally planned 26.4 million square-meter complex is built, the fact is that currently the first 3.3 million square-meter stage is complete, and considering that it employs North Korean labor, this is no easy feat. Companies moving into the KIC are asking that easy communication with South Korea and simplified import procedures be prioritized.

Again, while trapsing through the jungle of YouTube videos on North Korea, I stumbled on this clip shown on Japanese television which was secretly recorded in a North Korean market.  Since my Japanese ranges from rusty to nonexistent, I do not know where it is.

What does this clip teach us?  That some North Koreans are becomming more sophisticated shoppers/ consumers–looking to the outside world to get a sense of what’s fashionable.  Chinese entrepreneurs are hard at work building brand loyalty for western companies that are not yet aiming for the DPRK market.  Chinese knockoffs of Nike, the North Face (mislabeled “the Nice Face”), and fake designer apparel are all on display.  I imagine no North Korean citizen expects to ever see these goods in the local Public Distribution Office. 

Japanese narration highlights (thanks, Tony):

• Are the North Koreans familiar with these western brands? Some are familiar and others are not so sophisticated.
• These items sell really fast.  You can buy a Rolex Watch (knock off) for 800 Yen (appx. $8 or appx 2,400 North Korean Won).
• The narrator contrasts lifestyles.  He compares shoppers that can afford these market goods with others in the same village who cannot.

Daily NK
8/9/2007
Kim Yong Hun

Results from recent surveys conducted by the Korea Federation of Small and Medium Business’ regarding South Korean companies in the Kaesung Industrial Complex show that among the 24 companies, just five companies recorded a profit for the first time in 3 years.

Kaesung Industrial Complex Committee of Enterprises said, “Recently, companies that have finished investment from the last 3 years have started to make profit”. They predicted, “From now on, Kaesung Industrial Complex businesses will start to be resilient.”

Following, the committee added, “It is expected that as the five companies start to collect their investments funds, there will be an increase in companies that experience net profit.”

However, there are also criticisms that premature optimistic hope could bring a reserve effect. Currently, the remaining 19 companies (80%) are still seeing a loss and considering the technical learning ability of the North Korea laborers and low productivity of companies, it is too early to be optimistic of the Kaesung Industrial Complex businesses.

Experts especially worry that reflecting the fact that the Kaesung Industrial Complex is proceeding successfully, it can send a negative sign to the North.

“Premature Hopes Can Bring Failure to the Kaesung Industrial Complex Business.”

Dong Yong-seung, director of Economic Security Department of Samsung Economic Research Institute, gave a positive evaluation in a phone conversation with DailyNK and said, “The break-even point for ordinary companies is 5 years, but the fact that the Kaesung Industrial Complex businesses saw a net profit in 3 years means that the businesses are that successful.”

However, Mr. Dong also said, “If it looks to North Korea that the Kaesung Industrial Complex is going too well, a flawed message can be sent and problems can occur. To solve such problems, there needs to be a definite principle kept about direct payment of wages and wage increase that was agreed between the South and the North.”

Kaesung Industrial Complex Committee of Enterprises’ chief Lee Im Dong pointed to the fact that, “Due to the results from the survey, there may be a misunderstanding to the North that the Kaesung Industrial Complex’ situation is the ideal place. Although a problem of manpower supply and demand, laborers’ ability problems and other problems are piled, but North Korean staffs of Kaesung complex can be content with the result of that research and intent to stay in this state.”

Chairman Lee especially added that, “Extreme optimism towards the Kasung Industrial Complex will only add to the desire to form a union to increase the North’s wages and completion fee and cause an overall negative effect to the Kaesung Industrial Complex business.”

North Korea actually ignored the labor regulations of the Kaesung Industrial Complex that stated, “You cannot raise wages to exceed 5% from the previous year” and demanded a 15% wage increase to South Korean companies last month. North Korea claimed that it would refuse overtime work and special work from the 1st if this was not accepted but the South and the North conclusively agreed to a 5% increase at the start of the month.

“Kaesung Industrial Complex optimism can cause failure to businesses”

As a result of a survey, aside from 5 companies that have converted to a profit, 19 companies are still in a loss and the average productivities of these companies are lower than the productivity of domestic factories at a 53.7%.

From one side, the criticism is that the low productivity with the problem of Northern laborers learning technical skills is the key to solving the Kaesung Industrial Complex business.

Kim Kyu Chul, Representative of the North-South Forum had asserted previously that most of the Kaesung Industrial Complex businesses have been experiencing financial difficulty. He says, “The fact that most businesses are still experiencing a loss must be paid attention to.”

Representative Kim said, “Among the 5 companies that made net profit, 3 companies made 200mn won (USD215,000) and the remaining 2 companies made a lower profit. Compared to the tens of millions of invested funds, the net profit is at an unnoticeable level and thus, although there is a symbolic significance it is premature to say that there is actual administrative profit.”

He especially asserted that, “Aside from companies related to fiber and clothing, most companies in electronics and telecommunication parts production have been experiencing a loss. To state that it is a success just because a minority of companies experienced a net profit can actually obstruct the course of the Kaesung Industrial Complex business.”

He also added, “The fact that 19 Kaesung Industrial Complex companies have plans to additionally invest means that rather than a positive sign that the business running well, it is to secure a plot for ordinary investment plans. Even though a company is having a difficult time administrating, it obtains factory plot to prepare for additional investments.”

There is also the point that there is a weak incentive for Northern laborers to want to work.

Chief of the Committee Lee said, “The speed of learning skills thus the laborers’ development speed is slow and because there is no economic incentive to work hard like democratic societies, the productivity is low compared to domestic companies.”

He added, “The result that 19 companies will continue to invest does not mean that the business is running well. Because the speed of reforming business environments is heading in a positive direction, companies have been investing and in the future, technical problems and customs clearance will need to be solved”.

Daily NK
Han Young Jin
8/7/2007

Defector Choi Young Lim [pseudonym] who entered South Korea this past January was a “broker” in North Korea who would receive money from defectors and deliver it to family members in North Korea. He was exposed while mediating money and arrested but was released after giving bribes.

Choi said, “Previously, even with just evidence that there was a connection to a South Korean, you were dragged to a political prison camp and your family members were exiled. However nowadays, even if it is exposed that a defector who entered South Korea sent money, the family members aren’t severely punished.”

“These days, even if there is evidence that you received wired money, unless there is hard evidence of ties to the National Intelligence Service in South Korea the national security agents just impose a fine and release you,” he said.

According to Choi the fine is around the range of USD $2000.

Most of the foreign currency that enters North Korea these days is done through wired transfers from defectors in South Korea to family members. The money that Korean defectors send to family in the North undergoes a 20-30% processing fee and is finally delivered to the individual. The process is from the defector in South Korea through Chinese exchange broker to North Korean broker.

If USD $100 is sent from South Korea, the brokers share $30 and the remaining $70 is delivered to the family.

Until the mid-1990s, regardless of reason, North Korean authorities would take any monetary matter related to South Korea and punish them as “spies”. However, as the number of defectors concentrated in the North and South of Hamkyung increased after the food crisis, a uniform punishment became difficult to impose.

Choi said, “Even the National Security Agency doesn’t consider receiving money from family in South Korea as a spy activity. If they punish everyone, there is a side effect that even their own personal connections will be made adversaries. Thus, they can’t touch this issue.”

The emergence of taxis targeting large city wealthy classes

Trader Hwang Sang Do [pseudonym] who had traveled Chongjin, Hamheung and Shinuiju to collect trade items to export to China entered the South Korea this March.

Hwang introduced a variety of daily activity that he experienced in North Korea. “Even in Hamheung and Chongjin, taxis are operated. The base fare is around 3,000 won. Some cars have the mark that says, ‘taxi’ but some operate as passenger cars without such marks,” he said.

In the North Korean black market 1kg of gasoline (North Korea ordinarily uses kg) costs around 2,000 won. Hwang says, “There are drivers who solicit customers in front of the Chongjin Station or Hamheung Square Station. There aren’t many customers so when veering outside of central city, they receive the round trip fare.” The customers are mainly trade workers, overseas Chinese emigrants or the wealthy class.

It is known that taxi drivers refurbish used taxis or passengers cars that come in from China, then register it as an institution or business entity and start business activity. As there was an order earlier this year to remove all Japanese cars within 3 years, most of the cars that are on the street are manufactured in China.

Massage Parlors, Skincare Salons – Prostitution Secretly Going On

In large cities of North Korea, motels, massage parlors and skincare salons have been established and prostitution has been going on secretly.

Trade worker Hwang says, “There has been an increase of places in Hamheung motels that also function as saunas or skincare salons. A Chinese style massage at a massage parlor is 10,000 won (around US$3.4) per 60 minutes and there is instantaneous prostitution with female masseuse.” It is told that prostitution goes on for about 20,000 – 30,000 won.

With North Korean bathhouses, a service culture to put women at the forefront has taken place. The owners here use jargons such as “selling a bed” or “selling flowers” to feel out a customer’s intention for prostitution. There are cases where women find private homes to prostitute themselves. Hwang says that because it is easy to make money through prostitution, there has been an increase of female prostitutes.

Previously, if prostitution was exposed, you would be sentenced to forced labor. Even now, the authorities ban prostitution. However, the reality is that related entities have secretly been increasing.

On the other hand, there have been several luxury restaurants that opened in Wonsan and Hamheung. These places have implemented the Chinese service system, so the interior facilities are luxurious and female employees greet customers with a “Welcome” at the door.

Previously, only overseas Chinese emigrants or Chinese businessmen invested in such restaurants but recently, there are many cases where North Korean residents open large restaurants as well. Hwang says that as the Chinese restaurant culture that competes with taste and service infiltrated North Korea, North Korea has been undergoing a huge transformation to gain customers through service.

A service concept to “treat the customer as a king” has been emerging different from 1990s.