North Korean Economy Watch

Institute for Far Eastern Studies
NK Brief No. 07-8-7-1
2007-8-7

According to a recent report from a North Korean insider, the border city of Sinuiju, in North Pyongan Province, was redesignated as a ‘Special Economic Zone’ in the first part of this year, and accordingly, full-fledged city development has been underway since last June, including the relocation to the city of 3000 families from Pyongyang.

The “NK Chosun” reported that this development was revealed by a North Korean official during a meeting with an associate in Dandong while on a recent visit to China. The official was quoted as stating, “Pyongyang citizens are being temporarily transferred to Sinuiju because they are ideologically prepared.” The official went on to share that the Pyongyang residents being moved to Sinuiju are the laborers that will work in the industrial zone, state security officials, police, and their families.

According to the associate in Dandong, “due to rumors of the relocation of Pyongyang residents, real estate prices in the Sinuiju area are skyrocketing.” While DPRK authorities are instituting a plan to relocate Pyongyang residents to Sinuiju, at the same time 3000 Sinuiju families are being banished from the city. Rumor has it that Sinuiju police and security forces have begun identifying residents with problematic blood lines and those considered to have ideological problems and announcing lists of ‘purgees’.

Even as large scale aggregate gathering at the mouth of the Yalu River is growing, all residents living in the vicinity of the Sinuiju train station were removed and barbed wire and dirt walls were set up around the outskirts of the area following its designation as a ‘Special Economic Zone’.

One DPRK source in Dandong stated, “The past plan for the Sinuiju Special Economic Zone promoted by Chinese [businessman] Yang Bin aimed to make money through a casino and entertainment facilities, but this time, according to the directives of Chairman of the National Defense Commission Kim Jong Il, a city is to be constructed that can fulfill the role of Kaesong Industrial Complex as well as Rajin-Sunbong .”

Yonhap
8/6/2007

Most South Korean companies operating at an inter-Korean industrial zone in North Korea plan to increase their facility investment there, a survey showed Monday.

The survey, conducted by the Korea Federation of Small and Medium Business, found that 87.8 percent, or 19 out of 24 companies operating at the North Korean border city of Kaesong, said they plan to boost investment levels.

South Korea began building the industrial park, located just 70 kilometers north of Seoul, in 2003 on a trial basis with the hope of creating a model for an eventual reunification of the Korean Peninsula. Currently, 26 South Korean plants employ about 16,000 North Korean workers who produce garments, kitchenware and a number of other goods.

If the industrial zone becomes fully operational by 2012, more than 350,000 North Korean workers will work there, according to the South’s Unification Ministry.

Last week, officials from the Koreas agreed to increase the minimum salary of North Korean workers at the Kaesong industrial complex by five percent to US$52.50 a month, marking the first pay raise since the complex’s launch.

The industrial park is one of the prominent symbols of inter-Korean reconciliation efforts following a landmark summit in 2000 between then South Korean President Kim Dae-jung and North Korean leader Kim Jong-il.

Daily NK
Han Young Jin
8/6/2007

Frequently in the last couple years, it’s been said within North Korea and among defectors that “North Korea has changed a lot.”

North Korean citizens say, “North Korea is not in the same situation as it was in 10 years ago. The biggest difference is that nowadays, people will do whatever it takes to make money. Also, they confidently raise their opinions to the authorities.”

It is hard to find merchants being called out as “opportunist factions.” It’s also different than the mid-90s when people would sell whatever they could. The market is specializing in items and broadening as well. The market is taking its form.

North Korean authorities have also expanded micro-level autonomous management systems to factory enterprises as they are unable to give out rations.

Of course there are people who make ends meet but most people are merchants. It is hard to find people who work as “servants” or housemaids or people who starve to death. They unanimously say, “It is enough to suffer once. Even cows don’t fall into pits that they’ve fell into once.” This is to say that there will no longer be horrific incidents such as the Great Famine of the mid-90s.

We listened to five defectors who recently entered South Korea on changes in the situation of North Korean residents.

I’m the one who farmed

“I’m the one who farmed. Why should I hand it over to the government?” Defector Kim Kyung Sik [pseudonym] from Onsung, South Hamkyung Province, who came to South Korea in March, 2007 says, “There was an incident with a riot as laborers collectively protested the increase of land tax in 2006.”

After the measures taken on July 1st, 2002, North Korea had laborers other than farmers farm on designated areas according to household and expanded the policy of submitting a portion of the harvest to the government.

Concerned that this measure would be seen as a revolutionary liberal step, North Korea assigned the land according to company title and gave a square around 992 meters to each laborer in the company.

Kim said, “As people farmed on their own land, laborers would work wholeheartedly and there would not even be a patch of grass on the farming land. Because people would find some way to get fertilizer to spread, the size of the fruits was also different.”

He said, “As it became fall, the Management Committee (collective farm’s Leading Group) and the collective farm who had designated the land gave orders to hold off on the fall [harvest] until the standards of grain exchange came from above. Along with this an incident occurred and tens of laborers protested.”

Choi, a woman from the same region said, “As the laborers of Onsung Mine were told to submit 10% of the yield to the government, laborers strongly opposed saying ‘Who had farmed this?’ ‘Why should we hand it over to the government?’ It happened in 2003.”

Accordingly she said, “After dividing the land to the laborers, there has been a sharp decrease in the number of people starving. It will be hard to reverse such tide of change.”

Increase of “Audio-Video Places”

Recently in large cities of North Korea, places to screen multimedia CDs or videos called “Audio-Video Places” – comparable to video rooms in South Korea – have increased. As it is set in a square 50 meters that is decorated like a small theater and plays movies, citizens of the region have been reacting positively.

Defector Suh Kang Chul [pseudonym] from North Hamkyung Province Chongjin who had defected July 2006 said, “There are three screening rooms around the Chongjin Train Station. It is 50 won to see a film. You must watch 2-3 films at once to be satisfied. This is not a small amount of money.”

Screening rooms of North Korea renovate the interior of a building and with the goal to screen “North Korean or Russian films,” they receive the government’s approval. However, most play Chinese or Hong Kong movies. As long as they don’t play South Korean, American, Japanese or pornographic films, there are no severe punishments. The reason people go to screening rooms is because movies are screened for 24 hours without a power outage.

Suh said, “If there is a power outage, the store owner hurries to change to a car battery to play the film. The films people like are Bruce Lee’s “The Big Boss” (1971) and “Fists of Fury” (1972) or Jet Li’s action films.”

Foreign multimedia have been a strong catalyst to change the thoughts of North Koreans. Even Korean dramas that have been copied on to CDs have secretly spread the “Korean Wave” in North Korea. Bae Yong Joon of “Winter Sonata” is recognized as a famous actor.

Many years ago, the “109 Inspection Team” (Bureau to oversee VCDs and videos) was established to regulate illegal screenings and even on the 3rd, in the name of the People’s security, there was an order that “Public officials, institutions, entities and groups must rid all karaoke rooms, movie rooms, computer rooms that were established without the government’s approval for the purpose of making money.”

However, Kim says, “as the ratings of Korean dramas rise, it becomes a situation that cannot be controlled.” Thus, most of the viewers are tied to the Security Agency or an acquaintance of the People’s Safety Agency that it will not be easy to eradicate this problem.

North Korean authorities have made declarations on the “Exposure of Liberalist Corrupt Culture” but in reality the regulating institutions have stopped at indirect responses.

In a phone conversation with a reporter on the 2nd, an internal North Korean news source also said, “It is planned that the Great North Korean Defamatory Broadcasting that was based around the Kaesung area will now move to the Tumen River area. People have been saying that there have been many cases where people are tricked into believing the broadcasting and betraying the country or watching Korean films to get fantasies and crossing the border, but such acts will be severely punished.

Daily NK
Han Hee Yoen
8/5/2007

With the lack of construction of the infrastructure which supports cell phones and internet usage inside the Kaesung Industrial Complex, business management is increasingly becoming difficult.

At the “Inter-Korean Economic Cooperation and US-Korea FTA” conference held at the National Library on the 2nd by the Civil-Headquarters for Activating the South-North Economic Cooperation in Korea and 21st Century North-East Asia Peace Forum, Lee Im Dong, the secretary general of the Kaesung Industrial Complex Committee of Enterprises exposed difficulty, “The Kaesung Complex is facing a lot of hardship due to insufficiency of infrastructure needed for business and political influences at home and abroad.”

Lee revealed, “There are a lot of problems, such as the transportation and customs process, communications issue, labor power, absence of employment flexibility, and effectiveness. These problems should definitely be resolved, but these are impossible problems for the individual enterprises, so the government has to step forward.”

He said, “Cell phones and internet cannot be used inside the Kaesung Complex, so it takes significant amount of time and effort because the products that the buyers want can only be understood over fax and phone.”

Kim Joong Tae, the team manager of the Inter-Korean Economic Cooperation Team under the Ministry of Unification, revealed, “We are improving domestic laws, strengthening communication with enterprises, realizing transportation of joint economic commodities by pursuing formal rail operations, and expanding systematical apparatus at the level of the state.”

Kim also explained, “As for private investment into North Korea, the government and conservative media have upheld an emphasis of self-responsibility of businesses based strictly on market economic principles. The critical point in the government’s aid policy is the agreement issue with principles of the market economy, constraints in financial resources, or North Korea’s lack of understanding of the market economy.”

On one hand, Professor Kwon Young Kyung from the Education Center for Unification said, “Various efforts from the Kaesung Complex (stated during the FTA) is needed to satisfy the standard of establishment of the Committee on Outward Processing Zones on the Korean Peninsula. Most of all, the roadmap for resolving the North Korean nuclear issue, according to the February 13 Agreement, needs to progress smoothly, so that the denuclearization of the peninsula can actively take place.”

Korea Herald
Kim Yoon Mi
8.3.2007

Hyundai Asan, the South Korean operator of tour programs to North Korea, said yesterday it plans to spend $3 billion by 2025 to develop an area on the North’s east coast as a new tourist destination.

“We have submitted the final plan to the North in late June. The plan will be reviewed by the North by September,” Yoon Man-joon, Hyundai Asan’s chief executive officer, said at a press meeting in Seoul.

According to the company’s plan, Hyundai Asan will develop the area from Haegeumgang near Mount Geumgang to Wonsan, an eastern port city in the North.

As Hyundai’s relationship with North Korea has recently shown signs of recovery, Hyundai chairwoman Hyun Jeong-eun, widow of the late Chung Mong-hun, will visit Pyongyang as early as late August, Yoon said.

“I’m not sure whether she will be able to meet Kim Jong-il but I’m sure she will visit Pyongyang.”

Hyun will meet North Korean senior officials to discuss new inter-Korean commerce and the tour business to Gaeseong, Yoon said.

Meanwhile, the CEO hinted at legal action against former Hyundai vice chairman Kim Yoon-kyu. Yoon pointed to the possibility of Kim using confidential corporate information acquired by Hyundai to further the latter’s own inter-Korean trade corporation.

Kim, who was a key player in Hyundai’s inter-Korean business promoted by the late Hyundai Group founder Chung Ju-yung and his late son Mong-hun, was fired by the Hyundai Group in October 2005 for allegedly illegal use of corporate funds.

Recently, Kim has started his own business dealing with North Korea through his company, Acheon Global Corp., and announced last month that the company will trade agricultural and processed food products with the communist country.

“When I look into what businesses he is doing, I can say that he is doing exactly the same thing while he was working for Hyundai. Legal experts tell me that it could be a violation of confidential corporate information,” Yoon said.

Asked if he was willing to take legal action, Yoon did not directly reply but said he does not think Kim’s business is legitimate.

“I am closely watching over (what activities he is making). I hope he doesn’t do such business anymore,” Yoon said.

Hyundai to Spend $3 Bil.on NK Tourism Project
Korea Times
8/2/2007

A South Korean company operating businesses in North Korea said Thursday it plans to spend $3 billion by 2025 to develop an area on the North’s east coast as a new tourist destination.

Yoon Man-joon, chief executive officer of Hyundai Asan, the North Korean business arm of Hyundai Group, said the company submitted the proposal to the North’s authorities in June and that North Korea is expected to make a final decision as early as next month.

The new project calls for Hyundai Asan to develop the costal area from the North’s eastern port city of Wonsan to Haegeumgang near Mt. Geumgang, where the South Korean company built a mountain resort in 1998.

If North Korea approves the proposal, it would be Hyundai Asan’s third major economic project in the North, following the mountain resort and an industrial complex in the city of Kaesong near the inter-Korean border.

Hyundai Group Chairwoman Hyun Jeong-eun, who met North Korean leader Kim Jong-il two years ago, is preparing to visit the North as early as late this month to discuss the group’s North Korean businesses, including the new project, Yoon said.

“Hyun’s visit to Pyongyang is already confirmed,” Yoon told reporters.

It was uncertain whether Hyun will be allowed to meet the North Korean leader during the planned visit, Yoon said.

North Korea’s environmental experts are reviewing the new development proposal by Hyundai Asan, the executive said.

Mount Geumgang, located just north of the border between the two Koreas near the east coast, has attracted more than 1.5 million visitors since 1998, Yoon said.

In the first seven months of this year, some 150,000, mostly South Korean guests, visited the scenic mountain.

Yoon said the company will make efforts to meet this year’s target of 400,000 visitors as the North recently opened an inner side of the mountain.

The North’s approval to open a wider part of Mount Geumgang and its surrounding area to tourists “indicated a normalization in relations between Hyundai and North Korea,” Yoon said.

Hyundai’s business with North Korea was started by its late founder, Chung Ju-yung, in the early 1990s.

Hyun took the helm of Hyundai in 2003 after her husband, Chung Mong-hun, the late founder’s son, committed suicide by jumping from the window of his high-rise office in Seoul, apparently under pressure from a lobbying scandal involving the North Korean mountain project.

Korea Herald
5/3/2007

South and North Korea on Friday agreed on a 5 percent pay raise for North Korean workers employed by South Korean companies in an industrial complex just north of the border, officials were quoted as saying by Yonhap News Agency.

Last month, the North notified South Korea that North Korean workers will refuse to work extra hours or on weekends and holidays starting from August unless they get a 15 percent raise in their basic wages.

In a new deal, North Korean workers working in the Gaeseong industrial complex are to earn about $60.375 in basic pay, including insurance, which accounts for 5 percent of the total.

This is the first time that North Korean workers have received a pay raise since the complex began operations in late 2004, in spite of such demands being made several times.

N. Korean workers in Kaesong complex to receive 5 percent pay raise
Yonhap
8/3/2007

South and North Korea on Friday agreed on a 5 percent pay raise for North Korean workers employed by South Korean companies in an industrial complex just north of the border, officials said.

Last month, the North notified South Korea that North Korean workers will refuse to work extra hours or on weekends and holidays starting from August unless they get a 15 percent raise in their basic wages.

In a new deal, North Korean workers working in the Kaesong industrial complex are to earn about US$60.375 in basic pay, including insurance, which accounts for 5 percent of the total.

This is the first time that North Korean workers have received a pay raise since the complex began operations in late 2004, in spite of such demands being made several times.

Currently, 26 South Korean companies employ about 15,000 North Korean workers in Kaesong, including construction and office workers, at the site developed on a trial basis.

The number of North Korean workers is expected to increase to more than 350,000 when the complex becomes fully operational by 2012. Monthly production in the complex exceeds $10 million.

The industrial complex, the crowning achievement of a landmark summit between the leaders of the two Koreas in 2000, is one of the two major cross-border projects that South Korea has kept afloat in spite of United Nations sanctions on the the North following its nuclear weapon test in October. The two Koreas also run a joint tourism project at the North’s scenic Mount Geumgang.

Joong Ang Daily
Seo Ji-eun
8/3/2007

Hyundai Group Chairwoman Hyun Jeong-eun, who has been spearheading inter-Korean commerce, will visit Pyongyang for business talks with high-ranking North Korean officials. The visit, scheduled for as early as late this month, comes two years after she met with North Korean leader Kim Jong-il in Pyongyang.

Yoon Man-joon, president and chief executive of Hyundai Asan, which owns exclusive rights to inter-Korean investment, said in a press conference yesterday, “Chairwoman Hyun will be talking about pending business deals, including launching tourism in the Kaesong Industrial Complex.”

Yoon said the company submitted a proposal to the North two months ago for further development of Mount Kumgang, as the relationship between the two is now in “pretty good shape, although there have been misunderstandings and difficulties.”

Hyundai Asan’s inter-Korean business was previously led by former Vice Chairman Kim Yoon-kyu, who had the trust of late Hyundai Group founder Chung Ju-yung and his late son Mong-hun, the former president of Hyundai Asan. Chung Mong-hun, Hyun’s late husband, committed suicide in 2003 amid a prosecution investigation into the company’s secret transfer of money to the North. Hyun took the helm from her deceased husband. Kim was forced to step down in late 2005 over allegations of diverting corporate funds. North Korea, which had built strong ties with Kim, threatened to sever business with the firm in protest.

According to Yoon, Hyundai Asan plans to spend $3 billion to develop land between the Hageum River and the city of Weonsan, and North Korea is expected to respond to the proposal in late September. He added that the recent launch of tours of the inner part of the Mount Kumgang resort area has been positively received, and will help the company meet its annual goal of 400,000 visitors this year.

Hyundai Asan and North Korea are also in talks regarding opening up Birobong, the highest peak on the mountain, to South Korean tourists, Yoon said.

Daily NK
Kim Yong Hun
8/3/2007

As August 1st was the deadline that North Korea placed for a 15% increase in the wages of the Kaesung Industrial Complex laborers, companies have raised their guards on the changes of this situation.

North Korea had claimed before that if South Korean companies wouldn’t raise the wages by 15%, it would refuse to work overtime or work on special duties. If North Korea carries out such policies, it is predicted that there will be a setback for companies entering the Kaesung Industrial Complex.

The labor regulations that North Korea and South Korea agreed on limit the range of annual wage increase to 5%. If wages are raised to North Korea’s requests, minimum wage will increase from $57.50 to $66.00 and overtime (4 hours X 26 days) and special work (4 times a month) will near $118 per month.

Companies have decided to negotiate with the North by preparing a guideline through which they could compromise between both sides.

Kim Kyu Chul, Representative of the Forum for Inter-Korea Relations, a citizens group for economic cooperation between South and North Korea expressed his concern stating, “An overwhelming wage increase will be a great burden to companies and thus it is inevitable to control the amount of output and there is a good possibility that start-up companies will put their businesses on hold or give up.”

According to the Forum, the productivity of the Kaesung Industrial Complex remains at a mere 50% that is less than factories of China or Southeast Asia. The assertion is that the payability will worsen if wages are drastically increased with conditions of low productivity.

On the other hand, North Korea also requested the construction of a child care facility along with the wage increase and thus the Kaesung Industrial Complex Committee of Enterprises (Chairman Kim Ki Moon, Central Chairman of SME’s) opened a temporary hearing on July 26th and decided to implement a policy of an 8-month unpaid child care leave instead of a child care service.

According to the Choson Ilbo (2007-8-2):

North Korea early this year declared Shinuiju, a border town in North Pyongan Province, a special economic zone, North Korean officials said. Some 3,000 households in Pyongyang are to be relocated to Shinuiju under an urban development project launched there in June.

During a recent visit to China, a North Korean official told an official from the Chinese border city of Dandong the North will relocate Pyongyang citizens to the Shinuiju Special Economic Zone since they are “ideologically prepared.” Some will be assigned as workers to an industrial complex, who will be joined by officials from the Ministry of Public Security and the State Security Department, and police officers and their families.

A Dandong official said, “I understand that housing prices in the Shinuiju area have skyrocketed due to rumors that Pyongyang citizens will move in.” He said North Korean authorities plan to evict 3,000 households from Shinuiju to the city’s suburbs to make room for the newcomers. Public and state security officers in Shinuiju have begun making a list of those with dubious backgrounds and who are ideologically suspect, which rumor has it will result in a roster for eviction.

Meanwhile, the Yalu River estuary is being dredged and all private houses near Shinuiju Railway Station are being demolished, while the special economic zone is being surrounded new by barbed-wire tangles and fences.

A North Korean source based in Dandong said an earlier Shinuiju special economic zone project promoted by Yang Bin, a Chinese, was aimed at making money through casinos and entertainment facilities. But on North Korean leader Kim Jong-il’s instructions, the current project is designed to build a city that can play the same role as both the Kaesong Industrial Complex and the Najin-Sunbong Free Trade Zone.

Read the full story here:
N.Korea Starts Clearing Special Economic Zone
Choson Ilbo
2007-8-2

Institute for Far Eastern Studies (IFES)
8/1/2007

INTER-KOREAN RELATIONS

Following two days of talks between economic representatives of the two Koreas at the Kaesong Industrial Complex, South Korea announced on July 7 that it would begin shipping raw materials to the North in exchange for DPRK natural resources. South Korea shipped 800,000 USD of polyester fabric on July 25, and is set to send the rest of the materials by the end of November. North Korea accepted South Korean prices for the goods, and will pay transportation, cargo working, and demurrage costs, as well. South Korea will pay for shipping, insurance, and the use of port facilities. On 28 July, a South Korean delegation left for the North in order to conduct on-site surveys of three zinc and magnesite mines. The team will spend two weeks in North Korea.

It was reported on 17 July that North Korea proposed a joint fishing zone north of the ‘Northern Limit Line’ dividing North and South territorial waters to the west of the peninsula. Seoul turned down the offer.

Inter-Korean military talks broke down early on 26 July after only three days of negotiations as North Korea insisted on the redrawing of the Northern Limit Line.

North Korea demanded on 27 July that workers in the Kaesong Industrial Complex be given a 15 percent pay raise. The North Korean workers will not work overtime, weekends or holidays beginning in August unless the raise is granted.

It was reported by the Korea International Trade Association on 26 July that inter-Korean trade was up 28.6 percent in the first six months of 2007, totaling 720 million USD.

RUSSIA-DPRK INVESTMENT

It was reported on 19 July that Russia and North Korea have agreed to connect Khasan and Najin by rail, enlisting investment from Russian oil companies interested in an inactive refinery at Najin Port capable of processing up to 120,000 barrels per day. The project is estimated to cost over two billion USD.

MONGOLIA-DPRK RELATIONS

During a four-day visit to Mongolia by Kim Yong-nam beginning on 20 July, the two countries signed protocols on cooperation on health and science, trade and sea transport, and labor exchange issues. This follows on the heals of an agreement to allow South Korean trains to travel through North Korean territory on to Mongolia in route to Russia and Europe.

JAPAN-DPRK PROPAGANDA

Japan took one step further to recover abductees in North Korea this month when the government began broadcasting propaganda into the DPRK intended for Japanese citizens. The broadcasts are made in Korean and Japanese (30 minutes each) daily, and updated once per week.

U.S.-DPRK PEACE PROSPECTS

U.S. Ambassador to the ROK Alexander Vershbow stated that Washington was prepared to negotiate a permanent peace regime on the Korean Peninsula by the end of the year if North Korea were to completely abandon its nuclear ambitions.

EGYPT-DPRK INVESTMENT

The Egyptian company Orascom Construction Industries announced a 115 million USD deal with North Korea’s state-owned Pyongyang Myongdang Trading Corporation to purchase a 50 percent state in Sangwon Cement. To put this in perspective, the deal in worth more than four times the amount of frozen DPRK funds that had caused six-party talks to break down and delayed the implementation of the February 13 agreement.

NORTH KOREAN SOCIETY

The Economist reported on 7 July that, according to foreigners living in the North’s capital, concern for petty law appears to be weakening. Citizens are reportedly smoking in smoke-free zones, sitting on escalator rails, and even blocking traffic by selling wares on the streets.

It was reported on July 11 that a letter sent earlier in the year by the North Korean Red Cross indicated severe shortages of medical supplies. The letter stated that North Korea would accept any medicine, even if it was past expiration, and accept all consequences for any problems that arose from using outdated supplies. The (South) Korea Pharmaceutical Manufacturers Association had no choice but to reject the request.

Events were held on July 11 in North Korea in order to promote women’s health and well-being issues. Marking World Population Day, a North Korean official stated that the DPRK has cooperated with the UN Population Fund since 1986, and is now in the fourth phase of cooperation.

Seeing entertainment venues as a “threat to society”, North Korean security forces have been implementing a shutdown of karaoke bars and Internet cafes. These venues mainly cater to traders in the northern regions of the country.

It was reported on July 13 that construction of North Korea’s first all-English language university was nearing completion. The Pyongyang University of Science and Technology, funded largely by ROK and U.S. Christian evangelical groups, will hold 2600 students and offer undergraduate and post-graduate degrees in business administration, information technology, and agriculture.

Local elections were held on 29 July for DPRK provincial, city, and country People’s Assemblies. 100 percent of 27,390 candidates were approved with a 99.82 percent turnout reported.