North Korean Economy Watch

Korea Times
Ryu Jin
6/21/2007

South Korea began large-scale supply of electricity to the inter-Korean industrial park in North Korea’s border town of Gaeseong, Thursday, opening the way for power transmission through high-voltage cables between the two sides for the first time in about six decades.

Power distribution to the industrial complex has so far been carried out through pylons for more than two years, but now it will be distributed by a transformer substation.

South Korea’s state-run Korea Electric Power Corp. (KEPCO) said it has completed the construction of the Pyeonghwa (peace) Substation in Gaeseong to provide factories in the first-phase, 3.3-million-square-meter site of the joint industrial complex with ample electricity.

According to the Ministry of Commerce, Industry and Energy, the newly built substation receives 100,000 kilowatts of electricity — enough to serve up to 30,000 households — from the South via 154-kilovolt transmission cables that cross the Demilitarized Zone (DMZ).

Since March 2005, KEPCO provided the industrial complex with 15,000 kilowatts of electricity through 22.9-kilovolt power lines. But, in late 2004, the two Koreas agreed on the larger-scale power supply for the industrial park.

Construction of the substation and erecting the 48 pylons that carry the power lines for 16 kilometers across the DMZ began in April last year with a budget of 35 billion won ($37.7 million).

Currently, 23 South Korean companies — mostly small- and medium-sized enterprises — operate in the complex, located some 60 kilometers northwest of Seoul, with an additional 16 preparing to start operations.

Officials managing the joint industrial park hope to lure up to 300 South Korean firms and possibly some foreign companies once the first phase of construction is completed later this year.

“Coming just after the reconnection of the railroads last month, the reconnection of the power transmission line between the two Koreas has a historic meaning linking the blood vessels of the two sides,’’ said Minister of Commerce, Industry and Energy Kim Young-ju in a ceremony.

In May 1948, North Korea unilaterally cut off power to the South, which consumed an average 103,000 kilowatts of electricity a month before the suspension. Two years later, the Korean War (1950-53) broke out and most links between the two Koreas remained severed until the late 1990s.

Exchanges and cooperation between the two sides, including various cross-border economic projects such as the Gaeseong industrial park and Mt. Geumgang tourism projects, have expanded drastically since the first-ever inter-Korean summit in June 2000.

Deputy Energy Minister Ahn Chul-shik said the electricity will be used only in the industrial complex and that any outside use will be contingent upon separate arrangements between Seoul and Pyongyang.

North Korea has the capacity to generate up to 7 million kilowatts of electricity, according to KEPCO, but the poverty-stricken Stalinist state only produces around 2 million kilowatts due to a lack of fuel and dilapidated infrastructure.

South Korea has the capacity for 67.5 million kilowatts and produces up to 61.5 million kilowatts during peak summer months, according to the ministry and the state-run electric power corporation.

Yonhap
Sohn Suk-joo
6/20/2007

Four South Korean companies have canceled their contracts for the use of land at an inter-Korean industrial complex in the North Korean border city of Kaesong for unknown reasons, officials said.

The cancellations come amid growing concerns about stalled negotiations on North Korea’s nuclear weapons program, which critics fear might endanger, in the worst-case scenario, the status of the inter-Korean joint economic project, the brainchild of the unprecedented inter-Korean summit in 2000.

Refusing to identify the companies, they said the contracts were revoked in January, February and April, respectively, but the government has yet to take back the corporate licenses for doing business in the Kaesong industrial complex.

In the capitalist enclave, South Korean businesses use cheap North Korean labor to produce goods. The monthly production in the complex exceeds US$10 million.

Currently, 23 South Korean companies employ about 15,000 North Korean workers at a site developed on a trial basis, including construction workers and others at a management office. The number of North Korean workers is expected to increase to more than 350,000 when the complex becomes fully operational by 2012.

In September 2005, the South Korean government offered plots of land to 24 South Korean companies so that they could start to move into the area created in the first phase of the industrial complex’s development.

Some raised the possibility that the companies canceled the contracts becase there is little chance that the complex will become an “outward processing zone” in a free trade deal between South Korea and the United States.

South Korea pushed for the U.S. to include products from the complex in the trade deal, but they only agreed to create a committee to discuss what they called an outward processing zone.

South Korea sees it as the basis for further discussion of the Kaesong issue, while the U.S. cautions against reading too much into it, saying it is a kind of agreement they can reach with any bilateral trade partner regardless of the existence of a free trade deal. They are expected to formally sign the deal later this month.

Joong Ang Daily
Hwang Young-jin
6/19/2007

Trade volume between North and South Koreas has increased more than threefold since the historical June 15 Declaration in 2000.

With an average increase of 24.3 percent, annually, the total amount will reach $1.7 billion by the end of the year, according to the report on inter-Korean Trade from the Korea International Trade Association, also known as KITA.

Annual trade volume in 2000 was $425 million, which increased to $1.3 billion last year. Trade volume so far this year until May has already reached $563 million, which is a 31.3 percent increase year-on-year.

Besides the overall growth, what is healthy about the trade quality is that commercial trade accounts for almost 70 percent of the total trade. That figure was below 60 in 2000, according to the report. Non-commercial trade refers to aid including items such as rice, clothing and fuel. In other words, they are products that were sent to North Korea free of charge.

“The success of the Kaesong Industrial Complex is the biggest reason [for the rise],” said Roh Sung-ho, head of the Inter-Korean trade support team at KITA. “We are accepting bids for additional space at the Kaesong complex, and three times more companies bid than there are lots available.”

With more and more companies establishing factories in Kaesong, more material is exported from the South, and more manufactured goods return, said Roh.

The value of goods leaving South Korea was higher than the value of goods returning. However, about 30 percent of those goods were aid and were given free of charge. When that is taken into account, the North made more money from its exports to the South than the South made in exports to the North.

This allows the North to record a profit in trade account books.

“The nuclear incident last year, didn’t affect inter-Korean trade. There might be minor falls, but I expect trade volume between the two Koreas to increase for the time being,” Roh said.

Daily NK
Han Yong Jin
6/14/2007

[NKeconWatch: Lots of pictures in original article]

The Emperor Hotel and Casino in Rajin-Sunbong has re-opened. It had earlier been a source of Chinese authority concern over remote gambling as the casino attempted to attract foreign tourists.

The North Korean regime designated Rajin and Sunbong as a special free economics and trade zone in December, 1991 and encouraged foreign businesses to locate there. Hong Kong’s Emperor Group opened a five star hotel with 100 guest rooms and a casino in July, 2000.

However, Cai Haowen, a superintendent at the Transportation Ministry in Yanbian-Zhou, embezzled approximately $425,000 of public funds and threw away all the money for gambling in the Emperor Hotel Casino, causing the Chinese government to close the hotel’s casino on January 11st, 2004.

Chinese bloggers who have visited the hotel released photos through a Chinese portal site, sina.com.

Bao Yong visited the Emperor in April and noted that the hotel is 50 km from Huichun, China, and the only tourists were Chinese. North Koreans were not permitted and there was no evidence of Russians. There were just Chinese cars with license plates from Liaoning, Heilongjiang, and, predominantly, Yanbian in the parking lot.

He said that “the strict hotel and casino management seemed more like agents or gangsters than managers, who were everywhere, creepily scrutinizing gamblers’ movement and attitudes.” They prevented him from taking photos inside the casino.

Joong Ang Daily
6/13/2007

A U.S. congressman on Monday demanded changes to a tentative free trade agreement with South Korea, which he said could allow the Asian trading partner to export North Korea-made goods to the United States.

Rep. Sander Levin (D-Michigan) sent a letter to U.S. Trade Representative Susan Schwab raising questions about a draft FTA annex that deals with “outward processing zones” on the Korean Peninsula.

South Korea and the U.S. had maneuvered around the sensitive issue of the inter-Korean joint economic venture, the Kaesong Industrial Complex, by agreeing to discuss in the future whether to include products from such “zones” in their FTA.

Kaesong houses a manufacturing complex where South Korean capital is combined with North Korean cheap labor to produce price-competitive goods. Seoul strongly pushed to have Kaesong covered by the FTA, but the U.S. balked at the idea of importing products made in a country with such a poor human rights record.

Levin, who has already vowed opposition to the FTA, citing unsatisfactory provisions in the auto sector, said Annex 22-C on the zones applies labor standards different from those agreed on between the Congress and the U.S. administration.

The annex directs the committee to examine the standards with “due reference to the situation prevailing elsewhere in the local economy and the relevant international norms.”

“To apply any lesser or different standard for goods from North Korea,” Levin wrote, “would be wholly inconsistent with… basic international labor standards.”

Yohnap
6/12/2007

The chief executive officer of the world’s largest drugmaker, Pfizer Inc., plans to visit a hospital in North Korea this week, the company’s South Korean subsidiary said Tuesday.

Jeff Kindler, along with around 40 Pfizer officials, is scheduled to visit the Kaesong Hospital in the inter-Korean industrial park in Kaesong on Thursday, Pfizer Pharmaceutical Korea said in a statement.

The chief executive officer was to arrive in South Korea later in the day for a three-day visit. He is to meet with local health officials and sign a memorandum of understanding with the Health Ministry during his visit.

During his first trip to South Korea, Kindler also plans to visit local research centers, including the state-run Korea Research Institute of Bioscience and Biotechnology, to discuss possible joint projects for development of new drugs, the statement added.

The New York-based company manufactures the world’s No. 1 selling blood cholesterol drug Lipitor and the well-known erectile dysfunction drug Viagra. Kindler took the helm of the company in February.

Daily NK
Kim Young Jin
6/12/2007

Recently, it has been reported that businesses in charge of facial plastic surgery and skin maintenance are becoming more popular among the wealthy class.

Through a survey DailyNK conducted on actual living conditions in the Northeast region of North Korea, it was discovered that massage rooms, steam baths, beauty-related enterprises (plastic surgery and skincare maintenance) are the main thriving businesses.

Beauty-related businesses such as these prevail in relatively large-sized cities, such as Chongjin in North Hamkyung, Hamheung in South Hamkyung, and Wonsan in Kangwon. This trend seems to follow the up and coming wealthy class who have risen through doing business in North Korea.

Skin maintenance and plastic surgery which has caused a stir among the women in Shinuiju and Pyongyang have spread to inland countrysides within the last several years.

Double eye-lid surgery, eyebrow tattoos, and others can be simply performed by a plastic surgeon doctor or beauty operation specialists, so it has been widely popular among young women.

The cost of plastic surgery, in the case of double eye-lid surgery, was 500 North Korean won per one-eye in 2004, but the asking price has been 1,500 won since 2006. The North Korean exchange rate was recently 2,980 won per dollar.

In addition to double eye-lid surgery, breast augmentation has been spreading to a portion of upper-class women. The popularity of the breast enlargement surgeries demonstrates an encouragement of beauty among North Korean upper-class women.

◆ “Massages” a rage, centered on large-scale cities = Chinese-style health massages cost around 10,000 (US$3.4) North Korean won per hour and for an additional 2~30,000 won, on-the-spot sex with a female masseuse is possible.

This survey, based on the latter half of May, took place by focusing on the price of commodities in five cities, such as Kim Chaek and Chongjin City in North Hamkyung, Danchun and Hamheung in South Hamkyung, and Wonsan Kangwon.

The results of the survey showed that the region with the highest standard of living in the Northeast region is Wonsan City of Kangwon. The reason why Wonsan has a relatively high standard of living is that it has been a central place of trade with Japan.

If North Korea and China’s trade can be represented by Shinuiju, then Wonsan has played that role with trade with Japan. However, it has recently been severely targeted by the suspension in North Korea and Japan’s trade.

Wonsan’s upper-class restaurants are known to show aggressive service by shouting “Welcome” when guests come in, by decorating the interior of restaurants, and by adopting a Chinese-style waiter and waitress system.

In addition, Japanese secondhand goods have been highly traded in Wonsan. Electronic rice cookers, sewing machine, fans, TVs and other Japanese thrift goods are commonly traded and have more reasonable prices than the other regions.

Newly released 2-3 person electronic rice cookers are around 13~150,000 won, fans around 7~80,000 won, used gas stoves around 15~200,000 (approx. US$50.34~67.10), used TVs around 20~250,000 won, and flat-screen TVs over 350,000 (approx. US$117.50) won.

The supply of electricity is not an issue, so it is provided 24 hours long and electricity is better-supplied than in Hamheung.

Further, the “105 factory (furniture production factory)” in Wonsan produces furniture which is delivered to the Central Party and the quality, compared with the cost, is supposed to be the best in North Korea.

Industrial goods in Chungjin are relatively economical, but Chinese-made color TVs and flat-screen newly-released TVs are sold for 20~250,000 and 350,000 won, respectively. Used bicycles imported from Japan is sold for 10~150,000 won.

In Chongjin, the number of taxis have risen lately, but because of the expensive cost, not too many people take advantage of it. Going 4km costs around 5,000 won. Taxis that are operating are either Chinese used taxis or imported cars which are past the expiration date.

◆ The price of rice narrowly rises = In Hamheung, the cost of taxis is supposed to be slightly higher than Chongjin. There are not too many people who ride taxis, so the rate is doubled beyond the center of cities and in remote places.

The cost of penicillin has risen significantly in Chongjin, with the spread of the measles, the scarlet fever, and other infectious diseases since last winter. Chinese penicillin is hard to acquire due to its reputation for having poor quality and North Korean penicillin is sold at Jangmadang (market) for 500 won per one.

The cities considered to have low standards of living are Kim Chaek of North Hamkyung and Danchun in South Hamkyung. The size of the jangmadang (market) is smaller than in other regions and there is a limit in the variety of goods. Steam baths or massage places do not even exist. The price of medical goods are also supposed to be exorbitant.

The specialty of Kim Chaek City is its low cost of nails. The Sungjin Steel Works Complex in Kim Chaek produces nail by melting steel and sells them, which is sold for 2,200 won~2,500 won per kg in Hoiryeong, at 1,200 won in Kim Chaek. However, not only is the weight heavy and is difficult to package, but the usage by civilians is not very high, so the incidence of sale to other provinces is low.

In Danchun, the price of fruit is very expensive, so it is not sold by the kilogram unit, but is sold individually. One medium-size apple is sold for up to 800 won.

On one hand, the price of rice in North Korea’s northeast region showed a narrow upward tendency in the latter half of May at the end of the spring shortage season. Corn, the staple of low-income civilians, did not show a huge change.

Associated Press
Burt Herman
6/11/2007

North Korea is peeling back its self-imposed veil of isolation, allowing tourists a rare glimpse of the hardscrabble rural life en route to a new hiking trail that opened this month at the South Korean-run Diamond Mountain resort.

The new trail is also aimed at drumming up more business for the tourism venture run by a subsidiary of        South Korea’s Hyundai conglomerate, which saw a plunge in visitors last year after North Korea’s missile and nuclear tests. And drawing more tourists will mean more money for the communist nation’s impoverished economy.

The Diamond Mountain tourism project began in 1998 and has drawn 1.5 million guests as the only part of North Korea that can be easily visited by foreign tourists. The mountain is located just north of the border between the two Koreas near the east coast.

It’s one of two landmark projects — the other is a joint North-South industrial zone in the North Korean border town of Kaesong — that are hailed as models for reunification.

The new tour brings visitors to a part of the mountain previously off-limits to outsiders: inner Diamond Mountain, which features gentle waterfalls and Buddhas carved in stone.

But the highlight of the trip is a two-hour drive each way around the mountain to get to the trailhead through villages nestled in valleys displaying a panorama of North Korean daily life under leader Kim Jong Il.

Crossing through a tunnel to start the journey, a military outpost greets travelers with a slogan proclaiming, “We will fight forever for Kim Jong Il.”

Paved roads give way to dirt, rolling through a countryside where the tour buses are the only vehicles as far as the eye can see. Bicycles are the only form of transportation that North Korean families can afford.

They wade through rice paddies to plant seedlings, while oxen pull plows through the mud for other crops, such as corn and beans.

Terraced fields also stretch across hillsides, an attempt to squeeze every inch of food out of the earth in a country where famine is believed to have killed as many as 2 million people starting in the 1990s.

Workers at collective farms erect red flags as a sign of devotion to Kim and his late father, founding leader Kim Il Sung. Children play in a schoolyard wearing the red kerchiefs of the youth wing of the ruling Korean Workers’ Party.

Fresh construction on homes and buildings is a sign of development, although the structures are made of simple clay bricks.

South Korean visitors wave from the bus, but no North Koreans respond to the first outsiders they are seeing in more than a half-century. A group of children scurry behind a wall and other people squat in the dirt, backs to the road. At nearly every intersection, soldiers armed with pistols clutch small red flags, ready to signal an alarm if anything goes awry.

Kim Jeong-ho, president of the Gangwon Development Research Institute, who was leading a delegation of experts on the tour, said the villages reminded him of South Korean rural life in the 1950s and 1960s.

“The way they farm is sort of primitive, they will always have shortages of food,” said Kim Suk-choong, an agricultural economy researcher at the institute.

Although the scenes appear genuine, there’s still a Potemkin Village feeling that confronts visitors to North Korea. All curtains are drawn at a row of squat apartment blocks next to the road, with every window featuring the same artificial red flowers.

North Korean guides gush with minutiae about the mountain, but they are hesitant to discuss village life. Taking photos from moving vehicles is banned.

“It’s important to create a sense of unity between the two Koreas,” Pak Un Ju, a North Korean guide, said of the new tour. “Everybody is entitled to enjoy this mountain, whether South Korean or North Korean.”

The North Koreans were also upbeat about last month’s tests of restored railways between the Koreas, including a line heading to the resort. Tourists initially were only allowed to travel here by ship, but have arrived at Diamond Mountain via reconnected roads since 2003.

“They took the ships first, then they came by road and next will be trains,” said Um Yong Sil, another North Korean guide. She also displayed knowledge of U.S. geography, asking an American journalist how Diamond Mountain compared to the Grand Canyon.

The new openness is an indication of the apparent ease North Korea has over the project and realization that it will not rattle the country’s regime, said resort manager Yoo Da-jong.

The project has also meant about $1.6 billion in investment in the North by South Korea’s Hyundai Asan.

Some 1,000 North Koreans work at the resort, receiving a $50 monthly salary and another $7.50 in social costs paid directly to the North. North Korea also receives about $300 in fees from each visitor.

But profits have been elusive for Hyundai and last year only 280,000 visitors came, short of an expected 400,000. Part of the decline was caused by an end to tour subsidies from the South Korean government after North Korea’s Oct. 9 nuclear test.

Other attractions to lure tourists include a new concert series, with the premiere event this month featuring Nam Jin, known as South Korea’s Elvis Presley. The resort is expanding its duty-free stores, offering such items as an $18,600 Rolex watch — worth nearly 27 years salary for a North Korean worker.

Resort operators hope tourists will ignore the political stalemate and come to experience a taste of a future, undivided Korea.

“This area is for reunification and for natural beauty,” Yoo said. “If you get rid of the political things from your mind, then you can appreciate all these good things.”

Daily NK
Han Young Jin
6/11/2007

Recently, portraits of Kim Il Sung, Kim Jong Il and Kim Jong Sook (Kim Jong Il’s mother) wearing military clothing are being sold at North Korea’s black market, Jangmadang.

“Good Friends” a North Korea support organization, published a newsletter which informed that a portrait of the “3 Generals portrait” was being sold for 7,500 North Korean won (approx. US$2.50) at Jangmadang.

The sale of the “3 Generals portrait” is actually prohibited. Then, how did portraits of the “3 Generals” end up on the black market? Is this a sign that the value of Kim Il Sung, Kim Jong Il and Kim Jong Sook has plummeted to rock bottom? No way.

In the past, this portrait of “Baekdu Mountains 3 Great Heroes” or otherwise known as the “3 Generals,” was distributed to North Korea’s elite class. However, as the power of money slowly took a stance in North Korea, the “3 Generals” somehow managed to appear in the markets.

People purchasing the portraits are not the elite class. If a person visits the home and sees this portrait hung, they may get the impression that the household was closely related to the elite class. In other words, the home looks as if it has value or is important, hence the demand at the markets.

The sale of Kim Il Sung, Kim Jong Il and Kim Jong Sook portraits in North Korea is a political offense. If a person is caught selling any portraits, they may end up in a political concentration camp.

However, as people thrive off trade and the value of money spreads throughout the nation, life continues abundantly as long as you don’t get caught. The fact that this item has appeared at Jangmadang just goes to show how much trade as prospered in North Korea.

Further, the source and owners of the portraits are the elite and with a little investigation one can unveil the corruption that is occurring amongst the upper class. As a result, as long as you do not spread rumors about the National Safety Agency and affiliated persons, authorities let you go unnoticed.

The painting is a family portrait with Kim Il Sung dressed as a Chief general on the left, Kim Jong Il dressed in a general’s outfit in the middle and then on the right, Kim Jong Sook dressed in a guerilla uniform.

The “3 Generals’ portrait” first appeared in 1997 about the time of Kim Jong Il’s 55th birthday. At first, the painting was distributed to officers of power including elite officials, generals, courts and the national security and safety agency. The portrait was not presented to average households and hence the “3 Generals” gained its elite status. “We have the 3 Generals in our home” children would say bragging to others.

Nonetheless, this portrait began to be sold on the markets illegally from 1997. This was a time where people died of starvation and Kim Jong Il went around proclaiming “Military First Politics.” Distributing the “3 Generals’ portrait” was all a part of Kim Jong Il’s propaganda for “Military First Politics.”

In the beginning, administrative officers bribed authorities with alcohol and cigarettes in exchange for the portraits. Factory managers would even exchange the goods in the factories and hang the portraits in their own homes. It was not too difficult to obtain the painting if you were closely affiliated to persons with any sort of power including the authorities, military or the government.

Since then, it was common to see the portraits in the homes of the rich. This portrait worth 3,000won in `97 has now escalade to 7,500won following the July 1st economic measure in 2002.

Sale of the portraits began at the place of manufacture Mansudae Art Institution (the national art academy, which is mainly creating works related to Kim Il Sung and Kim Jong Il). The moment rations were suspended, workers at Mansudae Art Institution began to produce extra portraits and badges of Kim Il Sung, and as a means of survival traded these portraits in exchange for food. With ties to relatives in the country, manufacturers sold portraits of the 3 Generals through the back door.

In additional to this, it is common practice that badges of Kim Il Sung and Kim Jong Il are sold on the black market. There are many badges which vary according to class from badges in the shape of a flag (used by overseas North Koreans) to badges made for authorities and a special badge that was manufactured after Kim Il Sung’s death.

One badge, sold for 1,000won

At first the badges were distributed to elite officials and upper class and then slowly, more and more average citizens tried to obtain one. For example, in the mid-90’s it was rare to see the ‘couple badge’ in the country that it sold for 1,000~1,500won (approx. US$0.3~0.5) each. Accordingly, the cost of the badges has also been affected by market prices.

Dealers who sell the badges appear at the black markets wearing a black jacket. The portraits are hidden beneath the jacket and buyers haggle with the dealer for a good price.

However, not everyone likes the “3 Generals portraits.” A defector who recently entered South Korea said, “Only people who can afford the pictures are interested in buying the “3 Generals portraits.” Otherwise, the average commoner doesn’t care.”

Nevertheless, what would happen if Kim Jong Il found out that the portrait of the “3 Generals portraits” were being sold on the black market? Furthermore, what would happen if he found out that the portraits were being sold for a mere $2.50? He would most probably make an order to close Jangmadang.

If not for the living and trade of average commoners, it would be best for Kim Jong Il not to know this fact. It would be better for Kim Jong Il to be ignorant of this rather humiliating truth.

Yonhap
6/10/2007

Products made in an inter-Korean industrial park in the first four months of the year were valued at US$48.1 million, about 24 percent of which, or $11.3 million worth of products, were exported, South Korea’s unification ministry said Sunday.

Last year’s comparable figure during the cited period was 18.4 percent, or $2.3 million, according to the ministry.

The industrial complex, located in the North Korean border city of Kaesong, is one of two flagship projects the South operates with the North in the spirit of reconciliation that developed following the historic inter-Korean summit in 2000.

Over 13,000 North Korean workers are currently employed by 22 South Korean companies there. They produce garments, utensils and other labor-intensive goods.

The biggest importer of Kaesong-made goods was the European Union (EU), followed by China, Russia and Australia.

The ministry did not give figures on how many goods made in the industrial park the countries imported.