North Korean Economy Watch

Daily NK
Kwon Jeong Hyun
5/16/2007

National Safety Agency rounds up an arrest

On the 11th, robbers raided the Haeju Historical Museum in Haejoo, North Hwanghae, stealing golden statues of Buddha and ancient Korean pottery worth a large amount, an inside source disclosed.

The source said, “On the night of 11th, golden statues of Buddha and ancient Korean pottery were stolen from Haeju Museum. The exact identity of which Buddha statues and rare artifacts were stolen has not been revealed, however, it appears the goods were rather important considering a special order was given to the border guards and the National Safety Agency has become involved.”

Haeju Historical Museum opened in 1949 and has maintained its heritage for 60 years. The museum displays a collection of ancient Korean pottery from the area and a variety of golden Buddha statues. This museum falls under the same category as the top 5 museums located in North Korea including the Central Historical Museum in Pyongyang and Kaesong Museum, Sariwon Museum and Chongjin Museum.

“If the thief escaped Hwanghae on the day of the raid, then he will be difficult to catch. However, if that is not the case, there is a high chance that the thief will be caught within the next couple of days,” said the source.

He said, “An order has already been made to strictly control the smuggling routes around the border of Shinuiju.” He added, “Stealing historical artifacts and exporting them out of the country is a crime punished with death.”

Following the food crisis in the 90s and early 2000, there were many cases where military officials, security agents and the elite frequently stole historical artifacts. The whole city was affected especially if there were many people living in the area who had inherited historical artifacts from ancestors.

However, for the past 3~4 years, there was a decrease in stolen articles as the number of ancient artifacts had been depleted and furthermore because authorities immediately punished those who stole and sold the goods overseas with capital punishment.

However, as this case shows, stealing a number of articles from museums has continued. In particular, imitations of artifacts have been sold outside the country, and North Korean authorities are facing complaints from foreign buyers. Consequently, there have been cases where affiliated persons have also been executed.

A defector who has experience in selling antiques said, “In 1993, a picture of a Great Monk Seosan was sold in Hong Kong but then returned to North Korea after it was discovered to be a fake. Parties concerned were punished.”

He said, “Precious artifacts are either sent to Pyongyang to be exhibited at the Central Historical Museum or stored separately. A curator affiliated to Mansudae Art Institution then makes a copy and sends it to either the country or, in most cases, puts it on display in Pyongyang.”

He said, “Even if the Japanese buy $10,000 worth of Nihontou (Japanese swords) with the carved seal of a Japanese Emperor, there are still many people who want to possess artifacts from the Chosun Revolutionary Museum. Even I went around until my feet were worn out carrying antiques to make money. However, most of these goods were imitations copied by Mansudae Art Institution.”

Last year, there was one case where a group of 22 people were caught stealing tombstones off royal tombs. Though it is difficult to transport these tombstones, since they weigh a minimum of 500kg and as much as 2-3tons, once they are secretly transported to China, the tombstones sell at a very high price.

The moment North Korean authorities discovered the case, Chinese authorities were contacted and a cooperative investigation begun. The tombstones were redeemed from a storage area in Dandung. At the time, the Chinese dealers were given a heavy fine and the organizer of the North Korean exports, a national security agent, was known to have committed suicide.

Joong Ang daily
5/15/2007

Seoul expects a response on the Kaesong issue at the next round of free trade talks, scheduled to start on July 16.

South Korea wants the European Union to include goods made at a North Korean industrial park in a proposed free trade agreement, casting a potential shadow over their trade negotiations, according to a South Korean negotiator yesterday.

The issue of the products from the Kaesong Industrial Complex was brought up during the first round of free trade talks last week between South Korea and the European Union.

Korea raised the issue in its recently concluded free trade talks with the United States, but the two sides agreed to discuss the matter later.

South Korea considers the industrial park, located just north of the world’s most heavily fortified border, as a model for inter-Korean economic cooperation. More than 10,000 North Korean workers have been employed by 15 South Korean companies in the pilot project, the Ministry of Unification said on its Web site.

“We asked the EU side to positively think over the Kaesong matter during the first round,” South Korean negotiator Nam Young-sook said in an interview with KBS radio. “A good result may be possible if we explain the matter’s symbolic nature well.”

The EU made no particular response to the South Korean request, Nam said, adding, “We will wait for a response in the second round.”

During the 10 months of free trade negotiations between South Korea and the United States, the industrial park was one of the thorniest issues, partially due to the North’s nuclear test in October of last year.

Park Ha-yeon, a spokeswoman of the EU’s delegation in Seoul, couldn’t immediately be reached for comment.

Last week, South Korea and the EU finished their first round of free trade talks in Seoul, with both sides saying they made good progress.

South Korean negotiators said both sides agreed to target eliminating at least 95 percent of the tariffs on goods within 10 years of implementation.

A second round of negotiations will take place the week of July 16 in Brussels.

The EU is South Korea’s second-largest trading partner after China. Two-way trade between South Korea and the EU totaled $79.4 billion last year, and Europe is the largest foreign investor in Seoul, with $5 billion invested in 2005 alone.

Korea Herald
5/12/2007

South and North Korea have agreed to guarantee security for test runs on cross-border rail connections. The accord will make it possible for trains to resume operations across the Demilitarized Zone after the Korean War stopped the railway service more than five decades ago.

But South Korea may not be 100 percent assured that the test runs will proceed as scheduled, given that North Korean commitments have more often than not proved unreliable. Actually, North Korea withdrew its security guarantee on the eve of the railway test runs that had been scheduled for May 25 last year.

Moreover, the security accord is flawed because it will not apply to commercial operations that will follow the test runs. South and North Korea will have to negotiate enduring rules governing inter-Korea railway transportation in the near future.

At the four-day general-level talks that ended on Friday, the North Korean military withheld a security guarantee for commercial operations for the incomprehensible reason that construction of a southern part of the eastern rail link has yet to be completed. Given that the part in question could be reconnected anytime, the North Korean military no doubt has ulterior motives, including extracting concessions from the South in exchange for a security guarantee.

It goes without saying that North Korea is misguided in refusing to guarantee security for commercial operations. It is North Korea that stands to benefit much more from the rail connections.

But South Korea should also be held accountable for the North’s irresponsible behavior. It made the wrong decision when it decided to provide the North with $80 million worth of intermediate materials for the manufacture of necessities and 400,000 tons of rice in exchange for railway test runs.

When negotiating the terms of commercial operations next time, South Korea will have to avoid making similar mistakes. It has no reason to accept being played for a fool when offering a helping hand.

Korea Times
Andrei Lankov
5/10/2007

Since the mid-1990s antique dealers in Seoul have uncovered a new source of quality items: North Korea. Indeed, around that time, antiques secretly excavated in North Korea began to arrive in Seoul in ever increasing quantities.

By the late 1980s, the antique trade in South Korea was going through hard times. Most of the important sources had been used up, and the state had established a fairly efficient control over excavations. Supply was shrinking, and prices kept growing. This was just when the antique items from North Korea hit the market.

This was a result of three important transformations. First, the famine and near collapse of the state bureaucracy in the North meant that many people were ready to do whatever it took to earn some money, and that officials, if given sufficient bribes, would not interfere much, if at all.

Second, the same combination of corruption and collapsing border controls essentially opened the Chinese border with North Korea.

Third, the adjacent areas of China became popular with Korean tourists who frequented the areas, and were on occasion ready to do some small and profitable, if illegal, business.

The major attractions are the Goryeo-era tombs which have been intensively excavated in the last decade (the major centers of the Goryeo Kingdom were located in what is now North Korea). These illegal diggings produced a flood of Goryeo items on the Seoul antique markets. Actually, the amount of antiques that have appeared makes archaeologists wonder about the scale of damage inflicted on the Goryeo sites in recent years. If rumors are to be believed, tomb raiding usually involves North Korean officials, people whose job would be to protect the historical site.

Apart from Goryeo “grave goods,’’ smuggled items include Buddhist images of all kinds, old books, furniture and stoneware. Some of these items originate from the Unified Silla Kingdom (7-10th century) while others are relatively new and can be dated to the early 20th century.

In most cases, the items are “mined’’ on the spot, but there have been a number of confirmed or nearly confirmed instances of books and other works which clearly have been stolen from museums and libraries in the North.

Then the items are transported to the border and smuggled into China. This might require bribing customs and immigration officials, but for a few hundred dollars one can purchase an uncontrolled passage (and, as a merchant told a South Korean journalist in an interview, well-paid custom officials can even help to move heavier items across the border).

The border city of Dandong plays the role of the major illegal market for the smuggled North Korean antique items. In China, some antiques go to the local buyers, but far more frequently the items are smuggled again, this time to Seoul, to appear in the antique shops in the Korean capital.

Some items are bought by rich collectors, while others end up in private museums. However, the Kookmin Ilbo journalists, who investigated the trade in 2005, discovered that museums are very secretive about such acquisitions, being uneasy about the legal implications of provenance, and the likely influence on relations between the two Koreas.

A major role in the business networks is done by two ethnic groups: the Joseonjok, or ethnic Koreans in China, and the hwagyo (huaqiao), the ethnic Chinese in Korea. Members of both groups have ample opportunities for legal cross-border travel, have money and connections, and are fluent in both languages.

They transport the booty, and also provide the North Korean diggers (not exactly experts in Goryeo celadon or early Joseon books) with instructions regarding the most preferable items at any given moment.

This is a risky business, and in the late 1990s the North Korean authorities attempted a number of crackdowns, with few high-level officials arrested for involvement in antique smuggling. However, people take risks.

A good piece of Goryeo-era ware would easily sell for tens of thousands of dollars in Seoul. Only a fraction of this money will go to the grave robbers, of course, with intermediaries and bribe-taking officials along the route pocketing the lion’s share of the profit.

Still, we can presume that a good piece would bring a successful digger a few hundred dollars. In a country where the average salary has fluctuated between one and five dollars a month, this is still a fortune, even for a minor official, and the more high-ranking policemen and security guys are making good living out of this.

It is somewhat difficult to judge these people too harshly, especially those who are driven to tomb raiding by the real threat of starvation, but there is no doubt that extensive and chaotic diggings are wiping out an important historical heritage. When archeologists arrive at the sites, sooner or later as they will, they will have to deal with the havoc produced by the illegal diggers, and many important traces of the past will be lost forever.

In tandem with the antiques, the forgery industry has also developed, with North Korean artisans learning the techniques used by South Korean experts. They know how to make a vase of a bottle from a few small pieces, how to imitate the old patterns on the ceramics, as well as many other tricks of an experienced forger. It seems that the North Korean forgers enjoy some competitive advantages over their South Korean colleagues. At any rate, the boom is not yet over.

Yonhap
5/9/2007

Despite lingering tension over North Korea’s nuclear weapons program, inter-Korean commercial trade surged 43 percent in the first quarter of this year, compared with the same period a year earlier, the Unification Ministry said Wednesday.

Commercial trade between the two Koreas increased to US$346.99 million in the January-April period, up from $243.36 a year ago, thanks to an influx of zinc bullion, sand, fishery items, shoes and clothing into a joint industrial complex in the North Korean border city of Kaesong.

The industrial complex is the crowning achievement of a landmark summit between the leaders of the two Koreas in 2000. South Korean businesses use cheap North Korean labor to produce goods in Kaesong where 21 South Korean factories employ about 11,160 North Korean workers.

“Non-commercial trade between the two sides dropped 24 percent during the same time span, so the total inter-Korean trade rose 25.5 percent to $411 million,” the ministry said in a statement.

In late March, South Korea started to send fertilizer aid and flood relief supplies to the North.

The shipment came weeks after the two sides agreed to resume humanitarian aid and family reunion events, just days after North Korea promised to take steps to shut down its main nuclear reactor and eventually disable it in return for energy aid from South Korea, the United States, China, Russia and Japan.

Shortly after the North conducted missile tests in July, the South suspended food and fertilizer aid along with its emergency aid to the impoverished North. In retaliation, the communist nation suspended inter-Korean talks, family reunions and the construction of a family reunion center.

Daily NK
Han Young Jin
5/8/2007

Looking after the army back-to back rapidly changing to a “hard-line attitude towards the U.S.?” 

While observing the economic facilities for a while, Kim Jong Il, who has put on the gesture of emphasizing “economics,” has recently come forward to look after the army once again.

Last 5th and 6th, North Korea’s Workers Party-sponsored Rodung Shinmun reported that Kim Jong Il visited the 967th and the 977th army one after another.

According to this source, Kim Jong Il relayed, “The fate of our military-first revolution as our great revolutionary inheritance and our socialist enterprise depends on the military power.” At the 977th army, he revealed, “I am pleased that the soldiers have an awakened mind and are responsibly carrying out inspections work.”

This year, Kim Jong Il’s army inspections include seven visits, including the recent ones: 593rd army (January 15th), 398th joint army (January 16th), 105th army (March 19th), 350th army (March 19th), and the 75th anniversary parade of the establishment of the People’s Army.

Last year, when nuclear experiments were enforced, 66 army inspections and army-related events were achieved while raising a confrontational front to the United States. Immediately after the nuclear tests, it spared 16 events in the economic areas of Wonsan Farm and South Hankyung Province Industry Scene while putting forth a confident image under “improvement of civilian lives.”

North Korean advertising media have cast their spotlight as if to show their interest in economic issues while relaying the news of Kim Jong Il’s inspections of Chungjin in North Hamkyung last February, the 4th Taechun power plant, and Jakangdo industry scene.

Further, the North Korean media, through sound arguments via Rodung Shinmum, maintained, “The days when our people can live well are not too far off.” Accordingly, Kim Jong Il’s back-to-back industry inspection walks were portrayed as intentions to renew the impoverished civilian lives in contrast with the past that stressed army inspections.

Advertising “improvement of civilian lives” but people do not believe

However, the grandiose promise of “improving civilian lives” did not show much difference after the economy-related facility visits. Therefore, looking after the army by Kim Jong Il, who does not have a vision or will regarding opening and reforms, may be an inevitable course of action.

Even after entering the spring poverty season last March to April and the busy faming season in May, not having any possibility of resolving the problem of provisions is one of the reasons why civilians are having a difficult time purely accepting Kim Jong Il’s walks related to the public welfare and the national advertisements.

Kim Jong Il’s back-to-back army visits seem to be a gesture to arouse distrust in the wilted popular sentiment by rotating the policy towards the U.S. to a hard-line one. By turning the blame on the U.S. for the BDA asset problem, he seems to be stepping up the solidarity of the army and civilian mind around anti-American sentiment. 

KCNA
5/7/2007
The 10th Pyongyang Spring International Trade Fair will be held at the Three-Revolution Exhibition from May 14 to 17. 

Participating in it will be companies from the DPRK, China, Russia, Syria, the Netherlands, Germany, Bangladesh, Switzerland, Singapore, Australia, Italy, Indonesia, Pakistan, Poland and Taipei of China. 

Machine tools, electric and electronic equipment, vehicles, medicaments, daily necessities, foodstuffs and so forth are to be on display in the fair.

Yonhap
5/5/2007

European companies operating in North Korea have been running a business coalition to better coordinate trade ties with the reclusive nation, a businessman said Saturday.

“Our purpose is to build bridges between Europe and North Korea,” Felix Abt, chairman of the European Business Association (EBA), said in an interview with Washington-based radio station Radio Free Asia. The association was founded in April 2005.

The businessman, who is also president of the joint venture PyongSu Pharma Co., said European firms need to do more business with Pyongyang, whose business ties are heavily dependent on Northeast Asia.

The association comprises 11 companies, mostly European or joint ventures between European and North Korean state-run firms. DHL, the logistics arm of Germany’s Deutsche Post AG, is also a member.

North Korea’s trade with the European Union accounted for less than 10 percent of its total volume in 2004, while trade with China surged by 35.4 percent, according to the EBA’s Web site.

Joong Ang Daily
5/4/2007

At Jejin Station on the east coast of South Korea, railroad officials yesterday checked a train to be used in the scheduled test of the restored inter-Korean railroads on May 17. In the pilot operation to reconnect the East Coast Line and the Gyeongui Line, trains from both sides will cross the demilitarized zone. North Korea has broken a promise to hold similar trial runs three times in the past.

American Enterprise Institute Book forum
4/17/2007

A couple of weeks ago, I had the opportunity to attend a book forum at the American Enterprise Institute on Nicholas Eberstadt’s new book, The North Korean Economy: Between Crisis and Catastrophe.  It was very informative to hear three different perspectives on the direction of North Korea’s economic reform.

Panelists included:

Nicholas Eberstadt, AEI
Andrei Lankov, Kookmin University
Deok-Ryong Yoon, Korea Institute for International Economic Policy

In summary, Mr. Eberstadt and Mr. Lankov are pessimistic about the North Korean leadership’s desire to enact reforms–knowing that information leakages will undermine their political authority.  As Mr. Lankov pointed out, the North Korean nomenklatura are all children and grandchildren of the founders of the country who are highly vested in the current system.  They have no way out politically, and as such, cannot reform.

They argue that the economic reforms enacted in 2002 were primarily efforts to reassert control over the de facto institutions that had emerged in the collapse of the state-run Public Distribition System, not primarily intended to revive the economy.  Lankov does admit, however, that North Korea is more open and market-oriented than it has ever been, and  Mr. Yoon was by far the most optomistic on the prospects of North Korean reform.

Personally, I think it makes sense to think about North Korean politics as one would in any other country–as composed of political factions that each seek their own goals.  Although the range of policy options is limited by current political realities, there are North Koreans who are interested in reform and opening up–even if only to earn more money.  In this light, even if the new market institutions recognized in the 2002 reforms were acknowledged only grudgingly, they were still acknowledged, and their legal-social-economic positions in society are now de jure, not just de facto.  The North Korean leadership might be opposed to wholesale reform, but that is economically and strategically different than a controlled opening up on an ad hoc basis–which is what I believe we are currently seeing. Anyway, dont take my word for it, check out the full commentary posted below the fold:

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