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Sanctions Don’t Dent N. Korea-China Trade

Wednesday, October 25th, 2006

From the New York Times:
Jim Yardley
10/25/2006

[edited]Sanhe, China–Truckers carrying goods into North Korea across the sludge-colored Tumen River say inspections are unchanged on the Chinese side. Customs agents rarely open boxes here or at two other border crossings in this mountainous region, truckers and private transport companies say.

Nor are any fences visible, like the barrier under construction near China’s busiest border crossing at the city of Dandong. There were early reports that inspectors in Dandong were at least opening trucks for a look, but so far statistics and anecdotal reports in the Chinese news media indicate that, essentially, everything remains the same.

What is visible here, though, is the growing and, in some ways, surprisingly complicated trade relationship between China and North Korea. China remains North Korea’s most important aid donor and oil supplier, but, conversely, China is now importing growing amounts of coal and electricity from North Korea. Chinese entrepreneurs, meanwhile, are starting to buy shares in North Korean mining operations and, in one case, trying to gain access to the Sea of Japan by leasing a North Korean port as a potential shipping hub.

The upswing in Chinese economic activity — which is already raising questions about whether the intent is more strategic than commercial — is one of the reasons that China has sent mixed signals about how aggressive it will be in inspecting border trade to meet the United Nations sanctions. For now, at least, some truckers in this region say the only change in border inspections has come on the North Korean side, where customs agents are checking loads more carefully for items deemed contraband by Kim Jong-il’s government.

“We used to sit with North Koreans that we know and have a chat,” said Jiang Zhuchun, a trucker waiting to cross into North Korea on Tuesday afternoon. “But after the nuclear test, we are only allowed to sit alone in our trucks.”

The United States has praised China for approving the sanctions against North Korea, and Secretary of State Condoleezza Rice used her visit to Beijing last week to emphasize the common desire to restart diplomatic talks on North Korea’s nuclear program. China’s leaders are said to be deeply angered over the nuclear test and have signaled they may take a harder line against their longtime ally. Last week, some banks in Dandong froze certain accounts and financial transactions with North Korea.

But the question of inspections along the 866-mile border between China and North Korea is a different matter. The sanctions authorized countries to inspect cargo entering and leaving North Korea and barred the sale or transfer of material that can be used to make nuclear weapons. Yet the sanctions are still less than two weeks old, and some details have still not been worked out. For example, the sanctions ban luxury goods without defining them.

The United States wants tightened border inspections by China as a tool for squeezing the North Korean economy and ensuring that North Korea cannot buy or sell nuclear materials. China is worried that destabilizing North Korea could begin an exodus of refugees and has resisted changing inspections. This week, with rumors swirling about a possible border crackdown, the Foreign Ministry spokesman, Liu Jianchao, said China intended to comply fully with the sanctions, but also said inspections along the border would remain “normal.”

The Yanbian Korean Autonomous Region, the name of the sprawling district that includes the Sanhe border checkpoint, is not the primary trade route between China and North Korea; Dandong, with its more direct route to Pyongyang, the North’s capital, is by far the busiest. But the Yanbian area is wedged into a geopolitical hotspot where China, North Korea and Russia all come together.

In interviews and visits to three crossings from Yanbian into North Korea, truckers, transportation company agents, investors and others confirmed without exception that trade is continuing across the border much as it always has. Customs agents examine bills of lading but usually open shipments only when they are tipped in advance to someone trying to smuggle goods like beer or liquor without paying customs duties, several people said.

“No matter who you talk to, they will tell you there is not much difference,” said Jin Lanzhu, whose trading company is one of the largest in the region.

On Wednesday morning inside the Chinese customs yard in the border city of Tumen, small groups of North Koreans, each wearing their mandatory pins with images of either North Korean leader Kim Jong-il or his father, Kim Il-sung, waited to cross the bridge. They had nylon sacks stuffed with shoes and clothes, television sets, a refrigerator. Some carried bags of rice.

“How many bags do you have?” asked a female Chinese customs agent in a blue uniform. She looked them over and walked away without opening any. She did forbid the North Koreans to take several boxes of fruit because of a problem with worms. Then, the men began loading the sacks onto a flatbed truck operated by the customs office to carry smaller loads to the North Korean side. Two North Korean women complained to a local taxi driver that they had to pay 400 yuan, or about $50, for the service.

“They don’t really check over here,” one North Korean woman said of Chinese customs. “They do on the North Korean side.”

A similar scene unfolded later in the day at a smaller crossing in the dingy town of Kaishan, where the customs port is so small that trucks take a dirt road to a crumbling checkpoint. On Wednesday, a young soldier watched laborers load about 150 used televisions and boxes of medicine into a North Korean truck that had crossed the river to collect the shipment.

“I’m here for security,” the soldier said.

Trade between China and North Korea has grown rapidly in recent years — as has North Korea’s trade deficit with China, in part, because China no longer appears to be selling oil at a subsidized rate. China now accounts for almost 40 percent of North Korea’s total foreign trade; bilateral trade has more than doubled to $1.1 billion in 2005 from $490 million in 1995. In Yanbian alone, trade with North Korea jumped 82 percent in 2004 and another 20 percent in 2005, according to a local newspaper account.

Divining what the increased traffic says about the state of North Korea’s economy is a subject of debate. New research and interviews in the Yanbian region suggest that North Korea, a country that regularly suffers blackouts, is now exporting growing amounts of coal, minerals and even electricity to China, which is hungry for energy and raw materials. In exchange, North Korea is no longer importing as much raw material and machinery as it had in the past.

Instead, North Korea is importing food, clothes, daily sundries, outdated televisions and appliances and, of course, oil. The trend could suggest that North Korea’s recent experiments with private markets may be expanding, some analysts said.

A recent study by the Nautilus Institute, a San Francisco-based research group, used customs statistics to describe the trend, but also concluded that it might indicate that North Korea’s nonmilitary manufacturing industries were in sharp decline. One Chinese investor in a North Korean coal mine agreed. “They seemed to have stopped the factories,” said the investor, who asked not to be identified. He said doing business with North Korea was very risky and cautioned that numerous Chinese businessmen had lost money. “There are zero guarantees and protections.”

Even so, Chinese entrepreneurs and companies, both private and state-owned, are starting to buy interests in North Korean mines to export raw materials. The amount of investment is not clearly defined, but different Chinese proposals call for building truck routes between inland trade centers in northeast China to the North Korean coast, according to Chinese media accounts.

A Chinese property developer, Fan Yingsheng, told the Chinese news media that despite the nuclear test, he was still pursuing plans to develop the North Korean port of Rajin into a shipping center for goods from China. He said he would soon fly to Pyongyang to sign a final agreement.

The flurry of Chinese activity has not gone unnoticed by South Korea and others in the region, analysts say. Like China, South Korea has resisted harsh economic sanctions and refused to shut down its own trade deals with North Korea in part because of concerns about a swift collapse of the North Korean government. But South Korea is also positioning itself, to some degree against China, to be the dominant player in the future of North Korea.

China, meanwhile, has said the activity is not strategic positioning but natural economic outgrowth for a booming, entrepreneurial economy in need of resources. Li Dunqiu, a North Korea specialist with a research institute under China’s State Council, or cabinet, recently wrote that “laws of the market economy” were the driving force in Chinese investment in North Korea.

Along the border, it is easy to see how the daily traffic from China is a lifeline for North Korea. One woman from Yanbian said her family had recently come across to buy rice and other essentials. But Mr. Jin, the owner of the trading company, said charity was not at the essence of China’s trade with North Korea.

“The business interest is the most important thing,” he said. “Helping them comes after that.” Then, pausing to reflect on the potential and perils of trading with North Korea, he added: “North Korea is just like China in the past. It is a blank sheet of paper. You can draw wherever you want to. The question is whether the paper is going to be there at all times for you to draw on.”

Posted in China, Electricity, Energy, International trade, Oil, Rason Economic and Trade Zone (Rajin-Sonbong), Statistics, Trade Statistics | 1 Comment »

North Korean economy hard to gauge

Sunday, October 22nd, 2006

USA Today
Barbara Slavin
10/22/2006

At a kindergarten in Hyangsan, a small city near North Korea’s capital, dozens of colorfully dressed children put on a calisthenics display this month for visitors from the U.N. World Food Program.

The children, full of corn porridge and high-protein biscuits provided daily by the aid agency, jumped, stretched briskly and looked healthy, said Jean-Pierre DeMargerie, the top program official in North Korea. Kids in the front rows looked especially good, he said. “Those 20-30 yards back were not as well groomed or dressed.”

“It’s always difficult to get a clear picture,” DeMargerie said. “The North Koreans don’t like to expose those that might be sick or weak. You build your assumptions on a relatively small sample.”

North Korea, one of the world’s most isolated nations, is a hard society to fathom even for the few foreigners who visit regularly. Whether it is on the verge of economic collapse or resilient in the face of decades of adversity and deprivation remains a matter of conjecture.

Little can be seen clearly

The shroud that keeps North Korea hidden makes it virtually impossible to judge whether the limited sanctions the United Nations imposed in retaliation for an apparent nuclear weapons test Oct. 9 will have any effect on the regime of Kim Jong Il.

The Bush administration hopes the sanctions and international rebuke, particularly from China, North Korea’s main source of trade and investment, will prompt Kim to halt his nuclear program and resume negotiations on a diplomatic solution. “I think (the North Koreans) were surprised by a 15-0” vote on sanctions by the U.N. Security Council, Secretary of State Condoleezza Rice said Saturday. “We’ll see whether or not they are prepared.”

DeMargerie and a half-dozen others who visited North Korea recently say it is better off than a few years ago and may be able to withstand sanctions.

The sanctions could reduce the amount of hard currency North Korea receives, but market reforms in place since 2002 and stockpiling of excess cash, food aid and fuel may give Kim a cushion to defy the U.N.

In 2005, North Korea “received a surplus of a half-million to 600,000 tons of grain” from China and South Korea, said Kenneth Quinones, a former U.S. intelligence expert on North Korea who teaches at Akita International University in Japan. “It looks like most of that went into storage.” North Korea also had a decent harvest this year after two consecutive bumper crops, he said.

Marcus Noland, a Korea specialist at the Institute for International Economics in Washington, said millions of dollars in Chinese investment went into North Korea during the first half of 2006, more than the country could absorb.

Signs of progress are evident to Steve Linton, 56, who has made more than 50 trips to North Korea in the last 15 years. The son and grandson of Christian missionaries, Linton heads the Eugene Bell Foundation, which has delivered medical equipment to about 70 hospitals throughout the country.

“It used to be that people were visibly thinner in the spring,” when food from the previous year’s harvest had run out and new crops were about to be planted, said Linton, who last visited North Korea in May. Now, he said, “that distinction has pretty much disappeared.”

Linton has noticed that North Koreans are better dressed and that there are more bicycles in a country where a decade ago, nearly everyone traveled on foot. “It’s not lightning speed, but it’s gradual change,” he said.

Emerging markets

Pyongyang, a gloomy capital of bland concrete high-rises and little commerce a decade ago, has a few dozen shops and many sidewalk stalls selling ice cream, cookies, flowers, even videocassettes, said Simon Cockerell, manager for Beijing-based Koryo Tours, which organizes trips to North Korea.

Cockerell said there are four or five billboards for cars, the first commercial advertising in the country. Electricity blackouts, once common, are rare in the capital, he said.

Other indicators of an economic cushion include:

•A resumption of a state-run rationing system that hands out about half a pound of grain daily to city residents, who make up 70% of North Korea’s 22 million people. DeMargerie said North Korean officials told his organization that rationing, which collapsed during a famine in the 1990s, resumed last year. It provides corn or rice to make porridge, a mainstay of the North Korean diet.

•Diversification of oil suppliers. China provides about 80% of North Korean fuel, and Iran and Indonesia supply most of the rest, Quinones said. That gives supply alternatives should China carry out threats to restrict deliveries. Noland said North Korea also may have stockpiled diesel fuel that South Korea provided in 2004.

Noland, who spent several weeks in China last summer along the 880-mile border with North Korea, said economic progress is notable for one group of new entrepreneurs: managers of shuttered state-owned factories who are trading coke, coal and iron ore for cheap Chinese consumer goods and food, which they then sell to fellow North Koreans.

“A lot of small-scale activity in North Korea is done by state-owned enterprises,” Noland said. “They have transformed themselves into retailers. I call it the ‘Wal-Martization’ of the North Korean economy.”

Troubles remain

On the negative side, trade with China, which totaled more than $1.5 billion last year, is down about 30% this year because of the difficulty of transferring funds to North Korean bank accounts, said Nam Sung Wook, head of North Korean Studies at Korea University in Seoul. The problem stems from U.S. action last year to freeze North Korean accounts in a bank in the Chinese enclave of Macau linked to counterfeiting and money laundering.

“There is some confusion among traders in Dandong,” a Chinese city across the Yalu River from North Korea that has become a center of cross-border commerce, Nam said. He forecasts negative growth for the North Korean economy this year after 2.2% growth last year. Even so, new sanctions “will not collapse the North Korean economy,” he said.

Those likely to suffer most are salaried urban professionals, said Nam, who visited Pyongyang in July. He said he heard grumbling from technocrats and professors, whose average monthly pay comes out to about $33 at the official exchange rate but only $5 on the black market.

North Korea also has massive infrastructure needs that make it difficult to sustain economic gains. DeMargerie said only 20%-25% of households have access to clean running water, and the sanitation system is becoming a serious health hazard.

Still, Noland predicted, “They can make it through the winter. They are hunkering down and believe they can survive until the world accepts them as a nuclear power.”

Rice conceded that sanctions are no certain solution. “I think we’ll be at this for a while,” she said. “I can’t tell you how long.”

Posted in Civil society, Coal, Economic reform, Energy, Foreign direct investment, General markets (FMR: Farmers Market), International Aid, Oil, Public Distribiution System (PDS), UN, UN World Food Program | Comments Closed

China reduces oil shipment to N.Korea

Saturday, August 26th, 2006

From ABC News:
Burt Herman

China has reduced shipments of crude oil to North Korea, apparently in response to Pyongyang’s missile tests, a news report said Saturday.

China, the communist North’s closest ally and key provider of oil, also has agreed with South Korea to cooperate to prevent a possible North Korean nuclear test.

South Korea’s Chosun Ilbo newspaper said China has reduced “a significant amount” of its oil supplies to Pyongyang since the July 5 missile launches.

The report cited unnamed officials at an oil storage terminal near the Chinese border city of Dandong.

Officials could not be reached for comment Saturday.

There are growing concerns, bolstered by reports of suspicious activity, that Pyongyang may be planning to follow up its missile launches with a nuclear test. Pyongyang claims to have nuclear weapons but hasn’t performed any known test.

Song Min-soon, South Korea’s presidential security adviser, said Saturday that a North Korean nuclear test would be “a grave situation of a different level from missile launches and that South Korea and China have agreed to continue cooperation not to let that situation occur.”

Song, who returned from a two-day trip to Beijing on Friday, refused to elaborate how the two countries would cooperate.

South Korea, China, Japan, Russia and the United States have tried in six-party talks to convince the North to abandon its nuclear program.

South Korea’s seismic authorities said they detected a tremor in North Korea on Friday, but ruled out an underground nuclear test.

Talks on the North’s nuclear program have been stalled since November, when negotiators failed to make headway in implementing the North’s agreement to drop its nuclear program in exchange for aid and security guarantees.

Pyongyang has since refused to attend the six-party talks until Washington stops blacklisting a bank where the North’s regime held accounts, a restriction imposed over alleged counterfeiting and money laundering.

Posted in China, Energy, Oil | Comments Closed

Nautilus Institute: DPRK Reform and PRC relations

Wednesday, August 23rd, 2006

Policy Forum Online 06-70A: August 23rd, 2006
DPRK’s Reform and Sino-DPRK Economic Cooperation

Analysis by Li Dunqiu
CONTENTS

I. Introduction
II. Analysis by Yi Li Dunqiu
——————————————————————————–
I. Introduction
Li Dunqiu, Director of Division of Korean Peninsular Studies at the Institute of World Development Center of Development Studies, writes, “Sino-DPRK economic cooperation is growing in depth and width but both sides adopt a low-profile and practical attitude… In fact Chinese enterprises, both private and state-owned, are looking for greater room for their future development as a result of the constantly improving market economy in China. Amid such backdrop, the DPRK naturally becomes their target…It is not difficult to see that laws of the market economy are the most fundamental reason behind Chinese enterprises’ investment in DPRK.”

The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Nautilus Institute. Readers should note that Nautilus seeks a diversity of views and opinions on contentious topics in order to identify common ground.

II. Analysis by Li Dunqiu
– DPRK’s Reform and Sino-DPRK Economic Cooperation
by Li Dunqiu
DPRK’s change is by no means accidental. It has its profound international and domestic backgrounds. DPRK has made tremendous efforts in shackling off the shadow of the Cold War and integrating into the constantly changing international community, but with little result. Leaders of DPRK have no choice but to explore a new way that suits its country. Amid this backdrop, DPRK is slowly but steadily promoting its reform, which is low-profile but pragmatic.

From the end of 1990s, DPRK has begun to make adjustments to its economic theories and policies, putting forward such new views and propositions as pragmatism, building a strong socialist country, focusing science and technology, new concepts and improving economic management modes. A series of “Measures to Improve Economic Management Order” was issued on 1 July 2002. The adjustment this time, comparing with previous ones, was strong in enforcement and wide in the areas involved, thus injecting new impetus in its economic recovery and development. Though DPRK’s economic reform is only introducing rational elements of the market economy to make up pitfalls of its planned economy with the prerequisite of adhering to the latter, it should be commended as a major innovation in DPRK’s theories and practice in building socialism. Early this year, we saw new phenomenon from the DPRK side. It started with Kim Jong Il ‘s visit to China accompanied by premiers of the State Council in mid-January to learn the successful experience of China’s reform and opening up, followed by Chang Song-taek’s eleven-day China inspection tour accompanied by over thirty high-ranking economic officials, and then Cabinet Premier Pak Pong Ju’s elaboration of this year main tasks in economic work on the Fourth Plenary Session of the Eleventh Supreme People’s Congress. These new changes were not only widely reported but also aroused great interest among the international community in the country’s economic changes.

I. DPRK’s Guiding Principle Undergoing Quiet Changes.

Basic Theories of DPRK’s Economic Reform

At present DPRK has not yet established systemic theories to guide its economic reform. But Chairman Kim Jong Il has proposed new ideas which have become the basis for its economic reform.

Pragmatism

It was first proposed by Kim Jong Il after he became General Secretary of the DPRK Labor Party. There is no works which systematically elaborates Pragmatism. But according to economists from DPRK, pragmatism has two meanings, i.e. to bring actual benefits for the people, and to be profit-oriented instead of suffering losses. The former is the principle while the latter is the detailed content.

To follow the rule of pragmatism in economy is to seek economic benefits and for companies to make profits. To this end, the Fiscal Law amended by DPRK in April 2004 changed the ultimate goal of companies from “reducing cost” to “increasing net income”, so as to help them be profit-oriented. At present, pragmatism is the principle that must be followed in all DPRK’s economic work. Its economists have vividly compared it with China’s “seeking truth from facts”. It is fair to say that pragmatism will become theoretic basis for people in DPRK to liberate their minds and promote economic reform.

Theory with Economic Development at the Core

The strategy that DPRK has established with economic development at the core is mainly embodied in its goal of “building a strong socialist country”. Entering into the new century, DPRK has proposed three targets including building its country into a strong military, political and economic power. It maintains that it has already achieved the first two with the third one yet to achieve. As a result, the goal of “building a strong socialist country” means that economic development is its core task at the moment.

Theory of “New Thinking”

Labor News, DPRK People’s Army and Young Pioneers DPRK, in their joint editorials on the New Year Day of 2001, put forward the “new thinking”, stressing that “priorities at the moment were fundamental changes in ideas, ways of thinking, styles of struggle and work to meet requirements of the modern times”. Chairman Kim Jong Il also pointed out that, having entered the modern times, it is necessary to update thinking according to the new times instead of living the old way on the basis of the past, and that they should boldly abandon those that should be abandoned instead of being restricted to the old ideas and sticking to the past and the outdated. “In the 21st century efforts should be made to approach and solve all questions with new ideas and from new height.” In addition, DPRK’s Labor News pointed it out in its editorials that “they should be bold in reform”, “further improve DPRK’s economic management system to meet the requirement of the new environment and new atmosphere”, and that priorities for the Labor Party in the 21st century is to ensure that the ideas, ways of thinking and working styles conform with the requirement of the new century.

Approach the Word “Reform” with Prudence

Though DPRK introduced elements of the market economy through constitutional amendments in 1998 and consequently adopted some reform measures, it strongly dislikes such words as “reform” and “opening up” and they are forbidden in the adjustment of its economic policies.

Despite this, the essence is “reform”, though different in word, evidenced in their newly issued policies for economic adjustment which were targeted at the outdated demands and practices that were divorced from reality. DPRK’s Labor News pointed it out in an article entitled “On the Rules of Socialist Economic Development” on 21 November 2001 that “those who manage the economy, i.e. people of DPRK, do not have enough experience, there are still room for improvement and perfection due to short history of socialism, and that the economy cannot be developed if those that are outdated, backward and separated from reality are not abandoned.” It is clear that this kind of “abandoning” has the implication of “reform”. Therefore it is reform unsuitable for DPRK instead “reform” itself that it is opposed to. In fact it is nonetheless progressing with economic reform both in theory and in practice in spite of it all. It was not until June 2003 that DPRK’s Central News Agency finally used the word “reform” though it quickly dropped the word again. The reason behind its prudence with the word “reform” is because it once openly expressed its opposition to and criticism against reform in China and former Soviet Union in its major official media.

Learn Reform Experience from Foreign Countries

DPRK’s supreme leader Kim Jong Il has visited China for four times since 2000, most of which were aimed at inspecting China’s economy. His unofficial visit to China from 10 to 18 January 2006 and inspection of China’s economic work in Beijing, Hubei and Guangdong Provinces attracted great attention from the international community.

The nine-day visit in China was rich in content, clear in objective and profound in significance. Kim brought his team to Beijing, Wuhan, Yichang, Guangzhou, Zhuhai, Shenzhen and they listened carefully to introductions made by government officials and companies managers in those provinces and cities, with the aim of learning and drawing upon China’s experience. He was deeply touched and impressed and even had “sleepless night” when he arrived in Beijing following the tour in China’s south. He said that he was unwilling to see the current situation in DPRK and hoped to see further progress in its economic and social development by absorbing the vigor and vitality from the market economy while continuing its planned economy; that he hoped to learn from China and do a good job in DPRK’s future economic development by combining its national conditions with actual situation. It was the first time for him to voice such opinions, indicating that leaders of DPRK were transforming their mode of thinking, acknowledging and accepting China’s development concepts; and that they were exploring laws of economic development in order to prepare for profound and comprehensive reform with DPRK style.

It is more important to note that the visit gave him a chance to see the fact that China’s reform had neither weakened the leading role of the Chinese Communist Party nor aroused social upheaval. It had instead enhanced the reputation of the Communist Party and its international influence, which removed his worry that reform and opening up might undermine the stability of the authorities. Shock waves continued among the high-level officials after he came back from the visit. Unprecedented views were voiced and new explanations made on major theoretic questions like what was socialism, how to evaluate capitalism. High-level officials were asked to theoretically keep abreast with the times and unify their thinking.

Only two months later, Chang Song-taek, First Deputy Minister of the Department of People’s Group and Capital Construction of the Central Committee of the DPRK Labor Party, headed an “expert team” of over thirty high-ranking economic officials to the places that Kim had just visited. His 11-day visit was yet another demonstration of DPRK’s aspiration to learn from China. In addition, DPRK also sent various economic delegations to China to study its experience in reform. It started to send trainees to China, Viet Nam and countries in Europe since its economic reform in 2002, equipping them with knowledge of market economy, finance, trade and hi-tech in particular. It thus started its nationwide campaign from the top down to study economics.

II. DPRK’s Economy and Current Policy Options

From 2000 DPRK has gained positive economic growth from the previous negative one. Of course the rate was very low, around 0.5%–1% for six years in running. Some estimated that growth rate in 2005 reached 2%, an opinion shared by some DPRK officials though genuine figures were hard to obtain in the country. DPRK’s economy has recovered and is poised to continue its steady growth in 2006.

There are two sets of mechanisms in DPRK, i.e. the military and the civilian. The most important economic sectors are controlled by the military, a noticeable feature of its economy. Strength and efficiency of the factories run by the military are higher than their civilian counterparts. Take the Taean Glass Factory for example. It was built with the assistance of the Chinese Government. At first a civilian factory was designated but its workers were low in efficiency and poor in quality, with which the Chinese side became dissatisfied. Consequently a military factory took up the role and all went well afterwards. With good cooperation, the project was successfully completed. This example showed that talents of economic development are mostly with DPRK’s military. It is therefore, like China in its first phase of reform and opening up, formulating policy to transform some military factories into civilian ones to support local economic growth.

All signs show that economic work has become the priority of DPRK. Leaders of the country and the Labor Party are concentrating their time and efforts on economic work. Main measures for this year are as follows:

Agriculture is the main task of this year’s economic development.

The Fourth Plenary Session of the Eleventh Supreme People’s Congress was convened on 11 April, on which Premier Pak Pong Ju delivered a report entitled Review of Work in 2005 and Plan for 2006. He stressed that the central task of the economic development for this year was “to develop agriculture in a decisive manner to successfully solve the food problem for the people in DPRK”.

In recent years DPRK has always taken agriculture as the “primary task” of its economic development. In order to solve food shortage it launched “Potato Revolution” and “Seed Revolution” in 2001, advocating the growth of agricultural crops with short mature periods and great harvests. Agricultural technicians cultivated new breeds of potatoes with no virus and high yields, in order to “supplement rice with potatoes”. Thanks to increased government input in agricultural production and development in agricultural science and technology, grain production has risen in recent years, reaching 4.6 million tons in 2005, the highest in ten years. With experience accumulated and benefit gained, DPRK has realized the importance of agriculture. It will continue to take it as the priority and central task of this year’s economic work. It is especially notable that when Kim Jong Il visited China last January, he went to the Crop Institute of the Chinese Academy of Agricultural Science, a sign which fully vindicated the importance attached to agricultural science and technology.

Work Hard to Develop Foreign Trade and Attract Foreign Investment.

Premier Pak Pong Ju stressed in his above-mentioned report that it was necessary to work hard to develop foreign trade and actively explore foreign markets to achieve diversification and multi-lateralization of trade in accordance with the changing environment and practical demands. DPRK has enhanced foreign trade up to an unprecedented height, which was a new change itself. Though US had begun its financial sanction against DPRK since the end of last year, its foreign trade increased by a large margin in 2005, reaching 3 billion USD in total, the highest since 1991. Trade between DPRK and ROK reached 1.05 billion USD in 2005 and this figure was not included in the total volume. It is estimated that this year DPRK will actively explore new markets in the EU and ASEAN countries while continuing to grow its trade with China and ROK.

China is DPRK’s largest trading partner. Sino-DPRK trade reached a historic high at 1.58 billion USD in 2005, up 14%. China’s export accounted for two thirds of its total. DPRK mainly imported food and energy from China, up by 35.2% annually and reaching 1.08 billion USD in 2005. Growth in Sino-DPRK trade was partly attributed to decrease in bilateral trade between DPRK and Japan, which stood at 0.194 billion USD in 2005, down by 23%.

Meanwhile DPRK is working actively to introduce foreign investment, including capital and technology. It organized two international commodities fairs, one in the 1980s and the other in the 1990s, to be followed by annual fairs every spring since 2000. The fairs were then held twice every year since 2005, one in spring and one in autumn.

The 9th Pyongyang Spring International Fair was grandly held from 15 to 18 May 2006. The total area of the exhibition hall was 16.5 thousand sq meters and it hosted 217 companies from 13 countries and regions in the world including China, the Netherlands, France and Germany. Products on display ranged from chemicals, electronics, pesticides, agricultural machines to cosmetics, pharmaceuticals and foods. Of the 196 foreign participating companies, 179 were Chinese, with 80% from China’s Liaoning Province. Contractual value topped 100 million Euros.

Ms Choe Lian-shi, Division Chief of DPRK’s Bureau of International Exhibition, said in her interview with the Xinhua New Agency that the main purpose for such fair was to help DPRK companies to know the world and for the world to know DPRK’s market. It was also to help DPRK companies establish links with their foreign counterparts in order to promote export, explore international markets and introduce advanced foreign technology to promote its economic development.

She pointed out that during the fair held last year, contracts, both for import and export and joint ventures, valued 70 million Euro, among which, export contracts amounting 30 million Euro, import contracts 32 million Euro and joint venture 8 million Euro.

She also stressed that Chinese companies took up the bulk of the participants. They came this time with the China Committee for the Promotion of International Trade, which made them more orderly and organized. All this showed that economic relations between China and DPRK were constantly developing and trade has become more active.

Apart from this DPRK also cooperates with the relevant sides in China to hold commodity fair and trade and investment talks in Beijing, Dandong and other cities in China several times a year.

Recently DPRK has organized some companies suitable for foreign markets to go outside the country to conduct foreign trade and economic cooperation. Construction companies in DPRK like Foreign Construction Co. sent thousands of experts and technicians to scores of countries and regions including Russia, Bangladesh, Kuwait and Libya to engage in project and labor contracting. Mansudae Overseas Development Group undertook to build bronze statues, monuments and other works of arts, and fit out buildings and parks in over 70 countries and regions to earn foreign currencies for the country. President statues in the seven African countries like Equatorial Guinea, Togo and Gabon, monument of the people’s heroes in Ethiopia, and the grain museum in Malaysia were all works of the company. DPRK Industrial Tech Co. opened branches in China and other countries to conduct trade in new technology, inventions and patents by replying on the institute and production bases attached to DPRK’s Academy of Sciences.

Improve Modes of Economic Management

Premier Pak Pong Ju also stressed in the report that efforts should be made to improve modes of economic management, to ensure practical benefits while reflecting socialist principles. DPRK has carried out factory and company reform through market price instead of planned price. It will also partially give up the state plan in production and sale. These measures are not only suitable for small- and medium-sized factories and enterprises but also for large-sized ones. Governments may purchase products from them according to market prices. They are also allowed to introduce foreign capital, establish joint-ventures or earn profits through trade within their capacity.

Speed up Development of Science and Technology

Another agenda of the Fourth Plenary Session of the Eleventh Supreme People’s Congress was extremely noticeable. It was the report entitled Speed up Development of Science and Technology to Build a Strong and Prosperous Country, delivered by Choe Thae Bok, Secretary General of the Central Committee of DPRK’s Labor Party. Development of Science and Technology as one of the priorities of DPRK’s future development, the report was regarded as indication of the importance attached to science and technology development and its aspiration to embrace the information society. A strategic goal of its science and technology development is to become a major software country by 2022.

It is not common for DPRK’s Supreme People’s Congress, its highest body of power, to add on the agenda the development of science and technology. Media in DPRK have stressed on many occasions that the 21st century is a century of science and technology and a century of information, and that without the development of science and development it is impossible to achieve the goal of “building a strong and prosperous country”. The Supreme People’s Congress deliberated carefully and adopted the report, fully testifying its importance on science and technology and the fact that science and technology development had become a nationwide consensus.

Special Economic Zones remains an important option for DPRK.

Kae-song Industrial Park is a successful cooperation between DPRK and ROK and the two sides have decided to expand its scale on the current basis. Covering an area of 10,000 sq meters, it is planned to expand to 1 million sq meters. Many small- and medium-sized enterprises in ROK intend to invest and start business in the park as labor price in China’s coastal region in the south east is rising. Products manufactured there can be regarded as ROK-made and exported to a third country.

The DPRK Government might copy China’s special economic zones to establish new such zones along the border areas between China and DPRK. It is reported that DPRK planned to establish a new economic zone on the Bidan Island on the lower reaches of the Yalu River and build it into a future financial center. The establishment of such zones remains an important option for DPRK but it is also very prudent due to previous failure.

III. DPRK’s Energy and Mineral Recourses

DPRK has severe shortage of energy, especially oil. 90% of its oil supply comes from China. It also has oil trade with Russia but the amount is trivial as it does not have enough foreign currency. Russian oil companies sell oil to DPRK at price lower than international market price. DPRK has almost no oil reserve to speak of. It is currently working actively with China to exploit oil in its West Sea.

Electricity is also in short supply in DPRK though its supply is slightly better compared to oil. DPRK is rich in water recourses so the Government tries to develop small hydro power stations. And in accordance with the principle of those who develop will benefit, local governments are encouraged to build such projects according to their own conditions, and with good results. It is claimed by DPRK officials that the country is in fact equipped with conditions to build large hydro power stations. That’s why Kim Jong Il and other high-level officials in DPRK visited China’s Three Gorges Hydro Power Project in Yichang early this year. But because of its tension with US and its fear of conflicts or wars, the Government only encourages small- and medium-sized hydro power stations before its relations with US has improved. In addition, it also stresses thermal power since it is rich in coal and able to provide sufficient fuel. Consumption of coal ranks the first among all energy, to be followed by hydro power.

DPRK is now studying new energy and hopes to convert it into actual use in production and life, i.e. solar power and biogas.

There are four important recourses in DPRK: rich forest resources; important mineral resources like abundant coal, iron ore, graphite, gold, silver, lead, zinc, magnesite, all of which now allow the participation of foreign companies; 8600-kilometer coasts with no pollution, which are rare in the world and hold great potentials for fishing, aqua-culture, processing of sea food once foreign capital and technology are channeled in; rich tourist resources, that may become one of its future pillar industries.

DPRK has abundant mineral recourses, with over 360 kinds confirmed and 200 kinds economically viable. It is noticeable that the reserve of its magnisite ranks the first in the world, accounting for 56% of the world’s total. Its top ten minerals include tungsten, molybdenum, graphite, heavy spar and fluorite. The reserve of copper and ilmenite is calculated in tens of millions of tons and that of white jade, jadeite, black jade and sand jade is also abundant. Since it has such a large reserve of metal and energy mines, 70% of its industrial raw materials and fuels are self-sufficient. But there is no oil and pitch coal (raw material for charcoal), both of which are necessary for iron and steel industry though anthracite and brown coal are abundant. Coal, iron ore, lead and zinc core, limestone and magnisite take up the bulk of DPRK’s mineral industry but only 30% of the capacity is utilized due to restrictions of outdated equipment and poor technology. Iron ore is exploited in over 20 mines represented by Musan Mine. With a reserve of 1 billion tons, it is a famous open mine in the world and the largest in a country with an iron output of 8 million tons. Production of iron ore grew by 2-3% since 1970s, as a result of expansion and development of iron mines. But the growth has slowed down recently due to poor results of prospecting and outdated equipment. Foreign capital is now being introduced.

DPRK’s coal is divided into anthracite and bituminous coal. The former is mainly located in Pyongan-namdo and Pyongan-bukto while the latter in Hamgyong-bukto and Hamgyong-namdo. According to administrative division, there are four major coal mines in DPRK, namely Pyongan-namdo Mine, Pyongan-bukto Mine, Hamgyong-bukto Mine and Hamgyong-namdo. Currently there are over 100 national coal mines, 70 anthracite mines and 30 bituminous coal mines, and over 500 small- and medium-sized local mines.

In the 80-kilometer belt in the south of Pyongan-namdo stretching from east to west with Pyongyang at the center, the reserve of anthracite is abundant. Notable mines include Samsin (Samsindon, Daefon-gu) , Sadon (Sadon-gu), Ryongzen (Ryongzen-gu), Haelyong (Ladonza-gu, Haelyong, Gangdon-gun), Gangdon (Gangdon-gun), Gangso (Gangso-gun), Zencun (Zencun-gun), Wonstun (Wonstun-gun). There is anthracite in 668 sq kilometers in the north of Pyongan-namdo. Main coal mines there include those in Donstun, Syongbun, Jaenam, Joyang of Ganstun, Ganstun, Bonstun, Yamzum, Wyonlae, Xinlyon, Sonam of Bugstun-gun, Xiandon, Xinstun of Ensam-gun, Stunzen, Yongdae, Sunstun, Mujindae, Gigdon, and Ryongden, Ryongmun and Ryongcel of Kujang-gun, P’y?ngan-bukto.

Bituminous coal is mostly concentrated in the North Mine (north of Aoji) and South Mine (south of Chongjin) in Hamgyong-bukto and Anju Mine in Pyongan-namdo. Largest coal mines in the north include Aoji Mine in Undok-kun, Obun Mine in Musam, Hue Ryon Mine. There are seven ore strata that are 2-5 meters in depth in Anju Mine, producing brown coal of 5300kcal. With an annual output of 7 million tons, it is thus the largest mine in DPRK.

DPRK’s proven coal deposits are 14.74 billion tons, 11.74 being anthracite and 3 billion tons brown coal. Recoverable reserve, allowed by the current technology, is about 7.9 billion tons. Its coal production has dropped since the end of 1980s due to restrictions of technology and equipment. (See the table below for annual production since the 1980s)

*Unit: 10,000 tons

Year	1980	1985	1990	1993	1995	1999	2000	2002
Production	3,027	3,750	3,315	2,710	2,370	2,100	2,250	2,190

IV. Rapid Growth of Sino-DPRK Trade and Economic Cooperation

Sino-DPRK trade and economic cooperation grows at an eye-catching pace. With trade accounting for 40% of its total and investment 70%, China has thus become DPRK’s largest trading partner and source of investment. DPRK has been more dependent on China in food and energy supply. Main ports between the two countries have become or are becoming major vehicles of bilateral trade and economic cooperation. The friendly visit by Chinese President Hu Jintao to DPRK in October 2005 and Kim Jong Il’s China visit in January this year have further promoted political and economic cooperation between the two countries and injected new impetus in bilateral trade.

Trade between China and DPRK has increased by 14%, reaching 1.6 billion USD. DPRK import commodities like oil and corn from China, worth 1 billion USD, and export commodities like coal and iron ore to China, worth 0.5 billion USD. According to the statistics from Dandong Customs, 1.86 million tons of import and export went through the Dandong Port in 2005 at a value of 0.84 billion USD, up both in quantity and value by 10%, with 0.45 billion USD in China’s favor. It is estimated that DPRK will continue to expand trade with China this year. The two countries have planned to build a new road bridge across the Yalu River to meet the demands of the constantly growing trade.

Sino-DPRK Trade Volume from 1997 to 2005

*Unit: 100 million USD

Year DPRK’s Total Foreign Trade DPRK’s Trade with China China’s Export China’s Import

Year	DPRK’s Total Foreign Trade	DPRK’s Trade with China	China’s Export	China’s Import
1997	21.7	6.5	5.3	1.2
1998	14.4	4.1	3.5	0.6
1999	14.8	3.7	3.2	0.5
2000	19.7	4.8	4.5	0.3
2001	22.7	7.37	5.7	1.6
2002	22.6	7.33	4.6	2.7
2003	29	10.23	6.3	3.9
2004	31	13.85
2005	40.5	15.8	10.8	5

In recent years Chinese businessmen have accelerated their investment in DPRK. Those who took the lead in investing DPRK mainly came from Zhejiang, Jilin, Liaoning, Jiangsu and Guangdong Provinces with Zhejiang businessmen taking up the bulk. In 2003, 40 businessmen from Wenzhou, Yiwu, Dongyang, Cixi and Hangzhou headed by Lu Yunlei, agreed on cooperation intent with the operators of Pyongyang No. 1 Store. Guhui Trading Co. lead by Lu, obtained, unexpectedly, operating right of 15,000 sq meters of the store and corresponding 9,000 sq meters of warehouse. The deal was signed on 6 August 2003. Lu commented that what he valued was the market potentials in a country that was opening up. Lu also disclosed that he would invest several million of RMB to renovate the store and that operating space in the store would cover 10,000 sq meters, divided into over 300 booths to be further rented to Chinese businessmen to wholesale and retail small Chinese commodities, daily necessities in particular. The Zhejiang businessman commented opportunities in DPRK like this: “It is better to have our presence in the country but don’t expect too much from the first phase”.

It was the private companies that gave rise to the first wave of investing in DPRK. The second wave in 2005 was mostly generated by large state-owned enterprises, in areas like heavy industry, energy, mineral recourses and transportation, different from the first one.

At present DPRK has agreed to the joint-venture between China National Metals and Minerals Import and Export Corporation and its ??Coal Mine. This is not only the first established by China outside DPRK’s special economic zone but also represents an important measure by DPRK to open its recourses. Rydongden Coal Mine is the largest anthracite mine in DPRK. Covering an area of 18.8 sq kilometers, it has a reserve of 0.15 billion ton, 0.125 billion of which is recoverable. Its annual output is 1 million tons, equal to a medium-sized coal mine in China.

According to report issued by the Development and Reform Committee of Jilin, the province has reached a “barter” agreement with DPRK, transmitting electricity to the country in exchange of the mining rights of its Youth Copper Mine. With a total investment of 0.22 billion RMB, it is a typical experiment by DPRK to exchange electricity with mineral recourses. Jinlin Tonghua Iron and Steel Group will obtain 50-year mining rights in Musan Iron, the largest in DPRK, at a price of 7 billion RMB. Musan Iron, located in Hamgyong-bukto is the largest open mine in Asia, with proven reserve of iron powder about 7 billion tons. With iron content as high as 66%, it is able to be smelted directly.

Gold reserves in DPRK are also very rich. Guoda Gold Shareholding Co. Ltd., in Zhaoyuan, Shandong Province signed an agreement in 2004 with DPRK on gold exploration and smelting project. According to the agreement, a joint-venture would be set up for gold mining in ??? and bring back the ore to the company for smelting. ??? Gold Mine, which was set up quite early, has a considerable reserve and at least 150 tons can be recoverabled. But due to the lack of capital and outdated technology, operation of the mine has been at a standstill.

In September 2005 DPRK sold the 50-year exclusive operating rights of Najin wharf to Huichun, Jilin, in order to get the latter’s support for building a road from Tongsungu, Wonstunli, Kasung-si, to Najin Port. Sources from the Administrative Committee of the Border Economic Cooperation Zone in Huichun, Jilin, disclosed that the sale this time of the wharf in Najin Port was more of a corporate instead of government act. It was said that Fan Yingsheng, a real estate developer from Hunan, was the mastermind behind the deal and he alone would channel half of the 60 million Euro in payment.

Capital from Hong Kong is also coming. Early investments were mainly channeled to hotels, restaurants and the entertainment industry. But according to a recent report from Hong Kong media, a local businessman Qian Haoming reached a 3-billion USD agreement with the DPRK Government and China’s Ministry of Railway to build a railway from Tumen, border city in China, to Chongjin, port in DPRK. The agreement signifies that the deadlock between railway authorities of the two countries is being broken. There used to be three pending questions with the DPRK railway, i.e. overstock, arrears and withholding of Chinese cargo carriages. This forced the Chinese railway authority to take measures to restrict transportation between the two countries, like intermittent loading and goods limits. Statistics show that over 2000 carriages were held up in DPRK in 2004, 260 of which were for coal. It is reported that Hong Kong International Industry Development Co. Ltd., headed by Qian Haoming, promised to provide 500 to 1000 carriages to DPRK as required by the agreement.

Preliminary agreements have been reached at the moment between China and DPRK concerning minerals, railway and port lease. Sino-DPRK economic cooperation is growing in depth and width but both sides adopt a low-profile and practical attitude. It is necessary to point out that such development has aroused concern from relevant countries in North East Asia, which mistake China for having political motives. In fact Chinese enterprises, both private and state-owned, are looking for greater room for their future development as a result of the constantly improving market economy in China. Amid such backdrop, neighboring country DPRK naturally becomes their target. There are plenty of Chinese enterprises with strength ready to come into DPRK, more active than the government policy allows. During the National People’s Congress last march, delegates from local enterprises proposed a motion to the Central Government, calling for policy and legal guarantees for expanded and deepened economic cooperation with DPRK, including the establishment of special economic zones and free trade areas. It is not difficult to see that laws of the market economy are the most fundamental reason behind Chinese enterprises’ investment in DPRK.

Posted in 2002 Economic reforms, Agriculture, Agriculture statistics, Cabinet, China, Coal, Dams/hydro, Energy, EU, Foreign Construction company, Foreign direct investment, GDP statistics, Gold, Industrial Tech Co., International trade, Iron Ore, Kaesong Industrial Complex (KIC), Mansudae Overseas Development Group, Military, Mining/Minerals, Oil, Rason Economic and Trade Zone (Rajin-Sonbong), Trade Statistics | Comments Closed

North Korean energy trade with China

Tuesday, August 1st, 2006

Nautilus Institute
Nathaniel Aden
August 2006

Paper here: Nautilus-Aden.pdf
web link here

Abstract: China is North Korea’s largest international trading partner. Since 1995, energy and fuels have dominated bilateral trade between allies. North Korea is a net importer of Chinese crude oil and oil products; however, it became a net exporter of electricity and coal to China in 2003. Whereas North Korean coal and electricity exports are sold at sub-market “friendship prices,” Chinese coal and oil products have been sold to North Korea at premium prices. Over the past ten years, North Korea’s imports have become increasingly energy-intensive, while exports have become more labor-intensive. Chinese customs data suggest that Beijing is taking a pragmatic, market-oriented approach to trade with its reclusive neighbor, while the increasingly asymmetrical energy embodiment of bilateral trade may reflect dilapidation of North Korea’s non-military industries.

Bullet Points:
1. In 2005, bilateral trade with the PRC accounted for 39% of North Korean international trade by value.

2. North Korean trade data are compiled by partner-country Customs Bureaus, the United Nations, and the Internaitonal Monetary fund (IMF). China and South Korea provide the best “mirror” statistics. Customs data do not include aid shipments, official development assistance, direct government transfers, foreign direct investment, services, remittances, barter trade, smuggling, illicit trade, trade in military equipment.

3. The DPRK has spent an increasing amount of money on diminishing quantities of energy imports, particularly Chinese crude. The decline of energy import volumes in the face of increasing overall imports and trade may reflect demand sensitivity to increased international market prices and/or North Korea’s lack of hard currency with which to purchase imported energy and fuels.

4. The DPRK has significant, ongoing refining capabilities.

5. Between 1985 and 2002, the DPRK domestic coal production has declined from 37.5 million tons to 21.9 million tons. Nonetheless, North Korea increased its export quantity to 2% of total domestic production since 2002.

6. Starting in May 2005, North Korea has been an uninterrupted monthly electricity exporter. Hydropower may account for much of the DPRKs surplus electric power.

7. Energy prices reflect the pragmatic, market-oriented character of China’s economic relationship with North Korea. North Korea may be providing China coal at subsidized prices, below those of China’s other trading partners.

8. North Korea coal export prices show an awareness of market prices starting in 2002.

9. The DPRK has consistently paid premium prices for Chinese oil product exports over the last ten years.

10. Aside from politically-determined prices, several conditions could explain this: 1. Real factors (transport costs, demand, goegraphy) 2. Pyongyang’s insulation from market realities 3. No DPRK leverage.

11. In 2005, North Korea imported $2omillion worht of trucks, $2 million worth of cars, $1 million of tractors. The transport sector has not grown significantly since 1995.

12. Shift of DPRK trade towards energy-intensive imports and labor-intensive exports suggests deterioration of non-military industry.

Posted in China, Coal, Dams/hydro, Electricity, Energy, International trade, Natural Gas, Nautilus Institute, Nuclear, Oil, Wind | Comments Closed

Oil in the DPRK’s waters

Tuesday, June 6th, 2006

Hat tip to the Korea Liberator:

China and North Korea announce joint efforts to extract oil from the Yellow Sea. According to Yahoo News:

Tuesday June 6, 12:07 PM
China and North Korea have agreed to explore jointly for oil in the Yellow Sea that borders both countries, the Chinese foreign ministry said.

‘China and North Korea have agreed on the joint development of oil resources in the border sea and signed a joint development agreement between governments,’ ministry spokesman Liu Jianchao told journalists.

Liu gave no further details other than to say the two nations will continue work on the details of the arrangements.

Another foreign ministry official later confirmed the area to be jointly developed will be in the Yellow Sea.

The announcement came as North Korean Foreign Minister Paek Nam-Sun ended an eight-day visit to China today, a trip that Liu described as ‘successful’ while giving away few other details.

According to a report issued in December by the Washington-based Center for International Policy, North Korea has already laid claim to three northernmost Yellow Sea basins thought to hold oil.

The North Koreans had discovered up to 3 bln tons of recoverable oil and gas reserves in the Yellow Sea off its coast, the center said, citing a report by Chinese authors in the Marine Geology Letters journal.

China’s foreign ministry gave few details about Paek’s visit to China, other than to say he met Chinese Premier Wen Jiabao and Foreign Minister Li Zhaoxing.

But how much reserves does the DPRK have? According to the Center for International Policy’s Asia Program,

One-third of 15 exploratory wells have shown oil, and Pyongyang may be sitting on information about larger deposits.

“North Korea has found on the continental shelf of the West Bay basin an area containing 3bn tonnes (21.9bn barrels) of oil and gas reserves,” Li Yandong and Mo Jie wrote in a 2002 issue of journal Marine Geology Letters.

North Korea says these are recoverable reserves pinpointed by its own scientists, said a Chinese expert with knowledge of the situation, who declined to be named.

Even a more modest estimate of 1.2bn barrels reported by Busuph Park, an expert in North Korea’s offshore efforts, would meet centuries of current consumption, although some academics say the peninsula has almost no commercial oil.

At the North Korean embassy in Beijing, an official dismissed with a laugh reports of up to 9bn tonnes of reserves and said the country was still investigating.

Additionally, the story points out the the British company Aminex has committed to building North Korea’s oil industry. Chief Executive Brian Hall told Reuters, “We have involved their people and are training them, so we are trying to build ourselves into the framework of things.”

“They can take a very long time to do things, we have quite a high degree of frustration sometimes. You have to be prepared to tough it out… but the prize is worth persevering for.”

UK oil firm strides into N Korea
BBC
9/20/2004

Anglo-Irish oil company Aminex has signed a 20-year deal to develop North Korea’s oil industry.

Aminex said it would provide technical assistance to North Korea. In addition, it will be permitted to explore and drill throughout the secretive country.

Should Aminex strike oil, it will get royalties on any of its own production, as well as being entitled to earnings from wells drilled by other firms.

Aminex believes its prospects of striking oil in North Korea are good.

“We all dream of making a big discovery,” chief executive Brian Hall told BBC News Online. “And if you don’t put yourself in a position where the possibilities are high, you will never do it.”

A number of potential sites are close to some of China’s most productive oil fields, he said. Announcing the contract, Aminex called North Korea as “highly prospective”.

Patience rewarded

The company, which is listed on the London and Dublin stock markets, reckons that a lack of resources has so far restricted progress in prospecting for oil the East Asian country.

North Korea “has an existing petroleum industry and several wells have been drilled onshore and offshore over a 25 year period, resulting in limited discoveries of oil,” Mr Hall.

Aminex has been looking at opportunities in North Korea since its first visit there in 2001.

It signed a deal with North Korean officials on 30 June 2004 in Pyongyang but postponed an announcement “because of a number of outstanding issues that have now been resolved”.

Mr Hall said he hoped that developing the oil industry might help to thaw international relations, which have become frosty in recent months amid concerns about the country’s nuclear programme.

“At present, relations between North Korea and the outside world are strained but the important relationship with South Korea appears to be improving and commercial co-operation is on the increase,” said Mr Hall.

“An expanding energy industry may possibly help to build bridges between North Korea and the outside world.”

Tough environment

North Korea is one of the world’s most secretive countries, and among the poorest.

Millions of are thought to have died during the famine of the late 1990s. More recently, North Korean officials have made tentative steps towards economic reforms similar to those implemented by China, one of its few allies. But tensions over the country’s nuclear programme remain a stumbling block to investment.

Aminex has existing operations in the US, Russia and Tanzania.

Posted in Aminex, EU, Foreign direct investment, International trade, Oil | Comments Closed

All about DPRK energy…

Wednesday, February 1st, 2006

A report issued by the Department of Energy: dprkenergy.pdf

Posted in Coal, Dams/hydro, Electricity, Energy, Gasoline, Natural Gas, Nuclear, Oil, Wind | Comments Closed

North Korea’s Kim Allows Tentative Stirrings of Profit Motive

Wednesday, December 28th, 2005

Bloomberg
Bradley K. Martin
12/28/2005

A sign of North Korea’s fledgling moves toward a market economy can be found at the Pyongyang monument commemorating the 1945 founding of the Workers’ Party. Beneath a 50-meter-tall rendition of the party’s logo — a hammer, sickle and writing brush — sits a street photographer.

A handmade sign displays her price list and sample photos, mostly of groups of North Korean visitors, with the monument as background.

The photographer is one of countless sidewalk entrepreneurs – – most of them selling food and drink — who have set up shop in North Korea since 2002. Before that, they would have been hauled off to re-education camps for profiteering. In the late 1990s, North Korea’s Civil Law Dictionary described merchants as a class to be eradicated because they “buy goods from producers at a low price and sell them to consumers at a high price by way of fraud, deceit and spoils.”

Since then, the party newspaper, Rodong Shinmun, has quoted Kim Jong Il, who’s held supreme power since the 1994 death of his father, Kim Il Sung, as favoring profits under socialist economic management.

North Korea, one of the world’s last Stalinist regimes, has gradually begun permitting commerce. On a four-day visit to Pyongyang, the capital, in October — arranged and scripted by the government — a group of 17 Western journalists got a glimpse of the changes. Clean, new restaurants were packed with paying customers while the streets — almost empty in 1979 and only lightly traveled in ’89 and ’92 — bustled with bicycles, motorbikes and Japanese sedans.

Casino Pyongyang

In the state-owned Yanggakdo Hotel on an island in the Taedong River, a mostly Chinese clientele played slot machines, cards or roulette at the Casino Pyongyang. Since 1998, Macau billionaire Stanley Ho, through his Sociedade de Turismo e Diversoes de Macau SARL, has invested $30 million in the casino, whose staff is also Chinese.

Now some investors from farther afield are joining pioneering Chinese and South Koreans in plunging into a country once so isolated it was known as the Hermit Kingdom. In September, Anglo- Sino Capital Partners, a London-based fund manager, said it had formed the Chosun Development & Investment Fund, which plans to raise $50 million for investments in North Korea.

“It’s the last virgin economy,” says Colin McAskill, 65, a director of Anglo-Sino and chairman of Koryo Asia Ltd., which is investment adviser to the new fund.

Natural Resources

Besides recent changes in the economic system, a 99 percent literacy rate and a minimum wage for workers in foreign-invested ventures of only $35 a month, McAskill says, he was drawn by North Korea’s rich natural resources — including iron ore, copper, lead, zinc, molybdenum, gold, nickel, manganese, tungsten, anthracite and lignite.

The fund will concentrate on North Korean companies that have been active internationally in the past, with track records as foreign currency earners, says McAskill.

He negotiated on behalf of North Korea with foreign bank creditors in 1987, when the country was unable to repay some $900 million in balance-of-payment loans that had enabled the regime in the 1970s to purchase Western industrial technology — Swiss watch-making machinery, for example — as well as such non-capital goods as 1,000 Volvo sedans from Sweden.

Oil Potential

The country’s petroleum potential lured Dublin-based Aminex Plc and its Korea-focused subsidiary, Korex Ltd., which in August announced the signing of a nine-year production-sharing agreement to explore and develop 66,000 square kilometers (25,000 square miles) of North Korean territory. The agreement covers areas in the Yellow Sea’s West Korea Bay and in the Sea of Japan as well as onshore.

While North Korea lacks proven petroleum reserves, according to the U.S. Energy Information Agency, the West Korea Bay in particular may contain hydrocarbon reserves, as it’s considered to be a geological extension of China’s oil-rich Bohai Bay.

More foreign investment may come, says Tony Michell, a Seoul- based consultant on North Korea. Michell, a 58-year-old Briton, says he has recently shepherded 20 senior managers of international companies, representing seven nationalities, to Pyongyang.

“They’re big players,” says Michell, declining to identify his clients by name or company. “They’re looking at everything, from services to manufacturing. They want to get the measure of the North Koreans and be ready if the six-party talks succeed.”

Six-Party Talks

The so-called six-party talks — between North Korea and China, Japan, Russia, South Korea and the U.S. — are aimed at ending the country’s pursuit of nuclear weapons. In September, the six countries agreed on a statement of principles to govern further talks. It called for a nuclear-free Korean peninsula, a peace treaty and economic cooperation in energy, trade and investment.

Seoul-based Hyundai Research Institute, an affiliate of the Hyundai Group, projected in September that a successful outcome to the talks would be worth as much as $55 billion to the economy in the North — and more than twice that in the South.

Optimism about the economy has boosted the prices of defaulted North Korean debt originally owed to hundreds of creditors, mostly European banks, which in the 1970s began meeting as a London-based ad hoc group to discuss restructuring options. In the 1990s, that so-called London Club turned a portion of the debt into Euroclearable certificates, securities that were denominated in Swiss francs and German marks.

The certificates are trading at about 20-21 percent of face value, up from 12 percent in 2003, according to London-based Exotix Ltd., a unit of Icap Plc, one of a few financial firms that make an over-the-counter market in them.

Excessive Optimism

The debt’s price has risen in the past on excessive optimism about the country’s future. In early 1998, the debt was trading at nearly 60 percent of face value amid rumors that North Korea would collapse imminently and be absorbed by wealthy South Korea, which would then make good on the entire outstanding debt.

That had not happened by the time of the crash later that year in global emerging-market securities, when the North Korean debt price sank to about 25 percent of face value.

Exotix estimates that North Korea owes the equivalent of some $1.6 billion in principal and interest to banks out of a total $14 billion in principal and interest owed globally to mainly communist and formerly communist countries.

Although a cease-fire was declared in 1953 in the war between North Korea and China on one side and the United Nations — under whose flag the Americans, South Koreans and others had fought — on the other side, no peace treaty has ever been signed.

The U.S. maintains sanctions under the Trading with the Enemy Act that restrict trade and financial transactions with North Korea — and apply to Americans and permanent residents of the U.S. and to branches, subsidiaries and controlled affiliates of U.S. organizations throughout the world.

China, Russia

North Korea’s flirtations with capitalism are belated compared with those of China and the former Soviet Union, which began opening their economies in the 1970s.

North Korea did pass a law legalizing foreign investment in 1984. The law, which permitted equity joint ventures between state enterprises and foreigners, attracted only $150 million in investment during the following decade, largely because investors were put off by the country’s poor roads, railroads, power systems and phone networks and by official interference in joint ventures’ recruitment, dismissal and compensation of workers, according to a 2000 thesis by Pilho Park, a postgraduate student at the University of Wisconsin Law School in Madison.

Vietnam Example

In contrast, Vietnam lured $7.5 billion in investment in the first five years after it opened its economy to foreign capital in 1988, Park wrote.

Following the collapse of European communism in the early 1990s, North Korea opened the Rajin-Sonbong Free Economic and Trade Zone on the northeastern border with China and Russia. A brief flurry of investor interest ensued and then fizzled out when a crisis over the country’s nuclear weapons program took North Korea to the brink of war with the U.S. and South Korea in 1994.

In the mid ’90s, catastrophic floods, combined with the collapse of the global communist system of aid and preferential trade, caused a severe energy shortage that crippled the economy. As much as 70 percent of manufacturing capacity went idle, according to the South Korean central bank.

Also in the mid ’90s, famine killed as many as 2.5 million North Koreans, by the estimate of the U.S. Agency for International Development.

Food Insecurity

Since then, food aid from abroad, an absence of large-scale natural catastrophes and a 2005 harvest that was the biggest in 10 years have kept North Korea from the massive starvation that’s taken place elsewhere, including Niger, says Richard Ragan, North Korea director for the United Nations World Food Program.

Still, “the country faces chronic food insecurity,” Ragan says. “One of the things that happened with the food shortages is that marginal lands became less controlled. You see people trying to farm on some of the most inhospitable plots of land you could imagine.”

In October, steep, unterraced hillsides were plowed outside Pyongyang. The crops can then wash down, rocks and all, during rainstorms, harming water supplies and damaging farmland – fertility.

A second nuclear weapons crisis boiled up in 2002 when the U.S. accused the North of conducting a secret uranium enrichment program — to replace a plutonium program that it had frozen as part of a settlement of the earlier crisis.

Economic Rules

That same year, the regime proceeded with what then Prime Minister Hong Song Nam described as dramatic new economic measures, which helped bring arbitrarily set prices and foreign exchange rates closer to those prevailing on the black market.

The North Korean won consequently dropped to 150 won to the dollar in December 2002 from 2.15 to the dollar a year earlier. The official rate is currently about 170 won, while on the black market, one dollar can bring about 2,000 won.

The government also introduced pay incentives aimed at boosting worker productivity. The system is in operation at enterprises such as the Pyongyang Embroidery Institute, where some 400 women stitch elaborate pictures for framing and sale.

Employees who don’t perform up to expectations aren’t fired; they’re denied raises, says spokeswoman Woo Kum Suk. Unable to live on their minuscule basic salary, equivalent at black market rates to something over a dollar a month, non-performers eventually quit and go elsewhere, Woo says. Good workers can see their salaries raised as much as fivefold.

Consumers

“In my opinion, it’s good to have this system,” she says. “Although the government supplies things to us, sometimes there’s something more we want to buy.”

North Korea has some way to go before many investors rush in. According to a UN report, net investment inflow for 2003 — the most recent year for which statistics are available — was a negative figure: minus $5 million.

Currently the country is constructing a new special economic zone at Kaesong, just north of the South Korean border, where several small companies from the South already employ North Koreans to make clothing, footwear and household goods. Authorities declined to let Western reporters visit it, permitting only a glimpse from a highway bridge a mile away.

Those who are investing are taking a long-term view. Singaporean entrepreneur Richard Savage was looking at least five years into the future in 2001, when he formed a joint venture tree plantation with the Ministry of Foreign Trade. The company, Evergreen Kormax Paulownia Ltd., is 30 percent-owned by the government, which has assigned Savage 20,000 hectares (49,000 acres) on a 50-year lease with an option to extend for 20 more.

Timber Business

Savage, 58, says he, family members, friends and a few other investors have put $3 million into the project so far. Savage says he hopes that by the time the paulownia trees mature — they grow as fast as 7 centimeters (2.85 inches) a day on his farm, and some may be ready for harvesting five years after planting — he’ll be able to sell the wood in a unified Korean market.

When the Northern economy takes off, the first beneficiary will be the building industry, he says. “That’s why I’m in timber,” he says, adding that his fallback plan is to sell the wood to China, Japan and South Korea.

It’s not the first venture in North Korea for Savage, who wears a cowboy hat and whose e-mail moniker is WildRichSavage. In 1994, he introduced North Korean officials to Loxley Pcl, a Thai telecommunications company. In 1995, an affiliate formed for the purpose, Loxley Pacific Co., signed a joint venture agreement with North Korea’s post and telecommunications ministry to create modern telecommunications in the Rajin-Sonbong special economic zone. The venture earns about $1 million a year, Loxley Pacific Chief Financial Officer C.C. Kuei, 56, says.

Mining for Gold

North Korea’s 1992 Foreign Investment Law guaranteed that foreign investors’ shares of profits could be repatriated, a promise that’s now being tested by Kumsan Joint Venture Co., a gold mining concern that’s half owned by a Singapore-led group of Asian investors and half owned by Hungsong Economic Group, a large trading, mining and manufacturing group in Pyongyang that’s controlled by North Korea’s military.

Roger Barrett, a Beijing-based British consultant, has helped arrange financing and technology for Kumsan. Barrett, 50, introduced Kumsan to the foreign investors, whom he declined to identify.

The company used its investment to buy secondhand mining equipment from Australia in 2004 for the venture’s mine 2,000 meters (6,562 feet) above sea level near the city of Hamhung. In the first year the new equipment was used, Barrett says, the mine produced about 100 kilograms (220 pounds) of gold, half of which the foreign investors took out of the country. He says doing business with North Koreans has proved to be absolutely normal. “It’s working very well,” he says.

Foreign-Run Bank

The business environment in North Korea is surprisingly welcoming, says Nigel Cowie, 43, a former HSBC Holdings Plc banker who was hired a decade ago by Peregrine Investment Holdings Ltd. to start North Korea’s only foreign-run bank.

When Peregrine collapsed in 1998, Cowie and the North Korean joint venture partner kept the local unit operating. He and three other investors bought Peregrine’s 70 percent stake in it from the firm’s liquidators in 2000. Cowie, who’s general manager of what’s now called Daedong Credit Bank, says the bank has about $10 million in assets and has only foreigners as customers, mostly Chinese, Japanese and Western individuals and institutions. Only North Korean-owned banks can do business with state enterprises and North Korean individuals.

Better Living Conditions

Living conditions for expatriates have improved significantly in the past three or four years, Cowie says over a meal of Korean barbecue in the capital’s Koryo Hotel. “For me, personally, it’s things like creature comforts, more shops, Internet, e-mail,” he says. While the Internet is available to foreigners, it is forbidden to most North Koreans.

Cowie says his biggest challenge at the bank comes from outside North Korea. In September, the U.S. Treasury Department barred U.S. financial institutions from dealing with a Macau bank, Banco Delta Asia, that it said had been “a willing pawn” in corrupt North Korean activities and represented a risk for money laundering and other financial crimes.

The bank and North Korea both denied the charges, but the Macau government took over the bank and announced it would provide no services to North Korea in the future. Cowie says the action tied up a big chunk of Daedong Credit Bank’s customers’ assets because Banco Delta Asia had been a main correspondent bank for North Korean banks.

The Treasury Department in October broadened its dragnet by ordering a freeze of the assets, wherever in the world the U.S. could assert its jurisdiction, of eight North Korean companies it suspected of involvement in proliferating weapons of mass destruction.

`WMD Trafficking’

The department explained its action in an Oct. 21 statement on its Web site: “The designations announced today are part of the ongoing interagency effort by the United States Government to combat WMD trafficking by blocking the property of entities and individuals that engage in proliferation activities and their support networks.”

North Korea sought to connect the Treasury actions to Washington’s position in the six-party talks. The country’s Korean Central News Agency, using the acronym for the Democratic People’s Republic of Korea, said on Dec. 2 that “lifting the financial sanctions against the DPRK is essential for creating an atmosphere for implementing the joint statement and a prerequisite to the progress of the six-party talks.”

Assistant Secretary of State Christopher Hill, the chief U.S. envoy to the talks, had said in a Nov. 11 press conference that the asset freeze wasn’t directly related to the talks.

Money Laundering Banned

Cowie says he doubts the U.S. action was intended to harm Daedong, which had already issued a manual prohibiting money laundering. He says he fears such U.S. actions could damp investor enthusiasm for North Korea. “It can cause the people doing legitimate business to just give up,” he says.

Cowie isn’t packing up to leave, though. Neither is Felix Abt, a Swiss native who heads a new European Business Association in Pyongyang. “I am very busy with visiting foreign business delegations,” Abt, 50, says. “Take it as a sign that the economy is developing and that more foreign business activities are under way.”

Outsiders’ investment on capitalism’s farthest frontier is gradually bringing benefits to North Koreans, too, says Savage, the tree farmer. “I can’t convert the whole country, but for the people who work for me, I’m giving them a better standard of living,” he says. “Slowly, people will prefer not to work for the government.”

If Savage and his fellow pioneers have their way, it’s only a matter of time before capitalism takes root in North Korea.

Posted in 1990s Famine, 2002 Economic reforms, Agriculture, Aminex, Arduous March, Arms shipment, Automobiles, Banking, Bicycles, Civil society, Communications, Counterfeiting, Daedong Credit Bank, Economic reform, Email, Energy, Euro-Asian Business Consultancy, Finance, Foreign direct investment, Forestry, Gambling, Gold, Hungsong Economic Group, Illicit activities, International trade, Internet, Kaesong Industrial Complex (KIC), Koryo Asia Ltd., Labor conditions/wages, Light Industry, Manufacturing, Mining/Minerals, Ministry of Foreign Trade, Ministry of Post and Telecommunications, Oil, Pyongyang Embroidery Institute, Rason Economic and Trade Zone (Rajin-Sonbong), Special Economic Zones (Established before 2013), Trade Statistics, Transportation | Comments Closed

Economic ills shape crisis

Tuesday, April 22nd, 2003

From the BBC:

North Korea’s economy has been in the doldrums for more than a decade. Perhaps as many as a million people perished in a famine during the 1990s, and the food situation inside the country remains precarious today.

There are two hypotheses about why a country facing such problems has pursued nuclear weapons.

1. Its nuclear programme is merely a bargaining chip to be traded away to extract political and economic concessions from the US – a kind of atomic “trick or treat”.

2. The North Koreans regard nuclear weapons as an end in themselves – a military deterrent and the ultimate guarantor of the regime’s survival.

North Korea’s foreign ministry said as much on 18 April when it declared, “The Iraqi war teaches a lesson that in order to prevent war and defend the security of a country and the sovereignty of a nation, it is necessary to have a powerful deterrent force only.”

Yet even from this perspective, there is an intriguing economic angle.

If a nuclear North Korea were to foreswear aggression toward South Korea, then its huge conventional forces would be redundant.

Its million-man army, an albatross around the economy’s neck, could be demobilised.

In fact, before the nuclear crisis erupted last October, North Korea floated trial balloons regarding the possibility of such a demobilisation.

But if the North’s army is to be demobilised, those troops have to have jobs to go to.

Last July, the government announced a package of policy changes designed to revitalise the economy.

These included marketisation, the promotion of special economic zones, and a diplomatic opening toward Japan, which the North hoped would pay billions of dollars in post-colonial claims and aid.

However, the rapprochement with Tokyo has stalled, and the expected capital infusion has not materialised.

The consensus of outside observers is that, so far, the reforms have largely failed to deliver.

Indeed, some of the policy changes, such as the creation of massive inflation and the demand that North Koreans surrender their holdings of dollars, could be interpreted as an attempt to re-assert state influence rather than reform the system.

Last month, Pyongyang introduced a new financial instrument it called a bond, though it is more like a lottery ticket. A mass campaign encouraging citizens to purchase these bonds suggests that politics, not personal finance, is the main selling point.

To make matters worse, the oil flow through a pipeline from China on which North Korea depends was interrupted earlier this month for several days.

The official explanation was that mechanical failure, not diplomatic arm-twisting, was the cause.

In sum, the economic situation remains dire.

However, both China and South Korea have indicated that while they want to see a negotiated resolution [to the nuclear issue], they are unwilling to embargo North Korea in the way the US envisions.

This reluctance to sanction Pyongyang undercuts the credibility of the US threat to isolate North Korea.

The Bush administration’s own rhetoric also calls into question its willingness to promote North Korea’s constructive integration into the global community.

Marcus Noland is a senior fellow at the Institute for International Economics, and author of Avoiding the Apocalypse: The Future of the Two Koreas.

Posted in 1990s Famine, 2002 Economic reforms, Economic reform, Finance, Fiscal & monetary policy, Ministry of foreign Affairs, Nuclear, Oil, Political economy, Special Economic Zones (Established before 2013) | Comments Closed

The Nautilus Institute primer on the DPRK

Tuesday, November 26th, 2002

Here is the main page

The Nautilus Institute has created the DPRK Briefing Book to enrich debate and rectify the deficiencies in public knowledge. Our goal is that the DPRK Briefing Book becomes your reference of choice on the security dilemmas posed by North Korea and its relations with the United States. The DPRK Briefing Book is part of the Nautilus Institute’s “US-DPRK Next Steps: Avoiding Nuclear Proliferation and Nuclear War in Korea” project.

The completed DPRK Briefing Book will cover approximately two-dozen “Policy Areas,” each containing issue briefs, critical analyses from diverse perspectives, and key reference materials, some of which are available as PDFs. (To view the PDFs, you will need to download and install the free Adobe Acrobat Reader). We will post additional Policy Areas over the coming months. If you would like to be notified as they are completed, please sign up for NAPSnet, if you haven’t already.

The Nautilus Institute seeks a diversity of views and opinions on controversial topics in order to identify common ground. Views expressed in the Briefing Book are those of the authors and do not necessarily reflect the official policy or position of the Nautilus Institute. The information contained in these pages may be downloaded, reproduced and redistributed as long as it has not been altered and is properly attributed. Permission to use Nautilus Institute materials for publications may be attained by contacting us.

Here are sections of interest:

About DPRK, Agriculture, China, Economy, Energy, Transition

Posted in Agriculture, Banking, China, Coal, Communications, Dams/hydro, DPRK Policies, Economic reform, Electricity, Energy, Finance, Fiscal & monetary policy, Foreign direct investment, Insurance, Intellectual Property, International Aid, International trade, Natural Gas, Nautilus Institute, Nuclear, Oil, Price liberalization, Railways, South Korea, Special Economic Zones (Established before 2013), Wind | Comments Closed

North Korean Economy Watch