Korea Economic Institute
Oh-Seung Yeul
February 2005
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Trade, reform, inter-Korean cooperation, China, IT, aid.
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Archive for the ‘International trade’ Category
North Korea’s Economic Development and External Relations
Wednesday, February 2nd, 2005DPRK’s “Morning” firm produces Pentium IV chips
Thursday, August 26th, 2004From Asia Times:
North Korea has mass-produced computers with Pentium IV processors since 2002, a Russian journalist says in a new book. The confirmation came at a time when the United States and North Korea are in a war of nerves over US and international export control regulations that would ban 15 South Korean firms selected to operate in an industrial complex in the North’s city of Kaesong from bringing in “strategic materials,” including computers.
The South Korean companies said they must be permitted to bring computers with at least Pentium IV chips, which are essential for normal office work, citing earlier unconfirmed reports that the North already began to produce those kinds of computers.
“North Korea has produced computers with Pentium IV processors since 2002, which I saw during my visit to an electric appliance factory in Pyongyang,” Olga PMaltseva, a Vladivostok-based journalist, said in her new book about the North Korean leader, Kim Jong-il.
The Korean translation of the book, titled “A Waltz with Kim Jong Il” was published here on Monday.
“Seven hundred workers and technicians made 14,000 Pentium IV computers in 2002,” she said.
“The factory has produced tens of thousands of computers since 1986 and half of them were exported to Germany.”
There was a similar report by the Choson Sinbo, organ of the pro-Pyongyang General Association of Korean Residents in Japan, in May last year.
The newspaper reported at the time that a North Korean electronic appliance developer has been selling computers with Pentium IV processors in a joint venture with China’s Nanjing Panda Electronics Co since September 2002.
South Korea’s Korea Trade-Investment Promotion Agency (KOTRA) confirmed the report in August last year, citing data from its North Korean counterpart, the International Trade Promotion Committee.
The KOTRA said the North’s electronics firm “Achim (Morning)” and China’s Nanjing Panda have produced three types of Pentium IV computers.
The Russian author is believed to have visited the joint venture factory.
North Korea is classified as a “dangerous country” under the Wassenaar Arrangement, which replaced the Cold War era’s Coordinating Committee for Export Control to Communist Areas in 1996, and thus signatory countries cannot export items classified as “strategic materials” to the communist state.
The items include computers, various metal machinery, laser equipment, high-tech materials and electronic appliances with US-produced parts.
South Korea is among the 33 signatory nations.
An earlier report said the South Korean government is studying ways for the 15 domestic companies to use production equipment, materials and office supplies in Kaesong without conflicts with the U.S.
The Kaesong industrial complex, being built by the Korea Land Corp and Hyundai Asan Corp, a South Korea firm, is one of the most prominent symbols of inter-Korean reconciliation set in motion by the first-ever summit of the leaders of the two countries in 2000.
The developers are scheduled to open Kaesong’s main complex to hundreds of South Korean manufacturers in the first half of next year.
DPRKs only joint venture bank to change hands
Thursday, May 20th, 2004From the Asia Times:
Global player wins N Korea’s only JV bank
By Tom Tobback (founder of Pyongyang Square)
“Dr. Johnny” Sei-hoe Hon, formerly of Hong Kong and now chairman of the UK-based Global Group of Companies, agreed to take over North Korea’s only joint-venture bank, Hon told Asia Times Online on Tuesday in a telephone interview.
Hon, 32, identified by the KCNA as “chairman of the British Global Group”, is a British citizen with roots in Hong Kong who received a PhD in psychiatry from Cambridge University, but his psychiatric expertise was apparently not the reason he visited Pyongyang. He was officially received by Choe Thae-bok, chairman of the North Korean parliament, or the Supreme People’s Assembly (SPA). Hon presented Choe with a gift for the leader of the Democratic People’s Republic of Korea (DPRK), Kim Jong-il.
As usual, KCNA reported nothing more than that the two parties had “a friendly talk”, but it is clear that the visit was related to Pyongyang’s efforts at economic reform, initiated in July 2002, and possibly to new plans for its problematic special administrative region (SAR) of Sinuiju, which Pyongyang announced in September 2002.
The Global Group, of which Johnny Hon is founder, chairman, and chief executive officer (as described on his website), defines itself as “an evolving organization with diverse business ventures spanning the globe. Every new undertaking illustrates our skill in choosing the right opening in the right market – and most importantly, at the right time.” The group specializes in financial consultancy, wealth management, high-growth companies, and online betting.
Hon revealed to Asia Times Online that his Global Group is taking over the majority stake in the Daedong Credit Bank (DCB), the only foreign joint-venture bank in North Korea, from a British company based in Hong Kong. The Daedong Credit Bank, run in Pyongyang by Nigel Cowie, has been serving the expatriate community and the few foreign business ventures in North Korea for many years.
“Our stake in the DCB will facilitate further investment projects; the Supreme People’s Assembly [SPA] has offered us business proposals which we will consider in due time,” Hon said. Currently he is awaiting the due-diligence report by Deloitte & Touche for his Daedong Credit Bank deal.
It remains to be seen what advice the Global Group can offer to revive the North Korean economy, but probably professional help from international financial institutions such as the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB) would be a safer bet than venture-capital companies such as Hon’s Global Group.
Economic reform on the way?
Wednesday, December 3rd, 2003According to the Guardian:
There is a capitalist pig in Ri Dok-sun’s garden. There are also two capitalist dogs and a brood of capitalist chicks. But even though Ms Ri, a 72-year-old North Korean, lives in the world’s last Orwellian state, this is no animal farm. The beasts are the product of the growing free market pressure on a government that claims to be the last truly socialist country on earth.
Although Ms Ri and her family live in Chonsan – a model cooperative farm – the bacon from their pig will be sold on the open market. The dog is there to guard their private property. And their chicks – kept in a box in the cosy, brightly decorated living room – are being raised for individual gain rather than the good of the collective.
It is a form of private enterprise – one of the innumerable microfarms that have sprung up in gardens, and even on balconies, particularly since the late 1990s. Initially, they were just for survival, a source of food in a country that has been devastated by famine in the past decade. But increasingly, they are also a means of pursuing profit as the government ventures further into capitalist waters.
Although its military is locked in a nuclear standoff with the US, the world’s last cold war holdout has cautiously pursued economic reforms that are already making an impact in the countryside and on the streets of Pyongyang. Over the past year, far more cars have appeared on the formerly deserted roads – even the occasional six-vehicle tailback. Building sites dot the city, a new culture museum is under construction and the skyline has a new feature: more than a dozen giant cranes.
Three months ago, the first government-sanctioned market in the country’s history opened. Compared with the dusty, quiet, almost empty state department stores, Pyongyang’s Tongil Market is a hive of activity and noise. Shoppers haggle noisily with the 150 or so stall holders for a staggering range of goods; second-hand Japanese TVs, Burmese whisky and Korean dogmeat. Most of the goods are from China. Some – including western diarrhoea pills which sell for 3p apiece – are kept under the table.
Prices are determined by the market, not – as is the case everywhere else – by the state. Even staples, usually provided under the public distribution system, can be had here.
A kilogram of rice costs 165 won, about 10p, but it would cost about £1 from the government because the black market traders offer a much better rate for foreign currency than the state.
A stallholder said business was booming. “Since we opened, the number of customers has surged. They really like this place – but we have to fight for business because the competition is growing all the time.” Outside, builders were constructing new stalls for the fast-expanding market.
In the past foreigners were not permitted to see semi-legal farmers’ markets, but here they are welcome to come shopping. The openness and activity suggest that Tongil market is the best hope for North Korea’s future – one that would bring it closer in line with the successful economic reforms that have transformed neighbouring China.
Nobody here dares to call it capitalism, but that is the direction North Korea is headed. Last year the government liberalised prices, gave private enterprises more independence, and encouraged farmers to pursue profits.
“We are still building our socialist system, but we have taken measures to expand the open market,” said So Chol, a spokesman for the foreign ministry. “They are only the first steps and we shouldn’t expect too much yet, but they are already showing positive results.”
It is impossible to say whether the reforms are really a success. But harvests are believed to have improved. Compared with a year ago, there appear to be many more tractors in the countryside, and huge quantities of foreign aid have eased malnutrition.
But the improvements are from a very low base. Continued shortages mean the UN world food programme still has to support more than 3 million children, mothers and elderly. Aid workers believe the market liberalisation may have worsened the situation for those stuck in run-down industrial towns where wages are said to be as low as £1 a month. “We’re seeing a growing disparity of income and access to food,” said Rick Corsino, head of the WFP’s operation in North Korea. “Some people are now having to spend all of their income on food and that’s for a diet that it totally inadequate.”
The full social implications of the reforms are still to be seen. Several Pyongyang watchers said they were amazed at the transformation in the past year and concerned about the implications. “The extremes of poverty and wealth are growing as market relations increasingly define the economy,” said Hazel Smith of the United Nations University in Tokyo. “Now there is no socialist economy, but also no rule of law for the market. That is the basis of corruption.”
But there are still limits on capitalist activity. Farmers said they had more money, but no freedom to spend it. Academics at the Kimchek Technology University said they had been told to link their research into mobile phones, encryption software and computing with private enterprises, but so far they had been unable to find business opportunities. At least some of the barriers are psychological, the result of years of being told to simply obey the “great leader” Kim Jong-il.
Even young software programmers who were fast-tracked through university graduation three years early so they could build the country’s IT system said they were not interested in becoming tycoons.
“I entered this field because Kim Jong-il called for an IT revolution,” said Kim Seong-chol, a 23-year-old software developer. “But my ambition is not to get rich, but to make my country a leader in the field of information technology. That will make North Korea wealthy.”
Kumgang is open for business
Tuesday, December 2nd, 2003Accoding to the Washington Post:
By Anthony Faiola
Washington Post Foreign Service
Tuesday, December 2, 2003; C01
MOUNT KUMGANG
In the surreal world of North Korean tourism, you can feast on local delicacies served by glamorous lady comrades, watch an acrobatics show infused with Stalinist humor and climb a storied mountain covered with plaques and monuments celebrating the totalitarian Kim clan.
But be back indoors by the midnight curfew — or face fines, questioning by authorities or, well, worse.
This is Mount Kumgang, the fortified tourist compound where the Hermit Kingdom meets the Magic Kingdom, right down to Disneyesque guys in fuzzy bear suits greeting visitors. A window into hermetically sealed North Korea since foreign visitors were granted limited access five years ago, it lies an hour’s drive north of the minefields and missile batteries lining the most heavily militarized border in the world.
Here, tension is part of the attraction.
“Look, quick! North Korean soldiers!” one excited South Korean yelled to other tourists on a bus after spotting an armed squad marching by. They tripped over each other trying to get a better view.
The over-the-rainbow quality of the place offers a rare, if hyper-controlled, glimpse at life on the Cold War’s last frontier.
“You are supposed to relax and have a good time,” said Jang Whan Bin, senior vice president of investor relations at Hyundai Asan Corp., the South Korean company that financed and operates most of the resort. “But this is still North Korea. Things are quite different here.”
On this mountain, about which the famous Chinese Sang Dynasty poet Sudongpo wrote, “I would have no regrets in my lifetime were I to see Mount Kumgang just once,” the jagged cliffs and glistening waterfalls now take a back seat to homages erected to the Kims, the only father-and-son act in Stalinist history.
More than half a century ago, Kim Il Sung founded the Democratic People’s Republic of Korea — i.e., North Korea. His son, Kim Jong Il, took the helm following the elder Kim’s death in 1994. The son is said to have entered this world on a mountaintop, his birth heralded by lightning bolts and a double rainbow. Recently named “Guardian of Our Planet” by the North Koreans, Kim Jong Il rules through a cult of personality that is alive and well in Mount Kumgang.
No act of the Kims is too small to be noted on these ancient rocks, now coated with more than 4,000 monuments, etchings and other commemorative inscriptions to the clan. A spot where Kim Il Sung is said to have especially appreciated the view is dutifully marked with a six-foot-tall stone tablet. Elsewhere a young guard stood by an etching commemorating the exact location where Kim Jong Sook, mother of the younger Kim, once rested her weary bones.
This is an important landmark, insisted the female guard, who watches over foreign visitors and keeps out unauthorized North Koreans. Her eyes went wide when asked about the need for a monument in a place of such natural beauty.
“She was the beloved wife of the Great Leader!” fumed the guard in her fashionable red jacket with a matching propaganda pin bearing Kim Il Sung’s face. “Don’t you have a father? Isn’t he the absolute ruler of your family? Mustn’t he be obeyed? You must understand, Kim Il Sung is the father of our nation and we are his children. Everything related to him must be celebrated.”
“Including his wife?” she is asked.
“Do not just call her his wife! Use her title!” she demanded.
What title?
“Her title! How can you not know her title?” Exasperated, the guard explained that Kim’s wife must be referred to as “Great Revolutionary General Kim Jong Sook.”
Most of this sprawling tourist complex, including hotel, hot springs and duty-free shops including Prada and Gucci, is run by Hyundai Asan, which each month brings in about 15,000 people, mostly South Koreans. The North Koreans feared so many foreigners would contaminate the minds of the locals, so the vast majority of employees here are ethnic Koreans shipped in from China.
But two restaurants do employ local staff, and it’s there that foreigners have their best chance to interact with unarmed North Koreans. Waitresses wear ’50s-style heavy makeup and modest attire. One nervous server fled from a table of foreigners every time she was asked a question. In another restaurant, a waitress looked stunned after a foreign guest asked her where one could buy a Kim Il Sung lapel pin like the one she wore.
She tilted her powdered face skyward, raising one arm to gently cup the pin with her hand.
“This,” she proclaimed, “is not fashion. It cannot be bought in a store.”
She went on: “This is a symbol of my love for the great founder of my nation.”
Among the top attractions here is an acrobatics troupe shipped in from Pyongyang.
In one act, a disco version of the North Korean folk favorite “Nice to Meet You” plays as 10 men in stylized sailor suits, heavy rouge and blue eye shadow soar in front of a projected backdrop of sacred Mount Paektu, where Kim Jong Il is said to have entered the world with the blessing of Heaven. In a comedy act, a strongman wearing communist red gets the better of a weakling decked out in blue.
Lest the mountains, lakes and tourist attractions lull you into a false sense of security, officials constantly remind guests that they are surrounded by a military installation that includes a naval base across the port from where a small cruise ship docks each week. Visitors are instructed not to talk to the locals about politics or economics. Two years ago, one South Korean woman merely suggested that her nation, which is 13 times as wealthy as the communist North, had a higher standard of living. She was arrested and held for seven days until Hyundai negotiated her release. Photos here are limited to shots of the tourist installations and specified views of Mount Kumgang itself.
There are no exceptions.
One Dutch visitor captivated by the serenity of the scene snapped a digital photo of the mountain setting with a happy sign in the background declaring “Welcome to Mount Kumgang.” But she inadvertently clicked just as two North Korean soldiers with sidearms were walking by.
“Hey, you!” they barked in Korean. “Come here!”
“The soldiers were not amused,” said Eunmi Postma, a Dutch journalist based in Seoul.
They demanded the tourist’s camera and asked to see her passport.
“But, I mean, all I did was try to take a picture of the welcome sign,” she said. “The soldiers were so far away you couldn’t even make them out in the photo. I finally deleted the picture so they wouldn’t take my camera.
“I know it’s North Korea, but still, this is supposed to be a tourism resort. . . . What a weird place.”
Summary of DPRK technological efforts
Monday, December 1st, 2003From the Office of the National Counterintelligence Executive:
North Korea: Channeling Foreign Information Technology, Information to Regime Goals Pyongyang is working with Koreans abroad and other foreign partners in information technology (IT) ventures, sending software developers overseas for exposure to international trends, granting scientists access to foreign data, and developing new sources of overseas information in a bid to develop the economy. Cellular telephones and Web pages are accessible to some North Koreans, while foreigners in Pyongyang have access to foreign television news and an Internet café. While such steps are opening windows on the world, however, Democratic People’s Republic of Korea (DPRK) oficials are largely limiting such exposure to areas required for economic development. Moreover, they are applying IT tools to develop new means of indoctrinating the public in North Korea and reaching audiences overseas.
Working With Foreign Partners in IT Ventures
North Korea is promoting cooperative ventures with foreign partners to develop IT, which DPRK media have repeatedly described as a priority area in science and technology. An editorial in the 10 November 2003 issue of the party newspaper Nodong Sinmun, for example, named IT as the first of three technical fields, along with nanotechnology and bioengineering, to which “primary efforts should be directed.”
North Korean media suggest that officials have grasped the potential of leveraging IT for national development. A recent article in the government’s newspaper asserted that (1) “IT trade surpasses the automobile and crude oil industries” and (2) “IT goods are more favorable in developing countries than they are in the developed nations” (Minju Choson, 7 March).
ROK analysts, such as those who compiled a survey of Pyongyang’s IT industry (Puhkan-ui IT Hyonhwang-mit Nambuk Kyoryu Hyomnyok Pangan, 1 January), have suggested that DPRK policies for promoting a domestic IT industry reflect the nation’s lack of capital, dearth of natural resources, and relative abundance of technical talent. Hoonnet.com CEO Kim Pom-hun, whose extensive experience in North Korea includes residence in Pyongyang from December 2001 to October 2002, has assessed North Korean IT manpower as resembling “an open mine with the world’s best reserves of high-quality ore” ( Wolgan Choson, 1 January).
Pyongyang is partnering with Koreans in South Korea, Japan, and China, as well as Chinese, in ventures to develop both software and hardware, including:
- The Morning-Panda Joint Venture Company in Pyongyang, a partnership between North Korea’s Electronic Products Development Company and China’s Panda Electronic Group, which began making computers in late 2002.
- The Pyongyang Informatics Center (PIC) and South Korea’s Pohang University of Science and Technology (PUST), which are cooperating to develop virtual reality technology. In addition:
- The ROK’s Hanabiz.com and PIC launched the Hana Program Center in Dandong, China, in August 2001 (http://hanabiz.com/history.html) for joint software development and training of DPRK programmers.
- IMRI—ROK manufacturer of computer peripherals—and CGS—a Tokyo-based software company affiliated with the pro-Pyongyang General Association of Korean Residents in Japan (GAKRJ, a.k.a. Chosen Soren)—joined hands in July 2000 to form UNIKOTECH (Unification of Korea Technologies) to develop and market software. Both partners maintain links to North Korean IT enterprises.
- The ROK’s Samsung Electronics and the DPRK’s Korea Computer Center (KCC) have been developing software together at a Samsung research center in Beijing since March 2000 (Chonja Sinmun, 15 October).
Venturing Overseas To acquire information on foreign IT trends and to promote their domestic industry, North Koreans have begun venturing overseas in recent years.
- State Software Industry General Bureau Director Han U-ch’ol led a DPRK delegation in late September 2003 to the China International Software and Information Service Fair in Dalian. The North Koreans joined specialists from China and South Korea in describing conditions in their respective IT industries and calling for mutual cooperation. Participants from China and the two Koreas expanded on the theme of cooperation at the IT Exchange Symposium, sponsored by the Dalian Information Industry Association, Pyongyang’s State Software Industry General Bureau, and Seoul’s Korea Advanced Institute of Science and Technology (KAIST). Dalian Alios Technical Consulting, a company run by Chinese Korean Yi Sung-nam, hosted the exchange (www.kotra.or.kr, 15 October, http://hanabiz.com, 9 October).
- Pyongyang opened, in April 2002 in Beijing, its first foreign exhibition of DPRK software products developed by Kim Il-song University, Korea Computer Center (KCC), PIC, and other centers of software development (DPRK Korea Infobank, 16 May 2002).
- KCC Deputy Chief Technician Kim Ki-ch’ol led a delegation of DPRK computer technicians to the World PC Expo 2001, held in September 2001 outside Tokyo. KCC has worked with Digiko Soft—a company run by a Korean resident of Japan—to develop commercial software. Through Digiko Soft, the expo was the first show in Japan “of computer software developed in [North] Korea” (Choson Sinbo, 22 October, 1 October 2001).
- KCC computer programmers Chong Song-hwa and Sim Song-ho won first place in August 2003 in a world championship software competition of go—an Asian game of strategy—held in Japan. KCC teams have visited Japan and China on at least eight occasions since 1997 to compete in program contests for go, taking first prize three times.
Gaining Access to Foreign Data North Korea has been acquiring foreign technical information from a variety of sources in recent years, benefiting from developments in technology, warming ties between the Koreas, and longstanding sympathies of many Korean residents in Japan.
- Authorities have held the annual Pyongyang International Scientific and Technological Book Exhibition since 2001, bringing foreign vendors and organizations related to S&T publications to North Korea (KCNA, 18 August).
- The Trade and Economy Institute, advertised as North Korea’s “sole consulting service provider” on international trade, has been exchanging information with “many countries via Internet” since September 2002 (Foreign Trade of the Democratic People’s Republic of Korea, 1 April).
- According to PUST President Pak Ch’an-mo, who has extensive DPRK contacts in academic and scientific circles, North Korea has been purchasing technical books from amazon.com and from South Korea (Kwahak-kwa Kisul, 1 April).
- Pro-Pyongyang Korean residents of Japan have long sent technical literature to North Korea.
- ROK organizations, including PUST and IT publisher youngjin.com, have been donating technical publications on IT in recent years to DPRK counterparts as a means of earning good will and contributing to the eventual unification of Korea (Chonja Sinmun, 11 August).
Cell Phones, Web Pages, and NHK
Within North Korea, the advance of IT technology has been suggested by a number of recent developments:
- Approximately 3,000 residents of Pyongyang and Nason have reportedly purchased cell phone service since November 2002 (The People’s Korea, 1 March).
- Installation of a nationwide optical-fiber cable network in 2000, launch of the Kwangmyong 2000 Intranet the same year, and establishment of computer networks have made available domestic access to extensive technical databases maintained by the Central Scientific and Technological Information Agency, the Grand People’s Study House, and other repositories of technical information.
- Via North Korea’s Silibank Web site (www.silibank.com), established in Shenyang, China, in September 2001, registered foreign users can exchange e-mails with DPRK members.
- In August 2002, Kim Pom-hun, CEO of the ROK IT company Hoonnet.com, opened an Internet café in Pyongyang, the only place in North Korea for the public to access the Internet. Most customers of the service, which uses an optical cable linking Pyongyang and Shanghai via Sinuiju, are foreign diplomatic officials or international agency staffers; steep fees reportedly keep most Koreans from going on line (Wolgan Choson, 1 January).
- Foreign guests in Pyongyang hotels have had access to foreign news broadcasts of Britain’s BBC and Japan’s NHK since May 2003, according to a Japanese television report (TBS Television, 2 September).
Limiting Information to Technical Areas, Harnessing IT for Domestic Indoctrination and Foreign Propaganda Development of the nation, rather than empowerment of the individual, appears to be driving DPRK efforts to develop domestic IT infrastructure and industry. Officials, scientists, and traders can now access and exchange information pertinent to their duties within the domestic Kwangmyong Intranet. Those with a “need to know” can even surf the worldwide Web for the latest foreign data. While Kim Chong-il reportedly watches CNN and NHK satellite broadcasts (Kin Seinichi no Ryorinin, 30 June) and supposedly surfs the Internet, the public has no such freedom to learn of the outside world without the filter of official propaganda.
Indeed, Pyongyang is using IT to indoctrinate the public and put its propaganda before foreign audiences. In addition to studying the party line through regular group reading of Nodong Sinmun in hard copy, a practice for indoctrinating members of work units throughout North Korea, the installation of computer networks now brings the newspaper to some workplaces on line, as the photograph below shows:
Moreover, Pyongyang has put its propaganda on the Internet.
- KCNA offers Pyongyang’s line in English, Korean, and Spanish at a Web site in Japan at www.kcna.co.jp.
- News and views of the General Association of Korean Residents in Japan and its affiliated organizations appear on the group’s site at www.chongryon.com.
- DPRK media, including newspapers Minju Choson and Nodong Sinmun, have appeared on sites originating in China, such as www.dprkorea.com and www.uriminzokkiri.com.
S&P Highlights Costs of Korean Reunification
Monday, November 3rd, 2003According to the Financial Times:
John Chambers, managing director for sovereign ratings at S&P, told reporters in Seoul that state collapse in North Korea was just a matter of time and could cause a bigger shock to the South’s economy than the 1997 Asian financial crisis. He urged South Korea to build financial reserves to cope with the cost of reunification.
North Korea has started to reform its rigid command economy in recent months by liberalizing prices and wages but S&P said the regime was too rigid to emulate the market openings adopted by communist governments in China and Vietnam.
“Although some other Asian nations that used to have centrally planned economies have successfully moved to a market-based system, the North Korean leadership probably lacks the flexibility and the vision to undertake such a change,” said S&P in a statement. “Unless South Korea has substantially built up fiscal reserves in the meantime, its [credit] ratings would fall from their current level upon sudden reunification of the peninsula.”
Analysts have been predicting collapse of the North Korean regime since 1989, when communist states started to fail in eastern Europe. The state has proved more resilient than many expected, surviving a famine in the mid-1990s that killed at least 1 million people and recording modest economic growth over the past three years. However, dwindling international food aid to the country and U.S. attempts to block some of the regime’s most important sources of cash, such as exports of arms and drugs, has prompted fresh doubts about the durability of the world’s last Stalinist state.
Mr. Chambers said reunification with the North could cost South Korea up to 300 percent of its annual gross domestic product, considering the reconstruction and welfare provisions that would be necessary.
South Korea’s policy of engagement with its neighbor – including humanitarian aid and economic co-operation – is designed to prevent economic failure in the North and encourage gradual reform of its economy and political system.
In a recent report, Dominique Dwor-Frecaut, economist at Barclays Capital, said state failure in North Korea need not lead to credit rating downgrades in the South. She said the cost of reconstruction would be spread over many years and would be offset by the economic benefits of reunification.
“The Korean peninsula could become a new Asian economic powerhouse if it could associate Chinese-level labor costs in the North with OECD-level financial and legal systems and R&D in the South,” she said.
Call for Kaesong investors
Wednesday, October 1st, 2003From the BBC:
North Korea has unveiled the terms under which foreign investors will be lured to a ground-breaking industrial zone near the tense border with South Korea.
Two South Korean companies – Korean Land and an arm of the Hyundai conglomerate – are developing an international business park in Kaesong, part of a package of cautious economic reforms in the Stalinist country.
So far, more than 1,000 South Korean firms have enquired about setting up shop in Kaesong, where labour costs will be a tiny fraction of those south of the border.
The North Korean Government now promises investors favourable tax rates, but there are still considerable concerns over whether it will allow businesses much economic freedom.
Most of the companies so far interested in Kaesong are in light manufacturing, particularly textiles.
Depending on their line of business, these firms will be taxed at up to 14%, less than half the rate levied in the South.
Pyongyang is, however, especially keen to lure hi-tech firms, which will be subject to a tax rate of just 10%.
Investors will have to pay a number of other smaller levies, and must adhere to a minimum monthly wage of $50.
Such incentives have sparked a flurry of interest in the South, but many companies remain wary.
They will be forced to hire workers through a North Korean state agency whose powers and attitude remain unclear.
And there is still little confidence in the fundamental stability of North Korea, which has turned to economic reform in recent years, but which remains virulently opposed to most forms of foreign influence.
The Kaesong development does, however, seem to be a relatively permanent arrangement.
It forms part of a large-scale construction project in the region, which is just 50 kilometres northwest of Seoul.
Elsewhere the focus is on tourism, especially scenic Mount Kumgang on the country’s east coast, which Hyundai has been trying to develop for five years, with mixed success.
There is also a Unification Park, which will be the venue for reunions of families split by the country’s division.
Most significant are major road and rail developments which mark the first time the two rival countries have re-established transport links since the end of the Korean war in 1953.
Two Koreas boost crossborder trade
Thursday, August 28th, 2003BBC
8/28/2003
North and South Korea have signed a landmark agreement to increase direct trade, the latest step in the slow economic thaw between the two enemies.
According to the agreement, made at bilateral talks unrelated to the simultaneous discussions over nuclear capability, South Korean firms will be encouraged to set up in the North.
The town of Kaesong, just north of the border, has been selected as the site of an industrial park, currently being built by South Korea’s Hyundai.
The two governments will open a corporate liason office in Kaesong, which will deal with the many southern companies keen to exploit cheap northern labour.
Slowly opening
Cross-border economic contacts have become frequent in recent years.
But almost all the $270m (£172m) in north-south trade so far this year has been conducted through intermediary countries, a formality the new agreement aims to dispose of.
The deal represents another step in the extremely slow economic opening of the stalinist North, which long operated in complete isolation from the world economy.
Over the past three years, Pyongyang has reformed its currency, invited visits from foreign investors, cautiously liberalised some prices and planned various – mainly abortive – schemes along the lines of the Kaesong industrial zone.
Reliance on aid
The motivation in much of this, analysts say, is the desperate economic situation in the north.
A series of natural disasters in the 1990s crippled northern agriculture, and the government has done little to put the sector back on its feet.
North Korea – which long rejected outside help – has become increasingly dependent on aid.
This latest agreement concedes to the South the right to oversee the distribution of food aid in the North.
N Korea ship ‘heroin haul found’
Tuesday, May 27th, 2003From the BBC:
Australian police say they have found another 75 kilograms of heroin that were smuggled into the country by a North Korean ship seized in a raid last month.
Australian special forces boarded the freighter, the Pong Su, after 50 kg of heroin were found in a vehicle in April, sparking a diplomatic row between the two countries.
A police spokesman says the 75 kg of heroin were found buried in bushes on the south-east coast of Australia.
It is the same area in which 50 kg of heroin were seized from a vehicle in April.
Diplomatic row
The spokesman says this latest batch appears to be identical in form and packaging.
Together the drugs haul is one of the biggest ever recorded in Australian history.
Police believe the drugs came from the Pong Su, which was raided by Australian special forces after the first batch of heroin was discovered.
About 30 crew members were arrested and charged with drug smuggling.
They included an official from North Korea’s ruling Workers’ Party, which led to a diplomatic row after the Australian Government issued a protest to North Korea.
Australia is one of the few Western countries to maintain formal contacts with Pyongyang, but this incident has tested that relationship.
It has also been cited by officials in the United States, who say it is evidence the North Korean Government is involved in illegal activities, including drug smuggling.
