North Korean Economy Watch

Bloomberg
Bradley Martin
7/10/2007

A black Volkswagen Passat with smoked windows glides down a suburban Pyongyang road. Its license plate begins with 216 — a number signifying Kim Jong-il’s Feb. 16 birthday, and a sign the car is a gift from the Dear Leader.

Even without a 216 license plate, a passenger sedan bestows VIP status in a country where traffic is sparse and imports are limited by external sanctions and domestic restrictions alike.

Just across the border, South Korea is the world’s fifth-largest automotive manufacturer. To an ordinary North Korean, though, a private car is “pretty much what a private jet is to the ordinary American,” says Andrei Lankov, author of a new book “North of the DMZ: Essays on Daily Life in North Korea.”

He estimates there are only 20,000 to 25,000 passenger cars in the entire country, less than one per thousand people.

Discouraging private car ownership is not just a matter of ideology in a communist country, Lankov said in a phone interview from Seoul, where he teaches at Kookmin University. The passenger car, usually black and chauffeur-driven, “is the ultimate symbol of the prosperity of high officials,” he says. They keep the vehicles scarce “so everybody knows they are the boss.”

Measuring, copying

North Korea moved early — shortly after the Korean War, and ahead of the South — to mass produce trucks and 4-wheel-drive Jeep-type military vehicles. Craftsmen took apart imported Soviet tractors, trucks and utility vehicles, measuring the parts to make copies.

The indigenous civilian passenger-car industry, too, mostly made knockoffs of models produced elsewhere. After importing a fleet of Mercedes-Benz 190s, the country produced replicas under local model names into the 1990s. Unfortunately, the domestically-made copies were dogged by reports about “terrible overall quality,” says Erik van Ingen Schenau, author of a new pictorial book, “Automobiles Made in North Korea.”

Lee Keum-ryung, a former used-car trader who defected from North to South Korea in 2004, agrees. The knockoffs came with “no air conditioning, no heater, and they’re not tightly built or sealed,” he says. “If you drive out of the city and return, your car will be full of dust. It’s like an oil-fueled cart.” Lee, 40, uses a pseudonym because he fears repercussions from North Korea.

Slow recovery

Material and energy shortages that accompanied a famine in the 1990s brought state-run factories to a halt. Recovery has been slow, and Schenau said he believes even domestic production of Jeep-style vehicles has been replaced by imports from Russia and China.

Imports have similarly come to dominate what passes for the passenger-car market. Used cars — mostly Japanese-made — are the mode of transit for many members of the new trading and entrepreneurial class that has emerged in the last couple of decades. Under a loophole in the country’s long-standing private-car ban, these vehicles typically enter the country disguised as gifts to North Koreans from their relatives in Japan’s Korean community, Lankov says.

Lee says “a relative abroad” helped him buy his first car when he was 23. “But as an ordinary person, I couldn’t keep it under my name, and I didn’t have a number plate of my own,” he says. “A friend was a high police official with many cars under him. I borrowed a plate.”

‘A very affluent life’

Lee had “a very affluent life” before he defected, importing 10-year-old cars from Japan and selling them both in North Korea and, for a time, across the border in China. “I had money, status,” he says. “I enjoyed everything people my age could have.”

A small passenger vehicle for which his agent paid $1,500 at the docks in Japan would sell for $2,500 to $3,000, Lee says. A bigger car — say, a Toyota Crown — might cost him $4,000 to $5,000; he would sell it for $8,000.

While Japanese trade figures show annual exports of some 1,500 passenger cars, mostly used, to North Korea in 2005 and 2006, the total for this year is zero. After Kim’s government tested a nuclear device last October, Japan placed passenger cars on a list of banned luxury exports.

Perhaps as a sign of displeasure with Japan’s sanctions, Kim ordered most Japanese cars confiscated, according to a February 2007 dispatch by South Korea’s Yonhap news agency. The order, if it indeed was issued, hadn’t been carried out by the time of a May visit to Pyongyang, when a number of Japanese cars could be seen.

German inroads

When a European-made import passes by, it’s often owned by the state, used by high officials and foreign dignitaries. Sweden’s Volvo had a hefty market share in the 1970s; Germany’s Audi and Volkswagen have made inroads lately. Mercedes is particularly well-represented in Kim’s personal fleet of hundreds of vehicles, according to Lee Young Kook, a defector who served in Kim’s bodyguard force.

In a 2003 Yonhap story, Lee said the security-conscious leader traveled in motorcades of identical cars to confuse would-be assassins and generally maintained 10 units each of any model so five would always be road-ready.

With the nation’s access to imports constricted, a relatively new player in the market, Pyonghwa Auto Works, has attempted to fill the gap. The company was created when Seoul-based Pyonghwa Motors, which began as a car importer affiliated with Rev. Sun Myung Moon’s Unification Church, teamed up as majority partner in the 70-30 venture with the North Korean state-owned trading firm Ryonbong Corp.

Kits of parts

The first assembly line was set up in 2002 at the west coast port city of Nampo to produce, from kits of parts, a version of the small Fiat Siena, called the Hwiparam (Whistle) in Korean.

So far, the factory has built about 2,000 cars and pickup trucks, according to Noh Jae Wan, a spokesman in Seoul for Pyonghwa Motors, who said it is the only manufacturer now turning out passenger cars in North Korea. According to a February announcement by Brilliance China Automotive Holdings, Pyongyhwa has agreed to let Brilliance use part of the Nampo plant to assemble Haise minibuses.

While some news accounts have mentioned the possibility that the North Korean cars may eventually be sold in the South, “this will take time,” Noh said in an interview. “It can only happen when the two Koreas reach some significant agreement on trade or other international circumstances change.”

Daily NK
Kim Min Se
7/9/2007

Pyongsung, a city located in the province of South Pyongan has recently been targeted as a scientific city transformed into distribution hub.

In the late 1960’s, North Korean authorities established Pyongsung as an area for scientific research with a population of 300,000.

In Pyongsung, there are 25 scientific research centers beginning with a nature centre. Further, there is Pyongsung Scientific University and a training centre for scientists and engineers. Pyongsung lies on the outer-skirts of Pyongyang near the districts of Soonan, Samsuk and Yongsung.

Park Chan Joo (pseudonym) a North Korean tradesman on business in Dandong, China introduced the changes occurring in Pyongsung in a telephone conversation with reporters.

Park currently works as an employee for the Myungjin Trade Company and imports goods needed for everyday living into North Korea.

Park said, “All goods made from China pass through Shinuiju and are generally dispatched from Pyongsung to each region for sale. This includes eastern regions such as Hamheung and Wonsan. Of course traders from Sariwon, Haeju and Nampo in southern provinces also come to Pyongsung to receive their goods.”

Regarding Pyongsung which developed into a distributor of imports, Park said, “The delivery cost is double if goods made from China pass through Shinuiju and are delivered directly to eastern and southern regions. However, stopping over at Pyongsung can make a profit on time and cost effective.”

Further, he said, “It’s close to eastern regions and in the vicinity of southern regions. This area has increasingly become an intermediary wholesalers district with the rise of warehouses.”

Park said, “We are located right next to Pyongyang where the population is greatest. Also, many Pyongyang citizens with high standards of living compared to other regions come and buy the goods.”

“It only takes about one hour to travel from Pyongyang to Pyongsung via car or train. Tradesmen and citizens must obtain a travel permit to enter Pyongyang, but any North Korean citizen can easily come to Pyongsung with an ordinary identification card. Nowadays, you can travel to any special district (excluding Pyongyang and border regions) as long as you have an identification card” he added.

Also, Park said “There are more and more people wanting to living in Pyongsung because of trade” and informed, “All this happened as Pyongsung changed into a centre for wholesalers. Even up until a few years ago, it wasn’t so hard to live in Pyongsung, but now you have to pay thousands of dollars to move in the area to Pyongsung’s People’s Safety Agency (police).”

As Pyongsung emerged into a distributors haven, more and more long distance bus services have been operated connecting rural districts to Pyongsung city.

Kim Jong Hoon (pseudonym) a Shinuiju resident who came to Dandong to visit his relatives said, “People with money hire second hand buses made from China and register the vehicle at the traffic registry and operate the services while offering some profits” and “It takes 3 days to get from Shinuiju to Dancheon in South Hamkyung. It took me 3 days to go to Pyongsung, then from Pyongsung to Wonsan and then Wonsan to Dancheon.”

Presently, the only direct bus services in operation from Pyongsung are to Shinuiju, Wonsan, Sariwon, Nampo and Haeju.

Institute for Far Eastern Studies (IFES)
NK Brief No. 07-7-9-1
9/7/2007

The North Korean city of Pyongsung, situated in the South Pyongan province, is undergoing a transformation. Previously known as the center of North Korean scientific research, it is now becoming a distribution hub for goods imported from neighboring China. Pyongsung, with a population of approximately 30,000, was established by DPRK authorities in the mid 1960s in order to serve as a center for scientific studies. It is a satellite city on the outskirts of Pyongyang, bordering the Soonan, Samsuk, and Yongsung areas of the capital. The Institute of Natural Sciences and 24 other scientific research centers are located there, along with the Pyongsung College of Science and numerous scientific and technical training facilities.

These days, most Chinese imports being brought into the country through Shinuiju are coming though Pyongsung before being sold to various regions throughout the country. Traders from the east-coast cities such as Hamheung and Wonsan, as well as Sariwon, Haeju, Nampo and other areas regularly travel to Pyongsung in order to stock up on goods.

Located close to eastern cities and bordering southern provinces, Pyongsung is becoming the new distribution center of Chinese goods due to the considerably lower cost of delivering wares through Shinuiju and directly to these regions. This new route is much more lucrative in terms of both cost and time. Therefore, the number of wholesalers erecting warehouses and filling orders in the city has been growing quickly.

Pyongyang, the capital city with a population greater than any other city in the North and a higher standard of living than the rest of the country, is only one hour away by train or car, and so many Pyongyang residents have been purchasing high-end goods from there.

Traders and ordinary North Koreans need a travel permit with an approval number in order to enter Pyongyang, but anyone can easily travel to Pyongsung with only a general registration permit. In recent times, North Koreans can travel throughout the country with only a resident permit, with the exception of some particularly sensitive areas such as the border region or the capital city. Recently the number of people wishing to live in Pyongsung in order to trade has been on the rise. Only a few years ago, it was relatively easy to move to Pyongsung, but today someone wishing to relocate in this new market must hand over several thousand dollars. 

Korea Herald
7/8/2007

South and North Korea on Saturday agreed on ways to cooperate in light industry and natural resource exploration.

The two Koreas announced they would carry out the written agreement following talks held in the North Korean border city of Gaeseong from Friday, Yonhap News Agency reported.

The talks came as North Korea moves closer to shutting down its main nuclear facilities.

“It took quite a long time for the two sides reach a compromise on prices on a list of items,” a Unification Ministry official said.

In Friday’s overnight talks, North Korea agreed to accept the materials at the price South Korea suggested. The North will pay the costs for transportation, cargo working and demurrage, while the South is to bear all the costs for shipping, insurance and using ports.

The South Korean side estimated these incidental expenses would be less than $4 million equivalent to five percent of the total cash price of items to be supplied to North Korea.

Yonhap
Sohn Suk-joo
7/4/2007

South and North Korea will hold new round of working-level talks this week to discuss ways to cooperate in light industry and natural resource exploration, the Unification Ministry said Wednesday.

The two-day talks slated to be held in the North Korean border city of Kaesong on Thursday come as North Korea moves to take initial steps to shut down its main nuclear facilities.

In April, South Korea reconfirmed the agreement to supply industrial materials worth US$80 million to the North starting in June to help revive its sagging light industry in return for the right to develp natural resources in the North.

Under the deal, North Korea will allow a team of South Korean experts to conduct an on-site survey of three zinc and magnesite deposits in its mountainous northeastern region for 12 days beginning June 25. In return, the South will ship 5 million tons of polyester fabrics worth $800,000 to the North on June 27.

But the schedule has been postponed as the two sides failed to thrash out differences on the price and list of industrial materials the South is to provide the North in exchange for the right to develop natural resources in the communist country. The North called for more than the South had earmarked for in the shipment, according to South Korean officials.

In 2005, South Korea agreed to offer industrial raw materials to the North to help it produce clothing, footwear and soap starting in 2006. In return, the North was to provide the South with minerals, such as zinc and magnesite, after mines were developed with South Korean investments guaranteed by Pyongyang.

But the economic accord was not implemented, as North Korea abruptly cancelled the scheduled test runs of inter-Korean cross-border trains in May last year, apparently under pressure from its powerful military. The two Koreas carried out the test run of trains across their heavily armed border in mid May.

Korea Times
Tong Kim
7/1/2007

Recently I visited Gaeseong with a South Korean humanitarian group that provides anthracite for fuel to underprivileged people in both Koreas. The group carries out a voluntary campaign in the name of “sharing love and anthracite.’’ It so far has provided the poor with over ten million pieces of processed anthracite.

Our trip to Gaeseong was to deliver another 50,000 pieces of processed anthracite in five large trucks. From Seoul we drove only about 45 minutes to reach the southern border of the Demilitarized Zone (DMZ). I had passed through the Panmunjeom Joint Security Area a couple of times traveling to Pyongyang before, but it was the first time for me to travel on the paved direct highway to the Gaeseong Industrial Complex.

Upon arrival at the Bongdukni railroad station _ about a few miles north of the complex _ we were welcomed by the vice chairman of the Gaeseong People’s Committee, who appreciated the provision of anthracite as well as our offer to help North Koreans unload the anthracite.

From Bongdukni we went to Gaeseong City, where we visited several famous historic sites of the old capital of the Goryeo Dynasty (918-1392), including the Seonjuk bridge, where the stain of bloodshed by a king’s royal servant remains, still detectable. Standing at the courtyard of Sungkyunkwan, which was the dynasty’s highest royal educational institute, were gigantic ginkgo trees more than a thousand years old.

The buildings were impressively well maintained. On display inside the buildings were neatly arranged historical artifacts, which help visitors see what life was like in Korea a millennium ago. With other cultural assets, like the royal tombs and an old Buddhist temple, I thought Gaeseong would present itself as an excellent tourist attraction.

Then we went to a “hotel district’’ where many traditional tiled Korean homes remain undamaged as if they had never withstood the Korean War. An able tourist guide told us that these buildings are now used as lodging for tourists. We were led into one of the homes, where we had a good traditional dinner served in Korean brassware.

From there we went to the complex, which I knew was controversial from a political perspective since its inception. Opponents ask why South Korea should help North Korea when it spends scare resources on the development of missiles and nuclear weapons. Proponents argue it is a constructive approach to the eventual resolution of security and political issues.

After I saw the vast area of the industrial park _ one million pyeong (approximately 25 square miles) _ I felt there would be no way to reverse the course of inter-Korean economic cooperation. Under a 50-year lease, Hyundai Asan has cleared the land by leveling off the hills and filling the rice paddies and fields, and it is still building the necessary infrastructure to support the industrial park.

At present 22 South Korean companies _ mostly small- and medium-sized firms _ are operating in the complex and five new plants are under construction. On this North Korean territory, about 12,000 North Korean employees are working with 680 South Koreans, who are largely managers. By 2012, the complex is expected to employ over 100,000 North Koreans.

These companies produce goods _ including shoes, clothes, watches, kitchenware, plastic containers and electric cords _ mostly for South Korean consumers. Under a neo-liberal policy pursued by the ROK government, the complex makes sense as the average monthly wage is only $57, which is only half of Chinese labor costs and less than 5 percent of South Korean counterparts’ salaries.

After an overview briefing at the Hyundai Asan Control Center, we went to the Shinwon Clothing Plant, where 880 North Korean women _ who looked between 20 to 40 years-of-age _ were working hard concentrating on their jobs along the 15 production lines on two floors. There were no dividing walls on each floor. The uniformed workers all looked healthy and productive.

The plant’s manager told me he has only nine people from the South to work with the North Koreans. His company began operating in February 2005 with 330 workers on two production lines. He said his company is satisfied with the productivity and the workmanship of its North Korean employees. His company provides many facilities for the workers, including a large dining hall where the workers receive free meals, recreation rooms, showers and even a Christian chapel.

Perhaps the future of the expanding industrial park depends very much on the exportability of its products to overseas markets including the United States. This brings up two points: resolution of the North Korean nuclear issue and the inclusion of the complex as an “outward processing zone’’ as discussed but still pending resolution in the agreed Free Trade Agreement with the United States.

Without exportability, which I doubt would be fully feasible before North Korean denuclearization, the industrial complex may not be able to attract big international companies who keep looking for lower labor costs to compete in the contemporary neo-liberal global market.

There are other problems with the inter-Korean industrial park, including the transparency of the payment system, labor practices and environmental concerns. But these are only peripheral issues compared to the issue of war and peace, which also affects the South Korean economy. As the nuclear issue seems to be moving forward, and as I believe it will be resolved at the end, I do see good prospects for success of the complex.

We went to Gaeseong, a city of 300,000 people, through some poverty-stricken rural villages. It was heartbreaking to see North Korean people who looked undernourished and poorly sheltered in their rundown homes with broken windows. I saw children looking skinny, underdeveloped and hungry _ walking home after school, with their arms on the shoulders of their buddies, just like I used to do when I was their age.

I visited North Korea many times but I never had an opportunity to observe the economic plight of the North Korean people in the rural areas. I could see only a little bit of the deprivation last month when I went to Inner Geumgang Mountain through a few under-populated villages beyond the DMZ.

I know the conservatives blame the North Korean regime for this. My problem with them is such blame or hard-line policy has not helped alleviate the hardship of the poor people whose poverty is not their fault. I support humanitarian aid to the North, despite some negative views.

I know North Korea is trying hard to improve its economy in order to better feed, clothe and house its people. I have seen some encouraging indicators of change in North Korea. Once it feels free of perceived threat from outside, I expect the North to give up its nuclear program and concentrate on transforming the economy, which will eventually lead to political and social transformation as well.

It is time to work harder to resolve the security issue, while providing minimum humanitarian aid to the people in the North. Providing anthracite is a good example of humanitarian assistance, which I believe should enlist broad support from the South Korean public. What’s your take?

Tong Kim is former senior interpreter at the U.S. State Department and now a research professor at Korea University and a visiting scholar at Johns Hopkins School of Advanced International Studies (SAIS).

Daily NK
Kim Yong Hun
6/5/2007

Despite the nuclear test last October, trade between North Korea and China has increased steadily. Rather, signs of North Korea’s economic dependence on China is becoming more obvious.

According to statistics recently released by the Ministry of Unification, “2007 1st Quarter, North Korea’s trade status with China,” trade between the two countries recorded $330mn, a 13.8% increase compared to 2006. While North Korea exported $130mn worth of commodities, an increase of 45% compared to the previous year, imports equaled a total of $200mn, a small decrease of 2.4%.

Last year, trade between both North Korea and China totaled $1,699.6mn recording the highest amount of trade ever in history and even this figure had risen 7.5% compared to the year before.

Analysts argue that North Korea’s economic dependence on China is increasing as a result of sanctions implemented by the international community and delay of the February 13 Agreement.

Even until last year, the trade deficit had increased to $764.17mn, an increase of 29.9% compared to 2005. However, in the first quarter of 2007, the trade deficit seems to have taken a major plummet of 61.3% down to $74mn.

North Korea’s main trade commodities are fuel based including coal and minerals, accounting for $45mn (49% increase to 2006) of exports to China, and 34.7% of total exports. In detail, $33mn of minerals, $12mn of medicine, $7.7mn of steel and $6.2mn of fisheries are exported also.

On the other hand, goods imported into North Korea are again fuel based including petroleum and crude oil and account for $31mn (42.5% decrease to 2006) of imports. Further, machinery equates to $17mn of imports, electric appliances $16mn and filaments $11mn.

In the report, the Ministry of Unification indicated North Korea’s major export to China as coal and minerals and analyzed, “This is the result of China’s increased demands for economic growth.”

The Ministry reported, “The majority of imported goods are energy, electric appliances and machinery” and added, “Demand for these light industry goods have increased from an expansion in North Korea’s consumer market. Imports have risen as a result of materials necessary for industrialization.”

According to a report recently released by the U.S. Congressional Research Service (CRS) “North Korea’s Economy,” the amount of trade that occurred between the U.S. and North Korea barely reached $3,000 in 2006, the lowest figure ever recorded since 1990. The only items exported to North Korea were books and newspapers and no imports were received by the U.S, revealed the CRS.

Furthermore, 2006 recorded an all time low of $130mn trade between Japan and North Korea, undoubtedly a reflection of Japan’s strong implementation of economic sanctions on North Korea. Since 1995, Japan has been supporting North Korea with a total of 1.2mn tons of food aid but suspended the aid relief in late 2004 following the issue of Japanese abductees.

Russia’s exports of minerals and coal to North Korea surged dramatically in 2003 and in 2006, total trade with North Korea recorded $220mn. Hence, Russia became now one of the big three trading partners of North Korea with China, South Korea, the CRS reported.

Hankyoreh
Authored by Ryu Yi-geun and translated by Daniel Rakove

PYONYANG: “Next time, please come back and purchase something,” implored Mr. Hong to the customers leaving his store empty-handed.

“You’re saying you earn more if you sell more?”

“You bet.”

But this reporter was still suspicious. Four days later, I carefully asked our handler for confirmation.

“Of course it’s true,” he assured me. “Even in the same eight-hour workday, he who produces more results gets paid more.”

The concept of receiving compensation in proportion to the amount of sales is one that is now long familiar to North Koreans. Yet what is surprising is the gusto with which North Korean store staff will go to in encouraging South Korean tourists to buy their products, a phenomenon indicative of how great the materialistic impulse has become in the reclusive communist nation.

Constructed in Pyongyang’s central district in 1995, the 47-story Yanggak Hotel seems to float above the Daedong River like an island. Mr. Hong works at a store there on the second floor. There is even a spot next door to exchange money. Though the set prices are written on each product – in Euros – the South Korean customers managed to save a bit through bargaining. The owner was at first insistent that all products be only sold for the listed price, but he finally gave way after a long give and take with the customers. He decided it worthwhile to sell his products slightly cheaper, if only to make a profit. Though most transactions are conducted at the listed price, there were instances at the hotel store and other establishments of selling to tourists at a discounted rate after haggling over the price.

Elements of capitalism are slowly making their way into North Korean life – wrapped in the euphemism of “utility.” After returning from his trip to North Korea from May 14-18, on which he led 130 economic delegates, Min Byeong-seok, Director of the Hankyoreh Foundation for Reunification and Culture proclaimed, “I could unmistakably feel here and there that North Korea is changing.”

It is of course difficult to confirm the presence of change in North Korea. This is in part because the changes are occurring at a low level. After all, there is always a difference in what we look for compared to what we are shown. This is what makes it difficult for someone to declare unreservedly, “North Korea is this,” or “North Korea is that.” There are also parts of North Korea that are difficult to understand due to the biases originating from the political system and values of the observer. Hankyoreh21 managed to get a spot in the group of Pyongyang-bound economic delegates, and recorded below is a compilation of the various things we witnessed.

“My life has gotten so much better since last year.” These words did not seem to be mere propaganda. Whether spoken by our North Korean guide or the various Pyongyang citizens with whom we came in contact, their words were by and large the same. One citizen told us, “My wages increased from 3,000 to 6,000 North Korean won,” and consumer prices “went up about 10-20 percent.” In other words, wages have increased much faster than has the rate of inflation. Yet that man cannot be taken to be the representative Pyongyang laborer, nor does he have the credibility of an economist.

Indeed, it is hard to grasp the level of inflation in North Korea: all one can do is take an educated guess. Lee Do-hyang of the Institute for National Security Strategy said, “These things are evidence that the financial situation is improving and the economy is enduring,” adding, “It seems that the quality of life for common people is taking a turn for the better.” Yet in North Korea, where it is said some US$30 a month is necessary to get by, a 3,000 North Korean won raise is not exactly a windfall: 6,000 North Korean won is about equivalent to $2, and on the black market, $1 sells for 3,000 North Korean won. Thus, the rationing and side jobs that bring in an additional $15-20 a month are an essential source of income.

Pyongyang’s major marketplaces have grown livelier. Stretching between 2,000 and 3,000 pyeong (1 pyeong is 3.3 sq. meters), one large-scale market has taken up a spot next to Kimchaek Industrial School on a once-empty spot along Otangangan Street. In the shape of a high school gym, the market’s two-story building is covered in a blue roof and the exterior is clean. Visible from the Yanggak Hotel, the market was bustling at 6 p.m. on May 16. The Bonghak Market next to the Pyongyang Cosmetics Factory was also busy once the sun set. At least one marketplace has taken shape in each of Pyongyang’s 18 districts. Each one is a symbol of capitalism’s penetration of the socialist, planned economy. The activities in each market are said to be hardly distinguishable from the capitalism found in other countries.

One citizen said, “The people go to the markets more, where the prices are a little bit cheaper than at the nationally operated stores. Even if one doesn’t buy anything, it is fun to look around, what with the variety of goods for sale and the haggling going on.” Most citizens are said to buy their daily necessities at such markets, having become an essential part of daily North Korean life.

Street food vendors started appearing quite a while ago, but their numbers are ever-increasing. The fairly tidy vendors can be seen here and there throughout Pyongyang, selling a variety of goods, including soft drinks, ice cream, bread, rice cakes, and so on. Each product runs between 100-300 North Korean won.

The local People’s Committee gives licenses for the operation of such stands to various companies or the descendants of revolutionaries. A portion of sales is taken by the state and the remainder of the profit goes to the managing company or individual.

Though the residents of Nampo, a port city 40 minutes by bus from Pyongyang, do not seem to be better off than their Pyongyang counterparts, the city is quite lively. On the journey from the major ship repair factory by the port, through the city center, and to the freeway entrance leading to Pyongyang, 50-60 separate street food vendors were spotted. The products they were selling as well as their method of sale were quite diverse. Some vendors – most likely new ones – simply laid out their goods on the ground for sale, showing even to the outsider that North Korea’s markets have hit a growth surge.

Five years have passed since the July 1, 2002 economic measures were instituted by the North Korean government, raising wages as well as the currency’s value. In addition, the price of rice and other necessities was increased, and a system of incentives and limited independent capital was expanded. Yet very few North Korean people have even heard of “the 7/1 measures.” Only after talking for a significant length of time will they mention the notion of “utility” that has been pursued over the last few years.

At the end of Unification Road in the Nagnang district of southern Pyongyang, the Phoenix Clothing Factory is producing clothing on commission. The 1,000-pyeong factory is unceasingly filled with the whirr of sewing machines. U Beom-su, 53, introduced himself to the South Korean observers as the company’s “chief executive,” explaining, “The workers work eight hours a day, but when the fixed day for shipment draws near, we have no choice but to put them on overtime.” The payment system for workers is multi-tiered, with five levels, the salary increasing with rank. Every month, one laborer is chosen from each team of workers as being the most outstanding, and is given bonus compensation. The ‘chief executive’ explained that further incentive payments were rewarded based upon the factory’s production levels on the whole.

It is unclear as to how widespread this model of business is, but director of the Korea Institute for National Unification Lee Bong-jo said that “the seeds of competition are visible.” However, the workers at the Yuwon Shoe Factory and the Pyongyang Cosmetics Factory were flustered when asked about their salaries or the labor system and evaded giving an answer.

The will for liberalization was evident here and there. At the 10th annual Pyongyang Spring International Trade Fair on May 14, 200 companies from 12 countries participated, either to view the product lines or to display their own. The majority were Chinese companies, including its largest electronics firm, Haier, while there were several sections of the exhibition primarily interested in retailing to the foreign visitors themselves, the determination by North Korea to get its products out to foreign markets was apparent.

Many members from the South Korean team of economic representatives also participated. In particular, representatives from Daewoo Shipbuilding & Marine Engineering Co., Ltd, the world’s second largest shipbuilder, as well as the Korea Port Engineering Company, visited the Yeongnam Ship Repair Factory and the Nampo Port to explore the possibility of making investments in those places. In a gesture of consideration, the Northern handlers prepared a separate automobile for the potential investors to explore the grounds, and held a separate consultation session for them beyond the general one for the economic delegates. On multiple occasions, various North Korean officials expressed an interest in attracting South Korean capital. The self-confidence they showed hinted at a sense that they had to some extent resolved the immediate issues of day-to-day subsistence. It may sound strange, but the consensus of those who had also made the trip last year was that the electricity situation had improved. In other words, basic economic conditions seemed to be on the upswing. Perhaps the self-confidence North Koreans showed in displaying their possession of a nuclear weapon has now flowed into the economic sector, thus explaining their will for some liberalization.

Yet simply because there is a will for opening up does not mean liberalization will come easily. One Daewoo source explained, “[We told the North Koreans that] there must be assurances before we invest. They have to provide the same conditions that China does.” At this point, there is probably not a single person who could make such assurances on behalf of the North Koreans. The country is still unprepared to take advantage of the money available to it from the South through the economic cooperation program. The six-party talks also must also make some progress on the nuclear issue. Furthermore, if North Korean – U.S. relations do not improve, then free trade between North and South will remain uncertain indefinitely.

In the case that external matters are settled and the will for liberalization strengthens, then the vitalization of the North Korean economy could quickly pick up with the improvement of infrastructure, such as the electricity grid and logistics, which are pointed to as the largest stumbling blocks. The reporters who arrived first on May 12 witnessed, for instance, how the automatic doors and the elevator on the first floor of the Yanggak Hotel took 30 minutes to warm up. While the houses themselves gave off light after the sun set, the streets between them were completely dark. The mere 20-30 percent rate of operation at factories as estimated by experts is partially accountable to a lack of raw materials, but most of all to the deficiency of electricity.

The rigidity of the economic system only adds to North Korea’s list of woes. Though the director of Pyongyang Cosmetics has requested raw materials and modern machinery, he does not have the full authority to manage the company. Another company has imported the raw materials from China, and he confessed that he knew little of the specifics on the subject. The director of the Daeanchinseon Glass Factory made a similarly vague request for “raw materials.”

The problems go deeper. For one, there was no sign on the part of the North Korean factory managers to think of the visiting economic representatives as business counterparts in the world of capital and industry. For example, even photography by the group of South Korean trade representatives was forbidden within the factory grounds. Another chronic problem is the ease by which North Koreans that are not economic officials or specialists break promises. Furthermore, as often appears in planned economies, there is a single-minded focus on “production” without consideration of whether the product being made is for domestic use or for export. This sort of difficulty was evident at the cosmetics and shoe factories, as well.

Lee Bong-jo, director of the Korea Institute for National Unification, offered some advice to the South: “Knowledge of North Korea must precede any investments there.”

It seems that amongst difficulty, Pyongyang may be carefully seeking change. Though it remains stuck in the dilemma of pursuing liberalization while maintaining regime stability, it is increasingly sending strong signs to the outside world of a will for liberalization. As South Korean Former Minister of Unification Jeong Sye-hyeon said, “It is difficult for North Korea to go backwards.”

Institute for Far Eastern Studies
5/21/2007

Recently, the cost of living for North Koreans has become increasingly burdensome, as the value of the North Korean won (KPW) has steadily fallen. This phenomenon has been observed since the introduction of the July 1st measures in 2002, but the toll on poorer citizens is growing as money is concentrated in the hands of the elite.

A decent jumper jacket from China sells for 30,000 to 50,000 won, a kilogram of meat for 3,000 won, and a bottle of cooking oil for 2,700 won. North Koreans tell of taking 100,000 won to the market and, having only made a few purchases, leaving with an empty wallet.

Every month, a family of four requires 50 kilograms of rice (50,000 KPW or 1,000 won per kg) and 20 kg of corn (7,000 KPW or roughly 350 won per kg). On top of this, the expense of buying supplementary food items such as cooking oil, red pepper flakes, vinegar, garlic, and scallions is almost equivalent to the price of rice.

One North Korean woman (hereafter referred to as Ms. Kim) who sells noodles at the Hweryung Nammun market estimates her living expenses at 60,000 won per month. Ms. Kim, a housewife responsible for a family of three, earns about 2,000 to 3,000 won a day selling noodles. This amounts to roughly 60,000 won a month, which only covers food expenses. She cannot even dream of buying rice, let alone saving up to raise seed money for a business, as her income goes toward supplementary items like corn (23,000 KPW for 70 kg), cooking oil (2,700 KPW), and beans (950 KPW for 1 kg).

Ms. Kim’s husband, who works at the Hweryung machine factory, receives a monthly salary of 4,000 won. This money is only enough to buy four kilograms of rice. Ms. Kim started selling noodles ten years ago, when it became clear that relying on her husband’s income would end in starvation for her family. She said that she has not put meat on the table for her child in a long time, as it is difficult to afford even one kilogram a month. With the exception of merchants who trade with overseas Chinese, workers who earn foreign currency, and those with relatives in China, the majority of Hweryung’s residents live day to day.

With the recent order from the Ministry of Public Security to “cease selling, as rations will be provided starting in April,” local markets have come under stricter regulation. This regulation has had the effect of raising the price of goods manufactured in China. Before the restriction, transactions took place at stalls and impromptu shops, but now buyers must hunt down merchants, which has led to a rise in prices.

On a related note, the dollar’s weak performance in the international market has been reflected in the North Korean black market. The exchange rate remains pegged at one dollar to eight Chinese yuan, but the rate of the North Korean won to the dollar and to the yuan changes daily. North Korea does not have a fixed exchange rate, because individuals who offer money exchange services occasionally receive information on currency rates from China. Due to the dollar’s recent weakness, the rate of the North Korean won to the dollar as well as to the yuan has been falling for several months.

Daily NK
Kim Yong Hu
5/17/2007

Companies in Kaesung Delegate Management over to North Korea

Most of the factories in Kaesung Complex are facing financial problems, a report on the “Situation on 22 factories in Kaesung Industrial Complex” revealed by the Forum for Inter-Korea Relations.

According to the report, most of the companies in Kaesung Complex are facing entrepreneurial difficulties due to restraints in contracts and inadequate resources.

The Forum for Inter-Korea Relations (co-representative Kim Kyu Chul) has been monitoring the South-North economic cooperation. The forum released a report on the 15th which revealed that two companies leasing areas in Kaesung, Moonchang Industry and SJ Tech were facing management difficulties and handed over the right of management to North Korea’s managers. The companies have invested a total of 9bn won.

The Forum bases its evidence on result provided by legal representatives for the 22 companies in Kaesung, collected over a period of 2 years and a North Korean document on the business circumstances in Kaesung to collect difficulties of South Korean managers.

Mr. Kim said, “We confirmed through representatives of two companies leasing areas in Kaesung Complex, Moonchang Industry and SJ Tech that problems were being experienced due to insufficient human resources and freedom of enterprise” and revealed, “Moreover, these companies are facing such severe management difficulties that they have apparently designated the right of management over to the North.”

Regarding this, Director of SJ Tech Lim Hwang Yong said in a conversation with the DailyNK on the 15th, “There is absolutely no evidence to the claim that the companies in Kaesung have handed their business permits over to the North,” strongly denying the act. Similarly, an affiliate of Moonchang Industry commented that the claim was groundless.

In addition, many companies such as Sonoko Cuisineware, Daehwa Fuel Pump, Bucheon Industrial Company made large investments in equipment to manufacture and produce goods, but then again some companies are known to have begun other production such as paper folding. In order to recover from the entrepreneurial ditch, another company has begun manufacturing shopping bags. The total amounts invested by these companies exceed around 17bn won (US$18.3mn).

Regarding this, an affiliate of Sonoko Cuisineware said, “We are merely using our pre-existing equipment to manufacture shopping bags.”

Furthermore, according to the document, a shoe manufacturer Peace Company is using it’s materials initially designed for shoes to produce slippers as it faces management problems during this time. It seems that Peace Company is not able to utilize 100% of its factory materials due to a lack of human resources. Meanwhile, Samduk Comapny has actually made a loss of $1.8mn as a result of 10 different claims made following its entry in Kaesung complex.

Other companies including TS Precision, JC Com, Solu Tech, Magic Micro, HOSAN A.C.E which based their manufacture on electrical parts are currently deliberating in producing other goods, as the goods were found to be below standard due to lack of training and skills by North Korean workers.

An affiliate of TS Precision said, “Our company asked that the workers have basic understanding of maths and English. But no matter how many times we teach the North Korean workers, they do not understand” and revealed, “Currently, only a third of the factory is in operation, while the other materials are being considered to manufacture other goods.”

Lee Hyun Suk of JC Com said, “It is true that the produced goods are of low quality. This is because North Korean workers lack skills as a result of inadequate training” and asserted, “It has been two months since we asked for workers but still we have not been provided with the workers demanded.”

However, he added, “In order to overcome this issue, we are training the North Korean workers ourselves” but refused to comment on whether other goods were being considered for manufacture.

Of all the businesses experiencing management difficulties, Artrang, Pyongan and Sonoko Cuisineware are known to be preparing factory leases.

Mr. Kim revealed, “Companies finding it difficult to increase production with the original factory equipment are known to be leasing areas to other companies.”

He added, “Not only is it illegal for businesses to manufacture goods other than the items listed in the initial contract, it is also illegal to lease the areas to other companies.”

In relation to this, an affiliate of Sonoko Cuisineware said, “Companies other than Sonoko Cuisineware are using the location but after receiving a permit from the Ministry of Unification” and remarked, “However, these companies have not leased the area to help recuperate mismanagement but are rather producing goods needed for our business.”

On the other hand, 7 other companies are showing a glimmer of hope as they conduct regular operations. These companies include Good People, Shinwon, Cotton Club, Taesung Industrial, Sunghwa Trading, Jeil Sangpum and Grubig International Co.

Mr. Kim said, “Though many outsiders perceive Kaesung Complex as a success, the truth of the matter is that most of the companies are experiencing hardships” and asserted, “Unless management, employment, personnel and freedom of contract increases, it is unclear whether these companies will or will not succeed.” 

Bloomberg
Bradley Martin
5/10/2007

Since 2002, North Korea has invited visitors every few years to a festival featuring 60,000 dancers, gymnasts, acrobats and musicians, along with card-flippers who create vast pictorial mosaics covering one entire side of the 150,000-seat May Day stadium in the capital, Pyongyang.

The previous performance, in 2005, included noisy and bloody tableaux of North Korean soldiers making mincemeat of enemy soldiers. Last week’s Arirang production — named for a famous Korean love song — was different. Battlefield carnage was replaced with scenes of people seeking higher living standards by rebuilding factories and growing crops.

While North Korea is hardly going pacifist seven months after testing an atomic device, the propaganda shift may signal a significant change in policy, according to expatriate businessmen living in the isolated country. Now that it is a nuclear power, North Korea appears to be directing more resources to improving an economy on its knees after decades of sanctions and isolation, they say.

Korean officials “are now confident they can defend their country,” said Felix Abt, the Swiss president of PyongSu Pharma Joint Venture Co. Ltd., which recently started manufacturing painkillers and antibiotics in Pyongyang. “Their next priority is economic development.”

Consumer Goods

The policy emphasizes light industry to produce consumer goods. It was formally expressed in a joint editorial that was run at the beginning of the year in three major newspapers published by the regime, Abt said.

Getting verifiable information about policies in North Korea is still almost impossible, especially on tightly organized trips for foreigners in which government guides keep visitors on a short leash.

And if the propaganda on display during one of these visits last week can be believed, the government continues to conceive any new economic policy along the lines of a traditional, planned economy, focused on state-owned enterprises where workers are inspired to redouble their efforts and produce miracles of socialist endeavor.

The Arirang show made this abundantly clear. In an act called “Power and Prosperity,” the audience was urged to emulate “youth shock brigade” members and other working people in North Pyongan Province who recently completed Thaechon Youth Power Station No. 4 in spite of catastrophic shortages of food, energy and most other materials that became evident in the early- to-mid-1990s.

`The Power’

The performance illustrated that North Korea needn’t depend on foreign donations, said Kim Song Ho, 32, one of the tour guides assigned to foreign visitors this month. “Our country has the power to live by ourselves,” said Kim, who worked for the World Food Program’s Pyongyang office until the government reintroduced rice rationing in 2005 and told foreign-aid organizations it could manage mainly on its own.

In Thaechon, Kim said, “workers constructed a power station despite the bad situation without any help. Now the slogan is, `We will work like Thaechon Power Station workers.’ We renovated factories, built new factories and now the economy is booming more and more.”

Evidence of such economic change wasn’t included on the tour Kim was guiding. Kim said he would happily show such sites to the foreign visitor another time.

Different Conditions

The development schemes aren’t directly modeled on those of China or Vietnam, locals stressed. “The conditions of the Chinese and Koreans are different,” said Kim Hyon Chol, the 32- year-old chief guide of the tour group. “The biggest difference is that our country is not united.”

The regime has kept its propaganda options open on its military direction.

Billboards in the capital city showed a U.S. and a Japanese soldier both skewered on the same bayonet. And while there was no sequence in the Arirang show celebrating the country’s nuclear explosion or missile tests, a military parade on April 25 to which foreign residents were invited showed off a missile said to be capable of hitting U.S. bases on Guam.

At the Demilitarized Zone, which has divided North from South Korea since the Korean War armistice agreement was signed in 1953, Korean People’s Army Captain Han Myong Gil was asked whether North Korea is safer since its nuclear test. He replied that U.S. and South Korean forces had held huge military exercises even as diplomats talked of trying to bring peace to the Korean peninsula.

`Hostile Attitude’

“The saying goes in Korea, `If there are many clouds, it will soon rain,”’ the 28-year-old career officer said. “We can’t feel safe until the U.S. gives up its hostile attitude.”

Han eventually responded to a question about what he thought of his government’s spending money on a huge military apparatus – – North Korea’s troop strength is the world’s fourth largest — while people don’t have enough food.

“We receive fright and oppression from the U.S., so I cannot hide that our living standard is not high,” Han said. “We were on an arduous march for a long time. Now we are very proud because we defended socialism with the military-first policy. A strong country can defend itself, but the weak will be beaten down.”