North Korean Economy Watch

On November 18, 2010, the US Treasury Department issued the following press release:

Treasury Designates Key Nodes of the Illicit Financing Network of North Korea’s Office 39

WASHINGTON – The U.S. Department of the Treasury today designated Korea Daesong Bank and Korea Daesong General Trading Corporation pursuant to Executive Order (E.O.) 13551 for being owned or controlled by Office 39 of the Korean Workers’ Party.  Office 39 is a secretive branch of the government of the Democratic People’s Republic of Korea (North Korea) that provides critical support to North Korean leadership in part through engaging in illicit economic activities and managing slush funds and generating revenues for the leadership. Office 39 was named in the Annex to E.O. 13551, issued by President Obama on August 30, 2010, in response to the U.S. government’s longstanding concerns regarding North Korea’s involvement in a range of illicit activities, many of which are conducted through government agencies and associated front companies. Korea Daesong Bank is involved in facilitating North Korea’s illicit financing projects, and Korea Daesong General Trading Corporation is used to facilitate foreign transactions on behalf of Office 39.

“Korea Daesong Bank and Korea Daesong General Trading Corporation are key components of Office 39′s financial network supporting North Korea’s illicit and dangerous activities,” said Under Secretary for Terrorism and Financial Intelligence Stuart Levey.  “Treasury will continue to use its authorities to target and disrupt the financial networks of entities involved in North Korean proliferation and other illicit activities.”

E.O. 13551 targets for sanctions individuals and entities facilitating North Korean trafficking in arms and related materiel; procurement of luxury goods; and engagement in certain illicit economic activities, such as money laundering, the counterfeiting of goods and currency, bulk cash smuggling and narcotics trafficking. As a result of today’s action, any assets of the designated entities that are within U.S. jurisdiction are frozen and U.S. persons are prohibited from conducting financial or commercial transactions with these entities.

You can learn more about the Treasury’s press release here.

Here is the US Treasury Department’s new North Korea resource page.

In response, the Daedong Credit Bank issued the following press release:

FOR IMMEDIATE RELEASE:

US Treasury Press Release 18th November 2010

London UK/Pyongyang DPRK, December 20th 2010

Daedong Credit Bank (DCB) has noted the press release of 18th November 2010 by the US Treasury and makes the following comments:

1.    Korea Daesong Bank (KDB) is a 30% shareholder in DCB.  DCB is not, and never has been, aware of any activity by KDB which is in breach of any of its obligations, domestic or international.  In particular, DCB is not aware of KDB having acted in breach of any sanctions.  DCB is not aware of any cause of concern about the conduct of KDB.

2.    KDB has no executive control of DCB.

3.    DCB is majority owned by overseas investors and is foreign-managed.

4.    DCB does not act and has never acted in breach of any of its domestic or international obligations.  DCB acts in a manner consistent with domestic and international law.

5.    DCB is apolitical and promotes foreign investment in the DPRK as a positive development.

The Daedong Credit Bank looks forward to playing a significant part in facilitating normal commercial relationships between the DPRK and the international business community.

About Daedong Credit Bank

Daedong Credit Bank is a joint venture retail bank based in Pyongyang. It was established in 1995 as “Peregrine Daesong Development Bank”. The Bank underwent a change of name and foreign ownership in 2000.

Daedong Credit Bank is the first, by fifteen years, foreign majority held bank in the DPRK. DCB considers itself a flagship successful joint venture in the DPRK, and a key part of the infrastructure needed to assist the foreign-invested ventures, which drive the country’s economic reforms.

The bank’s principal function is to offer normal “high street” banking facilities in hard currency to; foreign companies, joint ventures, international relief agencies and individuals doing legitimate business in the DPRK.

Daedong Credit Bank was the first bank in the DPRK to introduce, and vigorously implement, a comprehensive set of anti-money laundering procedures. DCB’s anti-money laundering procedure manual was introduced seven years ago, and subsequently updated based on anti-money laundering guidelines provided by the Asian Development Bank. The manual has been sent to, and accepted by, DCB’s international correspondent banks.

Daedong Credit Bank also maintains strict procedures for the detection and rejection of counterfeit bank notes; it uses regularly updated note checking machines, and has personnel with over 10 years’ of experience of handling notes. DCB have encountered and impounded the so-called ‘superdollar’ notes, proving that these notes (despite media misconceptions) are not undetectable.

The wealth of experience garnered over Daedong Credit Bank’s 15 years of successful operation is unrivaled.

Daedong Credit Bank has a significantly strong position in relation to the future economic development of the DPRK and, being the oldest established foreign invested commercial bank in the DPRK, it is the intention of the bank to capitalise on these advantages.

CONTACT INFORMATION:

Daedong Credit Bank office address in Pyongyang is:

Daedong Credit Bank
401, Potonggang Hotel
Ansan-dong
Pyongchon District
Pyongyang
Democratic People’s Republic of Korea

Phone Switchboard  +850 2 381 2228/9    ext 401
Direct line     +850 2 381 4866
Mobile          +850 193 801 8400 *
*Note, the mobile number may not be obtainable from certain countries (eg UK and Hong Kong).
Corporate Website www.daedongcreditbank.com

New Tourism opportunities:
Koryo Tours is offering new and interesting travel destinations in Northeast Asia.  According to their email newsletter (slightly edited):

We are very excited to offer a brand new tour for 2011, a trip to somewhere that no other company can take you or would probably even think of taking you! To Magadan – the remotest part of Russia and known mostly for being the site of the most infamous of the soviet gulags, where countless thousands of prisoners mined gold in terrible conditions including -50 degree winters. Today’s Magadan city has a population of close to 100,000 and is the largest settlement in the infamous Kolyma area. A place of stunning natural beauty and stark desolation, the province remains one of the least-visited parts of Russia with no train connections to what the locals call ‘the mainland’ and a road that only exists for 4 months of the year and takes 4 days to travel to the nearest major habitation (Yakutsk). We will visit a local ethnic village (of the Evenk people), stay in the city of Magadan (the regional capital), and see what life is like in this distant and evocative place. We’ll visit the site of the gulag as well as seeing local sights and industry (gold mining was the reason for the prison being in this location).

But that’s not all! If being one of the very few westerners ever to get as far as Magadan is still not enough then we have a further extension on offer. An itinerary that offers an even more in-depth look at the lives of people in the area as well as travelling deep into the near-deserted inner reaches of Magadan province to the abandoned city of Kadykchan. A place no other tour company, even in Russia, takes people to.  For some photos of the city we will spend a day exploring, click here.

Koryo is also repeating its innovative “Tumen Triangle” tour:

Join our Tuman Triangle II Tour – This tour, utterly unique to Koryo Tours takes in 3 countries, time zones, and cultures in some of the least visited parts of Asia, we go to NE China’s Korean Autonomous region to start, then drive to Rason, the North Korean free trade zone. After this we travel to Russia by train, first to the resort of Andreyvka and finally by ferry to Vladivostok. After the program ends with a couple of days here some of the group return to Beijing, others begin the first ever group tour to Magadan!

And for the DMZ history angle, here are a couple more interesting videos filmed by Czechoslovakians stationd in the DPRK in 1989-1990.

Driving through Kaesong.

Repatriating remains from the ROK side of the DMZ to the DPRK side.

You can see all of the videos here.

According to the Choson Exchange web page:

At the request of North Korean counterparts, we are exploring opportunities for young North Koreans fluent in English to participate in an informal internship or research assistantship in the fields of business (esp. finance), economic development, or law to gain professional understanding and exposure to these fields. The organization should be located in London.

Ideally, we hope to attach them to a mentor from an established organization willing to take a strong interest in the educational and professional development of the intern. The mentor is likely to have a strong interest in North Korean issues. The period of internship can last up to a year. While compensation is not necessary (but much appreciated), the host should be able to cover transportation costs to and from work as well as lunch expenses at the minimum.

The program can be informal and non-contractual in nature. Please feel free to contact CEteam@chosonexchange.org if you have leads on possible hosts.

According to Voice of America:

Deforestation has contributed to major floods while also worsening chronic hunger problems in North Korea, but now the communist-led government is supporting a small but growing effort to recover the hillsides with fruit and nut trees.

For more than four decades after its creation in the wake of the Second World War, North Korea relied on its communist ally, the Soviet Union, to provide fertilizer for its farms. When the Soviet Union collapsed in 1989, food production in North Korea plummeted.

Environmental mess

Deputy Director Marcus Noland of the Washington-based Peterson Institute for International Economics has studied North Korea since 1995. He says as food production fell, forests in mountainous areas were cleared to grow more crops.

“And as trees were cut down on the hillsides, that contributed to soil erosion, river silting, which exacerbated the seasonal flooding problems,” says Noland. “So, the North Koreans have ended up with a real environmental mess on their hands.”

Major floods hit North Korea in 2007 and again this summer. But the environmental issues first got the government’s attention in 1995, when catastrophic floods damaged about 40 percent of the country’s rice paddies and contributed to a famine that killed an estimated two million people.

“Then the government said, ‘Okay, we need to do something,'” says Xu Jianchu, a senior scientist at the World Agroforestry Center, a global research institution.

According to Xu, different government ministries had different ideas concerning what to do about the floods. In many places, people had cut down trees to grow their own food. Xu says the agriculture ministry wanted trees back on the mountainsides and people’s crops off them.

Trees and crops together

But the environment ministry took a different view. Working with the Swiss aid agency, it started a small pilot project in 2002 to plant fruit and nut trees and medicinal bushes on the sloping hillsides, alongside people’s crops.

“We get the tree cover back, and, second, also, we do provide the needs of the local people for food,” says Jianchu.

The World Agroforestry Center joined the project in 2008. Earlier in the decade, Pyongyang had begun loosening its tight controls over the country’s food production. Xu says the government organized households into user groups which were given autonomy to choose what kinds of trees to grow. That was important, Xu says, because for one thing, the government had been offering only pine, poplar and larch trees for hillside planting – three species the farmers didn’t want really don’t want because they were not related to their food security.

The user groups were allowed to establish their own fruit-tree nurseries to expand production. With help terracing the steep hills and improving their farming practices, Xu says food production has increased, and farmers are even selling their surplus in local markets.

However, it is difficult to get an accurate picture of how much they are producing. According to Xu, people tend to say they grew less than they did because they believe the government will take away their surplus.

“They try to always under-report what they harvest because sometimes they are still afraid the government will take away if they produce too much,” he says.

A good start

While the policy remains controversial, Xu says it’s gaining support in the government. He says the best indication that the project is working is that it’s growing.

What started with just three groups is now up to about 60, covering several hundred hectares of land.

That’s a small fraction of the more than one million acres of deforested hillside being farmed, according to a report Xu co-wrote on the subject.

But it’s a good start, says the Peterson Institute’s Marcus Noland.

“I’m not sure whether the policies they’re now pursuing on these projects are the most optimal, but the idea that at least they’re trying to plant trees and reverse some of this process is a good sign.”

But Noland adds that deforestation is just one of the major food production problems North Korea faces. He says it will take a revival of the country’s overall economy to end the country’s chronic problems with hunger.

The Taedonggang Fruit Farm and Kosan Fruit Farm have received heavy attention in the DPRK media recently.  Although the North Koreans have never admitted to receiving assistance to set up all of their new fruit farms, I am willing to bet that some of these international organizations played a role.

Read the full story here:
Trees are North Korea Latest Weapons Against Hunger, Floods
Voice of America
12/14/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-12-13
12/13/2010

According to a report on Kim Jong Il”s on-site inspections and guidance, the leader of the North made 148 trips throughout the country between the beginning of the year and December 6, most of which were to sites related to economic activities. The South Korean Ministry of Unification revealed that, of Kim”s visits, 33 were to military sites, 58 to sites related to the economy, and 11 visits related to foreign affairs. These numbers are similar to those seen in 2009 (i.e., 148 visits: 43 military sites; 58 economy; 13 foreign relations). It was also reported that Kim Jong Un accompanied his father on 28 of those trips in 2010. The North Korean official media has continued, even after the shelling of Yeonpyeong Island, to report on Kim”s on-site guidance, and the visits appear to focus on production facilities related to the people”s livelihoods.

One recent report revealed that Kim visited a cigarette factory, food processing facility, and traditional medicine producer in Hyeryong, while another report noted Kim”s visits to mining facilities and a food processing plant in Musan, as well as magnesia factory, mining equipment factory, and port facilities under construction in Danchun.

Kim Jong Il has made 12 site visits since the Yeonpyeong Island incident on November 23, seven of which were to sites important to the economy. While Kim has focused on visits to South Hamgyong Province in the past, he has recently shown more interest in North Hamgyong, as well.

On December 3, Korea Central Broadcasting reported on Kim Jong Il”s visit to the Musan food processing plant, attributing him with having “expressed great pleasure” that the plant was turning out flawless food items that would “significantly add” to the lives of the people. He also explained to the workers that it was their duty to help improve the lives of the people of the town.

Kim Jong Il also visited the Kim Chaek Ironworks and stressed the importance of Juche-driven self-reliant production and an independent economy. On December 6, the KCNA released a 7-page account of Kim”s visits, which observers believe could have significant meaning.

The Woodrow Wilson Center’s North Korea International Documentation Project has launched a working paper series which draws from their unique archives of diplomatic papers from formerly socialist countries.  The second working paper in the series has just been released, you may download them both from the links below:

1. Charles Armstrong, “Juche And North Korea’s Global Aspirations,” Spetember 2009

2. Bernd Schaefer, “Overconfidence Shattered: North Korean Unification Policy, 1971 -1975,” December 2010

According to the Wilson Center’s web page, they also just received over 2,000 pages of Romanian documents:

NKIDP would like to thank Eliza Gheorghe, a PhD student in History at Oxford University, for obtaining on behalf of NKIDP over 2,000 pages of newly declassified Romanian archival documents on relations with North Korea in the late 1960s and 1970s. The collection brings together minutes of conversations between North Korean leaders and Romanian officials with daily communications from the Romanian embassy in Pyongyang between the critical period 1966-1968. Other documents report on the inner-workings and foreign relations of North Korea from 1970-1979.

Book 1: Europe – North Korea: Between Humanitarism and Business?
Myungkyu Park (Ed.), Bernhard Seliger (Ed.), SungJo Park (Ed.)

This book is not yet available at the US  Amazon web page but it is available (in English) at the German Amazon web page.  Here is a chapter outline of the book (PDF) from GPI’s Paul Tija, who is a contributor.

Book 2: Korean War in Color: A Correspondent’s Retrospective on a Forgotten War
John Rich (Author), Lee Jin-hyuk (Editor)
Order at Amazon

Book 3: North Korea Caught in Time: Images of War and Reconstruction
Chris Springer
Order at Amazon

The latter two books are picture albums.  Here is a review of them both by Michael Rank.

List(s) of other North Korea books and films can be found here.

Koryo Tours plans to launch the first ever bicycle tour of the the DPRK in September 2011.

According to the Wall Street Journal’s Korea Real Time:

North Korea may not be at the top of most vacation destination planning lists, but it’s relatively easy to visit and safe. A number of tour companies run trips through much of the year, including for the Mass Games during late summer. There are no limitations on US citizens joining tours inside the country.

One of the tour operators, Koryo Tours, has lined up something a little different for 2011: a cycling trip through the country in September.

According to Koryo, this will be the first ever cycling tour around the communist nation. Participants on the trip will be in the saddle for around 4-8 hours a day over the course of a week, pedaling to Nampo on the west coast, through the ancient capital of Kaesong and with an option to head up into the mountains around Mt. Paekdu.

The company is planning to bring in mountain bikes from Beijing for the trip and will carry spare parts in a support vehicle, where the saddle-sore can take a break. All the cycling will be on tarmac roads.

As with all trips to North Korea, the group will be chaperoned by local guides. Hannah Barraclough at Koryo says the guides have been in training for the trip and have been cutting back on smoking in preparation. While there will be limitations on where photographs can be taken, regular stops for picture-taking are planned.

Ms. Barraclough says Koryo is planning to take around 20 people on the trip and initial interest has been good.

At the end of the trip, the company plans to donate the bikes to the local people.

The Koryo Tours web page is here.

Read the full story here:
Tour De Corée du Nord
Wall Street Journal Korea Real Time
Alastair Gale
12/3/2010

Institute for Far Eastern Studies (IFES)
NK Brief No.10-12-3-2
12/3/2010

North Korean trade with China has jumped 26.7 percent during the first eight months of the year, with the bulk of its imports made up of crude oil, and its largest export being coal. Despite the increasingly severe food shortages in the North, food imports from China were actually down 7.5 percent, while on the other hand, fertilizer imports shot up by 162 percent.

The Korea Trade-Investment Promotion Agency (KOTRA) looked into the Chinese government’s import and export figures and determined that North Korean exports to China during the first eight months of the year were worth 650,000 USD, 20.6% more than during the same period last year, while DPRK imported 1.345 billion USD-worth of goods (30% increase), for trade worth a total of 1.995 billion USD, 26.7 percent more than 2009.

“Mineral fuel and mineral oil” topped the list of North Korean imports (321,000 USD), with crude oil (229,000 USD) and oil (63,000 USD) making up 90.7 percent of imported goods. However, while crude imports were 53 percent more expensive, the amount of oil imported only rose by 2.3 percent; the sharp increase in expenditure was due to climbing international oil prices. The second- and third-largest imports were listed as “nuclear reactor, boiler, and machinery” (127,000 USD) and “electromagnetic machinery, sound and video equipment” (106,000 USD). Other imports included cars and car parts, steel and steel goods, plastic and plastic goods, artificial filament, fertilizer, and grain. A KOTRA official stated that while “nuclear reactor” was listed among the goods imported by the North, there is no way to verify the Chinese statistics.

North Korea’s grain import expenditures increased by five percent, to 34,000 USD, but overall grain imports fell 7.5 percent, to 102,000 tons, due to increased costs. More specifically, rice import expenditures were up 8.4 percent to 16.6 million USD, but the amount of rice imported fell by six percent, to 38,400 tons. Corn expenditures dropped by one percent to 16.3 million USD while the amount imported fell by ten percent, to 62,000 tons. The cost of barley imports grew 190 percent, to 353,000 USD, with the amount of barley brought into the country up 89 percent to 1,011 tons. 277,000 tons of fertilizer were imported, 162 percent more than last year, at a cost of 40 million USD, 85 percent more than 2009. Almost all of the fertilizer was nitrogenous.

North Korea’s exports to China were made up largely of mining and fisheries. Coal topped the list (191,000 USD), although the amount sent across the border was 31 percent less than last year. Iron ore was second, and was not only down by 34 percent, it brought in 134 percent less than 2009, as it was worth only 111 million USD. Textiles and accessories worth 81 million USD, steel worth 64 million USD, and mollusks worth 32 million USD were also sent to China.

A couple of Weeks ago, the Korea Economic Institute released a paper by Kevin Shepard on foreign direct investment and trade with the DPRK.  May of the topics discussed will be familiar to readers of this blog, so I thought I would repost it here.

Buying into the Hermit Kingdom: FDI in the DPRK (PDF)
Korea Economic Institute Academic Paper Series: November 2010, Volume 5, No. 11
Kevin Shepard

Additional Informaiton:
1. Previous KEI academic papers can be found here.

2. North Korea CRS reports.

3. My DPRK Economic Statistics Page

4. My DPRK Business Resources Page (which needs updating)