North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
8/1/2007

INTER-KOREAN RELATIONS

Following two days of talks between economic representatives of the two Koreas at the Kaesong Industrial Complex, South Korea announced on July 7 that it would begin shipping raw materials to the North in exchange for DPRK natural resources. South Korea shipped 800,000 USD of polyester fabric on July 25, and is set to send the rest of the materials by the end of November. North Korea accepted South Korean prices for the goods, and will pay transportation, cargo working, and demurrage costs, as well. South Korea will pay for shipping, insurance, and the use of port facilities. On 28 July, a South Korean delegation left for the North in order to conduct on-site surveys of three zinc and magnesite mines. The team will spend two weeks in North Korea.

It was reported on 17 July that North Korea proposed a joint fishing zone north of the ‘Northern Limit Line’ dividing North and South territorial waters to the west of the peninsula. Seoul turned down the offer.

Inter-Korean military talks broke down early on 26 July after only three days of negotiations as North Korea insisted on the redrawing of the Northern Limit Line.

North Korea demanded on 27 July that workers in the Kaesong Industrial Complex be given a 15 percent pay raise. The North Korean workers will not work overtime, weekends or holidays beginning in August unless the raise is granted.

It was reported by the Korea International Trade Association on 26 July that inter-Korean trade was up 28.6 percent in the first six months of 2007, totaling 720 million USD.

RUSSIA-DPRK INVESTMENT

It was reported on 19 July that Russia and North Korea have agreed to connect Khasan and Najin by rail, enlisting investment from Russian oil companies interested in an inactive refinery at Najin Port capable of processing up to 120,000 barrels per day. The project is estimated to cost over two billion USD.

MONGOLIA-DPRK RELATIONS

During a four-day visit to Mongolia by Kim Yong-nam beginning on 20 July, the two countries signed protocols on cooperation on health and science, trade and sea transport, and labor exchange issues. This follows on the heals of an agreement to allow South Korean trains to travel through North Korean territory on to Mongolia in route to Russia and Europe.

JAPAN-DPRK PROPAGANDA

Japan took one step further to recover abductees in North Korea this month when the government began broadcasting propaganda into the DPRK intended for Japanese citizens. The broadcasts are made in Korean and Japanese (30 minutes each) daily, and updated once per week.

U.S.-DPRK PEACE PROSPECTS

U.S. Ambassador to the ROK Alexander Vershbow stated that Washington was prepared to negotiate a permanent peace regime on the Korean Peninsula by the end of the year if North Korea were to completely abandon its nuclear ambitions.

EGYPT-DPRK INVESTMENT

The Egyptian company Orascom Construction Industries announced a 115 million USD deal with North Korea’s state-owned Pyongyang Myongdang Trading Corporation to purchase a 50 percent state in Sangwon Cement. To put this in perspective, the deal in worth more than four times the amount of frozen DPRK funds that had caused six-party talks to break down and delayed the implementation of the February 13 agreement.

NORTH KOREAN SOCIETY

The Economist reported on 7 July that, according to foreigners living in the North’s capital, concern for petty law appears to be weakening. Citizens are reportedly smoking in smoke-free zones, sitting on escalator rails, and even blocking traffic by selling wares on the streets.

It was reported on July 11 that a letter sent earlier in the year by the North Korean Red Cross indicated severe shortages of medical supplies. The letter stated that North Korea would accept any medicine, even if it was past expiration, and accept all consequences for any problems that arose from using outdated supplies. The (South) Korea Pharmaceutical Manufacturers Association had no choice but to reject the request.

Events were held on July 11 in North Korea in order to promote women’s health and well-being issues. Marking World Population Day, a North Korean official stated that the DPRK has cooperated with the UN Population Fund since 1986, and is now in the fourth phase of cooperation.

Seeing entertainment venues as a “threat to society”, North Korean security forces have been implementing a shutdown of karaoke bars and Internet cafes. These venues mainly cater to traders in the northern regions of the country.

It was reported on July 13 that construction of North Korea’s first all-English language university was nearing completion. The Pyongyang University of Science and Technology, funded largely by ROK and U.S. Christian evangelical groups, will hold 2600 students and offer undergraduate and post-graduate degrees in business administration, information technology, and agriculture.

Local elections were held on 29 July for DPRK provincial, city, and country People’s Assemblies. 100 percent of 27,390 candidates were approved with a 99.82 percent turnout reported.

Korea Herald
Ko Kyoung-tae
7/30/2007

Trade between South and North Korea expanded fast this year as South Korean manufacturers picked up investment and output at the Gaeseong Industrial Park, trade data showed yesterday.

The Korea International Trade Association said the inter-Korean trade rose to a record high $720 in the first half, up nearly 30 percent from a year earlier.

Imports from the North jumped over 60 percent to $390 million, while exports slightly declined to $330 million, according to the association.

The large leap in imports from North Korea largely resulted from the fast-growing manufacturing facilities in Gaeseong.

The two Koreas have traded around $190 million of products and machineries through the industrial complex in the first six months, up almost 80 percent from a year earlier.

The KITA officials expect the rising interests in the Gaeseong complex to further push up the cross-border investment and trade in the coming years.

South Korean conglomerate Hyundai Group built the manufacturing park in the North’s border city of Gaeseong in 2004 in a bid to attract South Korean manufacturers looking for cheap labor.

More than 20 South Korean companies currently employ around 11,000 North Korean workers.

Gaeseong’s output accounts for about one-third of the total inter-Korean commercial trade, the KITA noted.

Other regular trade also soared over 65 percent to $210 million as fishery and commodity imports grew in recent months.

In contrast, aid from South to North Korea remained stagnant.

Private cross-border aid dropped 15 percent to $140 million while government aid more than doubled to $20 million, the KITA noted.

The association estimated that 2007 inter-Korean trade would surpass $1.7 billion, four times that of 2000.

Daily NK
Kwon Jeong Hyun
7/27/2007

An order was made by North Korean authorities prohibiting the use of all Japanese cars until the year 2009. Though this only applies to old cars manufactured before 2003, it seems that the orders are being enforced stronger than expected.

The drivers seat of cars manufactured after 2004 are being changed to the right hand side by the Japanese Chongryon (General Association of North Korean Residents in Japan), informed a source on the 25th.

In addition, all Japanese cars have been banned from entering Pyongyang excluding cars with permits (such as governmental or company cars). As a result, many Japanese delivery services are experiencing hardship.

This kind of order was made around Kim Jong Il’s birthday on February 16th by central authorities with inspection conducted by the transportation department of the Social Safety Agency in both the rural districts and Pyongyang.

These orders were made amidst a time when relations between North and South Korea had worsened and when a broken down Japanese car blocked the road while Kim Jong Il was on his way to worship at his the Kim Il Song Memorial.

Regarding this, one safety traffic official of Pyongyang city informed, “Cars which have been produced with the South such as the “Hweparam (whistle)” and “Arirang” are being regulated by the nation. National income is being increased by selling these. Further, the regulations were enforced to control the people who were making lots of money by trading cars illegally.”

The Pyeonghwa Motors which operates under the control of the Unification Church has been working in collaboration with North Korea. Since 2002, cars and mini buses have been supplied after parts had been put together at the factory.

This order by North Korean authorities has been enforced strongly and has lasted much longer than expected. Hence many traders and individuals are expressing discontent.

Japanese cars are being sold at ridiculously low prices with yet another year and 2 months remaining until the ban is lifted. People who took out loans in order to purchase the cars are being pressured by their debtors, a source informed.

KEI
May 2007

Link to KEI web site power point presentation.
PDF here:Korea Economic Institute.pdf

Topics covered:

Nominal and Per Capita GNI
Population and Per Capita GNI
GDP Growth
Industrial Structure in 2004 (% of total GDP)
GDP Growth Rates by Industry
North Korea’s External Trade
Trade with Major Trading Partners (2005)
North Korea’s Principal Trade Partners by Year
Inter- Korean Trade
South Korea’s Exports to North Korea By Type
South Korea’s Processing-on-Commission Trade with North Korea

Daily NK
Park Hyun Min
7/26/2007
 
In North Korea, despite the additional reform measures on the table after the implementation of the 2002 July 1 Economic Management Reform Measure (July 1 Economic Measure), it appears that a mass-scale trade deficit has resulted.

Choi Soo Young, a Senior Researcher of Korea Institute for National Unification, said through a recently published report called “Five years after the July 1 economic measure, North Korea’s Economy and Process of Transformation” in the July issue of the Reunification Affairs Analysis, “The size of the deficit in North Korea’s revenues and expenditures (with the exception of North and South Korea trade) has increased from 790 million dollars in 2002 to 11 hundred million dollars in 2006.”

Researcher Choi said, “After the July 1 economic measure, North Korea, through regionalization of trade activities, which used to revolve around the Central Planning Administration, by allowing provincial-level offices such as the city and district offices, attempted trade revitalization.” However, to control inflation resulting from structural unemployment and shortage of supply, the North Korean government ignored revenues outside of national planning, which was the cause of the deficit.

After he also pointed out that, “When the North Korean economy’s dependence on China became chronic, the situation has become exacerbated,” he said, “North Korea’s export to China in 2006, compared to 2002, rose 72.7%, but on the other hand, import from China increased 163.8%.”

Between 2002-2004, North Korea’s size of trade deficit with China was only around 2 hundred million dollars, but in 2005 and 2006 each, it expanded to 5.8 hundred million dollars and 7.6 hundred million dollars. Further, North Korea’s reliance on trade with China, augmented from 48.5% in 2004, to 52.6% in 2005, and 56.7% in 2006.

Accordingly, North Korea has to depend on China in order to get equipment, energy, and raw materials for industrial production.

Simultaneously, Choi, from the perspective of macroeconomics on the basis of North Korea’s economic growth rate, North Korea’s economy has recovered from the worst situation and is maintaining a low-growth condition.

He analyzed, “From 1990 to 1998, a continuous 9-year negative economic growth has been recorded, but from 1999 to 2004, a positive growth has been achieved. After the July 1 economic measure, the North Korean economy’s low-growth originated from its verbal effort of increasing productions of agricultural and a portion of its light industry goods and the support of the outside world.”

However, he pointed out that it is not off-target to evaluate that the North has a foundation of undergrowth due to its sustained level of low-growth, that its shortage of food, energy, and raw material goods is continuing, and on the industrial front, productions increase has not shown any movement.

On one hand, researcher Choi said that going beyond the financial deficit, in order to realize a form of annual income and annual expenditures, an establishment of the power of taxation for an increase in tax revenues and restraining of unnecessary financial expenses are needed. Also, he ordered the acquirement of an objective tax system for the assurance of an effective financial plan and a fair tax.

Bloomberg
Bradley K. Martin
7/26/2007

To make painkillers and antibiotics in his factory in Pyongyang, Swiss businessman Felix Abt needs reagents, chemicals used to test for toxic impurities. Abt can’t get them now — because the world refuses to sell North Korea a product that is also used to manufacture biological weapons.

Such sanctions on trade with the regime of Kim Jong Il — some dating back to the Korean War — may be the next diplomatic battleground after North Korea bowed to pressure last week and shut down five nuclear facilities at Yongbyon.

North Korea said July 16 that ending sanctions, and its removal from a U.S. list of countries that sponsor terrorism, are prerequisites for further progress in the negotiations to end its nuclear weapons program. The U.S., meanwhile, says the next step is for North Korea to disclose all its nuclear capabilities, followed by a permanent dismantling of Yongbyon.

North Korea is playing a “tactical game,” said David Straub, a Korea specialist at Johns Hopkins University’s School of Advanced International Studies in Washington. After shutting down Yongbyon and receiving a pledge of 950,000 tons of oil, the reclusive nation will try to “force the U.S. and others to lift sanctions,” Straub said in an e-mail exchange.

While many of the post-Korean war sanctions were lifted between 1994 and 2000 by President Bill Clinton, Americans are prohibited from exporting “dual-use” products or technologies, a wide range of items that might have military as well as civilian applications — including reagents and even aluminum bicycle tubing, which might be used to make rockets.

UN Sanctions

Much of the world joined the sanctions regime after North Korea tested an atomic device last October. The United Nations called on member states to stop trade in weapons, “dual-use” items and luxury goods. Japan went further, stopping used-car exports and banning port calls by North Korean vessels.

Now that North Korea has shut its facilities at Yongbyon and allowed in international inspectors, the haggling will begin on the next steps. If its demands aren’t met, North Korea could kick out the inspectors and restart the plants, as it did in 2002.

“The Bush administration must choose between settling for a temporary closure of the nuclear sites and taking a strategic decision to coexist” with North Korea, said Kim Myong Chol, Tokyo-based president of the Center for Korean-American Peace, who for three decades has encouraged foreign reporters to consider him an informal North Korean spokesman. “Otherwise, the agreement will break up, leaving the U.S. with little to show.”

‘Contentious Issue’

Sanctions represent “a multiplicity of issues that could become contentious,” said economist Marcus Noland, North Korea specialist at the Peterson Institute for International Economics in Washington, in an e-mail exchange. China has already called for the lifting of the UN sanctions imposed Oct. 14.

North Korea agreed with the U.S., South Korea, Russia, China and Japan on Feb. 13 to close its Yongbyon reactor, which produced weapons-grade plutonium, and to eventually declare and disable all of its atomic programs. Working groups will meet in August before another round of talks in September.

If the U.S. insists on a list of all the country’s nuclear facilities without starting to negotiate on sanctions, North Korea might consider that “a spoiler” for the talks ahead, Kim Myong Chol said.

Swiss businessman Abt said that in the past he could get around U.S. sanctions for his North Korean pharmaceutical factory by buying supplies from other countries. The UN sanctions shut off those sources.

Using Old Stocks

“Luckily, we have enough stock of reagents, but when it runs out we would not be able to guarantee the safety of our pharmaceuticals any longer,” he said.

Abt, 52, is president of Pyongsu Pharma Joint Venture Co., an enterprise with ties to the Ministry of Public Health that makes painkillers and antibiotics for humanitarian organizations in North Korea. He is also president of Pyongyang’s European Business Association.

“The same is true in many other civilian industries,” said Abt, who moved to North Korea from Vietnam five years ago. Gold mines are affected too, he said: “If they cannot import cyanide, they can’t extract the gold.” Cyanide is another “dual-use” product, part of the process for making some chemical weapons, he said.

All this has “a highly negative impact” on the economy at a time when the regime has announced it wants to focus on development, Abt said. Foreigners are showing “more and more interest in doing business here,” Abt said, predicting that North Korea will eventually be regarded as a successor to Vietnam as “the newest emerging market.”

Korea Times
Jane Han
7/26/2007

Inter-Korean trade rose 28.6 percent in the first half of 2007 from a year earlier, the country’s leading trade agency said Thursday, attributing the boost to the Gaeseong joint industrial complex and the eased tension between Seoul and Pyongyang.

Trade amounted to $720 million during the January-June period, the Korea International Trade Association (KITA) said.

While South’s exports to the North dropped 9.4 percent to $330 million, imports from the North jumped an impressive 63.3 percent to $390 million.

The trade group credited the big import leap to the expanded number of items produced in the industrial complex located at North Korea’s western border city.

But unlike the positive performance of the two-way trade, the Mt. Geumgang tour business has dropped 7.2 percent.

South Korean companies are currently employing about 15,000 North Korean workers in the Gaeseong complex and the number is expected to rise as the facility undergoes expansion.

Symbolic of the cooperation between the Cold War rivals, the industrial park began construction in June 2003 and its operation started the following year.

Yonhap
7/21/2007

A U.N. relief official said North Korea currently receives only a small portion of the food aid it needs and his agency is considering stepping up aid to feed almost 2 million more people, a U.S. government-funded radio station reported Saturday.

In an interview reaching here Saturday through the Korean version of the VOA’s Web site, Robin Lodge, a spokesperson for the World Food Program (WFP), said international relief agencies, including the Office of Food for Peace, recently gathered in Rome, Italy and discussed the possibility of sending the communist state additional food that could feed 1.9 million people there.

Lodge was also quoted by the U.S.-funded broadcaster as saying North Korea currently receives from his agency only about 10 percent of what it needs to feed the 7 million believed to be suffering from starvation.

North Korea does not release any official data on its food situation but many outsiders believe that more than 2 million people died when famine swept through the country in the late 1990s.

Good Friends, a Seoul-based relief group dedicated to North Korea, said in its latest weekly newsletter on Wednesday that a growing number of North Koreans died of starvation or hunger-caused diseases recently, especially in remote areas.

“Famine-driven deaths began to occur across North Korea in late June,” the report said. “In some cities and counties in the provinces of North Pyongan, Ryanggang, Jagang and South and North Hamkyong, the number of deaths is on the increase daily.”

The reports contradict widespread reports that the North’s food situation has improved significantly in recent years.

On Friday, Seoul started sending 50,000 tons of rice aid to North Korea overland as part of its promised loan of 400,000 tons of rice aid.

Over the next five weeks, the South is to deliver 30,000 tons of rice to the North via a road passing through the border town of Kaesong, while another 20,000 tons will be transported across a paved road on the east coast. South Korea is delivering 350,000 tons of rice to the communist country by sea.

South Korea resumed shipping rice aid to North Korea in late June after more than a one-year hiatus, as the North shut down its nuclear facilities in the first step toward eventual nuclear dismantlement.

Daily NK
Kim Min Se
7/20/2007

A newsletter published on the 18th by “Good Friends” a North Korean aid organization claimed that “On average 10 people die of starvation throughout North Korea.”

However well informed North Korea defectors and North Korean tradesmen who travel to China refute the organization’s claim and argue, “It would be difficult for that to happen.”

The organization published in its newsletter, “Since the end of June, starvation has been occurring in each province throughout North Korea” and informed, “The number of people dying in North Pyongan, Yangkang, Jagang, South and North Hamkyung continues to rise everyday.” 

In particular, Good Friends stated, “In South and North Hamkyung, about 10 people are dying of starvation in each city and province” and “On the whole, the people dying are aged 40~65 years.”

“Though the cause behind the deaths is different for each person, most of the complications are related to malnutrition” informed Good Friends. They added, “A mass famine has not yet begun, however authorities and people feel the threat of the situation” stressing the urgency of North Korea’s food crisis. 

An affiliate of Good Friends said, “Presently, only 20,000 tons of South Korea’s food aid is offered (to North Korea)” and commented, “This rate of aid is too slow in saving the lives of the dying people.” 

However, there are criticisms against this claim. Some argue that Good Friends had excessively inflated North Korea’s food crisis. 

Choi Young Il (pseudonym) questioned this claim by Good Friends after a telephone conversation with his family in North Korea on the 16th. He said, “Even up to two days ago, I spoke to my family on the phone but they didn’t mention anything about a food crisis.” 

Moreover, Choi said, “Alleging that about 10 people on average are dying in the cities and province of South and North Hamkyung is no different to saying that nearly 400 people are dying throughout the whole region of South and North Hamkyung every day” and added, “In that case, this is similar to the early period of mass starvation in the early 90s.” 

“Only looking at North Hamkyung, most of the people living in the border regions live off illegal trade through China and though they may not be living well, I was aware that they got by without having to eat porridge” Choi said and remarked, “I don’t believe the claim that 10 people are dying of starvation every day.” 

On the same day, Hwang Myung Kil (pseudonym) a North Korean citizen who came to Yanji to visit his relatives in China said in a telephone conversation with a reporter, “I cannot believe the rumor that people are starving to death around the border areas of the Tumen River” and commented, “I haven’t even heard stories of more people starving to death in the mines and they live in masses around Musan.”

Hwang said, “Even amongst the people in Musan, there are only a small number of people who live off corn for three meals a day… Nowadays, people look for quality rather than quantity.” Further, he said “Though life is tough, people have found their own way of survival. It’s not to the point of starvation.”

If according to Good Friends, 10 people are dying on average due to starvation, this situation would indicate signs similar to the mass starvation in the early 90s. However, the cost of rice claimed by Good Friends clashes with their claim. 

When North Korea faced their mass crisis in the mid-90s, the cost of corn rose dramatically. In October 1995, 1kg of corn cost 16won, but this doubled to 30won. However, there has not been much change to the cost of food in North Korea.

According to a recent survey by the DailyNK on the cost of goods in North Korea’s Jangmadang (markets), 1kg of corn rice at Hoiryeong markets sells for 450won and 1kg of rice produced in North Korea costs 900won. 

More importantly is the cost of cigarettes. A packet of Sunbong, a North Korean brand of cigarettes sells for 1,000won and “Cat” cigarettes for 1,300won. The cost of a kilo of rice is still cheaper than a packet of cigarettes. 

If North Korea’s starvation was on the brink of a massive food shortage, then it is expected that the cost of rice and corn would escalate dramatically as an onset to the crisis. 

On the other hand, Kim Il Joo (pseudonym) a Chinese tradesman and expert on North Korean markets said, “I can’t say that North Korea’s food situation is smooth, but I don’t think it will get any worse than this.” Kim said “Now you can eat new potatoes and soon new corn will be available on the markets” and added, “Then, I think we will be able to get through another year.”  

Deaths from hunger rise across N. Korea: civic group
Yonhap
7/18/2007

A growing number of people have died of starvation across North Korea since late last month, a South Korean civic group working to defend rights of North Koreans said Wednesday.

“Famine-driven deaths began to occur across North Korea in late June,” Good Friends said in a commentary carried in its weekly newsletter. “In some cities and counties in the provinces of North Pyongan, Ranggang, Jagang and South and North Hamkyong, the number of deaths is on the increase daily.”

In North Hamkyong Province, a daily average of ten people, mostly those aged between 40 and 65, died of starvation, the group added.

“The leading cause of death varied for each case, but most people are dying of famine-driven malnutrition and its complications,” the commentary said.

The price of rice rose steadily this month, with North Korea facing a crisis of massive deaths from hunger, it said.

The group then called on the Seoul government and the international community to send more emergency food aid to help North Koreans, especially through the just-reconnected cross-border railways.

In mid-May, the two Koreas conducted the historic test of the railways, reconnected for the first time since the 1950-53 Korean War. But it remains unclear when regular train service might start.

Korea Herald
7/19/2007

The international Red Cross will continue to help North Korea in treating measles-related illnesses, including medicine aid, the organization said Wednesday in its program update, Yonhan News Agency reported.

In the first phase of a joint immunization plan, the International Federation of Red Cross and North Korea campaigned to vaccinate 6 million children between 6 months and 15 years old.

“The DPRK Red Cross and the federation are contributing 10.2 million doses of vitamin A. The federation is also contributing 262,000 doses of ampicillin to health facilities in four provinces for the treatment of measels-related complications,” the update said.

DPRK stands for Democratic People’s Republic of Korea, an official name of North Korea.