North Korean Economy Watch

From the Daily NK
11/9/2006

On Tuesday, a number of residents in Hoiryeong, North Hamkyong Province mass-protested in front of the Nammun (a south gate) market for “compensation of market refurbishment payment” and against the merger of Hoiryeong markets, according to a North Korean source.

The inside source told the Daily NK through a telephone interview that evening ,“From this morning, more than a hundred shopkeepers, their families and the residents of Nammun district rushed to the market management office to request compensation of market refurbishment fees and repeal of Nammun market closure.”

The informant said that the mass protested against the local government because they were stirred by the authority’s decision. It is extremely exceptional that such a mass protest occurs in North Korean society.

They formed lines to present their opinions and in the meantime, some traders shouted phrases such as “Refund the refurbishment payments!” The primitive type of protest in North Korea, in which any kind of private mass activities are forbidden, means much more than western societies’ demonstrations. “No one particularly led the incident,” the informer testified, “but outraged merchants poured into the management office as a group.”
Security officers forcefully dispersed the protestors and crowd.

He added that Hoiryeong local security officers, fearing a spreading of the protest, forcefully dispersed the protesters and crowd. And it was not clarified whether any of the protestors got arrested.

Nammun market is two kilometers southeast of Hoiryeong city, and a frequent place for shopping of food and other basic supplies by local residents.

The incident occurred when the market management officials started to remove the market.

The officials had been collecting three thousand NK won per trader as “refurbishment fees” since late October.

That morning, however, the market management office ordered all the markets in Hoiryeong to be combined with newly constructed Hoiryeong Market, which is located former Hoiryeong Southern middle school, unilaterally, and started to remove the shops in the Nammun market.

Shopkeepers of Nammun market, having been unaware of such a decision, could not accept the order, the informant told the Daily NK. And none of them was guaranteed with a spot at the new Hoiryeong Market; even if one was, there would be a lot of time and money to be spent before actually having a shop at the new market.

Those shopkeepers of the Nammun Market, waiting for the opening hour, saw the removal of their stands, and sought the management officials. When they found any official unavailable, an angry outburst came.
There was a violent clash among angry residents.

The stand-owners and their families went to the office and asked accountable senior officials for compensation, which they did not receive. One protestor reportedly shouted, “It is ridiculous to walk five kilometers (to the new Hoiryeong Market) to buy a piece of Tofu!”

It was informed that amid the protest there was a violent clash among angry residents. When a man watching the demonstration said it was meaningless to protest, shopkeepers assaulted him for collaborating with the officials.

As soon as an act of violence happened, tens of security officers came to the site and dispersed the protestors and bystanders. Meanwhile, traders vehemently resisted and abused the security guards.

The newly built Hoiryeong Market is constructed at the site of closed Hoiryeong Southern middle school with about 700 sale stands, which are one meter long and a half meter wide. A down payment of 200,000 NK won (US$690) and daily rental fee of 10 to 30 won are required for a stand. Black market exchange rate is over 3000 won per US dollar while official one is 140 per a dollar.

From the Daily NK:
10/23/2006
Kang Jae Hyok

According to a North Korean source, while international community has been worried that North Korea will undergo “the second march of tribulation”, recently the number of North Korean people who lay in rice has been increasing.

Kim Jong Hee(pseudonym, 39), Chungjin resident said on the phone interview with the DailyNK that, “In spite of Fall, the price of rice is not decreasing”, and “These days the number of people who buy rice is sharply increasing”.

Kim added that from last June the price of rice is 1,000~1,200 won (0.30 US$~0.36 US$) per 1kg and in August it increased up to 1,300 won, yet even in October(now) the price is not decreasing. The price of corn wet up to 300 or 400 won.

It is natural that in fall the price of rice goes down and in spring goes up. So people lay in rice in fall. However, given that the price of rice does not go down until now, in the next spring it will be expected to go up more. Because of it, it seams that people lay in more rice in advance.

The exchange rate of yuan in black market is 360won of North Korea per 1 yuan. In 1990, the exchange rate was 1:25 and in 2002 after the 7.1. Economic Management Improvement Measure it was 1: 300. Recently it goes up to 1: 360. In addition, 1 dollar is 3,300 won of North Korea.
“Only interested in survival, never in nuclear test”

Responding to a question “do you know North Korea did nuclear test?”, Kim said that, “I do not care about whether the North Korean government did the test or not. I am busy supporting our family so I have time to think about that”. According to him, because there have been electronic lights there, people cannot know about what happened in the world.

Kim who is a vendor selling Chinese goods in Sunam market, Chungjin said that for a few days Chinese vendors have not come in Chungjin and now are around Haeryung. In the past the Chinese vendors came in once a week, yet now it is letting up at the same time the price of goods are increasing.

Regarding this trend, some people explained that because of the tension in Korean peninsular caused by the nuclear test the Chinese vendors have visited less and less and because of the censoring in goods introduced in North Korea, the amount of goods coming in North Korea has decreased.

Kim said that now Chinese goods in North Korean markets amount for more than 80%. If the sanction of China against North Korea is taken, the North Korean Jangmadangs will be negatively influenced.

Kim also said that, “Unless the Chinese goods are not introduced, we cannot survive”, and now it is the time to lay in rice for the next spring. This is what is most important to us now”.

New York Times:
10/19/2006
Norimitsu Onishi
Su-hyun Lee

Last March, Lee Chun-hak, a 19-year-old North Korean, went to the Chinese border to meet with a North Korean money trafficker. Using the trafficker’s Chinese cellphone, Mr. Lee talked to his mother, who had defected to South Korea in 2003. She told him she was going to get him out.

Mr. Lee missed his mother and his sister and brother, and he had a persistent, if half-formed, desire. “I wanted to go to a country that is more developed,” he said, “even more developed than South Korea.”

In June, a young North Korean man appeared suddenly at his home with a message: “Mother is looking for you.” The man then took him by bicycle and foot to the border and handed him over to a North Korean soldier. At the soldier’s direction, Mr. Lee was ordered to leave his identification card and his Kim Il-sung badge, which is worn by all North Koreans to honor the nation’s founder.

The soldier then escorted Mr. Lee across the Tumen River, where on the other side two Chinese men in plainclothes handed the soldier his bribe. Mr. Lee was free to go.

The increasing ease with which people are able to buy their way out of North Korea suggests that, beneath the images of goose-stepping soldiers in Pyongyang, the capital, the government’s still considerable ability to control its citizens is diminishing, according to North Korean defectors, brokers, South Korean Christian missionaries and other experts on the subject. Defectors with relatives outside the country are tapping into a sophisticated, underground network of human smugglers operating inside North and South Korea, China and Southeast Asia.

Learning anything about such a secretive and unpredictable country as North Korea, which isolated itself further by carrying out a nuclear test on Oct. 9, is difficult. Scraps of information provided by defectors often prove unreliable, influenced as they can be by the organizations that shelter and support them while also championing political or religious causes.

But snapshots of life inside the North, and a picture of this smuggling network, emerged from interviews with 20 North Koreans in Bangkok, as well as with brokers, Christian missionaries, government officials and people working in private organizations, in both Thailand and South Korea. The North Koreans in Bangkok were interviewed independently and had all recently arrived in Thailand.

Pieced together, the accounts provide glimpses of a government that, while still a repressive police state, is progressively losing the paramount role it used to enjoy in society, before it found itself incapable of feeding its own people in the famine of the 1990’s. The power of ideology appears to be waning in this nation of about 22.7 million as people have been left to scrounge for themselves, and as information has begun to seep in from the outside world.

The effects of money and corruption appear to have grown sharply in recent years, as market liberalization has allowed ordinary people to run small businesses and has enabled people with connections to prosper in the booming trade with China.

In a country whose borders were sealed until a decade ago, defectors once risked not only their own lives but those of the family members they left behind, who were often thrown into harsh prison camps as retribution. Today, state security is no longer the main obstacle to fleeing, according to defectors, North Korean brokers, South Korean Christian missionaries and other experts. Now, it is cash.

“Money now trumps ideology for an increasing number of North Koreans, and that has allowed this underground railroad to flourish,” said Peter M. Beck, the Northeast Asia project director in Seoul, South Korea, of the International Crisis Group, which has extensively researched the subject in several Asian countries and is publishing a report. “The biggest barrier to leaving North Korea is just money. If you have enough money, you can get out quite easily. It speaks to the marketization of North Korea, especially since economic reforms were implemented in 2002. Anything can be bought in the North now.”

“The state’s control is weakening at the periphery,” Mr. Beck said, explaining that most refugees came out of the North’s rural areas but few from around Pyongyang, where the state’s grip remained strong.

During the North’s great famine in the mid- to late 1990’s, a tide of 100,000 to 300,000 North Koreans is believed to have simply washed into China, and tens of thousands are still believed to be living there illegally, according to human rights organizations. These days, the number of refugees is believed to be much smaller, though there are few reliable figures.

According to the South Korean government, of the 8,740 North Koreans who are known to have fled to the South since the end of the Korean War in 1953, nearly 7,000 arrived in the last four years alone.

But the cost of getting out is significant, according to experts, defectors, brokers and missionaries. There are bribes for the soldiers stationed at the heavily guarded border, a regular cut to their supervisors, money handed to a chain of officials. And that is just on the North Korean side.

At the high end, $10,400 will buy a package deal to get someone out of North Korea and, armed with a fake South Korean passport, on a plane or boat to South Korea within days, according to brokers and a 40-year-old North Korean woman now in South Korea who recently extracted her 14-year-old son. But most North Koreans in South Korea pay on average about $3,000 to get relatives out through China and then Southeast Asia or Mongolia.

Some exits are short-term. One 37-year-old North Korean in Seoul, an employee at a large auto parts maker, said he went to China in April to meet a friend, a journalist in North Korea whom he had not seen in 10 years. For a few hundred dollars, smugglers took the journalist to Yanji, a bustling Chinese town on the border with North Korea, where the two spent the weekend drinking and catching up, the man said in an interview in Seoul.

Like many interviewed for this article, he asked that his name be withheld, for fear of reprisals against friends and relatives still in North Korea. He carried stacks of a South Korean newspaper, The Chosun Ilbo, for the journalist, who had no interest in reading the political stories. Instead, he devoured the business pages, though he puzzled over words like “online,” and marveled at how far the South had outpaced the North economically.

At the end of the weekend, the defector returned to Seoul and his journalist friend to North Korea.

“Doing this would have been unimaginable a few years ago,” he said. “This kind of corruption didn’t exist back then. Now, everything revolves around money.”

Escaping a Shaky Economy

After the end of the cold war, North Korea’s economy collapsed and its leaders adopted a strategy of trying to secure its energy and other essentials by threatening to become a nuclear power. They have adhered to this strategy even as they put into effect economic reforms in 2002, adopting market prices, allowing citizens to run small businesses and joining with South Korea in economic projects.

Though still shaky, the North’s economy has improved thanks to trade with China and South Korea. It grew by 2.2 percent in 2004, the sixth consecutive year of expansion, according to the Bank of Korea, South Korea’s central bank. Defectors and brokers said North Koreans were fleeing their country to rejoin relatives in the South or to look for economic opportunities — not because they were starving, as they were in the 1990’s. The threat of political persecution remains, of course.

In Seoul, Do Sung-hak, 39, a North Korean who came to the South in 2002, said his older brother was sent to prison three years ago after someone reported the brother’s private comments that North Korea was not opening its economy fast enough.

A few months after his release early this year, the brother fled the North with Mr. Do’s help. He is now in Thailand.

Mr. Do, who works as a security guard, said he had arranged to get about 20 people out of the North, using ethnic Korean-Chinese contacts he had made while living for six years in northeast China.

After receiving a request, Mr. Do said he would call a Korean-Chinese intermediary, who would then call a North Korean with a Chinese cellphone that works inside North Korea near the border. The North Korean or a partner would then travel to the relative’s hometown — the price of the service varying according to the distance — and take that person back to the border, where he or she would then talk to the relative in South Korea on a cellphone and make arrangements.

“It doesn’t matter if the person lives in the middle of the country — of course, it takes longer, maybe 10 days,” Mr. Do said. “It’s only a question of money.”

North Koreans living in the South also send money to their relatives back home through the same method, with the brokers taking at least a 20 percent fee, brokers and North Korean defectors said.

A 49-year-old broker in Seoul — nine of whose clients have arrived in Thailand recently — said she operated the same way, adding that those involved in the business in North Korea were Communist Party members.

“You can do that kind of work — being able to travel freely inside North Korea — only if you’re a party member,” said the woman, who added that she earned $2,500 to $3,000 a month.

The demand for this smuggling service has risen along with the increasing number of North Koreans living in South Korea. The North Koreans in the South pay to get their relatives out by working to pay for the fees, borrowing money or using resettlement money awarded to them by South Korea.

One River, Many Hardships

The case of Lee Chun-hak, the 19-year-old who fled the North on June 28, is a typical one. For the past two months, he has been in the Immigration Detention Center in Bangkok, where his mother, Kim Myung-shim, 46, visited him from Seoul the other day.

Mrs. Kim fled to South Korea in 2003, remarried and began working to arrange the defection of Mr. Lee and her two other children, who lived with her former husband in a province bordering China.

The three children were set to leave in late 2005. But before crossing the Tumen River into China, Mr. Lee balked — he did not want to leave his father and grandmother. His older sister and younger brother went ahead and, thanks to the $5,200 paid to brokers, were smuggled into Mongolia and arrived in South Korea last February.

Mr. Lee returned to his everyday life, going to school and, like many others, earning a little money by working at a nearby gold mine. People farmed corn and beans in the area where the surrounding mountains have been stripped bare for firewood.

The economy had improved in recent years, as the authorities allowed people to moonlight at places like the gold mine and to start small businesses. Local residents ate regularly, Mr. Lee said, though the portions were small. Still, he saw perhaps only two or three cars a day, and most people walked or rode bicycles.

After a few months, his sister in Seoul persuaded him to leave. Mr. Lee was now an adult and would find it hard to keep living with his father, who had remarried, Mrs. Kim said.

So on June 27, after his sister had made arrangements with a broker, the North Korean man picked Mr. Lee up in his hometown and took him by bicycle to a spot near the border, where he spent the night, he said. The next afternoon, they rode the bicycle and then walked to the Tumen River. Mr. Lee waded across, accompanied by the soldier.

“As long as you pay the soldiers, you can cross,” Mrs. Kim said, adding that she had paid $3,600 to the brokers for her son’s escape — $1,000 for the North Korea leg and $2,600 for China.

He found his way through China and Laos to Thailand where, following the advice of the brokers, he gave himself up to the authorities. Thailand does not repatriate North Korean refugees, incarcerating them instead while their cases are processed through the Office of the United Nations High Commissioner for Refugees in Bangkok. The process takes about three to four months, after which the North Koreans are sent to South Korea, though the United States recently accepted nine North Korea refugees.

Having learned that news in Bangkok, Mr. Lee said he no longer wanted to go to South Korea. “I want to go to the United States to study and become a scientist.”

Doubts About an Ideology

Many of the North Koreans interviewed in Thailand said they wanted to go to the United States, even though they were reared in a country that has demonized America for decades. In school in the North, one defector said, she had had been taught that Americans were “inhuman, promiscuous and dictatorial.”

“Even today, I still sometimes refer to the United States as ‘Imperialist America,’ ” she said, laughing.

But as a fourth grader, the woman said, she began to have doubts about that image of America, after she happened upon a photograph in a magazine. As she recalled, it showed a tightrope walker balanced on a wire between high-rise buildings in Washington. The implicit message was that the United States was such an inhumane country that it forced people to perform such jobs, she said.

“But what I remembered about that photo was the tall buildings,” she said. “There was also a beautiful park and clean, wide streets. It was fascinating. There was nothing like that where I grew up.”

North Korea still unleashes daily attacks against the United States through its official media, but the desire of many of the defectors interviewed to go to the United States suggests that the power of ideology is waning.

“After spending a few months in China, they change their minds about the United States,” said a South Korean missionary who regularly visits the North Koreans at the detention center. “In China, they have access to so much information. They look at Web sites and exchange instant messages with people in South Korea.”

Lee Chan, 36, who fled North Korea one year ago and entered Thailand in June, agreed that anti-American ideology was not as strong as it was in the past.

“People’s perceptions of the United States have changed inside North Korea,” he said. “I’ll give you one example. If you’re caught watching an American movie, the authorities will just swear at you — nothing else.”

In Bangkok, where South Korean Christian missionaries care for the defectors while trying to convert them, Lee Chun-hak’s mother, Mrs. Kim, was worried that her son had become too friendly with Mr. Lee, the defector who had emerged as a leader of the detainees. She was angry that her son had started smoking under Mr. Lee’s influence.

“Please look after Chun-hak,” the mother said to Mr. Lee, adding that her son had birthmarks on his head and face that foretold a great future. “That’s why I’m sending him to America.”

“Please guide my son,” she said, “even though he’s doing well alone.”

Mr. Lee, showing her a pack of Marlboros, said, “He’s doing well — he doesn’t smoke expensive cigarettes like I do.”

“Stop smoking!” the mother said.

A missionary began praying for Lee Chun-hak.

“Pray to God to send you to America,” the mother exhorted her son.
 

From the Daily NK:
If a Second Tribulation March Arrives?
10/17/2006
Han Young Jin

On the 14th, the Rodong Shinmun, a N. Korean state newspaper, urged “We must take a strong conviction in regards to socialism and go out to fight with faith and optimism.” On the 13th, the Minju Chosun (Democratic Korea), the government organ, claimed “Even if we have to face the second and third ‘Tribulation March,’ you need not worry. Rather we must fight with overt confidence and audacity.”

Ever since the nuke experiments government channels have been using this propaganda This suggests that North Korean authorities were already prepared for sanctions by the international community.

People’s mentality “If you trust the nation, you will die of starvation”

During the first “Tribulation March” in the mid-90’s, about 300,000 people died over a period of 3 years from starvation. What would happen if the second tribulation march was to occur as a result of the U.N. North Korea resolution? How would it differ from the first?

The reason that 300,000 people died from starvation lies in the fundamental man-made disaster, where Kim Jong Il’s political ideology of “government teachings” and development of reform were abandoned after his death to “revival of one’s own strength.”

Beginning with munitions workers, about 50,000 people who trusted and were loyal to the government, including many intellectuals such as scientists and technicians died of starvation.

When comparing the past to the present, the people of the 90’s trusted only in their government as they did not have any other knowledge. Thus they were hit with a sudden blow, however this time it is different, as the North Korean people are already filled with “immunity.”

Above all, North Korean people are now aware of their own existence and are saying “If you trust the nation, you will die from starvation.” At the time, people tacitly in trade knew that they would not die of hunger. Today, high officials have changed their mentality and have abandoned the ideology of being the “People’s emissary” to ‘I must devise a plan to live, while I have the power.’

Since 2000, irrespective of whether or not the nation distributed rations in the fall, people have begun to devise their own ways to live. While city dwellers are living off their trade, villagers are providing their own rations through cultivation and farming off mountains.

After the 7.1 economic measures, capitalism was steadily introduced and the people’s spontaneity increased. Hence, this time it seems that the mass starvation of the mid-90’s may be escaped.

However, as a result of long term malnutrition, it is possible that many deaths will occur from disease and infectious epidemics.

A complete breakdown in industry and infrastructure

According to data from the World Food Program (WFP) and Food and Agriculture Organization (FAO), North Korea’s output of grain in 95~96 was 4,070,000 tons and 2,874,000 tons in 96~97. This is a significantly low figure compared to the necessary amount of 6,400,000 tons.

Even today, little has changed. Last year, the typhoon caused an output of 4,800,000 tons of crop. Hence, the insufficient rations of the 90’s ‘Tribulation March’ period, is similar to this time.

During the first tribulation march, there was no electricity so factories ceased operations and workers began to sell equipment taken from their workplace in trade of rations. What happened was a collapse in the main infrastructure of factories.

The worker’s riot in 1996 that arose from suppression of operations at the Yellow Sea Iron Works, also originated from workers taking factory materials to trade for food. A defector from ‘September Iron Works’ in Pyongan said “During the tribulation march, everyone took materials from work to trade. If it occurs again, people will most probably dig up the main support.”

The infrastructure collapse of the 90’s was near to impossible to rebuild by North Korea alone. Since 1998, the economy has somewhat stabilized, however full reconstruction has never been acheived and rather only parts of the country has recovered.

The key point will be when China participates in the North Korea sanctions

If the second tribulation march was to occur, the main point will be commerce with China. Last March, Professor Xuwenji of Northeast Asia Research and Development Institute, Jilian University visited North Korea. He said “About 70% of North Korean markets are made up of Chinese products, 20% of products are made in North Korea and the remaining 10% is either Japanese or Russian products.”

Currently, daily necessary products such as toothbrushes, toothpaste, and soap, welding rods and even tires at North Korean markets are all made in China. In the case that the trade of daily necessities is disconnected, this will undoubtedly affect North Korea dramatically. In the end, the key point is to what extent China will compliantly follow the North Korea resolution.

The number of Chinese enterprises trying to evade North Korean investments is also variable. After North Korea’s nuclear experiment, rumors spread that Chinese banks beginning from Dandong had ceased remitting funds to North Korea and that many Chinese businesses had begun to suspend or terminate North Korean investments.

If commerce is suspended between North Korea and China, North Korea will not be able to satisfy all of its necessary daily products by relying on illicit trade.

There are also rumors that barbed wire will be placed bordering the region of the Yalu River, which will further affect smuggling of goods. As official trade between the two countries becomes illegal and daily necessities cannot be supplied from China through smuggling, the North Korean people will experience yet another fatal blow to their lives.

Furthermore, if North Korea does proclaim its second tribulation march and returns to the times of the mid-90’s, the Kim Jong Il regime could be greatly affected.

Above all, as the mentality of the people has changed, no longer will they listen submissively to the government. Rather, they will be more inclined to find ways to sustain their own life existence and make all attempts to defect to China. Amongst these circumstances, there may even be bloodshed between soldiers and the people.

Also, if high ranking military officials and soldiers decide that they cannot possibly live amongst these circumstances, it is possible that they will abandon their barracks. One thing is certain they will not simply sit around and wait to die from starvation. If high ranking military officials and soldiers did withdraw from their barracks on the mass, it is possible that the Kim Jong Il regime will face a threat to destruction.

From the Korea Herald:
Sanctions will cripple N.K. economy: KIEP
10/17/2006
Kim So-hyun

The international sanctions to be imposed on North Korea will further cut into the country’s moribund trade volume and drag it deeper into recession, a South Korean think tank said in a report released yesterday.

The sanctions – being taken under a U.N. Security Council resolution – will likely reduce the North Korean economy to a state worse than in the mid-1990s when millions died of hunger, the Korea Institute for International Economic Policy said.

“The North Korean economy is expected to contract much more severely than in the so-called ‘marching in torment’ times (in the mid-1990s),” the KIEP report said. “More financial sanctions and a block on foreign capital inflow will deepen the shortage of foreign currency, resulting in a wider gap between market and official exchange rates.”

The official exchange rate of the North Korean currency was 137 won to the U.S. dollar in the first half of 2005. However, the dollar was traded for between 1,900 won and 2,600 won in the market, up to 19 times higher than the official rate.

The prohibition of financial transactions and capital inflow is regarded as the most powerful punitive measure since it has been cited by Pyongyang as one of the main reasons for boycotting six-party talks and pressing ahead with its reported test of a nuclear device.

“Although trade accounts for less than 15 percent of North Korea’s gross domestic production, trade and support from neighboring countries allowed its economy to inch up a bit recently,” said Choi Soo-young of the Korea Institute for National Unification.

“Whereas the North could ask for international help when it suffered natural calamities such as draughts in the mid-1990s, it now has to live without such generous aid.”

Since the U.N. resolution bans direct or indirect supply of weapons or any materials that could contribute to the North’s weapons of mass destruction programs, a reduction in Chinese imports of related materials could trigger stagnation in the nation’s machinery, electronics and chemicals output, the KIEP report said.

“The trade volume between North Korea and China has surged by some 30 percent a year since 1999, and this has accelerated the North’s economic growth by 3.5 percentage points annually,” KIEP researcher Chung Seung-ho said.

China accounts for about 40 percent of North Korea’s relatively small volume of trade. South Korea, Thailand, Russia and Japan each take up 26 percent, 8.1 percent, 5.7 percent and 4.8 percent, respectively, according to Chung.

It remains to be seen whether neighboring countries will take individual measures in addition to the sanctions under the U.N. Security Council resolution.

The United States, Japan and Australia are considering harsher measures of their own while South Korea and China seem reluctant to follow suit.

“As China’s involvement in the sanctions is likely to be only symbolic, the level of South Korean participation will determine the degree of the North’s economic decline,” KINU’s Choi said.

China could consider reducing its uncompensated grants to North Korea, which soared 162 percent to $38 million last year, according to KIEP.

“China is expected to partially or entirely stop the trade of machinery and electronics that could be related to weapons of mass destruction in North Korea, but it wouldn’t go as far as forbidding private commercial trade across the border,” the report said.

“Stopping the supply of crude oil, for which North Korea depends entirely on China, is unlikely.”

From the Asia Times:
Business as usual across the Yalu
10/17/2006
Ting-I Tsai

Pyongyang’s proclaimed successful nuclear test, which has sparked anger and fear around the world and prompted passage of more UN sanctions, is not deterring Chinese business people living on the border from doing business with North Korea. They are confident that Beijing will not enforce really harsh punishments.

“For North Korea, reform and development is still its goal. It is just a matter of time. We are still keen on doing business there,” said Zeng Chengbiao, chairman of the Zhongxu Group which is based in Shenyang, capital of Liaoning province. Zeng has been planning to operate a department store in Pyongyang and is also interested in investing in mining there. Zeng said his company is preparing to announce a major investment after the Chinese Lunar New Year in February.

Zeng is a typical example of the hundreds of Chinese business people who remain enthusiastic about trading with or investing in North Korea, despite the international furor and unconfirmed reports about Pyongyang’s running out of electricity and food while major players in the Security Council debate punishments for North Korea’s nuclear test.

A sense of normality in Pyongyang and continuing routine bilateral interactions with China could be the reasons for these businessmen’s calm. “Everything is the same as usual. Lots of my clients are in town for business [after the test’s announcement],” said an anonymous Beijing-based trader, who has dealt with North Koreans for more than a decade.

In the Chinese city of Dandong on the North Korean border, and even in Pyongyang, Chinese businesspeople and citizens all claim confidence. “I checked with my friends at the customs, and they said that goods are in and out as usual,” said Liu Yen, a church worker from Dandong.

In Pyongyang, Chinese traders are still answering calls made to their North Korean 10-digit mobile phones, hoping to find more sources for soybean oil, sugar, monosodium glutamate and flour. Michel Ji, representative of Jilin Cereals, Oil, Foodstuffs, Import and Export Group in Pyongyang, who has been traveling back and forth between the two nations for four years, said that his company has imported up to10 million tons of sugar, MSG and oil from North Korea. Prices of products from China, he said, are still too high.

“There will definitely be sanctions, but none of them will affect people’s livelihoods,” Ji said.

Since Pyongyang initiated economic reforms in July 2002, Chinese businessmen have crowded into North Korea – perhaps the last virgin territory for capitalism. China’s non-financial direct investment in North Korea was about US$14.37 million in 2005 and $14.1 million in 2004, according to the Chinese Commerce Ministry.

Bilateral trade reached almost $1.4 billion in 2004, and jumped to about $1.6 billion in 2005, while during the first eight months of 2006 it hit $1 billion.

Some 40 Chinese companies from Liaoning province alone have just returned from North Korea after attending the second Pyongyang Autumn International Commercial Exhibition. A Pyongyang-Tianjin joint-venture bicycle manufacturing company, which reportedly produces 300,000 bicycles annually, dominates North Korean’s bicycle market, while more companies are waiting for the two governments’ approvals for investing in the slowly opening nation.

Shortly after Pyongyang’s announcement of its nuclear test, Tokyo declared a total ban on North Korean imports and prohibited North Korean-flagged ships from entering Japanese ports. North Korean nationals are also prohibited from entering Japan, with few exceptions.

Over the weekend, the Security Council approved the US-sponsored resolution for imposing punishing sanctions against North Korea. The sanctions demand that the North abandon its nuclear weapons program and orders all countries to prevent North Korea from importing or exporting any material for weapons of mass destruction or ballistic missiles. It orders nations to freeze assets of people or businesses connected to these programs and bans individuals from traveling there.

Furthermore, the resolution calls on all countries to inspect cargo leaving and arriving in North Korea to prevent any illegal trafficking in unconventional weapons or ballistic missiles. The final draft was softened from language authorizing searches, but was still unacceptable to China – the North’s closest ally – which said it would not carry out any searches.

“China will not go too far,” predicted Cui Yingjiu, a Beijing-based retired academic who was Kim Jong-il’s classmate during his studies at Pyongyang’s Kim Il-sung University in the early 1960s. Aside from concern about China’s national interests, analysts in Beijing also doubt the significance of any harsh punishment, as they believe the North Korean economy is relatively independent.

“They can still live by simply eating grass. What would these economic sanctions really do?” said Niu Jun, professor at the Peking University’s School of International Relations, who visited North Korea in July.

Shortly after the UN resolution passed, US ambassador to the UN John Bolton told reporters that the next step was to start work on implementing the resolution. But none of the current moves are scaring away Chinese businessmen.

From Reuters:
North Korea’s Kim Jong-il can withstand sanctions
10/16/2006
Jonathan Thatcher

North Korea’s elite, from one of the world’s poorest countries, may soon have trouble importing the fine cognac they reportedly favor but they are unlikely to buckle under new U.N. sanctions, analysts said on Monday.

Longer term, the resolution unanimously agreed by the U.N. Security Council on Saturday will pinch an already damaged economy but it is the masses who will likely be most hurt.

“The regime has shown it doesn’t mind if its people feel the pain,” said one diplomat in Seoul of the North Korean government, which is routinely accused of human rights abuses and up to 10 percent of whose population died during famine in the 1990s.

Under the Security Council resolution over Pyongyang’s reported nuclear test, nations can stop cargo going to and from North Korea to check for weapons of mass destruction.

It blocks trade with the secretive country in dangerous weapons, heavy conventional weapons and luxury goods. And it asks governments to freeze funds connected with its WMD program.

“The practical effect is questionable,” said Professor Nam Sung-wook of Korea University, an expert on North Korea.

“They (the countries supporting sanctions) are in bed together but they’re all dreaming different dreams,” he said.

Analysts said that the way China — the nearest the isolated North has to an ally — interprets the sanctions will be very different from Japan, which has demanded tough action.

In an interview with Reuters at the weekend, former President Kim Dae-jung and architect of        South Korea’s policy of engagement with the North, said the sanctions would have little effect.

“North Korea is already very familiar with poverty. The country can also get support, at least in order to survive, from countries such as China.”

The U.N. World Food Program’s Asia regional director, Anthony Banbury, said his concern was that the overall environment, including action by the North, was making it more difficult to reach people just as aid needs rise.

“I can guarantee you that right now there are severe food shortages. There is no question that there are large numbers of North Koreans … who are facing quite severe food problems,” he said by telephone from Bangkok.

RISK OF DANGEROUS VACUUM

The diplomat said no one, least of all China or South Korea, wanted a sudden collapse of North Korea’s government that could create an even more dangerous vacuum in a country with one of the world’s largest standing armies.

“In the short-run, I don’t think the sanctions will have a significant impact. They’ll have political and symbolic implications,” said Park Young-ho, a senior researcher at the Korea Institute for National Unification.

But over time there will be a negative impact on the economy and that, Park said, could put North Korean leader Kim Jong-il and his government under greater pressure to rattle the world with another test.

Peter Beck, Korea analyst in Seoul with the International Crisis Group, said he doubted the U.N. resolution would have any noticeable impact other than to give the North an excuse to ignore the        United Nations and conduct a second nuclear test.

“I do not think it will have any impact on putting pressure on the regime or increasing the prospects for regime change,” Beck said.

Korea Times
Andrei Lankov
10/15/2006

What is happening to the Korean Workers’ Party, once the locus of all power in North Korea? What will be its fate? I suspect that nowadays these questions are asked not only by Pyongyang watchers, but also by many North Koreans. Indeed, something strange has happened to North Korea’s ruling party. Since the inception of the DPRK in 1948, the Korean Workers’ Party has remained the core of its political system. It was a typical specimen of the Stalinist-type Communist Party: highly centralized and subordinated to the will of the god-like “leader”.

On paper, the KWP appears to be quite democratic: for example, its committees are supposedly elected by the respective assemblies of Party representatives. However, quasi-democratic features and regulations bear no relation to the harsh realities. The “elections” meant an obligatory vote in support of the pre-arranged list of candidates, and for decades no party member has been sufficiently insane to use his presumed right to criticize, say, Kim Il Sung or Kim Jong Il.

Nonetheless, the Leninist Party has always been a rather rococo structure grafted onto an otherwise rational design of a Stalinist state. Its functions were not well defined, its interaction with more conventional state bodies was full of controversies, and many of its quasi-democratic conventions were expensive and patently hypocritical. It acted as a sort of central command network which ensured that all parts of the state mechanism were working according to the wish of the leader and/or ruling oligarchy. But it was not very rational, one has to admit.

In the last years of Kim Il Sung’s rule it became clear that the Great Leader was ready to jettison some of the traditions related to the Party. On paper, the KWP was supposed to hold a Congress every five years. In reality, there were only two KWP Congresses convened in the last 40 years: in 1970 and 1980. Kim Il Sung was running the country directly, using the Party bureaucracy as but one of many available tools.

When Kim Jong Il assumed supreme power after his father’s death, this move from the old tradition became more discernible. It was presumed that Kim Jong Il’s elevation would be formally ratified by a large and pompous party convention. It did not happen: Kim Jong Il was elevated through a chain of local party conferences. The meetings of the Central Committee, a convocation of some 230 Party heavyweights, also became rare and irregular under his rule. It appears that since 1993 this once powerful body has met only once, in October 1997, to confirm Kim Jong Il’s elevation to the position of leader of the country.

In recent years celebrations of Party history have been scaled down, and even October 10, the KWP Foundation Day – one of the nation’s major holidays – is no longer marked by pompous ceremonies.

Well, if the Party is going to be downgraded as the major state management tool, what will replace it? The answer is simple: the armed forces. According to official North Korean publications, as early as New Years Day 1995 Kim Jong Il suggested a new strategy, called the “army-first policy”. We do not know how soon it took precedence, but from 1998 references to the “army-first line” became routine in the North Korean press.

Why such a change? There is a great deal of pragmatism in attempts to woo the military top brass. After all, they have real power, and can be potentially dangerous. Before Kim Jong Il ascended to his position, there were speculations that the military was ready to get rid of him once his father died. This did not happen, but there are persistent rumours about an unsuccessful military coup which allegedly took place in the mid-1990s. Thus, flattering the generals by telling them about their special role is a good strategy, especially if sweet words are supported by deeds. Indeed, the army enjoys a great freedom in money-making activities, and many generals are now capitalists-in-the-making.

It is very likely that the “army-first policy” was conceived as an attempt to do away with the disastrously inefficient state socialist model and replace it with some sort of controlled capitalism – one controlled by the Kim family, of course. The generals and chiefs of the political police and intelligence services are probably seen as the best material available from which to produce locally grown capitalists.

But if this is the case, can we describe as “Stalinist” a state without a Leninist party and without a state-run industry? Probably not. I suspect that Stalinism in the North is dead or, at least dying.

From counterpunch.org:
10/14/2006
Gary Leupp

All three countries labeled “the Axis of Evil” by President Bush in 2002 are presently religious states. Iran is of course a Shiite theocracy, while the government of formerly secularist Iraq—to the extent it has a government at all—is dominated by Shiite fundamentalists. North Korea has long practiced its state religion, Kim Il-songism.

According to North Korean scriptures, when the Great Leader Kim Il-song died in 1994, thousands of cranes descended from Heaven to fetch him, and his portrait appeared high in the firmament. Immediately villages and towns throughout the nation began to construct Towers of Eternal Life, the main one rising 93 meters over Kim’s mausoleum in Pyongyang. The Great Leader’s son, the Dear Leader Kim Jong-il, took power, declining to assume the title of President. The Constitution of the Democratic People’s Republic of Korea restricts that title forever to the Great Leader, whom the Dear Leader has proclaimed, “will always be with us.” The Dear Leader himself was born on Mt. Paektu, the highest mountain in Korea and Manchuria long revered by Koreans as sacred and the birthplace of their nation, in 1942. (Unbelievers say he was born in 1941 in Vyatskoye, in Siberia, in the Soviet Union.) His birth in a humble log cabin brought joy to the cosmos: a double rainbow appeared over the peak, a new star rose in the heavens, and a swallow descended to herald his birth. (Thus he is called, among other monikers, the Heaven-Descended General.) When he was 32 years old, the Workers’ Party of Korea and the people of Korea unanimously elected him their leader. When he visited Panmunjom, a fog descended to protect him from South Korean snipers, but when he was out of danger, the mist dramatically listed and glorious sunlight shone all around him. . . You get the idea.

Now, how did it come about that a socialist republic established by a Marxist-Leninist party in 1948 came under the spell of this state religion and its peculiar mythology? Some might say that Marxism-Leninism is itself a religion, but they misapply the term. “Religion” proper doesn’t refer to just any ideology or thought system, but only to those that posit supernatural phenomena such as life after death, miracles and the existence of deities. Marxism as a variant of philosophical materialism explicitly rejects such phenomena. Some socialist societies have surely produced personality cults, distorted or fabricated histories, dogmatism and fanaticism. And of course when a leader dies, the party has said, “He will always be with us” in a metaphorical sense. The Soviets early on adopted the custom of embalming revolutionary leaders, and the Chinese, Vietnamese and Koreans have followed suite. But what we see in the DPRK is more than a personality cult. It seems to me more akin to the State Shinto imposed on the Korean peninsula by the Japanese imperialists after 1905.

State Shinto, itself developed after 1868 in specific emulation of European state churches, emphasized the divine origins of the Japanese emperors, descended in an unbroken family line from the establishment of the Empire by Jinmu, great-great-grandson of the Sun Goddess Amaterasu. State Shinto emphasized the kokutai or “national essence,” the unbreakable unity of the Japanese islands (born from the bodies of the kami or gods), the Japanese people, their divine emperor, and all the kami with the Sun Goddess at their head. It was a vague concept that boiled down to obedience to state authority and to that solar disk national flag. (We find this sun worship meme in Kim Il-songism too. The DPRK Constitution states, “The great leader Comrade Kim Il Sung is the sun of the nation and the lodestar of the reunification of the fatherland.” A monumental artwork called “the Figure of the Sun” erected to mark the 100-day memorial service for Kim in 1994, adorns a hill overlooking Pyongyang.)

The Meiji-era reformers who created Japan’s state religion were well-educated men who probably didn’t believe the mythology literally, but thought it would allow for the effective control of the indoctrinated masses. It did in fact work fairly well, up until Japan’s crushing defeat in 1945. The U.S. Occupation then abolished it (leaving “folk Shinto” as opposed to State Shinto alone), and forced Emperor Hirohito to publicly renounce any claim to divinity. He could have been tried for war crimes; the Allies could have ended the myth-shrouded monarchy right then. But the U.S. Occupation authorities found the residual aura of sanctity surrounding the office useful. Hirohito was, to Gen. Douglas MacArthur, the “queen bee” whose cooperation would ensure mass compliance with Occupation objectives. The emperor remains a sacerdotal figure, the High Priest of the Shinto faith, enthroned in a religious ceremony, offering prayers on behalf of the nation to the gods.

Growing up under Japanese occupation, Kim Il-song could have observed the usages of a state religion in the service of a hereditary monarchy linked to Heaven. Maybe these observations subconsciously affected the evolution of his thinking. Once in power in North Korea, from 1945, he increasingly built a personality cult, initially modeled after Stalin’s but by the 1970s plainly monarchical in nature. It integrated Confucian values of filial piety and obedience, and glorified the entire family of the Great Leader, including especially the crown prince Jong-il.

Tens of thousands of “research rooms” have been constructed throughout the country, which persons are required to visit at regular intervals, bowing to the portraits of the two Kims the way that all Japanese (and colonized Koreans and Taiwanese) used to have to bow to the Japanese emperor’s portrait.

As Hwang Jang Yop, once International Secretary of the Korean Workers’ Party, has written, “Kim Jong Il went to great lengths to create the Kim Il Sung personality cult, and Kim Il Sung led the efforts to turn Kim Jong Il into a god.” (It is perhaps not surprising that the Great Leader warmly welcomed the Rev. Billy Graham to Pyongyang in 1992 and 1994, where he preached his brand of Christianity in Protestant and Catholic churches and at Kim Il-song University. Kim was no doubt appreciative of the power of religion, having created his own.)

The Chinese communists (when they were communists) referred poetically to “heaven,” as in the 1970s expression “There is great disorder under heaven, the situation is excellent.” Chinese Confucianism and Daoism both allude to Heaven (Tian) in the sense of a moral cosmic order that confers its mandate on successive dynasties of Chinese rulers. The word occurs in Chinese literature in so many contexts that it’s natural for Chinese Marxists to use it metaphorically. But Kim Il-song chose “believing in the people as in heaven” as his motto, implying perhaps that one should believe in both; and wrote a poem on the occasion of his beloved son’s 50th birthday: “Heaven and earth shake with the resounding cheers of all the people united in praising him.” He really seems to have wanted the people to believe in a celestial realm conferring its mandate on his dynasty.

In a Tungusic myth, the ancient Korean nation of Choson was founded by the son of a bear who had been transformed into a woman by Hwanung, ruler of a divine city on Mt. Paektu, and a tiger. I’ve read that this myth has been reworked to suggest to North Korean school children that the Kims came down from heaven to the top of the sacred mountain, where they were transformed into human beings. (There may be some shared memes with Shinto here. In the Japanese myth, the grandson of the Sun Goddess descends to earth, to a mountain peak in Kyushu, marries the daughter of an earthly deity, loses his immortality, and begets two sons one of whom sires the first emperor, Jinmu, by a sea princess who turns out to be a dragon. The Japanese imperial family also came down from heaven, and became human.) Heaven clearly plays a role in Kim Il-songism as it did in State Shinto.

Where does Marxism-Leninism fit in here? According to one report, while there are portraits of the Great and Dear Leaders all over Pyongyang, “there are only two public pictures in Pyongyang of people who do not belong to the Kim family–in the main square are two smallish images, one of Marx and one of Lenin.”

That suggests at least some small formal deference to the communist pioneers. But the Dear Leader stated in a major speech in 1990:

“We could not literally accept the Marxist theory which had been advanced on the premises of the socio-historic conditions of the developed European capitalist countries, or the Leninist theory presented in the situation of Russia where capitalism was developed to the second grade. We had had to find a solution to every problem arising in the revolution from the standpoint of Juche.”

This is the supposedly brilliant idea of “self-reliance” or as the Great Leader put it, the principle that “man is the master of everything and decides everything.” (The “standpoint” of course sounds rather trite and vague at worst, while not overtly religious. But born out of Kim’s brain supposedly when he was only 18 years old, it is the faith of the masses and the ideological basis for the state—rather like kokutai in prewar and wartime Japan.) The DPRK’s new (1998) Constitution omits any reference to Marxism-Leninism whatsoever. Rather the document “embodies Comrade Kim Il-song’s Juche state construction ideology.”

Still, those portraits of Marx and Lenin are there in Pyongyang. DPRK propaganda continues to describe the late Kim as “a thoroughgoing Marxist-Leninist.” Juche is described as a “creative application of Marxism-Leninism.” The Korean Workers’ Party continues to cultivate ties with more traditional, perhaps more “legitimate,” Marxist-Leninist parties including the (Maoist) Communist Party of the Philippines.

Some material by Marx, Engels and Lenin circulates in North Korea, and the Marxist dictum, “Religion is the opium of the masses” is universally known. But according to a Russian study in 1995, “the works by Marx, Engels, and Lenin are not only excluded from the standard [school] curriculum, but are generally forbidden for lay readers. Almost all the classical works of Marxism-Leninism, as well as foreign works on the Marxist (that is, other than [Juche]) philosophy are kept in special depositories, along with other kinds of subversive literature. Such works are accessible only to specialists with special permits.” (One thinks of the Catholic Church in the Middle Ages restricting Bible reading to the trusted clergy, and discouraging it among the masses.)

I imagine some with those special permits are able to read Marx’s famous 1844 essay in which the “opium of the masses” phrase occurs:

“Religious distress is at the same time the expression of real distress and the protest against real distress. Religion is the sigh of the oppressed creature, the heart of a heartless world, just as it is the spirit of a spiritless situation. It is the opium of the people. The abolition of religion as the illusory happiness of the people is required for their real happiness. The demand to give up the illusion about its condition is the demand to give up a condition which needs illusions.”

Maybe the rare North Korean student of Marxism, acquiring some real understanding of the Marxist view of religion, can see all around him or her conditions which require mass illusions and delusions in order to continue. There are some signs of resistance here and there to the Kim cult, which would seem to be a good thing.

Having said that (and always trying to think dialectically), I don’t believe that life in the DPRK is quite the hell—another religious concept—that the mainstream media would have us believe it is. One should try to look at things in perspective. We hear much of the terrible famine that lasted from about 1995 to 2001, killing hundreds of thousands if not millions. But North Korea was not always a disaster. As of 1980, infant mortality in the north was lower than in the south, life expectancy was higher, and per capita energy usage was actually double that in the south (Boston Globe, Dec. 31, 2003). Even after the famine and accompanying problems, a visitor to Pyongyang in 2002 declared:

“Housing in Pyongyang is of surprising quality. In the past 30 years–and mostly in the past 20–hundreds of huge apartment houses have been built. Pyongyang is a city of high-rises, with probably the highest average building height of any city in the world. Although the quality is below that of the West, it is far above that found in the former Soviet Union. Buildings are finished and painted and there is at least a pretense of maintenance; even older buildings do not look neglected. Nothing looks as though it is on the verge of falling down. . .

“Although a bit dreary, the shops in Pyongyang are far from empty. Each apartment building has some sort of shop on the main floor, and food shops can usually be found within one or two buildings from any given home. Apart from these basic, Soviet-style shops, there are a few department stores carrying a wide range of goods. . . “While not snappy dressers, North Koreans are certainly clean and tidy, and exceptionally well dressed. . . There is no shortage of clothing, and clothing stores and fabric shops are open daily.”

There’s apparently one hotel disco and some karaoke bars in Pyongyang. No doubt Kim Il-songism can provide some with the “illusory happiness” about which Marx wrote, and it is possible that genuine popular feelings as well as feelings orchestrated from above have contributed to the production of the North Korean faith. The DPRK might not be all distress and oppression. But neither is it a socialist society in any sense Marx or Lenin would have recognized, to say nothing of a classless, communist society. It is among other things a religious society in a world where nations led by religious nuts are facing off, some seemingly hell-bent on producing a prophesized apocalypse. I find no cause for either comfort or particular alarm in the Dear Leader’s October 9 nuclear blast; if it deters a U.S. attack it’s achieved its purpose, and however bizarre Jong-il may be he’s probably not crazy enough to provoke his nation’s destruction by an attack on the U.S. or Japan. I’m more concerned that Bush will do something stupid in response to the test.

In any case, the confrontation here isn’t between “freedom” and “one of the world’s last communist regimes,” nor even between fundamentalist Christian Bush and Kim Il-songist Kim Jong-il. It’s between a weird hermetic regime under threat and determined to survive in its small space, using a cult to control its people, and a weird much more dangerous regime under the delusion that God wants it to smite His enemies and to control the whole world. Both are in the business of peddling “illusions of happiness.” Neither is much concerned about the “real happiness” of people. Both ought to be changed—by those they oppress, demanding an end to conditions requiring illusions.

Gary Leupp is Professor of History at Tufts University, and Adjunct Professor of Comparative Religion.

Financial Times
10/13/2006
Anna Fifield

As the countries of the United Nations wrangle over the sanctions to be imposed on North Korea following its nuclear test this week, doubts are being cast on the effectiveness of whatever measures are agreed.

With China and South Korea fearing the collapse of their volatile neighbour, and with a large proportion of North Korea’s income coming from illegal trade, even targeted sanctions would have a limited impact. The regime has already survived the death of its founder and a famine that killed up to 10 per cent of its population.

Rüdiger Frank, a North Korean economy specialist at the University of Vienna, said: “I don’t think there is any more room for more sanctions from the usual suspects. To be effective, China and South Korea have to join.

“But a nuclear North Korea is even more risky in case of collapse than just a humanitarian catastrophe, so why would they increase the chance of a collapse.”

North Korea says its missile launches in July and the nuclear test were “self-defence” in response to US financial sanctions imposed in September last year to curb alleged counterfeiting and money laundering.

Now the US, Europe and Japan are all calling for a tough UN resolution and authorisation for countries to interdict shipments to and from North Korea, both of which China is opposing.

The dispute over the extent of sanctions reflects differences over the purposes of the measure. While the US and perhaps Japan are eyeing regime change, China and South Korea would be happy with a change in behaviour.

Marcus Noland, of Washington’s Institute for International Economics, said economic sanctions were seldom effective in changing behaviour.

“If the sanctions were going to have any shot at working they would have to be comprehensive sanctions, as suggested by Japan,” he said. “That package was big enough to potentially have an impact and it also had the benefit of simplicity, but they would also imply a significant degree of hardship for ordinary people.”

But the suggested targeted sanctions were too weak to be effective and because of their complexity, they almost invited circumvention, Mr Noland said.

“Weak sanctions may be counterproductive because President Bush and President Roh [of South Korea] warn that they will not tolerate a nuclear test but they are not imposing the penalties or incentives to back it up. That might tempt North Korea to push the envelope even further,” he said.

Much of the crisis can be traced back to North Korea’s dire economic situation. The differences between the North and South Korean economies could not be more stark. The mineral-rich north had always been the industrial heartland and the more fertile South was traditionally the rice bowl.

Indeed, the South’s gross domestic product did not overtake the North’s until the early 1970s but now at $700bn (£377bn, €558bn), it is about 40 times larger than that of the North’s.

Economic reforms that Pyongyang begrudgingly introduced in 2002, which liberalised prices and wages, have led to some changes in North Korea’s decrepit economy and trade has grown exponentially.

The South’s Korea Trade Investment Promotion Agency estimates the value of North Korea’s legal foreign trade crossed the $3bn mark last year, the highest since the Soviet Union collapsed in 1991, with trade with China comprising more than half of the total.

But it is North Korea’s sizeable illegal trade that will further dilute any economic sanctions. Analysts suggest North Korea earns about one-third of its revenues from aid, one-third from conventional exports and the remainder from criminal activities.

Crime is such a fundamental part of North Korea’s economy that David Asher, co-ordinator of the US State Department’s North Korea working group from 2003 to 2005, calls the country the “Soprano state”.

“North Korea is perhaps the only country in the world whose embassies and overseas personnel are ex-pected to contribute income to the ‘Party Centre’, not rely on central government funds for their operations,” said Mr Asher in a speech at the Wilson Centre last November.

Several North Korean diplomats have been caught carrying narcotics through eastern European countries in recent years. In 2004, a North Korean ship carrying $150m worth of heroin was seized in Australia.

Pyongyang has also been producing and distributing counterfeit US dollars, cigarettes and pharmaceuticals, especially the erectile dysfunction drugs Viagra and Cialis.

Counterfeit cigarettes are said to depart regularly from the North Korean ports of Rajin and Nampo for shipment through China and South Korea to the rest of the world, and tobacco companies have identified factories producing counterfeit cigarettes in North Korea.

But the international community is now most concerned about the prospect of North Korea trading missile and weapons of mass destruction technology, a concern that is only likely to be heightened with sanctions.

Jon Wolfsthal, of the Centre for Strategic and International Studies in Washington, said: “North Korea is probably going to want to hold on to their precious weapons technology. But if the US squeezes them, that increases the risk that they might sell weapons to ensure their survival.”