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IFES February 2009 recap

Thursday, March 5th, 2009

Institute for Far Eastern Studies (IFES)
(NK Brief No. 09-3-3-1)
3/3/2009

INTER-KOREAN RELATIONS
As February began, North Korea continued to publicly warn that the two Koreas were on a path toward war, stating on February 1 that downward spiraling relations between the two Koreas were brought on by ROK President Lee Myung-bak The (North) Korean Central News Agency (KCNA) printed that Lee’s policies toward the North were “the very source of military conflicts and war between the North and the South,” and warned that tensions on the peninsula “may lead to an uncontrollable and unavoidable military conflict and war.”

Poll results released by the Korea Economic Research Institute on February 2 indicated that 68.4 percent of South Koreans support President Lee Myung-bak’s aid-for-denuclearization policy toward the North, and a separate poll by Gallup Korea showed on February 23 that 62 percent of South Koreans blame North Korea for strained inter-Korean relations.

A South Korean official stated on February 4 that 3,000 tones of steel plates that were to be sent to North Korea as part of the energy aid-for-denuclearization deal reached in 2007 would be delayed due to the North’s recent saber-rattling. According to the official, “It is hard to predict when we will send the steel plates. For now, we are not even seriously considering the timing…North Korea should first change its attitude.”

The South Korean government has shot down a project by an ROK journalist organization that would allow the exchange of news with North Korea. It was reported on February 4 that a Unification Ministry Spokesman Kim Ho-nyoun stated, “There are concerns that the exchange of news articles may undermine national security, public order and the interests of the general public.”

On February 16, it was reported the ROK Defense Minister Lee Sang-hee has mandated field commanding officers in all branches of the South Korean military to immediately respond to any North Korean provocation without first seeking permission from superiors. This has further heightened concerns over the possibility of a naval confrontation in the Yellow Sea around the disputed Northern Limit Line.

On February 19, North Korean media warned, “Now that the political and military confrontation between the North and the South has gone into extremes, a physical clash may break out at any moment,” and, “North-South relations have reached such a pass that there is no way to improve them or bring them under control.”

INTER-KOREAN TOURISM
Hyundai Asan, the South Korean company running the Kumgang Mountain tourist resort and the Kaesong City tours in North Korea is on the brink of bankruptcy. A Hyundai representative stated on February 4, “We are reaching a critical situation…unless the tours resume by April, it will be difficult for us to stay afloat.” Hyundai Asan brought in 255.5 trillion Won, or approximately 170.3 million USD, through tour sales in 2007, but in 2008, the company sold only 228.8 billion Won, or 152.5 million USD-worth of tours in 2008. The company employed 1,084 workers when tours were in operation, but has cut back to 479 employees. Of those, approximately 20 percent are receiving only 70 percent of their wages while they work from home. The tours have been on hold since a South Korean tourist was shot and killed at the Kumgang resort last summer.

ROK lawmaker Song Hun-suk stated on February 22, “Since the suspension of the [tourism] program, dozens of South Korean businesses and approximately 1,000 travel agents that offered organized trips to the North have gone to the brink of bankruptcy,” and he reported that approximately 30,000 North and South Koreans were on the verge of unemployment due to the travel ban, with 80 percent of shops and restaurants in South Korea’s Gosung, Gangwon Province, which is near the border, have been forced to close due to the absence of tourists passing through.

INTER-KOREAN TRADE
On February 3, the Korea International Trade Association (KITA) launched a new website, “Inter-Korean Economic Cooperation Information Center”, at http://interkoreatrade.kita.net. The website is designed to provide information and education on North Korean investment and inter-Korean cooperation

On February 8, South Korea’s Unification Ministry released statistics for 2008 regarding the Kaesong Industrial Complex. According to the ministry, production in the complex was up 36 percent over the previous year, reaching a value of 251.42 million USD. The total value of goods produced in the complex since it began operations in 2005 comes to 524.84 million USD.

The Economic Times ran an article on February 15 titled, “Ever heard of Gaesung? Gear up for its products,” in which it reports that the India-South Korea Comprehensive Economic Partnership Agreement (CEPA) soon to be signed will mean that India recognizes goods produced in the Kaesong Industrial Complex as South Korean goods.

ROK UNIFICATION MINISTER
On February 12, Korea University Professor of Political Science Hyun In-taek was sworn in as the new South Korean minister of unification. At his inauguration, Hyun stated that he is willing to meet with North Korean counterparts “at any time, at any place” in order to repair inter-Korean relations. Hyun has been criticized as being a hardliner, and an architect of the Lee Myung-bak administration’s “Vision 3000: Denuclearization and Openness” policy. Hyun was a key advisor during Lee’s presidential campaign, at which time Lee introduced the Vision policy, and was also a member of Lee’s presidential transition team, which at one point had advocated the shuttering of the Ministry of Unification.

U.S.-DPRK RELATIONS
A group of high-ranking former U.S. officials now advising the Obama administration on the DPRK visited North Korea during the first week of February. The group included Stephen Bosworth, Jonathan Pollack, Morton Avramowitz, and Leon Sigal. The delegation reported that North Korea does not appear to be rushed, and that they had taken a “wait and see” attitude in Pyongyang. Bosworth stated that “[North Korean officials] understand the Obama administration will need some time to sort itself through the policy review and the expressed patience, there is no sense of alarm or urgency.” He also noted that the officials were willing to move forward with denuclearization talks.

Leon Sigal stated on February 1, just prior to his visit to the North, “the Obama administration should promptly send a high-level emissary, perhaps former President Bill Clinton or former Secretary of State Henry Kissinger, to Pyongyang.” Sigal also wrote in an online opinion piece that Obama should “hold a summit meeting with Kim Jong-il in return for North Korea disposing some of its plutonium.”

On February 2, the U.S. State Department announced that it would impose sanctions on three North Korean companies for missile export violations. In accordance with the Arms Export Control Act, the Export Administration Act of 1979, the International Emergency Economic Powers Act, the National Emergencies Act, Executive Order 12851 of June 11, 1993, Executive Order 12938 of November 14, 1994, the Korea Mining and Development Corporation, the Mokong Trading Corporation, and Sino-Ki are subject to Nonproliferation Measures and Category II missile sanctions.

U.S. Secretary of State Hillary Clinton stated on February 13 that the Obama administration would be willing to normalize bilateral relations with North Korea if the North is genuinely prepared to completely and verifiably eliminate its nuclear weapons program. She stated that the U.S. would have a “great openness” to North Korea, and added, “It’s not only on the diplomatic front,” but that Washington had a “willingness to help the people of North Korea, not just in narrow ways with food and fuel but with energy assistance.” Two days later, North Korea’s head of state Kim Yong Nam reaffirmed that North Korea would “develop relations with countries that are friendly toward us.”

On February 17, Clinton reiterated the U.S. offer of a peace treaty officially ending the Korean War, normalization of relations, and aid, but stated, “The decision as to whether North Korea will cooperate in the six-party talks, end provocative language and actions, is up to them,” and , “If North Korea abides by the obligations it has already entered into and verifiably and completely eliminates its nuclear program, then there will be a reciprocal response,” indicating that North Korea will have to make the next move.

During a trip to South Korea, Clinton stated that North Korea was “badly miscalculating” if it thinks it can “drive a wedge” between Washington an Seoul, and that “North Korea is not going to get a different relationship with the United States while insulting and refusing dialogue with the Republic of Korea.”

U.S. SPECIAL ENVOY TO NORTH KOREA
Following his return from a trip to North Korea at the beginning of the month, former U.S. Ambassador to South Korea Steven Bosworth was named by Secretary of State Clinton as the Obama administration’s special representative for North Korea. He will remain dean of the Fletcher School of Law and Diplomacy at Tufts University, but will now be responsible for coordinating U.S. policy regarding the DPRK. Special Envoy Sung Kim is responsible for ‘day-to-day’ negotiations with Pyongyang.

UK-DPRK RELATIONS
A British parliamentary delegation arrived in North Korea on February 3, coinciding with a visit to London by a DPRK Workers’ Party of Korea delegation. EU Parliament member Glyn Ford stated that he hoped to reopen dialog that was broken off in 2005 on human rights, and denuclearization, hinting that restarting dialog could lead to the transfer of renewable energy technology to the North.

PRC-DPRK TRADE
It was reported on February 24 that trade between China and North Korea reached 2.78 billion USD in 2008, a 41.2 percent increase over the previous year. DPRK imports were up 46 percent, at over 2.03 billion USD, while its exports to China grew 29.7 percent, to 750 million USD. Mineral resources made up 54.7 percent of North Korea’s exports to China, and machinery and electronics made up the majority of imports.

DPRK NUCLEAR PROGRAM

(NKeconWatch: Although this is simply a reprint of the IFES report, I have been notified by NTI that this report is inaccurate. According to NTI Communications Director Cathy Gwin:

“I am writing to respond to your post that referred to erroneous reports that the Nuclear Threat Initiative (NTI) is preparing to open an office in Seoul ” in order to help prepare DPRK nuclear scientists for peaceful civilian employment.

The Nuclear Threat Initiative (NTI) has worked in the past to develop ideas on how governments could apply cooperative threat reduction (CTR or “Nunn-Lugar”) approaches as part of a solution to the North Korean nuclear challenge. However, we have no current program to carry out those activities ourselves, nor do we have a program to retrain North Korean scientists. In addition, we have no current plans to open an office in South Korea, and we do not have branch offices in Ukraine or Kazakhstan. We have a main office in Washington, DC and a presence in Moscow.

January 31 was the deadline for North Korea to shut down and seal the Yongbyon nuclear reactor as part of 6-Party negotiations, but it failed to meet the deadline. Christopher Hill stated on February 3 that the U.S. would “hold on for a few more days,” but that “we’re not happy that the DPRK essentially has missed this very important deadline.”

On February 2, it was reported that the Nuclear Threat Initiative (NTI) would open a new office in Seoul in order to help prepare DPRK nuclear scientists for peaceful civilian employment. The NTI is in the process of building a program to retrain the North’s experts, and “is also considering ways to support not only nuclear scientists at Yongbyon, but also farmers near Yongbyon who provide them with rice,” according to Roy Kim, a professor at Drexel University.

The U.S. government criticized Pakistan’s decision on February 6 to release Abdul Qadeer Khan from house arrest. Khan as been under house arrest for the past 5 years, after admitting to selling nuclear weapons technology to North Korea, as well as Iran and Libya. In 2004, A.Q. Khan took full responsibility for selling the nuclear secrets, stating that the military and government were unaware of his actions. He recanted this confession last year, stating that he had been a scapegoat.

DPRK MISSILE LAUNCH PREPARATIONS
Several countries have reported intelligence pointing to a launch by North Korea of a Taepodong-2 long-range missile. The U.S. State Department warned on February 3 that “a ballistic missile launch by North Korea would be unhelpful and, frankly, provocative,” while the ROK Foreign Ministry noted that a missile launce would “constitute a clear breach of the UN resolution” adopted in 2006. Chinese Foreign Ministry Spokeswoman Jiang Yu stated, “We hope all the parties can recognize that maintaining stability is in the common interest of the people of the Korean Peninsula.” Preparations appear to be underway at its Musudan-ri base, near the DPRK-PRC border. A Taepodong-2 is thought to have a range of 6,700 kilometers (4,150 miles).

Amid reports that it was preparing the missile launch, North Korea’s Rodong Sinmun printed, “The DPRK’s policy of advancing to space for peaceful purposes is a justifiable aim that fits the global trend of the times. There is no power in the world that can stop it,” and, “ As long as developing and using space are aimed at peaceful purposes and such efforts contribute to enhancing human beings’ happiness, no one in the world can find fault with them.” North Korea continues to deny preparations for a long-range missile launch, and insists that it is preparing to launch a satellite

According to a researcher at the South Korean Agency for Defense Development, if North Korea were to launch a satellite, “given the size of the rocket, the satellite will likely be a low-orbit device,” and low-orbit devices usually need to be fired toward either the North or South Pole in order to successfully reach orbit. This would mean North Korea would need to use Chinese, Russian, Japanese or South Korean airspace.

JAPANESE FIRM, DPRK MISSILES
On February 26, Japanese police raided Toko Boeki, a Tokyo trading company with ties to the DPRK residents’ association in Japan. The company is suspected of trying to export magnetic measuring instruments that could be used to manufacture missiles to North Korea via a third country.

DPRK MOBILE COMMUNICATIONS
It was reported on February 5 that North Korea’s new 3G cellular network, built by the Egyptian company Orascom Telecom, has been very popular. Orascom Telecom Chairman Naguib Sawiris stated, that in the first two weeks of service, “so far we have about 6,000 applications. The important point is that they are normal citizens, not the privileged or military generals or party higher-ups. For the first time, they have been able to go to a shop and get a mobile phone.”

DPRK SPORTS
North Korea’s soccer squad defeated South Arabia 1-0 as it moved closer to the World Cup finals. The North now has seven points in Group 2, after four games, and is in second place, with only South Korea having more points. North Korea has not been in the World Cup finals since 1966.

KIM JONG IL BIRTHDAY CELEBRATIONS
Kim Jong Il’s 67th birthday was marked on both sides of the DMZ. In the North, ceremonies were held throughout the country on February 16, and special rations were provided to the people of the country, with extra noodles, rice and other grains given out to mark the day.

In South Korea, the Abductees’ Family Union marked the day by flying 100,000 leaflets with North Korean currency and criticisms of the North’s leader. South Korean authorities announced plans to investigate, as it is illegal for South Koreans to possess North Korean bank notes without permission.

DPRK SUCCESSION
More rumors were heard in February concerning who might succeed Kim Jong Il as leader of the North Korean regime. Kim’s youngest son, Kim Jong-un has reportedly registered as a candidate for the March 8 parliamentary elections, which would launch his political career. In addition, an editorial marking Kim Jong Il’s 67th birthday stressed the “inheritance of bloodline of Mount Paektu,” further stoking rumors that one of Kim’s sons may be next in line.

DPRK CENSUS
Results of a preliminary census by the United Nations Population Fund were released in February. According to the data, there were 24.05 million North Koreans as of October last year, with 11.72 million males and 12.33 million females. South Pyongan Province was the most populous, with 4.05 residents. 3.26 million people reside in the North’s capital, Pyongyang. This census, conducted by the United Nations Population Fund, was the first in 15 years to be conducted in North Korea.

Posted in China, Demographics, Foreign aid statistics, Foreign direct investment, Institute for Far Eastern Studies, International trade, Kaesong Industrial Complex (KIC), South Korea, Statistics, Tourism, Trade Statistics | 4 Comments »

Inter-Korean trade down 20% in last year

Thursday, February 26th, 2009

According to Asia Pulse Businesswire (Hat tip to Oliver):

Trade between South and North Korea declined 19.6 per cent in January from a year earlier, apparently hit by the slumping South Korean economy and frayed Seoul-Pyongyang relations, the South’s official data showed on Feb. 22.

Inter-Korean trade reached US$113 million in January, down from $140.5 million a year ago, marking the fifth straight monthly fall, the data made available by Unification Ministry in Seoul said.

“The decline in inter-Korean trade appears compounded by several factors like the slowing economic downturn and frozen relations between the two Koreas,” the ministry said in the data.

Inter-Korean relations have chilled since conservative South Korean President Lee Myung-bak took office a year ago, pledging to get tough on North Korea.

The South Korean economy is sharply slumping, due to tumbling exports and sluggish domestic demand. South Korea is widely expected to post negative economic growth this year, the first annual contraction since the 1997-98 Asian financial crisis.

Citation:
Inter-Korean trade dips 20 pct in January
Asia Pulse Businesswire
February 26, 2009
(Yonhap)

Posted in International trade, South Korea, Statistics, Trade Statistics | Comments Closed

DPRK deepens reliance on China trade

Tuesday, February 24th, 2009

DPRK trade deficit with China nears USD$1.3 billion
Institutue for Far Eastern Studies (IFES)
NK Brief No. 09-3-5-1
2009-03-05

As North Korean dependence on trade with China continues to grow, the amount of overall trade hit a record high in 2008, however its trade deficit rose along with it. According to recent statistics released by China’s Customs Bureau and the Ministry of Commerce, trade between the DPRK and PRC in 2008 was worth a total of 2.78 billion USD, a 41.2 percent increase over the mere 1.97 billion USD recorded in 2007.

DPRK exports to China were worth 750 million USD, a 29.7 percent rise, while imports from China totaled 2.03 billion USD, up 46 percent, which led to a record 1.28 billion USD trade deficit. Mineral resources accounted for more than half (54.7 percent) of North Korea’s exports to China, while the majority of imports were machinery and electronic goods.

The North’s trade deficit with China has continued to grow for the past five years straight. In 2004, the North’s trade deficit was a mere 210 million USD, but this more than doubled, to 580 million USD, in 2005, rose to 760 million USD in 2006, and then hit 810 million USD in 2007. The reason for the sudden jump in the North’s trade deficit appears to be the globally rising cost of raw materials, and therefore Pyongyang’s trade deficit is expected to continue to rise rapidly in the near future.

This deficit is exacerbated by the North’s isolation from the rest of the international community, leaving it little choice but to continue trading at prices set by the Chinese. With the currently frigid relations between Pyongyang and Seoul, and the deadlock in 6-Party Talks, tensions on the Korean Peninsula make it increasingly difficult for North Korea to trade with other countries, so its dependence on China and Chinese goods is expected to continue to grow.

And according to the Choson Ilbo:

Trade between North Korea and China totaled US$2.78 billion last year, up 41.2 percent from $1.97 billion in the previous year, according to the statistics released on Monday by the China Customs and China’s Ministry of Commerce. North Korea’s imports topped $2.03 billion, up 46 percent from the previous year, but its exports stood at $750 million, up only 29.7 percent.

As a result, North Korea’s trade deficit with China reached a record high of $1.28 billion, up a whopping 57.7 percent from $810 million in 2007. It has been rising steadily from $210 million in 2004.

Mineral resources accounted for 54.7 percent of the North’s exports to China, while machinery and electronic equipment took up the biggest portion of imports.

The figures are attributable to the drastically increased prices of raw materials and the North’s deepening dependency on China. “North Korea’s dependence on China appears to be rising steadily because foreign countries other than China are reluctant to trade with the North because of strained inter-Korean relations and the stalled six-party talks,” said a North Korea export in Beijing diplomatic circles.

Read the full article here:
N.Korea’s Reliance on China Trade Deepens
Choson Ilbo
2/24/2009

Posted in China, Institute for Far Eastern Studies, International trade, Statistics, Trade Statistics | Comments Closed

Kaesong goods to find export market in India

Saturday, February 14th, 2009

The South Korean and Indian governments are finalizing a trade concession agreement that will lower Indian import tariffs on some goods produced in the Kaesong Zone. According to India’s Economic Times:

Sounds odd, but some select North Korean goods may soon get special trade concession in India after New Delhi signs a trade pact with South Korea. In fact, the North Korean city of Gaesung will emerge as a major beneficiary as part of the terms and conditions of the India-South Korea comprehensive economic partnership agreement (CEPA), which is likely to be signed soon, sources close to the development told SundayET. The North Korean city is located just 60 km north of Seoul, the capital of South Korea.

Though Indian negotiators initially showed reluctance to such a deal, South Koreans were very keen as many of their companies have invested heavily in the region and set up many factories in that city, using cheap North Korean labourers. Goods produced at Gaesung include low-end engineering products, leather goods, jewellery, chemicals and textiles.

When contacted, commerce secretary GK Pillai confirmed to SundayET that India would extend the same concession to goods produced at Gaesung too. “It’s a matter of 30-40 products which are not very high-end. Those are not cars or steel. Yes, Gaesung is in North Korea, but it’s very much a part of South Korea’s economic co-operation plan. Both the Indian and the Korean (South Korean) governments have agreed to the CEPA, and it should be coming into effect from June or July this year,” he said.

Once the partnership agreement is signed, it will be the first such instance in which India recognises the outward processing concept and gives the same status to goods produced outside the negotiating country with those produced inside. Though Mr Pillai said there was no issue regarding Gaesung, sources close to the development added that India was not very keen on allowing those products.

“India was opposed to the idea as other countries too may demand the same model later. What if a country entering into a trade agreement with India chooses a place in Bangladesh or Pakistan for outward processing,” said a senior government official.

The trade volume between India and North Korea is quite insignificant if it’s compared with that of India-South Korea. During FY08, India’s import from North Korea was worth a mere $161 million, which was 2.6% of that from South Korea. In case of exports, the figures are somewhat better. The total export from India to North Korea was $850 mn in FY08 which was 29% of India’s export to South Korea.

The Bank of Korea, the South’s central bank and most cited source of DPRK economic statistics, estimates North Korea’s gross exports (to all countries except South Korea) in 2006 and 2007 at $950 and $920 (USD in millions) respectively. They estimate the DPRK’s imports in these years at $2,050 and $2,020 (USD in millions) respectively.

According to the data in this article, North Korea’s exports to India ($161 million) are a non-trivial 17.5% of its total exports (assuming the 2007 number is approximately current and changes in inflation and exchange rates are trivial). The DPRK’s imports from India, $850 million in 2008 (according to the article), are a whopping 42% of North Korea’s estimated 2007 total imports. Either India is now one of the DPRK’s major trading partners, or there was a short-term spike in DPRK-India trading activity, or these numbers are fishy.

Setting this debate aside, a further question arises—how will these transactions be recorded? Since the DPRK has a trade relationship with India, will goods from Kaesong be flown/shipped from the DPRK to India and counted as North Korean trade, or will goods be shipped from Kaesong to South Korea and then sent to India—to be counted as South Korean trade?

My suspicion is that the Kaesong goods will be counted as South Korean merchandise trade since this is a South Korea-India trade deal. If the goods are recorded as South Korean, agreements of this sort will make it much more difficult in the future to determine the DPRK’s trade volume using mirror statistics. This is because the country of origin records kept by the DPRK’s trading partners will show goods produced in the Kaesong zone as originating in South Korea. As a result, the DPRK’s merchandise exports could go underestimated.

Read the full story here:
Ever heard of Gaesung? Gear up for its products
The Economic Times
Shantanu Nandan Sharma
2/15/2009

Posted in India, International trade, Kaesong Industrial Complex (KIC), Special Economic Zones (Established before 2013), Statistics, Trade Statistics | 2 Comments »

Korea Business Consultants Newsletter (1/09)

Wednesday, February 4th, 2009

Korea Business Consultants has published their January newsletter.

Here is a link to the PDF.

Topics covered:
New Year Joint Editorial
Year of DPRK-China friendship
UNDP to resume DPRK operations
Buddhist Leader to Head DPRK’s ROK Affairs
DPRK Railroad Engineers Study in Russia
Housing Construction Progresses Apace
Orascom Opens Bank in Pyongyang
DPRK Tackles Clothing Shortage
“DPRK Harvest Best in Years”
China to Invest in NK Coal
US$ 3.75 Million in Australian Aid for DPRK
The Principles of the DPRK’s Foreign Trade
ROK Farmers Send Rice to DPRK
New SNG Kaesong Plant Idle
“Inter-Korean Trade Slides Due to Weak ROK Won”
ROK to Build Nursery in Kaesong Complex
DPRK Opens Consulate in Dandong
DPRK, China Foreign Officials Meet
Seoul Forum Highlights DPRK Films
“NK Martial Arts Team Best in World”
PUST Opening Delayed
DPRK TV Takes Note of Park Ji-sung
The Korean War

Posted in China, Coal, Economic reform, Energy, Foreign aid statistics, Foreign direct investment, International Aid, International trade, Joint Ventures, Kaesong Industrial Complex (KIC), Kim's New Year Address (Joint editorials), Pyongyang University of Science and Technology, Special Economic Zones (Established before 2013), Trade Statistics, UNDP | Comments Closed

Assessment of the 2008 DPRK economy, outlook for 2009

Monday, February 2nd, 2009

Institute for Far Eastern Studies (IFES)
ICNK Forum No. 09-2-2-1
2/2/2009

ASSESSMENT OF THE NORTH KOREAN ECONOMY FOR 2008

In the 2008 North Korean New Year’s Joint Editorial, Pyongyang established the year 2012 as “The Year of the Perfect Strong and Prosperous Nation,” while labeling 2008, “The Year of Turnabout,” and, “The Year of the Betterment of the Livelihoods of the People.” As the year marked the 60th anniversary of the establishment of the Democratic People’s Republic of Korea (DPRK), the regime projected a highly motivated façade, but there was no sign of new changes in the North’s economic policies.

Faced with the inability to produce any substantial results in the realm of international economic cooperation, North Korean authorities focused on how to put a positive spin on international conditions that were tied to the progress of 6-Party Talks. However, no visible measures appeared to emerge. Internally, North Korea’s chronic supply shortages drove further disparities between official and market pricing and monetary exchange rates as authorities were unable to stabilize the domestic economy. The growing global economic instability also caused economic policy makers to act more conservatively.

In 2008, North Korea’s food production in 2008 amounted to 4.31 million tons, recording a 7.5 percent increase over the previous year, while energy production is estimated to have grown by approximately 10 percent. Through joint development projects for North Korea’s underground resources, the North received raw materials for light industries (soap and shoes) amounting to 70 million USD in 2007, and 10 million last year. In addition, DPRK-PRC trade and inter-Korean economic cooperation both grew (DPRK-PRC trade increased significantly, while North-South cooperation grew only slightly), but it is difficult to measure the extent to which these increases impacted the North’s economy.

It appears that overall, North Korean trade and industry has improved since 2007, and the 2008 economic growth rate was positive. However, when estimating the North’s economic growth rate in light of the quickly rising exchange rate for South Korean won, DPRK economic growth for 2008 could be seen as a negative value.

While North Korea’s overall industrial production grew in 2008, when compared to previous years, and the primary reason for such was the refurbishment of equipment in most stable industries, development assistance and heavy oil aid as part of the 6-Party Talks, the provision of raw materials for light industries by South Korea, and the rise in prices on goods internationally.

Because of favorable weather conditions and increased production of fertilizer in the North, the agricultural sector showed a relative increase in production in 2008, despite the suspension of fertilizer aid from South Korea. Grain production was up 300 thousand tons, for an estimated total of 4.31 million tons last year. Boosted energy production was helped by improvements in hydroelectrical production and heavy oil tied to 6-Party Talks, and the provision of parts and materials for power plants, which considerably increased power production, at least in the first half of the year. This played an important role in the increase in industrial operations, as well. As electrical supply is the biggest obstacle to raising the operating rate of production facilities, more power resulted in overall production increases.

The construction sector has focused efforts on Pyongyang, and in particular on efforts to improve the lifestyles of its residents. Housing (averaging 20,000 family dwellings per year), restaurants, waterworks, roads, and other construction and repair projects have been aggressively undertaken.

North Korean authorities emphasized the science and technology sector in 2008, although it appears that the actual impact of this campaign topped out at the supply of some practical technology and the at production facilities, power plants, and other factories, and the promotion of modernization and normalization of industrial production.

At the mid-point of 2008, inter-Korean trade had grown by 1.2 percent compared to the same period the year prior, reaching 1.82 billion USD. The freeze on the annual supply of 400 thousand tons of rice and between 300~350 thousand tons of fertilizer from the South had a negative impact on the North’s food situation. On the other hand, DPRK-PRC trade from January-November 2008 jumped by 29.3 percent over the same period in 2007, considerably more than the 14.9 percent recorded in 2005, the 14.9 percent seen in 2006 and the 16.1 percent rise last year.

The increase natural resource development and improvements in core industries, the possibility of expansion of markets, and the advantage of low-cost labor give China, Russia, and other adjacent countries positive perceptions regarding investment in the North, and as Pyongyang continued to expand economic cooperation with these countries last year, it also improved economic relations with Europe as well as Egypt and other Middle Eastern countries.

PROSPECTS FOR THE NORTH KOREAN ECONOMY IN 2009

If one looks at North Korea’s domestic economic policies, one will see that basically, in the 2009 New Year’s Joint Editorial, North Korea’s domestic and international economic policies have not undergone any significant changes. However, in order to accomplish the goal of establishing a Strong and Prosperous Country by 2012, it is expected that all efforts will be poured into reviving the economy. Based on the Joint Editorial, this year, the North’s economic policy is not one of reform due to transformation of the outside environment, but rather a revival of pas, conservatively grounded economic policy. Regarding international economic relations, the 2008 Joint Editorial specifically stressed the building of an economically strong nation based on the principle of the development of external economic relations, but there was no particular reference to this in 2009.

In 2009, resolution of agricultural problems was again prioritized as the task most necessary for the realization of a Strong and Prosperous Nation by 2012. Along with this, the North’s economic policy for 2009 will prioritize the modernization and normalization of the economy’s ‘vanguard sector’, and it is expected to continue to strengthen efforts to revive the economy. As it continues to work toward creating an environment in which it can concentrate efforts on the building of an ‘Economically Strong Nation’, North Korean authorities are expected to issue new measures to strengthen the economic management system, including the planned industrial system, the distribution and circulation framework, and an effective market management system. The North is also expected to further emphasize efforts to modernize the People’s Economy, as it considers modern vanguard science and technology to be the answer to recovery from its current economic crisis.

There is a possibility North Korea’s foreign trade, including that with China, will shrink in the future, as its external economic activity is hit by the current international economic situation and the rising value of the U.S. dollar and Chinese Yuan. Just as was seen in 2008, with the shrinking growth of the Chinese economy, DPRK-PRC trade will be hit negatively. Progress on the rail link being promoted between Rajin and Hasan, as well as the redevelopment of the Rajin Harbor is also expected to face difficulties. This is likely to lead to further efforts by the North to expand economic cooperation with the EU and Middle Eastern countries.

Despite North Korea’s removal from the U.S. list of terrorism-sponsoring states, because sanctions against North Korea still remain, the North will need to make progress in non-proliferation, human rights improvement, and marketization in order to see real economic benefits from improved relations with the Obama administration. However, because of a lack of confidence regarding market reform, differing stances between the U.S. and DPRK on denuclearization, and deeply rooted mistrust, there is a more than a small chance that progress on the nuclear issue will be stretched out over the long term.

Looking at prospects for the main domestic economic sectors of North Korea, firstly, the amount of development in the energy and mining sectors could take a favorable turn if there is movement on the nuclear issue, and this would have an overall positive effect on the entire industrial sector. The drop-off of demand due to the international financial crisis could have a considerable impact on the North’s mining sector, making it difficult to see much growth past the levels seen in 2008.

In 2009, the supply-demand situation regarding North Korean grains is expected to improve over last year. North Korea requires 5.2 million tons of grain, and is expected to harvest 4.9~5 million tons, falling only 200~300 thousand tons short. This is an improvement over the 790 thousand ton shortfall the North suffered in 2008. However, the actual amount of grains distributed to the people may not increase, because some of the 2008 shortage was relieved through the release of emergency rice reserves, and so some portion of the 2009 harvest will need to be set aside to restock that emergency reserve.

In the manufacturing sector, the increase in electrical production and increase in large-scale equipment operations in metalworks, chemicals, construction materials, and other heavy industries, the supply of materials for light industries as well as fertilizer will be extended, but the reduction of inter-Korean economic cooperation and foreign capital will mean a reduction in the ability to import equipment and materials, making it difficult to meet 2008-level growth in industrial production numbers.

In the construction sector, housing construction in Pyongyang and other areas will not fall off suddenly, but with the anniversary of the founding of the Party Museum upcoming and the impact of the furious construction activity that has been underway, it is likely to slow down in 2009. With North Korean authorities restricting private-sector economic activity, controlling the size of markets, and other measures controlling commerce in the North are expected to strengthen, which will considerably restrict anti-socialist commercial activity. To what extent official commerce networks will absorb this activity will be pivotal.

Trade between North Korea and China is expected to shrink as the global economic crisis drives down the price of raw materials that the North exports to the PRC. Following the North Korean authorities’ enforcement of a measure reducing inter-Korean economic cooperation on December 1, 2008, without improvement in the North Korean nuclear issue, and in U.S.-DPRK relations cooperation between Seoul and Pyongyang will gradually shrivel. Trade with other countries is also expected to fall as a result of the current global economic situation. Therefore, reduction of inter-Korean economic cooperation, North Korea’s principle provider of foreign capital, and sluggish trade between Beijing and Pyongyang will weaken the North’s foreign reserves supply-and-demand situation.

As for the investment sector, if North Korea is to succeed in its push to build a Strong and Prosperous Nation by 2012, it must attract foreign investment through aggressive policies of opening its economy. In order to improve the investment environment, Pyongyang must work more aggressively to resolve the North Korean nuclear issue, but despite the demands of the surrounding countries, it is likely North Korea will insist on recognition as a nuclear power, making it difficult to expect progress on this front. Therefore, foreign investors’ interest in North Korean markets, and North Korea’s assention into international financial institutions through improved relations with the United States, appears to be a long way off.

Posted in 2012 Strong and Prosperous Nation (Kangsong Taeguk), Agriculture, Agriculture statistics, Construction, Food, Foreign aid statistics, GDP statistics, General markets (FMR: Farmers Market), Kim's New Year Address (Joint editorials), Light Industry, Manufacturing, Statistics, Trade Statistics | Comments Closed

Sinuiju SAR: Take 4

Friday, January 23rd, 2009

On September 20, 2002, the DPRK’s Supreme People’s Assembly announced the creation of the Sinuiju Special Administrative Region (SAR) (KCNA announcement here).

The project was to be headed by a Chinese-born, naturalized Dutch citizen, Yang Bin…who was arrested by Chinese authorities shortly after the Sinuiju SAR was announced. Western analysts interpreted this move as a signal that China was not supportive of either the project or the selection of Mr. Bin as its chief executive. Needless to say the future of the project lay in doubt.

However, according to a Yonhap report (here), as of March 2007 the North Koreans still seemed interested in launching some kind of SAR/SEZ in Sinuiju, though the location had been moved from the city proper to two islands in the Yalu River, Bidan and Wihwa.

In August 2007, IFES and the Choson Ilbo reported that preparations were already underway in Sinuiju to convert the city center into a SAR/SEZ. However, after this initial media hit, most of the news coming out of Sinuiju was related to Jang Song Taek’s 2008 anti-corruption campaign which brought most of the trading companies along the Chinese border back under the control of the Ministry of Finance.

This week, Japan’s Yomuri reports from Shenyang, China, that the Sinuiju SAR is still on and will be located on Wihwa Island:

“The zone will only cover Wi Hwa Island, which will be much easier to control, and only Chinese will be allowed to freely visit,” one of the sources said. “The plan solely aims at expanding trade with China. North Korea isn’t planning any measures that would involve a dramatic opening up.”

According to Chinese statistics, the total value of trade between China and North Korea from January to October last year was 2.12 billion dollars, up 31.7 percent from a year earlier.

Meanwhile, a diplomatic source said, “The move to beef up border trade with China is also aimed at putting pressure on South Korea.”

(FYI: Use of the phrase “beef up” is a pretty good sign that the diplomatic source was an American.)

I know the story of “The Boy Who Cried Wolf.” I will remain skeptical about the new SEZ until I see evidence of construction myself.

You can read the full Yomuri article here:
N. Korea plans free trade zone on island
Daily Yomuri
Toru Makinoda
1/23/2009

Posted in China, Economic reform, Foreign direct investment, Hwanggumphyong and Wihwado Economic Zones (Sinuiju), International trade, Sinuiju Special Administrative Region, Statistics, Trade Statistics | 5 Comments »

DPRK won exchange rate continues to climb

Thursday, January 15th, 2009

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-1-15-1
2009-01-15

The exchange rate for the North Korean won shot up approximately 13-15 percent at the end of last year, and has maintained this high rate into January, according to an article in the on-line newsletter, “Open News for North Korea,” on January 12.

According to the inaugural edition of the newsletter, the exchange rate last year was around 3,200 won per USD, or 460 won per Yuan, with only slight fluctuations, but shot up to 3,630 won per USD and 530 won per Yuan in December. In the first weeks of the new year, it has fallen only slightly, to 3,540 won per USD, and 530 won per Yuan.

According to traders who import and export between North Korea and China, “The sudden rise in the exchange rate appears to be related to trade regulations on goods imported from the North,” and they stressed, “After North Korea protested to China about inferior Chinese goods leading to accidents around the country, China decided to set an example, and unilaterally imposed [trade] restrictions.”

Because business with China makes up almost 50 percent of North Korea’s trade, if DPRK-PRC trade, and in particular, North Korea’s exports to China, are restricted, this would cause a large shock to the foreign currency market,” and, “China’s regulatory measures were eased as January come around,” but, “this year, North Korea is strengthening crackdowns on domestic markets, making it difficult to expect the exchange rate to return” to last year’s lower numbers. According to the article, “There is a foreign currency crisis in North Korea, as well, the scale of which is so great it can’t even be compared to what is happening in the South.”

The black market price for U.S. dollars has shot up from a low of 200 won, in July 2002, to 3,200 won in July of last year, and has continued to rise, peaking at 3.500 won currently. This is a sixteen-fold increase in just over six years. The newsletter put this in perspective by explaining, “North Korea has experienced a foreign currency crisis like that seen in South Korea in 1998 every year since 2002.”

North Korea’s haphazard currency distribution and chronic trade deficit has led to a reduction in the country’s foreign currency reserves, while the failure of the authorities’ currency stabilization policies combined with the growing demand for U.S. dollars by North Korean residents seeking imported goods have led to the sharp growth in the exchange rate.

Posted in Banking, China, Finance, Fiscal & monetary policy, Institute for Far Eastern Studies, International trade, Trade Statistics | Comments Closed

DPRK opens consulate in Dandong

Monday, January 12th, 2009

According to the Korea Times:

North Korea has opened a consulate branch office in Dandong, a major Chinese city bordering North Korea, displaying its intention to reinforce bilateral trade relations with China, Yonhap News reported quoting a source Sunday.

“The North Korean consulate-general in Shenyang recently established its branch office in Dandong and dispatched personnel there,” said the source.

“The move signals the North’s intention to increase its product procurement from China through brisker border trade and strengthen its consular affairs amid a growing North Korean population in the Chinese border city.”

Dandong, a city in the Chinese province of Liaoning, is situated right across the Yalu River from Sinuiju in the northwestern part of North Korea. Approximately 70 percent of trade between North Korea and China is conducted through the Dandong-Sinuiju route.

According to the source, the North Korean consulate branch office is the first foreign diplomatic mission to open in Dandong, which has a population of about 650,000.

Bilateral trade and cooperation via Dandong are expected to further grow as China and North Korea are to celebrate the 60th anniversary of their diplomatic relations in 2009 and launch a joint “Year of Friendship.” Two-way trade is estimated to have topped $2 billion last year.

Read the full article here:
N. Korea Opens Mission in Chinese Border City
Korea Times
1/11/2009

Posted in China, International trade, Statistics, Trade Statistics | 1 Comment »

Inter-Korean trade falls for second straight month

Saturday, December 20th, 2008

Quoting from the Korea Times:

Inter-Korean trade fell 27.7 percent in November from a year earlier to $142.72 million, according to the ministry data posted on its Web site.

“Payments to North Korea are mostly made in dollars or euro, so the weak Korean currency has been the primary reason behind the falling trade,” a ministry official was quoted as saying.

More than 80 South Korean firms produce watches, shoes, clothes and kitchenware at a joint industrial complex in the North’s border town of Gaeseong. North Korea also exports sand to the South.

In October, South and North Korea traded goods and services worth $163.06 million, down 23.2 percent from a year earlier.

Meanwhile, inter-Korean trade from January to November reached $1.69 billion, an increase of 3.7 percent from the same period in 2007.

And According to the Hankyoreh (h/t OneFreeKorea):

According to a report, seven companies have canceled their contracts to build facilities at Gaeseong complex since October. Three of the seven bought space at a site reserved for machinery and metal cooperatives in June, and were in the process of constructing or designing factories. The report was submitted to Rep. Chun Jung-bae of the main opposition Democratic Party by the division supporting the Gaeseong Industrial Complex at the Ministry of Unification.

Two companies are in situations unrelated to the breakdown in inter-Korean relations, one had a fire last summer and another is suffering from losses incurred as a result of investment in KIKO, “knock-in knock-out” currency options trading.

The remaining five companies were believed to have abandoned their plans because of the deterioration in inter-Korean relations. An official at one of the five companies, which canceled its investment contract in December, said, “Although the economic crisis was one of the reasons why we canceled the contract, the main reason was that business prospects have darkened due to strained inter-Korean ties. Other companies that moved to (the Gaeseong complex) at the same time also decided to cancel their contracts for the same reason.”

In canceling their contracts, the seven companies forfeited their initial investments, which ranged from 17 million won (US$12,500) to 70 million won each. Land at the Gaeseong Industrial Complex was sold at 45,000 won per one square meter and the companies paid 10 percent of that price as part of their deposit.

Seven other companies also canceled their contracts last year, but they did so after an on-site feasibility study was conducted and it was determined that their businesses were not financially viable. All seven companies were able to receive their deposits under a special provision on contract cancellation, which allows companies to receive their deposits if the contract is canceled within six months of when it was signed.

The companies that canceled their contracts this year were not able to take advantage of the provision because they canceled over six months after signing their contracts.

There are growing concerns that more companies may be canceling their contracts as well. The head of Company “H,” who signed a contract to build a facility at the Gaeseong complex last year, said, “Though I would lose my initial investment of several millions of won, I’m considering canceling the contract because the tensions inter-Korean relations are likely to continue for another five years.”

Read the full story here:
Inter-Korean Trade Falls for Second Straight Month
Korea Times
12/20/2008

More companies cancel contracts at Gaeseong complex
Hankyoreh
12/17/2008

Posted in Economic reform, Foreign direct investment, Joint Ventures, Kaesong Industrial Complex (KIC), Light Industry, Manufacturing, South Korea, Special Economic Zones (Established before 2013), Statistics, Trade Statistics | Comments Closed

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