DPRK bank transfers for nuclear program alarms EU

December 2nd, 2010

According to Bloomberg:

North Korea’s use of international banks to facilitate nuclear weapons-related trade requires financial institutions to step up their vigilance, the European Union said.

North Korea exports $100 million in weapons and missiles each year in violation of United Nations sanctions, a UN panel wrote in a report released on Nov. 10. The EU said it’s concerned that some of the country’s trade involves prohibited nuclear technologies.

The 27-nation EU today urged all members of the International Atomic Energy Agency to “exercise particular vigilance over exports and financial transfers” in order “to prevent a contribution to proliferation-sensitive activities.”

Tensions with North Korea have increased in recent weeks. The country has built a new facility for extracting uranium, the key ingredient for nuclear weapons, a U.S. scientist reported on Nov. 20. Three days later, North Korea fired artillery at Yeonpyeong island, killing soldiers and civilians.

North Korea’s new nuclear facilities “could bolster its pursuit of a weapons capability and increases our concerns about prospects for onward proliferation of fissile material and of sensitive technologies to other parties,” U.S. Ambassador Glynn Davies said in a statement at IAEA’s meeting in Vienna.

The U.S. has been pressuring banks to cut ties with the North Korea’s regime, State Department documents posted today on WikiLeaks.org showed.

Reputation

Austria’s Financial Market Authority told the U.S. that it “exercised additional surveillance regarding North Korean financial activities” and that one bank cut ties with the country “to maintain its good reputation,” according to a February 2006 cable.

The U.S. and Japan will hold a week of naval drills beginning tomorrow. The aircraft carrier USS George Washington will join a force of about 400 aircraft and 60 warships. Drills will include responding to ballistic missile attacks on Pacific islands, the Joint Staff of the Japan Self-Defense Forces said in a statement.

“We will not accept North Korea as a nuclear-weapon state,” Davies said. “We seek an immediate halt of all nuclear activities in North Korea, including enrichment.”

Recent posts about the DPRK’s nuclear program can be found here. 

Recent posts on Yonpyong can be found here.

Read the full story here:
North Korean Use of Bank Transfers for Atomic Work Alarms Europe
Bloomberg
Jennifer M. Freedman, Andrew Atkinson
12/2/2010

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Buying into the Hermit Kingdom

December 2nd, 2010

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

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

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

2. North Korea CRS reports.

3. My DPRK Economic Statistics Page

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

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Rice price up 40-fold in last year

December 2nd, 2010

According ot the Korea Herald:

The price of rice in North Korea has soared nearly 40-fold in the year after the country’s botched currency reform.

Rice is now traded at around 900 North Korean won per kilogram in Pyongyang’s markets, according to online media outlet Daily NK. This is up 3,990 percent from 22 won late November last year in the newly introduced currency.

The North knocked two zeros off the face value of its old currency on Nov. 30 last year, exchanging 100-won bills for new 1-won notes. Therefore the price of a kilogram of rice, which was 2,200 won in the old currency, was redenominated to 22 won.

Under the currency reform plan, a 100-won note in the new currency should have the exchangeable value of a 10,000-won bill in the old currency. However, due to 4,000 percent inflation, the new 100-won note is now only worth 250 won in the old currency.

The price of rice in North Korea is deemed the benchmark of all prices in commercial trade.

“The apparent purpose of the North Korean currency reform was to reduce the amount of money in the markets to stabilize prices, but it failed to achieve this due to an absolute lack of commodity supplies,” said Cho Myung-chul, a senior fellow at the Korea Institute for International Economic Policy.

“The fact that rice prices jumped 4,000 percent based on the currency’s exchangeable value shows that the effect of the 100-fold revaluation has mostly disappeared.”

After major markets in the reclusive state were shut down in mid-January this year, rice prices in Pyongyang soared, hitting 1,300 won per kilo in early March. They dropped to the 400-won range in May as markets began to function again, but soared over the 1,000-won mark in August due to an exchange rate hike and damage caused by heavy rains.

When the North redenominated its currency, it placed a cap on the amount of money that could be converted per person, telling people to deposit the rest in state-run banks.

The measure, which was aimed at crippling the growing merchant class and reasserting control over market activities, tightened the distribution of food and stirred anti-regime sentiment.

This Daily NK story asserts that the average salary of a general worker is around 1,500 won a month, and it is not paid regularly.

Read the full story here:
N.K. rice price soars nearly 40-fold in a year
Korea Herald
Kim So-hyun
11/20/2010

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Dandong-DPRK trade and growth

December 2nd, 2010

As the focal point of DPRK-PRC trade, Dandong has seen phenomenal growth in the last 5 years.

Here is just one area in southern Dandong:

 

Here is a separate area in northern Dandong where Yalu River high-rise development is underway:

 

And here is another island in the Yalu River:

  

Dandong has been the focus of increasing media attention over the last 10 years because it has economically benefitted from increased trade (and expected future trade) between the PRC and DPRK.  

Today it is probably the easiest place to collect “survey data” on the DPRK’s business environment. According to a recent article in the Associated Press (via San Francisco Examiner), the DPRK still has a long way to go before foreign investors will see a climate ripe for investment:

Just across the Yalu River from North Korea, this sleepy border town in China’s Rust Belt is booming.

Towering apartment blocks are going up on the city’s western edge near the new Friendship Road Bridge, which will soon be the second bridge connecting Dandong to the North Korean city of Sinuiju.

Offices for trade and export-import companies dot the main road along the riverfront. A new airport is being built. Shops sell North Korean liquor, blueberry wine, ginseng, stamps and music CDs. And North Korean restaurants offer popular Korean dishes such as stewed dog leg and spicy deep-fried dog.

Dandong – like other parts of northeastern China along the 870-mile border – aims to profit from China and North Korea’s growing cross-border trade, now close to $3 billion a year. At a time when the United States and its allies are looking to isolate the Pyongyang regime for its nuclear program and erratic behavior, including this week’s artillery attack on a South Korean island, this hardscrabble part of China is finding that being North Korea’s back door to the world can be a lucrative business.

China already provides an estimated 90 percent of North Korea’s energy needs and most of its food and weapons. And the most recent gauge of trade between the two countries, from 2008, showed an increase of more than 40 percent from the previous year, according to the Council on Foreign Relations.

But even as officials map out grand plans for more cooperation, merchants and small-scale traders say doing business with North Korea remains problematic at best.

The government is unpredictable, they say, and rules change without warning. They tell horror stories about Chinese traders who have lost millions of dollars in goods or equipment that is expropriated or stolen outright. Many now insist on cash-up-front transactions and mostly conduct business on the Chinese side of the border, where they say they have more protections.

Moreover, while North Korean leaders have visited this part of China and professed admiration for China’s economic boom, local Chinese traders and businessmen in close contact with North Koreans say they don’t expect the country to shift to a market economy anytime soon.

“I haven’t seen any sign the North Korean government wants to open up,” said Cui Weitao, 47, who has been trading fruit, clothing, plastic bowls and chopsticks to North Korea for the past decade. “If they really wanted, they could learn from China and Russia. If they wanted, they could let people go back and forth and trade freely. . . . If they opened the border, their whole country would benefit.”

His friend, Wang Tiansheng, 47, another small-scale trader, agreed. “The thought of economic reform has been there for years but never happens. Not while the father is alive,” he said, referring to the country’s leader, Kim Jong Il. “Maybe when the son takes office.”

China and North Korea have been close allies since Chinese troops crossed the Yalu River to help North Korea fight American and South Korean troops during the Korean War, which is referred to here as the “War to Resist U.S. Aggression and Aid Korea.”

Yet Chinese leaders themselves consider North Korea’s leader an often-troublesome ally because of his brinkmanship with the United States over his country’s nuclear capability and incidents such as this week’s artillery barrage of Yeonpyeong Island, which killed two South Korean marines and two civilians, and the sinking of a South Korean warship in March.

Chinese leaders are reported to be concerned about North Korea’s economic crisis, and they encouraged Kim to embrace market-based economic reforms when he visited China in May and August this year and met with Chinese President Hu Jintao, according to some Hong Kong and South Korean media reports of the visits.

In a bow to reforms, North Korea sent a dozen mayors and provincial chiefs to northeastern China in October to visit factories and chemical plants. Earlier this month, North Korean Premier Choe Yong Rim visited Harbin, in Heilongjiang province, to discuss joint economic projects.

North Korea agreed to lease two Yalu River islands to China to develop into “free trade zones.” Chinese high-tech companies were encouraged to signed agreements to hire North Korean computer experts. In September, after Kim’s second visit, China established a new 100,000-square-foot marketplace in Tumen – across from Namyang in North Korea – for North Koreans to come on one-day passes to sell or trade their goods.

But the Tumen market in many ways illustrates the difficulties of coaxing North Korea to open up. The vast market is now mostly empty because the North Korean government changed its mind about allowing its citizens to come to China to trade freely, Tumen residents said.

One of the few Chinese vendors in the market during a recent visit, who was selling North Korean crab, shrimp and frozen fish, said he lost a lot of money because his North Korean supplier increased prices without warning.

“It’s been really hard and risky to do business with North Korea, firstly because of the complicated procedures of going there,” the seafood vendor said, speaking on the condition of anonymity. He said Chinese traders need an invitation from a state-owned company and three stamps from three departments.

Once inside North Korea, he said, officials “are very greedy. They asked us for digital cameras or DVD players or even computers. We have to buy them dinner, and booze is a must for every time we meet.”

Even the new Friendship Road Bridge being constructed – to augment the existing single-lane bridge – has been difficult to negotiate. China agreed to foot the bill for building the bridge, more than $200 million. But then North Korea demanded China also build a five-star hotel and other infrastructure on the North Korean side, local businessmen said.

Economists said the experience of the local traders confirms their own research: that while North Korean officials publicly claim to want to pursue economic reform, and may speak of emulating China’s success, North Korea’s ruling elite remains deeply ambivalent about anything that might dilute its grip.

“The state has never been comfortable with the market,” said Marcus Noland, senior researcher with the Peterson Institute for International Economics in Washington, who surveyed 300 Chinese companies operating in North Korea. “They see the market potentially as an alternative path to wealth and prestige, and perhaps political power.”

While trying to “deepen their economic integration with China” at the official level, Noland said, North Korean leaders at the same time take steps “to eradicate this kind of normal trading activity at the border” by denying visas and constantly changing the regulations.

“The Chinese do not trust the North Koreans at all,” Noland said.

According to a recent story in the Wall Street Journal, the second DPRK-PRC bridge in Dandong is still tentative:

Construction of the new bridge was originally slated to start in August. Zhao Liansheng, Dandong’s mayor, said in March that building would start in October, and be finished within three years.

“The new bridge is still waiting for the approval of central government,” said an official from the Dandong Transportation Department. “As far as I know, this project is not definite yet.”

I am not sure of the exact location of the new bridge.  If any readers are aware, please let me know.

Read the full stories here:
In Chinese Border Town, Trade With North Korea Can Be Lucrative but Problematic (Dandong, China).
Associated Press (via San Francisco Examiner)
Keith B. Richburg
11/26/2010

Border Bridge Reflects Dilemma
Wall Street Journal
Jeremy Page
11/28/2010

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New Pyongyang management law aims at modernization

November 30th, 2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-11-30
11/30/2010

North Korea has recently revised the Pyongyang City Management Law in order to support ongoing modernization efforts by increasing the management and operational authority of the Cabinet and of the State Planning Committee. On October 21, the Cabinet newspaper ‘Minju Chosun’ ran an article emphasizing the need to ensure that necessary capital and supplies were guaranteed for the construction of 100,000 new residences in Pyongyang and now it appears the North is backing up this modernization drive with the law.

The legal code was revised in accordance with Order No. 743, passed down by the standing committee of the Supreme People’s Assembly on March 30 of this year, but was just recently made public in South Korea. What stands out in this newly revised law is that the central government has strengthened its hold on management and operations within the city.

Article 47 of the city management law states, “The Cabinet must naturally take control of and supervise Pyongyang management operations,” and Article 48 stipulates that the State Planning Committee and the Pyongyang People’s Committee establish and strictly follow detailed plans for each sector of management operations within the capital city. Article 47, of the former law (enacted on 26 Nov. 1998), which covered management projects within Pyongyang, was removed while five new articles were added. Article 17 covers housing construction, Article 27 covers management of street lighting, Article 43 covers the delivery of publications, Article 46 stipulates basic working conditions, and Article 51 guarantees that goods will be produced for Pyongyang markets.

Article 17 stipulates that “the construction of housing must completely guaranteed,” and Article 51 states that planning for and production of commercial goods for Pyongyang must be ensured “without fail.” Housing, goods, electricity, capital and other necessities for the modernization of Pyongyang have now been essentially legally guaranteed. New housing in the capital has been a priority for the North, with construction already underway and plans for 30,000 additional units next year and 35,000 more in 2012. In order to show off these new renovations day and night, Article 27 calls for the “logical installation of street lights” to brighten walkways, roads, and national monuments. The new legal revision appears to be yet another step toward shoring up the framework for establishment of a ‘Strong and Prosperous Nation’ and transition of power to yet a third generation of Kims.

The new law reinforces Pyongyang’s centrality in North Korea’s revolutionary ambitions, referring to the capital as “the home of Juche,” “the heart of the Korean people,” and “the face of the nation.”

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Lankov on the shelling of Yonpyong

November 29th, 2010

Andrei Lankov has written a short unpublished paper on the current situation in Korea which places the current events into some context. I have posted the full article below. I have also created a PDF of this document which you may download here.

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THE YEONPYEONG ISLAND INCIDENT: WHY IT HAPPENED, WHY NOTHING CAN BE DONE, AND WHAT TO EXPECT: SOME THOUGHTS.

Andrei Lankov

So North Korea did it again. In late March a North Korean submarine sunk a South Korean warship. This time North Korean policy planners decided to try something new. On the afternoon of the 23rd November, North Korean artillery began to shell the South Korean island of Yeonpyeon which is located in the disputed waters to the west of the Korean peninsula (though, the North Koreans have not claimed the island itself).

Since the incident took place when military exercises were being conducted in the area by the South Korean military, there have been suggestions that some South Korean mistake – like an incidental shell landing to the north of the border – provoked such a reaction. It is not completely impossible, but unlikely: both the unusual intensity and length of fire (the North Korean batteries fired about 150 shells) seems to indicate we are dealing with a well planned operation.

As one should expect, the international media immediately reacted to the news by running huge headlines to the effect of the Korean peninsula being ‘On the Edge of War’. This probably helps them increase to newspapers’ sales and advertisement revenues, but this is inaccurate, since a war on the Korean peninsula is highly unlikely (as we will see below). However Yeonpyeong Island incident may indicate that we are entering a new phase of the never-ending ‘North Korean crisis’.

Why did they do it?

The media usually describes incidents like these as ‘provocations’; however in this particular such description is not correct. By definition, a ‘provocation’ is an act which is designed to lure the opposite number into an overreaction or some unreasonable actions, but this is not the North Korea’s aim this time (on the contrary, the North Korean strategists known perfectly well that no reaction whatsoever is likely to follow). Essentially we are dealing with a premeditated diplomatic gesture conducted in a somewhat unorthodox way, through the use of heavy artillery.

Read the rest of this entry »

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DPRK Wikileaks story index

November 29th, 2010

Below I am indexing media coverage of Wikileaks stories involving the DPRK:

2011-10-7: Jordanian bank tied to illicit weapons trade.

2011-9-13: As ties between the DPRK and Myanmar continue to grow, it is becoming more difficult for defectors to transit to South Korea.

2011-9-11: The Guangdong Development Bank, a mainland lender partly owned by the U.S. bank Citigroup, had banking ties with a North Korean arms dealer in 2009, according to a cable sent by the U.S. Consulate General in Hong Kong in July 2009, The South China Morning Post reported Saturday, quoting information provided by the Wikileaks.

2011-9-8: Hyundai Group Chairwoman Hyun Jeong-eun said Kim Jong-il believes the 2004 train station explosion in Ryongchon assassination attempt.

2011-9-6: U.S. prepared to intercept N. Korean missile: cable

2011-9-5: North Korean leader Kim Jong-Il expressed distrust of his country’s major economic prop China during a 2009 meeting with a visiting South Korean businesswoman, according to a US diplomatic cable.

2011-9-5: Myanmar, North Korea traded rice for arms: US cable

2011-9-3: Sudan negotiating purchase of missiles from North Korea

2011-9-3: US State Department urged China not to sell steel to the DPRK.

2011-8-3: Cambodian government worked with US and South Korea to quietly process North Korean defectors

2011-6-1: US tried to get Canada to finance oil donations to DPRK.

2011-4-11: China and US held DPRK intelligence talks.

2011-1-18: Did Iran pay the DPRK through a South Kroean branch?  The bank says no.

2011-1-6: U.S. Ambassador Feels Heat from WikiLeaks

2011-1-5: Chinese criticize DPRK currency reform.

2011-1-4: Kim Jong-il told a visiting South Korean businesswoman in 2009 that he had ordered the removal of a missile launch scene fromthe Ariarang Mass games because “Americans did not like it.”

2011-1-4: Former Chinese ambassador to Seoul, said today’s North Korea was similar to China during the Cultural Revolution in the 1960s and 70s and dealing with officials there required that he “mentally reset his personal clock by thirty years.”

2010-12-19: WikiLeaks cable: Winston Peters condemns N Korea missile tests

2010-12-9: DPRK-Myanmar nuclear cooperation: here, here, and here.

2010-12-11: DPRK-US family reunions are extortion (Guardian)

2010-12-5: Nothing new in NK leaks (Andrei Lankov)

2010-12-3: Top-Level Defectors from N.Korea Identified (Choson Ilbo)

2010-12-3: N.Korea ‘Fattens Up’ People for Family Reunions (Choson Ilbo)

2010-12-2: North Korean diplomat: Six-party talks are dead (Foreign Policy)

2010-12-2: North Korean’s Earning $1 Per Month!

2010-12-1: WikiLeaks: Mongolia passed North Korea message to U.S. (CNN)  Brookings also published information on the Mongolia-DPRK relationship.

2010-12-1: Singapore disapproves (Straits Times)

2010-12-1: China Blocks Wikileaks (Sky News)

2010-11-30: Cheong Wa Dae denies reports of considering N. Korean regime change (Yonhap)

2010-11-30: What WikiLeaks Cables Reveal About North Korea (The Atlantic)

2010-11-29: North Korea Keeps the World Guessing (New York Times)

2010-11-28: Is there an Iran-NK missile link?  Russia says no. Experts question the idea.

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DPRK laborers leaving Russia

November 27th, 2010

According to the Independent:

A mass exodus of North Korean workers from the Far East of Russia is under way, according to reports coming out of the region. As the two Koreas edged towards the brink of war this week, it appears that the workers in Russia have been called back to aid potential military operations.

Vladnews agency, based in Vladivostok, reported that North Korean workers had left the town of Nakhodka en masse shortly after the escalation of tension on the Korean peninsula earlier this week. “Traders have left the kiosks and markets, workers have abandoned building sites, and North Korean secret service employees working in the region have joined them and left,” the agency reported.

Russia’s migration service said that there were over 20,000 North Koreans in Russia at the beginning of 2010, of which the vast majority worked in construction. The workers are usually chaperoned by agents from Kim Jong-il’s security services and have little contact with the world around them. Defectors have suggested that the labourers work 13-hour days and that most of their pay is sent back to the government in Pyongyang. Hundreds of workers have fled the harsh conditions and live in hiding in Russia, constantly in fear of being deported back to North Korea.

“North Korea’s government sends thousands of its citizens to Russia to earn money, most of which is funnelled through government accounts,” says Simon Ostrovsky, a journalist who discovered secret North Korean logging camps in the northern Siberian taiga. “Workers are often sent to remote locations for years at a time to work long hours and get as little as three days off per year.” Now it appears that some kind of centralised order has been given for the workers to return home.

Russia’s Pacific port of Vladivostok is thousands of miles and seven time zones from Moscow, but only around 100 miles from the country’s heavily controlled border with North Korea. In 1996, a diplomat from the South Korean consulate in the city was murdered with a poisoned pencil, in what was widely believed to be a hit carried out by the North’s secret agents. There are even two North Korean restaurants in the city. It is not known how many of the workers in other Russian towns have been called back to their homeland this week, or whether the exodus is permanent or temporary.

Last week the Daily NK reported that workers were increasingly leaving their jobs because increasing amounts of their salaries were being confiscated by the North Korean government.

Read the full story here:
Expats recalled as North Korea prepares for war
The Independent
Shaun Walker
11/27/2010

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DPRK strengthens control mechanisms with revised law on the people’s economy

November 26th, 2010

Institute for Far Eastern Studies (IFES)

NK Brief No. 10-11-26-1
11/26/2010

North Korea has recently revised its law governing the planning of the People’s Economy, significantly strengthening the state’s ability to oversee and control economic activities throughout the country. The South Korean Ministry of Unification recently released the contents of the law, which the North revised on April 6, as well as details of two laws created by the Supreme People’s Committee Standing Committee on July 8; the Law on Labor Protection (Order 945) and the Chamber of Commerce Law (Order 946).

The new law on economic planning contains seven new articles, but since the details of the August 2009 revision were never made public, it is unclear when the new articles were added. What is clear, however, is how different the new law is when compared to the Law on Planning the People’s Economy that was passed in May, 2001 and the Economic Management Reform Measure enacted on July 1, 2002, both of which significantly boosted the autonomy of business managers and eased government restrictions on economic activity.

With the July 1 Measure, the authority of the National Economic Planning Committee was downgraded, central allocations were graduated based on managerial autonomy and profits, the central rationing system was dismantled, and wages were increased. While the economic planning law of 2001 and the July 1 Measure of 2002 eased restrictions on, and oversight of, the people’s economy, the newly-revised law strengthens state control. The new law appears to not only return but also bolster the central control mechanisms that were eliminated by the 2001 law.

Article 16 of the new law states that the planned economy will be based on prepared figures, while Article 18 states that enterprises, organizations and companies will operate on the principle of ensuring regulated numbers, and Article 24 requires the people’s economic plan, drafted by the Cabinet, State Planning Organization, and regional authorities, to be broken down in detail, by timeframe and indexes, and distributed to enterprises, organizations and companies by the end of October. The planning law passed in 2001 called for economic plans to be drawn up based on production statistics provided from ‘below’ and passed up through chains of command (Article 17), but this has been eliminated from the new law.

With the revision of the law on labor protection, North Korea has added more specific language to Article 12 of the ‘Socialist Labor Law’, which was established in April 1978. Article12 of the Law on Labor Protection states that the protection of laborers’ work is the primary demand of the socialist system, which sees the people as the most precious resource. The law strengthens the role of the state in protecting laborers, and identifies ‘difficult and strenuous’ jobs, including mining, fishing, and earthquake investigation. Workers in these fields are to be given favorable treatment, including the issuance of additional clothing, food and other rations.

In addition, the law covers the installation and maintenance of safety equipment, the issuance of protective gear, and additional protections for female workers. It also restricts work to eight hours per day and guarantees holidays and time off, health care, and protection of property. These and other articles in the law increase state management of workers, but defector testimonies paint a different picture. Most workers save their wages with the assumption that they will have to pay bribes, medical costs and other expenses out-of-pocket.

The law on commercial activity further details the ‘Chamber of Commerce Regulation’ handed down by the Cabinet in 2008. The law covers a range of duties and rights regarding commercial operations, including contracts and operations regarding joint ventures with foreign firms; legal letters of confirmation, certificates of country of origin and other paperwork related to trade issues; as well as exhibitions and conventions held in conjunction with foreign businesses.

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Yonpyong Island saga (UPDATED)

November 23rd, 2010

Click image for larger version

UPDATE 70 (2012-3-6): According to Yonhap, the DPRK has replaced the KPA commander responsible for the shelling of Yonpyong:

The head of a North Korean army unit responsible for shelling South Korea’s Yeonpyeong Island in 2010 has been replaced by the country’s vice defense minister, the North’s state media confirmed Tuesday.

General Kim Kyok-sik, who headed the 4th Army Corps of the Korean People’s Army starting in February 2009, is believed to have led the deadly attack on Yeonpyeong that killed four South Koreans, including two civilians.

The front-line unit near the inter-Korean sea border in the Yellow Sea is now headed by Pyon In-son, vice minister of the People’s Armed Forces, according to North Korean media reports of his appearance on state television Monday.

Kim has often been spotted at events unrelated to the unit since late last year, spurring speculation that he may have been replaced.

During the broadcast by the (North) Korean Central Broadcasting Station, Pyon was introduced as commander of the 4th Army Corps, in effect confirming the replacement. Pyon served as vice defense minister starting in December 2010, and was included in the North’s 232-member commission for the funeral of former leader Kim Jong-il last December.

“The hearts of my corps’ soldiers are boiling with hatred for the Lee Myung-bak group of traitors and determination to get revenge,” Pyon was quoted as saying on air. “Be it Cheong Wa Dae or Incheon, we will immerse them all in a sea of fire and not let a single member of the group of traitors survive.”

North Korea has frequently denounced South Korea’s conservative President Lee Myung-bak as a “traitor,” accusing him of aggravating inter-Korean ties.

UPDATE 69 (4/1/2011): A group of US lawmakers are working to add the DPRK back to the US list of state sponsors of terror.  According to Yonhap:

A bipartisan group of congressmen will soon submit legislation to re-designate North Korea as a state sponsor of terrorism for its torpedoing of a South Korean warship and shelling of a South Korean border island that killed 50 people last year, sources said Friday.

“I understand Rep. Ileana Ros-Lehtinen has almost completed drafting the legislation, and she is likely to submit the legislation as soon as possible,” a congressional source said, adding several other Republican and Democratic congressmen are expected to sponsor the legislation.

Ros-Lehtinen (R-FL), chairwoman of the House Foreign Affairs Committee, introduced similar legislation in May last year but it didn’t pass.

In June, she had wreaths laid at the tombs of the 46 South Korean sailors killed in the sinking of the warship Cheonan in waters near the western sea border with North Korea.

UPDATE 68 (3/31/2011): KCNA publishes statement by NDC.

UPDATE 67 (1/26/2011): Int’l Criminal Court asks North Korea for info in war crimes probe

UPDATE 66 (1/14/2011): Joseph Bermudez in 38 North discussing the island shelling.

UPDATE 65 (1/12/2011): DPRK opens Red Cross hotline to ROK

UPDATE 64 (1/6/2011): South Korea’s Military Lowers Surveillance Alert to `Normal,’ Yonhap Says

UPDATE 63 (1/4/2011): Japan, South Korea to discuss defense ties and N.Korea

UPDATE 62 (12/29/2010): ROK  to create joint forces command

UPDATE 61 (12/29/2010): ROK’s President Lee calls for return to talks.

UPDATE 60 (12/29/2010): North Korean Air Force increases training flights

UPDATE 59 (12/25/2010): DPRK airs television show about Yonpyong shelling. The LA Times has more.  They have reportedly also distributed other domestic propaganda.

UPDATE 58 (12/21/2010): North Korea makes gestures toward calm after South’s drills

UPDATE 57 (12/23/2010): Joseph Bermudez analyzes the attacks in the two most recent issues of KPA Journal: November 2010, December 2010.  Bermudez was also interviewed by the Wall Street Journal.

UPDATE 56 (12/22/2010): ROK prepares for largest ever artillery drill

UPDATE 55 (12/21/2010): DPRK deploys more missiles along west coastincluding decoys.

UPDATE 54 (12/16/2010): Gordon Flake on the DPRK shelling of Yonpyong and LEU program: Part 1, Part 2

UPDATE 53 (12/21/2010): Yonpyong residents return home

UPDATE 52 (12/21/2010): White House Rejects New Talks With North Korea

UPDATE 51 (12/20/2010): DPRK agrees to allow nuclear inspectors back into country. A chronological listing of stories related to the DPRK’s LWR and LEU facilities is here.

UPDATE 50 (12/20/2010): South Korea concludes military drillDPRK does not immediately respond.

UPDATE 49 (12/20/2010): UNSC meeting deadlockedRussia distanced itself from China.

UPDATE 48 (12/18/2010): DPRK warns it will attack ROK if it test-fires artillery from Yonpyong.

UPDATE 47 (12/18/2010): UN Security Council Schedules Emergency Meeting on North Korea

UPDATE 46 (12/19/2010): Bill Richardson reports on his trip to the DPRK. KCNA reports he brought gift.

UPDATE 45 (12/16/2010): Andrei Lankov offers thoughts on the escalating tensions between the two Koreas. Here too.

UPDATE 44 (12/16/2010): South Korea announces new military drill

UPDATE 43 (12/16/2010): Bill Richardson goes to North Korea

UPDATE 42 (12/15/2010): South Korea Practices for worst-case attack

UPDATE 41 (12/14/2010): Victor Cha calls for increasing US troop levels

UPDATE 40 (12/13/2010): NDPRK threatens ROK with nuclear war

UPDATE 39 (12/13/2010): ROK’s army chief resigns

UPDATE 38 (12/13/2010): ROK resumes live-fire drills

UPDATE 37 (12/11/2010): DPRK made few concessions to Chinese envoy

UPDATE 36 (12/10/2010): NKorea sends top diplomat to Russia amid tensions.  DPRK announces 2011-2012 plan for exchange between the foreign ministries of the DPRK and Russia.

UPDATE 35 (12/10/2010): Gas Masks for All Residents in 5 West Sea Islands

UPDATE 34 (12/10/2010): China affirms DPRK ties with ‘candid’ official visit

UPDATE 33 (12/09/2010): S.Korea council plans to turn ruins of shelling into park

UPDATE 32 (12/8/2010): DPRK claims waters around Yongpyon

UPDATE 31 (12/6/2010): Victor Cha sees war as a possibility

UPDATE 31 (12/8/2010): Japan to raise armed forces mobility to boost defense

UPDATE 30 (12/8/2010): NK Fires Artillery Shells into Own Yellow Sea Waters

UPDATE 29 (12/7/2010): International Criminal Court (ICC) reviewing actions by DPRK

UPDATE 28 (12/7/2010): ROK to make islands near DPRK ‘fortresses’

UPDATE 27 (12/6/2010): ROK, US, Japan reject 6-party talks on DPRK

UPDATE 26 (12/6/2010): ROK to spend 30 billion won to support artillery-hit islanders

UPDATE 25 (12/6/2010): ROK government advised to expand military forces.

UPDATE 24 (12/6/2010): South Korea Begins Firing Drills Amid North Korea’s War Threat

UPDATE 23 (12/2/2010): US and Japan conduct joint military drills. More here.

UPDATE 22 (12/3/2010): SKorean jets will bomb North if it attacks again.  Apparently the South Korean army soldiers are terrible shots.

UPDATE 21: (12/2/2010): Kaesong businessmen urge support for the industrial zone.

UPDATE 20 (12/2/2010): Satellite imagery of Yonpyong.

UPDATE 19 (12/1/2010): Choe Thae-bok in China.

UPDATE 18 (12/2/2010): DPRK boosts military capacities near DMZ

UPDATE 17 (12/2/2010): ROK Military suggests counterfire caused ‘many casualties’ in N. Korea.

UPDATE 16: Lankov on the shelling.

UPDATE 15 (12/1/2010): UNSC unable to pass resolution condemning attack.

The standoff over what language on North Korea that China, Russia, the United States, Britain and France — and South Korea and Japan — could accept highlights the way Beijing’s increasingly aggressive defense of its allies may lead nations to bypass the Security Council as a forum for action.

UPDATE 14 (11/29/2010): DPRK strengthens coastal battery

UPDATE 13 (11/29/2010): ROK government mulls making Baeknyeong a forward deployment base

UPDATE 12 (11/29/2010): After issuing warning, Seoul cancels artillery drill on disputed isle

UPDATE 11 (11/30/2010): 49 ROK trucks allowed to restock Kaesong Industrial Zone on 11/29.

UPDATE 10: ROK will abandon policy of not responding militarily to the DPRK’s activities.

UPDATE 9: DPRK accuses ROK government of using Yonpyong Island residents as human shields and deploys surface to surface missiles in the Yellow Sea as US/ROK military drills underway.

UPDATE 8: Yeonpyeong Island designated as ‘control zone’ for military.  Military pushes to increase budget for defending western islands.

UPDATE 7: China calls for summit of 6-party talk nations (CNN).  South Korea cool to proposal.

UPDATE 6: US response:

1. US calls on China to reign in DPRK

2. US sends aircraft carrier to the West Sea

3. US and ROK begin military exercises

UPDATE 5: South Korea’s response:

1. South Korean defense minister let go.  The new defense minister will have new duties.

2. South Korea reassesses its defenses

3. South Korea reassesses rules of engagement with DPRK

4.  Residents evacuate Yonpyong.  More from the Wall Street Journal.

5. South Korea retrieves DPRK aid from China.  You can read more about this aid here.

6 South Koreans photographed new construction of NK artillery site.

7. South Korea bans workers from entering DPRK

8. Moddy’s keeps ROK credit rating at A1

9. ROK bond buyers switching to corporate notes after yield on sovereign debt fell below inflation

UPDATE 4: North Korea’s response:

1. North Korean Envoy to the UN: They [South Korea] Started It

2. (KCNA) KPA Supreme Command Issues Communique

3. (KCNA) Statement Released by Spokesman of DPRK Foreign Ministry

4. Kim Jong-il and Kim Jong-un visited Ryongyon County just before shelling

5. Uriminzokkiri demands revival of Kumgang tours

UPDATE 3: Andrei Lankov offers his opinion in CNN:

This time, North Korean leaders merely reminded Seoul that they are capable of making a lot of trouble if their demands are ignored.

A week earlier, a similar message was delivered to Washington, albeit in a less violent manner: A group of visiting American nuclear scientists was shown a state-of-the-art uranium enrichment plant.

This is a reaction to the current U.S. policy which is known as a “strategic patience,” and to somewhat similar approach of Seoul.

In essence, the “strategic patience” policy implies that the U.S. will not provide any concessions until North Korea demonstrates its “sincere willingness” to denuclearize — something which is not going to happen, actually.

The right-leaning government of South Korea has adopted the same approach. It decided not to increase the amount of unilateral and unconditional aid to the North — which has grown dramatically under the earlier leftist-nationalist administrations — unless North Korea makes some concessions, too.

Washington and Seoul expected that sooner or later the international sanctions will start making an impact on North Korea, so it will have to accept their demands and become a bit more reciprocal. Otherwise, they were in no hurry to deal with Pyongyang.

However, Pyongyang leaders have grown quite impatient with “strategic patience.”

Sometimes this is explained as a testimony that sanctions are beginning to bite, but this seems to be a wishful thinking: If anything, the food situation in North Korea is better than it has ever been in the last 16 years (albeit still bad by the standards of the modern world), and the North Korean military is not short of money, as their new and shiny uranium enrichment facility demonstrated.

Nonetheless, it appears that North Korea would like to squeeze more aid from Washington and Seoul largely because they do not want to be too dependent on China which now is the nearly sole provider of aid.

So, North Korean strategists chose to hit the weakest spots of both major donors. Americans worry about proliferation, so they were shown that Pyongyang’s nuclear program is advancing fast.

The South Koreans have a different vulnerability. Their efficient but outward-oriented economy depends on the whim of the international markets. Incidents like Yeonpyeong Island shelling are likely to scare markets, which damages the economy, and voters are likely to eventually blame the government for this damage.

The South Korean voters are remarkably indifferent to North Korea, but they are not going to be happy about economic troubles, so a government must know how to keep North Korean regime reasonable or face problems during the elections.

It is often stated that the incident has a lot to do with the succession issue in Pyongyang. Perhaps, the unusually violent nature of shelling is indeed related to North Korea’s domestic policy. Kim Jong Eun, recently promoted to four-star general, needs the support of the old generals (real ones,) so this might be his way to show himself as a tough warlord, not a spoilt brat who spent his youth in Swiss schools.

However, this is not the major reason: The succession politics might have made the incident more violent than it would be otherwise. But something like this was bound to happen.

This fits well into North Korean established pattern of actions. When Pyongyang believes that more aid and concessions can be extracted, it first manufactures a crisis and then, when tensions are sufficiently high, suggests talks in order to get paid for returning to less dangerous behavior.

Will the crisis lead to a war or prolonged confrontation? Most certainly, not, and North Koreans know it. Neither the U.S. or South Korea are going to start a war. They will win, but the price – especially for Seoul — will be prohibitively high.

Surgical strikes against military installations will not help, either. The lives of common North Korean soldiers are expendable, and their death will have no impact on Pyongyang’s policy.

So, it seems that South Koreans will bite the bullet and, after a healthy portion of the face-saving rhetoric, return to the business of usual.

But it is also likely that in few months time the North Koreans will repeat the lesson. They want to show that “strategic patience” is not an option in the long run, and they seem to be right.

UPDATE 2: CNN publishes theories on why the DPRK has behaved in this manner.

UPDATE 1: BR Myers notes that this is the first artillery attack on a civilian population since the Korean War (NPR).

According to the Wall Street Journal:

North Korea fired artillery rockets at a South Korean island near a disputed western maritime border Tuesday, in a clash that killed two South Korean marines and set numerous buildings on fire.

A South Korean military unit on the island, called Yeonpyeong, returned fire, while military officials scrambled fighter jets. In addition to the deaths, at least 16 more were injured, military officials said. Three civilians were injured, and the island’s 1,200 residents were sent scrambling for bomb shelters.

“The whole neighborhood is on fire,” island resident Na Young-ok said from a bomb shelter about an hour after the shelling began. “I think countless houses are on fire, but no fire truck is coming. We have a fire station but the shots are intermittently coming.

Video captured by closed-circuit monitoring cameras on location showed people scrambling out of buildings as explosions rocked the island.

The attack comes after relations soured dramatically between the two Koreas over the past two years, as North Korea’s totalitarian regime became angered at South Korea’s decision to cut off economic assistance unless it ends its pursuit of nuclear weapons. The issue of North Korean nuclear weapons intensified over the weekend after the revelation that Pyongyang had already installed thousands of centrifuges to produce nuclear fuel at its Yongbyon nuclear facility

The exchange of fire also comes less than two months after North Korean dictator Kim Jong Il began a process of transferring power to his son Kim Jong Eun, a process that analysts have said is likely to be volatile as the younger Kim grapples for authority over the North’s military.

“The attack is a sheer act of provocation. Moreover, shooting indiscriminately on civilians cannot be forgiven,” said Hong Sang-pyo, spokesman for South Korean President Lee Myung-bak. “Our military reacted immediately according to our combat rules. We will act sternly against any more provocation. North Korea should take the responsibility for this.”

North Korea’s official media late Tuesday said South Korea’s military fired artillery into water on the North’s side of the maritime border while conducting a drill, and that it fired the artillery at Yeonpyeong island in response.

The U.S. condemned the attack and called on North Korea to “halt its belligerent action.” “The United States is firmly committed to the defense of our ally, the Republic of Korea, and to the maintenance of regional peace and stability,” the White House press secretary said in a statement, referring to South Korea by its formal name.

The European Union also condemned the North Korean attack. Catherine Ashton, the EU’s foreign policy chief, called on the “North Korean authorities to refrain from any action that risks further escalation and to fully respect the Korean Armistice Agreement.”

A spokesman for the Ministry of Foreign Affairs in China, North Korea’s main benefactor, called for peace and stability. “We hope all involved parties will do more to promote peace on the Korean Peninsula,” Hong Lei said during a regular news conference.

Japanese Prime Minister Naoto Kan ordered the government “to do their best to collect information on the situation and be prepared for any kind of unexpected incidents.”

The attack roiled financial markets in Asia, briefly sending the U.S. dollar sharply higher before it gave back some gains, on a flight from what are considered riskier investment. The Bank of Korea convened an emergency meeting to discuss the effect of the attack. Several financial analysts quickly issued reports that said they didn’t expect South Korea’s stock market to be impacted.

A spokesman for South Korea’s Joint Chief of Staff said “scores of rounds” were fired by the North. The artillery was fired from positions south of the North Korean city of Haeju.

The attack came without warning at 2:34 p.m local time and lasted for 65 minutes, military officials said. About 250 residents escaped the island in fishing boats and arrived in the port city of Incheon two hours later. As the sun set three hours after the attack, fires continued burning in numerous homes and buildings and smoke covered the island, according to people there and on a nearby island called So-yeonpyeong.

The attack adds to a list of more than 30 fatal or life-threatening attacks by the North against the South—including plane bombings, assassinations and naval skirmishes—since the two countries fought the Korean War in the 1950s. Most recently, a South Korean warship sank in March about 40 miles west of the island struck Tuesday. South Korea blamed North Korea for the sinking, citing an exploded torpedo it found and other evidence.

Some units of the South Korean military had been training in waters near the two islands. However, the North routinely complains about the South’s exercises.

The attack shocked South Koreans, who have become accustomed through the years to brash statements and other provocations by North Korea.

“If this leads to any other provocation, it really will be disturbing in many ways,” Song Young-min, an insurance consultant who is in the military reserve, as he watched the news on his cellphone in downtown Seoul.

“It was shocking, scary as well. I even thought of a possible war,” said Park Jung-jin, a banker. “I still believe it won’t go that far, but the news on all that firing and shooting was definitely the most striking North Korean provocation that I’ve heard of so far.”

Lee Eui-sup, who works at South Korea’s National Pension Service, said he immediately suspected the firing was caused by the instability inside the North’s leadership due to the succession process. “It is a serious problem but will soon disappear as it usually does, I believe,” Mr. Lee said.

From the island of So-yeonpyeong, residents watched as the rockets hit the larger Yeonpyeong island. Some sent photos and cellphone videos of the attack to South Korean TV stations. “When I heard the artillery, I thought it was a usual military exercise, but then I noticed the fire and smoke,” said Lee Seung-yeon, a resident on the smaller island.

The two Yeonpyeong islands are the easternmost of five small islands that are within close firing range of North Korea. All are just a few kilometers away from the maritime border known in South Korea as the Northern Limit Line, or NLL, that was drawn up by the United Nations after the end of the Korean War in 1953.

The North has objected to the line since the early 1970s, arguing in part that the line forces its ships to take lengthy detours to international shipping lanes. Its objections intensified in the 1990s and led to two deadly skirmishes in the area in 1999 and 2002.

In 2007, leaders of the two Koreas agreed to turn the area into a “peace zone.” That vaguely worded agreement was struck just ahead of a South Korean election by an outgoing government and never implemented. It was interpreted in North Korea as erasing the maritime border and in the South as keeping it.

And China’s response according to Bloomberg:

China expressed “concern” over reports that North Korea fired artillery shells that struck South Korean territory and called for parties involved to work harder to promote peace and restart multinational talks.

“We have taken note of the relevant report and we express concern over the situation,” Foreign Ministry Spokesman Hong Lei told reporters in Beijing today. “We hope the relevant parties do more to contribute to peace and stability on the Korean peninsula.”

Hong said that officials are aware of claims by a U.S. scientist that North Korea had revealed to him a “stunning” new uranium-enrichment plant. The descriptions by the scientist underscore the need to restart six-nation talks on dismantling North Korea’s nuclear weapons program, Hong said.

“China unswervingly promotes denuclearization on the Korean Peninsula,” Hong said. “We have taken note of the relevant report. It is China’s consistent and firm position to realize denuclearization on the Korean Peninsula through dialogue and consultation. What is imperative now is to restart six-party talks.”

South Korea scrambled fighter jets and returned fire after North Korea lobbed dozens of shells into its territory, injuring four soldiers, Yonhap News reported today.

A South Korean Defense Ministry official, who declined to be identified, confirmed the shelling, without giving any further details. The military has been put on high alert and will “respond strongly” to further provocation, he said.

Stocks were down slightly in response to the news.  According to Bloomberg:

Stocks sank, dragging the MSCI Emerging Markets Index down the most in five months, while the dollar and the Swiss franc rallied as fighting broke out between North and South Korea and concern grew Europe’s debt crisis will spread. Metals slid as China’s banks approached lending limits.

The MSCI gauge of stocks in developing nations lost 2.3 percent as all 10 industry groups retreated, while the Standard & Poor’s 500 Index slid 1.1 percent at 9:39 a.m. in New York. The dollar and franc appreciated against most peers. South Korean won forwards slipped the most in six months. Ten-year Treasury yields sank six basis points, the Irish yield jumped 27 basis points, and a gauge of European sovereign debt risk rose to a record. Copper and zinc slumped more than 1.6 percent.

U.S. equities followed European shares lower after South Korea scrambled fighter jets and returned fire following North Korea’s shelling of Yeonpyeong island. China’s biggest banks are close to reaching annual lending quotas and plan to stop expanding their loan books, according to four people with knowledge of the matter. Greece will need to make an “extra effort” to cut its deficit to receive more emergency aid, European Union and International Monetary Fund officials said.

“We’re in this very fragile growth state,” said Matthew Kaufler, a Rochester, New York-based money manager at Federated Investors Inc., who helps oversee $341.3 billion. “When you have these other issues — the sovereign-debt crisis in Europe, concern about Chinese growth, geopolitical unrest in North Korea and a massive insider trading scandal — that’s going to undercut confidence. That all is overshadowing the latest economic data points in the U.S.”

On a related note, I have done my best to keep up with Cheonan stories here.

Read the full stories here:
North Korea Fires Rockets at Island
Wall Street Journal
Evan Ramstad and Jaeyeon Woo
11/23/2010

China Voices Concern on N. Korea Artillery; Calls for Dialogue
Bloomberg
Michael Forsythe
11/23/2010

Stocks Fall on Korea Clash, Europe Debt, China Lending; Dollar Strengthens
Bloomberg
Stephen Kirkland
11/23/2010

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