North Korean art: unintended consequences and adverse selection

January 10th, 2010

According to the Korea Times:

When the South Korean government lifted a ban on the sales and distribution of North Korean paintings in 1998, the southerners’ curiosity in the North’s art surged.

With increasing demands, many works found their way into the hands of South Korean collectors through various channels, notably via China. And galleries in South Korea competed to hold exhibitions.

Soon, it became a fanciful thing among art collectors in South Korea to have a piece or two of North Korean art. A work by a well-known painter such as Jung’s was sold at a minimum of 10 million won ($8,800) apiece.

For cash-strapped North Korea, suffering from a moribund economy, the paintings were more than a piece of art. They also turned out to be a new cash cow. And as in any greedy business, the reputation of the North Korean art market became tainted, as counterfeit and duplicate products started to surface.

Experts believe that most of the spurious acts were actually made inside North Korea. Sometimes the painters themselves were not free from blame either.
…
North Korea sells hundreds of paintings by its artists, including those who work for the state’s Mansudae Art Studio in Pyongyang each year to galleries in China – a de facto gateway for North Korea to reach the outside world. The paintings then are sold to South Koreans and other collectors.

But besides the official export quantity of paintings, there are also “unofficial” paintings, entrusted privately by some artists to North Korean merchants who share the profit with the painters after selling them on the black market.

“Of course, the sales of these paintings go unreported,” said Lee. “In North Korea, an artist’s paintings are state property. So, when an artist’s paintings are displayed in countries and if they were illegally sold paintings, the painter will be in a position to deny that it’s his works.”

With the rising popularity of North Korean paintings in South Korea, North Korea sometimes produced low-quality paintings en masse. A few years back, North Korea did some trade with a major South Korean company. Lacking sufficient cash, North Koreans proposed they would make up the payment in arts products. The South Korean company accepted the offer.

“I was called in by the company to examine the value of the paintings. It was a huge container. Inside it was full of paintings. But the quality was all poor.

“I suggested the company burn them all, fearing that if they entered the art market, it would cause disruption with such a huge volume when many people cannot tell their values,” Lee said.

Last April, Lee had a chance to meet with another renowned North Korean painter, Sun Woo-young, in China. When asked about the situation, Sun also reportedly told Lee that only 11 out of 150 paintings, put on sale in South Korea, were authentic.

North Koreans acknowledge that there are forged or duplicate paintings circulating, but insist that they are done in China by Chinese painters. But Lee believes that most forgeries are done within North Korea.

“Chinese counterfeit painters prefer to copy famous Chinese paintings, not North Korean paintings, because selling Chinese paintings can make more money,” Lee said.

The official gallery Web site of the Mansudae Art Studio also recognizes the controversy surrounding the North Korean paintings. On the section of the “Frequently Asked Questions,” one question is: “How do I know the works are original?”

The authenticity debate also comes amid North Korean art’s increasing popularity overseas. In recent years, the North held art exhibitions in a number of countries, including the U.K., Germany, Italy, the U.S. and Australia, receiving favorable reviews.

Lee said for North Korean paintings to be recognized internationally, the transparency of their authorship, distribution and authenticity should be strengthened.

“If quality control is not maintained, selling North Korean paintings the way they do now is like shooting one’s own foot. It will come back to get you.”

So here are the economics: Once the South Korean government eliminated a ban on selling and distributing North Korean art,  demand predictably exploded among South Korean collectors.  A market developed where North Korean art studios were exporting pieces to Chinese middle men who were then able to resell to the South Koreans. The demand was so high that at one point some North Korean companies were able to pay for imports with North Korean art (though in the case above it did not turn out well).

This would not be so interesting were it not for the unintended consequences.

In the market described above, the rents from economic activity (selling paintings) are primarily divided between the Chinese middlemen and the North Korean art studios.  The artists themselves probably received little from the transactions.  However, some clever (and popular) North Korean artists figured out they could earn some cash for themselves if they clandestinely produced works of art for export through trusted intermediaries.  Under this clandestine trading model, the rents are divided between the artist and his trusted middleman/men.  The particular split depends on the relationship between supply and demand–which we do not know.   This type of activity is pretty much what we also see on collective farms: farmers produce less for the collective and more from their private plots.  As a result individual incomes and private production increase.

This kind of activity however was popular enough to spawn a market in counterfeit paintings!  Once other painters realized the kinds of returns that premium paintings were earning abroad, they jumped into the counterfeit business! This of course causes problems in the market for North Korean art because collectors do not know if they are buying an original or not.  In the limit, adverse selection could cause the market to unwind.

But this almost never happens because economic problems create opportunities for profit.  We know there are organizations and individuals out there who can solve this problem   Is there an entrepreneur out there who can get into the business of certifying and registering North Korean art or fund someone who can?

To learn more about this, read the full Korea Times article below:
Fake NK Paintings in Wide Circulation
Korea Times
Sunny Kee
1/7/2009

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US scientists pinpoint location of DPRK’s second nuclear test

January 10th, 2010

According to Yonhap:

Lianxing Wen, a geophysics professor at the State University of New York in Stony Brook, and his graduate student, Hui Long, located the epicenter of the second nuclear test on May 5 last year with a margin of error of only 140 meters, compared with 3.8 kilometers achieved by the U.S. Geological Survey.

“We locate the 2009 test at 723 meters north and 2,235 meters west of the 2006 test,” the scientists said in the study, which was published in the January-February edition of Seismological Research Letters of the Seismological Society of America.

Identifying the coordinates of the 2009 test site as 41°17′38.14″N latitude and 129°4′54.21″E longitude, the scientists said their findings should help Asian monitors to pinpoint the location of another nuclear test should North Korea ever decide to go ahead with one.

“The location of any future nuclear test around this particular test site will be pinpointed in real time, with a similar precision,” Wen said in a separate email interview. “With its exact location known, the wave propagation effects due to location geology can be accurately accounted for, leading to a more accurate determination of yield.”

North Korea conducted its first underground nuclear test in Oct. 9, 2006 in Punggye-ri in its northeastern county of Kilju, according to U.S. and South Korean officials.

Wen and Long said they analyzed the seismic waves from the first nuclear test to understand the geological complexities of the earth in the region, and used the data to reduce the uncertainty involved in determining the ground zero of the second test.

“The strategy is not to try to fully understand the complexities of the jungle (earth), but to take advantage of the forensic evidence of the jungle complexities that are imprinted in the recordings” of the first nuclear test, the scientists said in a separate introduction to their thesis.

The waveforms from the first test were obtained from nine seismic stations based in Japan, South Korea and China, the study said.

North Korea conducted its second nuclear test amid a deadlock in international talks aimed at stripping it of its nuclear ambitions, raising tensions and inviting harsh U.N. sanctions.

“High-precision location would reveal, in real time and at great accuracy, an increasingly complete view of the geographic network of a nation’s nuclear test infrastructure,” the paper said.

“Logistically and economically, it is convenient to use the same facilities to do multiple tests. Environmentally, it would confine nuclear wastes in a particular site,” Wen said in the email.

Their paper, “High-precision Location of North Korea’s 2009 Nuclear Test,” can be found here PDF.

Here is the location on Wikimapia.

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2009 defection summary

January 8th, 2010

According to KBS (h/t RoK Drop):

The number of North Koreans who fled to South Korea in 2009 is known to be close to three-thousand.

A Ministry of Unification official said more than 2,200 women and almost 680 men from North Korea entered South Korea in 2009, totaling more than 2,950 in a preliminary tally.

The official added that this makes the cumulative number of North Korean escapees total approximately 18-thousand, which is almost certain to surpass 20-thousand in 2010.

Soms interesting supplementary information was posted at Yonhap:

The number of North Korean defectors hiding in China is estimated to have shrunken in recent years to almost one tenth the level seen in the late 1990’s, a U.S. demographer said Thursday.

The assessment is a controversial but important factor in shedding light on the conditions of those North Koreans who live in China. The defectors live under the constant fear of deportation because their country considers defection a capital crime.

Activists and relief groups say tens of thousands of North Korean defectors live in China, but Dr. Courtland Robinson at Johns Hopkins University Bloomberg School of Public Health said the number may have dropped to between 6,000 and 16,000 as of 2007.

“About a decade ago, people were literally being starved to death and fleeing to China,” Robinson said in an interview, putting the 1998 figure between 50,000 and 130,000. Famine had reportedly killed as many as 2 million people in North Korea in the mid-1990s.

An official at South Korea’s Unification Ministry, which handles affairs involving North Korea, said he could not support the figures given by either activists or Robinson, arguing it was impossible to determine the exact number of those defectors in hiding.

Robinson, speaking on the sidelines of a conference on North Korean defectors in Seoul, said he had turned to local residents in China as informants to assess the number of defectors living in their towns. He then applied demographic methods to come up with what he called “plausible ranges” of a population.

“The very essence of these measurements is to start selecting sites randomly, not sites where you think North Koreans may be living,” he said.

“It’s a combination of things that has contributed to the decrease. Tightened border security on both sides is one,” Robinson said. “Defectors have also evolved in terms of their understanding of how difficult it is to live in China.”

China reportedly stepped up its crackdown on North Korean defectors ahead of its hosting of the Summer Olympics in August 2008. Under a treaty forged in 1998, China is believed to arrest and repatriate North Korean defectors even though they could face imprisonment, torture and even execution.

Chinese residents are reportedly rewarded with cash if they report North Korean defectors, who find it difficult to hide their identities or get a job because they can’t speak Chinese.

Robinson said defectors have apparently accelerated the pace at which they “move on through China,” heading to countries such as Thailand where it is deemed safer or easier to go to South Korea.

Over 16,000 North Koreans have come to South Korea since the 1950-53 Korean War that ended in a truce rather than a peace treaty. The annual number of defectors is increasing year by year and the Unification Ministry expects the accumulated figure to top 20,000 this year.

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Posted in China, Emigration, South Korea | Comments Closed

DPRK’s real-life potemkin village(s)

January 6th, 2010

Pyongyang is often referred to as a “potemkin village” because visitors to the city are often skeptical that what they see is representative of reality.  However while making updates to North Korea Uncovered this weekend, I stumbled on what appears to be an an actual “potemkin city” in the DPRK.  It is very large and appears to me to be used for military training–because frankly I can’t  immediately think of another use (probably too large for a movie set).  Here is an overview image of the facility:

 potemkin-overview.JPG
Click on image for larger version

The “main street” in this model city is appx .75km (running from NW to SE in the image) . The width of the city is .47km.  I checked very quickly to see if the city plan matched up with anywhere in Seoul, but could not find any similarities.  The compound itself looks very “Soviet” in design so it might not be a location in South Korea at all (It kind of reminds me of Bucharest).  The other possibilities are that it could be a location that no longer exists (I do not know how old this “training area” is) or it could be a model of a location that has never existed.

Here are a couple of close up images:

potemkin-closeup1.JPG  potemkin-closeup2.JPG
(Click images for larger version)

Here you can see how thin the “buildings” are as well as the sun shining through the facades and dotting the ground where the “windows” are.

You can see the facility in wikimapia here.  The coordinates are:  40° 0’52.32″N, 125°53’11.79″E.

If anyone has a better theory about this place, please let me know in the comments.  If I am wrong I would like to know before my reputation is completely destroyed.

UPDATE: In the comments, DCK points out another facility near Pyongyang:

 urban-training-2.JPG
Click image for larger version.

 This one is located at 38° 58.079′N, 126° 6.328′E.

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Posted in Google Earth, Military | 16 Comments »

The Winter of Their Discontent: Pyongyang Attacks the Market

January 5th, 2010

Peterson Institute Policy Brief
Stephan Haggard, Marcus Noland
Number PB10-1
January 2010

On November 30, 2009, North Korea announced a reform to replace all currency in circulation with new bills and coins. North Korean officials have made no bones about their motivations: The “reform” constitutes a direct attack on the emerging market economy and the independence from state control that it represents. In an interview following the conversion, an official of the North Korean central bank noted that the reform was aimed at curbing private trade and underlined that North Korea is “not moving toward a free market economy but will further strengthen the principle and order of socialist economic management.”

Without doubt the currency reform will reduce the well-being of the North Korean population at a time when the country is already struggling with economic stagnation, spiraling prices, and a return of chronic food shortages. The open questions are two: Will the government ultimately be forced to adjust its strategy or will it persist in enforcing the new antimarket course of action? The New Year’s joint editorial of prominent official news organs, an important statement of the government’s policy intentions, conveys a mixed message consisting largely of blather about revolutionary upswing; it does not even mention the currency reform—potentially signaling a lack of resolve in carrying it out. The second question is whether the discontent this new government action has sown will have implications for the country’s political stability. Preliminary signs suggest the regime is leaving nothing to chance and that heightened repression is a central feature of the new economic controls.

Read the full report here (PDF)…

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Posted in Fiscal & monetary policy, Peterson Institute | 1 Comment »

Rajin-Sonbong (Rason) clarification

January 5th, 2010

UPDATE: In addition to the information below, the Choson Ilbo reports that  the DPRK’s former trade minister has been appointed mayor of Rason.  According to the article:

The North Korean regime has appointed former foreign trade minister Rim Kyong-man as the mayor of the Rajin-Sonbong Economic Special Zone, which was promoted to a special city in January. A source said Rim was appointed as part of a reshuffle and new regulations for the city.

Rim is known as an expert in trade who served as the minister for foreign trade from April 2004 to March 2008, and headed the North Korean trade representatives to Dalian in China. He also toured Africa (June 2005), Latin America (November 2005), Libya and Malaysia (June 2006) and Russia (March 2007) as the leader of the North Korean economic delegation.

“It seems that North Korea appointed Rim, who is very experienced in trade with foreign countries, with an aim to further open Rajin-Sonbong as a free trade area,” the source added.

ORIGINAL POST: The designation of Rason as a “special city” this week left me a bit confused, but I believe I have sorted it out.

This week, Reuters reported:

“The city of Rason has become a special city,” the North’s KCNA news agency said in a brief dispatch on Monday.

And Yonhap reported:

North Korea designated Rason, the country’s first free trade zone, as a “special city” on Monday, the North’s official news media reported.

North Korea designated Rason and nearby Sonbong, located on the country’s northernmost coast close to both China and Russia, as an economic free trade zone in 1991, though foreign investment has never materialized.

According to the Korean Central News Agency (KCNA) monitored here, the Standing Committee of the North’s Supreme People’s Assembly designated Rason as a special city in a decree.

So aside from the fact that Rason was named “special” there were no other details given.  What does it mean to be a “special city”?

Well, today the nice Chongryun individual in Japan who updates the KCNA web page finally came back from vacation and posted the story to the official KCNA web page.  Here is what it says:

Rason City Designated as Municipality
Pyongyang, January 5 (KCNA) — Rason City was designated as a municipality.

The Presidium of the Supreme People’s Assembly of the DPRK said in its decree promulgated on Jan. 4:

1. Rason City shall become a municipality.

2. The DPRK Cabinet and relevant organs shall take practical measures to implement the decree.

Without seeing any additional information it seems that what has actually happened is that the municipalities of Rajin and Sonbong have been dissolved, merged, or been made subject to a newly created Rason municipal government which controls both cities.  So Rajin-Sonbong is dead.  Long live Rason.

So why would the North Korean government do this?  Here is one theory: Since the district was under the direct control of Pyongyang (not the provincial government of North Hamgyong), the DPRK government simply thought that two municipal governments in the special economic zone were one more than was necessary.  So this could mean something significant–in terms of the DPRK’s intent to increase foreign trade–or it may not.

If anyone else has a better idea please let me know in the comments.

UPDATE:

1. Here is a decent story in the AFP which interprets the change as a significant policy signal.

2. Here is a decent story in the Daily NK which offers lots of additional information.

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Posted in Ministry of Foreign Trade, Rason Economic and Trade Zone (Rajin-Sonbong), Special Economic Zones (Established before 2013) | Comments Closed

New N.Korean Currency Sees Runaway Inflation

January 5th, 2010

Choson Ilbo
1/6/10

North Korea’s currency reform has apparently failed to tame inflation. The state has paid the first salaries since the shock currency reform late last year, with the State Security Department and the Ministry of Public Security, the frontline agencies dedicated to protection of the regime, paying soldiers 6,000 won each — 3,000 won in average monthly pay plus a 3,000 won bonus.

Soldiers usually received about 3,000 won in the old currency. That this effectively doubled means the currency reform, which exchanged old won for new at a rate of 100:1, has not been able to stop inflation.

Money is also apparently being distributed to workers on collective farms, who had a hard time last year because they failed to raise vegetables and other produce from their own patches to scrape a living for their families due to the “150-day struggle,” a campaign aimed at spurring them to work harder at farms.

According to recent defectors, cooperative farms distributed more than 100,000 won to each household in the new currency late last year to settle accounts and distribute profits. Workers at state-run enterprises were also given 1,000 to 2,000 won each, even though most of their operations are suspended.

One Korean Chinese, who visited Pyongyang recently, said, “Department store shelves are stacked with goods that the state confiscated from market traders in return for nothing on Jan. 1, and they are selling those goods at prices readjusted at the exchange rate of 100 old won for one new won. Huge crowds rushed to buy them, so they ran out of stock immediately.”

But commodity prices skyrocketed. Inflation is soaring as market traders are hoarding goods, anticipating that the real value of the new currency will plummet. According to a North Korean source, 1 kg of rice cost about 30 won right after the currency reform but is now closing in on 1,000 won. The U.S. dollar was exchanged at the rate of 75 won to the greenback right after the currency reform but soared to 400 won in late December. There is speculation that it is now only a matter of time before the rate will reach 3,000 won, the same as the unofficial exchange rate of the old won.

Market traders are angry as they have realized that they were robbed of nearly everything they earned. A former senior North Korean official said, “The latest currency reform is more cruel than the previous reform in 1992. It’s tantamount to the state confiscating 99 percent of people’s money.”

Authorities have been handing out food rations in Pyongyang and other regions since December, but North Koreans already know that the food cannot last them more than a month or two. Urban residents are experiencing particular hardship.

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Posted in Black markets, Fiscal & monetary policy, General markets (FMR: Farmers Market), Labor conditions/wages, Ministry of State Security (MPSS, NSA, SSD), Public Distribiution System (PDS) | Comments Closed

DPRK Policy on Foreign Trade

January 5th, 2010

Foreign Trade (Naenara)
January, 2010

(An interview of a reporter of Foreign Trade of the DPRK with Sin On Rok, director of a bureau of the Ministry of Foreign Trade)

Question: I’d like to have a talk with you about the DPRK policy on foreign trade. Would you please tell me about the fundamental of its foreign trade policy?

Answer: The DPRK Law on Foreign Trade was adopted by the decision of the Standing Committee of the Supreme People’s Assembly in 1997. Article 2 of the law stipulates that it is a consistent policy of the DPRK to develop foreign trade.

The fundamental of its foreign trade policy is to consolidate the foundation of the independent national economy and, on this basis, to expand and develop trade relations with other countries.

This foundation provides a material guarantee for promoting foreign trade on the principles of complete independence and equality. If the developing countries, in particular, fail to conduct trade business based on their self-reliant national economy, they can neither construct independent structure of trade nor defend their sovereignty in the end.

From this point of view, the DPRK government has consistently maintained trade policy of developing foreign trade on the basis of the independent national economy and further consolidating its foundations through foreign trade.

In the past the government has developed heavy industry with machine building industry as its core, light industry and agriculture simultaneously in conformity to the actual conditions of the country and, relying on them, produced and exported goods that are highly competitive in international markets. And it has always ensured that foreign trade serves development of the economy and betterment of the people’s life.

Q: What is the principle pursued by the government in foreign trade relations?

A: The DPRK government employs the policy of maintaining the principles of independence, equality and mutual benefits, as well as credit-first principle in the relations of foreign trade.

The government has so far developed trade relations holding fast to these principles and given active support and assistance to the developing countries in their efforts to establish the fair international economic order.

It has put forward the credit-first policy in trade dealings and ensured that all the trading corporations keep credit in their transactions so as to create better climate for foreign trade of the country. It is making efforts to establish rigid discipline that corporations should ensure the superior quality of exports, keep delivery date and faithfully discharge contractual obligations like payment for imported goods.

Q: I think the issue of making foreign trade diversified and multifarious also assumes due importance in the foreign trade policy of the government.

A: You are right. Article 3 of the Foreign Trade Law stipulates that diversification and variegation of foreign trade constitute a basic way for wide-ranging trade. The State shall ensure to deal with different countries and corporations employing various forms and methods in foreign trade.

For the sake of diversification of foreign trade, we pay a primary attention to the neighbouring countries in developing economic exchange and cooperation including trade.

It is due to the geographical location and role of our country in the economic development of the Northeast Asia and the rest of the world.

And the government executes a policy of expanding the scope of foreign trade to all countries in Asia, Africa, Latin America and Europe in its effort to make foreign trade diversified.

Entering the new era, our country intensified the diversified economic exchange and trade transactions with EU member nations.

The EU top level delegation paid a visit to our country in 2001. The DPRK-EU symposium was held in Torino, Italy in March 2007 and the 3rd DPRK-EU economic symposium held in Pyongyang in October 2008. These events marked important occasions in the development of economic and trade relations between the DPRK and the European countries.

The DPRK government is also carrying out the policy of making foreign trade multifarious in keeping with the developing trend of international trade.

It puts a stress on processing trade on the basis of its economic potentialities and up-to-date processing technologies.

The government encourages local trading corporations to import raw materials and accessories and to process and assemble them for export in different sectors of the economy such as textile, clothing, machinery and facilities, rolling stocks and electronic goods.

We are channeling much effort into the export of technological products like software relying on the development of information industry of the country.

Transit trade and consignment trade are also in full swing.

Q: What is the highlight in the export policy of the government at present?

A: The key issue in the export policy is to improve export structure from the export of raw materials into that of processed goods.

The government makes efforts to give full play to the potentialities of existing export bases while building new ones in various sectors, increase the variety and volume of exports and upgrade their quality.

It defined the production bases of internationally competitive goods as strategic export industries, and is concentrating its investment on them and paying a close attention to their scientific and technological development.

The government takes some measures to encourage the export business of the corporations with a view to increasing export volume of the country.

It affords preferential treatments such as loaning from banks and supply of raw materials and power to those export bases and corporations which have cultivated new markets with new items of export or produced and exported hi-tech goods.

Besides, the government simplifies export procedures and upgrades services of the export-related institutions so as to carry on the smooth operation of export business of the country as a whole.

The DPRK government will continue to promote the impartial and reciprocal economic and trade relations with all countries on the principle of independence, mutual respect and equality.

and

DPRK Tariff System
Foreign Trade, Naenara
Kim Tong Hyok, University of the National Economics
January 2010

The tariff system in the DPRK contributes to protecting the independent national economy and improving people’s livelihood.

The basic aim of the tariff policy in our country is to apply either no or low tariff on materials and goods imported for the acceleration of economic construction and the betterment of people’s life and high tariff on goods that have been or can be produced at home.

First, the government builds a tariff barrier against the imports which can be produced in our country.

High tariff is imposed on such imports as the goods that the domestic factories and enterprises are now producing or have potentials to produce, the products that are not needed at present in economic sectors, and the goods that are of no direct use for enhancing people’s living standards so as to increase the domestic production capacity and raise the quality of the homemade articles to be competitive in the world markets.

Second, the government imposes low or no tariff on the imports which are in short supply or unable to produce at home, i.e. the latest machines and equipment, oil and crude rubber needed for consolidating the foundations of the independent national economy and some of daily necessities that are more profitable to import than to produce at home.

It is impossible for each country to produce by itself all things necessary for its economic construction and people’s life because its natural and economic conditions and the level of productive forces differ from those of others.

Third, the government holds the principle to introduce advanced technologies in executing tariff system.

It imposes no or low tariff on hi-tech products and preferential tariffs on the goods imported by foreign-invested enterprises for the purpose of introducing advanced science and technology.

Fourth, the government defined correct criteria for tariff on the imports and is properly applying them.

It stipulated appropriate criteria of assessing the price of each variety of the imports pursuant to the regulations for the implementation of the DPRK Customs Law and the provisions of the Customs Law, and is now applying them in keeping with the requirements of the developing reality.

Besides, the government has prepared the catalogues of export commodities and the tariff rate table in conformity to the provisions of GATT and exercised tariff system suitable to each phase of development of the national economy, thus further promoting foreign trade and preventing tax evasion and other commercial wrongdoings which exert negative influence upon international markets.

Today the DPRK tariff system makes a big contribution to the protection of the independent national economy and the development of foreign trade.

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Posted in International trade, Law on Foreign Trade, Ministry of Foreign Trade | Comments Closed

Citizen Mobilization Kicks Off Early

January 4th, 2010

Daily NK
Jung Kwon Ho
1/4/10

According to sources within North Korea, citizens have been mobilized to produce fertilizer and ordered to submit scrap materials for use by the state in an attempt to bring to fruition the New Year’s Statement, in which light industry and agriculture were promoted as the main frontiers for development in 2010.

One source from North Hamkyung Province told The Daily NK on the 3rd, “The first battle of this year began on the 2nd of January. A decree was issued, stating that each adult resident has to provide 50 kilograms of fertilizer to surrounding farms.”

He went on, “Middle school students of 11 and above have to provide 30 kilograms of fertilizer to their school, and any senior citizen over the age of 60 has to provide 30 kilograms of fertilizer to their neighborhood office. This fertilizer production battle will continue until the end of March”.

This is an unusual duration, the source explained, “The annual fertilizer production battle is normally completed on February 15th, but this year the authorities are emphasizing the importance of agriculture and, as a result, declared the completion date to be the end of March.”

“The production of fertilizer is an annual event, however, its target volume and duration has doubled. The lack of available fertilizer has already initiated competition between workplaces to secure access to public toilets and dumping grounds.”

A different source in Yangkang Province explained how things were being done there, “Middle school students over the age of 15 up to adults under the age of 60 have to provide fertilizer privately to surrounding farms by sled. Students from 1st to 3rd grade in middle school and senior citizens over the age of 60 have to provide the fertilizer to a neighborhood location designated by municipal committees of the Party.”

According to the same source, the temperature in Hyesan was -26C on the 2nd when workers from each workplace and factory, and residents of people’s units, assembled in the square in front of the Kim Jong Suk Art Hall to transport the fertilizer by sled to nearby farms in Chun-dong, Geomsan-dong and Wun-dong, and to Hwajeon Cooperative Farm, causing problems.

The source explained that the farms were up to 16 kilometers away, so, “Numerous people suffered from frostbite during the transfer.”

In addition to production of fertilizer, each workplace and organization received instructions to submit scrap metal, paper, rubber and vinyl. On this topic, the source commented, “Residents are making a hoo-ha about the requirement to submit unused materials for light industry like scrap metals. During the vacation in January, each middle school student is supposed to produce fertilizer and provide ten kilograms of scrap metal plus five kilograms of scrap paper and rubber to a designated depot. When such tasks are completed, the student gets a certificate from the depot and then has to show it to school.”

The source concluded, “Residents are already concerned about the possibility of increased compulsory mobilization even worse than that for the 150-Day Battle last year.”

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Posted in Agriculture, Education, Kim's New Year Address (Joint editorials), Labor conditions/wages | Comments Closed

Reunification costs

January 3rd, 2010

According to Peter Beck in the Wall Street Journal:

The cost [of reunification] will depend in large part on how that transition unfolds. The best of the plausible scenarios would see Korea following the German path of sudden and bloodless reunification. The worst outcome would be violence akin to the unification of Vietnam or Yemen. A middle road would resemble the chaotic post-Communist transitions of Romania and Albania. This seems most likely given the similarities between Kim’s autocratic, autarkic rule and Nicolae Ceausescu’s and Enver Hoxha’s reigns in their countries.

Any of these outcomes is sure to be expensive because the North will require massive investments to build a modern economy. The economy collapsed in the 1990s amid a massive famine that likely killed hundreds of thousands. Infrastructure, starting with the power grid, railway lines and ports, will require tens of billions of dollars to build or upgrade. Few factories meet modern requirements and it will take years to rehabilitate agricultural lands. The biggest expense of all will be equalizing North Koreans’ incomes with their rich cousins in the South, whether through aid transfers or investments in human capital like education and health-care.

Even the best-case German model will cause heartburn in South Korean officials. Despite the $2 trillion price tag West Germany has paid over two decades, Bonn had it relatively easy in the beginning. East Germany’s population was only one-quarter of the West’s, and in 1989 East German per capita income was one-third of the West. The two Germanies also had extensive trade ties.

In contrast, North Korea’s per capita income is less than 5% of the South’s. Each year the dollar value of South Korea’s GDP expansion equals the entire North Korean economy. The Northern population is half the South’s and rising thanks to a high birth rate. North and South still barely trade with each other—China-Taiwan trade is 54 times greater in dollar terms than inter-Korean trade. That the North is starting from so far behind means even more resources will be needed than Germany required to achieve convergence in standards of living.

More than a dozen reports by governments, academics and investment banks in recent years have attempted to estimate the cost of Korean unification. At the low end, the Rand Corporation has figured on $50 billion. But that assumes only a doubling of Northern incomes from their current level, which would still leave incomes in the North at less than 10% of the South. At the high end of these projections, Credit Suisse estimated last year that unification would cost $1.5 trillion, but with North Korean incomes rising to only 60% of the South. I estimate that raising Northern incomes to 80% of Southern levels—which would likely be a political necessity—would cost anywhere from $2 trillion to $5 trillion, spread out over 30 years. That would work out to at least $40,000 per capita if distributed solely among South Koreans.

All of this leads to the question of who would foot the bill. China is the greatest supporter of the current regime in Pyongyang, with trade, investment and unconditional economic assistance worth $3 billion a year. Yet even if that flow continues to the Northern part of a reunified Korea (it most likely would not), it will be a fraction of the $67 billion a year that would be needed to equal $2 trillion over three decades. After South Korea, Japan would become the largest source of aid, but the $10 billion it is prepared to pay in reparations for having colonized the North would barely make a dent.

That leaves international institutions like the World Bank—and Seoul and the United States. It will be a wise investment to secure peace and prosperity in North Asia, but that money won’t grow on trees. Policy makers need to start considering now how they would spend it, to minimize the risk of wasting it in post-reunification confusion. And officials need to think about where they’ll secure the cash. Multinational corporations will rush in, but the bulk of the burden will fall on the shoulders of South Korea—requiring careful fiscal management, borrowing and tax increases.

Korean unification is unlikely to take place in the near future, but since it will most likely be sudden and cost trillions of dollars, the time to prepare is now.

I cannot find a copy of the Credit Suisse research on line this evening.  Here and here are a couple of media stories reporting on its findings.

Here is a link to the Rand Corporation study, “North Korean Paradoxes,”  mentioned above.

Here are some additional studies on this topic:

Global Economics Paper No. 188: A United Korea? Reassessing North Korea Risks
Goldman Sachs Slobal ECS Asia research
Goohoon Kwon, CFA
September 2009
(Post here)

Currency Conversion during Korean Unification
Brookings Institution
Yeongseop Rhee, Nonresident Fellow, Foreign Policy
January 2009
(Post here)

Prospects from Korean Unification
Colonel David Coghlan
Strategic Studies Institute, US Army

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