DPRK crackdown on trading offices finds corruption

February 5th, 2008

Institute for Far Eastern Studies (IFES)
NK Bfrief No. 08-2-5-2
2/5/2008

It appears that from the end of last year through this January, North Korean Party, regional, cabinet and People’s Committee officials have been carrying out inspections of trading companies, ordering massive layoffs and closings of companies where mis-management or other abnormalities are found.

In Yonhap News, a North Korean insider in Beijing, China was quoted on the 31st as saying, “Since November of last year, North Korean authorities have carried out inspections on trading companies under the control of each organization, with layoffs at most trading firms with abnormalities, deficits, or other mismanagement.”

According to the source, over 100 trading companies are registered in Chungjin, South Hamkyung Province, but after the current housecleaning measures are enforced, only around 15 will remain in operation, with practically all problematic offices being closed down.

Another North Korean source in Shenyang, China reported, “These inspections include trading offices run by the Party, military, and other so-called ‘powerful institutions’, so across the board, there are no exceptions, and as to the growing intensity [of the inspections], they are much stronger and wider in scope than formal annual inspections that have been carried out in the past.” “The order handed down at the end of last year to greatly reduce staff in the Party, military and Cabinet happens every year, but this year massive lay-offs in the workforce at trading companies appears to related to a different kind of personnel liquidation.”

These inspections reportedly stem from an incident at the end of last July in which Oh Moon-hyuk, branch manager of the Ruengra 888 trading company in Yunsa, North Hamkyung Province, was executed after being implicated in the smuggling of timber. The trading company was responsible for the export of timber, and operates under the control of the Party’s accounting bureau. The inside contact stated that because of this incident, North Korean authorities carried out further inspections, leading in October of last year to the dismissal of one official receiving vice-minister pay, and the broadening of the inspections nationwide.

Through the inspection-broadening measures, trade officials under the North Pyungan Province trade office also received an inspection party from the central government, causing many problems for Chinese traders who could not travel in from Dandong. Through these inspections, North Korean authorities reportedly uncovered several cases of embezzlement and misappropriation of company finances while the trading companies were exporting marine products or coal, iron ore, and other mining materials.

The goal of these inspections appears to have been the restoration of public order, just as the recent measures preventing women under the age of 45 from working in markets was a reaction to diminishing public discipline. In the future, price controls, regulations on export goods, or other government regulations regarding international trade are likely to be strengthened.

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Posted in Companies, Forestry, Labor conditions/wages, Lumber, Manufacturing, Political economy | 1 Comment »

Bribery Required to Work at the Kaesong Complex

February 5th, 2008

This should not be a surprise to anyone who is familiar with how socialist and highly regulated economies actually function.  If there is a profit opportunity to be had by breaking a regulation, there will generally be a bureaucrat there willing to pocket some of the earnings to look the other way.

The fact that ordinary North Koreans are willing to pay to get access to Kaesong jobs should send a powerful signal to those who call for the zone’s abolition. Wages and working conditions at the complex, though not popular with Western activists, are relatively better than those on the local collective farm.  When the average Kaesong resident figures out that working there will lead to a better life, baksheesh is inevitable. 

Claudia Rosette covered a similar phenomenon with North Korean loggers in Russia.

The Daily NK covers the Kaesong phenomenon specifically:

Known as a “dream place of employment” among North Koreans, citizens of the North are paying hundreds of thousands of won in the form of bribes to gain employment in the facility.

“They say that one can find a job in the Kaesong Industrial Complex by giving 700,000 North Korean won in bribes for males and 200,000 won for females. If I had used the 200 USD (approximately 700,000 won) spent in obtaining a passport as a bribe, I could have entered the Complex.”

As for the why the Kaesong Complex is so popular, Kim explained, “Commodity provision tickets, equivalent to a worker’s salary, are given to laborers in Kaesong and if one uses these tickets well, he or she can make a huge profit.”

Currently, the official salary for laborers at the Kaesong Industrial Complex is around 60 USD, a small amount of which is distributed as cash and the rest in the form of “commodity provision tickets.”

In the Kaesong Industrial Complex, there are several shops that can only be frequented by Kaesong laborers and the prices at these stores are at inexpensive compared to prices in the jangmadang.

Laborers at the Kaesong Industrial Complex use their “commodity tickets” to purchase products at a cheap price and can make a huge profit by selling the goods, giving the difference to middlemen (currency traders who mediate deals).

Recently, there have even been cases where the middlemen had specific orders for certain items from the Kaesong laborers, asking them to procure a certain amount of rice, oil, and so on. The middlemen can easily make an exorbitant amount of money by selling these goods at the jangmadang.

ADDENDUM REVISITED (The Daily NK is transalted into English and as a result is even less clear than my writing somethimes, so I have revised this post several times to clarify the text):

Opinions of the complex seemingly hinge on one’s policy goals.  If the primary goal is to raise living standards in the North and open the people up to outside influences, then Kaesong seems like progress (although maybe not the most cost effective).  If the primary goal is to minimize the income of the DPRK government, then the Kaesong zone probably is not a good idea…. 

Taking the latter point of view, Joshua at OneFree Korea emphasises the point that  the North Korean government keeps most of the cash wages paid to the workers, and that zone employees survive on the supplemental “commodity tickets”–either consuming the goods they purchase in the company store or selling them to local markets for cash.

Theoretically, though, if the thousands of workers employed in Kaesong were re-selling subsidized goods to the Kaesong public markets, this would have the (short run) effect of lowering or stabilizing food prices for the general public (since Zone employees do not need to purchase food at local markets and their clandestine re-selling of commodities to the markets increases the supply of cheaper goods).  This also means that  in general re-selling to the market is not terribly profitable to any zone employee, except when there is a temporary mismatch beteen supply and demand (which might be common depending on the reliability of the DPRK’s market supply chains).  How the price decrease would affect domestic food producers (and the long term price) is probably a bit more complicated since we are not sure how much North Korean farmers respond to price changes. 

Additionally, even though the North Korean government keeps most of the cash wages, the commodity coupons still give the worker approximately $60 in purchasing power –a decent income in North Korea. 

However, given that the South Koreans pay all cash wages go to the North Korean government and the workers themselves receive an additional $60 in script to use at the company stores, means that the average economic cost of a North Korean worker in  Kaesong is closer to $120/month! 

The whole article can be found here:
Bribery Required to Work at the Kaesong Complex
Daily NK
Jung Kwon Ho
2/4/2008

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Posted in Fiscal & monetary policy, Foreign direct investment, General markets (FMR: Farmers Market), Kaesong Industrial Complex (KIC), Labor conditions/wages, Special Economic Zones (Established before 2013), Uncategorized | 2 Comments »

Washington to ship fuel oil to NK this month

February 5th, 2008

Ecerpt from the Korea Times
Jung Sung-ki
2/5/2008

The U.S. government is preparing to ship a second batch of 54,000 tons of fuel to North Korea this month, a U.S.-funded radio station reported Tuesday.

Radio Free Asia (RFA) said the U.S. State Department was scheduled to report the shipment plan to Congress in the coming days.

Under a multinational nuclear deal reached in February last year, South Korea, the United States, China and Russia promised to provide 50,000 tons of oil in turn to the poverty-stricken North. Washington sent the first batch of 46,000 tons of fuel to the North last October, while other nations have fulfilled their pledges.

Japan, another participant at the six-party talks, refused to participate in the aid plan due to a dispute with the North over Japanese citizens kidnapped by North Korean agents in the past.

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Posted in Energy, Foreign aid statistics, International Aid, Oil, USA | Comments Closed

North Korean team gets help in the U.S. for treating disease

February 5th, 2008

Joong Ang Daily
Nam Jung-ho
1/31/2008

Tuberculosis, practically non-existent in most developed countries, is North Korea’s biggest concern. Five public officials from the communist country recently visited the United States to learn how to prevent and treat the disease, according to an official of The Korea Society, a New York-based nonprofit group that invited the North Koreans.

The official, who declined to be named, said visits to the United States by North Korean public health officials are not new, but publicizing them is.

“Things have changed. In the past, we would have been bombarded with complaints about helping North Korea, suspected of supporting terrorism, if we had officially announced it,” the representative said. “The program could have been canceled completely, so we kept the program as low profile as possible.”

Tuberculosis is extremely rare in South Korea, but more than 1 million people a year in the impoverished North get infected with the disease.

The public health officials were taught how to prevent and treat tuberculosis, an infectious disease caused by bacteria. Several area medical institutes promised to donate medicine and medical instruments to the North to fight the disease, the representative said.

“We are interested in the efforts to dispel diseases, since they can not only serve humanitarian purposes but also benefit U.S. medical research,” said the representative of The Korea Society. “In North Korea, they can implement perfect control over their patients, making it easier to measure the effects of new medicines or new treatment.”

According to the official, three doctors and two public health officials from North Korea visited eight hospitals and other public health centers in San Francisco, California from Jan. 12 to 19. The visit was arranged by The Korea Society and Stanford University.

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Posted in Disease prevention, Health care, Korea Society | Comments Closed

Koreas to send joint cheering squad to Olympics

February 4th, 2008

Yonhap
2/4/2008

South and North Korea agreed Monday to send a 300-strong joint cheering squad to the Beijing Olympic Games in early August, the Unification Ministry said.

One hundred and fifty people from each side will travel across the heavily armed border by train to Beijing, it said.

The agreement was made by working-level officials at a one-day meeting in Kaesong, a North Korean border city.

The two sides agreed to hold another round of talks to discuss the details of sending the joint cheering squad, the ministry said in a news release.

Hailed as a symbol of inter-Korean peace and reconciliation, the cross-border railway was reconnected in May last year for the first time in 56 years. It was severed in the early stage of the 1950-53 Korean War.

The two Koreas agreed during the second summit of their leaders in October to transport the joint cheering contingent to the Aug. 8-24 Olympics using the Gyeongui railway, which is linked to the Chinese railway system.

South Korea also hopes to connect the railway to the Trans Siberian and Trans Chinese railways so products from the world’s 13th biggest economy can be transported to Europe at lower costs and in less time.

Yoo Sang-il, a member of the Korean Olympic Committee, led the three-member South Korean delegation to the talks. Yoo’s North Korean counterpart was Hwang Chol, a department director of the North’s Council for National Reconciliation.

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Posted in Civil society, Railways, Sports, Transportation | Comments Closed

North Korea: The Columbus complex

February 4th, 2008

Several days ago, Orascom Telecom issued a press release claiming “that it has been granted the first commercial license to provide mobile telephony services in the Democratic People’s Republic of Korea (DPRK) using WCDMA (3G) technology,” and also claiming, “The DPRK has a population of approximately 23 million of which 67% is between the age of 15 and 64 years, moreover, there is currently no mobile services in the country.”

(Although we won’t know if these demographics are correct until the next census).

However, Dr. Aidan foster Carter took issue with these statements this weekend in the Asia Times…

In 2008, not even North Korea is a cellphone virgin. The DPRK and mobile telephony have a tangled history, starting over a decade ago. (There’s a very useful account as of 2005 at this site.) The tale includes a joint bid in 2002 by several South Korean firms to build a CDMA network in Pyongyang, which sank when Washington made it clear it would not let Qualcomm sell the technology.

That false start apart, our Egyptian Columbus is ignoring, and perhaps usurping, a Thai Leif Ericsson in the shape of Loxley. Back in 1995, the Thai conglomerate set up a 70:30 joint venture, North East Asia Telephone & Telecommunication, with the very same partner Orascom has now bagged, KP&TC. NEAT&T had a 30-year “exclusive” concession – or so it thought.

They’re not the only ones. Hyundai used to vie with Samsung to be South Korea’s biggest chaebol or conglomerate. The group’s northern-born founder, the late Chung Ju-yung, was a pioneer of inter-Korean business. His reward was to be fleeced rotten by Pyongyang, which charged almost a billion dollars for a six-year tourist concession – and then coolly offered bits of it to rival operators like Lotte. As a result, Hyundai splintered into separate firms – and no other chaebol will touch the North with a bargepole. Cheating really doesn’t pay.

But back to the luck of the Loxleys. Having begun with a mainly fixed network in the Rason special economic zone in the northeast, several years later in 2003 Loxley rolled out mobile service in Pyongyang – only to see them banned after a mere six months. That was in May 2004, soon after a huge rail explosion destroyed a swath of the northwestern town of Ryongchon – hours after Kim Jong-il’s train had passed through from China. Officially an accident, one rumor is that this was an assassination attempt triggered by a mobile phone.

Whatever the reason, with service still suspended over a year later, Thailand’s then foreign minister, Kantathi Suphamongkhon, went to Pyongyang in August 2005 to fight Loxley’s corner. He got no joy. North Korea still bars hand-phones, confiscating them from the rare foreign visitor at the country’s Sunan airport and coming down hard on bold souls along the northern border who have illicit mobile phones using Chinese networks. Last October, a factory boss who made international calls from 13 lines – unlucky for some – installed in his basement was reportedly executed in a stadium in front of 150,000 people.

Dr. Foster-Carter gives a great summary of the DPRK’s mobile phone adventures, but I have a couple of data points that flush out the story a bit further.

While visiting Pyongyang in 2005, I personally witnessed an elite North Korean woman (who also claimed to have a reserved room at the Koryo) discretely use a mobile phone, then wrap it in a pink handkerchief a store it in her purse.  Even my guides were shocked, having previously told me that cell phones were recalled for security reasons.  One told me, “She must be special, I am just a normal person.”

Additionally, many journalists to the country are provided with state-sanctioned cell phones to use.  I met a reporter from Reuters who had one.

The full article can be found here:
North Korea: The Columbus complex
Asia Times
Aidan Foster-Carter
2/2/2008

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Posted in Cell phones, Communications, Economic reform, Egypt, Foreign direct investment | 1 Comment »

Inter-korean resource deveopment growing

February 2nd, 2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-12-1-1

Much time and energy has been devoted recently to the promotion of a scheme to further develop North Korean natural resources. In July 2005, the Committee for the Promotion of South-North Economic Cooperation agreed to cooperate in the joint development of the North’s underground resources, and in July of last year a project was launched. A total of 17 agreements with the North have been reached, through which target mines have been selected and inspection methods, time-frames, and other details have been worked out. Many difficulties were faced during negotiations, but through continuous information gathering, it was decided that there was sufficient cause to invest in the project, so a proposal was made and the very first inter-Korean resource development enterprise was launched.

Since last August, forty-seven experts in mining, infrastructure, and other areas have carried out general as well as detailed inspections of all aspects of the Kumduk Zinc Mine and Ryongyang and Daeheung magnesite mines, including infrastructure such as railway and road access, harbor facilities, and electrical capacity. The North was convinced to allow photography and surveying of mining sites, as well as the 90km of rails and roads stretching between the mines and Danchun Station and the nearby Kim Chaek Harbor. Through these surveys, enough information was gathered to satisfy investors, and to publish three volumes worth of inspection reports and pictures.

The Danchun region mining project is one that has been thouroghly prepared through long negotiations and numerous inspections and surveys. Now, based on the results of last year’s surveys, the project’s feasibility study is scheduled to be completed by the end of March. The on-site inspections confirmed the quality and marketability of the mining resources, and the potential for mining development.

In addition, because the mines are currently operational, the risk is much lower than that of an exploratory project. It was assessed that only some parts of the power and railway systems need improvement. Of course, full investment in the project would come about only after completion of the feasibility study currently underway.

A DPRK natural resource development project is necessary for both North and South Korea. For the South, mineral resources can be expanded through investment in production, while the North can benefit economically by increasing production through South Korea’s capital infusion and the introduction of mining technology.

This venture can also play an important role in accomplishing the denuclearization and development plans of the incoming Lee Myung-bak administration. Direct investment in locations in North Korea is the preferred method for advancement of the North’s resources. In particular, investment into energy infrastructure necessary for the processing and transport of these mined goods is preferred over other forms of investment. It is important for South Korea to invest in developing the North’s resources before other outside investors take advantage of the opportunity.

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Posted in Institute for Far Eastern Studies, International trade, Mining/Minerals | Comments Closed

DPRK’s largest copper mine flooded with difficulties

February 2nd, 2008

Institute for Far Eastern Studies
NK Brief No. 08-1-29-1

It is being reported that North Korea’s Chungnyun Mine, in Hyesan, Ryanggang Province, is facing severe economic difficulties due to floodwater. Hyesan mines produce 80 percent of all North Korean copper, and the North had estimated that it will be able to continue mining copper there for the next forty years. Chinese firms in Hebei’s Luan River region had wanted to import 51 percent of Hyesan Chungnyun Mine’s product, but the deal fell through due to opposition from North Korea’s committee overseeing its second (military) economy.

In 1996, during the North’s ‘Arduous March’, electricity was not provided to the mine, leading to flooding in the mineshafts. Since 1998, Kim Jong Il has budgeted 8.2 million USD to dewater the mine, and the mine was recovered using electricity and equipment provided by China.

The mine resumed operations in May, 2004, and in March of last year even an ore-dressing plant and crushing facility were constructed, indicating that there were high expectations that production would grow. However, as water filled up at the dam for the near-by Samsoo Powerplant, completed in May, the mines began to flood again.

There was no end to criticism that the powerplant, located in Jangan-Ri, Hyesan, Ryanggang Province, was to be constructed on a limestone foundation that would leech massive amounts of water, however, as a result of its construction, despite this opposition, water leaks out of the power station and has flooded the mine.

In the event that North Korea abandons the Hyesan Chungnyun Mine, it will be faced with the difficulty of needing to import the large amounts of copper required by the manufacturing industry. As this mine began to flood, North Korea has begun to import most of the copper necessary for its economy from Chile.

Currently, there is no feasible way to technically restore the mine, so as senior authorities in the North are demanding that the mine be saved at any cost, those in charge of operations are said to be uneasy.

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Posted in China, Copper, Finance, Foreign direct investment, Institute for Far Eastern Studies, Mining/Minerals | Comments Closed

Kim Jong il site visits indicate DPRK’s focus on economy

February 2nd, 2008

Instutute for Far Eastern Studies (IFES)
NK Brief No. 08-1-24-1
1/24/2008

North Korean leader Kim Jong Il has started the new year by visiting a series of facilities and locations important to the economy in order to stimulate ‘Economic Revival’. DPRK media outlets reported on January 21 that Kim had examined the 18th national program performance and exhibition which opened last year, and that on the 6th, he visited the Ryesung Power Plant in North Hwanghae Province and dispensed on-location directives.

In North Korea, Kim’s new year’s traveling is indicative of the country’s national goals for the year, and Kim’s trip to economic facilities appears to indicate that DPRK authorities are focusing on rebuilding the economy this year.

On January 9, the Chosun Sinbo, a publication of the General Association of Korean Residents of Japan, reported, “In the changing face of the Northeast Asian political atmosphere emerging as the 6-Party agreement is implemented, [we] are preparing an advantageous atmosphere for the revival of the North Korean economy,” and called for “more active promotion of economic cooperation and exchange with each country in the world.” The article stressed promoting ‘21st century rehabilitation by one’s own effort’ by acquiring modern science and technology appropriate for the country.

Last year saw the beginning of improvement in U.S.-DPRK relations and resolution of nuclear issues, and the national strategy for this year seems to be economic expansion based on these developments. In particular, the symbolic significance of Kim Jong Il’s personal visits to two places of economic interest goes to show that North Korea is on a path intended for economic growth. In North Korea, on-location guidance by Kim Jong Il indicates national objectives and serves to focus national capabilities on that location.

According to North Korea’s New Year’s Joint Editorial, “The role of science and technology in the construction of an economically powerful nation must be decidedly elevated,” and went on to stress that, in line with the demands of the information industrial age, a revolution in education is necessary and a competent labor force that can participate in the creation of a strong and prosperous nation must be greatly promoted.

If Kim Jong Il’s inspection of the power plant is an indication of support for the construction of infrastructure and other electrical facilities necessary for economic development, the inspection program indicates what industrial sector the North will focus its energies on in the future. Through increased production in the light industrial and agricultural sectors, North Korea is expected to focus on improving the lives of the people first, and in the future, focus on development of the IT sector.

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Posted in Chongryun, Dams/hydro, Electricity, Energy, Light Industry, Manufacturing, Political economy | Comments Closed

DPRK economic statistics from KEI (BoK data)

February 2nd, 2008

In October, the Korea Economic Institute published a presentation of North Korean economic data assembled by the Bank of Korea.  Basic stats below:

  • GDP: -1.1% in 2006 (+3.8% in 2005)-Due to decrease in agriculture output. 
  • Services are the largest component of the economy (34%)
  • Trade volume (exports + imports) approximately US$3 billion
  • 2005 trading partners in order: China, South Korea, Thailand, Russia, Japan, Singapore

See the full report here: northkorea.ppt

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Posted in Agriculture, Agriculture statistics, China, GDP statistics, Japan, Russia, Singapore, Statistics, Thailand, Trade Statistics | Comments Closed

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