Archive for the ‘Kaesong Industrial Complex (KIC)’ Category

Hermit economics hobbles Pyongyang

Wednesday, March 31st, 2010

Aidan Foster-Carter writes in the Financial Times about some poor decision-making coming out of Pyongyang:

Great Leader? Pyongyang’s fawning hagiography not only grates, but is singularly unearned. Even by its own dim lights, North Korea’s decision-making is going from bad to worse.

Last year saw two spectacular own goals. Missile and nuclear tests were a weird way to greet a new US president ready to reach out to old foes. The predictable outcome was condemnation by the United Nations Security Council, plus sanctions on arms exports that are biting.

Domestic policy is just as disastrous. December’s currency “reform” beggars belief. Did Kim Jong-il really fail to grasp that redenomination would not cure inflation, but worsen it? Or that brazenly stealing people’s savings – beyond a paltry minimum, citizens only got 10 per cent of their money back – would finally goad his long-suffering subjects into rioting? Forced to retreat, officials even apologised. One scapegoat was sacked – and possibly shot.

By his own admission, Mr Kim does not do economics. In a speech in 1996, when famine was starting to bite, the Dear Leader whined defensively that his late father, Kim Il-sung, had told him “not to get involved in economic work, but just concentrate on the military and the party”.

That awful advice explains much. Incredibly, North Korea was once richer than the South. In today’s world, this is the contest that counts. “It’s the economy, stupid” is no mere slogan, but a law of social science.

Having taken an early lead, Kim senior threw it all away. He built the world’s fourth largest army, crippling an economy that he refused to reform, viewing liberalisation as betrayal. His own personality cult was and is a literally monumental weight of unproductive spending.

Used to milking Moscow and Beijing, in the 1970s North Korea borrowed from western banks – and promptly defaulted. That was not smart; it has had to pay cash up front ever since.

Pyongyang also resorts to less orthodox financing. In 1976 the Nordic nations expelled a dozen North Korean diplomats for trafficking cigarettes and booze. In December a Swedish court jailed two for smuggling cigarettes. More than 100 busts worldwide over 30 years, of everything from ivory and heroin to “supernotes” (fake $100 bills), leave scant doubt that this is policy.

Yet morality aside, it is stupid policy. Pariahs stay poor. North Korea could earn far more by going straight. The Kaesong Industrial Complex (KIC), where South Korean businesses employ Northern workers to make a range of goods, shows that co-operation can work. Yet Pyongyang keeps harassing it, imposing arbitrary border restrictions and demanding absurd wage hikes.

Now it threatens to seize $370m (€275m, £247m) of South Korean assets at Mount Kumgang, a tourist zone idle since a southern tourist was shot dead in 2008 and the north refused a proper investigation. Even before that, Pyongyang’s greed in extorting inflated fees from Hyundai ensured that no other chaebol has ventured north. Contrast how China has gained from Taiwanese investment.

In this catalogue of crassness, the nadir came in 1991 when the dying Soviet Union abruptly pulled the plug on its clients. All suffered, but most adapted. Cuba went for tourism; Vietnam tried cautious reform; Mongolia sold minerals. Only North Korea, bizarrely, did nothing – except watch its old system crumble. Gross domestic product plunged by half, and hunger killed up to a million. Now famine again stalks the land. The state cannot provide, yet still it seeks to suppress markets.

All this is as puzzling as it is terrible. China and Vietnam show how Asian communist states can morph towards capitalism and thrive. Kim Jong-il may fear the fate of the Soviet Union if he follows suit. True, his regime has survived – even if many of its people have not. Yet the path he is on is patently a dead end. Mr Kim’s own ill-health, and a belated bid to install his unknown third son as dauphin, only heighten uncertainty. Militant mendicancy over the nuclear issue – demanding to be paid for every tiny step towards a distant disarmament, then backsliding and trying the same trick again – will no longer wash. North Korea has run out of road; the game is finally up.

What now? A soft landing, with Mr Kim embracing peace abroad and reform at home, remains the best outcome. But if he obdurately resists change, we need a plan B. The US and South Korea have contingency plans for the north’s collapse. So does China, separately. Tacit co-ordination is urgent, lest future chaos be compounded by a clash of rival powers – as in the 1890s. Koreans have a rueful proverb: when whales fight, the shrimp’s back is broken.

But Beijing will not let it come to that. China is quietly moving into North Korea, buying up mines and ports. Some in Seoul cry colonialism, but it was they who created this vacuum by short-sightedly ditching the past decade’s “sunshine” policy of patient outreach. President Lee Myung-bak may have gained the Group of 20 chairmanship, but he has lost North Korea.

Nor will Mr Kim nuzzle docile under China’s wing, though his son might. As ever, North Korea will take others’ money and do its own thing. In early 2010 new fake “super-yuan” of high quality, very hard to detect, started appearing in China. They wouldn’t, would they?

Read the full article here:
Hermit economics hobbles Pyongyang
Financial Times
Aidan Foster-Carter
3/30/2010 

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North Korea: It’s the Economy, Stupid

Thursday, March 4th, 2010

Nautilus Institute Policy Forum Online 10-015A
Aiden Foster-Carter
3/4/2010

Too many Kim Yong-ils

Korean names can set traps for the unwary. Amid a multitude of Kims, almost all unrelated, North Korea adds an extra twist. German speakers, and some others, tend to mispronounce the J in Kim Jong-il as a Y. Not only is this incorrect, but currently it can confuse; for North Korea’s Premier – head of the civilian Cabinet, as distinct from the Dear Leader who chairs the more powerful National Defence Commission (NDC) – is named Kim Yong-il.

To add to the confusion, another Kim Yong-il was until recently vice foreign minister (one of several), but in January became director of the ruling Workers’ Party of Korea (WPK)’s international department: a post apparently vacant since 2007. As such, this Kim Yong-il met his Chinese counterpart Wang Jiarui, head of the Chinese Communist Party (CCP)’s international liaison department, when Wang visited Pyongyang in early February. Since his promotion, Kim Yong-il 2 (as it may be best to call him) has been reported as frequently at Kim Jong-il’s side. This suggests he may see far more of the Dear Leader than does anyone else involved in DPRK foreign policy, including the man hitherto thought to be the eminence grise on that front: first vice foreign minister Kang Sok-ju, who negotiated the 1994 Agreed Framework with the US. It was Kang whom the current US special envoy on North Korea, Stephen Bosworth, demanded to meet when he visited Pyongyang in December, rather than the North’s main nuclear negotiator Kim Kye-gwan: a more junior deputy foreign minister.

Or is Washington behind the curve? That Kim Yong-il 2 is the DPRK’s new foreign affairs head honcho seemed confirmed on February 23, when he turned up in Beijing and went right to the top: going straight into talks with President Hu Jintao and separately with Wang Jiarui. This flurry of activity suggests two possibilities. Either Kim Jong-il will soon visit China, as he is overdue to do; or North Korea may return to the nuclear Six Party Talks (6PT), which have not met in over a year. Or perhaps both, if we are especially fortunate.

If both Kim Yong-ils are now leading players, perhaps one of them could change his name? That is not a frivolous suggestion. Some DPRK officials do this, for no clear reason. Often the change is small, so this is not a case of deception. Thus Paek Nam-sun, DPRK foreign minister – meaning chief meeter and greeter rather than top negotiator – from 1998 until his death in 2007, was originally Paek Nam-jun. Ri Jong-hyok, who as vice-chairman of the Asia-Pacific Peace Committee (APPC) now handles relations with the South, was Ri Dong-hyok in the 1980s when this writer knew him as head of North Korea’s mission in Paris.

(For completeness, yet another Kim Yong-il was Kim Jong-il’s late half-brother. He died of liver cirrhosis in 2000 aged only 45 in Berlin, where he had a diplomatic posting tantamount to exile – as his elder brother Kim Pyong-il, the DPRK ambassador to Poland, still does.)

Jong and Yong both say sorry

The past month saw both Chairman and Premier Kim doing something almost unheard of in Pyongyang. Apparently they both said sorry, although some reports got the two muddled up.

On February 1 Rodong Sinmun, daily paper of the ruling Workers’ Party of Korea (WPK), reported Kim Jong-il as lamenting his failure to fulfil his late father Kim Il-sung’s pledge, to which he had also alluded shortly before on January 9, that all North Koreans would eat rice and meat soup (everyday fare for even the poorest South Korean, be it noted). This time Kim said: “What I should do now is feed the world’s greatest people with rice and let them eat their fill of bread and noodles. Let us all honour the oath we made before the Leader and help our people feed themselves without having to know broken rice [an inferior version]”.

Given Kim Jong-il’s own notoriety as gourmet and gourmand, his professed “compassion” for his less fortunate subjects’ deprivation may induce queasiness. Yet even this not-quite-apology glosses over the truth. Broken rice? They should be so lucky. As readers of Barbara Demick’s excellent and heartbreaking new book Nothing to Envy will know, rice of any kind – whole or broken – is a rare luxury for most North Koreans. In the late 1990s a million or so starved to death; even today most remain malnourished. One refugee who fled to China saw her first rice in years in the first house she came to – in a dog’s bowl. That is the true reality.

Worse, all this was and is avoidable: the result of stupid and vicious policies, not the natural disasters that the regime blames. The real cause was the government’s failure to adapt in the 1990s after Moscow abruptly pulled the plug on aid. This hurt other ex-Soviet client states too. Cuba went for tourism; Vietnam tried cautious reform; Mongolia sold minerals. North Korea, bizarrely, did nothing – except watch its old system break down and growth plunge.

In a speech at Kim Il-sung University in December 1996, when famine was seriously biting, Kim Jong-il lashed out at the WPK and uttered this petulant but very revealing whinge:

In this complex situation, I cannot solve all the problems while I have the duty of being in charge of practical economic projects as well as the overall economy, since I have to control important sectors such as the military and the party as well. If I concentrated only on the economy there would be irrecoverable damage to the revolution. The great leader told me when he was alive never to be involved in economic projects, just concentrate on the military and the party and leave economics to party functionaries. If I do delve into economics then I cannot run the party and the military effectively.

Evidently Bill Clinton’s famously apt watchword, which helped him win the presidency in 1992, had not breached North Korea’s thick walls and heads. It’s the economy, stupid! The paternal advice was dead wrong. (The full speech can be read on the much-missed Kimsoft website. Unsurprisingly it is not part of the DPRK’s official canon of the dear leader’s works, but the scholarly consensus is that it is genuine. A slightly different version appears here.)

Redenomination disaster

Mass starvation, you might hope, would prompt some soul-searching and fresh thinking. From mid-2002 North Korea did essay cautious market reforms, but recently it has tried to squash Pandora back in her box. The latest such crass effort, a currency redenomination that deliberately wiped out most people’s meagre savings, was discussed in December’s Update.

By all accounts this has backfired badly, sparking runaway inflation (which it was supposed to stanch) and even riots. Forced on the defensive, the regime has issued an unprecedented apology. This being North Korea, it has not done so publicly; there are limits. Nor, in 2010 as in 1996, is Kim Jong-il about to take the rap, despite some newswires confusing J with Y.

But reliable intelligence claims that on February 5 Premier Kim Yong-il called all leaders of neigbourhood groups (inminban) to Pyongyang. The lowest unit in the DPRK’s still tight system of socio-political control, each comprises 20-40 households. This suggests that over 10,000 people heard the premier say what no leader had ever said to them before: sorry. In his words: “I offer a sincere apology about the currency reform, as we pushed ahead with it without sufficient preparation and it caused a great pain to the people… We will do our best to stabilize people’s lives.” The audience’s reaction is not recorded.

The situation on the ground remains confused, but markets appear to be functioning again unhindered. Good Friends, a seemingly well-informed South Korean Buddhist NGO, said on February 18 that after examining a report on food shortages and conditions nationwide by the Office of Economic Policy Review, the WPK Central Committee issued an ‘Order for Absolutely No Regulation Regarding Foodstuffs’. All markets are to reopen as they were before recent government crackdowns, and under no circumstances must local authorities try to regulate food sales – “until central distribution is running smoothly.” There may be a sting in that tail, but for now this is a complete, humiliating government U-turn and climbdown.

This is an astonishing episode, which history may record as pivotal. If the leadership learns its lesson and finally accepts that the market economy is as ineluctable as gravity, then the DPRK might conceivably survive on a reconstituted economic base and social contract, like today’s China or Vietnam. But if Kim Jong-il (or whoever) keeps trying to square the circle, under the delusion that correct politics is a substitute for sound economics, there is no hope.

Sea shells

Relations with South Korea remain an odd blend of sabre-rattling and dialogue. Four times in the past month, starting on January 25 and most recently on February 19, the North has declared a series of no-sail zones for varied time periods. Some of these adjoin two ROK-held islands close to the Northern coast, Baengnyong and Daechong. For three days (January 27-29) the Korean People’s Army (KPA) fired volleys of artillery shells near the Northern Limit Line (NLL): the de facto western sea border since 1953, which the North rejects.

Though no shells actually crossed the NLL, on the first day the South called this provocative and fired back – but again only within its own waters south of the line. By late February, a Southern defence spokesman called the latest shelling “a routine situation that is part of the North’s winter military exercise”, adding that this may go on till the end of March. Routine or not, a report submitted to the ROK National Assembly’s Defence Committee on February 19 said Pyongyang has reinforced its military along the west coast of the peninsula and has strengthened military drills.

Kaesong and Kumgang remain unsettled

The shelling did not stop the Koreas talking about their two joint venture zones just north of the Demilitarised Zone (DMZ). But they got nowhere, beiing far apart on the agenda, format and venue for talks. On the Kaesong Industrial Complex (KIC) – see last month’s Update for more details – the North suggested that the South’s issues – it wants smoother cross-border passage – were best left to military-level talks, which in the past have handled issues relating to the border and security. The South agreed, proposing February 23 at the border village of Panmunjom: the venue for all military meetings hitherto. The North then counter-proposed March 2, at Kaesong; but on February 22 the South said it will insist on Panmunjom, rather than set the precedent of holding a military meeting inside North Korea. With both venue and agenda still in dispute, the chances of progress on the substantive issues looks remote.

Mount Kumgang tours remain suspended

Separately, South Korea with some misgivings accepted the North’s request for talks on resuming tours to the Mount Kumgang resort, suspended since a Southern tourist was shot dead there in July 2008. At the talks held in Kaesong on February 8, North Korea asked for tours to restart from April 1. It breezily declared that the South’s three conditions – a probe into the shooting, efforts to ensure no repetition, and a cast-iron safety guarantee – had been met. But as the North well knows, the South’s key demand is to send in its own investigating team – which the North resolutely refuses. The Northern side proposed continuing the talks on February 12, but the South declined unless the North accepts their three conditions first.

More arms are interdicted

UN sanctions imposed last June after North Korea’s second nuclear test seem to be biting. In February South Africa told the Security Council that in November it inspected a ship headed for the Congo Republic (Congo-Brazzaville). The French owners reported suspicions about cargo they took on in Malaysia from a Chinese vessel. Seizing the containers, South Africa found that what the manifest called “spare parts of bulldozer” were in fact tank components. The shipping agent, and likely origin, is North Korean. China said it will investigate its own vessel’s role in the affair. UN resolution 1874 bans almost all DPRK weapons exports.

More ambiguously, on February 11 Thailand dropped charges against the crew of a plane seized in December and found to contain 35 tonnes of weapons from North Korea, including five crates of Manpads (man-portable air defence systems) which terrorists can use to shoot down aircraft. Next day all five were put on a flight to Almaty. Four are Kazakhs, and their government had asked that they be sent home to be tried. It will be dismaying if they are not.

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Kaesong border communication upgraded

Thursday, December 31st, 2009

According to the Associated Press:

Military officials from the two Koreas communicated through new fiber-optic cables to help facilitate the travel of 330 South Koreans heading to an industrial complex in the North on Wednesday, Unification Ministry spokeswoman Lee Jong-joo said.

South Korea has sent fiber-optic cables and other equipment to the North to help its communist neighbour modernize its military hot lines with the South, she said.

The new hot lines replaced outdated copper cable hot lines that will remain as spare lines, said Lee, the spokeswoman.

The new hot lines will serve as a key mode of communication for border crossings for people travelling to and from the joint industrial complex at the North Korean border town of Kaesong, she added.

I assume the upgrade to fiber optic means that the bureaucracy of border crossing has been computerized.  Rather than reading information across the phone line border officials can now send it electronically (including photos) to speed up processing on the North Korean side of the border.

Read the full story here:
Divided Koreas open new, updated military hot lines to facilitate border crossings
Associated Press (via Winnipeg Free Press)
12/29/2009

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Kaesong production value up, export value down

Tuesday, December 22nd, 2009

According to Yohnap:

Production at the Kaesong complex reached US$27 million in October, up 12.1 percent from $24 million a month earlier, the Unification Ministry said. The October figure also represents a 16.9 percent increase from a year ago.

The overall increase was attributed notably to strong output from machinery and electronics manufacturers, which climbed 26.2 percent and 25.5 percent, respectively. Foodstuff and textile goods also enjoyed 24.9 percent and 8.6 percent increases, respectively.

Exports from the complex, however, shrank 9.1 percent from a month ago to $3.11 million, mostly due to a decline in machinery shipments, according to the ministry.

There are currently 116 South Korean firms operating in Kaesong, matching their capital and technology with the cheap but skilled labor of 42,000 North Korean employees.

Read the full article below:
Production at Kaesong complex rises in October
Yonhap
12/29/2009

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Koreas to visit PRC-Vietnam industrial complex

Monday, November 30th, 2009

Institute for Far Eastern Studies (IFES)
NK Brief No.09-11-30-1

In an effort to seek new ways to develop the inter-Korean joint industrial complex in Kaesong, it is expected that the first joint complex between China and Vietnam will be inspected in the middle of next month. According to a high-ranking official in the South Korean Ministry of Unification, “If the Kaesong Industrial Complex (KIC) is to be made into an internationally competitive industrial complex, [we] need to take a close look at the processes and structure of the international market,” and, “In order to develop the KIC, we decided to inspect a foreign industrial complex, and the North has agreed.”

This inspection was agreed upon during the second round of inter-Korean working level talks in June, and is being looked at as a breakthrough in restarting talks between officials from the North and the South. The source added, “The thought is that the inspection will be of a China-Vietnam industrial complex,” and, “If this overseas inspection goes well, the 3-C problem (Communication, Conveyance, Customs) and issues of visits and sojourns by South Koreans in the complex, dormitories for the North Korean workers, the construction of roads for coming to and from work, and other issues will be advanced.”

The inspection team will include 10 officials from North Korea and 10 from the South, and plans to visit the site for ten days beginning on the 12th of next month. The South Korean delegation is expected to include representatives from the Ministry of Unification, the Ministry of Knowledge Economy, Korea Land Corporation, and members of the KIC management committee. The agreement between the two Koreas to inspect an overseas industrial zone is seen as a sign that inter-Korean relations are improving. It appears that North Korea is continuing to work toward improving inter-Korean relations.

At the very least, it looks like this inspection will foster an atmosphere in which Seoul and Pyongyang can resolve all of the problems, listed above, surrounding the KIC. In June of 2007, 14 Koreans, 7 from the North and 7 from the South, spent ten days and nine nights inspecting the joint Chinese-Vietnamese industrial complex, so expectations are that this visit will further boost inter-Korean relations and KIC competitiveness.

This story was also reported in the Joong Ang Ilbo:

The Unification Ministry announced yesterday that 10 officials from ech country will visit China and Vietnam for about 10 days in mid-December. Ministry spokesman Chun Hae-sung said the two Koreas will continue to discuss detailed itineraries and the makeup of the delegations. Chun added that the trip will be financed by the South’s inter-Korean cooperation fund. It is the third such joint trip to overseas industrial sites, but the first during the Lee Myung-bak administration. The previous two trips took place in June 2005 and March 2007.

The two Koreas have held four rounds of mostly fruitless working-level discussions on Kaesong this year and wrangled over land use fees and wage increases. During the second meeting in June, the South proposed a joint overseas trip, and Chun said the North recently agreed. “We hope the trip will allow the two Koreas to build a consensus on stable development of the Kaesong complex,” he said. “The officials will study legal structures, incentives designed to draw investments and customs clearance. We expect Kaesong to grow into a globally competitive complex.”

While it appears intent on improving inter-Korean ties at Kaesong, Seoul is in no hurry to resume suspended tourism to the North’s Mount Kumgang.

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Kaesong exports grow, labor shortages worsen

Monday, November 23rd, 2009

Institute for Far Eastern Studies (IFES)
NK Brief No.09-11-23-1
11/23/2009

Companies in the inter-Korean joint Kaesong Industrial Complex (KIC) have recorded a growth since North Korea abolished restrictions on traffic to and from the complex, as well as on the number and length of visits by South Korean workers.

According to the South Korean Ministry of Unification, companies in the KIC recorded September exports worth 3.42 million USD, 21.5 percent higher than the 2.82 million USD-worth of goods exported in September 2008. From May 2008 to July of this year, KIC exports were lower than the previous year every single month, but finally showed a 29% jump in August, the first time in 15 months. The increase in the value of the complex’s exports was helped by exports of machinery and household electrical appliances now being produced there.

There are currently 116 companies operating in the KIC, but according to the Ministry of Unification, at the end of September there were only 40,848 North Korean laborers working there, and the problems revolving around hiring more workers are clouding future prospects for the complex. As there are only around 40,000 North Korean workers living in Kaesong City and the surrounding area, it appears that the KIC cannot currently accommodate any new businesses. This poses a dilemma for the 18 construction projects currently underway, and puts on hold another 105 projects that have been allotted land within the KIC, but have not yet begun construction of any factories.

Furthermore, despite the fact that managers in the KIC are trying to maintain a sense of stability in order to attract further orders, if the North decides to close the door on friendly policies, the beginning of next year could see a reversal of the growth. The KIC is, at best, enjoying an ‘uneasy peace.’

KIC officials say that the primary issue at the moment appears to be whether roads to and from the complex will be constructed and whether the inter-Korean agreement reached during the Roh Moo-hyn administration to provide dormitories for 15,000 workers will be implemented. According to a survey of businesses, companies already in operation and/or under construction want to hire an additional 26,000 workers. However, with the current government closely linking the North Korean nuclear issue with inter-Korean relations, the road and dormitory construction, which would cost tens of millions of dollars, would have to be based on progress toward denuclearization, the likelihood of which, at this point, is cloudy.

The incumbent government also seems to put more weight on maintaining the current, relatively stable state of things in the complex than on further developing the group project. One problem they are working to solve is that officials managing the KIC are now prepared to rent out space in one ‘apartment-style factory’ in which many different companies operate production facilities under one roof, but are having difficulties finding willing clients, while current tenants complain about close quarters and a lack of space.

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Korea Business Consultants Newsletter

Thursday, November 19th, 2009

Korea Business Consultants has published their October 2009 newsletter.  You can read it here.

Here is the newsletter table of contents:

COVER
– China eyes DPRK’s mineral wealth
– SinoMining acquires 51% of DPRK’s Hyesan Copper Mine
– Transformation and Modernization of North Korea
– DPRK sees peace pact with US as key to disarmament
– US “willing to engage DPRK directly”
– “DPRK Energy Sector Assistance to – Accompany Progress in… Discussions”
– Billy Graham’s son visits DPRK to deliver aid
– Lang visits Seoul

ECONOMY
– DPRK vows to expand trade
– China poised to give substantial aid
– DPRK films looking for joint producers

INTER KOREAN
– Buddhists from south, north call for reopening of Mount Kumgang tour
– Kaesong factory recognized for quality
– Frayed relations hindering development of mineral resources
– ROK aid to north falls
– Lawmakers call for use of rice surplus as DPRK aid
– Farmers demand rice price stabilization

POLITICAL
– Kenya establishes diplomatic relations with DPRK

CULTURE & SPORTS
– Eriksson to coach DPRK?
– DPRK’s Hong battles for gold at World Gymnastic Championships
– DPRK begins preparations for World Cup

KOREA COMPASS
– Mangyongdae
– Korean Proverb

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Recent DPRK trade and aid stories…

Sunday, November 15th, 2009

1. Dutch import DPRK clothing and machinery (via Yonhap):

Dutch companies gave purchase orders to clothing and machinery firms in North Korea following their visit there organized by the Chamber of Commerce of the Netherlands in September, said the Japan-based Choson Sinbo in a dispatch from Pyongyang.

“Exchange and cooperation projects that were agreed to in meetings between the Dutch business delegation and the DPRK Commercial Office are entering the stage of implementation,” the report said. DPRK is short for the North’s official name, the Democratic People’s Republic of Korea.

“Production by the (North) Korean clothing and machinery trade firms is underway according to the agreements,” it added.

Dutch businesses along with firms from 14 other countries participated in the Pyongyang Autumn International Fair held Sept. 21 to 24. North Korea holds a trade fair twice a year to draw foreign investment and boost technology exchanges.

The Choson Sinbo said the Dutch firms then showed interest in the information technology area, machinery parts and clothing goods and held talks with pertinent North Korean companies, such as the Joson Computer Center and Unha Clothing Company.

After returning home, the Dutch produced a report on North Korea’s international economic relations for distribution at home and in other Western European countries, the newspaper said.

2. Seoul sets DPRK official assistance budget.  According to Yonhap:

According to its 2010 budget plan submitted to the National Assembly unification, foreign affairs and trade committee, the Unification Ministry allocated 1.18 trillion won (US$1.02 billion), about the same as the earmarked budget for this year, for inter-Korean relations and exchanges.

“The ministry has reflected the government’s policy to continue to proceed with humanitarian projects despite the strained phase in inter-Korean relations,” the ministry proposal said.

Broken down to specifics, 616 billion won has been set aside for the possible resumption of rice and fertilizer aid that was suspended after President Lee Myung-bak took office last year. The sum is slightly less than the 718 billion won for this year but remains mostly untouched. The ministry cited the fall of grain prices as the reason for adjustment.

The amount will be worth 400,000 tons of rice and 300,000 tons of fertilizer that had been annually provided to the North over the past decade. But Seoul officials have said they there is no immediate plan yet to resume the rice and fertilizer aid.

The ministry also set aside 18 billion won and 25 billion won to assist North Korea through non-governmental organizations or international agencies like the World Food Program.

For economic projects, including a joint industrial park in the North’s border town of Kaesong, the proposed budget earmarks 144.8 billion won, up 17 percent from the previous year.

“Massive economic cooperation projects were considered in preparation for the possibility of progress in the North Korean nuclear issue,” the ministry said.

It should be pointed out that Seoul has hardly touched its current inter-Korean assistance budget (here and here).  These sorts of policy moves are intended to offer Pyongyang a highly visible carrot.

3. Pyongyang’s 2009 Kaesong antics have unfortunately scared away more foreign direct investment from the Kaesong Zone, despite significant South Korean subsidies.  According to Yonhap:

Romanson Co., a South Korean watchmaker, said Thursday it has no intention to further invest in an inter-Korean industrial complex because of the political risks.

Romanson operates a plant in the industrial park in the North Korean border town of Kaesong, which turns out 40,000 watches per month. In 2005, the company invested 6.1 billion won (US$5.3 million) to build the factory.

4. And the first shipment of NOKO Jeans have arrived in Europe!  Learn more at their Facebook Page.  Here is a photo of the shipment on Flickr.

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Campaign to sell Kaesong goods in Pyongyang

Tuesday, October 27th, 2009

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-10-26-1
10/26/2009

Companies in the Kaesong Industrial Complex (KIC) are pushing for permission to transport goods manufactured within the complex along the railway running from Kaesong to Sinuiju and the highways connecting Kaesong, Pyongyang, Sinuiju and the Chinese city of Dandong.

Currently, the majority of goods exported from the KIC flow through the South Korean port of Incheon. They are then distributed elsewhere after arriving at the Chinese port of Dalian. This route is expensive and slow. Shipping by sea costs 1,900 USD per container and takes as many as 10 days, while if the railway infrastructure was built up between Kaesong and Sinuiju, both the cost and the time could be significantly reduced.

Seventeen percent of Kaesong goods are exported not only to China, but to Europe, the Middle East and Russia. In the mid- to long-term, Kaesong needs to be connected with Rajin-Sunbong, so that goods can be distributed throughout Russia and Europe via the Trans-Siberian Railway. In order to make this happen, companies within the KIC are seeking to attract foreign joint-ventures and investments while at the same time lobbying North Korean authorities in an effort to convince them of the need for such land transportation infrastructure.

These companies are also pushing for improvements in the highway spanning the 160 km between the KIC and Pyongyang and the injection of KIC goods into the Pyongyang markets, where they could compete with Chinese imports. One part of this effort is promoting the attachment of ‘Made In DPRK’ labels to goods produced in these factories.

It appears that North Korean authorities have been receptive to these ideas, but questions still remain on the logistics of the project. One source has said that the North Korean Central Special Direct General Bureau has shown interest recently in the idea of including KIC goods in the annual Pyongyang International Trade Fair.

On the one hand, the number of North Korean workers in the KIC has now topped 40,000; but on the other hand, given the number and size of the factories in the complex, the factories are about 26,000 workers short of full capacity. The effort to find suitable workers means that now people from Sariwon, Pyongyang and Hamheung have been brought in. Companies in the KIC are adamant that construction of dormitories in the complex needs to be sped up. At the same time, North Korean authorities are demanding that workers be paid according to their level of education, job description, and experience.

For the first time in 13 months, trade between the two Koreas began to rise again. In September 2009, inter-Korean trade amounted to 173.17 million USD, a 2.6 percent rise over the 166.86 million USD recorded in 2008. The economy has shown signs of recovery since last July, and as inter-Korean relations have inched toward improvement, trade has also risen.

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CNN interviews Hyun Jeong-eun

Thursday, October 22nd, 2009

The article was not as informative as I hoped.  But here are a few lines that I thought were interesting:

Q: When you were talking with Kim Jong Il, was it your impression that he wants more investment from South Korea? That he wants to do more business with your country?

A: He showed a lot of enthusiasm. He said he hopes the North and South Korean government can talk things through so to have a lot of South Korean companies enter the North, and he also said that since they have the natural resources and the South has the skills to sell, if both sides work together he expects the North and South to prosper.

Comment: There is a vast literature on the relationship between natural resources, economic growth, and conflict.  Natural resources tend to be the kiss of death for widespread economic development and “democracy.” Unfortunately, given the way the North Korean system is managed, I would expect most of the revenues from increased natural resources exports to go to the DPRK leadership with little tangible benefit to the North Korean people.

The Kaesong industrial complex, the joint facility run by North and South, what is the future of that complex?

Currently we are only operating the first block, but I am sure that once things get settled down by both governments, we have many plans for the second block as well. A hotel needs to be built. We need to have hospitals, post offices, so I am expecting gradually that we will expand business there.

I am more optimistic about the Kaesong Zone than I am about the DPRK’s desire for increasing natural resource exports because the workers at Kaesong actually process resources to build the textiles.  As a result, their productivity has increased over time and the workers have been able to capture some of that extra value themselves in the form of higher incomes (although at a ridiculously steep “tax rate” since the DPRK government keeps the vast majority of their salaries).  If Kaesong was closed down the workers would certainly be worse off, and so would all of those who depend on them.  Despite the DPRK’s efforts to increase tensions this year, business never closed down at Kaesong.  It could be that the DPRK leadership now considers Kaesong too big to fail.

Read the full interview below:
Doing business in North Korea
CNN
10/19/2009

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