ECONOMIC REFORM IN NORTH KOREA

North Korea: The Iron Fist and the Invisible Hand

Seoul/Brussels, 25 April 2005: North Korea is undergoing the most profound economic changes in its history, but the world should not attempt any major new economic engagement until the nuclear issue is resolved.

North Korea: Can the Iron Fist Accept the Invisible Hand?,* the International Crisis Group's latest report, examines the country's expanding economic reform in the context of the deepening nuclear confrontation. The international community has an opportunity to help North Korea make a successful transition from a Stalinist command economy to one that is more market-driven and integrated into the global economy. The report describes the preliminary assistance and preparatory steps that should now be made.

"Facilitating North Korea's economic reforms can help considerably to push the country toward more acceptable international conduct", says Peter Beck, Crisis Group's North East Asia Project Director. "But North Korea will not and should not receive significant international development aid until the regime gives up its nuclear weapons".

Although it is unclear the regime is capable of fully embracing the market, economic reform in North Korea is a reality. Since July 2002, gradual marketisation and incipient entrepreneurship have been creating semi-private markets, shops, and small businesses across the country. Most enterprises have already been removed from the state planning system, and land has been de-collectivised.

Economic ties with China and South Korea are deepening in unprecedented ways, giving a growing number of North Koreans their first unfiltered taste of the outside world. Markets stocked with consumer goods and burgeoning foreign investment are changing how the country looks and the way its people think.

There are some important preliminary steps not involving the transfer of meaningful resources that the outside world ought to undertake immediately both in order to prepare for what should be done if a nuclear deal is struck and to show Pyongyang why it needs to make that deal in its own interest. These include training North Koreans in financial, technical and market economic skills, both inside and outside the country; addressing infrastructural constraints, particularly in the power and transportation sectors; and undertaking comprehensive needs assessments to prepare for the next stage of reform.

Increasing knowledge about the economy and a better understanding of what the country will require in the way of help would improve the prospect that any deal reached on the nuclear issue would lead to transformation of the economy and improved living standards rather than simply channel resources to the elite.

"The economic changes underway are unlikely to lead to the toppling of the regime any time soon, but as they take hold, the pressure for political change will increase", says Robert Templer, Director of Crisis Group's Asia Program.

North Korea: Can the Iron Fist Accept the Invisible Hand?

EXECUTIVE SUMMARY

Despite the deepening nuclear confrontation between North Korea and the world, the North is undergoing the most profound economic changes since the founding of the state 57 years ago. It is unclear if the regime is capable of fully embracing the market; the final outcome cannot be predicted, and no major new economic engagement should be attempted until the nuclear issue is resolved. Nevertheless, the international community has an opportunity to increase the chances that North Korea will make a successful transition from a Stalinist command economy to one that is more market-driven and integrated into the global economy. Facilitating its economic reforms remains the best strategy for pushing the North towards more acceptable international conduct. There are some important preliminary steps not involving the transfer of meaningful resources that ought to be undertaken immediately both in order to prepare for what should be done if a nuclear deal is struck and to show Pyongyang why it needs to make that deal in its own interest.

The most important changes since July 2002 are that gradual marketisation and incipient entrepreneurship are creating semi-private markets, shops and small businesses across the country; and economic ties with China and South Korea are deepening in unprecedented ways, giving a growing number of North Koreans their first unfiltered taste of the outside world.

Deeper institutional reform is still constrained by the regime's overriding obsession with its survival. Economic growth is also hindered by the degeneration of the industrial, transportation and energy infrastructure and the bureaucracy's lack of understanding of basic market economic concepts. Corruption is rampant, and many state officials have already learned how to tilt the market for their own enrichment. Even if the regime can overcome these obstacles, the reform process will ultimately fail unless it can proceed in an international environment that is conducive to providing the necessary technical and financial assistance.

Economic sanctions, though they may well become necessary if the nuclear issue remains unresolved, would have little impact on the North Korean economy, particularly if its two largest trade partners, China and South Korea, were not to participate. The economic changes underway are also unlikely to lead to the toppling of the regime any time soon, but as they take hold, the pressure for political change will increase. The international community can start to improve North Korea's chances of making a successful transition by:

• taking advantage of the new opportunities to train North Koreans in financial, technical and market economic skills, both inside and outside the country;
• addressing infrastructural constraints, particularly in the power and transportation sectors; and
• undertaking comprehensive needs assessments to prepare for the next stage of reform.

North Korea will not and should not receive significant international development assistance until it gives up its nuclear weapons, but it would be worthwhile trying already to develop a better understanding of the country's economy and what it will require in the way of help. Whether the regime survives or not, North Korea will need officials who are better versed in economic matters and have a greater exposure to the world. Increasing knowledge about the economy would also likely improve the prospect that any deal reached on the nuclear issue would lead to transformation of the economy and improved living standards rather than simply channel resources to the elite.

Seoul/Brussels, 25 April 2005

ROK WILLING TO HELP DPRK ECONOMY

Associate Press, 13 April 2005

South Korea is willing to help the North Korean economy, but no major aid will be provided until Pyongyang's nuclear problem is resolved, the office
of South Korean President Roh Moo-hyun said Wednesday. "We have a policy to actively support the North Korean economy stand on its feet," Roh told German leaders Tuesday, according to a statement from his office. "But only when the North's nuclear problem is resolved serious aid can be possible."

Despite the international standoff over Pyongyang's nuclear weapons program, Seoul has remained firm in its stance that humanitarian aid to the North will continue. However, it has repeatedly stressed that no "major" aid will be provided until the nuclear problem was resolved. Roh said his government
will continue supporting Pyongyang's efforts to reform and open without "shaking the North's stability," according to the statement.

"Even before unification, the South Korean people will probably not oppose to bearing the cost for the success of North Korea's economic reform and
opening even if it is a little burdensome," Roh said.

Roh is on a five-day visit to Germany for talks with officials on the North Korea nuclear problem and economic ties between the two countries. The international talks aimed at ending its nuclear weapons ambitions haven't met since June. In February, the North claimed it had already developed nuclear weapons and would boycott the talks indefinitely.

The North, suffering from food shortages, relies heavily on outside aid to feed its people. The National Intelligence Service, South Korea's top spy agency, has said North Korea can only produce about 30 percent of the total fertilizer it needs annually. This year, the North has asked for 500,000 tons from the South, the largest request.

Also on Wednesday, a South Korean defected in a fishing boat to North Korea despite 140 warning shots fired by the South's military to stop the vessel,
a news agency said. The 57-year-old defector, identified only by his last name, Hwang, crossed the sea border into North Korea, South Korea's Yonhap news agency reported. Seoul will ask Pyongyang to help facilitate the boat's return, the Joint Chiefs of Staff said in a statement. Investigators will
also look into the incident, it said. The shooting occurred just after Unification Minister Chung Dong-young toured the military base that fired the warning, Yonhap reported.

 TWO KOREAS TO EXCHANGE WEASELS, HIPPOS ACROSS DMZ

Reuters, 13 April 2005

North and South Korea have arranged for an exchange of zoo animals, including Siberian weasels, near their hugely militarized border to bolster animal stocks in both states, zoo officials said Wednesday. Seoul Grand Park Zoo said the exchange with Pyongyang Central Zoo would take place Thursday at Kaesong, just north of the heavily fortified Demilitarized Zone that bisects the peninsula.

Co-operation between North and South, which have remained technically at war since the inconclusive truce which halted the 1950-53 Korean conflict, is laced in symbolism. This will be their first official zoo animal exchange. The North was to send 16 animals, including Asiatic black bears, lynx, coyotes, African ponies and Siberian weasels, zoo officials said. The South would send 10, including hippopotamuses, red kangaroos, wallabies, guanacos and llamas, they added.

The eight black bears from the North are to be used for breeding purposes to help repopulate the species in the South and the other animals will go on display. "Coyotes are rarely seen in the South. It will be a new experience for zoo visitors here to see them," Lee Won-hyo, the director-general of Seoul Grand Park Zoo, said by telephone.

The animals from the North must undergo a quarantine inspection before crossing over. South Korea has stepped up quarantine measures on the border following an outbreak of bird flu in Pyongyang that led the secretive communist state to cull over 210,000 chickens.  

KOREAS PUSH FOR JOINT INDUSTRIAL PARK IN PYONGYANG

Asia Pulse/Yonhap News, Seoul, 29 March 2005

South and North Korea are working to set up another joint industrial complex, this time in Pyongyang and for small- and medium-sized companies, a business association in Seoul said Tuesday. The two Koreas are already operating a pilot industrial park in Kaesong, just north of their heavily guarded border, a highlight of Seoul's efforts to engage the reclusive Stalinist regime.

"We have forged an agreement with representatives from the North to push for the construction of an industrial complex in Pyongyang," said Kim Young-il, who heads an inter-Korean business investment association. While the Kaesong complex is spearheaded by the government and conglomerates, the envisioned industrial town in the North's capital will be organized by smaller firms, he added.

Kim's organization started talks with North Korea about the project last year. In the first stage, the two sides plan to build a complex whose size will be 150,000-200,000 pyeong. One pyeong equals 3.3 square meters. "The North will provide the site, labour, and raw materials, while the South will supply capital, technology and other facilities," Kim said. Economically, the inter-Korean project is a guaranteed success, he added.

The site for the planned complex is only 2 km away from the East Pyongyang Power Station and is also adjacent to the Pyongyang-Kaesong highway, allowing easy access to electric power and transport route to Seoul. "It is a win-win project, as the South will benefit from cheap labour and the North will be able to lay the groundwork for economic development," he said. "A number of South Korean manufacturers of basic industrial products such as glass and furniture are poised to move into the complex."

Politically, however, it remains to be seen whether the civilian-level project will bear fruit. "We are aware that some small- and medium-sized firms are pushing for the creation of an industrial park in the North," a Unification Ministry official said. "But it has yet to receive government approval as an inter-Korean economic cooperation project."

Seoul is coming under growing pressure to slow the pace of economic aid to Pyongyang, which has boycotted multilateral nuclear disarmament talks since last June. The government so far has adhered to the policy of separating the nuclear crisis and inter-Korean economic cooperation.

REPORT SAYS ECONOMIC REFORM IN DPRK "IRREVERSIBLE"

by Kurt Achin, VOA News, 24 March 2005

A new report says North Korea is making progress in market reforms, as it looks to China and elsewhere for economic expertise. The report says free market activity is increasing in North Korea, and along with it, so is Pyongyang's appetite for management expertise. It says privately owned shops are emerging in greater numbers across the country, while in larger cities, wholesale outlets and 24-hour convenience stores are beginning to open. South Korea's Unification Ministry and the state-run Korean Institute of National Reunification, or KINU, released the report this week. Kim Young-Yoon, head of the North Korean Economic Research Center at KINU, says he based the report on defector testimony, North Korean media reports, and interviews with Chinese and South Korean businessmen who travel to North Korea.

North Korea began experimenting with modest market reforms in the mid-1990s in hopes of alleviating severe food shortages, and introduced wider reforms in 2002. Limited access to the country and a lack of detailed economic surveys make it virtually impossible to quantify whether the reforms have succeeded. Still, Professor Kim says the attitude of ordinary North Koreans is undergoing a major change. Mr. Kim says North Koreans now have a material incentive to work harder and compete in an open market, so they can improve their standard of living.

The report says North Korean authorities are looking to China and Russia for lessons in reforming their fragile, state-dominated economy, and hope to attract Chinese and Russian partners to open shopping centers. The report says some students in the North are encountering free-market ideas in economic textbooks, while others are allowed to study management abroad.

Gradual transformation of North Korea is a central goal of the South Korean government's policy of engagement with Pyongyang. Ruling party officials, including President Roh Moo-hyun, say helping the North to reform will improve living conditions and make an eventual reunification less traumatic for the highly developed South Korean economy.

Researchers say there are still major challenges to North Korea's economic evolution. They point to inflation, income disparities, and corruption as inevitable by-products of economic reform. They also say it is nearly impossible for Pyongyang to officially embrace capitalism after reviling it for more than half a century. However, many analysts say North Korea could come to resemble China - which has a Communist Party government although the economy has become largely market-driven. Professor Kim of KINU agrees, saying the reform process will certainly move forward because of the change in public attitude. He describes the North's evolution to a market economy as "irreversible." 

DPRK MARKET FORCES HAVE FEMALE FACES

by Andrei Lankov, Asia Times Online, 6 April 2005

A defector from the North, a typical tough Korean auntie with trademark permed hair, smiled when asked about "men's role" in North Korean families: "Well, in 1997-98 men became useless. They went to their jobs, but there was nothing to be done there, so they came back. Meanwhile their wives went to distant places to trade and kept families going."

Indeed, the sudden increase in the economic strength and status of women is one of manifold changes that have taken place North Korea over the past 10 or 15 years. The old Stalinist society is dead. It has died a slow but natural death over the past decade and, in spite of Pyongyang's frequent and loud protestation to the contrary, capitalism has been reborn in North Korea. The old socialist state-managed economy of steel mills and coal mines hardly functions at all, and the ongoing economic activity is largely private in nature.

But the new North Korean capitalism of dirty marketplaces, charcoal trucks and badly dressed vendors with huge sacks of merchandise on their backs demonstrates one surprising feature: it has a distinctly female face. Women are over-represented among the leaders of the growing post-Stalinist economy - a least on the lower level, among the market traders and small-time entrepreneurs.

This partially reflects a growth pattern of North Korean neo-capitalism. Unlike the restoration of capitalism in the former Soviet Union or China, the "post-socialist capitalism" of North Korea is not an affair planned and encouraged by people from the top tiers of the late communist hierarchy. Rather, it is capitalism from below, which grows in spite of government's attempts to reverse the process and turn the clock back.

Until around 1990, the markets and private trade of all kinds played a very moderate role in North Korean society. Most people were content with what they were officially allocated through the elaborate public distribution system, and did not want to look for more opportunities. The government also did its best to suppress the capitalist spirit. The rations were not too generous, but still sufficient for survival.

And then things began to fall apart. The collapse of the Union of Soviet Socialist Republics brought a sudden end to the flow of the Soviet aid (which was, incidentally, happily accepted but never publicly admitted by the North Korean side). This triggered an implosion of the North Korean economy. In the early 1990s people discovered that the rations were not enough for survival, and thus something had to be done. In a matter of years acute shortages of food developed into a large-scale famine, and in 1994-96 the public distribution system ceased to function in most parts of the country.

But men still felt bound to their jobs by their obligations and rations (distributed through workplaces). Actually, rations were not forthcoming, but this did not matter. Being used to the stability of the previous decades, the North Koreans saw the situation as merely a temporary crisis that soon would be overcome somehow. No doubt, they reasoned, one day everything will go back to the "normal" (that is, Stalinist) state of affairs. So men believed that it would be wise to keep their jobs in order to resume their careers after eventual normalization of the situation. The ubiquitous "organizational life" also played its role: a North Korean adult is required to attend endless indoctrination sessions and meetings, and these requirements are more demanding for males than for females.

Women enjoyed more freedom. By the standard of the communist countries, North Korea has always had an unusually high percentage of housewives among its married women (for example, in the northern border city of Sinuiju, up to 70% of married women were estimated to be housewives in the 1980s). While in most other communist countries women were encouraged to continue work after marriage, in North Korea the government did not really mind when married women quit their jobs to become full-time housewives.

Thus when the economic crisis began, women were first to take up market activities of all kinds. This came very naturally. In some cases they began by selling those household items they could do without, or by selling homemade food. Eventually, this developed into larger businesses. While men continued to go to their plants (which by the mid-1990s had usually ceased to operate) women plunged into market activity. In North Korea such trade involved long journeys in open trucks, and nights spent on concrete floors or under the open skies; they often bribed predatory local officials. And, of course, women had the ability to move heavy material, since the vendor's back tends to be her major method of transportation.

This tendency was especially pronounced among low- and middle- income families. The elite received rations even through the famine years of 1996-99, so the women of North Korea's top 5% usually continued with their old lifestyle. Nonetheless, some of them began to use their ability to get goods cheaply. Quite often, the wives of high-level cadres were and still are involved in resale of merchandise that is first purchased from their husbands' factories at cheap official prices. It is remarkable that in the case of North Korea such activities are carried out not so much by the cadres themselves, but by their wives. Cadres had to be careful, since it was not clear what was the official approach to the new situation of nascent capitalism. Thus it was assumed that women would be safer in such undertakings since they did not, and still do not, quite belong to the official social hierarchy.

But for the cadres' wives, these market operations were a way to move from being affluent to being rich. The lesser folks had to do something just to stay alive. Perhaps, had the state given its formal approval to nascent capitalism (as did the still formally "communist" state of China), the men would be far more active. But Pyongyang officialdom still seems to be uncertain what to do with the crumbling system, and it is afraid to give to unconditional approval to capitalism. Thus men are left behind and capitalism is left to women.

This led to a change in the gender roles inside families. On paper, communism appeared very feminist, but real life in the communist states was an altogether different matter, and among the communist countries North Korea was remarkable for the strength of its patriarchal stereotypes. Men, especially in the more conservative northeastern part of the country, seldom did anything at home, with all household chores being exclusively the female domain. But in the new situation, when men did not have much to do while their wives struggled to keep the family fed and clothed, many men changed their attitude that housework was something beneath their dignity (at least this is what recent research among the defectors seem to suggest). As one female defector put it, "When men went to outside jobs and earned something, they used to be very boastful. But now they cannot do it and they become sort of useless, like a streetlight in the middle of the day. So a man now tries to help his wife in her work as best as he can" to keep the family going.

Recently, when it is increasingly clear that the "old times" are not going to return, some men are bold enough to risk breaking their ties with official employment. But they often go to market not as businessmen in their own right but rather as aides to their wives who have amassed great experience over the past decade. Being newcomers, males are relegated to subordinate positions - at least temporarily. Or alternatively, they are involved in more dangerous and stressful kinds of activity, such as smuggling goods across the badly protected border with China. As one woman defector said: "Men usually do smuggling. Men are better in big things, you know".

Economic difficulties and change in money earning patterns as well as new lifestyle and related opportunities in some cases led to family breakdowns. In South Korea the economic crisis of 1998 resulted in a mushrooming divorce rate. In the North, the nearly simultaneous Great Famine had the same impact, even if in many cases the divorce was not officially recognized.

Of course, we are talking about a great disaster here, and a large part of the estimated 600,000-900,000 people who perished in those years were women. Of the survivors, not all women became winners, bold entrepreneurs or successful managers: some were dragged into prostitution, which has made a powerful comeback recently, and many more had to survive on whatever meagre food was available. But still, it seems that years of crisis changed the social roles in North Korean families. For many women, the social disaster became the time when they showed their strength, will and intelligence not just to survive, but also to succeed.

DPRK LAUNCHES CURRENCY TIME DEPOSITS

Chosun Ilbo, 3 April 2005

North Korea's Foreign Trade Bank recently created a stir among Pyongyang's expatriates by launching foreign currency time deposit accounts with preferential interest rates, the Tokyo Shimbun reported. Quoting an official familiar with the North, a Beijing dispatch on Saturday said the business handled four foreign currencies - the US dollar, Japanese yen, euro and Swiss franc - offering interest rates of 3 percent for six-month deposits, 4 percent for annual deposits and 5 percent for deposits of two years or more. The paper quoted the official as saying this was the first time in its history the reclusive country handled foreign currency deposits.

An agency specialized in international financial transactions, the Foreign Trade Bank of the People's Republic of Korea handles foreign exchange business, determines exchange rates and settles trade accounts. North Korea streamlined and expanded financial businesses under its July 2002 economic reform, as part of which the deposit accounts were launched, the report added.

DPRK CURRENCY SINKS TO HISTORIC LOW LEVEL

by Stanislav Varivoda, ITAR-TASS, Pyongyang, 29 March 2005

Exchange rate of North Korea's national currency, the won, has sunk to a historic low level since the day of emergence of the DPRK. Black market currency peddlers are offering 3,000 won for one euro and 2,600 won for one US dollars - several times more than the officially established 170 won per euro and 140 won per US dollar.

Runaway inflation and the resultant price leaps are among the major social and economic headaches for this country. Over the past twelve months the won's value slimmed by more than a half - one euro would sell for 1,400 won and one US dollar, for 1,200 won in April 2004.

Since an average salary in North Korea stands at around 6,000 won, the rapid depreciation of national money may bring about grave social problems, experts say. Last October, the government tried to fix the upper limits to market prices of staple foods - rice, flour and meat, but the measure fell short of the desired results as the prices are well above those limits now.

The system of public distribution of foods that ensures a food ration for every North Korean cushions off the impact of the situation to some degree. Those rations mostly consist of foods coming to the country by way of foreign humanitarian aid.

SAMSUNG LOGO ADORNS FOOTBALL STADIUM IN PYONGYANG

by Kim Sung-jin, Korea Times, 26 March 2005

The Samsung logo on Friday adorned the Kim Il-sung stadium in Pyongyang, the venue for an Asian World Cup qualifying match between North Korea and Bahrain. It was the first time a corporate logo of a South Korean firm had been displayed for advertising purposes in the North Korean football stadium. Samsung Electronics said Friday it is sponsoring all Asian qualifying matches as it became an official sponsor of the Asian Football Confederation (AFC) in 2005.

Under the sponsorship deal, the Korean electronics maker will also officially sponsor AFC Champions League. As an official sponsor, the world's third-largest mobile handset maker will have maximum opportunities to expose its corporate identity by installing large billboards inside football stadiums in eight Asian countries where qualifying matches for the 2006 World Cup finals will be held. It can also print its corporate logo on official brochures and leaflets that will be distributed at qualifying match venues and put up giant outdoor electric billboards,

"We have improved our worldwide corporate brand image through sponsorship of various international sports events such as becoming an official partner at the Olympic games," said Chu Woo-sik, investor and public relations head of Samsung Electronics.

"I hope Samsung will be able to further promote our corporate brand and expand our global mobile phone market share as an official sponsor of qualifying matches for the 2006 World Cup finals," he added.

A total of 11 companies, including Samsung Electronics (mobile phone), Toshiba (AV and white goods), Epson (printer), Coca Cola (beverage), JCB (credit card) and Minolta (film), are official sponsors for the Asian qualifying matches for the 2006 World Cup in Germany. Meanwhile, North Korea earlier this week allowed dozens of foreign journalists to enter Pyongyang to report on the North's World Cup football campaign, a rare media opportunity in the reclusive Communist state.

North Korea banks on China

By Michael Rank, Asia Times On-line, 24 March 2005

A North Korean bank is planning to open its first branch in China but, as with all things North Korean, nothing is certain and there are still a number of hurdles to overcome. The branch of Hwaryo Bank in the northeastern city of Shenyang, if it comes into being, will be the first North Korean bank in China, and it reflects the fast-growing trade between the two neighbors.

Hwaryo, also known as Brilliance Bank, has had representative offices in Beijing and Macau for some years but they are not full branches and only do liaison and market research work, not full banking business. A Hwaryo official in Beijing was quoted as saying on a Chinese website specializing in North Korean affairs that a delegation visited Shenyang last year and the bank is now planning to open a branch there.

"Last year, we did indeed visit Shenyang and did an inspection and are planning to establish a branch in Shenyang," he said. But asked when it will open and confirm that it will be a full branch and not a representative office, he replied, "I'm not sure, it's all decided by our headquarters" in Pyongyang.

The Chinese website said that because Shenyang is not too far from Beijing, Hwaryo saw little point in opening a representative office there. The Shenyang authorities were very keen on it opening a branch in the city and a large team of officials visited Pyongyang last year to discuss this, it added.

Hwaryo is a North Korean-Chinese joint venture and the reclusive Stalinist state's only commercial bank that is permitted to do business in yuan as well as its only bank trading as a limited liability company. The bank announced in February 2000 that it was planning to open a representative office in Seoul but permission for this has not so far been forthcoming. The proposal for a Seoul office is said to have been made through a Korean-Chinese broker who also promoted North Korea's plans to attract South Korean investment funds via the bank's office in the Southern capital.

South Korea's Financial Supervisory Commission is reported to have referred Hwaryo's plan to the National Intelligence Service (NIS) for confirmation, but the NIS was unable to verify its intentions, resulting in the discontinuation of the talks with the broker, Korea Herald quoted Southern officials as saying. To allow a Northern bank to open an office in the South would be a highly sensitive issue even though President Roh Moo-hyun has continued his predecessor's controversial engagement policy toward the North, much to the concern of US President George Bush who regards Pyongyang as part of the "axis of evil".

Hwaryo clearly sees an important niche for itself in promoting North Korea-China trade, which increased 35.4% to a record US$1.38 billion last year, according to the Korea International Trade Association (KITA), a non-government agency. The boom in trade with China comes against a background of falling trade with the impoverished state's two other main partners, South Korea and Japan, which declined by 3.8% and 4.8% respectively.

KITA said North Korea's exports to China rose in 2004 to $585.7 million due to higher sales of fishery products, iron ore and anthracite coal, and international price increases for raw materials fuelled by China's soaring economy. Its imports from China also jumped by 27.4% to $799.95 million with increases in the volume of pork and crude oil among other items. Basic Chinese consumer goods such as soap and beer are widely seen in North Korea's fledgling free markets, making available commodities, which would otherwise be in short supply or impossible to find despite the country's tentative attempts at economic reform. North Korea takes great pride on its juche or self-reliance policy and takes little part in international trade. In 2003, its overall foreign trade totaled just $3.115 billion, almost two-thirds of it with China, South Korea and Japan.

The heavy industrial center of Shenyang, capital of Liaoning province, is North Korea's main focus in China after Beijing; its only consulate in China is there and it also owns a hotel and software company in the city. In addition, there are regular flights to Pyongyang, operated by North Korea's Air Koryo and China Southern Airlines.

Koryo Bank was founded in November 1997 and is under the supervision of North Korea's central bank. Its Chinese-language website boasts of how "its birth and growth have received the care and support of [North Korean leader] Kim Jong-il, and that it provides facilities for personal and company bank accounts as well as extending loans, carrying out foreign-exchange dealings and other standard banking business. However, it does not have an unblemished reputation, and in 1997 it was reportedly involved in a $50 million money-laundering operation with South African partners.

Shenyang has been suffering badly from China's economic restructuring and the laying off of hundreds of thousands of workers that has sparked protests throughout the northeast. A Hwaryo official in Beijing declined to say why the bank had picked Shenyang for its first foreign branch. But according to a Sino-North Korean trade expert, it has been chosen because of its "central position" and that it receives more North Korean investment than any other foreign city.

North Korea's biggest investment in Shenyang is probably the 15-story Qibaoshan Hotel, which has 160 rooms and bills itself as a four-star establishment, with a nightclub and sauna. Apart from the hotel, a North Korean-owned software company, Korea 615 Editing Corp, set up shop in Shenyang last year, announcing that it would develop software systems and programs for print media and also produce advertising materials - something of a novelty for a country that officially despises Western capitalist ways.

Another computer company, Silibank, is also based in Shenyang, and in 2001 became North Korea's first Internet service provider. It's unlikely to be a popular choice for ISP though as it's aimed solely at people who want to contact North Korean businesses and government bodies.

Michael Rank, graduate in Chinese studies from Cambridge University, 1972, was a Beijing correspondent for Reuters from 1980-84; he is a freelance writer in London.

DPRK Paper on Roles of Central, Local Organs in Economic Management 

Special article by Ri Ch'ang-hyo'k: "Socialist Economic Construction and Improvement of Economic Management" 
NODONG SINMUN, Monday, March 21, 2005 

Today, all the people in the entire nation have rallied together in unison for the general onward march to raise a storm of rapid progress in building a powerful state with the military-first power and the power of single-hearted unity, while highly upholding the New Year's joint editorial. 

In this year's joint editorial, it was pointed out that we should establish the unique economic management system and methods of our style suitable for a developing reality and the nation's situation and highly display their vitality. Achieving an unprecedented upsurge in production, as in the period of the great Ch'o'llima upswing, based on the firm foundation of building a powerful state prepared under the military-first banner, is an important demand for bringing about new innovations in the socialist economic construction. 

In order to once again achieve rapid progress in the building of a wealthy and powerful fatherland by realizing the party's plan, our way of improvements must be made in economic management, which is suitable for the changed environment and conditions.
The great leader Comrade Kim Jong Il (Kim Cho'ng-il) pointed out the following: "If progress in the socialist construction and economic development occur, along with changes in the environment and conditions, the socialist economic management must be improved, developed, and further completed accordingly." 

As a function of directing and controlling people's economic activities, economic management is an important means of achieving maximum economic outcomes at the lowest possible cost. As the level of socialization in production increases and all production technology processes become more closely and complicatedly linked together, the rationalization of economic management in implementing economic tasks takes on a far greater significance. Today, the new environment and conditions for building a powerful state demands that innovations be made in the economic management sector. 

The goals, characteristics, and basic principles of economic management are stipulated by the characteristics of the social systems. However, the systems' concrete organization and methods change according to the changes in the environment and conditions even within the same social system and tend to continuously improve and complete as the economy develops. The improvement and completion of the socialist economic management is a legal demand for socialist economic development. If one cannot see the changed environment and conditions and clings to an outdated framework that has become fixed and established in economic management, innovations cannot be made, and the nation's economy cannot be revived. 

In keeping with the concrete environment and conditions for building a powerful state and demands for our revolutionary development, we must highly display the superiority of socialism in economic construction by improving and completing economic management in a revolutionary manner.
The most important thing in improving the socialist economic management is to advance with the seed of improving and completing the socialist economic management illuminated by our party firmly grasped in our hands. 

The seed we must adhere to in our advance to improve and complete the socialist economic management is resolving the economic management methods, which can bring the biggest actual gains while maintaining the socialist principles. The superiority of the socialist economy compared to the capitalist economy is the superiority of collectivism compared to individualism in the economic sector. In order to be true to its nature, a socialist economy should be managed and operated by socialist methods based on the principle of collectivism. In addition, given that the socialist economic management is carried out with the goal of distributing more economic gains to the popular masses, the improvement of economic management must be made in the direction of producing the maximum actual gains. 

We must resolve all issues raised in economic management based on the collective wisdom of the producer masses. We must also examine and boldly improve the economic management system and methods so that economic construction can be vigorously accelerated by mobilizing to the highest degree the creative activism of the working people. In addition, all sectors and all units must give priority to economic calculation, while thoroughly weighing the initial cost and profitability. The struggle for economy should be strengthened, and the nation's monetary management should be frugally carried out. It is also important to maximize the effectiveness of labor by organizing labor administration work that is consistent with the developing reality. 

What is also important in improving the socialist economic management is allowing subordinate units to highly display their creativity, while firmly guaranteeing the nation's centralized and unified guidance. Highly displaying regions' creativity while firmly guaranteeing the nation's centralized guidance is an important principle to consistently adhered to in the socialist construction. 

What is important here is that the Cabinet, the nation's economic command, should control and guide the economy in a unified manner by increasing its role and functions of organizing and executing economic work based on the party's lines and policies, and ensure that all economic organs and plants and enterprises carry out economic management under the Cabinet's unified leadership. 

The Cabinet and central organs should provide conditions and much help for subordinate units to highly display their creativity. (Cabinet and central organizations) should grant necessary authority to subordinate units and solve their problems in order to further increase their sense of responsibility and creativity. By doing so, they (subordinate units) should be actively encouraged to carry out economic work in a practical manner in a way suitable to their own situation. Firmly establishing a system and order in which all economic work is carried out strictly based on science and technology is one of the important issues in improving economic management. 

In today's science and technology era, no economic outcomes can be expected without strictly depending on science and technology. It has become a very important issue to establish an economic management system and order in which science and technology are developed while integrating them with the economy, and production and management are carried out based one such outcomes. The quality of products should be increased, and social resources effectively utilized by establishing strong regulations, which make production and construction consistent with the demands of science and technology; and by specializing production and actively accepting (production) specification and standardization requirements in all sectors and all units. 

Another important issue that has been raised is the problem of correctly utilizing a price range on the basis of consistently adhering to the principles of the nation's planned management of economy. A practical utilization of the price range allows for working people to weigh the initial cost and profitability; stimulate a maximum guarantee of actual gains in economic activities; and seek successful development of the economy by appropriately balancing the supply and demand of products. 

Prices should be set after sufficiently considering the products' usefulness and significance in the people's economy, as well as the relationship between supply and demand, while being based on the socially needed labor costs. In setting prices, prices should be adjusted in a scientific manner according to the goods' source and demand and market price changes of production elements, such as raw and other materials. By doing so, prices should be appropriately utilized in a planned and rapid development of the economy. 

All economic guidance functionaries and working people should actively engage in work to improve and complete economic management in our way and bring about an epochal change in economic construction. By doing so, they should vigorously accelerate the military-first general onward march. 

SOUTH TO NORTH POWER SUPPLY BEGINS IN KAESONG

Korea Times, 14 March 2005

Inter-Korean economic cooperation has opened a new chapter today with the supply of Southern electricity to the North. Even though the supply of power is limited to the industrial complex in Kaesong near the inter-Korean border, it connects the South and the North with electricity for the first time in 57 years since the communist regime abruptly stopped the transfer of power to the South. The Korea Electric Power Corporation will supply 15,000 kilowatts of power to the industrial park, the first project of economic exchange between the two sides. At present, three small and medium companies from the South are operating with Northern workers. They have been beset with difficulties with product quality as they have relied on their own generators for power.

Electricity supplied to the complex will increase to 100,000 kilowatts by 2007 when more than 300 companies gradually re-locate there. The Kaesong industrial complex is the result of the historic summit of former president Kim Dae-Jung and North Korean leader Kim Jong Il in Pyongyang in June 2000. It is designed to match the South's capital and entrepreneurial skills with the North's cheap labour. Smaller companies in the South, unable to secure manpower due to high labour costs, look to move their operations to the complex. 

Beyond its historical significance, the supply of power enhances the possibility that the Kaesong industrial development project will succeed. It also further spurs inter-Korean economic exchanges and contributes to the creating conditions for the reunification of the divided peninsula. However, there are still many obstacles to the promotion of economic cooperation between the South and the North. The most serious impediment is the North's nuclear standoff with the United States. The nuclear issue has been further complicated with Pyongyang's declaration last month that it possesses atomic warheads and will not return to the six-party dialogue until Washington drops its hostile intentions. And the United States is pressuring the government to stop aid and cooperation programs altogether to prod the North back to the six-party talks suspended since the third round held in Beijing nine months ago. It is impossible for the government to suspend aid to the North because vast majority of people support the expansion of inter-Korean exchanges. The government needs to step up diplomatic efforts towards Washington to have it understand this reality, while simultaneously persuading the North to come back to the negotiating table.

JOINT KAESONG PROJECT INCREASES TENSIONS WITH USA

by Gordon Fairclough, Wall Street Journal, 11 March 2005

Near the barbed-wire fences of the demilitarized zone that slices across this divided peninsula, a widening split between Washington and Seoul over how best to deal with North Korea's nuclear threat is on vivid display. Trucks -- laden with tons of construction supplies and machinery from the South -- start lining up here early most mornings. They are bound for a giant industrial park under construction across the border, designed to help the North shore up its tottering economy. One snowy day last month, a South Korean soldier in green camouflage waved the convoy through a military checkpoint. The trucks then snaked under an archway marked "Unification Gate," headed north.

The US, focused on preventing nuclear proliferation and disarming North Korea, is looking for ways to ratchet up the economic pressure on Pyongyang. But the South Korean government is busy working to help keep its former enemy in the North afloat with aid and economic-cooperation projects. After a fratricidal war in the early 1950s, followed by decades of Cold War hostility, South Korea made a sharp turn in the late 1990s, moving to subsidize its erstwhile rival. Now, landmines have been pulled from two parts of the demilitarized zone to allow the reconnection of roads to move goods and even tourists to the North. Behind Seoul's decision is a basic calculation: A collapse of North Korea, highly militarized and deeply impoverished after nearly 50 years of Stalinist rule, would be simply too expensive, in both economic and political terms. So officials here largely oppose steps that could destabilize Kim Jong Il's regime, which many US policymakers would just as soon see disappear.

"Some people seem to look for the North to collapse," said South Korea's president, Roh Moo Hyun, in an apparent reference to US hard-liners during a pointed speech in Los Angeles late last year. But, he said, that "would cause an enormous disaster for the people of the South." The rift between Washington and Seoul has been in the spotlight in the wake of two developments last month. Pyongyang declared that it has nuclear weapons and is withdrawing "indefinitely" from multilateral disarmament talks. And the USA made a case to allies that North Korea shipped sensitive nuclear material to Libya several years ago. After the announcement, Vice President Dick Cheney met South Korea's foreign minister, Ban Ki Moon, and asked him whether, given the North's actions, Seoul should reconsider moving forward with aid plans, say US officials.

South Korean leaders later said it is too soon to know whether North Korea really has nuclear weapons, and that they see no reason to scale back cooperation. Seoul's new ambassador to Washington suggested "carrots" or "a cube of sugar" be used to entice Pyongyang back to the bargaining table and persuade it to abandon its atomic ambitions. For some American officials, convinced that Pyongyang will need to be pressured to come back to the six-nation talks, that stance is frustrating. Seoul "is providing a lifeline to the government in the North," says one senior Bush administration official. "As long as they see that lifeline, their incentive to deal on nuclear issues is way down." The talks, which involve China, Russia and Japan in addition to the USA and the two Koreas, have been stalled since June.

Experts in the USA and South Korea thought the collapse of North Korea was imminent in the mid-1990s, after the demise of the Soviet Union and the death of the country's founder, Kim Il Sung. But the regime proved surprisingly resilient, surviving even a massive famine. Meanwhile, the situation in South Korea was changing. The economy was walloped by the late-'90s Asian financial crisis, and some officials had grown wary after studying the impact of unification on Germany. In 1998, then-President Kim Dae Jung embarked on a policy of reconciliation and cooperation with the North. The policy found favour with the Clinton administration, but the Bush administration has been skeptical. US and South Korean diplomats play down the differences. They say they are committed to resolving the nuclear standoff through negotiations. US officials have said that they can accept the cooperation projects already under way. But in light of North Korea's continued intransigence, they oppose any significant expansion by South Korea before Pyongyang abandons its nuclear programs.

Seoul's devotion to engagement -- promoting joint projects and exchanges with the North -- limits Washington's manoeuvring room. There are no practical military options. South Korea and China, North Korea's two main economic benefactors, fear a collapse there and are very reluctant to consider economic sanctions. For Seoul, conflict or a sudden demise of the North poses too great a threat to its 50 million people and its economy, the world's 10th-largest. Government planners say that if order breaks down in the North, more than two million people could flood south, overwhelming social services. The fall could also prompt turmoil in financial and currency markets, inflation and bank runs, government analysts predict.

Initial crisis-management costs alone will be at least $6.5 billion, according to South Korean government estimates. The longer-range costs of reunification would likely be much higher. Marcus Noland, a Korea expert at the Institute for International Economics in Washington -- who calls the North "the world's largest contingent liability" -- estimates a price tag of about $600 billion in the first 10 years after a collapse. But it's not only a question of money. A regime collapse in Pyongyang could touch off civil war in the North or lead to armed intervention by China. If North Korean hard-liners lash out in a last-gasp effort to survive, it could spark conflict between the North and the allied forces of the USA and South Korea. Even without war, it won't be easy for the South to absorb 22.5 million people from one of the world's most regimented, totalitarian societies, experts say. "If people want to talk about regime change, they need to think about what will come after," says Chae Su Chan, a member of the National Assembly and a former economics professor at Rice University in Houston. "That's why there's a difference between those sitting in Washington and those of us sitting on the edge in South Korea."

The engagement policy has widespread support across the political spectrum in the South. A 2004 poll conducted for the Chicago Council on Foreign Relations found that 81% of South Koreans wanted to stick with the current level of engagement or increase it. Only 19% supported a harder line toward the North. The pollsters surveyed 1,000 South Korean adults. The poll had a margin of error of 3%. South Koreans view the North as less of a threat now that contacts between the two countries have increased. More than 900,000 southerners have traveled to a tourist area on North Korea's east coast since late 1998. "North Koreans look so poor. It's like South Korea in the 1960s," says 56-year-old Paek Jae Hyun, the chief executive of a chemical company in the South, returning from a recent visit. "We have to help them a lot." 

But the Northerners are also seen as alien. In 2003, a group of visiting North Korean cheerleaders caused a stir when they leapt from their bus to rescue pictures of Kim Jong Il getting soaked in the rain. They were teary eyed that images of the country's "great leader" should be subjected to such treatment. North Koreans are taught to revere likenesses of Mr. Kim and his father, and can be punished for disrespecting their pictures. The cheerleaders' devotion appeared so outlandish that it prompted one weekly magazine in Seoul to ask on its cover: "Are we really one people?" Park Dae Hee has been traveling back and forth to the North several times a month, delivering supplies and supervising construction of a shoe factory at the industrial park being built on the outskirts of the North Korean city of Kaesong. Leaning out his truck window in the snow, Mr. Park says that at first he was scared to go. Now he sees the northerners more as rather prickly little brothers.

"They're proud. They don't want to feel inferior," says Mr. Park. "But it takes three North Koreans to do the work of one South Korean. They're not very efficient." That is one reason, Mr. Park says, that he doesn't think North and South Korea should be rejoined any time soon. "Unification would be very hard. There's such a huge economic gap between the two countries and big differences in political views." The project Mr. Park is working on is South Korea's most ambitious effort to gradually narrow those disparities. The industrial park is being developed by the South's government-owned Korea Land Corp. and the private Hyundai Asan Corp. Construction began in earnest last year. Two factories are already operating, one of which makes cookware that is on sale in Seoul department stores. An additional 13 are soon to come on line in the pilot phase of the project.

Hyundai Asan originally acquired the land-use rights from North Korea in 2002. It sold some of the rights to Korea Land, which plans to sell more factory plots by June. The first phase of the development is expected to include 300 factories and employ 75,000 North Koreans. Later stages will add many more plants, a golf course and apartments. About 1,800 South Korean companies have applied for spots.

During the project's first nine years, it will inject $9.6 billion into the North's economy, estimates Hong Soon Jick, an economist at the Hyundai Research Institute in Seoul. Coupled with international trade and aid, that could significantly ease the economic pressure on Kim Jong Il's regime. Mr. Noland of the Institute for International Economics figures that $1 billion to $2 billion a year is enough to keep the North on "survival rations." The park also has invigorated a vocal business lobby pushing for reconciliation as well. Hyundai Asan says it is determined to see its investments in the project pay off. And small- and medium-size companies are eager to build factories there to get access to cheap North Korean labour to keep them competitive with rivals in China.

North Korea complains the South isn't moving fast enough on the project. But at the same time, Pyongyang is still fighting Seoul's influence. North Korean cadres hold nightly meetings with workers at the site, apparently to reinforce ideological teachings, according to a unification ministry official. The unification ministry is the South Korean government agency charged with managing the country's relations with the North. South Korean officials say the project shows the strategic benefits of economic cooperation. Construction has forced the relocation of some North Korean military forces away from the border. The project also sits astride one of the main invasion routes troops would have to traverse to get to South Korea, a point Unification Minister Chung Dong Young made to Secretary of Defence Donald Rumsfeld during a meeting last August, people familiar with the meeting say. In the eyes of South Korean policy makers, this is just the beginning. They see engagement as a way of opening the North to the outside world and encouraging it to follow the same reform path as China and Vietnam. This, Seoul hopes, will also lead, eventually, to a political transformation.

Critics of the South Korean approach however, argue that a single-minded focus on engagement blinds the government to the potential benefits of an abrupt end to the dictatorship in Pyongyang. Some experts argue that the costs of a collapse wouldn't be as high as South Korea fears. Private companies would shoulder much of the investment burden, and other countries and international lenders would also pitch in, they say. The critics also say South Korea isn't doing enough to prepare itself in case Kim Jong Il's regime does fall. Their concern: The very openness and economic change that South Korea is trying to foster could weaken Mr. Kim's grip on power. South Korean officials say they see no signs of significant instability in the North, but they continue to update plans to cope with a sudden collapse.

Responding to recent reports of these contingency plans, the North Korean official press blasted Seoul last week, saying that the South has been waiting for an opportunity to take advantage of the North "with daggers hidden in their belts." The commentary in the party newspaper concluded: "To expect a 'sudden change' in the north is as foolish an act as trying to beat the air."

For the brave, North Korea makes increasingly good business sense.

By Andrew Salmon, International Herald Tribune, Thursday, March 3, 2005.

With the world focused on its nuclear arms program, North Korea has been quietly building an embryonic market economy since loosening economic controls in mid-2002. While acknowledging the difficulties of working in one of the world's most reclusive and repressive states, the pioneer foreign businesspeople who operate in North Korea point to growing opportunities.

"Mining and minerals are big - the country is very rich in natural resources," said Roger Barrett of the Beijing-based Korea Business Consultants, citing the Kumsan gold company, a joint venture between North Korea and Singaporean and Hong Kong Investors. "And there is IT; they even have voice recognition and animation software," he said, adding that parts of the animated film, "The Lion King," were subcontracted to Pyongyang, the North Korean capital, and that French and Italian companies were also outsourcing animation to North Korea.

Beyond small-scale Chinese and European entrepreneurial activity, a handful of big-name international firms have also invested in North Korea, largely in services. The Hong Kong-based Emperor Group started its operations in North Korea in 1998, and sent an economic delegation to the country. Both the Emperor Group and the Sociedade de Turismo e Diversoes de Macau, controlled by Macau magnate Stanley Ho, operate hotels and foreigners-only

casinos in North Korea.

North Korea's mobile telecommunications network was set up by the Thai company, North East Asia Telecoms, though operations have been suspended since last May, when an explosion at Ryongchong, North Korea, was allegedly detonated by cellphone. Though the facts behind the Ryongchong incident remain unclear, cellphones are still technically banned in North Korea.

Last year, the first foreign legal firm was established in Pyongyang. Courier firms, such as the U.K.-based TNT and DHL, also do business there. "Generally, most of the challenges we faced in the last seven years are typical of the many small emerging developing countries we operate within our global network," said Lars Voedisch, a communications manager at DHL Asia-Pacific, in an e-mail interview. "However, since the launch of the economic reforms in 2002, we and most of our customers see some very encouraging trends." He added that, since setting up shop in 1997, DHL, which has 21 staff in North Korea, has seen annual growth rates of 10 to 15 percent.

In July, 2002, North Korea launched a series of measures to improve "economic management," which boosted prices and wages, slashed subsidies to unproductive factories and permitted farmers' markets. Though the economy shrunk in the 1990s, when the country suffered devastating famines, it has been growing since 1999. According to data from the South Korea-based The Bank of Korea, North Korea's gross domestic product grew 1.2 percent in 2002, and 1.8 percent in 2003. Mining and manufacturing have been strong performers. The Seoul-based Korea International Trade Association reported that North Korean trade with China last year reached an all-time high of $1.4 billion, 35.4 percent higher than in 2003.

Visitors to Pyongyang report lively restaurants, European-styled microbreweries, convenience stores, widespread street- level entrepreneurial activity and market trading. Plus, labor is cheap. According to the Chosun Sinbo, a pro-North Korea newspaper based in Japan, Pyongyang last year cut monthly wages for workers at foreign companies to $38. North-South customs agreements are another lure. "Anything made in the North can be exported to the South duty-free," added Barrett. "So there is an immediate combined market of 70 million people."

"Your visa needs an invitation, so you have to have a contact," said Tony Michell. Communication is also a hurdle; North Koreans can access e-mail, but they are not allowed to use the Internet. Overshadowing these problems is the international standoff over North Korea's boast that it might have nuclear weapons.

"The number one issue is the political situation," said Guy Ledoux, political counselor of the European Union delegation in Seoul. "The nuclear issue is stopping anyone from seriously investing in North Korea."

GOODS FROM KAESONG TO CARRY 'MADE IN DPRK' LABEL

Yonhap News Service, 10 January 2005

The government has decided that products made by South Korean firms at a pilot industrial park in North Korea will be labelled as "made in DPRK (Kaesong)," Unification Ministry officials said Monday. DPRK is short for the Democratic People's Republic of Korea, the North's official name. The decision, if finalized, will prevent products made at the industrial park in North Korea's border city of Kaesong from being sold in the United States, which has defined the communist country as part of "an axis of evil." The United States fought against North Korea in the 1950-53 Korean War.

Exports from the North to the European Union are possible, the officials said. The ministry also decided to regard products made in the industrial complex as "made in Korea" or "made in Korea (Kaesong)" if the products, which are made of southern materials sent to the North and brought back to Seoul, meet a certain standard. The ministry did not elaborate on the standard in question. Two South Korean companies have begun operating their plants in the Kaesong park, a few kilometres from the tense inter-Korean border. Seoul authorized 13 labour-intensive South Korean plants to move into the complex as of the end of last year. The multi-billion-dollar project, a product of the historic inter-Korean summit in 2000, is meant to help thousands of labour-intensive South Korean firms take advantage of the North's cheap but skilled labourers. The Kaesong industrial complex is connected with South Korea by a newly built railway and a parallel road across the heavily fortified inter-Korean border. Kaesong, the capital of an ancient Korean dynasty, is where North Korean and US-led UN Command officials held negotiations to end the Korean War.

APPAREL MAKER SHINWON TO IMPORT FROM KAESONG

Fibre 2 Fashion, 12 March 2005

In a gesture of bettering economic relations between North and South Koreas, South Korean Apparel maker Shinwon Co, said Wednesday that the first shipment of its clothes made at the Kaesong industrial complex in North Korea will arrive in Seoul on Thursday. "One thousand shirts of the casual brand 'KOOLHAAS' will arrive at our headquarters in downtown Seoul Thursday afternoon," the company said. The joint venture of Shinwon based in North Korea in the industrial park near the inter-Korean border, symbolizes economic cooperation between the rival countries. "The shirts will be put on the domestic market around the end of this month after going through a washing process here," it added. The company announced that it also plans to produce two of its women's brands at the complex. Meanwhile, the Kaesong industrial complex already has three South Korean companies humming with production activities while several others are about to commence operations to utilize North Korea's cheap but skilled labour.

WATCH MAKER ROMANSON BUILDS FACTORY IN KAESONG

Korea Times, 7 March 2005

A South Korean watch-making firm will hold a groundbreaking ceremony today for the construction of a plant at a pilot industrial zone in the North Korean border town of Kaesong. "About 10 company officials will travel to the North for the ceremony," said an official at Seoul-based Romanson, which will invest 15.5 billion won ($15.4 million) in the North by forming a consortium with five other South Korean firms. Romanson plans to complete construction by June and roll out products in the third quarter. The watchmaker is one of 15 South Korean labour-intensive companies that the Seoul government has authorized to move into the pilot zone to take advantage of the North's cheap but skilled labour. The Kaesong Industrial Complex has been considered the best achievement of the inter-Korean reconciliation programs since the 2000 summit in Pyongyang between former President Kim Dae-Jung and North Korean leader Kim Jong Il.

GROWING NUMBER OF ROK FIRMS CONSIDER RELOCATING NORTH

Yonhap News Service, 4 February 2005

A growing number of local firms are asking a trade agency to determine whether machinery and equipment they want to relocate to North Korea amount to "strategic goods." The requests come after 15 South Korean garment and other labour-intensive businesses moved into a pilot economic zone in the North Korean border city of Kaesong to take advantage of the North's cheap but skilled labour. Within a few years, hundreds more are expected to have followed suit.

"As inter-Korean economic cooperation increases, the requests from local firms also goes up," said an official at the Korea International Trade Association, adding that they want to know whether the goods they want to relocate to North Korea, including Kaesong, are strategic goods. Currently, the Unification Ministry, which handles inter-Korean affairs, has the final say on what machinery and equipment southern firms are allowed to relocate to the industrial park. So far Seoul and Washington had been in talks to review a list of machinery and equipment that South Korean companies hope to bring to the industrial park zone, a few kilometres from the tense inter-Korean border.

The United States bans the shipment of strategic products, such as precision machinery and high-tech computers, to countries considered supporting terrorism like the communist North, if those products are American-made or more than 10 percent of their parts are sourced from the USA. The US rule, known as the Export Administration Regulations, is in line with the Wassenaar Arrangement, a multilateral regime aimed at preventing the flow of strategic products to countries listed as supporting terrorism. But Seoul officials admitted that strategic goods would likely be relocated to the North in the future as high-tech firms are poised to move into the industrial park, adding that technical measures will be in place to monitor whether the strategic goods are used for their intended purpose. 

"A radio frequency identification system will be up and running by the year's end, in which a computer chip attached to each strategic good will allows us to know where those items are located," an official speaking anonymously. The industrial complex is a crowning achievement of the milestone inter-Korean summit in 2000. South and North Korea are divided by the world's last Cold War frontier and remain technically at war because the 1950-53 Korean War ended with a truce, not a peace treaty.

It is Time to Invest in North Korea

by Leonid A. Petrov, The Academy of Korean Studies, October 2004

North Korea is an industrialized nation, which has been badly hit by manmade and natural disasters compounded by foreign economic blockade. After June 2000, North-South Korean relations improved significantly. In July 2002, the DPRK government undertook a series of measures to liberalize the national economy. There was no privatisation in the DPRK. However, although all businesses and enterprises in North Korea are still treated as government-run and collectively owned property, they have received unprecedented freedom in managing their production and sales.

“Profitability” and “foreign investments” are the catchwords of today’s DPRK. Any investment into the North Korean economy immediately opens secret doors to the high echelons of power, which still control the most insatiable market in the world. Given the fact that domestic industrial production in North Korea was halted more than ten years ago as the result of energy shortages, North Korea today shows almost unlimited demand for goods and services. The question is how they are going to pay?

The stereotypical image of North Korea as a hopeless economic basket case ignores the fact that there are extensive natural resources there. Gold, iron ore, anthracite coal, zinc, lead, magnesite and tungsten mines are significant assets of the DPRK economy. But their production has declined or stopped altogether since the early 1990s after China and Russia withdrew their support. Until recently, trade with the USA and its allies has been impeded by numerous sanctions. One of Pyongyang's major goals, following the removal of internationally imposed sanctions and blockades, is long-term collaboration with foreign mining companies to modernize existing mines and to find and extract undeveloped mineral resources, with payment in minerals.

In contrast with the long history of mining activity in North Korea and the certain knowledge that there are substantial, unexploited mineral reserves there, serious petroleum exploration is only just beginning. Seismic studies show a potential of 500 million to one billion barrels in its seabed concessions along the east coast, and a potential of 1.17 billion barrels of recoverable reserves off the west coast areas of Anju, northwest of Pyongyang. Since neighbouring South Korea, Japan and China would provide easily accessible markets for any oil found in North Korea, international oil companies have already shown an interest in supporting the search for petroleum in the North.

In other words, North Korea is poised for a quick and dynamic recovery. Whoever risks investing in its economy today will be greatly rewarded tomorrow because North Korea is bound for success. Comfortably located between China, Russia, South Korea and Japan, the DPRK is the key to economic prosperity of the whole region. The inter-Korean railway, which will link East Asia, Russia and Europe, is nearly completed. The high level of professional skills, education and motivation among the North Korean population creates another valuable resource for success.