FREE GEOPOLITICAL NEWSLETTER

 

North Korea

For current reports go to EASY FINDER

North Korea


 

REPUBLICAN REFERENCE

Area (sq.km)
120,540

Population
22,224,195 (July 2002 est.)

Capital
Pyongyang

Currency
North Korean won (KPW)

Leader
Kim Jong-il

a NEW service
 

NEW BUSINESS
OPPORTUNITIES

a FREE service

FREE World audit country reports on democracy, corruption, human rights and press freedom
democracy
 check

Parties & Elections
parties &
elections

Currency converter
currency
converter

 

Background:
Following World War II, Korea was split with the northern half coming under Communist domination and the southern portion becoming Western oriented. KIM Jong-il has ruled North Korea since his father and the country's founder, president KIM Il-song, died in 1994. After decades of mismanagement, the North relies heavily on international food aid to feed its population, while continuing to expend resources to maintain an army of about 1 million. North Korea's long-range missile development and research into nuclear, chemical, and biological weapons and massive conventional armed forces are of major concern to the international community. 
Korea is in fact one of the world's older nations. Most of the peninsula was unified in 668CE, when the southern kingdom of Shilla conquered its northern rival, Koguryo. Despite owing much of its civilisation to China, to which it was long a formal vassal, Korea is ethnically and lingusitically quite distinct and was in practice self-governing.
Few countries have known a more painful passage to modernity. The imperialist age found the last Chosun dynasty in decay. Its efforts to keep out the wider world earned it the sobriquet 'hermit kingdom'; but its stubborn refusal to reform made it a "shrimp among whales": prey to whichever power achieved regional dominance. That turned out to be Meiji Japan, which trounced the fading Chinese and Russian empires to rule Korea brutally during 1905-45. This brought some development; yet the scars - such as 'comfort women' (sex slaves) - still poison ties between Japan and today's Koreas.

Partition
Those scars include Korea's almost accidental, yet fateful, partition: a 'temporary' US idea in 1945, to stop the Red Army occupying the whole peninsula. Predictably, US and Soviet zones hardened into separate regimes, proclaimed in 1948: the Republic of Korea (ROK) south of the 38th Parallel, the Democratic People's Republic of Korea (DPRK) to the north. In 1950 the north's ex-guerilla leader, Kim Il-sung, invaded the south, but was beaten back by a US-led UN force. The 1953 Armistice - there is still no peace treaty - left both states in place, but terribly ravaged. Four million died. The sealed border, now ironically called the Demilitarized Zone (DMZ), hardly budged.
Thereafter the two Koreas competed economically and diplomatically. The DPRK led at first: its GNP was ahead of the ROK's until the 1970s, giving it clout in the Non-Aligned Movement. But the south's alliance with the US and export-oriented model proved a more lasting formula for success, even before the USSR's demise in 1991 both alarmed the now ageing Kim Il-sung and removed his main source of subsidy.

JUCHE - a myth
That blow exposed the 'Great Leader''s vaunted self-reliance (Juche) as a myth. As in Cuba, North Korea's economy went into free fall. Unlike Cuba, the regime's refusal to adapt led to catastrophe. In a uniquely tragic trajectory, a once industrial economy took a great leap backwards. In 1996-98, famine killed at least one million out of 23m people: some estimates run as high as 3m. The country now relies on food aid, which is falling as needs arise elsewhere (Afghanistan, Iraq) and donors grow exasperated. 
Their fustration is threefold. Economically, the DPRK malgre tout still resists market reforms. In July 2002 it imposed drastic wage and price rises; but without supply-side measure to match, these produced little except inflation. Politically, the extreme cult of personality around Kim Il-sung, who died in 1994, passed to his son Kim Jong-il in a system which in the C21 remains Stalinist, ossified, opaque, bizarre, and cruel. Yet even its foes must admit the DPRK's staying power, defying forecasts of its collapse.
Thirdly, rather than reform, North Korea's response to adversity was to rearm. In a policy of militant mendicancy, the threat of weapons of mass destruction (WMD), real or suspected, has been used to parlay resources. Thus after the 1993-94 nuclear crisis, when the Clinton administration considered bombing the Yongbyon nuclear site, the 1994 Agreed Framework (AF) with the US shut Yongbyon - in exchange for fuel oil and two new light water reactors (LWRs), to be built and paid for mainly by the ROK via a consortium, KEDO (Korean Peninsula Energy Development Organization).
Hopes of the AF as a model rose when Kim Dae-jung became ROK president in 1998. His 'sunshine' policy of outreach led to the first ever North-South summit, held in the DPRK capital Pyongyang in June 2000, for which Kim won that year's Nobel Peace Prize. But progress proved fitful, as the US under George W Bush took a harder line: naming North Korea in 2002, along with Iraq and Iran, as part of an "axis of evil".

The nuclear crisis
Last October the US accused the DPRK of having a new covert nuclear programme - and says it admitted it. This sparked a new nuclear crisis. KEDO cut off oil supplies; North Korea expelled IAEA inspectors, restarted its Yongbyon reactor, and became the first of 170 signatory states ever to leave the Nuclear Non-Proliferation Treaty. Provocations continued, in a bid to gain the attention of a US busy with Iraq. North Korea tested two short-range missiles - one spoilt the inauguration of a new ROK president, Roh Moo-hyun, despite his pro-sunshine bent - and buzzed a US spyplane. 
Relief came with April's news that the US, North Korea and China will hold talks in Beijing - only to waver when the DPRK seemed to claim it had started reprocessing. That could yield plutonium for several nuclear weapons, and may be a red line for the US. Despite hopes that Kim Jong-il was scared by Iraq, he might conclude that only a nuclear deterrent can save him from Saddam Hussein's fate. Talks may just be a bid to play for time. At best they will be lengthy, with the complication that other powers - South Korea, Japan, Russia - will demand a seat at the table if the talk gets serious.
The issues are many and thorny. On the security front, besides the dual nuclear effort there are missiles, likely chemical and biological weapons (CBW), the million-strong Korean People's Army (KPA), and more. Other concerns include abductions (a major issue for Japan), counterfeiting, drug trafficking, refugees fleeing hunger into China, and human rights. With different interlocutors having varied priorities, it is very hard to see what kind of deal the DPRK can accept that would resolve much or all of this.
Thus Korea now has odd echoes of two older eras. Again a hermit strategy has failed; and again south has trumped north, at least economically. The gap is so wide that the two no longer fit on the same graph. South Korea exports more in two days than the North in a year, and throws away more food than the North eats. The Korean question today is thus not just about nukes, but how this widening chasm can ever be bridged.
Four scenarios are possible. A 'soft landing', with Kim Jong-il gradually embracing peace and reform, is still feasible and devoutly to be hoped and worked for. Secondly, the alarums may continue, and North Korea limp on as is - but surely not indefinitely. Collapse and absorption is a third possibility: sure to be even more expensive than in Germany, but unlikely to be as peaceful. Finally, a second Korean War would inflict vast casualties (again), and cost trillions of dollars to rebuild South as well as North.

High stakes 
Even a world awash in turmoil has few unfolding dramas with stakes as high as this. The chapter in Korea's long history that began in 1945 is coming to a close. Can the DPRK leopard change its spots, and if so how and with what result? As a sub-plot, but of major import: a growing US-ROK rift, with some Koreans seeing Bush as raising tensions, may yet push South Korea into the arms of a waiting China, already its main trade partner. Unlike most of China's neighbours, Koreans feel comfortable with this; so here again history may repeat itself, and shift East Asia's security tectonic plates. The only certainty is that developments in Korea will demand our utmost vigilance.

 « Top  

Update No: 002 - (27/06/03)

North Korea's nuclear crisis remained largely on ice during the past month. This was despite Pyongyang's first public admission on June 9 that it is indeed seeking nuclear deterrence: ostensibly to reduce the size of its conventional forces and aid economic development. US-led moves to block DPRK missile and drug exports continued: on June 13, in Madrid, 11 nations backed a "Proliferation Security Initiative" to that end. Yet Colin Powell spoke of trying to help North Korea "out of the box", and talked to a DPRK diplomat at the ASEAN Regional Forum in Phnom Penh on June 18: a meeting which Pyongyang's foreign minister, Paek Nam-sun, chose not to attend. As China is keen to promote a diplomatic resolution, a further round of of talks in Beijing is likely before long - possibly with Japan and South Korea as additional participants this time. Whether this will make any more progress than last time, in April, is another matter.

Focus on the economy
With little to report on the diplomatic front, we focus this month on the North Korean economy, a year after big price and wage increases marked a halting and belated first step towards market reforms. In a further small step, on June 10 official Pyongyang media for the first time acknowledged the role of markets in the economy, and asked for foreign help in expanding them. So-called farmers' markets have always existed, but had grown in recent years as the planned economy crumbled. Hitherto they were only grudgingly tolerated, with foreigners forbidden to visit them. It is yet to be seen if this new imprimatur lead to a real effort to boost markets. The regime continues to affirm a "military-first" policy, with priority to the defence industry; which in itself means that the civilian economy remains starved of much-needed new investment.

No news is bad news
Another sign of real change would be to publish economic data, as Pyongyang has not done for 40 years. Seeking to fill the blank, the Bank of Korea (BOK), South Korea's central bank, reported on June 4 that the DPRK economy grew by just 1.2% in 2002: down from 3.7% in 2001, 1.3% in 2000 and 6.2% in 1999. Construction was the star sector last year, growing by 10.4%, while agriculture chalked up 4.2%. By contrast, energy shortages hobbled industrial sectors like manufacturing and mining, which recorded negative growth of 2.5%; services also shrank, by 1.5%. The BOK put North Korea's gross national income (GNI) in 2002 at 21.33trn Southern won (US $17.8bn), or $762 per head, and its trade total as $2.26bn, slightly down from 2001's $2.27bn. Highlighting the vast and widening economic chasm which now separates the two Koreas, these figures are respectively 3.6%, 7.6%, and 0.7% of South Korea's totals. Inter-Korean trade soared by 59% to $640m, making South Korea the North's second largest trading partner after China (although much so-called trade is in reality aid.)
Though not all analysts accept BOK's figures, they give a rough idea of trends. North Korea's economic recovery in recent years, after the disastrous decade of the 1990s, is fragile and largely dependent on outside aid, whose future is unsure due to both donor fatigue and the nuclear crisis. South Korea, nonetheless, has as usual pledged fertilizer (200,000 tons), and on June 21 decided to send 400,000 tons of rice (of which Seoul has a glut), costing $140m - despite shots being fired in the annual border violations by North Korean crab fishing boats. Fears of a new famine seem to have receded, but life for most people in North Korea remains harsh and looks set to stay that way. Aid agencies worry that inflation and the spread of a cash (often dollar) informal economy will be adverse for the more vulnerable parts of the country and segments of society.

This railway goes...nowhere
Other developments in inter-Korean ties have been mixed. At a low-key ceremony on June 14, timed for the third anniversary of the first ever inter-Korean summit between Kim Dae-jung, then South Korea's president, and the Northern leader Kim Jong-il, a railway line linking North and South was rejoined in the Demilitarized Zone (DMZ) north of Seoul. Yet with a 13km gap on the Northern side, no trains will run any time soon. Groundbreaking is expected shortly for the Kaesong Industrial Zone, near the DMZ, which could potentially be a growth pole like Shenzhen vis-à-vis Hong Kong - but will not attract substantial South Korean investment while nuclear tensions persist. Another corridor on the east coast, closed almost as soon as it opened in February for repairs - and later because of SARS, to which North Korea responded with stringent quarantines - was expected to reopen on June 27 for a 7th round of family reunions and resumed tours to the North's Mt Kumgang (Diamond Mountain) resort; but in the event the visitors looked set to travel in the old way, by boat, rather than overland.

Good news for MACAO
Overshadowing inter-Korean relations, besides the nuclear crisis, is the report of a special counsel appointed by the South Korean government, Song Doo-hwan. On June 25 Song confirmed suspicions that the Kim Dae-jung administration secretly sent $100m to North Korea just before the June 2000 summit; plus $400m from the Hyundai group, ostensibly for the business purposes. Whether condemned as bribery or defended as raison d'etat, this leaves a bad taste. Besides roiling politics in Seoul, this revelation will not help North-South relations. It adds to the impression that Kim Jong-il is cynical and money-minded, rather than genuinely seeking reconciliation. Since this nations's leaders prefer MACAO banks to their own, it would be interesting to know how much winds up there. Although the ailing Kim Dae-jung has not been charged, the indictment of several of his key aides means that this issue will remain in the headlines for months to come.
Overall, June thus saw the North Korean situation in a kind of suspended animation. The nuclear crisis did not worsen, but nor was there any breakthrough. North-South ties cannot improve dramatically while the nuclear threat persists. The coming months will see more movement, but in what direction is unclear. Unless Kim Jong-il makes real concessions, the US - which remains more preoccupied with west than east Asia - may move towards sanctions, putting Seoul in a difficult position. We shall see.

 « Top  

FINANCIAL NEWS

North Korea lets free markets grow

North Korea is gradually, and grudgingly, allowing the expansion of free markets as its leaders contend with the disintegration of central planning and mounting economic pressure from the US and its allies, the Wall Street Journal Europe has reported.
A dispatch from Pyongyang's official news agency said recently that local markets across the country could sell manufactured goods in addition to food, as part of a government effort to "drastically boost the economy and improve the standard of people's living."
Since last year, North Korea's leadership has been ceding control over economic decision-making to local governments and individual factories, and the pace of change seems to be picking up, North Korea watchers say. Workers are paid based on their performance and the prices of more and more goods are being set in the market place.
There has also been a sharp turn in North Korea's rhetoric, after decades denouncing capitalism. In April, Choe Hong Gyu, director general of the government's State Planning Commission, said in an interview with a pro-North Korean newspaper in Japan that Pyongyang "is determined to provide an atmosphere where markets can serve as a place for social demands to be met."
The change may be less the result of any ideological shift than of the regime's determination to make a virtue out of necessity. With the North Korean economy in shambles and the state-run system of production and rationing in disarray, the government has had no choice but to let people fend for themselves in the open market, many analysts say.
"This isn't perestroika," says Marcus Noldan, an expert on the North Korean economy at the Institute for International Economics in Washington, referring to the economic and political opening of the former Soviet Union that preceded its break up. "They want to make marginal changes. But ultimately, they want to preserve their system."
Indeed, North Korea's government has at times described the moves as simply ways to "address the less-advanced aspects of socialism." North Korean dictator Kim Jong Il - who while his people were starving in the mid-1990s, said "We can live without candy, but we cannot live without bullets" - last autumn declared the foundering national economy would be run according to the principle of "the defence industry first."

 « Top  

FOREIGN INVESTMENT

North Korea welcomes foreign money

North Korea has announced that it will open up its companies to more foreign investment, as part of a new policy to liberalise its economy. The Korea Trade-Investment Promotion Agency (Kotra) said that it would now allow foreign investors to take stakes in Korean companies of more than 50%. 
"In the case of joint ventures, foreign companies could take only up to 50% of stake in the past, but now there is no problem if their stake goes above the level," Kotra said, quoting North Korea's vice trade minister Kim Yong-sul. 
The country is hoping that the rule change will encourage Japanese and South Korean businesses to take a greater stake in the North Korean economy. 
In the past few months, North Korea has devalued its currency and abolished a convertible version of the won used in transactions with foreigners. 
The country has also raised prices and wages, and placed more emphasis upon companies being profitable. 
Changes to the foreign ownership rules were explained at a conference in Tokyo, which was attended by about 50 Japanese businessmen. 
"The measure is an effort by Pyongyang to expand trade and business with other countries," Kim Sang-shik, a Kotra official, said. 
He added that North Korea had attracted US$120m (£76.7m) of foreign investment to a special trade zone at the end of 2000 - more recent figures were unavailable. 

 « Top  

INDUSTRY

Construction for Kaesong complex kicks off

The two Koreas have held a ground breaking ceremony for the Kaesong Industrial Complex, a major economic cooperation experiment creating a capitalist-style industrial zone in the North for South Korean and foreign firms, Seo Soo-min reported for the Korea Times.
Kaesong, located across the Demilitarised Zone only 70 kilometres north of Seoul, some 120 South and 200 North Koreans witnessed the beginning of the construction.
Kim Jin-ho, president of KOLAND, the South Korean contractor for the project, said in his congratulatory speech that the site will give birth to "common prosperity" for the two Koreas.
Chung Mong-hun, chairman of Hyundai Asan, the operating firm that pioneered the scheme in 2000, said the idea bore fruit 15 years after his father, the late Hyundai founder Chung Ju-yung, visited North Korea in 1989, becoming the first South Korean businessman to do so.
"This symbolizes the beginning of active economic cooperation between the two Koreas,'' said Chung, who was recently indicted for his company's involvement in the so-called "cash-for-summit'' scandal.
Choe Hyon-ku, a North Korean official who took part in the event, said the ground breaking ceremony took place despite the difficult situation his country faces.
"It is the by-product of the June 15 Joint Declaration'' between the two Korean leaders, he said.
Some 900 local companies have shown an interest in Kaesong, the ancient capital of the 918-1392 Koryo Dynasty. Under the plan, Hyundai Asan will initially develop 1 million pyong (3.3. million square metres) by 2007, where 300 firms, mostly from the textile and electronics sectors, can move in. It is hoped an industrial park will be created that will provide South Korean investors with cheap labour and North Korea with badly needed cash. 
North Korea says it will promote light and high-tech industries at Kaesong. Investors will receive tax cuts and other benefits, but are required to build infrastructure. However, many details have yet to be worked out, and construction is not expected to begin until next year. 
In the first phase of the industrial zone, the South Korean government and Hyundai will invest 220 billion won ($184 million) to develop 3.5 million square feet for some 300 businesses by 2007. 

 « Top  

TRANSPORT

Koreas rebuild transport links

North and South Korea have held ceremonies ahead of work to re-link road and rail connections between the two states for the first time in more than 50 years. 
Fireworks crackled and balloons were set free at the ceremonies, held simultaneously on either side of the heavily fortified border separating the Koreas. 
It is the latest act of reconciliation between the rival neighbours, and came a day after North Korea moved a step closer to normalising relations with Japan following an unprecedented visit to Pyongyang by Prime Minister Junichiro Koizumi. 
Work to clear the heavily-mined buffer zone on the border will begin shortly and the first of the rail links is expected to be re-connected as early as November. 
The South Korean Prime Minister-designate Kim Suk-soo said he hoped the work would herald a new chapter in relations between the two Koreas. 
Speaking at Dorasan train station - the last stop on the South's western rail line - the South Korean prime minister-designate said the two countries had embarked on a "monumental project. We are burying a history marked by the scars of war and the pain of division," he said. 
Rail links between the two Koreas have been cut since the end of the 1950-1953 Korean War. North and South Korea agreed to re-link the connections two years ago as part of a series of steps to improve relations. 
The project involves two sets of cross-border road and rail links, on the east and west coast of the DMZ. The plan is to link the western line to China and the eastern line to Russia, so freight can travel overland to Europe, significantly cutting costs. 
The new economic policies aim to wean factories and companies in North Korea off state subsidies and become self-sustained. 
North Korea's planned economy has been in place since the communist state came into being in 1947. 
People in the country have been afflicted by droughts and numerous natural disasters, acerbated by an inefficient economy. 
The economy grew by 3.7% in 2001, after a 1.4% expansion the previous year, according to estimates from the Bank of Korea - the South Korean central bank. 
Following the ownership rule change, Kotra said it expected more South Korean companies to take stakes in companies across the border. 
Trade between the two neighbouring countries increased by 8.9% year-on-year to $215m in the first half of this year. 

 « Top  

CUSTOMISED REPORTS

 

INVESTMENT BACKGROUND REPORTS 

Our analysts and editorial staff have many years experience in analysing and reporting events in these nations. This knowledge is available in the form of geopolitical and/or economic country reports on any individual or grouping of countries. Such reports may be bespoke to the specification of clients or by access to one of our existing specialised reports. 
 
For further information email:
reports@newnations.com

Considering an investment or a trip to any newnation? First order our Investment Pack which will give you by e-mail the last three monthly newnation reports and the complete worldaudit democracy check for the low price of U$12. The print-out would be a good companion to take with you. Having read it, you might even decide not to go!
 
To order please click here:
Investment background report

 

« Top

« Back

 


 
Published by 
International Industrial Information Ltd.
PO Box 12 Monmouth 
United Kingdom NP25 3UW 
Fax: UK +44 (0)1600 890774
enquiries@newnations.com