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In-depth Business Intelligence
Books on 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
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Update No: 030 - (27/10/05)
No new nuclear news
On the nuclear front, October was time out for North Korea. The marathon
two-part fourth round of the six-party talks - both Koreas, the US, China, Japan
and Russia - finally ended in September, with a pledge (inter alia) to meet
again for a fifth round in Beijing in early November. By late October no precise
dates had been set, and on past form some slippage would be no surprise. If
Pyongyang wants to take umbrage with Washington, as it often does, a new US
effort - oddly timed diplomatically, if otherwise overdue - to target the DPRK's
shadier dealings could be one pretext. That crackdown may also have a negative
impact on North Korea's efforts to attract legitimate business. This month's
Update looks at both these contradictory faces that Kim Jong-il presents to a
worried and puzzled world.
Meanwhile, during the break, almost every permutation of cross-consultations
continued as usual. Beijing in particular wheeled out its heaviest guns, to
ensure that North Korea not only turns up to next time but proves amenable. In
October Chinese vice-premier Wu Yi visited Pyongyang, meeting Kim Jong-il. On
October 9 they both graced the opening of a new $24 million Chinese-aided glass
factory at Taean near Pyongyang. It says much for the DPRK's deindustrialisation
over the past 15 years that even so basic an item is now scarce and requires
foreign assistance. Referring to a machine-tool factory in the vicinity, the
late Kim Il-sung used to praise the "Taean work system" as a key
aspect of industrial strength and self-reliance: it even features in the
Constitution (Article 33). That the same name now connotes dependence must be
galling to some. Other Chinese joint ventures, ranging from bicycles and vehicle
axles to electricity meters (a sign of the times), are in the pipeline.
China's president to visit
Wu Yi was followed by Li Bin - China's point man on Korea, and a former
ambassador to the ROK - who visited on October 18-20; he was due to head on to
Seoul (Oct. 24-27) and Washington (28-30). The latter coincides with a recently
announced but long rumoured trip to Pyongyang by the top man himself, China's
President Hu Jintao. This will be Hu's first visit to North Korea in that post,
and the first by a Chinese president since Jiang Zemin in 2001. A memorable
photo showed Jiang at an ostrich farm, looking less than enthused.
The US too sent an interesting envoy, though he did not meet Kim Jong-il. Bill
Richardson - governor of New Mexico, possible Democratic presidential contender
in 2008, formerly Bill Clinton's envoy to the UN and all-round troubleshooter -
has a standing invitation to Pyongyang. In October the Bush administration not
only let him go, but even gave him use of a USAF plane. Richardson returned
upbeat, as is his wont, despite having been shown the Yongbyon nuclear site -
but not its reprocessing facility, which he said had been in use this year. He
also claimed to have persuaded his hosts to rethink the closure of most foreign
humanitarian aid programmes (discussed in September's Update). If confirmed,
this is good news indeed; but other reports said the UN World Food Programme (WFP)
was reluctantly preparing to close its 19 food factories in the DPRK in
November, and to conclude all food aid distribution by the end-December deadline
imposed (in short order) by the government.
A big Party party
Meanwhile, what else should a bankrupt and famished nation do but celebrate,
in the spirit of Dr Pangloss in Voltaire's Candide, its supreme good fortune in
having infinitely wise rulers who in 60 years have never made a single mistake?
As a glance at the official Korean Central News Agency (KCNA) shows - kcna.co.jp,
now usefully and wittily searchable at nk-news.net - this is not exaggerating
the DPRK's ineffable propaganda. North Korea likes round numbers, and October 10
saw the 60th anniversary - a specially auspicious birthday in Korea, called
hwangap - of the foundation of its nominal ruling party, the Workers Party of
Korea (WPK). Celebrations included a military parade and a revival of Arirang: a
mass gymnastics display first mounted in 2002 and like nothing else on earth,
with over 100,000 mainly juvenile performers executing dazzlingly intricate
perfectly choreographed routines.
Imperialists and reptiles welcome, for once
While all such events tend to narcissism, this one looked outwards more than
the norm. Unusually, if rather belatedly, foreign tourists - even Americans,
generally banned - and journalists - usually scorned as "the reptile
press" in the DPRK's extensive book of insults - were invited to watch
Arirang, with visa formalities streamlined for brief and expensive trips. The
motive appeared twofold: earning foreign exchange from a theatrical experience
nonpareil; and politically, to show the world that North Korea's ability to
mount such intricately coordinated and tightly controlled spectaculars remains
undimmed. Most of the publicity that followed was duly awestruck; although some
- especially South Koreans - found this precision chilling, and opined that the
young performers should be in school. It was also admitted that anti-American
propaganda had been toned down for this occasion.
Rampant speculation that the WPK anniversary would see the announcement of a
successor to Kim Jong-il proved premature, yet not wholly off the mark. Recent
months have seen a number of official articles and commentaries on topics like
inheriting the revolution: a sure sign that wheels are in motion. But such mills
grind slow in Pyongyang, so it may be quite a while yet before anything more
than vague pious generalities emerges. The spate of often lurid accounts in the
foreign "reptile press" of palace rivalries spawned by the dear
leader's tangled marital history will not have pleased the authorities. So far
as is known, not a word on Kim Jong-il's consorts or children has ever been
published in the North Korean media.
Succession struggles may heat up
This is certainly an area to watch. The dear leader turns 64 officially
(maybe 65 in reality) next February 16. His own succession process was already
well under way by the time his late father Kim Il-sung reached that age in 1976
- albeit slow and initially anonymous, with esoteric references to "the
Party centre." Kim Jong-il did not emerge publicly until 1980, at the 6th
WPK Congress. There has been no 7th Congress, for a quarter of a century: just
one of the ways that the DPRK flouts even the limited due process of orthodox
communism.
Despite suggestions that a scaling back of public portraits of Kim Jong-il last
year heralded a move to a more orthodox collective leadership, the profound
personalisation of power in Pyongyang - both as fact and discourse - makes
another hereditary succession probable. Kim's eldest son Kim Jong-nam, aged 34,
would be the favourite, but for his embarrassing unmasking in and expulsion from
Japan in 2001, travelling on a false passport; he claimed to want to go to
Disneyland. Since then he seems to be living in exile, mainly in China; but
rumours of two assassination attempts suggest he is not yet out of the picture.
Three sons and a bastard
His rivals are assumed to be the two sons of Kim Jong-il's last consort Ko
Yong-hee, who died of cancer last year. Little is known of Kim Jong-chul and Kim
Jong-un, both in their early 20s and schooled under aliases in Switzerland. The
dear leader's former Japanese chef says their father prefers the younger, Jong-un,
regarding his brother as too effeminate. But each seems young for a public role,
if not to begin a less visible rise through the hierarchy. By some accounts
either or both already has a position in the WPK.
Still another reported contender is Kim Jang-hyun, aged 33: fathered by Kim
Il-sung with a nurse, and adopted by Jang Song-taek, Kim Jong-il's
brother-in-law and until recently his right-hand man. Jang's purge last year is
attributed to his building his own power base to press his son's claim, as well
as possible differences on policy: an area where there must be disagreements
between hawks and reformers, though as ever argument is kept under wraps.
This swirl of rumour shows the challenge facing Kim Jong-il. While not having a
successor is perilous - if he had a heart attack tomorrow, chaos could ensue -
picking one is riskier still. Not only is the decision itself tough, but
enforcing it and neutralizing excluded rivals will entail factional in-fighting
which could prove destabilizing. (The dear leader knows the score here; in his
day he saw off an uncle and at least one half-brother as potential rivals.)
Ructions at the top may also stir the grassroots, if contenders seek to mobilize
support. The quiescence of North Korea's long-suffering people - a product of
tight control, hunger, and (still) brainwashed consent - while remarkable, may
not prove eternal. Any slight crack in the veneer of unity maintained so far
could open an unpredictable can of worms. All in all, North Korea's remarkable
political stability thus far cannot be assumed to be everlasting.
Death of a technocrat
Even if would-be dauphins must come from within the royal family, other
senior cadres are not without influence. One such was Yon Hyong-muk, whose death
aged 73 - reportedly from cancer of the pancreas - was announced on October 23.
A Czech-trained engineer and a full Politburo member from 1980, Yon served as
premier during 1988-92. In that capacity he visited (and impressed) Seoul four
times during 1990-92, signing the first formal North-South accords - though they
were never implemented. Later demoted to alternate Politburo membership, he was
sent to run Jagang province in the far north, whose mountains conceal many arms
plants and military bases. Winning kudos for a drive to harness local rivers to
build small power stations, Yon soon returned to Pyongyang's elite as
vice-chairman of the National Defence Commission: the highest executive body,
outranking the Cabinet. He was the senior civilian on the NDC, and by repute a
voice of relative moderation. As such, he will be missed. The current premier
Pak Pong-ju, another technocrat, may now have one fewer ally, especially if
market reforms fail to kick-start the economy into growth soon.
Economic policy remains a confusing area, with contradictory signals. Curtailing
foreign aid agencies, as discussed in September's Update, is on the face of it a
bid to limit opening. A parallel move from October, reviving the moribund Public
Distribution System (PDS) of official rationing and banning sales of staple
grains in private markets, likewise looks like an attempt to reassert state
control and authority. Yet the import of this is not so clear-cut. If the PDS
can be restored - admittedly a big 'if' - this might curb runaway inflation and
feed people better. Markets may be the answer in general terms - but they have
bred new inequalities, forcing many North Koreans to hawk and scrabble to
survive.
They want to learn, it seems
On other fronts, in any case, North Korea still seems to be reaching out to
the world. Thus in mid-September the European Commission delegation in Seoul
held its second seminar in Pyongyang on economic reform (the first had taken
place in August 2004), cosponsored by Germany's Friedrich Naumann Foundation (FNF)
and North Korea's ministry of foreign affairs. Other German foundations too are
active in this area. Almost 100 officials attended, most from economy-related
ministries, led by vice foreign minister Kang Sok-ung. Eight economists came
from EU countries. Topics included the role of the state in economic management,
strategies to attract foreign direct investment (with case studies from eastern
Europe), restructuring of state-owned enterprises and farms, and how to design a
legal framework for economic activity. The hosts in turn updated their visitors
on North Korea's measures to modernize (not reform) its own economy, including
description of steps to overhaul state-owned enterprises and delegate new
responsibilities to managers during the last three years. A visit to the March
16th Wire Factory in Pyongyang was laid on, and another to the Kaesong
Investment Zone for South Korean firms, just north of the border.
Soliciting the Chosun few
North Korea does seem to want foreign investors, and a few hardy souls are
happy to help. Thus September saw the launch of the first ever private
investment fund dedicated to the DPRK. Chosun Development and Investment Fund (CDIF)
hopes to raise $50 million - or $100 million if there is that much interest - to
invest in foreign currency-earning sectors, particularly mining. It is the
brainchild of Colin McAskill: chairman of Koryo Asia, the fund's investment
adviser, and a director of Anglo-Sino Capital, a fund management group now
seeking a license from the UK Financial Services Authority (FSA). Anglo-Sino is
chaired by Robin Fox, a former vice-chairman of Dresdner Kleinwort Benson. Its
advisers include Lynn Turk, who as a State Department official led the first US
diplomatic delegation to Pyongyang in 1994 and helped to negotiate that year's
Agreed Framework.
McAskill is probably the longest-established and best connected western business
figure in Pyongyang, where he has had dealings since 1978. He once tried to
broker a deal between the DPRK and its western creditor banks, still owed some
$1.6 billion (mainly interest) on debts dating back to the 1970s. Hinting at a
link, he said the new fund aimed to give North Korea a chance to prove itself in
the commercial world by complying with international law and fulfilling
commitments. Its appeal to investors, with the nuclear issue still unsettled,
remains to be tested - although rewards commensurate with risk are said to be on
offer.
A Phoenix rises
Mining also dominates the dozen projects offered on the website of Phoenix
Commercial Ventures Ltd, formed earlier this year. Partners include Nigel Cowie,
who has lived for a decade in Pyongyang as manager of Daedong Credit Bank.
Founded in 1995 as Peregrine Daesong Development Bank, a 70:30 JV between the
then Peregrine group of Hong Kong and North Korea's Daesong Bank, a management
buyout enabled it to survive Peregrine's demise; the new name dates from 2000.
Based in Pyongyang's Potonggang Hotel, Daedong offers a full range of bank
services to foreigners in North Korea. It claims to be "profitable and
solvent" - though like its host country, it seems coy in offering numbers
to back this up - and is at pains to emphasize its policies to prevent money
laundering.
As a sign of changing times, Mr Cowie, one of two British partners in Phoenix -
two more are French and North Korean - also chairs Hana Electronics: a 50:50
partnership formed in 2003 with the Ministry of Culture and the Korea Committee
for the Promotion of External Economic Cooperation (CPEEC, a body reporting
directly to the cabinet). Since 2004 Hana has made and sold DVD and VCD players;
it also presses and sells CDs. Having created its own nationwide distribution
network, it is pioneering such innovations (for North Korea) as consistent
branding and a no-quibble six-month guarantee. All this sounds very positive.
Guardian bowls BAT a googly
At least one - perhaps only one - multinational has already taken the
Pyongyang plunge. On October 17 the Guardian, a British daily paper, revealed
that British American Tobacco (BAT), the world's second largest cigarette
company, has had a factory there for four years. In September 2001 BAT invested
an initial $7.1 million - it has since increased this, but will not say by how
much - for a 60% stake in Taesong-BAT: a joint venture with Sogyong Chonyonmul
Trading, hitherto mainly known for exporting carpets. Its Pyongyang plant
employs 200 people to make some 2 billion cigarettes a year, reportedly all for
the local market rather than export: brand names include Kumgangsan, Craven A
and Viceroy.
Run by BAT's Singapore division - the firm also has a major investment in South
Korea - this venture had never been disclosed in the company's annual accounts;
ostensibly as too small to be worth a mention. Its exposure now may cause
embarrassment, as in 2003 when a backlash forced BAT to pull out of a JV in
Burma. The news was timed to hurt BAT's non-executive deputy chairman Ken Clarke
- a former Chancellor of the Exchequer, and in fact the most liberal of the four
candidates - in the first round of voting for leader of the Conservative party.
The same day the UK's Channel 4 TV aired a documentary showing public executions
and other human rights abuses in North Korea. Mr Clarke lost the vote.
The Feds go in, with a yacht sting
Other factors that may deter many from following in BAT's footsteps include
the DPRK's notoriously difficult business environment, and the still unresolved
nuclear issue. A further problem weighing on legitimate business aspirations is
the regime's penchant for shadier stuff. Overshadowed by the nuclear issue and
other security concerns, a notorious 30-year history of state implication in a
range of criminal pursuits - one study lists 41 cases of drug trafficking alone
during 1976-99 - had hitherto not prompted concerted action. Now the US is
cracking down, in an apparent change of strategy. In August, in an elaborate FBI
sting worthy of The Untouchables (climaxing in a fake wedding on a yacht moored
off Atlantic City), nearly 100 Asia-based gang members were arrested for
allegedly smuggling North Korean-made counterfeit cigarettes, pharmaceuticals,
and - most seriously - $100 bills (known as Supernotes), into the US. On August
23 US and Taiwanese agents seized $2 million in counterfeit currency going into
Taiwan and believed to be made in Pyongyang.
Macau: banking or laundry?
Next, on September 15 the US Department of the Treasury designated a Macau-based
bank, Banco Delta Asia (BDA), as a "primary money laundering concern"
under Section 311 of the US Patriot Act. Stuart Levey, under-secretary for
terrorism and financial intelligence (TFI), described BDA as "a willing
pawn for the North Korean government to engage in corrupt financial activities
through Macau." BDA is charged with tailoring its services to North Korea's
demands for over 20 years with little oversight or control: handling most of
North Korea's precious metal sales, and helping its agents conduct
surreptitious, multi-million dollar cash deposits and withdrawals. Senior BDA
officers are accused of accepting large deposits of cash, including counterfeit
US currency, and agreeing to put the latter into circulation. BDA is also said
to have facilitated money transfers linked to illegal activities (drug
trafficking, and fake currency and cigarettes) by two North Korean front
companies. One is Zokwang Trading, several of whose officials (who had
diplomatic immunity) were expelled in the mid-1990s after being arrested by
Macau police on suspicion of attempting to pass supernotes, some of which were
traced to BDA.
Previously used against banks in Latvia, Northern Cyprus, Belarus, Syria and
Burma, Section 311 inter alia may prohibit US institutions from having any
correspondent relations with an alleged offender. BDA denied everything; Stanley
Au, a well-known businessman who chairs its parent group, at first called the US
charges "a big joke." BDA nonetheless temporarily suspended dealings
with North Korea - causing great inconvenience to banks there, which continues -
after worried customers withdrew funds equivalent to 10% of its capital. As the
run continued, BDA's board asked for government protection on September 29. By
October 3 the Macau authorities had reportedly spent $75 million to stabilize
the bank, while setting up a task force to probe the US charges and calling on
residents to have faith in their financial system. In a word this made waves,
and they are still spreading. Also reportedly a subject of the US enquiry is
another Macau bank, Seng Hang, controlled by Stanley Ho: a billionaire gambling
mogul well connected in both Beijing and Pyongyang, where he has a casino. Even
the Bank of China (BOC)'s Hong Kong unit, which is said to function
semi-autonomously of its parent, may be a target; defectors have reported that
all North Korean banks maintain accounts with, and transfer funds through, the
BOC.
A money trail from Moscow, via Dublin?
The crackdown continued with the arrest in Belfast on October 7, following
an indictment by the US Justice Department, of Sean Garland: a leading Irish
communist and ex-militant in the Official IRA. Now 71, the president of the
Workers' Party of Ireland (WPI) is one of seven men accused of helping North
Korea pass on counterfeit currency with a face value of up to $1 million during
1997-2000: allegedly collecting it from places like Moscow, Warsaw or Minsk
while on WPI business, taking it to the UK by ferry to avoid security checks,
and even protecting North Korea by telling co-conspirators that the source was
Russia. Three of the men indicted were convicted in a British court in 2002, and
last year a BBC Panorama programme named Garland. Some in Ireland are miffed
that the US Secret Service worked with British police to nab him in Northern
Ireland. He was granted bail, and the US is now seeking his extradition within
65 days under a treaty with the UK.
North Korea is not amused
Reaction to all this in Pyongyang has been predictably unamused, if so far
low key. KCNA quoted the DPRK foreign ministry on October 19 as denying all
charges, calling them "trite psychological warfare" by the US. It
queried the Bush administration's sincerity in the six-party talks, and warning
that North Korea may take "self-defence steps." Diplomatically,
Washington's timing - in the midst of difficult nuclear negotiations - does seem
strange. The Illicit Activities Initiative (IAI), an interagency operation
involving the departments of state and defence plus the CIA and FBI, was
launched in 2002 to track down North Korea's illicit funds, but had not been
publicized - other than by leaks to The Wall Street Journal.
Until now the US was cautious: reluctant, for instance, till this year despite
much evidence to cite North Korea for drug trafficking, reportedly because this
would mandate sanctions and might jeopardize nuclear talks. The official line in
Washington is that North Korea is being pressed consistently on all fronts to
conform to international law. Another version is that it was when gangsters
offered to sell undercover agencies surface-to-air missiles that the US decided
that taking down the network could not safely be delayed any further. As this
shows, there is indeed more to worry about regarding North Korea than nukes
alone.
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ENERGY
N Korea wants Russian companies to join its projects
North Korea has urged Russian companies to join oil refining projects and
conduct geological prospecting in North Korean fields, North Korean Deputy
Foreign Trade Minister, Kim Yen Jue, said in Yuzhno-Sakhalinsk recently, New
Europe reported.
"In the late 1980s - early 1990s, Sakhalin experts conducted geological
prospecting at North Korea's eastern offshore oil fields and their conclusions
were positive. We are proposing that this work be resumed. North Korea has an
oil refinery in the north which was built with Soviet assistance and is refining
oil from Russia. We could refine oil on a partnership basis and would be happy
to receive proposals from Russian companies on cooperation in this sector,"
he said.
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