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Kim Jong-il

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 -, now usefully and wittily searchable at - 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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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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