March Pyongyang Workshop Album

Choson Exchange held its first Pyongyang Workshop Series for 2012, with a two-day training session on March 13-14th. Approximately 30 participants from a variety of financial and regulatory institutions took part in the workshop. The main topic was “Asset-Liability Management,” which is a banking practice to ensure the difference between deposits and loans does not create exposure to excessive risk. Discussions also focused on how private equity can be used to grow businesses.

We'll have more details soon, but for now enjoy these snapshots.

Young Pioneer

Workshop

subway

forms

Students

Kiddo

Rush Hour

DVD Workers

Lecture Materials

Rason's Legal Code

In 2010, the DPRK revised the laws governing Rason Special Economic Zone. This booklet, scanned into pdf form, sketches out the new laws in both Korean and English (English is in the back half). It was at this time that the authorities removed Rason from provincial administration, giving it more autonomy in some ways, while also giving authorities in Pyongyang a more direct link to planning for the SEZ.

cover1

Potentially interesting clauses include:

- Ships regardless of nationality are permitted to port (article 26)

- Business licenses can be revoked if DPRK law is "seriously" violated. (article 15)

- Prices will be set between the buyer and seller, though some basic consumer goods may be fixed by the local government. (article 26)

- Disputes may be resolved by arbitration either in the DPRK or a 3rd country. (article 45)

Geoffrey: Some of the things I like are the decentralization of decision-making to the province, the allowance for managerial autonomy, and an emphasis on technical training. That said, these things will all boil down to implementation. As rule of law and legal training is a cornerstone of our work, we think there are opportunities to work with Rason in the future on such programs and we will continue with our project scoping and audience due diligence before deciding whether an expansion is warranted.

Download the complete booklet here:

Law of the Democratic People's Republic of Korea on the Rason Economic and Trade Zone. (English translation at the end)

For an analysis of Rason's prospects check out Andray's paper at the Korea Economic Institute.

Update on North Korea’s Economic Strategy – JVIC and Taepung Merger is a Positive Step Forward

Last year, we met with both the Taepung Group and the Joint Venture and Investment Commission (JVIC) to discuss potential training programs in economic and investment policy. We ended up working with the JVIC on some training programs as most of their staff came across as being professional, earnest, and well-intentioned. They were focused on critical issues such as reshaping investment laws and strengthening the rule of law in general. Many of them were aware of key challenges businesses faced in North Korea. Many of the staff also lived abroad and brought with them creativity and pragmatism in looking at problems and in devising solutions. During programs and meetings, workshop leaders constantly reinforced the themes of establishing credible investment laws, tackling corruption, providing more information on the business environment and reducing expropriation risks. We emphasized the need for a consolidation of investment-seeking efforts as we were worried that having multiple investment agencies would lead to investments being funneled into different patronage networks instead of being redirected to broader development objectives. There was also the risk that different agencies would offer inconsistent terms to investors, leading to an unfair playing field.

While we heard over the course of last year that a JVIC-Taepung major was in the works, we never knew when this might take place. Hence, we are gladdened to read that Taepung is going to be merged into JVIC (which we have yet to confirm). We believe that this is a positive step forward for North Korea’s economic development, as they will need an effective agency to support foreign investors, shape the domestic business environment, and help foreign investors navigate the domestic business environment. Perhaps a next key step would include JVIC formally taking on some of the roles of the State Planning Commission, as foreign investment is critical if North Korea is to revive its moribund state enterprises and overall economy.

What is the Taepung Group?

As of April 2011, executives at Taepung describe a business model more reminiscent of a holding company rather than a government institution. Investors place their capital with the Taepung Group or create joint-ventures with the group. Taepung acts as the manager of the companies. There could be potential deviation from this description, although this is the model envisioned by leading executives on the group. The group aims to “build an economy outside of the state-planned economy.”

What is the Joint-Venture & Investment Commission?

The JVIC is similar to the more traditional investment-promotion agencies in other parts of the world. In addition to promoting North Korea as an investment destination, JVIC officers also work with investors to navigate the North Korean business environment, as well as provide feedback on key policies influencing the investment and economic environment. They oversee North Korea’s Special Economic Zones in Rason and Wihwa Islands and lead government negotiations with China in developing these zones.

DPRK-US Agreement Does Not Reflect Significant Policy Change (Yet)

With the news that North Korea has agreed to halt uranium enrichment and allow inspectors into the country to verify its nuclear activities, we are probably going to hear from pundits making claims about Central Military Commission Vice-Chairman Kim Jong Eun’s role in this decision and whether it marks a sea change in the North Korean leadership. What I would like to emphasize is that this deal was negotiated before the National Defense Commission Chairman Kim Jong Il passed away. While there was some pushback on the amount of food aid and the composition of food aid, the announced details for aid do not mark a major shift from initial positions (based off US assessment of North Korean needs), although it does indicate some concessions from North Korea’s Ministry of Foreign Affairs which was supposedly angling for a larger amount of aid.

As such, I don’t think we can at this point draw any strong conclusions as to whether Kim Jong Eun’s leadership will indicate a significant policy shift from before, but rather, conciliatory measures seem in line with ongoing trends from 2011 which emphasized economic development and standard of living over traditional security themes.

There could still be significant changes down the line, but we believe people will start mistakenly attributing North Korean policy trends emerging in 2011 that were not covered by the media as changes implemented in 2012 because of a new leadership.

Upcoming presentations (Harvard/DC) and thoughts on what drives impact in North Korea

Upcoming Presentations Andray will speak at the Korea Economic Institute this Friday on Rason’s economic development. More details at the KEI webpage.

Geoffrey will speak at the Harvard Social Enterprise Conference this Sunday. More details at the SECON website.

Speaking at HPAIR - What Drives Impact in North Korea

Last weekend, I spoke at the Harvard Project for Asian and International Relations at the Harvard campus. The hosts did a great job of putting together a great program despite their busy schedules as students. The moderators also did an amazing job of putting together a very interesting panel, and I was able to speak alongside Rainer Holl, head of Fellow development for Ashoka Germany, as well as two other very accomplished social entrepreneurs.

I am glad to have the opportunity to share our experiences shaping developments in North Korea, as well as the unique challenges of being in a very unusual (to put it mildly) environment. Most amazingly, I walked away with a great set of new ideas for our work crowd-sourced from a wonderful audience, a great panel and our wonderful moderator Grace Chung from the Kennedy School of Government.

We made the following key points on what we believe drives success in our work in North Korea. I have to qualify these statements that these are our guesses at what works. But really, who knows given that this is North Korea! Also, we have met other people running successful programs in North Korea who probably have different thoughts on this so don't take our word as the last word.

1. Social innovation is critical in North Korea – programs should not focus on “sexy” high-tech solutions, but on understanding the social structures in North Korea and how our programs add value (e.g. by providing cross-organization platforms for dialogue)

2. Finding the right people is essential – we find that the content of our programs or the quality of workshop leaders, while important, have far less of an impact than simply picking the right North Koreans to take part in those programs

3. Managing politics is key – everything in North Korea is politicized, and understanding the policy and bureaucratic processes at play is important for creating impact

Teaching business skills in the Hermit Kingdom

We were profiled in the Korean Herald:

Teaching business principles to communists in the world’s most isolated state may seem a thankless task, but for the NGO’s founder Geoffrey See it can engage the so-called Hermit Kingdom in a constructive and a-political way.

State-run enterprises are already working to attract international business and foreign investment in joint ventures. With infrastructure investment in areas such as the Raseon special economic zone, there is a thirst for commercial knowledge there like never before.

“The old generation in North Korea has very little incentive to experiment,” Abrahamian said. “This is true in any country ― younger generations tend to be open to new ideas. There’s definitely that sense in North Korea too, the young people are more interested in broader way of doing things. In that sense North Korea is going to change.”

While North Korean startups tend to be smaller branches of state enterprises, Abrahamian explained that the growing number of joint ventures with international companies has created the need of better understanding of how to manage assets and resolve disputes. Seminar attendees have asked for help in setting up ventures from chicken restaurants to a spa resort, areas that can prove lucrative if they can position themselves at the top of a state-run venture.

“The last couple of years have seen a bit of a shift in North Korea so there is more of a focus on economic issues,” he said.

“You are seeing some developments at their special economic zones in the far north, there have been positive developments there, they revised laws regarding foreign firms operating in North Korea last year and we can see the international trade numbers soaring upwards especially vis--vis the Chinese.”

Read more here...

Chart Focus: North Korean Resumes & Their Listed Hobbies

We recently received some resumes from North Koreans we are evaluating for an overseas program in economics and business. While both sexes share reading as a hobby, males are more likely to take part in other sports, while females are more likely to list singing and dancing as hobbies. I am still thinking of the love a North Korean lady has for Madonna (Y O U, You Wanna, L U V, Madonna).

Pyongyang in Amsterdam

This article was contributed by Hamel, who is among other things, a connoisseur of Northern Korean cuisine and graphic novels.

If you’re reading this blog you have probably heard by now of the chain of North Korean restaurants throughout Asia.

They have them in Beijing, Shenyang, Shanghai, Hanoi, Siem Reap, Vientiane and Jakarta, among other cities. Their number has been increasing since 2000, and now they have finally hit Europe.

The ladies are all beautiful, from elite Pyongyang families, and are musically skilled. You can find videos of their singing and dancing performances on Youtube and at least one has been likened to a famous South Korean actress. In China the restaurants often also have coffee shops and noraebang (Karaoke rooms) attached. I had never before seen a gayageum playing together with an accordion, and it actually wasn’t that bad – though you could hardly call it traditional Korean music.

Various media outlets have had a crack at a story on these fine dining establishments, including CNN and the NYT. Several articles about restaurants are collected at NKEconWatch.

Well, now they have finally hit Europe! Just last month, a North Korean restaurant opened in Amsterdam. Nine chefs, waitresses and minders arrived at Schiphol in mid-December to set up the place, which opened on the 27th of Jan.

Initially media attention was only in Dutch.  The Korea Times picked it up just over a week later. I imagine the photo used in that article was a promotional one supplied by the restaurant, but gee, it doesn’t look that exciting or cozy.

A maximum of 24 people at any one time can eat there, and a set menu (table d’hote) runs at 79 euro a person, including a floorshow.

There is a key difference between this restaurant and those in Asia. Basically, it has been opened by two Dutchmen (both of them named Remco – though not Korean Studies professor Dr. Remco Breuker) and was apparently self- financed. All the Pyongyang restaurants in Asia are owned and run by North Koreans, and the profits are thought to flow back to the homeland. In this case, only the staff have been flown in (and they had been trained at the NK restaurant in Beijing). They are living in a hotel in Amsterdam.

Here is the website of the place, which hopes to grow into a cultural center, selling North Korean artworks – sadly, not the propaganda art that people in the West actually want to buy.

The restaurant is located in what used to be the Tulip Hotel in an eastern corner of Amsterdam (far from the center). Here is the channel of the new Amsterdam restaurant so you can watch for yourself what a 96 euro per person looks like.

Here is an extract of an interview with one/some of the waitresses who work there:

What is it like to be in the Netherlands? “Very special, everything is different, it’s a very beautiful country, thank you”

You are selected by the Korean government? “Yes, all. We were selected and trained for half a year in the Pyongyang restaurant in Beijing. Then we came here.”

Do you know the stories that are circulating about North Korea? “Of course. That’s why we are here. We are here to show Europeans the other side of country, our beautiful traditions. We are thrilled to be here. You will stay to eat, won’t you?”

Actually, perhaps it was misleading to say North Korean restaurants "finally" reached Europe. There was also a North Korean restaurant in Vienna in the 1980s. This one did not provide a floorshow, however. It was next to the Kumsong Bank (a DPRK outfit) near the Vienna West train station. There was also another restaurant in Vienna run by pro-Pyongyang Japanese-Koreans, but that seems to no longer exist either.

Shuffles at JVIC & Daepung

Over the course of last year, we thought we heard hints that some kind of merger between Daepung and JVIC was in the works and even that Ri Chol would be moving on. Now the cat is out of the bag. Partially, anyway. The cat is poking its head out of the bag. As we mentioned recently, Ri Chol, the broker of the Orascom deal, has moved on from JVIC. Where he has gone is not yet certain, but the choice for his replacement is interesting.

Ri Gwang Gun is the new head of JVIC and was introduced as such to the CEO of Orascom last week. Ri Gwang Gun has held various positions related to trade, including executive positions at state owned enterprises and as Minister of Foreign Trade. He apparently reports to Kim Yang Gon.

He was (is?) a Daepung Investment Group man. We’ve speculated that the existence of both Daepung and JVIC reflected a kind of “competition at the top” for influence in attracting and managing investments. They were both formed around the same time in 2009/2010 and have similar charges. Therefore, Ri Gwang Gun’s promotion could indicate a potential harmonizing of this competition.

Of course, the contours of this are difficult to see. Daepung, with stronger ties to the NDC, could be construed as taking over the JVIC from the top; perhaps the military has been able to exert itself to make sure that in the new leadership era, it does not get shut out of the investment game. (JVIC has become the more active and influential of the two groups.)

It could also be seen as a victory for JVIC, with Daepung being left to crumble and the top talent from that group being brought across. It remains to be seen if there will be some kind of exodus from either group.

Perhaps, also, it is some kind of compromise and a merger of sorts, with competing groups of elites ‘buying in’ to a unified system of investment management under the JVIC brand. They may see this as a way to increase effectiveness, avoid the negative outcomes of unfettered intra-elite competition and therefore encourage stability overall.

Why is the DPRK in love with CNC?

Computer Numerical Control has been at the heart of North Korea’s domestic public relations campaign in the lead-up to 2012, its self-proclaimed marker year for becoming a “Great and Prosperous Nation”. This statement may inspire you to ask, “why?” Or probably even before that, “what”? CNC is not a sexy technology. Bullet trains capture the imagination: that journeys that once took a whole day can now be completed between breakfast and lunch inspires awe. Ballistic missiles do, too: what inspires faith in the power of one’s country like the roar of a huge rocket, emblazoned with your flag, as it torches the take-off pad and punctures the clouds?

But CNC? Computer Numerical Control is essentially the use of computers to control machine tools so they can make cuts and bore holes more precisely than can humans. The technology has its roots in the 1950’s, when MIT and the US Air Force developed instructions on tape to guide machine-cutting. In the early 1970’s as the microprocessor began to proliferate it became computerized and driven by hardware. Now software-driven, (so more adaptable and relatively cheap),the technology can be found in instructions that are stored as a program in a micro-computer attached to the machine. The computer also handles much of the control logic of the machine, making it more adaptable than earlier hard-wired controllers and accessible to not only huge production lines, but also small job shops all over the world.

As one CNC company’s website states: “The accuracy of a CNC can be explained this way: take a hair off your head and slice it the long way six times. The sliver you have left is about the margin of error with the machine.” So, okay, that’s pretty cool, but it’s hardly visually exciting. Pervasive and invaluable to modern production lines, yes, but ultimately a technology that usually rouses little emotion. Not so in the DPRK, where pretty much every citizen knows what it is, knows it is good for their country and knows that it is cutting edge stuff.

For almost two years, citizens of North Korea have been exposed to a lengthy campaign extolling the virtues of CNC. For example, there have been repeated hour long broadcasts on North Korea’s lone TV channel, giving pretty dry and technical explanations of how the machines cut, drill and whatnot. The program would not fare well on a multi-channel television system.

The 2011 New Year’s joint editorial also stated that “officials and workers in this sector should steadily improve the level of their technical skills so that they can adeptly operate CNC-based and other modern equipment and meet the scientific and technological requirements in their production and business activities.” (The joint-editorial is probably North Korea's most important public pronouncement, with the three most important newspapers laying out the nation’s plans and goals for the year. It is, as its name suggests, published on January 1st.)

More exciting means of promoting the technology exist, however. The pivot of these pop culture promotions is a popular song which bubbled up sometime late in 2009. It is pop music both in style - as far as North Korea has ‘poppy’ music - and also in terms of distribution. Pretty much every North Korean can at least partly sing along. Like the technology itself, the song is pervasive, from the humble solo-guitar rendition caught in a Pyongyang park by a tourist:

We can make everything using the computer program We're proud of our machinery in the army centered era Our CNC techniques CNC is the power of the Juche Industry CNC is the power of self sufficiency Along the way the leader leads Please go forward to the highest point Happy Happy with a high dignity for the nation Build up the country for the science and technology Then the happiness will come towards us.

to this massive production in Kim Il Sung Square, celebrating the 65th anniversary of the Worker’s Party of Korea:

Korean Title: 돌파하라 최첨단을 Dancers from Unknown Group Performing The Famous "CNC-Song" on Kim Il Sung Square for the 65th Workers' Party Korea anniversary October 10 2010, Broadcasted on Korean Central Television (KCTV) Watch the whole event here: http://www.youtube.com/watch?v=fBQr3tKI_X8 The grand evening gala "Do Prosper, Era of Workers' Party" was held with splendor in Pyongyang on Sunday evening to celebrate the 65th birthday of the Workers' Party of Korea.

It is available on karaoke machines nationwide. The song is titled “break through the cutting edge” and the lyrics include reminders that CNC is “an example of self- reliance and strength” and that “the people's pride is high…let's build a science-technology great power”

In 2010, signs that read "CNC - to the world!" popped up around Pyongyang. Longtime observers state that it was the first propaganda billboard in memory that had roman lettering. CNC also gets a mention in the Arirang mass gymnastics spectacular, during the chapter when the country’s modern successes are being lauded. The 20,000 card flippers spell out: “CNC: The Power of Juche Industry”.

There have even been references to it by synchronized swimmers, who perform a dance or a swim or whatever synchronized swimmers call it during a rendition of “break through the cutting edge.” At one point they collectively spell out CNC with their bodies.

Why go to all this trouble to lionize machine tooling? It is because the campaign represents the heart of the government's contemporary propaganda push: that all sectors of society are rallying to increase light industry, exports and ultimately, quality of life. Now that the country is powerful enough to defend itself, everyone can focus on economic competitiveness and making products that will sell well abroad.

The company that is tasked with producing and selling CNC is Ryonha, through its subsidiary, Unsan. The company had a booth at the recent International Trade Fair in Rason, held in North Korea’s Special Economic Zone in the far Northeast, bordering Russia and China. Their booth was staffed by a Vice President and – as one might expect - attracted lots of attention from the locals in attendance.

The president claimed annual exports of 30,000,000 euros to Europe, South America and South East Asia. He didn’t have exact details on profits, but mentioned that Unsan imported 10,000,000 euro worth of parts, mostly from Europe, such as control units and electronic relays Siemens and Arno. Their main CNC factory is 40,000 sq. meters and the “biggest in the world” according to the manager. They have two facilities, one in Pyongyang and one in Jagang with 12,000 employees in total. They want to open a factory in Rason, ideally without investors. Prices were said to be: 150,000 EUR for a European made CNC machine but only 52,000 EUR for an equivalent machine made in the DPRK, with the “same quality”.

Unfortunately for Ryonha, it seems to be a subsidiary of the Korea Ryonbong General Corporation, which is under UN sanctions as a WMD proliferator. This no doubt impacts Ryonha’s ability to market itself to customers abroad. Ryonha also doesn’t seem to have a website, which can’t help, either.

Should Ryonha’s parent corporation be taken off the UN’s list of designated proliferators, it will find easier access to a global CNC market that was $6.1 billion in 2007, before the financial crisis hit. The market has contracted since then, as the crisis left a global glut in inventory in 2009, which has taken well into 2011 to clear. The sharply reduced demand, particularly from automakers, has made the CNC market particularly competitive, though a sustained economic recovery would eventually drag the industry back up to pre-crisis levels.

It’s difficult to know what kind of impact Ryonha might have on the global CNC industry, as customers and vendors alike are probably reluctant to trumpet where their machines are made. One of the effects of sanctions has been that companies try to hide their tracks when conducting business with the DPRK, even when the industry is unrelated to sanctioned items. This is sometimes done through an extra layer (or two) of outsourced contracts, or with textiles, sometimes just label-switching. This is tough to do with bigger machines, of course, leaving North Korean CNC machines facing perhaps understandable prejudices.

Its impact on the domestic market will be more significant, of course, reducing the need to spend hard currency on imported CNC machines from China and elsewhere. Perhaps then, this import substitution will allow the DPRK to use that unspent capital on projects that actually benefit the daily lives of its citizens.

It would be a shame to waste such a catchy tune.