Korea: The Samsung Factor


July 8, 2013: The North Korean bureaucrats in charge of agriculture were not happy with the agricultural reforms announced last year and have apparently been successful at sabotaging them (by forcing the new “entrepreneurial farms” to use land unsuitable for farming). The agricultural reforms in the north also ran into problems because many government agencies did not want to see their share of crops reduced. An earlier government investigation found that over the years various government and military bureaucrats had increased how much of the crops they could take to the point where the farmers themselves were left too malnourished and weak to increase production, even if they received more resources (fuel, fertilizer). Changing this means taking food away from the military and security agencies. This is not a popular idea with most North Korean officials and there was a great deal of opposition to actually implementing agricultural reforms. This program was meant to give farmers more freedom to make decisions and more economic incentives to work hard. Neither of these policies have been implemented.

Misbehaving bureaucrats in the north have also poisoned North Korean relations with the business community across the border in China. North Korean officials are increasingly corrupt and unreliable. This has been getting worse, with the North Korean officials becoming very unreliable and increasingly resorting to outright theft (of foreign assets in North Korea). This has even turned off the ethnic Korean businessmen in China, who long provided eager partners for legitimate, and criminal, deals with North Korea. South Korea has taken advantage of the situation by identifying the turned-off Chinese partners with North Korea and offering them access to the South Korea market. These Chinese business people spoke the language and the Chinese government has been encouraging trade with South Korea. So as bad behavior drives business away from North Korea, a more dependable business climate in South Korea reels it in. South Korea has also become a major investor in China and ethnic Korean or Korean-speaking Chinese have an edge in getting a piece of this action. Senior North Korean officials keep promising that the bad behavior by North Korean bureaucrats will be dealt with, but it never is. The North Korean government is losing control of its corrupt bureaucrats. As long as these guys are loyal to the Kim family a lot of their misbehavior is tolerated.

North Korea continues to use its “war reserve” of food (mainly rice) to prevent mass hunger and keep the market price of rice under control. The war reserve has been heavily used this way for the last four months. Other items in the war reserve, like fuel, have also been released. The war reserve exists to keep the military and the economy going in wartime, and that reserve has been much reduced over the last few years. This, plus the continuing shortage of spare parts or new weapons and equipment, means the North Korean military is less and less capable. This doesn’t stop the government from using the military to threaten the south, but it does make the threat less credible.

In North Korea the police have been ordered to pick up the growing number of homeless children (seen begging or just running wild, even by foreign visitors) and put them under the control of local government. This is only a temporary solution because the food and other shortages means that the government doesn’t have the resources to house and feed all these homeless kids. Most are orphans, their parents having died or disappeared into prison camps, China, or elsewhere in North Korea. The poverty and privation is so great in the north that the extended family no longer provides a safety net and there is often no kin to take in abandoned or orphaned children. So the kids just hit the streets and become a source of criminal activity and, more embarrassing for the government, defectors who get to China and commit a lot of crimes. Some North Korean officials want to just quietly kill these “worthless children” but senior officials know that could be a public-relations disaster and forbid it, officially at least. The North Korean secret police often make people just disappear but if it is done on a large scale mistakes are likely to be made.

North Korean officials are faced with a growing embarrassment in the capital, where numerous uncompleted construction projects cannot be hidden and make it clear that things are not well. Most of these abandoned construction sites are part of the "2012 economic miracle" program. One aspect of the 2012 plan (announced in 2009) was the construction of 100,000 new apartments in the capital. Shortages of power and building materials forced this to be cut to 20,000 apartments. Even that wasn't achievable. As this is in the capital, it's there for all to see. Less than a thousand new apartments have been built so far. All the apartments were to have been completed by 2012. Thousands of families were ordered from their homes (of the building sites for the new apartment buildings) and told to find temporary accommodations until construction was completed. These families will remain doubled up with others indefinitely. The government is trying to organize equipment (hard to get) and volunteers (easy to get) to tear down the partially built apartments and turn the sites into parks.

If the north didn’t have enough problem with morale, it has a growing problem with the success of Samsung smart phones. Koreans on both sides of the DMZ take great pride in the success of Samsung, which beat Apple at their own game and became the largest selling smart phone brand. But Samsung will not ship smart phones to North Korea and the North Korean government is hostile to South Korean products in general. Getting caught with a Galaxy phone in the north will get you arrested. That said, the Galaxy phones are a hot item on the North Korean black market. Even if you can’t use them in public, having one is a big deal, even for government officials. A guilty pleasure, so to speak, and a perfect symbol of the differences between the north and south. Earlier in the year, a joke going around the south postulated that the recent northern bad behavior was really all about the success of Samsung phones, and not the economic sanctions.

July 7, 2013: After fifteen hours of negotiations North Korea agreed to allow reopening of the recently closed Kaesong Industrial Complex (in North Korea but financed and run by 123 South Korean firms employing 53,000 North Koreans). A month ago China told South Korea that the northerners were eager to make nice and repair some of the damage northern belligerence had created in the last few months. China has leaned on North Korea quite a bit and apparently pointed out that shutting down Kaesong cut off a major source of income for the northern government, and that was a shortfall China was not going to replace with more aid. In fact, China threatened to reduce food, oil, and other shipments if the North Koreans didn’t calm down and at least make an effort to get their economic act together. So now the north has agreed to let the South Korean companies revive production at Kaesong as soon as they can. Kaesong has been shut for three months and the South Korean government provided some economic aid to the South Korea companies involved to keep them solvent until Kaesong was reopened. About a third of the South Korean companies recently threatened to walk away from their Kaesong investment if the facility was not reopened soon, and that apparently helped persuade North Korea to change course. Meanwhile, North Korea has moved some of the Kaesong workers away, in an effort to get them new jobs. It will take time to get them back to Kaesong. The South Korean companies have to deal with customers they have lost and suppliers need time to get components and raw materials delivered. It may be another month or more before full production resumes at Kaesong and some jobs will be lost because of lost customers (who found other suppliers because of the April shut down).

July 5, 2013: The UN revealed that their attempts to investigate accusations of human rights violations in North Korea were stalled because the North Korean government refused to cooperate. The investigation will continue as best it can.

July 3, 2013: North Korea announced that it had restored the “hot line” between north and south. This was cut earlier this year as part of a hostile North Korean reaction to more international sanctions imposed because of North Korea’s nuclear weapons program. The hot line is mainly symbolic, but the north is trying to repair the damage it did with its recent tantrum.

July 2, 2013: The United States has blacklisted Burmese general Thein Htay because he is believed responsible for buying weapons from North Korea (which is under international sanctions). A year ago the organization that Thein Htay took command of earlier this year (the Directorate of Defense Industries) was blacklisted for buying military equipment from North Korea. Burma denies it is buying military equipment from North Korea, but the U.S. says it has plenty of proof.

June 30, 2013: North Korea is replacing older towed Type 63 107mm rocket launchers near the DMZ with new M1991 (mounted on trucks) 240mm models. The 107mm rocket has a range of 8 kilometers, while the 240mm one is 30 or 60 kilometers. The new, longer range 240mm rocket is in limited production, as is the 22 year old M1991. North Korea cannot produce many of these new 240mm launchers because of cash and materials shortages.

June 29, 2013: In South Korea the 63rd anniversary of the start of the Korean War (1950-53) was commemorated. July 27 will be the 60th anniversary of the ceasefire that ended the fighting, but not the war. This year there was a lot of nostalgia and reflection in the south, because the generation that participated in the war is rapidly disappearing and the growing economic and political crisis in the north is in sharp contrast to the economic and political success in the south. This year, many commemorations mention that, had the south been on the losing side of the Korean War (had the U.S. and UN not intervened) the south would be living like the north. 

June 27, 2013: South Korean and Chinese officials revealed that the two countries had agreed to coordinate efforts to persuade North Korea to get rid of its nuclear weapons. China has always paid lip service to this but with the recent round of North Korean threats, and growing calls within South Korea for developing nukes in self-defense, China has promised the south that more pressure would be applied to north. China does not want both Koreas to have nukes and would be quite happy if neither did.

June 24, 2013: Satellite photos show North Korea working on another tunnel of the type used for nuclear tests. This does not indicate another test soon, as building a weapons test tunnel would take over a year. 




Help Keep Us From Drying Up

We need your help! Our subscription base has slowly been dwindling.

Each month we count on your contributions. You can support us in the following ways:

  1. Make sure you spread the word about us. Two ways to do that are to like us on Facebook and follow us on Twitter.
  2. Subscribe to our daily newsletter. We’ll send the news to your email box, and you don’t have to come to the site unless you want to read columns or see photos.
  3. You can contribute to the health of StrategyPage.
Subscribe   Contribute   Close