Kim Jong Il's North Korea -An Arduous March-

Spot Survey


Edited by Kazunobu Hayashi, Teruo Komaki
March 1997
  1. The international situation surrounding the Democratic People's Republic of Korea (North Korea) changed suddenly when the cold war ended and South Korea established diplomatic relations with Russia and China. Moreover, with the death of President Kim Il Sung, North Korea is now in a transient period for the transfer of power. Under these circumstances, North Korea has put the central focus of its foreign policy on the normalization of diplomatic relations with the United States. However, this plan came to a sudden stop with the unexpected "submarine incident." Nonetheless, the United States has given the maintaining of the U.S.-North Korea agreement its foremost priority. Also, the United States has been asking South Korea for self-restraint while pressing North Korea to join four-party talks with South Korea, the U.S., and China.
  2. As long as the dialogue between the United States and North Korea continues, North Korea shows no particular interest in relations with either Japan or South Korea. However, North Korea has no choice but to rely on both Japan and South Korea for rebuilding its economy, currently on the verge of collapsing. North Korea does not have the close relationship with China which it once had. Nonetheless, China will support North Korea as necessary to restrain the United States and maintain the socialist system. China also showed care in the drafting of a statement by the President of the Security Council concerning the submarine incident. By desiring to participate in the talks, Russia aims to reclaim control of its lost territory.
  3. In North Korean domestic politics, with the death of President Kim Il Sung in July 1994, his eldest son, Secretary Kim Jong Il has taken over power as the lone successor. Secretary Kim Jong Il has gained over 20 years of leadership experience in the Workers' Party as the designated successor. He is the only existing Politburo Presidium member in the Worker's Party. In the army, Secretary Kim Jong Il assumed a post of authority from the 1990s and has command of the army as Chairman of the National Defense Commission and Supreme Commander of the People's Army. Secretary Kim Jong Il already holds actual power in the party, military, and the government. Moreover, he showed that he could yield effective results as the highest leader in his nuclear negotiations with the United States.
  4. Secretary Kim Jong Il will likely assume the top party and state posts after July 1997, the third anniversary of President Kim Il Sung's death. Despite the increasing number of refugees, the Kim Jong Il government, which is backed by the party, army, and youth organization, should be politically stable for the immediate future. The major problem is the economy, and the government is examining realistic responses. Other countries also desire stability for North Korea, and therefore, it is unlikely that any significant changes will occur in the North Korean political system in the next four to five years. However, for the long-term outlook, greater causes of instability are expected over the next 10 years in the economy, society, and politics, making future development unclear.
  5. The North Korean economy is now in a state of crisis. The already deteriorating food situation was made even worse with the repeated flood damage in 1995 and 1996. The so-called basis of the planned economy, the food rationing system, has ceased to function. As a result, the black market has become active in places all over the country. The third 7-year plan (1987-1993) has failed as a direct result of the change in the payment system for trade with the Soviet Union. At the same time, domestic factors which cannot be overlooked include the food and energy shortage and the large national defense burden. The root of these problems can be traced to North Korea's self-reliant economic development policies. With these policies, the long-term drop in growth by the North Korean economy could not have been prevented.
  6. The economic policies of the presumed successor, Kim Jong Il are drawing attention. However, examination of the previous commentaries announced by Kim Jong Il hardly suggest that he would change to reform or openness policies. Nonetheless, North Korea is actually proceeding in that direction. This discrepancy is quite interesting, but for North Korea this is the only possible direction. Also, the greater freedom of movement by people for buying food has not only opened a crack in the rigid system in North Korea, but it has also brought about the collapse of the planned economic system.
  7. The direct cause of the economic crisis in North Korea is the energy shortage. Like other socialist economies, North Korea has economic and industrial structures relying excessively on energy and has proceeded with energy development focusing mainly on domestic water power and coal. However, this development reached its limit around 1980, and the economy has been stagnant ever since due to the chronic energy shortage.
  8. North Korea was dependent on the Soviet Union for the supply of large amounts of crude petroleum and coking coal. However, the collapse of the Soviet Union in 1990 dealt a decisive blow to North Korea's energy situation. North Korea is planning to deal with this situation itself by opening a limited area to foreign capital and securing a supply of crude petroleum and coking coal from China. At the same time, North Korea has staked the rebuilding of its economy on the development of its nuclear power plants. However, North Korea is troubled by the contradiction that it requires the cooperation of South Korea for the development of these nuclear power plants. South Korea, on the other hand, desires reform and openness in North Korea. Constructive intervention by the United States is expected, but North Korea does not have much time to waste.
  9. North Korean food production has been dropping steadily in the 1990s due to structural factors. North Korea's current estimated food production slightly exceeds 4 million tons except in the case of disaster. With North Korea's population of 22.07 million people, approximately 700,000 tons of food will be required each year to supply the minimum subsistence level (based on the 1965 level of South Korea: 1550 Kcal/person-day).
  10. To raise the food consumption level, the amount of food introduced must be increased proportionally. And of course, if a natural disaster reduces production, that reduced portion must be supplemented. The North Korean government estimates 1996 food production to be nearly the same as 1995 production at 3.5 million tons. If this is correct, then in FY1996/97 the North Korean government will need at least 1.25 million tons to meet the minimum level of demand.
  11. At the end of 1991, the North Korean government designated the Rajin-Sonbong region in the North Hamgyong Province as a free economic and trade zone (FETZ). The Rajin-Sonbong region borders China's Jilin Province and the Russian Primorskii Region (Krai). This FETZ is a special region where capitalistic management methods and ownership systems are recognized to a limited degree. Started with the collapse of the cold war system, this FETZ represents an unprecedented economic development model for North Korea. The development objectives include: (1) intermediation of international goods, (2) establishing export processing industries, and (3) making a base for tourism. This FETZ allows 100 foreign investment and investment from South Korea. As of mid-September 1996, there were 57 investment agreements totalling 635 million dollars. Working amounts as of June 1996 totalled only 34 million dollars.
  12. The positive factors in the investment environment include the North Korean government's eagerness to attract foreign investment, the various tax incentives, and the relatively cheap and high-quality labor force. On the other hand, negative factors include uncertainties in labor management, the opening up of new markets, procurement of raw materials, and finance activities. Another major drawback is the poor state of the industrial infrastructure. Also, investment by not only Western companies, but also by South Korean ones is difficult particularly because North Korea has one of the worst country risk assessments. In addition to the improvement of the investment environment, the major issues in the coming years will be greater openness of information, easing of tensions between North and South Korea, and a stronger linkage between the FETZ and the outside domestic economy.


  1. At the end of 1996, North Korea officially apologized for the submarine infiltration incident and announced that it would participate in the explanatory meeting for the four-party talks. As a result, U.S.-North Korea relations have considerably stabilized. However, although the submarine infiltration incident has been resolved, North-South relations remain in a state of tension. The defection by Secretary Hwang Jang Yop has added yet another item of contention between these countries. South Korea is concerned that North Korea has been emphasizing continuation of U.S.-North Korea dialogue on food aid and other topics, rather than the four-party talks. Nonetheless, South Korea has made some moves to provide aid to North Korea.
  2. A three-newspaper joint editorial published at the beginning of 1997 in the newspapers representing the party, army, and youth organization hinted that the new Kim Jong Il regime will start within the year. In addition, the editorial also emphasized the "Red Flag Ideology," calling for a spirit of absolute worship and protection for the leader. The government also underscored the importance of the army and the youth. Under these circumstances, the effect of the defection of Secretary Hwang on North Korean society has attracted attention, but up to this point, no visible split has been observed in the main leadership. In spite of the more rigid attitude in the politics, the economic and foreign policies are expected to continue without major change.

Executive Summary

Preface/Preface to the English Edition / Kazunobu Hayashi, Teruo Komaki

Chapter I
1. International Relations on the Korean Peninsula
2. Diplomatic Relations With The Surrounding Four Countries
 (1) Does the U.S. have closer ties with North Korea than South Korea?
 (2) Restoration of Relations? China-North Korea Relations
 (3) Restarting – Japan-North Korea Relations
 (4) Aiming for the Recovery of Friendship - Russia
3. Relations between North Korea and South Korea
 (1) North-South Relations at a Standstill
 (2) Breakdown of Economic Exchanges
4. International Issues involving Other Countries
 (1) Food Assistance
 (2) Construction of KEDO Light-Water Rectors
 (3) Four-Party Talks
 (4) Rajin-Sonbong Free Economic and Trade Zone
5. Recent Developments in North Korean International Relations
 (1) U.S.-North Korea Relations Balanced by the “Nuclear Card” and the “Food Card”
 (2) China in a Diplomatic Dilemma, while Taiwan Aiming for Rapprochement
 (3) Continuing Deadlock of North- South Dialogue
Chapter II

The Current State and Future Outlook for the Kim Jong Il Regime / Teruo Komaki

1. Impact on North Korea by the Collapse of the Cold War
2. Current State of the Kim Jong Il Regime
 (1) Secretary Kim Jong Il as the Acting Head of State
 (2) Party, Military, and Government
 (3) Reason for Postponement of Official Inauguration
3. Future Outlook for the Kim Jong Il Government
 (1) Official Start of the Kim Jong Il Government
 (2) Political stability
 (3) Possibility of Taking up Realistic Policies
 (4) Other Countries Desire “Stability” in North Korea
 (5) Many Factors of Instability in North Korea’s Long-Term Future Outlook
4. Recent Developments in the Domestic Political Scene
 (1) Three-Newspaper Joint Editorial Forebodes Start of New Regime
 (2) Secretary Hwang Jang Yop Defection Incident and Its Background
 (3) Effect of Secretary Hwang’s Defection on the North Korean Regim
Chapter III
1. Economic Situation
2. Failure of the Third 7-Year Economic Plan
 (1) Sharp Decrease in North Korean-Soviet Trade
 (2) Worsening Domestic Economic Situation
3. Why Did the 7-Year Plan Fail?
 (1) Triggered by Sharp Decline in Trade with the Soviet Union
 (2) Flaws in the “Independent National Economy” Doctrine
 (3) Realization of Economic stagnation
4. Future Outlook
 (1) Difference between Kim Jong Il’s Articles and Actual Policy Development
 (2) Future Developments
Chapter IV
1. The Pressing Energy Crisis
2. The Present Status of Energy Production
3. The Causes of the Energy Problem
4. The Development of Nuclear Power and Future Energy Issues
Reference: Kim Il Sung, “ On Bringing About New Revolutionary Changes as part of Building a Socialist Economy ” (Concluding Address to the Conference of the Cadres in Charge of Economic Sectors, on July 6, 1994) (Excerpt)
Chapter V

Deteriorating Food Situation / Hiroshi Sakurai

1. North Korean Food Shortage
2. Recent Food Supply and Demand
3. Grain Imports
4. Examination of Food Production Volume
5. Future Prospects
Chapter VI

Widespread Problems in the Rajin-Sonbong Free Economic and Trade Zone / Yukio Hanabusa

1. Establishment of the Free Economic and Trade Zone (FETZ) and its Objectives
 (1) Primary Objective: Intermediating the International Distribution
 (2) Unprecedented Policy of Openness to Foreign Capital
2. Establishment of the FETZ: Background
 (1) Breaking Free from the Economic Crisis
 (2) prompted by the Tumen River Development Plan
 (3) Lessons from Chinese Special Economic Zones
 (4) Reduced Investment from North Korean Businesses in Japan
3. Current State of the FETZ: Area Equal to Tokyo’s 23 Wards
4. Development Plan for the FETZ: Improvement of the Industrial Infrastructure as the Immediate Objective
5. Investment Results: Investment in the 600 Million Dollar Range
6. Numerous Problems in the Investment Environment
 (1) Praiseworthy System for Attraction Foreign Investment
 (2) Uncertainty about the Labor Force
 (3) Is Domestic procurement of Raw Materials Possible?
 (4) Difficulties in Export Growth
 (5) Slow Pace of Infrastructure Improvements
 (6) Largest Obstacle: Country Risk
 (7) South Korean Companies are Shrinking from Advancing into North Korea
7. Many Issues to be Addressed in the Rajin-Sonbong FETZ
 (1) Extensive Improvement to the Investment Environment is Vital
 (2) Need for Openness of Information
 (3) Easing of Tensions between North and South Korea is Essential
 (4) Linkage with the Domestic Economy