STAFF STUDY PROJECT #13: SOVIET ECONOMIC ACTIVITIES IN NORTHERN KOREA, 23 NOVEMBER 1949 WORKING PAPER

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01082A000100030003-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 9, 2016
• Document Release Date: July 31, 1998
• Sequence Number: 3
• Publication Date: November 23, 1949
• Content Type: IS

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35
COPY NO.
FAR EAST/PACIFIC DIVISION
OFFICE OF REPORTS AND ESTIMATES
CENTRAL INTELLIGENCE AGEACY
Staff Studl Project #13
Eigb_3M9aUcTIVITIES IN NORTHERN KOREA
PZ! 4244(
mann PAPER
NOTICE: Ted6 document is a working Ixtper, not
an official CIA issuance. It h:.s been coordin,-
ted within ORE, but not with the IAC Agencies.
It represents current thinking by specialists in
CIA, and i deAgned for use by other J engaged in
similar or overlapping studies. The opinions ex-
pressed herein may be revised before final and
official publication. It is intended solely for
the information of the aairessee and nA for further
dissemination.
25X1A9a
Copy for
"1111112Mr"I'S
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CL SS. CHANGED TO; TS S C
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REVIEWER: 372044
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411110619.
' ? 9;
AC4kVIT
NO
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Analysis of Soviet economic activities in northern
Korea indicates opm intent to develop northern Korea into 4
subsidiary industrial economy complementary to the underdeveloped
Soviet Far Nast :(east of Lake Baikal)..,
Ultimate Soviet aims of world communization will be
served by the industrialization of the Far Nast. Nerthern Korea,
firmly dominated by the Communists, is the only remaining area
on the Far Nastern mainland (north of India) that is presently
capable of contributing major industrial productivity towards'
furthering Soviet desires.
The Northern Korean industrial plant, constructed by
the Japanese as an adjunct to their own war-making potential;
possesses substantial capacity to produce iron and steel, a 'MT-
plus of industrial chemicals, strategic mineral deposits, and a
1.developed hydro-electric power system. In corast to the.
destructive policy pursued by the Soviets in Manchuria, northern
Korea suffered only limited damages to her industrial plant.
Soviet control of northern Korae economy and the Soviet policy
of economic rehabilitation indicate an interest in northern Korea
beyond its maintenance as a buffer area.
In view of Soviet stripping in Manchuria and China's
desperate need for internal development the relatively undamaged
productive capacity of northern Korea is making and will continue
to make a considerable economic contribution to the furtherance
of Soviet aims in the Far Nast.
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Korea., neder the Japanese, was employed up to 1931 as an
*comae bridgehead onto the Asiatic mainland, and served as the
staging area for the push into Manchuria. With the outbreak of the
*China Incident" (1937), Korea became, along with the greater Wes-
trial eepacity of Manchuria, an important continental industrial base
for supplying the Japanese war effort. This industrial development,
superimposed on the basic agricultural life of Korea, benefited little
the basic economy of the Korean people.
By 1940. Korea was contributing significantly to the Japanese
wer effort. The newly-developed iroe and steel industry reached peak
production in /944 when over 2,500,000 tons of iron ore were mined,
and over 500,000 tons of pig iron and 200,000 tons of ingot and shaped
steel were produced. Non-ferrous metal refinerysprodeaed 12,000 tons
of aluminem from laported ores, and a considerable amount of copper,
eind, lead, and magaesium. The great chemical plant in Hungnam had
a peak capceeity of OV07 450,000 tons of nitrogeneoetaining fertilizers.
ohemioel plants contributed another 100 000 tons of Varied
chemical products. The hydroelectric power system }ad a peak capacity
of a million kilowatts, while over 4 million tone of coal (anthracite
and )igtite) were mined in a peak year. Variant strategic mineralm
were found and mined In Korea. Graphite, tungsten, molybdenum, gold,
silver, magnesite. pyrite, copper, and fluorspar were mined in appreci-
able amount*. Other rare minerals such as titanium cobalt, and colum-
bite were mined uneconomically In small quantities bee:twee of their
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milharibm
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military importance. The oil refinery in Wonsan had an annual caps,
city cf 1,500.000 barrel*0 and a cracking unit capable of producing
relatively high octane gas. The Korean agricultural economy provided
Japan with rice and marine products in return for coarser grains from
other parts of the Japanese 'empire.
2. Ve.,2_12,Lathrn.Rorsa..
The advent of Soviet Occupation troops in the heavy industrial
area north of the 3Sth parallel signaled a new phase in the develop-
ment of northern Korea. Soviet economic policy in Korea initially
tizrolved removal of machinery and commodities in scarce supply within
the Sawiet Union. With establishment of a stable Communist-dominated
Popular Front political system, the Soviets began to rehabilitate
the northern Korea industrial capacity.
Soviet control of the reconstituted northern Korea industrial
capacity assumes importance when the eastern Aaiatic waiuland is viewed
as a whole. Korea was a lesser industrial area coapared with either
China Proper or Manchuria. However, Soviet removals and the disa
raptions of the civil war have so reduced the industrial capacity
'of Manchuria as to prOclude any significant production within the next
two years. China, finally at peace, must of necessity devote its
economic effort towards rehabilitating itstdevastated internal economy.
Northern Korea, however, suffered no lasting damage as a result of the
Soviet Occupation.. If the Soviets are to industrialize the Far East,
an induetrial base mast be formed. Present analysis indicates that
northern Korea Ife being utilised to contribute to the aims.
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3. Soviet economic activities in northern Korea: _
Northern Korea, under Soviet Occupation and later-Soviet direc-
tion, has passed through three successive phases in its economic de-
velopment. Although each phase overlaps to an extent with the pre-
ceding hnd following ones, each is distinct in its purpose. The first
phase involved removal of material to the USSR, the' second is an at-
tempt on the part of the Soviets to rehabilitate the northern Korea
economy, and the third and final phaae will see the northern Korean
economy irtegrated with the economy of the Soviet Far East.
A. 1st. ?hase Soviet Removals (1945-1947)
The first year of the Rusin Occupation of Korea was
characterized by chaos throughout the northern Korean economy.
The induotrial plant capacity wee reduced by continuous use and
poor maintenance during the war, by Japanese demolition and Korean
vandalism, and by Soviet removal of key items in some plunts. The
breakdown of civil control and the Soviet policy of supplying oc-
cupying troops with native foode caused serious famine in some
areas. Persecution of Japanese technicians and Korean industtial-
ists by over-enthusiastic Korean Communists eliminated le,dership
and direction of industry. Military usage by the Soviet Army of
the Korean transportation system prohibited shipment of goods and
materials. The occupation forces, further, abaorbed the production
of the few food processing and consumer goods factories capable of
operation.
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Removals of indostrial egnipment to the USSR were not
exteesile. Highly selective in their looting, the Soviets took
eleetricel equIpmente the newest precision maohinery, and stock-
piled raw materials. The purpose and extent of Soviet removals
in northern Korea is best demonstrated by a comparisoe with
Manchuria. Soviet removal and damage to industrial installations
in ManChnria Wail valued at $900 million, an area where the Japanese
had invested Yen 10-12 billion. Soviet removals from northern
Korea, on the other hand were estimated at only $50 million
whereas the Japanese investment ,(mostly in the north) was teatime
ated at Yen 4-5 billion.* The divergencies of policy employed
iu the two areas has significance in that the , desire to
have an industrial area firmly oriented towarde'iteelf is appar-
ent. Manchuria, potentitlly the most powerful economic area in
porth-east Asia was by treaty to return to a natien whose inter-
ests conflicted with those of the Soviet Union. Northern Korea,
however, was scheduled for occupation by -- and thus orientation
to -- the USSR. Realistically, the Soviets removed from Mtne
ehuria that which might have fallen into the hands of their poten-
tial onamY, and preserved that in Korea of which they Were sure.
It Is not known what effects the recent change to a
Communist regime in China - nanchuria will have on Soviet economic
efforts be Korea.; The Soviets may shift economic emphasis to
* No completely accurate figeie can be arrived at in computing
Japanese investments in either Korea or Manchuria,
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economically-richer China.
B. 2d. Ph,rfe Rehabilit-,tion of the northern Korelm
.012a2ini....(1242:;4421
By late 1946, some order bec_n to emerge from the cnao-
tic conditions or the early Soviet Occupation. In December of
that year ;a Planning Bureau was set up Oy the Korean Interim Peo-
ple's Committee, and a National Economic Plan for 1947 was announced.
Various laws and "decisions" (ordinances) of 4 Socialist nature were
promulgated. Among these were: the Land Reform Law, the Nationali-
zation. of Industry, Sex Equality Law, new t-x regulations, and other-
socio-economic laws, Planned recovery was in progress.
Soviet participation in this early recovery is evident.
The Soviets concentrated early efforts on building up the People's
ArmY. Early Soviet imports into Korea were mostly military equip-
ment, trucks, and petrolauth. The large Japanese-built arsenal in
Pyongy,mg is reported to have started limited production of Soviet
weapons. (Whether this represents actual production or just ass:am-
bly is not known).
The civilian sector of the economy 'vT..6 not neglected.
During 1947, imports of bituminous Coke, recomlitioned machinery,
petroleum, and foodstuffs, were reported 4b being received in
northern Korea. Communist nesspa)er accounts of Soi.rict shipment&
to northern Korea state th:Ji 50% of idta inportt. in 1946 and
30% of totA. imports in 1948 consisted of items for industri4
use. Soviet ships Were engged in moving northern Korean export
commodities to Hongkong and other Far Eastern ports, returning
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4ET
he egonDmic 'rehablitato.n 1,t,011a-
yy systai of the north was conaiderahli'iMproved and a
Pailway Operating Regiment Was hrought in to improve rail-
itjon"?rcan students were sent to 'stn. in Soviet
al schools d Soviet en?eore and administrators were
them TcOrean indnitrial enterprises.
t a to northern 1.forea was forinifized in the
Chemicals. A 212 ;Anion ruble loan (US t32 million purchasing
extended, and provisions were made for more
ensive exchange ot technicians and technicai knowledge.
0 ve-aiie o the l'resentiy industrially-Poor niiirth-east
eiaaalm, The industrial plant is organized for the production
, .
td,rial,oed metals and nhemieale. ?hebaeic
itexciss in petroleum and bituminous coal are being aderately
t by the 78514. While t.ia4churie's potential is urid8Ubtedl
"
MMer or a num er of years he USSR will have to c.epend on
)?t1Qrea8 the industrial center of the Nertheaet.
lottition of the northern Xnrea eeonOmY
little cost to the 11&. in v ew 0
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conony. The heavy industrial plant, as
erected by the Ja sp,e,,,e, was constructed to meet the needs of acia
mpire, not of Korea itself. Thus northern Korea, itelf, doe&
not possess the facilities to convert all its iron and steel pro-
duction into consumer goods and machinery, or sufficient arable
to justify 00,060 tons of fertili2er production. The Soviet
then, may take a major share of the Korean industrial papa-
.
ci4r giving in return raw materials wad consumer goods, without
a serious strain on the Korean economy.
Reliable reports indicate that over 30% of the generAted
ewer .is exported to Manchuria and the Soviet Maritime
ovinces. The Soviets receive more than 50% of the output of
the iron and steel and nitrogenous chemic,1 industries.
Methods of 821121-22BIL91.411-29.022i2.4414.44
Presence of Soviet Occupation forces in northern Korea in-
-
r the economy along lines desired by the USSR. '
with withdrawal of troops in late 1948 the Soviets revealed the
various methods by which they intended to continue economic control.
It is believed that, through these control devices the USSR is vble
to direct Korean economic activity and policy alonE lines?mest favor-
able to itself.
ontrol cf t e northe Kor 4 Jo t
e UR posesses its most erfective epoomic control
device or the Communist -ponored and_organi7ed
gnvernMent of tke "Democratic People's Republic of Korea." P?rMed
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under the Nbenia anaPi*** of the Itheeiah Army, the government
built around a bird core of Moscow and Yenan trained Korean
tet. Dissenters to the regime remaining in the north have
u007ground and risk ruthless supression if they are
* the more vocal and active rebels have fled to the
the south. MaintainiNgeontrol by police-state
ttifir7
methods the government has faithfully followed Spviet direction.
Ocularly evident are Communist inspired economic measures
1
such as nationalitation of industry, allotment of raw m^terials
and finished production, confiscatory taxation, economic planning
in terms of quotas to be filled, forced /abor, and trial colleotivi-
Station,
Direct control of_ certain phases of the northern Korean
oConomy was exercised by Soviet official and semi-official organiza-
tions during the occupation period which ended in late fOS. Since
that time no further firm evidence has been received as to th
continued presence of such organizations in the area. It is
believed, however, that they continue to Operate eit:r overtly
or under the cover of the Soviet Mission in northern Korea.
4 .
reminent of these organizations* rePorteAd t 1948#
branch of the Soviet Ministry of Trade. Thie agency, broken
ort notes thnt MOPTPANS* the SOviet -Korean
Jointock snortation company, has taken over some of theie
?
duties,
a
devin into ,Import an Emnort sections, contrasted for deliveries
tb the oviet Union end "ranged for terms of na7Ment., In essence
,
ern EOrean trade at the time was directly_snplervised
agency.by thia runotioni of other soviet goTIF4P,eu!ageucies
erformed by the branch office of the Oinistiy of
- ,
aportant among these were the recrn4ment of
0 borers for Wrk In the soviet,Kamchat#0, f hoTies, control
and menetary matters, acting in an advisory ca acity
,
on bu, etary matters and as a propaganda agency.
i as istance
Thp or of Soviet parsonOcl active at treaent in
rthern Korea is estimated at between 4500 and typo. Some 700
aged in non-military activities as advisers, diplomats,
view of the trained personnel
Ortages within the goviet Union itself, these figures lends
basis to Soviet importance attached to northern Korea. A/
-
though the number engaged in technical and advisory activities
In the northorn economy ie not known, their presence is often
-
*tt
eoted to in propaganda broadcasts from northern Korea, in connect-
ion with their dUties and contributions to the econoMY., Through
these Soviet COntrQl pt the Korean eoonp n be
ring the first two years of USSR Occupation. Soviet
s '1, .44 fl 41 i
re Present in moot factories with any productive
pa* ty. Zn thee winter f l947-48 the soviets began.rithdreiWk!ng
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the Men an
s 20
082A0 D0
9d
most managerial function* over tO the Koreaa
,
leis Committees and their Bureau of Industry. In those i
os in which the Soviets had particular interests, such
minin
ron and steel plants, non-ferrous metal refineries,
, .
c power p4.ants, various chemical industries and in the
F
and tr ,sportation field however, a Soviet,e4vilian or
Or vine left as an viserN to the Korean pleat authorities.
,
e en 4
ding of deserving" Korean youths to Soviet technical
, 4
an t Oetting up within northern ,Korea of Soviet-run
technical institutions has done much to insure a hard core of
a
Rare-ono in economic fields in the fnt'
The moot overt -method of Soviet 00040140 Control in
' . t
no rt 0 IrCrea e exercised through Soviet,earticipation as owners
in various Kers" e??n?0.0 euterPrises, The device nown as the
?int -etoCk conany provides for joint Soviet and Korean control
agement. Theoretically each nation possesses of the
Stook_in the company and bas an equal voice in management, but
:,.
thr? the presence of Soviet-Koreans sex*
es KOrean
aembers(and from recent revelations made by YuGoslaria concerniaC
Soviet activitiri in similar organizations in their own cCon02149
no 5o71probably exercise complete control.
be mob companies formed in early 1947, are Mortrans,
controlling all _marine and, m9tor vehipular tran ortation and
* 41, t
he Coaen Oil 4efinery in WOneaa the only crude oil refinery in
.K
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endence,of the industrial economy on
eum products and' true, Soviet participation inmanaement
1 . ittiN ? '''' : ' t l' ' 1 ' ----' ..;-!
prciddee,a significant_de e or direct
Efi
Pt,Plorttlorn orsa is '?rit,!V
f dependentk
POITIO.,V.eeree,ntiOlt,O.he industrial
,
trole and. supplies. the b4k_of trade
'f
silotmimerWIe "nortnern Koreei, ana Is able Viz
idttaikai
oiltIve control over th9 de7,19Pment of the
? r deficiencies of the northerii Kore industrial
Ii I
_
em are pi:4r? eum and hituminous coal. Reliable reports
, , '
a 8t4
ow of tattipinous peal from ?akbaila, is brought
L '?,_4 _., , ?., _.' 1/2,,
8. and 6.7.1.et tankers 1.?r,l_pg in enuth
akhalin to keeP the Jppanese built WonsanJLj refin,
' I ''...?
3
out of, the year. Soviet ehlpPIn actIve In the
?
,
- nort ern Korea trade in the past year import finiahed
_ ? , , , . _ _ ,.,..
etzoZpwn, tq rnA: *P,491"418Fn military a40 int4,usTini
I
1.*i textiles medical 81.71417f6
II
-1,-xlv
nd
arts_ IA r for nprt49;11, qFP4la TirTiaq AV f PTP4uCII.,'1,
he,PTO4P,i7.
obviously are not underwri
the northern
eacuomY altruistic I:illations.. Russian export or entre-
al
activities in connection with commoditieli II short
otA
thin northern Xorea works to the advantage of the Soviets
receive the products of the or iivatrial plant,
t nally, northern !Corea is faced with the problem
of Snviet pricing policy. This involves the sale ef rthern
2 ' rplu_ in the Soviet Union at artifi al3y4o Soviet
prices and the purchase by the satellite of Soviet gcoPs at the
doing world price.
e to internal shortage in the VR, the
1
oviet are not able to meet all thedsmandelplaced upon them 1:17.,
he nq t1cr eo?140PV, they have managed to provide sufficient
I
scut 01 import e to make possible a steady,increase in northern
Korean production of goods desired by the USSR.
-
t guidance is reported to have produced tangible accomp-
rehabilitation of northern Ke
zice of Soviet tee's:kip/xi, personnel and the Soviet-ePonsore 040
needed raw materials and finished pods are believed to ve raised
ducti.on nmQe fies o a level equal to that of pre-war (1939).
must not be assumed.. thst northern Korea is presently able to ful
the peak capacity attained :under the Janeaen.,194.4
I.
ecessity
obtain rePlademeat. Parts for Japanese man ctured
8/1 /oi atiye and unecenea cal workings of min?eral de
usinted with the problems of the northera Korean industrial
1 t are all conditioning factors that must be considereL if,
Soviet aims envisage continued emphasis in northlra Korea,
iteTtIr
*ase defiCincies Could be mat in part by the machinery taken
et mining equipment, and inteastre oviet
od indication of the dpgroe of recovery Is Ven
-
in the trae statistics released by the northern Korean government.
Trade tetWeen northein Korea and the USSR was f4 million rubles in
191469 14S million rubles in 1947 and 264 million rubles in 194S.
Target level for 1949 is 337 million rubles.*
6.
?971ei_000P9Ve Qut
r he
Soviet coatrol, both direct and indirect, of northern
area's economic potential has little immediate bearing on Soviet
economic and olilitaiy capabilities. The importance of 1114t control
1 1 ,
of the coulvrativelY wall- developed industrial area nortix of the
Sth parallel is not obvious unless viewed against a background of
* It, /4.4-iffiatat o translate this into dollars, because of %Sells
flopc4 practices. Under the Soviet system a satellite sells its
pi*auotto 09. SOYAPAP for Publea,5 to the Zollar, but must buy
,
S.vi
et TIC-tea %bias lg to the Dollar.
e.,200iy48: 71-o1o82Aeoo ctoez0003.
developing China becomes a necessity for
Communist ultimate aims in the Par Mast. The industrial capacity
t
of the SQTet ar east (east of Lake Baikal) is relatiT117 ams14.*
orthera Korea is capable of supplementing Soviet Industriel prodio-
ortant fields of chemicals, Ppes, and steel dm,
eleWid power, au
light metals manufacture. The 9 million inhabit-
ants of Aorthera Korea represent an important factor in the man-
, sv,i
4c44nt Soiiet Par Mast. The northern Korean people are
not on a comprable literacy level with the people of Soviet Union,
but an estimated 30% have at least a grammar school education mid
thus are more suscentible to technical training that are Lest a'ili6r
peoples of the north-east Asia area.
orthern,Xorna under Russian supervi ei on an traction,
osition at present to contribute directly to SitTiat economic
needs in developing the Asiatic mainland.
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