Archive for August, 2019

How the North Korean government manages the economy

Thursday, August 8th, 2019

By Benjamin Katzeff Silberstein

One of the most poorly understood aspects of policy change in North Korea in the past few years is the extent to which the North Korean government manages the economy in some ways like any government would in a market economy. Consider, for example, this story by Daily NK:

Amidst signs that housing prices in North Korea are falling due to economic stagnation, the authorities are assessing the state of the housing market in order to implement measures to stabilize the situation.

“The authorities recently began a survey of housing prices and will likely intervene in transactions and setting house prices,” a South Pyongan Province-based source told Daily NK.

The authorities have also begun to set prices for land designated for urban housing plans as part of efforts to control housing transactions, the source added.

These efforts are ostensibly aimed at setting an upper limit for house prices, but the authorities have yet to announce any official numbers.

The aim appears to be to prevent price spikes and ensure that buyers and sellers can conduct transactions within a stable housing market.

In North Korea, the state traditionally owns all land and housing by law, which is supposed to mean that the government provides housing to its citizens without any monetary transactions.

After the widespread famine in the 1990s, however, residents acquired the “right to use” housing and began conducting housing transactions on the basis of market prices. Even before the economic crisis, North Koreans in the upper class engaged in housing transactions on the black market, although such transactions could typically be considered a form of housing “trade.”

These changes came about because North Koreans began proactively taking advantage of the “right to use” housing. Essentially, the authorities gave them the right to inherit and transfer the ownership of the houses they lived in, and North Koreans actively bought and sold these rights on the market.

“The authorities have invested a massive amount of money in building new housing and these efforts have led to an increase in ‘donju’ who have made money out of the projects,” said the source. “The authorities probably thought they needed to step in and control the housing market because of the sheer number of new apartments.”

Full article and source:
Government conducts survey on housing prices in North Korea
Jang Seul Gi
2019-08-05

Now, we still know very little about how these market interventions may come to work. The state just stepping in and fixing prices may be it, but measures like that tend not to work for long.

Consider, also, this story about how the government may come to lower market stall operations fees on some markets. The reason cited is the general economic downturn (presumably following sanctions). In lowering fees, the North Korean government is doing what most governments would do in that situation: launching a fiscal stimulus, of sorts. By lowering taxes (because that’s essentially what these fees are), the government is hoping to stimulate economic activity.

Whatever language it may use to describe how the economy works, this is market management, albeit not of a very sophisticated kind.

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Daily NK on foreign currency shortages

Thursday, August 8th, 2019

Benjamin Katzeff Silberstein

This is an interesting article by Daily NK. It highlights how little we actually understand about how the exchange rate works in North Korea. Basically, their sources say that foreign currency is available in increasingly short supply, but confirm that despite reports to the contrary, exchange rates haven’t moved noticeably:

Sources report that sanctions have reduced the flow of foreign currency into and out of the country, while the amount in circulation has further fallen because residents are hoarding it. While foreign currency is still being used to pay for major transactions, residents are increasingly using local currency to pay for daily items in the local markets.

“North Koreans are using local currency more often to buy things at the market. They’d prefer Chinese yuan or US dollars, but there’s just not enough of it in circulation to use,” a source in South Pyongan Province told Daily NK.

“There are concerns that the situation could lead to an increase in counterfeit bills circulating in the country.”

“International sanctions have definitely led to a fall in circulating foreign currency,” added a North Hamgyong Province-based merchant in his 40s. “The authorities implement measures to entice people to use foreign currency at particular shops and restaurants, or demand that the wealthy make donations to the regime’s loyalty fund, but there’s no avoiding the fact that the circulation of foreign currency has fallen compared to a couple of years ago.”

“There are rumors that the Arduous March [widespread famine of the mid-1990s] is returning, so people are trying to save up and not spend anymore,” he said, adding that broader forces are at play.

Despite the developments, the exchange rate remains relatively stable. Generally, a fall in foreign currency in the market would lead to an increase in the value of foreign bills and a rise in the exchange rate. But the exchange rate between the US dollar and North Korean won has fluctuated only slightly at 1 USD to 8,000 North Korean won, while the exchange rate between the Chinese yuan and North Korean won has remained at 1:1200.

However, if there is an increase in the use of foreign currency in the markets while the overall circulation of foreign bills continues to fall, it could lead to a significant impact on exchange rates.

Article source:
North Koreans turn to local currency due to foreign currency shortages
Ha Yoon Ah
Daily NK
2019-08-06

I’ve written quite a few times about how all this is possible. Logically, it is. That doesn’t make it less of a mystery.

If current conditions continue, I’d be very surprised if we don’t see a sharp fall in the won soon enough. But then again, the market has defied a lot of reasonable, logical expectations already…

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Chinese tourism to North Korea rising

Tuesday, August 6th, 2019

Benjamin Katzeff Silberstein

Yonhap:

In the report on North Korea published by the state-run Korea Development Institute, Kim Han-gyu, a deputy director at the Korea Tourism Organization, estimated that the number of Chinese tourists to North Korea hit a record high last year, and the trend is likely to persist for the time being.

“This is a probable scenario if current relations between North Korea and China, and the international political situation either persist or improve,” Kim said.

In June, Chinese President Xi Jinping visited North Korea for the first time since he came to power in 2012, a trip that suggested that bilateral relations are back on track after being strained over Pyongyang’s nuclear tests in recent years.

The bilateral ties — once described as being as close as “lips and teeth” — had been soured over the North’s defiant pursuit of nuclear weapons.

North Korea has stepped up efforts to attract more tourists in an apparent bid to earn hard currency in the face of U.N. sanctions over its nuclear tests and its long-range rocket launches.

In 2002, 121,000 Chinese visited North Korea, accounting for 62.4 percent of all foreign tourists to the North that year.

The number of Chinese tourists fell sharply to 24,000 in 2009, when North Korea carried out a second nuclear test in May that year.

Source:
Chinese tourists to N. Korea on rise: official
Yonhap News
2019-07-31

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Rice prices up in North Korea, market price data says. How bad is it?

Friday, August 2nd, 2019

By Benjamin Katzeff Silberstein

Asia Press reports that rice prices have “skyrocketed” in North Korea this month:

The price of domestic rice, which stood at roughly 4,500 won (about 0.53 USD) per kilogram for most of the year, began to rise in July, surpassing 5,500 won (about 0.65 USD) per kilogram by the end of the month.

Multiple reporting partners living in the northern regions of the country were asked to investigate the reason behind the rise in the price of rice.

A reporting partner living in a city in Hamgyong Province explained, “The rice merchants say that, ‘domestic rice is scarce, so it is only a matter of time before it runs out’. The rise in price will likely continue from after the next harvest until the end of the year.”

Still, rice is not disappearing from the markets. Imported Chinese rice is sold at stable prices across all markets.

Most of this Chinese rice, however, is old and was harvested some time ago. The North Korean government, though, continues to import the low-quality, cheap Chinese rice, favoring ‘quantity over quality’.

Domestically produced North Korean rice, on the other hand, is not old and sticky. Due to its higher popularity, it is generally 5% more expensive than Chinese rice. This slight price difference was very stable and had remained unchanged over the last 20 years.

The cause of the domestic rice’s scarcity and subsequent rise in price is presumed to be the effects of last year’s heat wave and drought on production.

A rise from 4,500 won to 5,500 in only a few weeks is indeed quite noteworthy and potentially alarming. But what does context tell us?

I know very little about where in the country Asia Press sources its price data from, but I suspect it’s primarily or perhaps even only North Hamgyong province. It does seem like this steep price rise may be a somewhat localized phenomenon. Looking at the Daily NK price data gives us a little bit of a clue. It hasn’t been updated since July 23rd, so it may be that it will catch up and register similar shifts later on. But looking at the numbers for the past few weeks, prices in Hyesan have increased much more than in Pyongyang and Sinuiju.

So this might, for various reasons, be a localized phenomenon.

It should also be noted that prices usually rise during the summer months, as the next harvest draws closer, and storage runs lower and lower. Prices last summer around this time were much lower than present, but in 2017, they were significantly higher. So I would caution against drawing any hard conclusions as of now, and hopefully the next report by Daily NK will tell us more.

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