Archive for the ‘Economic reform’ Category

Does the Trump-Kim summit and declaration mean anything for the North Korean economy?

Tuesday, June 12th, 2018

By Benjamin Katzeff Silberstein

The short answer is: no. One of the most notable absences from the US security perspective was that of CVID – complete, verifiable, irreversible dismantlement of North Korea’s nuclear weapons. From a North Korean perspective, diplomatic hardliners may be asking: what about sanctions relief? Neither the statement at the end, nor Trump’s press conference, gave any word on sanctions relief. The US has said that such relief will only come when CVID is completed, but to get North Korea to go along, it will likely need to make at least partial concessions along the way.

Sanctions relief may well come sooner than that in practice. No one should be under the illusion that Chinese sanctions enforcement, which has been the real key over the past ten months or so, is about adhering to international norms and UN resolutions. China evaluates whether such enforcement is beneficial to its own interests, and up until the late summer or early fall of last year, the consistent answer was “no”. With Trump’s increased pressure, that changed, as trade statistics have shown, with Chinese imports from North Korea plunging. Now that tensions have eased, China’s assessment may well ease too. We’ve already seen signs that goods as well as North Korean guest workers are once again crossing the border. Surely, China will see the Singapore summit’s very occurrence as a sign that it might be far less risky to let up more on sanctions enforcement. It will be crucial over the coming weeks and months to monitor trade flows, reported as well as unreported ones, over the Sino-Korean border.

For anyone curious about Kim Jong-un’s potential as a reformer in the economic realm, the following story by the Daily NK should be of interest:

The North Korean authorities held a video conference with high-ranking Party cadres ahead of the summit with the U.S. instructing them not to use the terms “reform and opening up.” This appears to be a precautionary measure implemented in response to the heightened expectations of North Korean residents for “greater freedoms” arising from the inter-Korean and U.S.-NK talks.

“In order to prevent ideological wavering that may occur among party executives and residents, the authorities organized a meeting on June 4 with organs directly under the authority of the Central Party Secretariat (Chairperson of the Provincial Party Committee, Chairperson of the Provincial People’s Committee, Director of the Provincial Public Security Bureau, etc.), a source in Ryanggang Province told Daily NK on June 10.

“This meeting was conducted via online video conference, hosted by the first vice director of the Organization and Guidance Department of the Central Committee of the Workers’ Party of Korea. The participants were provincial heads and secretaries across major organs, including Party and People’s Committees and the Ministry of State Security; however, the Ministry of People’s Security was not called upon to participate.”

According to the source, at the meeting, the first vice director said that the talks with the U.S. were planned out of necessity.

“He said that we shouldn’t mention reform and opening up from now on and that North Korea will never follow that path,” he explained.

“He told us to just follow our General’s (Kim Jong Un) orders and that the demolition of the Punggye-ri site does not mean we are giving up our nuclear weapons, but that it is the final step in the completion of our General’s nuclear strategy. He said that we shut down the Punggye-ri site because we have to get rid of unnecessary things.”

A source in South Pyongan Province informed Daily NK on June 10, “In a recent high-level executive meeting, there was mention that there will be absolutely no reform or opening up. We have decided not to use these terms.’”

Meanwhile, according to a separate source in Ryanggang Province, the participants of the meeting took part using computers in their own private offices. “In North Korea, there is an intranet called ‘Cheongbong Maeari (Blue Peak Echo)’, whose use by ordinary residents can be grounds for arrest, but can be used freely by party-level agency executives inside the agencies,” the source explained.

In North Korea, where internet use is restricted, it is also known that a nationwide intranet operated by the government called ‘Kwangmyong’ is commonly used. However, it is presumed that there is a separate intranet used only by party executives and government officials.

“After the announcement on the Central Committee’s video conference was made, a Provincial Party plenary meeting was held the next day. The chairperson of the Provincial Party Committee also gathered key officials in the province and urgently passed on the message of the meeting and told them to stay focused and speak and act according to our General’s plans, especially in times like this,” the additional Ryanggang Province-based source said.

“The Chairperson emphasized that regardless of how the talks go, things are going well according to our General’s plans and we should stand together more closely by our General. This video conference seems to be intended to provide assurance that North Korea will not be pushed around by the United States and to prevent unrest and confusion among party executives.”

Article source:
North Korea convenes meeting ahead of talks with U.S. to prohibit use of the terms ‘reform and opening’
Daily NK
2018-06-12

Share

South Korean companies gearing up to rush north

Sunday, June 10th, 2018

By Benjamin Katzeff Silberstein

These days, it seems that scarcely no South Korean company isn’t looking north. Hopes are high that with a diplomatic opening – if this time is different, which we really don’t know – North Korea will be open for business. And aside from some Chinese companies and entities, no other have the know-how and language skills to make investments in North Korea profitable. Indeed, those that have happened have largely been in the realm of “adventure capital”, that is, high risks with the potential of high rewards. It seems that relatively few have reached the latter.

Many South Korean businesses will likely ask that the government underwrite potential investments, given the vast political risk. Moon’s government doesn’t seem completely adverse to this, despite the questions it raises about moral hazard and market fairness.

Looking at the types of investments that companies are talking about, it is hardly a given that they will – if they happen – have a positive, broad impact on the North Korean system and society. See below for the sorts of investments being talked about:

SM Group said it has set up a task force to check the country’s mineral resources, particularly in iron ore. The group said its ownership of South Korea’s sole operational iron ore mine effectively gives it an edge over others in terms of processing know-how and facilities it has on hand.

North Korea’s iron ore deposits are estimated at 50 billion tons worth some 213 trillion won (US$197.7 billion).

Besides resources, companies such as Keangnam Enterprises Co. and Dong Ah Construction Industrial have said they are moving to secure a foothold in the North’s building business once all sanctions are lifted.

Dong Ah said its past experience as a builder for the defunct Korean Peninsula Energy Development Organization that moved to build a light water reactor for Pyongyang could help it win future orders, especially in power infrastructure work areas.

Keangnam said that its participation in Seoul’s Official Development Assistance program for emerging economies will make it easier for it to engage in similar projects in the North if conditions permit.

SM Line Corp said it wants to ship North Korean resources using the country’s cheap labor and explore the opening of new shipping routes and related shore infrastructure.

“Work in the North will be a win-win development for all sides, and this is the reason why the company is looking into the matter,” a source at the shipping line said.

Besides medium-size companies, the large conglomerate Lotte said it has set up a team that can expand business ties not only with North Korea but also Russia and China.

Meanwhile, there has been growing interest by local companies who want to set up operations at Kaesong Industrial Complex in North Korea, which has been shuttered following the North’s nuclear and long-range missile provocations.

Dong-a Publishing said it wanted to take advantage of the low labor costs to set up business in Kaesong.

The company said due to the labor intensive work in the publishing field it makes sense to move its plant to the North.

Related to such moves, a business group representing South Korean firms that had operated factories in Kaesong said recently that upwards of 20 companies a day have called to make inquiries about opening new factories in the special economic zone.

Article source:
S. Korean mid-tier companies interested in biz opportunities in N. Korea
Yonhap News
2018-06-10

Much of what’s being talked about, in other words, is extraction of natural resources. Sure, this would be done with North Korean labor, but even though the domestic economy could get an upswing through these sorts of operations, North Korea wouldn’t necessarily reap the full potential benefits of its mineral assets, which could be sold for much higher prices if they were locally refined and processed. This is likely something that the North Korean leadership is very well-aware of, and Kim Jong-un talked about it in speeches in the 1990s. But given the need for hard currency, they may not see that they have much of a choice in the matter.

Other companies want to get in on the cheap labor. That’s all fine and good for the companies and the potential prospective North Korean employees, but factories of this sort can be set up pretty easily without sourcing raw materials locally, and with few connections with overall North Korean society.

In other words, if these investments come to see the light of day (again, a big “if”), it’s not a given that it’ll be in any way transformative for the North Korean economy. We have seen much of this before, and we know from Kaesong that the state is indeed both capable and willing to contain economic development to specific areas, keeping it separated and in check from broader North Korean society.

Share

South Korea asks for immunity for officials stationed in Kaesong

Tuesday, June 5th, 2018

Benjamin Katzeff Silberstein

While the world gears up for the summit (yes, The Summit), things are moving along on the peninsula as well. Moon promised in the election campaign that he would not only re-open Kaesong, but work to enlarge the zone as well. Last week, South Korea asked that North Korea grant diplomatic immunity for the officials it plans to station in the liaison office the two countries are in the process of establishing in the city:

The two Koreas agreed last week to open a liaison office in the city “at an early date” at high-level talks to discuss steps for implementing promises made by their leaders in the historic April and May summits.

South Korea plans to station its officials there in order to keep communication channels open around the clock as part of efforts to support cross-border exchanges, which are likely to increase.

According to the sources close to the matter, South Korea’s government recently proposed the North grant immunity from arrest and detention for its officials to be stationed in the office, just as the Vienna Convention grants such privilege to diplomats.

In addition, it also proposed that the North guarantee safety of passage and communications for its officials, while exempting them from checks on their bags and pouches, the sources said.

Kaesong is the western border city in the North where the two Koreas operated a joint industrial complex since 2004. It was hailed as a successful example of economic cooperation between the two Koreas as it married South Korea’s capital with the North’s cheap and skillful labor.

South Korea, however, closed its operations there in early 2016 and brought its officials and workers back in protest at the North’s continued missile and nuclear provocations.

Though there was an agreement regarding the safety of South Korean personnel at the time, there was no clear legal ground for the South Korean government to ask for the return of its people in case of their arrest or detention, experts said.

Article source:
S. Korea asks N. Korea to grant immunity to officials at liaison office to open in North
Yonhap News
2018-06-05

It wouldn’t be surprising if moves to open Kaesong come relatively soon, pending the overall diplomatic situation and sanctions regime. Kim Jong-un’s predilection for SEZs is well known and natural, they bring opportunities for making hard currency for the state while keeping systemic changes and capitalist incursion (in the North Korean lingo) contained within a specific geographic area. Some hope that they will eventually bring systemic changes to the broader North Korean society as well, but with Kaesong, we’ve seen no evidence that that is the case.

Share

Recap: South Korea’s economic plans for North Korea

Monday, May 28th, 2018

Benjamin Katzeff Silberstein

In this post, I’ll be collecting news and information on Moon Jae-in’s plans and ideas for economic development in North Korea. I’ve had to take a little break from blogging for the past couple of weeks due to travel, so the articles here won’t necessarily be recent or up-to-date, especially since up-to-date regarding the Korean peninsula these days seems to extend only to the last five minutes or so.

For the contents of the Panmunjom Declaration that have to do with the North Korean economy, feel free to check out this post, where I make the case (which still holds, I would argue) for why infrastructure is the most plainly obvious as of now for economic cooperation with North Korea in the wake of the latest warming of ties.

Infrastructure was an important component of the famed USB-stick that Moon handed to Kim at the first inter-Korean summit this year. Hankyoreh:

South President Moon Jae-in ordered a joint inter-Korean research effort to examine future economic cooperation ahead of the anticipated lifting of international sanctions against North Korea following an upcoming North Korea-US summit, which will follow up the inter-Korean summit that was held on Apr. 27.

Speaking on Apr. 30 at the first Blue House senior secretaries’ and aides’ meeting since the inter-Korean summit, President Moon said he “look[ed] forward to us being able to carry out a joint inter-Korean research effort for implementation of the Oct. 4 Summit Declaration [of 2007] and inter-Korean economic cooperation,” a key Blue House official reported.“He was saying we need joint research to examine what kinds of economic cooperation the South and North can engage in ahead of [sanctions against North Korea] being lifted,” the official explained.

During their summit, President Moon also personally gave North Korean leader Kim Jong-un a pamphlet on his “new economic vision” and a USB device containing a presentation video, the Blue House reported.

The materials reportedly contained details on power plant construction and other economic cooperation measures that could be implemented once inter-Korean relations gain momentum and sanctions against North Korea are lifted.During the Apr. 30 meeting, President Moon described the Panmunjeom Declaration as “a peace declaration proclaiming to the world that there will be no more threat of war or nuclear weapons on the Korean Peninsula.”

Article source:
South Korean President Moon Jae-in orders joint research effort for inter-Korean economic cooperation
Seong Yeon-cheol
Hankyoreh
2018-05-01

New York Times noted the somewhat ironic fact that Kim received Moon’s plan on a USB-stick, an item whose use by its own citizens the North Korean regime has long cracked down on:

For years, Kim Jong-un, North Korea’s leader, has been cracking down on USB flash drives that activists smuggle into his isolated country to poison his people’s minds with outside influences, like South Korean K-pop music.

But last month, when he met with the South’s president, Moon Jae-in, Mr. Moon handed him a USB drive that contained quite a different message.

In charts and video clips, Mr. Moon’s memory stick laid out a “new economic map for the Korean Peninsula,” including new railways and power plants for the impoverished North, should Mr. Kim abandon his nuclear weapons, according to South Korean officials.

Mr. Moon based his sales pitch on the belief that Mr. Kim wants to become the North Korean equivalent of Deng Xiaoping, who oversaw the economic liberalization of China. In this view, Mr. Kim may be willing to transform his pariah state by trading in his nuclear arsenal for diplomatic and economic incentives he needs to achieve prosperity.

[…]

“Kim Jong-un’s desire to develop his country’s economy is as strong as, and even stronger than, his desire for nuclear weapons,” said Lee Jong-seok, a former unification minister of South Korea. “But he knows he cannot achieve the kind of rapid economic growth in China that he envisions for his country while keeping his nuclear weapons — because of the sanctions.”

[…]

Vilified as he was, however, Mr. Kim has also shown signs of being a reformer, granting farms and factories more autonomy, allowing more markets to open, and setting off a building boom in his showcase capital, Pyongyang. He exhorts his country to follow “international development trends” and “global standards” and even admits failing to deliver on his promise that his long-suffering people would “no longer have to tighten their belts.”

“My desires were burning all the time, but I spent the past year feeling anxious and remorseful for the lack of my ability,” Mr. Kim said in a nationally broadcast speech last year, a startling admission for a member of the family that has ruled North Korea with the help of a personality cult since its founding in 1948.

After meeting him, Mr. Moon called Mr. Kim “open-minded and practical.”

Nowhere is Mr. Kim’s dilemma better seen than in his policy of “byungjin,” or parallel advance, which seeks a nuclear arsenal and economic development simultaneously. Under that policy, Mr. Kim has rapidly developed his country’s nuclear weapons and ballistic missile programs, arguing that a nuclear deterrent would make his country feel secure enough to focus on rebuilding the economy. But the world has responded by imposing crippling sanctions.

[…]

If Mr. Kim pursues the route of economic reform, energy and transportation are the two areas where he most needs outside help. In his meeting with Mr. Moon, Mr. Kim admitted to the “embarrassing” condition of his roads and railways, South Korean officials said.

Trains running on electricity remain North Korea’s main means of transport, carrying 90 percent of its cargo and 60 percent of its passenger traffic, according to Ahn Byung-min, a senior analyst at the South’s government-funded Korea Transport Institute. But its rail systems are so decrepit that its fastest train, which runs to the Chinese border from Pyongyang, travels at 28 miles an hour. Other trains run at less than half that speed, Mr. Ahn said.

Lacking cash for oil imports, North Korea produces all its electricity from hydroelectric dams and coal-burning power plants. But the country’s power industry is trapped in a vicious cycle, energy experts say. Chronic electricity shortages make it difficult to produce coal and transport it to power plants. People in search of firewood for heat and cooking have denuded their hills, causing floods and droughts and making silt pile up at dams. That cuts down hydroelectric generation.

North Korea’s electricity generation amounts to only 4.4 percent of South Korea’s, according to Park Eun-jeong, an analyst at the South’s Korea Development Bank. The country prioritizes supplying electricity to lighting statues of Mr. Kim’s father and grandfather, who had ruled before him, while passengers wait for hours in trains unable to move because of power shortages, according to defectors from the country.

“Electricity is the Achilles’ heel for North Korea,” said Lee Jong-heon, an energy analyst in Seoul.

Mr. Moon’s proposal to modernize the North’s roads and railways and link them to the South’s is not meant to help just North Korea.

South Korean policymakers say that the two Koreas must first integrate their economies to make an eventual reunification less chaotic. They also envision building trans-Korean railways to find faster and cheaper routes to export South Korean goods to China, Russia and Europe, and bring Russian oil and gas into the South through pipelines for its power-hungry economy.

Full article and source:
South Korea Hands Kim Jong-un a Path to Prosperity on a USB Drive
Choe Sang-hun
New York Times
2018-05-10

Moon’s plan consists of three “economic belts”, as South China Morning Post notes, with infrastructure links that carry great potential gains for China and Russia as well:

President Moon Jae-in gave the North’s leader Kim Jong-un a USB drive containing a “New Economic Map of the Korean Peninsula” at the fortified border village of Panmunjom on April 27.

The initiative included three economic belts – one connecting the west coast of the peninsula to China, making the region a centre of logistics; one connecting the east coast to Russia for energy cooperation and one on the current border to promote tourism.

Whilst sources at the South Korean presidential office did not give further details about the information contained in the drive, they confirmed that the plan was in line with Moon’s “Berlin speech” last year when he outlined his basic approach to the north on a visit to the German capital.

During last year’s presidential election campaign, Moon pledged to merge the two Koreas’ economies in a single market to lay the foundations for unification.

Park Byeong-seug, a South Korean lawmaker from Moon’s ruling Democratic Party of Korea, said the proposal was in line with Moon’s campaign promises.

“The concept of the three belts was one of President Moon’s pledges during the election last year,” Park said.

“The new economic map includes railway links between the two Koreas and China’s northeast stretching all the way to Europe.”

One part of the plan would involve the construction of a rail link starting in Mokpo on the southwest tip of the peninsula, passing through Seoul and Pyongyang and the North’s Special Administrative Region of Sinuiju, before reaching Beijing.

Beijing is likely to welcome Seoul’s proposal as it accords with the core Chinese national interest of enhancing sustainable economic development and boosting the country’s northeastern rust belt.

Cheng Xiaohe, a deputy director at the centre for international strategic studies at Renmin University said Beijing may try to incorporate the plan into its Belt and Road Initiative.

“The northeast has been China’s weakest link and seen poor economic development for years. A rail link could make a real difference to the region,” Cheng said.

Improving the area’s logistics would also benefit China as its access to the open seas in that part of the world is physically blocked by the Korean peninsula and Russia’s far east.

North Korea’s economy is also closely tied to the northeast of China and opening up the reclusive state’s markets could provide new opportunities for the Chinese provinces on its border.

Lu Chao, a research fellow at Liaoning Academy of Social Sciences, said: “The plan would have a huge impact on China’s northeastern region as it would transform the region as a centre of logistics in East Asia, which could function as a driving force for the rapid economic growth of the region.”

“The northeast is the region with the greatest economic potential in China. A railway connection would bring a myriad of investments from overseas and would help the economy take off.”

[…]

South Korea would have to allow its allies and the UN to mediate any easing of sanctions before it could establish any economic cooperation with the North.

Moon Chung-in, a special foreign affairs and national security adviser in Seoul, said last month that Seoul’s economic incentives would compensate Pyongyang for freezing its missile programme, disclosing its nuclear capacity and allowing international inspections within its borders.

Full article and source:
Seoul offers Kim Jong-un grand bargain to link North and South Korean economies with China
Lee Jeong-ho
South China Morning Post
2018-05-07

Not surprisingly, Hyundai Asan is hoping to get in on whatever action may come. CNN:

Hyundai Group said Tuesday [May 8th] that it’s setting up a task force to prepare for the potential restarting of economic projects in North Korea.

The announcement comes shortly after a historic summit between South Korean President Moon Jae-in and North Korean supreme leader Kim Jong Un at which they committed themselves to rebuilding ties after years of tensions.

Hyundai Group, which split from the Hyundai Motor Group in 2000, was involved in various business projects in North Korea in the past, including a mountain resort and the Kaesong industrial complex, where North Korean workers made goods for South Korean companies.

“Hyundai needs to be ready when/if the two Koreas agree on terms and inter-Korean economic cooperation resumes,” a company spokesman said.

Hyundai will be closely monitoring the planned summit between Kim and US President Donald Trump that’s expected to take place in the coming weeks, as well as any potential changes to the heavy sanctions in place on North Korea’s economy, the spokesman said.

The Kaesong complex, a symbol of cooperation between the two Koreas, was closed as relations deteriorated in 2016. More than 120 South Korean companies had a presence there, employing tens of thousands of North Koreans and providing a steady stream of foreign currency to the regime in Pyongyang.

Hyundai also previously operated a tourist resort at North Korea’s Mount Kumgang, near the border with South Korea. It was shut down in 2008 after a South Korean tourist was killed by a North Korean soldier.

The company’s ties to North Korea go back to Hyundai’s late founder, Chung Ju-young, who was born there.

Last week, South Korean Deputy Prime Minister Kim Dong-yeon said the country’s government was “considering various scenarios” for economic cooperation between the two Koreas.

“The government is preparing response plans to different scenarios in terms of how and how fast to pursue [economic cooperation] and how to procure the resources for it,” he said.

South Korea’s government has allocated about $900 million to fund economic projects that involve both countries this year, according to the minister.

Full article and source:
Hyundai Group is getting ready to do business in North Korea again
Daniel Shane
CNN
2018-05-08

To be sure, preparations and planning are well underway in Seoul. Reuters:

South Korea’s finance minister said on Wednesday [May 2nd] the government was discussing how to finance possible economic projects with North Korea, although any projects with Pyongyang must first be approved by the international community.

“We’re internally carrying out preparations, in terms of what to prepare, and how to cooperate with the international community, and how to finance (possible inter-Korea projects),” Kim Dong-yeon told reporters in Sejong.

“But we need support from the international community and need to watch the (upcoming) summit between the United States and North Korea,” Kim said, without elaborating on specifics of any government financing.

Kim’s comments come after South Korean President Moon Jae-in and his North Korean counterpart Kim Jong Un agreed last Friday on a common goal of a “nuclear free” peninsula, and to “adopt practical steps towards the connection and modernization of the railways and roads”.

Many speculate that the two Koreas will start joint infrastructure projects as soon as international sanctions on North Korea are lifted. Currently, North Korea is under sanctions imposed by the U.N. Security Council to stop its nuclear weapons and missiles programs.

Kim also said there was a rise in the number of Chinese tourists in March although the services sector has not yet recovered from a drop in such visitors due to tensions between the two countries.

“The number of Chinese tourists is noticeably increasing since March, although it hasn’t recovered to the pre-Thaad level,” Kim said.

Tourist numbers plunged last year after South Korea angered China by deploying a U.S. Terminal High Altitude Area Defence (THAAD) system that features radar which Beijing believes could be used to penetrate its territory.

Full article and source:
South Korea considers financing of possible inter-Korea projects: finance minister
Reuters
2018-05-02

To be continued and updated…

Share

North Korean laws and regulations for consumer needs

Wednesday, May 2nd, 2018

Benjamin Katzeff Silberstein

An interesting column in the Daily NK reflects on changes in the North Korean system both to protect consumers, and boost domestic consumer goods production. The author, Na Jung Won, sources some of these insights from North Korean academic journals, pointing out that one article going back as far as to 2012 studies the insights into marketing strategy from the “Boston Consulting Group Matrix”, which I found pretty interesting, and one might wonder whether Choson Exchange has played a role in bringing this particular insight into the country. Overall, North Korean journals tend to often include references to theoretical models that are sometimes unexpected, given the largely closed-off nature of academia and research there.

Here’s the column:

Research has found that the North Korean economy has been growing continuously since the start of the Kim Jong Un era, despite economic sanctions and pressure from the international community. One can thus conclude that the North is able to maintain effective domestic growth while to some extent avoiding the effects of such outside variables. But in order to understand this economic growth, it is important to take a closer look at the North’s particular style of business administration.
Changing business law in North Korea
There have been two revisions or additions to North Korea’s business law since Kim Jong Un came to power – one enacted on November 5, 2013, and the other on May 21, 2015 – changing official business justifications and definitions, organizational principles, and management principles that are beginning to be reflected on the ground in the country.
Chapter 1 Article 4 of the business law covering management principles states, “In precisely laying out the nation’s management strategy and business strategy, ‘the administration of socialist business responsibility’ shall be carried out, and management activities must be carried out with socialism as the most fundamental underlying principle.” Chapter 4 is titled ‘Business Management,’ while Chapter 29 covers the same topic. Chapter 30 covers business strategy and the foundation for related business rights over socialist ownership, spelling out the management activities that must be carried out in realizing business development.
The entire system of financial management is governed under these business strategies, including item prices, sales, and salary standards. There is also a system for business capital, which spells out rights to earnings for companies, the unemployment payment system, and how companies can acquire loans from a commerce bank. Sales and pricing rights and restrictions are placed on products, contract requirements for distribution, sales, and trade in other products are described, and rules are laid out for how buyers can return problematic or poor-quality products which were misrepresented under the purchasing contract.
Trends in North Korean business administration research
North Korea is positioning its businesses and factories to increase their capabilities and follow global technological trends under its latest ‘five-year strategy for national economic development,’ revealing a shift in concern toward enacting effective changes to the previous, more centrally-planned economic strategy.
Research by Kim Kyung Ok for Economic Study No. 174 (2017-1) states: “Expanding production and planning rights for businesses must include contracts, and ordering contracts which are made under consideration of state central planning and quota fulfillment. Businesses are not permitted to unilaterally cancel contracts without justification, and consultations must be made between the parties to the contract over any changes or cancellations. The results are reviewed by the relevant organs and the agreed-upon production plan must be carried out under strict rules.” In other words, a system has been established to ensure that production contracts are carried out properly.
It implies that order contract fulfillment is extremely important even for ordinary businesses. Research by Rim Yong Chan for Economic Study No. 154 (2012-1) states that companies must follow contracts for producing and delivering products to the letter. Cha Jong Kyung writes for Economic Study No. 162 (2014-1) that agreements between factories and businesses must be made under a registered contract stipulating set rules for prices and collateral to ensure each party’s claim to profits. Rules for contracts for production materials, delivery, and other aspects of the process all help establish emerging new responsibilities for all parties involved.
North Korea is also increasing research into financial concepts such as credit and non-cash money, hoping to reap the benefits of development through credit and move towards creating new capital in addition to simply saving money. The idea is that diversifying credit-based transaction types will improve consumers’ purchasing power and economic activity as a whole.
Marketing has also been the subject of research in North Korea. Economic Study No. 156 (2012-3) by Pak Chun Gwang points to differing payment abilities and demands from residents in different areas and in different seasons of the year, as well as how the growing demands in material culture are affecting available products and services. In other words, matching resident needs and demand for products will have to be carried out according to regional and seasonal ‘targeting’ and ‘positioning.’ In additional research utilizing the principles of product lifecycle (PLC) management and the ‘Boston Consulting Group Matrix’ (typically referred to as the BCG Matrix), concepts of ‘cost leadership’ and ‘differentiation’ in international business management are discussed.
Effects of changing business administration
Various approaches to business management are practiced in workplaces across North Korea. After repairing the Gold Cup Food Processing Plant (est. 2006) in 2015, the previously low-volume operation increased from producing 360 products in less than 10 categories to over 600 products in close to 30 categories in November 2017.
A ‘New Products Expo’ starting in August 2017 was used to showcase the country’s domestic products, promoting the customer’s needs as the most important aspect. President of the beverage industry group Rim Song Chol said in an interview, “We are looking to the global market as we produce new products, but we are communicating with and listening to our customers as our number-one concern in informing the products we make,” implying that customer demand for a product is the most important factor in their process.
Producers are saying they will halt production for items that do not sell very well in the markets. The use of information management systems in the manufacturing process is also being promoted as helping producers make decisions over materials or whether or not to continue production, where unsuccessful new products are discontinued.
The Kim Jong Suk Pyongyang Textile Mill has also apparently shifted production to fabric for business suits after an increase in customer demand, running a synthetic fabric factory in Pyongyang to create a variety of suit material options according to specific orders. Competition in this market is heating up due in part to the use of synthetic fabric recycling for the suits. ‘Tetoron’ synthetic fabric production at the Kim Jong Suk Pyongyang Textile Mill is thus steadily rising, and customers such as the North’s official female marching band were able to demand custom colors and styles for their uniforms.
Product distribution companies are also changing to meet the needs of customers, with a lively and competitive market of service providers working to gain a leg up on their competitors. The Kwangbok Area Shopping Center, formerly the Kwangbok Department Store (est. 1991 and renovated in 2011), became a place where domestic products were sold under customer-responsive profit principles. In order to increase the variety of available products, government-affiliated domestic producers such as clothing and foodstuff factories are in the midst of improving capabilities and product quality. To attract more customers and increase sales, lighting fixtures are being improved in the shops and displays appear brighter and more modern. The third floor of the shopping center includes a buffet-style restaurant with over 400 menu items. Shops also offer loyalty cards to encourage repeat visits and offer rewards.
The Pyongyang Department Store No. 1 (est. 1982, Jung-gu district) is a top competitor of the Kwangbok Area Shopping Center. There, shops order directly from production companies, and it has become known among consumers in the capital as a place selling all the latest and most popular items. Aiming to become a ‘Shopping Center for the People’s Desires,’ this department store is also focusing on customers’ needs. Shops have instituted a system to track customer reactions and the popularity of items through sales records. These are just some of the latest signs of increasing attention being paid to customer demand in North Korea.
Source:
North Korean business developments reflect focus on ‘customer needs’
Na Jung Won
Daily NK
2018-05-01
Share

Q1 of Foreign Trade Magazine highlights

Friday, April 27th, 2018

The North Korean web portal Naenara has been negligent in keeping us updated with the latest publications from the DPRK. However, through USKI-SAIS I was able to obtain a copy of the most recent issue of Foreign Trade Magazine (2018-1). I post the most interesting parts (to me) below. I don’t have time to go through them and analyze them here, so if you are interested, you may do so.

Topics include:
1. Regulations of the DPRK for Labor in Economic Development Parks (apologies for image quality)

 

2. Pukchong Agriculture Development Zone

3. Law of the DPRK on the Chamber of Commerce

4. Waudo and Jindo Export Processing Zones

5. Prospect of processed goods export in the DPRK

Share

Goods, and people, crossing the China-North Korea border

Wednesday, April 25th, 2018

By Benjamin Katzeff Silberstein

Over the past couple of weeks, there’s been several news stories that suggest and increased stream of goods – and people – across the North Korean border to China. First, there were the reports that some 400 North Korean workers, who were earlier expelled due to China’s sanctions implementation, came back to China. It shouldn’t be all that shocking if Chinese sanctions enforcement eased somewhat after Kim Jong-un’s visit to Beijing a few weeks ago. Judging from historical patterns, Chinese sanctions enforcement on North Korea may well have relaxed as international tensions around North Korea’s nuclear program are somewhat eased as well.

South Korea’s MBC seem to make the same assessment in a recent dispatch from the Sino-Korean border. On April 24th, they reported that North Korean-owned restaurants in Dandong have opened again after being closed for several months, since China began enforcing UN security council-mandated sanctions against North Korea. Shops selling North Korean goods in China have had their shelves restocked, and judging by ticket sales, the number of Chinese tourists visiting North Korea has increased.

It’s hard to tell precisely what all this means. Surely, this could all be a sign of Chinese concessions to North Korea following Kim’s meeting with Xi. More likely, the relaxation is also a concession to Chinese companies: China’s implementation of sanctions has not only hit against North Korea, but against Chinese business interests in the border regions as well. It appears that the main beneficiaries of whatever relaxation has happened are businesses near the border, such as a number of Chinese factories, and North Korean-run restaurants (usually run as joint ventures with Chinese partners). Information is, as usual, very spotty and one should be careful not to draw too many general conclusions from anecdotal evidence.

In any case, as I write for NK Pro, the signs of relaxation we’ve seen so far don’t merit any change in the assessment that North Korea is experiencing significant pressure from the sanctions. Key exports that dropped in 2017 due to China’s sanctions implementations have, as far as we can tell from publicly available information, not gone up. This may very well change in the future, and the anecdotal signs of relaxation along the border may be indicative of a broader change. But for now, the evidence doesn’t seem to be there.

 

Share

North Korea’s Supreme People’s Assembly Session: Economic reporting

Thursday, April 12th, 2018

By Benjamin Katzeff Silberstein

On April 11th, 2018, North Korea’s rubber-stamp parliament held a session in Pyongyang. Some news media has focused on Kim Jong-un’s absence from the session, but some interesting reporting on the economic situation came out of the session as well. Here are the key points on the economy (from KCNA on April 12th, with my annotation and emphasis added):

Deputy Pak Pong Ju, premier of the Cabinet, delivered a report on the fulfillment of the work of the Cabinet for Juche 106 (2017) for carrying out the five-year strategy for national economic development and its tasks for Juche 107 (2018) at the Sixth Session of the 13th Supreme People’s Assembly held on Wednesday.

Last year was a year of great victory in which a great progress had been made in carrying out the five-year strategy for the national economic development under the outstanding and seasoned guidance of the respected Supreme Leader Kim Jong Un, repelling unprecedentedly grave challenges stemming our advance, the reporter said.

According to the report, last year the Cabinet organized a drive for putting the nation’s overall economy on a higher stage with a main emphasis put on revitalizing the production by locally producing equipment, raw and other materials on the principle of self-support and self-sufficiency while focusing the state efforts on augmenting the foundation for electricity production, rounding off the system of Juche iron production and realizing the independence of chemical industry in line with the five-year strategy for national economic development set forth by the Party.

Note the emphasis here on local production, the expansion of which has been a key policy under Kim Jong-un.

The achievements made last year, a year of crucial importance in carrying out the five-year strategy for national economic development, proved once again that no desperate sanctions and pressure moves of the U.S. and its vassal forces to destroy the sovereignty of the DPRK and its rights to existence and development can ever check the progress of the Korean people dynamically advancing with firm faith in the validity of their cause and its final victory under the wise guidance of the Party and that the cause of building a powerful socialist country is sure to be accomplished.

Saying that this year we are faced with the tasks to make a breakthrough of revitalization in the economic front as a whole while frustrating the challenges of the hostile forces, who are making last-ditch efforts, through all-people offensive under the militant slogan of “Let us launch a revolutionary general offensive to achieve fresh victory on all fronts of building a powerful socialist country!”, the reporter specified them.

The fighting goals for the third year of the five-year strategy for national economic development should be attained without fail with a firm hold on the key tasks of strengthening the independence and Juche character of the national economy and improving the standard of people’s living.

The power industrial sector should put defective generating equipment into good shape and reinforce them, take scientific and technological measures for lowering the standard of coal consumption at thermal power plants and put the operation of generating equipment additionally installed at the Pukchang Thermal Power Complex on a normal track and thus increase the electricity production with the use of thermal power source onto a high stage.

The emphasis on independent electricity consumption makes a lot of sense, particularly as North Korea’s oil and fuel imports are being squeezed. But it’s a problem going back much, much further than the past year’s sanctions.

The coal industrial field should attain the monthly and quarterly coal production goals and create more coal fields so as to fully meet the demand for coal increasing in different sectors of the national economy.

Note: the national economy. The dependence on revenues from coal exports has been a problem, and one side-effect of sanctions may be that domestic industries get access to more and cheaper coal.

In the field of metal industry, Korean-style Juche-based iron making production system should be further perfected by the use of oxygen heat blast furnace and efforts be put into improving the quality of steel and diversifying the kinds of steels through introduction of advanced technologies so as to fully meet the demand for iron and steel of the national economy.

Again, national economy. Diversification is also an important and long-standing goal, and North Korea has long sought to not just export raw materials, but manufacture and sell more of end-products as well.

The field of chemical industry should unconditionally hit the fertilizer production target to timely provide nitrogenous fertilizer to the agricultural field ahead of farming processes. The production at the February 8 Vinalon Complex should be invigorated to fully supply various chemical products including vinalon, caustic soda and vinyl chloride to various sectors of the national economy.

Vinalon…Good luck.

Along with the establishment of various catalyst production bases, the construction of main production processes should be pushed forward at the Sunchon Phosphate Fertilizer Factory and the process for production of carbonate of soda with glauberite as starting raw material should be renovated and perfected.

The machine industrial sector has to step up the modernization of machine factories, unconditionally hit the target for production of tractors and trucks and put the quality of machinery on the world level.

Advanced mining methods should be widely introduced to increase the production of minerals and nonferrous metal.

The railway transport sector should ensure in a responsible manner the transportation of materials necessary for various sectors of the national economy and capital construction projects.

The Cabinet will bring about a remarkable turn in improving the standard of people’s living through production surge in the fields of light industry, agriculture and fisheries this year.

Equipment and production processes should be rearranged on a manpower-saving and electricity-saving basis, diverse and quality light industrial goods produced on a larger quantity with locally available raw and other materials, and local economy should be developed in a peculiar way with reliance on the domestic resources.

High-yielding farming methods should be positively introduced and the proportion of farm work done by machines should be drastically increased to attain the grain production goal for this year without fail.

The fisheries field should unconditionally hit the fish production target and at the same time finish the construction of projects for consolidating the material and technical foundation of fisheries ahead of schedule.

Big efforts should be directed to sprucing up Samjiyon County into a standard and model county under socialism and the construction of the Wonsan-Kalma coastal tourist area should be finished within specified date. And such capital construction projects as the Tanchon Power Station and the second-phase waterway project in South Hwanghae Province should be pushed forward.

The rate of rooting of saplings should be ensured at more than 90 percent through efficient tree planting and meticulous cultivation of planted trees and the appearance of the country be bettered through the technical renovation and repairing of highways and tourist roads in a qualitative way and the rearrangement of key rivers and streams based on an all-people movement.

All the sectors and units should solve the sci-tech problems arising in completing the domestic production of materials and equipment and the structure of self-supporting economy with firm reliance on science and technology.

The reporter stressed that the Cabinet and other state economic guidance organs would work out in a practical way an operation plan for hitting this year’s targets and push forward its implementation in a responsible manner through skillful operation and command to successfully attain the fighting goals set forth by the Party and thus fully discharge their responsibility and duty in glorifying this year marking the 70th anniversary of the DPRK as a year of victory to be specially recorded in the history of the country.

I don’t have time to add more commentary right now, but will hopefully be able to return to this later. Below is KCNA’s rendition of the state budget report on last year and this year and there’s lots of interesting stuff to discuss here:

Deputy Ki Kwang Ho, minister of Finance, made a report on the fulfillment of state budget for Juche 106 (2017) and on the state budget for Juche 107 (2018) of the DPRK at the 6th Session of the 13th Supreme People’s Assembly held on Wednesday.

According to the report, last year the state budgetary revenue plan was over-fulfilled by 1.7 percent or 4.9 percent increase from the previous year.

The local budgetary revenue plan was carried out at 100.5 percent.

Last year the state budgetary expenditure plan was carried out at 99.8 percent.

15.8 percent of the total expenditure was earmarked for the increasing of the military capabilities of the country and 47.7 percent for the development of the national economy.

Investment in the field of science and technology increased 8.5 percent as over the previous year, thus contributing to settling the scientific and technological problems arising in the economic development and to accomplishing the tasks for studying ultra-modern field.

5.2 percent more fund was allocated to key sectors of the national economy and for the improvement of people’s livelihood than the previous year, thus actively promoting the drive for putting power, coal, metal, chemical, machinery and light industrial fields on a Juche basis and updating their production processes. In particular, it helped build a Korean-style oxygen heat blast furnace at the Kim Chaek Iron and Steel Complex and attain the goal of producing new type tractors and trucks.

2.6 percent more investment was made for the construction field than the previous year, while 36.3 percent of the total expenditure was directed to facilitating the building of a highly-civilized socialist power, thus contributing to the implementation of the Party’s policies of prioritizing the education and health care and to the development of sports and literature and arts.

According to the report, the state budgetary revenue and expenditure for this year have been shaped in such a way as to carry out the five-year strategy for the national economic development.

The state budgetary revenue envisages 3.2 percent increase over last year, of which the transaction tax, key item of the budgetary revenue, is expected to swell 2.5 percent while the profits from state enterprises is expected to grow 3.6 percent, to hold 85.3 percent of the total revenue.

The income from cooperative organizations is expected to grow 0.9 percent, the real estate rent 1.8 percent, the social insurance fee 1.2 percent, while the revenue from property sales and price differences is to grow 0.5 percent and other revenue 0.8 percent. The revenue from economic trade zones is expected to increase 2.5 percent.

The central budgetary revenue out of the state budgetary revenue stands at 73.9 percent which means that the revenue from the central economy holds an overwhelming proportion. Provinces, cities and counties are expected to balance expenditure with their own revenue and contribute lots of funds to the central budget.

The state budgetary expenditure is to grow 5.1 percent over last year’s.

An investment in strengthening the independence and Juche character of the national economy and improving the standard of people’s living will increase 4.9 percent as against last year and thus relevant fund will go to 47.6 percent of the total expenditure.

An investment in the field of science and technology will increase 7.3 percent.

Expenditure for the overall national economy including power, metal, coal, chemical and machine industries, railway transport, light industry, agriculture and fisheries will increase 5.5 percent.

The financing necessary for actively promoting the capital construction and further expanding the achievements of forest restoration campaign will swell 4.9 percent.

5.9 percent more fund will go to the education field, 6 percent more fund to public health, 5.1 percent more to sports field and 3 percent more to literature and art.

15.9 percent of the total expenditure will go to increasing the military capabilities for self-defence.

This year also, lots of educational aid fund and stipends will be sent for the children of Koreans in Japan.

The reporter said that the state budget for this year will be successfully carried out through meticulous organization of economic operation and command and thus financially back the building of a powerful socialist country.

(UPDATE 4-15-2018: Korean original for the budget report added below, date fixed above):

지난해 국가예산집행의 결산과 올해 국가예산에 대한 보고

(평양 4월 12일발 조선중앙통신)

11일에 진행된 최고인민회의 제13기 제6차회의에서 조선민주주의인민공화국 주체106(2017)년 국가예산집행의 결산과 주체107(2018)년 국가예산에 대한 재정상 기광호대의원의 보고가 있었다.

보고에 의하면 지난해 국가예산수입계획은 101.7%로 수행되였으며 전해에 비하여 104.9%로 장성하였다.

지방예산수입계획은 100.5%로 수행되였다.

지난해 국가예산지출계획은 99.8%로 집행되였다.

나라의 군력강화에 지출총액의 15.8%를 돌렸으며 인민경제발전에 지출총액의 47.7%를 돌리였다.

과학기술부문에 대한 투자를 전해에 비하여 108.5%로 늘여 경제발전에서 제기되는 과학기술적문제들을 해결하고 첨단분야의 연구과제를 완성하는데 기여하였다.

인민경제의 중요부문과 인민생활향상에 전해에 비하여 105.2%로 늘어난 자금을 지출하여 전력,석탄,금속,화학,기계,경공업부문의 주체화와 생산공정의 현대화를 적극 추동하였으며 특히 김책제철련합기업소에 우리 식의 산소열법용광로를 건설하고 새형의 뜨락또르와 화물자동차생산목표를 점령하는데 이바지하였다.

건설부문에 전해에 비하여 102.6%로 투자를 늘이였다.

사회주의문명강국건설을 앞당기는데 지출총액의 36.3%를 돌려 당의 교육중시,보건중시정책을 관철하고 체육과 문학예술을 발전시키는데 이바지하였다.

보고에 의하면 올해 국가예산은 국가경제발전 5개년전략수행의 요구에 맞게 국가예산수입과 지출을 편성하였다.

국가예산수입은 지난해보다 103.2%로 장성할것으로 예견하였으며 그가운데서 예산수입의 기본항목인 거래수입금은 102.5%로,국가기업리익금은 103.6%로 늘어나 수입총액의 85.3%를 차지할것으로 보았다.

협동단체리익금은 100.9%,부동산사용료는 101.8%,사회보험료는 101.2%,재산판매 및 가격편차수입은 100.5%,기타수입은 100.8%,경제무역지대수입은 102.5%로 늘어나게 된다.

국가예산수입에서 중앙예산수입은 73.9%로서 중앙경제에 의한 수입이 압도적비중을 이루며 도,시,군들에서 자체의 수입으로 지출을 맞추고 많은 자금을 중앙예산에 들여놓을것으로 예견하였다.

국가예산지출은 지난해에 비하여 105.1%로 장성하게 된다.

인민경제의 자립성과 주체성을 강화하고 인민생활을 개선향상시키기 위한 투자를 지난해에 비하여 104.9%로 장성시켜 지출총액의 47.6%에 해당한 자금을 돌리게 된다.

과학기술부문에 대한 투자를 107.3%로 늘인다.

전력,금속,석탄,화학,기계공업과 철도운수,경공업,농업,수산업을 비롯한 인민경제전반에 대한 지출을 105.5%로 늘인다.

중요대상건설을 적극 추진하고 산림복구전투의 성과를 더욱 확대해나가는데 필요한 자금보장을 104.9%로 늘이게 된다.

교육부문에 105.9%,보건부문에 106%,체육부문에 105.1%,문학예술부문에 103%로 투자를 늘인다.

자위적국방력을 강화하는데 지출총액의 15.9%를 돌리게 된다.

올해에도 재일동포자녀들을 위하여 많은 교육원조비와 장학금을 보내준다.

보고자는 경제작전과 지휘를 빈틈없이 짜고들어 올해 국가예산을 성과적으로 집행함으로써 사회주의강국건설을 재정적으로 안받침해나갈것이라고 강조하였다. (끝)

Share

Kalma Coastal Tourist Area Update via Planet Labs

Wednesday, April 4th, 2018

Planet Labs uploaded some high-resolution imagery of the Kalma Peninsula from 2018-3-25 (you can see a sample of the imagery in my tweet here). With it, we can begin to assess the progress of the construction of the Kalma Coastal Tourist Area. I overlaid this imagery onto Google Earth and traced out the buildings under construction. This allowed me to make a reasonably accurate map of the completed tourist area:

The final large-scale housing project launched under Kim Jong-il was the eastern end of Mansudae Street (AKA Changjon Street, “Pyonghattan”). Kim Jong-il died before this was finished, but the completion of this project was one of the first policy successes claimed by Kim Jong-un.  Several others quickly followed: Unha Scientists Street, Wisong Scientists Street, Mirae Scientists Street, and Ryomyong Street.

I have only conducted superficial measures (this is only a blog post after all), but it appears the Kalma Coastal Tourist Area is the most ambitious construction project launched yet in the Kim Jong-un era (in terms of size and number of buildings). There are well over 100 facilities under construction on the beach, stretched over a four-kilometer-long construction site (the Ryomyong Project site was just over two kilometers long by comparison).

Some of the inputs for this project can be domestically sourced, particularly labor (conscripted soldiers), steel, and concrete. Other amenities like flat screen TVs (component parts), electrical equipment (solar panels), computers, sports equipment, transportation equipment will have to be imported at a time when constraints on North Korea’s ability to conduct foreign trade are most acute.

Pictured below (KCTV): Soldier working on the Kalma construction site:

Another item of concern to me is that the North Koreans are literally building houses on sand, and for this kind of work, you need to install a strong foundation before the actual building can be erected. KCTV footage of the construction site (broadcast the same day as the Planet image was taken) reveals that they don’t appear to be doing this:

Completing this project within one year (the rumored construction time) would be a monumental feat. It is possible that, as with Mirae Scientist Street (and maybe others), the buildings will be “completed” on the outside, but only one or two will be completed on the inside (the ones Kim Jong-un will visit). The rest will remain uncompleted on the inside for the unknown period of time it takes for them to be finished. Mirae Scientist Street still has unoccupied buildings, and it is possible Ryomyong does as well.

Click here to read the updated post on the history of this facility.

Share

Weekend reading recommendation: North Korea’s Shackled Economy, 2018

Friday, March 23rd, 2018

By Benjamin Katzeff Silberstein

The National Committee on North Korea (NCNK) has published a report by William Brown, and I urge all those with an interest in the North Korean economy to read it. It is a pragmatic take on the North Korean economy in 2018, noting both the progress and the limits of the changes in its economic system over the past few years. Brown is pessimistic (or perhaps just realistic) about North Korean economic resilience in the face of sanctions, but also notes the great potential for economic development that exists in North Korea’s human capital and skilled labor. Brown’s analysis of the country’s currency situation, one of the most opaque topics in already opaque field, is particularly interesting. Below is an excerpt from the executive summary:

The North Korean economy remains weak and vulnerable, but its structure is changing as it confronts major internally- and externally-generated pressures. Ironically, as UN sanctions have tightened in recent years, the economy has become more decentralized and productive, as weakening state controls have allowed the spread of market activities, providing incentives for individuals and families to work in their own self-interest. Central planning is weakening as money replaces the once ubiquitous ration coupon, and self-reliance on both a national and localized level is increasing as foreign trade and foreign aid dwindle. However, the state-run economy has not withered away, and Pyongyang dictates perhaps half of all economic transactions, a far larger share than does the central government in any other country. The state and its enterprises and the huge farmers’ collectives still own most capital and property, and through their extensive regulations and police powers extract large rents from individuals and families.

The full report can be found here.

Share

An affiliate of 38 North