Archive for the ‘Economic reform’ Category

Construction of new Wonsan Airport continued through winter

Friday, May 1st, 2015

New Google Earth imagery shows continued development of the new civilian airport in Wonsan. The airport is presumably intended to support the Wonsan-Mt. Kumgang International Tourist Zone.

2015-3-26 (Google Earth)

Wonsan-Airport-2015-3-26

2015-2-10 (Google Earth)

Wonsan-Airport-2015-2-10

2014-12-25 (Google Earth)

Wonsan-Airport-2014-12-25

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How to run a “private” bus company in the DPRK

Wednesday, April 1st, 2015

According to the Daily NK:

More independent transportation companies, run by the donju, or new affluent middle-class, are springing up in North Korea’s main transit hubs and driving up fares.

“There is a growing number of bus and truck companies operating not only in Pyongyang but nationwide,” a source from North Hamkyung Province told Daily NK last Friday. “People are buying buses or trucks and then paying the state a certain fee to open up transportation companies authorized by the central authorities.”

She explained that those members of the donju with significant amounts of money establish contacts with central bodies and win over the right to operate. “The ‘Pyongyang Transit and Trade Company’ and the ‘General Bureau of Transportation,’ which fall under the Cabinet, write up permits for individual donju and are authorizing the operations in exchange for a certain amount of the profits,” she said, adding that each region has bus companies that come from those two Pyongyang-based offices, creating a de facto public-private collaborative operation.

The donju, by importing second-hand buses from China for 3,000 to 4,000 USD, are overtly raking in profits and revolutionizing bus transportation in North Korea; personal bus transportation was only available in two to three cities in the early 2000s, including Pyongyang, but now it has spread nationwide. According to the source, some companies own anywhere from dozens to hundreds of buses.

“The fare between Chongjin and Musan used to be 8,000 KPW [1 USD] until just two years ago, but now it has jumped to 50,000 KPW [6.25 USD]. The bus that runs between Chongjin and Kim Chaek is currently 80,000 KPW [10 USD] – ten times the original price,” she noted. “Donju are raising the fares to whatever they want depending on the oil prices and exchange rate with the Chinese yuan.”

In the North’s main cities, state-run trams, trolleys, and long-distance buses do operate, but the vehicles are old and the companies beset by economic difficulties. The number of donju-run companies, however, is increasing by the day, leaving the state no choice but to accept their money and grant them license to operate.

“People are happy that there are more options for transportation but there are a lot of complaints about the expensive fares,” the source said. “Some say it’s not unusual for such companies to be operating in the way they do considering the dilapidated condition of state companies, but in the end it’s the regular people who bear the brunt of it all.”

Additional posts on the DPRK’s bus networks here.

Read the full story here:
Transportation Options Taking Off
Daily NK
Choi Song Min
2015-04-01

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Outline for development of Wonsan-Kumgangsan Tourist Region revealed

Thursday, March 26th, 2015

Institute for Far Eastern Studies (IFES)

North Korea has recently revealed an outline of its plans for the Wonsan-Kumgangsan Tourist Region. In May an information session regarding the development of this project will be held on-site in Kumgangsan.

The Chinese newspaper Liaoning Daily reported on March 21, 2015: “North Korea recently held a briefing session regarding its development plans for the Wonsan-Kumgangsan Region at the Grand Metropark Hotel in Shenyang. The meeting was attended by professionals, scholars and businesspeople from several neighboring Northeast Asian countries.”

According to the newspaper, at the event North Korea revealed development plans for a tourist region of approximately 430 square km in area. It also revealed that there will be six major scenic spots throughout the Wonsan-Kumgangsan Tourist Region, namely, Wonsan, Tongchon, Mount Kumgang, Sogwangsa, Masikryong Ski Resort and Ullim Falls.

North Korean authorities explained, “This year the Wonsan-Kumgangsan Tourist Region development project is considered the most important element of our country’s international economic development efforts. The region is being designed at the government level as a world scenic spot that combines the beauty of the ocean, lake, and city.”

The authorities went on to explain that “Geographically, the Wonsan-Kumgangsan Tourist Region is situated on the eastern part of the Asian continent and the central part of the Choson [Korean] Peninsula. Within a 3-hour flight of that region there are a total of 40 cities with populations exceeding 1 million people […] The region contains a total of approximately 670 tourist sites, 140 historical sites, 10 sand beaches, 4 mineral springs, 10 natural lakes, and 3 million tons of muds that are highly effective in the treatment of neuralgia and enteritis of the small and large intestines.”

While North Korea repairs and expands the existing road network connecting each tourist site (focusing first on Wonsan), North Korean authorities have decided to construct a transportation network by establishing a high-speed railroad between Pyongyang and Wonsan, as well as opening passenger routes between Wonsan Harbor and Rason and Wonsan Harbor and Vladivostok. They will also introduce a series of measures for attracting tourists, including a no-visa system, which is currently being studied.

The authorities also explained that North Korea “guarantees the free economic activity of investors and will offer fixed, regular benefits in areas such as land use, labor employment, and taxes.”

“Tourism, manufacturing, and service businesses will be exempt from corporate income taxes for four years, three years, and one year respectively. Meanwhile, real estate businesses that invest in infrastructure will be exempted from land use taxes for ten years, and those that invest in other areas will be exempt for five years.”

The Liaoning Daily reported that at the information session, O Ung Gil, president of North Korea’s Wonsan District Development General Corporation, said, “I hope that by participating this May at Mount Kumgang in the international seminar regarding the development of the Wonsan-Kumgangsan Tourist Region, everyone will have the opportunity to witness and experience Mount Kumgang first-hand. […] North Korea’s door is always open and investors are welcome any time.”

Various Chinese companies and private organizations hosted the information session. Approximately 50 Chinese professionals and business people, who were invited beforehand, attended the program. Only a few Chinese and Japanese media outlets that were chosen by the organizers were permitted to cover the event.

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DPRK apparently easing up on market restrictions

Monday, March 23rd, 2015

The Daily NK gives us some relatively good news on North Korean market operations.

First, it appears there is an informal easing up on unauthorized street vendors near marketplaces. According to the Daily NK:

Alley merchants [also known as grasshopper merchants]– those who sell goods in alleyways to avoid crackdowns by Ministry of People’s Safety [MPS] officials–are now referred to as “tick merchants,” a term coined after their rapid proliferation, according to sources within North Korea.

Affiliated with city and county People’s Committees throughout North Korea, official marketplaces are run by a management center, charged with collecting and handling fees for vendors renting stalls from which to sell their sundry goods.

However, securing a location for their operations is not feasible for a multitude of residents. “Many don’t have enough money to afford to pay for a stall in the marketplace, so they either sell goods in the alleys of villages or by crossroads in close proximity to the jangmadang [North Korea’s system of markets],” a source in North Pyongan Province told Daily NK on February 9th.

Regulation of these “alley merchants,” of whom there are countless numbers, is carried out by the Ministry of People’s Safety and patrol units falling under its umbrella. Frequently, these officials are know to extort merchants under the pretense of regulating illegal market activity, confiscating their goods, only to turn around and return the merchandise as soon as their bribe demands have been met.

Despite the incessant threat of crackdowns and extortion by these officials, “grasshopper vendors” are determined to continue selling their items, desperate to hold onto their “lifelines,” according to the source, who noted a marked difference in this particular sector of the market economy since just last year.

Of this situation, she said, “With February 16th [Kim Jong Il’s birthday] fast approaching, the number of alley merchants has surged [to sell goods for residents preparing for the holiday], as has the number of MPS officials.” She went on to explain that last year, however, these “grasshopper merchants” largely abided orders, fleeing the premises after the MPS units arrived for fear of the repercussions. But this year most are staying put in these makeshift alleyway market areas, even saying things to the officials like, ‘If we got our rations, do you think we would be putting ourselves through this?’

This is how the newly coined term, ‘tick merchant’, came into existence: derived from a common expression in North Korea–regarding how impossible ticks are to remove and keep away before another comes along–these merchants are much the same–refusing to budge despite the consequences, determined to claim their spot in the market system.

Recently, investigations launched by the Central Party, aimed at rooting out reckless misconduct of MPS officials toward residents, are also thought to be contributing to the ease on regulation of these alley merchants. This, coupled with the bribe culture continually infiltrating the “tick merchant” realm–just as in the rest of North Korea–has seen the number of those engaged in these operations spike; nominal bribes of cash or goods ensure, at least for the time being, that they can do business in relative peace. Not unlike those with official stalls inside the market, some even reportedly pay periodic fees directly to the market management, all but guaranteeing their exemption from regulation.

The residents, and even the MPS officials themselves, are not overly preoccupied with regulations and clampdowns, because, as the source put it, “it becomes increasingly difficult for officials to crackdown on merchants selling in the surrounding areas of the markets, entirely reliant on selling goods to survive.”

Many are concerned that the leniency pervading these alley way operations may be fleeting, but the source asserted things will never return to the past. “When the investigations on the Ministry of People’s Safety officials are over, regulation of the alley markets is expected to become stringent again. Still, at this point, it’s next to impossible for these officials to make residents, largely dependent on business to maintain their livelihoods, obey them, meaning eradicating these ‘tick merchants’ is just as improbable,” she concluded.

And the DPRK has begun lifting age restrictions on market vendors. According to the Daily NK:

Amid relaxation of restrictions on market activities, the North Korean authorities began lifting age restrictions for vendors at the end of last year in some regions and, more recently, scrapping the ban nationwide.

“The authorities have been quite lax with clampdowns and regulations of official markets as of late,” a source in Yangkang Province reported to Daily NK on March 20th. “Those previously not permitted stall rights to sell their products are now being granted these privileges, greatly increasing the number of stalls. Also, women below the age of 50 are no longer prohibited from selling at the markets.”

In the absence of age restrictions, markets have seen a marked increase of women selling goods there. According to the source, the North Korean authorities previously regulated trade activities by women under 50 to deter shirking of ideological study sessions or–even more importantly– nationwide mobilization directives for agricultural or construction efforts, The authorities compromised by granting these women permission to participate in these compulsory organization activities only in the morning, freeing up the afternoon for market activities.

“Since last year, the authorities didn’t really implement clampdowns and have even showed a great deal of leniency to those selling in the alleys. As a result, women who previously idled away at home have been propelled into market life, selling everywhere they can,” she explained.

Unsurprisingly, most women are perplexed, if cautiously elated, by the leniency shown by a system that has wielded such stringent power and regulation over them for so long. “The shift in sanctions feels like hell has frozen over,” many have remarked, adding that they “finally have the opportunity to make ends meet.” Still, many are wary, noting that “you never know when the authorities will abruptly declare a new policy or revert to stringent clampdowns.”

She added that while the state did not lift the restriction to “improve people’s lives” as it claims, it has had a positive impact nevertheless. According to the source, North Korea’s motives for the lift begin and end with procuring funds. “There are thousands of stalls in Hyesan Market; this yields huge profits for the state who collect the fees vendors pay to use the space,” she pointed out.

That said, she maintained a sanguine outlook, remarking how empowering it is to see women effecting change in the markets by expanding their inroads into this sector, while making significant, if not dominant, fiscal contributions within their individual households. “Whereas there were only older women in the markets in the past, you can now easily spot women in their 20s and 30s in the industry,” she explained.

Surprisingly, the reduced regulations have increased rather than diminished participation in state mobilization efforts– such as compost collection or “loyalty singing sessions”– because women are afforded a bit more breathing room from unceasing concerns about how to secure their next meal. The positive results are already palpable, according to the source, who said that “most families are better off now due to women’s increased forays into the market domain.”

Read the full story here:
Crackdowns Ease Up on Alley Merchants
Daily NK
Seol Song Ah
2015-02-11

NK Lifts Market Age Restrictions
Daily NK
Kang Mi Jin
2015-03-23

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DPRK-Russia look to boost business ties

Sunday, March 22nd, 2015

According to Voice of America:

A Russian official said Moscow and Pyongyang have agreed to discuss the creation of advanced development zones in Russia’s Far East and North Korea.

The latest project to be discussed between Russia and North Korea would call for a trilateral project, with South Korea’s participation, said Alexander Galushka, Russia’s minister for the development of the Russian Far East.

In an email sent to the VOA Korean news service, Galushka said Moscow and Pyongyang agreed to “discuss the creation of advanced development zones in the Russian Far East and on the territory of the DPRK with the participation of the Russian Federation, the DPRK and South Korea.”

Economic delegation

The agreement was reached during a visit by a North Korean economic delegation to Moscow in late February. The North Korean delegation was led by Ri Ryong Nam, Pyongyang’s Minister for Foreign Economic Affairs.

Ri and Galushka co-chair a commission tasked with promoting economic ties between Moscow and Pyongyang.

The move is an example of a series of ambitious economic projects recently launched by Moscow and Pyongyang in their efforts to enhance economic ties.

In November, the two sides expanded the Khasan-Rajin project, a project connecting the railways of Russia’s border town and the North Korean port, by conducting a test shipment of Russian coal from Russia to the South Korean port city of Pohang through the Rajin.

In October, the two countries launched a rare joint project that calls for Russia to overhaul North Korea’s railway system in return for access to the North’s mineral resources. The project involves reconstruction of more than 3,000 kilometers of railroads over 20 years.

Galushka said the railway project would pave the way for a significant increase in bilateral trade between Russia and North Korea.

Some analysts are skeptical that the project can be sufficiently financed. So far, Moscow is known to have attracted one domestic investor for the project.

Read the full story here:
Russia, North Korea Boost Economic Ties
Voice of America
Yonho Kim
2015-3-22

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Effort to prevent outflow of capital into markets

Friday, March 20th, 2015

Institute for Far Eastern Studies (IFES)

Since the start of the Kim Jong Un era, North Korea has introduced elements of a market economy while at the same time sought ways to mitigate the side effects caused by the rapid spread of market mechanisms.

The Choson Sinbo, mouthpiece of the General Association of Korean Residents in Japan (also known as Chongryon), revealed on February 22, 2015 that on a number of cooperative farms there are now ‘purchasing sites’ where farmers can barter and exchange goods. The newspaper explained that “[On the cooperative farms] there are purchasing sites where cheap goods are displayed and farmers are able to trade distributed agricultural products […] Through these sites it can prevent farmers from liquidating their produce and thus prevent funds from flowing into the market.”

Through the introduction of the ‘field responsibility system,’ North Korea has reportedly been able to meet demand for daily necessities at these purchasing sites. The state controls these sites in order to prevent farmers from taking goods to the jangmadang or the market when the surplus, which returns to the farmers, increases. Since entering the Kim Jong Un era, the field responsibility system has been expanded throughout the country and is credited with having contributed to North Korea’s increase in agricultural production. The system divides the bunjo (the small production teams on the cooperative farm) into family-sized units of 3 to 5 people and entrusts these units with the work of cultivating small-sized fields.

A system similar to the purchasing sites of the cooperative farms can be found in the city as well. The Choson Sinbo revealed that “[North Korean factories] are purchasing items like food and basic commodities produced in the country and are distributing them to workers as a portion of their wages.” In the years following Kim Jong Un’s rise to power, wages increased exponentially due to the introduction of incentives and the increase in the autonomy of factories and businesses. But because the threat of inflation becomes significant if those increased wages are paid entirely in cash, it is reported that businesses pay a part of workers’ wages in goods and commodities.

The Choson Sinbo added that the ‘Hwanggumbol Shop,’ a convenience store that has been appearing here and there in Pyongyang since December of last year, is also an effort by the state to prevent the rapid expansion of the market. The newspaper explained that the state-operated store focuses on supplying “cheaper prices than the market” and that the goal of the store is to guarantee “the circulation of money through state-operated stores.”

State-operated stores are an attempt to prevent the market from taking a central place in the circulation of money. This is accomplished by having state-run stores supply goods at a lower price than the market and thereby attract consumers. Different from the past, the current regime intends to utilize the market rather than restrict it. It is believed that North Korea will try to keep the market in a condition in which it can be suitably managed.

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2015 Kaesong wage fight (UPDATED)

Wednesday, March 18th, 2015

In 2011, Kaesong workers officially received their 5th consecutive annual pay increase. In 2012, they “received” their 6th consecutive pay increase. In 2013 there was no pay increase because Pyongyang closed the complex down in a dispute with the South Koreans. In 2014, work resumed at the complex and Kaesong workers “received” a 5% pay increase, but Pyongyang wanted a 10% to make up for the 2013 year (in which they closed the complex). Now it looks like Pyongyang is raising tensions (unjustifiably in my opinion) to recover a “pay increase” they feel they are owed.

For those new to this topic, I should point out that we are not talking about wages paid to North Korean workers. We are talking about US dollar balances (cash) that are given directly by South Korean firms to the North Korean government. The North Korean government keeps all of the hard currency and pays its workers in local currency. That said, The North and South Koreans still officially refer to “wages” (even though they are nothing of the sort), so I will as well.

I am chronicling this developing story in periodic updates below.

____________________

 

UPDATE 9 (2015-4-1): S. Korea not budging on Kaesong wage row (Yonhap):

South Korea said Wednesday it will ask the country’s firms at the Kaesong Industrial Complex in writing not to succumb to North Korea’s pressure to raise wages for its workers.

The unification ministry said it will soon send a formal letter to 124 South Korean firms operating in the zone just north of the inter-Korean border.

The move comes as the companies, mostly small and medium-sized, will begin to pay March’s wages to around 53,000 North Korean employees on April 10.

In February, the North decided unilaterally to revise a set of labor rules that included the elevation of the minimum wage for its workers at the Kaesong Industrial Complex from US$70.35 to $74 starting in March.

The South has rejected the North’s decision, saying the wage issue should be decided through bilateral discussions.

It has urged the South’s firms in Kaesong not to follow the North’s measure.

“We plan to send an official letter to them in order to again make clear the government’s stance on the matter,” Unification Ministry spokesman Lim Byeong-cheol said.

He added there has been no progress yet in efforts to hold talks with North Korea to discuss the issue.

Here is coverage in the Hankyoreh.

UPDATE 8 (2015-3-18): South Korean business owners have crossed into the Kaesong complex to complain about Pyongyang’s unilateral wage increase. According to the Financial Times:

On Wednesday more than a dozen businessmen representing about 120 companies visited Kaesong, about 10km north of the border, to voice their concerns about the move, amid growing concerns about the future of the joint economic project

“The unilateral change of labour rules is a problem,” said Chung Ki-sup, head of the council of the South Korean businesses operating in Kaesong, ahead of the 14-member delegation’s arrival in the North. “But this can be easily resolved when dialogue resumes.”

Mr Chung said the North’s stance might in part be a reaction to Seoul’s refusal to ban North Korean defectors and rightwing civic groups from sending anti-North leaflets across the border.

Experts say the wage disputes are unlikely to lead to another closure of the industrial complex, but the problems have renewed scepticism over the merits of the project.

“The disputes are unlikely to be resolved anytime soon,” said Park Hyung-joong, researcher at Korea Institute for National Unification. “Pyongyang wants to use Kaesong as a political bargaining chip when inter-Korean relations are not good. So the complex will remain exposed to political problems, but closing it carries too big political risks for both sides.”

Here is coverage in the Daily Mail and Yonhap.

UPDATE 7 (2015-3-17): The DPRK has tried circumventing the South Korean government to reach out to the Kaesong firms themselves. According to Arirang News:

In an unprecedented move, North Korea asked the heads of South Korean companies operating at the inter-Korean industrial complex in Kaesong to gather for a meeting that was scheduled for earlier in the day.

No specifics about the meeting were announced and the South Korean government asked the company heads. not to respond to Pyongyang’s call.

Instead, the South Korean government held a meeting in Seoul this afternoon with most of the leaders of companies from the complex.

Seoul discussed possible countermeasures and urged the leaders not to abide by Pyongyang’s one-sided demands.

Watchers believe the meeting was Pyongyang’s way of pressuring the South Korean companies to go along with its unilateral decision to raise wages for its workers from a little over 70 U.S. dollars to 74 dollars a month and revise labor regulations.

UPDATE 6 (2015-3-12): The DPRK rejects South Korea’s call for talks on Kaesong wages. According to Yonhap:

North Korea claimed Thursday its decision to raise wages for its workers at the Kaesong Industrial Complex is a legitimate measure under its sovereignty, dimming hopes of an early resolution to disputes between the two Koreas over the issue.

The North’s Central Special Development Guidance Bureau, which is in charge of operating the complex, made clear that it is not a matter to be decided through consultations with the South’s government.

Last month, Pyongyang notified Seoul of its unilateral decision to elevate the minimum wage from US$70.35 to $74 starting in March. It also said it would collect 15 percent of their basic wage plus overtime payments as “social security.” Currently, the South’s firms pay 15 percent of the basic wage alone.

The South strongly protested against the decision, suggesting that the two sides hold dialogue on March 13 to discuss the problem.

Officials here emphasized that the two Koreas have agreed to decide every issue related with the operation of the joint venture through mutual consultations.

The decision on the wage hike is a “normal and legitimate” exercise of the North’s legislative rights, the bureau’s spokesman told Pyongyang’s propaganda website, Uriminzokkiri.

It’s not a subject for bargaining with the South, he added.

It makes no sense, he added, for the North to hold talks with the South at a time when it is staging a war rehearsal with joint military drills with the United States on the peninsula.

He argued that wages for the North’s workers in Kaesong are still low for their heightened skills and productivity and in comparison with the wage level in special economic zones in other nations.

UPDATE 5 (2015-3-11): Throwing fuel on the fire of this mess, the North and South Koreans are required to resolve real estate rental rates this year. There will be no practical way to resolve this issue independently of the ongoing wage dispute. According to Yonhap:

When the Kaesong Industrial Complex in the North’s border town of the same name started operations in 2004, Seoul agreed with Pyongyang to pay the rent for the North Korean land used by South Korean companies from 2015 after negotiations on the amount.

In November, the North’s Central Special Development Guidance Bureau in charge of the industrial complex notified its South Korean counterpart of its intention to start talks on the rent issue, according to the officials.

But the negotiations are widely expected to face a bumpy road, given a wide opinion gap shown in the countries’ previous exchanges on the issue.

In 2009, the North attempted to collect up to US$10 of rent per 3.3 square meters of land, but it faced strong opposition from South Korea, so the plan was dropped immediately.

Following the North’s notification in November, Seoul has decided not accept such a level of rent as put forth by the North in 2009, which could further mount the inter-Korean tension over the factory complex down the road, according to the officials.

The joint Kaesong factory park is already at the center of an inter-Korean feud after the North announced last month its unilateral decision to raise the minimum wage of North Korean workers in the park from US$70.35 to $74 starting with their March wages.

Seoul, however, rejected the wage increase decision and said it will punish any South Korean firms complying with the North Korean demand.

April 10 is feared to become a watershed in the inter-Korean tension over the Kaesong park as South Korean firms will start paying March wages that day.

South Korean officials have previously said that the North could take extreme measures, such as the withdrawal of its workers from the complex in a bid to increase pressure on the issue.

UPDATE 4 (2015-3-9): South Korea not happy with the DPRK’s moves on Kaesong. According to Yonhap:

South Korea’s unification ministry issued a strongly-worded statement Monday against North Korea’s attitude on their joint venture in Kaesong, calling again for immediate dialogue to resolve pending problems.

It’s “deeply regrettable” that the North is not responding to Seoul’s offer of talks to discuss Pyongyang’s unilateral decision to raise wages for its workers at the Kaesong Industrial Complex, said the ministry.

“It’s questionable whether (the North) has the will for the development of the complex as the two sides agreed,” its spokesman Lim Byeong-choel said, reading out the statement at a press briefing.

The North is violating an inter-Korean agreement and rules to decide all issues related to the operation of the Kaesong zone, including working conditions, added Lim.

Last month, the communist nation announced a 5.18-percent hike in the minimum wage for its workers in the zone to US$74 a month starting in March.

“The government can never accept such a unilateral measure by North Korea,” the official said. “The government will take every necessary step for the development of the Kaesong Industrial Complex and the protection of (the South’s) firms there.”

He urged Pyongyang to hold talks with the South on Friday as proposed.

Launched in 2004 in the North’s border town, the zone is home to about 120 South Korean firms, mostly small and medium-sized, which employ more than 53,000 North Korean workers.

The South’s government has advised the companies not to comply with the North’s decision on the wage level.

UPDATE 3 (2015-3-4): South Korean government holding meeting with stakeholders to determine response to DPRK. According to Yonhap:

The South Korean government said Wednesday it will hold a round-table meeting this week with the heads of local firms operating in the Kaesong Industrial Complex to discuss how to handle North Korea’s unilateral decision to raise the wages of its workers there.

The unification ministry is scheduled to hold the meeting with the council of relevant companies at its headquarters in Seoul at 5 p.m. on Thursday, said ministry spokesman Lim Byeong-cheol. The ministry is in charge of inter-Korean relations.

“We plan to review measures regarding the recent situation,” he said at a press briefing. “Along with related government officials, Chung Ki-sup, head of the council, and about 10 other representatives will attend (the meeting).”

Another ministry official also said the meeting is intended “to share the government’s position on the matter and listen to the opinion of the firms.”

Last week, the North announced it would raise the minimum wage for its workers in the zone by 5.18 percent to US$74 a month starting in March.

South Korea said it cannot accept a decision made without mutual consultation.

The ministry spokesman said the North has not responded yet to the South’s offer of talks on the Kaesong complex on March 13.

“The government will continue to urge North Korea to hold consultations between the authorities of the two sides, which are essential for the development of the Kaesong Industrial Complex,” Lim said.

The North is apparently aware that both sides have already agreed to resolve every problem related to the operation of the joint venture, he added.

UPDATE 2 (2015-2-26): According to Yonhap:

North Korea has notified South Korea of its unilateral decision to raise the minimum wage for its workers at the Kaesong Industrial Complex by 5.18 percent, the unification ministry said Thursday.

In a fax message sent Tuesday, the North said it would increase the minimum wage from $70.35 to $74 starting on March 1, a ministry official told reporters.

In addition, the North announced that it would collect 15 percent of their basic wage plus overtime payments as “social security,” he said. Currently, the South’s firms pay 15 percent of the basic wage alone.

The North Korean workers’ average wage amounted to $141.4 per month in 2014, according to the ministry’s data.

Under Pyongyang’s plan, South Korean firms will have to pay $164 on average for a North Korean worker a month, up 5.53 percent from the current $155, said the official.

He stressed that the South’s government can’t accept the North’s move.

“The two sides are supposed to set wages for workers at the complex and other working conditions through mutual consultations,” he said. “The government will advise our firms to pay the current level of wages until the issue is settled through consultations between the related authorities of the two sides.”

Those companies are scheduled to pay March wages for the North’s workers between April 10-20.

Earlier Thursday, the South attempted to deliver a protest letter, but the North refused to receive it, said the official.

“It’s very regrettable that the North shows such an attitude,” he said.

About 120 South Korean garment and other labor-intensive plants employ more than 53,000 North Koreans at the complex, which was created in 2004.

UPDATE 1 (2014-12-09): North Korea amends Kaesong Industrial Complex labor regulations, lifts wage increase limit. According to the Institute for Far Eastern Studies (IFES):

According to a December 5th report of North Korea’s propaganda media Uriminzokkiri, the Presidium of the Supreme People’s Assembly reached a decision on November 20 to revise the Act on the Kaesong Industrial Complex (KIC).

It reported that ten provisions in the Kaesong worker regulations were revised including the 5 percent ceiling on annual wage increase to the minimum wage.

North Korea’s General Bureau for Central Guidance on the Development of the Special Zone delivered the notice in writing to the Kaesong Industrial Complex Management Committee on December 8, stipulating that 13 provisions were revised. Out of the 49 total provisions, the 13 provisions that were modified pertain to the function of the KIC Management Committee and the wage system.

According to the decision, North Korea elucidated the labor and wage regulations will be unilaterally directed by the General Bureau, dismissing the authority of the KIC Management Committee. Furthermore, the clause that depicts the minimum wage of USD 50.00 and limit of 5 percent wage increase were deleted. Instead, the revised provisions prescribe that the General Bureau will make the decision every year.

In addition, overtime pay will be increased from the current 50 percent to between 50 to 100 percent. Furthermore, workers who have worked for more than a year will be eligible for severance pay, regardless of the condition of their leave. The previous clause stated severance pay was to be paid only when the termination incurred from “circumstance of the company”; but this condition has been deleted from the revised clause, and pay must now be given even for voluntary leave. Also removed was the provision that states the wage should be paid directly to the employee in cash.

Meanwhile, the South Korean government made a statement disproving the recent modifications to the KIC regulations. The South Korean government is refuting North Korea’s decision based on the fact that it was a unilateral decision by the North without consulting the joint committees of the KIC. The South is affirming its position to strongly counter against the North’s one-sided decision.

Revision of the labor regulations of the KIC is regarded as a violation to the general agreement that undermines the stability and the credibility of the KIC regulations. Such labor regulations clearly violate the inter-Korean agreements on wage system and various labor and tax systems newly reached by the various institutions in the North-South Joint Committee of the KIC after the KIC was restarted last year.

The current minimum wage of a KIC worker is USD 70.30, which reaches up to an average of USD 150.00 per month after various incentives are included. Each company is paying a total of USD 210.00 per employee where 15 percent of the minimum wage is allocated to social insurance, transportation, and snack costs.

North Korea has persistently demanded for a wage increase. North Korean employees dispatched to China’s Dandong City are paid an average of USD 300.00 per month. Thus, the recent move by North Korea can be seen as a move to raise the minimum wage at the KIC to a similar level. In addition, this move can be interpreted as North Korea’s intention to maximize economic gain by taking unilateral action toward tenant companies in the KIC.

ORIGINAL POST (2014-12-9): In 2011, Kaesong workers received their 5th consecutive annual “pay increase”. In 2012, they received their 6th consecutive pay increase. In 2013 there was no pay increase because Pyongygang closed the complex down in a dispute with the south Koreans. In 2014, Kaesong workers received a 5% pay increase, but Pyongyang wanted a 10% to make up for the 2013 year (in which they closed the complex!). Now it looks like Pyongyang is signaling that it intends to unilaterally raise wages.

According to Yonhap:

South Korea is scrutinizing North Korea’s unilateral decision to amend a number of wage-related clauses at the jointly operated Kaesong Industrial Complex, an official said Tuesday.

As soon as a review of the North’s demands are finished, the government will take appropriate steps, the unification ministry official told reporters.

“We are in the process of reviewing and analyzing the contents revised by the North,” he said on background.

The South and the North have an agreement over 49 items in place on the working conditions for around 53,000 North Korean workers in the zone.

Without prior consultations with the South, the North announced its decision to revise 13 of them, which include scrapping a 5-percent cap on the annual minimum wage increase rates, easing qualifications for severance pay and strengthening the authority of the North’s agency in charge of running the complex, according to the official.

North Korean workers’ wages have jumped 5 percent every year since 2007. North Korean workers are currently paid US$70.35 each month. If various allowances and incentives are counted, wages reach $130, reportedly about 50 percent higher than the average income of workers in North Korea.

Read the full story here:
S. Korea reviewing NK move over Kaesong workers’ wages
Yonhap
2014-12-9

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‘Donju’ step in on state construction

Monday, March 16th, 2015

Sunchon-power-plant-health-complex-2014-12-31

Pictured Above (Google Earth): The Sunchon Thermal Power Plant Health complex

According to the Daily NK:

The donju —North Korea’s nouveau riche — have recently been expanding their business inroads. Whereas this contingent previously forayed in wholesale/retail businesses, the burgeoning real estate market, and transportation, they are now yielding profits by increasingly partaking in state construction projects, Daily NK has learned.

“The South Pyongan Sunchon Thermal Power Plant recently built swimming pools and bathhouses by utilizing waste heat recovery, a project in which several of the donju invested,” a source in South Pyongan Province informed Daily NK on the 16th. “The authorities merely granted permission—the entire project was undertaken with the money invested by the donju.”

The recently constructed swimming pool can hold up to 200 people, creating potential for significant financial profits to be split 50/50 between the state-run power plant and the donju investors, according to the source. She noted that since last year, the Sunchon Thermal Power Plant has already reaped in significant construction funds through residual revenue from the swimming pool.

“The swimming pools, bathhouses, and steam room facilities boast modern amenities, such as restaurants and snack bars, attracting scores of patrons,” she explained. “All the waste heat from the power plant turbines was squandered until the launch of this construction project, which was based on a proposal by the donju to redirect the secondary heat in order to establish swimming pools and steam bathhouses.”

Those members of the donju with more expendable wealth have impressive business acumen, utilizing connections with executives of state-run enterprises in order to partake in various profitable ventures. “The donju are doing what the state cannot ,” the source pointed out.

She expounded on this by saying that donju business domains are rapidly expanding to encompass state construction endeavors. Beset by financial difficulties, North Korean officials are heavily reliant on the donju to implement state-run construction projects, creating a de facto “public-private partnership.” Party cadres forge a symbiotic relationship with the donju: the former receive immense kickbacks from the latter, who are more than willing to pay for the opportunity to expand their business terrains.

“The city of Sinuiju has been carrying out a large-scale national project of building apartments recently,” a different source based in the city told Daily NK. As previously reported by Daily NK, a multitude of the donju have invested in this large-scale venture.

“The donju are investing in the apartment construction under the condition of attaining a certain degree of leasing rights; in other words, they will effectively own the place and charge rent to individuals to reap in profits,” she concluded.

Read the full story here:
‘Donju’ Step In on State Construction
Daily NK
Seol Song Ah
2015-3-16

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Korea-China FTA (as it relates to the DPRK)

Wednesday, March 11th, 2015

UPDATE 1 (2015-3-11): Dandong tries to position itself as gateway to North Korea via China – [South Korea] FTA. According to Yonhap:

The Chinese border city of Dandong, known for its bustling trade with North Korea, has unveiled a plan to become a “bridgehead” to boost trade between South Korea and China as the two nations work to formally sign a bilateral free trade deal.

The plan, put forward by the Dandong city government in Liaoning province on Tuesday during the country’s annual session of the Communist Party-controlled parliament, came as the bilateral trade deal between South Korea and China is expected to be signed within the first-half of this year.

“China and South Korea completed free trade negotiations. Dandong will make efforts to serve as a bridgehead of trade between China and South Korea,” the Chinese city government said in a statement.

The trade deal is expected to give a big boost to the city’s ambition to become a trade hub in the northern parts of the Yellow Sea and the Bohai Strait, adjacent to the Korean Peninsula, it said.

Details of the Chinese city’s plan are sketchy, but the city is expanding its logistics and marketing facilities to cope with rising trade if the South Korea-China free trade deal is implemented, according to the statement.

As much as 80 percent of bilateral trade between North Korea and China is conducted through Dandong.

Although China’s trade with North Korea appears largely unaffected, large-scale economic projects between the allies have made little progress as China’s leadership has been increasingly frustrated with the North’s defiant pursuit of nuclear weapons.

Last week, Chinese Premier Li Keqiang said Beijing will spare no effort to formally sign a bilateral free trade agreement with South Korea “as soon as possible.”

The deal calls for South Korea and China to remove tariffs on about 90 percent of goods traded between the two nations over the next two decades. However, rice and cars were excluded from the deal.

ORIGINAL POST (2015-2-26): Goods at teh Kaesong Complex will be included in the China-[South] Korea FTA. According to the Joong Ang Daily:

More than 300 products manufactured in the Kaesong Industrial Complex in North Korea will be given special tariff reductions for export to China once the Korea-China Free Trade Agreement (FTA) takes effect, the South Korean government said Wednesday.

This is the largest number of products from Kaesong that will be eligible for tariff reductions in a bilateral trade pact signed by Korea. Its FTAs with the United States and the European Union don’t deal with products manufactured by South Korean companies in the North Korean industrial park.

New agreements have been negotiated in the three months since President Park Geun-hye and Chinese President Xi Jinping announced the free trade pact last November in Beijing.

According to the Ministry of Trade, Industry and Energy, a newly upgraded pact was signed and exchanged on Wednesday in Beijing after follow-up negotiations were held recently.

China is the largest importer of Korean goods in the world, and trade with the country has consistently risen over the past decade.

The FTA initialing on Wednesday in Beijing came after three months of continuous negotiations in which the two sides came up with more detailed articles and resolved technical and legal details.

On Wednesday morning, commercial attaches from the Korean embassy in Beijing exchanged the initialed documents with their counterparts.

With the initialing, the two countries confirmed the English version of the FTA document, and the “substantial agreement” announced in November has gotten a step closer to implementation.

The pact still requires official signing and final ratifications from the two countries’ legislatures before going into effect.

“The two governments agreed to do our best to complete an official signing by the first half of this year so that our exporters can start benefiting from the FTA as soon as possible,” Woo Tae-hee, assistant minister for trade and chief FTA negotiator, said at a press briefing at the Sejong government complex on Wednesday morning.

Signings of FTAs are usually done by trade ministers, but an official at the Trade Ministry said this FTA is likely to be signed by the two presidents.

Under the updated agreement, Korean producers of 310 products in Kaesong will benefit from reduced or completely eliminated tariff as if the products were produced locally.

This will improve the price competitiveness of those exports from Kaesong to China.

To be eligible, at least 60 percent of each product’s raw materials should come from China or Korea. The list of 310 products will be renegotiated every year.

The Kaesong provision is a lot more generous than in Korea’s other FTAs, the Trade Ministry says.

Korea’s FTA with the European Free Trade Association (Korea-EFTA), consisting mostly of Scandinavian countries, gave tariff breaks to 267 products from Kaesong. The Korea-India FTA gave breaks on 108 products. The FTAs with ASEAN, Peru and Colombia gave breaks to 100 products.

Korea and China also inserted language into the FTA to launch a group to discuss opening more industrial complexes in North Korea.

The updated Korea-China FTA also includes an article that potentially allows other countries or offshore industrial complexes like Kaesong to join the Korea-China FTA. The article was added on China’s request.

“Through the Korea-China FTA, I think China wants to set up a new trade order within Northeast Asia, which other major Asian economies like Hong Kong and Macau can also participate in and expand this bilateral free trade pact into a larger-scale trade partnership within Asia,” Woo explained.

The two countries also decided to form a separate committee that discusses new business zones in each country to encourage the exploitation of the Korea-China FTA. Discussion of jointly operated business zones received a boost in the wake of Chinese Vice Premier Wang Yang’s visit to Seoul at the end of January.

The locations of such business zones are undecided yet, but candidate regions include Yancheng, Yentai and Guangzhou, cities located on China’s southern and eastern coasts, and Saemangeum on the western coast of Korea.

The Korea-China FTA’s services and investment articles also got more specific.

As soon as the FTA goes into effect, Korean law firms with a China office can do joint projects with local law firms.

The rule will be first tested within Shanghai Free Trade Zone. Also, the Chinese government agreed to lower barriers for business licenses for Korean builders.

However, the Korea-China FTA still seems to be limited to manufacturers, and other areas remain protected by tariffs including farmers and manufacturers in weak sectors.

China excluded most of Korea’s key export items to China in auto parts, steel and petrochemical industries from the tariff elimination list.

Korea’s sensitive agricultural products like rice, meat, vegetables and fruits will still keep their current tariff levels.

The level of tariff reduction and schedule for elimination varies by the product.

But most of Korea’s top exports to China, such as displays, petrochemical products, mobile phones and auto parts, will maintain current tariff levels.

On the other hand, the tariffs on top imports to Korea from China – the list is similar, including semiconductor, mobile phones, computers and displays – will be mostly eliminated as soon as the FTA is implemented.

The details of Korea-China FTA are currently available to the public on the Trade Ministry’s website.

Read the full story here:
Korea-China FTA includes Kaesong
Joong Ang Daily
2105-2-26

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May 30 Measures (5.30 Measures) [UPDATED]

Wednesday, March 4th, 2015

UPDATE 9 (2015-3-4): The Associated Press reveals additional details through an interview with Ri Ki Song, professor of the economic science section at Pyongyang’s Academy of Social Science:

The measures give managers the power to set salaries and hire and fire employees, and give farmers more of a stake in out-producing quotas. Some outside observers say they are a far cry from the kind of change the North really needs, but they agree with North Korean economists who say it is starting to pay off in higher wages and increased yields.

The changes were introduced soon after Kim took over in late 2011, codified last May and, according to North Korean economists who recently spoke to The Associated Press and AP Television News, are now being expanded to cover the whole country.

The focus is on management, distribution and farming, said economist Ri Ki Song of the Economic Science Section at Pyongyang’s powerful Academy of Social Science, in an interview in February with AP Television News. Ri said the goal is to prod North Korean managers and farmers to “do business creatively, on their own initiative.”

An embrace of capitalism it is not.

Pyongyang has not formally disclosed details of the measures, believed to have been approved on May 30, 2014. But according to the North Korean economists, these are some of the major points:

–Managers can now decide on salaries without following state-set levels. Once an enterprise has paid the state and reinvested income to expand production, develop technology and pay for the “cultural welfare” of its employees, it can use the remaining funds to determine pay levels. As an example, Ri said that since instituting this system, the Sinuiju Cosmetics Factory has raised its average monthly salary from 3,000 won (less than $1 or 119.5 yen on the black market) to 80,000 won, with the highest earners collecting 110,000 won. The new salary levels are more in tune with actual living expenses and costs in the real economy.

–Factories or other enterprises can directly negotiate trade deals with foreign entities and hire or fire workers at their discretion. They can also decide what materials to buy and from whom, and negotiate prices.

–On cooperative farms, subunits of 4 or 5 people have been set up so that each farmer has a greater stake in producing a better yield from their plot. Again, after giving the state its share and covering expenses, the surplus–either in cash or produce–can be distributed on a point-based system at the cooperative itself.

If the farming measures are implemented in a way that gives families long-term responsibility for specific plots, they could go a long way toward transforming millions of North Korean peasants from serfs who merely work the land to sharecroppers who gain at least some direct benefit from their labor. Ri said it was an important reason why crop yields were comparatively good last year, despite severe droughts.

Officials, meanwhile, insist they are holding fast to North Korea’s own brand of leader-centric socialism and are only trying out “new management methods of our own style.”

“Our country admits that our economic situation is difficult,” Ri Jun Chol, director of international economic relations at the academy, said in an earlier interview in Pyongyang with the AP. “What I can say is that looking at every quarter, it has made a lot of increase compared to the last year.”

The impact of the measures is impossible to verify because North Korea doesn’t announce economic indicators, saying such data would be useful to its enemies.

Officials also are not ready to give the nod to capitalist-style markets and small enterprises that have sprung up all over the country with the breakdown of the government’s ration system in the famine years of the 1990s. This shadowy private sector is a key engine of the North’s real economy–making up as much as 30 percent of the whole pie. The Kim regime has been more lenient than his father’s, but insists it is a temporary blip.

“In the future, the marketplaces will no longer exist,” the international economy specialist Ri said in his interview with AP. “The main role of the markets is to sell things that factories and other enterprises can’t supply. We allow the markets because the country right now doesn’t have sufficient capacity to produce daily consumer goods.”

UPDATE 8 (2015-2-28): The Economist has published a good article summarizing recent economic changes int eh DPRK–including mention of the 6.28 agriculture policies and the May 30 measures.

UPDATE 7 (2015-2-24): The Institute for Far Eastern Studies (IFES) has published a report on the “Socialist Enterprise Management System”:

“Socialist Enterprise Management System” under Full Implementation

According to the Choson Sinbo, a pro-North Korean newspaper in Japan, North Korea began to strengthen its economic reform measures by enhancing autonomy in industries from August 15, 2013.

The article entitled, “A Look to the Bright Prospects of Building a Powerful Economic Nation” was introduced. It covered a research forum held on February 11 in Japan in commemoration of the Day of the Shining Star.

The article quoted Professor Jae-Hoon Park of Choson University in Japan: “The new economic management method that was adopted into the industrial and agricultural industries from August 15, 2013 was recently formalized into the ‘Socialist Corporate Responsible Management System’ and specific measures were named to fully implement the measures.” He elaborated further on the achievements of the economic reform measures.

This is the first time to hear that a new economic reform measure went into effect in North Korea from August 15, 2013. Previously, North Korea had announced its plans to undergo new economic measures in June 28, 2012 and May 30, 2014.

The Choson Sinbo explained the ‘Socialist Corporate Responsible Management System’ is a new economic reform system in which, “business enterprises are granted certain rights to engage in business activities autonomously and elevate the will to labor through appropriately implementing the socialist distribution system.”

This measure emphasizes the autonomy of business enterprises and is seem to be an expansion of the previously mentioned June 28 and May 30 measures.

In addition, another participant at the forum, Professor Ho-il Moon, explained that “[Work Team] (pojon) responsibility system was introduced from 2013 nationwide. This system was developed to overcome the limitations of equalization of product distribution that goes against socialist distribution principles.”

This year North Korean state media is emphasizing the production in the agricultural industry, and touting the fruition of the pojon system. As a result, the Kim Jong Un regime’s agriculture reform with the pojon system at the core of the changed policy is expected to gain in strength.

According to the Rodong Sinmun, an article on February 6 introduced a successful case of pojon system in an article entitled, “Pojon Responsibility System that Produced Silver.” The article introduced the successes of a cooperative farm in Yongchon District in North Pyongan Province where it is reported to have reaped in more than one ton per chong (or 9,917 square meter) of crops from the previous year in 2013.

The pojon responsibility system reveals a reduction in size of work units working on cooperative farms (previously 10 to 15 people) to a smaller number (3 to 5 people per farm), with each group responsible for cultivating a portion of land. Speculation is that this measure by North Korea may be a precursor step before transitioning to a private farming system.

UPDATE 6 (2015-2-17): The Tongil-Ilbo claims to have a four-page document produced by the North Koreans to explain the 5.30 Measures to foreigners. They did not publish the four page document (why?), but they wrote about it on their web page. Here are some English translation notes from the article:

Could 1st Sec. Kim Jong-un become the North Korean Deng Xiaoping?

– On March 30th, 2013, North Korea adopted Byungjin (병진). Based on this strategy, for now, Kim Jong-un focuses more on economic construction. In 2015 New Year’s address, he emphasized enhancing the living standard of the people.

– Some say that Kim Il-sung tried to construct a political ideology for the nation through the Juche Idea. Kim Jong-il emphasized a “military power nation” based on nuclear power through its military first policy. Kim Jong-un is trying to be Deng Xiaoping in North Korea through economic development.

– Last year, Kim Jong-un proposed the direction of new economy policies through 5.30 Measures, and there is a strong likelihood that North Korea announces specific economic measure from the conception of policies this year marking the 70th anniversary of founding Workers’ Party.

Our Style Economic Management Methods
– 5.30 Measures (5.30담화), announced on May 30th last year with officials who are in charge of the party, state, and military organizations, are about establishing “Our Style Economic Management Methods” (우리식경제관리방법) according to the needs of the day for development.

– In these measures, Kim Jong-un said the methods should be established based on Byungjin (병진) in order to successfully realize the construction of a strong and prosperous socialist nation.

– Especially, Socialist Corporate Responsible Management System (사회주의기업책임관리제) allowed factories (공장), enterprises (기업소), and cooperative organizations (협동단제) to have practical management rights over the means of production based on socialistic ownership (사회주의적 소유), which makes laborers fulfill their responsibility for production and management and realize the principle of collectivism.

– Kim Jong-un urged in the New Year’s address this year that all the factories (공장) and enterprises (기업소) should reduce import dependence or get rid of imports (수입병: “import disease”, too much dependence on imports) and to try to localize materials and facilities [AKA import substitution].

Emphasis on Both ‘Principle’ (원칙) or ‘Actual Benefit’ (실리)? Where should we be more focused?
– As Kim Jong-un pointed out not just the socialistic principle, but also the achievement of actual economic benefits through objective economic principles and scientific logic, he practically focused on “actual benefits”.

– The 5.30 Measures also highlights scientific technology including the importance of scientification (과학화) in economic guidance (경제지도) and all the procedures and elements of production (생산) and enterprise management (기업관리).

– It urges enterprises (기업소) to actively develop new technologies (기술) and new products (신제품), and improve their quality by exercising the authority over product development (제품개발권), quality management (품질관리권) and human resource management (인재관리권), which elevate their competitiveness.

– More specifically, it recommends that factories (공장), enterprises (기업소), and cooperative farms (협동농장) implement Responsibility System (담당책임제) to use and manage national/cooperative property (국가적 협동적 소유) including machine facilities (기계설비), land (토지), and facilities (시설물).

– It is also provides that enterprises (기업소) should assess labor, and distribute in compliance with socialism so that workers receive (받다) fair/commensurate (공정한/일한것만큼) compensation.

– Kim Jong-un urged officials to learn advanced management knowledge and eventually to raise the level of management.

– In the 2015 New Year’s address he emphasized the importance of improving people’s standard of living and constructing an economically powerful and self-supporting economy (자립경제). He also proposed to diversify foreign economic relations (대외경제관계) and to actively carry on its economic special district development business (경제개발구개발사업).

Working-level Taskforce(실무 상무조) is a new generation, assembled for planning and implementation
– It seems that a taskforce (실무 상무조) that normally consists of executives (간부) of each ministry (성) and committee (위원회) was constructed around cabinet executive office (내각 사무국) and national planning committee (국가계획위원회), and it is making specific implementation plans, said Jung Chang-hyun, an adjunct professor of Kukmin University.

– It seems that the taskforce is composed of a younger generation staff, and unlike the 2002 7.1 Measures which were comprehensively implemented, the 5.30 Measures are likely to be implemented incrementally.

– This year, the 70th anniversary of independence, at the same time, for North Korea, the 70th anniversary of the establishment of Workers’ Party, there would be a great celebration on October 10th for the anniversary of founding the party in North Korea, and success or failure of the celebration would depend on economic development, especially, the improvement of living standard of the people that Kim Jong-un proposed at the New Year’s address.

UPDATE 5 (2015-2-9): A Chinese journal has published information on the May 30  Measures.

UPDATE 4 (2015-2-5): Andray Abrahamian at Choson Exchange writes about the May 30 Measures in the Wall Street Journal

UPDATE 3 (2015-2-5): A new report by the Institute for Far Eastern Studies (IFES) refers to a Choson Sinbo article and implies that financial reforms will also be part of the May 30 Measures:

New Economic Management Improvement Measures to Support Financial System Reform

North Korea has a new economic development goal with a target to draw the accumulated capital of North Korean people to promote economic development. Changes to the financial system are being introduced including development of various savings products and promotion of people’s credit card use.

The president of the Central Bank of the DPRK, Kim Chon Gyun, interviewed with Choson Sinbo (a pro-North Korean newspaper in Japan) on February 3 and explained the role of the bank — responsibility for the state’s overall monetary distribution, financial leadership and management — and the recent changes taking place in the bank.

According to President Kim, “The country is trying to better circulate domestically hoarded money to meet the demand for cash in the country’s developing economy.” In this effort, the regime is developing various financial products as well as encouraging its people to use credit cards.

This is an indication that the regime is working on various measures via the development of a variety of banking products to attract more people to deposit money in the bank and use credit cards for purchases.

With increasing international sanctions against the country, North Korea is suffering from foreign capital shortages and is attempting to attract people’s private funds to the bank to fund economic development plans.

“With the establishment of our-style economic management methods, there are plans of improving the methods of financial and economic institutions and installing financial measures in accordance with the emergence of entrepreneurial activities,” said Kim.

This shows that the spread of the market economy is expanding the autonomy of enterprises and increasing the role of the bank in lending activities to provide funds for companies.

Accordingly, speculations are that financial reform is taking place to raise capital in relation to the recent announcement by Kim Jong Un of the May 30th measures, through expansion of individual’s disposition rights, autonomy of enterprises, and decentralization of power.

Meanwhile, the Rodong Sinmun reported on February 3 that “Choson [North Korea] has steadfastly entered the road to happiness.” The newspaper vaunted the achievements of the Kim Jong Un regime, listing as successes the construction of Pyongyang Nursery, Wisong (Satellite) Scientist Street, and Munsu Water Park.

The news reiterated that major changes are underway to resolve food shortages, expressing confidence in economic measures with significantly increased autonomy of economic units. This hints at how the autonomy and decentralization granted to economic agents is acting as an important engine for economic development.

I am still trying to track down a link to the original Choson Sinbo article, but I believe this is it. Here is additional coverage in the JoongAng Ilbo and KBS.

UPDATE 2 (2015-1-26): The Choson Sinbo published an article called “Construction of economy based on the parallel pursuit of economic development and nuclear armament /병진로선에 기초한 경제건설/사회과학원 연구사가 말하는 《현장의 변화》”. A respected colleague has translated the parts related to the “May 30 Measures” and the earlier “June 28 Agriculture Measures” below:

Professor Ri Ki-song [economic research laboratory of the Academy of Social Science] also mentioned that the “Our style economic management /우리 식 경제관리방법의 확립”, which is receiving attention from other countries, also promptly meets the needs of today in terms of North Korea’s earnest strive for economic revival in a peaceful environment.

“At the end of 2011, our supreme leader Kim Jong Un gave guidance on the direction of North Korea. Scholars and workers of the economic field have examined the improvement proposals and broadened its implementations after demonstrative introductions in some units. Last May, our supreme leader also clarified the principle problems concerning ‘Our style economic management methods’.”

According to the professor there are three “clarified principles”. First is accomplishing government’s unified guidance and strategic administration in the economy sector. Second, properly accomplishing responsibility management system of socialist companies in factories, corporations and collective organizations and lastly guaranteeing the party’s leadership in economic business while also firmly promoting political business.

In the meantime, the parliamentary cabinet system along with the parliamentary center system of North Korea has been strengthened and a series of rights (programming rights, organization of production rights, development of products rights, labor management rights, financial rights, joint cooperation rights, etc.) that enable all enterprises to actively and emergently lead business activities, have been readjusted.

During the past 2 years, production has increased in many business entities that accordingly brought on a rise in employees’ standard of living. There were many cases that guaranteed much higher living expanses than previous also in the suburban factories that Professor Ri had visited. There was significant increase especially in units that produced exports such as the Rakwon Machine Complex Enterprise.

In collective farms, a system within the work team management, which makes the farmers take responsibility for their assigned fields, interconnected with the farmers’ enthusiasm for produce and increase in grain production was seen as a result.

Professor Ri pointed out that “there are objective conditions that enable ‘the method that makes farmers take responsibility for the farming of their assigned field’ to be effective”.

“One is establishing a financial basis for agriculture. That is, the nationwide land readjustment program and organization of the natural flowing waterway that were realized in the 20th century by the order of our supreme leader Kim Jong Un. Other is the increase of national investments in the agriculture sector following the parallel pursuit of economic development and nuclear armament of the Kim Jong Un era.

Farmers in collective farms also received increased shares of agriculture produces according to the work done.

So this article sets up the narrative that Kim Jong-un launched the process for establishing new management measures in 2011.

UPDATE 1 (2015-1-15): According to the Institute for Far Eastern Studies (IFES):

In a January 8, 2015 article publish by the Choson Sinbo (a pro-North Korean newspaper in Japan), the North Korean economy was described as a “flexible collectivist system,” adding that “Choson’s (North Korea’s) socialist economy promotes the establishment of a collectivist system that can flexibly respond to the current development.”

The news article explicated that this system is “under the plan and unified guidance of the state which guarantees the socialist enterprises to achieve economic development through ensuring active and evolutionary actions.” This hints at North Korean leader Kim Jong Un’s plans to continually promote a somewhat relaxed socialist planned economy in the future.

Since Kim Jong Un came to power, his regime has taken action to change the management structure and expand the autonomy (and incentives) of enterprises and farms, inter alia. Such changes can be interpreted as North Korea’s moves to highlight the flexibility of the system and the independent actions of economic agents.

The Choson Sinbo article continued: “By adhering to socialist ownership and strictly following objective economic laws in economic guidance and management, rational and just economic space will be created.” It added that “the ultimate conclusion in the establishment of our-style of economic management system is the improvement of people’s living standards.”

According to the article, “Kim Jong Un announced a historic measure regarding the establishment of ‘our-style economic management method’ in May 2014.” This seems to confirm that the recent economic policy announced in North Korea was headed by Kim Jong Un. (Note that in his 2015 New Year Address, Kim Jong Un also emphasized the need for the Cabinet, state, and Party organizations to “make proactive efforts to establish the economic management method of our style,” suggesting it as an important task of 2015.)

Until now, there was only speculation that North Korea had plans to expand elements of the market economy and widen the scope of the policy target. The speculation was based on last year’s announced ‘May 30th Measures’, the details of which were vaguely known. However, this recent article by Choson Sinbo seems to support the certainty of this policy.

The newspaper further elaborated the importance of North Korea’s ‘parallel policy of nuclear and economic development’, but also emphasized the regime’s focus on improving people’s living standards through the “defense industry’s lead to develop the science and technology sector and introduce its achievements to the economic sector associated with people’s livelihoods.”

In regards to the recent US sanctions against the DPRK following the Sony Pictures hacking incident, the news article explained that North Korea was embarking on a variety of strategies — such as seeking multifarious development of foreign economic relations, realizing various trade transactions, increasing the ratio of domestic goods (versus imported goods) of raw materials and equipment — in order to minimize the impact of the US sanctions against the DPRK economy.

The news article concluded that North Korea is not likely to give up its current ‘parallel policy’, despite the foreign threats. Rather, in response to the threats, the DPRK is developing existing foundations of the self-supporting economy in order to be self-sufficient in raw materials and equipment and improve the ratio of domestic goods to imported goods.

ORIGINAL POST (2015-1-15): I was on holiday break when all of the discussion on the “May 30 Measures (5.30조치)” broke out on the internet, so I am getting a late start to this.

First there were two reports (both in Korean) that apparently discuss new “May 30 Measures”. One report is by the Institute for Far Eastern Studies (IFES) and the second is by the Hyundai Research Institute. I will see if I can get these translated (the key parts anyway).

In the meantime, here is a summary that appeared in Yonhap (2014-11-30):

North Korea’s Kim Jong-un regime may announce a new policy vision for politics and the economy next year as the country intensifies efforts to open up a new era of the new leader, a report by a local institute showed Sunday.

“There is a possibility that North Korea may propose a new set of governing norms and power structures as it opens up the era of Kim Jong-un next year, in which the three-year mourning period for (late leader) Chairman Kim Jong-il will have been ended,” said the report by the Institute for Eastern Studies at the Kyungnam University.

“(The country) could suggest a new power structure that suits the Kim Jong-un epoch as the National Defense Commission system was (introduced) for the Kim Jong-il era and the premier system for the Kim Il-sung era,” according to the report.

On the economic front, the North is expected to push to legalize a set of new economic measures the country has experimented with in recent years, the report said, adding homegrown market forces have been pressing for economic reform.

“North Korea’s efforts to lure in foreign investment to its special economic and economic development zones may continue into the (following years),” it noted.

Andrei Lankov commented on the new economic measures mentioned in the two reports–implying that these measures are built on the success of the June 28 (6.28) Measures–with management changes in store for the agricultural and enterprise sectors of the economy. Writing in Al Jazeera, he noted:

This time, the big news is indeed a decision, the so-called “May 30th Measures”, jointly issued early this year by the North Korean cabinet of ministers and the Central Committee of the Korean Worker’s Party. This decision was initially classified, but because it was supposed to be read by so many people, its contents have become public knowledge.

The contents are revolutionary. It seems that, at long last, North Korea has decided to begin Chinese-style reforms. Marshal Kim Jong-un is obviously inclined to do what his late father, Generalissimo Kim Jong Il, was too afraid to, that is, to attempt to transform his country into a developmental dictatorship, largely similar to present-day Vietnam or China.

This decision did not come out of the blue. Indeed, it agrees very well with what Kim Jong Un and his advisers have quietly been doing over the last three years – albeit the slow-motion transformation of the country has attracted little attention from outside world.

The first significant step was the introduction of the so-called “June 28th Measures”. These measures were introduced in 2012, but only became fully into force in 2013. While on paper, they did not look that ground-breaking, they represent a sweeping reform of agricultural management in the North.

The “June 28th Measures” allowed North Korean farmers to create their own production teams of five or six people. It was not explicitly stated, but it was a signal that individual households should register as “production teams”. Such teams were given a plot of land, the assumption being that they would toil the same area for several consecutive years. The land technically remained under the jurisdiction of the state-owned and state-managed “collective farm”, but the produce would henceforth be split 70:30 between the state and the production team (ie the family). Up until then, North Korean production teams had been much larger, and all produce had to be submitted to the state in exchange for a fixed daily grain ration that was allocated to every farmer.

Given the precedent in agriculture, the “May 30th Measures” are not quite as surprising as they may first appear, though they are indeed truly radical by the standards of North Korea before 2013.

According to these measures, from 2015, North Korean farming households (for ideological purposes still branded “production teams”) will be allocated not 30 percent but 60 percent of the total harvest.

Additionally, farming households will be given large plots of land – some 3,300sq m – to act as their kitchen gardens. Until now, North Korea, unlike nearly all other communist states, never tolerated private agriculture to any significant degree, and thus, for decades, kitchen gardens were limited to a meagre 100sq m.

The measures did not stop there, though. This time the North Korean leadership has set its sights on reforming the moribund and hollowed out state industrial sector. According to the reforms, directors of state factories will find themselves covered by a new “director responsibility system”. This system makes a director, hitherto state-appointed and carefully supervised representative of the party and state, into the approximate equivalent of a private businessman (factory managers in North Korea are almost always men). Under the new system, factory directors will have the freedom to decide how, when and where they purchase technologies, raw materials and spare parts necessary for their enterprises. They will also be allowed to decide who to sell to. They are also given the right to hire and fire workers, as well as to decide how much to pay for a particular job.

Under the new system, there is a tacit assumption that directors will be able to reward themselves generously for their own work – a feature that makes them virtually indistinguishable from private entrepreneurs in market economies. As a matter of fact, a few foreign delegations that recently visited North Korea were privately briefed about coming changes.

Lankov also wrote a similar article for the New York Times:

A new set of market-oriented reforms adopted by the Central Committee of the Workers’ Party and by the cabinet of ministers on May 30, 2014, appears to aim to liberalize the economy as a whole. The content of this classified economic policy document was first partially leaked to the South Korean daily Segye Ilbo in June. Later it was confirmed by many sources and is now widely discussed by Pyongyang watchers.

The “May 30 Measures,” as they’ve come to be known, envision the significant reduction of state control of the economy and a dismantling of central planning. Managers of state enterprises will be allowed to purchase items on a free market, making deals with other enterprises or even private businesses. They will be given the right to fire and hire workers, and pay them as much as they want.

At coal mines near the border with China, where the new “system of managerial responsibility” has been tested since late 2013, the best miners may now receive up to $70 a month, an exorbitant wage for the North.

Mr. Kim has also left untouched the unofficial private economy, which began to grow in the 1990s and now contributes significantly to North Korea’s tiny G.D.P., as much as 50 percent by some estimates. This economy of small businesses like food stalls, bicycle repair shops and truck deliveries, as well as larger ones like small coal mines and fishing companies, has never been explicitly accepted by the government. But since Mr. Kim’s ascension, officials have left this gray market alone.

The agricultural reforms are already bearing fruit. In 2013, the country enjoyed the best harvest in decades when — in a first since the 1980s — it produced nearly enough food to feed its population on a subsistence level.

Choson Exchange also offered some helpful comments from the Hyundai paper.

These items are probably also related:

1. Economic Management Improvement Measures – changes after one year (IFES, 2014-4-11)

2. North Korea’s ‘New Economic Management System’: Main Features and Problems (Korea Focus, Park Hyeong-jung)

3. Recent DPRK wage increases / economic management changes

4. Recent information on implementation of economic adjustment policies

5. “Securing economic profit,” fundamental to economic management (IFES 2014-10-31)

6. North Korea’s evaluation of its 2013 economic policy

7. Worker’s Party sets up Economy Department

8. North Korea making visible progress towards economic reforms

9. DPRK altering Commercial Distribution system

10. Kim Jong-un’s directions on improving economic management

11. Miners Fail to See Promised Salary Bump (Musan Mine)

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