Archive for the ‘Black markets’ Category

Chinese Koreans and cross border trade

Tuesday, July 29th, 2014

According to the Daily NK:

The Hwagyo, North Korea’s community of overseas Chinese, are seeing their value rise in response to demand for assistance transporting cross-border freight for local traders hamstrung by their proscribed freedom of movement, according to a source inside North Korea. The local traders refer to the process as “renting a passport”.

The source in North Pyongan Province reported to Daily NK on July 28th, “Pyongyang Hwagyo are catering to the tastes of middle-class consumers in the city’s markets by taking orders from individuals or by bringing in goods on the behalf of traders.

“The measles outbreak prevented Pyongyang hwagyo in Pyongyang from taking the cross-border train, but recently that ban was lifted so they can come and go from Dandong again.” The measles travel ban was put in place during June in Yongcheon and Sinuiju, but was withdrawn on July 15th.

Hwagyo are treated as citizens in North Korea, carrying the same identification cards as all other residents; however, they are also able to hold Chinese passports, which allows for greater mobility and autonomy than other North Koreans. That is the reason for the high demand; North Korean traders and wholesalers employ them to ensure that their supplies arrive from China.

“Although there are a lot of hwagyo from Sinuiju and elsewhere in Dandong, Pyongyang hwagyo are the ones who get hired the most because the train ends in Pyongyang; This makes it easier to get the goods into circulation, and the procedures there are not as stringent,” the source reported. “This has caused their value to rise.”

“The hwagyo either use their own money to get products to sell in Pyongyang markets directly, or they use money from traders and take 5% of the total upon delivery,” she said. “They take commission for transferring goods from the cross-border trains to merchants in Pyongyang markets.”

“Merchants used to collaborate with train operators coming in from Dandong to bring goods into Sinuiju. However, more are seeking out the hwagyo instead, because it’s cheaper,” the source said.

There is a stipulated limit of 300kg of cargo per person on the train between Dandong and Pyongyang. Excess luggage is possible, but only up to 50kg, and this is charged at 1.50 RMB per kg, according to the source. The ticket for the 5hr 30min ride is 300 RMB, and this must also be factored into the overall freight transit cost.

The train departs at 10:00 daily. Once it arrives in Pyongyang at around 15:30, passengers and freight are subjected to customs procedures, followed by immigration inspections. “Not a single person can leave the train until everyone goes through immigration and officers check their passports and travel visas,” the source recalled.

“Because the staff in Sinuiji Customs House are tough about inspections and are sure to take at least one thing, it’s safer and cheaper to transport goods via the cross-border train,” the source said, concluding, “How funny it is that this place prevents North Korean citizens from moving around freely and ends up making hwagyo richer.”

Read the full story here:
Hwagyo Step in to Dominate Border Trade
Daily NK
Seol Song Ah
2014-07-29

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On the availability of Chinese and North Korean rice

Tuesday, July 22nd, 2014

According to the Daily NK:

As volumes of rice bought and sold in North Korea continue to rise, stores operated by foreign-currency earning entities and market vendors are entering into greater competition for customers, inside sources in North Korea report.

“Goods including rice, beans and flour are flowing in steadily from China,” a source from North Pyongan Province explained. “In the olden days the arrival of July would have meant the worst conditions for rice, but this year there have been no big shifts and prices have stayed stable.”

A second source in North Hamkyung Province corroborated the state of affairs, saying,  “Every day a number of freight trucks loaded with rice come in through the customs house at Hyesan, and there’s the smuggled stuff, too.”

“It used to be the norm for rice to retail in the jangmadang [market]Stores only traded it wholesale,” the North Pyongan Province source went on. “But now stores are retailing it, too. Any time rice comes in through customs, buyers are there lining up to take it.”

“Stores” run under the auspices of foreign-currency earning entities began to spring up Pyongyang and other major cities toward the end of 2006. They were given formal permission to sell rice and corn alongside manufactured goods, thus in effect ending the state’s official dominance of domestic grain circulation.

The rice sold in markets comes from two sources: China, and domestic farms.  Stores mostly sell rice originating in China, whereas market vendors tend to purvey rice from a variety of sources, sources say. The ratio of Chinese to North Korean rice sold in public markets is roughly 6:4.

Lower socio-economic groups and restaurants catering to the general public tend toward Chinese rice, which is plentiful and cheap but considered insufficiently glutinous. On the other hand, affluent groups are the main purchasers of rice grown in North Korea. The stickiness of the product is higher, but so is the price: roughly 500 KPW more per kilo than Chinese varieties.

“First to attract customers, and then to turn them into regular visitors, both shops and markets are competing on price and service,” one source explained. “The stores sell their rice for 100 or 200 KPW less than the jangmadang, but customers there cannot negotiate, and the seller never throws anything in for free.”

However, this appears to be changing. According to the source, stores have now begun to grant greater price autonomy to shop officials, allowing for haggling over price and other forms of value-added.

“Customers can negotiate prices and get home or business delivery if they purchase more than 100kg,” one source reported. “It’s just like in the market now. Shops have started providing extra services, and delivery men, eager as they are to earn money, have started crowding outside storefronts waiting for customers where once they would have waited on the road.”

Read the full story here:
Price War as Stores Take on Nimble Vendors
Daily NK
Seol Song Ah
2014-7-22

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De facto marketization of North Korean health care

Friday, July 18th, 2014

Eun Jeong Soh, post-doctoral fellow at the ANU College of Asia and the Pacific, has written an interesting article in the East Asia Forum on the innovative practices that have developed in the DPRK’s health care system. According to the article:

In contrast to a number of incremental changes toward marketisation — which the government inevitably adopted — Pyongyang has emphasised its intention to maintain completely free and socialised health and education sectors. As a result, despite lacking the resources to provide for the country’s over 700 hospitals and over 6000 clinics, privatisation and decentralisation in the health care sector has been minimal. There have been reports of privately owned and financed pharmacies in the streets of major cities and in a number of hospitals. Nevertheless, health workers are generally reluctant to seek outside resources directly and autonomously for fear of getting into trouble.

Under this peculiar context, informal health care practices — such as informal payments, a black market for medicines and home-practicing doctors — have developed. In a study conducted by the United States Institute of Peace, 90 per cent of respondents admitted to having made informal payments to doctors and that purchasing medications on the black market was common. Interviews with defectors resettling in Seoul confirm this trend. People have learned to treat themselves at home using antibiotics, glass syringes bought from the black market and herbal or traditional medicines. Doctors and pharmacists have created informal referral networks based on a sense of mutual trust in each other’s expertise and competence.

Another noticeable phenomenon is the emergence of home-practicing doctors. Patients have come to prefer private house doctors — out of both convenience and trust — over hospitals where one has to bring everything from medicines to meals. Such practices are illegal but not uncommon. Even in the old days, given the close doctor-patient relationship fostered by the North Korean-style free health care system, people in emergency situations visited doctors’ homes.

Read the full story here:
Behind North Korea’s hospital curtain
East Asia Forum
Eun Jeong Soh, ANU
2014-7-18

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DPRK reportedly seeks to stem flow of price data

Monday, March 17th, 2014

According to the Daily NK:

In an unprecedented move, the North Korean authorities have warned residents in border areas that sharing information on market prices with the outside world will result in harsh punishment.

A Daily NK source located in North Hamkyung Province reported on the 14th, “Recently lectures at People’s Units have emphasized that the Republic’s secrets are being leaked to the outside via phone conversations. We were threatened that if anyone was caught in the act of calling someone outside of the country they would be sent to a prison camp.”

“It was said that ‘impure elements’ are planning to bring about the collapse of socialism in our style from the inside out,” the source recalled.

“We were also told that market prices were a state secret. Such a thing has never been raised in a People’s Unit lecture before, and the people are dumbfounded that the price of rice, pork and corn can be considered a secret of that magnitude.”

“Others are making more cynical remarks,” the source continued. “They say, ‘We’re the worst off in the world, and since we don’t get paid we can’t buy expensive rice. This is a national embarrassment for them and all they want to do is hide it. That’s why market prices are a state secret as well.’”

Furthermore, “Many ordinary people are of the opinion that the cadres [should be targeted] as they know better than anybody else about state secrets. Smugglers, too, are now concerned for their livelihoods as it is necessary for them to discuss pricing issues with their counterparts in China.”

The flow of information in and out of the country has long been restricted by the Kim regime out of fears of a challenge to their unitary rule.

Others assess that these latest measures indicate the North’s sensitivity over recent criticism leveled against the regime in the South Korean media, an act that the North deems an “insult to the Highest Dignity.”

Read the full story here:
Regime Classifies Market Prices as “State Secret”
Daily NK
Kang Mi Jin
2014-3-17

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Bus transportation popular in DPRK

Thursday, March 13th, 2014

Phyongsong-bus-station-2013-5-3

Pictured above (Google Earth): Phyongsong Bus Station (2013-5-3)

According to the Daily NK:

Not only are North Korean people able to buy and sell goods in markets using hard currency these days; US Dollars or Chinese Renminbi are also in use for the ubiquitous “servi-cha,” one of North Korea’s few reliable means of mass transit.

A source from North Hamkyung Province told Daily NK on the 11th, “Trains only run about once a week, and you’d be a fool if you believed that they would run on time. Demand has risen thanks to this state of affairs, so people are making good money from running servi-cha.”

“If you want to ride a servi-cha you can’t use Chosun currency, you have to use Chinese or American money,” the source went on to claim. “You can get anywhere in the country that you want for 200 Yuan.”

The source said that people in Hyesan opt to travel by servi-cha in part because the journey can take up to a week by train but only takes a day by servi-cha. The route from Pyongsung to Chongjin costs 100 Yuan, and a similar amount is required for the trip from the North Hamkyung Province county of Kilju to the border near Hyesan.

According to the source, the price of North Korean gasoline is currently 11 Yuan per kg, approximately two to three Yuan cheaper than the Chinese equivalent. Diesel trades at 6 Yuan. The source said, “There is no problem running a vehicle these days because there are fuel traders selling cheap North Korean gas alongside every road in the country that buses use.”

Many owners of servi-cha have purchased buses rather than utilizing trucks, as they used to do. Owners offer a portion of their income to local government agencies and enterprises, in effect forming the North Korean equivalent of a Chinese “red hat enterprise.”

These privately run buses are clean and popular, and the business itself is seen by operators as an easy way to earn good money. The servi-cha are mainly new vehicles from China or second-hand ones from Japan, and the average cost is in the vicinity of 12,000 USD (though size and type of vehicle both vary). A well run business can earn 3000 USD per month.

In theory, if a traveller wishes to visit a different region, prior to travel he or she must obtain a certificate authorizing the visit. The 2nd Department of his or her Provincial People’s Committee ordinarily issues these permits; however, corruption among Party officials means that these can also be bought illicitly.

According to the source, servi-cha owners deliver regular bribes to senior security service officials running No. 10 Checkpoints, which are in place on every major thoroughfare connecting regions for the purpose of checking transit papers. These payments ensure rapid transit for customers.

Read the full story here:
Servi-Cha Professionalizing for Kim Jong Eun Era
Daily NK
Seol Song Ah
2014-03-13

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DPRK as e-waste conduit

Thursday, March 6th, 2014

According to Bloomberg:

How did North Korea become the conduit by which thousands of tons of old junk moved from the developed world into China’s bustling e-waste recycling industry?

As with any smuggling story, the tale starts with a prohibition. In this case, Chinese laws and regulations prohibit e-waste — most commonly understood as old, non-working electronics like laptops, monitors and mobile phones — from being imported into the country. The reasons are several, including a government interest in keeping used foreign goods from competing against new ones, and environmental concerns about how some of those goods are recycled. Nevertheless, China’s national-level environmental and customs authorities have long struggled to maintain those prohibitions against local ports and authorities — especially in south China — who view e-waste recycling as a good source of jobs, tax revenue, and used components to drive local industry. Of the several conduits through which e-waste has traditionally been smuggled, the most common and long-standing was over the Hong Kong-China border.

That all changed in February 2013 when — for reasons that are still unclear — Beijing announced “Green Fence,” a high-level crackdown on the import of prohibited waste and recycling exports, including old electronics. Nonetheless, here and there, imported old electronics still turned up in Chinese recycling facilities (I personally saw them).

The likely means, as described in state media after the North Korea bust, was convoluted. A Hong Kong “gang” allegedly received containers of used electronics from abroad. They arranged for them to be placed them on smaller ships bound for a “country in Northeast Asia.” The culprit’s identity is clear from the awkward phrasing. Criticism of North Korea in the Chinese press is exceedingly rare and -– needless to say — connecting the country to an e-waste smuggling ring qualifies as criticism. Were the country Japan, or even South Korea, it would have been named.

In fact, North Korea has long been rumored to be an e-waste recycling center. Since January 2008 a Chinese company based in Liaoning Province along the border has advertised for scrap to feed its e-waste recycling operations in North Korea itself. The facilities are located, according to the ad, in the port of Nanpo, and “take advantage of North Korea’s environmental policies and inexpensive labor resources.” There, the ad promises, prohibited e-waste can be dismantled and transformed into a product acceptable for export to China.

The smuggling ring was allegedly doing something similar, although its “transformed” e-waste clearly did not meet environmental standards. In North Korea the bulky e-waste was dismantled (steel cases would be removed from old desktop PCs, for example), segregated into marketable components like computer chips for re-use, and then sent to Dandong, a Chinese city and port on the Yalu River, directly across from North Korea. From there, the goods were trucked south, to recycling and re-use centers in Guangdong Province, a straight-line distance of roughly 1,800 miles.

Read the full story here:
Did North Korea Recycle Your Laptop?
Bloomberg
Adam Minter
2014-3-6

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More measurement of the importance of markets in the DPRK: residential and public sector energy consumption

Monday, February 3rd, 2014

According to Yonhap (via the Korea Herald):

A fuel ration system in North Korea seems to have been dismantled due to a chronic fuel shortage, a report said Monday.

The report by the state-run Korea Energy Economics Institute (KEEI) said a majority of households in North Korea secure their fuel for heating and cooking on the black market or by themselves, hinting that the country’s fuel ration system might have been scrapped.

The report was made on the basis of data compiled from a poll of 350 North Korean defectors who fled the country after 2011.

According to the report, 51.1 percent of the North’s households bought their heating and cooking fuel on the market, with 42 percent gathering their fuel, such as firewood, by themselves.

Only 6.8 percent of them were provided with fuel for heating and cooking through the country’s fuel ration channel.

The energy consumption of a North Korean household was estimated at 0.291 tons of oil equivalent (TOE) as of 2011. The TOE is a unit of energy which is equivalent to the amount of energy released by burning one ton of crude oil.

The consumption of energy gaining from coal briquettes accounted for 36.8 percent of the total, reaching 0.107 TOE, followed by wood with 0.069 TOE, electricity with 0.038 TOE, oil products with 0.025 TOE and propane gas with 0.023 TOE.

The energy consumption for heating took up 50.9 percent of the total, amounting to 0.148 TOE.

The KEEI said a program for fuel aid to North Korea should be mapped out on the basis of exact data on the energy consumption in the North’s private sector.

You can download the full report here in Korean (PDF). Here is the web page for the Korea Energy Economics Institute.

Read the full story here:
Fuel ration seems to have been dismantled in N. Korea: report
Yonhap
2014-2-3

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DPRK reorganizing rents in Rason

Monday, January 27th, 2014

When Jang Song-thaek was purged, the North Korean prosecutors provided a laundry list of offenses committed against the nation. Among his crimes, Jang was specifically criticized for his management of assets in the Rason Economic and Trade Zone. The public accusation stated, “Jang made no scruple of committing such act of treachery in May last as selling off the land of the Rason economic and trade zone to a foreign country for a period of five decades under the pretext of paying those debts.”

The unnamed “foreign country” in the quote is obviously China, and the subtext of the quote implies that Rason contracts signed under Jang’s protection are in danger of being violated as the North Koreans reorganize the allocation of rents among key leadership organizations. This has to be unnerving to the Chinese business partners that signed these contracts and have been investing in the zone. In a best-case scenario for the investors, the reorganization of patronage would simply mean that they are just making payments to different organizations, but otherwise, business is pretty much unchanged. However, if the North Koreans are taking the drastic step of invalidating contracts and confiscating property, then we would expect to see a significant slow down in development of the zone in the future.

Following news of Jang’s purge, initial reports indicated that both DPRK and Chinese members of the Rason Management Committee had departed the SEZ and that most activities have come to a complete halt. But there are not enough reports to firmly conclude this is the case. Now New Focus has published information on some of the changes taking place in the Rason SEZ. The usual caveats apply:

The Kim Il-sung villa in Rajin-Sonbong is no longer available for hire, according to a reliable source in the area. The de-listing happened in the course of a Ministry of State Security (MSS) surveillance operation in North Korea’s Rajin-Sonbong special economic zone.

The operation was instigated under orders from the Organisation and Guidance Department (OGD) of the Workers’ Party, as it tightens its grip on the zone in the aftermath of Jang Song-thaek’s purge and execution. Nevertheless, the operation is being conducted in a relatively discreet manner so as not to startle Chinese businessmen in the zone.

The talk among senior DPRK cadres is that although Rajin-Sonbong’s Party Secretary, Party Committee Chair and MSS Supervisor are Jang Song-thaek’s associates, they are being left alone for the time being because of their close personal relations with Chinese investors; but that following the Supreme People’s Assembly elections in March, they will be replaced.

Nevertheless, the highest ranking female cadre in Rajin-Sonbong, the Tourism Director, was taken away. This prompted rumours that she was Jang Song-thaek’s lover, but her circumstances make this very unlikely.

The International Club in Rajin-Sonbong closed after the purge of Jang Song-thaek and the coming and going of Chinese businessmen has also decreased. The Kim Il-sung holiday villa in Rajin-Sonbong, which had been rented by HK investing company Emperor Group, has now been confiscated.

This villa is a 70s construction built as a getaway for Kim Il-sung and was a prized landmark in Rajin-Sonbong, with even a commemorative monument to mark the villa’s location. When the Emperor Group set up a casino in the area, they asked for permission to hire the villa for its VIP guests. At first, the Rajin-Sonbong Party Committee refused because it was considered a sacred landmark related to Kim Il-sung.

The person who secured the deal for the Emperor Group was an ethnic Korean Chinese named Ri Bong-hui, director of a fuel oil company. He donated US$1 million as a brokerage fee and the rental permit was granted. Rumours have now been spread that this fee had gone personally to Jang Song-thaek.

Existing land lease agreements in the Rajin-Sonbong special economic zone have also been affected. These originally stipulated that at US$20 / m2, plots of land could be leased for 20-50 years, depending on their location. The agreements have now been invalidated on the grounds that the details had been mismanaged by Jang Song-thaek.

Further, personnel tax and operating tax have been re-calculated and a request has been made by Party authorities in Rajin-Sonbong for the appropriate payments to be made in yearly groupings. As the Rajin-Sonbong authorities have asked for ten years back payment, many small investors from China are complaining about their losses.

The fact that the new rulings are being applied only to smaller companies is said to be exacerbating their disgruntlement. Chinese firms making larger investments are currently exempt, but some are still worried that the new measures might be applied to the bigger investors in a second phase of rulings.

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DPRK-China trade

Tuesday, January 14th, 2014

From the PRC’s Global Times:

“Like the ancient Chinese verse that goes ‘a duck knows the coming of springs beforehand,’ the so-called ‘gray’ trade on the border of China and North Korea serves as a thermometer of North Korea’s politics and economy,” Lin Jun, a merchant from Dandong, a border city of Northeast China’s Liaoning Province, told the Global Times. Lin has 12 years of experience in Sino-North Korean border trade.

Since Jang Song-thaek, allegedly the second powerful man in North Korea, was purged in December, the northeast Asian country has released mixed signals toward the outside world: On the one hand, it seems to be toughening its political stance, but on the other, it pledges continued reconciliation with South Korea and further economic development.

The sensitive border trade between the two countries has witnessed dramatic ups and downs during recent months.

“My North Korean partner came by speedboat on December 30, bringing orders from Sakchu, Bakcheon and Pyongyang, demanding all the goods ready by the next day,” said a man surnamed Deng, who works for Lin.

“However, the next day he suddenly called to cancel the deals without giving any reason. There was no such precedent, even after North Korea conducted the nuclear test [in February last year],” he said.

Luxury goods

“Two years ago, North Korean people mainly needed cooking oil, rice, garments and second-hand electric appliances,” Deng told the Global Times reporter when taking his ship to Sakchu down the Yalu River.

“Nowadays, they will also ask for Apple computers, iPads, cell phones, Japanese washing machines and brand-new fridges, though the consumers of these luxury goods are mostly officials. Even senior officials in Pyongyang are using tablet computers bought from us,” Deng said proudly.

Such gray trade between China and North Korea has been an established fact for a long period, Lü Chao, a Korea expert with the Liaoning Academy of Social Sciences, told the Global Times.

He noted that it was quite commonly seen at border areas that people throw a pack over from one side of the border and those on the other side would pick it up and go away on a motorcycle, hence “gray trade” is also known as “bag-throwing trade.”

Given the long border between China and North Korea and the common language people living around the border share, it is hard to eliminate such trade, Lü noted.

However, although gray trade was not fully legal, it was indeed a supplement to the North Korean economy and a market always short of goods, especially for people’s daily lives, Lü said.

“Those engaged in the border trade are definitely not ordinary people,” Cui Mingxuan, a Dandong businessman who has retired from border trade for more than a year, told the Global Times.

Read the full story here:
Gray trade
Global Times
2014-1-14

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Black market home prices falling

Thursday, January 9th, 2014

According to Radio Free Asia:

Houses in impoverished North Korea are fully owned by the government and trading on them is forbidden. But some dwellers “sell” their homes illegally with the approval of corrupt officials to cash in on the acute shortage of homes.

Sources in provinces along North Korea’s border with China told RFA’s Korean Service that the value of their home transactions had fallen by as high as 85 percent from last summer.

“Housing prices in Gilju-gun, North Hamgyong province, dropped to around U.S. $500 from what was U.S. $3,300 last summer,” a source from the province told RFA’s Korean Service on condition of anonymity.

He said that in North Hamgyong’s Cheongjin city, the trading price for a two-bedroom home had plummeted to around U.S. $3,300 from U.S. $8,300 in the summer last year, and yet no buyers were showing any interest.

Another source from Yanggang said housing prices in his province had been similarly affected in the last several months.

“I was barely able to afford my house near the Yalu River [separating North Korea from China] at around U.S. $3,300 early last year,” he said, also speaking on condition of anonymity.

“The trading price of my house, which was still U.S. $3,300 in August last year, has now dropped to about U.S. $990.”

The Yanggang source said the housing crash began in the fall in the capital Pyongyang and had led to widespread unease because the cause of the depreciation remained unknown.

He added that it was impossible to guess how far prices would drop.

Other sources said that the market crash had led to increased tension in the affected areas.

Read the full story here:
Housing Prices in North Korea Plunge on Black Market
RFA
2014-1-9

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