Archive for the ‘Black markets’ Category

North Korea and taxation: some possible causes

Friday, March 18th, 2016

By Benjamin Katzeff Silberstein

As this blog noted yesterday, South Korean daily Joongang Ilbo claims that the North Korean government may formally reintroduce a tax system before May this year, when a Worker’s Party convention will be held.

The goal, according to Joongang’s source, is primarily to formalize the private economy further. The latest UNSC sanctions are forcing the government to seek out more sources of revenue, and the growing private economy is seen as a resource that can still be tapped further.

Moreover, the source says, the state is planning to expand trading permits for private merchants, both on the formal markets and in private business in general. Under the new system, the state would essentially let merchants get access to land, water and electricity in exchange for a fee, much like in other countries where the state holds a monopoly on goods that often fall into the category of natural monopolies.

This is all interesting for several reasons. First, since the notion of North Korea as a tax free society might appear puzzling to some, it is worth taking a look at why the government decided to abolish taxes in the first place.

Ironically, had Joongang waited a few weeks before publishing the news, they would have hit the 42nd anniversary of the decision to make North Korea formally tax free. For it was on March 21st in 1974, at the Third Session of the Fifth Supreme People’s Assembly that Kim Il Sung officially announced that taxes were abolished. According to a KCNA-piece published in 2009, highlighting the occasion, the decision was taken as a step towards full socialism and framed in a historical context.

Taxation was a vestige of the past: the Japanese colonial power had instituted a “predatory” tax system that Kim Il-sung had vowed already in the 1930s that he would get rid of.  (The Choson Dynasty (1392-1910), too, of course, had a tax system that could at times well be called predatory, but the KCNA piece does not mention this).

The ideological rationale, of course, is that under socialism, you don’t need taxation because private property has been abolished. In North Korea, collectivization of agriculture, for example, occurred only gradually. According to KCNA, agricultural taxes-in-kind were fully abolished by 1966. Given recent policy changes where farmers supposedly now get to keep a more significant share of their production than before, one could argue that taxation has in effect already been brought back to agriculture, and that the tax-in-kind-rate is around 70 percent.

So why could the government want to bring back taxation? Aside from the reasons given by the Joongang article, one could speculate about a possible connection with the remarks cited by KCNA earlier this year about party officials “seeking privileges, misuse of authority, abuse of power and bureaucratism manifested in the party” (February 4th, 2016).

Corruption is often an integral part of everyday life for anyone involved in business in a country that lacks a functioning rule of law. Corruption is known to be strongly institutionalized in North Korea, and when news of discontent come out of North Korea, it often has to do with arbitrary rule changes and regulations regarding market trading and business. A formalized tax system doesn’t itself guarantee a transparent set of rules and regulations, or that these rules are followed. But it is an almost necessary prerequisite.

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The UNSC sanctions and the North Korean economy

Friday, March 11th, 2016

By Benjamin Katzeff Silberstein

In the past few days, Daily NK has carried a number of interesting reports on how the latest round of UNSC sanctions have impacted the domestic economy in North Korea. Below, I’ve gathered a compendium of sorts. I’ll continue updating it as more stories surface.

Only a short while after the sanctions were announced, trucks carrying mineral exports were blocked from entering China. Some businesspeople were apparently surprised at China’s relatively forceful implementation of the sanctions, given that little impact had been seen from past sanctions:

Chinese authorities began prohibiting mineral exports from North Korea on March 1st in a move not strictly related to the passing of UN Security Council Resolution 2270, which outlines sanctions against North Korea. North Korean authorities and foreign-earning currency enterprises tied to the military did not see this move coming and expressed embarrassment and shock.

In a telephone conversation with the Daily NK on March 4, a source from North Pyongan Province said, “Beginning on March 1, mineral exports such as coal and ore have not been allowed to pass through Chinese customs into China. Trucks loaded with mineral deposits have been idly waiting in front of Chinese customs near Dandong. The foreign trading companies are simply waiting for instructions from the higher authorities.”

Full story:
Trucks loaded with mineral exports blocked from entering China
Seol Song Ah
Daily NK
2016-03-07

A few days later, Daily NK reported that “panic” had begun to set in, not just among high-level businesspeople and traders involved in the mineral extraction industry, but also among market vendors who worry that they won’t be able to buy products for import from China:

“The news that the UN resolution containing sanctions against North Korea passed unanimously is spreading like wildfire through [domestic] cell phones. People in the North had little interest in sanctions in the past, but these days they are expressing concern that ‘this time things are going to be different,’” a source in South Pyongan Province reported to Daily NK on March 7.

A source in North Hamgyong Province corroborated this news, reporting the same developments on the ground in that region.

“Sinuiju is known as the gateway to China and the ultimate symbol of friendly relations between our two nations. That’s why news of its closure to mineral exports is causing dismay,” she explained, adding that a rumor has also taken off that international customs offices in other border towns such as North Hamgyong’s Rajin and Hoeryong will be shuttered.

Further anxiety is being stoked by the fact that trusted allies such as China and Russia are participating in the sanctions and the fact that residents are getting detailed information about the resolution’s specific clauses.

“People are further concerned because things have apparently changed significantly since China helped the country to overcome the difficulties during the ‘Arduous March,’ [famine] in the mid 1990s. People from all over the country are concerned that China might shut the border down totally. If that happens, it will become difficult for everyone to make a living,” the source indicated.

“Wholesalers and market vendors are feeling the most vulnerable to the UN sanctions. Their greatest fear is that they won’t be able to buy products. Merchants who have been selling Chinese products at cheap prices are expecting a cost increase and have momentarily discontinued sales.”

Full story:
Panic sets in as sanctions specifics circulate 
Daily NK
Choi Song Min
2016-03-08

Not just mineral exports to China have taken a hit. Food products specialties like hairy crab, frequently imported to cities like Yanji in China from North Korea’s northern fishing cities like Rajin, are now being sold at domestic markets instead:

“These days items that were previously hard to find because they were earmarked for export are suddenly emerging at the markets,” a source from North Hamgyong Province told Daily NK on Thursday. “The price haven’t gone down enough yet, so you don’t see too many people actually buying them. But you do see flocks of curious people coming out to the markets to see all the delicacies for sale.”

She added, “High-end marine goods like roe, sea urchin eggs, hairy crab, and jumbo shrimp and produce like pine nuts, bracken, and salted pine mushrooms were once considered to be strictly for export, but now they’re easy to find. The number of such products, referred to as ‘sent back goods,’ at Sunam Market and other markets around Chongjin is growing by the day.”

Additional sources in both North and South Hwanghae Provinces reported the same developments in those regions.

Despite the sanctions that have already kicked in, products from China are still flowing into North Korea. however, the goods sold in bulk to China–minerals like coal, marine products, etc.– have nowhere to go and are therefore making their way back into the country.

Full story:
Would-be food exports to China popping up in jangmadang
Choi Song Min
Daily NK
2016-03-11

Politically, too, the topic of sanctions has become highly sensitive. According to reports by Daily NK, surveillance authorities have increased their focus on certain groups that they deem as more likely than others to speak out about the added pressures from the sanctions:

The boost in surveillance is interpreted as a move by the regime to nip in the bud any rumblings of political unrest engendered by members of society more likely to speak out about the pressure squeezing North Korea. Those tracing the lines of the circumstances leading to this pressure, namely a volley of sanctions lobbed at North Korea by the international community in response to its nuclear test and rocket launch, are a threat to the regime’s authoritarian grip over the population.

A source with the Ministry of People’s Security [MPS, or North Korea’s equivalent of a police force] informed Daily NK on March 8 that internal orders came down at the beginning of March for the MPS to survey and track the recent movements of those anyone ascribed to the “wavering” cohort. Two separate sources in the same province verified this information, but Daily NK has not yet confirmed if the same orders are in effect in other provinces.

Full story:
MPS steps up surveillance to suppress potential ‘pot stirrers’
Kang Mi Jin
Daily NK
2016-03-11

(UPDATE 2016-02-18): a couple of days ago, Daily NK published another piece on this topic. They note that market prices have remained relatively stable, and that many people don’t seem to treat this sanctions round as anything out of the ordinary:

Market prices in North Korea have remained relatively stable despite stronger sanctions enforced by the international community, including China, as well as greater limitations on market operationsdue to nationwide preparation for Pyongyang’s May Party Congress.

Multiple Daily NK sources within the country have confirmed that rice prices in Pyongyang, South Pyongan Province’s Sinuiju, and Ryanggang Province’s Hyesan are trading at 5,100 KPW, 5,150 KPW, and 5,080 KPW per kilogram, respectively, similar to levels before sanctions were stepped up (5,100 KPW, 5,100 KPW, 5,260 KPW).

This is also the case on the foreign exchange front, with 1 USD trading for 8,150 KPW in Pyongyang, 8,200 KPW in Sinuiju, and 8,170 KPW in Hyesan, showing some signs of strengthening for the local currency from pre-sanction rates (Pyongyang 8,200 KPW, Sinuiju·Hyesan 8,290 KPW).

“There had been concern we would see fewer goods in the market because of UN sanctions, but in reality, there hasn’t been much difference,” a source from North Pyongan Province told Daily NK in a telephone conversation on Sunday. “The state is placing restrictions on opening hours for the market for the ‘70-day battle’ (mobilization for the Party Congress), but the markets have remained lively, and there’s not much change in terms of market prices.”

Further confirming trends previously reported by Daily NK last week, an additional source in North Hamgyong Province reported yesterday that some people had stocked up food worried about sanctions from the UN, but that this hasn’t led to a violent gyration in prices. “Actually, in some regions, we’re seeing prices of certain products drop,” he noted.

This price stability seen in the marketplace, in spite of the sanctions having kicked in earlier this month, can be attributed to the fact that most products are still trading as they would have save one of the North’s main export items: minerals.

The simple reality that people have experienced similar times before is also at play. “In the past, people who had stockpiled food during other sanctions discovered that after the political climate evened out a bit they were unable to get their money’s worth for everything they bought. This is why we’re seeing less of it,” a source from Ryanggang Province explained. “Initially there was a little bit of noise, but in general people are remaining calm.”

Full article:
Market prices so far showing resilience against sanctions
Daily NK
Kang Mi Jin
2016-03-14

Also, Marcus Noland recently launched a “Black Market Contest” at the Witness to Transformation blog, letting readers bet on what will happen with the unofficial exchange rate as a result of the sanctions:

The exchange rate issue has re-emerged with the imposition of sanctions. My colleague Steph Haggard leans toward the view that the imposition of a broader set of sanctions, particularly with respect to mining, together with enhanced Chinese enforcement will generate a balance of payments cum financial crisis with uncertain implications for political stability. I am more skeptical of both the additional coverage and the likely Chinese rigor in enforcement.

But this is an empirical issue. If the sanctions bite, then one would expect to see their effects manifested in the black market rate on the won. So we decided to offer up this conundrum to the wisdom of the crowd, or at least of our readership, in this Witness to Transformation Black Market Contest. Yes, you can ply your wits against North Korean loan sharks and black market traders. Or maybe the North Korean monetary authorities. Here’s how it works.

Steph thinks that within two months, evidence of the impact of sanctions should begin to emerge. So the object of the contest is to guess the black market won-dollar rate two months hence. Since the sanctions resolution passed 2 March, we will use the first DailyNK average rate applying to the post-2 May period as the reference. So you have the next month to analyze trade data, contact spies in Dandong, or call in favors in Switzerland to inform your estimate. Whoever guesses closest to the May black market rate wins. In the event of a tie, whoever submitted their entry first wins.

Please list your estimate in the comments section below. The entry period closes 15 April.

Full article:
Witness to Transformation Black Market Contest
Witness to Transformation blog
Marcus Noland
2016-03-16

(UPDATE 2016-05-02): DailyNK continues to cover domestic prices in the context of the sanctions. In late April, vegetable prices rose, but rice prices remain notably stabile:

Despite these high prices, movements on the rice and foreign currency front have remained relatively stable, leading people to believe the spike in vegetables will be short lived.

“Vegetables are not export items and therefore their prices are determined by domestic supply and demand,” the Pyongyang-based source noted. “However strong the sanctions may be, rice prices have nonetheless remained the same and, under these conditions, not many will choose to eat expensive cabbages over rice,” the source added, suggesting that prices are likely to return to normal as the markets readjust for supply and demand.

Full article here:
Vegetable prices spikes, rice remains stabile 
Daily NK
Kang Mi Jin
2016-04-28

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Unofficial and official exchange rates in North Korea: how big is the gap?

Thursday, February 4th, 2016

By Benjamin Katzeff Silberstein

Photographer Jaka Parker, who lives in Pyongyang and runs a highly popular Instagram page with everyday life pictures from Pyongyang, recently photographed a table showing the official exchange rates of the North Korean won to several major currencies, including the US dollar and Chinese yuan. Mr. Parker has been kind enough to allow North Korean Economy Watch to publish his photographed table, seen here below:

Official exchange rates of the Foreign Trade Bank of the DPRK. Photo credits: Jaka Parker.

Official exchange rates of the Foreign Trade Bank of the DPRK, January 28th. Photo credits: Jaka Parker.

It is interesting to note how these rates compare to unofficial market exchange rates gathered by Daily NK. Their latest data covers the period of January 7th-13th, so these two sets of figures may not be fully comparable. However, they at the very least give an interesting indication of the difference between the official and unofficial rates. Below are the $1-prices at unofficial market rates given in Pyongyang, Sinuiju and Hyesan according to the latest available information (in North Korean won):

  • Pyongyang: 8190
  • Sinuiju: 8260
  • Hyesan: 8190

As Mr. Parker’s picture shows, the $1-price at the unofficial rate (in Pyongyang) was 109.60 won on January 28th. This would suggest that the unofficial USD-rate is roughly 80 times higher than the official one.

Compared with data from 2011, the discrepancy between the official and unofficial rates is significantly larger today. In 2011, the unofficial rate was $1 = 3,000 won, and the official one at $1 = 100 won. Since then, the unofficial won-rate has depreciated significantly against the dollar. (which has essentially flattened out since 2013: see graph below, based on price data from Daily NK and put together by the present author). In other words, while unofficial rates have soared, the official USD-to-won-rate has essentially stayed the same.

Inofficial market exchange rates over time, Won for USD. Data source: DailyNK. Graph created by Benjamin Katzeff Silberstein.

Unofficial market exchange rates over time, Won for USD. Data source: DailyNK. Graph created by Benjamin Katzeff Silberstein.

That’s a snapshot of late January. However, Mr. Parker has also generously allowed me to publish other pictures he has taken of exchange rate tables at institutions in Pyongyang. Below is a quick look at a few exchange rate figures from last year, with rough comparisons to the corresponding black market exchange rates (all figures for the unofficial market come from Daily NK and I include the rate in Pyongyang only). Note how smaller currencies like the Swedish krona (SEK) can be exchanged by North Korean institutions.

January 8th, 2015: USD selling at 109.520 won at the Foreign Trade Bank. Closest available unofficial data puts the USD at 8190 won – same as above.

North Korean won exchange rates as of January 8th, 2016. Photo: Jaka Parker.

North Korean won exchange rates as of January 8th, 2016. Photo: Jaka Parker.

November 24th, 2015: $1 for 111.050. Black market rate: 8600 won.

North Korean won exchange rates as of November 24th, 2015. Photo: Jaka Parker.

North Korean won exchange rates as of November 24th, 2015. Photo: Jaka Parker.

November 9th, 2015: $1 selling at 110.57 won. The closest available unofficial rate was recorded between October 21st-27th: $1 for 8600 won.

North Korean won exchange rates as of November 9th, 2015. Photo: Jaka Parker.

North Korean won exchange rates as of November 9th, 2015. Photo: Jaka Parker.

October 29th, 2015: $1 for 109.550 won. Closest available black market rate: 8600 won.

North Korean won exchange rates as of October 29th, 2015. Photo: Jaka Parker.

North Korean won exchange rates as of October 29th, 2015. Photo: Jaka Parker.

September 28, 2015: $1 for 108.29 won. Closest available black market rate: 8260 won.

North Korean won exchange rates as of September 28th, 2015. Photo: Jaka Parker.

North Korean won exchange rates as of September 28th, 2015. Photo: Jaka Parker.

One clearly visible trend is that both the official and unofficial exchange rates steadily climb throughout the fall, but decline in January. It’ll be interesting to continue following them over the course of the year.

 

 

 

 

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Hydrogen bomb project may lead state to squeeze traders, some North Koreans worry

Friday, January 8th, 2016

By Benjamin Katzeff Silberstein

Daily NK today carries a piece where interviewed North Koreans express their annoyance at how the hydrogen bomb test disturbed economic activity, and how it may get worse in the future:

News of the recent test has also angered people, with some openly criticizing the nuclear program and pointing out that money should go into providing for the people instead. “Market vendors don’t care if it’s an atom bomb or a hydrogen bomb. Most of them say they just want to make a lot of money and live a quiet life,” the source said.

A different source in North Pyongan Province reported that most people who watched the announcement out of curiosity were neither surprised nor interested, noting, “But market donju (newly affluent middle class) are worried that having blown up a massive ‘dollar bomb’, Kim Jong Un will now have a gaping hole in his coffers, making things busier for them since they’ll have to offer up more funds.”

“Loyalty funds had swelled because of the greater stability in the markets, so recently there weren’t a lot of purges of donju, but now with all the money that they’ve spent, it looks like donju will be under pressure or persecuted more to make up for the funds that went into the hydrogen bomb test,” he explained.

“After the first three nuclear tests, prominent donju were purged on ‘anti-socialist’ charges and their assets confiscated by the state. The leadership is likely to tighten its grip on donju again to make up for its expenses.”

Read the full article:
Nuclear test draws different set of concerns from North Koreans
Seol Song Ah and Choi Song Min
DailyNK
2016-01-08

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New figures on markets in North Korea

Sunday, December 27th, 2015

By Benjamin Katzeff Silberstein

The last few months have seen quite the trickle of quantitative estimates on North Korea’s markets. A while back, South Korean intelligence said North Korea has 380 markets in total. Curtis Melvin counts them to 406. And then, a few days ago, Professor Lim Eul-chul of Kyungnam University put them at 750 (including street vendors).

It is unclear whether this is another intelligence branch or institution speaking, but what Yonhap terms “South Korea’s intelligence authorities” today claims that there are 306 markets. They also estimate that 1.8 million people use them every day, although those numbers are probably guesstimates more than anything else. Even though survey studies can say a lot about how often people use markets on average, it would seem almost impossible to weight these properly by region given the variation.

The report also includes a count of markets in each province:

By region, South Pyongan Province is home to the largest markets with 37, followed by South Hamgyong Province with 36 and North Pyongan Province with 34. North Korea’s capital of Pyongyang has 23 markets, the authorities said, without elaborating on how they obtained the information.

It is difficult to know what is meant by “markets” here: in other words, whether street markets are included or only formal ones. In any case, it isn’t particularly surprising that South Pyongan Province comes out as number one: the province has a major advantage for market trade in that it is close to Pyongyang. Traders that don’t have entry permits to Pyongyang can come and sell their goods to Pyongyang citizens who only live a relatively short bus ride away, or to other traders that will ship the goods for sale there.

Read the full article here:
S. Korea says up to 1.8 mln N. Koreans use markets per day 
Yonhap News
2015-12-27

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750 markets in North Korea, one scholar says

Monday, December 21st, 2015

By Benjamin Katzeff Silberstein

UPI reports that Lim Eul-chul of Kyungnam University puts the number of North Korean “gray” markets at 750. This number includes “alley vendors”, according to Lim, presumably another term for street markets:

There are now more than 750 “gray markets” in North Korea and one million people now make up the country’s consumer elite, a South Korean analyst said Tuesday.

Lim Eul-chul of the Institute for Far Eastern Studies at Kyungnam University said at a seminar for South Korean lawmakers grassroots enterprises in North Korea have increased, and businesses are diversifying.

“North Korean authorities also are involved in the markets,” Lim said.

On average, a North Korean city, county or region has an average of two marketplaces, bringing the national total to 500. If alley vendors are included in the tally, the total is 750, Lim said.

In larger cities like Chongjin, near the China border, there are about 12,000 vendor stalls and one city in South Pyongan Province is home to a marketplace that is more than 1 mile across, the analyst said.

The North Korean regime is an active participant in the unofficial marketplaces that began developing after the collapse of the state’s distribution system. Authorities enjoy a monopoly over the mobile phone market and related services, Lim said.

Other sought-after products in North Korean marketplaces include South Korea-made products that are smuggled into the country, as well as pizza and burgers.

It is unclear exactly how these numbers have been compiled. Lim appears to be using a very wide definition for what to count as a market. South Korean intelligence has previously put the number of markets at 380, while Curtis Melvin counts them to 406.

Read the full article:
More than 700 North Korea ‘gray’ marketplaces have emerged, analyst says
Elizabeth Shim
UPI
12-21-2015

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The limits of agriculture reform in North Korea

Friday, December 18th, 2015

By Benjamin Katzeff Silberstein 

Agricultural reforms in North Korea became a hot topic of discussion almost right away when Kim Jong-un took power in 2011. Only a number of months into his tenure, news began to come out of the country about attempts at agricultural reforms. It is unclear when (or even if) the June 28th Measures were finally extended to the whole country.

At the very least, three years in, it seems beyond reasonable doubt that North Korean agriculture has undergone major changes. These have been aimed at boosting production by creating better incentives for farmers to produce and sell more of their output to the state rather than diverting it to the market. The most important aspects of these reforms are the decreased size of work teams and new rules that let farmers keep 30 percent of their production plus any surplus above production targets, while the state takes the remaining 70.

These changes have been met with optimism among some. However, no one really knows exactly what impact these reforms have had. North Korean agriculture may be faring better than it used to – although this is also doubtful – but even so, it is too simplistic to assume that government reforms in agricultural management are doing all the work. As long as North Korea’s agriculture continues to be centrally planned by the state, there will be limits to how much better it can get no matter what reforms the state implements.

To see why, consider some of the news that have been coming out of North Korea in the past few months, as reported by Daily NK. In late November, the online daily reported that in despite by multilateral aid organizations, North Korea had seen relatively good harvests this year. However, the increased harvests, according to people inside the country, were not caused by changes in the agricultural management system of state-operated collective farms.

Rather, the North Koreans interviewed for the story claimed that private plot farmers had been better able to protect their crops from adverse weather impacts by using water pumps and other equipment. Even though trends like these alone probably have a limited impact, this shows that many circumstances other than state management matter.

A few weeks later, Daily NK published another interview carrying a similar message. According to sources inside the country, harvests from collective farms have declined, while private plot production has gone up (author’s emphasis added):

The amount of food harvested this year from the collective farms has “once again fallen short of expectations,” he said, adding that the farmers who work on them have criticized the orders coming down from the authorities, saying that “if we do things the way they want us to, it’s not going to work.”

Although the regime has forced people to mobilize, the source asserted that farm yields are not increasing. So, then, “the best thing to do would be to further divide the land up among individuals,” he posited.

Our source wondered if individual farms were not more successful because each person tending them personally grew and watered their plants. Currently, farmers must follow directives regarding the amount of water they can use on collective farms. He warned that if the system is not completely overhauled, crop yields will fail to improve.

In other words: as is so often the case, management orders from above often do not align with the reality on the ground.

One should be careful not to draw too many general conclusions based on individual interviews, but this is a well known general problem in all planned economies. Even with the best intentions, the state can never be fully informed about conditions and resources on the ground in an entire society.

This is one of the many reasons why economic central planning falters. We have seen this, too, with Kim Jong-un’s forestry policies. The state gives orders that have unintended consequences on the ground, because information is lacking. No central planning team can be fully informed about the reality prevailing throughout the system. The information problem becomes particularly dire in authoritarian dictatorships like North Korea, where people at the lower end of hierarchies often have strong incentives not to speak up about implementation problems when orders come from the top.

Ultimately, no matter what management reforms the North Korean regime implements, the country’s economic system remains the basic stumbling block. As long as central planning continues to be the ambition of economic and agricultural policies, there will be a limit to the success that agricultural policies can reach. We may expect to see agricultural reforms continuing, but as long as the system remains, they can hardly be revolutionary.

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A 2014 visit to Rajin’s old marketplace

Wednesday, December 2nd, 2015

National Unification Broadcasting (국민통일방송) published this video of the old Rajin Marketplace (filmed in Spring of 2014).

Since filming, the North Koreans have opened a new marketplace to replace this one. Here is a satellite image I published with RFA showing the old market and the new:

RFA-Rajin-Market-2015

The old marketplace is inside the yellow box on the left. The new market is inside the yellow box on the right.

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North Korean authorities using market prices for policy

Monday, November 16th, 2015

According to the Daily NK:

The North Korean authorities officially determine product prices in North Korea. However, according to inside sources, these prices are being ignored more and more in favor of prices determined by market forces. Instead of official price designations, the authorities have posted ‘price ceilings,’ but they are not strictly enforcing them.

In a telephone conversation with the Daily NK on November 13th, a source from North Hamgyong Province said, “Official prices have almost completely disappeared from the markets. Reflecting this trend, even the market management offices located in each official marketplace are listing ‘price ceilings’ instead of official prices.”

Daily NK spoke with a source in South Hamgyong Province who confirmed this to be the case there as well.

“Furthermore, the price ceilings are being determined by the market rates, so the meaning of these regulations is fading. For example, if the going rate for rice at any given time is 5,000 KPW [0.58 USD] per kilogram, than the price ceiling would be set at something like 4,500- 5,000 KPW [0.52-0.58 USD],” she said.

“These ceiling prices are indeed posted, but they are not enforced. Ministry of People’s Safety [which act as the North’s police forces] officers are not able to command merchants to lower their prices. The atmosphere is such that if they even tried, they would likely be insulted and cursed at by the vendors.”

She added, “At the market, it has been quite some time since people realized that the official prices are meaningless. If a buyer asked a merchant for the official price of a given product, that merchant would likely to scold the buyer for not having proper control of his mental faculties.”

In a true indication that the national prices are being disregarded on a wide-scale level, even the authorities have shown signs that they are interested in understanding how market rates work.

For example, from Provincial People’s Committees, cabinet ministers are being kept abreast of the local market rate for product prices on a daily basis. “They are trying to understand the exact market prices for given quantities of goods like electronics and foodstuffs,” the source explained.

When asked to describe how ordinary North Korean folks were reacting to this news, she said, “People are saying things like, ‘The authorities explain that they want to understand rice prices so they can think of measures to improve the lives of the people, but that just makes us laugh. The best thing they can do to help is to stay out of the way.’”

Read the full story here:
Authorities tacitly recognize market-determined prices
Daily NK
Lee Sang Yong
2015-11-16

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Factory owners rent out unused space

Monday, November 2nd, 2015

According to the Daily NK:

Recently in South Pyongan Province, the practice of renting out sections of state-run factories to individual entrepreneurs is taking off. This latest development is further evidence of de facto private enterprise flourishing on the back of state facilities.

“There is a factory that manufactures coal mining equipment located in a building that is now partially rented to a donju [literally ‘money masters,’ or new affluent middle class] who is making shoes there. By renting out the building, the authorities can also make ‘a little extra’, which is a nice benefit for them,” a source in South Pyongan Province reported to Daily NK on October 27.

“‘A little extra’ refers to profits falling outside of enterprise work quotas utilizing state labor and raw materials.”

An additional source in the same province corroborated this news.

She added that the officials in charge of the factory must first make sure that they will be able to sell enough of the extra goods manufactured by the donju on the market to make it worth their while. If they calculate that it will be a profitable good to sell, they go ahead and agree to rent out part of the factory warehouse.

Winter is, without fail, a busy season for shoe markets in North Korea. Demand explodes for cotton wool and fur shoes to prevent frostbite. North Koreans put cotton wool into black or army green cloth to make shoes known as “Tong (a mispronunciation of the word Chinese-derived word in Korean meaning ‘winter’) Shoes”. Fur shoes are boots made of synthetic leather and stuffed with compressed cotton wool or sheep wool.

As North Korea’s primary shoe factories, “Pyongyang Shoe Factory” and “Sinuiju Shoe Factory” receive a quota for the number of shoes they should produce to distribute seasonally, they cannot adjust their production levels to meet actual market demand. This leaves a hole in the market the donju are keen to step in and fill.

What really determines the quality of wool or fur shoes is the sole. The donju buy rubber in the general markets and hire laborers to construct soles from it in, as might be expected, exceedingly unsafe work environments. With no access to safety masks, let alone other protective gear, workers inhale overwhelming quantities of noxious gases in the process.

Nonetheless, workers eager to do the job are never in short supply– those hired for the task are paid who wages 2-3 times that of typical day laborers working for the donju.

Although it is possible to sew the leather outer parts and midsoles of shoes at home, proper equipment is required to produce quality insoles. Rubber is pulverized, reconstituted using a machine, and then mixed with fresh rubber to fabricate insoles. However, a compressor is needed to complete this task, which is where the factories come in.

These days, although it is possible to earn a fair amount of money producing goods at home, “if you’re more ambitious and want to enter into large-scale production you’ll run into an electricity supply problem,” the source noted.

“While it can be said that utilizing the unused space of factories contributes to national production, in the end it’s really the factory’s supply of electricity that proves to be the lure.”

In fact, the first thing donju check when scouting a factory to approach is that the facility has a stable power supply. If all on this front checks out, the donju seek out the cadres in charge and set up a contract stipulating that said entrepreneur pay 30% of his or her profits from the sale of goods produced in the factory as rent.

The factories involved in these deals are typically those associated with the coal mining industry. These enterprises produce the majority of the equipment used in North Korea’s coal mines, and because iron is the most used raw material in the production of the related equipment, such factories receive a larger allotment of electricity than typical light industry factories.

There are, of course, other types of factories receiving steady streams of electricity, but for the time being, they are off limits, according to the source. By way of example, the source explained that because munitions factories harbor a litany of “national secrets, ordinary citizens cannot access them no matter how much money they spend.”

And yet, the fact that North Korea’s donju are now turning their focus towards the production of consumer goods can be interpreted as yet another sign of North Korea’s ever-expanding marketization.

She analyzed these trends as follows: (1) as the relative purchasing power of North Korea increases, demand is increasing as well; (2) markets are developing within North Korea, and state-operated stores are also being rented out and run as de facto private operations; (3), the number of retail outlets selling consumer goods is skyrocketing; (4) the use of ‘servi-cha’ has especially improved the distribution process; and (5) compared to goods directly imported from China, the price competitiveness of local goods has improved as well.

In the past, North Korea’s foreign-currency earning enterprises or the donju would go to Zhejiang Province in China or other regions with low labor costs and import large quantities of consumer goods at low prices to distribute within North Korea.

However, these cheap goods fall short of satisfying the market preferences of North Korean citizens today, the source concluded.

Read the full story here:
As factories rent out space, donju move in and set up shop
Daily NK
Seol Song Ah
2015-11-2

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