North Korean Economy Watch

Pictured Above (Google Earth): The Hyesan Market (L) and a street market (R).

According to the Daily NK:

The authorities in Hyesan have embarked on an experiment that permits multiple traders to utilize each stall in the city jangmadang (market).

A source from the Yankang Province city told Daily NK on the 30th, “Hyesan Municipal People’s Committee has been struggling for a while to decide what to do with all these traders in the streets outside the market. So, they’ve decided to try and co-opt them by restarting stall-sharing arrangements. Any trader, even ones who used to trade in the streets, can now operate inside the market as long as they are ready to pay.”

“The traders rotate six days a week, and on Sundays the original stallholder gets to decide who trades there,” the source went on.

However, many of the original stallholders are reportedly angry at the move, according to the source, with many asking why they are being stopped from trading for almost half the week.

“But,” she said, “the Market Management Office is having none of it, so they have little choice but to oblige.”

The idea of stall-sharing has been tried before in Hyesan, but with little success. “Just last year they ordered the same thing to happen,” the source recalled, “but it wasn’t long before things went back to normal.”

That being said, she went on, “Now because the order has come from the Upper (Central Party), they are really trying to do it.”

Defectors from the city and others with experience of trading directly in the market say the measure has far more to do with controlling traders working illegally on the city streets than improving the efficiency of the market itself. In fact, they say the measure is likely to have a deleterious effect on market operations.

Seo Ok Ran, a 42-year old defector now living in the Dongdaemun area of Seoul pointed out, “Last year when they did this I had a hard time finding the right stallholders for the items I needed. At the end of the day, it just reduces trade.”

It is unclear whether the new rules are being applied nationwide, or are restricted to the area under the remit of Hyesan Municipal People’s Committee.

Read the full story here:
Stall-Sharing Returns to Hyesan
Daily NK
Kang Mi Jin
2012-12-1

Pictured above (Google Earth): Pohang District, Chongjin (in red)

UPDATE 1 (2012-8-23): The Daily NK, which has been the only organization to cover the housing construction in Chongjin (see original post below), reports on the classic problem of political allocation of resources (in this case housing) in socialist economies. According to the article:

A source from Chongjin told Daily NK yesterday, “This rumor started going around that the apartments they are building would first go to decorated soldiers, veterans and discharged military officers, and then the rest would be distributed to ordinary people. As soon as that happened, a group of 40 or more people, many of whom had already seen their former homes demolished and thought they had priority on the housing list, got really angry.”

“The crowd went repeatedly to both the local administrative office and the district people’s committee to demand that a list of those assigned homes be made public,” he added.

During the protests, the source said, “Those who found they were not on the list warned that they would not stand idly by if their new homes were stolen from them. They didn’t back down from the guys from the Ministry of People’s Safety either, not for more than 30 minutes.”

The head of the local administrative office vacated his post due to the trouble and hasn’t been seen since, something that has made the aggrieved individuals even angrier. Upper level cadres are also refusing to meet them, and lower level figures are trying to wash their hands of the whole affair, saying that the list of those assigned apartments can no longer be changed. No longer thinking that the problem can be solved at the district level, the group has sent a letter to the provincial authorities outlining their grievances.

“Their point is that the authorities said that only a small number of the apartments would go to those people (decorated soldiers, veterans and discharged military officers), while most of them were supposed to go to ordinary families,” the source explained.

The source also explained the backdrop, saying that thousands of homes in the Namgang and Pohang areas of the Pohang district of the city have been destroyed since last June, and that the displaced residents from those homes have all been living with relatives and friends while waiting for the chance to move into what they thought were to be their new dwellings.

The problem is not over yet, either. According to the source, “It also looks like some facilities like shops and restaurants that were not on the original plans for an area around the amusement park are also being built, which will reduce the volume of housing available. Who can say how people from that area who’ve lost their homes will object if they lose out.”

This article is interesting to me because it answers a couple of questions I have had for some time: “What happens to families displaced by urban construction projects?” [Answer: for the most part, they go live with family members until replacement housing is allocated] and “How is new housing allocated if not through de-facto sales?” [Answer: Ideally through an objective and enforceable list based on "need". However, this process is often corrupted. See here, here and here].

ORIGINAL POST (2012-8-14): According to the Daily NK:

It has been confirmed that affluent local wholesale traders have been co-opted to support the construction of apartment buildings in Chongjin, North Hamkyung Province.

A Chongjin source told Daily NK yesterday, “The construction of high-rise apartment buildings in the Pohang district of the city is being done by enterprises and ‘shock troops’, but there are also local go-betweens at the forefront connecting affluent traders from the region with the construction teams so that the latter can get materials as needed.”

The source went on, “It seems that most of the province’s rich people have gathered here. You can tell that there are people with genuine power involved in the construction by how fast the buildings are going up now.”

Since last May, Chongjin has been working to follow in the footsteps of the Mansudae area of Pyongyang by constructing apartments for 10,000 households, including 2,000 in the Pohang district. The project is said to be part of North Hamkyung Province Party Secretary Oh Soo Yong’s determined effort to show loyalty to the regime of Kim Jong Eun. However, the Party and state lacks the power to follow through on the plans.

The situation is not rare. Rich people and brokers acting as go-betweens are actively involved in all types of construction projects in North Korea today. This was even the case when Pyongyang planned the building of 100,000 apartments in time for the 100th anniversary of the birth of Kim Il Sung earlier this year. Indeed, all North Koreans know that “without the go-betweens this country’s economy would seize up.”

Usually, the North Korean authorities get factory enterprises and units of ‘shock troops’ to do the state’s construction and set in place plans to secure the necessary cement, steel and other materials, but this part very rarely goes according to plan.

For one thing, factories need to be bribed if the construction sites want to get their materials delivered on time, so the middlemen have a close relationship with the factories. Meanwhile, the rich people who finance the construction later receive a share of the finished apartments in return.

Currently in Chongjin, a home on the 3rd or 4th floor of such an apartment costs about $5,000. A rich man investing $7,000 dollars in the construction of a building can expect to make about $3,000 in profit. Other floors cost $3,000-$4,000 at current rates. However, in Pyongyang prices are much higher, with apartments on the 3rd or 4th floor trading for as much as $10,000 dollars.

The source said, “There are nicely dressed men striding around the construction site checking on progress, and these are the rich folk.”

The publicly available satellite imagery of Chongjin is too old to show recent construction, and since I have no budget, staff, or connections to people who have the ability to get new satellite imagery, I cannot show you any recent pictures.

Despite the lack of physical evidence, however, I have good reason to believe that new residential construction is underway in Chongjin.  This is because I do have publicly-available imagery of other DPRK cities and towns which are being “upgraded” with new apartment blocks. Recently I wrote about construction in Rason. I will post imagery of additional towns and cities if I get the time.

Read the Daily NK story here:
Rich Traders Invest in Chongjin Construction
Daily NK
Choi Song Min
2012-08-10

Andrei Lankov highlights in a recent Asia Times article some observations (qualitative data) that indicates the DPRK has seen significant growth in recent years. He is careful to qualify his observations with caveats that the level of growth in the country as a whole (as opposed to Pyongyang) remain more difficult to determine.

More expensive shops stocking luxury goods are becoming more numerous as well. Gone are the days when a bottle of cheap Chinese shampoo was seen as a great luxury; one can easily now buy Chanel in a Pyongyang boutique; and, of course, department stores offer a discount to those who spend more than one million won on a shopping spree. One million won is roughly equivalent to US$250 – not a fortune by the Western standards but still a significant amount of money in a country where the average monthly income is close $25.

The abundance of mobile phones is much talked about. Indeed, North Korea’s mobile network, launched as recently as late 2008, has more than one million subscribers. It is often overlooked that the old good landline phones also proliferated in the recent decade. A phone at home ceased to be seen as a sign of luxury and privilege, as was the case for decades. Rather, it has become the norm – at least, in Pyongyang and other large cities.

The capital remains badly lit in night, but compared with the norm of some five or 10 years ago, the situation has improved much. The electricity supply has become far more reliable, and in late hours most of the houses have lights switched on.

Of course, this affluence is relative and should not be overestimated: many people in Pyongyang still see a slice pork or meat soup as a rare delicacy. The new posh restaurants and expensive shops are frequented by the emerging moneyed elite, which includes both officials and black/grey market operators (in some cases one would have great difficulty to distinguish between these two groups). In a sense, Pyongyang’s prosperity also reflects the steadily growing divide between the rich and poor that has become a typical feature of North Korea of the past two decades.

Nonetheless, those foreign observers who have spent decades in and out of Pyongyang are almost unanimous in their appraisal of the current situation: Pyongyang residents have never had it so good. It seems that life in Pyongyang has not merely returned to pre-crisis 1980s standards but has surpassed it.

And how can we explain these developments? Lankov offers three theories:

The first seems to be the growth of private economic activity. Estimates vary, but most experts agree that the average North Korean family gets well over half its income from a variety of private economic activities.

…
The second reason is the gradual adjustment of what is left of the state-controlled economy. Nowadays, North Korean industrial managers do not sit by helplessly when they cannot get spare parts or fuel from the state – as was often the case in the 1990s. Instead, they try to find what they need, often getting the necessary supplies from the private market.

…
The third reason is, of course, Chinese economic assistance and investment.

Read the full story here:
North Korea’s pools of prosperity
Asia Times
Andrei Lankov
2012-7-7

Arirang News has posted a video on the changes in consumer culture in the DPRK. It highlights just how much things have changed since the days of Kim Il-sung:

According to the BBC:

China has launched a drive against illegal immigration in a north-eastern region bordering North Korea.

The campaign in the Yanbian Korean Autonomous Prefecture in Jilin province mainly focuses on North Koreans fleeing poverty and persecution at home.

China is known to routinely repatriate North Koreans who often slip across the border undetected.

Human rights groups say many face punishment when they return.

“Foreigners who illegally enter, work and overstay are hidden troubles, and they might pose potential threats to social stability,” Li Yongxue, a police official from Yanbian, was quoted by state-run China Daily newspaper as saying.

The police say they want to stamp out criminal activities to maintain order. They add that those without proper documents will be sent back.

Many of these illegal immigrants have relatives in China, some come to work, while others use China as a staging post before moving to other countries, according to the BBC’s Michael Bristow.

A police officer from the province told the BBC that it was a sensitive year in China, with officials stressing the need for stability ahead of a leadership change this year.

Read the full story here:
China targets illegal immigration at North Korea border
BBC
2012-5-25

According to Yonhap:

President Lee Myung-bak on Friday urged North Korean leader Kim Jong-un to give up the collective farm system and privatize state-owned agricultural land to help enrich the North and its residents.

…

“North Korea should abandon its collective farm system and shift to the privatization of agricultural land. If so, rice will be abundant in two to three years. Farmland privatization will help individuals earn more and the state increase revenues,” Lee was quoted by his spokesman Park Jeong-ha as saying in the lecture.

“(Farmland reform) is a must for North Korea. All the young leader has to do is the (reform). It is the most urgent matter and has to precede its market opening. Continued dependence on aid will only produce beggars.”

President Lee’s statement stresses the short-term economic benefits of moving away from collective farming: More food, higher incomes to farmers, improved fiscal position, and thus, increased political legitimacy for the Kim Jong-un government. However, from a political and strategic viewpoint he is probably hoping that North Korean agricultural reform will pave the way for broader economic reforms — as was the case in China. However, it is worth noting that China’s agricultural reforms, which ended the misery of the Great Leap Forward and laid the foundation for broader economic reforms, were not created in Beijing.  They were developed and implemented by a single village of scared, hungry farmers:

Pictured above (via Marginal Revolution): Farmers from 18 households in Xiaogang village (Fenyang County, Anhui Province) signed this contract bringing a de facto (not de jure) end to collective farming.

Economists Tyler Cowen and Alex Tabarrok said the following of the Xiaogang Contract:

The Great Leap Forward was a great leap backward – agricultural land was less productive in 1978 than it had been in 1949 when the communists took over. In 1978, however, farmers in the village of Xiaogang held a secret meeting. The farmers agreed to divide the communal land and assign it to individuals – each farmer had to produce a quota for the government but anything he or she produced in excess of the quota they would keep. The agreement violated government policy and as a result the farmers also pledged that if any of them were to be killed or jailed the others would raise his or her children until the age of 18.

The change from collective property rights to something closer to private property rights had an immediate effect, investment, work effort and productivity increased. “You can’t be lazy when you work for your family and yourself,” said one of the farmers.

Word of the secret agreement leaked out and local bureaucrats cut off Xiaogang from fertilizer, seeds and pesticides. But amazingly, before Xiaogang could be stopped, farmers in other villages also began to abandon collective property. In Beijing, Mao Zedong was dead and a new set of rulers, seeing the productivity improvements, decided to let the experiment proceed.

The rapid increase in China-DPRK trade and information exchanges raises the question of just how many North Koreans have heard of the Xiaogang contract or how many villages have implemented similar measures?

For its part, the Workers Party has employed a mixture of both top-down agricultural policies and accommodation of bottom-up economic innovations to increase food availability. From a top-down perspective, the DPRK has promoted “technological inputs” (fertilizer production, terraced hillsides, large irrigation projects, land reclamation, land rezoning, new foodstuff factories, improved management techniques, CNC) and multilateral aid outreach (official and private food aid from abroad). From a bottom-up perspective, the DPRK has offered and expanded economic incentives (kitchen/private plots, farmers’ markets, general markets, July 2002 Measures, 8.3 Measures, accommodation of some illegal activity,  family-based work team units on collective farms).  The combination of all these efforts, however, has obviously not resulted in food security–for a number of reasons that are too  lengthy for a simple blog post.

If you are interested in learning more about the DPRK’s agricultural policies, I have posted below some papers (PDF) covering different stages in the North Korean agriculture sector: Pre-war, post war (collectivization), and post famine (arduous march). They are all well worth reading:

1. Lee Chong-Sik, “Land Reform, Collectivisation and the Peasants in North Korea”, The China Quarterly, No. 14 (Apr. – Jun., 1963), pp. 65-81

2. Yoon T. Kuark, “North Korea’s Agricultural Development during the Post-War Period”, The China Quarterly, No. 14 (Apr. – Jun., 1963), pp. 82-93

3. Andrei Lankov, Seok Hyang Kim, Inok Kwak, “Relying on One’s Strength: The Growth of the Private Agriculture in Borderland Areas of North Korea”

Andrei Lankov writes in the Asia Times:

When one talks about virtually any country, wages and salaries are one of the most important things to be considered. How much does a clerk or a doctor, a builder or a shopkeeper earn there? What is their survival income, and above what level can a person be considered rich?

Such questions are pertinent to impoverished North Korea, but this is the Hermit Kingdom, so answering such seemingly simple questions creates a whole host of problems.

Read the full story below:

(more…)

According to the Daily NK:

Information from inside North Korea suggests that jurisdiction over border security has been moved from the Ministry of People’s Armed Forces to the National Security Agency(NSA), in a special order given by new leader Kim Jong Eun which has seen border security units undergoing an administrative switch to the NSA on April 16.

Read more below:

(more…)

UPDATE 1 (2012-2-28): The Japanese police have raided the heaquarters of Chongryun (Chosen Soren), the Pro-DPRK General Association of Korean Residents in Japan, over its alleged ties to the computer smuggling ring. According to the BBC:

Japanese police have raided the offices of a pro-North Korean organisation suspected of a role in the illegal shipment of computers to North Korea.

Japan maintains a total ban on exports to North Korea.

It is part of a range of sanctions over North Korea’s nuclear programme and its abduction of Japanese nationals in the 1970s and 80s.

Earlier this month police arrested a businessman accused of exporting PCs to North Korea through China.

On Tuesday, about 100 riot police entered the Tokyo offices of an organisation connected to the Pyongyang-affiliated General Association of Korean Residents in Japan, officials say.

Because there are no diplomatic relations between the two countries, the association has functioned as North Korea’s de facto embassy in Japan.[

The raid came after prosecutors last week indicted Lee Soon-Gi, 49, who is accused of illegally exporting 100 second-hand personal computers to North Korea through China, officials said.

The affiliate organisation may be involved in the shipments, police say.

But the association has strongly criticised the raid which it described as an "unjustified and illegal investigation".

ORIGINAL POST (2012-2-19): According to the Yomuri Shimbun:

The president of a Tokyo-based dealer in secondhand personal computers exported more than 4,000 items to North Korea, according to investigation sources.

Many of the items are believed to have been sold on the black market to senior members of the ruling Workers' Party of Korea, the sources said.

Lee Sungi, president of Popura-Tec, was arrested earlier this month by the Metropolitan Police Department's Public Safety Department on suspicion of violating the Foreign Exchange and Foreign Trade Law.

The 49-year-old has been arrested on suspicion of exporting 100 notebook computers to North Korea. In addition, Lee has told police that he shipped more than 4,000 personal computers and liquid-crystal displays to that country on four occasions from 2008 to 2009.

A North Korean trading company based in Dalian, China, brokered the deals, selling the products to a computer shop in Pyongyang, the sources said.

The shop was run by a North Korean computer engineer who once worked at a Chinese company as a software developer. He reportedly contacted Lee in March 2007, saying: "There's demand for about 1,000 personal computers a month [in North Korea]. I’m interested in buying Japanese products,” according to the sources.

E-mails he sent to Lee suggested there were hundreds of computer shops throughout North Korea, of which 20 were in the capital. However, most of the country’s computer users do not use these shops because they cannot afford to buy their products.

Instead, they usually buy their computers through the black market, the sources said.

Most of the personal computers Lee exported from Japan were secondhand products, including some that had been leased to central and local government offices, according to the sources.

The North Korean computer engineer reportedly sold about 500 products per month to the black market, setting prices at 200 dollars or less for a desktop computer, and a maximum of 300 dollars for a notebook computer, the sources said.

This was still expensive for North Korea, which meant only senior members of North Korea’s ruling party and other wealthy individuals could purchase them, according to the sources.

It is reportedly common for North Korean computer users to buy new products when their items break down because there are almost no after-sales services in the country, according to the sources.

On February 2, 2012 we learned about a separate PC smuggling ring which moved computers from Japan to the DPRK.

Read the full story here:
4,000 PCs, displays said exported to North Korea
Yomuri Shimbun
2012-2-19

Chico Harlan writes in the Washington Post:

Recent North Korean defectors in South Korea sometimes joke that their transition to capitalist life begins with two key steps. First, they buy a smart phone. Then, they get a lesson about phone banking.

With those two things, defectors can then transfer money back to North Korea, where many still have family or friends. The money doesn’t go directly to the North; rather, it’s channeled through a series of brokers, routed through China, and trimmed by handling fees and commissions.

But as underground systems go, this one is quite functional. Some 50 percent of North Korean defectors have transferred money back home. Those who try once almost always do it again.

Just a decade ago, almost no money flowed back to the North in the form of remittances. But the number of defectors here has skyrocketed, and the amount of cash they send back home has surged as well.

Some 23,000 defectors now live in South Korea, with the number jumping more then 2,500 every year. (Just 12 years ago, a total of 1,400 North Koreans lived in the South.)

The defectors don’t make much money — about $1,000 per month on average — but that doesn’t stop them from sharing it generously, shipping it back to a country where $1,000 can feed a family for a year.

According to a January 2011 survey from the Database Center for North Korean Human Rights, some 56 percent of defectors who send money give more than $900 (1.01 million won) annually. Another 12.5 percent give more than $4,500 (5.01 million won) annually.

North Korea scholar Andrei Lankov, in this April 2011 essay, estimated that the total money given each years totals $10 million–an enormous influx of cash into the extremely impoverished North.

One recent defector, Ju Kyeong-bae, described during a recent interview at his apartment in Seoul how he transfers money to his friends in the North, who live in a village some 25 miles from the Chinese border.

First, one of his friends — let’s call him Mr. Jeong — calls Ju from North Korea, using a Chinese cell phone that gets a signal from towers just beyond the border.

Mr. Jeong provides a telephone number for a broker in China. Ju calls the broker.

The broker then gives Ju the name of a bank in South Korea, along with a particular account number.

Ju determines the amount of money he wants to send, punches a few buttons on his iPhone, and transfers the money, which then pinballs from the South Korean bank to a Chinese bank, using two brokers.

The Chinese bank account belongs to a businessman (let’s call him Mr. Kim) who does frequent work in North Korea — and who holds lots of private wealth stashed away in the North. When Ju’s money lands in Mr. Kim’s account, Kim just lets it sit there. He never withdraws it and takes it across the border. Rather, he distributes money he already has stashed in North Korea to Mr. Jeong, who in turn gets it to the person Ju’s payment is intended for.

Mr. Jeong then places another call to Ju — a confirmation.

“Some of the middle men, I never even know their names,” Ju said. “It’s all based on trust. If you don’t trust the system, you’re better off not even sending money.”

According to the 2011 survey of defectors, the commission on transfers is generally between 21 and 30 percent. It’s almost never higher than 50 percent. Some 90 percent of defectors say they receive a phone call from their friend or family member confirming that they received the payment.

One of every two defectors thinks his or her money transfers will spark admiration toward the South. About one in every 10 thinks the money will raise resistance against North Korean society.

South Korea technically bans the transfers, but an official at Seoul’s Ministry of Unification, which handles North Korea policy, says that the government has little incentive to stop the remittances.

“They fall into a gray area,” said the official, requesting anonymity because he was unauthorized to speak about the policy on record. “We always say no money should be sent to North Korea in case it is diverted for military purposes. But in this case, we’re not talking about huge amounts. And it’s for humanitarian purposes. So long as that’s the case, we won’t pursue it.”

Additional posts on remittances:

1. ROK moves to control inter-Korean remittances (2011-5-26)

2. ROK seeks to gain greater control of sanctioned cash flows to DPRK (2011-05-25)

3. Remittances from North Korean defectors (2011-4-21)

4. Defectors remit US$10m a year to DPRK (2011-2-23)

Read the full story here:
North Korean defectors learn quickly how to send money back home
Washington Post
Chico Harlan
2012-2-15