Archive for the ‘Black markets’ Category

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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The (Market) Forces of History in North Korea

Friday, October 30th, 2015

By Benjamin Katzeff Silberstein

The market is a common topic for debate in history. How did it impact the rise of the anti-slavery movement in the US and the UK? What impact did economic conditions have in the French Revolution? These questions are, and should be, asked in the current debate about North Korea’s socioeconomic development as well.

But despite the hope of many, the market might not simply be a story of growing individualism and disconnect from the power of the state. While such a trend may well be at work, it could also be the other way around.

This was recently illuminated through an interesting story by Reuters. In a visit to Pyongyang, they took a look at how markets and everyday business transaction function in North Korea at the moment. As they note, it is telling that a reporter from an international news agency can make transactions in the open, with a government minder by his side, at the black market rate. Business that previously had to be done in the shadows now happens in the open:

Shoppers openly slapped down large stacks of U.S. dollars at the cashier’s counter. They received change in dollars, Chinese yuan or North Korean won – at the black market rate. The same was true elsewhere in the capital: taxi drivers offered change for fares at black market rates, as did other shops and street stalls that Reuters visited.

The most obvious conclusion is that the state is adapting itself to the bottom-up development of the market. Indeed, this is the way the story is often told. In this narrative, the government is only reacting to developments and has long lost the economic policy initiative.

But one could also see a government that is confident enough to relax the rules. It just isn’t a certain fact that the state and the market are two opposing entities.

First, connections to the state still seem to be good for those wanting to trade on the market. For example, according to the surveys conducted by Stephan Haggard and Marcus Noland that laid the foundation for Witness to Transformation (2011)party membership is still considered one of the best ways to get ahead in North Korea (or at least it was at the time when the surveys were conducted). A somewhat similar trend can be discerned in survey results presented by Byung-Yeon Kim of Seoul National University at a conference at Johns Hopkins SAIS in late September this year. Kim’s results also indicate that there is a strong positive correlation between party membership and participation in both the formal and informal economy.

Second, the government is making money off of the market. DailyNK recently reported that the fees charged by state authorities for market stalls was raised. They also noted that regulations of the markets seemed to have gotten more detailed over the years. As noted in this report published by the U.S.-Korea Institute at SAIS, the space that the government allocates to markets has consistently increased in the past few years. Not only have official markets grown, many of them have also been renovated and given better building structures.

All in all, this paints a picture of a government that controls markets while allowing them more space to function. It is not clear that formerly black market activity happening in the open means that the market is gaining ground at the expense of the state. They may well be moving together. That is good news for those hoping for stability, but bad news for those banking on a market-induced revolution. Despite the hope of many that the market will cause the demise of the regime, the role of the market force in North Korea’s history is far from clear.

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Stall fees raised for market vendors

Wednesday, October 7th, 2015

According to the Daily NK:

Daily NK has learned that the fees vendors pay for the right to sell goods varies depending on their goods and is now applicable to stall and street merchants alike. Home appliances and industrial items carry the most expensive stall fee, according to inside sources. This is because these products tend to be large, they sell for a high price, and they have good profit margins.

In a telephone conversation with the Daily NK on the 6th, a source in Yanggang Province said, “The stall fees for market traders are either 1500 KPW [0.18 USD], 1000 KPW [0.12 USD], or 500 KPW [0.06 USD] according to the size and type of product. The fees for sellers on the street are based solely on the type of product, since size is less of a factor for those outside the market.”

Daily NK crosschecked this news with an additional source in the same province and a separate source in South Pyongan Province.

She explained that the small stalls are approximately 1.5 meters wide and are mainly used by food and fish vendors. Medium-sized booths [1000 KPW] are good for sellers of rice, cigarettes, and other household goods while the largest booths are 2.5 meters wide and home to the appliance and industrial goods sellers; these set a given merchant back 1500 KPW.

“As the number of stalls in the marketplace has increased, so have the profits for the authorities, who collect on the fees. In the past, the stall fees were uniform for all sellers, but now the regime has found a way to make more money by customizing the pricing model according to the stall size and the product’s profit margin.”

“Just a few years ago, there was very little regulation of the market. In this lax environment, we saw large increases in the number of market vendors and street sellers. Sellers could move about freely between areas and markets to try to get the best price. Now things are much stricter. To sell X, you first have to pay the fee to sell X.”

“Additionally, both market sellers and street merchants have to pay a fee now. In the past, the fee was exclusively for sellers in the marketplace, but now everyone has to fork over the cash in order to get a badge or label authorizing them to sell that day. Inside the marketplace, the market managers make the rounds at least once a day to make sure everyone is abiding the rules,” she said.

“Now they also make rounds outside of the market at least twice a day to make sure all those merchants are paying for the right to sell. The fees for street merchants are 500 KPW for vegetables and 1000 KPW for light goods. The market managers aggressively police the area to ensure that everyone has the appropriate credentials.”

According to the source, the market traders are only checked once a day because it is easier to track them down and verify that they’ve paid the stall fees. Outside traders go all over the place to sell their goods, which is why the market managers go out twice a day to check on them.

Read the full story here:
Stall fees raised for market vendors
Daily NK
Kang Mi Jin
2015-10-7

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Growth and Geography of Markets in North Korea

Tuesday, October 6th, 2015

By Benjamin Katzeff Silberstein

Some shameless self-promotion: the U.S.-Korea Institute at Johns Hopkins SAIS released a report yesterday where I (with the help of Curtis and others) study how North Korea’s formalized markets have grown over time, and how they are distributed geographically using satellite imagery from Google Earth. The report is available here. These are the main findings:

  • With a few exceptions, formalized markets have grown in North Korea over the past few years. In some cities, they have more than doubled, while other cities have seen only nominal or no changes. Only Pyongsong, the capital of South Pyong’an Province, has seen a significant decline in aggregate market space.
  • There exists only a weak correlation between population size and aggregate market space. The correlation between aggregate market space per capita and proximity to Pyongyang, a large driver for demand in the North Korean economy, is also relatively weak. 

The largest aggregate market space per capita can be found in cities in the southwestern part of the country. This suggests that trade on formal markets may be driven by other factors than those commonly assumed, such as sea route trade and agriculture.

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A new defector survey about market trade in North Korea, and what it says (maybe) about Kim Jong-un

Friday, August 28th, 2015

By Benjamin Katzeff Silberstein 

In Wall Street Journal, Jeyup Kwaak reports on a new defector survey by Seoul National University’s Institute for Peace and Unification Studies (08-26-2015) (added emphasis):

The Seoul National University Institute for Peace and Unification Studies annually surveys more than 100 North Koreans who defected in the prior calendar year. The results provide firsthand insight into developments in the isolated state, though its researchers said they shouldn’t be read as generalized facts due to the small pool of respondents.

[…]

The latest survey, of 146 North Koreans who escaped in 2014, shows significant growth from the previous year in the number of people saying they conducted private business activities and paid bribes to enable them. A little more than half said they received no money from the state, down from last year’s survey but up from the one released in 2013.

Experts say between half and three-quarters of North Koreans’ income comes from quasi-illegal market activities, such as trade of basic goods smuggled in from China, but sporadic crackdowns by national or regional security officials lead to irregular business and bribery. Defectors say officials often collect fees when they set up a booth at a market.

The results themselves do not present a new trend. Several previous defector studies indicate that markets are perhaps the most important source of income and sustenance for many (if not most) North Koreans. However, a few things are interesting to note.

The links may not be entirely clear, but it is at least symbolic that the current survey, albeit with a very small number of interviewees, suggests that support for Kim Jong-un and the leadership may not be waning, at the same time as market activity continues unabated. This at least calls into question an assumption that sometimes occurs that market trade would lead people to become more critical of the regime.

Again, too much shouldn’t be read too much into a small study with participants that probably are not geographically or socially representative of North Korea as a whole. Defectors as a group rarely are. But perhaps one could imagine that market trade being so institutionalized and regulated by the regime would make it more synonymous with the regime itself. I.e., if market trading is seen as something positive, maybe this reflects positively on the regime as well — perhaps the market has been co-opted.

The article also reminds us of the rather peculiar combination of dynamics seen under Kim Jong-un. On the one hand, market trade seems to continue unabated domestically, and initiatives like the new special economic zones and the agricultural reforms show that there is at the very minimum some new thinking going on.

But on the other hand, border controls have been tightened to a degree rarely seen since the mid-1990s, according to defector reports. Just today, DailyNK reports (in Korean) that resident in the Sino-Korean borderlands have seen their access to the Amnok river, often used for laundry by locals, increasingly restricted as of late. As the WSJ writes,

Just 614 North Koreans made it to the South in the first half of this year, compared with 2,706 in the 2011 calendar year, according to the most recent ministry data.

The drop in North Koreans who visited China on legal visas so far this year should perhaps also be seen in this context.

Taken together, the tightened border controls on the one hand, and the seemingly changing (one could say “progressive”) rhetoric on economic matters on the other, paint a mixed picture.

In the early days of Kim Jong-un, the question was whether he was a reformer or a hardliner. A few years into his rule, it seems he might be neither and both at the same time.

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Grasshopper markets (메뚜기시장)

Monday, August 3rd, 2015

According to Reuters:

From the dark alleys of Pyongyang, the showpiece North Korean capital, tiny specks of torchlight shine carefully into the eyes of passersby, leading to bustling and illegal street markets where traders, usually women, call out “buy, buy!”

The “maeddugi shijang”, or “grasshopper markets,” get their name from the lightning-quick way traders must pack up and hop from place to place to evade authorities in a country making a grudging embrace of free enterprise.

As markets have taken hold in North Korea, the government has sporadically legalized and formalized them, while at the same time imposing new crackdowns, taxes, and bribes, forcing smaller traders back on to the streets where they set up “grasshopper markets” selling goods for cash.

“The grasshopper markets form in places near stations, on the roads to the (official) market, and around schools and parks,” said Seol Song Ah, a defector who left North Korea in 2011 and now works with the Daily NK, a Seoul-based website with sources inside North Korea.

“Wherever there are people, there are grasshopper markets.”

The markets are less well-stocked than official shops but offer convenience, carrying items from pots, socks, batteries, and cigarettes to fresh meat, according to residents of Pyongyang and defectors from the isolated country.

The informal, movable markets represent the new, grassroots driven economic reality in a country which is no longer truly collectivized, or communist – a change that began during the devastating famine of the 1990s and has since gained momentum.

‘TICK MERCHANTS’

Grasshoppers date to the 1980s, when old women started selling sweet potatoes and bean curd by roadsides, according to Seol, and have proliferated in recent years as more people, squeezed by new government regulations on the marketplace, have returned to underground trade.

In recent months, those who trade in the grasshopper markets have become known as “tick merchants” because they are hard to remove, and have therefore had restrictions on them slowly eased as security services struggle to shut them down, according to the Daily NK.

Still, because grasshopper markets are illegal, they are highly sensitive in the authoritarian country. A diplomatic source in Pyongyang who has visited grasshopper markets said he was followed by the “bowibu”, or secret police, down the dark grasshopper alleys.

“Trying to take a photo of a grasshopper market is one of the only times I’ve been seriously apprehended by the secret police,” the diplomatic source said.

A former foreign resident of Pyongyang said he had also never managed to photograph a grasshopper market.

“The one time I tried, the market ladies had vanished in the time it took me to get my camera from my pocket and raise it to take the shot,” the resident said.

“They are used to disappearing very, very quickly”.

Read the full story here:
In North Korean grassroots capitalism, ticks and grasshoppers skip
Reuters
James Pearson
2015-8-3

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