North Korean Economy Watch

Daily NK
Kim Min Se
3/14/2007

It is a well known fact that goods made in China are sweeping across North Korea with Chinese merchants taking the role of distributor.

However, Chinese merchants are not only exporting goods into North Korea but are also importing goods made in North Korea such as seafood, medicinal herbs, coal and minerals back to China.

Particularly, dried shellfish sells very well in China. As more and more Chinese merchants buy dried shellfish from North Korean markets, they play a critical role in the lives of North Korean citizens as sellers who are then able to raise the price due to demand. Every year, from April~Sept, people from the North-South Pyongan, Haean collect shellfish along the shore. 10kg of rice can be bought with 1kg of shellfish meat. Consequently, citizens of other regions also come to the beaches to collect shellfish.

If Chinese merchants did not import any goods and North Korea’s finest goods were not exported to China, the cost of goods at Jangmadang would increase exponentially. This is how close the relationship between the lives of North Korean citizens and Chinese merchants have become interconnected.

Significance of information runners

Though Chinese merchants are currently contributing to market stability, it does not necessarily mean that their existence will continue to be positive to North Korean authorities.

The people first to inform news of the Yongchun explosion in April 2004 to the outside world were Chinese merchants.

At the time, after confirming the lives their family members in North Korea, Chinese merchants who heard the explosion in Dandong gathered information about the explosion details from relatives in Shinuiju and Yongchun over mobile phones. Undoubtedly, news spread instinctively. The economic development zone, Dandong, which is at the mouth of the Yalu River is merely 10km from Yongchun.

Due to this incident, Kim Jong Il banned the use of mobile phones in North Korea. Chinese merchants have played a great role in the outflow of inside North Korean issues, a problem feared by North Korean authorities that contributes to the inflow of foreign information.

Recently, Chinese merchants have been charging a 20% fee involved in remitting dollars to defectors wanting to send money to family in North Korea. For example, if a defector wishes to send $1,000 to family in North Korea, a merchant will extract $200 and transfer the remaining $800 to the family.

As long as Chinese merchants have a specific identification card, they are free to travel between the North Korean-Chinese border and hence many defectors prefer to use Chinese merchants as the intermediary. Thanks to these merchants, many people can convey money and letters to family within North Korea.

In these respects, Chinese merchants are not only selling goods but are acting as information runners transporting news of the outside world into North Korean society.

As more and more North Koreans rely on markets as a means of living and trade between China and North Korea, the North Korean market will only continue to expand. We will have to wait and see whether or not Chinese merchants will have a healing or poisonous affect on the Kim Jong Il regime from here on in.

Daily NK
Kim Min Se
3/7/2007

90% daily goods made in China, 50% circulated by Chinese merchants

While some prospect that North Korea may be an affiliated market of China’s 4 provinces in the Northeast, the real focus is on the merchants who actually control North Korea’s markets. Recently, North Korean citizens have been asserting that markets would immobilize if Chinese merchants were to disappear.

Lately, Chinese merchants are nestling themselves with their newly found fortune in North Korea, undeniably to the envy of North Korean citizens.

In a recent telephone conversation with the DailyNK, Kim Chang Yeol (pseudonym) a resident of Shinuiju said “Most of the tiled houses in Shinuiju are owned by Chinese merchants in Shinuiju are upper class and the rich.” Unlike Pyongyang, tiled houses in Shinuiju are greater in value than apartments. In particular, the homes owned by Chinese merchants are luxurious and impressing.

Kim said “At the moment, 90% of daily goods that are traded at Shinuiju markets are made in China.” What Kim means by 90% of goods is basically everything excluding agricultural produce and medicinal herbs. Apparently, about half of the (90% of) supplies are circulated by Chinese merchants.

Kim affirmed that the market system could be shaken if supplies were not provided by the Chinese merchants. Hence, Chinese merchants have elevated themselves in North Korea’s integrated market system, to the extent that the market could break down without their existence.

In addition to this, Chinese merchants are playing a vital role in conveying information about the external world into North Korea. Even in 2004, it was Chinese merchants to first telephone China through mobile phones relaying the news about the Yongcheon explosion. As a result, rumors say that the movement of Chinese merchants can either be a “cure” to the economic crisis in which the North Korean government seems unable to fix, or “poison,” as more and more foreign information flows into the country.

How many Chinese merchants are there in North Korea?

A report by China’s Liaoning-Chosun Newspaper in 2001 sourcing data from North Korea, states that immediately after WWII, approximately 80,000 overseas Chinese were residing in the Korean Peninsula. Then following the Korean War and the formation of a Chinese government, the majority of people, approximately 60,000 Chinese, returned home. In 1958, statistics show that 3,778 families of overseas Chinese were living in North Korea, totalling 14,351 people.

These Chinese engaged in business related to farming, home made handicrafts and restaurant business, and in the late 50’s, lost all this due to the implementation of economic planning and dictatorial regime. Since then, the majority of merchants continued to return to China until the early 80’s.

In 2001, Liaoning-Chosun Newspaper confirmed that approximately 6,000 Chinese were living in North Korea. Of this figure, more than half were residing in Pyongyang, approx. 300 families living in North Pyongan and approx. 300 families residing throughout Jagang and northern districts of South Hamkyung.

At present, there are 4 middle and high schools for children (11~17 years) of Chinese merchants, located in Pyongyang, Chongjin, Shinuiju and Kanggae. In addition to these schools, there are a number of elementary schools (for children aged 7~11 years) located sporadically throughout each province.

Wang Ok Kyung (pseudonym) a resident of Shinuiju attended Chongjin Middle School for children of overseas Chinese in 1981~86. Wang said “At the time, there were about 40 students in each year. Now there is only about 5~6 students.” Nowadays, many Chinese children complete their elementary studies in North Korea, but the general trend is to send the children to China for middle school. She said “In order to enter a Chinese university, students must have completed their middle school studies in China and must be fluent in Chinese. He/she can also go to private institutes in China.”

Fortunes made through trade between North Korea-China during the food crisis

Even until the early 80’s there were no such thing as a wealthy North Korean-Chinese merchant. They were no different to North Korean citizens.

However, in the 80’s, many people began importing and selling goods such as socks, handkerchiefs, hand mirrors and cards from China, literally through their sacks. As the 90’s approached North Korean-Chinese merchants began to experience great wealth, the time where North Korea-China trade fundamentally kickstarted.

Today, Son Kwang Mi (pseudonym, 52) falls under the top 10 wealthiest Chinese merchants in Dandong, characterizing an unique rags to riches story. In the past, Sun lived in Chongjin and was one of the first figures to trade with China in the 80’s.

In the beginning, Son was so poor that she had to sell her watch received as a wedding gift in order to buy goods to sell.

Fortunately, Son found her money smuggling gold. In North Korea, gold is considered a public good or simply put Kim Jong Il’s personal inheritance, so private trade of gold is strictly regulated. Nonetheless, there are still some laborers who export gold secretly and a great number of people still collect gold through dubious ways. In particular, after the 80’s as North Korea began to experience economic decline, more and more people sold gold secretly.

Hence, a small number of Chinese merchants infiltrated the market of secretly trading gold with China. Chinese smugglers were able to take advantage of North Koreans by greatly raise their market margins, as the supply of gold and North Koreans wanting to sell their gold was high yet the demand in North Korea low.

Son said “Of the Chinese merchants in North Korea, 60% earned a great fortune at that time through illicit trade.”

She says that there were two opportunities for overseas Chinese to make a great fortune. The first was in 1985~89 through illicit trade of gold and the second, during North Korea’s mass food crisis in 1995~98.

“During the mass famine, everything in North Korea was in shortage and so Chinese merchants began to provide the daily necessities of life. At the time, if you brought large amounts of goods such as fabric and sugar, you could make a profit of 1 million Yuan (US$137,000),” she said.

Son was fortunate enough not to miss these two opportunities which led her to great wealth and allowed her to possess a fortune of 50 million Yuan (US$6.31 million).

Chinese merchants can relatively enter and exit China freely. Also, with the ability to speak Chinese fluently and the possibility of staying in the homes of many relatives in China, the occupation possesses ideal conditions.

Daily NK
Kim Min Se
3/5/2007

North Korea customs at Shinuiju is under strict control by Central Committee of North Korea Workers Party.

An inside source from Shinuiju said on the 4th, “Authorities are currently undergoing investigations at Shinuiju customs, looking for tax evasions and illicit acts. The parties subject to these crimes include customs officers at Shinuiju customs and merchants engaging in North Korea-China trade.”

The source added that the investigations had virtually terminated North Korea-China trade between Shinuju and Dandong.

Shinuiju customs is critically important for North Korea as 80% of food and daily necessary goods between North Korea and China are imported and exported from here.

According to Kim Young Hee (pseudonym), a North Korea-China tradeswoman in Shinuiju, “Trade merchants have given up on trade and are in a state of panic because of authorities making investigations at Shinuiju.”

Kim said “At times like this, keeping is a low profile is the way to survive” and expressed her concern, “They have made orders to arrest at least 10 people. Who knows, anyone could be unlucky and caught.” She said “Like there is any trade merchant who does not engage in some sort of illegal act” and retorted “Simply obtaining a permit from authorities is generating money.”

“Prior to authority investigations, on average 50~100 cars would pass through Shinuiju-Dandong, per day. Now the figures have drastically reduced with only 5~10 cars passing through” she said.

Kim continued “There is not an article that falls through the cracks of authority officers. All goods approved by customs, whether it be minerals to seafood is confirmed by authorities… All things are left up to the hands of authority officials.”

On the other hand, the source also informed that despite recent investigations placing trade between North Korea and China in a state of lull, apparently counteracting effects such as dramatic rises in Shinuiju markets have not yet occurred.

Ruediger Frank
Asian Perspective, Vol. 30, No.3, 2006 pp. 536

PDF Here: DPRK sanctions.pdf

Abstract:
This article explores sanctions as a policy tool to coerce North Korea’s behavior, such as by discontinuing its nuclear weapons program. It discusses the characteristics of sanctions as well as the practical experience with these restrictions on North Korea. It becomes clear that the concrete goals of coercion through sanctions and the relative power of the sending country to a large extent determine the outcome. Nevertheless, the general limitations of sanctions also apply, including the detrimental effects of unilateral and prolonged restrictions. It appears that the imposition of sanctions against the DPRK is unlikely to succeed. As an alternative way of changing the operating environment for North Korea, assistance deserves consideration. Despite many weaknesses, this instrument is relatively low in cost and risk, and can be applied continuously and flexibly.

Highlights below the fold:
(more…)

Daly NK
Kim Young Jin
3/1/2007

Chairwoman for Hoiryeong City’s North Korean Democratic Women’s Union, Suh Kyung Hee’s husband “K” has been dealing with drugs since the moment he managed his company, Maebong Company. However, as central authorities began to centralize businesses since last year, the company closed its doors and “K” adopted his driver “L” as drug runner and his daughter as the treasurer in charge of distributing illicit drugs to smugglers at wholesale costs to districts such as Musan, Hoiryeong and Onsung.

According to a source in Hoiryeong, K and his driver L had been in confrontation with one another since January. In the past K had procured his drugs from Chongjin and moved them to a base in Hoiryeong. Then, the drugs would be either sold to border smugglers or sold to Chinese tradesmen.

Here is where the conflict surfaced. While, L was in charge of delivering the drugs from Chongjin to Hoiryeong, K became suspicious that L was secretly hoarding the drugs elsewhere. Hence, K conducted an investigation trailing L’s steps at which a disagreement arose.

In early Feb, L voluntarily went to North Hamkyung Security Agency in Chongjin and exposed that Chairwoman Suh’s family had been disclosing in drug dealings. The motive behind L indicting Chairwoman Suh’s family is still unknown.

Some argue that the reason L went straight to the district security office and not the city office in Hoiryeong was because of Chairwoman Suh’s hierarchical position in Hoiryeong city. If L had carelessly reported this case to the city office, it is possible that L would have simply lost his self-dignity.

At present, it seems that rumors about this case are spreading rapidly across Hoiryeong creating unsettling feelings in the city.

People of Hoiryeong city are muttering “High officials must also be shown the seriousness of law,” criticizing Chairwoman Suh’s family for concealing such large amounts of dollars and yuan also Chairwoman Suh, who as the leader of the Women’s Union would advocate severe punishment for female defectors.

100g of North Korean drugs sell for 12,000 yuan

North Korean citizen Park Jong Shim (pseudonym, Sanup-dong, Hoiryeong) who lives in the same suburb as Chairwoman Suh, said in a telephone conversation with a reporter on the 26th “The whole city is raucous because of Chairwoman Suh’s story” and informed “Some people say that the power of law will be enforced properly this time as the district security agency has been involved. On the other hand, some question whether or not those people with so much money and power will be punished according to law, despite the district office being involved.”

Hoiryeong citizen Kang Eun Soon (pseudonym) who defected to China in January said “If I think about the times when Chairwoman Suh would go around making a racket, my teeth rattle.” Like second nature, Chairwoman Suh would prowl around advocating, “With the slightest nudge, Hoiryeong women jump to China, not only defiling their bodies but dishonoring the land where mother Kim Jong Sook (Kim Jong Il’s mother) was born.”

Kang said “Usually, Suh would conduct political meetings through her Women’s Union and argue that the reason there was so many public trials for border crossers and illegal acts in Hoiryeong was due to the fact that women could not look after their family. She would say that Hoiryeong women were obsessed over money and would go to any lengths to get this becoming shallow-minded people.”

“Even if a verdict was made stating that Chairwoman Suh was not linked to the drug dealings, she would still not be able to maintain her position because of all the things she has said in the past,” Kang added.

The drug known as “ice” made in North Korea is sold to Korea, Japan and even Macau through the intermediary of China. The drug “ice” as known to defectors, originated from the Heung Nam Pharmaceutical Company.

Though the going rate for “ice” differs according to quality, 100g of high-quality ice is 12,000 yuan, 9,000~10,000 yuan for standard and 7,000 yuan for low-quality ice.

In accordance with North Korea’s legislation Article 218 amended in April 2004, any person found producing or trading drugs is sentenced to a maximum of 5 years time at the Labor Education Camp. If this act has been repeated on numerous occasions or the drug dealings were large scale, a person could be sentenced to 5~10 years at the Labor Education Camp. If the conditions are even more severe, the law clearly states that a person could then be sentenced to more than 10 years time at the Labor Education Camp or sent to the Labor Education Camp for life.

Korea Times
Park Song-wu
2/20/2007

The National Intelligence Service (NIS) on Tuesday confirmed that North Korea recently enacted a law that prohibits money laundering.

The standing committee of the North’s Supreme People’s Assembly adopted the legislation last October to ban financial transactions involving illegal earnings, the agency said in a press release.

The enactment apparently aimed at settling the U.S. financial sanctions on a bank in Macau that was blacklisted by Washington in September 2005 for its suspicious role in helping the North conduct illicit financial activities, it said.

Under the latest six-party agreement, reached on Feb. 13, the United States is to resolve financial sanctions within 30 days on North Korean assets worth $24 million that have been frozen in the Macau bank.

The NIS also confirmed that the North has a highly enriched uranium (HEU) program.

NIS officials made the confirmation during a closed-door National Assembly session as the Beijing deal on initial actions to implement the denuclearization of North Korea came under criticism for not mentioning the HEU program.

After ending the session, a lawmaker said on condition of anonymity that the NIS officials confirmed the existence of the HEU program in the North.

When North Korea’s uranium enrichment program came to the fore in 2002, Washington and Pyongyang accused each other of violating the 1994 agreed framework that eventually collapsed.

Seoul and Washington are reportedly sharing the view that Pyongyang has an HEU program, for which the North began purchasing large quantities of centrifuge-related equipment in 2001.

But what is not yet clear is whether the North has begun to produce weapons-grade uranium.

In a separate Assembly session, Minister of Foreign Affairs and Trade Song Min-soon also faced the same question from lawmakers on why the Beijing agreement did not mention the HEU program.

He avoided speaking specifically on the sensitive issue that triggered the second nuclear crisis in October 2002. But he said it will be addressed as the latest agreement invoked section one of the joint statement adopted in September 2005.

“The Beijing deal is about initial steps, and it’s not a complete roadmap toward the denuclearization,” Song said. “But the recent agreement requires the North to declare all of its nuclear programs.”

In section one of the September statement, the North committed to abandoning “all nuclear weapons and existing nuclear programs” and returning at an early date to the treaty on the nonproliferation of nuclear weapons treaty (NPT) and to International Atomic Energy Agency (IAEA) safeguards.

The main opposition Grand National Party (GNP) also expressed doubts over Pyongyang’s willingness to abide by its pledges to implement initial measures for the denuclearization of North Korea.

Rep. Kim Yong-kap of the conservative party found problems with the deal reached in Beijing on Feb. 13 since key components of it, especially on the disablement of the North’s nuclear facilities, are overly “abstract.”

“Despite the North’s agreement to disable its 5 megawatt reactor in Yongbyon, it later changed the wording into a temporary stoppage of operations,” Kim said.

The North’s media promptly reported the result of latest six-party talks, but did not use the term “disablement.” Seoul officials interpreted it as an attempt to mislead North Koreans so they do not lose their pride.

“In addition, there is no deadline on the disablement. I am simply doubtful of the deal’s practicality,” he said.

According to a Chosun Ilbo-Gallup Korea poll, conducted on Feb. 19, 77.9 percent of respondents predicted that the North would not keep its pledges, while 15.8 percent of the 1,006 respondents trusted the North.

But Song said the Beijing deal was a good chance to reaffirm Pyongyang’s willingness for an early denuclearization.

He also dismissed the GNP’s claim that Seoul is determined to share the largest financial burden of aiding the North to achieve a second inter-Korean summit in the run-up to the December presidential election.

“We will not bear all the burden because all five parties have agreed to provide economic aid on the principle of equality and equity,” he said. “And the provision of assistance will be made in line with the principle of action for action.”

As a first step toward denuclearization, North Korea is to shut down its nuclear-related facilities at Yongbyon while allowing United Nations nuclear inspectors back to the nuclear complex to seal them off.

Seoul’s top nuclear negotiator, Chun Yung-woo, said in Beijing on Feb. 13 that the deal is working under an “incentive system.”

For shutting down the Yongbyon complex, the North would receive the equivalent of 50,000 tons of heavy fuel oil in emergency relief aid. An additional 950,000 tons of heavy oil or equivalent aid will be provided to the country upon its completion of disabling other nuclear-related facilities.

Korea Times
Andrei Lankov
2/4/2007

Corruption is elusive. A vast majority of corrupt transactions are done in secret and remain secret forever. No scholar has ever been able to measure the corruption level even though everybody agrees that it varies markedly, depending on place and time.

Nonetheless, there is no way to make an informed judgment on whether or not, say, the Britain of the 1670s was more corrupt than China of the 1820s. Even the oft-cited Global Corruption Reports of Transparency International is based, essentially, on the personal impressions of the people in the know (largely, businesspeople), not on direct measurements.

North Korea is not considered in the Global Corruption Report. However, everyone with first-hand experience of North Korea agree that corruption and bribery are very common there.

It has not always been the case. Indeed, back in the 1950s one of the features that attracted many Koreans to the North was the relative austerity of its ruling elite. The North Korean administration might have been wasteful, indifferent to human suffering, and irrational, but it was clean _ in marked contrast to Syngman Rhee’s regime in the South.

This did not mean that everybody had his or her fair chance.

On the contrary, people with a “bad social origin” were nonstarters by definition, and they formed a significant minority of the population. One’s connections were important, too. In 1957, Yu Sung-hun, the then president of Kim Il-sung University, complained to a Soviet diplomat that every year “queues of cars” waited near his office on the eve of the entrance exams (a car was a sign of extremely privileged social position).

The president, an honest educator and intellectual, felt guilty and upset because he had to accept the scions of top bureaucrats at the expense of gifted people without the right connections. But, one assumes, this was achieved by the application of political pressure alone, with no money involved.

The situation began to deteriorate in the late 1970s. Perhaps, this reflected the slow decline in idealism: Earlier generations sincerely believed that they were constructing a paradise on earth, but people who became adults in the 1970s and 1980s had fewer illusions. They lived in a society that was run by a hereditary elite, where one’s family background comprehensively determined one’s lifestyle, and where the official slogans were increasingly seen as irrelevant or hypocritical. Thus, bribes began to spread.

What did the North Koreans pay bribes for? Generally, for chances of social advancement, or to access to goods and services one would not normally be eligible for. Thus, sale clerks in the shops, despite their meager official salary, became one of the most affluent groups in society.

They used their access to goods to sell better quality stuff outside the official rationing system and at huge premiums.

In the 1980s corruption became ubiquitous at the colleges where one’s chances of being admitted were greatly improved by an envelope given to an influential professor or bureaucrat. There are stories that the right to join the ruling Korean Workers’ Party was sometimes also purchased through a bribe (this right is important since it makes a person eligible for white-collar positions). Finally, it was becoming quite common to pay a superior to ensure a good position.

The bribes were not necessarily paid in money. Quality liquor or imported cigarettes were even better, and good old greenbacks the best of all.

But it was only in the 1990s that bribery truly became ubiquitous.

The breakdown of old systems of control meant that there was less to be afraid of.

There were also fewer rewards available for the “good citizens of the socialist motherland.”

Finally, the collapse of the economy produced a multitude of opportunities for corruption.

Apart from the sales clerks who have always been engaged in small bribery, the drivers, train conductors and the like began to accept money for letting traders travel with their merchandise, as well as looking the other way when people could not produce valid travel permits (in the latter case policemen have also pocketed their share).

But what about the top crust of society? We do not know much about this, but it appears that they have not been touched by these trends yet.

After all, they already have enormous privileges, and in North Korea there is no private business to tempt them with good pay-offs. Probably, this is going to change soon.

the Economist
2/1/2007

Online dating in Pyongyang? Surely not

KIM JONG IL, North Korea’s dictator, has interests in modern technology beyond his dabbling in nuclear weaponry. In 2000 he famously asked Madeleine Albright, then America’s secretary of state, for her e-mail address. Mr Kim believes there are three kinds of fool in the 21st century: smokers, the tone-deaf and the computer-illiterate.

One of his young compatriots is certainly no fool. “Officially, our computers are mainly for educational and scientific purposes,” he says, before claiming: “Chatting on our web, I also met my girlfriend.”

Internet dating is only one of the surprises about the internet in North Korea, a country almost as cut off from the virtual world as it is from the real one. At one of the rare free markets open to foreigners, brand-new computers from China are sold to the local nouveaux riches complete with Windows software. Elsewhere, second-hand ones are available far more cheaply. In most schools, computer courses are now compulsory.

In the heart of the capital, Pyongyang, visitors are supposed to be able to surf freely through the 30m official texts stored at the Grand People’s Study House, the local version of the Library of Congress. The country’s first cyber café opened in 2002 and was soon followed by others, even in the countryside. Some are packed with children playing computer games.

But the world wide web is still largely absent. Web pages of the official news agency, KCNA, said to be produced by the agency’s bureau in Japan, divulge little more than the daily “on the spot guidance” bestowed by Kim Jong Il. No one in Pyongyang has forgotten that glasnost and perestroika—openness and transparency—killed the Soviet Union.

The local ideology being juche, or self-reliance, the country installed a fibre-optic cable network for domestic use, and launched a nationwide intranet in 2000. Known as Kwangmyong (“bright”), it has a browser, an e-mail programme, news groups and a search engine. Only a few thousand people are allowed direct access to the internet. The rest are “protected” (ie, sealed off) by a local version of China’s “great firewall”, controlled by the Korean Computer Centre. As a CIA report puts it, this system limits “the risks of foreign defection or ideological infection”. On the other hand, North Koreans with access to the outer world are supposed to plunder the web to feed Kwangmyong—a clever way to disseminate technical information to research institutes, factories and schools without losing control.

Yet even today, more and more business cards in Pyongyang carry e-mail addresses, albeit usually collective ones. A west European businessman says he is astonished by the speed with which his North Korean counterparts respond to his e-mails, leading him to wonder if teams of people are using the same name. This is, however, North Korea, and sometimes weeks go by in virtual silence.

In some places, North Korea’s internet economy seems to be overheating. Near the northern border, Chinese cell phones—and the prepaid phone cards needed to use them—are a hot black-market item, despite government efforts to ban them. The new web-enabled phones might soon give free access to the Chinese web which, for all its no-go areas, is a paradise of liberty compared with Kwangmyong. In this region, known for its casinos, online gambling sites are said to be increasingly active.

Last summer the police were reported to have cracked down on several illegal internet cafés which offered something more daring than the average chatting and dating. Despite the signs that North Korea’s web culture is ready to take off, internet-juche remains a reassuring form of control in the hermit regime.

Daily NK
Kim Min Se
1/26/2007

The “first-runners” are first-tier wholesalers who connect Chinese manufacturers and North Korean market owners in large cities such as Sinuiju, Hyesan, Hamheung or Chongjin. The goods transported by the first-runners to metropolitan markets in NK are met by second-runners in smaller cities.

South Pyongan province’s Pyongsong, Sunchon and Nampo are the hub for those second-runners, who move imported commodities to further deep into countryside of North and South Pyongan provinces and Hwanghae province.

Moon, a 38-year old shopkeeper in a market in Sunchon, South Pyongan, said “As soon as we hear the news that first-runners brought goods, we go to them with money right away. Since they run a huge amount of money, ordinary buyers can’t even meet them.”

Moon said that for second-runners including herself it took about half million NK wons (180 US dollars) to buy goods for one time. She buys merchandise from first-runners and sells it back to local storeowners.

For second-runners, it is crucial to procure enough high-quality goods with low price. If one buys bad products, he or she loses money. Same rule applies to first-runners.

Second-runners also hand over raw materials to manufacturers. The diminutive North Korean industry relies partly on them.

Chinese sugar and flour turn to bread and candy, and imported clothing materials are manufactured in home factories. Most of the manufacturers who buy raw materials from second-runners are individual handicraftsmen.

Lee, a clothing producer in Hamheung, sells her homemade clothes in market. Lee has had good relationship a number of second-runners, who trade Chinese fabric, so she can even buy stuff on credit.

Throughout the March of Tribulation in late 90s, North Korean people had depended on home industry for their basic necessities. And now it is estimated that significant amount of industrial products in North Korean markets are home-produced.

Those with little capital or without a stand in local market go to the most remote regions in high mountains or countryside and sell their handicrafts via train. Although it is not North Korean business slang, such activity can be classified as “third-running.”

The so-called “third-runners” trade their home-manufactured goods with country people’s corn, bean or rice, since it is rare to own a lot of cash in rural area.

In sum, once persecuted North Korean private markets are now reflecting every aspect of capitalist economy.

Daily NK
Kim Min Se
1/25/2007

Since 2002’s 7.1. economic reform measures, North Korea’s markets have become most vital part of peoples life. North Korean market system operates from ‘general market’ with huge process chain to small local ‘yard market’ in the remote countryside. And, in between, there are always some brokers.

An importer buys goods from China and transports them through cargo trains or trucks to large cities in North Korea, such as Hamheung, Chongjin, Pyongsung or Nampo. Wholesale traders take those products and resell to local businesspeople. In North Korean jargon, such process is called “running.”

Usually imported goods from China or North Korean domestic ones take three steps of circulation; one or two laps of ‘run’ is added in case of mountain area.

Wholesale is mostly carried out by cars. Since oil and vehicles are not enough, sometimes wholesalers rent cars by themselves.

A forty one-year old trader working in Dandong, China, Kim, said that he purchases goods from Chinese factories firsthand. If the amount of import is huge, Kim uses freight. If not, a few trucks are fine for him. At maximum, Kim bought 60 tons of texture from China at once and resold it to North Korean wholesaler in one month.

In Hyesan, Yangkang province, 38-year old Choi, a broker of mainly Chinese cloths and shoes, sells his stuff to nearby Chongjin. Choi told the Daily NK “There are two types of so-called running; first run and second run. “Running” requires a lot of capital like money for vehicles. So the person must be patient and cautious when buying and selling something.”

According to the interview with Kim, using vehicle in wholesale business takes from 3.5 million NK wons (roughly 1,000 US dollars) to 35 million wons. The money includes not only car rental but also “transportation permit” application fee. Transportation permit is required when vehicle and personnel move inter-province, and costs relatively large amount of cash.

Kim keeps about twenty percent of total sales as his profit. The other 80% is comprised of original price of goods, car tax, gasoline and multifarious types of ‘extra expenses,’ or bribe.

The “first run” business is apportioned to a few with privilege in North Korea. Those who can earn cooperation from Security Agency and police are able to do the first run. Without bribery, it is impossible to obtain various permits that are essential for any businessperson.

In addition, to trade with overseas Chinese merchants, one must possess enough wealth and credit. Credit enables North Korean businessmen to buy goods in China with comparatively low price. Those first runners are, in most cases, wealthy North Koreans with ten thousand US dollars cash on their hand at any moment.