Archive for the ‘Foreign direct investment’ Category

South Korean companies gearing up to rush north

Sunday, June 10th, 2018

By Benjamin Katzeff Silberstein

These days, it seems that scarcely no South Korean company isn’t looking north. Hopes are high that with a diplomatic opening – if this time is different, which we really don’t know – North Korea will be open for business. And aside from some Chinese companies and entities, no other have the know-how and language skills to make investments in North Korea profitable. Indeed, those that have happened have largely been in the realm of “adventure capital”, that is, high risks with the potential of high rewards. It seems that relatively few have reached the latter.

Many South Korean businesses will likely ask that the government underwrite potential investments, given the vast political risk. Moon’s government doesn’t seem completely adverse to this, despite the questions it raises about moral hazard and market fairness.

Looking at the types of investments that companies are talking about, it is hardly a given that they will – if they happen – have a positive, broad impact on the North Korean system and society. See below for the sorts of investments being talked about:

SM Group said it has set up a task force to check the country’s mineral resources, particularly in iron ore. The group said its ownership of South Korea’s sole operational iron ore mine effectively gives it an edge over others in terms of processing know-how and facilities it has on hand.

North Korea’s iron ore deposits are estimated at 50 billion tons worth some 213 trillion won (US$197.7 billion).

Besides resources, companies such as Keangnam Enterprises Co. and Dong Ah Construction Industrial have said they are moving to secure a foothold in the North’s building business once all sanctions are lifted.

Dong Ah said its past experience as a builder for the defunct Korean Peninsula Energy Development Organization that moved to build a light water reactor for Pyongyang could help it win future orders, especially in power infrastructure work areas.

Keangnam said that its participation in Seoul’s Official Development Assistance program for emerging economies will make it easier for it to engage in similar projects in the North if conditions permit.

SM Line Corp said it wants to ship North Korean resources using the country’s cheap labor and explore the opening of new shipping routes and related shore infrastructure.

“Work in the North will be a win-win development for all sides, and this is the reason why the company is looking into the matter,” a source at the shipping line said.

Besides medium-size companies, the large conglomerate Lotte said it has set up a team that can expand business ties not only with North Korea but also Russia and China.

Meanwhile, there has been growing interest by local companies who want to set up operations at Kaesong Industrial Complex in North Korea, which has been shuttered following the North’s nuclear and long-range missile provocations.

Dong-a Publishing said it wanted to take advantage of the low labor costs to set up business in Kaesong.

The company said due to the labor intensive work in the publishing field it makes sense to move its plant to the North.

Related to such moves, a business group representing South Korean firms that had operated factories in Kaesong said recently that upwards of 20 companies a day have called to make inquiries about opening new factories in the special economic zone.

Article source:
S. Korean mid-tier companies interested in biz opportunities in N. Korea
Yonhap News
2018-06-10

Much of what’s being talked about, in other words, is extraction of natural resources. Sure, this would be done with North Korean labor, but even though the domestic economy could get an upswing through these sorts of operations, North Korea wouldn’t necessarily reap the full potential benefits of its mineral assets, which could be sold for much higher prices if they were locally refined and processed. This is likely something that the North Korean leadership is very well-aware of, and Kim Jong-un talked about it in speeches in the 1990s. But given the need for hard currency, they may not see that they have much of a choice in the matter.

Other companies want to get in on the cheap labor. That’s all fine and good for the companies and the potential prospective North Korean employees, but factories of this sort can be set up pretty easily without sourcing raw materials locally, and with few connections with overall North Korean society.

In other words, if these investments come to see the light of day (again, a big “if”), it’s not a given that it’ll be in any way transformative for the North Korean economy. We have seen much of this before, and we know from Kaesong that the state is indeed both capable and willing to contain economic development to specific areas, keeping it separated and in check from broader North Korean society.

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South Korea asks for immunity for officials stationed in Kaesong

Tuesday, June 5th, 2018

Benjamin Katzeff Silberstein

While the world gears up for the summit (yes, The Summit), things are moving along on the peninsula as well. Moon promised in the election campaign that he would not only re-open Kaesong, but work to enlarge the zone as well. Last week, South Korea asked that North Korea grant diplomatic immunity for the officials it plans to station in the liaison office the two countries are in the process of establishing in the city:

The two Koreas agreed last week to open a liaison office in the city “at an early date” at high-level talks to discuss steps for implementing promises made by their leaders in the historic April and May summits.

South Korea plans to station its officials there in order to keep communication channels open around the clock as part of efforts to support cross-border exchanges, which are likely to increase.

According to the sources close to the matter, South Korea’s government recently proposed the North grant immunity from arrest and detention for its officials to be stationed in the office, just as the Vienna Convention grants such privilege to diplomats.

In addition, it also proposed that the North guarantee safety of passage and communications for its officials, while exempting them from checks on their bags and pouches, the sources said.

Kaesong is the western border city in the North where the two Koreas operated a joint industrial complex since 2004. It was hailed as a successful example of economic cooperation between the two Koreas as it married South Korea’s capital with the North’s cheap and skillful labor.

South Korea, however, closed its operations there in early 2016 and brought its officials and workers back in protest at the North’s continued missile and nuclear provocations.

Though there was an agreement regarding the safety of South Korean personnel at the time, there was no clear legal ground for the South Korean government to ask for the return of its people in case of their arrest or detention, experts said.

Article source:
S. Korea asks N. Korea to grant immunity to officials at liaison office to open in North
Yonhap News
2018-06-05

It wouldn’t be surprising if moves to open Kaesong come relatively soon, pending the overall diplomatic situation and sanctions regime. Kim Jong-un’s predilection for SEZs is well known and natural, they bring opportunities for making hard currency for the state while keeping systemic changes and capitalist incursion (in the North Korean lingo) contained within a specific geographic area. Some hope that they will eventually bring systemic changes to the broader North Korean society as well, but with Kaesong, we’ve seen no evidence that that is the case.

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Recap: South Korea’s economic plans for North Korea

Monday, May 28th, 2018

Benjamin Katzeff Silberstein

In this post, I’ll be collecting news and information on Moon Jae-in’s plans and ideas for economic development in North Korea. I’ve had to take a little break from blogging for the past couple of weeks due to travel, so the articles here won’t necessarily be recent or up-to-date, especially since up-to-date regarding the Korean peninsula these days seems to extend only to the last five minutes or so.

For the contents of the Panmunjom Declaration that have to do with the North Korean economy, feel free to check out this post, where I make the case (which still holds, I would argue) for why infrastructure is the most plainly obvious as of now for economic cooperation with North Korea in the wake of the latest warming of ties.

Infrastructure was an important component of the famed USB-stick that Moon handed to Kim at the first inter-Korean summit this year. Hankyoreh:

South President Moon Jae-in ordered a joint inter-Korean research effort to examine future economic cooperation ahead of the anticipated lifting of international sanctions against North Korea following an upcoming North Korea-US summit, which will follow up the inter-Korean summit that was held on Apr. 27.

Speaking on Apr. 30 at the first Blue House senior secretaries’ and aides’ meeting since the inter-Korean summit, President Moon said he “look[ed] forward to us being able to carry out a joint inter-Korean research effort for implementation of the Oct. 4 Summit Declaration [of 2007] and inter-Korean economic cooperation,” a key Blue House official reported.“He was saying we need joint research to examine what kinds of economic cooperation the South and North can engage in ahead of [sanctions against North Korea] being lifted,” the official explained.

During their summit, President Moon also personally gave North Korean leader Kim Jong-un a pamphlet on his “new economic vision” and a USB device containing a presentation video, the Blue House reported.

The materials reportedly contained details on power plant construction and other economic cooperation measures that could be implemented once inter-Korean relations gain momentum and sanctions against North Korea are lifted.During the Apr. 30 meeting, President Moon described the Panmunjeom Declaration as “a peace declaration proclaiming to the world that there will be no more threat of war or nuclear weapons on the Korean Peninsula.”

Article source:
South Korean President Moon Jae-in orders joint research effort for inter-Korean economic cooperation
Seong Yeon-cheol
Hankyoreh
2018-05-01

New York Times noted the somewhat ironic fact that Kim received Moon’s plan on a USB-stick, an item whose use by its own citizens the North Korean regime has long cracked down on:

For years, Kim Jong-un, North Korea’s leader, has been cracking down on USB flash drives that activists smuggle into his isolated country to poison his people’s minds with outside influences, like South Korean K-pop music.

But last month, when he met with the South’s president, Moon Jae-in, Mr. Moon handed him a USB drive that contained quite a different message.

In charts and video clips, Mr. Moon’s memory stick laid out a “new economic map for the Korean Peninsula,” including new railways and power plants for the impoverished North, should Mr. Kim abandon his nuclear weapons, according to South Korean officials.

Mr. Moon based his sales pitch on the belief that Mr. Kim wants to become the North Korean equivalent of Deng Xiaoping, who oversaw the economic liberalization of China. In this view, Mr. Kim may be willing to transform his pariah state by trading in his nuclear arsenal for diplomatic and economic incentives he needs to achieve prosperity.

[…]

“Kim Jong-un’s desire to develop his country’s economy is as strong as, and even stronger than, his desire for nuclear weapons,” said Lee Jong-seok, a former unification minister of South Korea. “But he knows he cannot achieve the kind of rapid economic growth in China that he envisions for his country while keeping his nuclear weapons — because of the sanctions.”

[…]

Vilified as he was, however, Mr. Kim has also shown signs of being a reformer, granting farms and factories more autonomy, allowing more markets to open, and setting off a building boom in his showcase capital, Pyongyang. He exhorts his country to follow “international development trends” and “global standards” and even admits failing to deliver on his promise that his long-suffering people would “no longer have to tighten their belts.”

“My desires were burning all the time, but I spent the past year feeling anxious and remorseful for the lack of my ability,” Mr. Kim said in a nationally broadcast speech last year, a startling admission for a member of the family that has ruled North Korea with the help of a personality cult since its founding in 1948.

After meeting him, Mr. Moon called Mr. Kim “open-minded and practical.”

Nowhere is Mr. Kim’s dilemma better seen than in his policy of “byungjin,” or parallel advance, which seeks a nuclear arsenal and economic development simultaneously. Under that policy, Mr. Kim has rapidly developed his country’s nuclear weapons and ballistic missile programs, arguing that a nuclear deterrent would make his country feel secure enough to focus on rebuilding the economy. But the world has responded by imposing crippling sanctions.

[…]

If Mr. Kim pursues the route of economic reform, energy and transportation are the two areas where he most needs outside help. In his meeting with Mr. Moon, Mr. Kim admitted to the “embarrassing” condition of his roads and railways, South Korean officials said.

Trains running on electricity remain North Korea’s main means of transport, carrying 90 percent of its cargo and 60 percent of its passenger traffic, according to Ahn Byung-min, a senior analyst at the South’s government-funded Korea Transport Institute. But its rail systems are so decrepit that its fastest train, which runs to the Chinese border from Pyongyang, travels at 28 miles an hour. Other trains run at less than half that speed, Mr. Ahn said.

Lacking cash for oil imports, North Korea produces all its electricity from hydroelectric dams and coal-burning power plants. But the country’s power industry is trapped in a vicious cycle, energy experts say. Chronic electricity shortages make it difficult to produce coal and transport it to power plants. People in search of firewood for heat and cooking have denuded their hills, causing floods and droughts and making silt pile up at dams. That cuts down hydroelectric generation.

North Korea’s electricity generation amounts to only 4.4 percent of South Korea’s, according to Park Eun-jeong, an analyst at the South’s Korea Development Bank. The country prioritizes supplying electricity to lighting statues of Mr. Kim’s father and grandfather, who had ruled before him, while passengers wait for hours in trains unable to move because of power shortages, according to defectors from the country.

“Electricity is the Achilles’ heel for North Korea,” said Lee Jong-heon, an energy analyst in Seoul.

Mr. Moon’s proposal to modernize the North’s roads and railways and link them to the South’s is not meant to help just North Korea.

South Korean policymakers say that the two Koreas must first integrate their economies to make an eventual reunification less chaotic. They also envision building trans-Korean railways to find faster and cheaper routes to export South Korean goods to China, Russia and Europe, and bring Russian oil and gas into the South through pipelines for its power-hungry economy.

Full article and source:
South Korea Hands Kim Jong-un a Path to Prosperity on a USB Drive
Choe Sang-hun
New York Times
2018-05-10

Moon’s plan consists of three “economic belts”, as South China Morning Post notes, with infrastructure links that carry great potential gains for China and Russia as well:

President Moon Jae-in gave the North’s leader Kim Jong-un a USB drive containing a “New Economic Map of the Korean Peninsula” at the fortified border village of Panmunjom on April 27.

The initiative included three economic belts – one connecting the west coast of the peninsula to China, making the region a centre of logistics; one connecting the east coast to Russia for energy cooperation and one on the current border to promote tourism.

Whilst sources at the South Korean presidential office did not give further details about the information contained in the drive, they confirmed that the plan was in line with Moon’s “Berlin speech” last year when he outlined his basic approach to the north on a visit to the German capital.

During last year’s presidential election campaign, Moon pledged to merge the two Koreas’ economies in a single market to lay the foundations for unification.

Park Byeong-seug, a South Korean lawmaker from Moon’s ruling Democratic Party of Korea, said the proposal was in line with Moon’s campaign promises.

“The concept of the three belts was one of President Moon’s pledges during the election last year,” Park said.

“The new economic map includes railway links between the two Koreas and China’s northeast stretching all the way to Europe.”

One part of the plan would involve the construction of a rail link starting in Mokpo on the southwest tip of the peninsula, passing through Seoul and Pyongyang and the North’s Special Administrative Region of Sinuiju, before reaching Beijing.

Beijing is likely to welcome Seoul’s proposal as it accords with the core Chinese national interest of enhancing sustainable economic development and boosting the country’s northeastern rust belt.

Cheng Xiaohe, a deputy director at the centre for international strategic studies at Renmin University said Beijing may try to incorporate the plan into its Belt and Road Initiative.

“The northeast has been China’s weakest link and seen poor economic development for years. A rail link could make a real difference to the region,” Cheng said.

Improving the area’s logistics would also benefit China as its access to the open seas in that part of the world is physically blocked by the Korean peninsula and Russia’s far east.

North Korea’s economy is also closely tied to the northeast of China and opening up the reclusive state’s markets could provide new opportunities for the Chinese provinces on its border.

Lu Chao, a research fellow at Liaoning Academy of Social Sciences, said: “The plan would have a huge impact on China’s northeastern region as it would transform the region as a centre of logistics in East Asia, which could function as a driving force for the rapid economic growth of the region.”

“The northeast is the region with the greatest economic potential in China. A railway connection would bring a myriad of investments from overseas and would help the economy take off.”

[…]

South Korea would have to allow its allies and the UN to mediate any easing of sanctions before it could establish any economic cooperation with the North.

Moon Chung-in, a special foreign affairs and national security adviser in Seoul, said last month that Seoul’s economic incentives would compensate Pyongyang for freezing its missile programme, disclosing its nuclear capacity and allowing international inspections within its borders.

Full article and source:
Seoul offers Kim Jong-un grand bargain to link North and South Korean economies with China
Lee Jeong-ho
South China Morning Post
2018-05-07

Not surprisingly, Hyundai Asan is hoping to get in on whatever action may come. CNN:

Hyundai Group said Tuesday [May 8th] that it’s setting up a task force to prepare for the potential restarting of economic projects in North Korea.

The announcement comes shortly after a historic summit between South Korean President Moon Jae-in and North Korean supreme leader Kim Jong Un at which they committed themselves to rebuilding ties after years of tensions.

Hyundai Group, which split from the Hyundai Motor Group in 2000, was involved in various business projects in North Korea in the past, including a mountain resort and the Kaesong industrial complex, where North Korean workers made goods for South Korean companies.

“Hyundai needs to be ready when/if the two Koreas agree on terms and inter-Korean economic cooperation resumes,” a company spokesman said.

Hyundai will be closely monitoring the planned summit between Kim and US President Donald Trump that’s expected to take place in the coming weeks, as well as any potential changes to the heavy sanctions in place on North Korea’s economy, the spokesman said.

The Kaesong complex, a symbol of cooperation between the two Koreas, was closed as relations deteriorated in 2016. More than 120 South Korean companies had a presence there, employing tens of thousands of North Koreans and providing a steady stream of foreign currency to the regime in Pyongyang.

Hyundai also previously operated a tourist resort at North Korea’s Mount Kumgang, near the border with South Korea. It was shut down in 2008 after a South Korean tourist was killed by a North Korean soldier.

The company’s ties to North Korea go back to Hyundai’s late founder, Chung Ju-young, who was born there.

Last week, South Korean Deputy Prime Minister Kim Dong-yeon said the country’s government was “considering various scenarios” for economic cooperation between the two Koreas.

“The government is preparing response plans to different scenarios in terms of how and how fast to pursue [economic cooperation] and how to procure the resources for it,” he said.

South Korea’s government has allocated about $900 million to fund economic projects that involve both countries this year, according to the minister.

Full article and source:
Hyundai Group is getting ready to do business in North Korea again
Daniel Shane
CNN
2018-05-08

To be sure, preparations and planning are well underway in Seoul. Reuters:

South Korea’s finance minister said on Wednesday [May 2nd] the government was discussing how to finance possible economic projects with North Korea, although any projects with Pyongyang must first be approved by the international community.

“We’re internally carrying out preparations, in terms of what to prepare, and how to cooperate with the international community, and how to finance (possible inter-Korea projects),” Kim Dong-yeon told reporters in Sejong.

“But we need support from the international community and need to watch the (upcoming) summit between the United States and North Korea,” Kim said, without elaborating on specifics of any government financing.

Kim’s comments come after South Korean President Moon Jae-in and his North Korean counterpart Kim Jong Un agreed last Friday on a common goal of a “nuclear free” peninsula, and to “adopt practical steps towards the connection and modernization of the railways and roads”.

Many speculate that the two Koreas will start joint infrastructure projects as soon as international sanctions on North Korea are lifted. Currently, North Korea is under sanctions imposed by the U.N. Security Council to stop its nuclear weapons and missiles programs.

Kim also said there was a rise in the number of Chinese tourists in March although the services sector has not yet recovered from a drop in such visitors due to tensions between the two countries.

“The number of Chinese tourists is noticeably increasing since March, although it hasn’t recovered to the pre-Thaad level,” Kim said.

Tourist numbers plunged last year after South Korea angered China by deploying a U.S. Terminal High Altitude Area Defence (THAAD) system that features radar which Beijing believes could be used to penetrate its territory.

Full article and source:
South Korea considers financing of possible inter-Korea projects: finance minister
Reuters
2018-05-02

To be continued and updated…

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North Korea’s Supreme People’s Assembly Session: Economic reporting

Thursday, April 12th, 2018

By Benjamin Katzeff Silberstein

On April 11th, 2018, North Korea’s rubber-stamp parliament held a session in Pyongyang. Some news media has focused on Kim Jong-un’s absence from the session, but some interesting reporting on the economic situation came out of the session as well. Here are the key points on the economy (from KCNA on April 12th, with my annotation and emphasis added):

Deputy Pak Pong Ju, premier of the Cabinet, delivered a report on the fulfillment of the work of the Cabinet for Juche 106 (2017) for carrying out the five-year strategy for national economic development and its tasks for Juche 107 (2018) at the Sixth Session of the 13th Supreme People’s Assembly held on Wednesday.

Last year was a year of great victory in which a great progress had been made in carrying out the five-year strategy for the national economic development under the outstanding and seasoned guidance of the respected Supreme Leader Kim Jong Un, repelling unprecedentedly grave challenges stemming our advance, the reporter said.

According to the report, last year the Cabinet organized a drive for putting the nation’s overall economy on a higher stage with a main emphasis put on revitalizing the production by locally producing equipment, raw and other materials on the principle of self-support and self-sufficiency while focusing the state efforts on augmenting the foundation for electricity production, rounding off the system of Juche iron production and realizing the independence of chemical industry in line with the five-year strategy for national economic development set forth by the Party.

Note the emphasis here on local production, the expansion of which has been a key policy under Kim Jong-un.

The achievements made last year, a year of crucial importance in carrying out the five-year strategy for national economic development, proved once again that no desperate sanctions and pressure moves of the U.S. and its vassal forces to destroy the sovereignty of the DPRK and its rights to existence and development can ever check the progress of the Korean people dynamically advancing with firm faith in the validity of their cause and its final victory under the wise guidance of the Party and that the cause of building a powerful socialist country is sure to be accomplished.

Saying that this year we are faced with the tasks to make a breakthrough of revitalization in the economic front as a whole while frustrating the challenges of the hostile forces, who are making last-ditch efforts, through all-people offensive under the militant slogan of “Let us launch a revolutionary general offensive to achieve fresh victory on all fronts of building a powerful socialist country!”, the reporter specified them.

The fighting goals for the third year of the five-year strategy for national economic development should be attained without fail with a firm hold on the key tasks of strengthening the independence and Juche character of the national economy and improving the standard of people’s living.

The power industrial sector should put defective generating equipment into good shape and reinforce them, take scientific and technological measures for lowering the standard of coal consumption at thermal power plants and put the operation of generating equipment additionally installed at the Pukchang Thermal Power Complex on a normal track and thus increase the electricity production with the use of thermal power source onto a high stage.

The emphasis on independent electricity consumption makes a lot of sense, particularly as North Korea’s oil and fuel imports are being squeezed. But it’s a problem going back much, much further than the past year’s sanctions.

The coal industrial field should attain the monthly and quarterly coal production goals and create more coal fields so as to fully meet the demand for coal increasing in different sectors of the national economy.

Note: the national economy. The dependence on revenues from coal exports has been a problem, and one side-effect of sanctions may be that domestic industries get access to more and cheaper coal.

In the field of metal industry, Korean-style Juche-based iron making production system should be further perfected by the use of oxygen heat blast furnace and efforts be put into improving the quality of steel and diversifying the kinds of steels through introduction of advanced technologies so as to fully meet the demand for iron and steel of the national economy.

Again, national economy. Diversification is also an important and long-standing goal, and North Korea has long sought to not just export raw materials, but manufacture and sell more of end-products as well.

The field of chemical industry should unconditionally hit the fertilizer production target to timely provide nitrogenous fertilizer to the agricultural field ahead of farming processes. The production at the February 8 Vinalon Complex should be invigorated to fully supply various chemical products including vinalon, caustic soda and vinyl chloride to various sectors of the national economy.

Vinalon…Good luck.

Along with the establishment of various catalyst production bases, the construction of main production processes should be pushed forward at the Sunchon Phosphate Fertilizer Factory and the process for production of carbonate of soda with glauberite as starting raw material should be renovated and perfected.

The machine industrial sector has to step up the modernization of machine factories, unconditionally hit the target for production of tractors and trucks and put the quality of machinery on the world level.

Advanced mining methods should be widely introduced to increase the production of minerals and nonferrous metal.

The railway transport sector should ensure in a responsible manner the transportation of materials necessary for various sectors of the national economy and capital construction projects.

The Cabinet will bring about a remarkable turn in improving the standard of people’s living through production surge in the fields of light industry, agriculture and fisheries this year.

Equipment and production processes should be rearranged on a manpower-saving and electricity-saving basis, diverse and quality light industrial goods produced on a larger quantity with locally available raw and other materials, and local economy should be developed in a peculiar way with reliance on the domestic resources.

High-yielding farming methods should be positively introduced and the proportion of farm work done by machines should be drastically increased to attain the grain production goal for this year without fail.

The fisheries field should unconditionally hit the fish production target and at the same time finish the construction of projects for consolidating the material and technical foundation of fisheries ahead of schedule.

Big efforts should be directed to sprucing up Samjiyon County into a standard and model county under socialism and the construction of the Wonsan-Kalma coastal tourist area should be finished within specified date. And such capital construction projects as the Tanchon Power Station and the second-phase waterway project in South Hwanghae Province should be pushed forward.

The rate of rooting of saplings should be ensured at more than 90 percent through efficient tree planting and meticulous cultivation of planted trees and the appearance of the country be bettered through the technical renovation and repairing of highways and tourist roads in a qualitative way and the rearrangement of key rivers and streams based on an all-people movement.

All the sectors and units should solve the sci-tech problems arising in completing the domestic production of materials and equipment and the structure of self-supporting economy with firm reliance on science and technology.

The reporter stressed that the Cabinet and other state economic guidance organs would work out in a practical way an operation plan for hitting this year’s targets and push forward its implementation in a responsible manner through skillful operation and command to successfully attain the fighting goals set forth by the Party and thus fully discharge their responsibility and duty in glorifying this year marking the 70th anniversary of the DPRK as a year of victory to be specially recorded in the history of the country.

I don’t have time to add more commentary right now, but will hopefully be able to return to this later. Below is KCNA’s rendition of the state budget report on last year and this year and there’s lots of interesting stuff to discuss here:

Deputy Ki Kwang Ho, minister of Finance, made a report on the fulfillment of state budget for Juche 106 (2017) and on the state budget for Juche 107 (2018) of the DPRK at the 6th Session of the 13th Supreme People’s Assembly held on Wednesday.

According to the report, last year the state budgetary revenue plan was over-fulfilled by 1.7 percent or 4.9 percent increase from the previous year.

The local budgetary revenue plan was carried out at 100.5 percent.

Last year the state budgetary expenditure plan was carried out at 99.8 percent.

15.8 percent of the total expenditure was earmarked for the increasing of the military capabilities of the country and 47.7 percent for the development of the national economy.

Investment in the field of science and technology increased 8.5 percent as over the previous year, thus contributing to settling the scientific and technological problems arising in the economic development and to accomplishing the tasks for studying ultra-modern field.

5.2 percent more fund was allocated to key sectors of the national economy and for the improvement of people’s livelihood than the previous year, thus actively promoting the drive for putting power, coal, metal, chemical, machinery and light industrial fields on a Juche basis and updating their production processes. In particular, it helped build a Korean-style oxygen heat blast furnace at the Kim Chaek Iron and Steel Complex and attain the goal of producing new type tractors and trucks.

2.6 percent more investment was made for the construction field than the previous year, while 36.3 percent of the total expenditure was directed to facilitating the building of a highly-civilized socialist power, thus contributing to the implementation of the Party’s policies of prioritizing the education and health care and to the development of sports and literature and arts.

According to the report, the state budgetary revenue and expenditure for this year have been shaped in such a way as to carry out the five-year strategy for the national economic development.

The state budgetary revenue envisages 3.2 percent increase over last year, of which the transaction tax, key item of the budgetary revenue, is expected to swell 2.5 percent while the profits from state enterprises is expected to grow 3.6 percent, to hold 85.3 percent of the total revenue.

The income from cooperative organizations is expected to grow 0.9 percent, the real estate rent 1.8 percent, the social insurance fee 1.2 percent, while the revenue from property sales and price differences is to grow 0.5 percent and other revenue 0.8 percent. The revenue from economic trade zones is expected to increase 2.5 percent.

The central budgetary revenue out of the state budgetary revenue stands at 73.9 percent which means that the revenue from the central economy holds an overwhelming proportion. Provinces, cities and counties are expected to balance expenditure with their own revenue and contribute lots of funds to the central budget.

The state budgetary expenditure is to grow 5.1 percent over last year’s.

An investment in strengthening the independence and Juche character of the national economy and improving the standard of people’s living will increase 4.9 percent as against last year and thus relevant fund will go to 47.6 percent of the total expenditure.

An investment in the field of science and technology will increase 7.3 percent.

Expenditure for the overall national economy including power, metal, coal, chemical and machine industries, railway transport, light industry, agriculture and fisheries will increase 5.5 percent.

The financing necessary for actively promoting the capital construction and further expanding the achievements of forest restoration campaign will swell 4.9 percent.

5.9 percent more fund will go to the education field, 6 percent more fund to public health, 5.1 percent more to sports field and 3 percent more to literature and art.

15.9 percent of the total expenditure will go to increasing the military capabilities for self-defence.

This year also, lots of educational aid fund and stipends will be sent for the children of Koreans in Japan.

The reporter said that the state budget for this year will be successfully carried out through meticulous organization of economic operation and command and thus financially back the building of a powerful socialist country.

(UPDATE 4-15-2018: Korean original for the budget report added below, date fixed above):

지난해 국가예산집행의 결산과 올해 국가예산에 대한 보고

(평양 4월 12일발 조선중앙통신)

11일에 진행된 최고인민회의 제13기 제6차회의에서 조선민주주의인민공화국 주체106(2017)년 국가예산집행의 결산과 주체107(2018)년 국가예산에 대한 재정상 기광호대의원의 보고가 있었다.

보고에 의하면 지난해 국가예산수입계획은 101.7%로 수행되였으며 전해에 비하여 104.9%로 장성하였다.

지방예산수입계획은 100.5%로 수행되였다.

지난해 국가예산지출계획은 99.8%로 집행되였다.

나라의 군력강화에 지출총액의 15.8%를 돌렸으며 인민경제발전에 지출총액의 47.7%를 돌리였다.

과학기술부문에 대한 투자를 전해에 비하여 108.5%로 늘여 경제발전에서 제기되는 과학기술적문제들을 해결하고 첨단분야의 연구과제를 완성하는데 기여하였다.

인민경제의 중요부문과 인민생활향상에 전해에 비하여 105.2%로 늘어난 자금을 지출하여 전력,석탄,금속,화학,기계,경공업부문의 주체화와 생산공정의 현대화를 적극 추동하였으며 특히 김책제철련합기업소에 우리 식의 산소열법용광로를 건설하고 새형의 뜨락또르와 화물자동차생산목표를 점령하는데 이바지하였다.

건설부문에 전해에 비하여 102.6%로 투자를 늘이였다.

사회주의문명강국건설을 앞당기는데 지출총액의 36.3%를 돌려 당의 교육중시,보건중시정책을 관철하고 체육과 문학예술을 발전시키는데 이바지하였다.

보고에 의하면 올해 국가예산은 국가경제발전 5개년전략수행의 요구에 맞게 국가예산수입과 지출을 편성하였다.

국가예산수입은 지난해보다 103.2%로 장성할것으로 예견하였으며 그가운데서 예산수입의 기본항목인 거래수입금은 102.5%로,국가기업리익금은 103.6%로 늘어나 수입총액의 85.3%를 차지할것으로 보았다.

협동단체리익금은 100.9%,부동산사용료는 101.8%,사회보험료는 101.2%,재산판매 및 가격편차수입은 100.5%,기타수입은 100.8%,경제무역지대수입은 102.5%로 늘어나게 된다.

국가예산수입에서 중앙예산수입은 73.9%로서 중앙경제에 의한 수입이 압도적비중을 이루며 도,시,군들에서 자체의 수입으로 지출을 맞추고 많은 자금을 중앙예산에 들여놓을것으로 예견하였다.

국가예산지출은 지난해에 비하여 105.1%로 장성하게 된다.

인민경제의 자립성과 주체성을 강화하고 인민생활을 개선향상시키기 위한 투자를 지난해에 비하여 104.9%로 장성시켜 지출총액의 47.6%에 해당한 자금을 돌리게 된다.

과학기술부문에 대한 투자를 107.3%로 늘인다.

전력,금속,석탄,화학,기계공업과 철도운수,경공업,농업,수산업을 비롯한 인민경제전반에 대한 지출을 105.5%로 늘인다.

중요대상건설을 적극 추진하고 산림복구전투의 성과를 더욱 확대해나가는데 필요한 자금보장을 104.9%로 늘이게 된다.

교육부문에 105.9%,보건부문에 106%,체육부문에 105.1%,문학예술부문에 103%로 투자를 늘인다.

자위적국방력을 강화하는데 지출총액의 15.9%를 돌리게 된다.

올해에도 재일동포자녀들을 위하여 많은 교육원조비와 장학금을 보내준다.

보고자는 경제작전과 지휘를 빈틈없이 짜고들어 올해 국가예산을 성과적으로 집행함으로써 사회주의강국건설을 재정적으로 안받침해나갈것이라고 강조하였다. (끝)

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Weekend reading recommendation: North Korea’s Shackled Economy, 2018

Friday, March 23rd, 2018

By Benjamin Katzeff Silberstein

The National Committee on North Korea (NCNK) has published a report by William Brown, and I urge all those with an interest in the North Korean economy to read it. It is a pragmatic take on the North Korean economy in 2018, noting both the progress and the limits of the changes in its economic system over the past few years. Brown is pessimistic (or perhaps just realistic) about North Korean economic resilience in the face of sanctions, but also notes the great potential for economic development that exists in North Korea’s human capital and skilled labor. Brown’s analysis of the country’s currency situation, one of the most opaque topics in already opaque field, is particularly interesting. Below is an excerpt from the executive summary:

The North Korean economy remains weak and vulnerable, but its structure is changing as it confronts major internally- and externally-generated pressures. Ironically, as UN sanctions have tightened in recent years, the economy has become more decentralized and productive, as weakening state controls have allowed the spread of market activities, providing incentives for individuals and families to work in their own self-interest. Central planning is weakening as money replaces the once ubiquitous ration coupon, and self-reliance on both a national and localized level is increasing as foreign trade and foreign aid dwindle. However, the state-run economy has not withered away, and Pyongyang dictates perhaps half of all economic transactions, a far larger share than does the central government in any other country. The state and its enterprises and the huge farmers’ collectives still own most capital and property, and through their extensive regulations and police powers extract large rents from individuals and families.

The full report can be found here.

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On the Nov 21st US Treasury Sanctions against North Korea

Tuesday, November 21st, 2017

By: Benjamin Katzeff Silberstein

Today, the Treasury Department’s Office of Foreign Asset Control (OFAC) announced new sanctions against a number of Chinese and North Korean entities. The sanctions “target third-country persons with long-standing commercial ties to North Korea, as well as the transportation networks that facilitate North Korea’s revenue generation and operations,” said a press statement.

Overall, these additional measures seem designed to clamp down on avenues for North Korea to circumvent current UN sanctions. Among those sanctioned are three Chinese companies that have traded with North Korea in goods that are covered by UN sanctions from this and last year:

OFAC designated Dandong Kehua Economy & Trade Co., Ltd., Dandong Xianghe Trading Co., Ltd., and Dandong Hongda Trade Co. Ltd. pursuant to E.O. 13810.  Between January 1, 2013 and August 31, 2017, these three companies cumulatively exported approximately $650 million worth of goods to North Korea and cumulatively imported more than $100 million worth of goods from North Korea.  These goods have included notebook computers, anthracite coal, iron, iron ore, lead ore, zinc ore, silver ore, lead, and ferrous products.

Also targeted are companies that have traded in goods that are either covered by sanctions, or (it seems) fall under the dual-use category of goods that can be used in nuclear weapons/missile development:

OFAC designated Sun Sidong and his company, Dandong Dongyuan Industrial Co., Ltd. (Dongyuan), pursuant to E.O. 13810.  Sun and Dongyuan were responsible for exporting over $28 million worth of goods to North Korea over several years, including motor vehicles, electrical machinery, radio navigational items, aluminum, iron, pipes, and items associated with nuclear reactors.  Dongyuan has also been associated with front companies for weapons of mass destruction-related North Korean organizations.

The sanctions also target vessels that are suspected of having transferred oil to North Korea via other ships (ship-to-ship transfer) in violation of sanctions (this part contains some pretty impressive pictures):

All in all, these new sanctions appear to try to fill the gaps left by current sanctions. Surely, they will cause added trouble for North Korea. But the problem, to begin with, is that North Korea has historically been good at adapting to new sanction’s frameworks and finding new methods to circumvent them. Only time will tell whether these skills of North Korea still hold up in the current sanctions environment.

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The impact of sanctions (2017) on the North Korean economy

Thursday, September 14th, 2017

Benjamin Katzeff Silberstein

I’ll try to gather some of the many stories on the impact of sanctions on the North Korean economy in this post, starting with the one below from Reuters (with my annotation in brackets, [BKS]):

DANDONG, China (Reuters) – The United Nations may have failed to slow North Korea’s weapons programs, but the country’s economy is already showing signs it is feeling the squeeze from the ongoing clampdown on trade, including a curb on fuel sales by China.

The latest sanctions agreed on Monday by the UN Security Council ban the export of textiles from North Korea, one of its few substantial foreign currency earners. They also capped imports of oil and refined products, without imposing the full ban the United States had sought.

Chinese traders along the border with North Korea and some regular visitors to the isolated country said scarcer and costlier fuel, as well as earlier UN sanctions banning the export of commodities such as seafood and coal, are now taking a toll.

“Our factory in North Korea is about to go bankrupt,” said an ethnically-Korean Chinese businessman in Dandong who sells cars refurbished at a factory in North Korea. He declined to be identified due to the sensitivity of the situation.

[My emphasis: Sanctions may target the regime first and foremost, but civilians certainly do not go untouched by them./BKS]

“If they can’t pay us, we’re not going to give them goods for free,” he said, referring to his North Korean customers.

A trader at another auto-related businesses in Dandong said cross-border trade had been hurt over the past few years, which he attributed to sanctions and less access to petrol. Several Chinese traders told Reuters the sanctions had stymied North Korean businesses’ ability to raise hard currency to trade.

“Last month sales were really bad, I only sold a couple of vehicles,” said the Chinese trader who sells new trucks, vans and minibuses to North Korea. “In August last year, I sold tens of vehicles and I thought that was bad.”

On top of the sanctions, some traders said Chinese officials have stepped up efforts to curb smuggling across the border, a key source of fuel in the northern parts of North Korea.

[Question is: for how long will these efforts last? /BKS]

And Chinese bank branches in the northeast have curtailed doing business with North Koreans, according to branch staff [BKS emphasis].

FUEL PRICES SURGE

Still, North Korea has made strides in increasing its economic independence and not all traders or observers agreed the international pressure was having a major economic impact.

Many residents, long accustomed to restrictions and shortages, were most concerned about the risk of already tight fuel supplies being cut further, said Kang Mi-jin, a North Korean defector in Seoul who reports for the Daily NK website.

“If the U.S. were to say they plan to bomb Pyongyang, North Koreans wouldn’t care less. But if China says they are considering slashing oil exports to North Korea because of missile or nuclear tests, North Koreans would absolutely freak out,” she said.

[BKS emphasis.]

Reuters reported in late June that state-run China National Petroleum Corp (CNPC) had suspended sales of gasoline and fuel to North Korea over concerns it would not get paid, and Chinese customs data showed that gasoline exports to the North had dropped 97 percent from a year earlier.

Petrol and diesel prices in North Korea surged after the cut and have almost doubled since late last year. In early September, petrol cost an average of $1.73/kg, compared with 97 cents last December, according to data from the defector-run Daily NK.

“The cost of living has gone up, the price of petrol has risen and there are fewer cars on the streets,” a foreign resident of the North Korean capital told Reuters. The only thing that had become cheaper was coal, he said, after China banned North Korean coal imports earlier this year.

Some of the scarcity of oil products and higher prices may have been caused by hoarding in anticipation of a clampdown on supply.

[Hoarding does seem like a likely culprit judging from the price trend from late spring this year. Basically, none of the current measures are ones that North Korea likely didn’t expect. /BKS]

North Korea canceled an air show scheduled for this month in the coastal city of Wonsan, citing “current geopolitical circumstances”. Several Chinese traders said they believed it was because the military is saving aviation fuel.

The new UN resolution imposes a ban on condensates and natural gas liquids, a cap of 2 million barrels a year on refined petroleum products, and a cap on crude oil exports to North Korea at current levels.

OIL NOT BOMBS

North Korea uses far less crude than during its industrial heyday in the 1970s and 1980s, according to the U.S. Energy Information Administration. After cut-price supplies from China and the Soviet Union ended following the Cold War, consumption dropped from 76,000 barrels per day in 1991 to an estimated 15,000 last year, according to the EIA.

[Oil consumption is already relatively low — key point. /BKS]

The use of small-scale solar has become widespread in the North, with many apartment balconies dotted with panels providing power for cooking and lighting.

China has not disclosed crude exports to North Korea for several years but industry sources say it supplies about 520,000 tonnes of crude a year to North Korea through an aging pipeline.

The pipeline already operates at the minimum level for which the waxy crude from China’s Daqing oil fields can flow without clogging, according to a senior oil industry source.

Chun Yung-woo, a former South Korean envoy on the North Korean nuclear issue, said the North could endure for a year or two without oil imports.

North Koreans are so used to living in harsh economic conditions that they would just get by for at least one year even if the oil ban is adopted, rationing the existing stockpile among top elites at a minimum level and replacing cars, tractors, equipment with cow wagons, human labor etc,” he said.

“They would also manage to produce oil from whatever resources are available, whether it be coal, trees or plants.”

Full article:

As North Korea girds for latest sanctions, economy already feels the squeeze
Sue-Lin Wong
Reuters
2017-09-13

This last point is extremely important: the weakness of the North Korean economy is also its strength. It is still highly underdeveloped and also resilient because so much of it functions on ad-hoc, creative solutions. That’s not to say that current sanctions (if fully enforced — a big “if”) may come to hurt the economy and society if pressure is continued over a longer stretch of time, but they’re unlikely to be completely crippling right away.

(UPDATE 2017-09-26): Added below is some Daily NK coverage from last week on consequences inside North Korea and for North Koreans of the current economic pressure. On September 13th, they reported that large numbers of North Korean workers returning home from China had been spotted at the Dandong railway station:

Daily NK has received photos of North Korean workers waiting to board trains home at Dandong’s railway station (Liaoning Province) on the morning of September 4. They were reportedly working at a cold storage facility in China but having failed to have their contracts extended, have had no choice but to return home.

“Every day, groups of North Korean workers are returning to their country via Dandong railway station due to the sanctions. The Chinese factory owners used to prefer North Korean workers because of the cheaper wages, but now they are employing Chinese workers even though their wages are higher,” a source familiar with North Korean affairs in China told Daily NK.

North Korean trading companies were previously using a system to dispatch workers to overseas factories for three to five year intervals, with an extension of the contracts or the signing of new ones upon expiration of the original contract. Officially, the companies are required to recall workers whose contracts have ended and dispatch new workers, but many workers have been extending their stays in exchange for bribes given to the company managers.

The Chinese factories benefit from a cheap labor force, so the extensions were easily accepted in the past.

However, these factories have recently ceased extending labor contracts and issuing new ones with North Korean trading companies following the adoption of new UNSC sanctions.

Daily NK previously reported that a large number of Chinese factories announced that they will no longer extend labor contracts for North Korean workers due to the sanctions.

As a result, the North Korean authorities are keen to find alternative routes to earn foreign currency and have instructed some workers to look for other ways to earn foreign currency rather than return home after their period of dispatch.

Daily NK also reported that at least some North Korean workers in Dandong (Liaoning Province) have managed to find work at nearby restaurants and hotels.

North Korean workers are often repatriated after an extended period of overseas dispatch, as the regime considers them more likely to learn about the external world and attempt defection. But as the regime has become desperate in its attempts to earn foreign currency, it has started encouraging these workers to extend their stays.

Full article:
Dandong railway station packed with North Korean workers returning home
Kim Ga Young
Daily NK
2017-09-13

Gas prices in North Korea have been skyrocketing for several months, and the rate of the increase has gone up during the current crisis, Daily NK reports:

At the beginning of this month, gasoline prices in North Korea’s capital city of Pyongyang began to sharply rise. Now, oil prices in other regions of the country have started climbing as well. This news was ascertained and delivered to Daily NK on September 7 by inside informants on the ground in North Korea.
After the UN Security Council adopted another round of international sanctions against North Korea (Resolution 2371) on August 5, there were no major price fluctuations. However, oil prices did start to rise in certain regions after the North conducted its sixth nuclear test earlier this month.
According to the inside sources, one kilogram of gasoline rose from KPW 18,000 in Pyongyang at the beginning of September to KPW 23,000 on September 7th. Diesel prices also exceeded the KPW 12,000 mark.
Up until the fourth week of August, diesel was selling for KPW 12,800 per kilogram in Pyongyang. The cost of diesel actually fell in August. At the beginning of the month, it sold for about KPW 15,100.  But then it started to climb again towards the end of the month, jumping to KPW 14,100 at the end of the month, and then surpassing KPW 20,000 within a week after that.
Asked about these quickly elevating prices during a phone conversation with Daily NK  a source in Pyongyang said, “Gasoline prices started to rise at the end of August to KPW 18,000, and then jumped up to KPW 20,000 at the beginning of September. As a result of this increase, motorbikes disappeared from the streets of Pyongyang. The presence of taxis and cars is down by at least half. The streets are totally empty.”
“Some autobike drivers are concerned because the gas price jump will make it harder for them to make a living transporting people and goods,” the source added. “The possibility is large that related industries will also be hurt by the price increase.”
There are signs that the gasoline price increase is also affecting areas far from the capital city, such as Hyesan City, Ryanggang Province. A source from that region said, “The cost of gasoline in Hyesan increased to KPW 21,600 per kilogram.” As recently as the third week of August, the price was at a mere KPW 12,050. Towards the end of the month, it climbed to KPW 14,400, and then kept climbing in September.
The source added, “Gas prices are also rising in rural areas of the country. Some areas feature gas prices approaching the price in Hyesan, and others have surpassed that. Merchants are baffled because the price dipped and then rose suddenly.”
Full article:
Gas prices in North Korea jump on rumors of possible embargo
Kang Mi Jin and Kim Ga Young
Daily NK
2017-09-15

(UPDATE 2017-09-18): Anna Fifield reports in the Washington Post on the textile exports ban and its impact on North Korea’s female population in particular:

There are few areas in the North Korean economy, outside its nuclear weapons program, that could be called booming. But the garment industry has been one of them.

Over the past few years, North Korea has been sending increasing numbers of seamstresses to China to sew clothes for international buyers, and it also has been encouraging the expansion of the garment industry at home.

There are factories around the country producing suits, dresses and children’s clothes — almost all of which are labeled “Made in China.”

That should all theoretically come to an end now, after the U.N. Security Council unanimously decided last week to prohibit North Korea from exporting labor and textiles, adding to existing sanctions on coal, iron ore and seafood.

“Today’s resolution bans all textile exports,” Nikki Haley, the United States’ ambassador to the United Nations, said Monday when the resolution passed. “That’s an almost $800 million hit to its revenue.”

North Korea exported about $725 million worth of clothing last year, according to South Korea’s trade-promotion agency, making it a significant source of income for the cash-strapped country.

Adding textiles to the sanctions list means that more than 90 percent of North Korea’s publicly reported exports last year are now banned, Haley said. Coal, iron ore and seafood exports were prohibited in a previous resolution.

While diplomats have been describing the ban as being on “textiles,” economists say it should more accurately be called a “garment” ban. North Korea does not export bolts of fabric but instead produces labor-intensive articles of clothing.

“When you make simple clothes like T-shirts, the machinery is important. The labor is not so important. So it makes no sense to do things like this in North Korea,” said Paul Tjia, a Dutch consultant who helps businesses operate in North Korea, especially in the garment industry.

“But for garments that require a lot of manual work, like bras or winter sports clothes, it makes a lot of sense to make those in North Korea, because the price-to-quality ratio is very attractive,” said Tjia, who most recently went to Pyongyang in May.

[…]

Although China supported the new U.N. resolution, its implementation of previous sanctions has been spotty at best, analysts say.

But if Beijing is serious about stopping North Korea’s exports of apparel and workers to sew garments in Chinese factories, it would have a significant impact on the North’s economy, said Marcus Noland of the Peterson Institute for International Economics.

“The reason that this is important is not only because apparel exports are a significant number, but because it’s the one non-resource area that’s really growing,” Noland said, differentiating apparel exports from mineral exports such as coal and iron ore. “So it’s not just the static number that’s important. It’s the fact that this sector was emerging as an area of comparative advantage.”

[…]

Previously, governments had stressed that the sanctions were targeting the regime and were aimed at cutting off its access to the money or equipment it needed for its nuclear weapons program.

This effort to shut down North Korea’s garment industry is one that will have wide-reaching ramifications across North Korean society.

“Assuming that the ban is enforced, it will have a huge impact,” said Abrahamian, who visited North Korean garment factories several times while working for Choson Exchange, an NGO focused on business training for North Koreans.

“Tens of thousands, possibly even hundreds of thousands, of North Koreans are employed in this industry, and 98 percent of them are women. That’s the demographic that’s clearly going to suffer as a result of this,” he said.

Full article:
Ban on North Korean clothing exports will hurt women the most, experts say
Anna Fifield
Washington Post
2017-09-17

A few days after the sanctions were adopted that limit oil exports to North Korea, Daily NK interviewed a North Korean merchant working in China, who said he was basically out of work:

Mr. A: In broad strokes, I’d say at least 80% of us North Korean merchants in Dandong were stomping our feet and complaining that we have no work now as soon as the new sanctions were released. Joint ventures with Chinese firms are blocked, bank accounts are blocked, and use of North Korean laborers is limited. These were all important sources of money for us. There is no work left for us to do.
DNK: And the work that you were doing has effectively gone down the drain? 
Mr. A: Yes. Recently, some of the projects that we have been proposing to the Chinese side have been rejected.
DNK: This happened to you personally?
Mr. A: I have mostly earned money by acting as an intermediary connecting North Korean and Chinese merchants. I charged a commission for playing this role. But if demand decreases for this service, there’s nothing I can do. I also used to take the profits I earned to purchase things that North Koreans need, such as materials, but now that has also become quite difficult to do.
The fall harvest is approaching in North Korea, which means that threshers and other agro materials are needed, but because of these sanctions, the work has dried up and I can’t buy them. I think this will have an effect on the size of the fall harvest.
Full article:
Reacting to sanctions, N. Korean merchant in China: ‘We have no work’
Kim Chung Yeol
Daily NK
2017-09-18

Bloomberg wrote last week (2017-09-15) on the smuggling of fishery products in the wake of the sanctions on these goods:

In the fishing grounds where the Yalu River opens up to the Yellow Sea, Chinese and North Korean trawlers intermingle as they search for crabs, conch and yellow clams.

Drifting among them are Chinese boats called “mother ships” that act as floating middlemen, offering dollars, renminbi and even goods like cigarettes for the latest catch, according to traders who have been aboard the vessels. One of them, who called himself Mr. Du, said the seafood is then taken ashore to China and sold in wholesale markets, where it all gets mixed together.

The practice is just one form of smuggling along China’s 1,350-kilometer (840-mile) border with North Korea, roughly the distance from Paris to Rome. Locals use boats, cars, trucks and several rail lines to carry everything from diesel fuel to silkworms to cell phones back and forth across the Yalu.

[…]

For China, implementing sanctions is a tricky balance. It wants North Korea to stop doing anything that leads the U.S. to bolster regional defenses that could also be used against China. At the same time, authorities have long feared that a collapse of the regime in Pyongyang could destabilize China’s northeastern region and bring U.S. troops to the banks of the Yalu.

[…]

hile the latest penalties will take effect from Oct. 1, a ban on North Korean seafood passed a month ago — taking away roughly $300 million in revenue each year — came fully into force only on Sept. 5. Interviews along the border last week with dozens of traders, wholesalers, smugglers, former local officials and foreign diplomats showed that fresh North Korean seafood was still available even as China visibly stepped up enforcement.

China’s border with North Korea stretches from the industrial town of Dandong north to the town of Hunchun, near where the countries converge with Russia. Along the route, police and military have increased patrols and set up checkpoints to inspect vehicles.

Foreign affairs offices for the Dandong and Hunchun city governments didn’t respond to faxes seeking comment on efforts to stop smuggling. Foreign Ministry spokeswoman Hua Chunying told reporters in Beijing on Friday that China was opposed to North Korean violations of sanctions and would continue to strictly implement UN resolutions.

In Hunchun, dozens of seafood wholesalers had closed after the earlier sanctions took effect. Chinese authorities seized shipments of North Korean squid at the border, according to Shi Haiyan, a shopkeeper at Quanhe Port, which sits on a river linked with the Sea of Japan.

“The sanctions are strict now — seafood can’t come through at all,” the 34-year-old said last week.

Even so, restaurants in Hunchun were still selling North Korean crabs and conch. The goods are harder to find but still available, according to a shop owner who asked to be identified only by his family name, Lyu.

The situation was similar in Dandong, the biggest Chinese city along the border and the center of the country’s trade with Kim’s regime. Dandong is home to a pipeline that regularly supplies oil to North Korea — a crucial supply source that was exempted from the new sanctions.

The city of 2.4 million people has several bridges that cross the Yalu, one of which is inoperable because North Korea hasn’t built a road linking to it. Another one bombed out during the Korean War attracted Chinese tourists singing Communist songs about defeating America.

Hundreds of cars and trucks traverse the main Friendship Bridge each day, including many North Korean drivers looking to fill up with petrol. Getting across has become harder after the latest round of sanctions came into effect, according to Wang Lisheng, 64, a former county official from nearby Hekou village who used to trade metals with North Korea.

At Dong Sheng, Dandong’s main seafood market, four traders said last week they could still source the city’s signature yellow clams from North Korea even though supplies had dropped. Ha Wei, 38, said the price of dried clams had risen 20 percent to 30 yuan ($4.6) per half kilogram (1.1 pound) since the sanctions took effect.

Still Demand

About 40 kilometers away at the Yellow Sea Seafood Products Market, a larger complex where hundreds of workers sift through freshly unloaded seafood that is then shipped throughout China, multiple traders told Bloomberg they also were still able to procure goods from North Korea.

“We still have North Korean goods but much less in the last week after sanctions,” said Xu E, 44, a conch trader.

Mr. Du, who described how smugglers bring North Korean seafood into China, has been running goods across the China-North Korea border for the past 20 years. He’s been detained in North Korea several times, including once when he was fed only carrots for three days before being released.

In the 1990s, he said, border smugglers regularly dealt everything from coal to diesel to North Korean brides. He avoided trading guns, drugs or people — things that could earn him a prison sentence instead of a fine. Despite the risk of violating sanctions, he said, the easy money will continue to attract smugglers on the border.

“As long as there’s demand, smugglers will keep coming,” Du said. “No matter how hard Beijing tries.”

Full article:
Smuggled North Korea Clams Show China’s Struggle to Stop Kim
Bloomberg News
2017-09-15

 

(UPDATE 2017-09-19):

DailyNK has published several stories in the past few days on the dire impact that sanctions and tensions are having on the economy. News of sanctions implementation by China, it seems, are impacting North Korean market prices in dire ways:

This upsurge in prices began to occur before the United Nations unanimously passed its latest round of sanctions. Security Council Resolution 2375 – which passed on September 11 – contains some of the strictest provisions yet, including a ban on importing North Korean textiles and a restriction of exports to North Korea to just 30% of current levels. However, since the cost of goods increased prior to the UN’s adoption of 2375, analysts are wondering what lies behind the jump.
According to inside sources, the cost of one kilogram of rice was about KPW 5,800 at the end of last month in Pyongyang, South Pyongan Province Sinuiju City, and Ryanggang Province Hyesan City. On September 5th, the prices passed the KPW 6,000 mark and have continued to slowly rise. After the North’s nuclear test, gasoline prices rose sharply around the country. Rice and other grains followed suit in due course.
Insiders located in the border regions near China – which have long served as hubs of trade and smuggling – are also sensing the climbing prices. A source from Ryanggang Province explained to Daily NK on September 11, “When we heard about economic sanctions in the past, there were merely slight increases in the cost of rice, but now we are seeing a different kind of effect.”
She continued, “Even though we are currently at the height of the corn harvest season, corn is nonetheless selling for KPW 2,700 per kilogram, [it sold for just KPW 1,900 per kg at the end of August]. Merchants haven’t been overly concerned until now, but now that we see corn prices increasing during the harvest season, it seems clear that the economic situation will continue to deteriorate.”
Witnessing the cost of diesel and gasoline spike upwards, some merchants have predicted that this will cause the price of other products to raise as well, and have therefore responded by reducing the number of products available for sale. By doing so, they hope to be able to sell at a higher price later. This reduced supply, in turn, has itself pushed prices up.
Also, as reports and rumors from the outside world penetrate further into North Korea, more and more people are coming to realize that North Korea’s closest friends, especially China, are meaningfully participating in the sanctions. This information also helps to push prices up.
A poor yield of corn this year is also playing a role. Severe droughts in the spring have hurt bottom line harvests of grains such as corn.
North Korean traders are doing their utmost to maintain contact with the outside world so they can ascertain information about how the international situation will affect their livelihood. The source explained, “Residents who trade with Chinese merchants are trembling with fear because they are worried that the goods they deal in will become restricted or the prices will rise.”
The residents are especially concerned because prices are rising for both food products and other daily necessities.
In a telephone call with Daily NK on September 10, a source from Kangwon Province said, “Spring water was selling for KPW 500-600, but it’s risen by about KPW 500. At this time of year, a portion of tofu on the expensive end would sell for KPW 1,100, but now it’s going for KPW 1,300.”
It is also possible that the gasoline price rise is partially due to an effort by the authorities to restrict supply in order to ration. Kim Jong Un, sensing an impending reduction in trade and gasoline supply, might have begun to store up food and oil in military and private warehouses–behavior that would certainly block up market-based distribution networks.
Full article:

What explains the recent rise in the cost of goods in North Korea?
Kang Mi Jin
Daily NK
2017-09-19

 

Daily NK continues to cover the volatile gasoline prices in North Korea, reporting some consequences for the market for gas coupons:

“As fuel prices have been fluctuating, gasoline coupons have become popular items in Pyongyang’s black markets. The merchants who previously bought dozens of coupons have started offering them for sale as the prices began to rise,” a source familiar with North Korean affairs in China told Daily NK on September 20.
According to the source, gasoline can be purchased for the same price at the time that the coupon was issued. For example, if a 15 kg gasoline coupon was previously purchased for 30 USD, the same amount of fuel can be obtained even if the price rises suddenly to 35 USD. In this way, the dealers can make a profit by selling the coupon for 32 USD.
“The coupons are especially popular when the gasoline prices are unstable. The merchants are selling the coupons on the black markets as the fuel prices rise,” the source said.
Originally, gasoline coupons were issued from North Korea’s central government organizations and were sold to officials or foreign embassy staff in Pyongyang. But now the foreign currency earning companies are issuing the coupons themselves. The authorities have actively encouraged new strategies to earn foreign currency.
These foreign currency earning companies are said to be profiting from the fluctuating fuel prices, regardless of efforts to limit the sales of coupons.
“If the authorities move to restrict the sales of coupons, the companies will just sell the coupons on the black market. Despite strong sanctions being imposed on fuel, the major companies that are still holding a large amount of fuel become more powerful in times of fuel crisis,” a source in South Pyongan Province explained.
“Even the Pyongyang cadres have no choice but to purchase coupons on the black market.”
For these reasons, she said, most of the gasoline coupons are often valued at their equivalent in USD.
“Recently, people have been able to use the gasoline coupons for their USD value at restaurants and stores. They can even exchange the coupons for money. It has become a common practice to provide gasoline coupons to officials in Pyongyang as a bribe,” she concluded.
Full article:
Volatile gasoline prices in Pyongyang
Seol Song Ah
Daily NK
2017-09-25
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Russian-North Korea projects foundering because of missile tests: minister

Tuesday, August 29th, 2017

According to Reuters:

Commercial ventures planned between Russia and North Korea three years ago are not being implemented because of Pyongyang’s missile testing program, the Minister for the Development of the Russian Far East, Alexander Galushka, said.

Russia has been under international scrutiny over North Korea because it has taken a more doveish approach to Pyongyang than Washington, and Russian trade with North Korea increased sharply at the start of this year.

The United States government earlier this month imposed new North Korea-related sanctions that targeted Russian firms and individuals for, it alleged, supporting Pyongyang’s weapons programs and providing oil.

However Galushka, in an interview with Reuters, said Moscow was faithfully implementing the international sanctions regime on North Korea, and held up the stalled bilateral projects as an indication that Pyongyang was paying an economic price for its weapons program.

“Russia has not violated, does not violate and will not work outside the framework (of the resolution) that was accepted by the U.N. Security Council,” said Galushka, who also heads a Russia-North Korean Intergovernmental Commission.

Russian businesses discussed a number of projects with North Korea in 2014. But then North Korea conducted military tests, including some involving nuclear weapons, and the projects became difficult to implement, Galushka said.

One such project, called “Pobeda”, or “Victory,” would have involved Russian investments and supplies that could be exchanged for access to Korean natural resources.

“We told our North Korean partners more than once … that it hampers a lot, makes it impossible, it restricts things, it causes fear,” Galushka said, referring to the weapons testing.

Another joint project between the two countries is a railway link with North Korea, from the Russian eastern border town of Khasan to Korea’s Rajin.

It is operating but below its potential. The link could work at a capacity of 4 million tonnes a year, officials have said previously, but now it only carries around 1.5 million tonnes of coal per year, according to Galushka.

UN sanctions also prohibit countries from increasing the current numbers of North Korean laborers working in their territories.

According to Galushka, around 40,000 employees from North Korea worked in Russia. Mainly they are engaged in timber processing and construction.

Russian business is interested in access to the North Korea workforce, Galushka said, but the numbers will stay in line with what the sanctions permit.

He said 40,000 workers from North Korea “is a balance formed in the economy, neither more nor less.”

Bilateral trade between the two countries has been decreasing for the last four years, from $112.7 million in 2013 to $76.9 million in 2016, according to Russian Federal Customs Service statistics.

But it more than doubled to $31.4 million in the first quarter of 2017 in year-on-year terms. Most of Russia’s exports to North Korea are oil, coal and refined products.

Asked to explain why trade was rising if political issues were hurting commercial projects, a spokeswoman for Galushka’s ministry said in an email: “According to the latest data, there was an objective increase due to exports to North Korea, primarily oil products. But the export of oil does not violate the agreements of the UN countries in any way.”

The interview with Galushka took place before the U.S. imposed the sanctions targeting Russian entities and individuals for trading with North Korea.

Galushka’s ministry referred questions about the new sanctions to the Russian foreign ministry.

Maria Zakharova, a foreign ministry spokeswoman, told reporters Washington’s unilateral sanctions worsened tensions on the Korean peninsula, and that Russia is fulfilling its international obligations in full.

You can read more about the Russian investment projects in this former post.

NK News also reports that the ferry service between Rajin and Vladivostok has also been suspended, although the reasons for the suspension remain murky.

UPDATE: Following North Korea’s sixth nuclear test in early September, Vladimir Putin has signaled his unwillingness to sanction North Korean fuel imports (partially provided by Russia). You can read more in the Washington Post, New York Times, and Yonhap.

Read the full story here:
Russian-North Korea projects foundering because of missile tests: minister
Polina Nikolskaya and Katya Golubkova
Reuters
2017-8-28

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China bans new business with DPRK in line with UN sanctions

Saturday, August 26th, 2017

According to the People’s Daily:

China on Friday banned Democratic People’s Republic of Korea (DPRK) individuals and enterprises from setting up new business in China, following through on new UN sanctions which were imposed in response to DPRK’s missile tests last month.

New joint ventures, new wholly-owned businesses and any new investment in current entities involving DPRK individuals or companies are prohibited in China, according to a notice released on the Ministry of Commerce’s website late on Friday.

Applications for new or expanded investment in the DPRK by Chinese companies would not be approved, the ministry added. The new measures take effect immediately.

The UN approved sanctions against Pyongyang earlier this month that could cost the country one billion US dollars a year in revenue, according to the figures provided to the Security Council by the US delegation.

China pledged to fully enforce the sanctions. Last Monday, China imposed import bans on iron, iron ore, coal and seafood from the DPRK.

Read the full story here:
China bans new business with DPRK in line with UN sanctions
People’s Daily
2017-8-26

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UN security council adopts sanctions banning imports of wide range of North Korean goods

Saturday, August 5th, 2017

Benjamin Katzeff Silberstein:

On Saturday August 5th, the United Nations Security Council approved a resolution banning member states from importing North Korean export goods such as minerals and seafood products, and from hiring North Korean laborers. Wall Street Journal:

U.S. Ambassador Nikki Haley praised the councils solidarity, saying more days like this one were needed at the United Nations. She also personally thanked China for helping move the resolution from talk to action. The U.S., which had drafted and put forward the resolution, negotiated for more than a month with China over the text and final measures targeting Pyongyang.

This resolution is the single largest economic sanctions package ever leveled against the North Korean regime, said Ms. Haley, adding the council had put the country and its leadership on notice and what happens next is up to North Korea.

President Donald Trumpsaid on Twitter, The United Nations Security Council just voted 15-0 to sanction North Korea. China and Russia voted with us. Very big financial impact!

Both China and Russia urged a return to talks with North Korea and told the Security Council that the U.S. must abandonits military exercises with South Koreaand dismantlethe missile-defense system in South Korea known as Thaadbecause North Korea perceived that as a threat and it undermined the security of the region.

We stress that additional restrictions cannot be an end to themselves, they need to be a tool to engage in dialogue, said Russias new ambassador to the U.N., Vassily Nebenzia.

The nine-page resolution steps up trade restrictions with Pyongyang by aiming to cut off a third of its $3 billion annual export revenue. It bans North Korea from trading coal, iron, lead, iron and lead ore, and seafood.

The resolution also prohibits countries from hiring North Korean laborers and bans countries from entering or investing into new joint ventures with Pyongyang.

Diplomats and sanctions experts have long warned that export revenues, even remittances from foreign workers, are cycled back to North Koreas military and nuclear programs.

A Security Council diplomat offered this estimate on North Koreas foreign revenue earnings in 2017: $295 million from seafood; $251 million from iron and iron ore, and $400 million from coal trade.

North Koreans work in China, Russia and the Arab countries in the Persian Gulf in a variety of businesses ranging from factories to restaurants and nightclubs and are estimated to send home several billion dollars in revenue, a large portion of which the government claims, according to U.N. sanctions experts.

The new resolution restricts North Koreas technology trade and tightens enforcement of sanctions on North Korean vessels by banning violators from entering ports around the world.

Under the resolution, North Koreas Foreign Trade Bank, which handles foreign exchange, will be added the U.N.s sanctions list that freezes the assets of targeted entities.

It remains to be seen whether the new sanctions will deter North Koreas pursuit of advanced ballistic missiles and nuclear weapons or bring its leader Kim Jong Un to the negotiating table.

North Koreas economy has managed to stay afloat largely because China, its main trade partner, and Russia and some African nations havent fully enforced existing U.N. sanctions. The U.S. Treasury in June sanctioned Chinese entitiesprimarily banks and shipping companiesand individuals for violating sanctions and conducting trade that contributed to North Koreas military and nuclear program.

Chinas Ambassador Liu Jieyi said his country denounced unilateral sanctions by the U.S. and said action against North Korea must be through the U.N. mechanism. Mr. Liu told the council he welcomed the U.S. position that it wasntseeking regime change in North Korea.

China has always been firmly opposed to chaos and conflict in the [Korean] peninsula, Mr. Liu said.

Although China and Russia have pushed for a resumption of the six-party talks with North Korea, disagreement remains on how to bring Washington and Pyongyang to the table. China and Russia have called for a freeze-for-freeze plan under which North Korea would halt any more military or nuclear action and the U.S. would end its military exercises with South Korea.

Full article here:
North Korea Hit by $1 Billion Sanctions After Missile
Farnaz Fassihi
Wall Street Journal
2017-08-5

 

The UN summary of the resolution reads as follows:

The Security Council today further strengthened its sanctions regime against the Democratic Peoples Republic of Korea, condemning in the strongest terms that countrys ballistic missile launches and reaffirming its decision that Pyongyang shall abandon all nuclear weapons and existing nuclear programmes in a complete, verifiable and irreversible manner.

Unanimously adopting resolution2371(2017) under Article41, ChapterVII of the United Nations Charter, the 15-nation Council decided that the Democratic Peoples Republic of Korea shall not supply, sell or transfer coal, iron, iron ore, seafood, lead and lead ore to other countries.

Expressing concern that Democratic Peoples Republic of Korea nationals working abroad were generating foreign export earnings to support the countrys nuclear and ballistic missile programmes, it also decided that all Member States shall not increase the total number of work authorizations for such persons in their jurisdictions, unless approved by the Security Council Committee established pursuant to resolution1718(2006).

Through the text, the Council decided that States shall prohibit the opening of new joint ventures or cooperative entities with the Democratic Peoples Republic of Korea entities and individuals, or expand existing joint ventures through additional investments. In addition, it decided that Pyongyang shall not deploy or use chemical weapons and urgently called for it to accede to the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and Their Destruction.

Also through the resolution, the Council named nine individuals and four entities to be subject to a travel ban and asset freeze already in place, as well as to request that the International Criminal Police Organization (INTERPOL) issue special notices with respect to designated individuals.

In addition, it reaffirmed that its provisions were not intended to have adverse humanitarian consequences for the civilian population of the Democratic Peoples Republic of Korea, and that the Security Council Committee established pursuant to resolution1718 (2006), on a case-by-case basis, exempt from sanctions those activities that would facilitate the work of international and non?governmental organizations engaged in assistance and relief activities for civilian benefit.

Furthermore, through the text, the Council called for the resumption of the Six-Party Talks between China, Democratic Peoples Republic of Korea, Japan, Republic of Korea, Russian Federation and the United States towards the goal of a verifiable and peaceful denuclearization of the Korean Peninsula.

Speaking after the resolutions adoption, the representative of the United States said the Council had put the Democratic Peoples Republic of Koreas dictator on notice by increasing the penalty of its ballistic missile activity to a whole new level. All Member States must do more to put more pressure on that country, she said, adding that the United States would take defensive measures to protect itself and its allies, including through joint military exercises.

Chinas representative said that, while todays resolution had imposed further sanctions, it did not intend to negatively impact such non-military goods as food and humanitarian aid. Calling on all parties to implement the resolutions provisions fully and earnestly, he recalled that China and the Russian Federation on 4July had put forward a road map to resolve the issue through two parallel tracks denuclearization and the establishment of a peace mechanism. Recalling that the United States had recently indicated that it was not pushing for regime change or for the Korean Peninsulas reunification, he said an escalation of military activities would be detrimental to all countries of the region.

Japans delegate said the sheer number and frequency of the Democratic Peoples Republic of Koreas nuclear and ballistic missile tests show how unprecedented and unacceptable these provocations are. Not only was the quantity outrageous, but the qualitative advancements were alarming. Noting that todays resolution would reduce the Democratic Peoples Republic of Koreas revenue by approximately $1billion, he said all Member States must demonstrate renewed commitment to implement the Councils decisions.

The Russian Federations representative, while calling on the Democratic Peoples Republic of Korea to end its banned programmes, said progress would be difficult so long as it perceived a direct threat to its security. Emphasizing that military misadventures risked creating a disaster, he said sanctions must be a tool for engaging Pyongyang in constructive talks rather than to seek the countrys economic asphyxiation.

The Republic of Koreas delegate said that Pyongyangs missile provocations on 4and 28July, together with its nuclear programme, posed a grave threat to international peace and security. Indeed, such reckless acts of defiance should be met with stronger measures, he said, adding that additional sanctions contained in resolution2371(2017) would significantly cut off the inflow of hard currency that would otherwise have been diverted to illicit weapons programmes.

Full article:
Security Council Toughens Sanctions Against Democratic Peoples Republic of Korea,Unanimously Adopting Resolution 2371 (2017)
United Nations Meetings Coverage
2017-08-05

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