Archive for the ‘Foreign direct investment’ Category

[Updated] Kim Jong-un oversees master plan for Sinuiju facelift and construction

Wednesday, December 5th, 2018

By Benjamin Katzeff Silberstein

A couple of weeks ago, KCNA carried a report of Kim Jong-un’s oversight of a grand, general reconstruction plan for Sinuiju, North Korea’s most important hub for trade with China.

North Korea, it seems, expects that trade primarily with China will continue to grow and remain the country’s most important source of foreign currency revenue for the foreseeable future. This is something to keep in mind through the speculations about US and other western investments in North Korea in the event that sanctions are lifted and denuclearization (whatever version of it) comes through.

The plans for Sinuiju are also notable simply because Sinuiju is not Pyongyang. There has been quite a bit of work done in the past few years, under Kim Jong-un, at extending the renovations drive and infrastructure construction to smaller, provincial cities (mostly provincial capitals). One message seems to be that Kim Jong-un’s ambitions and promises of economic development aren’t just for the elite, but for the population as a whole.

It’s unclear how the plans that Rodong speaks of are related to the Sinuiju International Economic Zone. An issue of the quarterly North Korean magazine Foreign Trade in 2015 indicated that renovations of Sinuiju would focus on infrastructure renewal, but as the example of the bridge to nowhere shows (see below), it’s unclear what actual progress is being made in reality on this.

Some specific thoughts and annotation below (my emphasis, except on the leader’s names, that’s all standard KCNA):

Pyongyang, November 16 (KCNA) — Kim Jong Un, chairman of the Workers’ Party of Korea, chairman of the State Affairs Commission of the Democratic People’s Republic of Korea and supreme commander of the Korean People’s Army, examined and guided the master plan for Sinuiju City together with leading officials of the party, administration and design organs of North Phyongan Province.

Learning about the implementation of the behests of President Kim Il Sung and Chairman Kim Jong Il for the construction of Sinuiju City and examining in detail the master plan for the construction of Sinuiju City and a diorama of the future city, Supreme Leader Kim Jong Un set forth the tasks and ways of successfully sprucing up Sinuiju City to meet the demand of the present era.

“The present era” = likely, the era of a growing middle class with demands for consumption and entertainment, many of which make their money through the markets and semi-private business.

He said that it is necessary to form the center of Sinuiju City deep up to the southern Sinuiju area with the statues of

Kim Il Sung and Kim Jong Il at the center square of the city as the axis, arrange high-rise apartments and public buildings at provincial and city levels in its surroundings in a dimensional way, successfully arrange the blocks of high-rise and skyscraper apartment buildings along the main axis and arterial road of the city and the bank of the Amnok River in formative artistic way and build many parks within the dwelling area and thus turn the city into the one in the park.

This all sounds very expensive. Meanwhile, North Korea faces largely unfunded humanitarian needs, which could be met relatively cheaply. In fact, the equivalent of one-sixth of North Korea’s total luxury goods imports in 2017 would be enough.

Saying that it is necessary to build many modern and majestic architectures rich in national character in order to build the city befitting to a gateway city of the country, he called for successfully arranging the public buildings such as theatre, cinema, sports village, ice rink and sci-tech library and service facilities including hotel and department store in a rational way and to be of modern taste.

Books have been written about the concept of “rationality”, so I won’t go into what the use of that phrase means in this context. But it does sound like what Kim is talking about is simply making Sinuiiju “modern”, with all of what that entails. These days, there’s quite a bit of reporting and chatter around about how Pyongyang, and other North Korean cities, have undergone stark modernizations during Kim’s tenure. This is clearly true, but it’s worth remembering the reason why these things are news: the presence of “service facilities”, “department store[s]” and the like, things taken for granted in much of the world, is still not widely spread in North Korea outside of Pyongyang. (This is also true for Wi-fi.)

He also gave a direction of sprucing up the present industrial areas and remodeling the railway station of the city and Uiju Airport in a modern way.

Speaking of infrastructure: this is the only part of the article where infrastructure is mentioned. It is interesting and notable that despite the attention and grand plans for Sinuiju, the new bridge connecting the city to Dandong had still not been connected to North Korea’s road network as of mid-February this year, as far as I can tell from satellite imagery. This is the most recent date for which imagery is available.

The end of the new bridge from Dandong, on the North Korean side. Photo: Google Earth.

Underlining the need to pay deep attention also to the creation of cultural environment including urban greening, he called for creating green belts near the city’s main road and around the industrial area to make sure that one citizen has 50 square meters of green tract of land, and for building city park, botanical garden and recreation ground in a cozy and peculiar manner to suit the specific conditions of the local city.

Again, that’s going to cost a lot of money, and not least, human effort. Citizens might be happy about green spaces, but they’ll be less so at having to go out and construct them through “voluntary” labor.

Noting that it is most important in urban construction to make sure that citizens don’t feel any inconvenience, he said that it is necessary to increase electricity production and make a maximum use of natural energy so as to round off the city electricity supply network system, perfect the heating system, put the water supply on an international standard and properly establish the system for purifying industrial waste water and sewage as the city has dense arrangement of residential quarters and industrial establishments.

Electricity and energy supply is one of the main achilles heels for the North Korean economy, and its industry is highly vulnerable to shortages in electricity supply. “Maximum use of natural energy” sounds like hydrogen power to me, which is North Korea’s most plentiful source of electricity. Aside from coal, that is, but given the export value of coal, its use for domestic electricity production comes with a high opportunity cost. In any case, the North Korean administration is clearly aware (and has been for decades) that energy is a big problem, and bringing it up in conjunction with a city plan inspection is likely a way of sending the message that the authorities are working on it. How exactly that is being done is less clear.

On the theme of energy in Sinuiju, it might be worth noting that the city is home to one of the country’s main oil refineries, the Ponghwa Chemical Factory, south of the city.

Ponghwa Chemical Factory, south of Sinuiju. Photo: Google Earth.

As I keep stressing all the time, the provincial party committees should pay special attention to the work of intensifying the provincial design organs and construction forces and put constant efforts on it and thus decisively raise the level of the building in the construction projects of local areas, he pointed out.

Calling for reviewing the master plan for Sinuiju City and the long-term goals for city construction in cooperation with powerful design organs of the country, remapping it out to be realistic and submitting it within a few months, he said that the Party Central Committee would discuss and decide on the plan after going through relevant procedures, and the construction of the border city would be conducted year by year and phase by phase with the state backing after setting the goals of 5-year plan.

Noting that the work of remodeling Sinuiju City for which President Kim Il Sung and Chairman Kim Jong Il gave instructions dozens of times is a very important task of carrying out their behests, he stressed the need to gain good fruition within a few years to come.

Article source:
Supreme Leader Kim Jong Un Guides Master Plan for Construction of Sinuiju
Political News Team
Rodong Sinmun
2018-11-16

[Updated 2018-12-6: I added a few details throughout the post, as well as satellite imagery.]

Share

South Korea gets sanctions exemption for railway survey

Saturday, November 24th, 2018

Benjamin Katzeff Silberstein

Reuters:

South Korea said on Saturday it had received sanctions exemptions from the U.N. Security Council for a joint survey of inter-Korean railways, the first step towards reconnecting rail and road links cut during the 1950-53 Korean War.

In April, the leaders of the two Koreas agreed to adopt practical steps to reconnect railways and roads as part of efforts to improve bilateral relationships.

“The sanctions exemption has big implications given that the project has garnered recognition and support from the United States and the international society,” South Korea’s presidential spokesperson Kim Eui-kyeom said.

He expressed hope of quick construction of the railways, which he said will take inter-Korean cooperation to a new level.

South Korea requested an exemption for deliveries of fuel and other equipment needed to conduct the railway survey in the North, Yonhap News Agency said.

Pyongyang is under wide-ranging U.N. sanctions for its nuclear weapons and ballistic missile programs.

In October, the two Koreas agreed to carry out joint field studies on transport plans, with a ground-breaking ceremony in late November and early December.

But the plan was delayed amid stalled talks between Washington and Pyongyang following an unprecedented summit in June at which the two sides agreed to work toward nuclearization and peace on the Korean peninsula.

Full article:
South Korea secures U.N. sanctions exemption for inter-Korean railway survey
Hyunjoo Jin
Reuters
2018-11-24

Share

Mt Kumgang tours unlikely to be resumed this year, because of sanctions

Monday, November 19th, 2018

Benjamin Katzeff Silberstein

Reports Yonhap, with comments by ever-optimistic Hyundai Asan officials:

The head of Hyundai Group on Monday expressed reservations about any quick resumption of a stalled tour program to North Korea’s scenic mountain resort.

“At this point, the situation is difficult for the tour program to be resumed within this year, but I think it will be done in the near future,” Hyundai Chairwoman Hyun Jeong-eun told reporters after returning from Mount Kumgang on the North’s east coast.

She made a two-day visit to Mount Kumgang to celebrate the 20th anniversary of the cross-border tour program.

Earlier in August, Hyun had said she expects the project to be resumed within this year.

She said no detailed discussions on economic cooperation between the two Koreas had been made during her visit.

“We are preparing so that the inter-Korean economic projects can be resumed when the U.S. lifts sanctions,” Hyun said, adding that there is not much for a private enterprise to comment on the matter.

About 100 South Koreans and 80 North Koreans officials, as well as some 500 North Korean residents, attended the first celebratory event in four years at the east coast resort. It was jointly organized by Hyundai Group and the North’s Korean Asia-Pacific Peace Committee, a North Korean body that handles inter-Korean affairs.

Full article:
Tour program to Mount Kumgang unlikely to be resumed this year: Hyundai chief
Yonhap News
2018-11-19

Share

Hyundai’s aspiration to reverse N Korea fortunes

Wednesday, October 31st, 2018

Benjamin Katzeff Silberstein

Reuters:

South Korean President Moon Jae-in, who has pushed for rapprochement with the North since his election last year, calls the Kaesong industrial park a “lifeline” for South Korea.

Asia’s fourth-biggest economy is being squeezed globally between high-end, innovative manufacturers and low-cost producers in China and elsewhere.

Before the 2016 closure of Kaesong, some 120 South Korean companies employed 55,000 North Korean workers there, making everything from clothes and kitchen utensils to electronic components. The North Korean workers were well qualified, hard working and cost just a fraction of what workers in the South were paid, factory owners said.

Almost all small and medium enterprises which used to operate in Kaesong said they would like to go back, according to an April survey.

Seven out of 10 South Korean companies would prefer to use North Korean workers instead of foreign migrants due to language barriers and high costs associated with hiring foreign labor, a separate survey by the Korea Federation of SMEs found.

Hyundai Asan has the most riding on the prospect of a peaceful peninsula.

It paid $1.2 billion to buy exclusive rights for Kaesong and Mount Kumgang, and has interests in railroads and infrastructure projects including reconnecting inter-Korean railways.

Hyundai Asan’s rights to land the size of Manhattan in Kaesong last for 50 years, and it has a plan to build an even bigger factory town if the complex reopens, accommodating 2,000 companies and 350,000 North Korean workers.

Less than 5 percent of the total property in Kaesong has been developed currently, Hyundai told Reuters.

Officials say Hyundai has also agreed with the North to run tours in the coastal city of Wonsan, which North Korean leader Kim Jong Un is trying to build into a hotspot for tourism and foreign investment, as well as Mount Paektu, the famed homeland of both Koreas.

Hyundai’s Baek said the company is also in talks with Seoul and state-run corporations about projects to reconnect railroads between the North and South.

“The government respects Hyundai’s business rights it signed with the North,” said a spokeswoman at South Korea’s Unification Ministry, who did not respond to a question about its discussions with Hyundai.

NO LOVE FROM WASHINGTON

South Korean government officials and business executives say the biggest hurdle is opposition from Washington, which wants to maintain sanctions until Pyongyang completely denuclearizes.

In July, Mark Lambert, director for Korean affairs at the U.S. State Department, called about 10 South Korean businessmen for a meeting at the U.S. embassy in Seoul to deliver a stern message: No resumption of any businesses until denuclearization.

“The mood in the room was bleak,” said SJTech Chairman Yoo Chang-geun, who used to operate a factory at Kaesong and attended the meeting.

Baek, who was also present, unsuccessfully argued Kaesong and Mount Kumgang should be waived from sanctions “to show our goodwill to North Korea.”

A spokeswoman for the U.S. State Department declined to comment on details of “private diplomatic conversations.”

Article source:
After tragic losses, Hyundai aims to reverse N. Korea fortunes
Reuters
2018-10-31

Share

Two Koreas start railway inspections

Sunday, October 21st, 2018

Benjamin Katzeff Silberstein

South and North Korea are likely to start their joint on-site inspection as early as this week for a project to modernize and re-link railways across their border, government officials said Sunday.

At high-level talks last week, the two Koreas agreed to begin field surveys of the western Gyeongui railway in late October and the Donghae railway along their east coast in November.

“The Koreas are known to be discussing ways to conduct the inspection (on the North section) of the Gyeongui line starting late this week,” a government official said.

“The schedule is flexible, depending on consultations between the government and the United Nations Command (UNC) over the passage of the Military Demarcation Line,” he added.

In August, the Koreas failed to carry out a joint railway field survey as the U.S.-led UNC did not approve the plan, citing “procedural” problems, a move widely seen as U.S. objection to the inter-Korean railway project on the basis that it might hamper sanctions.

“As far as I’m concerned, Seoul’s consultations with Pyongyang as well as the UNC are smoothly under way,” the official said.

If launched, the joint inspection will involve the test operation of a train on the railway linking Seoul to the North’s northwestern city of Sinuiju.

After that, the Koreas will check the eastern railway on the North’s side that connects Mout Kumgang to its northeastern North Hamgyong province.

South and North Korea are looking to hold a ground-breaking ceremony for work on the rail and road systems along the eastern and western regions either in late November or early December.

Meanwhile, the two Koreas plan to hold working-level talks starting this week to implement agreements of the inter-Korean summit held in Pyongyang last month.

Full article/source:
Koreas to start joint inspection of western railway as early as this week
Yonhap News
2018-10-21

Share

China-NK trade dropped by 59.2% January–September of 2018, says China

Saturday, October 13th, 2018

Benjamin Katzeff Silberstein

Global Times reports Chinese customs figures:

China has consistently complied with UN’s resolutions on North Korea and bilateral trade tumbled 59.2 percent year-on-year from January to September, said an official with the General Administration of Customs (GAC) on Friday.

The value of China’s trade with North Korea was 11.11 billion yuan ($1.61 billion) in the first three quarters, according to data released by the GAC.

During the same period, China’s export volume to North Korea was 10.11 billion yuan, down 40.8 percent on a yearly basis and imports stood at 1 billion yuan, down 90.1 percent year-on-year, the GAC data showed.

The implementation of the Security Council’s decision is an obligation that all UN members should fulfill, said Li Kuiwen, an official with the GAC.

Li noted that “China’s customs has consistently carried out the relevant resolutions of the Security Council in a comprehensive, accurate, serious and strict manner.”

China’s trade volume with North Korea in the January-to-August period fell 57.8 percent from a year earlier to $1.51 billion, the GAC said on September 23.

Article source:
China-North Korea trade drops 59.2% in January-September period: customs
Global Times
2018-10-13

Share

The economic side of the Moon-Kim summit

Friday, September 21st, 2018

By Benjamin Katzeff Silberstein

The economic aspect has been continuously front-and-center throughout the Moon-Kim summit in Pyongyang (September 19–20). From a diplomatic standpoint, this is not all that surprising. Moon and Kim are pursuing what appears to be a rather classical Sunshine 2.0 pattern, with roughly the same contents as the predecessor. As Yonhap reports:

Earlier in the day, the leaders of South and North Korea agreed to work together for balanced economic development on the Korean Peninsula.

South Korean President Moon Jae-in and North Korean leader Kim Jong-un agreed to break ground on a joint project to connect railways and roads across their border this year and vowed diverse cooperative projects to deepen their friendly ties and foster a reconciliatory mood.

The agreements were reached during summit talks held in Pyongyang between Moon and Kim.

“We will prepare for (inter-Korean economic cooperation) in a calm and orderly manner,” Finance Minister Kim Dong-yeon said in a meeting with reporters here.

“But inter-Korean economic projects can gather speed if circumstances improve,” he said.

The minister said any inter-Korean economic projects should need support from the international community, and there are still many things to be done in advance.

The latest agreement came months after the leaders reached a deal during their April summit to modernize and eventually connect rail and road systems across their divided border.

Field surveys have been carried out to examine the state of some sections of the North’s rail and road networks, but the process has not moved fast enough, apparently due to stringent sanctions imposed on the North for its nuclear program.

Railways and infrastructure are both less politically touchy than outright trade, and potentially mutually beneficial, even though the south will carry the economic burden:

“The South and the North agreed to explore practical measures aimed at increasing exchange and cooperation and seeking balanced development,” read a joint statement they signed after the summit.

“The two agreed to hold a ground-breaking ceremony this year for connecting railways and roads running along their eastern and western coasts,” it also stated.

The decision came months after the leaders reached a deal during their April summit to modernize and eventually connect rail and road systems across their divided border. The Seoul government has set aside nearly 300 billion won for next year to carry out those projects.

Field surveys have been carried out to examine the state of some sections of the North’s rail and road networks, but the process has not been fast enough, apparently because of global sanctions on the North.

The second point of the Pyongyang Declaration promises more economic cooperation for “balanced” growth, and vows to reopen projects such as the Kumgangsan tourism zone, and the Kaesong Industrial Park, according to Moon, “when conditions allow“. Here’s an English-language full-text version of the declaration. A particularly interesting but understudied point is 2.3, on ecological cooperation.

Kim Jong-un’s forestry interest has been a recurring theme throughout his tenure, and as this blog has covered, he’s spoken about the problems associated with excessive tree-felling – the root cause of which is North Korea’s planning failures of the 1990s – in more honest terms than his father did. At the very least, there’s been strong hints of both pragmatism and understanding of North Korea’s structural problems in the way that Kim has talked about the forestry issue (and many others too for that matter). Indeed, the Korea Forest Service chief accompanied Moon to Pyongyang, and he hopes to get to work soon following the summit:

“Forests surrounding populous urban areas were heavily destroyed, but forests in less populated regions were well-preserved,” Kim Jae-hyun said in a meeting with reporters at a government complex in Daejeon. “I saw enough hope.”

He was speaking after accompanying South Korean President Moon Jae-in’s visit to North Korea from Tuesday to Thursday.

As the first step, Kim said the Korea Forest Service will explore ways to create tree nurseries in much-destroyed regions.

“The North Korean side wants large-scale tree nurseries, but it would be more practical to start with small nurseries in regions suffering from deforestation the most,” he said.

In regard to disease and insect control efforts, the official said the use of machinery could be limited as the North is under U.N. sanctions for its missile and nuclear tests, while pesticides are allowed.

“I think (the disease and insect control measures) should start immediately to build trust between the two Koreas,” he said.

The forest expert said his North Korea visit as part of the official entourage showed Moon’s “willingness” to pursue inter-Korean cooperation in the forest sector.

“Looking down from an airplane along the western coastline, North Korea’s forests were very impressive,” Kim said. “There were few trees on hills near Pyongyang, while trees were well-maintained on the way from Sunan Airport to Baekhwawon guesthouse.”

Mountains near Yalu River on the North Korean border with China were denuded, but Mount Paekdu showed off all colors of beautiful trees, he said.

Moon and Kim aren’t the only ones who have talked about economic cooperation. The mayor for Busan, South Korea’s second most populated city, for example, has announced projects that his city will spearhead. Yonhap again:

Busan’s envisioned projects, unveiled in time for President Moon Jae-in’s historic visit to North Korea, call for boosting the city’s cooperation with the North in the fields of fisheries trade and processing, modernization of fishing vessels and equipment, shipbuilding, exhibitions and conventions and smart city technology, the city said.

The city will push to invite North Korean filmmakers and actors to the Busan International Film Festival and hold an inter-Korean film festival.

Nikkei Asian Review also reports that the Moon government has put pressure on Samsung and its head, Lee Jae-yong, to present a large-scale investment plan for North Korea. Samsung has manufactured TV:s in North Korea before, but this time around, the company hasn’t appeared as eager as its other chaebol-counterparts to draft up implementable blueprints for investments up north. Politically, it makes sense. Samsung’s PR hasn’t exactly been superb as of late, with the arrest and later release from prison of its CEO relating to corruption charges tied to the Choi Soon-sil/Park Geun-hye-scandal.

South Korea’s main steelmaker Posco is also hoping for opportunities following the summit:

The executive was part of the business delegation that accompanied President Moon Jae-in on his trip to North Korea earlier this week. Choi and other businessmen discussed various inter-Korean economic cooperation projects that can be pursued going forward if conditions are right.

“It will be a big opportunity not only for POSCO but for the steel industry as a whole,” Choi said. “I think POSCO will be able to find chances for growth.”

The company recently created a new task force to prepare for potential business opportunities in North Korea. POSCO Daewoo, POSCO Engineering & Construction Co. and POSCO Chemtech Co. are participating in the task force.

The steelmaker said it wants to play a key role in railroad and other infrastructure projects in line with the changes in the geopolitical environment in Northeast Asia.

My five cents on what all this entails for the North Korean economy:

Of course, as of yet, nothing. Most of the plans and visions are routinely accompanied by the caveat “when conditions allow”. The infrastructure plans may be able to go ahead even with sanctions in place, at least the rhetoric from the Moon administration, and the timetable for breaking ground on the railway connections before this year is over, seems to suggest so. I’m no expert on the judicial side of the sanctions, but it’s hard to imagine that this will be fully uncontroversial from that standpoint.

In any case, North Korea is in dire need of infrastructure improvements and if they are extensive enough, they should hopefully not just connect South and North Korea with Russia and China for cheaper freight, but also make domestic goods transportation simpler and more efficient, with positive impacts for the markets and private manufacturing in the country.

On re-opening Kaesong, things are a bit more complicated. In its nature, Kaesong is a manufacturing zone mostly cut off from the rest of North Korea. Sure, the incomes of the workers did enter the North Korean economy, and arguably, the fact that South Korean consumer goods could to some extent enter North Korean markets through Kaesong spurred competition for more high-quality goods on the North Korean market as well. But Kaesong is hardly the only, and perhaps not even the main route through which such products enter the country. These are also pretty weak arguments when you look at the entire economic picture.

The problem with Kaesong isn’t so much what it was/is/will be, but the missed opportunities. The hope with special economic zones tends to be that institutional frameworks that are tried there first can later spill over into the rest of the country. In the case of North Korea, the arrangement made pretty sure that that didn’t happen, at least from what we can tell. Had inputs been sourced from North Korea, that could also have spurred wider economic growth, at least in some regions. In theory, there are lots of opportunities for synergy and cooperation between South Korean companies and smaller North Korean ones, not just the state. If the goal is economic development in North Korea more broadly, and not just economic profit on the southern side and incomes for the north, there are lots of models that carry far greater potential.

Share

Explaining North Korea’s exchange rate stability: it’s all about the companies

Thursday, September 13th, 2018

By Benjamin Katzeff Silberstein and Peter Ward 

The stability of the market exchange rate for won-to-US dollars has been one of the most puzzling features of the economy over the past few years, and particularly so during the so-called period of “maximum pressure” and heavy sanctions by the international community. The market exchange has not once moved out of its ordinary – also remarkably stabile – territory over the past few years, as the following graph shows with clarity:

Won for USD-rates on the markets, 2009–September 2018. Data source: Daily NK. Graph: NK Econ Watch.

Thus far, to my knowledge, there have been two main, potential explanations:

(1) Maximum pressure is not having a meaningful impact on the North Korean economy as a whole. Even though it can’t export coal, minerals or textiles under current sanctions, its main sources for foreign currency revenue, the sanctions aren’t being enforced strictly enough to impact the economy as a whole, and foreign currency keeps flowing into the economy.

This explanation is pretty easy to dismiss offhand, since we know with more or less certainty that North Korea’s exports of these goods have plunged as Chinese sanctions enforcement has been fairly strict since the late summer/early fall of last year, even though it’s waxed and waned as it always does.

(2) The second explanation, most notably put forward by Bill Brown, is that Pyongyang is much better at monetary policy management than they’re given credit for. Chiefly (but not solely) through decreasing the amount of won in circulation, by giving state-owned enterprises (SOEs) smaller loans and credits in won, the government is able to keep the exchange rate stabile.

Speaking with my friend and colleague Peter Ward, a researcher of North Korean economic policy under Kim Jong-un and avid reader of North Korean economics journals, he explained a third possibility, partially in line with the latter hypothesis posed above. Ward visited North Korea twice in the past year, and was able to confirm many of the economic policy developments he had first detected in the literature from Pyongyang.

In short, Ward’s explanation is as follows: the main holders and users of foreign exchange in North Korea are not individual citizens, but state-owned enterprises, which legally (since 2013) use foreign exchange in transactions amongst themselves. The quantities of foreign exchange held by SOEs make them, and not the foreign currency markets that individual citizens access and use, the main determinant of the market exchange rate for foreign currency. Therefore, most of the foreign currency in circulation has been there for several years, not entering or exiting monetary circulation.

I asked Ward to share some of his thoughts with the readers of North Korean Economy Watch. Below is a brief Q&A of sorts.

Benjamin Katzeff Silberstein (BKS): first, when did this practice of SOEs trading in foreign currency become common and legally permissive?

Peter Ward (PW): probably around early 2013. This is when the “policy to make domestic production and exports one” came into force. The idea is to align domestic input prices for manufacturing, and consumer goods prices, with prevailing prices on international markets. This is literally what North Korean economics literature says that they aim to do, despite ostensibly being a socialist system in theory.

BKS: How is the FX-market price in North Korea determined? And where do the FX-market for SOEs and that for private citizens intersect?

PW: We don’t know, but one could imagine that there are major foreign exchange markets in North Korea – regional markets, both markets on the ground, so to speak, and between enterprises within regions. How does the center know the prevailing price? The regional price department of the regional People’s Committee price office and market management office (they may either be separate or the same) probably simply calls the local People’s Committee, who supposedly gathers this information from the local market management offices. At any rate, there’s reporting of the prevailing local exchange rate throughout the system.

Major enterprises will also know how much their inputs costs in foreign exchange, and a sense of how much their products would sell for on the world market. In that way, they’re able to assess the costs of their inputs in the world market (or at least China), and know how much they need to charge to make a profit or break even.

The market for individual citizens and SOEs intersect at several levels. SOEs likely source much of their inputs from wholesale markets, and from domestic private traders. They also obtain some of their foreign exchange from loans from private individuals. Private citizens can legally lend money to SOEs, but investments in SOEs by private citizens also happen, though they’re technically not legal, and both these investments and loans probably happen quite often in foreign exchange.

So the market price equilibrium happens through all these conduits, and as on any market, it is determined by countless instances of bargaining between traders, SOEs, and to a proportionally smaller extent, private citizens.

BKS: so where is the FX coming from, to begin with?

PW: if most inter-enterprise contracts and transactions are denominated in foreign currency, they’d be insulated from any sudden, exogenous trade shocks, such as sanctions. They’re still trading amongst themselves with whatever FX-holdings they have. For all intents and purposes, foreign currency inside North Korea is the principal legal tender – that’s what’s likely used for all major transactions inside the country, so exogenous shocks such as sanctions, from the outside, don’t necessarily impact the market price for foreign currency inside the country.

BKS: Is it likely, in your view and judging from your observations in North Korea, that the government maintains a price ceiling on the market exchange rate?

PW: Yes, it is. The government maintains price ceilings on a range of commodities, at least that’s what people inside the country say. They probably have an informal peg to the RMB, since China is their principal trade partner. It looks like it, but we don’t know for sure if they do. One possibility is that have significant cash reserves of RMB…

BKS: is it possible that China is simply helping North Korea keep the won stabile, by simply funneling RMB in?

PW: that’s certainly a possibility. The North Korean government keep a very close eye on the exchange rate, both in terms of physical cash in circulation and deposits in bank accounts, which SOEs have – both domestic and foreign currency bank accounts. They’ll keep a tight control over domestic currency-denominated loans to SOEs – that’s certainly one way of doing it. State banks will probably be encouraged to denominate such loans in foreign currency.

The government can also keep a pretty tight rope around money in circulation, since enterprises now have their own individual accounting system. The central government isn’t constantly borrowing money from the central bank to pump into SOEs, so the amount of money created by the central bank to lend to SOEs has gone down a lot.

That, at least partially, explains how the government manages to keep domestic currency circulation down. It doesn’t look like they’re printing much money overall, I saw bills from the pre-2009 currency re-denomination being used as late as July this year. And the highest denomination of North Korean won in circulation is the 5,000 won note, which has a market value of around 60 US cents, hardly appropriate for anything more groceries.

Share

Russia rejects new sanctions on North Korea

Friday, August 10th, 2018

Benjamin Katzeff Silberstein

Full comment here by the Russian Foreign Ministry:

Russia has blocked the US application to the UN Security Council Sanctions Committee on North Korea (1718) on introducing international sanctions against one individual and several legal entities, including the Russian commercial bank Agrosoyuz that are allegedly involved in illegal activities that are violating the sanctions regime against that country.

The US-presented evidence in support of this proposal is totally unconvincing.  We cannot accept the pressure exerted by the US delegation in the UN Security Council and its subsidiary bodies, which has already become a norm. By means of an artificially tightened deadline, it is trying to push through its own decisions without taking into account the opinion of the other members. The Americans are also obviously trying to use the prestige of UN Security Council Committee 1718 for justifying similar unilateral restrictions that they have just introduced under far-fetched pretexts.

Far from improving the atmosphere of Russia-US relations, the new US sanctions contradict the logic of easing tension around the DPRK. Clearly, Washington is trying to keep Pyongyang under maximum pressure as long as possible, in effect, up to the completion of the denuclearisation process. This policy is destructive for settling the issues of the Korean Peninsula and evokes extreme resentment.

Source:

Comment by the Information and Press Department on the US application to the UN Security Council Sanctions Committee on North Korea (1718) on expanding sanctions
Information and Press Department of the Ministry of Foreign Affairs of Russia
2018-08-10

Share

Seoul says reopening Kaesong will wait till sanctions are lifted

Friday, August 3rd, 2018

Benjamin Katzeff Silberstein

Korea Herald:

“The government’s stance remains unchanged when it comes to the issue of the resumption of the Kaesong Industrial Complex,” Lee Eugene, a deputy spokesperson of the unification ministry, told reporters during a regular press briefing.

“The stance has not been changed either that things will be considered in line with progress in denuclearization efforts and within the frame of sanctions,” she added. “From a broad perspective, it would be desirable to push for its resumption after the lifting of the sanctions.”

Opened in 2004, the industrial park in the North’s border town of Kaesong was hailed as a key symbol of economic cooperation between the rival Koreas as it combined South Korean capital and technology with cheap labor from North Korea. The Seoul government, however, halted its operation in 2016 in retaliation for Pyongyang’s missile and nuclear provocations.

The North has recently ramped up its call for the South to reopen the industrial park amid a thaw in relations, but the US.

Article source:
Seoul says reopening of Kaesong complex should wait until sanctions lifted
Korea Herald/Yonhap
2018-08-03

Share