Archive for the ‘Economic reform’ Category

What about the Chinese companies that depend on trade with North Korea?

Sunday, July 9th, 2017

Benjamin Katzeff Silberstein

Domestic conditions within China are often underestimated as a factor when it comes to the country’s enforcement of sanctions against North Korea. In the grand scheme of things, they may not be a major constituency, but it is difficult to imagine that for a government that values economic growth and social stability as much as China does, it would not factor in the sentiments and demands of domestic businesses who depend on trade with North Korea.

Indeed, when one travels to Dandong, the border town most central to trade between China and North Korea, one can begin to appreciate the magnitude of the trade ties between local businesses and their neighbors on the other side of the Yalu river. I have posted some pictures here. Parts of the city are almost wholly dominated by businesses and stores that cater to North Korean customers, some that are clearly tailored for private and large-scale buyers of goods like cars, machinery, kitchen items such as refrigerators, et cetera. Many companies along the border deal in export-import with North Korea. Southern China Morning Post has an interesting story out today about some of these businesses, often an underestimated constituency in the sanctions analyses:

Su Nan, a trader along the China-North Korea border, used to be a busy man. He used to wake early in the morning, fill his schedule with endless phone calls, and in a good year close deals worth millions of US dollars. But now, all of that has gone.

“We have no revenue so far this year,” Su told This Week in Asia. “In fact, we have been struggling since 2016, with fewer and fewer orders coming.”

Although his company hasn’t lowered his salary or laid off workers, Su said he can’t help but worry. After all, “we just sit in the office and do nothing”, he said.

Su works at Dandong Sevsuns Trading, an export firm located in Dandong, a stone’s throw from North Korea. China’s 1,420km-long border with North Korea has fostered many cross-border businesses – Dandong alone hosts 600 such firms by some estimates.

[…]

Since attempts to halt North Korea’s nuclear tests through diplomacy have fallen flat and Beijing doesn’t want a war near its soil, “curbing North Korea’s nuclear ambition through tougher economic sanctions has become the only choice”, Cheng said.

But that worries the many Chinese whose livelihoods rely on trade with North Korea. For Su, the trader in Dandong, such a move could be “a killer blow”.

Su’s firm helps international organisations purchase and deliver supplies of humanitarian aid to North Korea. International relief to North Korea has almost dried up in recent months, and Su said his company had likewise been struggling to stay in business.

“If China suspends more trade activities, then we will have no choice but to shut down,” he said.

Other Chinese traders share his concern.

“Selling fruit to North Korea is the only source of income for my family. What shall we do for a living if China will no longer trade with North Korea?” said Wu Xiuhua, a middle-aged Chinese woman in Tumen, a border city an hour’s drive from North Korea.

Like other traders, Wu used to drive her produce straight over the Tumen River; now all must apply for permits to take their goods across the border.

Since the summer months are traditionally a low season for fruit sales, Wu is able to cope with the financial losses – for now. But other Tumen traders recently took to the street, she said, angry about the costly and time-consuming change.

The local authority in Tumen declined to comment.

It is unclear how many Chinese traders living along the border have been, or will be, affected by the sanctions, but Wu is not optimistic.

“Many people here are running cross-border businesses,” she said, adding that some of her friends had even invested in North Korea, building warehouses equipped with industrial cooling systems to store imported seafood.

“All these investments will go down the drain if China cuts off economic ties with North Korea,” she said.

Besides traders, any business that deals with North Korea, however indirectly, is also at risk.

At a garment factory in Fengcheng, another city near Dandong, an executive told This Week in Asia that although his company did not sell to North Korea, it had hired at least 100 North Korean workers to make clothes – ironically – for customers in Europe and the US.

“If Beijing expands its sanctions to include the hiring of North Korean workers, that would have a negative impact on our business,” said the executive.

“North Koreans work for a lower salary,” he said. “It is also hard to find enough Chinese workers, as Fengcheng, like many cities in China, faces a labour shortage.”

Labour exports are considered a major source of income for North Korea.

Nearly 80,000 North Korean working overseas send up to US$2.3 billion back home annually, according to a report by the North Korean Strategy Centre, a defector group. The report said more than half of them work in China and Russia.

The factory has yet to receive any official notices that restrict hiring, but some residents say changes are already underway. “A restaurant here used to have a lot of North Korean waitresses, but many have disappeared in the past few months. Nobody knows why they left or where they went,” said one resident.

The only businesses that remain unaffected, and at least in some respects optimistic about the future, are Chinese companies that arrange cross-border trips to North Korea.

In fact, an agent at Dandong China International Travel Service said their business had been going so well that the company now ran the tour daily.

“Many Chinese are curious about North Korea,” said the travel agent, who gave only her surname, Wang. “We now send more than 30 tourists to North Korea every day, with some clients coming all the way from Hong Kong and Macau.”

Full article:
SANCTIONS ARE FINE, BUT WHAT ABOUT THE CHINESE WHO DEPEND ON TRADE WITH NORTH KOREA?
Coco Liu
South China Morning Post
2017-07-09

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North Korea’s ICBM-test, Byungjin and the economic logic

Tuesday, July 4th, 2017

By Benjamin Katzeff Silberstein

At 3:30PM GMT+9 on Tuesday July 4th, North Korean television announced that the country had successfully tested an intercontinental ballistic missile earlier in the day. Wall Street Journal

The missile, identified as the Hwasong-14, was launched at a steep trajectory and flew 933 kilometers (580 miles), reaching an altitude of 2,802 kilometers, according to North Korean state television. The numbers are in line with analyses from U.S., South Korean and Japanese military authorities.

US Secretary of State, Rex Tillerson, later confirmed that the launched missile was an intercontinental ballistic one.

Here in Seoul, things seemed to continue on as usual, which tends to be the case in this city more than used to its fair share of similar news. The biggest strategic consequence, of course, is that for the US. A successful intercontinental ballistic missile of this sort could potentially strike anywhere in Alaska.

With the latest launch, North Korea takes one step further along the nuclear side of the Byungjin line of parallel development of nuclear weapons and the national economy, and arguably, one step back on the economic side of the dual-track policy. In the formulation of the Byungjin line, of course, both are interrelated. Missile launches are often described as evidence of progress in industry and science, ultimately benefitting economic progress. This launch was no exception. From KCNA:s statement yesterday, July 4th 2017 (my emphasis):

The success in the test-fire of inter-continental ballistic rocket Hwasong-14, final gate to rounding off the state nuclear force, at just one go is a powerful manifestation of the invincible state might and the tremendous capability of the self-reliant national defence industry of Juche Korea that has advanced at a remarkably rapid pace under the great Workers’ Party of Korea’s new line on the simultaneous development of the two fronts, and a great auspicious event to be specially recorded in the history of the DPRK which has long craved for powerful defence capabilities.

This launch happened in a context where North Korea is already under sanctions designed to strike at its coal exports, one of its most important sources of income, and where the US has just signaled its resolve to go after North Korea’s financial channels through secondary sanctions of Chinese entities. At the same time, Kim Jong-un’s tenure has very much come to be associated with some economic progress (albeit from a low level, and primarily benefitting the relatively privileged classes), symbolized by projects such as the recently opened Ryomyong street.

It is not yet clear what the consequences will be. The US will likely try to add more sanctions targeted against specific entities and persons that help North Korea evade sanctions, and acquire equipment for its nuclear and missile programs.

The US will probably also call for international sanctions, but as Chad O’Carroll points out, the US may have a hard time getting such measures through in a quick manner given its currently tense relationships with both Moscow and Beijing. The US may also further push Beijing to implement the already existing sanctions against North Korea, but nothing appears to have changed with the claimed ICBM-test that would fundamentally alter China’s strategic calculations in the region. In other words, it continues to regard North Korea as a buffer between itself and US forces in the region, and as a geopolitical asset.

Whatever happens, it is safe to assume that it will not be good news for North Korea’s international ties in diplomacy, trade, finance, you name it. It would be easy to assume that economic progress and nuclear weapons development are mutually exclusive, since the second leads to further international isolation and economic sanctions, and therefore hampers the first.

In reality, that may be true. The North Korean Byungjin narrative, that weapons development helps economic progress, is difficult to swallow, especially when one considers the opportunity cost that the weapons programs carry, both in terms of domestic resource dedication and the cost in international isolation.

But there is another way to look at it. Whatever the actual consequences will turn out to be, North Korea is making a strategic calculation that the gains from the test, and from overall nuclear weapons and missiles development, will be greater than the potential costs and downsides. Consider the following two factors:

First, North Korea has made economic progress in the past few years, and particularly since Kim Jong-un came to power, even under years of severe sanctions.  North Korea has been under various forms of UN Security Council sanctions since its first nuclear test in 2006. During these years, its economic development has been impacted far more by domestic policy decisions than by international developments.

Again, we are absolutely not talking about any growth miracle, and some probably exaggerate the degree of the wealth increase in North Korea over the past few years. But without a doubt, North Korea is far better off now than it was eleven years ago, and worlds apart from the famine of the 1990s. Food insecurity prevails in North Korea but the country has not seen widespread starvation since the late 1990s, and largely thanks to better economic frameworks (or rather less predatory), and increased space for private production and trade within the economic system, things are looking much better today than in many years.

Just look at this video recently published by the Daily NK, from Chongjin, one of North Korea’s largest cities in its northeast. Is this long-term, sustainable growth that will eventually lead North Koreans to enjoy the same prosperity as their counterparts in South Korea or even China? Probably not. But at least it’s something.

Second, and relatedly, North Korea likely has a significant amount of channels for trade and various transactions that are not commonly known, but that play highly significant roles for the economy. For example, consider the information that Ri Jong Ho, a former official in North Korea’s Office 39, supplied in a recent interview with Kyodo News. Ri claims that North Korea procures up to 300,000 tons of fuel and various oil products from Russia each year, through dealers based in Singapore. As a point of comparison, a commonly cited figure for crude oil supplies from China is 520,ooo tons per year. Proportionately, then, 300,000 tons is not close to a majority, but still a significant amount for North Korea. While intelligence services or others with access to classified information may have known this already, Ri’s claims, if true (they have not and in all likelihood cannot be fully corroborated),

The point here is that North Korea has gotten so used to going through back channels and unconventional means to acquire highly significant amounts of supplies required for its society to function. It is an economic system where unconventional (and often illicit) channels of trade are not exceptions, but core parts of the economic management toolbox. This is not to argue that sanctions do not or cannot work. Rather, it shows the extent to which unconventional methods are institutionalized within economic management in North Korea.

The North Korean government is no monolith, and there are almost certainly some parts of the governing apparatus that are more and less pleased with the ICBM-test. But in the higher echelons of the leadership, the strategic calculation is probably that even with the added sanctions that are very likely to come, North Korea will be able to continue along roughly the same economic strategies as it has thus far. Perhaps we can call it North Korea’s own “strategic patience”: continuing with patchwork strategies for international economic relations, with little concern for the impact of lack of sustainable growth on people’s livelihoods, while banking on eventual recognition as a nuclear power. Only time will tell whether targeted secondary sanctions will change that calculation.

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Ri Jong Ho, high-level defector and former official in Office 39, says North Korea gets much more oil from Russia than previously known

Saturday, July 1st, 2017

Benjamin Katzeff Silberstein

In a fascinating interview by Kyodo News’s Tomotaro Inoue, Ri Jong Ho, a former high-level official in Office 39 of the Korean Worker’s Party, makes several fascinating claims about the supply of fuel to North Korea:

North Korea secures up to 300,000 tons of oil products from Russia each year through Singapore-based dealers, a defector who formerly managed funds for the leadership has told Kyodo News, posing a challenge for the United States as it seeks to isolate Pyongyang.

“North Korea has procured Russia-produced fuel from Singapore brokers and others since the 1990s…It is mostly diesel oil and partly gasoline,” Ri Jong Ho, 59, a former senior official of Office 39 of the Workers’ Party of Korea, said recently in the U.S. capital in his first interview with media under his own name.

Ri also said North Korea relies more on Russia than China for fuel to keep its economy moving, indicating that the U.S. drive for Beijing to restrict oil supplies over Pyongyang’s nuclear and missile programs will only have a limited effect.

“It is a wrong perception that North Korea is completely dependent on China,” he said.

Petroleum products have been shipped to North Korea by tankers leaving Vladivostok and Nakhodka, both in the Russian Far East, with the fuel widely used for cars, ships and trains, helping to support the North’s economy, Ri said.

Other sources familiar with the fuel deals said the petroleum products ending up in North Korea are often purchased by brokers who claim they are destined for China, with the items procured using forged paperwork.

Ri, who defected to South Korea with his family in October 2014, provided details of the activities of Office 39.

The secretive entity, said to have been established by former North Korean leader Kim Jong Il in May 1974, is subject to international sanctions as the United States and other Western countries believe it is engaged in illicit economic activities and the management of slush funds for the leadership.

He said North Korea has been trying to reduce its economic reliance on China, Pyongyang’s most important benefactor, since leader Kim Jong Un issued an order to expand trade with Russia and Southeast Asian countries in August 2014.

The order followed Chinese President Xi Jinping’s visit to South Korea a month earlier, during which he and then South Korean President Park Geun Hye expressed opposition to North Korea’s nuclear weapons development. It was the first time for a Chinese president to visit South Korea before traveling to the North.

Ri said the North Korean leader was “infuriated” by the visit, going so far as to call China an “enemy state,” and began taking measures to boost trade with Russia.

According to Ri, Office 39 has five central groups and systematically acquires foreign currency by sending laborers overseas as well as through gold mining and exports.

“It is an organization that manages the supreme leader’s coffers and the party’s funds to rule the country. It also leads trade activities to earn foreign currency,” Ri said. The office has enormous power as it is directly linked to the leadership and is independent of other government organs, he added.

Ri admitted that Office 39 has evaded U.N. sanctions by asking Chinese and Russian contacts to allow the use of their names for the opening of bank accounts for trade settlement.

The activities of Office 39 require the involvement of hundreds of thousands of people, including those in rural areas who produce items for export. Ri said the bureau is now headed by Chon Il Chun, first vice department director of the party’s Central Committee and a former classmate of Kim Jong Il, the current leader’s father.

A native of Wonsan on North Korea’s east coast, Ri was told to work in Pyongyang by the Central Committee in the mid-1980s. He operated a shipping company at Office 39’s Daehung group and later headed a trade control section in the group between 1998 and 2004.

The Daehung group earns revenue through farm exports and shipping operations, among other means. With exclusive rights to trade “matsutake” mushrooms and snow crabs, it was actively shipping those products to Japan before Tokyo imposed a total ban on trade with the North about 10 years ago.

The four other central groups are Kumgang, which dominates gold export activities, Daesong, involved in the shipment of processed products and intermediate trade overseas, Daesong Bank, in charge of the office’s banking operations, and a group dispatching workers to other countries.

Asked about the possibility that the foreign currency earned by North Korea is being used for its nuclear and missile development programs, Ri only said, “It is up to the supreme leader how to use the funds.”

North Korea receives 500,000 tons of crude oil each year through a pipeline from China, resulting in around 70,000 to 100,000 tons of gasoline and about 100,000 tons of diesel oil after refining, but the oil products are exclusively used by the North Korean army and are not good enough for cars that carry the elite, Ri said.

He also said crude oil purchased from other countries is refined by foreign companies based in China, leading to the importation into North Korea of an additional 50,000 to 100,000 tons of gasoline.

Full article here:

N. Korea procuring Russian fuel via Singapore dealers: defector

Tomotaro Inoue

Kyodo News

 

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US sanctions of Chinese entities over transactions with North Korea

Friday, June 30th, 2017

Benjamin Katzeff Silberstein

Reuters reports:

The United States imposed sanctions on two Chinese citizens and a shipping company on Thursday for helping North Korea’s nuclear and missile programs and accused a Chinese bank of laundering money for Pyongyang.

U.S. Treasury Secretary Steve Mnuchin said the actions were designed to cut off funds that North Korea uses to build its weapons programs in defiance of U.N. Security Council and unilateral sanctions.

“We will follow the money and cut off the money,” he told a news conference.

A Treasury statement identified the bank as the Bank of Dandong and the firm as Dalian Global Unity Shipping Co Ltd. It identified the two individuals as Sun Wei and Li Hong Ri.

The sanctions imposed on the two Chinese citizens and the shipping company blacklists them from doing business with U.S.-tied companies and people.

Bank of Dandong did not respond immediately to a request for comment. A staff member at Dalian Global Unity would not comment on the sanctions and subsequent calls to the firm’s office in Dalian went unanswered.

Mnuchin said U.S. officials were continuing to look at other companies that may be helping North Korea and may roll out additional sanctions.

U.S. foreign policy experts say Chinese companies have long had a key role in financing Pyongyang. However, Mnuchin said the action was not being taken to send China a message. “This wasn’t aimed at China. We continue to work with them,” he said.

China did not respond favorably:

Asked about the U.S. sanctions on Friday, Chinese Foreign Ministry Spokesman Lu Kang said that China consistently opposes unilateral sanctions imposed outside the U.N. framework.

“We strongly urge the United States to immediately correct its relevant wrong moves to avoid affecting bilateral cooperation on the relevant issue,” he said, without elaborating.

China’s ambassador to the United States, Cui Tiankai, said China opposed the United States using domestic laws to impose “long-arm jurisdiction” on Chinese companies or individuals, the official Xinhua news agency reported on Friday.

“If a Chinese company or individual has acted in a way that violates United Nations Security Council resolutions, then China will investigate and handle the issue in accordance with Chinese law,” he told an event in Washington on Thursday evening.

Full article here:
U.S. targets Chinese bank, company, two individuals over North Korea
Joel Schectman and David Brunnstrom
Reuters
2017-06-30

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Chinese officials telling companies not to hire North Koreans

Sunday, June 18th, 2017

By Benjamin Katzeff Silberstein

The sourcing for this story looks to be some quite thin gruel, but given the current context, it makes sense. Nikkei Asian Review:

According to a source who is familiar with China-North Korea diplomacy, Beijing began instructing Chinese businesses to refrain from hiring North Korean nationals in March 2016 — the month that the U.N. toughened sanctions on the country in response to Pyongyang’s fourth nuclear test.

The instruction has so far been given informally, and in some cases, orally. No formal notices have been issued, the source said.

The companies receiving the instruction are mainly in Jilin and Liaoning provinces, on the border with North Korea. Beijing appears to be gradually including more companies in its whisper campaign, the source said.

The informal sanction appears to contradict the Chinese foreign ministry’s position that the country should not impose any form of sanction against North Korea if it is not based on a U.N. Security Council resolution. At the same time, it is a means by which Beijing can register its displeasure with Pyongyang’s missile and nuclear testing.

Full article:
China telling companies not to hire North Koreans
Oki Nagai
Nikkei Asian Review
2017-06-18

This seems to be the pattern when it comes to Chinese sanctions enforcement against North Korea. Orders and directives are given in a vague, non-specific fashion, making them relatively easy to rescind and relax at a later time. In other words, news like this should not necessarily be taken as evidence of some grand Chinese push against North Korea. The way that policy directives like these are delivered, is itself indicative of their temporary nature. This current period is not the first (and probably not the last) time that China has restricted trade with North Korea, but that itself is not evidence of any long-term “squeeze”. It is probably safe to assume that these directives will be reversed or relaxed soon enough.

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New video from Chongjin, showing economic change

Monday, June 12th, 2017

By Benjamin Katzeff Silberstein

Unification Media Group (and Daily NK) continues their series of videos from North Korea highlighting some of the trends and features of the economy. The new video shows, among other things, how private companies are renting space from state enterprises, and notes that private alternatives to state-run businesses often function more smoothly:

Although North Korea’s private economy continues to develop, the public sector is showing signs of rapid decline. This is partly explained by the rise of North Korea’s newly-affluent middle class, who are referred to as “the donju.” Donju traders study the preferences of consumers in order to make profits, while state companies continue to operate according to bureaucratic management principles that have remained unchanged for years.
A video obtained exclusively by Daily NK and filmed inside North Korea’s Chongjin City shows evidence of these trends. In the video, a state-run bathhouse called “Sunam Undokwon” can be seen. In North Hamgyong Province, the state manages a variety of businesses, including barbershops, beauty salons, and restaurants. While the shops appear well kept on the exterior, the interiors reveal the true state of the businesses. The bathhouse, for example, does not have properly running water. Problems like this have caused a steep dropoff in clientele at state-run businesses.
In contrast, bathhouses operated by the donju have drawn a large customer following as they strive to cater to the needs of their clients. A privately-operated bathhouse and a soft drink vending stall can be seen in the video within a business center called Chongjin Shop. The Chongjin Shop is run by Kangsung Trading Company, which itself has an affiliation with the Ministry of the People’s Armed Forces. The bathhouse here has reliably running water and a steam room, and thus is the preferred bathhouse in the area.
“The water isn’t heated at the state-run bathhouse, so customers are forced to fill up small buckets and heat them up on small coal-fired stoves. The brown smoke and burning stench are so severe that customers tend to avoid it. But the privately-run bathhouses have robust fireplaces and the hot water always comes out strongly and without interruption,” an inside source from North Hamgyong Province told Daily NK.
Unlike public bathhouses, private shops offer ttaemiri, professionals who scrub down the bathers with abrasive cloths designed to exfoliate the skin. This service is creating a lot of buzz among customers, with factory workers coming to work as ttaemiri in the evenings. The popular service is drawing in donju and Workers’ Party cadres alike, as they flood into the bathhouses after eating dinner to relieve their stress.
Because the private bathhouses offer these additional services, the fees are higher than the public baths. Access to the open bath costs about 2,000 KPW, while access to the individual baths costs between 5,000-10,000 KPW. These prices are about 1,000-1,500 KPW higher than the state-run establishments. However, owing to the rise in demand for clean, professional bath services, the private shops are attracting more customers.
When asked to explain the popularity of these businesses, the source said, “Because Chongjin is host to a relatively large number of people who make money through the marketplace, private businesses like bathhouses are able to operate more or less according to market principles. Both cadres and donju find the private bathhouses to be convenient since, unlike public bathhouses, there is no need to show one’s ID card upon entrance.”
For these reasons, private businesses are gaining the edge over state-run businesses. There are some instances where publicly constructed buildings are being rented out entirely to donju entrepreneurs, indicative of the increasing dependence of the state economy on the private sector. On one side of the Chongjin Chemical Fiber Complex, a private business sign reads, “Resin-Aluminum Window [Frame] Production” – an example of a privately-run business that is renting out an area of a state-owned building.
The practice of renting out public buildings to private businesses has become particularly prominent since Kim Jong Un came to power. For the donju, such arrangements are more cost-effective than building a new facility from scratch. For the authorities, it offers a way to earn money from buildings that would otherwise be empty and unproductive.
The source continued to describe the arrangements, saying, “The donju pay fees to party cadres to rent out the building and carry out their business there. Renting out public buildings is officially illegal, but the party cadres are just as adept at earning money. So when donju come around looking to do business, the cadres just about throw themselves into the deal. The rental cost depends on a number of factors, like the currency that the payments will be made in (US dollar versus North Korean won) and the schedule of payments.”
Ever since the July 1st Economic Management Improvement Measures were introduced in 2002, the North Korean authorities have inconsistently permitted and then restricted the development of the private economy. Now, in an unexpected development, the public economy is beginning to trail behind the private economy. Marketization has expanded beyond the strict controls of the authorities, and the state economy is now striving to paradoxically maintain its vigor by extracting money from the private economy.
For this reason, business practices that are based on fundamental market principles are spreading with greater speed among the residents. It is likely seen as a potential threat to the stability of the Kim Jong Un regime. However, because the state economy has become dependent on the success of the private economy, an abrupt crackdown on the markets could produce self-inflicted wounds.
“Large construction projects and convenience services were once all run by the state, but now, businesses in these industries are succeeding based on market principles. If the authorities do not dramatically restructure the system sometime soon, it will be difficult to reverse the trend,” an inside source from North Hamgyong Province recently told Daily NK.
Both the donju’s accumulation of power and the resident’s tendency to prioritize money over party loyalty threaten to undermine the regime’s power base. It is therefore possible that the regime may punish a few donju or merchants as scapegoats in order to set an example.
As the private economy continues to flourish, it is possible to see residents using other methods to earn money. Some residents choose not to enter the official marketplace, and instead sell their products in back alleys adjacent to Sunam Market. One such merchant can be seen offering “Rock Portraits.” These are portraits of clients hand painted onto rocks.
“The government is struggling to keep up with the rapid development and diversification of the private economy. The Ministry of State Security and the Ministry of People’s Security usually label new economic activities and services as illegal. Eventually, as they start to receive bribes, they choose to look the other way and the practice becomes more mainstream,” the source said.
Illegal currency traders can also be seen offering services in front of a Chongjin foreign currency store. According to the source, these currency traders have rapidly increased in number over the last few years, and stroll about in front of the store and approach customers who may need to exchange currency. It’s a profitable industry that exists due to daily fluctuations in the currency rates.
“Even residents who don’t normally visit foreign currency exchanges are using the exchange services because they want to accumulate savings in a different currency (ie. not North Korean won). Residents, who fear another devastating currency redenomination like the one that occurred in 2009, are openly circulating foreign currency,” the source added.
Full article here:
Private businesses triumph over state-run
Unification Media Group
Daily NK
2017-06-12
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No more North Korean labor in Bulgaria

Monday, May 29th, 2017

Benjamin Katzeff Silberstein

Reports Yonhap:

Bulgaria said Monday that it has suspended imports of workers from North Korea amid criticism that Pyongyang is extorting money earned by their people overseas.

The action was taken along with the Czech Republic and Romania, the Bulgarian Embassy to South Korea said in a press release.

“Bulgaria, the Czech Republic and Romania set a precedent by ceasing their labor imports after realizing the conditions of North Korean overseas laborers,” it said.

“The suspension of receiving North Korean laborers by these three East European countries is an example where states have actively taken measures against the extortions of the laborers’ remuneration,” it added.

Full article:
Bulgaria suspends labor imports from N.K.
Yonhap News
2017-05-29

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Ten million live in food insecurity in North Korea, UN says. But what does that really mean?

Tuesday, May 16th, 2017

By Benjamin Katzeff Silberstein

A new report published by World Food Program and other UN institutions (Food Insecurity Information Network), detailing food insecurity in the world in 2016 as a whole, says the following about the situation in North Korea:

  • 4.4 million (or 17 percent of the North Korean population as a whole) is in “crisis, emergency and [or?] famine”.
  • 5.6 million (or 22 percent of the population) lives in a “stressed” situation when it comes to food.
  • This brings the entirety of the population living in food insecurity to ten million.

North Korea is the only country in all of East Asia with food insecurity, the report says.

It is unclear where the data comes from. According to the report, it could either have come from government sources in North Korean or from the World Food Program, but the report itself does not specify this.

A few things are worth noting. First and most importantly, particularly at a time when news reports abound about the rising middle classes and the new consumption habits of the wealthy, it is crucial to remember that a significant proportion of the North Korean population still live lives far away from the relative luxury of Pyongyang.

Second, though there is no reason whatsoever to doubt that a significant part of the North Korean population lives in severe hardship, harvests do not appear to be declining. On the contrary. According to the WFP’s 2017 needs assessment for North Korea,

“[w]hile official Government harvest data for 2016 has not yet been released, FAO estimates that rice production in 2016 increased by 23 per cent compared to the previous year when there was drought, but remains below the previous three-year average.”

Third, the World Food Program’s methodology for estimating these figures is rather unclear and problematic. For example, in the above-mentioned assessment of North Korean needs and priorities for 2017, released earlier this year, the WFP classifies all those depending on the Public Distribution System (PDS) as “suffering from food insecurity and undernutrition, as well as a lack of access to basic services.”

Presumably, this is derived from the fact that PDS distribution (of grains and staple foods, which is basically all it distributes) fluctuates through the year and is fairly unpredictable. But with the growing prevalence of the markets, it is unclear whether even those who the WFP claim “depend” on the PDS, really get the main portion of their food from the system. Over the past few years, public distribution of food has become an increasingly marginal (though certainly not unimportant) part of the food supply, and assuming that 18 million North Koreans experience food insecurity simply because they are beneficiaries of the public distribution system seems questionable at best. Obviously, the only way to understand food security overall would be to look at sources of food overall, not just one channel of supply.

Fourth, one overall problem with data on food security in North Korea remains the involvement of the North Korean government in the data collection. That is not to say that the North Korean government pushes the food production estimates upward to make itself look more successful. On the contrary, at times it probably exaggerates food needs in order to receive more outside assistance. Rather, the political nature of food, markets and the economic system makes it difficult to get trustworthy assessments of the food situation in the country. Only in one paragraph in its short version of North Korea’s needs estimates for 2017 does the World Food Program even allude to the markets:

In addition to the PDS, households are increasingly reliant on markets for their foods, except cereals. Farmers’ markets are distribution channels for a wide range of foods and basic necessities. In addition to swaps and bartering, markets involve large numbers of small transactions, often led by women.
Markets enable households to sell produce from their kitchen gardens; vegetables, maize and potatoes, as well as some small livestock.

Given the extent to which marketization has prevailed in North Korean society for over close to three decades, language like this seems to conflict with an overwhelming body of information about the centrality of the markets in the system today.

And, of course, there is the elephant in the room: North Korea’s economic system itself. As Amartya Sen famously pointed out, famine and food insecurity does not first and foremost stem from a lack of food overall, but from skewed entitlements. In other words, resources exist, but the problem is who gets them. In North Korea, the regime continues to refuse overarching and fundamental reforms of the economic system. As Fyodor Tertitskiy convincingly argued in a recent piece in NK News, the systemic changes in the North Korean economy of the past few years is most likely the work of bureaucrats within the state hierarchy, rather than a push by Kim Jong-un. In short, there are a lot of things the regime could change about the economy, to improve access to food and diminish food insecurity, but which it does not do.

This makes language like this, also from the WFP’s 2017 needs assessment, so problematic (my emphasis):

There are many complex, intertwined reasons for the high rates of undernutrition in DPRK, including challenges in producing sufficient food. The majority of the country is mountainous, only 17 per cent of land is good for cultivation.
Agriculture also remains dependent on traditional farming methods. Food production is hampered by a lack of agricultural inputs, such as quality seeds, proper fertilizer and equipment. In addition, changing weather patterns have left DPRK vulnerable to droughts and floods, which have affected agricultural production.

Mountains and bad weather are not factors unique to North Korea. Geography is not destiny, and there is no shortage in the world of countries that have overcome difficulties in their natural environment through good policy. One has to understand the difficult spot that the WFP and other UN institutions work in, given North Korea’s politically sensitive and tense context. But one can only hope that the WFP is clearer about pointing out systemic deficiencies in the North Korean economy when they talk to officials behind closed doors, than they are in public statements.

All this said, North Korea is an extremely difficult environment to navigate for international aid organizations. The women and men on the ground certainly do their best to accomplish good things, and make accurate measurements in a challenging environment. But it is important to keep these and other methodological issues in mind before drawing any major conclusions about North Korea’s food situation.

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North Korea claims economic successes in April

Friday, May 12th, 2017

For all the talk about economic adjustments in the DPRK, particularly in regards to enterprise management, this report sounds pretty “old-school”…

According to the Pyongyang Times (2016-5-6):

April production plans overfulfilled

Different economic sectors have carried out their production plans for April under the banner of self-reliance and self-development.

The Suphung, Jangjingang, Sodusu and other hydropower stations produced more electricity by managing water in a rational way and boosting the output of generators, while the Pyongyang Thermal Power Complex and the Chongchongang and Sunchon thermal power stations generated a great deal of electric power.

The Hwanghae Iron and Steel Complex overfulfilled its monthly pig iron production plan, and the Musan Mining Complex and the Unnyul, Jaeryong and other mines carried out iron ore production assignments of the Ministry of Metallurgical Industry at 112 percent.

The February 8 Vinalon Complex overfulfilled the production plan for vinalon, vinyl chloride and caustic soda. The Namhung Youth Chemical Complex and the Hungnam Fertilizer Complex lowered production cost and brought about good results on a daily basis by introducing valuable technical innovation plans.

The Ministry of Coal Industry fulfilled its monthly production plan at 103 percent.

The Sunchon Area Youth Coal-mining Complex and Tokchon, Pukchang and Tukjang area coal-mining complexes increased the coal output for thermal power stations, and Kaechon, Anju, Kujang and Kangdong area coal-mining complexes supplied more coal to power stations and metallurgical and chemical factories.

The sector of machine-building industry also rounded off the monthly production plan.

The Anju Insulating Material Factory hit the production target for the first half of the year at 153 percent as of April 30. The Taean Heavy Machine Complex, Sungni Motor Complex, Ryongsong Machine Complex, Pyongyang Electric Cable Factory 326, Pyongyang Electric Motor Factory and Songchongang Electrical Appliances Factory produced major custom-built equipment in time as they stepped up the upgrading of production processes.

The Sangnong Mine, Taedonggang Battery Factory, Munphyong Smeltery and other establishments in the sector of the mining industry overfulfilled production plans 1.6 times over the same period of last year.

The Pyongyang Kim Jong Suk

Silk Mill carried out its economic plan for the first half of the year earlier than scheduled, followed by the Pyongyang

Kim Jong Suk Textile

Mill, Pyongyang Cosmetics Factory and Pyongyang Aromatic Oil Factory in the sector of light industry.

Thanks to the effort of agricultural workers, sowing rice seeds in beds has been completed across the country, and the Ministry of Fisheries carries out its fishing plan at 100.7 percent.

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North Korean merchants resisting price controls on markets

Tuesday, March 21st, 2017

By Benjamin Katzeff Silberstein

Reports Daily NK:

Food prices in the past closely mirrored the ups and downs of rice prices in North Korea. For example, if rice prices climbed by 1,000 KPW per kg, then corn prices could also be expected to rise by approximately 500 KPW. But that trend is beginning to change.
In addition, North Korean rice prices used to exhibit sensitivity to currency exchange rates, but rice prices have recently been falling and climbing independently of the exchange rates.
To calm volatility, the authorities have entered the markets and attempted to control prices, but merchants have widely rejected these measures. Merchants who sell similar products have been collaborating with one another to set prices or decide when to withhold products from sale.
“Merchants know that the authorities’ attempts to crackdown on the marketplace usually fizzle out over time,” said a separate source in Ryanggang Province. “The vendors will pretend to agree and listen to the authorities, but then they will secretly raise the prices.”
“As rumors spread that large shipments of pork were being smuggled in, shrewd merchants refrained from putting pork up for sale because they were expecting the price to rise. They then sold large quantities at a higher price, before the prices gradually began to fall again,” she continued.
One expert believes that this development signals how prices have moved out of the domain of the authorities and under the influence of the black market.
“The price volatility we are currently seeing in North Korea’s markets is a common element for underdeveloped countries,” said Professor Lim Eul Chul, from the Institute for Far Eastern Studies (IFES) at Kyungnam University. He went on to explain that pricing decisions by individual actors involved in market activity are becoming increasingly relevant, but the authorities are having trouble keeping up with the information.
“In the past, market agents carefully watched the authorities’ reactions when setting prices, but the markets have developed and now it is the authorities who are following behind. Big merchants have the power and sway to move the market and control prices. We can expect this trend to continue,” he concluded.
Full article:
Merchants resist price controls
Kang Mi Jin
Daily NK
2017-03-20
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