North Korean Economy Watch

According to the Choson Ilbo:

North Korea and China are already starting economic cooperation projects in the border area across China’s northeast and the North’s Rajin-Sonbong region.

The Chinese Ministry of Transport recently designated Jilin Province as a pilot region for international trade and logistics encompassing the three northeastern provinces of China and the Duman (or Tumen) River area, the China Shipping Gazette reported last Friday.

The decision is aimed at facilitating transport of goods from China’s northeast to Shanghai and the south via customs points in the Chinese city of Hunchun and the North’s Rajin-Sonbong Port, the weekly added.

A representative of the Yanbian Korean Autonomous Prefecture in Jilin also signed an agreement on bilateral economic cooperation with Kim Su-yol, the chairman of the Rajin-Sonbong special city people’s committee, at the sixth Northeast Asia Trade Expo in Changchun last Thursday.

Read the full story here:
N.Korea, China Promote Business in Border Area\
Choson Ilbo
9/6/2010

According to the Daily NK:

North Korea is a “Tax-free country,” according to one of its many propaganda slogans, but this is contradicted by defector testimony, which suggests that residents carry a very heavy burden. According to defectors leaving the country after the North’s currency redenomination, North Korean people pay at least 20 to 30 percent of their monthly living expenses in the form of quasi-taxes to the state.

Since the redenomination, the minimum cost of living for a family of four has been in the vicinity of 50,000 to 60,000 won: around 35,000 for food and some 10,000 for other day-to-day necessities.

Next, North Korean residents pay at least 15,000 won for electricity and other utilities to the state.

Water and sewage and electricity cost, in total, around 1,000 won. Additionally, people have to give 30 percent of the earnings from their private fields every year. For a private field of around 40 pyeong (approximately 132m²), which is the general area for a single household, the farmer of the land has to pay around 3,000 won on average per month in usage fees, according to defectors.

In addition, if one adds other kinds of funding such as that for various kinds of local construction, military aid, fees for child education etc, the sum easily surpasses 10,000 won.

One defector, who arrived from Onsung in North Hamkyung Province in July of this year, said, “An elementary school in Onsung is instructing students to collect 10kg of apricot stones. If they cannot do that, the school forces them to give 5,000 won in cash. There are many cases of students who are unable to provide the apricot stones quitting school since they do not want to suffer under the burden.”

Another defector, who escaped from Hoiryeong in December last year, said, “Kim Ki Song First Middle School students had to pay 30,000 won every each three months for a school beautification project. However, many workers’ children were not able to tolerate that situation and quit.”

Another, who arrived in June from Hoiryeong, explained, “Even though the people were having to get food for themselves because of the absence of food distribution, the authorities took dogs, rabbits, leather or scrap from us all the time and, in addition, for the construction of a road, they pushed us to provide them with cement and bricks, so we had to offer all our income for several days.”

Besides all of this, the around 30 percent of people who do not have their own house have to pay at least 30,000 won in monthly rent.

Then, those who do businesses in the jangmadang have to pay between 300 and 2,000 won for each stall per day.

A defector, who did business in Chongjin until she defected in July last year, said, “The Provincial Committee of the Party took 300 won from each stall every day, and used 60,000 won of that for official expenses, gas for cars and entertainment for other cadres.”

Defectors say that the reason why the number of vagrants, so called kotjebi, has been increasing is also that they cannot afford to pay those fees.

Needless to say, while general people are weighed down by this heavy burden, high cadres in the Party, military or foreign currency earning bodies accumulate property through corruption, privilege, access to foreign currency earning businesses and the like, and enjoy their luxurious lives in high-class apartments in Pyongyang.

One defector who escaped from Pyongyang in February this year explained, “Since the currency redenomination, the preference for products rather than cash has been striking, so the price of apartments has risen a lot. In 2007, an apartment by the Daedong River was around $60,000, but now it is around $80,000 or $90,000.”

“While running errands, I visited one such apartment where high officials lived several times. It was amazing. They had foreign TVs, refrigerators and many other appliances. They used Korean or Japanese cosmetics and their shoes were all designer.”

A diplomat from the U.K. who visited Pyongyang in April, recently told the media that when he dropped by a fast food restaurant in Pyongyang most of the guests were students and some of them were wearing blue jeans and carrying cell phones.

The defector from Pyongyang criticized, “Newly built pizza or fast food restaurants in Pyongyang are like a playground for high officials’ children,” and concluded, “General local people are now struggling to feed this privileged class.”

The Daily NK conducted the interviews with defectors in this article with people who had just passed through the education course at Hanawon (the South Korean resettlement education center for North Korean defectors).

Read the full story here:
Tax Free North Korea Exists Only on Banners
Daily NK
Shin Joo Hyun
9/2/2010

According to Yonhap:

South Korean companies hampered by Seoul’s ban on their trade with North Korea have signed up for government loans amounting to 17.4 billion won (US$14.8 million), the unification ministry here said Saturday.

According to a ministry official, a total of 66 companies have asked to borrow government money on a 2 percent interest rate. The ministry began reviewing 155 applications on Aug. 2, the official added.

Read the full story here:
Banned S. Korean traders with N. Korea apply for government loans
Yonhap
9/4/2010

According to the Choson Ilbo:

Chinese President Hu Jintao told North Korean leader Kim Jong-il in strong terms to reform the North’s failed socialist economy and open up the country, a senior South Korean government official said Wednesday.

He made the call during a meeting when Kim visited China last week, using rather more direct terms than Chinese Premier Wen Jiabao had used during Kim’s last visit in May, according to the official. Wen told Kim, “I’d like to introduce to you China’s experience in the reform and opening drive.”

But the official quoted Hu as saying, “Socialist modernization is based on China’s three-decade-long experience in reform and opening. Although self-reliance is important, economic development is inseparable from external cooperation.”

According to a Chinese official, Kim too directly used the terms “reform and opening”  this time. He reportedly told Hu, “Since its launch of the reform and opening drive, China has achieved rapid development.”

Up until recently, top Chinese leaders had regarded the terms as taboo words at bilateral summits for fear of upsetting North Korea’s delicate feelings, but Wen first broke the taboo in May, and Hu in his advice to Kim even used language such as “enterprise,” “market mechanism” and “external cooperation.”

A diplomatic source in Beijing said China’s insistence on talking about reform shows how concerned China is with the North’s mismanagement of the economy.

China’s business media made upbeat observations about the North turning toward reform, quoting Kim as saying he was “deeply impressed” after touring major cities in China’s northeastern region such as Changchun, Harbin and Jilin.

In an editorial Tuesday, the Global Times, a sister newspaper of China’s official People’s Daily, wrote, “Living in the shadows of South Korea, Japan and the U.S., North Korea has to wrap itself up tighter in order to fend off military threats, and threats of political and cultural infiltration. North Korea’s opening-up will help relieve tensions in Northeast Asia. But, the knot does not only lie on the North’s side. Other countries in this region must redouble their efforts to untangle the knot.”

It is unclear whether Kim will listen. The North Korean leadership is afraid of any reform that could weaken its stranglehold, and at the moment tight control is essential if the regime is to officially establish Kim Jong-il’s son Jong-un as his father’s heir.

Kim has paid lip-service to the Chinese economic development model before. After returning from a trip in the early 2000s, he introduced some timid elements of the market economy but swiftly clamped down when markets became too brisk and a new class of successful businesspeople began to look like a threat to his regime.

Han Ki-bum, a former deputy director of the National Intelligence Service in charge of North Korean affairs, in his doctoral thesis quotes Kim as telling economic officials in June 2008, “If you think I’m talking about reform and opening as if I were going to introduce the market economy you’re completely mistaken.”

At the moment, Kim apparently wishes to stick it out, but the North’s dire straits amid international sanctions will make it difficult to ignore Chinese demands.

At the meeting, Hu pointed out that economic cooperation between the two countries would be a “win-win strategy” where “the government takes the initiative, enterprises play a leading role, and the market mechanism is set in motion,” according to the South Korean official.

“That means that if China gives the North something, it should also pay in return,” a South Korean security official speculated.

Read the full story here:
Hu ‘Told Kim Jong-il It’s Time for Economic Reform’
Choson Ilbo
9/2/2010

According to the People’s Daily (PR China):

The local government of Kimchuk, North Korea, may plan a trade fair next year, and all countries will be welcome to participate, said Yi Bok-il, the head of the Kimchuk Municipal People’s Committee of North Korea, after the opening ceremony of the 6th China Yanji Tumen River Area International Fair for Investment & Trade 2010, held Saturday in Yanji, Jilin Province.

Yi told the Global Times that it is the first time that Kimchuk has taken part in such economic activities, and the city aims to promote economic communication with China and other countries in Northeast Asia.

However, experts had reservations about the extent of North Korea’s involvement in the economic development of Northeast Asia.

“Given the uncertainties of North Korea’s domestic political and economic orientation in the future, it is still hard to project an overly optimistic estimate of the country’s contribution to the economic cooperation to the pan-Northeast Asian area,” said Yu Xiao, deputy director of the Center for Northeast Asia Studies at Jilin University.

“It will be a long process and be subject to further observation,” he added.

I believe that “Kimchuck” is “Kimchaek”.  A crew of South Korean and Chinese fishermen are being held there now.

Pyongyang already hosts a  semi-annual trade fair.

Read the full sotry here:
North Korea may host int’l trade fair
People’s Daily
8/30/2010

According to the Daily NK:

An inside North Korean source has reported the launch of a renewed movement to expose and punish drug crime.

The source explained during a phone interview with The Daily NK on August 26th, “Starting August 20th, a compulsory public lecture has been given by National Security Agency personnel in each neighborhood office. Party instructions regarding a mass struggle to prevent drug and smuggling crime were introduced there.”

The lectures were attended by people’s unit members, with the exception of workers. It is standard practice for the same lecture to be given in work places separately.

The source added, “As the Chosun Workers’ Party Delegates’ Conference approaches, the number of cases in which National Security Agency agents are directing the education of citizens is increasing. Here, they emphasized that there will be strict legal action and punishment for those who take, sell or smuggle drugs in that jurisdiction.”

The People’s Safety Ministry has apparently also dispatched separate task forces to major cities along the Yalu River to hinder smuggling. They are currently trying to bring the border area under control.

The source reported, “Just within Hoiryeong there are 40 ‘task force’ personnel under the People’s Safety Ministry cracking down on illegal immigration and drug smuggling.”

The fact that North Korean citizens living in the border area regularly take drugs or engage in smuggling is not news.

The smuggling route between Sinujiu, Hyesan, Hoiryeong and Onsung to China came into being during the March of Tribulation in the late 1990s. Pharmacists and doctors started mass-producing methamphetamines (known locally as “Ice”) and sold it in China to survive, but now many, indeed some say most, foreign currency earning units are producing, distributing, and smuggling the drug.

Among the more affluent people living in the border area near the Tumen River, “Would you like some Ice?” is a common greeting. Many such people also take Ice as a painkiller, not least because it is among the few widely available drugs which can do the job. Furthermore, use of the drug has also spread to affluent teenagers, which is creating even more concern.

Currently, in major regional cities like Hamheung and Chongjin, one dose of Ice sells for between 3,000 and 5,000 North Korean won.

Read the full story here:
North Korea Launches Drugs Crackdown
Daily NK
Yoo Gwan Hee
8/27/2010

According to an article in the Korea Times:

Approximately 100 small Chinese companies out of 150 that have investments in North Korea are based in Jilin and Liaoning Provinces near the northeastern border with the North.

Read the full story here:
Investments in NK limit China’s policy choices
Korea Times
Kang Hyun-kyung
8/20/2010

According to Yonhap:

North Korea’s former Premier Pak Pong-ju appears to have returned to power with the Workers’ Party, more than three years after he was ousted due to his economic reform drive, according to a Pyongyang broadcast report on Saturday.

The North’s Korean Central Broadcasting Station introduced Pak as the “first deputy director of the Central Committee of the Workers’ Party of Korea,” reporting on the 50th foundation ceremony of Pyongyang’s flagship Okryu Restaurant held Friday with a number of senior officials and workers.

There is no other known figure with the same name among the North Korean power-holding elite.

Pak, a long-time industry technocrat and pragmatist, was named premier of the North’s Cabinet in September 2003. He spearheaded the North’s so-called July 1st Economic Measure reform drive toward market economy, which aimed to give more autonomy to state firms and gradually reduce state rationing of food and daily necessities.

But his strong initiative triggered a backlash from the party and the military that resulted in his dismissal. Pak was suspended from duty in June 2006 on charges of fund apprehension and was fired in April the following year. Kim Yong-il, then land and marine transport minister, replaced him.

Pak is believed to have been demoted to a managerial post at a clothing factory outside Pyongyang.

Cho Myung-chul, a senior researcher at the Korea Institute for International Economic Policy who has defected from North Korea, viewed Pak’s reinstatement as a signal of a shifting North Korean economic policy toward pragmatism, following its failed currency reform last year.

“Pak is an emblematic figure of the July 1st Economic Measure that promoted pragmatism. His reinstatement could be connected with an economic policy shift back to pragmatism after the anti-market currency reform failed.”

In a bid to curb the burgeoning merchant class and strengthen its socialist system, North Korea implemented a surprise currency reform in November, knocking two zeros off its denominations. But the move backfired, worsening food shortages and triggering social unrest.

Apparently taking responsibility for the botched reform, Premier Kim Yong-il was replaced by Choe Yong-rim in June.

The broadcast report on Saturday did not specify which department of the Workers’ Party Pak joined, but it is likely that he was posted to the light industry department, considering the ceremony involving a restaurant and the fact that he was the department’s first deputy director in 1993.

Pak is believed to be a close confidante to Jang Song-thaek, vice chairman of the National Defense Commission and brother-in-law of North Korean leader Kim Jong-il. Jang is seen as the central figure in grooming Kim’s third and youngest son, Jong-un, as the next leader.

Japan’s Mainichi Shimbun reported on Aug. 15, quoting multiple sources, that Pak and about 20 other figures close to Jang had been reinstated within the past two years. The report also said Pak has risen to the second highest spot in the party’s light industry department, which is headed by Kim Kyong-hui, Kim Jong-il’s sister and Jang’s wife.

According to the New York Times:

He is the latest among senior North Korean officials whose sudden banishment and equally unexpected reinstatement have sparked outside speculation about Mr. Kim’s intentions. Mr. Pak appeared to have fallen from Mr. Kim’s favor when he was fired from the premiership in 2007 and sent to work as a factory manager in a provincial town.

“His reinstatement could signal the return of pragmatists and reformists,” said Cheong Seong-chang, a North Korea analyst in the Sejong Institute south of Seoul. “We may be able to see him push the economic reform and openness he had once championed.”

Analysts in Seoul say that few North Korean officials wield much individual influence in Mr. Kim’s government. But they say that they can infer Mr. Kim’s plans from the way he punishes and rewards officials identified with various policy approaches.

“Pak’s reinstatement indicates that North Korea is shifting back to market reforms, even if grudgingly, after its botched attempt to re-enforce state control on the economy,” said Baek Seung-joo, the head of North Korea research at the government-financed Korea Institute for Defense Analyses in Seoul.

Mr. Pak, a lifetime technocrat, was best known as the architect of “Measures to Improve Economic Management Order.” Issued on July 1, 2002, they indirectly acknowledged the failure of the North’s ration system by instructing factories, collective farms and other economic units to provide their own daily necessities and give incentives for workers.

In September 2003 Mr. Pak was made prime minister, a post in charge of carrying out economic policies.

His reforms were necessitated by the collapse of the centrally planned economy after a famine in the mid-1990s. But they also coincided with — and fueled — the spread of private markets, which quickly emerged as a key source of food and other necessities for North Koreans.

But Mr. Pak’s reform programs irked the government’s old guard, especially in the hard-line military, which had grabbed the lion’s share in trade under the old system. The markets facilitated the influx of DVDs and other smuggled goods the government considered a capitalist threat.

Around 2005, North Korea began controlling markets. Its attempt to reinforce state control on the economy peaked late last year when it replaced its banknotes with a new currency, shut down markets and ordered people to buy goods only from state-run stores. The currency reform was aimed at stifling the markets by drastically reducing traders’ personal wealth in the old currency.

The moves quickly backfired. Inflation surged as traders hoarded their goods and government stores failed to meet demand. Sporadic protests were reported. Earlier this year, Pak Nam-gi, head of finance and planning who led the failed currency reform, was executed, according to South Korean news reports. North Korean markets began coming back to life, according to recent defectors.

Pak Pong-ju, the former prime minister, returns as North Korea prepares for a party caucus early next month. Officials and analysts in Seoul say they will monitor the meeting for changes in the cabinet and party leadership that might provide clues to Mr. Kim’s plans to hand over power to his third son, Kim Jong-un, who is in his late 20s.

Mr. Pak’s reinstatement adds to the growing influence of Jang Song-taek, Mr. Kim’s brother-in-law, said Mr. Baek, the researcher.

In June, Mr. Kim presided over a session of the rubber-stamp Supreme People’s Assembly where Mr. Jang, a potential caretaker for his son, was elevated to the No. 2 post in the ruling hierarchy. In the same meeting, Mr. Pak’s successor as prime minister, Kim Yong-il, who reportedly made a rare apology in February for the botched currency reform, was fired.

Mr. Pak, as first deputy director, is believed to report directly to Kim Kyong-hee, Mr. Kim’s younger sister and Mr. Jang’s wife, who works as party director in charge of the North’s light industries, Mr. Cheong said.

Read the full stories here:
N. Korean ex-PM Pak Pong-ju appears to be back in power
Yonhap
8/21/2010

North Korea Reinstates Market-Oriented Official
New York Times
Choe Sang-hun
8/23/2010

According to the Choson Ilbo:

North Korea’s markets appear to be coming to life again after a botched currency reform late last year laid waste to them. Footage obtained by the Chosun Ilbo’s Northeast Asia Research Institute from a North Korean source on Wednesday shows the Chaeha market in the border town of Sinuiju early this month bustling with trade. “The sprawling Chaeha market was set up in 2003 and is located in a wealthy neighborhood along the trade route with China,” the source said.

Images taken in March of a market in Onsong released by the Chosun Ilbo in April showed most of the stalls empty, but the market in Sinuiju is now overflowing with sundries, clothes, hardware, fruits and food.

Lack of State Control

The market is bustling with traders and customers. North Korean security agents used to patrol the markets before the currency reform, but none are to be seen in the video. The only semblance of state control is an official wearing an armband that reads “administrator” walking quietly past the vendors.

According to sources in North Korea, markets in the country were practically deserted until May, but the situation began to change in June. Now business is booming. Sources say the authorities have virtually stopped trying to control the markets after former premier Kim Yong-il apologized for the failed currency reform and Park Nam-gi, the former director of the North Korean Workers Party’s Planning and Finance Department, was executed.

North Koreans apparently protested vehemently when the government failed to provide food following the currency debacle and demanded they be allowed to buy and sell goods in the markets. These days, the traders apparently hurl abuse at any security agents attempting to crack down. A South Korean intelligence source said, “It looks like North Korean authorities have given up their fight against the markets again.”

Clandestine S.Korean Products

Chinese products stacked on the shelves range from plastic basins, porcelain dishes and thermos bottles to cosmetics, electric fans, rice cookers and even motorcycle helmets.

But the scene is quite different behind the stalls. The source who provided the footage said, “Vendors openly sell Chinese products, but they sell South Korean goods under the table.” “Cuckoo rice cookers, Samsung Anycall mobile phones and LG TV sets are very popular,” the source said. “South Korean clothes are brought in with their labels removed, but wealthier people prefer South Korean clothes over Chinese ones.”

The source said a large market which sells only South Korean products has also formed in the Chinese city of Dandong just across the Apnok (or Yalu) River.

The situation is apparently the same in other North Korean markets. One North Korean defector who used to sell goods at an open-air market in North Hamgyong Province, said, “We display Chinese cosmetics but tell customers we also have South Korean ones. When a customer wants South Korean cosmetics, we take them out from under the table and sell them in the backroom.”

The traders sell South Korean products because they fetch a handsome profit. “Chinese products usually have a set price tag and consumers try to haggle, but South Korean products go for a premium and there’s no haggling over prices, because they are considered top-notch products,” the source said.

South Korean DVDs and music CDs are also in high demand. North Korean movies and CDs, are on display, but the latest South Korean soap operas and American action movies are freely available under the table, according to the defector.

I am glad to see that market life in Sinuiju is bustling, but I do not believe this demonstrates how market activity has recovered in places like Onsong.  Sinuiju handles the bulk of the China/DPRK trade and wholesalers from across the country go there to do business.  I would like to see some current footage of market activity in Onsong and other “remote” places (i.e not Phyongsong, Hamhung, Chongjin, or Sinuiju) to have a better idea of how conditions have bounced back.

I believe this is the location of the Chaeha Market, but I am only guessing.  If you have a better idea, please let me know.

Read the full story here:
Footage Shows N.Korean Markets Bustling Again
Choson Ilbo
8/19/2010

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