North Korean Economy Watch

The particular regulations that seem to have been eased: the 10-day rule and price controls on rice.  No word on whether this easing is short-term or long-term in nature. 

From the Daily NK:

In an attempt to avert a food crisis and stem popular discontent, the North Korean authorities have reportedly bowed to pressure and started lifting market regulations across the country.

The decision, which apparently came into force at the start of February, may seem to be an abrupt one, yet it is largely inevitable. A food crisis has seemed to be on the cards for a while, while acts of violence against security officials have been occurring with increasing frequency and discontent among the people has been rising rapidly since the currency redenomination at the end of November.

An inside source reported the news to The Daily NK on Tuesday, saying, “Since February 1st, in Yangkang and Hamkyung Provinces, jangmadang regulations have been completely lifted. The price of rice, which had been more than 400 won, has now stabilized at between 250 and 300 won.”

The source added, “It is a good thing that the jangmadang is open. We were worried about a coming crisis as the rice price has been soaring and we have not been given any wages. That said, the people are watching the authorities’ next move, so they are still reticent to trade.”

Some foresee that, since the authorities have still not released state-designated price for rice in the jangmadang, they may be planning to allow it to just float with the market.

It is still unclear if the February 1st decree completely opened the market as it used to be or is just a temporary solution to avert a possible food crisis. Inside sources say they plan to wait and see.

Regardless, now that the jangmadang is open, exchange rates seem to be stabilizing as well. The dollar exchange rate, which was around 400 won, has fallen back to nearer 300 won in just two days.

Read the full story here:
Ban on Markets lifted
Daily NK
Jung Kwon Ho
2/3/2010

According to the Choson Ilbo:

The North Korean regime apparently sacked the Workers’ Party’s Finance Director Pak Nam-gi, letting him take the fall for the failed currency reform late last year. Pak was appointed finance director in July 2007 to oversee North Korea’s economic policies and has spent the past few years trying to root out a nascent market economy.

“Right now, North Korean officials are busy blaming each other for the failed currency reform and Pak, who spearheaded the revaluation, is believed to have been sacked,” said a diplomatic source in Beijing. “Markets have come to a grinding halt following the currency revaluation and prices have soared,” the source said. It seems North Korea hoped to stabilize prices through the currency reform and then credit the achievement to Kim Jong-il’s third son and heir apparent Jong-un to consolidate his grip on power, but this flopped, the source added.

Some North Korea watchers in China predict that the regime may perform a U-turn back to timid market reforms now that Pak, who led the crusade against capitalism, has been fired. One North Korea expert in Beijing said, “There is a strong possibility that high-ranking North Korean officials who led the drive to crush market forces since 2004 will be removed from office, while policies will shift toward market reforms starting in the second half of this year.”

Meanwhile, the new North Korean won is still plummeting against the U.S. dollar. North Korea valued the new currency to 98 won per dollar after the old won weakened to 3,500. But the new won has plunged since last month and is now being traded at between 300 and 500 won per dollar, according to people who trade goods with North Koreans.

According to the Daily NK:

In the tradition of dictatorial regimes worldwide, scapegoats have apparently also been chosen. South Korea’s Chosun Ilbo today claimed that Park Nam Ki, Director of the Planning and Financial Department of the Central Committee, has taken responsibility for the failed redenomination, which initiated a period of hyper-inflation, and been dismissed.

According to the report, Park was appointed to the top economic position in the North Korean government in July, 2005, where he began to pull up the green shoots of spontaneous market economy.

If the news is confirmed, Park will be following in the undesirable footsteps of Ministry of Agriculture head Seo Gwan Hee and Premier Park Bong Ju.

Seo was executed for his role in the 1990s famine. According to defector testimony, Kim Jong Il shifted responsibility for the famine onto him and had him publicly executed in 1997.

Meanwhile, Park Bong Ju became the Premier of the North Korean Cabinet in 2003, the year after the adoption of the July 1st Economic Management Reform Measure, and was responsible for introducing revised market economic elements according to the July 1st Measure. However, results were not sufficient and he was sent to manage the Suncheon Vinylon Complex in South Pyongan Province. 

Lets hope that the jangmadang come back with a vengeance. 

Read the full articles here:
N.Korean Finance Chief Sacked Over Currency Debacle
Choson Ilbo
2/3/2010

Read the full story here:
Ban on Markets lifted
Daily NK
Jung Kwon Ho
2/3/2010

Daily NK
Park Sung Kook
2/2/2010

There has been an explosion in the number of casualties resulting from popular resentment at harsh regulation of market activities by the security apparatus across North Korea, according to various Daily NK sources.

For instance, in Pyongsung, North Pyongan Province, normally one of the key distribution centers in North Korea, there have been several incidents of agents from the People’s Safety Agency (PSA), the organization charged with cracking down on the smuggling of food and other officially “immoral” acts, being attacked by unidentified assailants.

A Daily NK source reported on Monday, “A group of agents who had just finished doing the rounds of the jangmadang and alley markets in Naengcheon-dong, Haksu-dong, and Cheongok-ri in Pyongsung were attacked by a number of people, who assaulted them and immediately ran away. As a result, PSA officials are feeling very tense these days.”

Commenting privately on these incidents, some people savor them as acts of revenge, but others are worried about the situation, according to The Daily NK’s sources.

There have been more examples unearthed in recent days, too. For instance, North Korea Intellectuals Solidarity (NKIS), a Seoul-based defector group, recently received news that “a fight broke out between agents of the PSA, who monitor the Hyesan jangmadang, and some residents. As the fight turned serious, one resident snatched an agent’s gun and fired randomly into the crowd. One agent, Choe, is in a critical condition.”

According to NKIS, the fight began after the PSA agents beat up a trader who was trying to avoid the crackdown, and that made other residents angry, so they attacked the agents in return. As the fight grew more serious, agents threatened residents, but this only added fuel to the flames.

Finally, a Daily NK source from North Hamkyung Province released one other incident: Cho, who used to work for the Prosecutions Department of the National Security Agency in the region, was apparently killed by a Chongjin Steel Mill worker called Jeung Hyun Deuk.

The source explained, “Jeung’s father, the chief of a foreign currency-generating company, was interrogated last July on suspicion of embezzling enormous amounts of property and foreign currency, and in January was sentenced to life in prison. However, a few days after being imprisoned, he died. Thereafter, Jeung held a grudge against his father’s interrogator, Cho, and eventually killed him.”

The source concluded, “Traders and residents have lost their property due to the redenomination and are pretty much being treated as criminals as a result of the NSA and PSA’s ‘50-Day Battle.’ Therefore, people are taking revenge on agents, since they feel so desperate that, regardless of their actions, they will die. As a result, social unrest is becoming more serious.”

On January 2, the National Defense Commission released an order entitled “On completely sweeping away hostile factions who attempt to demolish our Republic from the inside,” initiating the “50-Day Battle” crackdown by the PSA and NSA in every city, county, and province which was referred to by the North Hamkyung Province source.

From GPI:

In the current financial and economic situation, companies face many challenges. They must cut costs, develop new products and find new markets. In these fields, North-Korea might be an interesting option. Since a few years, it is opening its doors to foreign enterprises. The labor costs are the lowest of Asia, and its skilled labor is of a high quality. It established free trade zones to attract foreign investors and there are several sectors, including textile industry, shipbuilding, agro business, logistics, mining and Information Technology that can be considered for trade and investment.
 
European Business Mission (May 2010) & Pyongyang Spring International Trade Fair
Information Flyer Here(PDF)
In order to explore these business opportunities, we are organizing again a business mission to North-Korea (15 – 22 May). We will also visit the annual Pyongyang Spring International Trade Fair. This fair can be used by European companies to come in contact with potential buyers and suppliers in North-Korea. Information abouth both events has been attached.
 
North-Korean investment mission to visit The Netherlands (February)
There are investment opportunities in several areas, such as textiles; agro business (e.g. export of vegetables, fruit and flowers to South-Korea); mining (e.g. zinc, mica, tungsten, rare metals); real estate (e.g. office buildings); renewable energy (e.g. windenergy, batteries); Information Technology; electronics; chemicals and tourism. A high-ranking delegation from North-Korea will visit The Netherlands at the end of February, in order to discuss these opportunities in detail and to present specific investment projects. We can be contacted for further details.
 
New book on European – North Korean relations
Information Flyer Here (PDF)
This spring, the Hanns Seidel Foundation (Germany) will publish a new book about the relations between Europe and North-Korea. The publication: “Europe – North Korea: Between Humanitarianism and Business?” also contains two chapters about trade development and business issues – including my article on IT-cooperation. Its Table Of Contents has been attached.     

With best regards, Paul Tjia (director) 
GPI Consultancy, P.O. Box 26151, 3002 ED Rotterdam, The Netherlands
E-mail: paul@gpic.nl tel: +31-10-4254172  fax: +31-10-4254317 Website: www.gpic.nl

According to the AFP:

A South Korean company said Tuesday it is planning a joint-venture factory in a free-trade zone in northeastern North Korea, the first such investment by Seoul in the faltering project.

Food processor Merry Co said Pyongyang last month approved its partnership with state-run Korea Gaeson General Trading Corp in the Rason zone near the North’s border with China and Russia.

“We’re going to have a first joint venture between the two Koreas in Rason,” Merry president Chung Han-Gi told AFP.

The North this month upgraded the status of the zone in an attempt to invigorate anaemic foreign investment there.

Chung said his company would invest 60 percent of the 7.5 million dollar cost of the new plant while its North Korean partner would put in 40 percent.

He said he would this week ask the South’s unification ministry, which must authorise all cross-border contacts, to approve the joint venture.

The communist state designated the Rajin-Sonbong Economic Special Zone — later renamed Rason — in 1991, its first such project. But little foreign investment materialised and senior officials who headed the project were reportedly sacked.

In recent years the North has begun trying to revive it, signing an accord with Russia to rebuild railways and the port there. China has also been exploring investment opportunities in the city.

The North’s leader Kim Jong-Il paid his first visit to the zone last month and state media said later that parliament has designated Rason as a municipality to upgrade its status.

South and North Korea have a joint-venture industrial estate at Kaesong near their border. Its operations have often been hit by political tensions, but the two sides were to start talks Tuesday on ways to develop it.

Chung said his firm’s joint venture at Rason, which would have some 200 North Korean employees, plans to produce canned and processed food including tuna for exports.

Merry, which also has a factory in Shanghai, will send Chinese engineers to Rason next month to install production facilities.

The Choson Ilbo adds some interesting details:

This is the first time that Pyongyang has allowed for direct business collaboration, set to take place between North Korea’s Gaeson General Company and the South’s Chilbosan Merry Joint Venture.

The firms are slated to split investment 60/40 and will work together to process and export canned marine and agricultural products starting in March.

UPDATE 1: As reader Gag Halfron points out, this is not the first DPRK-RoK joint Venture. Remember Pyonghwa Motors and Pyongyang’s fried chicken restaurant?

UPDATE 2: In the comments, Werner notes the following: http://www1.korea-np.co.jp/pk/149th_issue/2000101405.htm

Read the full articles below:
N.Korea OKs joint venture with South in trade zone
AFP
1/18/2009

First Inter-Korean Joint Venture to Be Established
Choson Ilbo
1/20/2010

Institute for Far Eastern Studies (IFES)
NK Brief No.10-01-18-1
2010-01-18

Following the currency reform undertaken by North Korea at the end of 2009, the Chinese newspaper International Herald Leader (國際先驅導報) reported on January 7 that the Choson Bank of Trade had set the USD:DPRK Won exchange rate at 1:96.9. There have been other reports of the DPRK’s new exchange rate through organizations related to North Korea, but this is the first report of an official exchange rate by an official Chinese media source. The International Herald Leader is the global news paper of the government-run Xinhua news agency.

Good Friends, a South Korea-based organization working for human rights in the North, had reported earlier that the new exchange rate was 1 USD:35 Won. The conflicting reports appear to be a result of a constantly changing exchange rate. North Korean authorities control the exchange rate, announcing changes to the exchange rate system at their whim.

According to the International Herald Leader, the exchange rates for the new DPRK Won are 96.9:1 USD, 138.35:1 Euro and 14.19:1 Chinese Yuan. These new rates are approximately 25-30 percent lower than previous rates, indicating a rise in the value of the DPRK Won.

North Korean security forces released a notice titled ‘Regarding the Strict Punishment of Those Overissuing Foreign Currency Within the Republic’ on December 28, and banned the use of foreign currency across the country beginning January 1. Immediately following the announcement of the measure banning the use of foreign currency, the DPRK Won:PRC Yuan exchange rate rose sharply, indicating a steep drop in the value of the Won.

Until the December 28 announcement banning foreign currency, North Koreans were exchanging Chinese money for the new DPRK Won at a rate of 1:5 (the official rate was 1:1.6). Before the currency reform, the Won:Yuan exchange rate was 600:1. However, after the ban on foreign currency, the value of the new North Korean money quickly fell, with the exchange rate toppling 4-5 times over within just days. According to a Daily NK report, on January 5 of this year, the Won:Yuan exchange rate in Hyesan, Yanggang Province hit 20:1, while in North Hamgyeong Province’s cities and towns of Hoeryeong, Onseong, Musan, and Cheongjin, the Won is being exchanged for Yuan at a rate of 1:15. Therefore, it appears that the Chinese media’s report of a 1:14.19 exchange rate reflects the reality of only some regions of North Korea.

According to Yonhap:

China has expanded its mining rights in North Korea to cover as many as 20 sites, a South Korean report said Thursday.

China is a leading investor in North Korea, which, according to a South Korean study, is believed to have enormous deposits of natural resources, including coal, nickel, molybdenum and bronze.

Further efforts to isolate the DPRK economically allow China to capture even more of these resources at bargain prices.  The North Koreans, for their part, are not happy about this.  According to the Steel Guru:

At an international conference held in Yanjiin in October, Director of the Economy Institute at the North Korean Academy of Social Sciences Mr Kim Chol Jun had revealed that his country is restricting exports of unprocessed resources. He added that “Mineral resources are exported at high prices by processing them. Exports of cheap unprocessed goods are a loss to the state.”

South Korea’s Unification Ministry estimates that underground mineral resources in North Korea are valued at about JPY 540 and the amount of deposits of magnetite used to trim the weight of automobile parts is the world’s largest at 3 billion tonnes to 4 billion tonnes. In addition to iron ore, North Korea is said to be rich in such rare metals as molybdenum and rare earth.

On a positive note, Chinese takeover of the mines could possibly lead to greater investment in mine working conditions if only to increase output—-although no data is really available to determine if this is the case.

I have been unable to locate the report mentioned in Yonhap because the story did not give any information about the title, author, publisher, or even the date or place it was released.

Nicholas Eberstadt has some interesting statistics in a Wall Street Journal op-ed this week:

For a variety of reasons—possibly including unintended reverberations from the past decade’s nuclear drama—the remonetization [of 2002] did not work well. Too much new money was chasing too few goods, sparking significant inflation. By November 2009, the North Korean won’s black-market value in dollars was barely 5% of the level when the 2002 measures were implemented, a depreciation averaging over 3% per month.

…

The speed and depth of the won’s resulting plunge has been dizzying. The nominal market price of rice is reportedly higher today than it was in November 2009, before currency reform. This would imply 100-fold inflation and then some in just over one month. The won-yuan exchange rate along the North Korea-China border has reportedly dropped by almost 50% over the past month, even after discounting for the 100-to-1 currency conversion. The government apparently has no confidence in its own currency move, and is now betting against it. News reports indicate that Pyongyang this month is issuing soldiers in its public security forces twice their nominal monthly pre-reform wages (a 20,000% raise in light of the currency conversion). If the government finances more wage hikes like this by running the printing presses, it will turn the currency into a toxic asset no one wants to hold.

…

The botched currency reform also has revealed how little North Korean decision-makers understand their own economy, much less the outside world. On a related note, the regime’s supposed heir apparent, Kim Jong Eun, was the mastermind behind the North Korean currency reform, according to South Korean intelligence. This may just be bad intelligence or disinformation. But if accurate, it raises disturbing questions about the judgment of the rising generation of North Korean leadership.

Read the full story here:
North Korean Money Troubles
Wall Street Journal
Nicholas Ebererstadt
1/11/10

Institute for Far Eastern Studies (IFES)
NK Brief No.10-01-08-1
2010-01-08

North Korean authorities appear to be closing regional, large-scale wholesale markets, one after another. According to the latest newsletter from the North Korean human rights group Good Friends (January 6), “Based on a Cabinet measure passed on December 30 of last year, North Korean authorities will suspend operations management of the Sunam Market in Cheongjin [LOCATION HERE] from the end of this March, effectively deciding to close [the market].”

Like the South Pyeongan Province Pyeongseong Market [LOCATION HERE] reportedly closed last year, the Sunam Market, North Korea’s representative wholesale market, was built less than five years ago. Good Friends reported that provincial authorities from North Hamgyeong Province plan to raze the market, located between Chumok and Cheongnam neighborhoods, and build a modern park and residential housing.

The newsletter revealed, “More than 40 percent of Cheongjin residents rely on the Sunam Market to maintain their lifestyles, and if the market is closed, there will be considerable consequences,” and added that those who trade in the market or rely on it for their shopping are already worried about how they will continue to put food on the table if the market gets shut down.

It has also been reported that the Chupyeong Market [LOCATION HERE], in the Sapo district of Hamheung City, South Hamgyeong Province, will also be closed. The Chupyeong Market, which attracts as many traders as the Pyeongseong Market, apparently specializes in the wholesale trade of imitation goods. Good Friends explains that the Chupyeong Market is a very busy and crowded market, with many shoppers coming and going, and this has also led to an increase in scams, thefts and other crimes. It is anticipated that following the closing of the Sunam Market early in the year, the next move authorities make will be to shut down the Chupyeong Market, as well.

A directive has been issued that North Korean authorities are to ban the sale of manufactured goods in the country’s permanent markets, and that all goods are to be sold only in state-sanctioned retail stores, and at state-set prices. However, sources inside the North report that traders are gauging the attitudes of local authorities, and often not turning over their goods for sale in retail stores. This, along with the North’s currency reform and ban on foreign currency, as well as the increase in farmers’ wages, has led to huge increases in exchange rates and prices.

Currently, workers in state-operated enterprises are being paid anywhere from 1,500 won to as much as 5,000 won per month. With the currency revaluation, this is considerably more than they were making before, but taking into account the massive increases in prices, as well, the impact of the higher wages is negligible.

According to the Choson Ilbo:

North Korean authorities have been rounding up money changers in major cities since Jan. 4, it emerged Friday. Sources in North Korea said an average of 20 money changers were arrested in each major city, including 17 in Pyongyang and 23 in Sinuiju since Jan. 4.

After a shock currency reform in early December, authorities banned the use of foreign currency. In the past, residents had used U.S. dollars in hotels or markets without having to change them into North Korean won.

It seems the State Security Department and the Ministry of Public Security and members of the village resident organizations secretly investigated people’s dollar holdings prior to the currency reform, the sources said.

Heads of the resident organizations from each village reportedly discovered who spent dollars, and the two security agencies investigated foreign currency managers in agencies and enterprises.

The crackdown on money changers appears to be aimed at confiscating the dollars they hold. But more broadly, the North seems determined to ferret out all newly wealthy people by gathering information about state agencies or individuals who have engaged in under-the-counter foreign currency dealings, the sources added. A North Korean businessman who was recently in China said, “The crackdown has quickly frozen the exchange market in the North.”

Rich people who were not affected as seriously by the currency reform because they hold cash in foreign currency are reportedly becoming edgy. Some are now experiencing hardship because they have not been able to change their dollars into North Korean won.

A huge private exchange market has come into existence in the North since 2000. In the early days, only small-scale dealers were engaged in the market, but once they had more than US$100,000, they even opened clandestine offices. In some cases, dealers handle nearly $1 million and work closely with state agencies in Pyongyang.

Officials who handle foreign currency whose source is hard for them to reveal reportedly rely on private money changers instead of government banks. Many money changers even in provincial regions are said to hold more than $100,000.

Read the full story here:
N.Korea Cracks Down on Money Changers
Choson Ilbo
1/11/10