North Korean Economy Watch

American Enterprise Institute Book forum
4/17/2007

A couple of weeks ago, I had the opportunity to attend a book forum at the American Enterprise Institute on Nicholas Eberstadt’s new book, The North Korean Economy: Between Crisis and Catastrophe.  It was very informative to hear three different perspectives on the direction of North Korea’s economic reform.

Panelists included:

Nicholas Eberstadt, AEI
Andrei Lankov, Kookmin University
Deok-Ryong Yoon, Korea Institute for International Economic Policy

In summary, Mr. Eberstadt and Mr. Lankov are pessimistic about the North Korean leadership’s desire to enact reforms–knowing that information leakages will undermine their political authority.  As Mr. Lankov pointed out, the North Korean nomenklatura are all children and grandchildren of the founders of the country who are highly vested in the current system.  They have no way out politically, and as such, cannot reform.

They argue that the economic reforms enacted in 2002 were primarily efforts to reassert control over the de facto institutions that had emerged in the collapse of the state-run Public Distribition System, not primarily intended to revive the economy.  Lankov does admit, however, that North Korea is more open and market-oriented than it has ever been, and  Mr. Yoon was by far the most optomistic on the prospects of North Korean reform.

Personally, I think it makes sense to think about North Korean politics as one would in any other country–as composed of political factions that each seek their own goals.  Although the range of policy options is limited by current political realities, there are North Koreans who are interested in reform and opening up–even if only to earn more money.  In this light, even if the new market institutions recognized in the 2002 reforms were acknowledged only grudgingly, they were still acknowledged, and their legal-social-economic positions in society are now de jure, not just de facto.  The North Korean leadership might be opposed to wholesale reform, but that is economically and strategically different than a controlled opening up on an ad hoc basis–which is what I believe we are currently seeing. Anyway, dont take my word for it, check out the full commentary posted below the fold:

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Daily NK
Kwon Jeong Hyun
4/10/2007

At the end of March, the price of North Korean rice in Hoiryeong City’s jangmadang (market) fell to 820 won per 1kg, around 200 won lower than early January of this year. At a 100 won less value, the price of rice is in a falling state.

The result of Daily NK’s survey of three cities – Shineju, Hoiryeong, Kwaksan – in North Korea’s southern and northern regions at the end of March revealed that the declining price of rice will remain a reality through all regions of North Korea. In Shineju, North Korean rice costs 800 won per kg, 850 won for South-Korean rice, and 700 won for Chinese rice. The price of rice in Shineju is not much different than in January.

The price of corn, which is the staple among North Korea’s low-income, fluctuated narrowly from 340 won at the beginning of the year to 370 won at the end of March. Compared to the decline in the price of rice, the price of corn remaining at the current level can be said to reflect the demand for corn which has been transferred from the demand for rice on a small-scale.

As a whole, the stability of North Korea jangmadang’s price of rice indicates that food supply for North Korean citizens is relatively stable, compared to before. Since the North Korean authorities have not fulfilled the nationwide rations, a large majority of the citizens are purchasing their food at the jang.

In spite of North Korea entering the spring shortage season where the difficulty of obtaining food becomes more severe, the stability of the current price of rice is significant contrary evidence from the position upheld by world’s food organizations or domestic aid organizations of “100,000 tons of food deficit” in North Korea.

The value of the North Korean currency has been in a recession since March. In the Northern region, the currency declined from 3200 won per dollar early this year to 3050 won by the end of March. The Chinese yuan has also declined from 418 won to 360 won. North Korea’s inflation is falling back daily.

The price of North Korean pork at 2500 won per kg does not differ much from early this year. The price of flour, which is rare in North Korea, is 1000 won per kg; it always exceeds the price of rice. The price of North Korean sea foods is still astronomical. The bidding price for one frozen Pollack is 4000 won. That is enough to buy 5kg of rice.

A local source who conducted the price investigation of markets inside North Korea said, “The results of this investigation revealed that the price difference among the North Korean regions is very significant” and “besides medicinal or daily products, the price level in Hamkyungdo is higher than the price level in Pyongando.”

Yonhap
4/10/2007

North Korean authorities have scaled back their country’s food rationing system and allowed rice to be bought and sold at open markets in major cities, sources here said Tuesday.

In July 2002, the communist country reduced food rationing and introduced an economic reform program under which wages were raised and farmers’ markets were expanded so that people could buy food. But the policy has zigzagged on the purchase and sale of cereals and rice. 

“Since last year, rumors have spread about the sale at state-run stores as the food rationing system did not function well. Currently, not only corn but also rice is being traded at the markets,” a government source said, asking to remain anonymous because of the sensitivity of the issue.

The source added that North Korean authorities permitted the sale of imported rice at state-run stores. “The authorities hope to clamp down on high rice prices at black markets by diversifying the sources of rice distribution,” the source said. On the North’s black market, the product costs about 20 times more than rice at state-run stores. 

Urgent: How to Topple Kim Jong Il
Foreign Policy Magazine
March/April 2007, P.70-74
Andrei Lankov

From: Andrei Lankov
To: Condoleezza Rice
RE: Bringing Freedom to North Korea

When North Korea tested a nuclear weapon late last year, one thing became clear: The United States’ strategy for dealing with North Korea is failing. Your current policy is based on the assumption that pressuring the small and isolated state will force itto change course. That has not happened—and perhaps never will.

North Korea’s Kim Jong Il and his senior leaders understand that political or economic reforms will probably lead to the collapse of their regime. They face a challenge that their peers in China and Vietnam never did—a prosperous and free “other half” of the same nation. North Korea’s rulers believe that if they introduce reforms, their people will do what the East Germans did more than 15 years ago. So, from the perspective of North Korea’s elite, there are compelling reasons to resist all outside pressure. if anything, foreign pressure (particularly from Americans) fits very well into what Pyongyang wants to propagate— the image of a brave nation standing up to a hostile world dominated by the United States.

Yet, sadly, the burden of encouraging change in North Korea remains the United States’ alone. China and Russia, though not happy about a nuclear North Korea, are primarily concerned with reducing U.S. influence in East Asia. China is sending considerable aid to Pyongyang. You already know that South Korea, supposedly a U.S. ally, is even less willing to join your efforts. Seoul’s major worry is not a North Korean nuclear arsenal but the possibility of sudden regime collapse. A democratic revolution in the North, followed by a German-style unification, would deal a heavy blow to the South Korean economy. That’s why Seoul works to ensure that the regime in Pyongyang remains stable, while it enjoys newfound affluence and North Koreans quietly suffer.

Do not allow this status quo to persist. Lead the fight for change in North Korea. Here are some ideas to make it happen:

Realize a Quiet Revolution Is Already Under Way: For decades, the Hermit Kingdom was as close to an Orwellian nightmare as the world has ever come. But that’s simply not the case anymore. A dramatic transformation has taken place in North Korea in recent years that is chronically underestimated, particularly in Washington. This transformation has made Kim Jong Ii increasingly vulnerable to internal pressures. Yes, North Korea is still a brutal dictatorship. But compared to the 1970s or 1980s, its government has far less control over the daily lives of its people.

With the state-run economy in shambles, the government no longer has the resources to reward “correct” behavior or pay the hordes of lackeys who enforce the will of the Stalinist regime. Corruption runs rampant, and officials are always on the lookout for a bribe. Old regulations still remain on the books, but they are seldom enforced. North Koreans nowadays can travel outside their county of residence without getting permission from the authorities. Private markets, once prohibited, are flourishing. People can easily skip an indoctrination session or two, and minor ideological deviations often go unpunished. It’s a far cry from a free society, but these changes do constitute a considerable relaxation from the old days.

Deliver Information Inside: North Korea has maintained a self-imposed information blockade that is without parallel. Owning radios with free tuning is still technically illegal— a prohibition without precedent anywhere. This news blackout is supposed to keep North Koreans believing that their country is an earthly paradise. But, today, it is crumbling.

North Korea’s 880-mile border with China is notoriously porous. Smuggling and human trafficking across this remote landscape is rampant. Today, 50,000 to 100,000 North Koreans reside illegally inside China, working for a couple of dollars a day (a fortune, by North Korean standards). In the past 10 years, the number of North Koreans who have been to China and then returned home may be as large as 500,000. These people bring with them news about the outside world. They also bring back short-wave radios, which, though illegal, are easy to conceal. It is also becoming common to modify state-produced radios that have fixed tuning to the state’s propaganda channels. With a little rejiggering, North Koreans can listen to foreign news broadcasts.

But there are few broadcasts that North Koreans can hope to intercept. It was once assumed that South Korea would do the best job broadcasting news to its northern neighbor. And that was true until the late 1990s, when, as part of its “sunshine policy,” South Korea deliberately made these broadcasts “non-provocative.” There are only three other stations that target North Korea. But their airtime is short, largely due to a shortage of funds. Radio Free Asia and Voice of America each broadcast for roughly four hours per day, and Free North Korea (FNK), a small, South Korea-based station staffed by North Korean defectors, broadcasts for just one hour per day.

Being a former Soviet citizen, I know that shortwave radios could be the most important tool for loosening Pyongyang’s grip. That was the case in the Soviet Union. In the mid-1980s, some 25 percent of Russia’s adult population listened to foreign radio broadcasts at least once a week because they were one of the only reliable sources of news about the world and, more importantly, our own society A dramatic increase in funding for broadcasts by Voice Of America is necessary.  It is also important to support the defectors’ groups that do similar broadcasting themselves. These groups are regularly silenced by South Korean authorities, and they have to do everything on a shoestring. A journalist at the FNK gets paid the equivalent of a janitor’s salary in Seoul.  Even a small amount of money- less than U.S. military forces in Seoul spend on coffee-could expand their airtime greatly. With an annual budget of just $1 million, a refugee-staffed station could be on air for four hours a day, 365 days a year.

Leverage the Refugee Community in the South: There are some 10,000 North Korean defectors living in the South, and their numbers are growing fast. Unlike in earlier times, these defectors stay in touch with their families back home using smugglers’ networks and mobile phones. However, the defectors are not a prominent lobby in South Korea. In communist-dominated Eastern Europe, large and vibrant exile communities played a major role in promoting changes back home and, after the collapse of communism, helped ensure the transformation to democracy and a market economy. That is why the United States must help increase the influence of this community by making sure that a cadre of educated and gifted defectors emerges from their ranks.

Today, younger North Korean defectors are being admitted to South Korean colleges through simplified examinations (they have no chance of passing the standard tests), but a bachelor’s degree means little in modern South Korea. Defectors cannot afford the tuition for a postgraduate degree, which is the only path to a professional career. Thus, postgraduate scholarships and internship programs will be critical to their success. Without outside help, it is unlikely that a vocal and influential group of defectors will emerge. Seoul won’t fund these programs, so it will be up to foreign governments and non-governmental organizations to do so. Fortunately, these kinds of initiatives are cheap, easy to enact, and perfectly compatible with the views of almost every U.S. politician, from right to left.

Fund, Plan, and Carry out Cultural Exchanges: The Cold War was won not by mindless pressure alone, but by a combination of pressure and engagement. The same will be true with North Korea The United States must support, both officially and unofficially, all policies that promote North Korea’s Contacts with the outside world. These policies are likely to be relatively expensive, compared to the measures above, but cheap in comparison to a military showdown with a nuclear power.

It makes sense for the U.S. government to bring North Korean students to study overseas (paid for with U.S. tax dollars), to bring their dancers or singers to perform in the West, and to invite their officials to take “study tours.” Without question, North Korean officials are wary of these kinds of exchanges with the United States. However, they will be less unwilling to allow exchanges with countries seen as neutral, such as Australia and New Zealand. In the past, Pyongyang would never have allowed such exchanges to happen. But nowadays, because most of these programs will benefit elite, well- connected North Korean families, the temptation will be too great to resist. in-other words, a official in Pyongyang might understand perfectly well that sending his son to study market economics at the Australian National University is bad for the communist system, but as long as his son will benefit, he will probably support the project.

Convince Fellow Republicans That Subtle Measures Can Work: Some Republicans, particularly in the U.S. Congress, might object to any cultural exchanges that will benefit already-privileged North Koreans. And, for many, funding Voice of America isn’t as attractive as pounding a fist in Kim’s face. But these criticisms are probably shortsighted. As a student of Soviet history, you know that mild exposure to the world outside the Soviet Union had a great impact on many Soviet party officials. And information almost always filters downstream. A similar effect can be expected in North Korea. During the Cold War, official exchange programs nurtured three trends that eventually brought down the Soviet system: disappointment among the masses, discontent among the intellectuals, and a longing for reforms among bureaucrats. Money invested in subtle measures is not another way to feed the North Korean elite indirectly; it is an investment in the gradual disintegration of a dangerous and brutal regime.

North Korea has changed, and its changes should be boldly exploited. The communist countries of the 20th century were not conquered. Their collapse came from within, as their citizens finally realized the failures of the system that had been foisted on them. The simple steps outlined here will help many North Koreans arrive at the same conclusion. It may be the only realistic way to solve the North Korean problem, while also paving the way for the eventual transformation of the country into a free society. This fight will take time, but there is no reason to wait any longer.

Daily NK
Han Young Jin
4/2/2007

“100,000 won (approx. US$32.2) doesn’t cut it.” This is a sigh-ridden comment of a North Korean citizen, who states that even if he has 100,000 won, it is not much to spend.

The recent currency depreciation of the North Korean won has been exacerbating the North Korean citizens’ burdens of their costs of living.

Such a situation has been ongoing since the July 1st Economic Measure in 2002, but with the concentration of money in the privileged class, the grim realities of life of vulnerable persons have been becoming more difficult.

Hoiryeong citizen Park Hyun Sik (pseudonym), in a phone conversation with Daily NK on the 30th, stated that “a decent Chinese jumper costs 30,000 ~50,000 (approx. US$ 9.7~16) won for one, 3,000 won for 1kg of meat, and 2,700 won per a bottle of oil. After eagerly awaiting a month, I go to the market with 100,000 won (approx. US$ 32.2), but end up with nothing even though I did not buy much.”

Mr. Park, who conducts the wholesale business of relaying goods received from overseas Chinese emigrants to the provinces, receives a monthly income of 300,000 won. This puts him in a good class in North Korea. Mr. Park’s family, which consists of his wife and son, plans to secure food with this money.

Evidently, a family of four needs 50kg (50,000 won) of rice, which costs 1,000 won per kg, and 20 kg (7,000 won) of corn, which costs 350 won per kg, to survive. Additionally, the cost of buying a bottle of bean oil at 2,700 won as well as pepper powder, vinegar, garlic, onions and other vegetables is almost equal in value to the cost of buying rice.

On top of this, the family says they eat pork meat about once a month, which costs 3,000 won per kg. The rest of the money goes to the three family members’ clothing and cigarettes and drinks for Mr. Park, all of which cost about 300,000 won. Even then, Mr. Park tends to be on the well-fed side.

Working Citizens Cannot Eat Meat Even Once A Month

Kim Jung Ok (Alias), who sustains her living through a noodle business in the Hyeryung South Gate jang (market), has a monthly living expense of approximately 60,000 won. Ms. Kim is a housewife, who has taken on the responsibility of her three-member family.

Even if she sells noodles all day, she only makes 2,000~3,000 won. She merely earns around 60,000 won per month, all of which goes to food. Making a profit from her business is a mere dream, she expresses. She cannot even think about rice; after buying 70 kg of corn (23,000 won), bean oil, beans (950 won per kg) and other vegetables, she has nothing left.

The monthly income of her husband, who works at a machine shop in Hoiryeong, is 4,000 won. That is enough to buy 4kg of rice. Fearing starvation if she solely depended on her husband, she opened her noodle shop 10 years ago. “Even if we are both working like this, it is barely enough for corn meals. It is difficult to buy a kg of meat in a month. It has been a long time since I fed meat to my child,” she confessed.

Currently, with the exception of storekeepers who trade with Chinese emigrants, foreign currency traders, and those who have relatives in China, a majority of residents in Hoiryeong live daily as Mr. Park.

Recently, the Ministry of People’s Safety Agency issued the order that “Rations will be distributed in April. So, stop engaging in illegal trade.” Due to this decree, the control of the jangmadang (market) has been tightened. Discontent among residents who sell Chinese industrial products has climaxed, “How can we live if they feign ignorance while not providing the rations?”

The regulation of jangmadang (market) by ministry officials has only raised the price of Chinese industrial products. Before that, there would be joint bargains, but now, purchasers are visiting the merchants and so the costs of products are going up.

On one hand, the influence of the dollar’s recent bearish turn in the international market is fully reflected in the North Korean black market. The exchange rate of 800 won to a dollar between the Chinese Yuan and the dollar remains unchanging, but the North Korean currency following suit to the dollar and the Yuan changes day to day. Ultimately, North Korea is not “a region with a fixed exchange rate” due to the fact that exchange merchants occasionally apply the exchange information received from China.

Due to the dollar’s slump, the ratio of the North Korean won to the dollar and to the Yuan has been on the decline for several months. Mr. Park said, “In January, the North Korean currency went up to 42,000 won per 100 won RMB, but has drastically gone down to 36,500 won per 100 won.”

Daily NK
Yang Jung A
3/28/2007

The World Food Programme (WFP) revealed that North Korea had for the first time admitted that they were lacking a million ton of food.

Recently, Tony Banbury, WFP Asia Director spent 3 days on location with officials from the North Korean Agriculture Ministry and Foreign Ministry where the food situation was discussed.

On the 26th, Banbury told Reuters, “This is a very significant development that they themselves are confirming they have a gap of 1mn tones.”

Director Banbury informed that the WFP and other sources had provided for North Korea’s food variance which equated to about 20% of the nations needs, however that these sources had already been wasted.

Disputably, these figures made by Mr. Banbury do not correspond to the figures on North Korea’s crop yields. Some even criticize that it was inappropriate of the WFP to directly quote comments made by North Korean officials.

According to a source by the DailyNK, the cost of rice has remained at 800~900 won(US$0.25~0.29). Especially with the forthcoming cyclic hardships of spring harvest, these figures suggest that market costs are actually stabilizing.

Since the breakdown of the distribution system, many North Koreans have resorted to purchasing rice at the markets. In North Korea, the cost of rice is a good representation of market conditions, and considering that rice prices are showing constancy is evidence that there have not been drastic setbacks as a result of the rice distributions.

In comparison to last year where flooding made the food crisis chronic in various districts throughout North Korea, the situation hasn’t really deteriorated. Rather, the continuous inflow of food and hence trade from China has helped maintain market prices, North Korea-China tradesmen say.

Earlier this year, the Rural Development Administration in South Korea estimated North Korea’s food production to be 4.3mn tons. Evidence from a defector who once worked at North Korea’s food distribution ministry and past analysis on crop production suggests that North Korea would not have incurred a food crisis in the case it had produced more than 4mn tons of output.

Simply put, 4.3mn tons of production is at the least enough to maintain the lives of North Korean citizens. Undoubtedly, in a society like North Korea, this figure could initiate a food crisis and starvation in the lower class. However, inflating the shortage of food may only cause exhaustion of essential aid.

In addition, some argue that international organizations are actually provoking this vicious cycle in North Korea by decreasing the real amount of food produce.

Recently, North Korean analyst Marcus Noland published a report, ‘Famine in North Korea’ where he argued that about 50% of international food aid was being consumed by the military and, or the elite class.

In the report, he said, “The North Korean government consistently sought to frustrate transparent, effective humanitarian relief” and that, “Diversion is almost certainly occurring on a large scale, enough food to feed between 3 to 10 percent or more of the North Korean populace. Some of this aid is almost surely consumed by politically connected groups, including the military.”

Daily NK
Kim Min Se
3/18/2007

In socialism, the laborer and the peasant dominate the nation and society. However, since the late `60’s, the role of the laborer and peasant has decreased with the bureaucracy taking power, to the extent that a country can no longer remain in traditional socialism.

Currently, North Korea’s leader Kim Jong Il with a minority of the central class surround this core power. In North Korea, the laborers and peasants are rather subject to extortion.

Amidst a North Korean market economy, a middle class is being established. The middle class comprises of people who have assets that the average citizen cannot afford and own medium-sized businesses or engage in wholesale trade.

Undoubtedly, this group of people are dominating the middle class as well as playing a vital role in the lifeline of North Korean citizens and market, a fact that could not have been fathomable in North Korea’s past.

Until the 80’s, North Korea’s economy was a planned economy. Supply and demand of goods was distributed according to the national plan. However, in the late-80’s, small holes began to emerge in the socialist planned economic system and with a lack of daily necessities, people began to rely on the black market.

Arising from the major cities, goods were secretively traded in the black market and eventually the majority of North Koreans acquired their needed goods through this system. This system operated evading the control and regulation of North Korean authorities, but when caught, a person was condemned to severe punishment and the goods confiscated.

However, the mass food crisis of the mid-90’s completely collapsed the remnants of a socialist planned economy that had subsided unto the time. What had happened was the end of the national food distribution system.

In particular, the collapse of the food distribution meant the death sentence. Tens and hundreds of thousands of North Koreans began to die of starvation and as a means to live, people became active in the market and trade began to emerge in different regions of North Korea.

Mass starvation which created expert tradesmen

The immobilization of a socialist planned economy activated Jangmadang (North Korea’s integrated markets) which then led to the formation of a new class within North Korea’s own expert tradesmen. North Korean authorities who had no other countermeasures had little choice but to comply as the lives of the citizens were now left to the hands of trade.

In the mid-90’s, North Korean authorities approved personal trade to occur between North Korea and China and then permitted markets to exist along the border districts. Simply put, the mass food crisis created a new class which actually gave North Koreans an opportunity to trade.

At first, people would sell goods that they already had such as household appliances, television, recorder and bicycle. Furthermore, any type of stock accessible, particularly clothing, candy and other foods coming from China such as rice, flour and corn were also traded.

As people gained more experience and came to know the basics of marketing, tradesmen became more specialized. People who sold rice, only sold rice, whereas people who traded fabric only sold fabric.

North Koreans began to realize that specializing in a particular field was the way to make money and the people who were unable to assimilate to this culture broke away penniless.

Accordingly, the market gradually became a center for specialized tradesmen to provide goods and daily necessities. The goods sold by these tradesmen eventually became the mark for the middle class merchant. During this time, stabilized distributors began to dominate the market and more individualized entrepreneurs surfaced.

People skilled at cooking, baked decorative and delicious bread in their homes and then sell them at the markets. In addition, candy distributors have made a mark at the markets with candy making having become an advanced skill. People who once made candy in their homes now brag that they have been able to produce a small-scale sugar factory. In particular, clothes making and candy making has become enterprises leading to great money.

Today, 50% of candy, home-made clothing and 30% of uniforms, sold at North Korean markets are products made from home. Through goods such as these, Chinese merchants, tradesmen and the middle class are earning money through North Korea’s markets supplying the customers, the majority of the lower class.

Daily NK
Kim Young Jin
1/31/2007

The Daily NK had conducted commodity price research in northern and southern North Korea from the end of last year to this January. According to the research result, rice price, despite some regional difference, averaged around 1000 NK won per kilogram. The price of North Korea’s most fundamental grain differed based on local rice production and whether it was inland or border area.

In Sinuiju, a city bordered with Chinese Manchuria, residents enjoyed relatively low price of rice due to the city’s proximity to China and breadbasket of the country, Pyongan Province. Sinuiju’s rice price was as follows: North Korean rice 850 won per kg, South Korean one 870 per kg, and Chinese imports 800/kg. Other than rice, every item showed little increase in price except for pork meat (2500 won per kg).

Basic Prices – January 4, 2007
Rice (1kg): 
Sinuiju – 830 (produced in NK), 800(produced in China)
Kangdong – 750(produced in NK), 850 (produced in South Korea)
Kangdong hosts a military hosptial and military camp. Consequently, it maintains an excess supply of rice, making rice cheaper in Kangdong than in Sinuiju. 

Corn (1kg): Sinuiju – 340 (NK), 300 (China)
 
Pork (1kg): 2400~2500
 
An egg: 250
 
A chicken (2kg): 7000
 
Soy bean oil (1kg): 3300
 
Salt (1kg): 230
 
Wheat flour (1kg) 900
 
Diesel oil (1kg)/Gasoline (1kg) 2200 / 2700
 
Exchange rate (a dollar) 3,270 / 1Yuan = 425won 

In northernmost North Korea, Chongjin had had relatively high rice price. The port city close to Russia had been quarantined since outbreak of scarlet fever. In Chongjin, both North and South Korean rice cost around 1000 won/kg, and Chinese 900 won/kg.

The reason for stability of rice price around 1000 won/kg in North Korea is, in spite of what is happening outside the country, steady supply of the grain to meet next year’s demand. And moreover, stocking up or price regulations, which usually occur when shortage in rice production is expected, had not happened yet.

Given current rice circulation in private market, this spring would not be as bad as outsiders worry. Informers say that they could smuggle rice out of China whenever necessary.

Meanwhile, North Korea’s won had been weakened consistently. In second half of last year, market exchange rate was 2950 won per dollar; it is now 3270 won/ US dollar. Won per Chinese yuan has risen from 375 won/ 1yuan to 425 won/ yuan during the same time period.

In general raise in exchange rate forces commodities price to increase; however in North Korea, prices heavily depend on change in supply rate since the country is suffering ongoing shortage of it. For example, last year when the army started selling its gasoline stockpile, oil price fell from 3000 won/ kg to 2500-2600 won/kg in one month.

northern provinces prices for December 2006 
 
NK rice-1000
SK rice-1000
Chinese rice-900
 
Corn-340
 
Wheat flour-800
 
Pork (1kg)-2500
 
An egg-300
 
Cabbage-350
radish-200
Potato-250
 
Soy bean oil-3200
sugar-2200
seasoning-5000
 
Pepper paste-1500
 
Gasoline-3200
 
Socks-1000
There are much cheaper kind of socks, around 200won.
 
Sports shoes (produced in China)-4000
There are lots of different goods according to the qualities.
 
Headache specific- 10
 
Ballpointpen-300
pencil-100
The NK products cost 10 or 20 won
 
A note book-1000
There are price differences depending on the sizes of notebooks.
 
Land tax (per 4 sq. yds)-46
 
Exchange rate (a dollar)-3200
 
1 Yuan-148

Daily NK
Kim Min Se
1/26/2007

The “first-runners” are first-tier wholesalers who connect Chinese manufacturers and North Korean market owners in large cities such as Sinuiju, Hyesan, Hamheung or Chongjin. The goods transported by the first-runners to metropolitan markets in NK are met by second-runners in smaller cities.

South Pyongan province’s Pyongsong, Sunchon and Nampo are the hub for those second-runners, who move imported commodities to further deep into countryside of North and South Pyongan provinces and Hwanghae province.

Moon, a 38-year old shopkeeper in a market in Sunchon, South Pyongan, said “As soon as we hear the news that first-runners brought goods, we go to them with money right away. Since they run a huge amount of money, ordinary buyers can’t even meet them.”

Moon said that for second-runners including herself it took about half million NK wons (180 US dollars) to buy goods for one time. She buys merchandise from first-runners and sells it back to local storeowners.

For second-runners, it is crucial to procure enough high-quality goods with low price. If one buys bad products, he or she loses money. Same rule applies to first-runners.

Second-runners also hand over raw materials to manufacturers. The diminutive North Korean industry relies partly on them.

Chinese sugar and flour turn to bread and candy, and imported clothing materials are manufactured in home factories. Most of the manufacturers who buy raw materials from second-runners are individual handicraftsmen.

Lee, a clothing producer in Hamheung, sells her homemade clothes in market. Lee has had good relationship a number of second-runners, who trade Chinese fabric, so she can even buy stuff on credit.

Throughout the March of Tribulation in late 90s, North Korean people had depended on home industry for their basic necessities. And now it is estimated that significant amount of industrial products in North Korean markets are home-produced.

Those with little capital or without a stand in local market go to the most remote regions in high mountains or countryside and sell their handicrafts via train. Although it is not North Korean business slang, such activity can be classified as “third-running.”

The so-called “third-runners” trade their home-manufactured goods with country people’s corn, bean or rice, since it is rare to own a lot of cash in rural area.

In sum, once persecuted North Korean private markets are now reflecting every aspect of capitalist economy.

Daily NK
Kim Min Se
1/25/2007

Since 2002’s 7.1. economic reform measures, North Korea’s markets have become most vital part of peoples life. North Korean market system operates from ‘general market’ with huge process chain to small local ‘yard market’ in the remote countryside. And, in between, there are always some brokers.

An importer buys goods from China and transports them through cargo trains or trucks to large cities in North Korea, such as Hamheung, Chongjin, Pyongsung or Nampo. Wholesale traders take those products and resell to local businesspeople. In North Korean jargon, such process is called “running.”

Usually imported goods from China or North Korean domestic ones take three steps of circulation; one or two laps of ‘run’ is added in case of mountain area.

Wholesale is mostly carried out by cars. Since oil and vehicles are not enough, sometimes wholesalers rent cars by themselves.

A forty one-year old trader working in Dandong, China, Kim, said that he purchases goods from Chinese factories firsthand. If the amount of import is huge, Kim uses freight. If not, a few trucks are fine for him. At maximum, Kim bought 60 tons of texture from China at once and resold it to North Korean wholesaler in one month.

In Hyesan, Yangkang province, 38-year old Choi, a broker of mainly Chinese cloths and shoes, sells his stuff to nearby Chongjin. Choi told the Daily NK “There are two types of so-called running; first run and second run. “Running” requires a lot of capital like money for vehicles. So the person must be patient and cautious when buying and selling something.”

According to the interview with Kim, using vehicle in wholesale business takes from 3.5 million NK wons (roughly 1,000 US dollars) to 35 million wons. The money includes not only car rental but also “transportation permit” application fee. Transportation permit is required when vehicle and personnel move inter-province, and costs relatively large amount of cash.

Kim keeps about twenty percent of total sales as his profit. The other 80% is comprised of original price of goods, car tax, gasoline and multifarious types of ‘extra expenses,’ or bribe.

The “first run” business is apportioned to a few with privilege in North Korea. Those who can earn cooperation from Security Agency and police are able to do the first run. Without bribery, it is impossible to obtain various permits that are essential for any businessperson.

In addition, to trade with overseas Chinese merchants, one must possess enough wealth and credit. Credit enables North Korean businessmen to buy goods in China with comparatively low price. Those first runners are, in most cases, wealthy North Koreans with ten thousand US dollars cash on their hand at any moment.