Archive for the ‘Nuclear’ Category

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 sortcould potentially strike anywhere in Alaska.

With the latest launch, North Korea takes one step further along the nuclear side of the Byungjin lineof 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 developmenthelpseconomic 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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UNSC adopts new DPRK sanctions: UNSC Resolution 2270

Wednesday, March 2nd, 2016

UPDATE 7 (2016-3-24): The Daily NK reports that DPRK coal shipments are sitting in limbo outside of Chinese ports.

UPDATE 6 (2016-3-18): NPR discusses China’s interest in enforcing new sanctions:

Beijing has begun instructing Chinese banks, ports and shipping and trading companies doing business with North Korea to implement the U.N. resolution to the letter.

Adam Szubin, the Treasury Department’s acting undersecretary for terrorism and financial intelligence, tells NPR that China is taking this very seriously.

“I know from my meetings here in Beijing that my counterparts have very much taken the resolution to heart,” he says.

Szubin, who visited Beijing this week, says the new sanctions will hit hard enough to change Pyongyang’s “decision-making calculus.”

The new U.N. resolution is not just “adding a few new companies to a sanctions list or a few new North Korean officials,” Szubin says. Instead, it targets “every major aspect of North Korea’s access to international shipping, international banking [and] international trade to develop revenues for its missile and illicit nuclear programs.”

Although China appears committed, the sanctions put it in a tough spot.

First, says People’s University international relations expert Cheng Xiaohe, some Chinese companies are going to take a hit to their bottom line. China-North Korea trade was worth $6.86 billion in 2014.

“At the same time as we protect our national security interests, we must be prepared to sacrifice some of our own economic interests in order to accurately target North Korea with sanctions,” he says.

Cheng says the U.S. has its work cut out for it, collecting intelligence on the hundreds of Chinese firms doing business with North Korea, and on North Korean firms adept at concealing their business dealings behind fronts and shells.

And if Chinese firms are found to be violating the U.N. resolution, Cheng points out, they could themselves face sanctions.

“This could create new frictions between the U.S. and China,” he warns. “I hope that the U.S. will think carefully before it uses this big stick to crack down on Chinese firms.”

Cheng notes that China continues to supply North Korea with crude oil as humanitarian assistance. The sanctions allow this, even if North Korea may be able to refine some of the oil for military uses.

China says neither a humanitarian crisis nor regime collapse are acceptable outcomes for North Korea. But Zhang Liangui, a veteran North Korea watcher at China’s Central Party School in Beijing, says that at the end of the day, China cannot save North Korea from its fate.

“If North Korea is going to collapse,” he says, “no external force can prop it up. Frankly speaking, whether it collapses or continues to develop will mainly depend on its own domestic and foreign policies.”

UPDATE 5 (2016-3-15): According to UPI, the Philippines has searched a second DPRK ship.

UPDATE 4 (2016 3-10): Sanctioned North Korean ship, Gold Star 3, was turned away from Hong Kong port. According to Yonhap (via Korea Times):

Hong Kong has banned a North Korean freighter, which is blacklisted by new U.N. sanctions over the North’s latest nuclear test and rocket launch, from berthing at its port, a source with knowledge of the matter said Thursday.

The North Korean freighter Gold Star 3 arrived at the Hong Kong port on Wednesday to get fuel and supplies for its crew, but Hong Kong authorities did not allow the ship to dock at the port, the source said on the condition of anonymity.

The ship is among 31 vessels operated by a North Korean shipping company, Ocean Maritime Management, which is hit by the new U.N. sanctions.

For now, the ship is said to be staying in international waters, according to the source.

Media reports have said the Chinese port of Rizhao in the eastern Shandong province also barred another North Korean ship from docking at the port.

China has said it will “earnestly” implement the new U.N. sanctions, but the sanctions should not affect the well-being and humanitarian needs of North Korean people.

Still, China is unlikely to put crippling sanctions on North Korea because a sudden collapse of the regime could spark a refugee crisis at its border and lead to a pro-U.S., democratic Korea on its doorstep, analysts say.

UPDATE 3 (2016-3-6): North Korea ship impounded in Philippines. According to Yonhap:

A North Korean ship impounded in the Philippines last week was registered as being from Sierra Leone via a practice called flag of convenience, South Korea said Sunday.

Flag of convenience is a business practice of registering a merchant ship to a country other than its origin for the purposes of avoiding taxes and other regulations.

The Philippines seized the North Korean ship Jin Teng on Saturday, becoming the first country to enforce sanctions on the reclusive country since the United Nations Security Council passed a more comprehensive resolution last week.

Resolution 2270 subjects 31 ships belonging to North Korea’s Wonyang Shipping Corp. to an asset freeze and sanctions.

Despite being Sierra Leone-flagged, the Jin Teng was seized because the sanctions are imposed via the ship’s International Maritime Organization (IMO) number, not its country of origin, a South Korean official said.

Nine other ships on the list are registered as being from countries other than North Korea, including Tanzania and Cambodia, the official added.

Here is coverage in Xinhua.

UPDATE 2 (2016-3-4): Analysis of the sanctions by the European Council on Foreign Relations:

The case of sanctions against North Korea – where earlier resolutions were already adopted in 2006, 2009 and 2013 – provides a useful window into their efficiency and limits. All the more so because the debate on this latest round of sanctions has been long and hard (it has been nearly two months since the DPRK’s nuclear test of 6 January). As noted by ECFR’s Mathieu Duchâtel earlier this week, China and Russia have taken a big step towards tightening the noose around Pyongyang – by accepting to place limits on its external revenue, in areas that go much beyond the illicit activities directly targeted by the resolution. They have agreed to a ban on the export of coal, iron ore, rare earth and other minerals, as well as gold, and also to inspection of North Korean cargoes in other ports. The sanctions include North Korean diplomatic offices that harbour entities otherwise targeted by sanctions. All of these developments have the potential to be game changers. The fact that China – which received 90 percent of North Korea’s foreign trade given earlier sanctions – has agreed to the sanctions, certainly gives some indication of how vast the chasm between the Chinese and North Korean leadership is growing.

But more questions arise as a result of these sanctions, and on three different levels. Firstly, what are the limits of the resolution, secondly, how will it be implemented, and thirdly, what has been conceded or left out in order to secure this result at the United Nations Security Council.

The limits of these sanctions can be uncovered in the wording of the resolution itself. Almost all new sanctions can be overridden if the trade is being made for “humanitarian” or “livelihood purposes”. These exceptions only apply if they do not generate “revenue”, which would seem to reserve the provision of bona fide food or medical assistance. Alas, the resolution’s language appears to be contradictory in places. Point b of article 28 exempts trades which are “exclusively for livelihood purposes and unrelated to generating revenue for the DPRK’s nuclear or ballistic programs or other activities prohibited”. This clearly leaves the door open to other revenue streams. It is not clear whether the resolution will target North Korea’s export of indentured labour – not only in Russia, but in Poland and reportedly in Lithuania and Slovakia too. In these places there are North Korean workers remitting over 70 percent of their wages to the state – which leaves them with just $120 a month for living.

This loophole, along with the exclusion of oil imports from sanctions, has all the hallmarks of being imposed by China. There are many others too, such as the exclusion of coal re-exported from the port of Rason – a transit center for Mongolian coal towards Russia. Aviation fuel cannot be sold to North Korea but its planes can be fueled elsewhere on a return journey. North Korean financial institutions and firms elsewhere are subject to sanctions, with trade banned, but foreign firms already present in North Korea are not.

More important than these concerns is the undefined nature of “inspections” in foreign ports. In this respect, the US sanctions go much further by imposing checks on third parties. It will be interesting to see if the European Union, a champion of the “smart power” of sanctions, follows suit. Some, for example the French, who still suffer from the heavy fines imposed by the US on BNP Paribas because of its actions in Sudan, may beg to differ. In any case, the practical difficulties of checking, for example, on China’s immense export and re-export volume preclude an efficient implementation. What happens in Dandong, China’s notoriously opaque harbor that processes North Korea’s trade, is key. US sanctions will create moral hazard for traders, which is altogether a desirable but insufficient goal.

Which leads us to a third observation. The resolution has left a wide gamut of sanctions open to interpretation. In practice, these interpretations will be dictated by China, North Korea’s chief intermediary with the outside world. In some aspects, the resolution hands the key to North Korea’s economic fate to China, even if one might believe that North Korean diplomats are experts at circumventing restrictions, and creatively exploiting loopholes in “easy” third countries. After all, who will be checking the “humanitarian” nature of its relations with Namibia?

UPDATE 1 (2016-3-2):  Chinese banks halt transfer of yuan currency to N. Korean banks. According to Yonhap:

Chinese banks in the northern border city of Dandong have suspended the transfer of the yuan currency to North Korean banks, Chinese financial sector officials told Yonhap News Agency on Wednesday.

The move comes as the U.N. Security Council is set to vote on new sanctions against North Korea’s fourth nuclear test and rocket launch this year.

Employees of the Dandong branch offices of China’s top four state-owned banks, including Agricultural Bank of China and Industrial and Commercial Bank of China, as well as six commercial banks such as China Merchants Bank, told Yonhap that the suspension came after “orders” from their headquarters.

Since North Korea’s third nuclear test in 2013, the Dandong branches of the Chinese banks have halted the transfer of U.S. dollars to North Korean banks.

An employee of the Dandong branch of the Agricultural Bank of China said the order came down after North Korea’s fourth nuclear test in January.

Dandong is a border city between North Korea and China and a main conduit of bilateral trade between the two neighboring countries.

ORIGINAL POST (2016-3-2): According to the Washington Post:

The U.N. Security Council unanimously adopted harsh sanctions Wednesday against North Korea, imposing some of the strongest measures ever used to pressure Pyongyang to abandon its nuclear weapons program.

The new sanctions come two months after North Korea tested what it claimed was a hydrogen bomb and a month after it conducted what was widely described as a banned missile test under the guise of launching a satellite into space. But U.S. officials began drafting the measures three years ago, soon after North Korea conducted a previous nuclear test, in order to move swiftly the next time it happened. Negotiations to win China’s support began two days after North Korea’s January nuclear test, its fourth in a decade.

The resolution is far more sweeping than existing sanctions requiring a link to proliferation activities. That precondition has been removed, in effect erasing the presumption of innocence.

It mandates cargo inspections for all goods going in and out of North Korea by land, sea or air, chokes off supplies of most aviation fuel for its armed forces, and bans the sale of all small arms and conventional weapons to Pyongyang. It also prohibits transactions that raise hard cash for North Korea through sales of its natural resources.

The resolution doubles the blacklist of people and institutions already sanctioned and requires countries to expel North Korean diplomats involved in any sanctioned activities.

One provision was designed to prevent Pyongyang from sending taekwondo instructors to train foreign police forces. Another bars North Koreans from specialized training at any school or research center in the world if the learning can advance Pyongyang’s nuclear and ballistic missile programs.

President Obama welcomed the sanctions as a firm and appropriate response to North Korea’s attempts to develop weapons of mass destruction.

“Today, the international community, speaking with one voice, has sent Pyongyang a simple message: North Korea must abandon these dangerous programs and choose a better path for its people,” he said.

As soon as the sanctions were released, the Treasury Department and the State Department updated their blacklists of people and entities tied to the Democratic People’s Republic of Korea, the official name for North Korea, and its proliferation programs. The designation freezes their U.S. assets and bars Americans from doing business with them.

The U.N. sanctions, which target the country’s elites and avoid “adverse humanitarian consequences” for civilians, aim to accomplish what worked with less onerous sanctions on Iran by pushing the impoverished nation to quit pumping money into its nuclear program.

“The chronic suffering of the people of North Korea is the direct result of the choices made by the DPRK government, a government that has consistently prioritized its nuclear weapons and ballistic missile programs over providing for the most basic needs of its own people,” said Samantha Power, the U.S. ambassador to the United Nations.

“The North Korean government would rather grow its nuclear weapons program than grow its own children,” she added.

The resolution was presented by the United States with the support of China, a sharp reversal, given Beijing’s longtime support of its neighbor. Although the United States has long had an embargo on trade with North Korea, China has provided food and fuel and has been a key trading partner. In recent years, living conditions in North Korea have improved, thanks in large part to China.

In the past, China has been unwilling to tighten the screws on Pyongyang, in part out of concern for what an imploding, unstable North Korea might mean for China’s own border. But recently North Korea has continued testing new weapons and missiles, disregarding China’s warnings and personal envoys.

After North Korea on Jan. 6 detonated a new device — calling it a hydrogen bomb, although most experts say it was a smaller nuclear device — China’s ambassador to six-party talks, Wu Dawei, went to Pyongyang to urge restraint. Instead, North Korea announced while he was there that it would test a missile.

China’s about-face suggests it has started to realize that doing nothing would impose growing political costs internationally — the possibility of a greater U.S. presence in the region and weaker relations with South Korea, which Beijing has been cultivating.

“I expect there’s been a delayed recognition in China to the political price China was paying, with South Korea in particular, for its equivocation or outright silence about how to respond to North Korea and North Korea actions,” said Jonathan Pollack, a specialist on East Asian politics and security at the Brookings Institution.

During a visit to Washington last month, Chinese Foreign Minister Wang Yi hinted at the strains in policy toward North Korea.

“On the one hand, we’re saying to the international community . . . that the normal exchanges, especially those affecting the livelihoods of the North Korean people, should not be adversely affected,” he said at the Center for Strategic and International Studies. “On the other hand, in order to uphold the international nuclear nonproliferation regime for the sake of denuclearization, our exchanges will be affected to some extent.”

But some analysts question the depth of China’s commitment to the latest round of sanctions.

“The real question going forward is whether China will enforce the new measures,” said Victor Cha, a professor at Georgetown University. “My guess is that China will squeeze for a little bit, but not too hard, while the U.S. will want China to squeeze harder and for a longer period of time.”

Sung-Yoon Lee, a Korean studies professor at Tufts University, said the U.N. sanctions, even if violated in the future, will become increasingly meaningful if ordinary citizens in North Korea are adversely affected.

“The fact the U.N. is involved will lend greater legitimacy to the effort to sanction North Korea and enable others, like Japan and Europe, to shoulder some of the blame if there are negative repercussions from sanctions, so the blame doesn’t just fall on the shoulders of the United States,” he said.

Preparatory work on the sanctions began in early 2013, immediately after the Security Council passed a sanctions resolution in response to North Korea’s third nuclear test, according to a State Department official who spoke about the sensitive negotiations on the condition of anonymity. U.S. officials concluded that incrementally ratcheting up sanctions was insufficient and that more restrictive measures were needed, the official said.

As technical experts from many government agencies met to share ideas, a contingency draft of sanctions was repeatedly updated to be ready for a fourth nuclear test by North Korea.

On Jan. 8, two days after North Korea announced the fourth test, diplomats from the U.S. mission to the United Nations presented a draft to the Chinese mission. There was little response during January as China studied the proposed sanctions, which dropped requirements to prove proliferation links, as China had insisted on previously.

China did not change its position during a Jan. 27 visit to Beijing by Secretary of State John F. Kerry or during a Feb. 5 phone call that Obama placed to Chinese President Xi Jinping.

But after the Feb. 7 missile test, the State Department official said, the Chinese came around to the U.S. point of view. Throughout much of February, U.S. and Chinese diplomats met several times a day to discuss provisions that had to be approved by Beijing, the official said.

“At 8 or 9 at night, diplomats at the U.S. mission would schlep to the Chinese mission,” the State Department official said. Then they would meet again the next day after Beijing had worked through the provisions overnight.

After a tentative agreement was reached early last week, U.S. officials had hoped for a quick adoption by the Security Council. But there were delays while Russia studied the sanctions to gauge their impact. Russia transports coal over a short stretch of railroad in North Korea to a port, and Moscow wanted reassurances it would not be banned, the official said.

In recent days, North Korea has boasted that more sanctions would not hurt. Now China, South Korea, Japan and the United States are awaiting its reaction. Early Thursday, hours after the sanctions were approved, the North fired short-range projectiles into the sea, South Korea’s Defense Ministry said.

“We’ve seen its reckless and unpredictable acts for years,” Power said. “We’ve seen threats directed at the continental United States and the Republic of Korea. We’ve seen cyberattacks on American companies costing hundreds of millions of dollars. We do not expect a change of behavior overnight.”

Read the full story here:
U.N. adopts sweeping new sanctions on North Korea
Washington Post
Carol Morello and Steven Mufson
2016-3-2

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How bad is the Kaesong shutdown for the North Korean Economy?

Wednesday, February 10th, 2016

By Benjamin Katzeff Silberstein 

The Ministry of Unification in Seoul announced today that the industrial park in Kaesong be closed as a form of retaliation for North Korea’s recent rocket launch, alleging that funds from the park have been used to finance the north’s arms buildup. Wall Street Journal (with my emphasis):

A representative of South Korea’s Unification Ministry said that the move to shut down Kaesong was an effort by South Korea, “as a key party, to show leadership in taking part in these moves.”

Kaesong is an important source of income for Pyongyang. The regime received $120 million last year, and a total of $560 million since 2004, in workers’ wages directly from the South Korean side, according to the Unification Ministry. Those payments are made directly to the regime, which is then charged with paying the workers themselves, a system that critics say allows the regime to pocket most of the money.

“It appears that such funds have not been used to pave the way to peace as the international community had hoped, but rather to upgrade its nuclear weapons and long-range missiles,” the Unification Ministry said on Wednesday.

Naturally, this is bad news for the North Korean economy. But how bad exactly?

Here are a few other figures to give some sense of the proportions:

  • The volume of trade between North Korea and China only in the January-May period of last year totalled $1.1 billion, with North Korean exports accounting for $954 million.
  • Between January and November last year, the value of North Korea’s exports to China was $2.28 billion.
  • Textile exports to China from North Korea brought in around $800 million in 2014.
  • North Korean guest workers in China’s border provinces are estimated to be raising between $140-$170 million per year.

In the overall context, it seems like losses from the closure of Kaesong could be potentially bad, but not catastrophic.

 

 

Full reference to the Wall Street Journal article quoted above:
South Korea, Japan Take Steps to Penalize North Korea
Wall Street Journal 
Jonathan Cheng
02-10-2016

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North Korea considers nuclear test a driving force of economic development

Thursday, January 21st, 2016

Institute for Far Eastern Studies (IFES)

Following North Korea’s self-proclaimed hydrogen bomb test on January 6, 2016, which highlighted the fact that North Korea is a nuclear-armed state, daily mass rallies have been held in order to stimulate economic development and cement national unity. The Korean Worker’s Party (KWP) mouthpiece Rodong Sinmun proudly announced on January 8th that the fourth nuclear test had been a ‘success’. It has been reported that mass rallies were held in North Phyongan Province, Jagang Province, Kangwon Province, North Hamgyong Province, Ryanggang Province, Rason City, and other regions as part of the effort to continue building a strong and prosperous nation.

Each of these mass rallies included discussions on how to develop the economy so as to “achieve a golden age through the building of a strong and prosperous nation.” The purpose behind these daily mass rallies can be interpreted as both taking advantage of the opportunity provided by the nuclear test to strengthen solidarity of the people while also paving the way to maximize economic productivity ahead of the upcoming 7th Party Congress that is scheduled for May.

In fact, the North Korean media is asserting that the recent nuclear test was a measure to deter war in order to bring about a domestic economic revival. A front page editorial in the Rodong Sinmun encouraged the nation, saying “We will go full-speed ahead to raise North Korea’s human dignity, vigor, and glory, which are already well-known in the international community. With the success of our hydrogen bomb test as the main driving force, we will show off the mighty power of our nation, and we must aggressively take on the struggle of improving the lives of the people and building an economically strong nation.”

The Chosun Sinbo, which is the mouthpiece of Chongryon (the General Association of Korean Residents in Japan) serving as the representative for North Korea in Japan, emphasized that, “We must have a powerful deterrent to endless warfare in order to have a peaceful environment that will enable us to build up our economy. Focusing all of our efforts on building an economically powerful nation and creating a new paradigm shift in which to develop our economy and improve the lives of the people is the most important task of this year.”

Meanwhile, North Korea’s propaganda outlets are stating that food processing plants and other sectors are producing a flood of globally competitive products. North Korea’s propaganda website aimed at the outside world (Chosun Today) stated on January 7th that “Recently, many North Korean food processing plants have been modernizing their manufacturing processes to produce foodstuffs that meet global quality standards, actively contributing to the improvement of the living standards of the Korean people.”

The Sonhung Food Processing Plant was introduced as a model case example. According to North Korean media, the foods produced at this plant are all globally competitive goods, and the best products of the country. Although the plant has only been in operation for 10 years, the media claims that current annual net operating profits per employee are a staggering 350 times higher than those of their first year of operation, and the plant is known for this remarkable record-setting achievement.

These formidable efforts also encompass the development of approximately 90 health products with high nutritional value over the past four years, including healthy danmuk. The news outlets also boasted that nine North Korean factories have received ISO 22000 (food safety management system) certifications.

In addition, 60 products were registered as ‘February 2nd products’, and not long ago five food products, including fruit bread, coffee sweetener, and healthy danmuk, received ‘December 15th quality medals’.

Supreme Leader Kim Jong Un’s New Year’s Address emphasized “improving the lives of the people” and encouraged various factories to achieve success. The propagation of these successes through the North Korean media outlets demonstrates Kim Jong Un’s intentions of inspiring loyalty from the people through intensive efforts to increase the quality of their diets.

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Hydrogen bomb project may lead state to squeeze traders, some North Koreans worry

Friday, January 8th, 2016

By Benjamin Katzeff Silberstein

Daily NK today carries a piece where interviewed North Koreans express their annoyance at how the hydrogen bomb test disturbed economic activity, and how it may get worse in the future:

News of the recent test has also angered people, with some openly criticizing the nuclear program and pointing out that money should go into providing for the people instead. “Market vendors don’t care if it’s an atom bomb or a hydrogen bomb. Most of them say they just want to make a lot of money and live a quiet life,” the source said.

A different source in North Pyongan Province reported that most people who watched the announcement out of curiosity were neither surprised nor interested, noting, “But market donju (newly affluent middle class) are worried that having blown up a massive ‘dollar bomb’, Kim Jong Un will now have a gaping hole in his coffers, making things busier for them since they’ll have to offer up more funds.”

“Loyalty funds had swelled because of the greater stability in the markets, so recently there weren’t a lot of purges of donju, but now with all the money that they’ve spent, it looks like donju will be under pressure or persecuted more to make up for the funds that went into the hydrogen bomb test,” he explained.

“After the first three nuclear tests, prominent donju were purged on ‘anti-socialist’ charges and their assets confiscated by the state. The leadership is likely to tighten its grip on donju again to make up for its expenses.”

Read the full article:
Nuclear test draws different set of concerns from North Koreans
Seol Song Ah and Choi Song Min
DailyNK
2016-01-08

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Hydrogen bomb test will give economic boost, North Korean state media says

Friday, January 8th, 2016

By Benjamin Katzeff Silberstein

Today’s Rodong Sinmun carries an article hailing the (claimed) hydrogen bomb test as a step towards turning North Korea into an economic powerhouse, UPI reports:

Pyongyang’s state-controlled newspaper Rodong Sinmun published an article Friday that exalted North Korea’s military-first policy, stating, “The first successful hydrogen bomb test forcefully demonstrated the power of self-reliant [North Korea], [now] we must boldly struggle to build an economic powerhouse and to enhance the people’s livelihoods.”

North Korea stated the regime’s nuclear power has the capacity to strike “any strong enemy” and “seize absolute control.”

“A path has opened, where we can devote all our energies into building an economic powerhouse,” Pyongyang said in statement.

Read the full article:
North Korea hails hydrogen bomb test as path to economic power
Elizabeth Shim
UPI
2016-01-08

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North Korea’s H-Bomb Test: The (Impossible) Economic Context

Thursday, January 7th, 2016

By Benjamin Katzeff Silberstein

Who decides what in Pyongyang? Do fierce political battles rage between hardliners and reformers, where the former group struggles to replace nuclear belligerence with liberal market economics and trade? Whenever a purge or suspicious death occurs in Pyongyang, speculations come alive about potential policy changes by the regime.

It is a fool’s errand to make guesses about how North Korea’s claimed (but unlikely) hydrogen bomb test fits into the speculative dichotomy of modernizers versus conservatives. After all, such simple divisions are rare in the political life of any country. But looking at the test in the context of the past year makes it clear that Pyongyang is pursuing a messy mix of policies that are mutually exclusive.

At the same time as one “hand” of the regime attempts to draw foreign investment, diversify its investor base to include other countries than China, and take its industrial zones from plans to reality, the other “hand” is actively working against economic progress by nuclear tests and diplomatic belligerence. Either the left hand doesn’t know what the right hand is doing, or it does, but just doesn’t want it to succeed.

Perhaps this is the way that Byungjin – Kim Jong-un’s strategy of parallel development of nuclear weapons and the economy – was intended to work. (If so, the regime seems to be dedicating much more resources and energy to the nuclear part, while the economic one still mostly consists of words.) In any case, Pyongyang is trying to achieve two goals at the same time, and it isn’t working.

For example, in 2013, the North Korean regime announced the creation of over ten special economic zones, with more added in both 2014 and 2015. Progress has been uneven. Still, the North Korean regime has continuously indicated that the zones are a priority and will continue to be improved. Just in November last year, new regulations were announced for the special economic zones. Visitors and analysts report that elite businesses have been doing better and better in North Korea, and that the economic environment has become increasingly freer.

Whatever the list of Pyongyang’s priorities may look like, January 6th was not a good day for those North Koreans tasked with planning, building and administering the country’s special economic zones and projects. North Korea is already an unlikely destination for most foreign investors. Many low-wage competitors already sit relatively close by the country, such as Vietnam and Cambodia. North Korea’s comparative advantages are really quite few. Things are already difficult and the claimed H-bomb test certainly won’t help.

The international sanctions are just one part of the problem. Even with knowledge of what the current sanctions regime permits investors to do, the test is a stark reminder that legal hurdles will keep being added as nuclear and missile tests continue. This should deter any investor without special connections, political motives or a financial death wish. Not to mention the terrible PR and public criticism that would follow any (at least western) company deciding to invest in North Korea.

And then, there is of course the China factor. Sure, Beijing doesn’t comply with sanctions the way it is obligated to do. Moreover, as the Choson Exchange blog points out, North Korean and Chinese businesses tend to find a way to get around the sanctions. Last but not least, to a large extent, Chinese investment and cooperation with North Korea is a regional issue, with much of it driven by the northeastern border regions that depend on trade and exchange with the country.

But this doesn’t mean that Beijing won’t ever take concrete action felt by Pyongyang. China’s worries about North Korea’s nuclear tests are arguably more warranted than those of any other country. Residents in Yanji, a Chinese city on the North Korean border, even felt tremors from the bomb test, and teachers and students were reportedly evacuated from schools near the border. A trend is only a trend until it is no more. At the very least, events like the nuclear test don’t exactly make Chinese officials more prone to want to facilitate economic cooperation and infrastructure investments for North Korea.

It’s almost painful to think of all those hours spent in the North Korean administration, drawing up plans for new economic development zones and projects, new laws for investments and other institutional changes to improve the economy, only to see their colleagues in another part of government work in the opposite direction. If (and this is a big “if”) there are indeed policy factions in the government, with modernizers and conservatives, the latter have scored a victory on January 6th, at the expense of the former.

UPDATE 2015-01-07: James Pearson and Ju-Min Park at Reuters have done a very interesting overview (with Michael Madden of NK Leadership Watch) of the people behind North Korea’s nuclear program. It’s an important illustration of the fact that interest groups are not just a thing of business, but also of politics and ideas. Read it here.

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An Updated Summary of Energy Supply and Demand in the Democratic People’s Republic Of Korea (DPRK)

Tuesday, April 15th, 2014

The Nautilus Institute has published a report on energy supply in the DPRK by David F. von Hippel and Peter Hayes. You can read it here.

Here is a small section of the paper:

Overall energy use per capita in the DPRK as of 1990 was relatively high, primarily due to inefficient use of fuels and reliance on coal. Coal is more difficult to use with high efficiency than oil products or gas. Based on our estimates, primary commercial energy[19] use in the DPRK in 1990 was approximately 70 GJ per capita, approximately three times the per capita commercial energy use in China in 1990, and somewhat over 50 percent of the 1990 per capita energy consumption in Japan (where 1990 GDP per-capita was some ten to twenty times higher than the DPRK). This sub-section provides a brief sketch of the DPRK energy sector, and some of its problems. Much more detailed reviews/estimates of energy demand and supply in the DPRK in 1990, 1996, and particularly in 2000, 2005, and 2008 through 2010, are provided in later chapters of this report.

The industrial sector is the largest consumer of all commercial fuels—particularly coal—in the DPRK. The transport sector consumes a substantial fraction of the oil products used in the country. Most transport energy use is for freight transport; the use of personal transport in the DPRK is very limited. The residential sector is a large user of coal and (in rural areas, though more recently, reportedly, in urban and peri-urban areas as well) biomass fuels. The military sector (by our estimates) consumes an important share of the refined oil products used in the country. The public/commercial and services sectors in the DPRK consume much smaller shares of fuels supplies in the DPRK than they do in industrialized countries, due primarily to the minimal development of the commercial sector in North Korea. Wood and crop wastes are used as fuels in the agricultural sector, and probably in some industrial subsectors as well.

Key energy-sector problems in the DPRK include:

*Inefficient and/or decaying infrastructure: Much of the energy-using infrastructure in the DPRK is reportedly (and visibly, to visitors to the country) antiquated and/or poorly maintained. Buildings apparently lack significant, and often any, insulation, and the heating circuits in residential and other buildings for the most part apparently cannot be controlled by residents. Industrial facilities are likewise either aging or based on outdated technology, and often (particularly in recent years) are operated at less-than-optimal capacities (from an energy-efficiency point of view).

*Suppressed and latent demand for energy services: Lack of fuels in many sectors of the DPRK economy has apparently caused demand for energy services to go unmet. Electricity outages are one obvious source of unmet demand, but there are also reports, for example, that portions of the DPRK fishing fleet have been idled for lack of diesel fuel. Residential heating is reportedly restricted in the winter (and some observers report that some public-sector and residential buildings have not received heat at all in recent years) to conserve fuel, resulting in uncomfortably cool inside temperatures.

The problem posed by suppressed and latent demand for energy services is that when and if supply constraints are removed there is likely to be a surge in energy (probably particularly electricity) use, as residents, industries, and other consumers of fuels increase their use of energy services toward desired levels. (This is a further argument, as elaborated later in this report, for making every effort to improve the efficiency of energy use in all sectors of the DPRK economy as restraints on energy supplies are reduced.)

*Lack of energy product markets: Compounding the risk of a surge in the use of energy services is the virtual lack of energy product markets in the DPRK. Without fuel pricing reforms, there will be few incentives for households and other energy users to adopt energy efficiency measures or otherwise control their fuels consumption. Recent years have seen limited attempts by the DPRK government to reform markets for energy products. Some private markets exist for local products like firewood, and some commercial fuels have in recent years reportedly been traded “unofficially” (on the black market), but for the most part, energy commodity markets in the DPRK essentially do not exist[20]. Energy consumers are also unlikely, without a massive and well-coordinated program of education about energy use and energy efficiency, to have the technical know-how to choose and make good use of energy efficiency technologies, even when and if such technologies are made available.

The DPRK’s energy sector needs are vast, and at the same time, as indicated by the only partial listing of problems many of these needs are sufficiently interconnected as to be particularly daunting to address. The DPRK’s energy sector needs include rebuilding/replacement of many of its power generation and almost all of its substation equipment, repair, replacement, and/or improvement of coal mine production equipment and safety systems, updating of oil refineries, improvement or replacement of most if its energy-using equipment, including coal-fired boilers, electric motors and drives, transport systems, and many other items, modernization of energy use throughout the country, rebuilding of the DPRK forest stocks, and a host of other needs. As one example of the interrelations of energy problems in the DPRK, renovating the DPRK’s coal mining sector is made more difficult because coal mines lack electricity due to electricity sector problems, and electricity generators in some cases have insufficient coal to supply power demand because of coal mine problems and problems with transporting coal to power plants.

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China releases document on trade restrictions with DPRK

Tuesday, September 24th, 2013

…although I cannot find a copy of it anywhere.  It is probably being sent around in PDF form and only available in Chinese.

According to the New York Times:

In a sign of growing concern about North Korea’s nuclear ambitions, China published a long list on Tuesday of equipment and chemical substances to be banned from export to North Korea for fear they could be used in adding to its increasingly sophisticated nuclear weapons programs.

If put into place, the export controls would be some of the strongest steps taken by China, the North’s closest ally, to try to limit the country’s nuclear programs. The announcement indicates that China is now following through on some United Nations Security Council sanctions it approved months ago, according to a noted American arms expert.

The list of banned items was released amid a flurry of reports suggesting that North Korea is accelerating its two nuclear weapons programs. Two weeks ago, new satellite photographs showed that North Korea might be resuming production of plutonium at its newly reconstructed nuclear reactor at Yongbyon. And this week, two American arms experts reported that North Korea appeared to have learned to produce its own crucial components for uranium enrichment.

The move also comes less than a week after China made an unsuccessful attempt to revive talks aimed at persuading the North to give up its nuclear capabilities. The United States continues to resist restarting the talks, which North Korea has used in the past to extract concessions without making long-term changes to its nuclear program.

“The release of the new export control list is a signal China is concerned about the speeding up of weaponization” of North Korea’s nuclear capabilities, said Zhu Feng, the deputy director of the Center for International and Strategic Studies at Beijing University, who called the move “very important.” In particular, he said, the Chinese are concerned about resumption of plutonium production at the Yongbyon complex, the centerpiece of North Korea’s nuclear program.

Another Chinese expert on North Korea, who declined to be identified because of his position in the government, said the publication of the list “says that China is increasingly unsatisfied with North Korea’s actions.”

“This is one of the practical actions to show it,” he said.

Both plutonium and highly enriched uranium can be used in nuclear bombs, but analysts say the North’s plutonium program is much further along. At least two of the three bombs the country has tested used plutonium.

China has long resisted punishing North Korea for its nuclear programs, but has appeared increasingly frustrated as the North’s young leader, Kim Jong-un, has appeared to ignore Chinese pleas for moderation. China agreed to the United Nations sanctions after the North conducted a nuclear test this year over Chinese objections.

The North responded to the sanctions with months of nuclear threats against South Korea and the United States, which, analysts say, ended only after China exerted strong pressure, apparently fearful of instability that could harm its economic progress.

David Albright, the American expert who said China was now implementing the United Nations sanctions passed in March, added that the Chinese ban “will help, since North Korea procures so much from China.” Mr. Albright, the president of the Institute for Science and International Security, added that China could take additional measures to “dramatically increase the inspection of goods into North Korea by road and rail.”

China has moved before to stop the export of other technologies that could be used in nuclear programs, including missile technology, though it did not single out any countries when it did so.

The items on the list China released Tuesday were called “dual-use technologies” because they can be used for either civilian or military purposes, and they included items that could be used to build more chemical weapons and to make biological weapons.

Banned items include Ebola, a virus that can be used for medical research as well as a biological weapon; nickel powder; radium; flash X-ray generators; and microwave antennas designed to accelerate ions. China’s Commerce Ministry, the Ministry of Industry and Information Technology, the General Administration of Customs, and the Atomic Energy Authority jointly published the list.

In a statement, the Ministry of Commerce said the items in the 236-page document were prohibited from being sent to North Korea because “the dual-use products and technologies delineated in this list have uses in weapons of mass destruction.”

Reuters also adds:

Released by the commerce ministry along with the Ministry of Industry and Information Technology and the China Atomic Energy Authority, the document describes items that could be used to build nuclear and chemical weapons, as well as technology that could build and fuel nuclear reactors.

Yonhap adds:

The ban took effect on Monday (September 23).

Read the full stories here:
China Bans Items for Export to North Korea, Fearing Their Use in Weapons
New York Times
Jane Perlez
2013-9-24

China releases list of goods banned from export to North Korea
Reuters
Megha Rajagopalan
2013-9-23

China issues long list of banned items for exports to N. Korea
Yonhap
2013-9-24

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Concentration on economic construction based on nuclear deterrance

Thursday, May 9th, 2013

Institute for Far Eastern Studies (IFES)
2013-5-9

The official mouthpiece of the (North) Korean Worker’s Party, Rodong Sinmun, claimed on May 3, 2013 that the key to rapid economic growth was to concentrate on economic construction based on the country’s foundation as a powerful nuclear state and obtaining a powerful nuclear deterrent.

On the same day, it ran an editorial entitled “Our Party Line of Economic Construction and Nuclear Weapons Development Is Permanent”, which claimed that “as demonstrated throughout history, the greatest path to economic construction is developing a reliable nuclear deterrent.”

While this is a restatement of the nuclear weapons development and economic construction plan adopted on March 31 at a plenary session of the Party’s Central Committee, it also indicates that in the future North Korea may focus on capital investment in the economic sector.

The editorial mentioned the importance of developing the nuclear energy industry, uranium resources, and the knowledge and skills of North Korea’s nuclear technicians. It also mentioned that “Kim Il Sung and Kim Jong Il provided us with a robust nuclear energy industry and we possess both inexhaustible supplies of uranium and world-renowned nuclear technicians.” The article also claimed that “the Party’s policy is based on our sovereign right to nuclear power and while developing nuclear weapons, the Party aims to address the issue of insufficient electric power.” This can be seen as an indication that North Korea intends to make use of its nuclear technology in solving its electricity woes.

In respect to the current political situation on the Korean peninsula, the editorial commented, “the current state of affairs in the future is dependent on the attitudes of the enemy that could take a turn toward a nuclear war or appeasement.” It denounced the United States, saying that “whether it adopts a hard line or appeasement policy, its nefarious attitude toward our republic, contriving the collapse of the regime remains unchanged.”

It claimed the only solution to alleviate the tension on the Korean peninsula and to improve relations with the South was through reinforcement of nuclear power and economy which can “ultimately terminate the schemes of the external powers and accelerate our nation’s long-cherished wish of national reunification.”

The principle of self-reliance was named as the imperative strategy to engender major revolution and growth and encouraged “all sectors, ranging from the Workers’ Party to business administration, education, literature and arts, must establish innovative and effective ways that meet the realistic demands of development and overcome schemas and rigidity.”

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