Archive for the ‘General markets (FMR: Farmers Market)’ Category

North Korean government continues to strengthen market control

Friday, November 13th, 2020

By Benjamin Katzeff Silberstein

The trend continues, Daily NK reports, as the government apparently is strengthening direct Party control over the market system, all in line with the broader policy trend of stronger government control over the economy under Kim Jong-un. As I’ve pointed out in many previous posts and articles, stronger control doesn’t necessarily mean repression of market activity per se, but rather, the ability to more closely manage, direct and not least better tax market activity. This news reports suggests that that’s the case for this recent order as well (see my emphasis in bold):

North Korea recently crafted new market management regulations to give the Workers’ Party greater involvement in and control over markets, handing down orders to this effect to regional administrative organizations and market management offices.

A source in North Hamgyong Province told Daily NK on Tuesday that a written order entitled “Cabinet Decision on the New Market Management and Operation Regulations” was handed to the commercial departments of the provincial people’s committees and market management offices.

The new regulations were decided upon during an extended plenary meeting of the Cabinet on Oct. 19. Provincial people’s committees nationwide received copies of that decision one day in advance.

According to the source, who spoke on condition of anonymity, the new order calls for the establishment of a system where local provincial, municipal and county people’s committees manage the creation and dissolution of markets, with the commercial departments of the provincial people’s committees ultimately making reports to the Cabinet and the Central Committee’s Organization and Guidance Department. These changes ultimately broaden the ability of the Central Committee to monitor and exert control over the entire civilian economy.

In the past, only the commercial departments of people’s committees – which are administrative organizations – were involved in running the markets; party organizations had little to do with them. With the regulation changes, however, markets have now come under party management and control, according to the source.

The state appears to be trying a new tack with these regulation changes, the source said. According to him, North Korean authorities are “moving towards a system of direct management and control of markets nationwide through the Central Committee.” In the past, by contrast, the markets were managed and controlled by provincial people’s committees.

The order also encouraged local North Korean authorities to open new markets as needed so that they can “involve themselves in helping improve the lives of the people while also exercising control.” 

The order further instructed the commercial departments of people’s committees – in consultation with the Workers’ Party – to set the opening and closing times of markets according to the “time period” (season) and the “conditions” of each province, city and county, rather than making opening and closing times uniform across the country. It also ordered that fees on imported goods be increased.

The order directed people’s committees to regulate products in the markets while, at the same time, expand the list of goods available and – in consultation with party committees – set maximum and minimum prices. It further called for the promulgation and establishment of a system to fine those caught distributing goods at prices higher than those set by the state.

The order included a directive to restructure market use fees or payments to the state in accordance with the size of the markets or “distribution of urban populations,” and include these new fees and payments in “budget implementation.”

“The state’s new market management and operation regulations are still unknown to the general populace,” said the source, who further claimed that, “[The new orders] call for overlapping control of the markets and aim to raise market fees and other financial burdens, so they [ultimately] put ordinary people at a disadvantage.”

(Source: Kim Yoo Jin, “North Korea increases Workers’ Party control over markets,” Daily NK, November 6th, 2020.)

That is, the government wants market activity to be vigorous and rules and regulations to conform to what people actually want and need — but all under its own auspices.

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The Pyongyang General Hospital and Kim Jong Un’s “Benevolent Dictator” Economics

Tuesday, July 21st, 2020

By: Benjamin Katzeff Silberstein 

On Monday (July 20th), Kim Jong Un visited the construction site for the Pyongyang General Hospital and unleashed some rather scathing criticism against the management of the project. An excerpt from KCNA:

Noting that it is making a serious digression from the Party’s policy in supplying equipment and materials to go against the intention of the Party which initiated the construction for the people and mapped out its operation, he severely rebuked it for burdening the people by encouraging all kinds of “assistance”.

Saying that the construction coordination commission failed to solve all the problems in conformity with the Party’s policy line, he said in the strong terms that if such situation is left to go on, the noble plan and intention of the Party which initiated the glorious and worthwhile construction for the good of the people could be distorted and the image of the Party be tarnished.

He instructed the relevant departments of the Party Central Committee to investigate the performance of the construction coordination commission as a whole and replace all the officials responsible and make strict referral of them.

Pointing out that though the construction work of the hospital was being pushed ahead thanks to the patriotic zeal and devoted efforts of the builders […].

(Source: “Supreme Leader Kim Jong Un Gives Field Guidance to Pyongyang General Hospital under Construction,” Korean Central News Agency, July 20th, 2020.)

The Pyongyang General Hospital project was destined for hurdles from the very beginning, as this article explores. Kim has personally emphasized how central it is to finish hospital construction by the deadline of October 10th this year, when the Korean Worker’s Party will celebrate its 75th anniversary.

With such time pressure for construction, worksite conditions were always going to be problematic. The politically motivated deadline, moreover, increases the risk of shoddy construction work. Rather than serve the general public at large, the hospital, whenever finished, is likelier to cater to the sociopolitical elite who can pay their way and, perhaps, to medical tourism.

Kim’s criticism against construction officials, however, is about much more than the hospital construction project itself. It relates to the very structure of the North Korean system, and of communist economies in general. This sort of criticism really is a standard performance in a decades-old genre, where the supreme leader shows himself to be on the side of the people by pinning the blame for any problems and suffering among the population on lower-ranking officials.

Kim’s public criticism of the construction management officials is, in other words, not exceptional, but a standard mechanism and a feature of North Korea’s economic system. Much in North Korean governance may be subject to dynamic change, but the one constant is that the leader can hardly ever be at fault.* To hold this constant, someone else must be blamed when economic plans don’t go the way they should. Never mind that the leader often rules by directives that are often vague and given in off-the-cuff-statements, left to subordinates to interpret and implement as best as they can. Problems like this are almost inevitable in an economy like North Korea’s, still in structure very much a command economy despite significant relaxations over the past few decades.

Thus, when the Soviet Union’s industrialization plan didn’t proceed as intended, it had to be the fault of wreckers working for foreign powers. Stalin himself could never be at fault. In the same way, it cannot, by definition, be Kim’s fault that people are overburdened with requests for “assistance” to help build the hospital. Lower-level bureaucrats have to be the ones to blame, for overburdening the people, because the leader can never be associated with direct pain and suffering in people’s daily lives.

In fact, such “assistance” – often termed “voluntary” – is a mainstay of the North Korean economic system and pretty much has been ever since the beginning. Kim surely cannot have missed the pictures and news reports in his own state media about “active support” from “the people”, and different localities sending construction materials. This sort of “voluntary labor” to gather materials for state projects or work on construction sites is of course not voluntary at all, as staying away would be punishable.

It is a facet of everyday life in North Korea that doesn’t get nearly the attention it deserves, as it often takes up a substantial number of hours. It is also not a new phenomena. The North Korean state has always demanded such “voluntary” contributions from the people to make up for materials and labor that the state cannot produce. Naturally, officials will use whatever means required to make their deliveries, even if these means are forcible. This applies to financial assets as well. The wealthier the trading middle class grows, the more the state will subject them to loyalty payments and the like.

In North Korea’s current situation, what choice does Kim really have but to blame lower officials for failures, and admonish them to do better? The Pyongyang General Hospital is not the only grandiose, heavily publicized project that is doing poorly. The Wonsan-Kalma resort has also been plagued by shortages and delays. The government needs these projects not least for propaganda value, to show to the country that although difficulties abound, all is not hopeless, the economy is still making progress, and people’s living standards will improve. So when none of the projects carrying this message are working out, the government has a problem.

In normal times, the state could have dismantled more economic regulations to make it easier for people to conduct trade and private economic activity. Indeed, though it is difficult to quantify, the state giving room for market mechanisms has been the most important factor for the significant improvements in the North Korean economy over the past few years.

Right now, this is difficult to do, because the state needs to extract more resources, not fewer. Over the past few years, the state has grown increasingly short of foreign currency and other assets, first because of sanctions, and later because of the Covid-19 border shutdown (which has partially ended). As a result, we’ve seen the state cracking down more and more on private business and market actors, to bring in resources as other avenues dry up.

The more difficult things get for the North Korean economy, the more demands increase for “loyalty payments” from private citizens, to fund the mega-projects that Kim has staked so much credibility on. We can expect to see more officials lose their jobs in the future in the same manner as those who got axed after Kim’s hospital construction field guidance.

 

*Such self-criticism does of course happen, but its rarity is attested to by the fact that it (rightfully) makes news headlines. One recent example is Kim Jong Un’s 2017 New Year’s Address.

 

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What explains North Korea’s puzzling price stability?

Friday, July 17th, 2020

By Benjamin Katzeff Silberstein

Looking at the latest market price data from North Korea, things do not look like external conditions dictate that they should. Food prices are…low. Very low. In fact, for the July 1st price report, the average rice price for the three North Korean cities was the lowest on record since April 2019. Gasoline prices haven’t been this low since June of 2018. (Click for larger graphs.)

Average rice prices for Pyongyang, Sinuiju, and Hyesan. Data source: Daily NK.

Average gas prices for Pyongyang, Sinuiju, and Hyesan. Data source: Daily NK.

 

By themselves, these prices are not so surprising. Prices generally fluctuate with seasonal variation, in North Korea as everywhere else. Both gas and rice prices tend to drop around this time of year, at least over the past few years.

But there is nothing normal about 2020. In addition to harsh sanctions, Covid-19 has made almost everything more difficult to acquire from abroad, from fertilizer and food, to machine parts for industry. So these lower prices are puzzling, in a way because they would seem to indicate stability and normalcy at a time when there is nothing stabile and normal about the situation.

There are (at least) two possible explanations:

One is that North Korea’s external conditions are indeed steadily improving, and returning to some sort of normalcy. Strong signs suggest that trade between North Korea and China is picking back up, as relations deteriorate between the US and China and the North Korean issue becomes less and less central on the global stage. As Daily NK has reported, North Korea has been importing items such as construction materials and food from China, both in June and July. Gas prices, moreover, may partially be untouched by Covid-19 because much of the trade goes through a pipeline near Dandong.

Another possibility is that prices are going down because people simply cannot afford higher prices. This report on train ticket prices is perhaps instructive. In the words of one source inside North Korea: “Despite the fall in the number of train passengers, [black market vendors] seem to believe that raising prices would [make it harder to sell tickets],” the source said. “In other words, you could say that a ‘market price’ [for tickets] has appeared that train riders are willing to accept.” In other words, if consumers on a given market have a reservation prices – the highest price they’re willing to pay – underneath what sellers would really charge given the supply at hand, sellers can either cut down on their profit or minimize their losses by selling at a lower prices than those dictated by economic conditions.

As always, information is in short supply, and these market prices raise more questions than they answer.

Update, 23/7/2020:

Part of what’s so puzzling about all this is that reports keep suggesting that the regime is cracking down continuously and with growing vigor against cross-border smuggling and the like. According to this report by Daily NK, Pyongyang recently ordered provincial authorities to intensify their border monitoring.

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What to make of the panic buying in Pyongyang and beyond

Sunday, May 10th, 2020

By: Benjamin Katzeff Silberstein

There’s been a few reports over the past few weeks about panic buying in Pyongyang, particularly of imported goods. The foremost reason appears to be the government’s restrictions of imports, aside from essential goods (whatever these are). A quick thought:

On the one hand, on a closer reading beyond the term “panic buying”, it’s apparent that we aren’t really talking about fundamental, daily necessities for the most part, but about imported items such as batteries and certain vegetables. When we monitor economic developments for social stability, such analyses tend to focus on items like rice and, at least in countries other than North Korea, fuel, and not least the stability of the currency. So it may not matter all that much if people in a northern province cannot buy lighters imported from China, or if Pyongyangites can’t buy imported pepper and other non-staple goods. (As you will see in one of the articles below, Daily NK has not heard reports of panic buying in Hyesan at all.)

At the same time, however, these imported goods are quite essential in the everyday lives of many people. We don’t know how much of imported goods the average person consumes, and I suspect it’d differ greatly between provinces. Since at least a significant proportion of the population consumes imported goods on a regular basis, these difficulties in acquiring items imported from China would in many cases cause great annoyance and, in others, disrupt production processes of firms and industries, although some exceptions are granted for “essential” items. Who determines what’s essential is likely hinges on political and economic clout, and it certainly won’t be the mom-and-pop-shops of the backstreet markets.

I’ve gathered a few related articles here. AP wrote about the topic on May 7th, 2020, with intelligence sources in Seoul confirming the news:

The NIS said it cannot rule out a virus outbreak in North Korea because traffic along the China-North Korea border was active before the North closed crossings in January to try to stop the spread of the virus, according to the lawmaker.

The NIS declined to confirm Kim’s comments in line with its practice of not commenting on information it provides to lawmakers. Kim did not discuss how the NIS obtained its information.

Last Friday, Kim Jong Un ended his 20-day public absence when he appeared at a ceremony marking the completion of a fertilizer factory near Pyongyang. His time away triggered rumors about his health and worries about the future of his country.

The NIS repeated a South Korean government assessment that Kim remained in charge of state affairs even during his absence. His visit to the factory was aimed at showing his resolve to address public livelihood problems and inject people with confidence, Kim Byung Kee cited the NIS as saying.

The NIS said the virus pandemic is hurting North Korea’s economy, mainly because of the border closure with China, its biggest trading partner and aid provider. China accounts for about 90% of North Korea’s external trade flow.

The trade volume between North Korea and China in the first quarter of this year was $230 million, a 55% decline from the same period last year. In March, the bilateral trade volume suffered a 91% drop, the NIS was quoted as saying.

This led to the prices of imported foodstuffs such as sugar and seasonings skyrocketing, Kim Byung Kee quoted the spy agency as saying. He said the NIS also told lawmakers that residents in Pyongyang, the capital, recently rushed to department stores and other shops to stock up on daily necessities and waited in long lines.

The NIS said prices in North Korea “are being stabilized a little bit” after authorities clamped down on people cornering the market, Kim said in a televised briefing.

(Source: “Seoul reports panic buying in N. Korea amid economic woes,” AP/Mainichi, May 7, 2020.)

NK News was one of the first outlets to cover the topic, in an article on April 22nd:

“Panic buying” sprees have been spotted taking place in some of Pyongyang’s stores and groceries since Monday, multiple informed sources told NK News, resulting in increasingly empty shelves and a growing shortage of key staples.

It’s unclear what’s led to the sudden surge in demand, with one source describing empty shelves and a sudden absence of staples like vegetables, flour, and sugar.

Locals have been buying “whatever is there,” one expat said, saying that “you can hardly get in” to some stores.

Both the expat and another person in Pyongyang said the surge was particularly notable on Wednesday.

Another source said large groups of locals were seen buying big amounts of mostly-imported products in some grocery stores, resulting in abrupt shortages.

(Source: Chad O’Carroll, “North Koreans “panic buying” at Pyongyang shops, sources say,” NK News, April 22nd, 2020.)

Daily NK, of course, has reported extensively on the topic, from both Pyongyang and the provinces. Imported goods are not only consumed in Pyongyang:

“The prices of Chinese goods have risen sharply in markets across the province, including the Yonbong and Wuiyon markets in Hyesan,” a Ryanggang Province-based source told Daily NK on Apr. 28.

According to the source, the price surge has mainly affected Chinese products, including daily necessities such as sugar, flour, and other cooking products.

For example, the price of Chinese seasoning has increased fourfold to a KPW 40,000 (around USD 6). Flour, rice and other grain prices have also increased. Two weeks ago, imported Chinese rice was being sold at KPW 4,400 per kilogram but is now being sold at KPW 5,500.

The price hikes have not just affected food. Chinese cigarettes have also increased in price: a box of Chinese-made Chang Baishan cigarette packs, for example, which used to cost KPW 12,000, is now KPW 17,000.

“Even Chinese lighters, which usually cost around KPW 700, have seen a price hike of nearly threefold and now cost KPW 2,000,” the Hyesan-based source added.

The main reason for these price surges is the halt in Sino-North Korean trade following the closure of the North Korean-Chinese border in late January. The effects of the steep fall in Sino-North Korean trade were made clear in recent data published by China’s General Administration of Customs. According to this data, Chinese-North Korean trade in March dropped by 91.3% compared to the same period last year to just USD 18.64 million.

“Just two weeks ago merchants were feeling more optimistic given the improved situation in China. Now, they’ve lowered their expectations quite a bit,” the Hyesan-based source told Daily NK, adding, “Prices are rising because business people are intentionally sitting on their stocks with the hope that prices will increase even more.”

[…]

Meanwhile, Daily NK is unaware of any reports of panic buying in Hyesan [emphasis added].

(Source: Kang Mi Jin, “Ryanggang Province witnesses price spikes,” Daily NK, April 30th, 2020.)

And, more recently, a report from Pyongyang:

“There are a lot of ordinary stores that have closed or are unable to sell anything because they have no stock left,” a Pyongyang-based source told Daily NK on Apr. 30. “Right now 100 grams of imported pepper costs KPW 40,000, 450 to 500 grams of MSG costs KPW 48,000 and sugar can’t be found at all.”

PRICE SPIKES

The prices of imported food items nearly doubled after Apr. 17, when the North Korean government announced restrictions on imported goods deemed “unnecessary” for the North Korean economy. Prices began to rise rapidly once more before the publishing of this article in Korean on May 1.

According to Daily NK’s Pyongyang source, the price of imported pepper was just KPW 8,000 per 100 grams before the announcement, but doubled to KPW 16,000 after the decision was released. Now, the price has reportedly risen to KPW 40,000.

“The price of watch batteries and other small batteries for common household appliances like remote controllers for TVs have tripled or quadrupled,” the source further reported. “The price of batteries had remained stable even after the announcement, but several days ago it started to rise suddenly. The spike is probably because so many people began hoarding them.”

Although the price of batteries has risen to an unprecedented degree, Pyongyang residents reportedly continue to buy them in bulk, in boxes of 50, and as much as 10 boxes at a time. The hoarding is likely due to concerns that the price will only continue to rise and that soon there may not be any batteries left to buy.

“Many of the electronics stores throughout the city have closed down,” the source said, adding, “Stores that still have stock have closed perhaps because of rumors that Chinese products will no longer enter the country.”

In short, the source’s report suggests that state-run electronics stores, which command 20% of the market, have no stock left, while privately-run stores that take up the remaining 80% of the market have closed up despite still having stock on hand.

Based on the source’s report, owners of privately-run stores may have closed down their shops with the intent to sell their goods at prices even higher than they are now. The owners are likely under the belief that the recent import restrictions announcement means that various electronics accessories will no longer enter the country from China for some time.

(Source: Ha Yoon Ah, “Pyongyangites continue to hoard as prices keep rising,” Daily NK, May 4th, 2020.)

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North Korea strengthens internal travel restrictions to keep the coronavirus in check

Friday, February 28th, 2020

By: Benjamin Katzeff Silberstein

Daily NK  has reported on the travel restrictions inside the county before, as this blog has covered here and here. This recent report goes into greater detail:

“The No. 2 departments in local Ministry of People’s Security [MPS] offices are placing further restrictions on the issuing of travel documents, and the authorities are cracking down on vans shuttling people around for money,” a Kangwon Province-based source told Daily NK today.

“No. 10 sentry posts [managed by the Ministry of State Security, or MSS] are cracking down on buses and other vehicles moving people. Even local police stations have setup temporary checkpoints to conduct crack downs on vehicles transporting people,” the source added.

It seems like we’re not talking about a blanket ban on travel across provincial borders per se. Rather, the state is banning and heavily restricting certain forms of transportation, especially unauthorized kinds (which otherwise are often  tacitly tolerated, not least through institutionalized bribery). This, too, impacts market trade since the transportation sector is crucial to shuttling goods around the country.

The authorities are thoroughly preventing any vehicles or people from transiting from the border region to the interior of the country and the other way around, sources told Daily NK.

Sources said that anyone who has entered the country from abroad but doesn’t have a document certifying they have been tested for the coronavirus are restricted from travelling. Merchants without proper travel documentation are also reportedly being targeted by the authorities. Even work units involved in construction projects are being restricted from moving around, sources said.

[…]

No. 2 departments in local MPS offices are restricting the issuance of travel documents to everyone unless they are on government orders, Daily NK sources further reported.

Even factory officials who need to travel to other places of the country to collect raw materials have been told to wait until “later” (after the COVID-19 crisis passes over), sources said.

The authorities are also carefully checking container trucks and the baggage compartments of buses for people hitching a ride in these hidden spaces, they added.

There are gaps, however, in the lock down on travel that the authorities are trying to implement.

“Some vehicles, including taxis, are cleverly selecting routes to avoid checkpoints,” the Kangwon Province-based source said.

“People are wearing masks just to avoid getting stopped by the authorities,” he added.

The border regions are of course especially targeted. The state knows it cannot fully close the border shut and thus needs internal controls to be forceful. The mention of certification of testing is interesting and implies that there are ways individuals can take action to test themselves. Perhaps it refers to the medical test teams reportedly dispatched to the border to China.

“There are a lot of ‘storm troopers’ in Kangwon Province who hail from all over the country, which means there’s a lot of people moving around,” the Kangwon Province-based source said. “The authorities can’t completely shutdown the province from the outside because the shock troops need to move supplies into the area for construction projects, but they are setting up multiple check points to block as much traffic as they can.”

The state still needs to continue running its daily affairs, and it’s unclear to what extent construction projects and other things that may be hampered by internal controls have been put on hold. This must be a bureaucratic nightmare to coordinate and often, one hand of the state doesn’t know what the other is doing.

Article source: Kang Mi Jin, “N. Korea further strengthens restrictions on domestic travel,” Daily NK, 27 February 2020, accessed 28 February, 2020.

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How the coronavirus may impact the North Korean economy (Updated 18/2/2020)

Thursday, February 13th, 2020

By: Benjamin Katzeff Silberstein

Yesterday (February 12th), North Korea announced it is prolonging its self-imposed isolation to protect the country from the coronavirus. KCNA:

The spread of the epidemic comes to be a serious problem with the possibility of international disaster.

In this regard, the Non-Permanent Central Public Health Guidance Committee of the DPRK discussed the issue of prolonging the isolation period and strictly enforcing it in order to completely cut off the inroads of Covid-2019 and ensure the life of the people and safety of the state, and submitted it to the Presidium of the Supreme People’s Assembly

The Presidium of the Supreme People’s Assembly of the DPRK examined, approved and decided the proposal of the Non-Permanent Central Public Health Guidance Committee according to the law on prevention of epidemics.

According to the decision urgently adopted at the SPA Presidium, the isolation period in the territory of the DPRK shall be prolonged to 30 days for the time being.

All the institutions and fields of the state and foreigners staying in the DPRK should obey it unconditionally.

The KCNA website doesn’t allow for direct links, but the above was published on February 12th at their website. The country’s quarantine seems to amount to a near-total shutdown of cross-border traffic. So far, North Korea has not confirmed any deaths from the virus, but sources from inside the country have claimed that at least a handful of people have died from the virus. It seems highly doubtful that these sources could know for sure that the coronavirus, and not regular pneumonia, was the cause.

The government’s measures are rather stern, but a border shutdown is perhaps the most reasonable measure the government can take since it doesn’t have the resources to properly monitor the situation inside the country. KCNA also reported on February 12th that the local Red Cross “organized training courses for Red Cross volunteers and sent them to relevant areas.” A press statement (not on their website) from the Red Cross confirms this and says that the “Red Cross has also sent volunteers on bikes to these remote areas to share coronavirus awareness messages.” (Updated Feb 15 2020 with link to the press statement.)

How is all this impacting the North Korean economy? We don’t know for sure, but here are some possibilities:

The markets appear to be under a great deal of pressure. The border trade shutdown isn’t exactly total, as items such as fuel is likely still coming through pipelines. Certainly, some other goods are getting through as well, we just don’t know how much. But most consumer goods are kept out, and the authorities are even cracking down heavily on smuggling that it usually turns a blind eye to, resulting in drastic price rises over the past few weeks. According to some reports, perhaps exaggerated, economic activity is at a virtual standstill along the border. Prices have not reacted this strongly to any sanctions-related measures throughout “maximum pressure”, or really any international event that I can recall. All this points to the border closure measures being seriously and strictly enforced. The ban on tourism is also a significant blow to the economy. Tourism from China has been growing steadily as a source of income for the past few years and it’s a particularly crucial revenue stream of foreign currency at a time when many others have dried up in the wake of sanctions.

In addition to the international border crossing, the government has also banned travel between regions inside North Korea, to prevent the virus from potentially spreading through the country. One has to assume that this ban is at least as strictly enforced as the one on the Chinese border. If so, internal market trade may well be  severely hampered, as traders can no longer easily move goods between regions. This would obviously be a big problem, particularly for agricultural goods but also for the manufacturing sector. The North Korean market economy, which a majority of North Koreans are in some way dependent upon for their consumption, needs a well-functioning transportation network to operate with even a minimum level of efficiency. It is no coincidence that transportation as a sector has gone ahead of many others in North Korea’s marketization process. The government has now reportedly instituted price controls. These are unlikely to be respected perhaps even in the short run, and certainly will not be in the longer run. More traders will sell on the black markets, which will grow perhaps beyond any scope they’ve been since the early 2000s when the state began incorporating the markets into the official system.

One North Korean source quoted by Radio Free Asia puts the government’s dilemma regarding the virus and the economy brutally but clearly:

According to the third source, the poor are angry that the rich care about their health, but don’t seem to care if they have eaten.

“They say they might die from a disease, but they could also die from starvation because they are unable to make enough money to support themselves for a day,” said the third source, adding that the working class say there is no difference between the two because they are dead either way.

At the end of the day, there will come a time when keeping the border shut and domestic travel and transportation paralyzed just won’t be worth it or even possible, at least without massive humanitarian aid coming in to compensate. Something will have to give eventually, and when it does, the real challenge of virus containment may truly begin.

Update 18/2/2020:

Reuters reports that North Korea seems to be planning to hold the Arirang mass games by August, counting on the virus crisis to have eased by the summer:

The Mass Games are due to return on August 15, which is celebrated as Liberation Day on the anniversary of Japan’s defeat at the end of World War Two, Young Pioneer Tours, which runs tours to the North, said in a statement.

Despite the name, the Mass Games are large performances involving tens of thousands of dancers, gymnasts, martial artists and singers acting out familiar propaganda themes.

Another firm, Koryo Tours, quoted sources in North Korea as saying the games were expected to be held over major holidays, perhaps starting on August 15 and including October 10, the 75th anniversary of the founding of the ruling Worker’s Party of Korea.

No further details were known, and tickets are always sold on site rather than in advance, said Koryo Tours general manager Simon Cockerell.

“Tourists still can’t enter North Korea but when the virus issue dies down the border will open again,” Cockerell told Reuters. “It’s a reactive policy, so it will depend on what happens in China, basically.”

North Korea revived the Mass Games in 2018 to sell an image of international engagement and peace while raising much-needed foreign currency.

Source: Josh Smith, “North Korea looks to hold ‘Mass Games’ this year despite coronavirus fears: tour companies,” Reuters, 18/2/2020.

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Market fees may be lowered on some North Korean markets

Tuesday, July 30th, 2019

Benjamin Katzeff Silberstein

Daily NK:

“Merchants working in the markets feel that business this year is worse than last. I’m not sure if the authorities were thinking about the merchants when they made the decision, but it’s good that they have reduced the taxes in Pochon, Sinpa and Kimhyongjik County,” said the source in Ryanggang Province during a telephone interview.

According to the source, market fees in Pochon and Sinpa County are relatively low compared to other areas. The fees for industrial goods were reduced from 1000 won to 500 won. Fees charged to vendors of food and ice cream were lowered from 500 won to 300 and 200 won, respectively.

The market fees are determined based on the size of the city, the size of the stall and the type of product being sold. The rough national average fees being charged per day as of early this year was 1500-2000 KPW for meat stalls, 1000-1500 KPW for industrial products (clothes) and 500-1000 KPW for food and vegetables.

According to the Center for Strategic and International Studies’ analysis of markets in North Korea, the authorities collect over $56 million USD per year from the markets. The largest market in North Korea, Sunam Market in Chongjin, generates an estimated $840,000 USD for the government.

Before the markets were formally recognized, market fees were 3-5 won until the early to mid 1990s, before being raised ten-fold in 2001, to 30-50 won. After the regime legalized the country’s private markets in 2002 with its ‘New Economic Management Improvement Measures,’ the fees rose another ten-fold.

Source:
Market fees in North Korea set for reduction in parts of border region
Kang Mi Jin
Daily NK
2019-07-30

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Taxes increase on some North Korean markets

Friday, May 3rd, 2019

By Benjamin Katzeff Silberstein

This sort of news is very interesting, particularly in context: I’ve heard from people who deal with North Korean firms that some of them have received orders to tighten up their accounting, and report their assets to the state in greater detail. Taken together, these snippets of information suggest an overall difficult economic situation, though not desperate or in crisis-mode, where the state is taking more and more measures to drive in cash from the public.

Daily NK:

Sales fees levied on private distributors have risen in some areas of North Korea. The fees are managed by North Korea’s collection agency and essentially provide a source of tax revenue for the state. Private distributors are expressing discontent over the changes as many are suffering under the country’s already poor economic conditions.

“The authorities recently began demanding outrageous and unfair selling fees from private distributors,” said a South Pyongan Province-based source on April 25. “Collection offices (i.e. tax offices) attached to local people’s committees are required to pay varying fees depending on the product, and the number of fees have been doubled.”

These de facto tax offices were established in each city and county as part of the July 1 Economic Management Improvement Measure in 2003 and are managed by the Ministry of Financial Administration. The offices collect fees for land use, market stalls, and various other reasons.

“The authorities are demanding a huge amount of fees to gain control over and restrict the activities of private business people who live in Pyongsong but bring in products from Sinuiju, Rajin-Sonbong, Nampo and Hyesan,” said a separate source in South Pyongan Province.

“Soybean oil sellers, for example, had to pay 3% of their income before, but now have to pay twice that amount.”

The skyrocketing fees are likely due to the fall in tax revenue arising from the economic difficulties the country is facing.

“The government increased the fees they were collecting just as incomes fell among private business people,” she said. “The authorities are simply taking money from the people to make it seem like the state is self-sufficient.”

North Korean authorities have made the fee system more sophisticated while raising fees as part of efforts to generate more income for the regime.

Article source:
North Korea doubles de facto sales tax levied on distributors in some areas
Mun Dong Hui
Daily NK
2019-05-03

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North Korea’s economic situation, going into Hanoi: a roundup of the data

Thursday, February 21st, 2019

By Benjamin Katzeff Silberstein

The Hanoi summit is under a week away, Daily NK recently put out new market price data, and I’ve finally had time to update my dataset. There seems like no better time than the present to take a look at some of the numbers we have available for the North Korean economy, thanks to outlets such as Daily NK and Asia Press/Rimjingang.

Currency

Let’s start with the exchange rate. A few weeks ago, the (North Korean) won depreciated quite significantly against the USD, which I wrote about here. At 8,500 won/1usd, the USD-exchange rate on the markets hit its highest point since the inception of “maximum pressure”. The graph below is shows the average market exchange rate in three North Korean cities for won-to-USD.

Graph 1. Average won-USD exchange rate on markets in three North Korean cities, spring of 2017–February 2019. Data source: Daily NK.

As the graph shows, the won rebounded somewhat after the initial spike in early January. According to the latest data point, the exchange rate stands at 8190 won, still somewhat higher than the average for the period, 8136, but barely.

What could have caused this spike? One possibility is that the government has started to soak up more foreign currency from the market, because the state’s foreign currency coffers are waning. After all, given the vast trade deficit, the continued necessity of spending hard currency on things like fuel (bought at higher prices through illicit channels to a greater extent) and other factors, it would make a great deal of sense. Currencies fluctuate all over the globe, sometimes based even on loose rumors that fuel expectations. One anonymous reader who often travels to North Korea for work heard from Korean colleagues that accounting conditions for firms had gotten stricter, likely because the government wants to be able to source more foreign currency from the general public.

It is also noteworthy that while the Daily NK price index reports that the USD-exchange rate has gone back to more normal levels, the Rimjingang index remains at very high levels. Its latest report (February 8th) has the USD at 8,500, and on January  10th, it registered 8,743 won, a remarkably high figure that the Daily NK index hasn’t been near since early 2015. The difference between the two may simple come from the figures being sourced from different regions, or the like. North Korea’s markets still hold a great deal of opportunity for arbitrage, not least because of the country’s poor infrastructure.

So, it does seem like there may be some unusual pressure on the won against the dollar. What it comes from is less clear, but the state demanding more hard currency from the semi-private sector and others may be one important factor. In any case, we shouldn’t be surprised if the trend continues, unless sanctions ease soon.

At the same time, while the RMB has appreciated against the won over the past few weeks, it hasn’t really gone outside the span of what’s been normal over the past few years.

Graph 2. Average exchange rate for won to RMB, average of three North Korean cities, late 2015–early 2019. Data source: Daily NK.

The average exchange rate for RMB since the start of Daily NK’s data series in late 2015 is 1228 won. The latest available observation gives 1241 won/RMB, and the RMB has appreciated against the won over the past few weeks. The Rimjingang data, here, too, gives a higher FX-rate for RMB than Daily NK, at 1250 won. Their index, too, shows the FX-rate for RMB going up over the past few weeks, but not to levels out of the ordinary. Still, if the won continues to depreciate against both the dollar and the RMB, it may be a sign of a more persistent foreign currency shortage.

Food prices

Rice prices remain as stabile as ever, in fact, even more so than this time last year. They continue to hoover between 4,500–5,000, with the latest observation being at 4,783.

Graph 3. Average rice price for three North Korean cities, spring of 2017–early 2019. Data source: Daily NK.

This should not necessarily be taken to mean that North Korea’s current food situation is not problematic. Even with increasing harvests in the past few years, it’s always been fragile. The past year’s drought reportedly took a toll on the harvest. Though market prices aren’t suggestive of any shortages as of yet, that could change in the months ahead. The latest harvest was likely lower than those of several previous years and difficulties in importing fertilizer may have contributed, but the dry weather was the main factor.

Even with a slightly lower harvest than in previous years, it seems that structural changes in agricultural management has improved agricultural productivity to such an extent that food safety isn’t severely threatened even with a reduced harvest.

Gasoline

Gas prices appear to have stabilized around a sanctions equilibrium, of sorts, since a few months back. The past year hasn’t seen any spikes near those of the winter in 2017, when prices went above 25,000 won per kg. For the past year, the price has mostly hovered between 13,000 and 15,000 won per kg. The last observation available from Daily NK, is at 15,200 won per kg. This is slightly higher than the average of the past 12-month period, 13,500 won per kg. A more recent report from Rimjingang puts prices at 13,750 won per kg, so perhaps prices have declined over the past few weeks.

What’s likely happened is that China has settled on a comfortable level of enforcement of the oil transfers cap, for now. (For a detailed look at fuel prices in North Korea and Chinese sanctions enforcement, see this special report.)

Graph 4. Average gasoline price, three North Korean cities, early 2018–winter 2019. Data source: Daily NK.

There is lots to be said about gas prices and their impact on the economy, but for now, it looks like supply of gasoline in North Korea is restricted, but stabile.

Hard currency reserves

I unfortunately don’t have any data to present on this issue, but it’s too important not to mention. We don’t know how large North Korea’s foreign currency reserves are, but all throughout “maximum pressure”, people have been speculating that they’ll soon run out. One South Korean lawmaker said in early 2018 that by October that year, North Korea would be out of hard currency. That clearly didn’t happen.

The lack of stabile foreign currency income may still be a problem for the regime, as mentioned above. It’s hard to imagine how it couldn’t be a huge headache. Look at the following graph for example, showing North Korea’s trade (im)balance with China, throughout 2017 and the first few months of 2018.

Graph 5. North Korea’s trade balance with China, in $1,000 terms. Data source: KITA.

Let’s assume that China is simply letting North Korea run a trade deficit, with only some vague future promise of payment in the form of cheap contracts for coal and minerals. Or, let’s say that China is even just sending North Korea a bunch of stuff without requiring any form of payment whatsoever. It seems highly unlikely to me that even a government like China would support the full extent of these imports. Even if North Korea is only paying in hard currency for a relatively small proportion of what it imports from China, that’s still a lot of money that’s just leaving the vaults, with virtually nothing coming in to replenish them. How long can this go on for? Probably longer than many estimated at the onset of “maximum pressure”, but certainly not forever.

Summary

In sum, judging by the numbers, North Korea’s domestic economic conditions appear stabile but quite difficult. No sense of widespread, general crisis is visible in the data. Nonetheless, the regime is likely under a great deal of stress concerning the economy. How much is hard to tell, but definitely enough for some form of sanctions relief and/or economic cooperation to be high on their agenda for Hanoi.

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North Korean officials disheartened over this year’s harvest

Wednesday, August 8th, 2018

Benjamin Katzeff Silberstein

Daily NK:

As North Korea continues to reel from an unprecedented heat wave, the authorities are conducting a nationwide assessment of the damage that has been inflicted on crops as well as on-site farm visits, report sources in the country.

“The temperature has risen daily and there’s no rain, so crops all over the country are drying out,” said a North Hamgyong Province-based source on August 6. “The authorities are investigating the damage done to the agricultural fields.”

The source said that the authorities have sent investigative teams to farms throughout the country who are taking photos of the damage and sending them back to central headquarters.

The roots of the corn crops have yellowed because they have dried out from the lack of rain. North Koreans consider the agricultural season to be “finished” this year. Farmers have suffered from both the double impact of intense heat and drought.

In Musan County, where mining activities have stopped, many miners have sought to obtain land after facing significant difficulties. The intense drought has created concerns about how they will feed their families.

“There are many people saying that the ‘weather is killing us’ while beating their fists against their chest in front of their dying crops,” said a source in Ryanggang Province.

“The authorities likely wanted to show people that they are keeping an eye on things and making an effort to improve the situation.”

Officials who are part of the investigation teams, however, are reportedly saying that there is no hope in recovering from this year’s agriculture troubles.

“Officials have dwindling hope about this year’s harvest, and some even say the only thing to do is wait for the intense heat to end,” the Ryanggang-based source added.

Meanwhile, the state-run publication Rodong Sinmun has reported, “Farmers are taking it upon themselves to conduct a powerful campaign to prevent damage [to the crops] from high temperatures and drought.” The state authorities are emphasizing “self-sufficiency” as a tool to combat damage to crops, which also hints that the authorities have little in the way of clear cut measures to deal with the situation.

Article source:
Disheartened North Korean officials label this year’s harvest ‘dead in the water’
Kim Yoo-jin
Daily NK
2018-08-08

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