North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-11-3-1
11/3/2008

The Daily NK has reported that the use of bicycles for business and transportation around the city of Pyongyang is becoming more and more commonplace, with 7 out of 10 households owning a bike, despite the fact that the cost of a bicycle in the capital city has doubled in the last twelve months alone.

According to North Korean defectors, until the early part of the 21st century, bicycles were the most sought-after purchases, with only 30~40 percent of families able to buy them.

According to a source in Pyongyang, “If you go to a [market] these days, you’d see that people who sell or purchase goods mostly use bicycles,” adding, “With the exception of those houses with extremely difficult situations, most households have a bike.”

The source explained that the growing use of bicycles is not due to improvements in the lives of the people, but rather, due to a shift in mentality. In the past, someone wishing to purchase a bike would first have to save up money for it, while today they think they can borrow the money, even at high interest rates, and then repay the loan through business profits.

The Daily NK explains, “With the ubiquity of [market] trading and the increase in business competition, bicycles have become must-have items.”

In Sinuiju, as well, bicycles have become a necessity for traders. A source there reported, “In farmlands that are distant from the [market], bicycles are an important means of linking to city markets. The merchants can triple or quadruple their profit, compared with those that don’t own bicycles.”

Most traders with bicycles take orders from those living in farming villages, fill the orders in city markets, then barter the items in the villages for vegetables and grains which they then turn around and sell in markets for a profit. Competition is stiff as traders follow price differences between the markets in order to squeeze out even a 100 won profit.

Read two recent stories on North Korea’s bicycle culture here:
70% of Households Use Bikes
Daily NK
Jung Kwon Ho
10/30/2008

People’s Safety Agency Targeting Women Cyclists
Daily NK
Jung Kwon Ho
11/6/2008

Peterson Institute Working Paper
WP 08 – October 2008
Stephan Haggard and Marcus Noland

Read the paper here

Abstract: In the 1990s, 600,000 to 1 million North Koreans, or about 3 to 5 percent of the precrisis population, perished in one of the worst famines of the 20th century. North Korea is once again poised on the brink of famine. Although the renewed provision of aid is likely to avert a disaster on the scale of the 1990s, hunger-related deaths are already occurring and a dynamic has been set in motion that will carry the crisis into 2009. North Korea is a complex humanitarian emergency characterized by highly imperfect information. This paper triangulates quantity and price evidence with direct observation to assess food insecurity in North Korea and its causes. We critique the widely cited UN figures and present original data on grain quantities and prices. These data demonstrate that for the first time since the 1990s famine, the aggregate grain balance has gone into deficit. Prices have also risen steeply. The reemergence of pathologies from the famine era is documented through direct observation. Although exogenous shocks have played a role, foreign and domestic policy choices have been key.

Keywords: Famine, North Korea
JEL codes: Q1, O1, P2

Although many would assume that North Korea’s economic isolation would insulate it from recent global financial instability, this does not appear to be the case.  According to the Wall Street Journal:

North Korea does little trade with the rest of the world — about $2 billion annually — and now it’s being hurt by lower prices paid by its biggest trading partner, China, according to report from a South Korean institute that specializes in North Korea research.

In recent weeks, the Chinese companies that buy North Korean ores and minerals like zinc, which are some of its biggest exports, have slashed the prices they’re willing to pay. That’s forced some North Korean mining firms to halt production and even produced a drop in the smuggling of ore and scrap, trade that’s illegal in the North but is believed to play an important role in supporting the impoverished country.

Lim Eul-chul, a professor at the Seoul-based Institute for Far Eastern Studies who wrote the report issued Thursday, said he learned about the commodity-trade problems from North Koreans doing business in China

“Chinese companies that are affected by global trends don’t want to pay as much as they used to for North Korean raw materials or resources,” Mr. Lim said. “Thus, North Korean merchants can’t make profits from trade.”

The price pressure exerted by Chinese traders on North Korean companies is in line with the broader drop in commodity prices in recent months. But it has imposed new burdens on North Korea in what is shaping up to be a terrible year there.

Official North Korean media have published reports saying the global financial crisis will ruin the U.S. and other industrial powers. But in the report, the Institute for Far Eastern Studies said “North Korean people are becoming very anxious over the possibility of the international economic crisis having a long-term impact.”

Below is the IFES report mentioned in the Wall Street Journal:

Global Financial Crisis hits DPRK economy by way of China 
NK Brief No. 08-10-29-1
10/29/2008

Contacts within North Korea are reporting that the North Korean people are becoming very anxious over the possibility of the international economic crisis having a long term impact as not only exports have dropped, but even cross-border smuggling is taking a hit.

Recently, as Chinese traders have more than halved the price of North Korea’s main export goods such as minerals and scrap iron, North Korea’s markets and even construction industry have felt the blow.

As North Korean state-run media outlets report the current financial crisis as the ruin of the United States and other capitalist world powers, they report as if North Korea were completed unaffected by it. On the 20th, the Rodong Sinmun emphasized that the the U.S.’ financial management system was ‘like a candle in the wind.’

However, it has been leaked that since last week, businesses in North Korea have been shutting their doors as a result of the financial crisis. In particular, the value of the North Korean Won has dropped sharply against the Chinese Yuan, and combined with Chinese traders’ reluctance to purchase North Korean goods and calls to lower prices, very little business is being conducted. This has led mines in Hyesan to halt exports of lead and zinc, and with the drop in legitimate exports, of course smuggling has dropped of, as well.

Furthermore, as raw materials from China are not being supplied, construction projects in the North are also grinding to a halt. 

(UPDATE) Barbara Demick reports in the Los Angeles Times:

Despite efforts to keep North Korea’s extreme poverty out of view, a glance around the countryside shows a population in distress. At the root of the problem is a chronic food shortage, the result of inflation, strained relations with neighboring countries and flooding in previous years.

Aid agencies say the level of hunger is not at the point it was in the 1990s, when it was defined as a famine, although they have found a few cases of children suffering from kwashiorkor, the swollen belly syndrome associated with malnutrition. Mostly what they are seeing is a kind of collective listlessness — the kind shown by the people on the streets of Nampo.

“Teachers report that children lack energy and are lagging in social and cognitive development,” reported a group of five U.S. humanitarian agencies in a summer assessment of the food situation. “Workers are unable to put in full days and take longer to complete tasks — which has implications for the success of the early and main harvests.”

Hospitals complained to aid workers of rising infant mortality and declining birth weights. They also said they were seeing 20% to 40% more patients with digestive disorders caused largely by poor nutrition.

The U.N. World Food Program reached similar conclusions. In a recent survey of 375 households, more than 70% were found to be supplementing their diet with weeds and grasses foraged from the countryside. Such wild foods are difficult to digest, especially for children and the elderly. The survey also determined that most adults had started skipping lunch, reducing their diet to two meals a day.

These are some of the same signs that augured the mid-1990s famine, which killed as many as 2 million people, 10% of the population.

“The current situation hasn’t reached the famine proportions that it did during the 1990s. Our hope and goal is to keep it from going over the precipice,” said Nancy Lindborg, president of Mercy Corps, one of the U.S. aid organizations working in North Korea. “You have a number of factors that have conspired to create a really tough food situation.”

In Pyongyang, the capital, residence in which is reserved for the most politically loyal North Koreans, plenty of food is available on sale. A grocery inside the Rakwon Department Store carries Froot Loops and frozen beef. At open-air markets, you can find mangoes, kiwis and pineapples

But the products are far too expensive for most North Koreans, whose official salaries are less than $1 a month — 60 to 75 cents monthly for the workers surveyed by the World Food Program. And the farther you get from Pyongyang, the poorer are the people.

Nampo is 25 miles southwest of the capital, on the Yellow Sea. It used to be a thriving port city, but nowadays its harbor is used mostly for shipments of humanitarian aid. On a weekday morning, many people sit along the sidewalk watching the few cars pass by. They appear to be unemployed or homeless.

North Koreans say that the food situation is improving and that a good harvest is expected this autumn, as a result of improved weather conditions. The last two years were disastrous because of heavy flooding.

“There was a problem before, but it is getting better. We expect a bumper harvest,” said Choe Jong Hun, an official of the Committee for Cultural Relations With Foreign Countries.

North Korea experts, however, are skeptical. “One good harvest is not really going to alter the picture,” said Stephan Haggard, a UC San Diego professor who has written widely on the North Korean famine.

The World Food Program and the U.S. aid organizations are providing food for the most vulnerable, including children and pregnant women. A U.S. ship carrying more than 27,000 tons of bulk corn and soy is slated to arrive in Nampo within days.

International agencies have been trying to raise money to expand their food aid to the general population. Many urban North Koreans are dependent on food rations, which have dwindled to 150 grams a day, or a little more than 5 ounces.

Even in Pyongyang, one can see signs of scarcity behind the facade of what is supposed to be a showcase capital. Foreign residents say they have seen homeless children in the last few months — a notable sight in a totalitarian country where nobody is supposed to wander away from their legal residence. (Los Angeles Times)

Read the full Wall Street Journal articles below:
North Korea Feels Effects of the Crisis
Wall Street Journal
Evan Ramstad and Sungha Park
10/31/2008

North Korean facade of self-sufficiency can’t hide signs of hunger
Los Angeles Times
Barbara Demick
11/2/2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-10-7-1
10/17/2008

It appears that many in North Korea are expecting an exceptionally large increase in this years’ harvest. According to a report issued on September 30 by Daily NK, a South Korean organization working for North Korean human rights, rice and corn market traders and those involved in food distribution are saying that grain harvests this year are significantly larger than last year, that by the end of the harvest season in November, North Korea’s food shortage crisis will be considerably eased, and that the price of rice will stabilize as well.

A source involved in China-North Korea trade at a company in Shenyang was quoted on the 30th as saying, “[North Korean] rice traders are expecting this year’s food production to be considerably improved compared to last year,” and, “This year, with no large natural disasters, rice paddies and crop fields are doing well, and crop production will probably be much greater than last year.”

In a related matter, one North Korean insider reported, “With the [North Korean] food situation, no one is doing as well as the wholesalers,” and, “As the fall harvest season has come, traders have come by farms in each province and reported that rice and corn harvests are very good.”

The source went on to say, “This year, farming was not difficult, so as autumn passes, the market price of rice looks likely to fall. The price of corn will fall even faster, hitting the 1000 won per kilogram level by mid October.” In fact, by the end of this year’s fall harvest, the price of food is expected to return to pre-shock levels. Currently, rice is selling for 2200 won and corn for 1300 won per kilogram in North Korean markets.

The reason harvests are expected to be more abundant this year is that the North has not suffered from flooding, as it had for the past several years in a row. Therefore, the government has called on the people to take care not to let any grain go to waste as harvesting is already in full swing in Hwanghae and South Pyungan provinces.

North Korean food wholesalers have become the suppliers of rice for markets since the government ceased to ration foodstuffs. They now contract with farms, paying in advance of harvest seasons so that the farms can use the funds to purchase fuel and other supplies necessary for preparing and transporting the food.

Because these traders personally visit the farms to predict harvests and set prices, the information is considered to be relatively accurate. These traders were also the first to predict the jump in prices earlier this year, warning of shortages even before last year’s fall harvest.

Daily NK
Lee Sung Jin
10/7/2008

An inside source from North Korea reported on the 6th that the North Korean authorities have ordered that any woman under the age of 70 who is able to hear, see, and move should participate in the activities of the “Chosun (Korean) Democratic Women’s Union.”

According to the source, “The Central Committee of the Women’s Union Chairwoman Kim Soon Hee decreed that the elderly who are able to move must participate in Union activities, rather than uselessly sitting around and complaining about society.”

After the worsening food situation, the source said that the elderly often sit around and pour forth their complaints about society, saying that “We did not live like this before… If we worked, at least we received wages and provisions, but what kind of a situation is this nowadays?” and blaming the inadequate governance of officials.

Since the food crisis, there have been many instances of the elderly selling goods in alleyways or at street-stands. In particular, after the implementation of the regulation of December 2007 which prevents women less than 40 years of age doing business in the market, the elderly increasingly sell products at stands which are managed by young women from behind the scenes.

Elderly women who do business in the jangmadang (market) have been accordingly playing the role of circulators of all kinds of rumors and complaints, such as saying, “How many more years are left in our lives? At least our children must live well, but there is no sign of that and it is much worse than the Japanese colonial period; how can we not blame the world?”

The recent measure can be seen as another ploy to control the citizens by the North Korean authorities. However, involving elderly women in organizational activities to prevent the worsening of civilian sentiment has been protested against by constituents as well as the elderly.

The elderly who heard the recent news have complained, “It is difficult enough just to live until our 60s, how can they tell us to participate in the Women’s Union activities as well?”

Also, the source relayed elderly concerns over their livelihoods, “Members participate in study sessions twice a week and have to carry out tasks distributed by the Union, so they do not have time to sell in the market. In their free time during the difficult period, they have been doing business and helping their families get by. The changed regulation is a death sentence for these families.”

Currently, the total number of members in the Korean Democratic Women’s Union, which started out as the “North Chosun Democratic Women’s Union” on November 18, 1945, is around 200,000. Until now, the targeted entrants have been women over 31 and below 55 who do not belong in other organizations or working places. The main activities of the Women’s Union are studying political ideology regarding women and rolling out various projects.

North Korea Uncovered: Version 12
Download it here

About this Project: This map covers North Korea’s agriculture, aviation, cultural locations, markets, manufacturing facilities, energy infrastructure, political facilities, sports venues, military establishments, religious facilities, leisure destinations, national parks, shipping, mining, and railway infrastructure. It is continually expanding and undergoing revisions. This is the 12th version.

Additions include: Tongch’ang-dong launch facility overlay (thanks to Mr. Bermudez), Yongbyon overlay with destroyed cooling tower (thanks to Jung Min Noh), “The Barn” (where the Pueblo crew were kept), Kim Chaek Taehung Fishing Enterprise, Hamhung University of education, Haeju Zoo, Pyongyang: Kim il Sung Institute of Politics, Polish Embassy, Munsu Diplomatic Store, Munsu Gas Station, Munsu Friendship Restaurant, Mongolian Embassy, Nigerian Embassy, UN World Food Program Building, CONCERN House, Czech Republic Embassy, Rungnang Cinema, Pyongyang University of Science and Technology, Pyongyang Number 3 Hospital, Electric Machines Facotry, Bonghuajinlyoso, Second National Academy of Sciences, Central Committee Building, Party Administration Building, Central Statistics Bureau, Willow Capital Food House, Thongounjong Pleasure Ground, Onpho spa, Phipa Resort Hotel, Sunoni Chemical Complex (east coast refinery), Ponghwa Chemical complex (west coast refinery), Songbon Port Revolutionary Monument, Hoeryong People’s Library, Pyongyang Monument to the anti Japanese martyrs, tideland reclamation project on Taegye Island. Additionally the electricity grid was expanded and the thermal power plants have been better organized. Additional thanks to Ryan for his pointers.

I hope this map will increase interest in North Korea. There is still plenty more to learn, and I look forward to receiving your contributions to this project.

Version 12 available: Download it here

UPDATE:Here is V. Pomnyun’s outline: pomnyun.pdf

NKeconWatch notes:
Agriculture: April – June are the lean months.  In July 2008 potatoes helped alleviate food shortage.  Also aid from West. Things began to get worse in August and September.

Earlier this year, the price of rice was up to 5x higher than a year ago.  In June-July it fell to 3x higher.  Now it is creeping back up.

Arduous March: In the 1990s, urban residents of North Hamgyong Province was the worst affected by famine.  Today, the worst affected are the farmers and rural residents of Hwangae (he did not specify north or south).  Shortage as bad as 1st arduous march, but fewer consumers and markets feed cities now.

Markets: protests in Chongjin.  People chanted, “Give us food or let us trade.”  None of the protests are political, just expressions of frustration.

Nukes:Nuclear weapons are a domestic propaganda weapon as well. Not just a matter of foreign policy.

Original Post:
Program details here
Wednesday, September 24
2:00 – 4:00 pm
Rome Auditorium at SAIS
1619 Massachusetts Ave., NW
Washington, DC 20036
RSVP here

The Venerable Pomnyun Sunim, Chairman of Good Friends and The Peace Foundation, will discuss the current political and social climate in North Korea, including the spread of the black market economy and the increase in political control over North Korea’s elite. Joining his discussion, is Dr. Cho Seong-ryoul, Director of the New Security Studies Program at the Institute for National Security Strategy (INSS), who will offer his insights on current and future inter-Korean relations.

Jerry Guo, a Yale University economics student who recently traveled to Pyongyang, wrote some interesting articles this week detailing his illicit adventures into Pyongyang’s Central Market (pictures below).

Pyongyang’s Central Market is located along the shore of the Taedong River and is visible from the Yanggakdo Hotel.  Unlike the larger Tongil Market located on the south side of town, the Central Market does not receive tourists or foreign visitors—and given the location, its customers would probably prefer to keep it that way.  So in a sense, an impromptu stroll to the Central Market offers every visitor to the DPRK exactly what they are looking for: a spontaneous glimpse at every-day life in Pyongyang.

According to Guo, that is exactly what he received:

But I wanted to catch a real glimpse of Pyongyang nightlife, so late one afternoon, I sneaked off unsupervised and hit the city streets. And much to my surprise, I didn’t see a single People’s Army cadet goose-step past me with those missile-launchers-on-wheels that appear on the nightly news. What I did witness: a mother buying a soda for her daughter from a sidewalk snack cart; two older women sitting on a bench, gossiping and eating pears; businessmen coming out of the subway, sans Bluetooth headsets; a grimacing teenage boy getting a haircut at a salon. (Washington Post)

Eventually he meandered into the Central District Market:

I had found myself in the North Korean version of Macy’s, but here, every day is the Friday after Thanksgiving. There were delicate blouses and dresses for around 15,000 won (roughly $4 at black market exchange rates), all sorts of fruit — thought to be nearly impossible to find in this mountainous hermit kingdom — and enough varieties of mystery meats to make my high school cafeteria green with envy.

…and he took some pictures (These pictures belong to Mr. Guo, and I thank him for letting me post them):

Above: Fruits and chickens for sale

Above: Side dishes/Sauces and clothing for sale

Above: View of the Central Market from the Yanggakdo Hotel

Taking these pictures, however, ushered in an unpleasant afternoon:

No one paid much attention to me, until I stopped to snap a few photos. Then a group of stocky women in pink dresses magically appeared. They half-wrestled me to a second-floor office while blowing fiercely on blue whistles, as if to announce, “Look at me! My first American spy!” For the next six hours, I was questioned and scrutinized by a procession of Public Safety Bureau officers, their rank identifiable by the quality of their outfits: the first wore an undershirt, the last what seemed to be a custom Italian suit.[…]

Eventually, they forced me to write a hyperbolic but harmless self-criticism, describing myself as “an American student,” “an incompetent trouble-maker” and “a genuine lover of the Korean people.” Then they booted me back to my five-star hotel.

Mr. Guo’s adventures have been chronicled in the following publications and they are well worth checking out:

My Excellent North Korean Adventure
Washington Post
Jerry Guo
9/14/2008; Page B02

A writer journeys into North Korea with Chinese tourists
Christian Science Monitor
Jerry Guo
9/16/2008

Yale Senior Enjoys Uncensored Day in N. Korea
National Public Radio
9/15/2008

And a caveat for future visitors: Although I personally appreciate knowing this type of information about the DPRK, I do not recommend other tourists take this course of action for numerous reasons!

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-9-11-1
9/11/2008

Police recently clashed with women who had worked as traders in the market in North Korea’s Chungjin, in North Hamyong Province, who were demanding that crackdowns in the market be less severe until city officials are able to supply food rations. This report was released on September 9 by ‘Good Friends’, a human rights group in South Korea focusing on aid for the North.

According to the report, on August 24, patrolmen carried out a drastic crackdown in the market, leading women claiming that they need to continue working there to occupy one area. Ultimately, fighting broke out between the two groups.

Women upset with the implementation of rules restricting market trading by women under the age of 50 also led an organized protest in the Chungjin Market last March, demanding that they be allowed to continue working.

According to local residents, this time, the families of the women who had traded in the markets were strongly resisting, causing authorities to become concerned. This has led Chungjin city authorities, after reporting the incident to local party authorities at an emergency session, to pass down an order to local police and market managers to “not crack down too hard until after the September rations are distributed.”

According to the Daily NK:

The new issue of NK In and Out (NKeconWatch is unable to find this publication on line) includes information about North Korea’s recent jangmadang (markets) developments, stating that “memory cards for digital cameras and even USB flash drive sticks can be bought easily in the jangmadang of major cities these days.”

The journal explained that most of the memory cards are under 1GB and although there are various types of memory cards, they are sold for ten to fifty thousand North Korean Won on average (approx. 3,400 to 17,200 South Korean Won, 3 to 16 USD). Demand for memory cards has been increasing due to the popularity of digital cameras and computers.

Recently there have been individuals that operate photo businesses at photo studios or state-operated shops in the downtown areas of cities. It is known that most of these individuals use digital cameras imported from China rather than film cameras.

The journal clarified that digital pictures can also be easily printed because certain trade organizations, broadcasting companies, convenience stores, or provincial computer centers have set up technology shops providing services to print pictures or produce music CDs.

Notably, a third of middle school students in large border cities own MP3 players and two to three students per class have personal computers at home. It is presumed that many more people own MP3 players or computers in major cities such as Pyongyang.

Below is some recent price information.  Click on the image below to view full size.