Archive for the ‘International trade’ Category

March 2021: North Korea’s skyrocketing corn prices

Tuesday, March 9th, 2021

By: Benjamin Katzeff Silberstein

Given the self-imposed border lockdown North Korea is under at the moment, the recent rise in food prices should come as no surprise. The precise factors are difficult to pin down, but whatever they are, there is some serious cause for concern.

The main reason is the rapid rise in the price of corn as of late. One Daily NK-source in North Korea attributes it to large-scale state purchases of corn for snacks manufacturing in honor of Kim Jong-il’s birthday on February 16th.

The article makes clear, however, that this is only a partial explanation. Indeed, looking at the price index, it’s clear that the rise started long before February. On November 15th last year, the average price for a kilo of corn was 1350 won. On February 23rd this year, the average price was 3137 won. That’s a rise of 135 percent in a relatively short period of time. Prices of corn have often risen in the beginning part of the year, but not by this much.

Average corn prices in Pyongyang, Sinuiju and Hyesan, from 2015 and onward. Graph by NKEconWatch, data source: Daily NK.

Looking at individual cities, the rise is even more staggering. In Hyesan, where food prices tend to be higher in general, corn prices rose from 1450 won/kilo on November 15th last year to 3620/kilo on February 23rd. That’s an increase of 150 percent in only a few months.

Corn prices in Pyongyang, Sinuiju and Hyesan, from 2015 and onward. Graph by NKEconWatch, data source: Daily NK.

Why is this a concerning development for corn prices specifically?

First, corn is, in the North Korean context, rice’s less desired sibling. Corn always makes up a significant part of the diet for a big proportion of the North Korean population. However, when food becomes more scarce, people switch over a larger portion of their diets to corn, since it gives more food for the same amount of money. So a rise in corn prices may be a signal of growing scarcity overall.

Second, even if a large proportion of the rise was indeed caused by increasing state purchases, this is also a troubling indicator for the state of the North Korean market for food. If state procurement for snacks manufacturing for one single day can impact prices so much, this suggests a market under considerable stress and volatility to begin with.

At the same time, rice prices have remained conspicuously low and stabile. Rice prices in the last observation in the price index are around their seasonal normal. I’d be careful to assume too much based on this, however. Rice prices are lower right now than around the same time last year. This may – and I want to stress how little we know for certain – indicate that they are in fact lower not because supply is stabile, but because demand is lower. More consumers switching over their consumption to cheaper foods such as corn would put downward pressure on rice prices.

Average rice prices in Pyongyang, Sinuiju and Hyesan, from 2015 and onward. Graph by NKEconWatch, data source: Daily NK.

The current situation will only be possible to fully evaluate in a few weeks when we have more data points available. Suffice to say for now that, with all the caveats about the trappings of data from North Korea, the situation looks concerning.

Update March 16th, 2021: DailyNK recently published more info about the corn price situation, reporting that prices have stabilized in much of the country. Still, 3,000 KWP/kg, reported in “other inland regions” (than Hyesan), is high. It’s more than double the average price reported in Daily NK’s price index around one year ago.

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China delivers oil to North Korea, stabilizing fuel prices

Tuesday, March 2nd, 2021

Benjamin Katzeff Silberstein

On the supply side, fuel prices in North Korea are largely a factor of deliveries from China, as I have shown in a 38 North report. Daily NK confirmed this pattern in a dispatch last month:

Oil prices in North Korea plummeted late last month after climbing at the start of the year. North Korea has reportedly been receiving supplies of oil from China as the two nations show signs of growing closer.

The price of diesel was KPW 3,500 in Pyongyang, KPW 6,000 in Sinuiju and KPW 6,300 in Hyesan as of Jan. 25. This was respectively 56%, 24% and 23% less than it was on Jan. 11, as determined by Daily NK.

The price of oil, on which North Korea completely depends on imports, fluctuates relatively wildly depending on supply. Even so, this was a 23-56% fall in just two weeks.

Particularly in the case of Pyongyang, the price of diesel fell to KPW 3,500, the first time it has done so since 2011, a decade ago.

Gasoline prices fell relatively less than diesel. Gasoline was KPW 10,000 a kilogram in Pyongyang, KPW 11,000 in Sinuiju and KPW 12,000 in Hyesan as of Jan. 11. As of Jan. 25, it was KPW 6,700 in Pyongyang, KPW 11,000 in Sinuiju and KPW 11,100 in Hyesan.

As in the case with diesel, the price drop for gasoline was most pronounced in Pyongyang, where prices fell 33% from Jan. 11.

In Hyesan, however, gasoline prices fell just 7.5% from two weeks earlier, and in Sinuiju they did not change at all.

Diesel prices fell more than gasoline prices because the new supplies from China reportedly focused on diesel.

According to a source, diesel accounted for a large share of the imports smuggled into North Korea by way of illegal transhipment in international waters from ships leaving the Chinese port of Dalian in Liaoning Province.

The source claims North Korea has smuggled oil from China “countless times” since the middle of last month.

Prices fell most precipitously in Pyongyang seemingly because the capital received not only the first supplies but also the most.

(Source and full article: Jang Seul Gi, “North Korea appears to have received supplies of oil from China,” Daily NK, February 4th, 2021.)

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Continuity and change in North Korea-China relations

Tuesday, February 23rd, 2021

By: Benjamin Katzeff Silberstein

The recent appointment of Ri Ryong Nam as North Korea’s ambassador to China hints at ambitions for greater economic exchange with China, as reported here. As Ri has a strong background in institutions in North Korea related to foreign trade, not least as the country’s trade minister and, later, vice premier in the country’s cabinet.

Above all, the appointment of Ri is interesting as a sign of continuity rather than change in North Korea’s external economic relations. At the moment, cross-border trade is in its deepest lull in many, many years, as a result of the North Korean government’s self-imposed border shutdown to protect against Covid-19. This border shutdown came on top of already harsh and heavy sanctions.

But this border shutdown, like other measures around the world related to Covid-19, has an expiration date. There’s been rife speculation that the border may reopen soon. And when it does, business will likely, at some point, return to the old normal of China being North Korea’s only meaningful source of economic exchange. The appointment of Ri is one data point to suggest this, but there are many other data points that show an increasingly close relationship between China and North Korea since 2018, after a lull in the preceding years of frequent North Korean missile tests and other destabilizing action. For example, North Korea and China and started expanding 12 of its 13 road or rail crossings only in 2020, despite the pandemic.

While all this may only amount to business as usual, it is interesting and noteworthy for several reasons. For one, North Korea’s previous five-year economic strategy, launched in 2016 and subsequently abandoned, reportedly sought trade diversification away from China as one of its main objectives. North Korean publications have long lamented overt dependence on one single country for foreign trade, noting that it easily translates to political dependance as well.

At the same time, North Korea’s trade dependence on China has actually increased over the past few years. Xi Jinping has long since promised Kim Jong-un that China would fund cross-border infrastructure refurbishment and special economic zones along the border. For all the talk of the potential for economic exchange between North and South Korea back in the heyday of inter-Korean diplomacy between Moon and Kim, the fact remains that if any party is likely to expand its economic ties and influence in North Korea, it’s China.

So the recent appointment of Ri as ambassador to China should be seen as a sign of continuity, not change. Given the dire state of the economy, and the economic policy retrenchment drive as of late, North Korean policymakers are likely to stay cautious and safe in economic measures for some time to come. That is precisely the sort of move that strengthening ties and trade with China would be.

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Fertilizer factory shutdown and goods shortages

Monday, February 8th, 2021

Benjamin Katzeff Silberstein

KITA has a new briefing paper out about some developments relating to North Korea’s domestic economy and external trade. If true, the shutdown of the Namhung Youth Chemical Complex (청년화학연합기업소) is one of several examples of how the border shutdown due to Covid-19 is hurting basic industries through a shortage of spare parts. Goods such as cooking oil are also reportedly in short supply on the markets, and local government incomes from market stall fees are also reportedly dropping. As always with this sort of information, none of it is fully confirmed.

You can find the report here (in Korean), below is an excerpt from a summary by Nikkei:

The Namhung Youth Chemical Complex, north of Pyongyang, produces fertilizer and coal gas using anthracite mined in the area. North Korean leader Kim Jong Un visited the site in 2013.

High-pressure valves and jet sprays at the complex have become too worn for continued use, according to reports the Korea International Trade Association received from North Korea in January. Without replacement parts, it is unclear when the plant can resume work.

The suspension hinders North Korea’s push to lift its meager agricultural output. Kim last year ordered a boost in fertilizer production and attended a completion ceremony for a separate fertilizer plant. Coal gas also serves as a valuable industrial energy source for the country, which faces an oil embargo in response to its nuclear and missile testing.

[…]

The resulting shortages also have struck North Korea’s jangmadang informal markets, which have flourished under Kim’s tenure. At one market in the city of Pyongsong, the volume of available flour and cooking oil has halved. Many stalls that used to sell Chinese-made apparel and appliances have shut down as well.

The slowdown of the jangmadang is eating into the coffers of North Korea’s regional authorities. South Pyongan Province, home of the Namhung plant, made about half as much from overseeing these markets in the last quarter of 2020 as in the year-ago period, heavily impacting provincial spending, the KITA report says.

(Source: Yosuke Onchi, “Key North Korea factory shuts down from COVID-19 parts shortage,” Nikkei Asia, February 8th, 2021.)

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The Pyongyang General Hospital delay

Sunday, January 31st, 2021

Benjamin Katzeff Silberstein

As previously reported by 38 North, neither the Pyongyang General Hospital nor the Wonsan-Kalma resort were completed on schedule. A recent report by Radio Free Asia, based on sources within North Korea, confirms that a lack of goods that need to be imported from China is what’s holding construction back (among other things). At the same time, it isn’t necessarily a lack of funds that’s being cited, but rather, the inability of imports to get through due to the border lockdown:

Work on the hospital began in March 2020, but it has been several months since construction was put on hold.

The pet project of North Korean leader Kim Jong Un should have had a guaranteed supply of materials, an official of Pyongyang’s municipal government told RFA’s Korean Service Jan. 21.

“However, the interior work has not been started at all. Electric wiring, lighting, marble, other interior materials and medical equipment should have been imported from China, but they have not been brought in due to the coronavirus,” said the source, who requested anonymity to speak freely.

North Korea and China shut down the Sino-Korean border in January 2020 and suspended all trade, a move that has all but closed the North Korean economy off from the rest of the world.

Though builders tapped domestic suppliers to begin construction on the hospital’s exteriors in March, work cannot continue until imports resume.

During the ruling party’s eighth congress, held Jan. 5-12, the party ordered factories and other government agencies to wean themselves off of imports so the country’s economy could be more self-sufficient.

But RFA reported last week that because the congress decided to invest heavily in North Korea’s tourism sector, government officials were scrambling to find ways to import materials for building interiors in anticipation of a building boom.

“Inpatient facilities will go in the two main high-rise buildings, so elevator installation is the core of all interior work,” the source said.

“Last year, they signed a contract to import elevators and escalators from a company in Shanghai… but the coronavirus has prevented them from being brought in,” said the source.

(Source: Hyemin Son, Leejin Jun, and Eugene Whong, “Construction Delayed on Showcase Hospital Project in North Korean Capital,” Radio Free Asia, January 26th, 2021.)

On the one hand, it would seem sensible to not prioritize prestige projects when overall funds are so low. On the other hand, Kim Jong-un did recently have his beachside manor upgraded, as reported by NK Pro. Whenever equipment really needs to get purchased or imported, there are ways of making it happen…

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North Korean coal trade: the questions that really matter

Tuesday, December 8th, 2020

By: Benjamin Katzeff Silberstein

I have long argued, on this blog and elsewhere, that the question of North Korea and economic sanctions is not a binary one. We don’t have either perfect sanctions implementation with complete suppression of trade, or smuggling and trade under the radar, with or without the complicity of the Chinese government, making sanctions on North Korea meaningless. Rather, sanctions were never going to work perfectly to begin with — government measures rarely do. What sanctions do do, however, is to impose high additional costs to anyone trading with North Korea. North Korea would still import and export sanctioned goods to some extent, but reap lower revenues from exports and pay more for imports.

US intelligence claims over the past few months have contained some information that is highly relevant to that end. Ship-to-ship (STS) transfers are complicated and expensive, but it seems that this method of transferring North Korean coal to Chinese buyers has begun to decrease. Wall Street Journal reports (paywall) that direct deliveries to China, through the Ningbo-Zhoushan area, have increased in frequency over the past few months. Chinese ships have also gone directly to North Korea’s Nampo port to fetch coal deliveries.

The UN Panel of Experts noted this trend already in its March 2020 report:

67. Ship-to-ship transfers in the Gulf of Tonkin (see S/2019/691, para. 20) have decreased substantially in favour of increased deliveries to the Ningbo-Zhoushan and Lianyungang port areas in China. The increase reinforces the need for port and customs authorities to heighten scrutiny of vessels and their shipping documentation, and to impound any vessel suspected of transporting prohibited items.

We still don’t know how widespread such trade is, but it significantly lowers the transaction costs of North Korea’s coal trade, and thereby lessens the impact of sanctions on North Korea’s export revenue.

What about proportions?

  • According to the WSJ report and US intel sources, North Korea exported 4.1 million metric tons of coal between January and September 2020.
  • No one knows what North Korea paid, but the WSJ report assumes a price of $80–100 per ton in 2020. This places the value of the exports between $330 and $410 million.
  • Is that a little or a lot? Well, it depends. According to UN Comtrade figures, North Korea exported on average 1.7 million metric tons of coal per month to China in 2015. In contrast, 4.1 million metric tons between January and September gives close to half a million metric tons per month. In April 2016, coal exports totalled 1.53 million metric tons, to the tune of $72.3 million.
  • The WSJ figures place North Korean revenue at $36.6-$45.5 million on average per month for January-September. Using the 2016 April figure as a benchmark, it is absolutely not an insignificant number. At the same time, it is nowhere near — really, less than half by one measure — what North Korea has received for its coal exports in the past.

This by no means gives a perfect representation of the proportions at hand. After all, both 2015 and 2016 were boom years for North Korean coal exports to China. At the same time, judging from this limited data, we should not assume that things are back to normal only because China’s sanctions implementation seems to have begun to taper off. At the moment, it’s also very difficult to tell what proportions of the downturn in trade originates from North Korea’s own, self-imposed border lockdown, and from sanctions respectively.

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September, 2020: the Latest UN Panel of Experts Report and the North Korean Economy

Tuesday, September 29th, 2020

By: Benjamin Katzeff Silberstein

The latest UN Panel of Experts Report is out. Some points relating to the overall state of the North Korean economy, after a quick read:

  • Ship-to-ship-transfers of fuel (“refined petroleum products”) continue. This is nothing new. Only between January and May 2020, North Korea is estimated to have broken the sanctions-mandated ceiling of 500,000 barrels per year. As I have argued elsewhere, many times, even with STS transfers and other illicit methods to flout sanctions, they are taking a toll on the North Korean economy since they are expensive. North Korea has to compensate sellers for the added risk of smuggling somehow. So sanctions, in this sense, are certainly not without impact.
  • Coal deliveries are also happening via STS and other transportation means. Again, this is not new, and rather, is part of the steady state for North Korea under sanctions. As with oil and fuel products, North Korea must be taking a financial hit to compensate buyers for the added risk of violating sanctions. The report says that coal exports resumed, after a Covid-19-pause, in March of this year.
  • The report does note that illicit tanker deliveries decreased thus far in 2020 as compared to 2019. Whether that means that less fuel was actually supplied is unclear. Indeed, according to the report, the delivery tankers had higher capacity than in the past.
  • Overall, it seems that judging from the PoE estimates, North Korea may not be suffering from fuel shortages at all, on the whole. Of course, we know next to nothing about how the illegally imported fuel is used and distributed within the country. Fuel prices have, however, not really been outside the span of the generally normal (or at times even lower), suggesting that the amounts coming in are roughly similar to normal times.

One quick reflection on the exports issue, particularly of coal and other sanctioned export goods: it’s clear that coal trade is happening, seemingly relatively undisturbed, on a scale that is troubling from a sanctions-implementation perspective. What’s tricky, though, is that we know fairly little about proportions. How much coal is North Korea actually able to sell, and to what prices?

As of now, all we know is that coal is being exported on a substantial scale. From an analytical perspective, that leaves a lot to be desired.

However, it is crucial to note the myriads of ways in which the government is able to at least partially compensate for the loss in export income stemming from sanctions. The report details several of these, including a wide range of cyber crime.

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North Korea and China strike agreement on border security

Tuesday, September 29th, 2020

By Benjamin Katzeff Silberstein

Since North Korea closed the border with China due to fears of Covid-19, there have been reports of Chinese citizens being shot at and, in at least one instance, killed by North Korean border guards. The North Korean government ordered border guards to shoot anyone from the Chinese side entering buffer zones it set up along the border.

All of this seems to have been done rather hastily and with little coordination with the Chinese side. Moreover, as is often the case with governance in North Korea, most has been done through relatively unclear decrees. The same factor could possibly explain the recent killing of a South Korean man apparently intending to defect to North Korea over the northern limit line (NLL), for which Kim Jong-un later expressed regret.

Now, Daily NK reports, North Korea and China have struck an agreement about border security in the age of Covid-19:

North Korea and China recently signed an agreement to help ease tensions along their border following shooting incidents involving North Korean border guards and Chinese nationals, Daily NK has learned.

According to a Chinese diplomatic source familiar with the agreement, the Chinese requested consultations with the North Koreans to “protect their citizens” and an agreement on the “working-level measures” came about at the North Korean embassy in China on Sept. 10.

Based on this agreement, China will raise customs duties three-fold on goods entering the country (from North Korea) if North Korean border guards “indiscriminately” and “recklessly” shoot and kill a Chinese national. The agreement also requires North Korea to compensate a shooting victim with RMB 1,200,000 (around USD 175,922).

On Sept. 11, the Ministry of State Security and General Staff Department ordered the North Korean border patrol to abide by details of the agreement. The order was accompanied by a directive telling the border patrol to “refrain” from shooting at people in China who cross into North Korean territory.

“From this past Spring until last month, North Korean soldiers shot and killed several Chinese near the border but North Korea failed to apologize properly, so the Chinese government proposed [the agreement] as a way to protect their citizens,” the source, who requested anonymity for security reasons, told Daily NK.

The source said that the closure of the border because of the COVID-19 pandemic means that North Korea is unable to import many of the things it needs from China. “That’s why North Korea had no choice but to acquiesce to China’s demands,” he added.

CHANGING TACTICS ON THE BORDER

Another source in China who spoke to Daily NK on condition of anonymity recently reported on signs that North Korean border guards seem to be taking a different approach to Chinese who cross the border.

The source said that two Chinese men had brought their cow down to the Yalu River to drink water near Changbai, Jilin Province, on Sept. 21. When the men and the cow moved toward the line demarcating the Chinese border with Yanggang Province, North Korean border guards started to approach them.

Given that the North Korean border patrol had shot and killed a Chinese smuggler in May, the two men were reportedly “tense” because they feared they may be harmed by the border guards.

Despite their fears, the North Korean border guards just threw rocks at the two men while yelling at them to return to Chinese territory; the men took their cow and left the area without incident.

(Full article and source: Jang Seul Gi, “N. Korea and China recently signed agreement aimed at easing border tensions,” Daily NK, September 25th, 2020.)

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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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North Korea gearing up for hard times

Friday, July 10th, 2020

By: Benjamin Katzeff Silberstein

An editorial in today’s Rodong Sinmun emphasizes that fighting the “global pandemic” is more important than economic construction. For Korean-speaking readers, the message comes near the end of the editorial on Friday July 10th, and reads:

그것은 인민들의 생명과 건강을 보호하고 증진시키는것을 최급선무로, 가장 영예로운 혁명사업으로 간주하고있기때문이다.그 어떤 경제건설성과보다 대류행전염병의 침습을 막는것을 더 중요하게 여기고 이 사업에 최선을 기울여야 한다는것이 우리 당의 요구이다.

(Source: 김병진, “인민의 생명안전을 굳건히 지키는것은 우리 당의 제일중대사,” Rodong Sinmun, July 10th, 2020.)

This is not a new message, and it’s been re-stated in various forms in North Korean state media over the past few months. As I write in this article at 38 North, the recent emphasis on the chemical industry carries the same message: don’t expect any major changes in the external economic environment anytime soon, whether it be in conditions relating to sanctions or Covid-19.

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