North Korean Economy Watch

On Wednesday I attended a panel discussion featuring Marcus Noland, co-author (with Stephan Haggard) of Famine in North Korea, and three North Korean defectors.  Here is the video of the event.  Below is the information on the event from the Peterson Institute website:

Press release (slightly updated w/ comments from the talk)
North Korea is once again headed toward widespread food shortage, hunger, and risk of outright famine. According to Peterson Institute Senior Fellow Marcus Noland, “The country is in its most precarious situation since the end of the famine a decade ago.”

Click for larger view

Calculations by Noland and Stephan Haggard, University of California, San Diego, indicate that the country’s margin of error has virtually disappeared. For technical reasons, estimates produced by the United Nations’ World Food Program and Food and Agriculture Organization (total demand) probably overstate demand implying recurrent shortages year after year (figure 1 above). Noland and Haggard argue that in recent years available supply has exceeded more appropriately calculated grain requirements (adjusted total demand) but that this gap has virtually disappeared. “This is a yellow light about to turn red,” says Noland.

 
Click for larger view

Food prices have almost tripled in the last year, skyrocketing at a rate faster than either the overall rate of inflation or global food prices (figure 2 above). Anecdotal reports describe a breakdown in institutions and increasingly repressive internal behavior. Noland and Haggard forecast that the North Korean regime will ultimately weather this challenge politically by ratcheting up repression and scrambling, albeit belatedly, for foreign assistance.

The North Korean food crisis, now well into its second decade, presents a difficult set of ethical choices. North Korea is critically dependent on food aid, but the government has recklessly soured its relations with the donor community. Yet in the absence of vigorous international action, the victims of this disaster will not be the culpable but the innocent. As of this writing, it already may be too late to avoid at least some deaths from hunger, and shortages of crucial agricultural inputs such as fertilizer are setting the stage for continuing food problems well into 2009.

Paper presentation
Noland discussed two recent papers, written with Haggard and Yoonok Chang, Hansei University, which are based on a pathbreaking survey of more than 1,300 North Korean refugees in China (11 different cities).  The survey provides rare and extraordinary insight into both life in North Korea and the experiences of the refugees in China.

Paper 1: Exit Polls: Refugee Assessments of North Korea’s Transition 
Results from a survey of more than 1,300 North Korean refugees in China provide insight into changing economic conditions in North Korea. There is modest evidence of slightly more positive assessments among those who exited the country following the initiation of reforms in 2002. Education breeds skepticism; higher levels of education were associated with more negative perceptions of economic conditions and reform efforts. Other demographic markers such as gender or provincial origin are not robustly correlated with attitudes. Instead, personal experiences appear to be central: A significant number of the respondents were unaware of the humanitarian aid program (40%) and the ones who knew of it almost universally did not believe that they were beneficiaries (96%). This group’s evaluation of the regime, its intentions, and accomplishments is overwhelmingly negative—even more so than those of respondents who report having had experienced incarceration in political detention facilities—and attests to the powerful role that the famine experience continues to play in the political economy of the country.

Paper 2: Migration Experiences of North Korean Refugees: Survey Evidence from China 
Chronic food shortages, political repression, and poverty have driven tens of thousands of North Koreans into China. This paper reports results from a large-scale survey of this refugee population. The survey provides insight not only into the material circumstances of the refugees but also into their psychological state and aspirations. One key finding is that many North Korean refugees suffer severe psychological stress akin to post-traumatic stress disorder. This distress is caused in part by their vulnerability in China, but it is also a result of the long shadow cast by the North Korean famine and abuses suffered at the hands of the North Korean political regime: first and foremost, perceptions of unfairness with respect to the distribution of food aid, death of family members during the famine, and incarceration in the North Korean gulag, where the respondents reported witnessing forced starvation, deaths due to torture, and even infanticide and forced abortions. These traumas, in turn, affect the ability of the refugees to hold jobs in China and accumulate resources for on-migration to third countries. Most of the refugees want to permanently resettle in South Korea, though younger, better-educated refugees prefer the United States as a final destination.

Other speakers: Several North Korean defectors also spoke as part of North Korean Freedom Week here in Washington DC.  Comments and biographies below:

Kim Seung Min: Founder and Director of Free North Korea Radio, the broadcasting program providing news and information to North and South Korea and China. Kim attended both elementary and high school in Pyongyang before serving in the North Korean Army. He escaped from North Korea to China in 1996 but was arrested and repatriated. While traveling from Onseong to Pyongyang to face punishment for leaving the country without government permission, he jumped from a moving train to escape to China again and eventually made his way to South Korea. He worked as a laborer at a coal factory in Yenji, China, until his uncle in South Korea helped him to escape to South Korea. He attended Yonsei University and Graduate School at Joong Ang University, where he received a Master of Arts degree. After serving in leadership roles in the North Korean defector groups, he founded Free North Korea Radio, which was available on the internet beginning April 2004 and began broadcasting on shortwave in December 2005 with regular daily broadcasting beginning in April 2006. (Born 5/6/62 in Jangang Do, North Korea)

*Mr. Kim was a captain in the KPA for 16 years.  He talked about how soldiers were no better off in terms of access to food than ordinary North Koreans.  Starting in 1986, the DPRK state limited food supplies to the military to only rice, leaving the generals up to their own devices for feeding the army.  This led to a break-down in discipline and now people resent the personal behavior of many soldiers who are looking for food.

Kang Su Jin:Founder and Representative of the Coalition for North Korean Women’s Rights, the only organization focused specifically on increasing awareness of the horrors facing North Korean women in China, the role of women in democratizing North Korea, empowering and encouraging North Korean women who have resettled in South Korea, and building cooperation with other organizations. Kang was a member of the elites from Pyongyang and was the Manager of Supply from 1991 to 1998 of the Bonghwasan Hotel in Pyongyang, the biggest hotel in Pyongyang, which catered to high-ranking party and army officials and was used for special events. When food distribution stopped in Pyongyang in 1996, the regime announced that all hotels had to operate on their own, and conditions became very difficult for the workers. Kang visited China and saw how much better off the people were and decided to defect to South Korea. (Born 10/23/66 in Pyongyang, North Korea)

Kim Young-il:President and Founder of People for Successful Korean Reunification (P-SCORE), an organization founded in the fall of 2006, specifically to ensure the successful reunification of the Koreas would not adversely affect the South Korean economy. To that end, PSCORE, chiefly composed of young people, studies other reunification models, informs about the human rights conditions in North Korea, and prepares and educates young North Koreans to be ready to help lead a reunified Korea. Because Kim was not born into an elite family in North Korea, he was not allowed to attend university and was destined to become a coal miner after serving his mandatory military service. While in the military he witnessed many people including soldiers dying of starvation. His own uncle died of starvation and his cousins were left to wander the streets. His family made the decision to defect to China in August of 1996 instead of starving to death in North Korea. They survived there for five years bribing the police not to turn them in until they safely defected to South Korea in January 2001. Lim received a BA in Chinese from Hankook University of Foreign Studies in August 2006. (Born 4/10/78 in Hamheung, North Korea)

*Mr. Kim still communicates with people in the DPRK on a regular basis.  He said that the price of rice inside the DPRK is sensitive to external supply shocks (or even the rumors of external supply shocks).  This means that reports of aid cut offs could result in temporary domestic price spikes even if aid is delivered.

UPDATE: Photo and coverage in the Daily NK.

From the Daily NK:

There had been eight of us in the group, including my brother. Among us, the females included myself and a 13-year old named Shin Kyung Rim. Even though we could not wash our face, were worn out, and wore ragged clothes, there were strict rules and order unique to Kotjebis (street children).

Kotjebis have leaders and areas where they beg. Also, they never eat the food they steal or receive from begging alone, but share with others.

Kotjebis, even when they sleep during the winter, seat the children, the weak, and the women in the middle and the stronger ones sleep in the periphery so that they can block the wind. People may think female kotjebis sleeping in the center of the group might be strange, but they have rules to protect women and children. If they ignore such rules, they are chased out of the group and in extreme instances, have to be prepared for death.

Read the full article here:
Want to Show the Painful Legacy Left by Kim Jong Il
Daily NK
Han Soon Hee
4/16/2008

From Bloomberg: 

The country has a grain shortfall of 1.66 million metric tons this year, the United Nations agency said in a statement today, citing figures from the Food and Agriculture Organization. The shortfall was the highest since 2001, it said.

“It takes a third of a month’s salary just to buy a few days’ worth of rice,” Jean-Pierre de Margerie, the WFP’s country representative in North Korea, said in the statement. The situation is “not yet” on the scale of the 1990s famine but “yellow lights have to be flashed,” he added in an interview.

The Asian nation’s food deficit may exacerbate a global grain crisis that has driven prices of wheat and rice to records, stoking inflation and sparking civil unrest. International Monetary Fund Managing Director Dominique Strauss-Kahn said April 12 that “hundreds of thousands” may starve worldwide.

Prices of staple foods in the North Korean capital have doubled over the past year following floods last August that reduced agricultural output, the WFP statement said. Last year’s harvest was a quarter less than that gathered in 2006, it said.

The WFP assists about 1.1 million North Koreans at present, while 6.5 million people suffer from “food insecurity,” it said. That “figure can be expected to rise if action is not taken,” the statement said.

Even in normal years North Korea has a deficit of 800,000 to 1 million tons of grain, de Margerie said in today’s interview.

The gap is greater this year because of the flooding and as external assistance has fallen since 2005, when North Korea declared that it could do without humanitarian aid, he said.

People will “resort to any means they can to cope” from growing food at home and trading in the country’s private markets to skipping meals, as many did for long periods in the mid-to-late 1990s leading to high malnutrition rates, de Margerie said.  (Bloomberg)

From Time (AP):

The North’s annual food deficit is expected to nearly double from 2007 to 1.83 million tons, according to U.N. projections.

Reflecting the situation, prices for key staples at food markets have also doubled to reach their highest level since 2004, the World Food Program said. Although the communist North provides some food rations to its people, those who can resort to markets to help make up for lacking state handouts.

The WFP also called on the North to allow aid groups to operate more freely in the country. Countries giving food distributed by the WFP require monitoring by aid workers to ensure that those most in need are being fed.  (Time )

Read the full articles here:
North Korea Faces Food Crisis, UN Agency Warns
Bloomberg
Bradley Martin
4/16/2008

UN: North Korea Faces Food Crisis
Time
Burt Herman
4/16/2008

According to the Daily NK:

An inside North Korean source relayed that North Korean authorities have stepped up its regulations of  “home-brewed wine production and sales” with the purpose of eradicating the food waste by citizens.

Party Inspection Units are looking for all kinds of food waste (marriages, sixtieth-birthday anniversaries, sacrificial rites, and dinners among leaders), but liquor producers and distributors are on the list of targets.  Propaganda is being fed to local workers, extolling them not to waste food, and in order to minimize any bribery or favoritism, inspectors are being called from neighboring provinces.

Those prosecuted in the inspections have been levied fines and all of their liquor and materials confiscated (and I really doubt they are pouring it down drains).

Read the whole story here:
North Korea’s Inspection of Home-Brewed Wine by the Party
Daily NK
Jung Kwon Ho
4/9/2008

News of the DPRK’s food shortages began to surface several weeks ago when Good Friends reported:

North Korea’s chronic food shortage has worsened to affect even some of the country’s elite citizens in the capital, a South Korean aid group said Thursday.

The communist nation has not given rice rations to medium- and lower-level officials living in Pyongyang this month after cutting the rations by 60 percent in February, the Good Friends aid agency said in its regular newsletter.

Pyongyang citizens are considered the most well-off in the isolated, impoverished country, where the government controls most means of production and operates a centralized ration system. Only those deemed most loyal to Kim Jong Il’s regime are allowed to live in the capital.

The food situation is more serious in rural areas, with residents in many regions in the country’s South Hwanghae province living without food rations since November, the aid group said. (AP)

Why was this the case?

Floods last August ruined part of the main yearly harvest, creating a 25 percent shortfall in the food supply and putting 6 million people in need, according to the U.N. World Food Program.

Over the winter, drought damaged the wheat and barley crop, according to a recent report in the official North Korean media. That crop normally tides people over during the summer “lean season” until the fall harvest.

North Korea’s ability to buy food, meanwhile, has plunged, as the cost of rice and wheat on the global market has jumped to record highs, up 50 percent in the past six months.

China also appears to have tightened its food squeeze on North Korea for domestic reasons. In order to meet local demand and control inflation, Beijing slapped a 22 percent tariff on grain exports to the North. (Washington Post)

So North Korea’s domestic agricultural production has fallen and so have commercial food imports (international inflation, OECD government subsidies for bio-fuels, and increasing fuel prices have combined to raise the prices of commodities such as rice and pork up to 70% in the course of a year). 

Compounding this problem, however, agricultural aid from North Korea’s two most reliable benefactors (China and South Korea) has dried up.

[China] has quietly slashed food aid to North Korea, according to figures compiled by the World Food Program. Deliveries plummeted from 440,000 metric tons in 2005 to 207,000 tons in 2006. Last year there was a slight increase in aid, but it remained far below the levels of the past decade. (Washington Post)

And strained relations with the new Lee government in South Korea have not helped:

The South typically sends about 500,000 tonnes of rice and 300,000 tonnes of fertiliser a year. None has been sent this year and without the fertiliser, North Korea is almost certain to see a fall of several tens of tonnes in its harvest (Reuters)

So what will be the mitigating factors that prevent another humanitarian emergency?

“The reason for the mass starvation that occurred in late 90s is that North Korea faced natural disasters without expanding the market’s capability to substitute for the broken planned economy capability, and so the damage to North Korean citizens was inevitably large.”

“The market in North Korea has expanded in the last 10 years. The supply and demand structure of daily necessities, including food items, has been formed.”

“Because the market capacity has expanded, the possibility of a mass-scale starvation occurring is no longer high. In actuality, the change in food prices is being monitored at the market.”

-Dong Yong Seung, the Samsung Economic Research Institute’s Economic Security Team Chief, speaking at the 19th Expert Forum sponsored by the Peace Foundation (Daily NK)

Mr. Dong’s analysis addresses the improved efficiency of DRPK’s market supply chains but does not address the effects of an adverse supply shock. 

The UN seems ready to help, although it has not been asked:

Institutionally, mechanisms are in place in North Korea to ring the international alarm bell before hunger turns into mass starvation. The World Food Program monitors nutrition in 50 counties, and the Kim government has become expert in asking for help.

“The North Koreans know that they are facing a difficult situation and have made it increasingly clear in the past few weeks that they will need outside assistance to meet their growing needs,” the U.N. official said, asking not to be identified because of the sensitivity of the issue.

North Korea, which even with a good harvest still falls about 1 million tonnes, or around 20 percent, short of what it needs to feed its people, relies heavily on aid from China, South Korea and U.N. aid agencies to fill the gap.

The UN official said it was clear from a variety of sources that the food security situation was worsening in North Korea and that it needed to be addressed.

Last month Kwon Tae-jin, an expert on the North’s agriculture sector at the South’s Korea Rural Economic Institute told Reuters that if South Korea and other nations did not send food aid, the North would be faced with a food crisis worse than the one in the 90s.

The U.N. Food and Agriculture Organisation said in late March it sees the North having a shortfall of about 1.66 million tonnes in cereals for the year ending in October 2008.

The North will start to feel the shortage the hardest in the coming months when its meagre stocks of food, already depleted by flooding that hit the country last year, dry up and before the start of its potato harvest in June and July. (Washington Post)

The UNWFP, however, will be under pressure from its donors to monitor food aid and make sure it is not diverted to non-emergency uses.  Under these conditions, it is not likely that they will be asked to provide much aid until a catastrophy is already underway.  So with the UN out of the picture, who is best positioned to prevent the reemergence of a humanitarian crisis in North Korea today? China.  

Despite China’s own food probelms, however, it is always likely to capitulate, at least in part, to North Korea’s emergency requests.  China does not want to deal with another North Korean famine, particularly during the Olympic season, and they certainly do not want to deal with any political instability that could result. 

Yonhap reports that the DPRK has asked the Chinese for 150,000 tons of corn this year.  Chinas says they will give 50,000 tons–and that is just initially. (Yonhap)

UPDATE 4/14/2008: I still have not seen any reports in the media of Noth Korea seeking suport from Russia.

UPDATE 6/9/2008: China increases grain export quota to North Korea to 150,000 tons

(more…)

Daily NK
Moon Sung Hwee
4/8/2008

April 8th is Postal Service Day in North Korea. Each province has a branch office of the Ministry of Posts and Telecommunications and Communication Maintenance Bureau. The postal system manages the distribution of letters, telegrams, telephone calls, TV broadcasts, newspapers and magazines. Additionally, they mint stamps and also operate an insurance agency in name only.

In the late 1990s, the national postal system was completely ruined

In North Korea, postal service offices are set up in each “ri”—a small village unit–, of each county to deliver letters, parcel posts and telegrams. Following the March of Tribulation in the late 1990s, the delivery system was completely destroyed and its formal structure was left in tatters. Even in the 1980s when the North Korean economy and people’s lives were relatively stable, it took around 15 days to two months on average to deliver a letter from Pyongyang to a rural village.

In the case of a telegram, it took generally 3 or 4 days to reach a postal office in a rural area. In the late 1980s, to guarantee efficiency within the telegram delivery system, the authorities supplied the offices with second-hand bicycles from Japan.

After the March of Tribulation, letters disappeared due to train delays and frequent blackouts, and the telegram service was virtually incapacitated due to the lack of electricity.

Telephones were restricted to control the outflow of national secrets

North Korea uses a separate electricity supply for its telephone system. Even if there is a power blackout in a village, villagers can still use the telephone network. In 1993, fiber-optic cables were installed and the use of mail and telegram services began to decline. North Korean people call fiber optic cable a “light telephone.”

North Korea built an automatic telecommunicates system by developing multi-communication technology with imports of machinery and by inviting engineers from China in 1998.

In 2003, authorities allowed cadres to use telephones in their houses and in 2005, they also allowed people to use the telephone at home as long as they paid 2,000 North Korean won (approx. USD0.6) a month (a monthly salary is 1,500 won per laborer).

In August, 2007, the government tightened regulations regarding the telephone system. People could make calls only within their province. Authorities said the reason was to prevent the outflow of national secrets.

The Ministry of Posts and Telecommunications controls TV and other broadcasting. There is no cable TV in North Korea. Authorities set up an ultra-short wave relay station in each county to relay television broadcasts.

North Korea signed a contract with Thailand for satellite broadcasting and installed U.S.-made transmission and relay facilities in 2000.

People can now listen to “Chosun Central Broadcasting,” but in rural areas, it is difficult to recieve signals because the broadcasting facilities and cables have already begun to deteriorate.

People sarcastically say a “newspaper is not about news but about “olds.” The authorities pay special attention to the successful delivery of the Workers Party Rodong Shinmun bulletin. To deliver Rodong Shinmun from Pyongyang to each province or even to each city and county by train, it normally takes 4-5 days. Sometimes, it takes more than a week.

People also say they use an “oral-paper” to get information because rumors are faster than the Rodong Shinmun.

Postal service workers were dragged to prison camps

In 1992, the Minister and all related officials of Posts and Telecommunications were fired, and the Minister, the Vice Minister and their families were sent to political prison camps for having wasted national finances for the import of factory machinery to produce fiber-optic cables from the U.K.

They submitted a proposal to Kim Jong Il to buy factory machines in order to earn foreign currency through the production and export of fiber optic cables. However, in the end they eventually bought worn-out machines from the U.K. and failed to earn profits. In addition, they embezzled some of the funds.

In 2001, in Lee Myung Soo Workers-District of Samjiyeon, Yangkang Province, two office workers and a manager of a relay station broadcasted Chinese TV programs that they were watching to residents by mistake, so they were sent to a political prison camp and their families were expelled to a collective farm.

Agents of the National Security Agency are stationed at the Ministry of Posts and Telecommunications in order to scrutinize mail, parcels, to tap telephone wires and to supervise residents.

The Ministry regularly dispatches professional engineers to the 27th Bureau, to the airwaves-monitoring station, and to the 12th Bureau, which was newly established to censor mobile phones.

On Postal Service Day, Chosun Central Agency often delivers praise for the development of North Korea’s postal system and facilities under the General’s direction.

However, most ordinary citizens will not be able to watch or read about it in time, for the lack of paper, electricity, infrastructure, and delivery systems.

Daily NK
Sohn Kwang Joo
12/6/2007

It was in Yanji where I met the 25-year-old defector, Kim Soo Mee. She was born and raised in the mountains that separated her village from larger towns in Hamkyung Province.

Because of her mother’s ferver for educating her children, Kim Soo Mee was able to attend the First Senior Middle School, a specialized school for gifted students, following her timely graduation from primary school.

When she was 12 years old, the national famine greatly affected her town. People scattered about the streets looking for food, and dead bodies could be seen everywhere. Many students stopped going to school and instead spent their days searching for food. However, Soo Mee’s mother urged her to continue with her studies. With her mother’s encouragement, Soo Mee gained acceptance into a prestigious university in North Korea.

She received good grades at the university and had high hopes of working in a well-established company in Pyongyang. However, due to her family background, she was forced to remain and work in the small rural town.

The living conditions in North Korea’s capitol are surprisingly different compared to the local cities.

Kim Soo Mee explained about the corruption surrounding university admissions in North Korea. “Only children who grow up in rich families can be admitted to the universities in Pyongyang, as huge sums of money are needed to bribe institution administrators. For example, if a student wants to attend Kim Il Sung University, often times a family will pay upwards of 1,000 dollars just to afford the child a chance of getting accepted. Pyongyang Medical College and Kim Hyong Jik College of Education usually require approximately 500 dollars in bribes.”

I was curious to ask, “Can a student bribe their way into a school even if he or she does not have good grades?”

She explained that such students are instructed to leave certain indicating marks on their test paper at the college entrance examination as a way for evaluators to discern whether the student offered a bribe or not. The evaluators rank the students by the amount in bribes their families have paid, and then rank them according to their family background.

Her college life was unbearable because she had no financial power or a strong family background to support her.

385 days out of her college years were spent practicing for the 40 seconds of the military parade it would take to pass by Kim Jong Il’s podium. The average student spends almost two and a half years preparing for national events such as military parades and agricultural support activities that take place in the Spring and Fall. These hardships led Soo Mee and many of her fellow students to dream of going abroad.

The most popular jobs after graduation include diplomatic posts and working in foreign currency-making companies. She went on to explain that it is now undesirable to work as a discharged soldier or a member of the Party.

As for the common perception of Kim Jong Il among North Korean youths, she maintained that “through propaganda, the people are made to believe that the General (Kim Jong Il) ‘s meals consist of only a few rice balls and salted radish. However, I was shocked to find out that preparation of the General’s meals costs 1,000 dollars.” This information was told to her by a researcher from Kim Il Sung and Kim Jong Il’s Longevity Institute.

Most of the intellectual students have an unfavorable opinion about Kim Jong Il, but the general public does not see the truth behind his lies.

“In the movie, ‘Geumjin River’ (2004), there is a line that states, ‘We are poor because the heavens took away our Supreme Leader (Kim Il Sung) in wrath because the people did not respectfully take care of him.’ The authorities are currently insisting that our country is now poor because of imperialistic pressures and economic sanctions imposed on us by America.”

I asked, “What do the Pyongyang citizens think about the future of North Korea?”

“Most think that we should open and reform our state, but they can never mention the words ‘open’ and ‘reform’ in public,” she replied. “The authorities often proclaim that we can attain wealth by properly following the Military-First Policy and by establishing a strong economic society. But the problem is they do not tell us how to do so. The only people not doing business in the jangmadang are cadres of the Party, generals of the Army and National Security or Safety Agents; they maintain favorable living conditions by collecting bribes from the citizens.”

Institute for Far Eastern Studies
NK Brief No. 07-11-27-1
11/27/2007

Following Kim Jong Il’s August 26 announcement that, “Markets have become anti-Socialist Western-style markets,” measures to increase restrictions on markets across North Korea have also restricted individuals’ ability to migrate.

The Central Committee of the (North) Korean Workers’ Party released a statement in October, revealing that Kim Jong Il had stated, “The current state of anti-socialism should not be moderately opposed. A strong and concentrated attack must be laid out in order to thoroughly eliminate [this anti-socialist behavior].”

According to the Daily NK, an informant inside North Korea revealed that authorities are “contacting people who have applied for permission to travel to other regions at their trip destination and setting up interviews in order to verify that interviewees are conforming with their [stated] intentions,” and, “ultimately, long distance wholesalers are restricted in their movements, cause a reduction in the amount of goods circulating on the markets.”

Good Friends, a South Korean NGO for North Korean aid, also reported, “In North Hamgyung Province, if someone is absent from work for two days or not seen in their neighborhood, that person’s actions are carefully investigated,” and, “if someone does not check out, each of their family members are called in for interrogation.”

After the ‘Arduous March’, as market activity grew in North Korea, the number of whole-saling ‘middle-men’ grew considerably. These traders received travel permits by applying under the guise of visiting authorities, family matters, special occasions, or other personal reasons. Long-distance traders need a travel permit. In order to get such a permit, cash or goods were frequently offered as bribes.

Now, as it is becoming more difficult to receive travel documents, not only long-distance traders but also even normal vacationers are facing growing difficulties. In particular, people who need to travel to China for family visits are especially worried due to the increasingly strict issuance of travel permits.

The insider reported, “As markets grow, because wholesalers are gaining power as they make large amounts of money, authorities seem to be strongly restraining them,” and “if a wholesaler is caught, his goods are taken, leading to difficulties for market traders.”

According to a North Korean defector in the South with access to DPRK information, university students in Pyongyang are also being subjected to increasingly strict personnel inspections and restrictions. Even when they go to the library, they must fill out an exit record and can only remain out for one day before student leaders pay a visit to their home.

Students not strictly obeying school policies have their bags and pockets searched while being put under investigation and being further restricted. Of course, in the past, as well, students with problems faced inspections of their dormitory or personal goods, but recently, inspections of even everyday students are on the rise.

Bloomberg
Bradley Martin
Hideko Takayama
11/21/2007

In some parts of the world, floods and famine are acts of God. In North Korea, they’re acts of government.

For decades, the late North Korean dictator Kim Il Sung mobilized vast work teams to fell trees and turn the mountainsides into farmland, allowing rainwater to wreck roads, power lines and agricultural fields.

Following Kim’s death in 1994 — just before a flood- linked famine gripped the nation — his son and successor Kim Jong Il continued the sacrifice of forest cover until 2000, when he began encouraging reforestation. But the shift hasn’t reversed the damage, and some analysts warn that another famine, close to the scale of the 1990s disaster that may have killed millions of people, might occur as soon as next year.

“Next year’s food situation is quite serious,” said Kwon Tae Jin, a researcher at the Korea Rural Economic Institute in Seoul. The famine risk is greatest starting next spring, after the current harvest is used up, he said; North Korea’s best hope may be for more food aid from abroad as a result of its agreement to begin dismantling its nuclear-weapons program.

Floods in August and September left 600 people dead or missing by official count, and 270,000 homeless. “Corpses were dug out of the silt” still clutching vinyl-wrapped photos of the Kims, the official Korean Central News Agency reported.

`Bad Governance’

South Korea has similar rainfall but has largely avoided such calamities. The North’s flooding “is a product of bad governance, economic mismanagement, poor agricultural policy and haphazard short-term survival strategies of the starving, desperate population,” Alexandre Y. Mansourov, a Korea specialist at the Asia-Pacific Center for Security Studies in Honolulu, said in a study.

North Korea’s deforestation program dates back to a 1961 speech by Kim Il Sung. In a mostly mountainous country, he proclaimed, “it is necessary to obtain more land through the remaking of nature.” Not only tidelands but “hills throughout the country and plateaus” should be “brought under the plough,” he said.

“The hills and mountains still had trees, and I never heard of floods,” said Hiroko Saito, a Japanese woman who moved with her Korean husband to North Korea in 1961. Her husband joined one of Kim’s vast mountain work teams in the early 1970s, said Saito, now 66 and back in Japan.

Workers and Soldiers

The crews included “city workers, students, soldiers of the Korean People’s Army and anybody else who could move,” said Lee Wo Hong, a pro-communist Korean agricultural expert living in Japan who began spending time in North Korea as a teacher and adviser in 1981.

What he saw there turned him into a critic of Kim Il Sung’s agricultural policy, he said. The country “was filled with bald mountains” on which the North Koreans had planted fast-growing maize; even relatively light rain would wash the crop away.

Reclaiming marginal land appeared successful for a while as North Korea’s overall crop yields increased, agriculture specialist Edward Reed wrote in a 2001 University of Wisconsin study. “Yet from the mid-1980s on, there appears to have been a slow decline in production, probably due to soil depletion from overintensive production,” he said.

By the early 1990s, yields dropped so low that hungry North Koreans went to the mountains to bring even more land under cultivation. Meanwhile, increased demand for firewood — the result of an energy shortage caused when former communist trading partners halted cut-rate fuel exports — added a new incentive to strip the mountainsides.

Death Toll

The results came to the world’s attention in 1995, with the worst floods in a century. The lost farmland contributed to a famine — already under way — that killed somewhere between 600,000 and 1 million North Koreans, according to “Famine in North Korea: Markets, Aid, and Reform,” by Stephen Haggard and Marcus Noland. Other estimates put the death toll as high as 4 million.

As floodwaters poured into coal mines, the energy shortage worsened and the state-run economy all but collapsed. Economic recovery — which didn’t begin until 1998 — was halted by further catastrophic floods in 2006, when the economy again shrank, according to an estimate by South Korea’s central bank.

A report on North Korea’s environment as of 2003, jointly prepared by North Korean government agencies, the United Nations Environment Program and the United Nations Development Program, blamed severe “land degradation” on “conversion of forest land in hilly areas to agricultural land.”

Enthusiast

The report portrayed Kim Il Sung as a forest-planting enthusiast from as early as six decades ago. Nick Nuttall, a spokesperson at UNEP headquarters in Nairobi, said the agency was “not in a position to comment” on why the report didn’t mention Kim’s mountain-clearing policy.

While the report said reversing the environmental damage through reforestation has become “an all-out campaign,” hungry people have continued cultivating crops between the tree seedlings, according to Han Young Jin, a defector from the North who lives in South Korea.

As the branches spread, “people would tie the sprigs together so the trees could not grow,” Han wrote on a defector-staffed Web site, Daily NK. “When the trees inevitably died, new saplings would be planted.”

Financial Times
Anna Fifield
9/19/2007

Pak Hyun-yong was, by North Korean standards, an entrepreneur. Too much of an entrepreneur. During the famine that ravaged the country in the late 1990s, Mr Pak watched his family die of starvation – first his younger brother, then his older sister’s children. Then, eventually, his sister too.

Somehow he pulled through this period, dubbed by the regime as “the arduous march”, and was spurred into taking some very non-communist, almost subversive action. He began selling noodles.

Every day he would take 10kg of “corn rice” – a poor North Korean imitation in which dried kernels are fashioned into grains – and turn it into noodles. Then he would get on his bicycle and pedal around his home town of Hamhung on the east coast, bartering the noodles for 12kg of corn rice: 10kg for tomorrow’s noodles and 2kg for his remaining family.

“The police would come by and try to persuade me not to sell the noodles, saying that I should not succumb to capitalism and that the Dear Leader would resolve our food shortages,” says Mr Pak, who escaped from North Korea a year ago and is upbeat and energetic considering the hardships he has endured.

Now 32, he is in hiding in a bleak, remote village in northern China not far from the North Korean border, together with his wife, with whom he escaped, and their new baby. They live in a one-room house with no bathroom – protected by locals who are helping them settle.

“The [North Korean] police even threatened to imprison me if I didn’t stop selling. Suddenly I realised that North Korea was a country where they would stop people’s efforts to survive,” he says, sitting on the warm floor of his house, still dressed in the apron he wears to work in a nearby butchery.

“I heard that China was a rich and modern country – that they had tractors and that people could eat rice every day, even in rural areas,” he says, shaking his head. “Chinese dogs wouldn’t eat our rice – they would ask for better.”

In almost 20 interviews along the border with China, ethnic Koreans born in China and North Korean escapees, some of whom had been in the isolated state as recently as two months ago, describe a country where change is taking place from the ground up rather than under the direction of its leader, Kim Jong-il.

North Korea remains the most tightly controlled state in the world. But recent escapees tell of the changes that are being driven by necessity in areas near China, especially in the cities of Rajin and Hoeryong in the north and Sinuiju at the southern end of the border.

While it would be an overstatement to say that this represents the type of nascent transition to free-market reforms that has occurred in countries such as Russia and China, the worsening state of the North Korean economy is leading to widespread trading and the emergence of a fledgling merchant class crossing into China, the escapees say.

Some agricultural markets – rather than just state markets – were permitted during the “economic improvements” of 2002, but ad-hoc markets have since sprung up around the country with the tacit approval, if not the encouragement, of the regime. These markets are now the backbone of North Korea’s creaking economy as the regime provides almost nothing by way of rations any more.

The parlous state of the economy is probably the driving factor behind Mr Kim’s decision to roll back his nuclear programme. The six-party denuclearisation talks are making surprisingly good progress, analysts say, as his regime seeks heavy fuel oil for its rusting industries and an end to economic sanctions.

Certainly, recent escapees from North Korea describe a desperate situation inside the country. Somewhere between 10,000 and 30,000 North Koreans are thought to be living in hiding in the north-eastern provinces of China, especially in Jilin and Heilongjiang, areas considered backward by Chinese standards.

The Financial Times travelled throughout this region to meet North Koreans while seeking to avoid endangering their lives. (North Koreans who are repatriated from China face detention in labour camps or worse, and even those who are not caught put the lives of family members at risk by talking to journalists. For that reason, names have been changed.)

“In Rajin, all the factories have stopped,” says Oh Man-bok, a 22-year-old who escaped in September from the city near the borders with Russia and China, considered relatively prosperous because it is one of the North’s main trading channels. “The men still have to go to work and have their name checked off but there is nothing to do. Sometimes they sit around and sometimes they go home. They don’t get paid but sometimes, in a good month, they get 15 days’ worth of corn in rations,” he says.

That means women are increasingly becoming the breadwinners, going to the mountains to collect edible plants or to the market to sell home-made snacks. “People survive by selling. They do whatever they can to earn money – selling fried dough sticks or repairing shoes and clothes,” Mr Oh says. “But it’s very difficult to earn enough to survive and even in Rajin, many people have to eat porridge made from the whey left over from making tofu.”

Rajin and Sinuiju, as the main thoroughfares for trade with China, have been more open than the rest of North Korea for some time, but the experiment with capitalism that has been taking place in these two cities now appears to be expanding to Hoeryong.

The city of Hoeryong can be clearly seen from the Chinese side of the border, which is marked by a shallow river only 20 metres wide in places. On the bridge between the two countries, the Financial Times watched North Korean trucks trundle into China and dozens of Chinese – and a few North Koreans wearing badges stamped with the image of Kim Il-sung, Mr Kim’s late father and founder of the state – lug bags across.

A Chinese border official says that about 100 a day cross the bridge from the Chinese side, mainly going to visit family members, although in summer as many as 300 go on tour packages to the beach on North Korea’s east coast. About 10 North Koreans a day cross into China for trading or to see their relatives. “With Rmb1,000 [$135, £65, €92] they can come to China even if they don’t have family here. So they often borrow money to come here and buy things for trading in the market in Hoeryong,” the official says.

Bribery appears to be becoming more widespread as trade and travel increases – from a few cigarettes needed to pass through internal checkpoints to the few hundred renminbi expected at border crossings. “Everyone wants to be a border guard these days,” says one Chinese-Korean trader. “They don’t explicitly say, ‘Give me money’ – they just keep going through your paperwork and asking you questions until you offer them money.”

Again, Pyongyang seems to be aware that this is happening and allows it as a way to keep people happy – rotating border guards every six months to give officials from around the country a chance to earn extra money, according to escapees.

In Hoeryong, the market used to be beside the bridge on the outskirts but this year it was moved to a school building right in the centre of town. Its 180,000 residents enjoy a relatively privileged existence because Kim Jong-il’s late mother was born there.

The market has become central to the city and to people’s lives, driven by grassroots demand, says Song Mi-ok, an ethnic Korean living in China who has made several trips to the city recently. She has gained access by visiting fake relatives, a family to whom she pays Rmb1,000 every time she pretends to visit them.

“You can find everything there,” she says of the market, which opens at 7.30am and closes at dusk. “People usually start by selling food that they have grown or made, using the profits to move into goods trading.”

North Koreans say one can buy everything in the markets “except cat horns”, as their expression has it. Rice given as aid from South Korea is on sale and people even display the bag – even though they risk having it confiscated by the authorities – because people know that South Korean rice is of high quality, Ms Song says.

One kilogram of rice in Hoer­yong market costs 900 North Korean won – a huge amount in a country where the average wage for a government employee is about between 3,000 and 4,000 won a month, or slightly more than one US dollar.

“There are a lot of people buying and it’s all money trade; there’s no bartering now,” Ms Song says. “North Koreans are poor, so it’s quite surprising to see people with a lot of money. They don’t receive money from the state – it’s all money they have made themselves.”

One Korean-Chinese man who visited relatives in Hoeryong last year also describes an increasingly active drug trade. It is not uncommon, he says, to be approached by people in their twenties or thirties selling a white narcotic called “ice” – probably a form of crystal methamphetamine. The drug fetches 20 times the North Korean price in China, making smuggling a lucrative business, but the punishment for drug trafficking in China is so severe that Hoeryong dealers try to sell it to visiting Chinese.

The markets are thriving thanks to new border regulations. While the number crossing illegally has dropped because of tighter restrictions in both countries, the number of North Koreans who are allowed to cross into China legally has steadily increased, according to several Korean-Chinese who help those who make it across the border.

North Koreans with relatives in China but not in South Korea are allowed to apply for passports to cross the border. This is creating a new group of migrant workers – those who are legal but working for themselves and their families rather than for the state. “Young people come here to work for one or two months and earn some money – they’re coming from Pyongyang as well as the regions,” says Ri In-chol, an ethnic Korean missionary from China who supports border crossers, legal or otherwise.

“They pay Rmb300-Rmb400 to get a passport and then they can cross. There is now a much freer flow because Kim Jong-il realises that this is the only way to keep the people alive. They take back money, used sewing machines and used clothes from their relatives that they can sell in the markets,” Mr Ri says.

Although Chinese clothes are most prevalent, North Koreans prefer South Korean products for their higher quality. “The labels have to be cut out of South Korean clothes, so if they don’t have a label then people assume that they’re South Korean and they like them more,” says another Chinese-Korean who has recently visited Rajin.

Indeed, Mr Ri says that North Korean officials are picky about what they will let through. “When North Koreans come to China they are allowed to take used clothes back. But when Korean-Chinese people want to give clothes to their relatives in North Korea, they have to be new because otherwise the officials think they are being looked down on,” he says. (Jeans and short skirts, seen as representative of American immorality, are still not allowed.)

The economic changes – particularly the lessening dependence on the state – are potentially destabilising for Mr Kim’s regime because they weaken the tools of control. That means that there is a fine line between what is permissible and what is not. “Kim Jong-il is tolerating this much openness because people need to survive, but if he wakes up one morning and sees capitalism is spreading too far, he will order it all to be stopped,” says Gao Jing­zhu, professor of Korean studies at China’s Yanbian University, near the border.

“North Korea is small, so if there is too much change it will threaten the sustainability of the regime and it will collapse,” Prof Gao says. “North Korea is in a dilemma.”

Good Friends, a Seoul-based civic group that monitors life inside North Korea, this month said Pyongyang was cracking down on women working in street markets. “The authorities have judged that female merchants have reached a point that threatens the country’s government,” Good Friends quoted a North Korean official in China as saying.

“The men are tied to their workplaces but they don’t receive proper rations,” the official reportedly said. “This has shifted the men’s burden of supporting their families on to the women. With trade directly linked to the people’s survival, the crackdown isn’t going well.”

Indeed, it may already be too late. The increased economic interaction with China means that the flow of information to North Koreans is steadily increasing. “People’s awareness and illusions have changed,” says one Chinese-Korean who drives trucks into North Korea.

This is just the kind of contact that threatens Mr Kim’s regime, which has kept the 23m-strong population under control by cutting off access to the outside world and telling them they live in a socialist paradise. Mr Ri, the missionary, says: “People living in open areas like Rajin and Hoeryong are more exposed to the outside world but that is not the case when you go further into North Korea. So even if it is becoming more open, you never know when that is going to change. They will still come after you if you are involved in political activities.”

But recent escapees from North Korea say that people are increasingly discussing – in private – one topic that they say would have been unimaginable until very recently: the eventual death of the Dear Leader. “State control is still as strong as before but now, when people gather together as families, they say that the system is really wrong. That never used to happen before,” says Mr Pak, the man who left Hamhung last year.

“Kim Jong-il always says he will feed the people and make them happy, but that has not happened. There are many people who hope that Kim Jong-il will die soon,” he says, shrugging his shoulders. “I have to admit it: the state is already kind of breaking down.”