Archive for the ‘Political economy’ Category

Gas prices down in North Korea after Kim’s China visit

Thursday, January 31st, 2019

By: Benjamin Katzeff Silberstein

A while back, I speculated that fuel prices in North Korea might go down after Kim Jong-un’s visit to China. This is precisely what happened, Daily NK reports. Causality is of course impossible to prove, but given circumstances (and the historical pattern of fuel price movements, which I write about in a forthcoming working paper), a connection doesn’t seem unlikely.

“The cost of 1 kg of fuel has fallen by around 2,500 KPW from 13,000 KPW two weeks ago,” said a North Hamgyong Province-based source on January 22. “The fall of 2,500 KPW per kg is a lot, so it’s being welcomed by merchants.”

The drop in fuel costs has impacted gasoline prices in the country’s northern region, with the source adding that truck drivers he spoke with have reported that the fuel prices in Pyongyang are similar.

Despite the restrictions on oil imports into the country due to international sanctions, smuggling across the country’s porous sea and land borders have kept gasoline supplies (including diesel) steady in the country, the source said.

The cost of fuel in North Korea last year fluctuated considerably due to sanctions pressure. News outlets reported last year that fuel prices reached 27,000 KPW per kg in early January 2017, a 60% spike from December 2016 prices.

The prices dipped back down to around 15,000 per kg, before settling at 15,500 KPW in December 2018. This suggests that gasoline prices in North Korea are more sensitive to international sanctions than other commodities like rice.

The recent fall in prices is likely due to a reduction in the price of smuggled fuel from China and the rising volumes of diesel fuel being refined and sold in the country.

Domestically refined diesel is generally supplied to the military and state-run factories, but also finds its way to the markets through different avenues. The source reported that there is now more diesel fuel being circulated in the markets.

Also, see this on the general ease of smuggling conditions/border controls after the visit.

Full article:
Optimism rising as fuel prices dip in North Korea
Kang Mi Jin
Daily NK
2019-01-28

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UN panel says North Korea is selling fishing rights

Thursday, January 31st, 2019

Benjamin Katzeff Silberstein

One of the many ways in which North Korea earns hard currency is sales of fishing rights to vessels from China. This is also supposedly one of the reasons for the North Korea “ghost ships” drifting to Japan. Because many fishings rights near North Korea are sold to Chinese vessels, North Korean boats have to go further out, often without adequate fuel supplies. Kyodo News reports that the UN panel of experts will soon publish their report detailing some of these fishing rights sales, which breach the sanctions currently in place:

The claim is based on information provided by two unnamed member states, though one has been identified as Japan, according to officials in Tokyo.

It is also expected to be reported that more than 15 Chinese fishing vessels were inspected and found to be carrying licenses from North Korea, officially known as the Democratic People’s Republic of Korea, during the reporting period of January-November 2018.

It is anticipated that information obtained from fishermen who were questioned will reveal that around 200 Chinese fishing vessels were operating in North Korean waters. Based on another interview, it was discovered that the price of a single fishing license cost about 50,000 yuan ($7,250) per month.

The fishing vessels apparently displayed fishing permit number plates that were attached to the outside of the vessels, flown on flags, or both in combination.

These actions violate a Security Council resolution adopted in December 2017 in response to Pyongyang’s ballistic missile launch the previous month. In it, the 15-member council clarified that any sale of fishing rights by North Korea was strictly prohibited.

Last September, Japan’s Foreign Minister Taro Kono highlighted concerns about the sale of fishing rights as well as ship-to-ship transfers of petroleum products as two examples of the North’s “sophisticated efforts to evade and circumvent” past resolutions.

The resolutions were imposed on the country in escalating fashion as it carried out a total of six underground nuclear tests and numerous missile launches using banned equipment.

Each year, the panel prepares its report based on information analyzed by its eight members, who have expertise on a variety of issues such as nuclear nonproliferation and export trade control.

Full article:
N. Korea likely to be accused of illegally selling fishing rights
Kyodo News
2019-01-31

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North Koreans swamped with state-mandated work after Kim’s New Year’s Speech

Friday, January 18th, 2019

Benjamin Katzeff Silberstein

Daily NK:

A source in North Hamgyong Province told Daily NK on Janaury 16 that “people are busy carrying out the social tasks that began earlier this year.” The tasks focus on manure collection and material support in an effort to boost production numbers in time for Kim Il Sung and Kim Jong Il’s upcoming birthdays.

“Members of the Socialist Women’s Union of Korea who conduct business in the markets rather than a formal workplace have to contribute a total of 1 ton of manure, or 150 kilos each per day,” she added. “Those working in companies have to meet their own manure targets of each collecting 10 kg of human waste, 30 kg of dog/cow/lamb or other animal droppings, and 50 kg of humus soil.”

If they fail to meet their quotas, they are forced to work night shifts. Many are having to continue working in their day jobs while also trying to meet their ‘manure battle’ quotas.

That being said, the total amount of manure authorities are targeting for collection this year is 200-500 kg (per adult). This marks a reduction from last year, and is a development that residents have expressed some relief about.

Even Socialist Women’s Union of Korea members are noting that the “situation has improved.” In the past, the government set quotas for specific types of manure to be collected, but this year it has only presented a total quota requirement. The government may be aiming to prevent any interruptions in the market activities of union members.

A separate source in South Pyongan Province said that while high school students were each given 300 kg and middle schoolers 100 kg manure collection quotas, elementary students were not given any quotas to fulfill despite previously being “unconditionally mobilized” into such drives in the past.

“Carrying sacks or backpacks, inminban leaders are going around and collecting two eggs and 7,000 won from each person within their districts for the manufacture of gifts to be handed out to children on Kim Jong Il and Kim Il Sung’s birthdays (February 16 and April 15, respectively),” he added.

In some cases in the past, residents would avoid opening their doors to the inminban leaders, anticipating that the officials were going to request donations.

Full article:
North Koreans swamped with “state-sponsored tasks” in the new year
Ha Yoon Ah
Daily NK
2019-01-18

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South Korea and the US consider what incentives to offer North Korea in negotiations

Wednesday, January 16th, 2019

Bloomberg reports that sanctions relief may be used as an incentive for North Korea in the current negotiations, by South Korea and the US. The better question is, how could it not…?

Foreign Minister Kang Kyung-wha told a news conference Wednesday in Seoul that the allies were reviewing various packages of incentives that Washington could bring to the table in the meeting. While Kang provided few details other than to say restarting stalled business projects were being discussed, the term can cover everything from sanctions relief to moves to formalize the end of the 1950-53 Korean War.

[…]

Negotiations between the U.S. and North Korea have sputtered since Trump and Kim Jong Un signed an agreement during their first meeting in June to “work toward complete denuclearization of the Korean Peninsula,” without defining the phrase or setting any deadlines. North Korea argues the deal implied a step-by-step approach, where each of its actions are met by U.S. responses, while Trump administration officials assert that Kim Jong Un accepted his country’s “final, fully verified denuclearization.”

Kim Jong Un warned in his New Year’s address this month that he could be forced to take a “new path” in talks if Trump didn’t relax sanctions pressure. He pressed for U.S. concessions to reward his decisions last year to halt weapons tests and dismantle some testing facilities, without offering additional steps.

Full article:
U.S., South Korea Mulling Incentives for Kim in Nuclear Talks
Youkyung Lee
Bloomberg News
2019-01-16

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North Koreans react negatively to KJU’s speech, says Daily NK

Wednesday, January 16th, 2019

Daily NK reports on popular reactions to Kim Jong-un’s New Year’s Speech:

“It’s winter, but those who failed to prepare for it are not going to work nor are they going to any criticism sessions, lectures or study sessions,” a source in South Pyongan Province told Daily NK. “Workers’ Party of Korea (WPK) Organization and Guidance Department (OGD) and Propaganda Department officials are not sure how to respond to the situation.”

A lecture about nuclear weapons was recently held at a farm in Sunchon, South Pyongan Province, but only 80 out of the farm’s 500 employees attended. The lecture was held again the next day after another announcement, and then only 50 people showed up for it, according to the source.

Daily NK reported in November that the North Korean authorities had begun holding lectures to commemorate the first anniversary of the state referring to it as the “day nuclear weapons were completed” and emphasize Kim Jong Un’s achievements.

According to a December 2018 article in the Rodong Sinmun, the Party Committee of the Jagang Province’s Forestry Management Department held a “commentary” and a “very emotional propaganda speech” to encourage logging during the winter, while Jagang Province’s Usi County held a number of ideological and political activities aimed at showing off the superiority of the North Korean state and encouraging greater production.

It is rare for North Koreans to deliberately avoid attending lectures held by the WPK’s Propaganda and Agitation Department in such numbers. The situation may be partly due to the fact that many factory and farm workers pay fees in order to avoid official work duties assigned to them by the state.

Fees can be paid to receive an exemption from work, allowing citizens to conduct their own private business activities. The practice took off after state-run companies and other organizations became unable to pay proper wages. Private business activities can rake in significantly more money than official wages.

Moreover, North Koreans who actually attended the lectures reacted negatively to them, saying that the lecture content is out of touch with reality.

“Those who attend the lectures don’t really listen to what’s being said – rather, they just talk about their own business and concerns about getting food and surviving the winter,” said a source in Ryanggang Province. “The lectures about nuclear weapons are so far from what concerns people that no one even listens to what’s being said.”

Article source:
Many North Koreans react negatively to state lectures
Mun Dong Hui
Daily NK
2019-01-16

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Popular mobilization for manure collection in North Korea

Tuesday, January 15th, 2019

Daily NK reports that large-scale mobilization is underway in North Korea, for citizens to gather manure for agricultural use:

The North Korean authorities have launched a new “battle” to support the aims of Kim Jong Un’s New Year’s Address, and are moving to restrict residents from engaging in private business.

The country held a massive rally on January 4 at Kim Il Sung Square to garner support for the aims set out in the address. Another rally was held outside Pyongyang where Kim Jong Un pledged to continue North Korea’s economic development.

“The government decided that the first ‘battle’ of the New Year in support of Kim Jong Un’s address was to be held from January 4-10,” said a Ryanggang Province-based source on Sunday. “Orders for the battle were handed down on January 5 and mobilization began thereafter.”

The new battle focused on the annual drive to collect manure (including night soil) for biological fertilizer from farms in the country’s agricultural regions, while city residents focused on improving their collection rates. The “manure collection” in rural areas also involved organizations and people from the cities.

In an effort to ensure that an atmosphere of total mobilization was created, local police actively restricted freight trucks, vans and other vehicles transporting goods and people from driving on the streets during the course of the battle.

“The authorities threatened to send private business people violating the order to disciplinary labor centers (rodong dallyeondae),” a source in South Hamgyong Province reported.

Local provincial governments generally engage in “battles” at the beginning of each year in tandem with the annual New Year’s Address, but it’s unusual for the whole country to hold a battle for an entire week.

Full article:
North Korea’s population mobilized for manure collection
Kim Yoo Jin
Daily NK
2019-01-15

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Mobilization for manure collection after KJU’s New Year’s Speech

Tuesday, January 15th, 2019

Benjamin Katzeff Silberstein

“The government decided that the first ‘battle’ of the New Year in support of Kim Jong Un’s address was to be held from January 4-10,” said a Ryanggang Province-based source on Sunday. “Orders for the battle were handed down on January 5 and mobilization began thereafter.”

The new battle focused on the annual drive to collect manure (including night soil) for biological fertilizer from farms in the country’s agricultural regions, while city residents focused on improving their collection rates. The “manure collection” in rural areas also involved organizations and people from the cities.

In an effort to ensure that an atmosphere of total mobilization was created, local police actively restricted freight trucks, vans and other vehicles transporting goods and people from driving on the streets during the course of the battle.

“The authorities threatened to send private business people violating the order to disciplinary labor centers (rodong dallyeondae),” a source in South Hamgyong Province reported.

Local provincial governments generally engage in “battles” at the beginning of each year in tandem with the annual New Year’s Address, but it’s unusual for the whole country to hold a battle for an entire week.

Full article:
North Korea’s population mobilized for manure collection
Kim Yoo Jin
Daily NK
2019-01-15

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North Korean government orders farmers to supply more food to the military

Friday, January 11th, 2019

Benjamin Katzeff Silberstein

Daily NK:

The North Korean government and the nation’s farmers have long harbored issues over food supplies. The government’s aim is to increase the volume of rice that farmers sell while farmers try to retain as much food as they can. However, tensions had subsided until recently due to an overall increase in food production to around 5 million tons over the past four years.

Due to various factors, this year’s harvest has been lower than expected and food supplies for the military are consequently insufficient. This has led the authorities to mobilize government agencies like the Prosecutor’s’ Office to ensure that farmers are compelled to sell the required volume of produce to the government (at significantly below-market prices).

“Production fell due to floods and droughts last year, so government purchases of rice for the military didn’t happen on time. The authorities have turned to the state’s legal apparatus to force the farmers to fulfill the quotas they are required to sell to the government to make up for the shortfall,” a source in South Pyongan Province told Daily NK on January 7.

“Farm managers argue that they cannot sell the government any more rice due to the various taxes and farming costs they have to pay along with preparing seed grains, but the Prosecutor’s Office is demanding that the government receives the reserve supplies of food produced by the farms.”

Farmers who have received plots of farmland are required to provide 70% of their production to the military, and are facing harsh difficulties due to the government’s demands.

“Local prosecutors in Pukchang, Sukchon, Yangdok County and other places are visiting farms and even the homes of farmers to search for grains that have been hoarded in secret,” said a separate source in South Pyongan Province. “The prosecutors are telling farmers that if they are caught hiding grains, they’ll be tried in court and sent to correctional facilities.”

Full article:
State orders farmers to supply more food to the military
Kim Yoo Jin
Daily NK
2019-01-11

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Could Xi Jinping give Kim Jong-un fuel deliveries for his 35th birthday?

Wednesday, January 9th, 2019

By: Benjamin Katzeff Silberstein

At the present time of writing, Kim Jong-un is still in China, though some signs suggest his train may have taken off back to North Korea. Kim spent is 35th birthday in Beijing, and visited a high-tech factory zone and other sites relevant to his economic and industrial policy focus.

But what did Xi Jinping give Kim for his 35th birthday?

If the past is any indicator, Xi’s present may have been sanctions relief in the form of increased fuel deliveries. The data suggests that this is precisely what happened after Kim’s third visit to China last summer, on June 19th of 2018. Consider the following graph, from a forthcoming working paper:

Average gasoline and diesel prices on markets in three North Korean cities, January–August 2018. Data source: Daily NK price index. Graph: Benjamin Katzeff Silberstein/North Korean Economy Watch.

(If the image is too small, click it to see a larger size.)

Look closely at the dip in the blue line, in the right-hand side of the graph. This shows a significant drop — 50 percent! — in average gas prices on markets in three North Korean cities. This price drop came right at the time of Kim’s third visit.

Coincidence? Could be.

Market prices, however, tend to move for a reason, and there are no obvious factors that can explain this particular price drop. Other than Kim’s visit, that is. This is, of course, circumstantial speculation, but it makes a great deal of sense. China may have simply upped fuel deliveries to North Korea as a show of good faith prior to Kim’s visit, or after a direct request from Kim.

Should Kim have asked Xi for similar sanctions relief during this visit, it wouldn’t be all that surprising. It’s also worth noting that exchange rate for both US dollars and Chinese renminbi have gone up quite significantly on North Korea’s markets in the past few weeks, as I noted a couple of days ago, hinting that the economy may be under some distress. North Korea may not be under any general economic crisis as a result of the sanctions, but things surely aren’t looking great.

We should know when the next price update from Daily NK or other sources comes in, and just because Kim seems to have gotten sanctions relief at one point after a meeting with Xi doesn’t mean it’s a given for every single occasion. But it is reasonable to expect that Kim did get something from the trip. It did, after all, coincide with his birthday.

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Market exchange rate for USD on North Korean markets at two-year high, RMB rate up as well

Monday, January 7th, 2019

By Benjamin Katzeff Silberstein

Judging by the latest market price data from Daily NK, the exchange rate of the North Korean won (KPW) to the US dollar (USD) appears to have reached its highest point since the beginning of the latest period of heightened tensions with the United States. The latest price observation by the Daily NK puts the KPW-USD average exchange rate on markets in three North Korean cities at 8,500 won. That’s an increase of 445 won from the last observation (December 11th), or about 5 percent in a fairly short time span. (Please click both graphs for closer views).

Graph 1. KPW-USD average exchange rate for markets in three North Korean cities, January 2017–December 2018. Data source: Daily NK.

The Chinese Renminbi (RMB) has also appreciated against the won in the latest observation, but not by as much. From the observation on December 11th, the RMB went up from 1197 KPW to 1242, an increase by about 3.7 percent.

Graph 2. KPW-RMB average exchange rate for markets in three North Korean cities, January 2017–December 2018. Data source: Daily NK.

As graph 2 shows, the RMB-increase is almost as large as the one for USD. The RMB, however, is not at an historical high for the period in question, which the USD is. The RMB is, on the other hand, significantly higher than in the same period last year, and from December 26th of 2017, it’s increased by almost 11 percent, from 1120 KPW to 1241. The USD, meanwhile, stands at about 6 percent more than it did on December 26th of 2017.

In other words, both currencies have appreciated, and by significant proportions, assuming that this latest price report conveys accurate information representatives of the general exchange rate level in the country. It doesn’t seem to be a seasonal issue, given the differences from last year.

With the information currently available, it is of course very difficult to tell what could have caused this minor spike of sorts. The two currencies are likely not controlled by the exact same factors, as the RMB is much more widely used among the North Korean public. Few people hold and use USD on a daily basis. Rather, the main holders of USD in North Korea are likely to be state institutions such as major state-owned enterprises. This matters for the way the markets are likely to work for RMB and USD respectively.

Both, on the other hand, are foreign currency. As such, they are at least partially interchangeable. To put it simply, if the regime would decide to soak up foreign currency in general, for whatever purpose, it would likely target both USD and RMB, and other foreign currencies as well, because they can be used for the same things to a large extent.

So. What could (and I say could with the utmost of caution) have caused this upturn?

The regime has been conducting market crackdowns on illegal trade and smuggling of banned foreign goods, such as foreign media, over the past few months. An upturn in this crackdown could cause anxiety on the markets, causing people to hoard foreign currency. It doesn’t seem, however, that foreign currency trade has been targeted in particular, making this scenario unlikely.

It could also be that other goods that require foreign currency payments, such as gasoline, have become more expensive. This means that traders buying and selling such goods need more foreign currency to pay for their imports, and they may even require foreign currency payments from their customers. This, in turn, would cause the RMB and possibly the USD to appreciate over the KPW. But gas prices aren’t out of their ordinary span, and they’ve actually decreased in the latest price observation, to 15,200 won/kg from 15,200 won/kg, albeit after first spiking from 13,133 won/kg to 15,733 won/kg between mid- and late-November. Still, the trends don’t run in parallel.

A third possibility, and the most likely one out of the three presented here, in my opinion, is that the state has soaked up foreign currency from the markets by, for example, demanding more of it from state-owned enterprises. It could also be that if in normal times – and this is a big if – the state releases foreign currency on to the markets to maintain exchange rate stability, they’re doing less of that now, causing the foreign exchange rate to appreciate. The state’s foreign currency reserves and coffers have likely been dwindling for some time under sanctions. Curiously, we haven’t seen signs of it on the markets. It will be interesting to see whether the trend continues in the weeks and months ahead.

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