North Korean Economy Watch

According to the Daily NK:

The People’s Safety Ministry has declared war on the use of vehicles for private gain, according to a source, raising fears that another period of social upheaval is on the cards.

Vans, buses and trucks have been in use as so-called “servi-cha” (service cars) in North Korea since the late 1990s, after the authorities became unable to provide regular electricity to the railroads. Since then, this alternative transportation system has become a core means of distribution and domestic movement.

However, a source from North Hamkyung Province reported on Sunday, “A crackdown on sedans, vans, and 1.5 to 2-ton trucks belonging to individuals has begun under a decree handed down by the People’s Safety Ministry on the 18th. Now, all traffic safety agents are checking car registration documents, vehicle licenses, car permits and driver’s licenses on the streets.”

The source explained, “The PSM intends to confiscate all kinds of vehicles apart from those registered for cadres and businesses in the Traffic Office database in each province. Even those vehicles belonging to military-owned foreign currency-making enterprises have been targeted for inspection, but the military police will deal with them.”

According to the source, the North Korean authorities have divided the crackdown on the servi-cha system into two steps: the first is to be carried out until the end of this year, and the second by late April, 2011. First, for the next six months, the PSM will investigate vehicle ownership in government organs, companies and factories, inspecting all vehicles on the streets and confiscating those found guilty of illegality. In the second phase, the PSM will move on owners of private vehicles.

Vehicle management in North Korea is the work of the Traffic Department of the People’s Safety Ministry. The Traffic Department has a Traffic Office under each municipal or provincial People’s Safety Ministry which is in charge of monitoring vehicles within that region. Vehicles belonging to the military are managed and monitored by the rear guard unit of each corps, division or regiment; punishment, monitoring and crackdowns are military police duties.

The operation of a “servi-cha” requires the collusion of three parties; the car’s real owner, a driver and a cadre from an organ or enterprise.

A used car arrives from China or Japan, whereupon the cadre, who has close relations with the smuggler of the car, registers it in the name of his organ or enterprise, since all vehicles must belong to a group, not an individual.

Then, the car owner hires a driver and operates the vehicle as a bus or delivery truck.

Gains are divided between the cadre and the owner, who also pays the driver’s salary. The cadre extracts some of the profits for himself and records the rest as company income.

Under this mechanism, almost every organ, company, factory and even collective farm has at least one “servi-cha” in its name; profits are used to cover other losses, since there is no support coming from Pyongyang anymore.

This system is probably the most decisive influence on the growth of the jangmadang in North Korea. Thanks to the “servi-cha”, volumes of commercial traffic and personnel migration have increased and products smuggled in across the Tumen and Yalu Rivers from China are able to reach remote southern provinces such as Kangwon and Hwanghae.

Since the late 1990s, when the operating ratio of the railroad dropped to as low as 40%, the servi-cha system spread as an alternative to the collapsing public transit network. As permanent markets emerged in 2004, demand from people for migration and the distribution of goods increased drastically, and thereafter the system became the core transportation tool.

Considering the dominant influence of the “servi-cha” in the daily lives of the North Korean people today, if the crackdown is long and/or successful over a long period, other serious effects may be felt in North Korean society, where the aftershocks of the currency redenomination have only just dispersed.

This measure is being interpreted as part of a series of struggles for the eradication of what the North Korean authorities see as “anti-socialist elements”. Additionally, it seems to be an attempt not to ignore the abuse of loopholes in the system by cadres.

From the authorities’ perspective, the wide-spread usage of the servi-cha represents a loss of control over the society, because the movement of goods and people naturally incorporates the circulation of information.

The obvious problem is that any crackdown on the servi-cha industry will cause instability in the markets.

The source said, “Getting rid of ‘servi-cha’ is the same as letting us starve to death,” adding, “If they eliminate ‘servi-cha’, it won’t just be a problem for companies; any life tied up in markets including wholesaling and retailing will hit a brick wall.”

He explained further, “The measure will be a blow to cadres in the middle and lower levels, who are in collusion with traders. Therefore, lower cadres are likely to resist the measure first.”

Therefore, it is very much open to question whether the measure will be a success or a failure, just like previous crackdowns over markets and the currency redenomination.

Read the full story here:
War Declared on the Servi-Cha
Daily NK
Im Jeong Jin
10/25/2010

1. The Boston Globe puts together a great photo album of the celebrations attended by Kim Jong-un.

2. Pyonghwa Motors did a car show in Vietnam where several of their vehicle models are sold. Who would have thought that both the North Koreans and the Unification Church would approve of a showcase model! See the Pyonghwa Motors Wikipedia page here.

3. See the KPA’s “Funky get down Juche party” (Youtube).  It only works with audio!

4. Here is a group of North Koreans in China visiting Starbucks! (They were only seen outside the Starbucks, I cannot confirm they went in)

5. Recently I have posted a lot of pictures of North Koreans wearing Western brands (Jesus, Mickey Mouse, South Park, etc).  Today we see Jurassic Park (h/t to an anonymous colleague):

6. Fourjay Industries of Dayton, OH, might like to know that their products are helping to motivate swimmers at the Kim Il-sung University swimming pool (satellite image here).  I am willing to bet that the DPRK’s order (probably made through one or more intermediaries) did more good for the state than the stimulus package (zinger)!  I realize this picture proves nothing.  You just have to trust me that it came from Kim Il-sung University (Gag located the product web page here):

7. Finally, here is a good copy of a very famous picture:

FIRST: A visitor to Pyongyang sent me these photos of a North Korean boy wearing a South Park shirt on Mansu Hill:

I trust that I do not need to explain why this is interesting.

SECOND: From Koryo Tours: The latest news from Pyongyang is that Arirang, the spectacular 100,000-strong mass gymnastic event has been extended until October 25th, marking the final performance of the 2010 season. If you haven’t yet seen tens of thousands of people moving in unison, 20,000 students forming a giant mosaic or the dancing eggs that makes Arirang unique, don’t miss our Last Chance Tour. Visitors can also see the massive monuments of Pyongyang, eat food “fit for royalty” in the ancient city of Kaesong and watch the North and South stare each other down at the DMZ. There’s no word yet on whether 2011 will have mass games at all – this just might be Arirang’s last dance. Don’t miss it!

If you are not able to see the Mass Games this year you should still see Centre Forward!

THIRD: NKNews.org has a couple of interesting recent updates from the DPRK.  The first claims that all of Pyongyang’s traffic ladies have been replaced by traffic lights.  Read the report here.  The second report covers a whole list of interesting observations.  Check out the report here.

According to the Daily NK:

It has been reported that the North Korean authorities have declared a “Special Vigilance Period” and begun regulating civilian access to Pyongyang. The move looks like the start of preparations for the Delegates’ Conference of the Chosun Workers’ Party, which could begin as early as the end of next week.

An inside source reported the news in a telephone conversation with The Daily NK today, saying, “Since the 26th, they have been regulating access to Pyongyang for provincial residents at all the ‘No. 10 Checkpoints.’”

The General Security Bureau of the National Security Agency sets checkpoints at every major entry point into Pyongyang, and these are called “No. 10 Checkpoints.” They are used to regulate the floating population; at all checkpoints, vehicles and civilians have their documents checked.

There are approximately ten checkpoints, with Junghwa No.10 (Hwangju, North Hwanghae Province to Pyongyang), Seopo No.10 (Pyongsung, South Pyongan Province to Pyongyang), and Majang No.10 (Sariwon, North Hwanghae Province to Pyongyang) seeing the highest traffic flows.

The source added, “There is also a decree whereby all local cadres on business trips and others visiting Pyongyang on family business or for other reasons must leave Pyongyang by the end of this month.”

Special Vigilance Periods are a customary move when important events are held in Pyongyang on national holidays.

On Kim Il Sung’s and Kim Jong Il’s birthdays (April 15 and February 16), the founding day of the Chosun People’s Army (April 25) and the Chosun Worker’s Party (October 10), the four major national holidays, the Special Vigilance Period conventionally lasts for seven to ten days, while there is customarily a three or four day Special Vigilance Period when the Supreme People’s Assembly is sitting. Additionally, when international VIPs visit Pyongyang, access to the city is generally restricted for four to six days.

The only specific public evidence of the start date of the Delegates’ Conference came in the form of a June 26th Chosun Central News Agency dispatch, according to which, “The Politburo of the Central Party summons a delegates conference of the Chosun Workers’ Party at the beginning of September, 2010 to elect the leading apparatus of the Workers’ Party and reflect new demands for the revolutionary development of the Party, which is facing critical changes in bringing about the strong and prosperous socialist state and Juche revolutionary achievements.”

While the statement could mean any time between September 1st and 10th, considering September 9th is the founding day of the North Korean regime, the conference looks likely to be held between September 6th and 8th.

The Chosun Central News Agency (KCNA) also reported today that county delegates’ conferences have been held and provincial delegates’ conferences will be held soon. The latter will elect provincial delegates who will go forward to the main conference.

In another report, Chosun (North Korea) Central Broadcast (the state radio station) reported that Kim Jong Il had been voted in as a delegate for the North Korean People’s Army in a military party delegates’ conference held in the April 25 House of Culture on the 25th.

Read the full story here:
Pyongyang Getting Set for Delegates’ Conference
Daily NK
Yoo Gwan Hee
8/27/2010

Last week I wrote about new satellite imagery on Google Earth which showed highway construction in Sinuiju.

The story is more interesting than I initially suspected, however.  It appears that the DPRK is building two highways between Tongrim and Sinuiju.  One highway will probably be for public, commercial, and international traffic.  The other road is likely reserved for “you-know-who” and other senior policy makers.  Below is a map of both these highways between Tongrim and Sinuiju.  The “elite road” is the road to the right that connects Tongrim to Kim Jong-il’s compound in Sinuiju and the Uiju Airforce Base.  You can see the map below:

It is not clear where these roads go south of Tongrim because the satellite imagery predates the highway construction.

There are several highways in the DPRK that are reserved for Kim Jong il and other senior policymakers.  Below is the highway that connects Pyongyang to leadership compounds in Hyangsan and Changsong (on the Chinese border).

Google Earth has added some new GeoEye imagery for Sinuiju, Ryongchon, and Phihyon counties. The imagery dates are Oct 12, 2009 and April 14th, 2009.  So what is new in this area?

Pyongyang–Sinuiju highway under construction
It can be most easily seen between the Sinuiju Train Station and Rakwon-dong.

Villages along the highway are being spruced up in anticipation of car traffic:

The highway construction can be seen as far south as half-way between Ryongchon and Yomju.  I suspect that it is intended to continue south to Anju where it will meet up with the Pyongyang-Hyangsan highway.

Market construction in Sinuiju and Phihyon County
I blogged about the new Sinuiju market here. Below is imagery of the new Phihyon County Market (피현군):

Ponghwa Chemical Factory (Refinery)
It was partially visible before, but now we can see the whole thing. It is one of two refineries in the DPRK.  The other is in Rason (satellite image here).

Reconstructed Ryonchon City (룡천시)
I have previously blogged about this here.

On the left is an image taken after the infamous 2004 Ryongchon explosion.  On the right is the city as it appears reconstructed in 2009.

Ryongchon offers another interesting secret.  In the past, the high street ran through the center of the city (North-South):

Today, however, traffic is routed around the western side of Ryongchon rather than through the center of town.  The road in the center of town has been converted into a public square of sorts (as can be seen in the images above), and the wide avenues that run the North-South distance of the city now come to an awkward end in the fields…

Bottom photos: North and south sides of town and their vanishing high streets

Also, in 2005 the North Korean government was building either a highway or canal on the western side of Ryongchon, but this effort seems completely abandoned today:

According to Reuters:

There are no private cars in North Korea and countless factory chimneys have not belched smoke in years, but state media said on Tuesday scientists were inventing new ways to cut air pollution and protect the environment.

The country “has directed a great effort” to research environmental protection, the state news agency KCNA reported.

“Researchers have developed a new material for removing exhaust fumes from automobiles so as to cut the greenhouse gas emissions and reduce air pollution 35-40 percent,” it said, without elaborating.

It also said “units” in the capital, Pyongyang, that caused pollution had been registered, suggesting that dirty industries were under pressure to get clean.

“They are now developing a gas and dust arrester necessary in production processes and new materials needed to secure environmental safety of products,” it said.

The isolated communist country’s state-run media periodically boasts revolutionary innovations in science and technology, despite a moribund economy and chronic food shortages.

Perhaps the most visible in recent years have been related to the relatively well-funded — and well-fed — military. North Korea has conducted two nuclear tests since 2006 and several missile launches, upsetting its neighbours.

North Korean scientists also invented a device using “locally available materials” to incinerate hospital waste, KCNA said, and the Environmental Protection Institute of the Ministry of Land and Environmental Conservation had intensified research into pollution-free vegetable production.

Here is the original KCNA story:

Scientific Achievements of Environmental Protection
 
Pyongyang, June 22 (KCNA) — The Democratic People’s Republic of Korea has directed a great effort to scientific researches for environmental protection.

Researchers have developed a new material for removing exhaust fumes from automobiles so as to cut the greenhouse gas emissions and reduce air pollution 35-40 percent.

They have also put the environmental management of industrial establishments on IT basis.

Meanwhile, they have registered units causing environmental pollution in Pyongyang and confirmed methods and procedures for preventing pollution. They are now developing a gas and dust arrester necessary in production processes and new materials needed to secure environmental safety of products.

Besides, they have invented a new device to destroy by fire such wastes from hospitals as contaminated injector and bandage with locally available materials.

Scientists of the Environmental Protection Institute of the Ministry of Land and Environmental Conservation have intensified a research in pollution-free vegetable production.

Read the full Reuters story here:
N.Korea says puts “great effort” into environment
Reuters
6/22/2010

According to the Choson Ilbo:

A North Korean source saw around 30 identical vehicles crossing the bridge across the Apnok (or Yalu) River into Sinuiju at around 9 a.m. The vehicles were the Chinese compact sedan F3 manufactured by BYD, referred to as the “people’s car” in China due to its popularity. Around 100 cars reportedly crossed the border into North Korea on Tuesday alone. Starting last week, North Korea brought in more than 200 cars, including luxury foreign cars, jeeps and large vans. The total value of the imported cars is believed to be around US$5 million.

The North Korean regime often seeks to ensure the loyalty of senior officials by handing out the latest foreign-made cars on Kim Il-sung’s or Kim Jong-il’s birthday, but the Chinese-made cars imported this time are believed to be gifts for the middle ranks. “To my knowledge, the latest cars are gifts for mid-level officials at North Korea’s prosecution and state security agency and have been allocated to specific people in different regions,” the source said.

North Korea watchers believe the cars were bought to boost the morale of such officials, who were hit hard by the botched currency reform in December. “Failing to take care of mid-ranking officials could jeopardize the transfer of power to Kim Jong-il’s third son Jong-un,” said one North Korea expert. “The purpose of the gifts is to appease discontent.”

Judging from the pictures, it looks like the cars were driven across the Sinuiju/Dandong Sino-DPRK Friendship Bridge.  Satellite image here. 

So it appears the Kim Jong il uses automobiles in the same way foreign governments use international aid in North Korea–to “purchase” influence and support.  If the strategy works on a domestic level (within the DPRK), why does it have so much trouble on an international level?  Feel free to discuss.   

Read the full story here:
Kim Jong-il Imports Hundreds of Cars for Loyal Officials
Choson Ilbo
4/14/2010

Jin Hualin, dean of the College of Economics and Management at Yanbian University, talks about Chinese investment in Rason in China’s Global Times.  Here is an excerpt:

GT: If China does continue to rent Rajin harbor for another 10 years, what will the effects be?

Jin: China has reached an agreement to rent a pier at Rajin Port for another decade. A Dalian-based Chinese company has invested 26 million yuan ($3.8 million) in the reconstruction of Rajin Port No.1 Pier. Park also said that China may enjoy more favorable conditions there, such as more berths.

I think Chinese companies’ participation is good for promoting the North Korean economy and building logistical infrastructure in the area, which is beneficial to China, North Korea and the Northeast Asian countries.

When the Sino-Mongolia route is finished, raw materials and natural resources from Mongolia can be shipped to Japan and South Korea via Rajin harbor, and then China’s northeastern regions and North Korea can both benefit.

GT: What should China do to promote Northeast Asian cooperation and devel-opment?

Jin: I suggest Chinese governments at all levels consider the following issues. They should accelerate trade and tourism and build cooperation on logistics, and support Chinese companies going global and investing in North Korea.

Actually, China now has many companies capable of investing abroad. The point is foreign countries’ investment environment.

We should strengthen cooperation on education with North Korean universities and colleges, sending students to study there and exploring research in new areas together.

We can also strengthen regional cooperation. We can designate China’s Hunchun city and North Korea’s Rason city as pilot cities and permit China’s commercial banks to open yuan-based accounts in Rason’s commercial banks.

Relations between Northeast Asian countries are subtle and complicated because of geopolitical contradictions, different political systems, the influence of the Cold War, historical issues, territorial disputes and sentiments caused by historical and territorial issues.

Mutual distrust fundamentally hinders cooperation. China needs to take the responsibility to promote regional cooperation and make it institutionalized and legally guaranteed as soon as possible.

GT: How do you evaluate the political and economic risks for Chinese companies going into North Korea? What advantages do Chinese companies have?

Jin: There are always political and economic risks involved in trade between different countries. The first major solution is to establish a mutual investment guarantee agreement, so that the two countries’ economic cooperation will be protected legally.

We hope that North Korea can keep the stability and consistency of its policies and issue development policies that is in line with international conventions. As long as North Korea adopts consistent policies, Chinese companies won’t encounter great political and economic risks there.

China and North Korea are believed to enjoy good mutual trust. China has experience from its reform and opening-up and plenty of investment capability. North Korea has a good educational foundation, low labor costs, and rich natural resources.

Chinese companies are active participants in investing in North Korea and I believe they’ll do well there.

Read the full interview here. Hat tip to Adam.

According to the Daily NK:

Since the redenomination on November 30 last year, the cost of crossing the Tumen River has risen as high as 10,000 Yuan on the back of tighter border regulations.

A source from North Hamkyung Province told the Daily NK on Thursday, “Since border security was strengthened in February, it has cost at least 10,000 Yuan to cross the border into China.” This is equal to around 400,000 North Korean won at the black market exchange rate, or $1400.

In 2006, the cost of crossing the Tumen River around Musan and Onsung in North Hamkyung Province was just 500 Yuan.

The reason is because now there is an alliance of brokers monopolizing the crossing business, and a number of regulations designed to both circumscribe the ability of citizens to cross and limit the relationship between guard companies and local citizens.

In the distant past, if people wanted to cross the river, they approached guards and haggled over the price directly. However, now people have to rely on professional brokers who put them in contact with guards and guides in China. One pays a price to the broker, who shares it with North Korean border guards and Chinese guides respectively at a ratio of 4:3:3.

The North Korean authorities designated the period from February 5th until Kim Jong Il’s birthday on the 16th as a period of “special vigilance,” handing down special instructions to strengthen the border guard and regulations covering migration in border cities.

According to a Daily NK source, this measure is primarily intended to limit the ability of those suffering since the redenomination to smuggle or cross the border to make money in China, as well as to regulate citizens in advance of Kim Jong Il’s birthday, which is customary.

The source emphasized, “Since December last year, the number of citizens using human networks in China to make money has been increasing. Therefore, agents of the National Security Agency and the People’s Safety Agency have been watching those people closely.”

The source further explained, “Now, the authorities are forcing border guards to observe each other in order to track down those doing business with brokers and border crossers. In January, in Yusun-dong, Hoiryeong, one company commander was dismissed after a platoon commander informed on him for assisting border crossers.”

In the mid-2000s, along the border near settlements such as Namyang, Sambong, and Jongsung in North Hamkyung Province, the authorities set up nail boards and extra barbed wire along the Tumen River in order to inhibit defection. However, as these physical measures were not as effective as hoped, in 2006 the authorities took to switching guard posts between different guard companies without notice and awarding a prize, membership of the Party, to guards who caught people crossing the border. These measures were designed to break down connections between individual guards and the local populace

Therefore, the source added, “These days, no border guards are helping people cross the river, and the cost is soaring.”

Read the full story here:
Tight Rules Make Border Costs Soar
Daily NK
Lee Sung Jin
2/19/2010