North Korean Economy Watch

The Daily NK reports that food is now at record prices (5,oooW/kg) despite the food market operating under ‘normal’ operations. According to the article:

The price of rice has hit 5,000 North Korean Won/kg in the market in Hyesan, Yangkang Province. This is the first time that the psychologically significant price point has been reached under ‘normal’ market operations in the region.

A source from the city told Daily NK today, “The price was just 4,500 won as recently as the 5th, but this morning it reached 5,000 won. The prices of all other items are also on the rise, and as corn and rice prices rise in the midst of an already difficult food situation, many households are buying less food.”

Rice prices in other regions are rising too, other sources have informed Daily NK. Rice was selling for 4,500 won in Musan, North Hamkyung Province on the 5th, and had already exceeded 5,000 won in Muncheon, Kangwon Province on that same day.

Rice prices in North Korea tend to reflect the upward (or downward) trend in the exchange rate of the day, indicating the strong causal relationship between them. So it is no surprise that whereas the Chinese Yuan exchange rate was 800 to 1 on July 5th, it had risen to 810-820 won/Yuan by July 9th, and today reached 860 won/Yuan (July 10th).

Increasing exchange rates and rice prices will inevitably exert upward pressure on all prices, aggravating inflation. Naturally, people are complaining, “How are we meant to survive when rice is so expensive?” the source commented.

Prices rises are of course not the problem–they are a symptom of the problem: the DPRK has a poorly developed agricultural production and and distribution infrastructure. Although the North Korean people have shown great ingenuity at developing local coping mechanism do deal with adverse agriculture supply shocks (such as hoarding, making liquor, preserving food, cultivating private plots, and using cell phones to solve problems), they still lack access to crop insurance, futures markets, infrastructure, security of land and earnings, inflation, etc.

Read the full story here:
Rice Arrives Back at 5,000 Won
Daily NK
Kim So Yeol
2012-7-10

According to Yonhap:

The total number of South and North Koreans visiting each other’s country fell nearly seven percent in the first five months of 2012 from a year earlier, the Seoul government said Tuesday, as tensions persist over the North’s deadly attacks on the South in recent years.

A total of 47,432 South Koreans visited North Korea in the January-May period, while no North Koreans visited the South, according to data from the Unification Ministry, which handles inter-Korean affairs. The figure is down 6.9 percent from the same period last year, when the number of inter-Korean visits reached 50,925, including 13 North Koreans who visited the South.

Read the full story here:
Inter-Korean visits drop 7 pct this year
Yonhap
2012-7-10

Andrei Lankov highlights in a recent Asia Times article some observations (qualitative data) that indicates the DPRK has seen significant growth in recent years. He is careful to qualify his observations with caveats that the level of growth in the country as a whole (as opposed to Pyongyang) remain more difficult to determine.

More expensive shops stocking luxury goods are becoming more numerous as well. Gone are the days when a bottle of cheap Chinese shampoo was seen as a great luxury; one can easily now buy Chanel in a Pyongyang boutique; and, of course, department stores offer a discount to those who spend more than one million won on a shopping spree. One million won is roughly equivalent to US$250 – not a fortune by the Western standards but still a significant amount of money in a country where the average monthly income is close $25.

The abundance of mobile phones is much talked about. Indeed, North Korea’s mobile network, launched as recently as late 2008, has more than one million subscribers. It is often overlooked that the old good landline phones also proliferated in the recent decade. A phone at home ceased to be seen as a sign of luxury and privilege, as was the case for decades. Rather, it has become the norm – at least, in Pyongyang and other large cities.

The capital remains badly lit in night, but compared with the norm of some five or 10 years ago, the situation has improved much. The electricity supply has become far more reliable, and in late hours most of the houses have lights switched on.

Of course, this affluence is relative and should not be overestimated: many people in Pyongyang still see a slice pork or meat soup as a rare delicacy. The new posh restaurants and expensive shops are frequented by the emerging moneyed elite, which includes both officials and black/grey market operators (in some cases one would have great difficulty to distinguish between these two groups). In a sense, Pyongyang’s prosperity also reflects the steadily growing divide between the rich and poor that has become a typical feature of North Korea of the past two decades.

Nonetheless, those foreign observers who have spent decades in and out of Pyongyang are almost unanimous in their appraisal of the current situation: Pyongyang residents have never had it so good. It seems that life in Pyongyang has not merely returned to pre-crisis 1980s standards but has surpassed it.

And how can we explain these developments? Lankov offers three theories:

The first seems to be the growth of private economic activity. Estimates vary, but most experts agree that the average North Korean family gets well over half its income from a variety of private economic activities.

…
The second reason is the gradual adjustment of what is left of the state-controlled economy. Nowadays, North Korean industrial managers do not sit by helplessly when they cannot get spare parts or fuel from the state – as was often the case in the 1990s. Instead, they try to find what they need, often getting the necessary supplies from the private market.

…
The third reason is, of course, Chinese economic assistance and investment.

Read the full story here:
North Korea’s pools of prosperity
Asia Times
Andrei Lankov
2012-7-7

Yonhap reports on an interesting development in the Kaesong Industrial Zone: the development and enforcement of workplace conduct policies.

According to the report:

A South Korean worker was banned from working in an inter-Korean industrial zone in North Korea’s border city of Kaesong for two weeks in May for a minor offense, the Unification Ministry said Thursday.

It was the first time a South Korean has been denied access to the complex under a demerit point system designed to strengthen law and order among the hundreds of South Koreans in the complex.

The construction worker received 3 out of maximum 10 penalty points in May for causing a quarrel and breaking a glass in a karaoke room inside the complex, said the ministry, which handles inter-Korean affairs.

South Korea introduced the penalty system in January for more than 700 South Korean workers in the complex to handle offenses ranging from traffic accidents to violence and murder, including sexual crimes.

The penalty points range from 2 to 10, depending on the offense.

If the total cumulative points exceed 10, the offender is permanently banned from the complex while those who earn nine demerits are suspended from visiting the complex for three months, according to the ministry.

South Korean workers with seven or eight demerits are suspended from the complex for two months and those with three or four demerits are suspended for two weeks.

Read the full story here:
Unruly S. Korean worker suspended from Kaesong complex in May
Yonhap
2012-7-5

Pictured Above: Tianjin’s location relative to the DPRK

The Daily NK reports:

“A group of 20 trainees made up of economic officials and academics from the DRPK Ministry of Trade has been receiving training in Tianjin since the end of May upon an invitation from the Chinese Ministry of Commerce.”

“The aim of the training is the vitalization of North Korea’s special economic zones at Hwanggeumpyeong, Wihwa Island and Rajin-Sonbong,” he added.

According to the source, the North Koreans, who come from the finance and economics, administration and taxation sections of the ministry, will remain in China for two months. The costs of the program, including accommodation and training fees, are being covered by the Chinese side, and they are staying in a state guest house.

For the first month, the 20 were reportedly due to receive training in techniques pertaining to the operation, management and attraction of investment to SEZs from Chinese experts. For the second, they are set to receive field training in Shanghai, seeing how China’s SEZs operate.

Previous posts on Hwanggumphyong are here.

Previous posts on Rason are here.

Read the full Daily NK story here:

20 NK Officials Getting Schooled in Tianjin
Daily NK
Chris Green
2102-7-4

A valued reader sends in this great photo taken in Pyongyang back in the early 2000s:

Click image for larger version

The picture is of a computer in Pyongyang running a North Korean anti-virus program.  The Program is called KJAV (Korea Juche-Oriented Anti-Virus). The use of English in the software tells me that this product was intended for export rather than for domestic use, but who knows, there could be a few computers in the DPRK running KJAV. I have yet to read any publications by the “Three Stars of Paektu” (or do we have four now?) on the role that Juche ideology plays in the development of anti-virus software, but I am sure there is a connection…somewhere.

And I also received this older example of North Korean “Konglish”:

The poster is for the 13th Annual World Festival of Youth and Students which took place in Pyongyang back in 1989. The caption of the poster reads “How the forever night of Pyongyang it is!”

Networks, Trust, and Trade: The Microeconomics of China–North Korea Integration
Stephan Haggard and Marcus Noland
Peterson Institute Working Paper (May 2012)

The Microeconomics of North–South Korean Cross-Border Integration
Stephan Haggard and Marcus Noland
Peterson Institute Working Paper (May 2012)

Gender in Transition
Stephan Haggard and Marcus Noland
Peterson Institute Working Paper (June 2012)

New East German and Soviet Evidence on North Korean Support to South Korean Political Parties and Labor Unions
James Person
Wilson Center, NKIDP

DPRK Perspectives on Korean Reunification after the July 4th Joint Communiqué
Jong-Dae Shin
Wilson Center, NKIDP

Zhou Enlai and China’s Response to the Korean War
Charles Kraus
Wilson Center, NKIDP

China and the Post-War Reconstruction of North Korea, 1953-1961
Shen Zhihua and Yafeng Xia
Wilson Center, NKIDP

Budget Blanks and Blues
Aidan Foster-Carter
38 North

UPDATE: Read here about increasing numbers of North Korean workers legally taking up work in China.

ORIGINAL POST (2012-6-29): Robert Collins recently published a report with HRNK on the DPRK’s songbun system. Previous posts on Songbun here.

Though some argue that the “Arduous March”, grassroots marketization, and the rise of official corruption has diminished the importance of songbun within the North Korean system, this article in the Daily NK  (which never uses the word ‘songbun”) makes the case that it is still important in one highly visible sector: overseas workers.

According to the Daily NK:

A North Hamkyung Province source told Daily NK on the 27th, “The process of choosing expatriate workers is very sensitive, even though the only target is Pyongyang-based factory and enterprise workers.”

According to the source, backgrounds are checked thoroughly, and single people may not take part. Married workers also need to obtain permission from the National Security Agency affiliated to the enterprise with which they are registered.

Prior to sending the workers abroad, the People’s Safety Ministry also checks each individual’s origins, the whereabouts of his or her direct family and if anyone in that family has spent time in a detention facility and why. They also check the marital status and criminal records of more distant relatives.

Despite the hard nature of the work that waits in China and the difficulty of obtaining a position, the number of applicants is huge, the source went on. And with single people ineligible as a measure to decrease the risk of defection, the source even commented that “single workers are rushing to get married,” adding also, “Pyongyang has caught marriage fever.”

“Competition is fierce because they would prefer to go away to a place where factories are running and they can get paid,” he pointed out. “Cadres and NSA agents in charge of the process are doing well out of the bribes. Some people are even borrowing money to bribe the authorities, saying that they will pay them back when they return from China”.

Commenting on the situation, Kim Seung Cheol, a defector who heads North Korea Reform Radio, said it is no surprise. He explained, “This is the only way working people can make any real money. It is similar to the American dream.”

Read the full story here:
Workers Face Fierce Fight for China Role
Daily NK
Choi Song-min
2012-6-29

Institute for Far Eastern Studies (IFES)
2012-6-28

A high ranking North Korean official visiting Taiwan gave a statement that, “North Korea is using most of its resources for national defense and military.”

This was revealed in a report released by KOTRA Taiwan Trade Mission. In this report, Kim Jong Gi, the chairman of the Committee for the Promotion of International Tradeof DPRK visited the Taiwan-(North) Korea Business Association to attend a meeting discussing North Korean business trade.

Kim criticized South Korea, Japan and other neighboring countries for harboring antagonistic attitudes toward communist North Korea, and especially the United States for enforcing “violent sanctions” against North Korea.

He also admitted the country was suffering from economic hardships and food shortages since 1995 with four years of continuous natural disasters. In 2011, the total food needed is around 6.5 million tons but the actual production output was only 5.1 million tons, leaving the country 1.4 million tons short.

Kim also explained that North Korea experienced similar economic growth as South Korea and Taiwan in the 1970s and 1980s but as socialist countries began to collapse one after another in the early 1990s, North Korea’s economic trade agreements with other nations became null and hence hindered its economy and trade.

At that time, North Korea was signing purchase agreements on magnesium oxide (about 800,000 ton) with Eastern European countries every year and barter trade with other socialist nations. But with the fall of socialist countries, North Korea quickly lost its long-term trading partners and it failed to take appropriate and necessary actions. Thus, it fell into the vicious cycle of unsold commodities with insufficient funds, leading to inevitable economic downturn.

Kim was the highest official from the DPRK to visit Taiwan. The purpose for his visit was to 1) attract investment from Taiwan for Hwanggumpyong Island and Rajin-Sonbong Special Economic Zone, and 2) express gratitude toward the Tzu Chi Foundation, a Buddhist charity for continuous assistance to North Korea. The Tzu Chi Foundation is reported to have sent aid to North Korea nine times.

According to IHS Janes:

In marked disregard of UN sanctions (Resolutions 1718 from 2006 and 1874 from 2009 both prohibit North Korea from conducting security-related exports), North Korean technicians and engineers stationed in Syria are working with specialists from Syria’s Scientific Studies and Research Centre (SSRC) to develop an arsenal of advanced SSMs. Co-operation between Pyongyang and Damascus also constitutes a Syrian violation of the same two resolutions, which, among other sanctions, include “an arms embargo, which also encompasses a ban on technical training or services”.

Nevertheless, IHS Jane’s has learned that engineers from North Korea’s Tangun Trading Corporation are working with engineers from the SSRC’s Project 99 in a compound located in Jabal Taqsis, near the city of Hama, to advance the Scud D development programme.

Read the full story here:

North Korea aiding Syria to upgrade Scud D capability
IHS Janes
Robin Hughes
2012-6-27