Hydrogen bomb project may lead state to squeeze traders, some North Koreans worry

January 8th, 2016

By Benjamin Katzeff Silberstein

Daily NK today carries a piece where interviewed North Koreans express their annoyance at how the hydrogen bomb test disturbed economic activity, and how it may get worse in the future:

News of the recent test has also angered people, with some openly criticizing the nuclear program and pointing out that money should go into providing for the people instead. “Market vendors don’t care if it’s an atom bomb or a hydrogen bomb. Most of them say they just want to make a lot of money and live a quiet life,” the source said.

A different source in North Pyongan Province reported that most people who watched the announcement out of curiosity were neither surprised nor interested, noting, “But market donju (newly affluent middle class) are worried that having blown up a massive ‘dollar bomb’, Kim Jong Un will now have a gaping hole in his coffers, making things busier for them since they’ll have to offer up more funds.”

“Loyalty funds had swelled because of the greater stability in the markets, so recently there weren’t a lot of purges of donju, but now with all the money that they’ve spent, it looks like donju will be under pressure or persecuted more to make up for the funds that went into the hydrogen bomb test,” he explained.

“After the first three nuclear tests, prominent donju were purged on ‘anti-socialist’ charges and their assets confiscated by the state. The leadership is likely to tighten its grip on donju again to make up for its expenses.”

Read the full article:
Nuclear test draws different set of concerns from North Koreans
Seol Song Ah and Choi Song Min
DailyNK
2016-01-08

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Hydrogen bomb test will give economic boost, North Korean state media says

January 8th, 2016

By Benjamin Katzeff Silberstein

Today’s Rodong Sinmun carries an article hailing the (claimed) hydrogen bomb test as a step towards turning North Korea into an economic powerhouse, UPI reports:

Pyongyang’s state-controlled newspaper Rodong Sinmun published an article Friday that exalted North Korea’s military-first policy, stating, “The first successful hydrogen bomb test forcefully demonstrated the power of self-reliant [North Korea], [now] we must boldly struggle to build an economic powerhouse and to enhance the people’s livelihoods.”

North Korea stated the regime’s nuclear power has the capacity to strike “any strong enemy” and “seize absolute control.”

“A path has opened, where we can devote all our energies into building an economic powerhouse,” Pyongyang said in statement.

Read the full article:
North Korea hails hydrogen bomb test as path to economic power
Elizabeth Shim
UPI
2016-01-08

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North Korea’s H-Bomb Test: The (Impossible) Economic Context

January 7th, 2016

By Benjamin Katzeff Silberstein

Who decides what in Pyongyang? Do fierce political battles rage between hardliners and reformers, where the former group struggles to replace nuclear belligerence with liberal market economics and trade? Whenever a purge or suspicious death occurs in Pyongyang, speculations come alive about potential policy changes by the regime.

It is a fool’s errand to make guesses about how North Korea’s claimed (but unlikely) hydrogen bomb test fits into the speculative dichotomy of modernizers versus conservatives. After all, such simple divisions are rare in the political life of any country. But looking at the test in the context of the past year makes it clear that Pyongyang is pursuing a messy mix of policies that are mutually exclusive.

At the same time as one “hand” of the regime attempts to draw foreign investment, diversify its investor base to include other countries than China, and take its industrial zones from plans to reality, the other “hand” is actively working against economic progress by nuclear tests and diplomatic belligerence. Either the left hand doesn’t know what the right hand is doing, or it does, but just doesn’t want it to succeed.

Perhaps this is the way that Byungjin – Kim Jong-un’s strategy of parallel development of nuclear weapons and the economy – was intended to work. (If so, the regime seems to be dedicating much more resources and energy to the nuclear part, while the economic one still mostly consists of words.) In any case, Pyongyang is trying to achieve two goals at the same time, and it isn’t working.

For example, in 2013, the North Korean regime announced the creation of over ten special economic zones, with more added in both 2014 and 2015. Progress has been uneven. Still, the North Korean regime has continuously indicated that the zones are a priority and will continue to be improved. Just in November last year, new regulations were announced for the special economic zones. Visitors and analysts report that elite businesses have been doing better and better in North Korea, and that the economic environment has become increasingly freer.

Whatever the list of Pyongyang’s priorities may look like, January 6th was not a good day for those North Koreans tasked with planning, building and administering the country’s special economic zones and projects. North Korea is already an unlikely destination for most foreign investors. Many low-wage competitors already sit relatively close by the country, such as Vietnam and Cambodia. North Korea’s comparative advantages are really quite few. Things are already difficult and the claimed H-bomb test certainly won’t help.

The international sanctions are just one part of the problem. Even with knowledge of what the current sanctions regime permits investors to do, the test is a stark reminder that legal hurdles will keep being added as nuclear and missile tests continue. This should deter any investor without special connections, political motives or a financial death wish. Not to mention the terrible PR and public criticism that would follow any (at least western) company deciding to invest in North Korea.

And then, there is of course the China factor. Sure, Beijing doesn’t comply with sanctions the way it is obligated to do. Moreover, as the Choson Exchange blog points out, North Korean and Chinese businesses tend to find a way to get around the sanctions. Last but not least, to a large extent, Chinese investment and cooperation with North Korea is a regional issue, with much of it driven by the northeastern border regions that depend on trade and exchange with the country.

But this doesn’t mean that Beijing won’t ever take concrete action felt by Pyongyang. China’s worries about North Korea’s nuclear tests are arguably more warranted than those of any other country. Residents in Yanji, a Chinese city on the North Korean border, even felt tremors from the bomb test, and teachers and students were reportedly evacuated from schools near the border. A trend is only a trend until it is no more. At the very least, events like the nuclear test don’t exactly make Chinese officials more prone to want to facilitate economic cooperation and infrastructure investments for North Korea.

It’s almost painful to think of all those hours spent in the North Korean administration, drawing up plans for new economic development zones and projects, new laws for investments and other institutional changes to improve the economy, only to see their colleagues in another part of government work in the opposite direction. If (and this is a big “if”) there are indeed policy factions in the government, with modernizers and conservatives, the latter have scored a victory on January 6th, at the expense of the former.

UPDATE 2015-01-07: James Pearson and Ju-Min Park at Reuters have done a very interesting overview (with Michael Madden of NK Leadership Watch) of the people behind North Korea’s nuclear program. It’s an important illustration of the fact that interest groups are not just a thing of business, but also of politics and ideas. Read it here.

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New figures on markets in North Korea

December 27th, 2015

By Benjamin Katzeff Silberstein

The last few months have seen quite the trickle of quantitative estimates on North Korea’s markets. A while back, South Korean intelligence said North Korea has 380 markets in total. Curtis Melvin counts them to 406. And then, a few days ago, Professor Lim Eul-chul of Kyungnam University put them at 750 (including street vendors).

It is unclear whether this is another intelligence branch or institution speaking, but what Yonhap terms “South Korea’s intelligence authorities” today claims that there are 306 markets. They also estimate that 1.8 million people use them every day, although those numbers are probably guesstimates more than anything else. Even though survey studies can say a lot about how often people use markets on average, it would seem almost impossible to weight these properly by region given the variation.

The report also includes a count of markets in each province:

By region, South Pyongan Province is home to the largest markets with 37, followed by South Hamgyong Province with 36 and North Pyongan Province with 34. North Korea’s capital of Pyongyang has 23 markets, the authorities said, without elaborating on how they obtained the information.

It is difficult to know what is meant by “markets” here: in other words, whether street markets are included or only formal ones. In any case, it isn’t particularly surprising that South Pyongan Province comes out as number one: the province has a major advantage for market trade in that it is close to Pyongyang. Traders that don’t have entry permits to Pyongyang can come and sell their goods to Pyongyang citizens who only live a relatively short bus ride away, or to other traders that will ship the goods for sale there.

Read the full article here:
S. Korea says up to 1.8 mln N. Koreans use markets per day 
Yonhap News
2015-12-27

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Sinuiju-River Amnok Tourist Zone of DPRK opened to visitors

December 24th, 2015

Sinuiju-River-Amnok-Tourist-Zone-2015-12-24

Sinuiju-trade-zone-2015-10-cropped

I noticed the construction of this area some time ago and reported it in 38 North last month. Now the North Koreans have told us something about it. According to KCNA (December 22):

Sinuiju-River Amnok Tourist Zone of DPRK Opened to Visitors

The Sinuiju-River Amnok tourist zone in the DPRK was opened to visitors with due ceremony on Sunday.

The zone, developed in the shore of the River Amnok jointly by the Korea Myohyangsan Travel Company and the Dandong International Travel Agency of China, has modern all-round service facilities.

Present at its opening ceremony were Ri Ung Chol, deputy director-general of the State General Bureau of Tourism, and other officials concerned of the DPRK and officials concerned and tourists from China.

An inauguration address and a congratulatory speech were made at the ceremony before cutting the tape for the completion of the tourist zone.

Then its participants went round the zone.

Here is some additional information from the Yonhap (2016-1-1):

Chinese media reports said the Chinese travel agency invested 50 million yuan ($7.6 billion) to build the facilities and construction begun in April last year.

The Chinese tourists arrived at the North Korean tourism zone on Wednesday, according to Chinese media reports.

The North Korean city of Sinuiju sits just the opposite of the Chinese border city of Dandong, where about 70 percent of bilateral trade between the allies is being conducted.

About 60,000 Chinese people are estimated to travel to North Korea via Dandong a year, with another 10,000 Chinese making tours to the North a year via Hunchun, according to Chinese industry estimates.

And according to the Choson Ilbo:

North Korea has opened a riverside passport-free, visa-free zone where Chinese tourists can shop duty-free has opened on the shore of the Apnok River in Sinuiju, China News Service reported Wednesday.

Visitors can stay for a day and also enjoy North Korean food and various performances, but they will have no access to the rest of the country.

The tourism zone sits at the point where a recently completed bridge crossing the Apnok River starts. “It was developed jointly by North Korean authorities and a travel agency in Dandong,” the news agency said.

It measures 130,000 sq.m and has cost 50 million yuan since construction began in April. It contains restaurants, duty-free shops, a theater and a cruise boat terminal.

It can accommodate up to 10,000 tourists at a time and a full tour can take up to five hours.

The passport-free rule is a huge departure for North Korea, which normally confiscates the passports of Chinese day visitors until they leave.

Instead they can get a travel pass by simply presenting their ID card. It is in theory issued the same day.

“The zone is an island-like area that has been built after part of the Apnok River shore on the side of Sinuiju was reclaimed,” a source in Dandong said. “It’s impossible for Chinese tourists to enter the North Korean mainland from there because soldiers block the road to Sinuiju.”

See this additional post on the Sinuiju International Economic Zone.

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750 markets in North Korea, one scholar says

December 21st, 2015

By Benjamin Katzeff Silberstein

UPI reports that Lim Eul-chul of Kyungnam University puts the number of North Korean “gray” markets at 750. This number includes “alley vendors”, according to Lim, presumably another term for street markets:

There are now more than 750 “gray markets” in North Korea and one million people now make up the country’s consumer elite, a South Korean analyst said Tuesday.

Lim Eul-chul of the Institute for Far Eastern Studies at Kyungnam University said at a seminar for South Korean lawmakers grassroots enterprises in North Korea have increased, and businesses are diversifying.

“North Korean authorities also are involved in the markets,” Lim said.

On average, a North Korean city, county or region has an average of two marketplaces, bringing the national total to 500. If alley vendors are included in the tally, the total is 750, Lim said.

In larger cities like Chongjin, near the China border, there are about 12,000 vendor stalls and one city in South Pyongan Province is home to a marketplace that is more than 1 mile across, the analyst said.

The North Korean regime is an active participant in the unofficial marketplaces that began developing after the collapse of the state’s distribution system. Authorities enjoy a monopoly over the mobile phone market and related services, Lim said.

Other sought-after products in North Korean marketplaces include South Korea-made products that are smuggled into the country, as well as pizza and burgers.

It is unclear exactly how these numbers have been compiled. Lim appears to be using a very wide definition for what to count as a market. South Korean intelligence has previously put the number of markets at 380, while Curtis Melvin counts them to 406.

Read the full article:
More than 700 North Korea ‘gray’ marketplaces have emerged, analyst says
Elizabeth Shim
UPI
12-21-2015

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The limits of agriculture reform in North Korea

December 18th, 2015

By Benjamin Katzeff Silberstein 

Agricultural reforms in North Korea became a hot topic of discussion almost right away when Kim Jong-un took power in 2011. Only a number of months into his tenure, news began to come out of the country about attempts at agricultural reforms. It is unclear when (or even if) the June 28th Measures were finally extended to the whole country.

At the very least, three years in, it seems beyond reasonable doubt that North Korean agriculture has undergone major changes. These have been aimed at boosting production by creating better incentives for farmers to produce and sell more of their output to the state rather than diverting it to the market. The most important aspects of these reforms are the decreased size of work teams and new rules that let farmers keep 30 percent of their production plus any surplus above production targets, while the state takes the remaining 70.

These changes have been met with optimism among some. However, no one really knows exactly what impact these reforms have had. North Korean agriculture may be faring better than it used to – although this is also doubtful – but even so, it is too simplistic to assume that government reforms in agricultural management are doing all the work. As long as North Korea’s agriculture continues to be centrally planned by the state, there will be limits to how much better it can get no matter what reforms the state implements.

To see why, consider some of the news that have been coming out of North Korea in the past few months, as reported by Daily NK. In late November, the online daily reported that in despite by multilateral aid organizations, North Korea had seen relatively good harvests this year. However, the increased harvests, according to people inside the country, were not caused by changes in the agricultural management system of state-operated collective farms.

Rather, the North Koreans interviewed for the story claimed that private plot farmers had been better able to protect their crops from adverse weather impacts by using water pumps and other equipment. Even though trends like these alone probably have a limited impact, this shows that many circumstances other than state management matter.

A few weeks later, Daily NK published another interview carrying a similar message. According to sources inside the country, harvests from collective farms have declined, while private plot production has gone up (author’s emphasis added):

The amount of food harvested this year from the collective farms has “once again fallen short of expectations,” he said, adding that the farmers who work on them have criticized the orders coming down from the authorities, saying that “if we do things the way they want us to, it’s not going to work.”

Although the regime has forced people to mobilize, the source asserted that farm yields are not increasing. So, then, “the best thing to do would be to further divide the land up among individuals,” he posited.

Our source wondered if individual farms were not more successful because each person tending them personally grew and watered their plants. Currently, farmers must follow directives regarding the amount of water they can use on collective farms. He warned that if the system is not completely overhauled, crop yields will fail to improve.

In other words: as is so often the case, management orders from above often do not align with the reality on the ground.

One should be careful not to draw too many general conclusions based on individual interviews, but this is a well known general problem in all planned economies. Even with the best intentions, the state can never be fully informed about conditions and resources on the ground in an entire society.

This is one of the many reasons why economic central planning falters. We have seen this, too, with Kim Jong-un’s forestry policies. The state gives orders that have unintended consequences on the ground, because information is lacking. No central planning team can be fully informed about the reality prevailing throughout the system. The information problem becomes particularly dire in authoritarian dictatorships like North Korea, where people at the lower end of hierarchies often have strong incentives not to speak up about implementation problems when orders come from the top.

Ultimately, no matter what management reforms the North Korean regime implements, the country’s economic system remains the basic stumbling block. As long as central planning continues to be the ambition of economic and agricultural policies, there will be a limit to the success that agricultural policies can reach. We may expect to see agricultural reforms continuing, but as long as the system remains, they can hardly be revolutionary.

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North Korean workers ordered home after Moranbong debacle

December 18th, 2015

By Benjamin Katzeff Silberstein

According to Daily NK, North Korean authorities have ordered workers in China home following the cancelled Moranbong Band concert:

Just five days after North Korea canceled Moranbong Band’s Chinese tour and ordered an immediate return of the band back home, the authorities issued an order to all sojourning employees in China, most of whom are employed at trading companies, to report to Pyongyang.

On the 16th, our Daily NK reporter spoke with a source residing in Pyongyang, who informed us that no concrete reason had been given along with the order. And so on the 16th, agricultural workers, forestry workers, traders, and workers affiliated with Mansudae Art Studio boarded a train to return back to North Korea.

This was corroborated by an additional source in the capital.

Our source expressed concern over the drastic measure, wondering if the issue of the Moranbong Band’s canceled tour might be exploding into a bigger issue. “When you call back scores of workers abroad, that’s a pretty big deal,” she pointed out.

One has to wonder whether all workers in China could really have been recalled home, given their substantial numbers. Just to give a sense of the size of this labor force, in 2013 the number of North Korean workers that entered China was around 93,000, according to South Korean statistics. Most likely only a small share was stationed permanently in the country, but even so, recalling each and every one on such short notice sounds like a logistically implausible operation.

Read the full article:
NK orders workers in China back home
Kang Mi Jin
Daily NK
2015-12-18

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Kim Jong-un announces need for financial reform

December 14th, 2015

(Benjamin Katzeff Silberstein)

The first meeting for 25 years of North Korean banking and finance officials was held a few weeks ago, Yonhap reported:

The Third National Conference of Financial and Banking Officials held on Sunday at the People’s Palace of Culture in Pyongyang was reported by the (North) Korean Central News Agency (KCNA) and Korean Central TV, monitored in Seoul.

“The conference reviewed successes and experience gained by those in the field of finance and banking in the past,” the KCNA said in an English report carried on Sunday.

The meeting also discussed ways to ensure “the financial guarantee for building a thriving nation,” according to the state media.

In a letter sent to the conference, North Korean leader Kim Jong-un highlighted the important role of the financial sector for national development.

“To improve financial and banking work is an inevitable demand for hastening the building of a thriving nation,” Kim was quoted as saying in the letter. “Reliable financial resources are necessary to build the people’s paradise featured by strong national power and great prosperity.”

Kim also ordered “revolutionary measures for steady development” of the financial system, as well as “fluent circulation of currency.”

It was North Korea’s first meeting of its kind since the last second session was held in September 1990 under the leadership of late leader and North Korean founder Kim II-sung.

Read the full article:
N.Korea hosts 1st bankers’ meeting in 25 yrs
Yonhap News
2015-12-14

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3rd National Conference of Financial and Banking Officials Held

December 13th, 2015

According to KCNA:

There took place the third national conference of financial and banking officials at the People’s Palace of Culture on Sunday.

The conference reviewed successes and experience gained by those in the field of finance and banking in the past and discussed the tasks for reliably ensuring the financial guarantee for the building of a thriving nation and ways to do so.

Present at the conference were Pak Pong Ju, Pak Yong Sik, O Su Yong, Vice-Premiers of the Cabinet Ro Tu Chol, Ri Mu Yong and Ri Chol Man, Minister of Finance Ki Kwang Ho, President of the Central Bank Kim Chon Gyun, President of the Foreign Trade Bank of the DPRK Kim Song Ui, leading officials of commissions, ministries, national institutions, provinces, cities and counties and exemplary financial and banking officials and persons of merit.

Pak Pong Ju, member of the Political Bureau of the Central Committee of the WPK and premier of the Cabinet, read out the letter of Marshal Kim Jong Un to the participants in the conference “Let Us Dynamically Accelerate the Building of a Thriving Nation by Bringing about a Turn in Financial and Banking Work”.

In the letter Kim Jong Un said the financial and banking work in the DPRK has steadily developed, financially guaranteeing the socialist construction and the people’s material and cultural life under the deep care and leadership of President Kim Il Sung and leader Kim Jong Il.

The President set forth the unique idea of finance and banking which embodied the principle of the Juche idea and established the advantageous Korean-style financial and banking management system for solving all the problems arising in the financial and banking work in line with the independent demand and interests of the popular masses, the letter said, and went on:

Kim Jong Il developed in depth the Juche-oriented idea and theory of finance and banking of the President to provide the guidelines for improving the financial and banking work and established the party’s leadership system on the work and took revolutionary measures for the steady development of the financial and banking system.

To improve the financial and banking work is an inevitable demand for hastening the building of a thriving nation. Reliable financial resources are necessary to build the people’s paradise featured by strong national power and great prosperity.

It is necessary to financially guarantee the party’s Songun revolutionary leadership and the building of a thriving socialist nation by consolidating the financial foundations of the country and ensuring fluent circulation of currency. This is the general task for the financial and banking field.

The financial and banking officials should always bear in mind the deep trust and expectation of the party and successfully fulfill their lofty duty before the country and people and bring about a fresh turn in the financial and banking work.

Ro Tu Chol, alternate member of the Political Bureau of the WPK Central Committee and vice-premier of the Cabinet and chairman of the State Planning Commission, made a report.

He said that Kim Jong Un saw to it that the conference was held, and sent the letter to indicate the orientation and ways for improving the financial and banking work.

All the successes in the financial and banking work are a precious fruition of the undying efforts of the great leaders and the wise leadership of Kim Jong Un, the reporter noted.

He called for firmly establishing the monolithic leadership system of Kim Jong Un and orientating the financial and banking work to implementing the line and policy of the party.

Speeches were made at the conference.

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