The Pyongyang General Hospital and Kim Jong Un’s “Benevolent Dictator” Economics

July 21st, 2020

By: Benjamin Katzeff Silberstein 

On Monday (July 20th), Kim Jong Un visited the construction site for the Pyongyang General Hospital and unleashed some rather scathing criticism against the management of the project. An excerpt from KCNA:

Noting that it is making a serious digression from the Party’s policy in supplying equipment and materials to go against the intention of the Party which initiated the construction for the people and mapped out its operation, he severely rebuked it for burdening the people by encouraging all kinds of “assistance”.

Saying that the construction coordination commission failed to solve all the problems in conformity with the Party’s policy line, he said in the strong terms that if such situation is left to go on, the noble plan and intention of the Party which initiated the glorious and worthwhile construction for the good of the people could be distorted and the image of the Party be tarnished.

He instructed the relevant departments of the Party Central Committee to investigate the performance of the construction coordination commission as a whole and replace all the officials responsible and make strict referral of them.

Pointing out that though the construction work of the hospital was being pushed ahead thanks to the patriotic zeal and devoted efforts of the builders […].

(Source: “Supreme Leader Kim Jong Un Gives Field Guidance to Pyongyang General Hospital under Construction,” Korean Central News Agency, July 20th, 2020.)

The Pyongyang General Hospital project was destined for hurdles from the very beginning, as this article explores. Kim has personally emphasized how central it is to finish hospital construction by the deadline of October 10th this year, when the Korean Worker’s Party will celebrate its 75th anniversary.

With such time pressure for construction, worksite conditions were always going to be problematic. The politically motivated deadline, moreover, increases the risk of shoddy construction work. Rather than serve the general public at large, the hospital, whenever finished, is likelier to cater to the sociopolitical elite who can pay their way and, perhaps, to medical tourism.

Kim’s criticism against construction officials, however, is about much more than the hospital construction project itself. It relates to the very structure of the North Korean system, and of communist economies in general. This sort of criticism really is a standard performance in a decades-old genre, where the supreme leader shows himself to be on the side of the people by pinning the blame for any problems and suffering among the population on lower-ranking officials.

Kim’s public criticism of the construction management officials is, in other words, not exceptional, but a standard mechanism and a feature of North Korea’s economic system. Much in North Korean governance may be subject to dynamic change, but the one constant is that the leader can hardly ever be at fault.* To hold this constant, someone else must be blamed when economic plans don’t go the way they should. Never mind that the leader often rules by directives that are often vague and given in off-the-cuff-statements, left to subordinates to interpret and implement as best as they can. Problems like this are almost inevitable in an economy like North Korea’s, still in structure very much a command economy despite significant relaxations over the past few decades.

Thus, when the Soviet Union’s industrialization plan didn’t proceed as intended, it had to be the fault of wreckers working for foreign powers. Stalin himself could never be at fault. In the same way, it cannot, by definition, be Kim’s fault that people are overburdened with requests for “assistance” to help build the hospital. Lower-level bureaucrats have to be the ones to blame, for overburdening the people, because the leader can never be associated with direct pain and suffering in people’s daily lives.

In fact, such “assistance” – often termed “voluntary” – is a mainstay of the North Korean economic system and pretty much has been ever since the beginning. Kim surely cannot have missed the pictures and news reports in his own state media about “active support” from “the people”, and different localities sending construction materials. This sort of “voluntary labor” to gather materials for state projects or work on construction sites is of course not voluntary at all, as staying away would be punishable.

It is a facet of everyday life in North Korea that doesn’t get nearly the attention it deserves, as it often takes up a substantial number of hours. It is also not a new phenomena. The North Korean state has always demanded such “voluntary” contributions from the people to make up for materials and labor that the state cannot produce. Naturally, officials will use whatever means required to make their deliveries, even if these means are forcible. This applies to financial assets as well. The wealthier the trading middle class grows, the more the state will subject them to loyalty payments and the like.

In North Korea’s current situation, what choice does Kim really have but to blame lower officials for failures, and admonish them to do better? The Pyongyang General Hospital is not the only grandiose, heavily publicized project that is doing poorly. The Wonsan-Kalma resort has also been plagued by shortages and delays. The government needs these projects not least for propaganda value, to show to the country that although difficulties abound, all is not hopeless, the economy is still making progress, and people’s living standards will improve. So when none of the projects carrying this message are working out, the government has a problem.

In normal times, the state could have dismantled more economic regulations to make it easier for people to conduct trade and private economic activity. Indeed, though it is difficult to quantify, the state giving room for market mechanisms has been the most important factor for the significant improvements in the North Korean economy over the past few years.

Right now, this is difficult to do, because the state needs to extract more resources, not fewer. Over the past few years, the state has grown increasingly short of foreign currency and other assets, first because of sanctions, and later because of the Covid-19 border shutdown (which has partially ended). As a result, we’ve seen the state cracking down more and more on private business and market actors, to bring in resources as other avenues dry up.

The more difficult things get for the North Korean economy, the more demands increase for “loyalty payments” from private citizens, to fund the mega-projects that Kim has staked so much credibility on. We can expect to see more officials lose their jobs in the future in the same manner as those who got axed after Kim’s hospital construction field guidance.

 

*Such self-criticism does of course happen, but its rarity is attested to by the fact that it (rightfully) makes news headlines. One recent example is Kim Jong Un’s 2017 New Year’s Address.

 

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What explains North Korea’s puzzling price stability?

July 17th, 2020

By Benjamin Katzeff Silberstein

Looking at the latest market price data from North Korea, things do not look like external conditions dictate that they should. Food prices are…low. Very low. In fact, for the July 1st price report, the average rice price for the three North Korean cities was the lowest on record since April 2019. Gasoline prices haven’t been this low since June of 2018. (Click for larger graphs.)

Average rice prices for Pyongyang, Sinuiju, and Hyesan. Data source: Daily NK.

Average gas prices for Pyongyang, Sinuiju, and Hyesan. Data source: Daily NK.

 

By themselves, these prices are not so surprising. Prices generally fluctuate with seasonal variation, in North Korea as everywhere else. Both gas and rice prices tend to drop around this time of year, at least over the past few years.

But there is nothing normal about 2020. In addition to harsh sanctions, Covid-19 has made almost everything more difficult to acquire from abroad, from fertilizer and food, to machine parts for industry. So these lower prices are puzzling, in a way because they would seem to indicate stability and normalcy at a time when there is nothing stabile and normal about the situation.

There are (at least) two possible explanations:

One is that North Korea’s external conditions are indeed steadily improving, and returning to some sort of normalcy. Strong signs suggest that trade between North Korea and China is picking back up, as relations deteriorate between the US and China and the North Korean issue becomes less and less central on the global stage. As Daily NK has reported, North Korea has been importing items such as construction materials and food from China, both in June and July. Gas prices, moreover, may partially be untouched by Covid-19 because much of the trade goes through a pipeline near Dandong.

Another possibility is that prices are going down because people simply cannot afford higher prices. This report on train ticket prices is perhaps instructive. In the words of one source inside North Korea: “Despite the fall in the number of train passengers, [black market vendors] seem to believe that raising prices would [make it harder to sell tickets],” the source said. “In other words, you could say that a ‘market price’ [for tickets] has appeared that train riders are willing to accept.” In other words, if consumers on a given market have a reservation prices – the highest price they’re willing to pay – underneath what sellers would really charge given the supply at hand, sellers can either cut down on their profit or minimize their losses by selling at a lower prices than those dictated by economic conditions.

As always, information is in short supply, and these market prices raise more questions than they answer.

Update, 23/7/2020:

Part of what’s so puzzling about all this is that reports keep suggesting that the regime is cracking down continuously and with growing vigor against cross-border smuggling and the like. According to this report by Daily NK, Pyongyang recently ordered provincial authorities to intensify their border monitoring.

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North Korea promoting Mt Kumgang tourism

July 16th, 2020

By: Benjamin Katzeff Silberstein

Clearly, now is not the best time for tourism promotion. One might wonder what target audience is for the North Korean promotion website for tourism to Mt Kumgang. The website itself isn’t new, but as Yonhap/Korea Herald reports here, it’s recently been updated for the first time in a while. The update of a website perhaps isn’t the most riveting piece of news, but at the very least, it means that someone in some office in North Korea took time out of their day to keep this website maintained and updated with new pictures.

Even in non-Covid times, however, the success of Mt Kumgang under fully North Korean management is doubtful. Without cooperation with foreign partners, Mt Kumgang may meet the same fate as Masikryong, not exactly overcrowded with foreign visitors even before Covid hit. As I wrote in this column when North Korea confiscated Mt Kumgang, the success of the resort likely hinges upon South Korean and Japanese visitors coming in addition to tourists from China.

You can find the North Korean website in question here.

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North Korea gearing up for hard times

July 10th, 2020

By: Benjamin Katzeff Silberstein

An editorial in today’s Rodong Sinmun emphasizes that fighting the “global pandemic” is more important than economic construction. For Korean-speaking readers, the message comes near the end of the editorial on Friday July 10th, and reads:

그것은 인민들의 생명과 건강을 보호하고 증진시키는것을 최급선무로, 가장 영예로운 혁명사업으로 간주하고있기때문이다.그 어떤 경제건설성과보다 대류행전염병의 침습을 막는것을 더 중요하게 여기고 이 사업에 최선을 기울여야 한다는것이 우리 당의 요구이다.

(Source: 김병진, “인민의 생명안전을 굳건히 지키는것은 우리 당의 제일중대사,” Rodong Sinmun, July 10th, 2020.)

This is not a new message, and it’s been re-stated in various forms in North Korean state media over the past few months. As I write in this article at 38 North, the recent emphasis on the chemical industry carries the same message: don’t expect any major changes in the external economic environment anytime soon, whether it be in conditions relating to sanctions or Covid-19.

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More anti-smuggling measures by the North Korean government

July 1st, 2020

By Benjamin Katzeff Silberstein 

The North Korean government is reportedly clamping down even further on smuggling across the Chinese border. As Daily NK notes, it’s a measure partially directed against corruption, which will most likely just increase bribery amounts. It’s also part of a broader state drive to assert its power over economic activity. Daily NK:

North Korean authorities recently ordered that ships travelling near the Sino-North Korean border must have a security official on board as part of efforts to crack down on smuggling, Daily NK has learned.

“The order concerns ships travelling along the Yalu River and states that they must have a Ministry of State Security [MSS] agent on board,” a source in China told Daily NK on June 25. “The order applies to all ships, regardless of whether they are container ships or fishing boats, and irrespective of their affiliation or purpose.”

Earlier this month, the MSS announced that anyone caught engaging in criminal activity near the border, including smuggling and attempting to defect, will be subject to strong punishments rather than rehabilitative measures, such as time at a forced labor camp.

The announcement of several measures pertaining to illegal activity near the border in the space of a month demonstrates how sensitive North Korean authorities are to smuggling and information leaks in the area.

BREAKING CORRUPTION

The order is also aimed at preventing corruption between local security officials and smugglers, according to the source.

Since it is common for smugglers to bribe local security officials, the MSS will reportedly send agents from the central government rather than local officers to work on the ships.

Smugglers say that the new order will only lead to more expensive bribes.

“You can earn up to RMB 10,000 [around USD 1,412] a day taking goods across the Yalu River,” the source said. “Because there’s so much money to be made, the measures won’t stop the smuggling. Smugglers will just have to pay higher bribes to the security officials.”

(Source: Jang Seul Gi, “N. Korea focuses on ending ship-based smuggling on border,” Daily NK, June 29, 2020.)

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North Korea strengthens camera surveillance along the Chinese border

June 30th, 2020

Benjamin Katzeff Silberstein

This is part of a very interesting trend, of surveillance in North Korea going more high-tech. Border security under Kim Jong-un has been a high priority, resulting in a significant drop in the number of defectors reaching South Korea. Recall, as the article does, that this is but one of several purchase rounds of surveillance equipment from China in recent years. It’s also part of a government drive to strengthen control overall – of economic and social trends and activities:

“The equipment was purchased from China in mid-May and cost approximately RMB 20 million [around USD 2,825,497],” a source based in China told Daily NK on Wednesday.

“The camera system will be set up in areas where smuggling activities are common – not across the entire border,” he continued, adding, “The installation of the system will begin in late June.”

Given that the cameras will only cover a limited area on the border, the high price tag suggests two possibilities: 1) the new system will film in higher definition than existing camera systems; or, 2) the system is so advanced that it can detect even the slightest of movements.

There is the possibility that the installation of the new system is part of preparations to resume trade between China and North Korea, namely by further cracking down on smuggling activities by individuals.

“The purchase of the new system shows that North Korea wants to stamp out these smuggling activities to ensure only [official] Sino-North Korean trade is allowed across the border,” the source speculated.

The source noted that North Korean officials believe that smuggling activities conducted by individuals are a key way information and illicit goods enter and exit the country.

(Source: Mun Dong Hui, “N. Korea to install new surveillance cameras on Sino-NK border,” Daily NK, 26 June, 2020.)

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The North Korean economy is doing badly, but keep some perspective

June 23rd, 2020

By: Benjamin Katzeff Silberstein

Sanctions and Covid-19 have fused together to put the North Korean economy in what can only reasonably be described as an awful situation. Trade first plummeted through sanctions, and then even further because of North Korea’s and China’s anti-Covid19 measures. And the fall continues, as these figures in Hankyoreh show:

Figures from the Korea International Trade Association (KITA) and Chinese customs authorities reviewed on June 18 show a major drop in the value of North Korean goods being exported to the Chinese market: US$10.7 million in January and February (-71.7% year on year), US$600,000 in March (-96.2%), and US$2.2 million in April (-90%). The value of North Korean exports to China, which stood at US$2.63 billion in 2016, has fallen since economic sanctions were toughened, decreasing to US$1.65 billion (-37.3%) in 2017 and US$195 million in 2018 (-88.2%). Exports rebounded in 2019, to US$285 million, but that was still less than a tenth of the value of exports in 2016.

But how bad are things?

Bloomberg ran an article yesterday with the angle that the North Korean economy is the “worst” in two decades, and that this is why the country is lashing out against South Korea with renewed vigor. To support the former claim, it cites figures claiming that the country’s economy will contract by a total of 6 percent this year due to the combination of sanctions and Covid-19.

But how reasonable is this take?

There is no doubting that things are bad, but some context is badly needed. One of course cannot equate an economic contraction with the overall situation. (Never mind that any number on this will be qualified guesswork at best.) A contraction is only the economy shrinking, and it means nothing if we don’t know what the starting point is. In 1997, North Korea was perhaps at the height of a devastating famine, after the economy crumbled following the collapse of the Soviet Union, and China vastly scaling back support.

Today, North Korea may be in an economic crisis of sorts. But it entered it on the back of several years of steadily increasing exports to China. These exports, in fact, grew by more than a factor of ten between 1998 and the record year of 2013. So the situation is so different that a comparison is hardly meaningful.

This is also true for the food situation. According to numbers from the World Food Program and the Food and Agriculture Organization, whose data is questionable but highly valuable, food production stood at 3.3 million tonnes in 2008, not an unusually low figure for the time. Contrast this with the projection that this year’s harvest will be 4.6 million tonnes. Not great, lower than it should be, lower than a few years ago, yes. But still not nearly the level of the disaster years.

Also, it is crucial to remember that even in ordinary times, a not insignificant proportion of trade with China occurs off the books. Throw an increasingly lower Chinese sense of caring what the US thinks about its sanctions implementation into the mix and you’ve got, well, likely a lot more trade happening under the radar. This is what news reports from inside North Korea have been saying for quite a while.

Not that things aren’t bad, or that North Korea’s recent actions have to do with sanctions (they almost certainly do). But don’t forget about context or proportions.

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Defectors matter for the North Korean economy

June 22nd, 2020

By: Benjamin Katzeff Silberstein

Over the past few days, the North Korean government has staged protests against the defector leaflets that have caused so much rumble lately. Or, perhaps more accurately, have been used as a convenient excuse for the North Korean government to ratchet things up. In any case. It need hardly be mentioned that these so-called protests are not necessarily reflective of any broader sentiments among the general public.

But this Radio Free Asia article highlights an interesting point, namely that for many North Koreans, remittances from family members abroad constitutes a significant source of income. It’s not really just a matter of individual families, either. Sums are high enough that they likely make a not insignificant contribution to the national economy as a whole. Remittances play a significant role for the economy in several impoverished countries, and channeled the right way, they could for economic development in North Korea too.

Some in the North in fact envy families with members in the South because they send cash remittances back home, sources in the country said.

“Even though the party is organizing a series of mass rallies to denounce the defectors, the people are envious of the defectors’ families,” a resident of North Hamgyong province, who requested anonymity for security reasons, told RFA’s Korean Service recently.

“Residents are being made to shout out slogans to condemn the defectors, but after the rally is over it sure is hard to find anyone saying bad things about defectors on their own,” the source said.

“This is because the families around us [with a member who] defected are living well despite the difficulties of the national economy,” the source added.

Most of those who send balloons to the North are called “defectors” in both Koreas, who remain in a formal state of war long after the Cold War ended elsewhere.

But rights groups draw a distinction between defectors, who fled the North as government or military officials, and refugees — ordinary citizens who escaped poverty or hunger in the region’s poorest country.

North Korea’s belligerent turn this month is seen by Pyongyang watchers as calculated to extract diplomatic or economic concessions from Seoul and Washington in a well-established pattern of crisis escalation.

Smuggling cash through China

However the international reaction plays out, inside the country, the government’s break with a longstanding policy of ignoring or playing down discussion of exiles in the South is making more ordinary North Koreans think about them.

“The more the party strengthens class-consciousness education against defectors and denounces them, the more that residents show the exact opposite reaction,” another source, a resident of Ryanggang province who requested anonymity to speak freely, told RFA.

“They continue to hold rallies against defectors, so there is a growing interest in the freedom enjoyed by the defectors who have settled in South Korea,” the second source said.

The exiles send money to their relatives in the North through intermediaries in China, who take a cut for arranging the smuggling of cash, usually Chinese yuan or U.S. dollars, across the porous Sino-North Korean border.

North Korean refugees in South Korea face social discrimination and many struggle economically as they are less competitive in South Korea’s cutthroat job market. But 62 percent of them sent money to friends and relatives in the North in 2018, according to a survey by a rights group.

The Database Center for North Korean Human Rights, which interviewed 414 North Koreans in the South, found most forwarded $500-2,000 a year – significant sums where an official salary is worth about $5 a month.

According to South Korea’s Ministry of Unification, 32,000 North Koreans have settled in South Korea since 1998, including 1,047 last year.

The North Hamgyong source said that residents are complaining about having to attend rallies denouncing defectors.

“The people gripe about fatigue and they are discontent with the authorities’ ongoing rallies.

“They are critical of the authorities for focusing only on promoting the greatness of the Highest Dignity and creating a crisis against South Korea without solving the food problem that has befallen many residents at this difficult time,” the source said.  The Highest Dignity is an honorific term for Kim Jong Un.

(Source: Jieun Kim, Leejin Jun, Eugene Whong, “Official North Korean Fury at Defectors Belies Popular Envy of Remittances From Exiles,” Radio Free Asia, June 19th, 2020.)

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North Korean coal market routines changing

June 14th, 2020

By: Benjamin Katzeff Silberstein

That’s essentially the story told by Daily NK here, and it appears like some mines may be successfully cutting out a middleman:

“Coal mined from state-run coal mines is supposed to go to an agency in charge of distribution, but [these days] not all of the coal is being supplied to the appropriate agency,” the source said. “Coal mines have to make a profit to feed the large number of workers they have, so they decided to start doing business directly with the procurement and sales departments at companies.”

Some companies that received coal from this distribution system now have to buy the coal directly from coal mines, the source said, adding, “In these cases, coal mines sell the coal at a cheaper price than the usual market price.”

Some trading companies have reportedly begun working with railway authorities to transport large amounts of coal by train rather than by truck.

“They are making efforts to reduce distribution costs by going to coal-scarce areas and selling coal there while buying and then reselling that region’s specialty goods,” the source said.

“Of course there is still wholesale selling of coal taking place among merchants located near the mines. Since coal is a commodity that is always in demand, buyers are flocking to the markets,” the source added.

Generally, coal in North Korea used to be sold at around KPW 300,000 per ton, but by the end of 2017, after the implementation of more severe international sanctions, the price had plummeted to around KPW 200,000. Yet, due to smuggling and other factors, coal prices crept back up to KPW 290,000 per ton last year, according to the source.

(Source: Kang Mi Jin, “State-owned coal mines are finding new ways to make money,” Daily NK, June 11th, 2020.)

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Trends in the time of Corona: North Koreans increasingly gifting each other cell phone minutes

June 11th, 2020

Benjamin Katzeff Silberstein

Daily NK reports on an interesting trend:

North Koreans in Pyongyang are increasingly sending mobile phone minutes to others as gifts instead of attending birthdays or weddings as the country continues to restrict face-to-face meetings due to the COVID-19 pandemic.

“With restrictions on movement, events and meetings due to the coronavirus, it is becoming commonplace for people to send others ‘mobile money’ as a celebratory gift,” a source in Pyongyang told Daily NK on June 8.

“Mobile money” refers to a service where users can exchange minutes with other mobile phones users, essentially allowing people to “top-up” others who do not have enough minutes for voice calls.

“Students in Pyongyang who come from areas outside Pyongyang can’t return home due to the coronavirus and are unable to see their friends,” the source told Daily NK. “While confined in their dormitories, students began sending mobile money instead of gifts for various celebrations at home or their friends’ birthdays, and this practice is spreading to other areas of the country.”

AS SIMPLE AS CAN BE

Sending mobile money is relatively simple. Anyone with a mobile money card, which is akin to a checking card for mobile phone charges, can send minutes to others by entering the phone company’s three-digit ID number, the amount to be sent, the phone number of the recipient, and the six-digit password on the card.

For example, a subscriber of Koryolink, the most popular telecommunications provider in Pyongyang, can transmit mobile money to another individual by entering *999* followed by the amount of funds to be transferred, the phone number of the recipient, the six-digit phone money card password and then “#.” Kang Song NET customers would enter *929* instead of *999*.

(Source: Jang Seul Gi, “‘Mobile money’: an increasingly popular way of gifting to others,” Daily NK, June 11th, 2020.)

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