North Korea, Blinken and aid

January 24th, 2021

By: Benjamin Katzeff Silberstein

During his confirmation hearing earlier this week, incoming secretary of state, Anthony Blinken, mentioned that humanitarian aid could be part of the Biden administration’s North Korea policy, although it isn’t clear precisely in what shape or form. Past administrations have often seen aid as part of the negotiations on North Korea’s nuclear weapons, and much of what Blinken said is, as Joshua Pollack pointed out on twitter, all part of the same, oft-repeated talking points on North Korea policy that often changes names but practically remains the same.

The pandemic may have changed things, as North Korea’s economic situation has gone from very bad to worse. But humanitarian aid as a carrot, for today’s North Korea, seems like a non-starter. Today’s North Korea is not the North Korea of 1998. It has a leader with economic ambitions far beyond humanitarian grain deliveries from the US, UN and South Korea. The country’s food situation is dire and aid, not least in combatting the pandemic, would be highly useful. But it is difficult to imagine the North Korean government openly acknowledging that its stated economic ambitions are divorced from reality, and accepting humanitarian aid being part of any negotiations.

Time will tell, but putting aid into the mix seems based on a faulty reading of the regime’s current attitudes and priorities.

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Kim Jong-un’s congress speech: strengthening state control over the economy

January 12th, 2021

By: Benjamin Katzeff Silberstein

Unfortunately, North Korean state media has not been as forthcoming with coverage of the congress contents as they were on the first day. They did, however, release a summary of Kim Jong-un’s nine-hour long report to the congress. Presumably, Kim’s report contained much greater levels of detail than the (still very long) report summary put out by KCNA on January 9th.

In this post, I try to summarize the most significant parts of the speech where Kim deals with the economy. Such content is plentiful, but as so often in these speeches, many words are used to say very little.

The bottom-line message is clear, however: state control over the economy is increasing and will continue to tighten. What exactly this means in practice is unclear, but we have seen some very troubling examples as of late, such as the reported executions of foreign currency traders, clear signs of strengthened control over foreign currency market rates, attempts by the state to take control over semi-private corporate operations, among many other examples. And let’s not forget all the anti-corruption campaigns. While fighting corruption is undoubtedly a good thing, in the current North Korean context, it often likely means finding cash earned through semi-legal or illegal private economic activity and hidden from the state.

Indeeed, Kim’s report is abundantly clear in stating that he (or, the collective consensus of the North Korean policymakers with the most clout at present, of which Kim is obviously the most powerful) wants the state to be the main planner and decision-maker not just over the general direction of the economy, but on a much more detailed level than that. As others have pointed out, the anti-covid-19-measures may at least in part be the results of anti-market policymakers in the state apparatus using the current situation to push their agenda. Sentences such as the following are particularly concerning: “It is imperative to improve planning and make proper use of the economic leverages including financial, monetary and price administration so as to ensure rational management of the economy.” Price administration requires a level of economic governance by the state which suggests that the policy direction is hardly about merely setting interest rates and making some public investments.

None of this is happening in a vacuum. Overall, since Kim came to power, there’s been a general push to assert state control not just over the economy, but society overall. Border control has strengthened, as evidenced by the dwindling number of defections. Campaigns against consumption of foreign media have seen a significant uptick although, of course, they were always more or less in force in the country. The speech seems to hint at this too, with passages about enhancing the quality of domestic media, which may be an attempt to compete more strongly with the smuggled foreign culture that the regime considers ideologically poisonous. In any case, taking control over the economy is a natural, and perhaps the most central, part of social and political control overall.

For those hoping that North Korea will go in a direction of looser social and economic control by the state, the congress report does not make for joyful reading. The clippings below are only a small fragment of the gargantuan text, I’ve done my best to curate what I consider to be the most interesting and important parts and annotated some of them. My own emphasis in bold:

Although economic construction failed to hit the expected strategic goals, a precious foundation for making sustained economic development by our own efforts was provided, the report said, adding: The greatest of such successes is that the backbone of the self-supporting national economy, the socialist economy, which is the material basis of the existence and lifeline of our own style of socialism, was maintained and its arteries were preserved.

Kim has made similar admissions of failure in the past, so in my opinion, media headlines framing this as unique have been off the mark. In any case, the full message seems to be: things have been bad, little progress made, but at least we didn’t budge on core principles and reform our system.

The Party Central Committee built up new potentials for readjusting and developing the overall economy by taking revolutionary measures for strengthening the unified guidance and strategic management of the state over economic work and making sure that the socialist principles were thoroughly observed in the economic field.

So, some measures taken for enhanced state control, but many remain.

By prioritizing the long-standing and special DPRK-China relations, our Party developed the friendly relations with China as required by the new century and opened a new chapter in the DPRK-China relations of friendship with socialism as its core, the report stressed.

The Party Central Committee strengthened strategic communication, promoted mutual understanding and deepened comradely trust between the two Parties through five rounds of the DPRK-China summit talks and thus provided a firm guarantee for fresh development of the DPRK-China relations as demanded by the times that required continuity in the fraternal ties and unity between the Parties and peoples of the two countries which are inseparably bound up with each other in the struggle for their common cause.

Attaching importance to the fresh development of the traditional DPRK-Russia relations, the Party Central Committee also conducted external activities for the development of friendly and cooperative relations between the two countries, in the course of which it laid a cornerstone for the expansion of friendly relations with Russia.

These passages are interesting not so much because of their substance, but because an explicit goal of the last five-year plan, according to leaks, was to diversify its trade away from near-total reliance on China, and expand trade with Russia in particular. There is no hint of that goal in the report summary.

The report said that due to such obstacles, state investment and supplies intended to bolster the major economic sectors in the five-year strategy for the national economic development could not be carried out properly.

It made an analysis and appraisal of the Party Central Committee on the cause of non-fulfillment of the five-year strategy for the national economic development during the period under review, seriously pointing out that it could not but draw a conclusion that if one ascribes its failure to objective conditions, he can do nothing and the action and role of the driving force will be unnecessary, and it is impossible to accelerate the revolutionary struggle and construction work unless the unfavourable external factors are removed.

The Party Central Committee analysed the current situation, in which the 5-year strategy for national economic development had not been properly set on the basis of scientific calculation and grounds, science and technology failed to actually play the role of propelling the economic work of the country and the work of readjusting and reinforcing the irrational economic work system and discipline was not properly done.

The report referred to the conclusive lesson that the economy of the country can never be boosted without breaking with the wrong ideological viewpoint, irresponsible working attitude, incompetence and obsolete working manner that have been prevalent so far.

In other words: state officials and managers shouldn’t be content with blaming the external environment, the poor performance of the economy is still their fault, because they were not ideologically convinced enough. It is a convenient conclusion to draw for policymakers who want to avoid serious reform at all costs.

The new five-year plan mainly presupposes that the Cabinet, as the economic headquarters of the country, properly enforces the Cabinet-responsibility system, Cabinet-centred system, for economic work, vigorously accelerates the work of strengthening the essential lifeline and integrity of the country’s economy, definitely improves its economic management, actively promotes the normalization of production, renovation and local provision of raw and other materials by dint of science and technology and orientates the external economic activities toward reinforcing the foundations and potentiality of the self-supporting economy.

And the new plan reflects the demands for perfecting the self-supporting structure of the national economy, lowering the proportion of dependence on imports and stabilizing the people’s living by taking the actual possibilities into consideration.

The main seed and theme of the plan are, as always, self-reliance and self-sufficiency.

[…]

It was noted that in order to attain the goal of iron and steel production mentioned in the new five-year plan, scientific and technological problems must be solved to expand production capacity by renovating the existing production lines with advanced technology and building new energy-saving iron blast furnaces in major iron works and steel plants, to invigorate the production of iron ore and to use brown coal in the northern areas for the production of pig iron.

The report also referred to the direction of the development of the core industry of the country, the chemical industry, which can be likened to the lifeline for the construction of the self-supporting economy and the improvement of people’s standard of living.

It is unclear precisely how the state intends to use such increased production. With regards to the chemical industry, it likely has to do with manufacturing fertilizers and liquified coal, to replace expensive oil imports. 

It put an emphasis on important issues for developing the coal industry, an outpost for the development of the self-supporting economy.

Referred to were the issues of boldly unfolding and powerfully propelling the work of intensively supplying equipment, materials, labour and funds to the coal industry, securing more coalfaces by giving precedence to prospecting and tunnelling in the coal industry, putting efforts into the development of the soft coal industry, pushing forward the work of improving the working and living conditions of coal miners as a priority task for increased coal production and taking measures for the effective use of coal.

The report defined the machine industry as an important sector leading and hauling the overall economic sectors, and set forth the immediate orientation of its development after examining the present situation facing the machine industry of the country and its causes.

The basic task facing the machine industry during the new five-year plan period is to make it an industry with solid foundations and switch to a development- and creation-oriented industry.

The machine industry should positively develop and produce modern and high-performance machine products including machine tools, vehicles, building machines, electric machines, mining machines and hydraulic machines.

The report stressed the need to attach importance to the mining industry and shore it up for the sake of the normal development of the national economy.

Many of the goods mentioned here are North Korea’s most central export commodities. They are hardly useless for domestic purposes, but will of course generate much less revenue than if exported.

The basic tasks facing the construction field during the new five-year plan period is to massively carry out the capital construction including housing construction so as to provide the people with a higher civilized living conditions and radically change the appearances of the country.

The construction field should powerfully push forward the two fronts simultaneously−industrial construction for strengthening the economic foundations of the country and construction for meeting the material and cultural needs of the people.

By concentrating efforts on the construction of 50 000 flats in Pyongyang, it should set the annual plans for building 10 000 flats every year, starting from this year, scrupulously organize the construction operation and guidance for implementing the plans and thus basically settle the issue of dwelling houses for the Pyongyang citizens.

25 000 houses should be built in the Komdok area, a leading nonferrous mineral producer where a large contingent of workers live, and thus build it into a mining city with no comparison in the world.

[…]

The field should step up technical updating of its infrastructure and turn mobile communications into a next-generation one as early as possible by developing the relevant technology.

It is needed to readjust the wire broadcasting and cable TV networks, put the relevant technology on a higher level and provide full conditions for the people in all parts of the country, ranging from cities to remote mountain villages, to enjoy a better cultural and emotional life.

This is a very interesting part of the speech which has received little or no attention. The message seems clear: the state has to improve TV programming to compete with the ideologically contaminated competition coming in from abroad, mainly in the form of South Korean TV dramas.

The report raised it as a very urgent issue at present to develop the state-run commerce and preserve the socialist nature of public catering and welfare service, and set forth the tasks for restoring our commerce, true to its name, to public service activities for supporting the people’s life and promoting their material well-being.

The important tasks to be carried out by our commerce without fail at present is to restore the state’s leading role and control in the overall commerce service activities and preserve the nature of socialist commerce of serving the people.

Commercial service units should put their service activities on a people-oriented, cultural, modern and diversified basis with a correct management strategy, and thus create a new socialist service culture of our own style.

[…]

The report underscored the need to tighten discipline in ensuring unified guidance of the state in the economic work, strengthen the national system of unified statistics, launch a proper project for boosting the mainstay of the national economy, and improve the conditions of industrial establishments to carry on their management activities.

Productive forces should be redistributed in a reasonable way so that economic efficiency may increase in the whole realm of the national economy, weak links in the chain of each economic sector identified, and the sectors that are essential for balanced development of the economy reinforced.

It is imperative to improve planning and make proper use of the economic leverages including financial, monetary and price administration so as to ensure rational management of the economy.

The scientific analysis and clear policies the report put forth with regard to the prevailing situation of the major economic sectors and their readjustment and development serve as a powerful weapon of practical importance in consolidating the material and technical foundations of the self-supporting economy and propelling economic construction in a planned and stable way irrespective of the change in the external environment.

Again, as mentioned in the intro to this post, this is all very traditional rhetoric and worryingly so. A very, very far cry from the early days of Kim Jong-un’s rule, when policy experimentation and limited liberalization moves of that time.

The long-term objective for rural construction is to eliminate disparities between the working class and the peasantry, the gaps between industry and agriculture and differences between the urban and rural areas by pushing ahead with the three revolutions in the rural areas and thoroughly implementing the thesis on the socialist rural question; and the immediate task is to give precedence to the work of transforming agricultural workers on a revolutionary and working class pattern, boost state support to the rural areas and build up the rural communities in a balanced way so that they have regional characteristics of their own.

This is pretty standard rhetoric, but it is incoherent given the consistent prioritizing of Pyongyang for prestige projects and the like. The same text even continues to push this priority with promises of new housing construction in Pyongyang.

Mentioned in the report was a task for city and county Party committees and people’s committees to become a powerful engine propelling the development of their regions, master of the local economy and administrator responsible for the livelihood of the people in their regions.

In other words, stronger local government control over economic affairs.

The report also made serious analysis of the work in the field of art and literature, and set forth tasks for ushering a new era of efflorescence of Juche-oriented art and literature by effecting a radical turn on all fronts of art and literature.

Creation guidance officials, creators and artistes in the field of art and literature should display an enterprising working spirit with high discernment to produce good works embodying the Juche character, national identity and modernity, stage characteristic performances, and purposefully carry out the training of reserves on a long-term basis by establishing a proper system and setting development strategy and clear goals.

Tasks were set forth for the mass media to raise the fierce flames of a new revolution in newspapers, news services, radio and TV broadcasting and publishing as required by the new period of drastic change and upsurge in socialist construction so as to wage a vigorous media campaign aimed at deeply instilling into all the people the core of the ideas, lines and policies of the Party Congress and inspiring them to the implementation of the decisions of the Party Congress, and for the field of physical culture and sports to redouble efforts for making our country join the ranks of advanced sports nations in line with the prestige and position of our dignified state.

The innovative orientations for building socialist culture are a reflection of the grandiose plan for creating a new, Korean style of civilization by bringing about a great revolution in all sectors of socialist culture with the successes, experiences, mistakes and lessons gained in the period under review as a springboard for advance and leap forward.

The report put an emphasis on effecting a revolutionary change in the mental and moral life of the people by pushing ahead with the eradication of non-socialist, anti-socialist practices and thorough establishment of the socialist lifestyle throughout the country as an undertaking involving the whole Party, state and society.

All the people should create and develop a noble and civilized new life of our own style and conduct a powerful mass campaign against the practices running counter to the socialist lifestyle, deeply bearing in mind the faith in socialism and love for and trust in things of their own.

Again, a similar theme to above, namely, improving cultural production — implicitly to compete with the inflows of foreign culture and its problematic ideological influence.

The report underscored the need to strengthen the people-oriented nature of the state befitting the intrinsic character of our style of socialist system, realize its unified, scientific and strategic control and thoroughly establish a revolutionary spirit of law observance throughout society as required by the building of a socialist rule-of-law state, and called on judicial, procuratorial, public and state security organs to fulfill their sacred mission and duty they have assumed for defending the system, policy and people as reliable defenders of the socialist system.

[…]

The Supreme Leader in his report put forward the important tasks for strengthening the working people’s organizations, the links between the Party and the masses and its fringe organizations, into powerful political ones, powerful forces for building socialism.

The report stressed the need for the working people’s organizations to hold fast to their internal work in line with their duty as organizations in charge of ideological education to firmly arm all their members with the Party’s revolutionary ideas and, in particular, the need to prepare the youth league as a reliable successor to and reserve of the Party.

[…]

It clarified it as the first task to attach primary importance to establishing the monolithic leadership system and further develop it.

As mentioned in the report the Party organizations and officials should ensure the absolute authority of the Party Central Committee always and everywhere and staunchly safeguard it. And they should never tolerate or connive at even the slightest tendency to undermine the authority of the Party Central Committee, but wage uncompromising struggle against it.

They should consistently push forward with the efforts to defend and glorify the Party’s leadership feats, particularly give a facelift to the units associated with the leadership exploits and the ones inspected by the great leaders, and ensure that they become the model units in carrying out the Party policies.

Party organizations should scrupulously organize the work to carry out the Party policies, learn in detail about how it is done, and review it, so as to thoroughly implement the policies.

To cement the single-minded unity of the Party and the revolutionary ranks in every way by doing the Party’s internal work effectively was raised as an important task in the report.

[…]

The report stressed once again that abuse of power, bureaucracy, irregularities and corruption are what the Party must most strictly guard against and its primary struggle target at present, and that Party organizations should carry on an uncompromising struggle against even any iota of them.

Calling for thoroughly establishing the revolutionary discipline of intensifying criticism, ideological struggle and study and of working according to functions, the report stressed that it is a way of improving the Party work to decisively improve the level and ability of the Party officials.

These last few paragraphs are perhaps not directly related to the economy, but they do emphasize the push under Kim for tightened discipline and ideological-political control.

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8th Korean Worker’s Party Congress and the economy: Day 1

January 6th, 2021

By: Benjamin Katzeff Silberstein

The Party congress in Pyongyang opened yesterday, Tuesday January 5th, and we already have some rather brief reports from KCNA. First, some relevant snippets from Kim Jong-un’s review of the Central Committee’s work:

He said that he is going to suggest through the report the key line of struggle and strategic and tactical policies for the epochal advance of the socialist construction and other important issues arising in accomplishing the cause of national reunification, promoting external relations and strengthening the work of the Party after strictly reviewing the work of the 7th Central Committee in the aspects of success and mistake.

The Supreme Leader reviewed the shining successes achieved by our Party and people in the period under review.

He also analyzed the mistakes manifested in the efforts for implementing the 5-year strategy for national economic development and their subjective and objective factors.

Underlining the need to start the work for further developing the overall economy of the country under a new five-year plan, the Supreme Leader analyzed the present states of the key industrial sectors including metal, chemical, electricity, coal, machine and mining industries and set forth the tasks for future development.

(Source: “Supreme Leader Kim Jong Un Starts Report on Work of 7th Central Committee of WPK,” Korean Central News Agency, January 6, 2020.)

As I’ve argued elsewhere, there is relatively little that the state  can do under current conditions to advance any “key industrial sectors”, aside from changes in management structures and extolling people to work harder and better — measures that will only have a marginal impact, if any.

Kim Jong-un also opened the congress with a speech, a few snippets related to the economy below:

However, though the period of implementing the Five-Year Strategy for the National Economic Development ended last year, almost all sectors fell a long way short of the set objectives.

Still existing are the various external and internal challenges that hamper and hinder our efforts and advance for fresh and continuous victories in socialist construction.

The key to breaking through the existing manifold difficulties with utmost certainty and speed lies in consolidating our own strength, our internal force, in all respects.

Proceeding from the principle of finding the cause of mistakes not in the objective conditions, but in the subjective conditions, and resolving all problems by enhancing the role of our motive force, the current congress is going to make a comprehensive and profound analysis and judgement of the experiences, lessons and mistakes we have made during the period under review and, on this basis, define the scientific goals and tasks of struggle, which we can and must accomplish without fail.

The successes we have already achieved are priceless for us, and so are the bitter lessons that have been accumulated.

All these are things that cannot be bartered even for gold, and constitute valuable assets for achieving fresh victories in the future.

We should further promote and expand the victories and successes we have gained at the cost of sweat and blood, and prevent the painful lessons from being repeated.

In particular, we should be bold enough to recognize the mistakes which, if left unaddressed, will grow into bigger obstacles and stumbling blocks, and take resolute measures against their repetition.

This congress has been convened on the basis of this pluck and commitment.

If the Eighth Party Congress, a congress for struggle, carries out its work in a substantial manner and puts forth a correct line and strategic and tactical policies, the Korean revolution will greet an era of a new leap forward and upswing.

[…]

First, it conducted the work of making a comprehensive, three-dimensional and detailed analysis and review of how the decisions of the Seventh Party Congress were implemented and drawing experiences and lessons for future progress and development.

To this end, the Party Central Committee formed a non-permanent central inspection committee and sent it to lower units on a mission to learn about the actual situations there and carefully listen to the opinions of workers, farmers and intellectuals who are Party members and work in the field.

The non-permanent central inspection committee conducted the work in the way of dispatching its teams to provinces and, after grasping the actual situations there, dispatching them to ministries and central institutions by direction and sector to make brisk, comprehensive and detailed inspections.

The teams thoroughly examined all aspects of the actual situation including what was wrong, what was neglected among what could be carried out and what was implemented in a profitable way or formalistic way in executing the decisions of the Seventh Party Congress, and if there were shortcomings, what were their causes and what were the defects in Party guidance.

During the days when the Party congress was prepared, departments of the Party Central Committee and other Party organizations across the country submitted to the Political Bureau of the Party Central Committee and the preparatory committee of the congress reports of their work over the last five years and innovative and detailed opinions on the goals and plans of struggle in the future.

(Source: “Supreme Leader Kim Jong Un Makes Opening Speech at 8th WPK Congress,” Korean Central News Agency, January 6, 2020.)

The speech contained relatively few specific and details, and we can probably expect more to come tomorrow. It seems to me that much of this, too, is a repetition of the theme we’ve seen throughout the past year: blaming officials through the chain of command for economic failures. The measure of sending out inspection teams is also consistent with the trend of striving to strengthen government oversight of the economy and, not least, uncover previously hidden financial assets.

Another angle to consider on what it means when Kim says the last plan “failed”: One of its key tenets, according to claims of leaked documents published by Japanese media, was to decrease the country’s trade reliance on China. If anything, given sanctions and the general international environment North Korea has faced over the past five years, that problem has gotten even worse.

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North Korea’s economic growth in 2019

December 28th, 2020

By Benjamin Katzeff Silberstein

‘Tis the season for South Korean government estimates on North Korea’s economic growth… Maeil Business News

The North Korean economy grew for the first time in three years in 2019 following a sharp contraction in the previous two years, but its per capita income gap with South Korea widened further, the South Korean government data found.

According to a report released by Statistics Korea on Monday, the nominal gross domestic production (GDP) in North Korea rose 0.4 percent last year from the previous year to 35.3 trillion won ($32.2 billion). The growth came after the economy had shrunk 3.5 percent in 2017 and 4.1 percent in 2018 due to the poor crop yields and strengthened international sanctions.

South Korea’s nominal GDP in 2019 was 1,919 trillion won, 54 times greater than that of the North.

The statistics bureau said the increased output from construction, agriculture, forestry and fisheries and service sectors contributed to the overall economic growth of the reclusive regime.

North Korea’s per capita gross national income (GNI) was 1.41 million won last year, losing 20,000 won from 2018. It was one twenty-seventh of South Korea’s 37.44 million won. The per capita income gap between South and North Korea widened from 21 times in 2009, 23 times in 2015 and 26 times in 2018.

Crop yields in North Korea came at 4.64 million tons in 2019, higher than 4.38 million tons in the South. But the North’s rice output was 2.24 million tons, about 60 percent of that of the South.

Coal production increased 11.8 percent on year to 20.21 million tons last year.

North Korea’s trade volume totaled $3.24 billion in 2019, up 14.1 percent from the previous year when its trade shriveled 48.8 percent due to the United Nation’s sanctions.

Watches and watch components that are not subject to the sanctions accounted for the biggest share of 17.8 percent of its total exports, up 57.9 percent from the previous year.

Its biggest imports were mineral fuel and oil that took up 11.7 percent. Amid food shortage, grain imports soared 242 percent on year.

(Source: Choi Mira, “North Korean economy grows for first time in 3 years, per capita income falls in 2019,” Maeil Business News, December 28th, 2020.)

A few thoughts:

First of all, these are estimates based on models, not on rigorously gathered statistical data. That is not to criticize the statistical authorities that compile these figures, but it must be mentioned. These may well be the best estimates out there.

Second, a 0.4% growth is not much, especially considering the steep economic fall North Korea went through in the preceding years. News headlines tend to blow these figures up way beyond proportion.

Third, 0.4% does sound like a plausible number in many ways. Some of the metrics used to determine it may well be indicative of other things. Take increased coal production, for example. We know with a fair degree of certainty that (illicit) coal exports to China seem to have increased significantly during 2019, as well as during the present year. So an almost 12% increase in production compared to 2018 is not at all difficult to imagine.

So all in all perhaps a small uptick in 2019, but at the same time, from a very low level.

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North Korea’s Kumgang plans

December 21st, 2020

By: Benjamin Katzeff Silberstein

Kim Tok Hun, the North Korean premier, visited the Mt Kumgang Tourism Zone on Sunday December 20th, 2020. KCNA:

He called for pushing ahead with the development project of turning Mt Kumgang area into modern and all-inclusive international tourist and cultural area under yearly and phased plans and thoroughly maintaining the principle of conveniences and architectural beauty first in the construction so that people can fully enjoy natural beauty.

He stressed the need to build the tourist area our own way in which national character and modernity are combined while in good harmony with the natural scenery of the diamond mountain so as to turn the famous mountain of the nation into the one well-known for serving the people and a cultural resort envied by the whole world.

(Source: “Kim Tok Hun Learns about Development of Mt Kumgang Tourist Area,” Korean Central News Agency, 20/12/2020.)

Why pay attention to the tourism industry in the middle of a global pandemic? It may seem odd, but in fact, it follows along the same pattern as many other North Korean pronouncements on economic policy through the year. Consider, for example, Kim Jong-un’s many dressing-downs of industrial managers, who can scarcely be personally blamed for the poor state of the economy. The government knows that the pandemic will be over one day, and is attempting to lay the groundwork for when that happens. Tourism has been a key focus of Kim Jong-un’s economic policy, and the pandemic itself has not changed this.

What does this tell us about North Korean plans for Mt Kumgang? The statement itself does not give any hints of a change in policy direction, but the word “international” above is perhaps noteworthy. North Korea has made clear for some time that it does not intend to involve the South Korean government in plans to develop Mt Kumgang. Rather, it seeks to have tourists come from other neighboring countries, and South Koreans will of course be welcome, depending on how relations between the countries evolve, but not in running the zone. Perhaps the word choice seeks to emphasize this direction.

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North Korean coal trade: the questions that really matter

December 8th, 2020

By: Benjamin Katzeff Silberstein

I have long argued, on this blog and elsewhere, that the question of North Korea and economic sanctions is not a binary one. We don’t have either perfect sanctions implementation with complete suppression of trade, or smuggling and trade under the radar, with or without the complicity of the Chinese government, making sanctions on North Korea meaningless. Rather, sanctions were never going to work perfectly to begin with — government measures rarely do. What sanctions do do, however, is to impose high additional costs to anyone trading with North Korea. North Korea would still import and export sanctioned goods to some extent, but reap lower revenues from exports and pay more for imports.

US intelligence claims over the past few months have contained some information that is highly relevant to that end. Ship-to-ship (STS) transfers are complicated and expensive, but it seems that this method of transferring North Korean coal to Chinese buyers has begun to decrease. Wall Street Journal reports (paywall) that direct deliveries to China, through the Ningbo-Zhoushan area, have increased in frequency over the past few months. Chinese ships have also gone directly to North Korea’s Nampo port to fetch coal deliveries.

The UN Panel of Experts noted this trend already in its March 2020 report:

67. Ship-to-ship transfers in the Gulf of Tonkin (see S/2019/691, para. 20) have decreased substantially in favour of increased deliveries to the Ningbo-Zhoushan and Lianyungang port areas in China. The increase reinforces the need for port and customs authorities to heighten scrutiny of vessels and their shipping documentation, and to impound any vessel suspected of transporting prohibited items.

We still don’t know how widespread such trade is, but it significantly lowers the transaction costs of North Korea’s coal trade, and thereby lessens the impact of sanctions on North Korea’s export revenue.

What about proportions?

  • According to the WSJ report and US intel sources, North Korea exported 4.1 million metric tons of coal between January and September 2020.
  • No one knows what North Korea paid, but the WSJ report assumes a price of $80–100 per ton in 2020. This places the value of the exports between $330 and $410 million.
  • Is that a little or a lot? Well, it depends. According to UN Comtrade figures, North Korea exported on average 1.7 million metric tons of coal per month to China in 2015. In contrast, 4.1 million metric tons between January and September gives close to half a million metric tons per month. In April 2016, coal exports totalled 1.53 million metric tons, to the tune of $72.3 million.
  • The WSJ figures place North Korean revenue at $36.6-$45.5 million on average per month for January-September. Using the 2016 April figure as a benchmark, it is absolutely not an insignificant number. At the same time, it is nowhere near — really, less than half by one measure — what North Korea has received for its coal exports in the past.

This by no means gives a perfect representation of the proportions at hand. After all, both 2015 and 2016 were boom years for North Korean coal exports to China. At the same time, judging from this limited data, we should not assume that things are back to normal only because China’s sanctions implementation seems to have begun to taper off. At the moment, it’s also very difficult to tell what proportions of the downturn in trade originates from North Korea’s own, self-imposed border lockdown, and from sanctions respectively.

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A crackdown on the North Korean market economy?

December 1st, 2020

By: Benjamin Katzeff Silberstein

(This is a rather long post with two parts: the first analyzes some recent events suggesting a government crackdown against the market economy, while the second recaps the some recent events within this trend. For readers interested primarily in the latter, I suggest scrolling down to the subheading “The events: a brief recap” below.)

Is the North Korean government cracking down on the market economy as such?

I would argue that we are not quite there yet, but an ever-increasing number of news seem to be suggesting that economic policy may be going in this direction. It’s also entirely possible that there is in fact no coherent strategy. One should not overestimate governments in general when it comes to coherence – this is nothing unique to North Korea. Nonetheless, these developments are crucial to keep a close eye on.

This post goes through some of the most central developments over the past few weeks below, but in short, some of these events are:

  • the general rhetoric and personnel politics from Kim Jong-un over the past year or so, repeated statements from high official organs about the need for economic control (most recently in a politburo meeting on November 30th),
  • the crackdown on foreign currency use and the reported execution of a foreign currency trader,
  • a reported change in the management of general markets to greater centralization and direct state control,
  • and last but not least (for now), an amendment to the enterprise law, effectively placing a common form of private enterprise under state scrutiny and administration.

This list is by no means exhaustive. For example, North Korean academic journals, often good proxies for what’s cooking in the policy circles, have repeatedly emphasized the need to “create an administrative system” since late last year. In North Korean parlance, this is likely code for increased state oversight and control. (Hat-tip to my good friend and colleague Peter Ward, perhaps the most thorough and dedicated researcher of North Korean journals in the analyst community.)

As I write more about in a forthcoming article for 38 North, the state has placed a high priority on reigning in – and at the very least, governing and administering – the market economy for some time, and with heightened intensity since the 2019 December plenum in particular.

There may, however, be more to it. There still is not sufficient evidence to conclude that the state is actively trying to stomp out markets or market mechanisms as such, but it is a possibility.

First, a basic question: if there is a general crackdown going on against the market economy, what would be the purpose? Again, no one knows, but one can speculate about a few different possibilities.

Perhaps most basically, North Korea is still, at least nominally and theoretically, a communist state with a centrally planned economy. Legally, private property does not exist. There has yet never been an official, explicit, major break with this model. We have often taken the state’s reluctance to crack down on the markets, and indeed, its occasional embrace of market mechanisms, as tacit acceptance that they are in the North Korean economy to stay. Maybe this assumption was wrong all along, or maybe things have changed over the past couple of years.

On the same theme, let’s not forget that North Korea’s political and social system is highly totalitarian. It is only natural that it would tend towards greater control, ultimately aiming to either eradicate or (more likely) tame groups such as the donju and integrate them into the official system. Economic reform and liberalization will always be potentially threatening, as they expand a sphere beyond state control, whether it be in the economy or society overall. Perhaps the North Korean leadership thinks the limit has been reached and it is time for a general rollback.

There may also be a pragmatic purpose to it all. As I have argued before, growing resource scarcity is a likely driver for increased economic control by the state. This is perhaps the most charitable and optimistic reading, as it suggests that the trend may one day be reversed.

Whatever the case, this is all troubling. The state and Kim Jong-un personally may very well be overestimating the capacity and potential of the state economy as an alternative to the market sphere. North Korea is a state with relatively capable governance in some areas, but with a very low capacity in others. Quite likely, the state simply has little grasp of the size of economic activity, and little overview of what this activity consists of. (See, for example, this recent report by Daily NK about a general survey of firms and enterprises leading up to the Party Congress in January 2021.) The border closure due to Covid-19, among other examples, shows that the state is prepared to accept a high degree of suffering among the general public for the purpose of social stability.

The events: a brief recap

The latest data point came a couple of days ago, at the latest of a staggering eleven politburo meetings this year. The KCNA summary contains two highly concerning paragraphs (my emphasis):

”The meeting discussed and studied as key agenda items the issue of hearing a report on the preparations for the 8th Congress of the WPK and taking corresponding measures, the issue of reorganizing a relevant department mechanism of the Party Central Committee to strengthen the field of the Party ideological work, to more thoroughly establish the Party’s leadership system in relevant institutions and to intensify policy guidance and Party guidance over them and important issues of improving the Party guidance over economic work and carrying out immediate economic tasks. Then decisions were made on them.”

And:

”The Political Bureau of the Central Committee of the WPK harshly criticized the economic guidance organs for failing to provide scientific guidance to fields under their charge under the subjective and objective environment and the prevailing conditions, and for failing to overcome subjectivism and formalism in their work. It stressed the need to put the operation and command for carrying out the Party’s economic policies on a scientific basis and display great dedication and responsibility.”

 

(Source: “Enlarged Meeting of 21st Political Bureau of 7th Central Committee of WPK Held,” Korean Central News Agency, November 30th, 2020.)

This comes against the backdrop of several similar statements from the politburo and other organs through the year and, not least, worrying measures, such as the reported execution of a foreign currency (among other measures) trader amid a strange appreciation of the won against the US dollar. Maeil Kyungje:  

“코로나19 확산에 위기감이 높아진 김정은 북한 국무위원장이 `비합리적 대응`을 하고 있는 것으로 보고됐다. 방역 위기에 경제적 어려움이 겹친 상황에서 환율 급락을 이유로 평양의 환전상을 처형하고 바다에서 어로와 소금 생산을 금지하는 등 무리한 조치를 취하고 있다는 것이다.

국회 정보위원들은 27일 국가정보원에서 최근 북한 동향을 이같이 보고받았다고 밝혔다. 정보위 야당 측 간사인 하태경 국민의힘 의원은 “김 위원장이 과잉 분노를 표출하고 있으며 상식적이지 않은 조치를 내놓고 있다”고 평가했다. 이날 국정원 보고에 따르면 김 위원장은 지난 10월 말 `평양의 거물 환전상`을 처형했다. 북한 내 환율이 최근 들어 급락했는데 이에 대한 책임을 물어 비공개 처형했다는 것. 북한은 외화난이 상시화했지만 국경 봉쇄로 외화 수요가 줄어 환율이 급락한 것으로 보인다. 하 의원은 또 “바닷물이 코로나19로 오염되는 것에 대한 우려 때문에 (김 위원장이) 어로와 소금 생산을 금지했다”고 말했다.”

(Source: Park Jae-wan, “Kim Jong-un executes foreign currency trader amid plunge in exchange rate,” Maeil Kyungje, November 27th, 2020.) See this Financial Times article for an English-language summary of events.

And then there’s the recent sudden appreciation of the won. Bill Brown explains this well here. It is, however, part of a broader push for people to use less foreign currency. There could be a whole host of reasons for this move, one of which could be to drive more of it out of circulation and into state hands. We still know too little to draw any firm conclusions.

Daily NK also reported a couple of weeks ago about new measures to centralize control over general markets under Party control. The report did not suggest direct measures to curtail market activity per se, but this may well be the consequence should the measure be fully implemented, with more red tape and central management further from the ground.

North Korea’s KCNA recently ran an article about two bills adopted by the Supreme People’s Assembly. One of them — a ban on smoking in certain areas — got quite a bit of attention, which lighter news from North Korea often does. The second one — an amendment to the country’s enterprise law — is, however, potentially much more significant, and could significantly curtail and hamper private business activity in the country. Here is what KCNA (5/11/2020) said about it:

”The amendments and supplements to the enterprise law newly point out such matters as of turning enterprises into labour-, energy-, cost-, and land-saving ones and making their employees patriotic working people who possess the spirit of economy as part of their mental qualities.

They also refer to the regulations which all the units must observe when organizing new enterprises or when changing their affiliations and those designed to ensure that production and business management are done on socialist principles under the unified guidance and strategic control of the state.”

Now, these few sentences reveal relatively little about what this could all mean in practice. Daily NK reported a few days later, however, that the government aims to centralize control of small business usually operating illegally, known as “kiji”, under official SOE frameworks. Corruption is certainly problematic in general, but given the fact that a massive proportion (or most) of private business in North Korea operates under frameworks that are technically corrupt, the ambition to strengthen government oversight may have serious adverse consequences. (For more on the “kiji” system, see this excellent journal article.)

In conclusion, it is too early to tell what the regime’s end goal is with these measures. At the very least, we can conclude that the state aims to lay more of the economy under its control and management. That is of course a central end goal in itself.

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North Korean government continues to strengthen market control

November 13th, 2020

By Benjamin Katzeff Silberstein

The trend continues, Daily NK reports, as the government apparently is strengthening direct Party control over the market system, all in line with the broader policy trend of stronger government control over the economy under Kim Jong-un. As I’ve pointed out in many previous posts and articles, stronger control doesn’t necessarily mean repression of market activity per se, but rather, the ability to more closely manage, direct and not least better tax market activity. This news reports suggests that that’s the case for this recent order as well (see my emphasis in bold):

North Korea recently crafted new market management regulations to give the Workers’ Party greater involvement in and control over markets, handing down orders to this effect to regional administrative organizations and market management offices.

A source in North Hamgyong Province told Daily NK on Tuesday that a written order entitled “Cabinet Decision on the New Market Management and Operation Regulations” was handed to the commercial departments of the provincial people’s committees and market management offices.

The new regulations were decided upon during an extended plenary meeting of the Cabinet on Oct. 19. Provincial people’s committees nationwide received copies of that decision one day in advance.

According to the source, who spoke on condition of anonymity, the new order calls for the establishment of a system where local provincial, municipal and county people’s committees manage the creation and dissolution of markets, with the commercial departments of the provincial people’s committees ultimately making reports to the Cabinet and the Central Committee’s Organization and Guidance Department. These changes ultimately broaden the ability of the Central Committee to monitor and exert control over the entire civilian economy.

In the past, only the commercial departments of people’s committees – which are administrative organizations – were involved in running the markets; party organizations had little to do with them. With the regulation changes, however, markets have now come under party management and control, according to the source.

The state appears to be trying a new tack with these regulation changes, the source said. According to him, North Korean authorities are “moving towards a system of direct management and control of markets nationwide through the Central Committee.” In the past, by contrast, the markets were managed and controlled by provincial people’s committees.

The order also encouraged local North Korean authorities to open new markets as needed so that they can “involve themselves in helping improve the lives of the people while also exercising control.” 

The order further instructed the commercial departments of people’s committees – in consultation with the Workers’ Party – to set the opening and closing times of markets according to the “time period” (season) and the “conditions” of each province, city and county, rather than making opening and closing times uniform across the country. It also ordered that fees on imported goods be increased.

The order directed people’s committees to regulate products in the markets while, at the same time, expand the list of goods available and – in consultation with party committees – set maximum and minimum prices. It further called for the promulgation and establishment of a system to fine those caught distributing goods at prices higher than those set by the state.

The order included a directive to restructure market use fees or payments to the state in accordance with the size of the markets or “distribution of urban populations,” and include these new fees and payments in “budget implementation.”

“The state’s new market management and operation regulations are still unknown to the general populace,” said the source, who further claimed that, “[The new orders] call for overlapping control of the markets and aim to raise market fees and other financial burdens, so they [ultimately] put ordinary people at a disadvantage.”

(Source: Kim Yoo Jin, “North Korea increases Workers’ Party control over markets,” Daily NK, November 6th, 2020.)

That is, the government wants market activity to be vigorous and rules and regulations to conform to what people actually want and need — but all under its own auspices.

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Asahi Shimbun: China provided North Korea with substantial amounts of food and fertilizer this year

November 4th, 2020

Benjamin Katzeff Silberstein

In a piece of news that should surprise no one, Asahi Shimbun reports that South Korean government sources say China provided North Korea with 5-600,000 tons of food aid and fertilizer this year. Although it wouldn’t entirely make up for the estimated shortfall, it is still a highly significant contribution:

But several South Korean government sources said China has provided North Korea with between 500,000 and 600,000 tons of food along with the fertilizer this year.

It also sent about 600,000 tons of corn and other types of grain between June and August, according to Chinese sources with inside knowledge of ties with North Korea.

Pyongyang requested more assistance in the aftermath of the summer typhoon damage and Beijing is considering sending an additional 200,000 tons of food, the sources said.

The South Korean sources focused on the volume of fertilizer shipped to North Korea as such assistance is considered highly unusual.

North Korean authorities equate one ton of fertilizer to 10 tons of food assistance, a former high-ranking North Korean government official said.

“Due to chronic shortages, fertilizer is highly prized in North Korea,” the official added. “The amount sent this year is equivalent to 5.5 million tons of food, which exceeds the yearly production of food. It was a very unusual level of assistance.”

Although North Korea is no longer in the grips of famine that raged in the late 1990s and claimed countless lives, the U.N. World Food Program has estimated that between 2018 and 2019 about 10 million North Koreans did not have enough to eat.

The situation is believed to be worse this year.

North Korea was plagued by flooding and other damage due to typhoons and torrential rain in summer after near-drought conditions in spring.

A source at a Chinese government-affiliated agency who is well-versed in issues involving North Korean agriculture said that the harvest estimate at planting time was between 3.5 million and 3.8 million tons for a shortfall of about 1.5 million tons.

Rice prices were kept stable through the release of grain stockpiled for emergencies, but the situation without China’s assistance was expected to be dire from next spring.

China’s decision to bail out its unpredictable neighbor may reflect a strategy to keep North Korea in its corner as Beijing’s confrontation with Washington worsens. In this regard, Beijing made a big fuss of its involvement in joining fighting in the Korean War on the 70th anniversary of China’s participation.

“China and North Korea have always shared interests in terms of their view of the United States, but that has strengthened recently,” said a North Korean source. “China is sending a message to the United States through its appeal of a honeymoon period with North Korea.”

With no signs of progress in denuclearization talks with the United States, the easing of economic sanctions against North Korea appears unlikely in the short term.

That suggests North Korea will continue to lean on China for support, analysts said.

“If North Korea receives support from abroad, it will no longer be able to say it is getting by with its own efforts,” said a South Korean expert on the North Korean economy. “But North Korea can continue to save face because China does not announce the assistance levels.”

(Article source: Takeshi Kamiya in Seoul and Yoshikazu Hirai in Shenyang, “China bailout to North Korea: massive food and fertilizer aid,” Asahi Shimbun, November 3rd, 2020.)

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North Korea’s disaster management: a comment about a comment

November 4th, 2020

By Benjamin Katzeff Silberstein

It might seem a strange topic to post about on the day after the US elections, but perhaps some readers might like a break from the incessant commentary for something completely different.

If so, I highly recommend the article that former ambassador James Hoare published yesterday on 38 North, partially as a comment to my earlier article about North Korean disaster management. Ambassador Hoare gives a highly interesting historical perspective partially based on his own experiences in the country, noting that deforestation is a problem on the Korean peninsula much older than North Korea itself. He also notes that North Korea is far from the only country where homes constructed near riverbeds are regularly flooded, and argues that North Korea’s flooding problems are, after all, not so unusual in an international context.

I fully agree with all of these points, and the historical context is very valuable and crucial for understanding the current situation. If anything, there are perhaps two points of minor disagreement that I have with Hoare’s text.

First, the current North Korean situation is in large part a result of changes that could have been avoided. Deforestation was acutely exacerbated during the Arduous March, because people had few other alternatives than to cut down trees for firewood and to clear the ground for farming. Deforestation and flooding, therefore, are not phenomena entirely endemic or “natural” neither to the Korean peninsula nor to North Korea in particular, because things were not always this way. There is nothing natural or inherently necessary about North Korea’s economic system, as the many former communist states who have adopted programs of systemic overhaul have shown. Natural disasters may be natural, but each state has a choice in how to meet them.

Second, ambassador Hoare rightly points out that one should perhaps applaud the progress being made rather than to note that improvements have a long way to go. My article neither sought to decry nor applaud any improvements, but simply to show where things stand, based partially on conversations with several people who have themselves worked in natural disaster mitigation in the country.

And despite the improvements that have been made, there is a real and substantive risks that North Korea’s disaster management improvement plans and ambitions will stop at being just that. In this realm, there should be little doubt that the government’s ambitions are high and praiseworthy. The problem is that we have seen too many examples of ambitions without implementation to conclude that they will in fact be realized. Oftentimes, the policy process, opaque as it is, often appears to stall, and political interest and attention may wane. In this, too, North Korea is not alone in the world.

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