North Korean Economy Watch

Granted that information from the DPRK is nearly impossible to verify, it seems likely that the DPRK government continues to encounter difficulties implementing its most restrictive market regulations.  They have tried repeatedly to impose rules which dictate who may work in the markets, how to allocate vending slots, what goods may be sold in the markets, what prices may be charged, and when markets may open. 

With each new rule vendors and entrepreneurs respond by fighting back against the authorities (sometimes violently) or simply moving to the black market, which (as in other communist countries) composes a significant portion of the nation’s GDP.

The DPRK’s most recent market regulation (issued in the autumn of 2008) is the 10-day rule—prohibiting markets from opening except every tenth day.  This rule was supposed to take effect in March 2009, yet it has not been successfully implemented—even in the areas where Pyongyang exercises the most control (large cities).

According to the Daily NK:

The North Korean authorities issued a decree in October, 2008 aimed at shifting the existing market system over to a 10-day market system and restricting the range of items being sold, but by mid-March of this year there was no market where the decree had been properly implemented.

Decrees attached to the entrances to markets were all removed and only the specific list of restricted goods is posted there. However, secondhand goods have been strictly regulated in some regions, so conflicts between citizens have arisen.

Each story about the failure of market restrictions stresses the inconsistency with which the rules are imposed across the country.  In other words, local conditions predict the effectiveness of Pyongyang’s dictates.  This is perhaps due to the DPRK’s market governance structure.  Local markets are controlled by a local Market Management Office which is in turn subordinate to each City People’s Committee.  According to the Worker’s Party organizational chart (view here), each City People’s Committee is subordinate to a Provincial People’s Committee (PPC), and all PPCs are subordinate to the Central Committee of the Workers Party.  

This governance structure puts three layers of bureaucracy between the Central Committee and the actual markets, perhaps allowing local leaders to exercise significant discretion over market operations.  True, random inspection units from the central authorities can make surprise visits, but their numbers are likely too small to enforce country-wide compliance, particularly when local officials can benefit from accomodating traders.

Still, these kinds of stories are both disconcerting and pleasing.  Why disconcerting?  Because the expectation by “Western” analysts (including myself) that market legitimization signaled a stable policy shift by Pyongyang has proven unjustified.  The good news, however, is that the DPRK’s markets are proving surprisingly robust.

In 2003, North Korean authorities “legalized” markets throughout the country by converting previously existing “farmers’ markets” into “combined general markets” and allowing all traders sell their wares. After the legislation was passed, markets began to spring up in neighborhoods across the country–even in Pyongyang.

Although it is clear now that this was a politically defensive move on the part of the central government,  North Koreans now reportedly spend more than 80 percent of their incomes in these markets.  Despite authorities’ efforts to assert more control over the markets, they have (paradoxically) become the social safety net of socialist Korea. 

UPDATE: According to the Wall Street Journal, Friday was even better:

The Korea Composite Stock Price Index, or Kospi, gained 6.78 points, or 0.5%, to end at 1283.75. The index is up 3.7% on this week following last week’s 5.7% gain.

“Improving economic data and overnight gains in offshore markets lent support to the market, but Asian markets generally lagged U.S. and European peers as they needed to slow down after steep gains over a short period,” said Kim Hak-kyoon, an analyst at Korea Investment & Securities.

“But the upward march has not stopped and foreigners continued to show strong appetite for local stocks again today,” added Kim.

Meanwhile, market participants didn’t react much to news that North Korea may launch a rocket as early Saturday.

“Isn’t it the fact that North Korea will launch a rocket? The key to determine the mood in the financial market will be how South Korea and the U.S. will handle the case. So far market participants, in particular foreigners, don’t seem to worry too much about that,” said Kim at Korea Investment & Securities.

Market analysts continued to treat the potential missile launch as a short-term event to the financial market.
“North Korea’s main goal seems to be to push for a lifting of current sanctions and get economic aid flowing by showing off its ability to attack the mainland of the U.S.,” said You Seung-min, an analyst at Samsung Securities. “In reality any direct military clash seems to be unlikely….The stock market will likely return fast to its normal track after experiencing short-term volatility caused by the launch.”

ORIGINAL POST:Just the news I expected (sort of).  According to Reuters:

Meanwhile investors largely ignored news that North Korea had begun fueling a long-range rocket it plans to launch between April 4-8, starting a process that experts say means the rocket will be ready for lift-off in three to four days.

“Yes, the North will probably launch the missile, and that certainly can’t be good. But markets will probably bounce backafter a couple days as they always do…market participants have learned over time to remain calm to North Korea-related developments,” Lee added.

Read the full articles here:
S Korean Shares End Tad Up On Econ Recovery Hopes
Wall Street Journal
Soo-Kyung Seo
4/3/2009

Seoul shares hit 5-½ mth high;North news ignored
Reuters
Jungyoun Park
4/1/2009

(Hat tip to Gavin) A reader recently visited the DPRK and took these pictures of children playing in Pyongyang.  There was no shortage of Western brands on display:

Pictured above: BMW, Ronaldo, Weetbix (Weetabix), Puma, and Snoopy  

Thanks to entrepreneurial Chinese and DPRK merchants, Western brands are getting their foot in the door with some free advertising.  If BMW keeps up this covert strategy they might be able to knock Mercedes out of the top position some day!

From the Wilson Center’s North Korea International Documentation Project:

The North Korea International Documentation Project is pleased to announce the publication of the latest addition to NKIDP Document Reader Series, Limits of the “Lips and Teeth” Alliance: New Evidence on Sino-DPRK Relations, 1955-1984.

The collection was specially prepared for the joint NKIDP-United States Institute of Peace conference, North Korean Attitudes Toward China: A Historical View of Contemporary Difficulties, and contains newly obtained documentary evidence on North Korea’s relations with China throughout the Cold War from Russian, (East) German, Albanian, and Hungarian archives. The 24 documents contained in the reader shed new and invaluable light on Pyongyang’s perspective of the Sino-DPRK relationship, and may force a reevaluation of the U.S. strategy of relying on China’s political leverage over North Korea to resolve contemporary disputes over North Korea’s nuclear weapons and ballistic missile programs.

Limits of the “Lips and Teeth” Alliance: New Evidence on Sino-DPRK Relations, 1955-1984 was edited by NKIDP Coordinator James Person with indispensable assistance from Tim McDonnell. NKIDP is part of the Center’s History and Public Policy Program directed by Dr. Christian Ostermann. This publication, like all NKIDP publications, was made possible by a generous grant from the Korea Foundation and is available for download free of charge from the NKIDP website.  

Download a PDF of the NKIDP reader here.

Though this web page is not focused on military affairs, today the Institute for Science and International Security (ISIS) sent out a picture of North Korea’s Taepodong 2 missile sitting on the launch pad at Musudan-ri. According to their email:

ISIS has obtained commercial satellite imagery from DigitalGlobe taken at approximately 11:00 AM local time on March 29, 2009 of the Musudan-ri missile site in North Korea. The missile is clearly visible in this image. It is also casting a shadow that is clearly differentiated from the missile launch gantry. According to news reports, the missile was installed on or after Tuesday, March 24, 2009. Since the missile is so easily seen in this image versus in imagery over the past several days since March 24 , it is likely that North Korea was previously shrouding the missile.

You may see the ISIS report here.

You can see the launch trajectory mapped out on Google Earth here.

As the T-2 will not threaten US territory, Uncle Sam has no plans to interfere with the launch.

Writing in the Korea Times, Andrei Lankov points out the interesting history of Koreans within the early communist movement:

The [Russian] revolution was followed by the Civil War which lasted to 1922, and during this conflict few ethnic groups supported the Communist Red Army with the same devotion and enthusiasm as the Koreans.

Some 8,000 Koreans joined the Red forces. This might not appear to be a large number, but the ethnic Korean community was roughly 100,000 strong in 1917, so it means that roughly one out of four able-bodied males joined the Communist army.

In most cases these people were volunteers, not draftees: for a long time, the Russian Far East was beyond the reach of the regular Red Army, so operations were conducted largely by guerrillas who relied on wide popular support.

At the same time, there were very few ethnic Koreans who chose to fight on the other side, with the anti-Communist Whites.

Such enthusiasm for the militant left was easy to explain. First, the battle cry of the Communists was “land to the farmers!” Most Koreans were farmers, but they often faced serious discrimination.

Russian authorities preferred to give land to the ethnic Russian settlers whose plots were then often toiled by Korean tenants. The Communists explicitly promised to change the situation by distributing land equally among all people who needed it.

Second, Koreans faced a certain amount of discrimination in old Russia, and Communists, being patiently anti-imperialist and anti-racist, promised that in a Communist Russia there would be no ethnic or racial discrimination whatsoever.

Third, in the Russian Far East the anti-Communist forces were supported and supplied by the Japanese. A large Japanese expeditionary force was actually dispatched to Siberia.

Taking into consideration that most Korean intellectuals (and nearly all politically active Korean leaders) had been active in the national liberation movement, they naturally enough became allies with their enemies’ enemy, that is with the Reds ― even if they did not initially harbor much sympathy for the Communists’ radical social program.

Thus, the Koreans entered the red guerrilla ranks in large numbers ― and in the early Communist armies they knew how to indoctrinate soldiers.

A number of those people, especially Russian speakers, soon became devoted Communists and active propagandists of the new teaching among their fellow Koreans.

The first prominent leader of the Korean Communists was a woman, Alexandra Stankevich (Nee Kim). Actually, she was more Russian than Korean in culture and education.

Her Korean father, a fluent Russian speaker and a professional interpreter, died when she was very young, and the girl was adopted by her father’s friend and his Russian family.

Alexandra received a good education, married (unhappily) a Russian man whom she later divorced, and traveled far across Russia.

From around 1915 she became very involved with underground socialist politics. In 1917-18 she was a prominent Communist leader in the maritime province and also a chief foreign policy negotiator for the local Communist government.

When in 1918 the government was overthrown by the Whites and their Japanese allies, Alexandra Kim was captured and killed.

Around the time of Alexandra Kim’s death, Yi Tong-hwi, a former officer of the Korean army, and by then a guerrilla commander, established the first Korean Communist group, called the Korean Socialist Party.

This happened in the city of Khabarovsk, and most party members were local Russian Koreans. Soon afterward, Yi Tong-hwi was even invited by Lenin to have a discussion about the Korean situation, in Moscow, and his small group became the first sprout of the Korean Communist movement, which for better or (more likely) worse influenced Korean history for the next hundred years.

Read the full story here:
First Red Koreans
Korea Times
Andrei Lankov
3/26/2009

Several foreign organizations are broadcasting radio content into North Korea: Free North Korea Radio, Open Radio for North Korea, Radio Free Chosun, Voice of America and  Radio Free Asia.   

According to Yonhap, the EU government and Reporters Without Borders (RSF) are throwing financial support behind FNKR, ORNK, and RFC:

The European Union (EU) and an international group of journalists forged a deal on Tuesday to provide 400 million won (US$290,000) to help anti-Pyongyang radio broadcasting stations run mostly by defectors from North Korea.

The EU and the Reporters sans Frontiers (RSF) signed the deal with three stations — Free North Korea Radio, Open Radio for Korea and Radio Free Chosun — in Seoul to fund their programs for the next three years.

The stations have been producing and sending shortwave anti-communism and human rights radio broadcasts across the border. In the past, North Korea has asked South Korea to suspend the stations, calling them an obstacle to unification.

In a related Associated Press story, the South Korean government is allowing Voice of America access to South Korean transmission equipment for the first time since the 1970s:

That makes the signal much clearer than VOA’s long-running shortwave broadcasts from far-flung stations in the Philippines, Thailand and the South Pacific island of Saipan. Moreover, it’s an AM signal, so listening in doesn’t require a shortwave radio.

“Radio can play a big role in changing people,” said Kim Dae-sung, who fled the North in 2000 and is now a reporter at Free North Korea Radio, a shortwave radio broadcaster in Seoul. “Even if it’s simply news, it’s something that North Koreans have never heard of.”

Still, the move could be seen as yet more provocative policymaking by a government already at loggerheads with the North over Lee’s tough policy on Pyongyang, and comes at a time of heightened regional tensions over North Korea’s plans to launch a rocket early next month. Nuclear envoys from South Korea and Japan flew to Washington for talks Friday with top U.S. diplomats about North Korea.

Since Jan. 1, VOA has been using the antenna facilities of the Far East Broadcasting Company-Korea, a Christian evangelical radio station, for half of its three-hour nighttime broadcast into the North. The antenna is only 40 miles (65 kilometers) from the border.

South Korea prohibited VOA from broadcasting from its soil for carrying a 1973 report on the kidnapping of Kim Dae-jung, then a leading South Korean dissident. The authoritarian Seoul government at the time is widely believed to have been behind the abduction.

North Korea condemns such broadcasts as “U.S. psychological warfare” and often jams the signals. So far, it has not interfered with VOA’s new AM broadcast, said radio expert Park. Doing so requires more equipment than blocking shortwave signals, and the fact that North Korea isn’t doing so may indicate the North is struggling economically, he said.

Read the full stories here:
EU, reporters promise 400 million won to promote radio broadcasts into North
Yonhap
3/24/2009 

VOA wins powerful base for broadcasts into NKorea
Associated Press (via Herald Tribune)
3/28/2009

Institute for Far Eastern Studies (IFES)
NK Brief No 09-3-26-1
2009-03-26

North Korea has given notice that it will launch a rocket to place its ‘Kwangmyongsong 2’ satellite into orbit some time between the 4th and 8th of next month. The Choson Sinbo, the newspaper run by the pro-Pyongyang ‘General Association of Korean Residents in Japan’, carried an article emphasizing that the launch of the satellite will be an important step in the construction of a ‘Strong and Prosperous Nation’ by the year 2012.

The article, carrying the title, “Dream,” stated that “those who are clamoring that a missile and a satellite are the same” were trying to “steal away even the right to space development.” The paper went on to state that the children of North Korea would not have their dream of freely traveling to space “snatched away,” that the young would take delight in picking out the Kwangmyongsong 2 amongst the stars in the night sky, and that the next generation would further advance the North’s space exploration, “not as a dream, but as a reality,” insisting that Pyongyang is planning the launch of a satellite, not a missile.

On a less controversial note, North Korea’s online magazine “Uriminjokkiri (Our Nation by Itself)” announced on March 21 that renovations have been completed on eighteen restaurants in Pyongyang’s most famous dining district. Many areas of Pyongyang have been getting facelifts as the country prepares for 2012 celebrations of the creation of a Strong and Prosperous Nation in the year marking the 100th anniversary of the birth of Kim Il Sung. The website stated, “The interiors and exteriors of eighteen restaurants have been renovated and vanguard operating equipment has been installed.” It reported that the work was expected to take 2-3 years, but all renovations and upgrades have been made in the dining areas, kitchens, and storefronts in only 12 months. The restaurant district, near the Koryo Hotel and the (North) Korean Workers’ Party offices, is home to Pyongyang’s most exclusive restaurants, and offers a wide variety of dining experiences. 

The Daily NK offers some recent food price data from the DPRK:

A defector named Kim, who keeps in touch with his family in the North, reported Monday in a telephone conversation with Daily NK, “The current food prices remain stable, according to sources from Hoiryeong and Pyongyang.”

Mr. Kim explained, “Rice sells in the Hoiryeong jangmadang at between 1,600 and 1,800won, around 200 won lower than before. Other grains and foods have fallen too. Pork sells for 2,800 to 3,000 won per kilogram and corn for 600 won per kilogram. An egg sells for 350 to 500.”

He added that, “Pork sold for about 5,000 won around lunar New Year’s Day and now it sells at half the price. Egg prices have risen a bit; they used to sell for 250 to 350 won. In Pyongyang, the price of rice, which was 2,200 won per kilogram in mid-January, is 1,700 won now. Corn per kilogram fell from 900 won to 750 won.”

He accounted for the lower food prices: In January, to greet the 60th anniversary of the friendship between North Korea and China, Chinese rice came in through Nampo port, so rice prices fell and provision of food increased. Since last year, the authorities have been able to deliver provisions to workers in a few major cities like Shinuiju.

He also relayed news that, “In February, a month’s provisions, 14 kilograms, were delivered to workers and their dependents; corn was provided through food distribution offices.”

Mr. Kim predicted that the situation will be at its worst in May and June of this year, although the food situation is comparatively much better than last year. No matter how good the last harvest was, though, it is not so significant for those who have to buy their food in the jangmadang.”

“Since 1995, food prices have always soared in May and June, the spring shortage season. After the spring this year they will soar again.”

In March or April, food in stock runs out and potatoes, barley, and other vegetables are not harvested until June. Therefore, rising food prices are a chronic spring phenomenon.

Pyongyang must feel reasonably confident, or they want us to think they feel reasonably confident, about current and anticipated food stocks.  As reported last week, the DPRK has requested that all foreign NGOs and aid agencies responsible for distributing food aid to cease operations and head home.

Mr. Kim does offer some good news from North Korea’s markets (Jangmadang).

For some time we have heard news that the North Korean government is attempting to turn the clock back on local markets by regulating who may work in them (older women), when they may open, what they may sell, and at what price.  All of these restrictions are supposedly part of a plan to break them down and reorient the population towards receiving goods from state-owned shops and the Public Distribution System.  These measures could be part of the “2012 Kangsong Taeguk” plans, or they might simply be part of a longer-term political strategy.

It is rumored that these kinds of regulations have lead to violent backlashes because the socialist economy is not capable of supporting the population, and (paradoxically) markets are considered the social “safety net”.  As a result, these market regulations are often ignored or “bypassed” by local officials and then quietly rescinded.  Mr. Kim offers anecdotal evidence that regulation of the markets has still proven unsuccessful:

“Decrees to close the jangmadang were posted at the entrances but in January they were all removed and the jangmadang operated as usual.”

Let’s hope that this is the fate of more recent regulations as well.

Read more below:
Previous posts on food.

Previous posts on North Korea’s markets.

Food Prices in North Korean Markets Stabilize
Daily NK
Yoo Gwan Hee
3/23/2009

Institute for Far Easter Studies (IFES)
NK Brief No. 09-3-20-1
2009-03-20

According to the North Korea Intellectuals Solidarity group, North Korean authorities released a list of goods banned from markets across the country on March 15. The ban goes into effect on April 1. The official list is said to include almost all wares currently being sold in the North’s markets, effectively banning market operations and practically outlawing private trade.

It was also reported that notices posted in the Hyesan and Wei Yan markets, in Yanggang Province, included not only a list of over 200 goods banned from sale, but also dictated the price at which allowable goods were to be sold.

Any goods from the United States or South Korea are specifically banned, as well as goods manufactured through inter-Korean projects such as joint ventures or from within the Kaesong Industrial Complex. Medicines and other supplies provided by the United Nations or other international organizations are also banned. Prices on foodstuffs were set, with Chinese millet to be sold at 1800 won, foxtail millet at 1700 won, and adzuki beans at 2100 won. Prices for privately harvested grains, eggs, tofu, poultry, pork, soybean oil, and other goods were also announced.

This measure appears to be in line with ongoing efforts underway since last year to close the North’s markets. While its effectiveness remains to be seen, if authorities succeed in shutting down markets, it could further exacerbate the North’s critical food shortages. In October of last year, North Korean authorities from regional commerce management offices throughout the country announced a ban on the sale of Chinese and South Korean goods, industrial products, and rice, corn and other grains, but this policy was never enforced.