North Korean state crackdowns on moonshine

January 1st, 2024

Benjamin Katzeff Silberstein

Asia Press reported a couple of weeks back about state crackdowns on illegal alcohol sales. It’s interesting that the move is highlighted as an economic measure, to push down the demand for grain:

In mid-November, a reporting partner in Yanggang Province told ASIAPRESS that the authorities had handed down an order saying that there is a complete ban on illegal alcohol manufacturing, which they referred to as an “anti-state act.”

“The authorities handed down the order on November 4 saying that because most (homemade alcohols) are made of corn, the act of manufacturing alcohol with grain supplies is an anti-state act that supports the enemies’ sanctions on the country.”

As this suggests, the reason the authorities are reacting so sensitively to the illicit manufacturing of alcohol is because they believe that the producers’ use of grains, which the government has recently moved to intensify control over, is a waste and serves as a threat to the country’s already short supply of food.

According to the reporting partner, agencies tasked with cracking down on illegally brewed alcohol informed neighborhood watch units that anyone found to be illegally producing alcohol will face at least three months at a short-term forced labor camp to show that the government does not forgive anyone who makes money from producing alcohol from grains.

The reporting partner said that the government made several arrests to show it means business: two members of street-level enforcer teams who failed to stop the production of homebrewed alcohol after receiving bribes were punished, while two officials working at a city construction office were fired for secretly acquiring 10 liters of illegally brewed alcohol.

In context, this also appears to be part of the overall state campaign to control economic activity more tightly, but at the lowest local level.


The North Korean Economy in 2023–2024: Still Backing into the Future

December 27th, 2023

By: Benjamin Katzeff Silberstein

Where does the North Korean economy stand, and where is it going? Kim Jong Un spent some of the last few days of 2023 at the 9th Plenary Meeting of the 8th Worker’s Party Central Committee that was held in Pyongyang. The meeting notes published by KCNA serve as a good guide to the economic and political priorities of the regime as well as its assessment of the year that passed.

Overall, Kim Jong Un appears to be moving closer to accomplishing his vision of a tightly state-directed and overseen economic system, with some flexibility for the actors within it. We have seen over the past few years how the state has proclaimed its ambition to control and oversee the economy much more closely, with examples now abounding of this playing out in practice, from the piecemeal trade opening post-Covid-19 essentially amounting to a state ban on private actors in foreign trade, to measures like a recent reregistration campaign for businesses in an effort to more closely oversee what goes on in the economy and extract rents and taxes. Kim Jong Un intends to put a stop to the economic anarchy that has plagued major aspects of the North Korean economy since the famine and subsequent marketization. Full central planning is not the goal, but the tighter screws on the economy can still make much damage in suppressing trade, investment, and initiative. They likely already are.

Although it makes for gloomy prospects, this is in line with Kim’s policy aspirations. All in all, 2023 is arguably the first year since the start of the pandemic where some sort of progress has been made in the economy, but it isn’t much. This year’s harvest was, as the plenum summary notes, not just good but significantly better than last year’s. The plenum summary credits this to investments in expanding irrigation systems:

On the agricultural front, the dominant height for national economic development, the huge annual irrigation construction target decisive of substantial and profitable development was fulfilled ahead of schedule and a rare harvest was achieved. And the successes on 12 major goals were made one after another.”

Though this may certainly have played a role (if these investments occurred on a significant scale), luck with good weather is the main explanation. As a USDA projection states,

This year’s growing season began with beneficial soil moisture conditions, and the rainfall outlook continued to be above average providing favorable conditions for planting, crop establishment, and reproduction during May to early August. The conditions have continued to raise yield expectations from average to above-average especially for the major, summer-grown food security crops of corn and rice.”

This positive assessment of base conditions also bears out in the market price data, where lower rice prices suggests a greater availability of rice. However, this is not an achievement by the state, rather mostly a work of luck and chance.

The fact that a stabile harvest is such a success itself points to the rough state of the economy and its dim prospects. A good harvest absent systemic reforms is rarely a political achievement. On the international arena, the regime has been backing into the future by moving closer to both Russia and China while closing embassies on a large scale in other countries. As the world moves toward a world order more resembling the Cold War, North Korea is going back to its roots as well. What’s happening in the domestic economy seems to be mimicking and following along with this dynamic. The focus on the plenum on mere manufacturing capabilities, mostly within North Korea’s traditionally emphasized heavy industries, also points to a move backwards, to an economy much more in line with North Korean tradition, perhaps as a significant future weapons manufacturer for the emerging anti-American world bloc. For the North Korean population, hoping and expecting more marketization and a higher quality of life, this is unlikely to be good news in the long run.


Why is China cracking down on illegal fishing in North Korea?

December 11th, 2023

By Benjamin Katzeff Silberstein

Daily NK has reported on several occasions on Chinese fishing activities in North Korean waters. Chinese fishers purchase fishing rights from the North Korean government, a practice clearly banned under the current sanctions regime. China has been cracking down on this over the past few months and on sales of seafood from North Korea overall, according to the outlet:

The Chinese government has recently stepped up surveillance and inspections of ships passing through North Korean waters and has even started to crackdown on the sale of North Korean seafood in the country’s markets, Daily NK has learned.

Speaking on condition of anonymity for security reasons, a source in China told Daily NK on Dec. 5 that the Chinese authorities are requiring all ships approaching North Korean waters be equipped with GPS, automatic identification systems, and other navigation and communication devices in order to report their location.

The authorities are doing this to determine where ships have been and for how long, as well as to investigate what ships were doing in North Korean waters. If they confirm that a vessel was fishing in North Korean waters, they confiscate all the seafood the ship has caught.

Accordingly, Chinese vessels that used to fish in North Korean waters are taking a major hit. The source said a fishing boat that recently tried to bring into China clams caught in North Korea is faced with having to pay hundreds of thousands of yuan in fines.

Now forced to pay large fines if caught, Chinese fishery operators say an investigation in their activities might even put them out of business.


Chinese authorities are also cracking down on sales of North Korean seafood in markets near the North Korea-China border. North Korean seafood exports are banned under UN Security Council Resolution 2371.

Previously, Chinese authorities did not go out of their way to stop Chinese nationals from importing and selling North Korean seafood, but crackdowns have been intensifying recently.

In fact, Chinese businesspeople used to sell North Korean seafood openly due to its popularity, but they do not now because inspection teams are checking the origins of the products they sell.

In regards to this situation, Chinese fishery operators and North Korean seafood sellers say the United States is putting pressure on China to enforce sanctions on North Korea, or that the authorities are cracking down because “China must follow international law for it to play its role in the international community.”

The article cites China’s ambition to appear a responsible actor in the international system in order to exert influence on the current events in Gaza as the reason for its crackdowns on this practice. I’m somewhat skeptical to this explanation. Although it might play a role, I suspect that a more basic ambition to uphold the rules and laws of the region may be what’s behind the Chinese crackdown. In any event, it is a very interesting data point, especially in a time when it’s been assumed that China’s sanctions enforcement would be very lax due to US-China tensions.


What Kim Jong Un’s Russia visit could mean for the North Korean economy

September 12th, 2023

By: Benjamin Katzeff Silberstein

Early this morning local time, North Korean leader Kim Jong Un arrived in the Russian town of Vladivostok. There, he is scheduled to meet with Russian president Vladimir Putin. Aside from the geopolitical situation and their political ties, the two are expected to discuss expanding North Korean weapons exports to Russia.

What could this mean for the North Korean economy?

The country’s military industry is an economic sector of significant size both in terms of production and employment. A radical increase in weapons exports to Russia could mean a general boost for the economy through increased consumption.

Gains will, however, be limited by the military industry’s isolated position in the economic structure. Many of the military’s factories supply themselves with most essential raw materials through mines and energy supply channels of their own. While many other sectors in the economy have essentially been privatized since the mid-1990s, the arms industry is entirely controlled and centrally planned by the state. Weapons exports to Russia could in fact hamper North Korea’s economic development in the long run by diminishing the regime’s incentives to reform the domestic economy.

Although the sector is far from the country’s top employer, with two million estimated workers in the defense industry, its contribution to the economy is significant. For a sense of proportion, North Korea’s 2008 census lists 4.4 million as workers in agriculture (including forestry and fishing), 718,000 in mining and quarrying, and close to 3 million in manufacturing. A massive and sudden expansion in weapons exports would not drastically change North Korea’s economic situation but could nonetheless make a modest contribution to economic growth and consumption.

Data sources: DPRK 2008 Census, Namhoon Cho (2019)* (see p. 576 for figures.)

As graph 1 shows, the country’s defense industry is estimated to be the third largest employer in the country. Because the data is so unreliable, these figures should not be taken at face-value. Rather, the proportions are what matter. Regardless of their exact number compared with other groups in the workforce, at an estimated two million, their employees are numerous enough for a drastic increase in purchase orders from Russia to boost the economy through increased wages, expanded hiring, or a combination of both. Major and continuous orders from Russia would benefit some parts of the military industry more than others.

Most profits will likely go directly to the state and the military, but workers in the industry may see their pay rise, and new colleagues recruited, if the orders from Russia end up being large enough. All this will have ripple effects on the overall economy, with increased consumption stimulating the consumer goods economy and service sector as well. Economic benefits are likely to be highly regional, with the impoverished Jagang province standing out as a central beneficiary thanks to its high concentration of arms factories.

In the long run, however, North Korea’s economic benefits will likely be limited. The military economy is independent from the “people’s economy” and is usually known as “the second economy.” The military often operates its own factories and mines through a military-industrial complex of sorts, and do not need to turn to other sectors of the economy for raw materials and other inputs. All this is by design, to give the military special status in funding and budget priorities. This limits the potential spillover effects into other industries.

Overall, boosted arms industry exports could diminish the regime’s incentives to develop the market system. The North Korean leadership is currently on a campaign to restore (at least some of) the state’s power over the economic system, including the private and semi-private sectors such as the general market and service sectors. An inflow of cash or other compensation from Russia, such as vast amounts of fuel oil and food, could give the regime more space and safety to suppress private economic activity in favor of the state-controlled sector. This fits well with the regime’s current strategy for the economy but will dampen the country’s long-term prospects for economic development.


North Korean market prices suggest serious food shortages

June 20th, 2023

By: Benjamin Katzeff Silberstein

Recently, the BBC became one of few global outlets to succeed in interviewing ordinary North Koreans inside the country about the food situation. The image is dire: starvation, empty markets and other signs of severe food shortages.

In the past few years when reports of food scarcity have surfaced from North Korea, market prices have given remarkably little credence to the claims. Not so at the moment. Comparing current prices levels with historic ones, the overall picture suggests that prices since the onset of the Covid-19 pandemic (and the North Korean government’s border closure), market prices have moved to a permanently higher level, indicating that overall supply of food is lower. This does not give us a specific number on how severe the food shortage is, but it gives quantitative evidence that food has become significantly scarcer since the onset of the pandemic.

To show this, I use market price data gathered and reported by Rimjingang, an online news outlet with sources inside North Korea that regularly publish market prices. I chose this specific data set because it is transparent and specific about where in the country the data comes from. Due to tightened border controls under Kim Jong Un’s tenure, information from inside North Korea has become even more difficult to access. Therefore, transparency about the data is crucial.

The price data almost exclusively comes from the region bordering China, such as Ryanggang and North Hamgyong provinces. The border region is different from the rest of the country in several crucial respect, perhaps most crucially in that it is much more involved in trade and smuggling with China than other regions. Nonetheless, the North Korean market system is integrated to some extent, with goods being transported around the country for sale. Although dilapidated infrastructure and harsh state regulations make internal travel difficult, the overall price trends very likely hold for the national level.


Market changes after Covid-19

Prices fluctuate frequently on North Korea’s markets, but usually within a more or less fixed span. The following graph shows prices for North Korea’s two main staple goods, rice and corn, from 2017 until mid-June this year. The prices are shown in renminbi, the most commonly used foreign currency in the border region, to check for inflation in the North Korean currency, Korean People’s Won (KPW).

The left side of the graph shows prices before Covid-19. Aside from a few nonsignificant bumps, prices hovered between 1–1.5 RMB for corn and 3.5 RMB for rice for the most part prior to the inception of the pandemic, fluctuating throughout the year. Interestingly, although North Korea closed its borders in January 2020 to protect against the virus, prices don’t truly begin to move until October that year.

Over the course of the next few months, however, prices for both rice and corn climbed significantly.

Rice prices rose from their regular level to move between 4 and close to 6 RMB in late 2020 and early 2021 and shot up drastically during the spring and summer months, the lean season before the fall harvest, when the storage of food begins to dry up. Prices normally go up during this season, but perhaps a spreading awareness that the border wouldn’t open anytime soon pushed prices up much further than normal. After shooting up to close to 15RMB and remaining much higher than normal for several months, prices stabilized at an interval between 8 and 4.5–5 from the fall of 2021 and onward. Prices have been moving around 5RMB since the end of 2022. That is an approximate 1.5RMB difference from the normal price level, or 42 percent.

On the one hand, prices now are much more stable than last year’s fluctuations to very high levels. On the other hand, the price level is now permanently higher, meaning that North Korean consumers face a permanently higher price level. Higher prices, logically, suggest that supply has dropped. In other words, with food supply lower, people must pay significantly more for the same amounts of food.

We see the same dynamics in prices of corn. Graph 3 below show corn prices from the fall of 2017 until the latest observation in mid-June:

Corn is a generally less preferred staple good for North Korean consumers, meaning that people tend to increase their consumption of corn when food overall becomes more expensive. From moving around 1.5RMB/kg before the pandemic, corn prices climbed significantly from late 2020, hitting almost 3RMB – a doubling of the normal price level – by March 2021. Prices then climbed further during the rest of the year and hovered around 4RMB in the late summer and fall. Since late 2022, prices have moved between 2.3 and close to 3RMB, meaning they have increased by at least more than half on the lower end of the spectrum, and doubled for the higher end.


None of this is evidence of a widespread famine in North Korea, and the BBC’s three eyewitness testimonies also do not fully prove anything of the sort. But that the country is experiencing a significant food shortage seems beyond doubt, as suggested both by reports from people inside the country as well as market prices. These prices do not tell the full story. The situation likely varies significantly between regions, and the state appears to have increased food ration distributions to parts of the public (see one example here). That trade with China has continued to open up little by little in 2023 has probably contributed to food prices stabilizing as well. Still, current price levels remain far higher than normal. For a population’s whose margins are mostly very small, if it doesn’t amount to starvation, it means that an already difficult situation has gone from bad to worse.


MISSING THE TARGET: The complicated truth about sanctions on North Korea

June 16th, 2023

The following article was published in East Asia Forum Quarterly‘s June issue, and is re-published here with permission. 

On the surface, sanctions seem to have had little impact on North Korea’s behaviour. At the time of writing, the world is waiting for the launch of a new North Korean military spy satellite that Supreme Leader Kim Jong-un announced on 19 April 2023.

North Korea is under one of the harshest multilateral sanctions regimes of any country in the world. But the country still circumvents sanctions regularly through complex smuggling operations at which it is by now very adept. This situation raises questions about whether sanctions on North Korea have failed.

It is true that sanctions have not reached the stated political goal of inducing North Korea to give up its nuclear weapons. The country has made impressive advances in missile technology and is evidently capable of acquiring the necessary technology despite sanctions. The ‘spy satellite’ launch would be one of around 30 missiles tested in 2023.

Although North Korea has ways to evade sanctions, this does not mean sanctions have no impact. Sanctions interplay with domestic governance and economic systems in ways that are complex and often hard to fully evaluate. The alternative to sanctions is not an open, liberal and free-trading North Korea, but likely a slightly more well-off version of its current state.

The issue of evasion illustrates why the impact of sanctions is so hard to evaluate. Sanctions-evading actions are not rare events, but are institutionalised within North Korea’s economy. Since the 1970s, North Korea has systematically smuggled alcohol, tobacco, drugs and other contraband through its diplomatic networks abroad. These activities continue today and with North Korean capabilities expanding into the cyber realm, sources of illicit income will likely continue to constitute an underestimated part of the regime’s hard-currency revenue flows.

But sanctions evasion and smuggling are very expensive activities. For Chinese, Taiwanese and Singaporean trading companies and entities to risk smuggling oil to North Korea, Pyongyang must pay a massive risk premium on its purchases. North Korea has to pay well above market prices to give sellers a reason to take the risk of arrest and prosecution for sanctions violations.

The same is true for illicit North Korean exports. Sanctions do not stop coal exports entirely, but they slash the prices that North Korea can charge. Any buyer—almost always China—will only risk importing from North Korea if prices are cheap enough to outweigh the risks. Even prior to the harsher sanctions levied in 2016 and 2017, China, through its position as a virtual monopoly buyer, consistently paid below-market prices for North Korean coal. This dynamic is likely even stronger today, as Chinese imports of coal and other sanctioned North Korean goods continue but go mostly unrecorded.

Despite North Korea’s evasion tactics, sanctions are indisputably hurting the North Korean economy. The country’s exports are estimated to be worth only a few hundred million dollars per year—much smaller than its . The UN Panel of Experts estimated, for example, that North Korea earned around 370 million dollars from sanctions-violating coal exports in 2019. This is only a fraction of the 1.19 billion dollars it earned from such exports in 2016, before the harsher sanctions.

The civilian impact of sanctions is unclear. On one hand, sanctions have likely dealt a harsh blow to labour-intensive industries like textiles, where a of workers are women, resulting in increased unemployment and lower wages. The falling incomes of North Koreans working in sanctioned industries substantially dampen the wider economy. On the other hand, there is no evidence that sanctions have driven up the price of food or other essential goods.

Sanctions have undoubtedly worsened North Korea’s food shortage by hindering imports of fertiliser and spare parts for agricultural equipment. North Korea’s own border closure, though, likely also provided an obstacle to foreign trade. But the impact of sanctions on North Korea’s food system is minimal compared with the regime’s refusal to undertake basic reforms in agriculture. The government bristles at dismantling collective farms or letting farmers sell their products on open markets.

Trade by evasion should logically become easier and cheaper. For sanctions to be effective against North Korea, China—which constitutes more than 90 per cent of North Korea’s foreign trade—would have to implement them. As US–China tensions continue to grow, reasons for China to implement sanctions on North Korea are diminishing.

Reports of North Korean trade deals in weapons and labour with Russia in the wake of Russia’s invasion of Ukraine are already circulating. Very little is confirmed about these transactions, but there is evidence to support increased economic exchange between the countries. Earlier this year, satellite imagery from the border area indicated that Russia was increasing oil exports to North Korea while exporting unknown goods that could be arms destined for the Wagner Group.

But this does not change North Korea’s situation. Combined with its poor global reputation, sanctions will continue to make North Korea dependent on a very small number of trade partners—mainly China —who can charge highly unfavourable prices.

None of this is to say that the current thinking on North Korea sanctions is without serious flaws. The demand that denuclearisation should come before any relief on sanctions, for example, is unrealistic. But many also exaggerate the possible gains of abolishing sanctions. A common misperception is that, were sanctions to be lifted, North Korea would open its doors to foreign investors who would flock to the country for its strategic geographic location and cheap labour.

Removing sanctions would not change the basics of North Korea’s economic system. Despite a permissive attitude towards markets during former supreme leader Kim Jong-il’s reign and the first few years of Kim Jong-un’s, harsh state control over the economy best serves the regime’s political and social goals by allowing it to control the distribution of resources. Sanctions hurt, but removing them is no silver bullet for political or economic progress.

Benjamin Katzeff Silberstein is Associate Fellow at the Swedish Institute for Foreign Affairs and a Postdoctoral Fellow at the Safra Center for Ethics at Tel Aviv University.


How large are Russia’s oil exports to North Korea in context?

June 15th, 2023

By: Benjamin Katzeff Silberstein

For the first time since 2020, Russia recently reported oil exports to North Korea in their official trade statistics. These numbers obviously do not include the unknown but likely large quantities of oil that the country buys from Russia under the radar, through smuggling. According to the official numbers,

Russia had exported 67,300 barrels of refined petroleum to North Korea by April, the first deliveries reported to the U.N. since Moscow said it shipped 255 barrels of refined oil to the North in August 2020.

Under U.N. sanctions against Pyongyang’s nuclear and missile programmes, countries are required to report monthly sales of refined petroleum to the Security Council North Korea sanctions committee.

The oil sales began shortly after train travel between Russia and North Korea resumed in November for the first time since 2020, raising expectations of a resumption of trade.


Although likely an underestimate of the total (including smuggling), this number is significant, not least because of the rapid increase. But as with other current trade figures on North Korea right now, as the border seems to be opening slowly to trade, the numbers are only a fraction of North Korea’s regular imports. North Korea’s annual imports of refined petroleum before the pandemic, for example, were estimated at 4.5 million barrels per year. Assuming the same pace of Russian exports continues through the year, that would put these imports for North Korea at around 3 percent of total annual imports.

This is not to say that the news isn’t significant, particularly if it marks the beginning of a longer trend. But for now, North Korea’s oil and fuel imports remain, as far as we can tell, far lower than their regular levels.


Why the North Korea–China trade increase could be an illusion

May 24th, 2023

By: Benjamin Katzeff Silberstein

North Korea–China trade is steadily growing, perhaps slowly moving back to its normal  before Covid-19 -“Maximum pressure” sanctions in 2016–2017. According to the latest numbers, trade continues to grow:

Chinese outbound shipments to the isolated country surged 69% year-on-year to $166 million in April, data released by China’s General Administration of Customs showed.

The top export items in terms of value were processed hair and wool used in wigs, worth about $11.6 million, and diammonium hydrogen phosphate, a widely used fertiliser, worth $8.84 million.

But it is far from back to the “old normal” before 2017. Look, for example, at what is being exported. The biggest export products were wigs and fake eyelashes, accounting for over 66 percent of exports to China. This is part of an offshoring industry where North Korea first imports hair from China, and then locally manufactures it into wigs to export back. Sales of wigs, eyelashes and related products accounted for close to $22.7 million in April. To get a sense of proportion, consider that coal exports, formerly one of North Korea’s most central export goods, totalled $1.19 billion in 2016, a little over $99 million per month on average. So when we look at North Korea’s most central exports at the moment, they are still very small compared to the increasingly distant normal. Wigs just aren’t economically meaningful in the same way as coal.

None of this is to say the increase in trade isn’t meaningful. North Korean imports from China may be just as meaningful or perhaps even more so for the economy at this point, with inputs both for export-destined wigs and fertilizer being the central import goods. The increase in trade is certainly positive for the North Korean economy, but it does not seem to (yet) change the overall dynamics where North Korea still cannot export its formerly most important export goods openly, without circumvention and smuggling that involves significant costs. It could be that covert exports will eventually reach the old level of openly reported exports, but we don’t have any hard data to suggest that is yet the case.


Yet another North Korea–China border opening report (including tourism)

May 11th, 2023

By Benjamin Katzeff Silberstein

At this point, non-materializing reports about the China–North Korea opening for full traffic are too many to count. A recent story by SCMP (link here) claims both truck trade and tourism from China to North Korea will start in one month. But “sources briefed by officials on both sides” is an acknowledgment that the report is not based on direct sources. And as has seemed the case for North Korea since Covid-19, plans for policy changes can often change and often do. Judging by the policy pattern, there doesn’t seem to be an overall strategy or timeplan.


As Chinese ambassador arrives, is North Korea opening up?

March 30th, 2023

By: Benjamin Katzeff Silberstein

After a very long hiatus over the pandemic, China’s new ambassador to North Korea has taken up his post in Pyongyang, AP reports:

Wang Yajun will help in the development of the traditional friendship between the “close neighbors sharing mountains and rivers,” Foreign Ministry spokesperson Mao Ning said at a daily briefing.

China is North Korea’s main source of economic aid and political support, but interactions have been disrupted by travel restrictions imposed in an attempt to prevent the spread of COVID-19.

The ambassador’s posting comes as North Korean state media reported that leader Kim Jong Un urged his nuclear scientists to increase production of weapons-grade material to make bombs to put on the country’s widening range of weapons.

The report Tuesday followed a series of missile launches — seven this month alone — and rising threats to use the weapons against North Korea’s enemies.

(Full article here.)

Does this signal a broader relaxation in North Korea’s border restrictions, brightening prospects for trade to open up more broadly as well? Maybe. After all, there’s been signs for many months (well over a year), from infrastructure construction to (fairly tangible) rumors reported from the border area. And imports have increased, particularly of food, resulting in prices stabilizing somewhat.

At the same time, there are good reasons to doubt it. Welcoming back a Chinese envoy is, after all, a decision more in the realm of foreign policy and diplomacy than economics and pandemic prevention. Thus far there have been no reports in outlets such as Daily NK or Rimjingang suggesting a major reversal in trade policy is imminent. To the contrary, the bigger pattern seems to be the state centralizing control over trade while keeping it at a very small minimum. Whatever trade regime emerges from this, it may not look like the old one.