Archive for July, 2019

Market fees may be lowered on some North Korean markets

Tuesday, July 30th, 2019

Benjamin Katzeff Silberstein

Daily NK:

“Merchants working in the markets feel that business this year is worse than last. I’m not sure if the authorities were thinking about the merchants when they made the decision, but it’s good that they have reduced the taxes in Pochon, Sinpa and Kimhyongjik County,” said the source in Ryanggang Province during a telephone interview.

According to the source, market fees in Pochon and Sinpa County are relatively low compared to other areas. The fees for industrial goods were reduced from 1000 won to 500 won. Fees charged to vendors of food and ice cream were lowered from 500 won to 300 and 200 won, respectively.

The market fees are determined based on the size of the city, the size of the stall and the type of product being sold. The rough national average fees being charged per day as of early this year was 1500-2000 KPW for meat stalls, 1000-1500 KPW for industrial products (clothes) and 500-1000 KPW for food and vegetables.

According to the Center for Strategic and International Studies’ analysis of markets in North Korea, the authorities collect over $56 million USD per year from the markets. The largest market in North Korea, Sunam Market in Chongjin, generates an estimated $840,000 USD for the government.

Before the markets were formally recognized, market fees were 3-5 won until the early to mid 1990s, before being raised ten-fold in 2001, to 30-50 won. After the regime legalized the country’s private markets in 2002 with its ‘New Economic Management Improvement Measures,’ the fees rose another ten-fold.

Source:
Market fees in North Korea set for reduction in parts of border region
Kang Mi Jin
Daily NK
2019-07-30

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China’s Xi promised funding for bridge connections in North Korea, reports say

Tuesday, July 30th, 2019

By Benjamin Katzeff Silberstein

This is quite interesting, and hardly surprising. Overall, I’ve seen very little to suggest that China regards the current sanctions pressure as anything but a temporary measure. That would fit the historical pattern well. (For more on this, feel free to check out my chapter on Trump’s “maximum pressure” strategy and its impacts on the North Korean economy.) This time is very different because of the longevity and extent of the Chinese sanctions pressure, but in nature, I don’t believe China’s medium- to long-term strategy on North Korea and sanctions has changed. Talk of China “abandoning” North Korea, which used to be rife when Chinese trade data on North Korea pointed in a downward direction, has often been and remains much overblown.

The news is that Xi Jinping, during his June visit to North Korea, supposedly promised that China would fund facilities on the North Korean side of the new-ish border bridge between southwestern Dandong, as well as fund work on the Hwanggumpyong SEZ. Asahi Shimbun:

China has promised to foot the bill for the construction of related facilities for an already-completed bridge across the border between China and North Korea, sources said.

Chinese President Xi Jinping made the pledge when he visited North Korea in June, they said.

During the visit, Xi also promised that China will promote construction of an economic development zone on North Korea’s Hwanggumpyong Island in the Yalu River, which forms a natural border between the two countries, the sources added.

Construction of the bridge and the economic development zone were agreed on when former North Korean leader Kim Jong Il was still alive. But the projects were effectively frozen after his son and successor Kim Jong Un became the country’s leader.

Xi’s willingness to pay the costs of building an access road to the bridge on the North Korean side of the border, as well as customs-related facilities, suggest that economic relations between the two neighbors are moving to a firmer footing.

According to sources knowledgeable about trade between the two countries and those with links to North Korean authorities, Xi’s promises were conveyed to high-ranking North Korean government officials during meetings to report on the outcome of a summit meeting between the two countries.

Xi’s largesse was also shared in the North Korean military as it will be involved in the construction of bridge-related facilities as well as the economic development zone.

The New Yalu River Bridge connects Dandong in China with Sinuiju in North Korea. Although the bridge has been completed, it is not yet open to traffic.

China will provide about 2.5 billion yuan (39 billion yen, or $360 million) for the construction costs. Chinese engineers have been conducting field surveys since late June.

Since around that time, the upper parts of the bridge have been lit up at night.

In mid-July, cars carrying Chinese government officials traveled to a border gate in the middle of the bridge.

Construction of the bridge started in 2011 when Kim Jong Il was in power. China spent about 1.8 billion yuan in construction costs. The bridge was completed in 2014 under Kim Jong Un’s regime.

Source:
China to fund costs so bridge to North Korea can open to traffic
YOSHIKAZU HIRAI
Asahi Shimbun
2019-07-29

On the North Korean side, the bridge has been lacking a connection to the broader road network (or to anywhere, really) since construction began in 2011, as these pictures show:

The new Yalu river bridge, October 1st, 2011. Image from Google Earth/Digital Globe.

The new Yalu river bridge, March 2nd, 2019. Image from Google Earth/Digital Globe.

Overall, this emphasizes the reality that China really is the only country that North Korea has close, substantive and sustainable trade links with. It was truly unlikely that Xi’s visit to North Korea would occur without any promises for economic benefits or the like. Kim Jong-un’s visits to China have rendered similar benefits, though perhaps not of the same economic magnitude.

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North Korea’s economic contraction in 2018: what the BoK numbers tell us

Friday, July 26th, 2019

By Benjamin Katzeff Silberstein

The Bank of Korea has released its yearly estimate of North Korea’s economic trends for last year. The estimate gives a contraction of the economy by 4.1 percent. Reuters/Channel News Asia:

North Korea’s economy shrank in 2018 for a second straight year, and by the most in 21 years, hit by international sanctions to stop its nuclear programme and by severe drought, South Korea’s central bank said on Friday (Jul 26).

North Korea’s gross domestic product (GDP) contracted by 4.1 per cent last year in real terms, the worst since 1997 and the second consecutive year of decline after a 3.5 per cent fall in 2017, the South’s Bank of Korea estimated.

North Korea does not disclose any statistics on its economy. The South Korean central bank has been publishing its estimates since 1991, based on information from various sources including the South’s foreign trading agencies.

North Korea’s international trade fell 48.4 per cent in value in 2018 as tougher international sanctions in late 2016 and 2017 cut exports by nearly 90 per cent, the Bank of Korea said.

Output in the mining sector shrank 17.8 per cent because of sanctions on exports of coal and minerals, while the agriculture, forestry and fisheries sector contracted by 1.8 per cent because of drought, it said.

North Korea’s population was estimated at 25.13 million and annual income per head at S$1,298, the South Korean central bank said.

Article source:
North Korea’s economy shrinks most in 21 years in 2018: South Korea
Reuters/Channel News Asia
2019-07-26

I won’t go into much depth on the methodological issues with all this, but suffice to say that because Bank of Korea doesn’t release much information on their models, estimates, assumptions and the like, their analysis is always difficult to evaluate. That’s why it’s not particularly helpful to state that it’s the lowest growth (or largest contraction) since 1997. That may be true, but proportions aren’t necessarily all that relevant or accurate here.

That said, broadly, the estimate makes sense. In fact, it may be a slight lowball estimate. South Korean economist Kim Byung-yeon put estimated a 5-percent contraction for 2017, which sounds more reasonable to me.

The BoK estimate of the mining sector is particularly interesting. They give a contraction of 17.8 percent of the sector as a whole for 2018, after claiming in 2017 that it shrank by 11 percent. On the one hand, it’s interesting to think about how all this might look domestically. This would mean that around 70 percent of the mining sector which operated in 2016, continues to operate today. So what’s happening with all that coal, and all those minerals? Well, we get a hint of that in the estimates for electricity generation and water. This was down by -2.9 percent in the estimate for 2017.

Now, the estimate instead gives an increase of 5.7 percent. This positive effect for domestic electricity generation has been anecdotally reported by outlets such as Daily NK for quite a while. Cheaper electricity has made supply much better in parts of the country. This is a relatively minor positive, as the revenue loss from decreased exports is much greater. Nonetheless, there may be a slight impact here of cheaper electricity cushioning some of the lower demand for industrially manufactured goods.

Here’s a graph comparing the 2017-2018 estimates, based on the BoK data (which you can find here).

Bank of Korea estimates of North Korean GDP growth, by sector, 2017 and 2018. Graph by NK Econ Watch.

It’s also important to bear in mind that the baseline here was fairly high. North Korea has experienced a few years of solid economic trends, so a negative growth of four percent isn’t necessarily catastrophic. Of course, it’s very bad, but there are more nuances to these things than full stability or complete disaster.

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Daily NK: North Korean laborers reach Russian construction sites despite sanctions

Wednesday, July 24th, 2019

Benjamin Katzeff Silberstein

Daily NK reports:

“Recently, there have been many North Korean workers coming in to Russia. They are arriving at Khabarovsk Station via Tumangang Station. North Korean workers are usually dispatched to Khabarovsk and Ussuriysk and most of them are construction workers,” a source familiar with local affairs told Daily NK.

According to the source, a considerable number of new laborers are being deployed to Russian construction sites as well as some factories and logging sites.

In an interim report submitted to the United Nations in March, Russia said that the number of North Korean workers staying in Russia has declined from 30,023 at the end of 2017 to 11,490 at the end of 2018. Although the number with officially granted visas may have declined, it is believed that these new workers are entering Russia using methods other than a work visa, such as student or temporary stay visas.

It has been reported that in addition to the hard labor, those working in Russia have poor working conditions. They are cooking and sleeping at the same construction site at which they are working.

“North Korean workers are working at a building that is attached to the Far Eastern Federal University in Vladivostok’s Russky Island, and work an average of 15 hours per day from 5:00 am to 9:00 pm or even until 11:00 pm,” he said.

“The daylight is long these days in Russia, so they are working until late in the night without lighting. North Korean workers are really angry because they are worked like dogs. And even though they are working so hard, they do not have much left after paying $1200 dollars to the North Korean company they work for.”

Even under such dire circumstances, North Korean laborers still value being sent to Russia because they can make significantly more money than they can in North Korea.

Some of the highly skilled North Korean workers who have been working in Russia for more than three years are said to be finding their own work under the condition that they pay $1000~$1300 dollars to the state enterprise as a loyalty contribution.

“Those with good skills are freelancing. Some even make $2000~$3000 dollars a month,” a separate source in Russia told Daily NK.

“Russian companies also prefer North Korean workers. Their wages are cheap and they are skilled and work very fast. That is why Russian construction companies prefer to hire them.”

Currently in Russia, there are about 23 North Korean enterprises including Rungrado, Namgyong, Cholsan Trading Company, and Number 17 Construction Company that manage North Korean workers. “A Khabarovsk-based North Korean trading company manages about 2000 North Korean workers,” said the source.

However, it has been reported that recently-dispatched North Korean workers in Russia cannot freely move or contact the outside world as they are under tighter surveillance.

Source:
North Korean laborers reach Russian construction sites despite sanctions
Jang Seul Gi
Daily NK
2019-07-24

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China-North Korea trade up in first half of 2019

Wednesday, July 24th, 2019

Benjamin Katzeff Silberstein

A fairly minor recovery from an already low level, one should bear in mind. SCMP reports:

China’s trade with North Korea recovered in the first half of this year after a sharp fall in 2018, Beijing said on Tuesday.

The announcement comes as ties between the countries improve, with Chinese President Xi Jinping making his first state visit to Pyongyang last month.

Total trade with North Korea reached US$1.25 billion between January and June, up 14.3 per cent compared to the same period a year earlier, Ministry of Commerce figures showed.

Exports to North Korea amounted to US$1.14 billion – a rise of 15.5 per cent – while imports rose 3.2 per cent to US$110 million.

China remains North Korea’s sole military ally and biggest trading partner. Trade in 2018 was worth US$2.7 billion, down 48.2 per cent year on year, the Seoul-funded Korea Trade-Investment Promotion Agency said last week.

North Korea’s trade with China fell sharply in 2018, taking its overall foreign trade to less than US$3 billion for the first time since North Korean leader Kim Jong-un took power in 2011.

[…]

Zhang Baohui, director of the Centre for Asian Pacific Studies at Lingnan University in Hong Kong, said China was “doing its work under the UN sanctions regime” but that North Korea might have the strength to work through its economic hardships.

“The country is always economically isolated from the rest of the world, and North Korean people are used to this situation. In fact, self-reliance has been their way of life for a very long time,” Zhang said.

Article source:

China-North Korea trade up 14.3 per cent in first half to US$1.25 billion
Lee Jeong-ho
South China Morning Post
2019-07-24

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North Korea’s (April) constitutional revision and economic change

Friday, July 12th, 2019

By Benjamin Katzeff Silberstein

A quick comment on the reported change of the North Korean constitution (back in April): I don’t have access to the revised version as of now (or a working VPN from Seoul…). But judging by the reporting by outlets like Hankyoreh (here), this seems like a quite important confirmation that changes in the economic governance system of enterprises in North Korea continues and is still seen as a priority by the state:

The publication of the full text of North Korea’s constitution, which was amended back in April, reveals that language about the “Taean Work System,” its traditional party-centric method of managing the economy, has been replaced by language about the “Responsible Management System for Socialist Corporations,” which increases the autonomy of managers at production sites and introduces market elements. This creates a constitutional basis for Kim Jong-un’s reform-oriented approach to the economy. The amended constitution also adds an expression about the chairperson of the State Affairs Commission “representing the state,” which effectively constitutes a formal declaration that Kim Jong-un, as chair of the State Affairs Commission, is the “head of the state.” The constitution was amended during the first session of North Korea’s 14th Supreme People’s Assembly, on Apr. 11, but the full text wasn’t released to the outside world until now.The full text of all 171 articles of North Korea’s revised “socialist constitution” was released on Naenara, a North Korean foreign propaganda outlet, on July 11.

Article 33 of the constitution says that “the state shall execute the Responsible Management System for Socialist Corporations in economic management while ensuring the correct use of economic spaces such as production costs, prices, and profitability.” This replaces language in the previous version of the constitution that read, “The state shall execute a self-supporting accounting system in line with the demands of the Taean Work System while ensuring the correct use of economic spaces such as production costs, prices, and profitability.” The key change here is a shift in the state’s economic management method from the Taean Work System to the Responsible Management System for Socialist Corporations. The constitutional amendment also adds language to Article 33 about “decisively increasing the role of the cabinet” in the management of the economy.

(Source: Hankyoreh, July 12th, 2019)

Why is this important?

In short, because these bureaucratic processes often stall. Kim Jong-un’s first few years in power saw a virtual flurry of new frameworks introduced for economic governance, most of them enshrining and institutionalizing rules and practices that had already been in place in much of the country for a while. Still, government recognition for these practices really matters, because at the very least, it indicates they won’t be curtailed or rolled back for a while. But this flurry appears to have ceased from around 2016 or so, or at least decreased in intensity and scope. Some have argued that some in the government may not have seen the results they anticipated on economic growth, and therefore turned their attention elsewhere. Including a strong reference to enterprise management autonomy may not indicate a change per se, but at the very least, it confirms that the broad strokes of the changes that have already happened seem to still be generally embraced by the government.

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