Archive for November, 2021

Faltering expectations of increased trade strengthens North Korean won against foreign currencies

Thursday, November 25th, 2021

By Benjamin Katzeff Silberstein 

Daily NK reports (thus far only in Korean) that a recent decision to strengthen border control measures has caused foreign currencies to depreciate versus the domestic currency. In normal times, when the Amnok (Yalu) river freezes, smuggling activities increase. This year, people expect things to be very different given the tightened border shutdown:

북한 원·달러 환율이 또 다시 4천원대로 하락했다. 최근 북한 당국이 국경지역에 대한 방역 조치를 강화하자 무역에 대한 기대감 하락이 환율에 영향을 미친 것으로 분석된다.

24일 기준 북한 원·달러 환율은 평양 4700원, 신의주 4690원, 혜산 4620원으로 조사됐다. 이달 14일 달러 환율이 평양 5500원, 신의주 5500원, 혜산 5350원이었던 것과 비교하면 열흘만에 약 15%가 하락한 것이다.

지난해 국경봉쇄 이후 북한 환율은 무역에 대한 기대감에 따라 5% 내외 수준으로 등락을 거듭하고 있지만 무역 또는 방역과 관련된 당국의 조치가 하달될 경우 10% 이상 급락하는 양상을 보여왔다.

취재결과 지난 22일 중앙당 조직지도부는 중앙비상방역사령부와 국가보위성, 조선인민군 총참모부에 국경지역 방역수칙을 강화하라는 내용의 지시문을 하달한 것으로 알려졌다.

But, as their source says, smuggling can never be stopped entirely regardless of the measures:

소식통은 “지금도 밀수가 되고 있고 국경지역 밀수는 기본적으로 비(위안화)가 사용된다”면서 “아무리 국경을 봉쇄하고 통제해도 어떤 방법으로든 밀수가 이뤄질 것”이라고 말했다.

(Full article and source: Jang Seul-gi, “北, 국경통제 강화 지시에 달러 환율 ‘뚝’…무역재개 포기 분위기,” Daily NK, 25/11/2021.)

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Some news on the donpyo implementation

Tuesday, November 23rd, 2021

By Benjamin Katzeff Silberstein

An interesting and illustrative reminder of how much economics is about the public’s trust (or lack thereof) in the system… Daily NK:

There was a recent incident at a market in Pyongyang’s Sosong District in which a money changer refused a request by an employee of the financial section of a particular enterprise to change donpyo for foreign currency. Ultimately, the money changer exchanged the vouchers at a rate of KPW 2,500 for each KPW 5,000 voucher, but he was arrested by police after they were called to the scene.

The incident suggests that North Korean authorities are paying enterprises that need state funds in donpyo rather than cash, and that those enterprises are putting money together by changing the vouchers into foreign or local currency through money changers.

The source said that the financial sections of enterprises are also trying to get rid of their donpyo as quickly as they can by immediately exchanging them or depositing them in banks. This suggests just how little faith locals have in the vouchers.

Meanwhile, the groups will reportedly focus their efforts on improving the public image of the donpyo, even as they crack down on rumors about the vouchers and businesses that refuse to change or accept them.

The source said the authorities do not believe locals will voluntarily use the donpyo if they start by “strongly making examples” of people. He said the party ordered that educational efforts to teach the principles behind the donpyo should be prioritized over forcing people to use the vouchers.

(Full article here: Seulkee Jang, “North Korea organizes inspection teams to ensure smooth distribution of money vouchers,” Daily NK, 22/11/2021.)

 

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More dire trade figures for North Korea

Thursday, November 18th, 2021

By Benjamin Katzeff Silberstein

Amid speculation on when trade flows between North Korea and China might again be restored, new numbers show a significant dip in trade between the two countries in October. According to new Chinese customs figures, trade fell 40 percent between September and October, after a fairly steady but moderate climb in the months before.

Officially recorded trade, that is. There is likely a limit to what quantities of bulky goods such as coal can be smuggled, but it would be surprising, given China’s demand for coal at the moment, if total Chinese imports from North Korea during the last month weren’t higher than reported. North Korean coal is relatively cheap and China is virtually a monopoly buyer.

At the same time, these numbers do break the general but modest trend of increasing trade in the months before. While the construction of quarantine facilities and refurbishments of the cross-border infrastructure do indicate that trade might resume in a not too distant future, when this might be still remains an open question.

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Squaring the conflicting news reports on North Korea’s border reopening

Thursday, November 4th, 2021

By: Benjamin Katzeff Silberstein

Over the past few days, there’s been a flurry of news reports suggesting two seemingly conflicting things: 1) that North Korea may reopen its borders with China and Russia already in November and, 2) that the border closure may remain in effect for several years to come.

First, Yonhap:

North Korea is in the final stage of preparations to reopen its train routes with China following prolonged border controls to stave off the coronavirus, a unification ministry official said Thursday.

The North is expected to first resume cargo transportation via land routes, the official said, though adding it’s hard to tell exactly when the operations would begin.

“Our assessment is that various preparations for the resumption of goods exchange through train routes are at the final stage,” the official told reporters on background.

Seoul officials have said signs indicating preparations for trade resumption were detected in the North Korean regions bordering China, such as the construction of quarantine facilities.

Last week, the National Intelligence Service (NIS) told lawmakers the North is in talks with China and Russia to resume train operations across the border and those connecting Sinuiju and Dandong — border cities of the North and China, respectively — could resume as early as November.

(Source: “N. Korea in final preparations to reopen border with China: official,” Yonhap News, 4/11/2021.)

In addition, NK News have reported several times over the past few months on satellite imagery showing construction of quarantine facilities near the border with China as well as activity near border crossings suggesting that trade might soon resume.

At the same time, according to media outlets with grassroots sources in North Korea, the authorities have told the population to buckle down and prepare for hard times to continue, as the border lockdown won’t ease even partially this year. Daily NK:

In particular, the provincial party said the border closure was not just a measure to protect the people from COVID-19, but also to awaken government organizations, enterprises and people “full of illusions about imported goods” from their delusions. They stressed the need to satisfy the people’s demand for consumer goods with “products produced in our country (North Korea).”

The source added that the party said the goal of the light industry and commercial sectors was to produce “uniquely North Korean light industrial goods” independent of imports by substituting foreign materials for domestic ones, and to supply those goods to the people.

The provincial party also decided to promote domestically produced commercial goods, basic foodstuffs and groceries as good for one’s health as they are eco-friendly, and equal to those of any other country.

The source added that the party said the state would “thoroughly control” the import of raw materials for consumer goods or basic foodstuffs “that we could easily produce and use in our country (North Korea).” He also said the party said that controls could be placed on imports “unapproved by provincial, city or county commercial departments” at local markets “even if the border were reopened.”

Meanwhile, the source said the provincial party told officials that they should understand that the border closure “will never be lifted, even partially” this year and that they should supervise matters well.

(Source: Jong So Yong, “N. Korean Cabinet calls on commercial sector to eradicate the ‘import disease’,” Daily NK, 4/11/2021.)

As I noted on the blog earlier this week, Radio Free Asia has reported that authorities say the border won’t open for trade until 2025.

Obviously, you can’t keep the border both closed and open it at the same time. So how can these claims be squared? As with all news on North Korea relying on few sources or South Korean intelligence claims, a huge dose of skepticism is warranted. It is of course entirely possible that some of these claims will later prove to be inaccurate. No one knows when border trade might reopen.

But both reports could be true at the same time. Note especially this paragraph in the quote from Daily NK above:

In particular, the provincial party said the border closure was not just a measure to protect the people from COVID-19, but also to awaken government organizations, enterprises and people “full of illusions about imported goods” from their delusions. They stressed the need to satisfy the people’s demand for consumer goods with “products produced in our country (North Korea).”

This goes to the heart of the question about whether the government may be using the pandemic as an opportunity to push for policy changes it would have sought anyway. It has long been a central economic policy goal for North Korea to decrease its reliance on imports and instead improve domestic manufacturing. Kim Jong-un has spoken about it frequently, as did his father before him.

Particularly in this light, it seems possible that the government might resume some border trade with China that is particularly important for its political purposes (or otherwise urgent), such as construction materials, certain machine parts that cannot be domestically manufactured, and potentially fertilizer. At the same time, it might continue the overall border closure in the name of the pandemic, severely limiting the flow of goods, with decreasing the country’s reliance on imports as an important long-term policy goal in mind. So for the general public, the message may remain that they must cope with an economic reality where the border remains largely shuttered, while trade resumes in some strategically important goods.

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