Archive for the ‘State Offices’ Category

The North Korean gov’t tightens the screws on foreign trade

Wednesday, June 8th, 2022

By: Benjamin Katzeff Silberstein

Over the past year, Daily NK (and primarily its stellar reporter Seulkee Jang) has reported on what seems to be a fairly consistent effort by the North Korean regime to strengthen its controls over foreign trade permits. The Covid-19 border lockdown has made this, as other repressive measures of economic policy, a much easier task than it otherwise would have been. The purpose of this post is to summarize the development to date by gathering the reports in one place, hopefully generating a somewhat holistic picture of what’s been happening.

Tight government regulation of foreign trade is, of course, nothing new in North Korea. Trade has always occurred at the mercy of the state, making it a fertile ground for corruption. From May 2019:

The continuing international sanctions on North Korea are causing difficulties for the country’s traders, who are having trouble finding items not on the sanctions list to sell as well as having to pay “loyalty payments” to the state and bribes to government officials.

“Traders are saying that the business environment in North Korea is poor and that they have a lot of difficulty importing materials from China that don’t violate the sanctions. Even if products clear Chinese customs without a problem, traders face issues in North Korea […] North Korean customs agents demand bribes and the traders say they’re left with nothing,” a source in North Hamgyong Province told Daily NK.

“The customs officials demand bribes and justify their demands with excuses like ‘The state is building this or that project so be a patriot and hand over the money’ […] Traders don’t have much choice, so they just pay the bribes.”

[…]

Traders are faced with being branded “anti-socialist” and punished if they refuse to contribute money for so-called state construction projects.

Government officials ultimately decide whether such payments really go to state construction projects or are accepted as personal bribes. Some of the customs officials may be sending some of the money to state coffers while keeping the rest for themselves.

It is not only imports of contract-manufactured materials imported from China that are facing difficulties. Traders who manufacture products in North Korea and export them to China also face demands from customs officials for bribes.

(Mun Dong Hui, “North Korean customs officials continue to demand bribes from traders,” May 5th, 2019.)

In November 2020, the Supreme People’s Assembly revised the country’s enterprise law to strengthen state control over firms engaging in foreign trade. Late that month, a source for the Daily NK claimed that the revision reduced what private traders have to pay to the state while strengthening control over these units:

According to a Daily NK source in Pyongyang, the bill to revise and supplement the Enterprise Act includes provisions that reduce what private “kiji” pay to the state and encourage foreign exchange earning and trading activities.

A kiji is a small private business organization of about seven people that is nominally attached to a trading company.

The act has permitted payments to the state (in cash or kind) to be cut by a third and private business operators are now allowed to take a greater share. The relevant cadres have been ordered to encourage the establishment of enterprises by telling prospective entrepreneurs that they “may pay just 10% of their profits.” It remains unconfirmed, however, whether this has been clearly included in the legislation.

“Since the (individual’s) take has been increased, it could also be read as an instruction to do more private business or earn more foreign currency,” the source said, speaking on condition of anonymity.

In particular, the authorities reportedly prepared the legal basis to reinvigorate trade through the latest revision to the Enterprise Act.

(Seulkee Jang, “N. Korea’s recent revision of Enterprise Act appears aimed at increasing trade,” November 25th, 2020.)

Some five months later, in April the following year, DNK reported that the state had ordered trading agencies to apply for new waku or trading permits, meaning that they would be required to submit a wide range of documents for scrutiny:

The agencies that will begin conducting trade on Apr. 20 received direct orders from the party to continue trade even after the border was closed at the end of January 2020. As companies belonging to powerful North Korean institutions, these agencies will simply have to undergo an inspection to confirm their activities. As soon as this is complete, they will be permitted to participate in official trade.

The authorities reportedly shortlisted trading companies that are a part of the Central Committee or the Munitions Industry Department (MID) to receive permission to resume trade.

Meanwhile, the authorities ordered that individual traders working for non-priority trading companies or agencies apply for new waku.

The Ministry of External Economic Relations gave each trading agency written instructions to reapply for new waku during the three days between Apr. 12 and Apr. 14. Trading agencies and companies reportedly submitted their applications and authentication materials via the North Korean intranet per the guidelines.

Even agencies and individuals who have been issued waku in the past must apply again for a new permit. If there are no issues, the firms will receive their newly-issued waku after an evaluation period of three to four weeks and be able to participate in official trade from the beginning of May.

Materials needed for the waku application reportedly include certificates regarding partner companies in China, records of previous imports and exports, and plans for future trade.

(Seulkee Jang, “N. Korea hands down order regarding issuance of trade certificates,” April 20th, 2021.)

Around the same time, the authorities reportedly began to more thoroughly investigate traders to crack down on smuggling, partially as a result of the above-mentioned scrutiny:

A Daily NK source recently reported that the authorities have been ferreting out and punishing traders involved in smuggling. This crackdown could be an attempt to encourage trade workers to be cautious until the authorities open the border.

“From the beginning of this month until recently, the authorities have been arresting anyone who engaged in smuggling and those who did not submit their ‘loyalty fees’ to the party on time. [The authorities] have exiled some of them to remote areas, or sentenced them to re-education through labor or even death,” a source in North Pyongan Province said on May 18. “They are being punished because they misappropriated trade profits for their own personal gain and not for the benefit of the country.”

The hunt for those who participated in or abetted smuggling and those who failed to pay party “loyalty fees” reportedly came to a close in late April. North Korean authorities also investigated traders and firms applying for new waku (trade certificates) during the same period.

North Korean authorities accepted new waku applications from Apr. 12 and Apr. 14. After receiving the applications, the Central Committee’s Department of Economic Affairs, the Ministry of Foreign Trade, and the Ministry of State Security began screening them.

“Twenty people ended up being targeted for punishment,” the source said. “[The authorities] arrested all of them at the same time and their punishments were meted out immediately.”

(Seulkee Jang, “North Korean authorities ferret out traders involved in smuggling,” May 24th, 2021.)

These increasingly intense investigations targeting “unauthorized trade” continued through the summer, as DNK reported in June and July:

The KPW-USD rate broke past KPW 7,000 on May 18, just before the new waku were issued. The renminbi was also going beyond KPW 1,000.

Daily NK has found that the exchange rates – which had been climbing continuously on the back of expectations surrounding the reopening of trade, and the issuance of new waku – suddenly collapsed because of new trade controls recently enacted by the North Korean authorities.

According to a high-ranking source, the Central Committee issued an order on June 3 telling recipients of new waku that their certificates did not mean they could participate in trade “right away.” If they do participate in trade without Workers’ Party approval, warned the order, it would be regarded as smuggling and subject to severe punishment.

(Seulkee Jang, “US dollar and Chinese reminbi plummet against North Korean won once again,” June 9th, 2021.)

And the report from July:

North Korean authorities are conducting large-scale inspections aimed at cracking down on unauthorized trade. This has led some North Korean trading companies involved in the trade of “unauthorized items” to cancel their transactions with Chinese traders.

According to a Daily NK source in China on Sunday, an unnamed North Korean trading company recently requested its Chinese partner suspend a transaction. The Chinese partner found this absurd as it was already prepared to ship the construction materials, paper, soap, and other sundries that had been ordered.

[…]

A Daily NK investigation – based on information from multiple sources in North Korea – has determined that the Ministry of State Security, Ministry of Social Security, and disease control authorities launched a joint inspection into illegal trading activity last month.

On June 3, North Korean authorities issued an order that warned traders against engaging in trade without prior approval from the Workers’ Party, regardless of whether they received a new waku (trade certificate). According to the order, unauthorized trade will be regarded as “smuggling” and subject to punishment.

The authorities subsequently formed inspection teams, which are now scrutinizing recent transactions by the country’s trading companies.

Trading companies that tried to import unauthorized goods along with authorized items now appear to be “scrambling” to cancel their deals with Chinese traders or are simply refusing to accept the cargo.

“North Koreans say you can trade only if you’ve gotten permission from that person [North Korean leader Kim Jong Un] – even if you’ve got a waku,” one of the sources in China told Daily NK. “Instead of trade returning to [pre-pandemic] levels, it’s getting harder [for Chinese traders] to conclude deals with North Korea.”

(Seulkee Jang, “North Korea conducts large-scale inspections aimed at ending unauthorized trade,” July 6th, 2021.)

Only days later, DNK reported that approximately 20 trading company heads had been arrested in the crackdown against unauthorized trade. The reference to quarantine procedures is a clear example of how anti-epidemic measures have often intertwined with enhanced state controls:

According to a Daily NK source in North Korea on Thursday, the authorities arrested around 20 heads of trading companies during a “joint inspection” of trade-related entities that began last month. Hundreds of trade workers have also been arrested and are undergoing questioning.

The ruling party’s Organization and Guidance Department is reportedly taking overall command of the joint inspection.

Those arrested are being charged with either importing items outside their approved import lists or distributing imported items that have not gone through proper quarantine procedures.

North Korean authorities are reportedly applying heavy punishments on importers who circumvent quarantine procedures, rather than focusing on just the import of unapproved items.

Daily NK understands that the items imported by companies busted in the latest inspection include consumer goods scarce in most of the country’s markets, including seasonings, soybean oil, sesame seeds, and sugar.

Based on Daily NK’s information, the authorities have confiscated all of the unapproved imported items. They have also confiscated the waku (trade certificates) of the relevant trading companies.

[…]

Daily NK’s source, speaking on condition of anonymity, said that the authorities are making no exemptions in this latest crackdown – not even for trading companies attached to Bureau 39, which handles the ruling Kim family’s slush funds. If companies are caught engaging in illegal trade, they apparently face severe and “merciless” punishment.

North Korean leader Kim Jong Un has reportedly ordered that individuals caught in the inspection face criminal proceedings rather than “party-related punishments”; that busted cadre-level trade officials be stripped of their party credentials; and that the authorities apply the same criteria in their crackdown to companies affiliated with “special institutions.”

Given that North Korean authorities regard illegal trade by trading companies as “political activity,” offenders apparently face the severest of punishments — including death or confinement in a political prison camp — depending on the severity of their crimes.

“At the very least, nobody will get away with a mere slap on the wrist, like time in a forced labor or reeducation camp,” the source said.

(Seulkee Jang, “North Korea arrests around 20 trading company heads in latest crackdown on unauthorized trade,” July 16th, 2021.)

The crackdown continued even in the face of food shortages that underscored the need for more imports, fast:

The source said the committee also pointed to blocked provisions of raw materials and supplies in all areas of economic activity and serious energy shortages. The committee said discussions of trade must focus on these problems, essentially calling for traders to resolve food shortages and normalize enterprise operations by promptly restarting trade.

However, the source said the committee focused more on “system compliance.” It told traders that they must abandon rushed “campaigns” and deeply analyze trade as it involves the import and export of the state’s foreign exchange.

Moreover, it criticized officials in higher-level work units for personal and institutional selfishness, bragging about their “special” status. This well worn practice must be “uprooted,” it said.

The committee targeted corruption as well. Officials said they would show no forgiveness for traders collaborating with certain individuals to “mix goods” that have nothing to do with the national economy into their imports. It warned that “non-socialist and anti-socialist behavior” would face punishment by the party, administrative organs, or through the legal system.

(Jong So Yong, “Yanggang Province’s provincial party committee discusses China-North Korea trade,” December 31st, 2021.)

For some months, DNK reports on the issue took a pause, suggesting that the campaign may have ceased to grow in intensity for some time. In early April 2022, however, Jang Seulkee reported that a large-scale restructuring appears to be going on in the foreign trade sector, strengthening cabinet control:

North Korean authorities are disbanding trading firms that fail to produce results, and restructuring the trade sector to give the Cabinet direct supervision over the import and export details of all trading companies, as well as their profits.

According to multiple Daily NK sources in North Korea on Friday, the authorities have been placing trading companies across the nation under the direct control of the Cabinet. Trading companies that have failed to take part in import or export activity over the last couple of years are being merged out of existence, even if they are under the jurisdiction of “special bodies” like the security services.

The authorities have also created a report system that allows the Cabinet to manage or supervise trading companies’ accounting records and cash flow.

[…]

North Korea has apparently started to structurally readjust the trade sector as part of efforts to restore the state’s “unitary trading system.”

In a report on economic affairs to the Supreme People’s Assembly in February, Premier Kim Tok Hun said he would continue to push activities to restore the state’s unitary trading system in the external economic relations sector.

North Korean authorities have granted enterprises some degree of trade autonomy since North Korean leader Kim Jong Un took power, but the premier’s comment could be seen as a declaration that the state would be the sole trading actor going forward.

North Korean authorities have begun merging trading companies and bringing them under Cabinet supervision as their first effort to restore the state’s unitary trading system in an apparent bid to resolve the problem of bloated trading companies making illicit gains.

(Seulkee Jang, “North Korea restructures trade sector to give Cabinet more direct supervision over imports/exports,” April 4th, 2022.)

Ten days later, Jang reported that trade certificates of several trading companies of significant size had been confiscated by the authorities, who also arrested some ten trade officials:

According to a Daily NK source in North Korea on Wednesday, the Central Public Prosecutor’s Office arrested about 10 trade officials this month, confiscating the waku of their trading companies as well.

During North Korea’s efforts over the last month to merge trading companies, the authorities have discovered cases where companies have taken on excessive debt. The government has taken issue with officials of these companies for poor accounting practices and filing false financial reports.

Daily NK recently reported that North Korean authorities have started restructuring the country’s trade sector as the first step to restoring the state’s “unitary trade system.” These efforts have included merging and disbanding trading companies and making companies directly report their trading and sales details to the country’s Cabinet.

The individuals arrested in the latest round-up include officials with trading companies attached to major state institutions, including the Supreme Guard Command, Ministry of State Security, and External Construction Guidance Bureau. North Korea has apparently punished individuals and companies when their financial audits have turned up problems, regardless of the company’s size or parent organization.

However, trading companies that had their waku confiscated are crying foul. They say it is wrong for prosecutors to take away their waku simply because “rash financial audits” turned up “excessive debts” or missing numbers when the prosecutors themselves know nothing about the companies’ trade transactions.

(Seulkee Jang, “N. Korea confiscates the trade certificates of several mid- to large-sized trading companies,” April 14th, 2022.)

All of this was, naturally, related to the state effort to collect more foreign currency in the face of what must be depleting supplies:

North Korean authorities are reviewing how well provincial trade bureaus have met their foreign currency quotas in the first quarter of the year and are auditing bureaus that failed to meet their quotas, Daily NK has learned.

“The government has assigned officials from the State Planning Commission and the Ministry of External Economic Relations to audit the provinces that failed to provide the state with the planned amount of foreign currency funds in the first quarter of the year. The auditors are supposed to review the results and correct what went wrong,” a source in North Hamgyong Province told Daily NK on Wednesday.

[…]

“The current objective of the audit is to figure out how persistently and energetically provincial trade bureaus have been in delivering foreign currency to the state. But another objective is to pressure the bureaus to unconditionally meet the state’s foreign currency quota in the future,” the source said.

The auditors have mostly been examining documents provided by managers, bookkeepers, and statisticians at trade companies in North Hamgyong Province. After marking problem areas in red, they are meeting with the people involved to check on their work processes and outcomes, the source explained.

According to him, the auditors in North Hamgyong Province have looked through all the documents not only from the first quarter of the year but from the last two years as well. They are asking hard questions about the province’s failure to meet the foreign currency quota. The auditors reportedly believe that low-level trade organizations did not make a serious effort to meet the quota.

Trade organizations did manage to get permission in Sinuiju for sending imports and exports through the Uiju quarantine center. However, the auditors were greatly disappointed by the fact that these organizations, thinking they had no way of meeting the quota, attempted to shirk responsibility for not sending any foreign currency to the government over more than two years.

(Jong So Yong, “N. Korea conducts audits on how well provincial trade bureaus met foreign currency quotas,” April 29th, 2022.)

As is often the case, provincial administration incentives appear to be misaligned with the central government’s orders:

North Hamgyong Province’s trade bureau is working hard to ensure the survival of as many trade companies as possible following orders by the central government to merge or close companies deemed ineffective.

“The provincial trade bureau is under a great deal of stress due to the government’s instructions regarding the merger and closure of trade companies,” a source in the province told Daily NK on Monday.

North Korea is carrying out several measures to either combine trade companies or eliminate them altogether as part of broader efforts to restore a system in which all trade is administered by the state, he explained.

With trade companies facing the very real prospect of elimination, many are making every effort to survive, with the hope that trade will resume in earnest once the country’s borders are reopened, the source added.

The source said that the North Korean government believes that it does not need trade companies that focus solely on either imports or imports. During the trade company registration process, the government is setting precise figures for imports and exports and emphasizing that only trade companies that can actively pursue both activities serve the state’s economic interest.

(Jong So Yong, N. Hamgyong Province’s trade bureau under stress to save as many trade companies as possible,” May 4th, 2022.)

As of last month, the process to tighten trade administration was still ongoing. The aforementioned state surveys of trading companies revealed that all of them carry substantial amounts of debt:

North Korean authorities are pushing the dissolution and merging of trading companies as the first stage of the restoration of the unitary state-led trading system. However, things are reportedly moving slowly due to debt problems with the trading companies.

According to a high-ranking Daily NK source in North Korea on Thursday, North Korean authorities started dissolving and merging trading companies to build a state-led trading system in March, making the Cabinet responsible for managing all import and export breakdowns. They have yet to complete the process, however.

This is because financial surveys conducted to dissolve and merge the companies revealed that every firm carried significant debt.

[…]

The source said the most likely plan is for the North Korean authorities and trading companies to split the debts 50/50.

The problem is that North Korean authorities lack the financial wherewithal to assume 50% of the debts. Another Daily NK source familiar with North Korea’s trade situation said no trading officials believe the authorities will take care of 50% of the debts, even if they say they will.

North Korean authorities currently set the official exchange rate at a very low KPW 150 to the dollar. Compared to the rate of KPW 6,500 to the dollar at a market in Pyongyang on May 1, the government currently sells the dollar at a price over 40 times lower than market value.

Because of this, if the North Korean authorities assume the debt using the official exchange rate, the high-level trade agencies will assume virtually all the debt.

This being the case, both the subordinate trading companies and the superordinate ones that will absorb them are complaining.

(Seulkee Jang, “N. Korea’s efforts to dissolve and merge trading companies are hitting snags,” May 16th, 2022.)

It seems fairly clear that the state intends to fully subordinate foreign trade under cabinet control, drastically tightening the screws on companies that engage in foreign commerce. It is an ambitious project given that foreign trade was relatively decentralized for some years, but it is an ambition that the state has held since at least 2018. We may see some limited measures of retreat but the overall goal will likely persist for some time.

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Another data point on North Korea and the world economy

Monday, April 25th, 2022

By Benjamin Katzeff Silberstein

At 38 North, I recently looked at how world market price swings impact the North Korean economy. Given the lack of consistent price data for coal in North Korea, I was unable to look at the potential impact of global coal price changes on domestic prices (and export prices) in North Korea. But with global coal prices shooting up following bans on imports of Russian coal and other energy products, North Korean producers will likely benefit significantly, at least in the short- to medium-term. So although global food price hikes following Russia’s attempted invasion of Ukraine may hurt the North Korean economy in some ways, rising coal prices will benefit it in others.

Daily NK notes this in an interesting recent report. According to their sources, prices paid by Chinese importers for North Korean coal have risen by 40 percent in a short time:

According to multiple Daily NK sources in North Korea on Wednesday, Chinese traders are paying an average of USD 70 per ton for smuggled North Korean coal.

That is not even one fourth of international price coals, including Australia’s benchmark Newcastle index, which have been climbing at a frightening rate due to the EU’s ban on Russian coal imports.

The price of smuggled North Korean coal is about half that of the local price in China, where there is a price cap. However, it is also more than double the price of exported North Korean coal prior to the COVID-19 pandemic.

Moreover, even compared to early October, when smuggled coal sold for about USD 50 a ton, the current price represents a more than 40% climb from six months earlier.

At the time, Chinese coal prices were skyrocketing due to local shortages following Beijing’s suspension of Australian coal imports due to trade disputes with Canberra.

In the end, the price of North Korean coal is essentially hitching on to continuously rising global coal prices.

Moreover, the sources said North Korea is selling high-quality coal of more than 7,000 calories to China. Accordingly, more Chinese traders are reportedly demanding North Korean coal.

They further said that while coal exports are not as brisk as they were prior to the pandemic, North Korea has been continuously exporting coal through the port of Nampo as of late.

(Source: Seulkee Jang, “N. Korea sees coal prices rise as international energy prices skyrocket,” Daily NK, April 21st, 2022.)

It is always striking and interesting to note just how much of a buyer’s monopoly North Korea is subject to when it comes to China’s coal imports. Because China is the only country of true significance for North Korean coal exports, it is to a large extent free to set the prices. As the article notes, the prices Chinese importers pay for North Korean coal are not even one-fourth of global prices. It’s worth keeping in mind when China is referred to as North Korea’s economic “lifeline”. It may be somewhat true, but it’s far from that simple.

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North Korea is more connected to global markets than you might think

Wednesday, October 13th, 2021

By: Benjamin Katzeff Silberstein

After a hiatus during the summer following my PhD defense, I now plan to get back to posting regular analyses and news content here. First up, an interesting example of why the North Korean economy is in fact more connected to global commodity markets than many might think.

Over the past few weeks, coal prices have skyrocketed in China, following energy shortages record-high coal prices. In September, the country’s coal imports surged by 76 percent, fueled flooding in one of the country’s main coal producing regions.

Therefore, it shouldn’t be surprising that Chinese demand for North Korean coal — the commodity at the heart of international sanctions on North Korea — is reportedly growing. As Daily NK reports:

According to a source in Pyongyang on Wednesday, there have been noticeably more requests for coal from Chinese traders since North Korea’s national foundation day holiday on Sept. 9. He said there have been several illegal transshipments of coal for export over the last month.

China has recently limited trade with private North Korean traders, dealing instead with official North Korean trading bodies. The source said, however, that Beijing now approves transactions with any North Korean entity that can provide China with coal, including private ones.

In fact, the Chinese government has reportedly launched no particular crackdowns on private imports of North Korean coal.

Rather, according to a source in China, some provincial civil servants in China are advising traders to take care not to get photographed when they transship coal. Essentially, the Chinese government is turning a blind eye to imports of North Korean coal, an internationally sanctioned item. At the same time, they are asking traders to exercise caution, aware that the international community is watching.

(Source: Seulkee Jang, “Amid coal shortages, Chinese traders on the hunt for more North Korean coal,” Daily NK, 7/10/2021.)

There are several things worth noting about this. First, again, it should not be surprising. China’s enforcements of sanctions against North Korea depends primarily on whether Beijing believes it to be in the national interest to clamp down on trade or smuggling. Clearly, China now needs cheap coal, and it’s been a long time since the North Korea issue was at the center of international politics and diplomatic tensions. So there appears to be comparatively little to lose in increasing trade for the moment, although China has been significantly letting up on its sanctions enforcement for several years now, since the days of “maximum pressure” in 2016–2018.

Second, North Korea still appears to be getting shafted by China, who exploits its position as the almost exclusive monopoly buyer buyer to purchase coal from North Korea at prices lower than world market prices or Chinese domestic prices. The precise proportions are uncertain, but Daily NK reports that China is paying less than half of world market prices for coal imports from North Korea, although their source also notes that the North Korean side is using the global shortage as leverage to jack up prices. In other words, while China may in some sense be North Korea’s “patron”, commercial market logic is much more important in coal trade than often assumed, and China isn’t necessarily doing it to help North Korea.

Third, and to tie back to the title of this piece, North Korea, despite its policies of economic autarky, is in fact deeply connected to global commodity markets. This isn’t just true for currency prices. Although the size of North Korea’s foreign trade remains comparatively abysmal, its economy is, just like most other economies today, tied to the broader dynamics of global supply and demand.

It still remains to be seen how much trade can expand under the current North Korean border shutdown. Though some goods are getting through, the border largely remains under lockdown due to Covid-19 despite intermittent news reports that trade might restart and return to its former scale. As many analysts have noted, Covid-19 has succeeded in closing the border more tightly to trade than most sanctions regimes have. How much Pyongyang is willing to meet Chinese demands and let coal shipments go across the border in larger scale, potentially increasing the country’s exposure to the virus (in the eyes of the leadership) remains to be seen.

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The Pyongyang General Hospital delay

Sunday, January 31st, 2021

Benjamin Katzeff Silberstein

As previously reported by 38 North, neither the Pyongyang General Hospital nor the Wonsan-Kalma resort were completed on schedule. A recent report by Radio Free Asia, based on sources within North Korea, confirms that a lack of goods that need to be imported from China is what’s holding construction back (among other things). At the same time, it isn’t necessarily a lack of funds that’s being cited, but rather, the inability of imports to get through due to the border lockdown:

Work on the hospital began in March 2020, but it has been several months since construction was put on hold.

The pet project of North Korean leader Kim Jong Un should have had a guaranteed supply of materials, an official of Pyongyang’s municipal government told RFA’s Korean Service Jan. 21.

“However, the interior work has not been started at all. Electric wiring, lighting, marble, other interior materials and medical equipment should have been imported from China, but they have not been brought in due to the coronavirus,” said the source, who requested anonymity to speak freely.

North Korea and China shut down the Sino-Korean border in January 2020 and suspended all trade, a move that has all but closed the North Korean economy off from the rest of the world.

Though builders tapped domestic suppliers to begin construction on the hospital’s exteriors in March, work cannot continue until imports resume.

During the ruling party’s eighth congress, held Jan. 5-12, the party ordered factories and other government agencies to wean themselves off of imports so the country’s economy could be more self-sufficient.

But RFA reported last week that because the congress decided to invest heavily in North Korea’s tourism sector, government officials were scrambling to find ways to import materials for building interiors in anticipation of a building boom.

“Inpatient facilities will go in the two main high-rise buildings, so elevator installation is the core of all interior work,” the source said.

“Last year, they signed a contract to import elevators and escalators from a company in Shanghai… but the coronavirus has prevented them from being brought in,” said the source.

(Source: Hyemin Son, Leejin Jun, and Eugene Whong, “Construction Delayed on Showcase Hospital Project in North Korean Capital,” Radio Free Asia, January 26th, 2021.)

On the one hand, it would seem sensible to not prioritize prestige projects when overall funds are so low. On the other hand, Kim Jong-un did recently have his beachside manor upgraded, as reported by NK Pro. Whenever equipment really needs to get purchased or imported, there are ways of making it happen…

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North Korean coal market routines changing

Sunday, June 14th, 2020

By: Benjamin Katzeff Silberstein

That’s essentially the story told by Daily NK here, and it appears like some mines may be successfully cutting out a middleman:

“Coal mined from state-run coal mines is supposed to go to an agency in charge of distribution, but [these days] not all of the coal is being supplied to the appropriate agency,” the source said. “Coal mines have to make a profit to feed the large number of workers they have, so they decided to start doing business directly with the procurement and sales departments at companies.”

Some companies that received coal from this distribution system now have to buy the coal directly from coal mines, the source said, adding, “In these cases, coal mines sell the coal at a cheaper price than the usual market price.”

Some trading companies have reportedly begun working with railway authorities to transport large amounts of coal by train rather than by truck.

“They are making efforts to reduce distribution costs by going to coal-scarce areas and selling coal there while buying and then reselling that region’s specialty goods,” the source said.

“Of course there is still wholesale selling of coal taking place among merchants located near the mines. Since coal is a commodity that is always in demand, buyers are flocking to the markets,” the source added.

Generally, coal in North Korea used to be sold at around KPW 300,000 per ton, but by the end of 2017, after the implementation of more severe international sanctions, the price had plummeted to around KPW 200,000. Yet, due to smuggling and other factors, coal prices crept back up to KPW 290,000 per ton last year, according to the source.

(Source: Kang Mi Jin, “State-owned coal mines are finding new ways to make money,” Daily NK, June 11th, 2020.)

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North Korea’s 2020 parliamentary session and the budget: the main points

Tuesday, April 14th, 2020

By: Benjamin Katzeff Silberstein

This past Sunday, the 12th of April, the North Korean Supreme People’s Assembly met at Mansudae Assembly Hall, the grand, majestic room where the assembly sits. Out of the six items on the SPA’s agenda, at least three – half – dealt in some shape or form with the economy, and arguably, some others could also fit into that category:

The agenda items of the Third Session of the 14th SPA of the DPRK were decided at the session:

1. On adoption of the law of the DPRK on recycling resources

2. On adoption of the law of the DPRK on tele-education

3. On adoption of the law of the DPRK on providing living conditions for discharged officers

4. On the work of the Cabinet of the DPRK for Juche 108 (2019) and its tasks of Juche 109 (2020)

5. On implementation of the state budget for Juche 108 (2019) and the state budget for Juche 109 (2020).

6. Organizational matter.

(Source: “Third Session of 14th SPA of DPRK Held,” Korean Central News Agency, April 13, 2020.)

I include the Cabinet report given the strong emphasis over the past years of the cabinet’s leading role in economic management. A separate KCNA-report from the same day, “Report on Work of DPRK Cabinet for Juche 108 (2019) and Its Tasks for Juche 109 (2020),” summarized this report of the cabinet’s work. I paste it here with some annotating comments. Yes, the whole first paragraph below is one sentence:

According to the report on the work of the Cabinet delivered at the Third Session of the 14th Supreme People’s Assembly(SPA) of the Democratic People’s Republic of Korea (DPRK), last year the Cabinet organized a drive of putting the overall national economy on a new higher stage with a main emphasis put on accomplishing the sustained economic development, ensuring the local production of equipment, raw and other materials and revitalizing production by boosting the capability of independent development of the country, true to the important tasks set forth by Supreme Leader Kim Jong Un in his report at the Fourth Plenary Meeting of the Seventh Central Committee of the Workers’ Party of Korea and in his historic policy speech at the First Session of the 14th SPA.

None of these phrases (“local production of equipment” etc) are new or surprising, and the most notable fact is perhaps the absence of anything unusual in such an unusual time (coronavirus, sanctions).

The report said that last year all sectors and units of the national economy carried out the gross yearly industrial production value at 108 percent, and ministries, national institutions, the city and county people’s committees and industrial establishments over-fulfilled their national economic plan.

The electrical power industrial sector carried out the hydraulic power generation plan at 103 percent and made sure that production was increased by properly carrying on the repair and readjustment of generating equipment.

Now this is interesting – repairing and readjusting could either mean a claim that the industry is doing fine even without imports of Chinese machine parts and the like, because it can simply repair and readjust what’s already there. Or, it’s a claim that in fact, despite sanctions, the country’s industries are able to replenish whatever equipment it needs to stay afloat.

The thermal power plants provided a guarantee for stabilizing the electric power production without relying on heavy oil.

The coal industrial field respectively showed 23 percent and 22 percent increases in the coal production and the supply of coal for thermal power generation over last year, and the large-scale coal mines rich in deposits and with favorable mining conditions provided a foundation to increase coal production.

In the field of the metallurgical industry the Kim Chaek Iron and Steel Complex has shown 22 percent, 2 percent and 37 percent increases in the production of pig iron, steel and rolled steel over last year. The chemical industry achieved large growth in the production of chemical fertilizer, carbide and caustic soda.

Of course, any claims of over-fulfillment of quotas and the like should be taken with a grain of salt, as such claims are classical in North Korean propaganda regardless of their foundation in reality (the genre was born in the Soviet Union). Still, trying out a charitable reading, there are theoretical ways in which claims over over-fulfillment could technically be true, particularly in these sectors. We know nothing about the revenue of these products, for example, and mines and factories could churn out production in great magnitudes but with questionable value when the products can’t be exported or sold at a profit at all. Because coal prices have dropped so much under sanctions, industry could well be powered at a lower cost, but the value of this is, again, questionable.

[…]

On the agricultural front the peak-year level was exceeded in the grain production even under unfavorable weather conditions.

A repetition of the claim of a bumper harvest last year, which remains highly unlikely, as I argued here.

A fishing campaign for supplying more fish to the people was launched in the fishery sector, and the fishing was put on a higher scientific level with the help of the updated aid system for detecting fishing ground.

Again, the sector may certainly produce and supply more, but its incomes will still be lower than they would be without sanctions.

The field of the land and environment protection turned the important projects including the Wonsan Kalma coastal tourist area and the Yangdok Hot Spring Resort into thick woodland and greenery and face-lifted all roads including Pyongyang-Hyangsan and Pyongyang-Wonsan Motorways.

A hint that investment continued in the tourism industry, and that the state expects this industry to blossom in the future, despite the currently dire situation. By extension, perhaps also a suggestion of expected solid economic ties and exchange with China.

The report contains a great deal of interesting detail, but in the interest of time, I’ll skip ahead to the most central parts (my own emphasis):

The report emphasized that all the achievements made last year clearly proved once again that as long as there is the wise guidance provided by the Party, we can live on our own and open up the road of our own development and prosperity no matter how desperately the enemies may try.

The report also said that serious mistakes were found in the work of the Cabinet last year.

They taught a serious lesson that if the officials in charge of providing economic guidance fail to fulfill their duty, it would be impossible to successfully attain the goals of economic construction set forth by the Party, the report said.

It clarified that we face heavy yet responsible tasks to unconditionally and thoroughly carry out the economic construction tasks set forth at the 5th Plenary Meeting of the 7th Central Committee of the WPK under the uplifted slogan “Let’s Break through Head-on All Barriers to Our Advance!”

It went on:

The Cabinet will put a main emphasis on organizing the economic work on the principle of subordinating everything to the health and safety of the people, conducting courageous head-on breakthrough in the spirit of achieving prosperity by dint of self-reliance, and fully meeting the needs for the national economy and for the people’s living by readjusting the economic foundation of the country and by fully tapping the production potential, in order to thoroughly carry out the tasks set forth in the joint resolution of the WPK Central Committee, State Affairs Commission and the Cabinet.

The Cabinet will rationally readjust the economic work system and order and boost its role as the organizer of the state economy.

It will put efforts into holding full control of the resources and fund sources of the state, and securing financial ability and execution power capable of managing and operating the country’s economy in a unified manner.

There are some key phrases below as well, but these two paragraphs are especially noteworthy. The message seems fairly clear that the state’s role in the economy needs to get stronger, and that while independent management methods may certainly be encouraged, the state is in charge. This message is familiar from Kim Jong-un’s December CC Plenum speech.

It will establish a strict discipline for the state development and use of the underground natural resources that are of strategic significance in the state economic development, and also take strong measures to protect and multiply aquatic resources.

It will bring about innovation in the work system, order and method on the principle of ensuring smooth transaction in the overall trade, and thoroughly guarantee the economic benefits of the country through the application of strict discipline and order in the import and export.

Perhaps both a reference to easing some rules and regulations for trade, while also combatting the rampant trade deficit?

[…]

The coal industrial sector will fully meet the demand for coal from several fields of the national economy including electricity, metal and chemical industries.

Note the absence here of any reference to coal exports.

[..]

The light industrial field will expand the variety of daily necessities and boost their quality. It, regarding the local production of raw and other materials as the lifeline, will rely on the locally available raw and other materials as much as possible for the production of consumer goods, put efforts into the development of local industry and contribute to the improvement of people’s standard of living.

Making consumer goods production and supply more local, and less reliant on imports, has been one of the chief goals through Kim Jong-un’s tenure. Judging by, for example, this recent report about consumer choice in kitchen items, it seems to be going quite well.

The Cabinet, corresponding to its position and duty as the economic command, will ensure the definite provision of unified operation and command for implementing the economic policies of the Party, and guarantee the meticulous economic organization and persevering practices and thus fulfill its responsibility and duty in glorifying this year marking the 75th founding anniversary of the Party as a year of victory to be specially recorded in the history of the country, the report stressed.

The report ends with one final emphasis on the Cabinet, and thus, the state, and not grassroots, independent actors, as the main holders of power in the economic realm. “The economic command” is about as clear of an expression as you could imagine. This doesn’t necessarily mean that the state will try to curb the market system anytime soon, but it will continue to subvert market forces into its own institutions where they can be more easily controlled and generate cash to the state.

The above is just a brief overview and quick read of the budget report. For more on the proportions and overall economic conditions that the report speaks of, check out Ruediger Frank’s recent 38 North article on the SPA session as a whole.

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Politburo meets, but SPA postponed (till following Sunday)

Sunday, April 12th, 2020

Benjamin Katzeff Silberstein

The SPA was expected to meet this past Friday. It didn’t. (Update 13/4/: it instead met on the following Sunday.) Instead, the politburo held a meeting to discuss measures the SPA would be adopting. There were scant but clear references to economic affairs (highlighted below), though the KCNA report is very vague. NK News suggests the SPA may instead convene Monday.

It adopted the joint resolution of the Central Committee of the WPK, the State Affairs Commission of the DPRK and the Cabinet of the DPRK “On more thoroughly taking national measures for protecting the life and safety of our people from the worldwide epidemic disease”.

The joint resolution detailed the goals of continuously intensifying the nationwide emergency anti-epidemic services and pushing ahead with the economic construction, increasing national defence capability and stabilizing the people’s livelihood this year, and indicated the tasks facing every field and every unit including Party and government organs and working people’s organizations and armed forces organs and ways of carrying them out.

It studied and approved “On the execution of the state budget for Juche 108 (2019) and the state budget for Juche 109 (2020)”, the second agenda which is to be presented to the Third Session of the 14th Supreme People’s Assembly.

(Source: Political Bureau of C.C., WPK Meets under Guidance of Supreme Leader Kim Jong Un, Korean Central News Agency,” 12/4/2020.)

Update 13/4/2020: the SPA was held on Sunday instead. KCNA:

The third Session of the 14th Supreme People’s Assembly (SPA) of the Democratic People’s Republic of Korea (DPRK) was held at the Mansudae Assembly Hall on Sunday.

The SPA deputies attended the session.

Seen on the platform were Choe Ryong Hae, member of the Presidium of the Political Bureau of the Central Committee of the Workers’ Party of Korea (WPK), first vice-chairman of the State Affairs Commission (SAC) of the DPRK and president of the Presidium of the SPA, and Pak Pong Ju, member of the Presidium of the Political Bureau of the WPK Central Committee, vice-chairman of the SAC of the DPRK and vice-chairman of the WPK Central Committee.

Also seen there was Kim Jae Ryong, member of the Political Bureau of the WPK Central Committee, member of the SAC of the DPRK and premier of the Cabinet.

The platform was also taken by Ri Il Hwan, Choe Hwi, Ri Pyong Chol, Kim Tok Hun, Kim Yong Chol and members of the SAC of the DPRK and the Presidium of the SPA.

The chairman and vice-chairpersons of the SPA took their seats.

The opening address was made by Chairman Pak Thae Song.

The agenda items of the Third Session of the 14th SPA of the DPRK were decided at the session:

1. On adoption of the law of the DPRK on recycling resources

2. On adoption of the law of the DPRK on tele-education

3. On adoption of the law of the DPRK on providing living conditions for discharged officers

4. On the work of the Cabinet of the DPRK for Juche 108 (2019) and its tasks of Juche 109 (2020)

5. On implementation of the state budget for Juche 108 (2019) and the state budget for Juche 109 (2020).

6. Organizational matter.

The first, second and third agenda items were discussed at the session.

Deputy Thae Hyong Chol, vice-president of the Presidium of the SPA, made a report on the three agenda items.

He referred to the importance and significance of the laws to be discussed and adopted at the session, and explained the chapters of the laws.

He laid the adoption of the three laws before the SPA.

Ordinance of the SPA of the DPRK “On adoption of the law of the DPRK on recycling resources “, “On adoption of the law of the DPRK on tele-education” and “On adoption of the law of the DPRK on providing living conditions for discharged officers” were adopted with unanimous approbation at the session.

There was a discussion on the basis of an in-depth study of the reports on the fourth and the fifth agenda items.

The speakers said that the work of the Cabinet and the execution of the state budget for last year were correctly summed up, and that the tasks of the Cabinet for this year were clearly set and the state budget was properly worked out in the direction of implementing the decisions adopted at the 5th Plenary Meeting of the 7th Central Committee of the WPK and the joint resolution adopted at the Meeting of the Political Bureau of the WPK Central Committee. They voiced full support and approval.

In their speeches they analyzed and reviewed the successes, experience, mistakes and lessons in the work of their fields and units last year and referred to the methods of opening a broad avenue to the socialist construction and propping up the self-supporting economic power.

There adopted decision of the SPA of the DPRK “Report on the work of the Cabinet of the DPRK and on approving the implementation of the state budget for Juche 108 (2019)” and ordinance of the SPA of the DPRK “On state budget of the DPRK for Juche 109 (2020)”.

The session discussed the sixth agenda item.

At the request of Deputy Choe Ryong Hae, first vice-chairman of the SAC and president of the Presidium of the SPA upon authorization of the Chairman of the State Affairs Commission of the DPRK, Deputy Choe Pu Il and Deputy No Kwang Chol were recalled from the membership of the SAC.

Also recalled were Ri Su Yong, Thae Jong Su and Ri Yong Ho.

Deputies Ri Pyong Chol, Kim Hyong Jun, Kim Jong Gwan, Ri Son Gwon and Kim Jong Ho were by-elected as members of the SAC.

Upon authorization of the Political Bureau of the WPK Central Committee, Deputy Ko Kil Son was by-elected as the secretary general of the Presidium of the SPA and Deputy Kim Yong Hwan as a member of the Presidium of the SPA.

Members of the Cabinet were newly appointed.

Upon authorization of the WPK Central Committee, Deputy Yang Sung Ho was appointed as vice-premier, Deputy Kim Chol Su as minister of Natural Resources Development, Kim Jong Nam as minister of Machine-building Industry, and Ri Song Hak as minister of Light Industry.

Chairmen of the Subcommittees of the SPA were recalled and by-elected.

Deputy Kim Jong Ho was by-elected as chairman of the Legislation Committee of the SPA, Deputy Kim Tok Hun as chairman of the Budget Committee and Deputy Kim Hyong Jun as chairman of the Foreign Affairs Committee.

Chairman Pak Thae Song made a closing address.

(Source: “Third Session of 14th SPA of DPRK Held,” Korean Central News Agency, 13/4/2020.)

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North Korea needs to counter the economic impacts of COVID19, but what can it really do?

Friday, April 10th, 2020

By: Benjamin Katzeff Silberstein

Many countries are adopting stimulus measures to counter the economic impacts of the drastic economic slowdown resulting from measures to counter the COVID19 outbreak. North Korea, too, badly needs to counter the likely devastating impacts of its border shutdown to China, but it has no funds to adopt measures even nearly comparable to ordinary stimulus measures. As Yonhap speculates here, the Supreme People’s Assembly today (Friday April 10th) are scheduled to meet and may announce policies to counter the economic impacts, but it’s unclear what they can really do:

North Korea’s rubber-stamp legislature was to hold a once-or-twice-a-year session on Friday, with economic and public health issues expected to take center stage amid its ongoing fight against the novel coronavirus.

The Supreme People’s Assembly (SPA) usually meets in April every year to address the state budget and Cabinet reshuffling, but it has been closely watched from outside for any glimpse into the reclusive state’s stance on foreign affairs, including its stance on denuclearization talks with the United States.

Friday’s meeting, however, is expected to center on discussions of major domestic issues, given that Pyongyang has been making all-out efforts to block the outbreak of COVID-19 on its soil.

North Korea is among just a few countries in the world that claim to have no coronavirus infections, generating speculation that it might be hushing up an outbreak.

Pyongyang has tightened control of its borders with China, where the coronavirus originated in late December. It has also toughened quarantine criteria and restricted the movement of people and goods.

In particular, the border closure with China could weigh on its already moribund economy long crippled by global sanctions, as it depends heavily on the neighboring ally for its trade.

It is unclear whether leader Kim Jong-un will attend the SPA meeting. Observers say that he is unlikely to be present as he was not among deputies elected in March last year to the parliament.

Kim attended last year’s meeting to give a policy speech at the session.

Earlier in the day, state media reported that Kim has supervised a mortar firing drill. It did not provide details on when and where the drill took place, but such military activity is usually reported a day after it happened.

But there have been no state media reports on a politburo and a plenary meeting of the ruling Workers’ Party, which used to be held with Kim in attendance ahead of an SPA session.

Experts say that the North could announce an increase in its budget to improve public health infrastructure and unveil measures aimed at cushioning the impact of its anti-virus campaign on its economy during the SPA meeting.

(Source: “N. Korea set to hold parliamentary meeting amid nationwide virus fight,” Yonhap News, April 10th, 2020.)

The North Korean government doesn’t entirely lack resources, but it doesn’t have the sort of budgetary flexibility that a government needs to launch serious stimulus programs. It could theoretically ease up on restrictions on economic activity, such as decrease fees for market traders (markets are themselves problematic given the risk of the virus spreading there), ease up on permit regimes for various sorts of economic activity, lower mandatory fees and taxes, and the like. This is unlikely to happen, since the state itself already faces serious economic woes, and local-level government institutions likely will not be content with having a crucial source of income curtailed. More to follow after the SPA meeting results are announced.

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North Korean public health expert claims zero coronavirus cases

Thursday, April 2nd, 2020

Benjamin Katzeff Silberstein

In an interview with Kyodo earlier this year:

Pak Myong Su, president of North Korea’s State Hygienic Control Board, made the remark in an interview with Kyodo News and other foreign media outlets.

“If such a virus spreads in our country with a small population and a small territory, a serious disaster could not be avoided, in which thousands or tens of thousands of people are deprived of their lives,” Pak said in Pyongyang.

In mid-March, Gen. Robert Abrams, the commander of U.S. forces in South Korea, said at a press conference that North Korea “is a closed-off nation, so we can’t say emphatically that they have cases, but we’re fairly certain they do.”

South Korean media have also reported that many North Koreans have died from the pneumonia-causing virus currently sweeping the world.

Late last month, Japanese Foreign Minister Toshimitsu Motegi told reporters in Tokyo, “If there is no infected person in North Korea, which is contiguous with China and South Korea, it is extremely miraculous.”

Pak stressed that North Korea has stepped up measures to prevent a coronavirus outbreak, including cutting off traffic to and from China and Russia since earlier this year.

He added that citizens have been urged by the country’s health authorities to wear masks when they go outside.

(Source: “N. Korea has no infected people with new coronavirus: expert,” Mainichi/Kyodo, April 2nd, 2020.)

I’ve written here about why this is extremely unlikely to be true, bordering on the impossible.

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Musan mine at less than half capacity due to coronavirus measures

Friday, March 13th, 2020

By: Benjamin Katzeff Silberstein

The Musan mine, already (at least periodically) hit hard by sanctions, now operates at below half capacity, according to Daily NK. Despite the UN sanctions prohibiting countries from importing North Korean mining products, the Musan mine has kept up a certain level of production (after experiencing severe difficulties under harsher Chinese sanctions implementation), exporting mining products to the Chinese Sanhe region. But now with North Korea itself enforcing a virtual border shutdown, exports, too, have stopped:

“The Musan Mine is operated at less than 50% of capacity,” a North Hamgyong Province-based source told Daily NK on Wednesday. “Only two of the five mining areas in the complex are operating at full capacity. The shutdown of the border with China has led to slowdowns in drilling and ‘ore dressing’ [mechanically separating grains of ore minerals from gangue minerals – mineral processing].”

North Korea closed its border to China at the end of January to prevent the spread of COVID-19. The move reportedly ended all smuggling operations along the border and also impacted operations at the Musan Mine, which is located in North Hamgyong Province.

North Korea has been banned from exporting minerals since the United Nations Security Council adopted Resolution 2397 in 2017. The regime, however, has continued to earn large amounts of foreign currency from the sale of iron ore produced in Musan Mine. Daily NK reported in late 2018 [in Korean] that iron ore from Musan Mine was being smuggled to China’s Sanhe region after passing through Hoeryeong.

North Korea and China reportedly ended their joint production of iron ore at the mine following the coronavirus outbreak. Musan Mine now only produces iron ore for domestic consumption, Daily NK sources said.

BLASTING TO MORE PRODUCTION

Rodong Sinmun reported recently that Musan Mine blasted through 400,000 tons of earth on Jan. 2 at Cholsan Peak. Daily NK sources reported that this at expanding production have largely failed because of the lack of equipment and logistics issues.

The Rodong Sinmun claimed that the blasting had been successful and that expansion of production would enable the complex to produce more iron ore. The newspaper also stated that all necessary equipment was acquired and prepared “without issue” and transported to the mine “on time.”

(Source: “Sources: Musan Mine operating at less than half of full capacity,” Daily NK, 3/13/2020, https://www.dailynk.com/english/musan-mine-operating-less-than-half-full-capacity/.)

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