Archive for the ‘Economic reform’ Category

The Pyongyang General Hospital and Kim Jong Un’s “Benevolent Dictator” Economics

Tuesday, July 21st, 2020

By: Benjamin Katzeff Silberstein 

On Monday (July 20th), Kim Jong Un visited the construction site for the Pyongyang General Hospital and unleashed some rather scathing criticism against the management of the project. An excerpt from KCNA:

Noting that it is making a serious digression from the Party’s policy in supplying equipment and materials to go against the intention of the Party which initiated the construction for the people and mapped out its operation, he severely rebuked it for burdening the people by encouraging all kinds of “assistance”.

Saying that the construction coordination commission failed to solve all the problems in conformity with the Party’s policy line, he said in the strong terms that if such situation is left to go on, the noble plan and intention of the Party which initiated the glorious and worthwhile construction for the good of the people could be distorted and the image of the Party be tarnished.

He instructed the relevant departments of the Party Central Committee to investigate the performance of the construction coordination commission as a whole and replace all the officials responsible and make strict referral of them.

Pointing out that though the construction work of the hospital was being pushed ahead thanks to the patriotic zeal and devoted efforts of the builders […].

(Source: “Supreme Leader Kim Jong Un Gives Field Guidance to Pyongyang General Hospital under Construction,” Korean Central News Agency, July 20th, 2020.)

The Pyongyang General Hospital project was destined for hurdles from the very beginning, as this article explores. Kim has personally emphasized how central it is to finish hospital construction by the deadline of October 10th this year, when the Korean Worker’s Party will celebrate its 75th anniversary.

With such time pressure for construction, worksite conditions were always going to be problematic. The politically motivated deadline, moreover, increases the risk of shoddy construction work. Rather than serve the general public at large, the hospital, whenever finished, is likelier to cater to the sociopolitical elite who can pay their way and, perhaps, to medical tourism.

Kim’s criticism against construction officials, however, is about much more than the hospital construction project itself. It relates to the very structure of the North Korean system, and of communist economies in general. This sort of criticism really is a standard performance in a decades-old genre, where the supreme leader shows himself to be on the side of the people by pinning the blame for any problems and suffering among the population on lower-ranking officials.

Kim’s public criticism of the construction management officials is, in other words, not exceptional, but a standard mechanism and a feature of North Korea’s economic system. Much in North Korean governance may be subject to dynamic change, but the one constant is that the leader can hardly ever be at fault.* To hold this constant, someone else must be blamed when economic plans don’t go the way they should. Never mind that the leader often rules by directives that are often vague and given in off-the-cuff-statements, left to subordinates to interpret and implement as best as they can. Problems like this are almost inevitable in an economy like North Korea’s, still in structure very much a command economy despite significant relaxations over the past few decades.

Thus, when the Soviet Union’s industrialization plan didn’t proceed as intended, it had to be the fault of wreckers working for foreign powers. Stalin himself could never be at fault. In the same way, it cannot, by definition, be Kim’s fault that people are overburdened with requests for “assistance” to help build the hospital. Lower-level bureaucrats have to be the ones to blame, for overburdening the people, because the leader can never be associated with direct pain and suffering in people’s daily lives.

In fact, such “assistance” – often termed “voluntary” – is a mainstay of the North Korean economic system and pretty much has been ever since the beginning. Kim surely cannot have missed the pictures and news reports in his own state media about “active support” from “the people”, and different localities sending construction materials. This sort of “voluntary labor” to gather materials for state projects or work on construction sites is of course not voluntary at all, as staying away would be punishable.

It is a facet of everyday life in North Korea that doesn’t get nearly the attention it deserves, as it often takes up a substantial number of hours. It is also not a new phenomena. The North Korean state has always demanded such “voluntary” contributions from the people to make up for materials and labor that the state cannot produce. Naturally, officials will use whatever means required to make their deliveries, even if these means are forcible. This applies to financial assets as well. The wealthier the trading middle class grows, the more the state will subject them to loyalty payments and the like.

In North Korea’s current situation, what choice does Kim really have but to blame lower officials for failures, and admonish them to do better? The Pyongyang General Hospital is not the only grandiose, heavily publicized project that is doing poorly. The Wonsan-Kalma resort has also been plagued by shortages and delays. The government needs these projects not least for propaganda value, to show to the country that although difficulties abound, all is not hopeless, the economy is still making progress, and people’s living standards will improve. So when none of the projects carrying this message are working out, the government has a problem.

In normal times, the state could have dismantled more economic regulations to make it easier for people to conduct trade and private economic activity. Indeed, though it is difficult to quantify, the state giving room for market mechanisms has been the most important factor for the significant improvements in the North Korean economy over the past few years.

Right now, this is difficult to do, because the state needs to extract more resources, not fewer. Over the past few years, the state has grown increasingly short of foreign currency and other assets, first because of sanctions, and later because of the Covid-19 border shutdown (which has partially ended). As a result, we’ve seen the state cracking down more and more on private business and market actors, to bring in resources as other avenues dry up.

The more difficult things get for the North Korean economy, the more demands increase for “loyalty payments” from private citizens, to fund the mega-projects that Kim has staked so much credibility on. We can expect to see more officials lose their jobs in the future in the same manner as those who got axed after Kim’s hospital construction field guidance.

 

*Such self-criticism does of course happen, but its rarity is attested to by the fact that it (rightfully) makes news headlines. One recent example is Kim Jong Un’s 2017 New Year’s Address.

 

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What explains North Korea’s puzzling price stability?

Friday, July 17th, 2020

By Benjamin Katzeff Silberstein

Looking at the latest market price data from North Korea, things do not look like external conditions dictate that they should. Food prices are…low. Very low. In fact, for the July 1st price report, the average rice price for the three North Korean cities was the lowest on record since April 2019. Gasoline prices haven’t been this low since June of 2018. (Click for larger graphs.)

Average rice prices for Pyongyang, Sinuiju, and Hyesan. Data source: Daily NK.

Average gas prices for Pyongyang, Sinuiju, and Hyesan. Data source: Daily NK.

 

By themselves, these prices are not so surprising. Prices generally fluctuate with seasonal variation, in North Korea as everywhere else. Both gas and rice prices tend to drop around this time of year, at least over the past few years.

But there is nothing normal about 2020. In addition to harsh sanctions, Covid-19 has made almost everything more difficult to acquire from abroad, from fertilizer and food, to machine parts for industry. So these lower prices are puzzling, in a way because they would seem to indicate stability and normalcy at a time when there is nothing stabile and normal about the situation.

There are (at least) two possible explanations:

One is that North Korea’s external conditions are indeed steadily improving, and returning to some sort of normalcy. Strong signs suggest that trade between North Korea and China is picking back up, as relations deteriorate between the US and China and the North Korean issue becomes less and less central on the global stage. As Daily NK has reported, North Korea has been importing items such as construction materials and food from China, both in June and July. Gas prices, moreover, may partially be untouched by Covid-19 because much of the trade goes through a pipeline near Dandong.

Another possibility is that prices are going down because people simply cannot afford higher prices. This report on train ticket prices is perhaps instructive. In the words of one source inside North Korea: “Despite the fall in the number of train passengers, [black market vendors] seem to believe that raising prices would [make it harder to sell tickets],” the source said. “In other words, you could say that a ‘market price’ [for tickets] has appeared that train riders are willing to accept.” In other words, if consumers on a given market have a reservation prices – the highest price they’re willing to pay – underneath what sellers would really charge given the supply at hand, sellers can either cut down on their profit or minimize their losses by selling at a lower prices than those dictated by economic conditions.

As always, information is in short supply, and these market prices raise more questions than they answer.

Update, 23/7/2020:

Part of what’s so puzzling about all this is that reports keep suggesting that the regime is cracking down continuously and with growing vigor against cross-border smuggling and the like. According to this report by Daily NK, Pyongyang recently ordered provincial authorities to intensify their border monitoring.

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North Korea promoting Mt Kumgang tourism

Thursday, July 16th, 2020

By: Benjamin Katzeff Silberstein

Clearly, now is not the best time for tourism promotion. One might wonder what target audience is for the North Korean promotion website for tourism to Mt Kumgang. The website itself isn’t new, but as Yonhap/Korea Herald reports here, it’s recently been updated for the first time in a while. The update of a website perhaps isn’t the most riveting piece of news, but at the very least, it means that someone in some office in North Korea took time out of their day to keep this website maintained and updated with new pictures.

Even in non-Covid times, however, the success of Mt Kumgang under fully North Korean management is doubtful. Without cooperation with foreign partners, Mt Kumgang may meet the same fate as Masikryong, not exactly overcrowded with foreign visitors even before Covid hit. As I wrote in this column when North Korea confiscated Mt Kumgang, the success of the resort likely hinges upon South Korean and Japanese visitors coming in addition to tourists from China.

You can find the North Korean website in question here.

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Autarky, self-reliance and urban privilege in Kim Jong-un’s June politburo remarks

Monday, June 8th, 2020

By: Benjamin Katzeff Silberstein

On Monday June 8th, the Korean Worker’s Party politburo held a meeting. Kim Jong-un made several interesting remarks about the overall state of the economy, as Reuters reported here. The full Rodong Sinmun recounting of Kim’s statements is interesting and worth reading in its entirety. More and more state rhetoric seems to presume autarky as the default approach for economic development which is somewhat worrying, but perhaps just a reflection of where the country’s economic conditions stand as of now.

It’s also interesting to note Kim’s mention of the situation specifically in Pyongyang. Perhaps he means to signal to the political elites that he is looking out for their interests and quality of life, and that things will improve. What that means for the rest of the country is less clear. Pyongyang is symbolically important, but the growing disparity between the capital city and the rest of the country should concern the government.

Rodong’s rendition below, in both the original Korean and an English translation.

Political Bureau of C.C., WPK Meets under Guidance of Supreme Leader Kim Jong Un

The 13th Political Bureau meeting of the 7th Central Committee of the Workers’ Party of Korea (WPK) was held on June 6 and 7 at a time when the entire Party, the whole country and all the people have vigorously turned out in the general offensive for glorifying the 75th founding anniversary of the WPK as the great festival of victors true to the great idea and strategy of the Party for making a breakthrough head-on and its action program.

Kim Jong Un, chairman of the WPK, chairman of the State Affairs Commission of the Democratic People’s Republic of Korea and supreme commander of the armed forces of the DPRK, was present in the meeting.

Attending the meeting were members and alternate members of the Political Bureau of the C.C., WPK.

Vice-premiers of the Cabinet, some chairpersons of provincial party committees and leading officials of committees and ministries were there as observers.

Upon authorization of the Political Bureau of the C.C., WPK, Supreme Leader of the Party, state and armed forces Kim Jong Un presided over the meeting.

The meeting discussed in depth some crucial issues arising in further developing the self-sufficient economy of the country and improving the standard of people’s living.

Discussed as the first agenda items were some urgent problems arising in developing the chemical industry of the country in a well-defined framework.

He indicated orientation and way to reconstruct the chemical industry as required by Juche and modernity and put it on a track of sustainable development.

Repeatedly stressing that the chemical industry is the foundation of industry and a major thrust front of the national economy, he recollected that the Party, regarding the chemical and metallurgical industries as twin pillars of the self-supporting economy, set forth the policy of founding the C1 chemical industry to suit to the specific conditions of the country and to meet the world’s trend at its Seventh Congress and has since pushed forward with the work.

Recalling that the Fifth Plenary Meeting of the Seventh Central Committee of the Workers’ Party of Korea discussed the issues of establishing the C1 chemical industry and of building the fertilizer production capacity as core points in developing the chemical industry, the Supreme Leader clarified the plan and will of waging a bold struggle to put the overall chemical industry on a Juche and modern basis.

The premier of the Cabinet made a report on the review by the scientific group of the scientific and technical guarantee and economic efficiency of founding C1 chemical industry, and the present situation of the chemical industry.

The meeting heard suggestions on earlier completion of founding C1 chemical industry and had in-depth discussion of issues of opening a broad avenue to the development of chemical industry.

The chemical industrial field has to be activated first to propel and guarantee the economic development of the country, the Supreme Leader said, setting forth immediate tasks for propping up the chemical industry as a whole.

He stressed the need to give top priority to increasing the capacity for producing fertilizer, to begin with, in the chemical industrial field and push forward this work and put particular emphasis on promptly settling scientific and technological issues of founding potassic fertilizer industry based on our own raw materials.

Indicating orientation and immediate goal for energizing existent chemical factories, the Supreme Leader pointed out the need to conduct in a far-sighted way the work to explore chemical industrial field based on new raw materials.

He underlined the need to actively propel the work to perfect and update in a modern way the structure of sectors of the chemical industry.

He clarified that the new structure of sectors of Juche-based chemical industry should be multi-lateral production system, which is saving energy, labor and natural resources and which is technology-intensive and development-and-creation-oriented, that produces nonstop all kinds of chemical goods enough to meet demand thoroughly based on locally available raw and other materials.

He called for building reliable national level scientific research force, actively pushing forward the development of catalyst and laying a material foundation for developing catalyst technology, catalyst industry.

He stressed the importance to carry out substantial work to build talent force in chemical industrial field and to bring up a greater number of talents of practical type who are development-and-creation-oriented in the field of education.

As the second agenda item the meeting discussed immediate issues of ensuring living conditions for citizens in the capital city.

Pointing out in detail the issues that have to be urgently settled to ensure living conditions of citizens in the city, the Supreme Leader stressed to take strong state measures for ensuring the living conditions of people including the construction of dwelling houses.

Important issues for settling issues arising as regards the living conditions of Pyongyang citizens were discussed at the meeting.

A resolution on the first and second agenda items was adopted with full approval at the meeting.

As the third agenda item, the meeting examined before ratification the suggestion on modifying some rule-related matters arising in the present party work and reflecting them in a draft amendment to the party rules.

The fourth agenda item was an organizational matter.

There was a by-election of an alternate member of the Political Bureau of the WPK Central Committee. Kim Yong Hwan was by-elected as an alternate member of the Political Bureau of the WPK Central Committee.

Members and alternate members of the WPK Central Committee were recalled and elected to fill vacancies. Ko Kil Son, Kim Jong Nam, Song Yong Gon were by-elected as members from alternate members while Ri Jae Nam, Kwon Thae Yong and Kwon Yong Jin as members of the WPK Central Committee.

Rim Yong Chol, Kang Il Sop, Sin In Yong, Ri Kyong Chon, Kim Ju Sam, Kim Jong Chol, Choe Kwang Jun, Yang Myong Chol, Kim Yong Chol, Pak Man Ho were by-elected as alternate members of the WPK Central Committee.

The 13th Political Bureau meeting of the 7th Central Committee of the WPK marked an important occasion in further consolidating the foundation and potential of the self-supporting national economy, giving top priority to the people’s dignity, rights and interests under the uplifted banner of people-first principle and opening up a broad avenue to improving the standard of people’s living to meet the requirements of the prevailing situation of the revolution.

(Source: Political News Team, “Political Bureau of C.C., WPK Meets under Guidance of Supreme Leader Kim Jong Un,” Rodong Sinmun, June 8th, 2020.)

조선로동당 중앙위원회 제7기 제13차 정치국회의 진행

우리 당의 위대한 정면돌파사상과 전략, 실천강령을 높이 받들고 당창건 75돐을 승리자의 대축전으로 빛내이기 위한 전당적, 전국가적, 전인민적총진군의 불길이 세차게 타번지고있는 속에서 조선로동당 중앙위원회 제7기 제13차 정치국회의가 6월 7일에 진행되였다.

조선로동당 위원장이시며 조선민주주의인민공화국 국무위원회 위원장이시며 조선민주주의인민공화국무력 최고사령관이신 우리 당과 국가, 무력의 최고령도자 김정은동지께서 정치국회의에 참가하시였다.

정치국회의에는 조선로동당 중앙위원회 정치국 위원, 후보위원들이 참가하였다.

내각부총리들과 일부 도당위원장들, 위원회, 성 책임일군들이 방청으로 참가하였다.

당중앙위원회 정치국의 위임에 따라 김정은동지께서 회의를 사회하시였다.

정치국회의에서는 나라의 자립경제를 더욱 발전시키며 인민들의 생활을 향상시키는데서 나서는 일련의 중대한 문제들이 심도있게 토의되였다.

첫째의정으로 나라의 화학공업을 전망성있게 발전시키는데서 나서는 당면한 몇가지 문제에 대하여 토의하였다.

경애하는 최고령도자동지께서는 화학공업의 구조를 주체화, 현대화의 요구에 맞게 개조하고 지속적인 발전궤도에 올려세우기 위한 방향과 방도를 밝혀주시였다.

경애하는 최고령도자동지께서는 화학공업은 공업의 기초이고 인민경제의 주타격전선이라고 거듭 강조하시면서 우리 당이 화학공업을 금속공업과 함께 자립경제의 쌍기둥으로 내세우고 당 제7차대회에서 우리 나라의 실정과 세계적추세에 맞게 탄소하나화학공업을 창설할데 대한 방침을 제시한 후 그 사업을 본격화하여온데 대하여 말씀하시였다.

경애하는 최고령도자동지께서는 당중앙위원회 제7기 제5차전원회의에서 화학공업발전의 핵심사항으로 탄소하나화학공업창설과 비료생산능력조성문제를 취급한데 대하여 언급하시면서 화학공업전반의 주체화, 현대화를 실현하기 위한 투쟁을 통이 크게 벌려나갈 구상과 의지를 표명하시였다.

회의에서는 내각총리가 탄소하나화학공업창설의 과학기술적담보와 경제적효과성을 재검토심의한 과학그루빠의 사업정형과 화학공업부문의 현 실태에 대한 보고를 하였다.

회의에서는 탄소하나화학공업창설을 다그쳐 끝내기 위한 의견들을 청취하고 화학공업발전의 새 활로를 열어놓기 위한 문제들을 진지하게 협의하였다.

경애하는 최고령도자동지께서는 나라의 경제발전을 추동하고 담보하기 위해서는 화학공업부문이 먼저 들고일어나야 한다고 하시면서 화학공업전반을 추켜세우기 위한 당면과업들을 제시하시였다.

경애하는 최고령도자동지께서는 화학공업부문에서 무엇보다도 비료생산능력을 늘이기 위한 사업을 최우선적인 문제로 보고 대하며 이 사업을 강하게 밀고나갈데 대하여서와 우리의 원료에 의거한 카리비료공업을 창설하는데서 나서는 과학기술적문제들을 시급히 해결할데 대하여 특별히 강조하시였다.

경애하는 최고령도자동지께서는 현존화학공장들을 활성화하기 위한 방향과 당면목표를 제시하시고 새로운 원료에 의거하는 화학공업분야를 개척하기 위한 사업도 전망성있게 벌려나갈데 대하여 지적하시였다.

경애하는 최고령도자동지께서는 화학공업의 부문구조를 완비하고 현대적으로 개건하기 위한 사업을 적극 추진할데 대하여 강조하시였다.

경애하는 최고령도자동지께서는 국내원료와 자재에 철저히 의거하여 각종 화학제품들을 수요대로 중단없이 생산해내는 에네르기절약형, 로력절약형, 자원절약형, 기술집약형, 개발창조형의 다방면적인 생산체계를 갖추는것이 주체화된 화학공업의 새 부문구조로 되여야 한다고 천명하시였다.

경애하는 최고령도자동지께서는 국가적인 과학연구력량을 튼튼히 꾸리고 탄소하나화학공업에 쓰이는 촉매개발을 적극 다그치면서 촉매기술, 촉매공업을 발전시키기 위한 물질적토대를 갖출데 대하여 지적하시였다.

경애하는 최고령도자동지께서는 화학공업부문의 인재력량을 꾸리기 위한 사업을 착실히 해나가며 교육부문에서 개발창조형의 인재, 실천형의 인재들을 더 많이 키워낼데 대하여 말씀하시였다.

정치국회의에서는 둘째의정으로 수도시민들의 생활보장에서 나서는 당면한 문제들이 토의되였다.

경애하는 최고령도자동지께서는 수도시민들의 생활보장에서 시급히 해결해야 할 문제들을 구체적으로 지적하시면서 살림집건설을 비롯한 인민생활보장과 관련한 국가적인 대책을 강하게 세울데 대하여 강조하시였다.

회의에서는 평양시민들의 생활에서 제기되는 문제들을 풀기 위한 중요문제들이 토의되였다.

정치국회의에서는 첫째의정과 둘째의정에 대한 결정서가 전원일치로 채택되였다.

정치국회의에서는 셋째의정으로 현행당사업에서 제기되는 일련의 규약상문제들을 일부 수정하고 당규약개정안에 반영할데 대한 의견을 심의비준하였다.

정치국회의에서는 넷째의정으로 조직문제를 토의하였다.

당중앙위원회 정치국 후보위원을 보선하였다.

김영환동지를 당중앙위원회 정치국 후보위원으로 보선하였다.

당중앙위원회 위원, 후보위원들을 소환 및 보선하였다.

고길선동지, 김정남동지, 송영건동지를 당중앙위원회 후보위원에서 위원으로, 리재남동지, 권태영동지, 권영진동지를 당중앙위원회 위원으로 보선하였다.

림영철동지, 강일섭동지, 신인영동지, 리경천동지, 김주삼동지, 김정철동지, 최광준동지, 양명철동지, 김영철동지, 박만호동지를 당중앙위원회 후보위원으로 보선하였다.

조선로동당 중앙위원회 제7기 제13차 정치국회의는 조성된 혁명정세의 요구에 맞게 자립경제의 토대와 잠재력을 더욱 튼튼히 다지며 인민대중제일주의의 기치높이 인민의 존엄과 권익을 최우선, 절대시하고 인민생활향상의 활로를 열어나가는데서 중요한 계기로 된다.

(Source: Ponsajŏngch’ibodoban, “Chosŏllodongdang Chungangwiwŏnhoe Che7ki che13ch’a Chŏngch’igukhoeŭi Chinhaeng,” Rodong Sinmun, June 8th, 2020.)

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North Korea’s government bonds, and other economic coercion

Tuesday, May 19th, 2020

By: Benjamin Katzeff Silberstein 

For long, one of the main mysteries of the North Korean economy was how the government managed to keep the economy afloat despite what seemed, for a long time, like fairly stern sanctions implementation by China. North Korea’s market prices for both food and foreign currency remained largely stabile, while price for products such as gas perhaps at times were more volatile than normal, but still not at crisis levels. One of the most puzzling facts was that there were very few signs that state finances were hurting, although by all metrics, they should.

There are several reasons why they most likely did, quite severely, although it wouldn’t necessarily show up in market price data. Perhaps the state sector and marketized sectors are not as closely intertwined as many have thought, or perhaps the government was conducting stabilizing measures that somehow actually worked, either by coercion or market interventions.

The recent news that the government has issued bonds, however, is one of the more concrete signs of significant distress in North Korea’s state finances. In mid-April, Daily NK reported that the government would issue public bonds for the first time in 17 years, partially to finance construction of the Pyongyang General Hospital by ordering institutions involved in the project to pay subcontractors in bonds. A few days later, Daily NK confirmed that bonds had been issued, and that they would be used instead of cash to pay factories for materials necessary for state projects and the like. 40 percent of the bonds would be sold to individuals and 60 to enterprises. Sources that Daily NK spoke to were critical – unsurprisingly – and said that the measure was part of a general drive by the regime to soak up desperately needed cash, and not least foreign currency:

“The government failed to raise the funds it needed when it last floated bonds back in 2003,” another source in the country told Daily NK.

“The government is returning to this already failed way of doing things and only factories and business people will suffer,” he added.

Factories are being pressured to purchase the bonds and donju may face legal punishment or damage to their businesses if they fail to buy the bonds, Daily NK sources warned.

In response to the plan to float public bonds, high-level regime officials are reportedly starting to hoard US dollars. The Ministry of State Security (MSS), the country’s feared security agency, reportedly mobilized teams on Apr. 17 to crack down on those exchanging North Korean won for foreign currency.

“Money dealers have disappeared after it was made known that the MSS would arrest them for peddling dollars,” the first source told Daily NK.

“Donju in Pyongyang are desperate to buy up dollars but there’s nowhere to buy them,” he added.

(Source: “North Korea has begun issuing public bonds,” Daily NK, 22/4/2020.)

It might be worth pausing here to remember what bond are and why the North Korean government has (reportedly) issued them. Put simply, a bond is a loan that an investor – the entity that purchases the bond – gives to the issuer of the bond. Of course, it is very normal and common for governments to issue bonds. But in the case of North Korea, the problem is that investors have good reasons to have little faith that the state will actually be able to hold up its end of the bargain. In that case, the coercive bond sales essentially entail the state expropriating funds from individuals and institutions. The full details of the conditions of the bonds remain unclear, to the present author’s knowledge.

The danger is that when donju and other North Koreans with means don’t want to purchase bonds, the state may use force and coercion to make them do so even when they don’t see it as being in their economic interest. To many significant market actors, it’s likely already clear that those who refuse to purchase bonds or accept them as payment – if they even have that choice – may run into obstacles in running their businesses in the future. Judging by the reports so far, it seems that any organizations that require state funds to purchase raw materials or supplies now use bonds instead of cash, though it’s hard to imagine that this practice really extends to all such actions. In any case, for all the multitudes of ways in which the North Korean economy has changed over the past few years, the omnipotence and autonomy of the state, when it chooses to exercise it, remains.

When economic actors don’t want to purchase bonds voluntarily, coercion is another route to take. In a country such as North Korea, few economic actions are entirely non-political. Therefore, we should not be all that surprised that an owner of mine shafts near Pyongyang has reportedly been executed for his refusal to buy bonds. Part of the reason for the harsh punishment was his criticism of the state and the Party, but nonetheless, refusing to buy bonds was itself a political action:

The source told Daily NK that the sales department director had called the meeting to echo calls by the government to “spend their dollars and participate in the national public bond purchasing plan.” While the other mine shaft owners quietly listened, Lee reportedly asked the director what would happen if he chose to “not buy any public bonds.”

The sales department director responded that the act would be considered “reactionary” because it would mean refusal to carry out party policy.

Lee responded sarcastically, asking in what way the “state” and the “complex” had helped him build up his mining business. His response led to a war of words between the two men.

“The sales department director immediately reported the events of that day to the complex’s party committee. The committee convened a ‘security committee meeting’ [안전위원회] that ended up reporting Lee to the Ministry of State Security [MSS],” the source said.

Security committee meetings are convened at the provincial, municipal and county levels to discuss and make decisions on urgent matters. Participants typically include the chairman of the relevant party committee, the chairman and vice-chairman of the local people’s committee and management-level security officials.

The MSS did not immediately take action against Lee. It was not until May 6 that agents from the security agency visited the complex, forced all the complex’s workers to gather in the facility’s Laborer Hall, and then arrested Lee in front of them for “verbal reactionism” (말 반동). Lee was charged with “criticizing party policy” and he was immediately executed without trial or any other due process.

(Source: Ha Yoon Ah, “N. Korean businessman executed for refusing to buy gov’t bonds,” Daily NK, May 12th, 2020.)

The state is simultaneously using less coercive means to induce donju to invest in state enterprises. Nonetheless, the government is unlikely to raise the sorts of funds it hopes to through the bonds without serious means of coercion. It’s also not the only recent measure that suggests that the regime is quite seriously short on cash, and foreign currency in particular. Radio Free Asia reported on May 11th that the state has banned the use of foreign currency for most transactions, to force people to exchange their foreign currency for domestic at state institutions.

We don’t know the scale at which measures such as these are being implemented. They are unlikely to work in the longer run and may well be rolled back in time. But still, much damage may be done in the process.

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North Korean businessman executed for refusing to buy bonds

Tuesday, May 12th, 2020

Benjamin Katzeff Silberstein

A very disturbing report from Daily NK. Much of North Korea’s economic governance does still rest on sheer management by brute force and extortion:

The owner of mine shafts in a suburban area of Pyongyang who refused to buy government bonds was recently arrested and quietly executed, Daily NK has learned.

“The owner, a Mr. Lee, was arrested at the Laborer Hall in the Kangdong Area Coal-mining Complex on May 6 and executed soon after,” a source in North Korea told Daily NK on May 7.

DANGEROUS WORDS

In late April, Lee was called to a meeting with other mine shaft owners by the complex’s sales department director. Lee’s open refusal to purchase government bonds at this meeting was reportedly the reason why he was punished so harshly.

North Korea began requiring organizations requiring state funds to purchase raw materials or supplies in the country to use bonds instead of cash from Apr. 20.

The source told Daily NK that the sales department director had called the meeting to echo calls by the government to “spend their dollars and participate in the national public bond purchasing plan.” While the other mine shaft owners quietly listened, Lee reportedly asked the director what would happen if he chose to “not buy any public bonds.”

The sales department director responded that the act would be considered “reactionary” because it would mean refusal to carry out party policy.

Lee responded sarcastically, asking in what way the “state” and the “complex” had helped him build up his mining business. His response led to a war of words between the two men.

“The sales department director immediately reported the events of that day to the complex’s party committee. The committee convened a ‘security committee meeting’ [안전위원회] that ended up reporting Lee to the Ministry of State Security [MSS],” the source said.

Security committee meetings are convened at the provincial, municipal and county levels to discuss and make decisions on urgent matters. Participants typically include the chairman of the relevant party committee, the chairman and vice-chairman of the local people’s committee and management-level security officials.

The MSS did not immediately take action against Lee. It was not until May 6 that agents from the security agency visited the complex, forced all the complex’s workers to gather in the facility’s Laborer Hall, and then arrested Lee in front of them for “verbal reactionism” (말 반동). Lee was charged with “criticizing party policy” and he was immediately executed without trial or any other due process.

SEVERE PUNISHMENT

It is rare in North Korea for such a punishment to be meted out so quickly – and on the same day – as an arrest. North Korean authorities may have aimed to make Lee an example of what happens when business people refuse to take part in party policy.

“[Other] mine shaft owners appear to be accepting the [government’s] plans to have enterprises buy up public bonds, but they are complaining about it nonetheless,” the source said.

The state reportedly seized Lee’s mine shafts along with large cargo trucks Lee purchased with his own money. North Korean authorities also raided Lee’s home and seized his possessions while his wife and two children were sent to a prison camp.

(Source: Ha Yoon Ah, “N. Korean businessman executed for refusing to buy gov’t bonds,” Daily NK, 12/5/2020.)

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“New” bridge between China and North Korea getting a little closer to completion. But what does it really mean?

Tuesday, May 12th, 2020

By: Benjamin Katzeff Silberstein

Another day, some more progress on the so-called “bridge to nowhere”. It’s now been around six years since construction started on the new bridge between North Korea and China, crossing the Yalu river. The currently operational one between Dandong and Sinuiju already (in normal times) operates over capacity, and frequently needs repairs. Last year, in June, Xi Jinping supposedly promised Kim Jong-un funding to finally complete the bridge and to connect it to North Korea’s road networks to make it operational. Recently, work has finally taken off again on the North Korean side to do just that. Dong-a Ilbo:

North Korea resumed the construction of a road on last Sunday, according to multiple sources and photos posted on a Chinese social media platform.

With the help of China’s investment, the six-lane bridge was completed in 2014 as a replacement of the Sino–North Korean Friendship Bridge, an old and narrow bridge built in 1943. The New Yalu River Bridge was expected to boost trade between the two nations.

(Source: Wan-Jun Yun, “New Yalu River Bridge gears up to open six years after its construction,” Dong-a Ilbo, May 4th, 2020.)

The Dong-a headline appears somewhat premature, however, since customs buildings and other essential infrastructure still isn’t built. As Daily NK reports:

The opening of the bridge has long been delayed because North Korea had demanded that China pay for the construction of the North Korean road to the bridge.

While Daily NK has been unable to confirm whether any agreement on the payment issue has been reached, the efforts to complete the road suggest that the two countries have reached some sort of agreement.

There may, however, be obstacles in the way of the bridge opening any time soon.

“Customs-related buildings need to be built even if the road is finished,” the source said.

“The closure of the Sino-North Korean border due to COVID-19 and international sanctions on North Korea make it difficult to know when the bridge will open,” he added.

North Korean authorities are also highly sensitive to the threat of the COVID-19 pandemic despite their moves to restart the road construction.

“Sinuiju residents were practically confined to their homes when COVID-19 posed a clear threat to the city, but the authorities have restarted construction – perhaps because the threat has gone away,” the source said.

“That doesn’t mean, however, that Chinese engineers and materials are entering the country [in quantities] like before,” he added.

A Chinese company had been managing the construction of the North Korean road to the bridge before work was halted. Now the North Koreans have completely taken over the construction process – none of the Chinese workers and their equipment are present at the construction site anymore, the source explained.

The lack of Chinese labor and equipment may be due to the North Korean government’s fears over COVID-19, but the country’s efforts to finish the road suggest that North Korean leaders are keen to use the bridge when Sino-North Korean trade begins again.

(Source: Mun Dong Hui, “N. Korean road connected to New Yalu River Bridge nears completion,” Daily NK, May 11th, 2020.)

There are two quite different ways of looking at these developments. I’d argue the bridge is, despite how things may seem, not a very good metric for the prospects of trade between China and North Korea. Surely, China would not likely invest in a new bridge unless it envisioned growing economic activity along the border. There are good reasons to believe that this is indeed the case, and that these border regions in particular regard North Korea as a driver for local growth and advantage. At the same time, planned economies such as China often make investment decisions for reasons unrelated to actual economic prospects. Perhaps infrastructure like this is also intended to boost the region itself, or at least, make it look like that is what the central government is doing. Moreover, it is also possible that China and North Korea merely envision replacing the current bridge over time. Last but not least, it may well be a political gesture of good faith and friendship to North Korea. Or, most likely, a mix of all of the above.

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What to make of the panic buying in Pyongyang and beyond

Sunday, May 10th, 2020

By: Benjamin Katzeff Silberstein

There’s been a few reports over the past few weeks about panic buying in Pyongyang, particularly of imported goods. The foremost reason appears to be the government’s restrictions of imports, aside from essential goods (whatever these are). A quick thought:

On the one hand, on a closer reading beyond the term “panic buying”, it’s apparent that we aren’t really talking about fundamental, daily necessities for the most part, but about imported items such as batteries and certain vegetables. When we monitor economic developments for social stability, such analyses tend to focus on items like rice and, at least in countries other than North Korea, fuel, and not least the stability of the currency. So it may not matter all that much if people in a northern province cannot buy lighters imported from China, or if Pyongyangites can’t buy imported pepper and other non-staple goods. (As you will see in one of the articles below, Daily NK has not heard reports of panic buying in Hyesan at all.)

At the same time, however, these imported goods are quite essential in the everyday lives of many people. We don’t know how much of imported goods the average person consumes, and I suspect it’d differ greatly between provinces. Since at least a significant proportion of the population consumes imported goods on a regular basis, these difficulties in acquiring items imported from China would in many cases cause great annoyance and, in others, disrupt production processes of firms and industries, although some exceptions are granted for “essential” items. Who determines what’s essential is likely hinges on political and economic clout, and it certainly won’t be the mom-and-pop-shops of the backstreet markets.

I’ve gathered a few related articles here. AP wrote about the topic on May 7th, 2020, with intelligence sources in Seoul confirming the news:

The NIS said it cannot rule out a virus outbreak in North Korea because traffic along the China-North Korea border was active before the North closed crossings in January to try to stop the spread of the virus, according to the lawmaker.

The NIS declined to confirm Kim’s comments in line with its practice of not commenting on information it provides to lawmakers. Kim did not discuss how the NIS obtained its information.

Last Friday, Kim Jong Un ended his 20-day public absence when he appeared at a ceremony marking the completion of a fertilizer factory near Pyongyang. His time away triggered rumors about his health and worries about the future of his country.

The NIS repeated a South Korean government assessment that Kim remained in charge of state affairs even during his absence. His visit to the factory was aimed at showing his resolve to address public livelihood problems and inject people with confidence, Kim Byung Kee cited the NIS as saying.

The NIS said the virus pandemic is hurting North Korea’s economy, mainly because of the border closure with China, its biggest trading partner and aid provider. China accounts for about 90% of North Korea’s external trade flow.

The trade volume between North Korea and China in the first quarter of this year was $230 million, a 55% decline from the same period last year. In March, the bilateral trade volume suffered a 91% drop, the NIS was quoted as saying.

This led to the prices of imported foodstuffs such as sugar and seasonings skyrocketing, Kim Byung Kee quoted the spy agency as saying. He said the NIS also told lawmakers that residents in Pyongyang, the capital, recently rushed to department stores and other shops to stock up on daily necessities and waited in long lines.

The NIS said prices in North Korea “are being stabilized a little bit” after authorities clamped down on people cornering the market, Kim said in a televised briefing.

(Source: “Seoul reports panic buying in N. Korea amid economic woes,” AP/Mainichi, May 7, 2020.)

NK News was one of the first outlets to cover the topic, in an article on April 22nd:

“Panic buying” sprees have been spotted taking place in some of Pyongyang’s stores and groceries since Monday, multiple informed sources told NK News, resulting in increasingly empty shelves and a growing shortage of key staples.

It’s unclear what’s led to the sudden surge in demand, with one source describing empty shelves and a sudden absence of staples like vegetables, flour, and sugar.

Locals have been buying “whatever is there,” one expat said, saying that “you can hardly get in” to some stores.

Both the expat and another person in Pyongyang said the surge was particularly notable on Wednesday.

Another source said large groups of locals were seen buying big amounts of mostly-imported products in some grocery stores, resulting in abrupt shortages.

(Source: Chad O’Carroll, “North Koreans “panic buying” at Pyongyang shops, sources say,” NK News, April 22nd, 2020.)

Daily NK, of course, has reported extensively on the topic, from both Pyongyang and the provinces. Imported goods are not only consumed in Pyongyang:

“The prices of Chinese goods have risen sharply in markets across the province, including the Yonbong and Wuiyon markets in Hyesan,” a Ryanggang Province-based source told Daily NK on Apr. 28.

According to the source, the price surge has mainly affected Chinese products, including daily necessities such as sugar, flour, and other cooking products.

For example, the price of Chinese seasoning has increased fourfold to a KPW 40,000 (around USD 6). Flour, rice and other grain prices have also increased. Two weeks ago, imported Chinese rice was being sold at KPW 4,400 per kilogram but is now being sold at KPW 5,500.

The price hikes have not just affected food. Chinese cigarettes have also increased in price: a box of Chinese-made Chang Baishan cigarette packs, for example, which used to cost KPW 12,000, is now KPW 17,000.

“Even Chinese lighters, which usually cost around KPW 700, have seen a price hike of nearly threefold and now cost KPW 2,000,” the Hyesan-based source added.

The main reason for these price surges is the halt in Sino-North Korean trade following the closure of the North Korean-Chinese border in late January. The effects of the steep fall in Sino-North Korean trade were made clear in recent data published by China’s General Administration of Customs. According to this data, Chinese-North Korean trade in March dropped by 91.3% compared to the same period last year to just USD 18.64 million.

“Just two weeks ago merchants were feeling more optimistic given the improved situation in China. Now, they’ve lowered their expectations quite a bit,” the Hyesan-based source told Daily NK, adding, “Prices are rising because business people are intentionally sitting on their stocks with the hope that prices will increase even more.”

[…]

Meanwhile, Daily NK is unaware of any reports of panic buying in Hyesan [emphasis added].

(Source: Kang Mi Jin, “Ryanggang Province witnesses price spikes,” Daily NK, April 30th, 2020.)

And, more recently, a report from Pyongyang:

“There are a lot of ordinary stores that have closed or are unable to sell anything because they have no stock left,” a Pyongyang-based source told Daily NK on Apr. 30. “Right now 100 grams of imported pepper costs KPW 40,000, 450 to 500 grams of MSG costs KPW 48,000 and sugar can’t be found at all.”

PRICE SPIKES

The prices of imported food items nearly doubled after Apr. 17, when the North Korean government announced restrictions on imported goods deemed “unnecessary” for the North Korean economy. Prices began to rise rapidly once more before the publishing of this article in Korean on May 1.

According to Daily NK’s Pyongyang source, the price of imported pepper was just KPW 8,000 per 100 grams before the announcement, but doubled to KPW 16,000 after the decision was released. Now, the price has reportedly risen to KPW 40,000.

“The price of watch batteries and other small batteries for common household appliances like remote controllers for TVs have tripled or quadrupled,” the source further reported. “The price of batteries had remained stable even after the announcement, but several days ago it started to rise suddenly. The spike is probably because so many people began hoarding them.”

Although the price of batteries has risen to an unprecedented degree, Pyongyang residents reportedly continue to buy them in bulk, in boxes of 50, and as much as 10 boxes at a time. The hoarding is likely due to concerns that the price will only continue to rise and that soon there may not be any batteries left to buy.

“Many of the electronics stores throughout the city have closed down,” the source said, adding, “Stores that still have stock have closed perhaps because of rumors that Chinese products will no longer enter the country.”

In short, the source’s report suggests that state-run electronics stores, which command 20% of the market, have no stock left, while privately-run stores that take up the remaining 80% of the market have closed up despite still having stock on hand.

Based on the source’s report, owners of privately-run stores may have closed down their shops with the intent to sell their goods at prices even higher than they are now. The owners are likely under the belief that the recent import restrictions announcement means that various electronics accessories will no longer enter the country from China for some time.

(Source: Ha Yoon Ah, “Pyongyangites continue to hoard as prices keep rising,” Daily NK, May 4th, 2020.)

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April 27th, 2020: Worrying signs of distress in the North Korean economy

Monday, April 27th, 2020

By: Benjamin Katzeff Silberstein

Readers of this blog know that market prices have risen over the past few weeks, largely as a result of North Korea’s anti-COVID19-measures. Over the past few weeks, however, other signs than market prices have surfaced that the economic situation may be getting more difficult, unrelated to Kim Jong-un’s health situation.

  • On April 17th, the Cabinet and WPK Central Committee reportedly announced a ban of all non-essential imports. The reason, ostensibly, is anti-COVID19-protections. One can also imagine it has to do with keeping the country’s hard currency base in place.
  • This measure, and perhaps combined with the overall mood, led to panic buying of import products in Pyongyang shops.
  • Prices on imported goods have increased drastically, Daily NK reports, with the price of imported soybean oil going from 45 RMB to 100 RMB for 5kg.
  • We should also view the issue of the public bonds in this context. In mid-April, the state issued public bonds which it ordered the bureau in charge of constructing the Pyongyang General Hospital to use to pay suppliers. This may be a sign that the state lacks cash of its own to fund the project, and it may expand the bonds issuing program. Moreover, the state may require entrepreneurs to purchase them. If the state begins exerting pressure on economic actors to purchase these bonds, such policies could become measures to essentially confiscate the assets of private economic actors, because the state lacks funds of its own.

Lots of uncertainties as always, but these trends are well-worth keeping an eye on.

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April 1st, 2020: Latest market prices in North Korea

Wednesday, April 1st, 2020

By: Benjamin Katzeff Silberstein

In the past few days, Daily NK updated their market price index. The latest price data was sourced on March 20th, but posted at least a couple of weeks later. A few quick observations:

In general, rice prices continue to decline, although not by very much. The average rice price went down by 1.4 percent from the previous price observation, on March 7th. This is hardly enough to be truly significant. As I wrote on 38North recently, the price drop may not be caused by an increase in supply only, but also by increasing enforcement of price controls by the government.

Foreign exchange rates have appreciate significantly since before the coronavirus border closure, and continue to climb still. The RMB has, interestingly, appreciate much more than the US dollar. The dollar climbed by 1.4 percent in the last price observation compared with late December last year, while the RMB went up by almost ten percent during the same time period. Between March 7th and March 20th, the USD appreciate by 0.55 percent, and the RMB by 1.2 percent. North Korea thereby goes counter to the international trend, where the dollar has appreciated significantly over the RMB. This makes sense, however, since the border closure has cut the supply of Chinese goods drastically, thereby raising their price. A significant share of trade in these goods occurs in RMB, and it is only logical that the price would go up.

More on this during the weeks to come…

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