Archive for the ‘Economic reform’ Category

March, 2021: what to make of the rise in North Korea-China trade?

Tuesday, April 20th, 2021

By: Benjamin Katzeff Silberstein

According to Chinese customs data, Chinese exports to North Korea increased by 400 times in March, compared to the combined shipments in January and February of this year. As South China Morning Post reports:

Trade between China and North Korea grew to a six-month high in March, figures from Chinese customs show in the latest sign that the two neighbours are easing border restrictions amid tensions with the United States.

Exports from China to North Korea jumped from a paltry US$3,000 in February to US$12.98 million in March, according to Chinese customs data released on Sunday.

That was nearly 400 times more than the US$33,000 combined shipment of January and February, and was the highest by value since September, when China recorded outbound shipments valued at US$18.88 million to the isolated neighbour. Pyongyang imposed strict controls on goods transport ahead of the 75th anniversary of the founding of the ruling Workers’ Party in October.

According to Chinese customs, China imported US$1.308 million of North Korean goods in March, compared with US$1.75 million in February.

(Source: Laura Zhou (and Reuters), “China-North Korea trade jumps after pandemic slump but sanctions curb business with Pyongyang,” South China Morning Post, April 19th, 2021.)

What to make of this?

It could, of course, be the start of a trend reversal from the past year’s catastrophically low trade figures. Perhaps the North Korean government has begun to let up on border restrictions. In the past few weeks, news reports have said that China plans on restarting trade and open the new bridge between Sinuiju and Dandong. NK News has found evidence of new disinfection centers for goods on the North Korean side in April. The Russian ambassador to North Korea also recently said in an interview that trade will restart soon.

At the same time, I’m not sure these figures themselves give evidence of resumed trade. They could be a mere glitch in the data caused by a change in accounting routines or the like. Just look at the reported figure for Chinese exports to North Korea in February: $3,000. It simply isn’t realistic. Perhaps a portion of that month’s trade was recorded instead for March for reasons related to payments or contracts. China, moreover, ships much more goods to North Korea than what’s officially recorded as “trade”.

As so often, we will simply have to wait and see. When Chinese data is published on the specific items traded, we should also get a better sense of what this trade upswing really means.

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Kim Jong-un’s claim of the “worst-ever situation”

Sunday, April 18th, 2021

By: Benjamin Katzeff Silberstein

Perhaps I am late to the game already (the long weekend here in Israel is to blame for that), but it has been puzzling to see the media reporting on Kim Jong-un’s claim that North Korea faces its “worst-ever” economic situation at the moment, under both international sanctions and a self-imposed border lockdown.

It seems that Kim’s words have been misinterpreted or lost in translation. Colleagues at 38 North have rightly and importantly pointed out that the original Korean-language statement is not nearly as drastic. This is often the case with KCNA articles and translated statements from North Korea:

In the vernacular report, however, this term read kuknanhan (극난한), which would be better translated as “very hard” or even “extremely difficult.”[2] North Korea’s English-language media sometimes omit passages or provide translations that are different from the vernacular text, and without analyzing years’ worth of data, it is impossible to conclude whether they do so deliberately, or if they are simply oversights.

It is clear, however, that Kim did not say “the worst-ever situation” at this event. Even if he had, the North Korean leader has made similar remarks in connection with the country’s current circumstances in recent months. For example, Kim’s opening address at the Eighth Party Congress in January referred to the past five years as a period of “unprecedented, worst-ever trials.”

None of this means that the situation is not bad. But “worst-ever” would be extremely drastic for a country where the failings of the economic system led to a famine in the 1990s and early 2000s that took the lives of between 600,000-1.5 million people. Today’s conditions simply aren’t grave enough to warrant such comparisons.

Precisely how difficult conditions are remains hard to tell. The Russian ambassador to North Korea recently gave an interview where he said that the country’s food situation is not at all catastrophic, and that there are no signs suggesting an ongoing famine. He is probably right, but at the same time, we should be careful not to extrapolate too much about the situation in the provinces, for example, based on an assessment of the store shelves in Pyongyang. The country’s society is highly stratified and its economy relatively fragmented. The situation in one locality may well be much more dire than in another.

At the same time, we should also be careful not to take Kim Jong-un at his word. What, except for Kim’s own statement, suggests that today’s situation is worse than the one in 1995, after both economic collapse and heavy flooding took a severe toll on the economy? Sure, things are incredibly messy right now, a view that both circumstances and data support. Kim’s own statement, not least, is another solid data point showing just how grim things appear to be. But famine, meaning large numbers of people dying from starvation or malnourishment, is simply a different dimensions. Let us hope that North Korea does not get there, neither now nor in the future.

There are reasons to believe that it will not. The market system, for its faults and flaws, is able to react to changes in supply and demand, unlike the state distribution system in the 1990s. Moreover, China would likely step in with serious quantities of food aid if the situation got truly disastrous. Many signs suggest that North Korea and China expect to resume and even expand trade in the short-term. Should a drastic need arise, China would likely increase humanitarian shipments as well, although it is far from certain.

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Are fears of market crackdowns in North Korea exaggerated?

Tuesday, March 30th, 2021

By: Benjamin Katzeff Silberstein

In a recent article at 38 North, North Korea economy scholars Eun-Ju Choi and Young Hui Kim argue that the rumors of the death of Kim Jong-un’s reformist policies are highly exaggerated. Their full article is available here. As someone who has written about the increasingly anti-market policy signals coming from the North Korean regime over the past two or so years, I’d like to add a couple of thoughts.

First, Choi and Kim make a very good point: we have in fact not seen much in the way of practical, tangible evidence of a market crackdown actually going on. Indeed, most of this evidence is anecdotal and small-scale: scattered news via Daily NK and other outlets. There are two things to note about this. One is that, unfortunately, this is often how the news flow from North Korea works. When we can sufficiently say what is a broad, overarching trend and what is scattered but few news reports is often only clear in hindsight. At this time of writing, I’d argue we have enough of this anecdotal evidence to confirm that something is going on, but we don’t yet know of the scale of the process. (One could of course regard the entire border closure as an anti-market policy measure, at least in part.)

Second, however, Choi and Kim’s main argument seems to be that the fruits of the first few years of Kim Jong-un’s policy experimentation still stand. That may well be true — to this date we have seen no wholesale repudiation of any of the policy changes enacted in the first few years of Kim’s tenure. At the same time, Choi and Kim seem to be banking on Kim and the North Korean government simply not implementing the policies set out at the 8th WPK congress and before. Looking at what the government has said that it’s going to do, the anti-market policy turn becomes overwhelmingly evident. Choi and Kim, I would argue, are doing a bit of cherry-picking in their reading of these policy changes, focusing disproportionately on interpreting the emphasis on, for example, the Cabinet’s role in the economy. But there are many, many more examples.

Still, I hope that Choi and Kim end up being right, and that myself and many others end up being wrong. Only time will tell.

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Continuity and change in North Korea-China relations

Tuesday, February 23rd, 2021

By: Benjamin Katzeff Silberstein

The recent appointment of Ri Ryong Nam as North Korea’s ambassador to China hints at ambitions for greater economic exchange with China, as reported here. As Ri has a strong background in institutions in North Korea related to foreign trade, not least as the country’s trade minister and, later, vice premier in the country’s cabinet.

Above all, the appointment of Ri is interesting as a sign of continuity rather than change in North Korea’s external economic relations. At the moment, cross-border trade is in its deepest lull in many, many years, as a result of the North Korean government’s self-imposed border shutdown to protect against Covid-19. This border shutdown came on top of already harsh and heavy sanctions.

But this border shutdown, like other measures around the world related to Covid-19, has an expiration date. There’s been rife speculation that the border may reopen soon. And when it does, business will likely, at some point, return to the old normal of China being North Korea’s only meaningful source of economic exchange. The appointment of Ri is one data point to suggest this, but there are many other data points that show an increasingly close relationship between China and North Korea since 2018, after a lull in the preceding years of frequent North Korean missile tests and other destabilizing action. For example, North Korea and China and started expanding 12 of its 13 road or rail crossings only in 2020, despite the pandemic.

While all this may only amount to business as usual, it is interesting and noteworthy for several reasons. For one, North Korea’s previous five-year economic strategy, launched in 2016 and subsequently abandoned, reportedly sought trade diversification away from China as one of its main objectives. North Korean publications have long lamented overt dependence on one single country for foreign trade, noting that it easily translates to political dependance as well.

At the same time, North Korea’s trade dependence on China has actually increased over the past few years. Xi Jinping has long since promised Kim Jong-un that China would fund cross-border infrastructure refurbishment and special economic zones along the border. For all the talk of the potential for economic exchange between North and South Korea back in the heyday of inter-Korean diplomacy between Moon and Kim, the fact remains that if any party is likely to expand its economic ties and influence in North Korea, it’s China.

So the recent appointment of Ri as ambassador to China should be seen as a sign of continuity, not change. Given the dire state of the economy, and the economic policy retrenchment drive as of late, North Korean policymakers are likely to stay cautious and safe in economic measures for some time to come. That is precisely the sort of move that strengthening ties and trade with China would be.

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North Korea’s Kumgang plans

Monday, December 21st, 2020

By: Benjamin Katzeff Silberstein

Kim Tok Hun, the North Korean premier, visited the Mt Kumgang Tourism Zone on Sunday December 20th, 2020. KCNA:

He called for pushing ahead with the development project of turning Mt Kumgang area into modern and all-inclusive international tourist and cultural area under yearly and phased plans and thoroughly maintaining the principle of conveniences and architectural beauty first in the construction so that people can fully enjoy natural beauty.

He stressed the need to build the tourist area our own way in which national character and modernity are combined while in good harmony with the natural scenery of the diamond mountain so as to turn the famous mountain of the nation into the one well-known for serving the people and a cultural resort envied by the whole world.

(Source: “Kim Tok Hun Learns about Development of Mt Kumgang Tourist Area,” Korean Central News Agency, 20/12/2020.)

Why pay attention to the tourism industry in the middle of a global pandemic? It may seem odd, but in fact, it follows along the same pattern as many other North Korean pronouncements on economic policy through the year. Consider, for example, Kim Jong-un’s many dressing-downs of industrial managers, who can scarcely be personally blamed for the poor state of the economy. The government knows that the pandemic will be over one day, and is attempting to lay the groundwork for when that happens. Tourism has been a key focus of Kim Jong-un’s economic policy, and the pandemic itself has not changed this.

What does this tell us about North Korean plans for Mt Kumgang? The statement itself does not give any hints of a change in policy direction, but the word “international” above is perhaps noteworthy. North Korea has made clear for some time that it does not intend to involve the South Korean government in plans to develop Mt Kumgang. Rather, it seeks to have tourists come from other neighboring countries, and South Koreans will of course be welcome, depending on how relations between the countries evolve, but not in running the zone. Perhaps the word choice seeks to emphasize this direction.

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A crackdown on the North Korean market economy?

Tuesday, December 1st, 2020

By: Benjamin Katzeff Silberstein

(This is a rather long post with two parts: the first analyzes some recent events suggesting a government crackdown against the market economy, while the second recaps the some recent events within this trend. For readers interested primarily in the latter, I suggest scrolling down to the subheading “The events: a brief recap” below.)

Is the North Korean government cracking down on the market economy as such?

I would argue that we are not quite there yet, but an ever-increasing number of news seem to be suggesting that economic policy may be going in this direction. It’s also entirely possible that there is in fact no coherent strategy. One should not overestimate governments in general when it comes to coherence – this is nothing unique to North Korea. Nonetheless, these developments are crucial to keep a close eye on.

This post goes through some of the most central developments over the past few weeks below, but in short, some of these events are:

  • the general rhetoric and personnel politics from Kim Jong-un over the past year or so, repeated statements from high official organs about the need for economic control (most recently in a politburo meeting on November 30th),
  • the crackdown on foreign currency use and the reported execution of a foreign currency trader,
  • a reported change in the management of general markets to greater centralization and direct state control,
  • and last but not least (for now), an amendment to the enterprise law, effectively placing a common form of private enterprise under state scrutiny and administration.

This list is by no means exhaustive. For example, North Korean academic journals, often good proxies for what’s cooking in the policy circles, have repeatedly emphasized the need to “create an administrative system” since late last year. In North Korean parlance, this is likely code for increased state oversight and control. (Hat-tip to my good friend and colleague Peter Ward, perhaps the most thorough and dedicated researcher of North Korean journals in the analyst community.)

As I write more about in a forthcoming article for 38 North, the state has placed a high priority on reigning in – and at the very least, governing and administering – the market economy for some time, and with heightened intensity since the 2019 December plenum in particular.

There may, however, be more to it. There still is not sufficient evidence to conclude that the state is actively trying to stomp out markets or market mechanisms as such, but it is a possibility.

First, a basic question: if there is a general crackdown going on against the market economy, what would be the purpose? Again, no one knows, but one can speculate about a few different possibilities.

Perhaps most basically, North Korea is still, at least nominally and theoretically, a communist state with a centrally planned economy. Legally, private property does not exist. There has yet never been an official, explicit, major break with this model. We have often taken the state’s reluctance to crack down on the markets, and indeed, its occasional embrace of market mechanisms, as tacit acceptance that they are in the North Korean economy to stay. Maybe this assumption was wrong all along, or maybe things have changed over the past couple of years.

On the same theme, let’s not forget that North Korea’s political and social system is highly totalitarian. It is only natural that it would tend towards greater control, ultimately aiming to either eradicate or (more likely) tame groups such as the donju and integrate them into the official system. Economic reform and liberalization will always be potentially threatening, as they expand a sphere beyond state control, whether it be in the economy or society overall. Perhaps the North Korean leadership thinks the limit has been reached and it is time for a general rollback.

There may also be a pragmatic purpose to it all. As I have argued before, growing resource scarcity is a likely driver for increased economic control by the state. This is perhaps the most charitable and optimistic reading, as it suggests that the trend may one day be reversed.

Whatever the case, this is all troubling. The state and Kim Jong-un personally may very well be overestimating the capacity and potential of the state economy as an alternative to the market sphere. North Korea is a state with relatively capable governance in some areas, but with a very low capacity in others. Quite likely, the state simply has little grasp of the size of economic activity, and little overview of what this activity consists of. (See, for example, this recent report by Daily NK about a general survey of firms and enterprises leading up to the Party Congress in January 2021.) The border closure due to Covid-19, among other examples, shows that the state is prepared to accept a high degree of suffering among the general public for the purpose of social stability.

The events: a brief recap

The latest data point came a couple of days ago, at the latest of a staggering eleven politburo meetings this year. The KCNA summary contains two highly concerning paragraphs (my emphasis):

”The meeting discussed and studied as key agenda items the issue of hearing a report on the preparations for the 8th Congress of the WPK and taking corresponding measures, the issue of reorganizing a relevant department mechanism of the Party Central Committee to strengthen the field of the Party ideological work, to more thoroughly establish the Party’s leadership system in relevant institutions and to intensify policy guidance and Party guidance over them and important issues of improving the Party guidance over economic work and carrying out immediate economic tasks. Then decisions were made on them.”

And:

”The Political Bureau of the Central Committee of the WPK harshly criticized the economic guidance organs for failing to provide scientific guidance to fields under their charge under the subjective and objective environment and the prevailing conditions, and for failing to overcome subjectivism and formalism in their work. It stressed the need to put the operation and command for carrying out the Party’s economic policies on a scientific basis and display great dedication and responsibility.”

 

(Source: “Enlarged Meeting of 21st Political Bureau of 7th Central Committee of WPK Held,” Korean Central News Agency, November 30th, 2020.)

This comes against the backdrop of several similar statements from the politburo and other organs through the year and, not least, worrying measures, such as the reported execution of a foreign currency (among other measures) trader amid a strange appreciation of the won against the US dollar. Maeil Kyungje:  

“코로나19 확산에 위기감이 높아진 김정은 북한 국무위원장이 `비합리적 대응`을 하고 있는 것으로 보고됐다. 방역 위기에 경제적 어려움이 겹친 상황에서 환율 급락을 이유로 평양의 환전상을 처형하고 바다에서 어로와 소금 생산을 금지하는 등 무리한 조치를 취하고 있다는 것이다.

국회 정보위원들은 27일 국가정보원에서 최근 북한 동향을 이같이 보고받았다고 밝혔다. 정보위 야당 측 간사인 하태경 국민의힘 의원은 “김 위원장이 과잉 분노를 표출하고 있으며 상식적이지 않은 조치를 내놓고 있다”고 평가했다. 이날 국정원 보고에 따르면 김 위원장은 지난 10월 말 `평양의 거물 환전상`을 처형했다. 북한 내 환율이 최근 들어 급락했는데 이에 대한 책임을 물어 비공개 처형했다는 것. 북한은 외화난이 상시화했지만 국경 봉쇄로 외화 수요가 줄어 환율이 급락한 것으로 보인다. 하 의원은 또 “바닷물이 코로나19로 오염되는 것에 대한 우려 때문에 (김 위원장이) 어로와 소금 생산을 금지했다”고 말했다.”

(Source: Park Jae-wan, “Kim Jong-un executes foreign currency trader amid plunge in exchange rate,” Maeil Kyungje, November 27th, 2020.) See this Financial Times article for an English-language summary of events.

And then there’s the recent sudden appreciation of the won. Bill Brown explains this well here. It is, however, part of a broader push for people to use less foreign currency. There could be a whole host of reasons for this move, one of which could be to drive more of it out of circulation and into state hands. We still know too little to draw any firm conclusions.

Daily NK also reported a couple of weeks ago about new measures to centralize control over general markets under Party control. The report did not suggest direct measures to curtail market activity per se, but this may well be the consequence should the measure be fully implemented, with more red tape and central management further from the ground.

North Korea’s KCNA recently ran an article about two bills adopted by the Supreme People’s Assembly. One of them — a ban on smoking in certain areas — got quite a bit of attention, which lighter news from North Korea often does. The second one — an amendment to the country’s enterprise law — is, however, potentially much more significant, and could significantly curtail and hamper private business activity in the country. Here is what KCNA (5/11/2020) said about it:

”The amendments and supplements to the enterprise law newly point out such matters as of turning enterprises into labour-, energy-, cost-, and land-saving ones and making their employees patriotic working people who possess the spirit of economy as part of their mental qualities.

They also refer to the regulations which all the units must observe when organizing new enterprises or when changing their affiliations and those designed to ensure that production and business management are done on socialist principles under the unified guidance and strategic control of the state.”

Now, these few sentences reveal relatively little about what this could all mean in practice. Daily NK reported a few days later, however, that the government aims to centralize control of small business usually operating illegally, known as “kiji”, under official SOE frameworks. Corruption is certainly problematic in general, but given the fact that a massive proportion (or most) of private business in North Korea operates under frameworks that are technically corrupt, the ambition to strengthen government oversight may have serious adverse consequences. (For more on the “kiji” system, see this excellent journal article.)

In conclusion, it is too early to tell what the regime’s end goal is with these measures. At the very least, we can conclude that the state aims to lay more of the economy under its control and management. That is of course a central end goal in itself.

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North Korean government continues to strengthen market control

Friday, November 13th, 2020

By Benjamin Katzeff Silberstein

The trend continues, Daily NK reports, as the government apparently is strengthening direct Party control over the market system, all in line with the broader policy trend of stronger government control over the economy under Kim Jong-un. As I’ve pointed out in many previous posts and articles, stronger control doesn’t necessarily mean repression of market activity per se, but rather, the ability to more closely manage, direct and not least better tax market activity. This news reports suggests that that’s the case for this recent order as well (see my emphasis in bold):

North Korea recently crafted new market management regulations to give the Workers’ Party greater involvement in and control over markets, handing down orders to this effect to regional administrative organizations and market management offices.

A source in North Hamgyong Province told Daily NK on Tuesday that a written order entitled “Cabinet Decision on the New Market Management and Operation Regulations” was handed to the commercial departments of the provincial people’s committees and market management offices.

The new regulations were decided upon during an extended plenary meeting of the Cabinet on Oct. 19. Provincial people’s committees nationwide received copies of that decision one day in advance.

According to the source, who spoke on condition of anonymity, the new order calls for the establishment of a system where local provincial, municipal and county people’s committees manage the creation and dissolution of markets, with the commercial departments of the provincial people’s committees ultimately making reports to the Cabinet and the Central Committee’s Organization and Guidance Department. These changes ultimately broaden the ability of the Central Committee to monitor and exert control over the entire civilian economy.

In the past, only the commercial departments of people’s committees – which are administrative organizations – were involved in running the markets; party organizations had little to do with them. With the regulation changes, however, markets have now come under party management and control, according to the source.

The state appears to be trying a new tack with these regulation changes, the source said. According to him, North Korean authorities are “moving towards a system of direct management and control of markets nationwide through the Central Committee.” In the past, by contrast, the markets were managed and controlled by provincial people’s committees.

The order also encouraged local North Korean authorities to open new markets as needed so that they can “involve themselves in helping improve the lives of the people while also exercising control.” 

The order further instructed the commercial departments of people’s committees – in consultation with the Workers’ Party – to set the opening and closing times of markets according to the “time period” (season) and the “conditions” of each province, city and county, rather than making opening and closing times uniform across the country. It also ordered that fees on imported goods be increased.

The order directed people’s committees to regulate products in the markets while, at the same time, expand the list of goods available and – in consultation with party committees – set maximum and minimum prices. It further called for the promulgation and establishment of a system to fine those caught distributing goods at prices higher than those set by the state.

The order included a directive to restructure market use fees or payments to the state in accordance with the size of the markets or “distribution of urban populations,” and include these new fees and payments in “budget implementation.”

“The state’s new market management and operation regulations are still unknown to the general populace,” said the source, who further claimed that, “[The new orders] call for overlapping control of the markets and aim to raise market fees and other financial burdens, so they [ultimately] put ordinary people at a disadvantage.”

(Source: Kim Yoo Jin, “North Korea increases Workers’ Party control over markets,” Daily NK, November 6th, 2020.)

That is, the government wants market activity to be vigorous and rules and regulations to conform to what people actually want and need — but all under its own auspices.

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North Korea’s disaster management: a comment about a comment

Wednesday, November 4th, 2020

By Benjamin Katzeff Silberstein

It might seem a strange topic to post about on the day after the US elections, but perhaps some readers might like a break from the incessant commentary for something completely different.

If so, I highly recommend the article that former ambassador James Hoare published yesterday on 38 North, partially as a comment to my earlier article about North Korean disaster management. Ambassador Hoare gives a highly interesting historical perspective partially based on his own experiences in the country, noting that deforestation is a problem on the Korean peninsula much older than North Korea itself. He also notes that North Korea is far from the only country where homes constructed near riverbeds are regularly flooded, and argues that North Korea’s flooding problems are, after all, not so unusual in an international context.

I fully agree with all of these points, and the historical context is very valuable and crucial for understanding the current situation. If anything, there are perhaps two points of minor disagreement that I have with Hoare’s text.

First, the current North Korean situation is in large part a result of changes that could have been avoided. Deforestation was acutely exacerbated during the Arduous March, because people had few other alternatives than to cut down trees for firewood and to clear the ground for farming. Deforestation and flooding, therefore, are not phenomena entirely endemic or “natural” neither to the Korean peninsula nor to North Korea in particular, because things were not always this way. There is nothing natural or inherently necessary about North Korea’s economic system, as the many former communist states who have adopted programs of systemic overhaul have shown. Natural disasters may be natural, but each state has a choice in how to meet them.

Second, ambassador Hoare rightly points out that one should perhaps applaud the progress being made rather than to note that improvements have a long way to go. My article neither sought to decry nor applaud any improvements, but simply to show where things stand, based partially on conversations with several people who have themselves worked in natural disaster mitigation in the country.

And despite the improvements that have been made, there is a real and substantive risks that North Korea’s disaster management improvement plans and ambitions will stop at being just that. In this realm, there should be little doubt that the government’s ambitions are high and praiseworthy. The problem is that we have seen too many examples of ambitions without implementation to conclude that they will in fact be realized. Oftentimes, the policy process, opaque as it is, often appears to stall, and political interest and attention may wane. In this, too, North Korea is not alone in the world.

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North Korea reportedly suspends public bond program

Tuesday, October 27th, 2020

By: Benjamin Katzeff Silberstein

This blog has followed as closely as possible, over the past few months, the issue of North Korea’s public bonds program. It was in April of this year that news first surfaced of the North Korean government having issued public bonds, to drive in more cash to the state. The central worry with all this was that the state would use coercive methods to force people to purchase bonds, thereby creating significant distress among the public, and sucking out resources from the private economic sector.

For months, however, little subsequent reporting came on the bonds. This indicated that the state was perhaps not moving forward with the program all too aggressively.

It turns out this seems to have been what happened. Some days ago, Daily NK, who originally broke the story, reported that the North Korean government appears to have abandoned the project around early September, after what some claim was some initial success:

While the halting of the scheme appears to signal its overall failure, some North Korean officials believe that the bonds helped to quickly bring in funds the state needed to continue building the Pyongyang General Hospital and prepare for the Party Foundation Day celebrations on Oct. 10.

A Pyongyang-based source told Daily NK yesterday that the Central Committee’s Economic Affairs Department issued an order early last month to the Cabinet and its subordinate agencies that concerned “suspending the issuance of the bonds.”

The order noted that the “distribution of the state agency public bonds and state trade public bonds” would “temporarily be suspended”; that there would be a review of the bonds that were sold and those in stock by the State Planning Committee’s Financial Affairs Board; and, that bonds allotted to “each agency” would be collected, then gathered and “frozen” at the Central Bank. In short, the order stated that all bonds – except for those already in distribution or sold – will no longer be considered valid.

The source, who spoke on condition of anonymity, told Daily NK that the order further stated that “in accordance with an order from the central [leadership], a review of the current financial status of agencies that have used the public bonds will be conducted and [their] planned quotas for this year may be adjusted.” This suggests that the leadership is willing to “eliminate difficulties” faced by “lower-ranking work units” that “loyally” took part in the bonds scheme and that they may receive unspecified “benefits.”

The Economic Affairs Department’s order was reportedly issued after North Korean leader Kim Jong Un acknowledged the failure of his country’s economic policies at a Workers’ Party plenary session in August.

“[The] economy was not improved in the face of the sustaining [sic] severe internal and external situations and unexpected manifold challenges,” Kim reportedly said during the plenary session. He also announced during the meeting that a new five-year economic development plan would be presented at the Eighth Party Congress next January.

It appears that after Kim acknowledged the failure of the country’s existing “five-year economic development strategy” and presented plans to establish new economic goals the Central Committee’s Economic Department discussed revising the scale of the public bonds scheme.

According to the source, the Economic Affairs Department order stated that it “permits the revision of tasks related to the five-year people’s economic plan of last year and this year due to the distribution of public bonds.”

As part of efforts to increase the country’s foreign currency stores, North Korean authorities gave members of the donju, North Korea’s wealthy entrepreneurial class, and private business people “business rights” in return for having them purchase the bonds in foreign currency. Now that the bonds are not longer being issued, it appears that the Economic Affairs Department has been forced to revise its plans.

[…]

An internal investigation by the Central Committee in August found that less than 20% of the bonds earmarked for the donju (“state trade public bonds”) were sold off.

The authorities tried to woo the donju and private business people to buy the bonds by offering them “patriotism awards” and “business rights”; when that did not work, the authorities resorted to “forced allocations.” All of these efforts apparently had little effect in getting the bonds sold. The failure to sell the bonds seems to have been a major factor in the Economic Affairs Department suspending the sale of the bonds.

Within the Economic Affairs Department, however, some argue that the public bond scheme has not “completely failed” and that it “significantly helped” the country prepare for the Party Foundation Day celebrations despite facing unexpected obstacles such as the COVID-19 pandemic, typhoons, and floods. They also claim that the public bonds scheme was an “experimental yet daring attempt.”

In contrast to this assessment, the source argued that the “public bonds [scheme] was a measure that completely failed to consider the realities of the people’s economy [civilian economy].”

(Source: Jang Seul Gi, “N. Korea suspended public bonds scheme in early September,” Daily NK, October 23, 2020.)

The allocation of “business rights” sounds an awful lot like an attempt to more strongly formalize practices on which the economy already runs…

In any case, this signals a comforting sense of pragmatism among North Korean economic policy makers on this particular issue. It’s impossible to rule out, however, that the idea might come up again should the economic situation continue to deteriorate, and perhaps, regrettably, with stronger methods of coercion to back it.

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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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