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Data on the DPRK’s informal economy

Saturday, November 16th, 2013

According to the Choson Ilbo:

The belief that money can buy anything is rife in North Korea. Farmers can buy membership of the Workers Party, the gateway to the elite, from a senior party official for about $300. Factory or company workers or soldiers have to pay about $500 for party membership. College admission can also be bought with a bribe.

“Anybody can buy admission to Pyongyang Medical University for $10,000 and to the law or economics departments of Kim Il-sung University for between $5,000 and $10,000,” said a South Korean government source.

The opportunity to work overseas costs $3,000, plus an extra $1,000 if workers want their stay extended another year.

…

Currently, a U.S. dollar is worth about 7,000 North Korean won. Would-be defectors pay border guards $40 to cross the Apnok or Duman rivers, and $60 to carry old or feeble people on their back.

…

Asked about the monthly average household income, 31.7 percent said they earned up to 300,000 North Korean won. Next came up to 100,000 won for 16.6 percent, up to 500,000 won for 13.7 percent, and up to 1 million won for 13.2 percent.

But their official salary for their work is a mere 3,000 to 5,000 won, meaning they earned the rest of their income chiefly in the informal economy.

The most popular means of earning money are small shops or restaurants, cottage industries like making clothes and shoes, and private tutoring and private medical services.

Farmers can earn 60,000 to 80,000 won a month by harvesting 700 kg of beans and corn annually from their allocated field and raising five chickens and a dog.

Recently, a growing number of people are getting into the transportation business by illegally registering vehicles or boats, which are banned from private ownership, in the name of agencies or companies and appropriating their profits.

They also make money from smuggling. Repairing computers or mobile phones has become a popular job as well as repairmen can earn $5 to $10 per job.

Read the full story here:
N.Korea’s Informal Economy Thrives
Choson Ilbo
2013-11-16

Posted in 2002 Economic reforms, Black markets, Economic reform, Labor conditions/wages, Price liberalization, Private property | Comments Closed

New info on the DPRK’s exchange rates and Economic Development Zones

Sunday, November 3rd, 2013

James Pearson writing in Reuters updates us on the state of the DPRK’s domestic currency:

In a dimly-lit Pyongyang toy shop packed with Mickey Mouse picture frames and plastic handguns, a basketball sells for 46,000 Korean People’s Won – close to $500 at North Korea’s centrally planned exchange rate.

Luckily, for young North Koreans looking to shoot hoops with Dennis Rodman, the new friend of leader Kim Jong Un, the Chinese-made ball actually costs a little less than $6 based on black market rates.

Once reserved for official exchange only in zones aimed at attracting foreign investment, and in illegal underground market deals elsewhere, black market rates are being used more frequently and openly in North Korean cities.

Publicly advertised prices at rates close to the market rate – around 8,000 won to the dollar versus the official rate of 96 – could signal Pyongyang is trying to marketise its centrally planned economy and allow a burgeoning “grey market” to thrive. This could boost growth and capture more of the dollars and Chinese yuan circulating widely so that North Korea can pay for imports of oil and food.

Unofficial market rates could become more widespread following an announcement last month of 14 new special economic zones (SEZs) aimed at kickstarting a moribund economy where output is just one fortieth of wealthier South Korea’s. A spokesperson for the Korea Economic Development Association, a local organization tasked with communicating policy in the new SEZs, told Reuters that exchange rates in the new zones are to be “fixed according to (local) market rates.”

“The official rate for the won is like a placeholder,” said Matthew Reichel, director of the Pyongyang Project, a Canadian NGO that organizes academic exchanges with North Korea. “We all know that the value of the won is not this.”

UNDER STRAIN

An estimated 90 percent of economic transactions along North Korea’s border with China are in yuan, an embarrassment for a country whose policy stresses economic independence, and something that reduces the grip that authorities attempt to exercise over its people and economy.

Pyongyang does not publish economic data, but is believed to have run a sizeable current account deficit for years, straining its ability to pay for imports in hard currency.

An attempt in 2009 to revalue the won and confiscate private foreign currency savings prompted protests from market traders and forced a rare policy reversal and public apology from state officials.

“Due to its lack of foreign currency, the North Korean government will have to tolerate black market rates, even if it has difficulty in officially recognizing them,” said Cho Bong-hyun, a North Korea economics expert at the IBK Economic Research Institute in Seoul.

Read the full story here:
Insight: Won for the money: North Korea experiments with exchange rates
Reuters
2013-11-3

Posted in Banking, Black markets, Economic Development Zones (2013), Economic reform, Finance, Fiscal & monetary policy, Special Economic Zones, State Economic Development Commission (SEDC) | Comments Closed

DPRK Won exchange rate data

Friday, October 18th, 2013

According to the JoongAng Ilbo:

The value of the North Korean won has plummeted against the Chinese yuan in the last three years, hit by a continual series of crises, a South Korean ruling party lawmaker said.

Representative Yoon Sang-hyun of the Saenuri Party, a member of the National Assembly’s Foreign Affairs and Unification Committee, said at a parliamentary hearing Wednesday, “Through some sources in North Korea and from the government, we have analyzed the fluctuation of the North Korean currency for the last three years.

“The value of the Chinese yuan has surged in North Korean territory amidst a series of crises: military provocations, power succession and natural disasters,” Yoon said.

According to Yoon, the exchange rate of North Korean currency on the black market was around 400 won ($0.38) to the Chinese yuan between January and September 2011. But it rose to 560 won against the yuan in October 2011, 640 won in November and 850 won in December. That was a precarious time, Yoon says, with rumors that leader Kim Jong-il was sick. On Dec. 17, 2011, Kim died and was succeeded by his youngest son, Kim Jong-un.

In July and August 2012, when heavy rainfall battered North Korea, the won weakened more, reaching 1,000 won against the yuan. In December 2012, when North Korea successfully launched a long-range missile, its currency dipped to 1,350 won to the yuan from 1,250 won in November.

Ahead of its third underground nuclear weapons test on Feb. 12 of this year, the won fell close to 1,450 won against the yuan, the lowest level ever.

The currency became stronger when Pyongyang went off its highest level of military readiness last May, and its value returned to 1,200 won to the yuan. The won is currently trading at around 1,250 won against the yuan, Yoon said. The yuan has appreciated 171.7 percent against the won from two years ago.

“In 2009, when North Korean botched its currency renomination, anxiety spread that the local currency would become ‘paper money,’?” Cheong Seong-chang, a senior fellow at the Sejong Institute in South Korea, said. “Officials in North Korea prefer to receive bribes in yuan, not in won.

“When tensions escalate in North Korea, demand for the more stable yuan increases,” Cheong said. “And whenever North Korea makes an attack or other kind of provocation, the Chinese government tightens up procedures for visas and customs regulations on North Korean products.

That makes trade with China more difficult, resulting in a shrinkage in the supply of yuan into the country.”

Representative Yoon said the popularity of the yuan in North Korea also suggests more capitalist activity going on. “In a society that strictly bans the circulation of foreign currency, a wide range of individual transactions using a foreign currency is happening,” Yoon said.

“In some border regions with China, commercial transactions are increasing. The so-called Yuanization phenomenon – in which the yuan replaces a local currency – is happening in North Korea.”

Analysts in Seoul say the influence of China on the North Korean economy is ever expanding. “A strong yuan in North Korea indicates the regime is heavily dependent on the Chinese currency,” Kim Yong-hyun, a professor of North Korean affairs at Dongguk University, said. “That means that if China imposes economic sanctions on the regime, it would be a big blow to its economy.”

“As North Korea has no credit policies or system for financial transaction, residents are dependent on foreign currency for commercial activities,” Yoon said.

“As provocations by North Korea are putting its economy at risk, North Korea should stop all provocations, restore the value of its weak currency and stabilize its market.”

The Daily NK tracks the exchange rate of the DPRK won here.

Read the full story here:
North’s won tumbled against yuan, says Rep
JoongAng Ilbo
Kim Kyung-jin
2013-10-18

Posted in Banking, Black markets, Finance, Fiscal & monetary policy, International trade | Comments Closed

DPRK border security affecting smuggling (not just defections)

Tuesday, September 17th, 2013

According to the Daily NK:

Following the formal tightening of controls along the Sino-North Korean border for much of this year, it has emerged that smugglers have been suffering at the hands of the National Security Agency (NSA) [More properly Ministry for State Security-MSS]*. NSA officers have been described as engaging in “excessive” interrogation techniques in order to build their credentials and improve their bribe-taking, a source inside North Korea claims.

“A week ago, someone from a family that smuggles second-hand clothes with Chinese merchants was caught by a border patrol as he was receiving the goods, and is now getting interrogated by the NSA,” a North Korean source based in Yangkang Province reported to Daily NK on September 16th. “When I went to meet him at the NSA, I found that his limbs had been broken with a piece of wood. His face was so beaten up I couldn’t even recognize him.”

According to the source, people caught smuggling used items along the border with China used to pay a bribe of around 1000 Yuan approx. $160) to secure their release, but now that has risen to 5000 Yuan (approx. $800). The rise in beatings is believed to have occurred because smugglers are unable to pay the higher bribe rate.

“If smugglers are detained by border guards they are supposed to pay 5,000 won now, and if they don’t have the money they get handed over to the NSA,” the source confirmed. “If that happens they have to pay 5,000 to 10,000 Yuan, but poorer ones find it impossible to do that.”

“To a smuggler living off selling used clothes, 10,000 Yuan is an very large amount of money,” continued the source. “While smugglers’ families may do everything they can to raise the money to pay for the release, selling everything they have wouldn’t make that amount of money.”

“As Chuseok approaches there is a rise in smuggling activity, and this is being used by the border patrols and NSA to make a killing off ordinary people,” the source went on to allege. “Some particularly unsavoury NSA agents first show the relatives the broken limbs of a family member prior to demanding money.”

*Added by NKeconWatch

Read the full story here:
Smugglers Facing Big Fines and Beatings
D
Kang Mi Jin
2013-9-17

Posted in Black markets, China, International trade | Comments Closed

On the DPRK’s thriving black market in real estate

Tuesday, May 7th, 2013

According to Radio Free Asia:

Private ownership of homes is illegal in North Korea, but residents of Pyongyang who make frequent trips to China and residents of cities on the border between the two countries told RFA it is no longer strange to hear about “sales” of government properties between individuals.

According to a virtual housing market for North Korean civilians, the country’s most expensive homes are located in Sinuiju, with Hyesan city in northern Yanggang province next in cost and Pyongyang in third.

A single family home or large apartment in what is deemed a good location in Sinuiju can fetch around U.S. $30,000, while those in the suburbs of Pyongyang and other border cities are priced less.

While houses are being built everyday in Pyongyang to supply a growing demand, it is difficult to find new homes in other cities, leading to a rise in the cost of real estate, the sources said.

A resident of Hyesan told RFA that homes in cities like his, near the border with China, command the highest prices on the black market because they provide access to Chinese money and infrastructure.

“I can’t say all houses in Hyesan are expensive, but those which are good for the smuggling trade and receive a clear Chinese cell phone signal are really high priced,” the source said, speaking on condition of anonymity.

“Several houses by the riverside are even priced similarly to Chinese houses on the opposite side of the border in [Jilin province’s] Changbai city,” he said.

Sources told RFA that the North Korean government has canceled licenses several times in recent years, issuing statements which describe the practice of housing transactions as an “offence against the system of the North Korea.”

But attempts to stamp out the trend have repeatedly failed as those involved in the sales include untouchable high-ranking officials and because the practice is too far reaching.

Read the full story here:
Illegal Trade in North Korean Homes Flourishes
Radio Free Asia
2013-5-7

Posted in Black markets, Construction, Economic reform, Real estate | Comments Closed

Stall-sharing returns to Hyesan

Saturday, December 1st, 2012

Pictured Above (Google Earth): The Hyesan Market (L) and a street market (R).

According to the Daily NK:

The authorities in Hyesan have embarked on an experiment that permits multiple traders to utilize each stall in the city jangmadang (market).

A source from the Yankang Province city told Daily NK on the 30th, “Hyesan Municipal People’s Committee has been struggling for a while to decide what to do with all these traders in the streets outside the market. So, they’ve decided to try and co-opt them by restarting stall-sharing arrangements. Any trader, even ones who used to trade in the streets, can now operate inside the market as long as they are ready to pay.”

“The traders rotate six days a week, and on Sundays the original stallholder gets to decide who trades there,” the source went on.

However, many of the original stallholders are reportedly angry at the move, according to the source, with many asking why they are being stopped from trading for almost half the week.

“But,” she said, “the Market Management Office is having none of it, so they have little choice but to oblige.”

The idea of stall-sharing has been tried before in Hyesan, but with little success. “Just last year they ordered the same thing to happen,” the source recalled, “but it wasn’t long before things went back to normal.”

That being said, she went on, “Now because the order has come from the Upper (Central Party), they are really trying to do it.”

Defectors from the city and others with experience of trading directly in the market say the measure has far more to do with controlling traders working illegally on the city streets than improving the efficiency of the market itself. In fact, they say the measure is likely to have a deleterious effect on market operations.

Seo Ok Ran, a 42-year old defector now living in the Dongdaemun area of Seoul pointed out, “Last year when they did this I had a hard time finding the right stallholders for the items I needed. At the end of the day, it just reduces trade.”

It is unclear whether the new rules are being applied nationwide, or are restricted to the area under the remit of Hyesan Municipal People’s Committee.

Read the full story here:
Stall-Sharing Returns to Hyesan
Daily NK
Kang Mi Jin
2012-12-1

Posted in Black markets, Finance, Fiscal & monetary policy, General markets (FMR: Farmers Market) | Comments Closed

Chongjin’s “Mansudae-style” apartments

Thursday, August 23rd, 2012

Pictured above (Google Earth): Pohang District, Chongjin (in red)

UPDATE 1 (2012-8-23): The Daily NK, which has been the only organization to cover the housing construction in Chongjin (see original post below), reports on the classic problem of political allocation of resources (in this case housing) in socialist economies. According to the article:

A source from Chongjin told Daily NK yesterday, “This rumor started going around that the apartments they are building would first go to decorated soldiers, veterans and discharged military officers, and then the rest would be distributed to ordinary people. As soon as that happened, a group of 40 or more people, many of whom had already seen their former homes demolished and thought they had priority on the housing list, got really angry.”

“The crowd went repeatedly to both the local administrative office and the district people’s committee to demand that a list of those assigned homes be made public,” he added.

During the protests, the source said, “Those who found they were not on the list warned that they would not stand idly by if their new homes were stolen from them. They didn’t back down from the guys from the Ministry of People’s Safety either, not for more than 30 minutes.”

The head of the local administrative office vacated his post due to the trouble and hasn’t been seen since, something that has made the aggrieved individuals even angrier. Upper level cadres are also refusing to meet them, and lower level figures are trying to wash their hands of the whole affair, saying that the list of those assigned apartments can no longer be changed. No longer thinking that the problem can be solved at the district level, the group has sent a letter to the provincial authorities outlining their grievances.

“Their point is that the authorities said that only a small number of the apartments would go to those people (decorated soldiers, veterans and discharged military officers), while most of them were supposed to go to ordinary families,” the source explained.

The source also explained the backdrop, saying that thousands of homes in the Namgang and Pohang areas of the Pohang district of the city have been destroyed since last June, and that the displaced residents from those homes have all been living with relatives and friends while waiting for the chance to move into what they thought were to be their new dwellings.

The problem is not over yet, either. According to the source, “It also looks like some facilities like shops and restaurants that were not on the original plans for an area around the amusement park are also being built, which will reduce the volume of housing available. Who can say how people from that area who’ve lost their homes will object if they lose out.”

This article is interesting to me because it answers a couple of questions I have had for some time: “What happens to families displaced by urban construction projects?” [Answer: for the most part, they go live with family members until replacement housing is allocated] and “How is new housing allocated if not through de-facto sales?” [Answer: Ideally through an objective and enforceable list based on “need”. However, this process is often corrupted. See here, here and here].

ORIGINAL POST (2012-8-14): According to the Daily NK:

It has been confirmed that affluent local wholesale traders have been co-opted to support the construction of apartment buildings in Chongjin, North Hamkyung Province.

A Chongjin source told Daily NK yesterday, “The construction of high-rise apartment buildings in the Pohang district of the city is being done by enterprises and ‘shock troops’, but there are also local go-betweens at the forefront connecting affluent traders from the region with the construction teams so that the latter can get materials as needed.”

The source went on, “It seems that most of the province’s rich people have gathered here. You can tell that there are people with genuine power involved in the construction by how fast the buildings are going up now.”

Since last May, Chongjin has been working to follow in the footsteps of the Mansudae area of Pyongyang by constructing apartments for 10,000 households, including 2,000 in the Pohang district. The project is said to be part of North Hamkyung Province Party Secretary Oh Soo Yong’s determined effort to show loyalty to the regime of Kim Jong Eun. However, the Party and state lacks the power to follow through on the plans.

The situation is not rare. Rich people and brokers acting as go-betweens are actively involved in all types of construction projects in North Korea today. This was even the case when Pyongyang planned the building of 100,000 apartments in time for the 100th anniversary of the birth of Kim Il Sung earlier this year. Indeed, all North Koreans know that “without the go-betweens this country’s economy would seize up.”

Usually, the North Korean authorities get factory enterprises and units of ‘shock troops’ to do the state’s construction and set in place plans to secure the necessary cement, steel and other materials, but this part very rarely goes according to plan.

For one thing, factories need to be bribed if the construction sites want to get their materials delivered on time, so the middlemen have a close relationship with the factories. Meanwhile, the rich people who finance the construction later receive a share of the finished apartments in return.

Currently in Chongjin, a home on the 3rd or 4th floor of such an apartment costs about $5,000. A rich man investing $7,000 dollars in the construction of a building can expect to make about $3,000 in profit. Other floors cost $3,000-$4,000 at current rates. However, in Pyongyang prices are much higher, with apartments on the 3rd or 4th floor trading for as much as $10,000 dollars.

The source said, “There are nicely dressed men striding around the construction site checking on progress, and these are the rich folk.”

The publicly available satellite imagery of Chongjin is too old to show recent construction, and since I have no budget, staff, or connections to people who have the ability to get new satellite imagery, I cannot show you any recent pictures.

Despite the lack of physical evidence, however, I have good reason to believe that new residential construction is underway in Chongjin. This is because I do have publicly-available imagery of other DPRK cities and towns which are being “upgraded” with new apartment blocks. Recently I wrote about construction in Rason. I will post imagery of additional towns and cities if I get the time.

Read the Daily NK story here:
Rich Traders Invest in Chongjin Construction
Daily NK
Choi Song Min
2012-08-10

Posted in Black markets, Construction, Finance, General markets (FMR: Farmers Market), Real estate | 1 Comment »

Lankov on the North Korean economy

Saturday, July 7th, 2012

Andrei Lankov highlights in a recent Asia Times article some observations (qualitative data) that indicates the DPRK has seen significant growth in recent years. He is careful to qualify his observations with caveats that the level of growth in the country as a whole (as opposed to Pyongyang) remain more difficult to determine.

More expensive shops stocking luxury goods are becoming more numerous as well. Gone are the days when a bottle of cheap Chinese shampoo was seen as a great luxury; one can easily now buy Chanel in a Pyongyang boutique; and, of course, department stores offer a discount to those who spend more than one million won on a shopping spree. One million won is roughly equivalent to US$250 – not a fortune by the Western standards but still a significant amount of money in a country where the average monthly income is close $25.

The abundance of mobile phones is much talked about. Indeed, North Korea’s mobile network, launched as recently as late 2008, has more than one million subscribers. It is often overlooked that the old good landline phones also proliferated in the recent decade. A phone at home ceased to be seen as a sign of luxury and privilege, as was the case for decades. Rather, it has become the norm – at least, in Pyongyang and other large cities.

The capital remains badly lit in night, but compared with the norm of some five or 10 years ago, the situation has improved much. The electricity supply has become far more reliable, and in late hours most of the houses have lights switched on.

Of course, this affluence is relative and should not be overestimated: many people in Pyongyang still see a slice pork or meat soup as a rare delicacy. The new posh restaurants and expensive shops are frequented by the emerging moneyed elite, which includes both officials and black/grey market operators (in some cases one would have great difficulty to distinguish between these two groups). In a sense, Pyongyang’s prosperity also reflects the steadily growing divide between the rich and poor that has become a typical feature of North Korea of the past two decades.

Nonetheless, those foreign observers who have spent decades in and out of Pyongyang are almost unanimous in their appraisal of the current situation: Pyongyang residents have never had it so good. It seems that life in Pyongyang has not merely returned to pre-crisis 1980s standards but has surpassed it.

And how can we explain these developments? Lankov offers three theories:

The first seems to be the growth of private economic activity. Estimates vary, but most experts agree that the average North Korean family gets well over half its income from a variety of private economic activities.

…
The second reason is the gradual adjustment of what is left of the state-controlled economy. Nowadays, North Korean industrial managers do not sit by helplessly when they cannot get spare parts or fuel from the state – as was often the case in the 1990s. Instead, they try to find what they need, often getting the necessary supplies from the private market.

…
The third reason is, of course, Chinese economic assistance and investment.

Read the full story here:
North Korea’s pools of prosperity
Asia Times
Andrei Lankov
2012-7-7

Posted in 2012 food shortage, Black markets, Cell phones, Economic reform, Food, Foreign direct investment, Joint Ventures, Orascom Telecom Holding | Comments Closed

Consumer culture changing DPRK

Wednesday, May 30th, 2012

Arirang News has posted a video on the changes in consumer culture in the DPRK. It highlights just how much things have changed since the days of Kim Il-sung:

Posted in Advertising, Black markets, Cell phones, Civil society, Clothing, Communications, Economic reform, General markets (FMR: Farmers Market) | Comments Closed

China cracking down on DPRK border-crossers and underground economy

Friday, May 25th, 2012

According to the BBC:

China has launched a drive against illegal immigration in a north-eastern region bordering North Korea.

The campaign in the Yanbian Korean Autonomous Prefecture in Jilin province mainly focuses on North Koreans fleeing poverty and persecution at home.

China is known to routinely repatriate North Koreans who often slip across the border undetected.

Human rights groups say many face punishment when they return.

“Foreigners who illegally enter, work and overstay are hidden troubles, and they might pose potential threats to social stability,” Li Yongxue, a police official from Yanbian, was quoted by state-run China Daily newspaper as saying.

The police say they want to stamp out criminal activities to maintain order. They add that those without proper documents will be sent back.

Many of these illegal immigrants have relatives in China, some come to work, while others use China as a staging post before moving to other countries, according to the BBC’s Michael Bristow.

A police officer from the province told the BBC that it was a sensitive year in China, with officials stressing the need for stability ahead of a leadership change this year.

Read the full story here:
China targets illegal immigration at North Korea border
BBC
2012-5-25

Posted in Black markets, China, Emigration | Comments Closed

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