North Korean Economy Watch

Daily NK
Moon Sung Hwee
12/4/2007

An internal source conveyed on the 30th that due to an extreme decree which prohibits all sales of medical goods, the suffering of citizens has been increasing.

The source maintained that “In August, the sale of medical products was banned, and by the start of anti-socialism inspections in September, no medical products could be found in the jangmadang.”

The North Korean authorities have long since stated its position in prohibiting the sale of medical goods, saying that the sale of medical goods in the jangmadang is a show of democracy that undermines the national medical system. However, regulations usually never went beyond formalities.

Recently, however, anti-socialism inspections have been conducted on a large-scale in Yankang with the theme of “Abolishing capitalist trends in the market.” Medical products, which are mostly from China and South Korea, have been regulated more aggressively. Some have said that the authorities have strengthened regulations due to frequent incidences involving Chinese sub-standard medical products.”

With the harbinger of regulation of medical products, pharmaceutical vendors have sold medical products to their acquaintances on a limited basis. The price has increased significantly as well. Chinese-made aspirin, “Zhengtongbian”, which costs 20 North Korean won per pill, has hiked up to 30 won. A bottle of anti-diarrhea medicine has increased from 150 won to 300 won and penicillin from 120 to 200 won.

Especially the smuggling of Electrolyte Solution, used in IV’s to hydrate hospital patients, has stopped due to regulations, causing a jump in price.

From mid-August to the end of October, the anti-socialism inspections in Hyesan, Yankang were cooperatively conducted by the central Party, the Prosecutor’s Office, the National Security Agency and the People’s Safety Agency. Along with the strict regulation of cell phones, the market, and capitalist “corruption,” the medical goods ban has cast a heavy burden on the civilians.

“Good Friends” reported in October that “Thirty people have been incarcerated as a result of the anti-socialism inspections in Yankang since mid-August, and regulations have tightened.”

When the sale of medical products completely ceased in the markets, citizens and doctors who must treat their patients have been extremely disgruntled.

The source said, “People have to go to the homes of pharmacists in order to buy medicine, but they cannot if the pharmacists do not know them personally. The price has increased dramatically due to the regulations of medicinal products.”

“Even hospitals do not carry medicine and there is no way to procure them, even at doctors’ request.” Doctors have complained, saying “Are we supposed to just sit by and watch the sick people?”

A majority of medical products that could be found in the markets were Chinese-made contraband goods. In some cases, Party leaders or army hospital leaders have illegally procured medicine as well.

The source commented that when civilian discontent rose, the Party Municipal Committee explained the cause of the cease in sale of medical goods as, “In a socialist society, hospitals have guaranteed medical goods, but during this temporary time of suffering, some immoral people have hoarded the national medical supply and are making a profit.”

Daily NK
Yoon Il Geun
12/3/2007

An inside source told the Daily NK recently that about 20 to 30% of business agents in Pyongyang are university students.

Since the late 90s, college students started working as agents between artifacts buyers and sellers.

Pyongyang middlemen usually connect local merchants in border area and retailers in Pyongyang. Besides trading foreign goods, they also took part in artifact business around Kaesung, which was the capital of Koryo dynasty from 10th century to late 14th, and thus full of ancient artifacts.

College students lack funds, so their only way to earn money is to be agent.

The insider said “Pyongyang’s college students are the smartest and known for their business skills. Among them, students from Kim Chaek University of Technology are best. It is reasonable to assume at least two out of ten students have become working as trading agents since the March of Tribulation in 1990s.”

“Students are perceived as trustworthy because they are from middle class families. And those who are from local provinces and studying in Pyongyang have advantages.”

Most of these business-practicing students are former army veterans, especially those who are interested in earning money rather than studying. A few poor students who have not enlisted do business.

According to the source, these students rarely attend classes and bribe school college administrators in order to graduate. During “farming supporting period” every spring and autumn (every college student is mandatory to work at farms twice a year), business-students are exempt while buying food for those who participate.

A defector from Pyongyang said “There is little to learn at universities and society is changed to capitalist, so there is no shame for doing business among college students. The other reason might be influx of army veterans into colleges.”

Daily NK
Jung Kwon Ho
12/3/2007

The North Korean authorities are intensifying efforts to crack down corruption and embezzlement prevalent among party cadres.

Lim Sang Il (pseudonym, 43), a native of Pyongyang, said, “The state excommunicated and dismissed both the chief secretary of the Party in the Daedonggang district and the head of the foreign currency-making activity organization. They were found to have embezzled money earned from cocoon business for the past ten years.” Mr. Lim, currently staying in Dangdong, China visiting relatives, said, “Words are circulating around that they extorted over 10 million dollars.”

Mr. Lim said, “The factory manager of the Sangwon Cement Complex located near Pyongyang took his life when he heard the news that he was suspected of corruption and the state inspection group against anti-socialist trends was about to come down to see him for inspection.”

“This manager was notorious for corruption. For years, he had extorted money from the factory and used it for his own use,” Mr. Lim said. “It was widely gossiped that this man killed himself because he knew that his would receive capital punishment considering the severity of his corruption.”

A source from Sinuiju in North Pyongan said in a phone conversation with DailyNK on the 28th of November, “The chief secretary of the local Party in Woonjeon, North Pyongan Province, was expulsed from the party and fired from his job after he was found to have extorted money allocated for public construction works.”

“There are constructions going on in Woonjeon, tearing down old houses and building new ones,” the source said, “However, no one has ever asked people’s permission for constructions in the first place and provided temporary housing for people until the completion of construction works, and that, of course, angered many people.”

“All of a sudden, those without money ended up being homeless whereas those with money became able to purchase two to three houses at affordable price,” said the source.

“Expressing their anger aggregated over time, the local people led by the old directly sent a written protest to the central Party and filed a complaint,” the source said. “After all, the inspection group had to come down to Woonjeun and dismissed the chief secretary of the local Party and head prosecutor.”

“The inspection group discovered that these men were hiding a significant amount of money in their houses,” the source said. “It was so much that the inspectors couldn’t count the money and had to weigh stacks of bills in the scales.”

“Conspiring with the construction manager, the chief secretary accumulated money by overpricing construction materials and selling newly constructed houses,” said the source. “The head prosecutor accepted huge bribe on condition that he should turn down pouring complaints and contesting reports from the locals.”

In regard to the recent incident where some machinery from the Suncheon Vinylon Complex was smuggled to China, the state has dismissed many high-ranking officials implicated in the smuggling such as the chief secretary of South Pyongan Province, the chief secretary of the local Party in Suncheon, the city’s public prosecutor, and director of safety agency and foreign-currency making organization of the city.

Yonhap
12/2/2007

The two Koreas have agreed on the daily schedule for a cross-border freight train that will resume service later this month for the first time in over 50 years, the South Korean Unification Ministry said on Sunday.

The prime ministers of South and North Korea met in Seoul last month and agreed to restart the railway service, which will traverse the heavily armed border, on Dec. 11. The train will run between the South’s Munsan station and the North’s Bongdong station as a follow-up to the October summit between their leaders in Pyongyang.

The ministry said a freight train will depart from Munsan at 9:00 a.m. each weekday and reach the North Korean border station of Panmun before returning to the South at 2:00 p.m.

The train, which will not operate during weekends, will extend its route to Bongdong once the construction of a cargo-handling facility there is completed, the ministry said. The Bongdong station serves as a gateway to an inter-Korean industrial park in Kaesong.

The soon-to-be-resumed service is expected to facilitate transportation of raw materials and manufactured goods between South Korea and the North’s Kaesong park, the ministry said.

The 19.8-km route between the two Koreas was severed in the midst of the 1950-53 Korean War and has since remained closed.

Yonhap
Nam Kwang-sik
12/2/2007

The first South Koreans to tie the knot in North Korea wed in a ceremony at Mount Geumgang, a scenic North Korean mountain frequented by South Korean tourists, tour company Hyundai Asan said on Sunday.

Choe Jeong-in, a 32-year-old employee of Hyundai Asan, and Cho Ah-ra, 24, who works for one of Hyundai Asan’s business partners, married in a ceremony at a Mount Geumgang hotel on Saturday, three years after they first met while working at the North Korean resort.

Electonic Times News (South Korea)
Hat tip DPRK Studies
Gil-soo Jang
11/30/2007

South and North Korea team up to develop a version of ‘Hana Linux (tentatively named)’ and set standards.

Reunification IT Forum (South), Chosun People’s Science Technology Association (North) and Chinese Information Society co-hosted ICMIP 2007 in Yenji, China on November 27 to 28.

At the conference, IT experts from two Koreas agreed on the need for cooperation in the Linux sector and developing ‘Hana Linux.’ Besides, the two parties will pursue other projects such as Open Office, an internationally certified (CC) office suite, and developing Korean language for excellent open software.

Such a proposal was initially made by president of Hee-tak Moon of Korea Open Source Software Association (KOSSA) to the North counterpart. A detailed plan will follow at the Speical Duties Committee (SDC) which will be formed soon by two Koreas and China.

President Ho-ik Seok of Reunification IT Forum, Secretary General Kyung Chon of Chosun People’s Science Technology Association, and President Ryong-woon Hyung of Chinese Information Society agreed to five points at issue and to create expert working groups and the SDC soon.

The three parties also consented to nurture software professionals and, as part of that effort, to base Yenben and Dandung of China, and Pyongyang, Kaesong and Hoichun of Korea as training centers. Moreover, they will consider sharing information by establishing an IT exhibition hall, library and history archive.

To further the agreement and issues, IT experts decided to hold an international conference in Pyongyang in the first half of next year to bring IT professionals together.

They were in agreement that there are differences in IT terminology between South, North Koreans and Korean Chinese and agreed to make efforts to standardize the terms.

Daily NK
Kwon Jeong Hyun
11/28/2007

A source inside North Korea reported on the 26th of November that the country’s food distribution system did not operate properly and the regime strengthened its control over the market in the Pyongyang areas in the second half of November.

“Most residents of Pyongyang’s core districts such as Joong and Botongang district received their food rations. However, only a half of those who live in Moonsu-dong, Chungryu-dong and Soryong-dong of the Daedonggang district received their rations,” the source said.

“An announcement was displayed on a board in front of the Soryong- 2- dong distribution office in the Daedongdang district, stating, ‘Rice to be redistributed as soon as enough rice is secured,’” the source said. The source added that the crop distributed to the people was composed of 80 percent Annam rice and 20 percent corn, and many people complained about its poor quality.

The North’s food distribution system has worked out well in the west Pyongyang area such as Joongu, Botongang and Pyungcheon district. However, the regime has intermittently distributed food rations to residents in the east Pyongyang area such as Daedongang, Dongdaewon, and Sungyo district.

For instance, in August, no food was distributed in the east Pyongyang area. In September, only a half of residents in the area received food rations. In the following month, all received their food. In November, not all received their rations as in September.

When there is no food distribution, people have to procure rice by themselves in the market.

Unfortunately, that is not an easy task. Since the North Korean authorities have fixed the price of rice at 700 won/kg in the markets of Pyongyang, many merchants are not willing to bring out rice for sales. Instead, they clandestinely sell rice at 1,300 won/kg only to individuals with whom they are acquainted.

The price of rice went up to a high of 1,800 won/kg in the mid October, but now remains steady at 1,300 won/kg. As long as the regime tries to control the price of rice, few merchants would sell rice in the open market, thus contributing to a hike in prices.

In the mid November, corn was sold at 500 won/kg, pork at 3,000 won/kg, an egg at 200 won each, Chinese cabbage at 500 won/kg, and domestic cabbage at 300won/kg in the markets of Pyongyang. The rice of cabbage has rapidly dropped as the state released cabbage into the market because November is a season of preparing Kimchi for winter. Domestic cabbage was sold cheap due to its poor quality.

The regime continues to control the markets in Pyongyang. It prohibits all females under 48 years old from doing business in the market. In addition, merchants are not allowed to sell more than 15 items. The regime enforces its market regulatory measures by having organized groups of inspectors composed of young people and ordered them to regularly patrol markets.

The source said, “As the food situation is getting worse and the state is intensifying its control over the market, Pyongyang citizens begin to express a sense of disappointment with South Korean President Roh.” The source said, “After the inter-Korean summit meeting, many fostered the hope that President Roh would help solve food shortage problems and the regime would adopt reform policies. However, that did not happen. As the state tightens its control over the market, life has gotten tougher.”

“Some even went to so say that President Roh should not have come to the North,” said the source, echoing the uneasy sentiments among Pyongyang citizens.

Institute for Far Eastern Studies
NK Brief No. 07-11-27-1
11/27/2007

Following Kim Jong Il’s August 26 announcement that, “Markets have become anti-Socialist Western-style markets,” measures to increase restrictions on markets across North Korea have also restricted individuals’ ability to migrate.

The Central Committee of the (North) Korean Workers’ Party released a statement in October, revealing that Kim Jong Il had stated, “The current state of anti-socialism should not be moderately opposed. A strong and concentrated attack must be laid out in order to thoroughly eliminate [this anti-socialist behavior].”

According to the Daily NK, an informant inside North Korea revealed that authorities are “contacting people who have applied for permission to travel to other regions at their trip destination and setting up interviews in order to verify that interviewees are conforming with their [stated] intentions,” and, “ultimately, long distance wholesalers are restricted in their movements, cause a reduction in the amount of goods circulating on the markets.”

Good Friends, a South Korean NGO for North Korean aid, also reported, “In North Hamgyung Province, if someone is absent from work for two days or not seen in their neighborhood, that person’s actions are carefully investigated,” and, “if someone does not check out, each of their family members are called in for interrogation.”

After the ‘Arduous March’, as market activity grew in North Korea, the number of whole-saling ‘middle-men’ grew considerably. These traders received travel permits by applying under the guise of visiting authorities, family matters, special occasions, or other personal reasons. Long-distance traders need a travel permit. In order to get such a permit, cash or goods were frequently offered as bribes.

Now, as it is becoming more difficult to receive travel documents, not only long-distance traders but also even normal vacationers are facing growing difficulties. In particular, people who need to travel to China for family visits are especially worried due to the increasingly strict issuance of travel permits.

The insider reported, “As markets grow, because wholesalers are gaining power as they make large amounts of money, authorities seem to be strongly restraining them,” and “if a wholesaler is caught, his goods are taken, leading to difficulties for market traders.”

According to a North Korean defector in the South with access to DPRK information, university students in Pyongyang are also being subjected to increasingly strict personnel inspections and restrictions. Even when they go to the library, they must fill out an exit record and can only remain out for one day before student leaders pay a visit to their home.

Students not strictly obeying school policies have their bags and pockets searched while being put under investigation and being further restricted. Of course, in the past, as well, students with problems faced inspections of their dormitory or personal goods, but recently, inspections of even everyday students are on the rise.

Yonhap
Lee Joon-seung
11/23/2007

North Korean graphite material made at an inter-Korean joint venture factory is being shipped to South Korea, the Commerce Ministry said Friday.

The 200-ton shipment from the factory near the city of Haeju left the North Korean port of Nampo earlier in the day and is expected to reach Incheon on Saturday, the Ministry of Commerce, Industry and Energy said.

“The shipment is significant because it is the first time that products made from minerals in the North have been shipped to the South after being manufactured at an inter-Korean joint venture company,” a ministry official said. The graphite can be made into heat-resistant bricks, pencils, ceramic melting pots and car brake linings.

South Korea’s state-run Korea Resources Corp. (KORES) holds a 50 percent stake in the US$10.2 million graphite processing plant along with the North’s Kwangmyung Trading Co.

The factory can produce 3,000 tons of processed graphite every year, with KORES entitled to 1,830 tons for 15 years as payment for its initial investment. The amount is equivalent to 15 percent of the graphite products the country imports every year. China, Japan and Germany are currently South Korea’s main suppliers of the material.

The state-run company signed the contract for the joint venture in July 2003, and commercial production began in April of this year. Initial test production began in April 2006.

The ministry also said the Jeonchon mine near the factory is estimated to hold 6.25 million tons of crystalline graphite ore.

Wonjin Co., a local carbon refractory brick manufacturer, signed a contract in September with the KORES to buy all the graphite from North Korea and market it in South Korea.

Daily NK
Yoon Il Geun
11/23/2007

Unlike its external gesture towards openness as observed in the case of a recent agreement to expand South-North economic cooperation, the North Korean authorities regulate market activities at home.

On October 3rd, the Workers Party delivered a public message that urges the North Korean people to have a proper understanding about the market and to eradicate anti-socialist activities which threaten people’s interest. According to the message, the state bans females who are less than 40 years old from doing business and orders them to get back to factory complexes.

In regard to the recent regulation imposed on the market, many experts on North Korean affairs explain that the North Korean authorities are trying to hold in check a nouveau riche class who have made a fortune in the market and stop the infiltration of foreign culture and news into the society.

Experts believe that the North has decided to regulate the market, the very source of living of its people because it posed a treat to the Kim regime.

◆ The growth of the market since the mid 1990s

In 1990s, the country’s economy collapsed and the state failed to distribute food to its people. Many starved to death, and those survived turned to the market

In those days, despite the state’s tight regulation, the North Korean people had to make their living by either selling in the market or smuggling to China anything they could find in the sea, mountain or river such as fish, pine mushrooms, hemp, alluvial gold, etc. Some even stole metal such as copper and white gold from refineries or dismantled equipments from plants or factory complexes, and smuggled them to China.

Many North Koreans were able to secure the minimum amount of purchasing power by selling national resources overseas. Moreover, many defectors started to send money to their remaining family members in the North, and helped secure the purchasing power of their family. It was around this time when Chinese goods started to flow into North Korea and a new type of market began to grow. The new type of market differed from the state-approved farmer’s markets in the past. For the first time, it became possible for North Koreans to earn bread for a day in the market.

◆ The growth of a new type of market

On July 1, 2002, the nearly bankrupted country adopted an economic improvement measure designed to improve the competitiveness of factory complexes. As many individuals illegally sold national resources overseas and factories were shut down, the state ran short of revenue and became unable to give wages to workers, officials and college professors. In order to solve the shortage, the state began to issue paper money to fill national treasury.

Unfortunately, that increased workers’ wage 10 to 15 times on average. Moreover, the exchange rate which was about 220 won per dollar on June 30, 2002 increased to 1,800 won per dollar nine months after the adoption of the July 1st Economic Management Reform Measure.

Foreign Policy, an American magazine of global politics listed North Korea once again this year as one of the world’s worst currencies and pointed out the problem of the country’s skyrocketing inflation. The magazine also pointed out that the price for rice has increased by 550 percent since the adoption of the July 1st Economic Management Reform Measure. It should be noted that rice is one of those items whose prices have increased the least.

◆ The more the market grows, the more it threatens the regime

As inflation continued, more people turned to the market to make a living and started to manage their economic life independently. Having noticed that, the authorities began to worry what kinds of changes the market would bring about.

The authorities’ foremost concern lies in the rapid spread of foreign information through the market. As North Koreans’ preference for products from South Korea and Japan increases, so does their interest in these two countries. Many defectors say that a countless number of foreign VCDs have been circulated among people through the market.

In addition, the state has lost authority as more people relied on the market and became self-sufficient and individualistic. Prevalent corruption has also undermined its authority.

Lastly, illegal activities have increased so much that they are threatening public security. In fact, the North Korean people nowadays would do anything to make money.

For instance, many party cadres, hospital workers and Red-Cross personnel are stealing aid supplies sent by the United Nations and advanced countries, and army personnel are selling military provisions including rice in the market. Furthermore, many violent crime incidents and lootings are taking place in the areas not under the government control.

“The army and gangsters are savagely looting the market” says a woman in her 50s says recalling her visit to Hwanghae Province prior to coming to Dangdong, China.

◆ The impact of adopting market regulatory measures

The growth of the market will likely deepen the crisis of the Kim regime. Any measure designed to restrict the market would backfire among people.

Since the second half of the year, the North Korean authorities have been promoting market regulatory measures in the hope of protecting the regime. Some have raised a possibility that the North might try to restore its public distribution system using international aid. However, unless the North continues to open its door, the country would never secure an amount of food enough to run the distribution system again.

“Kim Jong Il is aware of the importance of the market for people’s survival, so he tacitly approves its existence. However, when he feels that capitalism is spreading too quickly, he would try to control it.” says Gao Jingzhu, professor of Korean studies at Yanbian University.