Archive for the ‘Economic reform’ Category

What to make of the panic buying in Pyongyang and beyond

Sunday, May 10th, 2020

By: Benjamin Katzeff Silberstein

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[…]

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

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

And, more recently, a report from Pyongyang:

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

PRICE SPIKES

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

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

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

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

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

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

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

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

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

Monday, April 27th, 2020

By: Benjamin Katzeff Silberstein

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

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

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

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

Wednesday, April 1st, 2020

By: Benjamin Katzeff Silberstein

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

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

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

More on this during the weeks to come…

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Of price controls and panic: North Korean market prices under Corona

Friday, March 27th, 2020

By: Benjamin Katzeff Silberstein

(Note: the graphs in this piece are from a shortly forthcoming article on 38 North.)

It’s almost like those mandatory disclaimers that often follow advertisements in the United States, but the statement that all information from inside North Korea is uncertain can sometimes not be repeated often enough. This is especially true in a situation like the current one, where the country’s borders are virtually shuttered, and global anxiety is high to begin with.

With that, let’s take a look at some numbers…

With North Korea’s border closing earlier this year, market prices quickly shot up as consumers most likely hoarded goods in anticipation of future shortages. Particularly curious was the fact that prices seemed to differ so widely between cities, as I wrote about here. This suggested that internal restrictions on movement between localities, a measure the state took to control the spread of coronavirus, were working. A few weeks later, however, both market prices and the differences between cities seemed to go down again.

Differences in rice prices, in percentage, between three North Korean cities, until March 7th. Data source: Daily NK.

So did market prices in general. In the latest price data observation from Daily NK, from March 7th, average rice prices are about 25 percent higher than a year ago, and 29 percent higher than in early December, before the border closure. That’ a lot, but somewhat less than the initial 36 percent increase when the border was closed initially. Even the slightly lower price increase would spell severe difficulties for many North Koreans in buying food. Note: the latest price observation is from March 7th, that is, several weeks ago.

Average rice prices in North Korea, until March 7th. Data source: Daily NK.

So, what happened here? There are two possibilities that I think are more likely and realistic than others. One is that markets overreacted in their initial anxiety. Put simply, people may have thought that supply would become much lower than it ended up being. This is a common mechanism in markets in general. People often react more strongly than called for to anticipated, future changes, and then adapt their economic behavior once it’s clearer what actual conditions of supply and demand are. It’s also possible that the government let up on conditions for imports and trade, easing the burden on supply.

But there is another possibility. Both Rimjingang and Chosun Ilbo have reported that the government has instituted price controls to prevent prices from rising. This was only to be expected, as it is one of the few tools the state has at its disposal to control market anxiety. Price controls, however, are rarely (if ever) effective in the long run in countries such as North Korea. Either trade moves to the black market, or sellers run out of goods as they are forced to sell for less than consumers are willing to pay.

Aside from the two aforementioned reports, there are other potential signs that price controls may be in place. The price difference between Hyesan and Pyongyang/Sinuiju went down to a conspicuously low level, one that is actually lower than normal, a very odd coincidence. It got there only over the span of a few weeks, getting close to the 5,000 won-level reported by Chosun as the price ceiling. As far as currently available information can tell, no conditions changed on the ground. It would be reasonable to assume that at some point, the government may let up on restrictions on trade to ease conditions, but we don’t know whether that has happened yet. Reports of harsh measures against smuggling continue, and such measures would signal to the markets that state enforcement of the border closure remains and will remain harsh. So while in theory it makes sense that prices would go down somewhat after the initial spike, conditions on the ground have not changed noticeably, as far as we know.

So, what might have happened is that at least around March 7th, the government was still somewhat successful at enforcing its price ceiling, at least in parts of the country. One of Chosun’s sources reports that as of March 18th, rice cost 6,300 won per kg in Hyesan, much closer to the initial price level after the border closure. Price ceilings can usually only be enforced for a limited period of time, particularly when real shortages loom of essential products. Prices either rise beyond the ceiling, goods run out, or a black market arises. If the regime is indeed enforcing a price ceiling, and it continues to do so for a long time, perhaps we will see an increase in back-alley markets and other type of economic activity that the government has been relatively successful at curbing by integrating the markets into the official economic system over the past decade and a half or so.

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Rodong Sinmun on state control of economy

Saturday, March 7th, 2020

Benjamin Katzeff Silberstein

A short article in Rodong Sinmun from earlier this month, emphasizing the importance of state (specifically cabinet) control over economic management:

Important Issues Arising in Putting the Economic Work System and Order
on the Right Track

What is important in straightening the economic work system and order at present is, first of all, to intensify the Cabinet-responsibility system and the Cabinet-centered system.

It is also important to adjust the state machinery as a whole to spur economic development and enhance the role of officials.

Besides, it is important to vigorously push ahead with the work of improving economic management.

Author: Ri Yong Nam, date of publication: March 7th, 2020.

 

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North Korean State Party’s CC meeting: of fired officials and coronavirus efforts

Monday, March 2nd, 2020

By: Benjamin Katzeff Silberstein

On Saturday February 29th, the Political Bureau of the Central Committee of the Korean Worker’s Party held a so-called “enlarged” meeting. According to the KCNA report, the meeting dealt primarily with purges of corrupt officials, and coronavirus measures:

At the enlarged meeting acts alien to the party, abuse of power, practices of privileges, indulgence in bureaucracy, corruption and irregularities revealed among senior officials of the Party Central Committee and officials of the Party cadre training institution were harshly criticized and their gravity and consequences were sharply analyzed.

The Supreme Leader clarified the analysis of the issues by the Party Central Committee and its stand on them, and dealt strong blows at the acts alien to the party and unpopular and anti-socialist acts brought up for discussion at the meeting. He called on all the Party officials and organizations to draw a serious lesson from the recent incident, to make steady efforts to revolutionarize themselves and their units and bring about a new turn in the Party work.

The Political Bureau of the Party Central Committee dismissed Ri Man Gon and Pak Thae Dok from the posts of vice-chairmen of the Party Central Committee.

The meeting adopted a decision to disband the party committee of the Party cadre training base which was involved in the practices of corruption and irregularities, and to impose relevant penalty.

It’s not clear precisely what “strong blows at the acts alien to the party and unpopular and anti-socialist acts”, but presumably it refers to corruption. Corruption is one of the most common acts for WPK-officials to get purged (or fired) over, and the formulations indicate that this is indeed what happened here. Some have suggested it may have had to do with shoddy work in the country’s coronavirus measures, but even reading carefully between the lines, I can’t see enough evidence to back that up. “[A]cts alien to the Party” [비당적 적행위],  I would argue, is a clear statement about specific acts particularly alien to the Party’s values. Shoddy handling of specific policy implementation related to the virus does not fall naturally into that category. Moreover, the antivirus measures were praised at the very same meeting. North Korean politics is full of contrasts and mixed messages, but this would be a stretch too far.

The problem with these methods, of course, is that they do nothing to address the long-term issue of corruption. The WPK (and the North Korean state for that matter) lacks institutions for accountability and independent oversight. There is no proper justice system in any reasonable sense of the term. So scare campaigns and setting examples, like the CC meeting in question did, really is the only avenue available. These measures might have some positive impacts in the short run – we don’t know – but in the long run, they make little difference. Kim Jong-un has ostensibly made anti-corruption a priority, but so far, campaigns and sporadic crackdowns are the only visible results. Corruption is obviously bad for the economy, but if it helps people get around draconian laws (as is the case in North Korea) to do business, it might be a net positive for the economy.

The meeting also dealt with North Korea’s efforts to contain the coronavirus. There’s a lot to say about the text, I’ve highlighted (in bold) the part relating to economic affairs:

Discussed at the meeting were issues of taking nationwide top-class anti-epidemic steps in a more thorough-going way and strictly putting them into practice in order to cope with the viral epidemic spreading rapidly around the world.

In case the infectious disease spreading beyond control finds its way into our country, it will entail serious consequences, the Supreme Leader said, noting that the strong measures taken by our Party and the government from the beginning have been the surest and highly reliable, preemptive and decisive preventive measures as this viral infection spreads so rapidly, its incubation period is uncertain and its contagion route is also scientifically uncertain.

An urgent task at present is to supplement and complement the law on the state emergency anti-epidemic and to readjust state crisis control regulations in an orderly way, the Supreme Leader said, emphasizing that the Presidium of the Supreme People’s Assembly, the Cabinet and other related institutions must further strengthen the state anti-epidemic force immediately and push ahead with the work for supplementing and complementing anti-epidemic means, system and laws based on the experiences gained through the on-going enforcement of preemptive and powerful anti-epidemic measures to cope with infectious disease.

The enlarged meeting also discussed measures to deter the influx and spread of the infectious disease in a scientific, preemptive and lockdown way.

No special cases must be allowed within the state anti-epidemic system, the Supreme Leader said, stressing the need to set up a strict discipline by which all the fields and units of the country unconditionally obey to the command and control of the Central Headquarters for the emergency anti-epidemic work and thoroughly execute instructions from it, and to further tighten the system of reporting to the Party and legal surveillance.

He instructed the Cabinet and the Central Emergency Anti-epidemic Headquarters to seal off all the channels and space through which the infectious disease may find its way, and strengthen check-up, test and quarantine under the work system and order already in place.

The meeting also stressed the issue of tightening economic organization and anti-epidemic work under the prevailing situation and conditions so as to accomplish this year’s goals without fail and to thoroughly ensure the life and security of the people.

It is important for the Party organizations at all levels to have clear understanding of the intention of the Party Central Committee and put it into practice, the Supreme Leader said, urging the need for the Party to provide an impetus so that the Cabinet and the economic institutions at all levels could provide proper economic operation and command under the present situation.

The anti-epidemic measures being taken by us is a crucial state affair for the defence of the people and a heavy responsibility of the Party Central Committee, not just the prevention of the disease, the Supreme Leader said, underlining the need for all to thoroughly carry out the decisions and instructions of the Party Central Committee and direct all-out efforts to the security of the country and the life and safety of the people.

The question is, of course, what this means in practice. There is no doubt that the economy is suffering, and not just in terms of sheer growth numbers or the like. Much of North Korea’s imports from China are blocked due to the border closure, and even smuggling is facing heavy clampdowns. Internal travel and movement of goods is heavily restricted. There is, it seems to me, fairly little that the state can really do to balance this all in terms of economic measures, but of course, the state must tell the population that it is doing things and taking action.

(Source: Korean Central News Agency, “Enlarged Meeting of Political Bureau of C.C., WPK Held,” 29/2/2020.)

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North Korea strengthens internal travel restrictions to keep the coronavirus in check

Friday, February 28th, 2020

By: Benjamin Katzeff Silberstein

Daily NK  has reported on the travel restrictions inside the county before, as this blog has covered here and here. This recent report goes into greater detail:

“The No. 2 departments in local Ministry of People’s Security [MPS] offices are placing further restrictions on the issuing of travel documents, and the authorities are cracking down on vans shuttling people around for money,” a Kangwon Province-based source told Daily NK today.

“No. 10 sentry posts [managed by the Ministry of State Security, or MSS] are cracking down on buses and other vehicles moving people. Even local police stations have setup temporary checkpoints to conduct crack downs on vehicles transporting people,” the source added.

It seems like we’re not talking about a blanket ban on travel across provincial borders per se. Rather, the state is banning and heavily restricting certain forms of transportation, especially unauthorized kinds (which otherwise are often  tacitly tolerated, not least through institutionalized bribery). This, too, impacts market trade since the transportation sector is crucial to shuttling goods around the country.

The authorities are thoroughly preventing any vehicles or people from transiting from the border region to the interior of the country and the other way around, sources told Daily NK.

Sources said that anyone who has entered the country from abroad but doesn’t have a document certifying they have been tested for the coronavirus are restricted from travelling. Merchants without proper travel documentation are also reportedly being targeted by the authorities. Even work units involved in construction projects are being restricted from moving around, sources said.

[…]

No. 2 departments in local MPS offices are restricting the issuance of travel documents to everyone unless they are on government orders, Daily NK sources further reported.

Even factory officials who need to travel to other places of the country to collect raw materials have been told to wait until “later” (after the COVID-19 crisis passes over), sources said.

The authorities are also carefully checking container trucks and the baggage compartments of buses for people hitching a ride in these hidden spaces, they added.

There are gaps, however, in the lock down on travel that the authorities are trying to implement.

“Some vehicles, including taxis, are cleverly selecting routes to avoid checkpoints,” the Kangwon Province-based source said.

“People are wearing masks just to avoid getting stopped by the authorities,” he added.

The border regions are of course especially targeted. The state knows it cannot fully close the border shut and thus needs internal controls to be forceful. The mention of certification of testing is interesting and implies that there are ways individuals can take action to test themselves. Perhaps it refers to the medical test teams reportedly dispatched to the border to China.

“There are a lot of ‘storm troopers’ in Kangwon Province who hail from all over the country, which means there’s a lot of people moving around,” the Kangwon Province-based source said. “The authorities can’t completely shutdown the province from the outside because the shock troops need to move supplies into the area for construction projects, but they are setting up multiple check points to block as much traffic as they can.”

The state still needs to continue running its daily affairs, and it’s unclear to what extent construction projects and other things that may be hampered by internal controls have been put on hold. This must be a bureaucratic nightmare to coordinate and often, one hand of the state doesn’t know what the other is doing.

Article source: Kang Mi Jin, “N. Korea further strengthens restrictions on domestic travel,” Daily NK, 27 February 2020, accessed 28 February, 2020.

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North Korea and the coronavirus: why internal controls may be working

Tuesday, February 25th, 2020

By: Benjamin Katzeff Silberstein

At this point, it seems unlikely that not a single case of the coronavirus would have reached North Korea, despite government media claims. The border to China is quite porous even when controls are tight, and the provinces bordering North Korea had seen, as of last week, some 200 cases. The government has ordered schools shut for one month starting five days ago, on February 20th. Unsurprisingly, it has taken special care to protect Pyongyang from the virus, and face mask distribution goes first to the one percent.

The economic effects of all this are very troubling. As this blog has previously noted, markets and society overall seem to be taking the border closure much more seriously than sanctions, and have reacted with much more anxiety than when new rounds of sanctions measures have been levied by the international community in the past. Prices have climbed quite drastically, as we shall look at in some detail in this post. They have risen by much more in Hyesan than in the rest of the country, which tells us something interesting about the government’s internal controls. That differences in market prices are increasing could be a sign that internal controls on travel across provincial boundaries are being enforced quite effectively. When traders cannot as effectively move their goods to where demand is the highest, prices will increase. One also has to bear in mind that Hyesan is very dependent on trade with China to begin with, and we should therefore expect prices there to increase disproportionately.

(My apologies for the awkward look of the graphs — please click for full size!)

In normal times too, prices tend to be higher in Hyesan than in other cities. But usually not by that much. Notice what happens around  January, though: prices skyrocket all over the country but they do so by much more in Hyesan.

This is particularly evident when we look at price differences. Normally, prices are between 5–10 percent higher in Hyesan than in both Pyongyang and Sinuiju. Since the border closure, however, they have gone beyond 20 percent over both cities, according to price observations from the past few weeks. 
Again, the border closure to China may be a central part of the explanation. But rice itself isn’t typically a good that North Korea relies so much on Chinese imports for. We don’t know the precise proportions, but likely, most rice consumed in North Korea in an ordinary year is grown within the country. A likely conclusion is, therefore, that the closure of provincial borders within North Korea is being enforced with some efficiency, making it much more difficult for market traders to transport goods such as rice between different markets in the country. This adds to the already stark economic difficulties from the closure of the border to China. Many other prices have risen drastically as well: gas prices in Hyesan are now 46 percent higher than in late December of last year, and 38 percent higher in the country as a whole. The government has attempted, reportedly with some success, to institute price controls on the markets, but as the story goes with such state attempts in general, they are unlikely to last as black markets arise to respond to shortages.

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Did North Korea really see its best harvest “on record last year?

Friday, January 17th, 2020

By: Benjamin Katzeff Silberstein

As I and Peter Ward discovered some weeks ago, the claim by Kim Jong-un that North Korea had its “best harvest on record” did not make it into the English-language summary of Kim’s plenum speech put out by KCNA. Several media outlets have picked up on this claim, and that is not surprising. Not even a year ago, last spring and summer, both the North Korean government and UN organs sounded the alarm bells that North Korea’s harvest was so disastrous as to suggest a famine might be looming.

So what happened?

First of all, it should be noted, as always, that one must be extremely cautious in studying data on anything related to the North Korean economy. Most people who follow North Korea are well aware of this but especially when it comes to an issue like this, one cannot be cautious enough.

I focus here on the claim by Kim that the harvest was the best “on record”. It may well have been a good harvest, or at least a much better one than anticipated. This seems to be the case. The only attempt I’ve seen at a numerical estimate comes from South Korea’s Rural Development Administration. They estimate that North Korea’s harvest grew by around two percent in 2019 over 2018. This sounds fairly plausible and could perhaps be explained by weather conditions unexpectedly improving, or fertilizer donations from China, and the like. Or the government and FAO’s projections were simply wrong from the beginning.

To understand why it is so unlikely that this year’s harvest would be the best on record, we have to look at what ‘the record” really says. The following graph shows North Korean harvest figures between 1990 and 2017, as recorded by the FAO. These figures are not independently recorded or verified but, to the best of my knowledge, generated by FAO in cooperation with the North Korean government, or provided directly by the government. Usually, that would be a problem, but here, it’s actually quite helpful since it helps us analyze the claim about the “record”.

Graph by NK Econ Watch/Benjamin Katzeff Silberstein. Data source: FAOSTAT.

I downloaded these numbers from the FAO database some months ago. For whatever reason, I’m unable to access the data at their website at this time of writing, and therefore, can’t fill in the data further back. This data also differs somewhat from other data on North Korean harvests from the World Food Program and FAO. Still, they match quite closely with other data the two organizations have published in recent years about North Korean food production. Again, keep in mind that this data is produced and published in concert with the North Korean government. In that sense, these numbers are the “record”.

Over the past few years, estimated harvests have gravitated between four and five million tons in milled rice equivalent.  (You can read more here about what that actually means.) In 1993, North Korea’s record of harvests notes 7.5 million tons. Harvests hovered around 8 million tons in the 1980s – again, to the best of my recollection, as I can’t access the FAO statistics database numbers of North Korea at this time of writing.

Graph by NK Econ Watch/Benjamin Katzeff Silberstein. Data source: WFP/FAO. 2019 is a projected figure.

For Kim’s claim to be true, therefore, this past year’s harvest would have had to go from around five million tons in 2018, to surpassing eight million tons in 2019. I am no agricultural economist, but Kim would likely need something like a miracle of nature for this to happen. I am not aware of North Korea’s landmass suddenly doubling, for example, or the amount of arable land increasing by one third overnight. Therefore, Kim’s claim is most likely, beyond reasonable doubt, simply not true. Note also that outlets such as Daily NK have reported that the government has taken predatory measures against grain trade as a result of what the outlet describes as “poor agricultural yields”.

In other words, there is very little to back up the claim made by Kim (and subsequently by North Korea-affiliated Choson Sinbo). This claim is a break with a pattern over the past few years, where North Korean media has been very frank – often, probably exaggerating – in describing difficulties and damage caused by flooding and inclement weather. There are several reasons why this may have changed with regards to the harvest. For one, food security a very basic need for any country. With bad food security, North Korea appears weak in the face of sanctions. It would hardly be the first time the North Korean government lied for strategic, propaganda purposes. It is also possible that harvests were much better than anticipated, and that Kim’s claim is merely a strong exaggeration. Perhaps “best on record” should be read as a superlative, rhetorical claim rather than a literal one. At the end of the day, we simply don’t know, and the ways of the inefficient North Korean bureaucracy are mysterious.

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How the North Korean government manages the economy

Thursday, August 8th, 2019

By Benjamin Katzeff Silberstein

One of the most poorly understood aspects of policy change in North Korea in the past few years is the extent to which the North Korean government manages the economy in some ways like any government would in a market economy. Consider, for example, this story by Daily NK:

Amidst signs that housing prices in North Korea are falling due to economic stagnation, the authorities are assessing the state of the housing market in order to implement measures to stabilize the situation.

“The authorities recently began a survey of housing prices and will likely intervene in transactions and setting house prices,” a South Pyongan Province-based source told Daily NK.

The authorities have also begun to set prices for land designated for urban housing plans as part of efforts to control housing transactions, the source added.

These efforts are ostensibly aimed at setting an upper limit for house prices, but the authorities have yet to announce any official numbers.

The aim appears to be to prevent price spikes and ensure that buyers and sellers can conduct transactions within a stable housing market.

In North Korea, the state traditionally owns all land and housing by law, which is supposed to mean that the government provides housing to its citizens without any monetary transactions.

After the widespread famine in the 1990s, however, residents acquired the “right to use” housing and began conducting housing transactions on the basis of market prices. Even before the economic crisis, North Koreans in the upper class engaged in housing transactions on the black market, although such transactions could typically be considered a form of housing “trade.”

These changes came about because North Koreans began proactively taking advantage of the “right to use” housing. Essentially, the authorities gave them the right to inherit and transfer the ownership of the houses they lived in, and North Koreans actively bought and sold these rights on the market.

“The authorities have invested a massive amount of money in building new housing and these efforts have led to an increase in ‘donju’ who have made money out of the projects,” said the source. “The authorities probably thought they needed to step in and control the housing market because of the sheer number of new apartments.”

Full article and source:
Government conducts survey on housing prices in North Korea
Jang Seul Gi
2019-08-05

Now, we still know very little about how these market interventions may come to work. The state just stepping in and fixing prices may be it, but measures like that tend not to work for long.

Consider, also, this story about how the government may come to lower market stall operations fees on some markets. The reason cited is the general economic downturn (presumably following sanctions). In lowering fees, the North Korean government is doing what most governments would do in that situation: launching a fiscal stimulus, of sorts. By lowering taxes (because that’s essentially what these fees are), the government is hoping to stimulate economic activity.

Whatever language it may use to describe how the economy works, this is market management, albeit not of a very sophisticated kind.

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