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Inter-Korean exchange, investment reduced as relations crumble

Friday, June 19th, 2009

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-6-16-1
6/16/2009

The amount of inter-Korean exchange has shrunk considerably this year, as tensions between the North and South continue to mount. According to the ROK Customs Administration’s inter-Korean trade office, cross-border transactions between January and April of this year fell 24.8 percent from 2008; trade amounted to 426.35 million USD, down from 566.92 million USD during the same period last year. South Korean imports were down only 9.5 percent, at 260.19 million USD, but exports to the North amounted to a mere 59.4 percent of the amount sent last year, recording 166.17 million USD. 54.9 percent of these goods (by value) traveled across the border by passing through Dorasan Station; 32.8 percent went through Incheon Harbor; 6.4 percent through Busan Harbor, 1.6 percent through Sokcho Harbor; and 1.1 percent passing through Goseong.

In April, with the North’s launch of a long-range missile in spite of the opposition of the international community, inter-Korean trade dropped to 69.2 percent of last year’s level, falling to 105.53 million USD. In fact, inter-Korean trade fell relative to the same month in the previous year eight months straight, beginning in September of last year.

With last month’s sudden nuclear test and South Korea’s subsequent joining of PSI, inter-Korean trade is expected to continue to wither in the latter half of the year. The amount of trade seen from January to April of this year is equivalent to 23.4 percent of the total trade for last year (1.82078 billion USD), and even if the current level of trade is maintained for the rest of the year, it is expected to amount to a mere 70 percent of what was traded in 2008.

Inter-Korean trade had previously been recording significant growth; in 1999, during Kim Dae Jung’s ‘People’s Government’, inter-Korean trade was worth only 328.65 million USD, but began to climb, growing more than five-fold by 2008, topping out at 1.82078 billion USD last year. However, after the launch of the current government, the amount of goods imported by the North from the South began to fall; exports to North Korea in 2008 were worth 883.41 USD, 145.15 million less than in 2007.

North Korean companies involved in processing-on-demand, agriculture and fisheries work have been part of Pyongyang’s trade ambitions, and these companies have also been hurt by the freeze in inter-Korean relations, with dozens of businesses facing closure, and many more severely hit by the North’s shrinking trade.

Posted in Economic reform, Foreign direct investment, International trade, Kaesong Industrial Complex (KIC), South Korea, Special Economic Zones (Established before 2013), Statistics, Trade Statistics | Comments Closed

The Political Economy of North Korea: Implications for Denuclearization and Proliferation

Tuesday, June 16th, 2009

Stephan Haggard and Marcus Noland
East-West Center Working Papers
Economics Series, No. 104
Download paper here (PDF)

Abstract:
Despite North Korea’s turn away from economic reform and the constraints of the second nuclear crisis, the country has in fact become more economically open. But it has emphasized closer economic relations with China and other trading partners that show little interest in political quid-pro-quos, let alone sanctions. Yet the U.S. can still exercise economic leverage by going aggressively after third-party financial intermediaries. This particular form of sanction does not require multilateral coordination, since foreign banking institutions that conduct significant business in the United States have a strong interest in avoiding institutions that the United States Treasury has identified as money laundering or proliferation concerns.

There is some evidence that North Korea moderated its missile proliferation activities during periods when rapprochement with the United States, and to a lesser extent Japan, was a priority, but in the absence of such interest and as legitimate trade, investment, and aid dry up, the incentives to intensify proliferation activities increase.

The internal organization of the North Korean economy has important implications for any policy seeking transformation via engagement. The economy is structured in such a way that outside economic ties are still largely monopolized by stateowned enterprises and other gatekeepers, such as the military. Under such circumstances, the precise design of engagement policies requires very close scrutiny. Even nominally commercial relations can be exploited if the North Korean counterparties believe that they are ultimately political in nature, subsidized and thus vulnerable to blackmail. If economic ties are truly commercial in nature, those choosing to trade and invest with North Korea do so at their own risk. Under these circumstances, private actors will make economic decisions fully factoring in political risk, and North Korea will bear the costs if it chooses to renege on commitments or fails to provide a supportive policy environment.

Paper prepared for the conference on “North Korean Nuclear Politics: Constructing a New Northeast Asian Order in the 21st Century,” University of Washington, June 4-5, 2009. We would like to thank the Smith Richardson, MacArthur, and Korea Foundations for financial support and Jennifer Lee for research assistance.

UPDATE: A shorter version of this paper can be found here.

Posted in 2002 Economic reforms, Arms shipment, Banking, China, Economic reform, Finance, Fiscal & monetary policy, Foreign direct investment, Illicit activities, Military | Comments Closed

Inter Korean trade falls in 2009

Tuesday, June 9th, 2009

According to Yonhap:

Trade between South and North Korea plunged nearly 25 percent in the first four months of this year amid growing tensions on the Korean Peninsula, a report showed Tuesday.

Inter-Korean trade amounted to US$426.35 million during the January-April period, down 24.8 percent from $566.92 million a year earlier, according to the report by the Korea Customs Service.

The decline comes as tensions mounted after North Korea fired a rocket on April 5, prompting the U.N. Security Council to unanimously condemn the move. The North responded by kicking out outside nuclear inspectors and quitting six-party denuclearization talks.

Trade between the two Koreas, which amounted to $328.65 million in 1999, surged more than five-fold to $1.79 billion in 2007 when leaders from the two sides met for the second time. Last year, trade inched up to $1.82 billion.

Experts say that trade is expected to fall further in months to come as tensions are still running high after the North conducted its second nuclear test last month in defiance of repeated warnings by the international community and recently sentenced two U.S. journalists to 12 years in a labor camp for illegally entering the country.

In addition, we pointed out earlier this month that the South Korean government had barely touched the funds it appropriated for inter-Korean projects in 2009.

Finally, although inter-Korean trade has floundered this year, the DPRK’s trade volume reached a record US$3.8 billion in 2008, due largely to its trade with China.

Read the full Yonhap story here:
Inter-Korean trade tumbles amid growing tensions
Yonhap
Koh Byung-joon
6/9/2009

Posted in Economic reform, Foreign direct investment, Kaesong Industrial Complex (KIC), Manufacturing, South Korea, Special Economic Zones (Established before 2013), Statistics, Trade Statistics | Comments Closed

2009 Inter-Korean cooperation fund largely untouched

Thursday, June 4th, 2009

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-6-4-1
6/4/2009

As inter-Korean relations continue to worsen, cooperative projects and humanitarian aid efforts have practically ground to a halt, leaving inter-Korean cooperation funds almost untouched.

According to the report “South-North Cooperation Fund Statistics” released by the Ministry of Unification on May 31, the South Korean government budgeted just over 1.508 trillion Won (1.2 billion USD) to fund inter-Korean cooperative projects in 2009, but as of the end of April, only 1.8 percent (26.919 billion Won) had been spent.

Some projects originally granted funds include financing for the construction of an East Sea line inter-Korean import facility and joint-use yard (8.795 billion Won); capital loans for Hyundai Asan economic cooperative projects (5.739 billion Won); NGO aid to the North, including nutritional supplements for children and soybean oil from the Catholic Seoul Archdiocese (2.933 billion Won); loans to cover expenses of the Kaesong Industrial Complex (KIC) Management Committee (2.08 billion Won); and the construction of a KIC General Support Center (2.444 billion Won).

Use of this fund has hit a low water mark, in part because 800 billion Won allocated for rice, fertilizer and other humanitarian aid has not been spent. A ministry official stated, “Rice and fertilizer aid can only proceed according to an agreement between North and South Korean officials following a request from North Korea, but this year, there was no request from North Korea, and therefore the amount of cooperative funding spent was low.

The South-North Cooperation Fund distributed 674.409 billion Won in 2005, 470.995 billion Won in 2006, 715.734 billion Won in 2007, and 231.205 billion Won last year.

Posted in Foreign aid statistics, Foreign direct investment, International Aid, RoK Ministry of Unification, South Korea | 2 Comments »

DPRK not about to collapse

Sunday, May 31st, 2009

Newsweek has an interesting article which makes the case that the DPRK economy is not as bad as the public tends to think. According to the article:

…North Korea isn’t broke—and its economy has been moving away from collapse in recent years-. The Hermit Kingdom may not be getting rich—the CIA estimates its GDP at roughly $40 billion, ranking 96th in the world. But it’s not failing either, and for the past decade, its economy has grown at an average rate of about 1.5 percent a year, according to South Korean statistics. While Seoul estimates that the North’s GDP shrank by 2.3 percent last year, some analysts say it actually expanded, arguing that South Korea’s recent figures on the North are deflated for political purposes.

To understand how the Dear Leader has managed this, you must first drop a few of the myths surrounding his country. First, the North Koreans haven’t been living in caves for the past two decades, nor is their economy de-industrializing, as is sometimes reported. Instead, with help from Beijing, Pyongyang has revamped its outdated infrastructure in recent years and repaired the mining facilities that were battered by massive floods during the mid-’90s. It now aims to shift from recovery to growth, with a focus on steel production, mining and light-industrial manufacturing.

Second, the North doesn’t have to rely on the black market to support itself. True, Pyongyang has sold missiles to Iran, Syria and Pakistan, and annual revenue from such exports is roughly $100 million, but analysts say that other illicit activities like drug trafficking and counterfeiting add very little to that sum. According to a former U.S. diplomat in East Asia who asked not to be named discussing sensitive intelligence, during the Bush years Washington investigated the oft-heard counterfeiting accusations, and found that the notes in question had actually been produced privately by former Chinese military officials, in China. “The Treasury Department couldn’t find a single shred of hard evidence pointing to North Korean production of counterfeit money,” the American says.

The biggest myth is that North Korea remains isolated. Despite supposedly comprehensive sanctions, Pyongyang today has diplomatic and commercial relations with more than 150 countries, including most European Union members. North Korea trades its abundant gold reserves—estimated at 1,000 to 2,000 tons—in cities like London, Zurich and Hong Kong, and buys and sells shares on the New York Stock Exchange via a legitimate London-based brokerage firm it essentially owns. While there are no figures on the volume of such transactions, the former U.S. diplomat says that such activities are “a substantial source of hard currency for North Korea.” In recent years, European firms have also begun eyeing investment opportunities there; In 2004, the London-based energy firm Aminex signed a 20-year deal with Pyongyang for exclusive rights to explore on- and offshore oil-and-gas deposits. Other companies are looking for ways to exploit the North’s cheap labor supply, and while most of these deals have yet to take off for technical and political reasons, ties to the outside world are expanding. In 2008, the country’s overall trade rose 30 percent from the previous year, reaching a record $3.8 billion, including imports of $2.7 billion, according to Seoul’s Korea Trade-Investment Promotion Agency.

North Korea has proved adept at avoiding restrictions: when Tokyo slapped it with sanctions five years ago, Pyongyang simply reshuffled its deals, turning to the BRIC economies as well as South Korea and Singapore. Meanwhile, China now accounts for nearly three quarters of North Korea’s total trade, sending it crude oil, petroleum and manufactured goods in exchange for coal, steel and rare metals like tungsten and magnesite. The North’s natural resources have become a major growth engine: the Musan mine in the country’s northwest is now said to be one of the largest iron-ore fields in Asia, and could eventually yield 10 million tons of ore a year.

Finally, there’s the southern connection. Despite deteriorating relations between Seoul and Pyongyang, factories at the joint Kaesong Industrial Complex are still operating at full gear, earning the North about $35 million annually—enough for eight or nine No-dong missiles. And that figure was projected (before the current crisis hit) to jump to $100 million by next year, says Lim Eul Chul of Seoul’s Kyungnam University.

I should point out that the CIA estimate of the DPRK’s GDP is among the highest. Most other estimates are below $30 billion for 2008.

Read the full article here:
How Kim Affords His Nukes: The myth of a failing economy.
Newsweek
5/30/2009

Posted in 2002 Economic reforms, Aminex, Arms shipment, Counterfeiting, Drug smuggling, Economic reform, GDP statistics, Illicit activities, International trade, Statistics, Trade Statistics | 2 Comments »

North Korea’s Social Change

Friday, May 29th, 2009

Andrei Lankov has a great interview in The Browser where he discusses social change in the DPRK—from the time of Japanese colonialism through today:

B. Do you think there has been a big change since your first experiences in the mid 80’s?

AL.Huge. It is a completely different country nowadays. This is often under-appreciated. North Korean authorities are doing their best to keep the façade of a non-changing country. When Kim Jong Il became the new leader of the country he said: “don’t expect any change from me.” Change has happened nonetheless, whether the government has wanted it or not. The changes have been very profound and remarkable. Unlike China, it happened against the government’s wishes. Up to the present day, the state has sought to put the genie back in the bottle. They want a return to the situation that existed in the 70’s and 80’s – to a perfect Stalinist state. At same time they are also trying to hide these changes, especially from outside visitors. When you arrive at Pyongyang it looks completely unchanged. My first visit was in 1984, my most recent in 2005. Externally, in these 20 years, it has not changed. The city looks the same but society is now completely different. Under Kim Il Song’s rule until the early 1990’s, North Korea was a perfect Stalinist state. It was a strange mixture of Confucian traditionalism, nationalism and Stalinism. Economically it was very Stalinist, based on total state property; even small private economic activity was discouraged or banned. In the 1990’s the old economy collapsed. It had been inefficient and only survived so long as the Soviet Union and China were willing to provide North Korea with aid. When the aid flow abruptly ended the result was economic disaster. The economy collapsed, with the partial exception of the military sector. In order to survive, the populace had no choice but to rediscover capitalism. It was market economy from below. Until this point people lived on government rations, there was almost no free trade, nearly total rationing of everything. This system was introduced in the late 1950’s and became all encompassing in the 1960’s. Change occurred largely because the government was no longer able to provide rations. Since the early 1990s people were forced to find ways to generate other, independent, means of income. Booming markets began to grow, there was smuggling, farmers began to work on their private plots, low-level officials, sometimes out of compassion but more frequently in search of bribes, began to turn a blind eye on all of this “bad” activity. To all intents and purposes, North Korea is no longer a perfect Stalinist economy. It is more like a country in central Africa, but with a bad and cold climate.

The whole interview is worth reading because it give a concise history of the DPRK through the last 100 years. You can find the full interview here.

Posted in Black markets, Economic reform | 1 Comment »

DPRK brinkmanship damages (non-Chinese) long-term economic investment

Wednesday, May 27th, 2009

If the North Korean government is given to casually breaching its economic, political, and military contracts and agreements, the prospects of serious foreign direct investment in the country look increasingly grim.

Last week the North Koreans canceled their agreements and contracts with the South Korean government which laid the ground rules for the most significant joint-economic project, the Kaesong Industrial Zone.

This week they surprisingly announced that they are no longer bound to the 1953 armistice! According to the Washington Post:

North Korea announced Wednesday that it is no longer bound by the 1953 armistice that halted the Korean War, the latest and most profound diplomatic aftershock from the country’s latest nuclear test two days earlier.

North Korea also warned that it would respond “with a powerful military strike” should its ships be stopped by international forces trying to stop the export of missiles and weapons of mass destruction.

This is bad news for ordinary North Koreans as it will only serve to increase the risks and costs of investing in the DPRK…or at least this is what a simple analysis would predict.

As we have seen recently, however, North Korea has received significant investment in the last few years. Additionally, the DPRK’s international trade volume (excluding South Korea) continues to grow.

How is this possible? The North Koreans are not canceling any agreements and contracts with China or Chinese companies (as far as we can tell).

UPDATE: Chinese fishermen seem to have been affected:

“Chinese fishing vessels have begun retreating from NLL (northern limit line) waters since yesterday. We are working to find out if this is based on North Korea’s request,” Yonhap news agency quoted an unnamed South Korean army source as saying.

Read the full stories here:
North Korea Issues Heated Warning to South
Washignton Post
Blaine Harden
5/27/2009

Chinese ships quit North-South Korea border: report
Reuters (via the Boston Globe)
Lee Jin-woo
5/28/2009

Posted in Foreign direct investment, International trade | 3 Comments »

DPRK 2008 trade hits record USD $3.8billion

Monday, May 18th, 2009

According to Yonhap:

North Korean trade with the outside world, excluding South Korea, hit a record US$3.8 billion last year, a report said Monday, despite rising tensions on the Korean Peninsula.

Trade jumped 29.7 percent compared with 2007, the Korea Trade-Investment Promotion Agency, a South Korean trade agency, said in the report.

Last year, North Korea’s exports rose 23 percent to $1.13 billion with imports climbing 32.7 percent to $2.69 billion, the report said. The country still posted a trade deficit of $1.56 billion for the year.

The report also showed that China’s influence on North Korea’s moribund economy is rising quickly.

The communist nation exported $750 million worth of goods to China and imported $2.03 billion last year.

“North Korea’s trade with China hit a record last year and keeps growing,” the report said.

“In the face of the global economic slump and the North’s rocket launch, North Korea’s external trade is expected to shrink this year. But, China’s influence on the North Korean economy is likely to grow further,” it noted.

According to the CIA World Fact Book, South Korea’s 2008 exports totaled $419 billion.

Read the full article here:
N. Korea’s 2008 trade hits record US$3.8 bln: report
Yonhap
5/18/2009

UPDATE: DPRK trade deficit hits record high in 2008
Institute for Far Eastern Studies (IFES)
NK Brief No. 09-5-27-1
2009-05-27

North Korea’s overseas trade (excluding inter-Korean exchanges) continues to grow, in particular with China, and last year recorded the highest amount of trade since 1990.

On May 18, results of analysis by the Korea Trade & Investment Promotion Agency (KOTRA) of overseas trade statistics provided to the Korea Business Center in countries around the world revealed that last year’s exports grew by 23 percent (1.13 billion USD), while imports shot up 32.7 percent (2.69 billion USD). The North registered a 1.56 billion dollar deficit, but the overall volume of trade (3.82 million USD) was the highest since the North’s trade amounted to 4.17 million USD 18 years prior.

Business with China, traditionally North Korea’s largest trading partner, totaled 750 million USD-worth of exports and 2.03 billion USD-worth of imports, as the North’s dependence on trade with its neighbor continues to grow. In 2003, trade with China accounted for 32.7 percent of the North’s overseas trade, but that grew to 48.5 percent in 2004, made up more than half (52.6 percent) in 2005, and rocketed up to 73 percent last year.

KOTRA reported that the North’s imports from China have grown by 46 percent over the last decade, and that in 2008, both trade with China and trade deficit with China hit record highs. At the recent Pyongyang Spring Trade Exhibition (May 11-14), 167 companies from 17 countries, including vendors from China, Russia, Germany, Malaysia, Syria, Sweden, Singapore, Vietnam and Thailand showed their wares, but China’s overwhelming presence was felt, with over 100 of the companies present were from the PRC.

Business with Pyongyang’s second-largest trading partner, Singapore, accounted for a mere 3.1 percent (123.6 million USD) of overall trade, although that showed a 116.1 percent increase over 2007. Trade with India and Brazil, the North’s no. 3 and 4 trade partners was relatively stable.

With sanctions in effect by the United States and Japan, the North’s exports to these countries were practically nonexistent, although imports registered 52.1 million USD and 7.7 million USD, respectively.

According to KOTRA, “it appears that, aside from China, North Korea’s overseas trade with other countries showed no significant change,” and, “with negative issues such as the global economic slump and North Korea’s rocket launce, this year North Korea’s overseas trade is expected to contract slightly, while reliance on China will grow as China’s economic influence on the North expands further.”

Posted in International trade, Pyongyang International Trade Fair, Statistics, Trade Statistics | 3 Comments »

DPRK cancels Kaesong contracts

Saturday, May 16th, 2009

In what is certainly not good news for foreign investors, the North Korean government has announced that it is unilaterally canceling agreements with the South Koreans regarding the Kaesong Industrial Zone.

According to the Korea Times:

North Korea announced Friday the nullification of all contracts on rent, salaries and taxes at the Gaeseong Industrial Complex, asking the South to empty the industrial estate unless it honors the North’s wishes to amend related laws and rules.

The notification came about five hours after the two Koreas were unable to set a date for talks due to their wrangling over the release of a Southern worker detained by the North.

The North continued, “We are nullifying contracts and benefits on rent, salaries and taxes that we have offered in the Gaeseong complex in accordance with the June 15 Joint Declaration.”

The report added that the North will begin to adjust laws and rules to meet with the current situation.

“South Korean companies and officials must accept the notification, if not, they can evacuate from the complex,” it said.

In the article, Andrei Lonkov makes the following comment:

“North Koreans are clearly looking for some leverage over the South, and it they come to see the park as a hostage project, they will it use to put forward escalating demands,” he said.

He predicted, “If the South Korean government bows to the pressure and makes concessions, there is no doubt that in weeks or months Pyongyang manipulators will make new demands, probably more outrageous.”

“One can hope that the project will survive. Nonetheless, it will become dangerous if Seoul, in trying to save this important project, starts to succumb to Pyongyang’s blackmail. So, the project should be supported, at a cost to South Korean taxpayers, but not at the cost of unprincipled political concessions,” he added.

This has been a rough year for the Kaesong Zone. I have kept a running timeline of events in the zone which you can see here.

UPDATES:

1. According to the Choson Ilbo: “North Korea earns some US$33.52 million a year from the Kaesong Industrial Complex, making the inter-Korean joint venture a significant cash cow for the impoverished country.”

2. According to Reuters:

News late on Friday that North Korea was cancelling all wage, rent and tax agreements with South Korea on the joint Kaesong factory park just north of their heavily armed border weighed on stocks in companies that have production units in the factory park, but had a limited impact on the broader market.

“Seoul market participants have become quite immune to North Korea-related news and tend not to react sensitively unless the development has a scale of impact that may affect South Korea’s sovereign rating,” Lee said.

3. NK pointman on South Korea, Choe Sung Chol, allegedly executed. According to Bloomberg:

North Korea executed a former official in charge of inter-Korean relations, accusing him of allowing the population to develop a favorable image of South Korea, Yonhap News reported.

Choe Sung Chol, who was the point man on South Korea during the Roh Moo Hyun administration that ended in February 2008, was killed last year, the news agency reported last night, citing an unidentified person familiar with North Korean affairs.

While Choe was officially charged with bribery, he was executed for ignoring opponents and pressing ahead with closer ties with South Korea that threatened to make the communist state too dependant on its richer neighbor, Yonhap reported.

4. The Choson Ilbo reports on the productivity of Kaesong’s Northern workers:

The basic monthly salary of North Korean workers at the complex is US$63.4, consisting of $55.1 in wages and $8.3 in social insurance. In addition, overtime work pay amounts to between $11 to 18.3 a month, and a welfare package subsidizing lunches, snacks and transport costs is provided at a range of between $36.6 and 47.9 per month. In total, the monthly salary of a North Korean worker ranges from $110 to 130, which, the companies argue, is comparable to that earned by workers in China and Vietnam.

A survey of some 40 firms operating at the complex was carried out after the first round of talks on April 25 to discover why these firms were having difficulty accepting North Korea’s demands. According to the survey, the productivity of an individual North Korean worker is just 33 percent that of a South Korean worker. In comparison, the productivity of Chinese and Vietnamese workers is 96 and 85 percent that of South Korean workers, respectively.

The companies also argue that it is difficult to accept North Korea’s demand to pay land use fees from next year, considering the fee they paid for building factories there. The fee for building factories in the Kaesong industrial park was $394 per one sq. m of land, compared to $122 in China and $65 in Vietnam.

5. According to the Korea Business Consultants newsletter (May/June 2009):

South Korea’s point man for North Korea said May 18 that the joint industrial enclave at Kaesong, just across the DMZ in the North, is “in turmoil” after the DPRK voided contracts governing the facility the same day, sending shares in firms that operate there tumbling. The KOSPI fell by 0.44 percent upon receipt of the news.

Read more below:
N. Korea Scraps Gaeseong Contracts
Korea Times
Kim Sue-young
5/15/2009

N. Korea declares inter-Korean contracts on Kaesong venture invalid
Yonhap
5/15/2009

N. Korea scraps contracts with South on joint venture amid tension
Yonhap
Kim Hyun
5/15/2009

Cabinet reshuffle
NKeconWatch.com

N.Korean Kaesong Workers’ Productivity Lags Far Behind S.Korean Workers
Choson Ilbo
5/19/2009

Posted in Economic reform, Foreign direct investment, Kaesong Industrial Complex (KIC), Korea Business Consultants, Special Economic Zones (Established before 2013) | 2 Comments »

DPRK government continues to prove price controls ineffective

Wednesday, May 13th, 2009

According to Radio Free Asia:

Government price controls are now being imposed on non-food items in the markets, with frequent spot checks by state security police to monitor sales of sought-after household goods such as spoons, toothbrushes, and candles.

Price tags for more than 35 items were posted at farmers’ markets in Hweryong , Onsung, and Moosan cities in northern Hamgyong province, where North Korea’s poorest people go to buy the hard-to-find necessities of life.

“Market administrators and security agents take turns asking repeatedly about the price of various items,” a North Korean who recently defected to the South said in an interview.

“According to the government-imposed price tags, a toothbrush costs 200 won, a spoon 150 won, and 10 candles 1,000 won.”

This compares with unregulated prices of 250 won for a toothbrush, 200 won for a spoon, and 1,300-1500 won for a bundle of 10 candles.

An average monthly salary for a worker in North Korea is about 2,500 won.

“If someone asks the price, the vendors will be sure to give you the price dictated by the authorities, but they will not actually sell anything for that price,” the defector said.

Another South Korean-based defector agreed.

“When the inspectors come by, they see the official price on the tag, but when buyers come by, the vendors never sell for that price, but for a higher one,” the defector said.

“If buyers ask the vendor to sell for the government-imposed price, the vendors simply tell them to try to purchase for that price from somebody else.”

To avoid the watchful eye of the authorities, some vendors simply avoid going to farmers’ markets, and instead set up small bazaars elsewhere to sell manufactured goods.

The North Korean government has attempted to regulate the markets in numerous ways in the last few years (More history and commentary here). So far the implementation of new rules has proven haphazard, unpredictable, and largely ineffective since the black market is well developed and the levels of bureaucracy involved in the operations are numerous and subject to local manipulation.

The non-uniformity of these market regulations can be seen in the following IFES report:

North Koreans subject to harsher market controls
Institute for Far Eastern Studies (IFES)
NK Brief No. 09-5-6-1
2009-05-06

Good Friends, a non-profit organization working for human rights in North Korea, reported recently that North Korean residents are becoming increasingly discontent due to the government’s strengthening of restrictions on markets.

The group’s online newsletter, “North Korea Today,” reported in its most recent issue (no. 275) that a new list of banned items, presented as the “February 17th policy”, was issued by authorities to women selling goods in the market in Chungjin, North Hamgyong Province on April 10th.

According to a Good Friends source, Party propaganda officials were dispatched to markets in broadcasting trucks in order to announce the new measure, blaring that the selling of goods on the list of banned items would be considered “anti-socialist” activity, and would be punished accordingly.

Other sources report that the ban has resulted in an increase of door-to-door sales, and that those in the market are still willing to take individual orders for goods on the banned list, and then meet outside of the market to complete the deal.

In Hyeryong, North Hamgyong Province and Hyesan, Ryanggang Province, the “February 17 policy” was posted around markets, but the details of the policy were not explained. In the city of Hamheung, market hours were also restricted, with sellers only allowed to operate from 1~6 pm.

The goods restricted were mostly imported wares, with as much as 90 percent of foreign goods banned, and absolutely all South Korean products blocked. Those caught selling restricted items can expect to have their goods confiscated, with additional punishment not unheard of.

So the good news is that these rules make little difference to the actual distribution of goods and services in the DPRK. Of course the bad news is that the North Korean government keeps trying.

The whole story can be obtained here:
Radio Free Asia
Jung Young
5/6/2009

Posted in Economic reform, General markets (FMR: Farmers Market), Price liberalization | Comments Closed

North Korean Economy Watch