North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
2013-6-7

Under the new leadership of Kim Jong Un, North Korea has been making gradual changes with new economic measures. Last year, task force was installed at a state level to configure new economic measures and details are being released one by one.

Details confirmed thus far include the authorities of the administrators of cooperative farms and enterprise are being expanded, which include surpluses can be disposed at the discretion of the administrators of individual organizations. This means voluntary incentives can be now paid to workers to increase production.

The North’s key industries of agricultural and industrial sectors were first to implement such change. The AP reported on April 1, the administrators of cooperative farms and factories were granted the discretionary rights for the promotion of production.

Specifically, the cooperative farms installed smaller work units and each unit of the organization are directly responsible for all the harvest. Whereas all the harvest were required to be sent to the state in the past, surpluses are now can be stored, sold, or exchanged with other goods.

In the case of factories and enterprises, worker’s wages were strictly controlled by the state but after the change, each factory and enterprise can now pay incentives to workers depending on the production results.

Professor Ri Ki Song at the North Korea’s Academy of Social Sciences stated, “individual workers are able to work more to earn more,” and “such policy decision was enforced from April 1 after a period of trial operation.”

New economic measures by the cooperative farms, factories and enterprises that granted each organizations the rights to freely dispose its surpluses is analyzed as an effort to increase production by granting incentives to workers. Increased production is expected to attract active participation of the people in the new economic measures, to achieve a ‘virtuous cycle’ in production.

The increase in goods exchanged between people is changing the existing distribution structure. North Korea is making efforts to ease the planned economy structure in commercial and distribution sectors. In other words, the number and variety of products distributed domestically is increasing and the state is intervening to amend the existing distribution system and strengthen the discretion rights of commercial and industrial institutions.

North Korea’s release of this information regarding the new economic measures to AP and other foreign media after it gained the confidence to properly manage the new economic measure from the successful pilot projects of the new economic measures. However, information released to the foreign media is still limited and changes in other areas including banking and finance sectors remain unknown.

According to Yonhap:

Production at the Kaesong Industrial Complex grew 17.5 percent last year from a year earlier as South Korean firms employed more North Korean workers, which raised output, Seoul’s Unification Ministry said Thursday.

The total output by the 123 South Korean firms operating in the inter-Korean economic project zone is estimated to have reached US$470 million during the one year period, according to data released by the ministry handling inter-Korean affairs.

The total number of North Korean workers employed at the industrial park in the North Korean border city of Kaesong, rose to 53,507 as of the end of 2012, up from 49,866 a year earlier, according to the data.

You can read the full story here:
Output from Kaesong complex jumps 17.5 pct on-year in 2012
Yonhap
2013-1-10

NPR correspondent Louisa Lim posted an interesting report on economic and social changes in the DPRK.

You should listen to the full report here.

Here are a few interesting highlights:

“In the past, our husbands would bring home rations, and we’d live off that,” says Mrs. Kim. “Now there are no rations, and the women support the families. If we don’t make money, they starve, so life is hard for women.”

…

In North Korea, Mrs. Kim gets up at 4:30 each morning to feed the animals she sells, and also brews alcohol illegally. Every minute of the day is spent figuring out how to feed her family, including an adult son and daughter whose state-run jobs do not provide enough to live on.

Meanwhile, North Korea’s men still remain tied to the country’s moribund state-run institutions.

“If you don’t go to work, you go to prison,” one male interviewee tells NPR. The one escape is a system where some men, like Mrs. Kim’s husband, pay between 20 to 30 times their tiny monthly salary not to work.

They make the payments in order to be classified in what are known as “August the third units,” who can trade privately. It’s not clear whether this practice is legal, although it is widespread. Anecdotally, the women hint that they often are the ones to decide whether their husband’s skills are actually worth paying such sums of money.

…

“I don’t know if you can call it power, but women do what men can’t do, so we can speak louder now,” she says. “In the past, we obeyed our husbands. But now they can’t make money. Women have to make money and feed them. Women have become the heads of the family. They make the money and buy the food. Men cannot say what they want.”

She admits her friends mockingly call their husbands “puppies” or “pets” because they have to be fed, yet they do nothing. The economics are telling: Mrs. Kim earns about 3,000 won a day at the market — the equivalent of less than 50 cents — at black market rates.

That’s double what her husband would earn in an entire month, were he to get paid.

“I get paid 1,200 won a month,” complains another interviewee, Mr. Kim, who is no relation to Mrs. Kim and who has an office job in a state-run company. “It’s a joke. There’s nothing you can do with that salary. A kilo of rice is something between 5,000 to 7,000 won.” He was paid only six times last year, he says, but as he points out, his salary is largely meaningless.

North Korea’s government has become dependent on free labor from its citizens. Each young man spends a decade in the army on compulsory military service, for which he may earn a nominal salary and dwindling food supplies. The men are then sent to a job in a state-run work unit, which — strapped for cash — doesn’t necessarily pay wages any more.

…

The extra burden women carry is beginning to have social consequences, with young women hoping to delay marriage to avoid taking on a husband. For men, their emasculation within their own households is now a fact of life.

“Whatever your wife tells you to do, you do,” says Mr. Kim, despairing. “If women say it’s a cow, it’s a cow. If they say it’s a giraffe, it’s a giraffe. We are slaves, slaves of the women. Women’s voices have become louder. Men have become mute.”

That muteness has become a matter of survival. Mr. Kim describes what happens to friends whose wives have left them or died: “Men without wives become beggars. They become so hungry that they can’t go to work. Then they have to go to market to beg. This has happened to between five and seven men I know.”

Stephan Haggard posts some economic data from the Kaesong Industrial Zone. I repost most of it here for archival purposes:

According to the MOU, the average monthly wage at KIC has reached $128.3 as of the first half of 2012. This marks a steady increase from $68.1 in 2006, $71.0 in 2007, $74.1 in 2008, $80.3 in 2009, $93.7 in 2010, $109.3 in 2011. One source of the increase is a built-in escalator clause on the minimum wage payment, which started at $50 and has increased 5% a year over the last six years. But that only gets you to about $67 for this year.

The remainder of the observed increase is apparently the result of additional payments for overtime, which has been rising dramatically. Average weekly working hours were already 55.2 hours in 2006 but now stand at 61.6 in 2012 (up to July). If we knew that these additional hours were the result of the free choices of hard-working, upwardly mobile workers we would still probably find it a little excessive. But of course, the advantages of working in Kaesong are such that North Korean authorities have absolute power to hire and fire at will. There is no way of knowing whether workers would choose this regimen if they were organized or not.

But the story is much worse, of course, because we don’t ultimately know what share of these wage payments actually end up in the hands of the workers in the complex. Wages are paid in U.S. dollars to the North Korean authorities by the South Korean companies operating in the complex. 45% of the wage bill–15% for “social security” and 30% for “socio-cultural policy entitlements”–flows into the regime’s coffer, while the remaining 55% is supposedly given to the workers in either DPRK won or coupons.

But not so fast. A crucial question is the exchange rate at which workers are paid and the value of the “coupons” they receive. We hardly need to state the obvious: North Korean workers are not getting paid the won equivalent of their dollar salaries at anything resembling the shadow-market exchange rate that reflects actual scarcities. At least in the Yonhap report, the MOU makes no mention of what the real dollar equivalent of won payments are using a realistic exchange rate. But given the country’s high inflation and rapid depreciation of the exchange rate—see my colleague Marc Noland on this—the dollar value of what North Korean workers actually receive could be only a small fraction—even a very small fraction—of the stated dollar wage .

Why has Kaesong stayed open? The answer lies in a pretty straightforward political economy calculus on both sides. For the South, Kaesong is industrial policy for labor-intensive firms. For North Korea, it is a cash cow that even hardliners have been loath to push the way of the Mt. Kumgang project. Since 2004, total wage payments for North Korean workers in the KIC has totaled $245.7 million, rising from $380,000 in 2004 (the first year of operation) to $61.76 million in 2011 and $45.93 million in the first half of 2012. For Pyongyang, even hardliners can see that this is a no-brainer.

According to Yonhap (via Korea Herald):

North Korea’s trade with China nearly tripled over the past five years, South Korean government data showed Sunday, underscoring the isolated North’s growing economic reliance on its major ally.

Trade between North Korea and China stood at US$5.63 billion last year, up 284 percent from $1.98 billion in 2007, Seoul’s unification ministry said in a report to the National Assembly.

North Korea’s exports to China almost quadrupled to $2.46 billion in 2011, compared with $580 million in 2007, the data showed. Imports rose to $3.17 billion last year, from $1.39 billion in 2007.

The North’s main export items were coal and iron ore, while primary imports from China were crude oil, gasoline and cargo trucks, it said.

A separate story on the report which also appeared in the Korea Herald featured these additional stats:

China accounted for only 67 percent of the North’s total trading with foreign countries, also including Russia, Thailand and Japan in 2007. But the dependency rate grew to 72.9 percent in 2008 and 82.9 percent in 2010 before hitting 89.1 percent last year, the report showed.

…

Annual food imports from China stood at 155,000 tons in 2008 and they have steadily grown to reach 380,000 tons for the whole of 2011, it said.

The same story had data on wages in the Kaesong Industrial Zone:

Another ministry audit report also showed that since 2004, South Korea has so far paid a total of $245.7 million in salary to North Korean laborers working in the Kaesong Industrial Complex, a joint inter-Korean industrial project in the North Korean village of Kaesong.

…

The report showed that a North Korean worker in the industrial zone earns an average $128.3 every month as of the first half of this year.

The average monthly pay stood at $68.1 in 2006 before steadily growing to $109.3 for last year.

Read the full story here:
N. Korea’s trade with China nearly tripled over past 5 years
Yonhap (via Korea Herald)
2012-10-7

N. Korea’s trade with China surges due to U.N. sanctions
Korea Herald
2012-10-8

The Hankyoreh posted another interesting story on North Korean workers in China:

In Dandong, where the inflow of North Korean labor is most active, there is a factory operated by a Singaporean company. The company makes men’s suits for export to Europe and used to operate a factory in Pyongyang. Due to problems with the electricity supply, they moved the factory to China where the situation is more stable. In this factory in Dandong, 400 factory workers in their 20s and 30s are North Korean. They work in the factory and live in a nearby company dormitory.

A Taiwanese businessman who used to operate a factory in Shanghai also has plans to move his operations to Dandong. His company has completed construction of facilities and plans to hire around 100 North Korean workers.

Another factory that produces sports apparel for export which used to be in Shandong province moved to a city close to the North Korea-China border. The factory was set up in Tumen and North Korean workers were dispatched for the first time last May. There are 300 North Korean women who work in this factory. A vinyl production factory about a kilometer away also employs North Korean women.

The activities of these North Korean workers are restricted. They live in dormitories or facilities provided by the factories. For lunch, they have been seen going in groups of 20 or 30 from the dormitory to the cafeteria, a 3-minute walk. Mr. Wang, a Han Chinese, 59, who works in a factory nearby said, “About two months ago, I began to notice young North Korean women in their 20s going to get water in groups of two or more. I only know which factory they are in, but I know nothing about their private lives. And the other companies or factories don’t know about them either.”

Some workers have come on one-month or three-month short-term training visas to set up under an official contract between the city and the North Korean government and extend their stay. They are dispatched with a male supervisor who is in charge of keeping an eye on them. It is said that the North Korean government would like to send more supervisors to watch over the female workers, but the factories have refused to allow them, which has been a source of some conflict.

The supply and demand of North Korean labor follows market fluctuations. It depends on the region, but the average wage of a Chinese factory worker is around 2000 to 3000 Yuan a month (between 355,000 and 535,000 won or US$315 to US$475). Meanwhile, the average wage of a North Korean worker is around 1500 Yuan a month (around 267,000 won or US$234). Because North Korean workers do not have the freedom to change workplaces, there is no reason to worry about a sudden outflow of labor.

North Koreans take the opportunity to work in China because wages are higher there than at the Kaesong Industrial Complex, the industrial complex set up by South Korea just north of the DMZ. The average minimum wage set at Kaesong last month is US$67 (about 76,000 won) and last year the monthly wage of a North Korean worker there was around US$110 (around 124,000 won)

Not all of that money goes to the factory workers. There are differences among regions and factories, but on average, the individual worker receives around 150 to 200 Yuan at the end of the month. On average, around 600 Yuan is provided for the individual worker. There are factories where this is then pooled together and redistributed to senior and ordinary workers. The rest of the money goes to the North Korean government. At times the money is used for insurance or a fund for common expenses.

It is estimated that more than 20,000 North Korean women are working in textile or food processing factories in the North Korea-China border region. There are also some North Korean workers who are in more skilled fields like IT or animation. Counting the undocumented workers, the number is much larger. An official from KOTRA’s (Korea Trade-Investment Promotion Agency) Shenyang office said on Sept. 12 that it has been confirmed recently that since Kim Jong-un took power, North Korea has agreed with the different Chinese border cities to dispatch 120 thousand workers, the largest number ever.

Chinese businessmen are watching closely the next move by North Korea as more and more young Chinese workers seek white-collar work instead of physical labor. Securing a work force that is secure and well managed is a great advantage. It costs between 400 and 500 Yuan to cover the expense of one worker including accommodation and meals. But the cheap labor makes up for this. And it is for this reason, more and more Chinese businesses prefer to hire North Korean workers.

A person involved in the export of North Korean labor said that at first the salary was given directly to the individual workers. “But when asked next morning, they all said that they were left with only 150 Yuan. After hearing this, we just gave the lump sum to the manager to be distributed to workers.” Even with this deductions, the money that North Koreans earn is far more than what they could make back home. Thus there is much competition and the selection process is quite thorough. The agent said, “They do a thorough investigation of three generations and if there is any problem, that person is excluded. And only one person per family can come.”

Read the full story here:
North Korean workers come to China as part of broad economic cooperation between two countries
Hankyoreh
Song Kyung-hwa
2012-9-13

According to the Daily NK:

An agreement has been reached that sees the minimum monthly wage for North Korean workers in the Kaesong Industrial Complex rise by 5% to a little over $67.

According to information released by the Ministry of Unification today, the wage increase was negotiated by the Kaesong Industrial Complex Management Committee and the North Korean ‘Central Special Economic Zone Development Bureau’.

In accordance with the agreement, which will remain in force until the end of July next year, the wages of workers will rise from $63.80 to $67.05 per month.

Kaesong Industrial Complex regulations stipulate that wages may not rise by more than 5% per annum, and since 2007 they have risen by exactly that amount year-on-year.

At the end of May this year, there were 123 South Korean companies operating in the zone, employing a total of 51,452 North Korean staff.

According to the Ministry of Unification, when all payments and bonuses are taken into account, the average wage per North Korean worker in the complex was $110 per month in 2011, a figure that has risen to $130 in the first half of this year.

There has long been controversy over the fact that the North Korean authorities take a percentage of the wages of Kaesong Industrial Complex workers in taxes. However, even taking this into account, such workers are known to be better off than the vast majority of average North Koreans.

The only edit I would make to this story is to change the phrase “percentage of the wages of Kaesong Industrial Complex workers in taxes” in the above paragraph to “nearly all of the workers’  monetary income in taxes”.

See Yonhap coverage here.

Read the full story here:
Kaesong Monthly Wages Rise by 5%
Daily NK
Park Seong Guk
2012-8-6

Institute for Far Eastern Studies (IFES)
2012-7-27

The Beijing branch of the Joint Venture and Investment Committee of North Korea (JVIC), called the Choson Investment Office, announced on July 18 of various preferential conditions to foreign investors and employment conditions on its website.

The Choson Investment Office opened its doors this year and is the only overseas branch of the JVIC, in charge not only of securing foreign capital but cultural and science and technology exchanges and cooperation.

The website posted an article titled, “Problems Investors Face,” which provided useful information for foreign investors in a question and answer format.

In the article, the employment conditions for workers were included. The minimum monthly wage for workers in North Korea was set at 30 euros or about 42,000 KRW. In addition, foreign companies must pay 7 euros to each employee separately as social insurance. Overtime pay also needs to be paid and at the event of work related injuries or illness, the company is responsible for handling the situation with its board of directors.

In comparison, the minimum monthly wage for North Korean employees in the Kaesong Industrial Complex (KIC) is 110 USD or about 125,000 KRW.

As for preferential tax policies, foreign-capital companies that are not joint venture are exempt from certain taxes including tariffs on exports and resource tax for the development of mines.

North Korea will bear the land use tax, which is 1 euro per square meter, and China and other foreign investors will have no restriction for mining the underground resources.

The income tax rate for the foreign capital companies was specified at 25 percent and business tax between 2 to 10 percent will be collected from transportation, power, commerce, trade, finance, insurance, tourism, advertisement, hotel and entertainment industries.

Power is the main concern for most foreign companies and it will be provided at 0.053 euro per 1,000 kilowatt. The DPRK’s central trade guiding organ will oversee the setting of prices of goods while the trademark rights will belong to the company.

The DPRK’s Joint Venture and Investment Committee was expanded and reorganized in July 2010 from Joint Venture and Investment Bureau, with main activities centered around Hwanggumpyong Island and Rajin-Sonbong development.

The main agents for foreign currency earnings are the cabinet, military, JVIC, and Daepung International Investment Group*. Most of the trading companies are affiliated with one of the four groups.

In March, JVIC announced through the KCNA that “As the investment environment is favorably changing, joint venture and investment contracts are increasing. Investment interests from large companies are rising especially in our abundant rare-earth and underground resources as well as building railroads, roads, and power plants.”

*IFES and Choson Exchange previously discussed the merger of JVIC and “Daephung”

Yonhap reports on an interesting development in the Kaesong Industrial Zone: the development and enforcement of workplace conduct policies.

According to the report:

A South Korean worker was banned from working in an inter-Korean industrial zone in North Korea’s border city of Kaesong for two weeks in May for a minor offense, the Unification Ministry said Thursday.

It was the first time a South Korean has been denied access to the complex under a demerit point system designed to strengthen law and order among the hundreds of South Koreans in the complex.

The construction worker received 3 out of maximum 10 penalty points in May for causing a quarrel and breaking a glass in a karaoke room inside the complex, said the ministry, which handles inter-Korean affairs.

South Korea introduced the penalty system in January for more than 700 South Korean workers in the complex to handle offenses ranging from traffic accidents to violence and murder, including sexual crimes.

The penalty points range from 2 to 10, depending on the offense.

If the total cumulative points exceed 10, the offender is permanently banned from the complex while those who earn nine demerits are suspended from visiting the complex for three months, according to the ministry.

South Korean workers with seven or eight demerits are suspended from the complex for two months and those with three or four demerits are suspended for two weeks.

Read the full story here:
Unruly S. Korean worker suspended from Kaesong complex in May
Yonhap
2012-7-5

UPDATE: Read here about increasing numbers of North Korean workers legally taking up work in China.

ORIGINAL POST (2012-6-29): Robert Collins recently published a report with HRNK on the DPRK’s songbun system. Previous posts on Songbun here.

Though some argue that the “Arduous March”, grassroots marketization, and the rise of official corruption has diminished the importance of songbun within the North Korean system, this article in the Daily NK  (which never uses the word ‘songbun”) makes the case that it is still important in one highly visible sector: overseas workers.

According to the Daily NK:

A North Hamkyung Province source told Daily NK on the 27th, “The process of choosing expatriate workers is very sensitive, even though the only target is Pyongyang-based factory and enterprise workers.”

According to the source, backgrounds are checked thoroughly, and single people may not take part. Married workers also need to obtain permission from the National Security Agency affiliated to the enterprise with which they are registered.

Prior to sending the workers abroad, the People’s Safety Ministry also checks each individual’s origins, the whereabouts of his or her direct family and if anyone in that family has spent time in a detention facility and why. They also check the marital status and criminal records of more distant relatives.

Despite the hard nature of the work that waits in China and the difficulty of obtaining a position, the number of applicants is huge, the source went on. And with single people ineligible as a measure to decrease the risk of defection, the source even commented that “single workers are rushing to get married,” adding also, “Pyongyang has caught marriage fever.”

“Competition is fierce because they would prefer to go away to a place where factories are running and they can get paid,” he pointed out. “Cadres and NSA agents in charge of the process are doing well out of the bribes. Some people are even borrowing money to bribe the authorities, saying that they will pay them back when they return from China”.

Commenting on the situation, Kim Seung Cheol, a defector who heads North Korea Reform Radio, said it is no surprise. He explained, “This is the only way working people can make any real money. It is similar to the American dream.”

Read the full story here:
Workers Face Fierce Fight for China Role
Daily NK
Choi Song-min
2012-6-29