Archive for the ‘Political economy’ Category

North Korea is more connected to global markets than you might think

Wednesday, October 13th, 2021

By: Benjamin Katzeff Silberstein

After a hiatus during the summer following my PhD defense, I now plan to get back to posting regular analyses and news content here. First up, an interesting example of why the North Korean economy is in fact more connected to global commodity markets than many might think.

Over the past few weeks, coal prices have skyrocketed in China, following energy shortages record-high coal prices. In September, the country’s coal imports surged by 76 percent, fueled flooding in one of the country’s main coal producing regions.

Therefore, it shouldn’t be surprising that Chinese demand for North Korean coal — the commodity at the heart of international sanctions on North Korea — is reportedly growing. As Daily NK reports:

According to a source in Pyongyang on Wednesday, there have been noticeably more requests for coal from Chinese traders since North Korea’s national foundation day holiday on Sept. 9. He said there have been several illegal transshipments of coal for export over the last month.

China has recently limited trade with private North Korean traders, dealing instead with official North Korean trading bodies. The source said, however, that Beijing now approves transactions with any North Korean entity that can provide China with coal, including private ones.

In fact, the Chinese government has reportedly launched no particular crackdowns on private imports of North Korean coal.

Rather, according to a source in China, some provincial civil servants in China are advising traders to take care not to get photographed when they transship coal. Essentially, the Chinese government is turning a blind eye to imports of North Korean coal, an internationally sanctioned item. At the same time, they are asking traders to exercise caution, aware that the international community is watching.

(Source: Seulkee Jang, “Amid coal shortages, Chinese traders on the hunt for more North Korean coal,” Daily NK, 7/10/2021.)

There are several things worth noting about this. First, again, it should not be surprising. China’s enforcements of sanctions against North Korea depends primarily on whether Beijing believes it to be in the national interest to clamp down on trade or smuggling. Clearly, China now needs cheap coal, and it’s been a long time since the North Korea issue was at the center of international politics and diplomatic tensions. So there appears to be comparatively little to lose in increasing trade for the moment, although China has been significantly letting up on its sanctions enforcement for several years now, since the days of “maximum pressure” in 2016–2018.

Second, North Korea still appears to be getting shafted by China, who exploits its position as the almost exclusive monopoly buyer buyer to purchase coal from North Korea at prices lower than world market prices or Chinese domestic prices. The precise proportions are uncertain, but Daily NK reports that China is paying less than half of world market prices for coal imports from North Korea, although their source also notes that the North Korean side is using the global shortage as leverage to jack up prices. In other words, while China may in some sense be North Korea’s “patron”, commercial market logic is much more important in coal trade than often assumed, and China isn’t necessarily doing it to help North Korea.

Third, and to tie back to the title of this piece, North Korea, despite its policies of economic autarky, is in fact deeply connected to global commodity markets. This isn’t just true for currency prices. Although the size of North Korea’s foreign trade remains comparatively abysmal, its economy is, just like most other economies today, tied to the broader dynamics of global supply and demand.

It still remains to be seen how much trade can expand under the current North Korean border shutdown. Though some goods are getting through, the border largely remains under lockdown due to Covid-19 despite intermittent news reports that trade might restart and return to its former scale. As many analysts have noted, Covid-19 has succeeded in closing the border more tightly to trade than most sanctions regimes have. How much Pyongyang is willing to meet Chinese demands and let coal shipments go across the border in larger scale, potentially increasing the country’s exposure to the virus (in the eyes of the leadership) remains to be seen.

Share

Some brief thoughts about North Korea’s food situation, late June 2021

Wednesday, June 23rd, 2021

By Benjamin Katzeff Silberstein

By all accounts, the current food situation in North Korea appears difficult. It’s a crucially important topic that I unfortunately have not had much time to follow over the past few weeks. A few brief thoughts:

First, it’s important to keep in mind when hearing phrases such as “worst in a decade” that North Korea went through an actual famine in the 1990s and early 2000s. So that the food situation has gotten better over the last decade, while the country was arguably still rebounding from the famine, should not come as a surprise.

Second, it’s difficult to tell precisely how bad things are. Food production estimates, though only approximations, paint a picture of relative shortage compared to the past few years, but still not near disaster levels. North Korean authorities and international organs often sound the alarm bell over looming disasters, while little follow-up is done about what actually happened in the end. Anyone remember the famine warnings in early 2019, by the state and some foreign analysts alike? It’s impossible to tell how representative this report by Daily NK is, but if it’s true, the government is failing to stabilize prices because consumers choose not to buy rice in bulk for cheaper but lower quality from state-owned stores. If the country was approaching a genuine famine, this likely wouldn’t be the case.

Third, all this said, things do seem difficult. Bill Brown outlines in an excellent and thorough report here some of the alarming signs: relatively major fluctuations in both exchange rates and food prices. Although price levels aren’t at levels never seen before, fluctuations like this are relatively unusual. I suspect much of it is driven by future expectations of shortages based on information suggesting that the state will not open the border to China for trade within the foreseeable future.

Share

Kim Jong-un’s claim of the “worst-ever situation”

Sunday, April 18th, 2021

By: Benjamin Katzeff Silberstein

Perhaps I am late to the game already (the long weekend here in Israel is to blame for that), but it has been puzzling to see the media reporting on Kim Jong-un’s claim that North Korea faces its “worst-ever” economic situation at the moment, under both international sanctions and a self-imposed border lockdown.

It seems that Kim’s words have been misinterpreted or lost in translation. Colleagues at 38 North have rightly and importantly pointed out that the original Korean-language statement is not nearly as drastic. This is often the case with KCNA articles and translated statements from North Korea:

In the vernacular report, however, this term read kuknanhan (극난한), which would be better translated as “very hard” or even “extremely difficult.”[2] North Korea’s English-language media sometimes omit passages or provide translations that are different from the vernacular text, and without analyzing years’ worth of data, it is impossible to conclude whether they do so deliberately, or if they are simply oversights.

It is clear, however, that Kim did not say “the worst-ever situation” at this event. Even if he had, the North Korean leader has made similar remarks in connection with the country’s current circumstances in recent months. For example, Kim’s opening address at the Eighth Party Congress in January referred to the past five years as a period of “unprecedented, worst-ever trials.”

None of this means that the situation is not bad. But “worst-ever” would be extremely drastic for a country where the failings of the economic system led to a famine in the 1990s and early 2000s that took the lives of between 600,000-1.5 million people. Today’s conditions simply aren’t grave enough to warrant such comparisons.

Precisely how difficult conditions are remains hard to tell. The Russian ambassador to North Korea recently gave an interview where he said that the country’s food situation is not at all catastrophic, and that there are no signs suggesting an ongoing famine. He is probably right, but at the same time, we should be careful not to extrapolate too much about the situation in the provinces, for example, based on an assessment of the store shelves in Pyongyang. The country’s society is highly stratified and its economy relatively fragmented. The situation in one locality may well be much more dire than in another.

At the same time, we should also be careful not to take Kim Jong-un at his word. What, except for Kim’s own statement, suggests that today’s situation is worse than the one in 1995, after both economic collapse and heavy flooding took a severe toll on the economy? Sure, things are incredibly messy right now, a view that both circumstances and data support. Kim’s own statement, not least, is another solid data point showing just how grim things appear to be. But famine, meaning large numbers of people dying from starvation or malnourishment, is simply a different dimensions. Let us hope that North Korea does not get there, neither now nor in the future.

There are reasons to believe that it will not. The market system, for its faults and flaws, is able to react to changes in supply and demand, unlike the state distribution system in the 1990s. Moreover, China would likely step in with serious quantities of food aid if the situation got truly disastrous. Many signs suggest that North Korea and China expect to resume and even expand trade in the short-term. Should a drastic need arise, China would likely increase humanitarian shipments as well, although it is far from certain.

Share

Are fears of market crackdowns in North Korea exaggerated?

Tuesday, March 30th, 2021

By: Benjamin Katzeff Silberstein

In a recent article at 38 North, North Korea economy scholars Eun-Ju Choi and Young Hui Kim argue that the rumors of the death of Kim Jong-un’s reformist policies are highly exaggerated. Their full article is available here. As someone who has written about the increasingly anti-market policy signals coming from the North Korean regime over the past two or so years, I’d like to add a couple of thoughts.

First, Choi and Kim make a very good point: we have in fact not seen much in the way of practical, tangible evidence of a market crackdown actually going on. Indeed, most of this evidence is anecdotal and small-scale: scattered news via Daily NK and other outlets. There are two things to note about this. One is that, unfortunately, this is often how the news flow from North Korea works. When we can sufficiently say what is a broad, overarching trend and what is scattered but few news reports is often only clear in hindsight. At this time of writing, I’d argue we have enough of this anecdotal evidence to confirm that something is going on, but we don’t yet know of the scale of the process. (One could of course regard the entire border closure as an anti-market policy measure, at least in part.)

Second, however, Choi and Kim’s main argument seems to be that the fruits of the first few years of Kim Jong-un’s policy experimentation still stand. That may well be true — to this date we have seen no wholesale repudiation of any of the policy changes enacted in the first few years of Kim’s tenure. At the same time, Choi and Kim seem to be banking on Kim and the North Korean government simply not implementing the policies set out at the 8th WPK congress and before. Looking at what the government has said that it’s going to do, the anti-market policy turn becomes overwhelmingly evident. Choi and Kim, I would argue, are doing a bit of cherry-picking in their reading of these policy changes, focusing disproportionately on interpreting the emphasis on, for example, the Cabinet’s role in the economy. But there are many, many more examples.

Still, I hope that Choi and Kim end up being right, and that myself and many others end up being wrong. Only time will tell.

Share

March 2021: North Korea’s skyrocketing corn prices

Tuesday, March 9th, 2021

By: Benjamin Katzeff Silberstein

Given the self-imposed border lockdown North Korea is under at the moment, the recent rise in food prices should come as no surprise. The precise factors are difficult to pin down, but whatever they are, there is some serious cause for concern.

The main reason is the rapid rise in the price of corn as of late. One Daily NK-source in North Korea attributes it to large-scale state purchases of corn for snacks manufacturing in honor of Kim Jong-il’s birthday on February 16th.

The article makes clear, however, that this is only a partial explanation. Indeed, looking at the price index, it’s clear that the rise started long before February. On November 15th last year, the average price for a kilo of corn was 1350 won. On February 23rd this year, the average price was 3137 won. That’s a rise of 135 percent in a relatively short period of time. Prices of corn have often risen in the beginning part of the year, but not by this much.

Average corn prices in Pyongyang, Sinuiju and Hyesan, from 2015 and onward. Graph by NKEconWatch, data source: Daily NK.

Looking at individual cities, the rise is even more staggering. In Hyesan, where food prices tend to be higher in general, corn prices rose from 1450 won/kilo on November 15th last year to 3620/kilo on February 23rd. That’s an increase of 150 percent in only a few months.

Corn prices in Pyongyang, Sinuiju and Hyesan, from 2015 and onward. Graph by NKEconWatch, data source: Daily NK.

Why is this a concerning development for corn prices specifically?

First, corn is, in the North Korean context, rice’s less desired sibling. Corn always makes up a significant part of the diet for a big proportion of the North Korean population. However, when food becomes more scarce, people switch over a larger portion of their diets to corn, since it gives more food for the same amount of money. So a rise in corn prices may be a signal of growing scarcity overall.

Second, even if a large proportion of the rise was indeed caused by increasing state purchases, this is also a troubling indicator for the state of the North Korean market for food. If state procurement for snacks manufacturing for one single day can impact prices so much, this suggests a market under considerable stress and volatility to begin with.

At the same time, rice prices have remained conspicuously low and stabile. Rice prices in the last observation in the price index are around their seasonal normal. I’d be careful to assume too much based on this, however. Rice prices are lower right now than around the same time last year. This may – and I want to stress how little we know for certain – indicate that they are in fact lower not because supply is stabile, but because demand is lower. More consumers switching over their consumption to cheaper foods such as corn would put downward pressure on rice prices.

Average rice prices in Pyongyang, Sinuiju and Hyesan, from 2015 and onward. Graph by NKEconWatch, data source: Daily NK.

The current situation will only be possible to fully evaluate in a few weeks when we have more data points available. Suffice to say for now that, with all the caveats about the trappings of data from North Korea, the situation looks concerning.

Update March 16th, 2021: DailyNK recently published more info about the corn price situation, reporting that prices have stabilized in much of the country. Still, 3,000 KWP/kg, reported in “other inland regions” (than Hyesan), is high. It’s more than double the average price reported in Daily NK’s price index around one year ago.

Share

Continuity and change in North Korea-China relations

Tuesday, February 23rd, 2021

By: Benjamin Katzeff Silberstein

The recent appointment of Ri Ryong Nam as North Korea’s ambassador to China hints at ambitions for greater economic exchange with China, as reported here. As Ri has a strong background in institutions in North Korea related to foreign trade, not least as the country’s trade minister and, later, vice premier in the country’s cabinet.

Above all, the appointment of Ri is interesting as a sign of continuity rather than change in North Korea’s external economic relations. At the moment, cross-border trade is in its deepest lull in many, many years, as a result of the North Korean government’s self-imposed border shutdown to protect against Covid-19. This border shutdown came on top of already harsh and heavy sanctions.

But this border shutdown, like other measures around the world related to Covid-19, has an expiration date. There’s been rife speculation that the border may reopen soon. And when it does, business will likely, at some point, return to the old normal of China being North Korea’s only meaningful source of economic exchange. The appointment of Ri is one data point to suggest this, but there are many other data points that show an increasingly close relationship between China and North Korea since 2018, after a lull in the preceding years of frequent North Korean missile tests and other destabilizing action. For example, North Korea and China and started expanding 12 of its 13 road or rail crossings only in 2020, despite the pandemic.

While all this may only amount to business as usual, it is interesting and noteworthy for several reasons. For one, North Korea’s previous five-year economic strategy, launched in 2016 and subsequently abandoned, reportedly sought trade diversification away from China as one of its main objectives. North Korean publications have long lamented overt dependence on one single country for foreign trade, noting that it easily translates to political dependance as well.

At the same time, North Korea’s trade dependence on China has actually increased over the past few years. Xi Jinping has long since promised Kim Jong-un that China would fund cross-border infrastructure refurbishment and special economic zones along the border. For all the talk of the potential for economic exchange between North and South Korea back in the heyday of inter-Korean diplomacy between Moon and Kim, the fact remains that if any party is likely to expand its economic ties and influence in North Korea, it’s China.

So the recent appointment of Ri as ambassador to China should be seen as a sign of continuity, not change. Given the dire state of the economy, and the economic policy retrenchment drive as of late, North Korean policymakers are likely to stay cautious and safe in economic measures for some time to come. That is precisely the sort of move that strengthening ties and trade with China would be.

Share

North Korean government continues state control push

Tuesday, February 23rd, 2021

By Benjamin Katzeff Silberstein

I’m not able to find the original article online at the moment, but Yonhap recaps an article from yesterday’s Rodong Sinmun stressing the importance of respecting government officials in the economic sector. This sounds like a fairly clear message to actors within the economy who might cause complications as plans for increased state control over the economy are implemented in practice: 

“We must respect economic officials in the administration and establish an orderly administrative system … so that administrative orders can be delivered down and accurately implemented without hesitation,” the Rodong Sinmun, the official newspaper of the ruling Workers’ Party, said in an editorial.

“The performance of this year’s goals depends heavily on how economic officials organize and carry out their work,” the paper added.

The paper also called on party officials to play the role of a “rudder” in economic projects, while urging them to strive to “possess expertise” in economics and technology.

North Korean state media have stressed the central role of the Cabinet in achieving the North’s economic goals since the recent party congress.

(Source: “N.K. paper stresses ‘respect for economic officials’ to achieve new objectives,” Yonhap News, February 22nd, 2021.)

Share

The economy in the Central Committee Plenum (February 2021)

Tuesday, February 16th, 2021

By: Benjamin Katzeff Silberstein

During the recent (2nd) plenary meeting of the Korean Worker’s Party Central Committee, several remarks were made that focus on the economy. Most seemed to follow the statements during the Party Congress, both in tone and focus. Emphasizing the role of legal measures seems to be a way to regularize and formalize the orders set out at the congress. Legal supervision, after all, is something continuously ongoing, unlike rule by decree. It’s unclear what “irrational elements” means in the KCNA summary, but my sense is that it may be about semi-legal and highly dubious (from the state’s point of view) practices of essentially private entities partnering with and using the bureaucratic cover of state-owned companies for business purposes.

Here’s an excerpt of the KCNA coverage from the third day, with my emphasis added in bold:

The General Secretary in his report suggested important tasks for firmly ensuring the implementation of the national economic plan by law and channeling all Party works into the fulfillment of this year’s economic tasks.

The report stressed the importance to strengthen the legal supervision and control over the establishment and executive process of the national economic plan, the order of the Party and the law of the state.

It called upon the legislation sector to remove irrational elements becoming stumbling blocks to the implementation of the national economic plan and enact and perfect new laws for every sector which help promote the efficiency of the production and construction.

It said that legislative bodies including the prosecution organ should increase their role to make sure the national economic plan is properly distributed and correctly executed, and in particular, stage a strong legal struggle for checking all kinds of illegal practices revealed in economic activities, adding that all sectors and units should obey them unconditionally.

Analyzing that the faults revealed in the economic work in the last period are caused by the party organizations which failed to fulfill their responsibilities and role as organizers and standard-bearers in carrying out the Party’s policies, the report proposed tasks of the party organizations for intensifying the party guidance and political guidance from the standpoint of holding full responsibility for the result from the implementation of this year’s economic task.

It referred to the ways for the party organizations at all levels to positively play the role in properly steering the implementation of the national economic plan while giving priority to the organizational and political work for arousing the masses to the accomplishment of this year’s goal.

It also suggested tasks calling upon the party organizations of ministries and national institutions to properly grasp and guide the execution of Party’s economic policy by enhancing the level of the Party work in line with the characteristics of their units in charge of important portion in the overall work of the state and to strengthen the direction of the party life of public service personnel.

Concluding his report on the first agenda item made through three consecutive days, the General Secretary said that the plenary meeting was convened in the timely and necessary period in the sense that it helped rectify mistakes from the stage of planning this year’s work and newly decided on the great work for the people and also helped find out and correct the ideological maladies including passivism and self-protectionism latent in officials.

(Source: “Third-day Sitting of 2nd Plenary Meeting of 8th WPK Central Committee Held,” Korean Central News Agency February 11th, 2021.)

Here is an excerpt of the second-day coverage, again with emphasis added in bold. The bottom paragraph restates much of the language from congress a few weeks ago about increasing state control:

Saying that propping up agriculture is an important state affair that must be successful at any cost to solve the food problem for the people and successfully push ahead with the socialist construction, the General Secretary analyzed the achievements and experience gained in the agricultural field for the recent several years and set forth tasks of stably and steadily developing the agricultural production based on them.

Emphasized in the report were the issues of taking prompt state measures for supplying farming materials on which success or failure of farming for this year hinges for the present, pushing ahead with the work of providing a material and technical foundation for the agricultural production in a planned way and bringing about a decisive improvement in the Party work in the rural areas.

[…]

The General Secretary in the report evinced the militant tasks to be carried out by the People’s Army and the munitions industry this year for implementing the decisions set forth by the 8th Party Congress, and the direction of future action to be taken by the sector in charge of affairs with south Korea and the sector in charge of external affairs, before underscoring the need to thoroughly carry them out without fail.

The report noted that the success or failure in this year’s economic work depends on the capability and role of the state economic guidance organs in the main, and made clear the issue that the Cabinet and state economic guidance organs should restore the function peculiar to them as economic organizer and their controlling function to improve the guidance and management over the whole economy, the one of improving the role of non-permanent economic development committee and other important practical issues for consolidating the Cabinet-centered system, Cabinet-responsibility system.

(Source: “Second-day Sitting of 2nd Plenary Meeting of 8th WPK Central Committee Held,” Korean Central News Agency, February 10th, 2021.)

Share

The Pyongyang General Hospital delay

Sunday, January 31st, 2021

Benjamin Katzeff Silberstein

As previously reported by 38 North, neither the Pyongyang General Hospital nor the Wonsan-Kalma resort were completed on schedule. A recent report by Radio Free Asia, based on sources within North Korea, confirms that a lack of goods that need to be imported from China is what’s holding construction back (among other things). At the same time, it isn’t necessarily a lack of funds that’s being cited, but rather, the inability of imports to get through due to the border lockdown:

Work on the hospital began in March 2020, but it has been several months since construction was put on hold.

The pet project of North Korean leader Kim Jong Un should have had a guaranteed supply of materials, an official of Pyongyang’s municipal government told RFA’s Korean Service Jan. 21.

“However, the interior work has not been started at all. Electric wiring, lighting, marble, other interior materials and medical equipment should have been imported from China, but they have not been brought in due to the coronavirus,” said the source, who requested anonymity to speak freely.

North Korea and China shut down the Sino-Korean border in January 2020 and suspended all trade, a move that has all but closed the North Korean economy off from the rest of the world.

Though builders tapped domestic suppliers to begin construction on the hospital’s exteriors in March, work cannot continue until imports resume.

During the ruling party’s eighth congress, held Jan. 5-12, the party ordered factories and other government agencies to wean themselves off of imports so the country’s economy could be more self-sufficient.

But RFA reported last week that because the congress decided to invest heavily in North Korea’s tourism sector, government officials were scrambling to find ways to import materials for building interiors in anticipation of a building boom.

“Inpatient facilities will go in the two main high-rise buildings, so elevator installation is the core of all interior work,” the source said.

“Last year, they signed a contract to import elevators and escalators from a company in Shanghai… but the coronavirus has prevented them from being brought in,” said the source.

(Source: Hyemin Son, Leejin Jun, and Eugene Whong, “Construction Delayed on Showcase Hospital Project in North Korean Capital,” Radio Free Asia, January 26th, 2021.)

On the one hand, it would seem sensible to not prioritize prestige projects when overall funds are so low. On the other hand, Kim Jong-un did recently have his beachside manor upgraded, as reported by NK Pro. Whenever equipment really needs to get purchased or imported, there are ways of making it happen…

Share

North Korea, Blinken and aid

Sunday, January 24th, 2021

By: Benjamin Katzeff Silberstein

During his confirmation hearing earlier this week, incoming secretary of state, Anthony Blinken, mentioned that humanitarian aid could be part of the Biden administration’s North Korea policy, although it isn’t clear precisely in what shape or form. Past administrations have often seen aid as part of the negotiations on North Korea’s nuclear weapons, and much of what Blinken said is, as Joshua Pollack pointed out on twitter, all part of the same, oft-repeated talking points on North Korea policy that often changes names but practically remains the same.

The pandemic may have changed things, as North Korea’s economic situation has gone from very bad to worse. But humanitarian aid as a carrot, for today’s North Korea, seems like a non-starter. Today’s North Korea is not the North Korea of 1998. It has a leader with economic ambitions far beyond humanitarian grain deliveries from the US, UN and South Korea. The country’s food situation is dire and aid, not least in combatting the pandemic, would be highly useful. But it is difficult to imagine the North Korean government openly acknowledging that its stated economic ambitions are divorced from reality, and accepting humanitarian aid being part of any negotiations.

Time will tell, but putting aid into the mix seems based on a faulty reading of the regime’s current attitudes and priorities.

Share