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What Kim Jong Un’s Russia visit could mean for the North Korean economy

Tuesday, September 12th, 2023

By: Benjamin Katzeff Silberstein

Early this morning local time, North Korean leader Kim Jong Un arrived in the Russian town of Vladivostok. There, he is scheduled to meet with Russian president Vladimir Putin. Aside from the geopolitical situation and their political ties, the two are expected to discuss expanding North Korean weapons exports to Russia.

What could this mean for the North Korean economy?

The country’s military industry is an economic sector of significant size both in terms of production and employment. A radical increase in weapons exports to Russia could mean a general boost for the economy through increased consumption.

Gains will, however, be limited by the military industry’s isolated position in the economic structure. Many of the military’s factories supply themselves with most essential raw materials through mines and energy supply channels of their own. While many other sectors in the economy have essentially been privatized since the mid-1990s, the arms industry is entirely controlled and centrally planned by the state. Weapons exports to Russia could in fact hamper North Korea’s economic development in the long run by diminishing the regime’s incentives to reform the domestic economy.

Although the sector is far from the country’s top employer, with two million estimated workers in the defense industry, its contribution to the economy is significant. For a sense of proportion, North Korea’s 2008 census lists 4.4 million as workers in agriculture (including forestry and fishing), 718,000 in mining and quarrying, and close to 3 million in manufacturing. A massive and sudden expansion in weapons exports would not drastically change North Korea’s economic situation but could nonetheless make a modest contribution to economic growth and consumption.

Data sources: DPRK 2008 Census, Namhoon Cho (2019)* (see p. 576 for figures.)

As graph 1 shows, the country’s defense industry is estimated to be the third largest employer in the country. Because the data is so unreliable, these figures should not be taken at face-value. Rather, the proportions are what matter. Regardless of their exact number compared with other groups in the workforce, at an estimated two million, their employees are numerous enough for a drastic increase in purchase orders from Russia to boost the economy through increased wages, expanded hiring, or a combination of both. Major and continuous orders from Russia would benefit some parts of the military industry more than others.

Most profits will likely go directly to the state and the military, but workers in the industry may see their pay rise, and new colleagues recruited, if the orders from Russia end up being large enough. All this will have ripple effects on the overall economy, with increased consumption stimulating the consumer goods economy and service sector as well. Economic benefits are likely to be highly regional, with the impoverished Jagang province standing out as a central beneficiary thanks to its high concentration of arms factories.

In the long run, however, North Korea’s economic benefits will likely be limited. The military economy is independent from the “people’s economy” and is usually known as “the second economy.” The military often operates its own factories and mines through a military-industrial complex of sorts, and do not need to turn to other sectors of the economy for raw materials and other inputs. All this is by design, to give the military special status in funding and budget priorities. This limits the potential spillover effects into other industries.

Overall, boosted arms industry exports could diminish the regime’s incentives to develop the market system. The North Korean leadership is currently on a campaign to restore (at least some of) the state’s power over the economic system, including the private and semi-private sectors such as the general market and service sectors. An inflow of cash or other compensation from Russia, such as vast amounts of fuel oil and food, could give the regime more space and safety to suppress private economic activity in favor of the state-controlled sector. This fits well with the regime’s current strategy for the economy but will dampen the country’s long-term prospects for economic development.

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Why the North Korea–China trade increase could be an illusion

Wednesday, May 24th, 2023

By: Benjamin Katzeff Silberstein

North Korea–China trade is steadily growing, perhaps slowly moving back to its normal  before Covid-19 -“Maximum pressure” sanctions in 2016–2017. According to the latest numbers, trade continues to grow:

Chinese outbound shipments to the isolated country surged 69% year-on-year to $166 million in April, data released by China’s General Administration of Customs showed.

The top export items in terms of value were processed hair and wool used in wigs, worth about $11.6 million, and diammonium hydrogen phosphate, a widely used fertiliser, worth $8.84 million.

But it is far from back to the “old normal” before 2017. Look, for example, at what is being exported. The biggest export products were wigs and fake eyelashes, accounting for over 66 percent of exports to China. This is part of an offshoring industry where North Korea first imports hair from China, and then locally manufactures it into wigs to export back. Sales of wigs, eyelashes and related products accounted for close to $22.7 million in April. To get a sense of proportion, consider that coal exports, formerly one of North Korea’s most central export goods, totalled $1.19 billion in 2016, a little over $99 million per month on average. So when we look at North Korea’s most central exports at the moment, they are still very small compared to the increasingly distant normal. Wigs just aren’t economically meaningful in the same way as coal.

None of this is to say the increase in trade isn’t meaningful. North Korean imports from China may be just as meaningful or perhaps even more so for the economy at this point, with inputs both for export-destined wigs and fertilizer being the central import goods. The increase in trade is certainly positive for the North Korean economy, but it does not seem to (yet) change the overall dynamics where North Korea still cannot export its formerly most important export goods openly, without circumvention and smuggling that involves significant costs. It could be that covert exports will eventually reach the old level of openly reported exports, but we don’t have any hard data to suggest that is yet the case.

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Satellite imagery shows North Korean government investments in surveillance and border security

Friday, November 18th, 2022

By: Benjamin Katzeff Silberstein

Al-Jazeera reports:

North Korean authorities have imposed “excessive and unnecessary” border measures since January 2020, including upgraded fences, guard posts and patrol roads, an analysis of satellite images by Human Rights Watch (HRW) shows.

The beefed-up security includes the addition of 169 guard posts and nearly 20km (12 miles) of new fencing in the vicinity of the border city of Hoeryung, a popular transit point for smuggling and trade, between November 2020 and April 2022.

HRW said it had spoken to five North Korean defectors involved in smuggling goods in or out of the isolated country who have been unable to carry out their activities since February 2020.

“The North Korean government used purported COVID-19 measures to further repress and endanger the North Korean people,” said Lina Yoon, a senior Korea researcher at HRW.

“The government should redirect its energies to improving access to food, vaccines and medicine, and respecting freedom of movement and other rights.”

Yoon said past experience had shown that relying on state-run distribution of food and essential goods “only entrenches repression and can lead to famine and other catastrophes”.

Hanna Song, director of international cooperation at the Database Center for North Korean Human Rights (NKDB), which was not involved in the report, said the findings mirrored other data, including the sharp decline in defections to South Korea, which fell from 1,047 in 2019 to just 42 so far this year.

“Using COVID-19 has been a great excuse for the Kim Jong-un regime to tell its people that they are protecting them, while actually just meeting their objectives of keeping the North Korean people isolated,” Song told Al Jazeera.

“That being said, NKDB has been able to see that the North Koreans are not completely closed off,” Song added. “In a survey that NKDB did with 399 North Korean escapees in September 2022, 71 people said that they had sent money to North Korea in 2022 and 87 people have had some form of contact with family members in North Korea.”

(Source and full article: “‘Excessive’: North Korea’s COVID curbs blamed for food crisis,” Al-Jazeera, November 17th, 2022.)

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North Korean rice prices stabilize in September

Friday, September 23rd, 2022

By: Benjamin Katzeff Silberstein

Following a quite usual pattern, rice prices have stabilized in the past few weeks after climbing during July, the country’s “lean season” in food. Daily NK reports:

North Korean rice prices appear to be falling this month after climbing past KPW 6,000 a kilogram in late July.

According to Daily NK’s regular survey of North Korean market prices, a kilogram of rice in Pyongyang cost KPW 5,600 as of Sept. 18. This is about 11% less than it cost on July 26, when a kilogram of rice climbed to KPW 6,280.

In fact, the price of rice in Pyongyang has continued to fall since the July 26 survey.

In other regions such as Sinuiju, North Pyongan Province and Hyesan, Yanggang Province as well, rice prices have continued to drop, falling 8 to 12% since late July.

It appears rice prices are falling from July because double-cropped wheat, barley and potatoes have been harvested, and because the authorities provided some North Koreans with unglutinous rice, glutinous rice, wheat flour and other foodstuffs earlier this month to mark the anniversary of North Korea’s founding on Sept. 9.

However, the provisions were primarily aimed at Pyongyang residents and cadres of state agencies. Ordinary people in the provinces received nothing in particular.

According to the source, in some regions such as Yanggang Province, rice of relatively poor quality is currently circulating in markets. Considering the poor state of the musty, moldy rice, it appears some low-quality rice in military storage found its way into markets after it was given to soldiers.

North Korean authorities recently ordered officials dispatched overseas to obtain grains such as unglutinoius rice, corn and soybeans. However, the authorities have yet to provide the imported grains to ordinary people.

According to another source in the country, some military units have gone directly to Nampo, where the imported grain is being stored, to load up on unglutinous rice.

(Source and full article: Seulkee Jang, “N. Korean rice prices fall after climbing past KPW 6,000 per kilogram in late July,” Daily NK, 23 September, 2022.)

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North Korean government installs corruption complaint boxes

Monday, September 19th, 2022

By Benjamin Katzeff Silberstein

Albeit a small one, but yet another data point on the North Korean government campaign against corruption. Radio Free Asia reports:

Government workers, like all North Korean citizens, are paid a small monthly wage by the state, but it is not enough to live on. Most families start businesses, selling goods in the marketplace or performing services to make enough money to get by. Government officials, however, can use the power of their position to bring in extra cash by extracting bribes in return for their services.

Citizens who know about the shady dealings can now more easily report them, although many are reportedly reluctant to do so. Complainants must give their names, leaving them susceptible to retribution by the people they identify as corrupt.

“A box for reporting on officials was installed on the main gate of the Hungnam Pharmaceutical factory the day before yesterday,” a resident of the eastern province of South Hamgyong told RFA’s Korean Service Sept. 15 on condition of anonymity for security reasons.

“Up until now they only had report boxes at the building of the reporting division at the provincial, city and county level. … The fact that the report box is now in a factory is an expansion of the corruption reporting system,” said the source. “This measure follows the Central Committee’s order to strengthen the system to identify officials who are blinded by self-interest and are violating the interests of others.”

(Source: Hyemin Son, “North Korea installs more complaint boxes to tackle corruption,” Radio Free Asia, September 19th, 2022.)

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North Korea’s agricultural production grew last year, South Korean data says

Thursday, August 11th, 2022

By: Benjamin Katzeff Silberstein

South Korea’s Bank of Korea (BOK) recently published its GDP estimates for North Korea in 2021. Overall, their estimates (the faults and flaws of which are many) are consistent with the general impression that last year wasn’t great for North Korea, but also relatively stabile.  An estimated GDP decrease of 0.1 percent in 2021, after all, is a whole lot less than the contraction estimated by BOK for 2020, minus 4.5 percent.

Agriculture (including forestry and fisheries) is, interestingly, estimated to have grown by 6.2 percent. Such precise numbers are rather pointless in estimates like this. Nonetheless, the direction seems to confirm assessments by the World Food Program and others that agricultural production last year performed somewhat better than the years before.

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Was North Korea’s Covid-19 “victory” planned from the beginning?

Wednesday, July 20th, 2022

By: Benjamin Katzeff Silberstein 

Since last month, there’s been strong signs that North Korea may soon declare “victory” over Covid-19. Its claims of progress against the virus are puzzling, like many claims the country has made about its Covid-19 situation, especially at a time when cases were climbing in the rest of the region. The most recent example came this past Monday, when the regime said it was close to solving the crisis completely:

“The anti-epidemic campaign is improved to finally defuse the crisis completely,” the Korean Central News Agency said. It added that the North had reported 310 more people with fever symptoms.

The World Health Organization has cast doubts on North Korea’s claims, saying last month it believed the situation was getting worse, not better, amid an absence of independent data.

The North’s declaration could be a prelude to restoring trade long hampered by the pandemic, one analyst said.

“Under the current trend, North Korea could announce in less than a month that its COVID crisis is over and that could be a prelude to resuming crossborder trade,” said Cheong Seong-chang, director of the Sejong Institute’s North Korea studies centre in South Korea.

(Source: Reuters, “North Korea says nearing end of COVID crisis,” Reuters, 18/7/2022.)

Signs that North Korea may soon declare victory began to appear only a little over a month after the country even admitted to having any cases of the virus in the first place. As AP put it a few weeks ago:

According to state media, North Korea has avoided the mass deaths many expected in a nation with one of the world’s worst health care systems, little or no access to vaccines, and what outsiders see as a long record of ignoring the suffering of its people.

[…]

What’s clear, though, is that the daily updates from state media make it appear inevitable that the nation will completely defeat a virus that has killed more than 6 million people around the world. According to the official tally, cases are plummeting, and, while 18% of the nation of 26 million people reportedly have had symptoms that outsiders strongly suspect were from COVID-19, less than 100 have died.

The South Korean government as well as some experts believe that North Korea may soon declare that it has beaten the virus. This will be linked, of course, to Kim’s strong and clever guidance.

[…]

“There are two sides to such a declaration,” said Moon Seong Mook, an analyst with the Seoul-based Korea Research Institute for National Strategy. “If North Korea says that COVID-19 has gone, it can emphasize that Kim Jong Un is a great leader who has overcome the pandemic. But in doing so, it can’t maintain the powerful restrictions that it uses to control its people in the name of containing COVID-19.”

(Source: Hyung-jin Kim, “‘It always wins’; North Korea may declare COVID-19 victory,” Associated Press, 21/6/2022.)

Indeed, a declaration of final victory is by no means a certainty, and the government would indeed lose a powerful reason for the stronger measures of social control it has implemented over the past few years.

But what about all the state has to win by declaring victory over Covid-19? I’m not talking here about the propaganda value for Kim Jong-un and his “clever guidance”, but about the economy. I speculated when the North Korean government first admitted that Covid had spread to the country that it could be a step toward normalizing the situation and, in the longer run, a step toward opening the border back up for trade with China.

When the government recognized it had been hit by Covid, it turned it from a risk to be avoided at all cost into a problem to be dealt with. By doing so, it made the border closure more or less superfluous; if the virus is already in the country, no more need to keep trade at close to a standstill.

In this light, declaring victory over the virus would be a natural step, and that would itself be a step toward fully normalizing trade and easing or abolishing internal restrictions. Several recent signs indicate that this may be happening. North Korea seems to, more or less, want to open trade back up with China, no longer fearing that the virus will enter the country. To the contrary, Chinese authorities are now weary of the virus coming in from North Korea. As Daily NK reports:

Although North Korea is making a show of confidence, claiming that the coronavirus situation in the country has “completely stabilized,” the Chinese government is tightly controlling trade with the North due to concern about the state of the pandemic in the country.

According to a Daily NK source in China on Monday, as coronavirus cases decrease, factories and restaurants are reopening in regions of China that border North Korea, including Liaoning and Jilin provinces. With highways, railways, ports and other inter-regional transportation links soon set to reopen as normal, the movement of goods and people within China is expected to improve.

However, in contrast to moves to relax domestic disease control measures, the Chinese government has yet to begin easing controls and inspections regarding trade with North Korea. In regions that border North Korea, Chinese authorities are reportedly cracking down hard on Chinese people directly contacting or doing business with North Koreans.

The source told Daily NK that the Chinese government is levying fines of at least RMB 300,000 (around USD 44,450) on people caught smuggling with North Koreans, a measure that has helped prevent Chinese traders from readily dealing with their North Korean counterparts.

On the other hand, North Korean trade officials are making more requests for imports from Chinese traders. With North Korean authorities recently allowing certain North Korean trading companies to participate in or expand existing trade with China, these companies appear to be responding by increasingly asking for items to import.

(Source: Seulkee Jang, “China still appears wary about reopening trade with North Korea,” Daily NK, 20/7/2022.)

North Korean firms, presumably on order by or at least approval from the state, are in other words trying to start trade ties back up while Chinese authorities are weary.

Internally, too, authorities have eased restrictions. According to Radio Free Asia, travel restrictions were virtually dismantled late last month:

North Korea has lifted COVID-19 travel restrictions nationwide, a sign the government may soon claim victory over the coronavirus pandemic, RFA has learned.

After two years of denying the virus had penetrated its closed borders, North Korea in May acknowledged COVID had begun to spread among participants of a large-scale military parade the previous month and declared a “maximum emergency” to fight the disease.

As part of its response, the government restricted movement between provinces and prohibited large gatherings. But now, after a partial lifting of the travel ban in late May, North Korea ended the limitations completely on June 12, a source from the northeastern province of North Hamgyong told RFA’s Korean Service on condition of anonymity for security reasons.

“Residents are able to travel to other provinces and even to the capital city, Pyongyang,” the source said. “The new order from the National Emergency Quarantine Command was given to residents of each neighborhood in Pohang district.”

Each neighborhood watch unit held meetings to explain the policy change to residents, the source said.

“They have been unable to travel outside the provincial borders with only the partial lifting of restrictions, so they welcome the news,” he said. “It is especially great news for merchants who rely on long-distance travel between provinces for their businesses.

“But even if the restrictions are completely ended, there is still a separate procedure that requires travelers to carry a COVID-19 test certificate issued by the quarantine command. We can get a travel pass only if we have the test certificate,” he said.

North Korea requires passes for travel between provinces even under normal circumstances.

Residents with mobile phones can access test certificates through a smartphone app, a resident of the northwestern province of North Pyongan told RFA. Others must travel to receive a paper copy.

“In rural areas such as Pakchon county, you have to visit the town quarantine center, which is miles away, to get a COVID-19 test certificate,” the second source said. “If a resident who wants to get a test certificate does not have a mobile phone, it is inconvenient.”

But she agreed that most residents are happy the restrictions are ending.

“Now they hope that the residents will have their livelihoods restored as soon as possible, but also by lifting the blockade of the border with China,” she said.

After briefly restarting rail freight shipments from China earlier this year, new outbreaks in China forced Beijing and Pyongyang to suspend trade again. Aside from the short respite, trade has been suspended since the beginning of the pandemic in January 2020, with disastrous effects on the North Korean economy.

The first source said that not all residents were overjoyed at the lifted restrictions, believing that the government had an underlying and unsaid motive.

“There are speculations that restrictions were lifted in order to mobilize the residents,” the first source said, referring to the government practice of forcing residents to provide free labor for construction, farming and other state projects.

“The COVID-19 lockdown restricted mobilizations on national construction projects and on rice planting duties,” he said.

Nevertheless, the government has been saying that it is the leadership of Kim Jong Un that has eradicated the coronavirus, the second source said.

Sources told RFA that North Korean traders and their Chinese counterparts are preparing to resume trade quickly once the Sino-Korean border reopens. They anticipate that cross-border trade will resume once coronavirus case numbers subside.

(Source: Jieun Kim, ,”North Korea ends COVID-19 travel restrictions as ‘fever cases’ subside,” Radio Free Asia, 22/6/2022.)

It seems, thus, that the admission of Covid back in the spring may have been the first step to normalizing the situation. It is a change that the North Korean economy very much needs.

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Market conditions in North Korea, amid rising prices

Monday, July 11th, 2022

By Benjamin Katzeff Silberstein

Unfortunately, Daily NK recently ceased general publication of their detailed price data, but a recent report details how prices are rising in the country. In combination with the crackdown on unauthorized small-scale trade, conditions are tough for the many North Koreans sustaining themselves through market trade:

A recent spike in the price of staples such as rice and corn at North Korean markets is making things even tougher for ordinary people in the country.

A source in Yanggang Province told Daily NK on Wednesday that the price of rice at markets in the city of Hyesan has been increasing since the beginning of last month.

Moreover, since June 30, the price of one kilogram of rice has gone above KPW 6,000, leaving more North Koreans without access to grain and stoking anxiety among the public, the source said.

He also reported that rising food prices have made things even harder for street vendors, who were already hit hard when the North Korean authorities closed the national borders  and intensified crackdowns on the vendors.

According to the source, one resident of Hyesan who supports herself by selling rice cakes on the street has made few sales since June. Crackdowns by the Ministry of Social Security have kept her from selling rice cakes, putting her further in debt.

Without any income, the woman cannot even keep up with the interest on the loans she took out to fund her business. If she misses a second deadline for making her interest payment, the interest will balloon and her credit will collapse, leaving her unable to borrow any more money, he explained.

On top of her predicament, food prices in the market continue to rise, and the woman is now afraid she will become completely destitute.

“Even though the ‘barley hump’ has passed, food prices just keep getting higher and higher. The mood among the populace is so grim that some are afraid people will resort to cannibalism if things keep on like this. Many people are so famished because of the high cost of food that they can’t even go to work,” the source said.

(Source: Lee Chae-un, “Recent spike in rice and corn prices make things even more difficult for ordinary N. Koreans,” Daily NK, July 8th, 2022.)

Price data from Rimjingang also reflects this trend. Prices in their data set went from 5,400 won/kg for rice on June 10th, to 6,700 on the 17th and 6,600 on the 24th, and stabilized somewhat at 6,300 won on July 8th. In USD terms, that’s an increase from 0,72/kg to 0,86 most recently, an increase of almost 20 percent.

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North Korea’s Korean Worker’s Party Secretariat statement on Party discipline and social control

Tuesday, June 14th, 2022

By Benjamin Katzeff Silberstein

The Korean Worker’s Party Secretariat met this past Sunday (June 12th) and discussed, among other things, social disobedience and discipline within the Party, in no uncertain or soft words (as reported by Yonhap here.) Statement below in its entirety:

Meeting of Secretariat of WPK Central Committee Held

The Secretariat of the Central Committee of the Workers’ Party of Korea (WPK) Sunday held a meeting at the office building of the WPK Central Committee to discuss major issues of the Party work.

The respected Comrade Kim Jong Un, general secretary of the Workers’ Party of Korea, presided over the meeting.

Attending it were Jo Yong Won, Pak Jong Chon, Ri Pyong Chol, Ri Il Hwan, Kim Jae Ryong, Jon Hyon Chol and Pak Thae Song, secretaries of the WPK Central Committee.

The meeting discussed the major tasks to be fulfilled in the Party’s immediate activities and its building.

It discussed the issue of scrupulously conducting the organizational and political work to firmly arm the Party organizations at all levels with the spirit of the 5th Plenary Meeting of the 8th Central Committee of the WPK and inspire them to the implementation of the Party decisions and of decisively improving the role of the Party organizations in the overall Party and state affairs this year, and assigned relevant revolutionary tasks.

The Secretariat of the WPK Central Committee discussed importantly the issue of establishing the traits of firmly preserving discipline within the Party and waging a more intensive struggle against unsound and non-revolutionary acts including the abuse of power and bureaucratism revealed among some Party officials.

Clarifying the immediate work and prospective tasks for taking organizational and institutional measures and establishing the efficient work system to further strengthen the Party Central Inspection Commission and intensify the discipline supervision system among the local Party organizations at different levels, including the basic ones, and for putting the norms of supervision, discipline examination and penalty on a more detailed basis, the respected General Secretary called for expanding and strengthening the authority and function of discipline inspection departments for aiding the work of the Inspection Commission, enforcing the strict supervision work system, discipline examination order and stern penalty system in keeping with the legitimate demand of the essence and strengthening of the Party’s line of building discipline, and thus thoroughly guaranteeing the realization of the monolithic leadership of the Party Central Committee and the broad political activities of the Party through the strong discipline system.

Saying that it is necessary to prioritize the work for encouraging and raising the high political principle, fighting spirit, revolutionary style and communist moral traits within the organizations of the whole Party to thoroughly carry forward the nature, mission and duty of the revolutionary party and develop the fighting efficiency of the socialist ruling party, he stressed that, to this end, it is essential to push ahead with as an indispensable priority task the work to strictly establish the strong habit of observing the rules and discipline of the Party and the supervision work system and rectification system over the execution of the Party’s line and policies and embodiment of sound working style and moral life.

Clarified at the meeting was the important and strategic party-building idea of the General Secretary on regarding the building of the Party’s discipline as its prior important task and major line in the party building and activities, more firmly consolidating the Party’s foundation, improving the revolutionary and militant efficiency in the Party’s political activities and enhancing, improving and strengthening the Party’s role and trait.

The Secretariat of the WPK Central Committee decided to take institutional measures for thoroughly applying the original idea and theory of the General Secretary on building the Party’s discipline to the Party work and activities.

The meeting also discussed other major issues of improving the Party inspection and guidance work and enhancing its interior work.

Political News Team

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The North Korean gov’t tightens the screws on foreign trade

Wednesday, June 8th, 2022

By: Benjamin Katzeff Silberstein

Over the past year, Daily NK (and primarily its stellar reporter Seulkee Jang) has reported on what seems to be a fairly consistent effort by the North Korean regime to strengthen its controls over foreign trade permits. The Covid-19 border lockdown has made this, as other repressive measures of economic policy, a much easier task than it otherwise would have been. The purpose of this post is to summarize the development to date by gathering the reports in one place, hopefully generating a somewhat holistic picture of what’s been happening.

Tight government regulation of foreign trade is, of course, nothing new in North Korea. Trade has always occurred at the mercy of the state, making it a fertile ground for corruption. From May 2019:

The continuing international sanctions on North Korea are causing difficulties for the country’s traders, who are having trouble finding items not on the sanctions list to sell as well as having to pay “loyalty payments” to the state and bribes to government officials.

“Traders are saying that the business environment in North Korea is poor and that they have a lot of difficulty importing materials from China that don’t violate the sanctions. Even if products clear Chinese customs without a problem, traders face issues in North Korea […] North Korean customs agents demand bribes and the traders say they’re left with nothing,” a source in North Hamgyong Province told Daily NK.

“The customs officials demand bribes and justify their demands with excuses like ‘The state is building this or that project so be a patriot and hand over the money’ […] Traders don’t have much choice, so they just pay the bribes.”

[…]

Traders are faced with being branded “anti-socialist” and punished if they refuse to contribute money for so-called state construction projects.

Government officials ultimately decide whether such payments really go to state construction projects or are accepted as personal bribes. Some of the customs officials may be sending some of the money to state coffers while keeping the rest for themselves.

It is not only imports of contract-manufactured materials imported from China that are facing difficulties. Traders who manufacture products in North Korea and export them to China also face demands from customs officials for bribes.

(Mun Dong Hui, “North Korean customs officials continue to demand bribes from traders,” May 5th, 2019.)

In November 2020, the Supreme People’s Assembly revised the country’s enterprise law to strengthen state control over firms engaging in foreign trade. Late that month, a source for the Daily NK claimed that the revision reduced what private traders have to pay to the state while strengthening control over these units:

According to a Daily NK source in Pyongyang, the bill to revise and supplement the Enterprise Act includes provisions that reduce what private “kiji” pay to the state and encourage foreign exchange earning and trading activities.

A kiji is a small private business organization of about seven people that is nominally attached to a trading company.

The act has permitted payments to the state (in cash or kind) to be cut by a third and private business operators are now allowed to take a greater share. The relevant cadres have been ordered to encourage the establishment of enterprises by telling prospective entrepreneurs that they “may pay just 10% of their profits.” It remains unconfirmed, however, whether this has been clearly included in the legislation.

“Since the (individual’s) take has been increased, it could also be read as an instruction to do more private business or earn more foreign currency,” the source said, speaking on condition of anonymity.

In particular, the authorities reportedly prepared the legal basis to reinvigorate trade through the latest revision to the Enterprise Act.

(Seulkee Jang, “N. Korea’s recent revision of Enterprise Act appears aimed at increasing trade,” November 25th, 2020.)

Some five months later, in April the following year, DNK reported that the state had ordered trading agencies to apply for new waku or trading permits, meaning that they would be required to submit a wide range of documents for scrutiny:

The agencies that will begin conducting trade on Apr. 20 received direct orders from the party to continue trade even after the border was closed at the end of January 2020. As companies belonging to powerful North Korean institutions, these agencies will simply have to undergo an inspection to confirm their activities. As soon as this is complete, they will be permitted to participate in official trade.

The authorities reportedly shortlisted trading companies that are a part of the Central Committee or the Munitions Industry Department (MID) to receive permission to resume trade.

Meanwhile, the authorities ordered that individual traders working for non-priority trading companies or agencies apply for new waku.

The Ministry of External Economic Relations gave each trading agency written instructions to reapply for new waku during the three days between Apr. 12 and Apr. 14. Trading agencies and companies reportedly submitted their applications and authentication materials via the North Korean intranet per the guidelines.

Even agencies and individuals who have been issued waku in the past must apply again for a new permit. If there are no issues, the firms will receive their newly-issued waku after an evaluation period of three to four weeks and be able to participate in official trade from the beginning of May.

Materials needed for the waku application reportedly include certificates regarding partner companies in China, records of previous imports and exports, and plans for future trade.

(Seulkee Jang, “N. Korea hands down order regarding issuance of trade certificates,” April 20th, 2021.)

Around the same time, the authorities reportedly began to more thoroughly investigate traders to crack down on smuggling, partially as a result of the above-mentioned scrutiny:

A Daily NK source recently reported that the authorities have been ferreting out and punishing traders involved in smuggling. This crackdown could be an attempt to encourage trade workers to be cautious until the authorities open the border.

“From the beginning of this month until recently, the authorities have been arresting anyone who engaged in smuggling and those who did not submit their ‘loyalty fees’ to the party on time. [The authorities] have exiled some of them to remote areas, or sentenced them to re-education through labor or even death,” a source in North Pyongan Province said on May 18. “They are being punished because they misappropriated trade profits for their own personal gain and not for the benefit of the country.”

The hunt for those who participated in or abetted smuggling and those who failed to pay party “loyalty fees” reportedly came to a close in late April. North Korean authorities also investigated traders and firms applying for new waku (trade certificates) during the same period.

North Korean authorities accepted new waku applications from Apr. 12 and Apr. 14. After receiving the applications, the Central Committee’s Department of Economic Affairs, the Ministry of Foreign Trade, and the Ministry of State Security began screening them.

“Twenty people ended up being targeted for punishment,” the source said. “[The authorities] arrested all of them at the same time and their punishments were meted out immediately.”

(Seulkee Jang, “North Korean authorities ferret out traders involved in smuggling,” May 24th, 2021.)

These increasingly intense investigations targeting “unauthorized trade” continued through the summer, as DNK reported in June and July:

The KPW-USD rate broke past KPW 7,000 on May 18, just before the new waku were issued. The renminbi was also going beyond KPW 1,000.

Daily NK has found that the exchange rates – which had been climbing continuously on the back of expectations surrounding the reopening of trade, and the issuance of new waku – suddenly collapsed because of new trade controls recently enacted by the North Korean authorities.

According to a high-ranking source, the Central Committee issued an order on June 3 telling recipients of new waku that their certificates did not mean they could participate in trade “right away.” If they do participate in trade without Workers’ Party approval, warned the order, it would be regarded as smuggling and subject to severe punishment.

(Seulkee Jang, “US dollar and Chinese reminbi plummet against North Korean won once again,” June 9th, 2021.)

And the report from July:

North Korean authorities are conducting large-scale inspections aimed at cracking down on unauthorized trade. This has led some North Korean trading companies involved in the trade of “unauthorized items” to cancel their transactions with Chinese traders.

According to a Daily NK source in China on Sunday, an unnamed North Korean trading company recently requested its Chinese partner suspend a transaction. The Chinese partner found this absurd as it was already prepared to ship the construction materials, paper, soap, and other sundries that had been ordered.

[…]

A Daily NK investigation – based on information from multiple sources in North Korea – has determined that the Ministry of State Security, Ministry of Social Security, and disease control authorities launched a joint inspection into illegal trading activity last month.

On June 3, North Korean authorities issued an order that warned traders against engaging in trade without prior approval from the Workers’ Party, regardless of whether they received a new waku (trade certificate). According to the order, unauthorized trade will be regarded as “smuggling” and subject to punishment.

The authorities subsequently formed inspection teams, which are now scrutinizing recent transactions by the country’s trading companies.

Trading companies that tried to import unauthorized goods along with authorized items now appear to be “scrambling” to cancel their deals with Chinese traders or are simply refusing to accept the cargo.

“North Koreans say you can trade only if you’ve gotten permission from that person [North Korean leader Kim Jong Un] – even if you’ve got a waku,” one of the sources in China told Daily NK. “Instead of trade returning to [pre-pandemic] levels, it’s getting harder [for Chinese traders] to conclude deals with North Korea.”

(Seulkee Jang, “North Korea conducts large-scale inspections aimed at ending unauthorized trade,” July 6th, 2021.)

Only days later, DNK reported that approximately 20 trading company heads had been arrested in the crackdown against unauthorized trade. The reference to quarantine procedures is a clear example of how anti-epidemic measures have often intertwined with enhanced state controls:

According to a Daily NK source in North Korea on Thursday, the authorities arrested around 20 heads of trading companies during a “joint inspection” of trade-related entities that began last month. Hundreds of trade workers have also been arrested and are undergoing questioning.

The ruling party’s Organization and Guidance Department is reportedly taking overall command of the joint inspection.

Those arrested are being charged with either importing items outside their approved import lists or distributing imported items that have not gone through proper quarantine procedures.

North Korean authorities are reportedly applying heavy punishments on importers who circumvent quarantine procedures, rather than focusing on just the import of unapproved items.

Daily NK understands that the items imported by companies busted in the latest inspection include consumer goods scarce in most of the country’s markets, including seasonings, soybean oil, sesame seeds, and sugar.

Based on Daily NK’s information, the authorities have confiscated all of the unapproved imported items. They have also confiscated the waku (trade certificates) of the relevant trading companies.

[…]

Daily NK’s source, speaking on condition of anonymity, said that the authorities are making no exemptions in this latest crackdown – not even for trading companies attached to Bureau 39, which handles the ruling Kim family’s slush funds. If companies are caught engaging in illegal trade, they apparently face severe and “merciless” punishment.

North Korean leader Kim Jong Un has reportedly ordered that individuals caught in the inspection face criminal proceedings rather than “party-related punishments”; that busted cadre-level trade officials be stripped of their party credentials; and that the authorities apply the same criteria in their crackdown to companies affiliated with “special institutions.”

Given that North Korean authorities regard illegal trade by trading companies as “political activity,” offenders apparently face the severest of punishments — including death or confinement in a political prison camp — depending on the severity of their crimes.

“At the very least, nobody will get away with a mere slap on the wrist, like time in a forced labor or reeducation camp,” the source said.

(Seulkee Jang, “North Korea arrests around 20 trading company heads in latest crackdown on unauthorized trade,” July 16th, 2021.)

The crackdown continued even in the face of food shortages that underscored the need for more imports, fast:

The source said the committee also pointed to blocked provisions of raw materials and supplies in all areas of economic activity and serious energy shortages. The committee said discussions of trade must focus on these problems, essentially calling for traders to resolve food shortages and normalize enterprise operations by promptly restarting trade.

However, the source said the committee focused more on “system compliance.” It told traders that they must abandon rushed “campaigns” and deeply analyze trade as it involves the import and export of the state’s foreign exchange.

Moreover, it criticized officials in higher-level work units for personal and institutional selfishness, bragging about their “special” status. This well worn practice must be “uprooted,” it said.

The committee targeted corruption as well. Officials said they would show no forgiveness for traders collaborating with certain individuals to “mix goods” that have nothing to do with the national economy into their imports. It warned that “non-socialist and anti-socialist behavior” would face punishment by the party, administrative organs, or through the legal system.

(Jong So Yong, “Yanggang Province’s provincial party committee discusses China-North Korea trade,” December 31st, 2021.)

For some months, DNK reports on the issue took a pause, suggesting that the campaign may have ceased to grow in intensity for some time. In early April 2022, however, Jang Seulkee reported that a large-scale restructuring appears to be going on in the foreign trade sector, strengthening cabinet control:

North Korean authorities are disbanding trading firms that fail to produce results, and restructuring the trade sector to give the Cabinet direct supervision over the import and export details of all trading companies, as well as their profits.

According to multiple Daily NK sources in North Korea on Friday, the authorities have been placing trading companies across the nation under the direct control of the Cabinet. Trading companies that have failed to take part in import or export activity over the last couple of years are being merged out of existence, even if they are under the jurisdiction of “special bodies” like the security services.

The authorities have also created a report system that allows the Cabinet to manage or supervise trading companies’ accounting records and cash flow.

[…]

North Korea has apparently started to structurally readjust the trade sector as part of efforts to restore the state’s “unitary trading system.”

In a report on economic affairs to the Supreme People’s Assembly in February, Premier Kim Tok Hun said he would continue to push activities to restore the state’s unitary trading system in the external economic relations sector.

North Korean authorities have granted enterprises some degree of trade autonomy since North Korean leader Kim Jong Un took power, but the premier’s comment could be seen as a declaration that the state would be the sole trading actor going forward.

North Korean authorities have begun merging trading companies and bringing them under Cabinet supervision as their first effort to restore the state’s unitary trading system in an apparent bid to resolve the problem of bloated trading companies making illicit gains.

(Seulkee Jang, “North Korea restructures trade sector to give Cabinet more direct supervision over imports/exports,” April 4th, 2022.)

Ten days later, Jang reported that trade certificates of several trading companies of significant size had been confiscated by the authorities, who also arrested some ten trade officials:

According to a Daily NK source in North Korea on Wednesday, the Central Public Prosecutor’s Office arrested about 10 trade officials this month, confiscating the waku of their trading companies as well.

During North Korea’s efforts over the last month to merge trading companies, the authorities have discovered cases where companies have taken on excessive debt. The government has taken issue with officials of these companies for poor accounting practices and filing false financial reports.

Daily NK recently reported that North Korean authorities have started restructuring the country’s trade sector as the first step to restoring the state’s “unitary trade system.” These efforts have included merging and disbanding trading companies and making companies directly report their trading and sales details to the country’s Cabinet.

The individuals arrested in the latest round-up include officials with trading companies attached to major state institutions, including the Supreme Guard Command, Ministry of State Security, and External Construction Guidance Bureau. North Korea has apparently punished individuals and companies when their financial audits have turned up problems, regardless of the company’s size or parent organization.

However, trading companies that had their waku confiscated are crying foul. They say it is wrong for prosecutors to take away their waku simply because “rash financial audits” turned up “excessive debts” or missing numbers when the prosecutors themselves know nothing about the companies’ trade transactions.

(Seulkee Jang, “N. Korea confiscates the trade certificates of several mid- to large-sized trading companies,” April 14th, 2022.)

All of this was, naturally, related to the state effort to collect more foreign currency in the face of what must be depleting supplies:

North Korean authorities are reviewing how well provincial trade bureaus have met their foreign currency quotas in the first quarter of the year and are auditing bureaus that failed to meet their quotas, Daily NK has learned.

“The government has assigned officials from the State Planning Commission and the Ministry of External Economic Relations to audit the provinces that failed to provide the state with the planned amount of foreign currency funds in the first quarter of the year. The auditors are supposed to review the results and correct what went wrong,” a source in North Hamgyong Province told Daily NK on Wednesday.

[…]

“The current objective of the audit is to figure out how persistently and energetically provincial trade bureaus have been in delivering foreign currency to the state. But another objective is to pressure the bureaus to unconditionally meet the state’s foreign currency quota in the future,” the source said.

The auditors have mostly been examining documents provided by managers, bookkeepers, and statisticians at trade companies in North Hamgyong Province. After marking problem areas in red, they are meeting with the people involved to check on their work processes and outcomes, the source explained.

According to him, the auditors in North Hamgyong Province have looked through all the documents not only from the first quarter of the year but from the last two years as well. They are asking hard questions about the province’s failure to meet the foreign currency quota. The auditors reportedly believe that low-level trade organizations did not make a serious effort to meet the quota.

Trade organizations did manage to get permission in Sinuiju for sending imports and exports through the Uiju quarantine center. However, the auditors were greatly disappointed by the fact that these organizations, thinking they had no way of meeting the quota, attempted to shirk responsibility for not sending any foreign currency to the government over more than two years.

(Jong So Yong, “N. Korea conducts audits on how well provincial trade bureaus met foreign currency quotas,” April 29th, 2022.)

As is often the case, provincial administration incentives appear to be misaligned with the central government’s orders:

North Hamgyong Province’s trade bureau is working hard to ensure the survival of as many trade companies as possible following orders by the central government to merge or close companies deemed ineffective.

“The provincial trade bureau is under a great deal of stress due to the government’s instructions regarding the merger and closure of trade companies,” a source in the province told Daily NK on Monday.

North Korea is carrying out several measures to either combine trade companies or eliminate them altogether as part of broader efforts to restore a system in which all trade is administered by the state, he explained.

With trade companies facing the very real prospect of elimination, many are making every effort to survive, with the hope that trade will resume in earnest once the country’s borders are reopened, the source added.

The source said that the North Korean government believes that it does not need trade companies that focus solely on either imports or imports. During the trade company registration process, the government is setting precise figures for imports and exports and emphasizing that only trade companies that can actively pursue both activities serve the state’s economic interest.

(Jong So Yong, N. Hamgyong Province’s trade bureau under stress to save as many trade companies as possible,” May 4th, 2022.)

As of last month, the process to tighten trade administration was still ongoing. The aforementioned state surveys of trading companies revealed that all of them carry substantial amounts of debt:

North Korean authorities are pushing the dissolution and merging of trading companies as the first stage of the restoration of the unitary state-led trading system. However, things are reportedly moving slowly due to debt problems with the trading companies.

According to a high-ranking Daily NK source in North Korea on Thursday, North Korean authorities started dissolving and merging trading companies to build a state-led trading system in March, making the Cabinet responsible for managing all import and export breakdowns. They have yet to complete the process, however.

This is because financial surveys conducted to dissolve and merge the companies revealed that every firm carried significant debt.

[…]

The source said the most likely plan is for the North Korean authorities and trading companies to split the debts 50/50.

The problem is that North Korean authorities lack the financial wherewithal to assume 50% of the debts. Another Daily NK source familiar with North Korea’s trade situation said no trading officials believe the authorities will take care of 50% of the debts, even if they say they will.

North Korean authorities currently set the official exchange rate at a very low KPW 150 to the dollar. Compared to the rate of KPW 6,500 to the dollar at a market in Pyongyang on May 1, the government currently sells the dollar at a price over 40 times lower than market value.

Because of this, if the North Korean authorities assume the debt using the official exchange rate, the high-level trade agencies will assume virtually all the debt.

This being the case, both the subordinate trading companies and the superordinate ones that will absorb them are complaining.

(Seulkee Jang, “N. Korea’s efforts to dissolve and merge trading companies are hitting snags,” May 16th, 2022.)

It seems fairly clear that the state intends to fully subordinate foreign trade under cabinet control, drastically tightening the screws on companies that engage in foreign commerce. It is an ambitious project given that foreign trade was relatively decentralized for some years, but it is an ambition that the state has held since at least 2018. We may see some limited measures of retreat but the overall goal will likely persist for some time.

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