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Goods, and people, crossing the China-North Korea border

Wednesday, April 25th, 2018

By Benjamin Katzeff Silberstein

Over the past couple of weeks, there’s been several news stories that suggest and increased stream of goods – and people – across the North Korean border to China. First, there were the reports that some 400 North Korean workers, who were earlier expelled due to China’s sanctions implementation, came back to China. It shouldn’t be all that shocking if Chinese sanctions enforcement eased somewhat after Kim Jong-un’s visit to Beijing a few weeks ago. Judging from historical patterns, Chinese sanctions enforcement on North Korea may well have relaxed as international tensions around North Korea’s nuclear program are somewhat eased as well.

South Korea’s MBC seem to make the same assessment in a recent dispatch from the Sino-Korean border. On April 24th, they reported that North Korean-owned restaurants in Dandong have opened again after being closed for several months, since China began enforcing UN security council-mandated sanctions against North Korea. Shops selling North Korean goods in China have had their shelves restocked, and judging by ticket sales, the number of Chinese tourists visiting North Korea has increased.

It’s hard to tell precisely what all this means. Surely, this could all be a sign of Chinese concessions to North Korea following Kim’s meeting with Xi. More likely, the relaxation is also a concession to Chinese companies: China’s implementation of sanctions has not only hit against North Korea, but against Chinese business interests in the border regions as well. It appears that the main beneficiaries of whatever relaxation has happened are businesses near the border, such as a number of Chinese factories, and North Korean-run restaurants (usually run as joint ventures with Chinese partners). Information is, as usual, very spotty and one should be careful not to draw too many general conclusions from anecdotal evidence.

In any case, as I write for NK Pro, the signs of relaxation we’ve seen so far don’t merit any change in the assessment that North Korea is experiencing significant pressure from the sanctions. Key exports that dropped in 2017 due to China’s sanctions implementations have, as far as we can tell from publicly available information, not gone up. This may very well change in the future, and the anecdotal signs of relaxation along the border may be indicative of a broader change. But for now, the evidence doesn’t seem to be there.

 

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Chemical factory in North Korea closed due to sanctions

Thursday, April 19th, 2018

Benjamin Katzeff Silberstein

Says Radio Free Asia:

A North Korean chemical plant which had been shuttered for 20 years and renovated for reoperation in 2016 appears to have been shut down again due to international sanctions imposed on the regime of leader Kim Jong Un, sources inside the country and in neighboring China said.

The Chongsu chemical plant located in the workers’ district of Sakchu county in North Hamgyong province sits opposite the city of Dandong in northeastern China’s Liaoning province across the Yalu River separating North Korea and China.

North Hamgyong province is not opposite Dandong, and RFA is likely mixing North Hamgyong up with North Pyongan province. I’m grateful to a reader and good friend for pointing this out!

The chemical factory It underwent a major renovation in October 2016 and until recently was known to produce batteries for military use, sources said.

“The Chongsu chemical plant had been reactivated for less than a year, and it’s been eight months since any smoke has come out of it,” a resident of Dandong’s Kuandian county told RFA’s Korean Service. “If there is no smoke coming out of its smokestack, then it’s evident that the plant has stopped operating.”

“International sanctions on North Korea may have had a big impact on the deactivation of the chemical plant,” said the source who declined to be named. “There is strong possibility that the chemical plant was not able to obtain necessary materials because of China’s sanctions.”

The United Nations, with backing from North Korea’s longtime ally China, unanimously approved sanctions against North Korea in December as punishment for its development and launch of a ballistic missile that Pyongyang said is capable of striking the U.S. mainland.

The sanctions place caps on the import of crude oil, and refined oil products, such as diesel and kerosene that are crucial to North Korea’s economy. They also impose a ban on the export of a range of products, including food, machinery, electrical equipment, wood, earth, and stones, to other countries.

In early January, China’s Ministry of Commerce began imposing limits on exports of crude oil, refined oil products, steel, and other metals to North Korea, in line with U.N. sanctions.

China suspended North Korea coal imports in 2017 after the U.N. adopted a previous sanctions resolution to punish the country for its nuclear weapons program by tightening restrictions on coal exports.

“Because of China’s sanctions, chemicals, including sulfuric acid, are not allowed to be sent to North Korea,” the source said. “So how can the plant produce batteries without an essential material?”

Authorities let the Chongsu chemical plant fall into neglect in 1996 during the Great Famine during which up to 3 million North Koreans starved to death due to a variety of factors, including the state’s economic mismanagement, an end to aid and trade concessions from the former Soviet Union after it collapsed, and a series of floods and droughts.

“When they initiated the major renovation of the chemical plant, they probably did not expect there would be sanctions against them or any power shortages,” he said.

A North Korean resident of North Hamgyong pointed out that that the chemical factory could not sustain operations after a nearby hydropower plant stopped generating electricity last year when the Supung Dam, its water source, dried up during a drought.

“In order to operate factories in North Korea, raw materials and electricity must be guaranteed,” said the source who declined to be named.

Fertilizer production

The chemical plant was built in 1943 and produced calcium cyanamide, a chemical fertilizer commercially known as nitrolime, and phosphate fertilizers when Korea was under Japanese colonial rule (1910-1945).

In 1966, when North Korea founder and former leader Kim Il Sung was in power, the facility was expanded to produce other chemical fertilizers.

The London-based International Institute for Strategic Studies issued a dossier in 2004 listing five major North Korean civilian chemical production facilities that sat on the border with China, including the Chongsu chemical complex.

A report issued five years later by International Crisis Group listed a chemical plant in Chongsu as one of four chemical weapons sites on the border with China, though specific names of the facilities were not given.

Though North Korea has long denied having a chemical weapons program that produces nerve, blister, blood, and choking agents, the U.S. Defense Department believes the rogue nation likely possesses production capability and a chemical weapons stockpile that could be used with artillery and ballistic missiles, according to an Associated Press report in March.

In February, the U.S. determined that North Korean used the chemical warfare agent VX to assassinate Kim Jong Nam, the half-brother of Kim Jong Un, at the Kuala Lumpur international airport in Malaysia in February 2017.

In response, the U.S. imposed sanctions on North Korea under the Chemical and Biological Weapons Control and Warfare Elimination Act in addition to existing U.S. comprehensive sanctions targeting unlawful North Korean activities.

Full article here:
Sanctions Force North Korea to Shutter Chemical Factory
Joonho Kim
Radio Free Asia

2018-04-19

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Use of Yuan in the North Korean economy

Monday, April 16th, 2018

According to the Asahi Shimbun:

The Chinese yuan apparently has growing currency in North Korea and is commonly used in daily transactions such as paying taxi fares and restaurant bills.

…

The situation is a far cry from the 1990s, when only 4.9 percent of defectors said foreign currencies, including the U.S. dollar, were commonly used in daily transactions.

Lee’s study targeted around 1,000 defectors. The results, released Feb. 28, found that 44.3 percent of defectors between 2011 and 2015 said foreign currencies were often used for transactions. However, 52.5 percent of defectors after 2013 said the yuan is chiefly used nowadays.

The survey highlighted the fact that China’s currency is increasingly in circulation in North Korea, which helps explain why the reclusive country’s commodity prices and exchange rates have remained relatively stable.

The Pyongyang regime’s decision to revalue its won currency in November 2009 eroded public trust in the monetary system by 2013 as it wiped out the savings of many North Koreans, sparking incidents of unrest and a thriving black market.

North Korea’s official exchange rate is pegged at 108 won to the dollar. But on the black market, $1 (107 yen) fetches about 8,000 won.

Since 2013, the U.S. dollar has continuously traded at around 8,000 won. There are suspicions that Pyongyong has reduced the volume of won in circulation amid the influx of foreign currencies in daily transactions.

Read the full story here:
China’s yuan now firmly part of North Korea’s daily economy
Yoshihiro Makino
Asahi Shimbun
2018-4-13

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The state of the sanctions on North Korea (April 2018): one step forward, one step back…?

Monday, April 9th, 2018

By Benjamin Katzeff Silberstein

Judging from all publicly available information, China is currently enforcing and implementing, to a much greater degree than in the past, the UN sanctions that stand against North Korea. That of course doesn’t mean full and foolproof enforcement, but there’s been fairly few signs suggesting that the government is knowingly turning a blind eye to trade with North Korea, or exploiting sanctions loopholes, the way it has in the past. Market price data doesn’t suggest that sanctions are hitting against the economy as a whole (yet), in ways that one might expect in the longer run. But certain sectors of the North Korean economy – such as mining and textiles – are likely feeling a significant and hard pinch from China’s enforcement.

But how long will it last? Judging from recent history, I’ve argued that China’s sanctions enforcement would likely be a temporary phenomenon, probably only lasting long enough to give the “right” impression to the US and the international community.

I am by no means alone in this, and given China’s past precedent of squeezing hard for shorter periods and letting go when global attention shifts from North Korea, it’s not really a risky prediction. In any case,  China’s sanctions enforcement is less a result of UN resolutions per se than of China’s own perceived best interests at any given moment.

With Kim’s visit to Beijing, it appears that China may have started to let up some of its pressure. As Curtis Melvin previously noted on this blog, South Korean media has reported that Chinese enforcement of the ban on North Korean guest labor may be easing. Daily NK published video footage a few days ago purportedly showing North Korean workers arriving in China, and one source tells Daily NK that the flow of workers leaving China and heading back to North Korea has ceased:

“About 400 North Korean women were dispatched to Helong, Yanbian Autonomous Prefecture on April 1,” a source close to North Korean affairs in China told Daily NK on April 4.
In the video provided by the source, hundreds of the women can be seen walking in a procession in the Chinese city, with most carrying bags or backpacks. However, the starting point and destination of the group is unclear from the video.
“It has been a long time since this many people have come in [from North Korea], but it’s probably related to the Kim Jong Un’s recent visit to China,” the source said.
“Before Kim Jong Un went to China, we saw a lot of workers returning to North Korea, but we are no longer seeing movement (in that direction),” he added.
A separate source in Jilin Province, China told Daily NK there are signs that North Korean-Chinese joint ventures in the area have begun preparing to restart operations.
“These businesses, where the North Korean side provides the labor and the Chinese side invests in the facilities, came to a halt under international sanctions. But now, business delegations for the two sides have scheduled talks,” the source said.
Radio Free Asia reported similar information a few days ago:

North Korean laborers barred under U.N. sanctions from working abroad are now moving back into China in an apparent violation of restrictions aimed at punishing Pyongyang for its illicit nuclear weapons and missile programs, sources along the border say.

Though workers formerly sent into China to earn foreign currency for North Korea’s cash-strapped regime are still under U.N. orders to return home, no new lines of returning workers are being seen, sources working on the border say.

Instead, North Korean workers have been observed entering China in defiance of the rules, they say.

“This week, on April 2, around 400 female North Korean workers were sent to Helong city in [Jilin province’s] Yanbian Autonomous Prefecture,” an ethnic Korean living in Yanbian told RFA’s Korean Service, speaking on condition of anonymity.

“It seems like Kim Jong Un’s recent visit to China is showing some results,” the source said, referring to an anticipated relaxation of trade restrictions in response to recent China-North Korea diplomatic contacts.

Speaking separately, a source in China’s Dandong, a port city lying on the Yalu River across from North Korea, told RFA he had seen a group of buses carrying North Korean workers arrive on March 30 from North Korea’s Sinuiju city, just across the border.

“They had young women on board who appeared to be North Korean workers,” RFA’s source said, also speaking on condition he not be named.

“The buses crossed the Yalu River’s railway bridge and dropped the workers off at the Dandong customs post,” he said, adding, “There appeared to be roughly more than 100 of them.”

It is worth recalling that sanctions enforcement by China doesn’t just damage North Korean economic interests. As anyone who’s visited Dandong on the Chinese side of the border can attest to, much of the local economy is connected to trade with North Korea.
Daily NK also reports that on the ground, some managers find ways to retain North Korean workers in China even though their original contracts have been cancelled:
China helped pass multiple UN sanctions resolutions against the North following missile and nuclear tests the previous year, and has slowly increased its efforts to enforce measures restricting the presence of North Korean laborers in the country.
For example, one Chinese manager of a clothing factory in Dandong (Liaoning Province) told our source that he was pressured by the Chinese government last year to cancel the contracts of 150 North Korean employees.
“I had no choice but to comply with the order,” the manager said. “But canceling the contracts early meant that I had to pay penalties to the workers. It was extremely difficult to gather enough money for the penalties for all 150 workers at once.”
According to the source, Chinese managers in such cases have made deals with the North Korean managers in charge of the workers, in order to reduce the total payment for penalties.
Under the terms of these kinds of deals, the Chinese side has sought to allow laborers to continue working in China as long as their visas remain valid, and in return for guarantees over uninterrupted currency streams as the workers move to new positions, the North Korean side agrees to accept reduced penalties or to forgo them altogether.
“For example, there’s a restaurant now in Dandong that employs dozens of North Korean women as servers, although these same women were previously ousted from factory jobs,” a separate source in China said, adding that there are many restaurants in the area using the same tactics.
The source spoke with one woman working at a restaurant in Dandong who introduced herself as a native of North Pyongan Province. “I came to work here after being dismissed seven months into a job at a clothing factory. I was originally supposed to work there for two more years, but I had to use the remainder [of my allotted time] to earn money and reduce the burden of the loss,” she told the source.
At the same time, China has taken additional steps to comply with other parts of the sanctions, the government said Sunday April 8th. Wall Street Journal:

China has tightened restrictions on exports to North Korea of items with potential dual use in weapons of mass destruction and conventional arms.

The ban on exports of potential dual-use items, including software, machinery and chemicals, is in line with U.N. Security Council resolution number 2375, the Chinese Ministry of Commerce said in a statement on its website posted late Sunday. That resolution was passed in September.

If tensions do continue to de-escalate around North Korea as they have over the past few months, it shouldn’t come as a surprise if more news of lighter Chinese enforcement of general economic sanctions continue to surface. Stay tuned…

(UPDATE 2018-04-12) Daily NK reports that about 1,000 North Korean workers are to be dispatched to China again, in apparent violation of UN sanctions:

Over 1,000 North Korean laborers are preparing to be dispatched to work assignments in Dandong, China, a source in the area informed Daily NK on Wednesday. This follows sightings earlier this month of over 400 North Korean workers in the Chinese city of Helong to the east, together suggesting the two countries may be cooperating to restart joint business ventures in China.
“There are already about 100 North Koreans working at one clothing factory in Dandong, and they are expecting 1,000 more after a recent conversation with a manager from the North Korean side,” the source said on April 11.
The Chinese manager in the deal told the source that it is a popular opportunity among North Korean factory workers as they see it as a good chance to improve their skills, despite their expectations of low pay and long hours. “People around here are anticipating an influx of more North Korean workers in the near future,” the source remarked.
A separate source in China confirmed the development, saying, “It is true that over a thousand North Korean workers are preparing for the assignment. The Chinese brokers who have engineered the deal for the jobs are working overtime right now.”
He added that the workers are still receiving permits from North Korean authorities to cross into China, as per standard guidelines, though these permits only technically allow up to 30 days’ stay abroad.
“[The Chinese companies] are trying to recruit more North Korean workers now as they feel sanctions may possibly be lifted and that the dangers have subsided. But they will just send them back in case they are not [lifted],” he said.
Following these developments, some are speculating that Kim Jong Un may have come to an agreement with Chinese President Xi Jinping on the matter during their meeting in Beijing last month.
Recent friction between China and the US over a brewing trade war may also be contributing to a sense of optimism among those affected in the region.
“We (Chinese people) are also hurting from sanctions, and now it seems like we are in a trade war with the US,” an additional source in China said.
“Knowing this, it is possible that authorities, despite sanctions, are turning a blind eye to the arrival of the North Korean workers.”
This last point is very important: international sanctions politics is very local. The border region on the Chinese side has likely suffered quite significantly from the sanctions regime, and this is one part of the Chinese calculation that is often forgotten. The northeast is already fairly impoverished, and the local economy isn’t helped by a ban on trade with its most significant partner, North Korea.
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China reportedly incentivized Kim Jong-un to visit

Friday, March 30th, 2018

UPDATE 1 (2018-4-4): The Donga Ilbo reports that China is marginally easing up on sanctions following the unofficial meeting that took place with the two country’s respective leaders. According to the article:

Some Chinese enterprises in Dandong, a city in northeastern Liaoning province bordering North Korea, stopped sending back North Korean workers to their home country, South Korea’s intelligence sources said on Monday.

…
It is reported that the Chinese authorities, however, have not taken any action regarding employing North Korean workers. Rather, a source quoted Chinese government officials as saying “refrain from any action that could upset North Korean people for the time being.”

South Korean government said it is identifying intelligence that the average daily traffic volume between Dandong and North Korea surged to 50 trucks, from 20 to 30 trucks earlier this year. The traffic in this region is one of the key indicators that show bilateral trade flows. More than 100 trucks a day would come and go before the international community strengthened sanctions against the North.

According to data released by China’s customs agency, North Korean exports to China amounted to 1.72 billion dollars, a 33 percent down from 2016. However, Beijing is likely to give some breathing space to its ally as Chinese President Xi expressed his willingness to expand mutual exchanges in a meeting with Kim.

ORIGINAL POST (2018-3-30): I am still of the opinion that “maximum pressure” has not been the primary cause of North Korea’s newfound desire to hold talks with the US and South Korea. However, this article in the FT argues that China has enforced trade restrictions on North Korea in excess of the UNSC resolution requirements, and perhaps this policy played a role in bringing Kim Jong-un to Beijing.

According to the Financial Times:

Official Chinese statistics show that the monthly average of refined petroleum exports to North Korea in January and February was 175.2 tons, just 1.3 per cent of the monthly average of 13,552.6 tons shipped in the first half of 2017.

The level of reduction went far beyond the 89 per cent cut in petroleum product exports stipulated by the UN sanctions.

Chinese coal exports to North Korea were also cut to zero in the three months to the end of February, after running at a monthly average of 8,627 tons in the first half of 2017. Exports of steel ran at a monthly average of 257 tons in the first two months of this year, down from a monthly average of 15,110 tons in the first half of 2017.

Shipments of motor vehicles also dried up, with just one unit being exported in the month of February, official Chinese statistics show. Concerns over the accuracy of China’s statistics are common, but analysts said that such consistent and bold drops in export volumes are unlikely to have been the result of official massaging.

Bonnie Glaser points out a rumor that these stringent trade caps will be lifted to the point that China is still in compliance with UNSC resolutions.

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Weekend reading recommendation: North Korea’s Shackled Economy, 2018

Friday, March 23rd, 2018

By Benjamin Katzeff Silberstein

The National Committee on North Korea (NCNK) has published a report by William Brown, and I urge all those with an interest in the North Korean economy to read it. It is a pragmatic take on the North Korean economy in 2018, noting both the progress and the limits of the changes in its economic system over the past few years. Brown is pessimistic (or perhaps just realistic) about North Korean economic resilience in the face of sanctions, but also notes the great potential for economic development that exists in North Korea’s human capital and skilled labor. Brown’s analysis of the country’s currency situation, one of the most opaque topics in already opaque field, is particularly interesting. Below is an excerpt from the executive summary:

The North Korean economy remains weak and vulnerable, but its structure is changing as it confronts major internally- and externally-generated pressures. Ironically, as UN sanctions have tightened in recent years, the economy has become more decentralized and productive, as weakening state controls have allowed the spread of market activities, providing incentives for individuals and families to work in their own self-interest. Central planning is weakening as money replaces the once ubiquitous ration coupon, and self-reliance on both a national and localized level is increasing as foreign trade and foreign aid dwindle. However, the state-run economy has not withered away, and Pyongyang dictates perhaps half of all economic transactions, a far larger share than does the central government in any other country. The state and its enterprises and the huge farmers’ collectives still own most capital and property, and through their extensive regulations and police powers extract large rents from individuals and families.

The full report can be found here.

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Namyang’s post 2016 flood recovery

Wednesday, March 21st, 2018

New Google Earth imagery shows for the first time the scale of the construction work taken in Namyang District of Onsong County in North Hamgyong Province.

In September of 2016, areas of North Korea along the Tumen River experienced severe devastation from flooding. One of these areas was Namyang, across the river from the Chinese city of Tumen.

Here are Planet Labs images that give a sense of the scale of the damage during the flood:

August 28, 2016

September 7, 2016

September 17, 2016

Here are Google Earth images of Namyang before and after the flooding:

This construction project was monitored from China. Here are a couple of the pictures that were taken (Photo Credit: Getty)

 

Looking at the satellite imagery of the renovated Namyang, there are a few interesting changes. First, the Namyang market was destroyed in the flood and I am not sure where the new one is (or if there is a new one).

Second, a small revolutionary site was moved farther from the river so it will not be washed away again:

Third, we can see construction of the new Namyang-Tumen Bridge underway (but apparently stalled):

The image on the left is 2015-9-13. The image on the right is 2018-1-31. The new bridge is approximately 510m in length and will be able to support traffic in both directions simultaneously.  It is the third border bridge to be renovated/built after the Dandong-Sinuiju Bridge and the Rason-Hunchun (Quanhe-Wonjong) Bridge. This bridge was announced in 2014 and was supposed to be completed by 2016.

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A Chinese ban on North Korean imports damages the North Korean economy

Tuesday, March 13th, 2018

Institute for Far Eastern Studies (IFES)

The North Korean economy is expected to face serious difficulties due to China’s ban on imports from North Korea. Having analyzed China’s sanctions against North Korea, KOTRA’s Korea Trade Center in Shenyang recently suggested that while North Korea depends overwhelming on China for its export, its exports are expected to plummet due to China’s measures.

After Pyongyang made its fifth nuclear test on February 18, 2017, China joined the sanctions imposed by United Nations Security Council (UNSC) Resolution 2321 and halted its import of North Korean coal until December that year.

Consequently, China’s import of North Korean coal was reduced by 60 percent compared to the same period in the previous year.

Furthermore, China imposed a complete ban on the import of coal, iron ore, lead and fishery products from North Korea, in accordance with the sanctions by UNSC 2371 adopted in response to North Korea’s IBCM launch on August 14, 2017.

Moreover, in response to North Korea’s sixth nuclear test on September 22 and the launch of an ICBM on January 5, 2018, China put a restriction on the export of refined oil, crude oil and refined petroleum products to North Korea.

The restriction on the export of refined petroleum products is expected to be a serious blow to the North Korean industry. Keeping China’s exports below 10 percent of total North Korean demand for the products, the new sanction will hit the North Korean economy across the board, ranging from industry, transportation, cargo transportation and power supply.

In addition, North Korean households, which have lower priority in power supply, would face increasing difficulties in getting electricity and heating. In the meantime, North Koreans may not suffer greatly from the shortage of oil because China has limited its export of crude oil to North Korea to its annual level of supply.

North Korea’s foreign exchange shortage is also expected to be aggravated following the shutdown of North Korean businesses in China and the repatriation of North Korean workers, both of which have been main sources of funds for the North Korean leader.

On September 28, 2017, the Chinese Ministry of Commerce announced that all existing North Korean businesses and joint ventures in China, including those managed solely by North Korean companies and individuals, should be closed by January 9, 2018.

In accordance with the notification of closure, the Shenyang Municipal Bureau of Industry and Commerce Administration issued a letter of notification to North Korean businesses and joint ventures in the city, leading to the shutdown of the Chilbosan Hotel and several North Korean restaurants.

In addition, North Koreans currently employed in China are allowed to remain while they have a valid visa, but have been asked to return to North Korea upon expiration of their visa.

Although the Chinese Ministry of Commerce completely prohibited the import of North Korean textile products on September 22, 2017, the import ban has created little export-ban effects to date, because cargo that has not completed the customs clearance procedure is excluded from the ban.

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“Maximum pressure” and the North Korean economy: what do market prices say?

Friday, March 9th, 2018

By Benjamin Katzeff Silberstein

With the news today about a summit between Kim Jong-un and Donald Trump tentatively planned for the end of May, there has been much debate about the role of the US policy of “maximum pressure” through economic sanctions.

The efficacy of the policy is difficult to evaluate, particularly since it often takes many months or even years for the full effect of sanctions to play out. Whether the policy has been effective or not depends on, well, how you judge success or failure. There is little doubt that North Korea’s exports have taken a significant hit not primarily from the sanctions themselves, but from China’s enforcement of them. This is the single biggest difference between how sanctions have hit the North Korean economy during the past year, versus previous years. It seems fairly indisputable that sectors of the economy have suffered, with export industries taking the biggest hit.

But what has been the impact on the economy as a whole? It’s difficult to say, but we have two important indicators: prices of rice and foreign currency on North Korean markets. The data on these two indicators is far from perfect, and it is difficult, if not impossible, to draw firm conclusions from it. (For an explanation of this data, and the rationale for using rice prices in lieu of the formal goods basket used to measure inflation in other countries, see this article, for example). Nevertheless, neither of the two indicators suggest a situation out of the ordinary on North Korean markets during the period that “maximum pressure” has been applied.

First, a look at rice prices. If sanctions were truly devastating the North Korean economy, there is a whole host of reasons why one should expect rice prices to increase.

One of them is expectations of worse times to come as importing inputs for agriculture as well as food becomes increasingly difficult. Another is that if importing food products in general* becomes more difficult, perhaps because Chinese traders anticipate that their North Korean counterparts won’t be able to pay, consumers would be expected to switch more of their consumption to domestically sourced goods, increasing demand and thus prices. In general, anxiety about worsening times often leads to inflation.

This does not seem to have happened. In fact, rice prices have been remarkably stable over the past year (if the graph looks strange, click for full image):

There may well be other forces at work, too. Increased smuggling of cheaper Chinese rice, for example, may well have contributed to the price stability. But this is in itself a sign of the resiliency of the North Korean economy; when some supply decreases, there are ways of compensating through other means.

Exchange rates are another important metric. If the inflow of foreign currency (in this case US dollars) decreases, its price – the exchange rate – should go up. Expectations matter here, too: if the market expects that foreign currency supply will dry up in the future, it tends to act in the present and make purchases today to hedge for tomorrow. As with rice prices, exchange rates have been remarkably stable over the past year (again, click for better image):

In sum, we have little or no hard evidence that the North Korean economy, on the whole, has suffered significantly and harshly from sanctions thus far. That may itself not be an argument against sanctions, since again, it may take much longer than just a year for their full impact to play out. But it does call into question the claims that “maximum pressure” is the chief reason for Kim Jong-un’s outreach to Donald Trump.

*This likely holds true regardless of the level of self-sufficiency in North Korea’s agricultural production.

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North Korean markets insulated from sanctions, but not forever

Wednesday, March 7th, 2018

Posted by Benjamin Katzeff Silberstein

Analysis at Daily NK:

In 2017 alone, the United Nations Security Council passed four major sanctions resolutions against North Korea: Resolutions 2356, 2371, 2375, and 2397. Under the measures, the North’s crude oil imports were restricted, and coal and mineral exports were banned. Additionally, the North was prohibited from sending its laborers to work abroad – one of the key ways in which the regime earns foreign currency.
“One cannot say that, on a macro level, sanctions against North Korea have been ineffective,” said Lee Seok Ki, a senior researcher at the Korea Institute for Industrial Economics and Trade (KIET). “Since around August or September of 2017, the North’s exports have dropped significantly, and we have seen a major impact from sanctions on their industrial output. The country’s anthracite (coal) exports are down 66% compared to the previous year, which is a devastating hit to their mining sector, and the trend is expected to continue.”
Lee added that while most indicators point to declining imports, it remains difficult to conclude that sanctions have had the same effect on the North Korean manufacturing sector. Despite this, Lee noted that “sanctions are having an effect on the trade sector and we will continue to see both quantitative and qualitative effects in the long term.”
Other experts support the opinion that sanctions are working against the North’s overall trade. “North Korea’s exports to China are down 37%, which has led to a further 1.8% drop in growth for the North’s economy over the last year,” said Kim Byung Yeon, a professor at the Department of Economics at Seoul National University.
“If the North is unable to get sanctions lifted, the growth rate for their economy could drop to as low as minus 5% in the next year,” Kim added, explaining that the effects on economic growth will be significant due to the structure of the North’s economy and the relatively high proportion that exports contribute to it.
Kim said that citizens working in the trade sector have been most affected by sanctions, though he points to the government as taking the most damage. “Most trade has been conducted by state-owned and party- or military-run companies, meaning that the elite class and government officials take a big hit from sanctions,” Kim said. “Kim Jong Un relies heavily on trade as a source of income (for his regime), which means that the person most impacted by sanctions is none other than Kim Jong Un.”
But while sanctions appear to be having a significant effect on the North’s trade and industry, experts are noting that the local markets in the country have not been affected as heavily.
“When you look at the price of rice or the exchange rate over time, it’s hard to see any major effect of sanctions (on local markets),” KIET researcher Lee said.
Daily NK’s own research has come to the same conclusion, finding that the price of rice in North Korea’s markets has remained steady at around 4,000 to 5,000 KPW per kg since the beginning of the recent surge in international sanctions.
“People have been relying on themselves, actively participating in the markets and smuggling since the end of the Arduous March (great famine of the 1990s), which means that sanctions do not yet seem to be having an effect on the markets,” said a source in North Hamgyong Province, pointing to the steady availability of consumer goods as evidence.
“Kim Jong Un has instituted improvements in the quality of domestic-made goods, leading to these products in many cases pushing out Chinese versions from the markets,” said Lee Geun Young, Professor at the Yanbian University Department of Political and Public Administration. “There are now fewer items being brought in from China, so these products are having less influence on market prices.”
However, experts also believe that the damage inflicted by sanctions will inevitably reach the markets. “It’s not easy to precisely predict when the effect of sanctions will reach the markets,” Professor Kim said. “But one thing is clear: because many items rely on some form of importation, the long-term effects of a continuing decline in trade will inevitably lead to a reduction in the volume of available goods and a decrease in consumer purchasing power.”
Article source:
North Korean markets insulated from sanctions, though not forever
Jang Seul Gi
Daily NK
2018-03-07
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Posted in Agriculture, China, Economic reform, International trade, Political economy, South Korea | Comments Closed

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