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Is North Korea scaling back winter exercises because it lacks fuel and food?

Tuesday, January 30th, 2018

By Benjamin Katzeff Silberstein

Much has been made of North Korea’s apparent decision to scale back its annual winter military exercises. Some have concluded it’s a sign that sanctions are working: the army lacks both fuel and food, and has therefore had no choice but to change the scale of the exercises.

While this may be true, I haven’t seen anything in the data that proves it. Take food prices, for example. The average rice price among three North Korean cities, according to the latest observation by Daily NK, is 4853 won per kg. It’s declined pretty strongly over the past few months, which isn’t unusual for this time of year. In the comparable period last year, the same price was exactly 800 won lower. In other words, food prices, as measured by rice prices, often used instead of a CPI-basket for the North Korean market, are 20 percent higher today than they were in the comparable period last year.

That isn’t negligible, but I would still say a large part of the price difference falls within the margin of error. Prices can fluctuate heavily on the North Korean market, and the results might have been different even had prices been measured on a different day. And for most of the past few months, prices have pretty much looked seasonally normal.

Lack of fuel is a much more plausible explanation. Prices have steadily climbed since early 2017 and according to data from NK PRO continue to rise. But part of the reason for the increased prices is, likely, that the military has been soaking up more fuel than usual from the market. I don’t think there’s much reasonable doubt that fuel has been more difficult to acquire since sanctions began to be enforced more strictly by China. But we also know that North Korea has continued to import fuel by circumventing sanctions. Some of these methods have been publicly exposed by US intelligence but there’s likely much more going on that we don’t see. If full-scale military exercises were a priority for the leadership, I doubt that it would be impossible for agents and enterprises further down the line to somehow acquire the fuel it needs.

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N Korean seafood still sold in China

Monday, January 8th, 2018

Benjamin Katzeff Silberstein

Reports NHK:

North Korean seafood is still being sold in China’s northeastern regions despite UN sanctions resolutions banning such trade.

Chinese retailers at a market in Jilin province near the border with the North were advertising “North Korean seafood”, including live crabs.

Market sources say prices for crab smuggled from the North are less than half of those from Russia. Snow crabs were priced at about 18 dollars per kilogram and hairy crabs at around 24 dollars.

Seafood retailers on another street in the province shut down immediately after the UN Security Council adopted the sanctions resolution in August. But some have since reopened.

A shopkeeper said it was initially difficult to obtain North Korean seafood after the sanctions, but he can now purchase it every day. He said the products come from ports in Liaoning Province.

Traders say the seafood is transferred from North Korean fishing boats to Chinese vessels at sea and mainly smuggled into the city of Donggang in Liaoning Province.

The Chinese government insists it has been strictly implementing the sanctions resolution, so there is likely to be renewed attention on whether it will thoroughly crack down on the smuggling.

Article source:
N.Korean seafood still being sold in China
NHK World
2018-01-08

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The December 2017 sanctions on North Korea: business as usual?

Saturday, December 23rd, 2017

By Benjamin Katzeff Silberstein

Many of the steps in the additional sanctions added by the UN Security Council resolution 2379 on December 22nd, 2017, were expected. Targeting oil and petroleum, export incomes, as well as revenues from foreign workers, are all natural steps if the international community wants to pressure North Korea. It’s still rather unclear what the end-goal is, but if sanctions are intended to make things more difficult for the North Korean economy, they can certainly have an impact to that end. These are the main points:

  • Exports of refined petroleum products will be capped at 500,000 barrels per year.
  • Crude oil transfers will be limited to 4 million barrels/year.
  • Within two years, UN member states are to have expelled all North Korean workers and managers.

When analyzing how this will impact North Korea, there are two sides to the story. On the one hand, as with all sanctions against North Korea, China (and to some extent, Russia) would likely not have agreed to them if they had believed that they created a real risk of severe social instability in North Korea that would risk spilling over its own borders. At the same time, it seems like the US intention is to create economic difficulties so severe that the North Korean regime will crack and agree to negotiate the existence of its nuclear deterrent, at least according to the official, outward line. These two objectives appear to be mutually exclusive in the long run.

Moreover, China and Russia appear to have extracted some significant concessions in negotiating the resolution. North Korean workers are to be expelled no later than within two years, which is not an insignificant time frame. Perhaps by then, things will have changed enough for sanctions to be renegotiated. The cap of 4 million barrels is close to what China is commonly estimated to be transferring in terms of crude oil per year to North Korea (3.64 million). So North Korea will hardly be fully starved of oil. Fuel has never been in abundant supply in the country.

Last but not least, smuggling routes are already well-established. Recall Ri Jong-ho’s claims that North Korea buys 300,000 tonnes of fuel products from Russia each year through brokers abroad, largely under the radar. Such transfers are not impossible, but very difficult, to track and stop. Both Russia and China can claim with some truth that they cannot control all sanctions breaches by entities within its borders, particularly enterprises who aren’t all too law-abiding in normal times. Particularly given the poor state of relations between the US and Russia, and the US and China, it is unlikely that either of the two countries will dedicated significant resources to fully track and prevent sanctions breaches, beyond normal procedure. Also, North Korea has been under various forms of sanctions since at least 2006, and even before that, was never an integrated part of established and open world trade. They’ve existed under harsh conditions long enough to learn and adapt their strategies.

On the other hand, North Korea is not immune to sanctions pressure. No country is. Even if smuggling and other ways of getting around sanctions can compensate for some of the losses, transaction costs likely increase. In other words, those who still choose to sell items like fuel to North Korea now have space to demand a higher mark-up for the additional risk. There are also presumably added transaction costs liquefying coal to generate oil.

The government has the resources and the know-how to largely get what they need, but North Korean businesses at the mid- or lower levels will find it much more difficult to keep up with the added costs and effort needed. This is has been true for each sanctions round through this year and last.

Ordinary North Koreans have been impacted by sanctions for long — this did not start with the sanctions that target goods such as oil and fuel. The opportunity cost of what could have been without them was still present. Of course, one can reasonably argue that the fault lies with the regime, for continuing its development of nuclear weapons and missiles, and not with the international community. But that sanctions would somehow not effect North Korean society while hitting against the regime seems implausible.

Lastly, we can note that both exchange rates and rice prices on North Korean markets have decreased over the past few weeks. There may be additional stress present among some spheres of society, but it seems like no major sense of crisis is at hand.

 

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Posted in Agriculture, China, International trade, Political economy, Statistics | Comments Closed

US asks China to cease all oil shipments to North Korea

Wednesday, November 29th, 2017

By Benjamin Katzeff Silberstein

In response to yesterday’s missile test, Trump has asked Xi Jinping to cease all oil shipments to North Korea from China. “All” presumably includes the crude oil that China ships, in unknown but presumably large amounts, via the pipeline that runs from Northeast China through Dandong and to the Ponghwa refinery in Sinuiju in North Korea’s northeast.

It seems unlikely that China would fully cease shipments of oil to North Korea, especially over a longer term period. Should oil shortages get serious to the degree that vital industries, agriculture and other sectors cannot function properly, China would eventually grow concerned over social instability in North Korea that would risk spilling over its own borders.

Should China cut off crude oil shipments, it would mean that North Korea’s ability to acquire oil and fuel products is severely limited. Sanctions cap the amount that UN member states can ship to the country, and gasoline prices have risen to very high levels during the year. Oil imports through channels that go unnoticed in international trade records are probably much bigger than often estimated. Recall Ri Jong-ho’s famed estimate that North Korea purchases 300,000 tons of oil products each year from Russia. Overall, it is not entirely unfeasible that Russia could grow as a source of North Korean oil imports in the future. North Korea also has some capacity to transform domestically sourced coal products into synthetic liquid fuel.

The drastically increased fuel prices in North Korea during the year also suggest that the state may have been grabbing much of what fuel has been available for its own needs, likely to store for military and other uses, suggesting that North Korean strategists have long seen an oil embargo on the horizon. After all, the markets only exist at the mercy of the state, and will always come secondary. Therefore, we don’t know whether military and state storage might currently be larger than estimated in normal times.

At the end of the day, however, should crude oil flows from China be cut off entirely, there’s no denying it would be problematic for North Korea. Though China is unlikely to entirely cut off all crude oil shipments for a prolonged, long-term period, much pain can be caused in the meantime.

For more on this, I wrote about North Korea’s connections to, and reliance on, China in matters such as infrastructure, energy, and telecommunications earlier this year in IHS Jane’s Intelligence Review.

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On the Nov 21st US Treasury Sanctions against North Korea

Tuesday, November 21st, 2017

By: Benjamin Katzeff Silberstein

Today, the Treasury Department’s Office of Foreign Asset Control (OFAC) announced new sanctions against a number of Chinese and North Korean entities. The sanctions “target third-country persons with long-standing commercial ties to North Korea, as well as the transportation networks that facilitate North Korea’s revenue generation and operations,” said a press statement.

Overall, these additional measures seem designed to clamp down on avenues for North Korea to circumvent current UN sanctions. Among those sanctioned are three Chinese companies that have traded with North Korea in goods that are covered by UN sanctions from this and last year:

OFAC designated Dandong Kehua Economy & Trade Co., Ltd., Dandong Xianghe Trading Co., Ltd., and Dandong Hongda Trade Co. Ltd. pursuant to E.O. 13810.  Between January 1, 2013 and August 31, 2017, these three companies cumulatively exported approximately $650 million worth of goods to North Korea and cumulatively imported more than $100 million worth of goods from North Korea.  These goods have included notebook computers, anthracite coal, iron, iron ore, lead ore, zinc ore, silver ore, lead, and ferrous products.

Also targeted are companies that have traded in goods that are either covered by sanctions, or (it seems) fall under the dual-use category of goods that can be used in nuclear weapons/missile development:

OFAC designated Sun Sidong and his company, Dandong Dongyuan Industrial Co., Ltd. (Dongyuan), pursuant to E.O. 13810.  Sun and Dongyuan were responsible for exporting over $28 million worth of goods to North Korea over several years, including motor vehicles, electrical machinery, radio navigational items, aluminum, iron, pipes, and items associated with nuclear reactors.  Dongyuan has also been associated with front companies for weapons of mass destruction-related North Korean organizations.

The sanctions also target vessels that are suspected of having transferred oil to North Korea via other ships (ship-to-ship transfer) in violation of sanctions (this part contains some pretty impressive pictures):

All in all, these new sanctions appear to try to fill the gaps left by current sanctions. Surely, they will cause added trouble for North Korea. But the problem, to begin with, is that North Korea has historically been good at adapting to new sanction’s frameworks and finding new methods to circumvent them. Only time will tell whether these skills of North Korea still hold up in the current sanctions environment.

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Singapore cuts trade ties with North Korea

Thursday, November 16th, 2017

Benjamin Katzeff Silberstein

Reports Reuters (here in Asahi Shimbun):

Singapore has suspended trade relations with North Korea, the latest of Pyongyang’s major trade partners to cut commercial ties under toughening U.N. sanctions over its weapons program, a customs notice obtained on Thursday showed.

The move comes about two months after the United States imposed North Korea-related sanctions on a number of firms and individuals, including two entities based in Singapore.

“Singapore will prohibit all commercially traded goods from, or to, the Democratic People’s Republic of Korea (DPRK),” the city-state’s customs said in the notice sent to traders and declaring agents last Tuesday, referring to the country by its official name.

The suspension would take effect from Nov. 8, Fauziah A. Sani, head of trade strategy and security for the director-general of customs, said in the notice.

Repeated breach of the new prohibitions is punishable by a fine of up to S$200,000 ($147,341 or 16 million yen) or four times the value of the goods traded, imprisonment of up to three years, or both, it added.

Singapore is North Korea’s seventh largest trading partner. The Philippines, Pyongyang’s fifth biggest trading partner, suspended trade with North Korea in September to comply with a U.N. resolution.

Tension on the Korean Peninsula has escalated as North Korea’s young leader, Kim Jong Un, has stepped up the development of weapons in defiance of U.N. sanctions.

North Korea has tested a series of missiles this year, including one that flew over Japan, and conducted its sixth and biggest nuclear test in September.

Pyongyang maintains a diplomatic presence in Singapore, with an embassy in its financial district.

In September, Singapore issued a travel advisory urging citizens to avoid all non-essential travel to North Korea, where it does not have diplomatic representation.

In an interview with National Public Radio in May, Singapore’s minister of foreign affairs, Vivian Balakrishnan, had said the country was not ready to cut all diplomatic ties with North Korea.

In January last year, Singapore-based Chinpo Shipping Company (Private) Ltd. was fined S$180,000 for facilitating a shipment of arms to North Korea in violation of U.N. sanctions.

Article source:
Singapore suspends trade relations with North Korea
Reuters
2017-11-16

Say what you will about the Trump administration’s foreign policy, but they have scored some non-negligible victories lately in isolating North Korea.

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September 2017: NK-China trade figures

Tuesday, October 24th, 2017

By Benjamin Katzeff Silberstein

Here’s a roundup of the September 2017 China-North Korea trade numbers, from various sources. Not surprisingly, most indicators are down. Still, China is letting North Korea import even while exports have been drastically decreased in most goods. A sign of confidence that they will get the money back in future exports from North Korea, perhaps?

Washington Post:

On Friday, China’s General Administration of Customs announced that China’s imports from North Korea fell 37.9 percent in September, the seventh successive monthly decline. China’s exports to North Korea dropped a more modest 6.7 percent in September, Huang Songping, spokesman for the customs department, said at a news conference.

Although there is room for considerable skepticism about official Chinese data — and the numbers can swing wildly month to month — there is reason to believe that there has been a recent slowdown in trade, experts say.

Chinese traders in the border city of Dandong told The Washington Post this month that they were feeling the effect of the sanctions, which were being imposed with unprecedented determination by the authorities.

[…]

North Korea’s deficit with China more than tripled in the first nine months of the year from the same period in 2016, to $1.07 billion, Huang told a news conference, according to Bloomberg News.

Full article:

China’s trade with North Korea slumps as nuclear sanctions finally start to bite
Simon Denyer
Washington Post
2017-10-13
James Pearson of Reuters has been tweeting some numbers:
  • [R]ice exports to N.Korea [down] 85.1% y/y at 2,396t
  • Sept corn exports to N.Korea [up] from year earlier, at 1,160t
  • China imports of N.Korea lead ore 84% y/y
  • China imports of iron ore [down] 98% y/y
  • China imports of N.Korea coal [down]  71.6% y/y

Some of these numbers can also be found reported by Reuters here.

NK News also reported on the numbers:

According to Chinese customs data collated by the Korea International Trade Association (KITA), China’s main exports to the DPRK mainly consist of various kinds of electrical items and machinery.

North Korea spent USD$52 million on importing Chinese electronics and machines in August, trade categories which include items like cell phones and computers.

The DPRK spent a further USD$23 million on importing vehicles from China. While some luxury vehicle exports would breach UN sanctions, the data indicates the majority of the imports consist of electric motorcycles and vehicles used for public transport or construction.

Yet China’s most recent trade figures continue to show that despite its falling income from trade, North Korea has managed to increase its spending on Chinese goods, pushing its balance of trade further into the red.

Without its coal revenues, North Korea has spent double its monthly trade earnings several times throughout 2017, and it’s unclear how long the country will be able to maintain the deficit.

Full article here:
Chinese FM defends growing trade with North Korea
Leo Byrne
NK News
2017-10-24

All in all, drops are pretty dire. Which, of course, also serves China’s geopolitical interests at this time. That’s not to say the numbers can’t be right, only that usual skepticism is warranted.

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Sanctions, and the weakness of North Korean food security

Wednesday, October 18th, 2017

By Benjamin Katzeff Silberstein

While some Pyongyangites started off the week by checking out plasma-screen TV’s at a consumer goods fair, Daily NK published an ominous story that reminds the reader of the dark 1990s. Rumors are now circulating of a starvation death in Hyesan:

An increasing number of North Koreans are suffering from the effects of food insecurity and malnutrition, according to inside sources who spoke with Daily NK. A rumor is circulating in Ryanggang and North Hamgyong provinces that the body of someone who starved to death has been seen near the train station in Hyesan City.
“More than a handful of people have come forward and said that they saw the body of someone who starved to death near the Hyesan train station. The food situation was relatively good for the past few years, so it’s such a shame that we’ve returned to dire circumstances so suddenly,” a source in Ryanggang Province told Daily NK.
A source from North Hamgyong Province similarly reported that “a rumor is swirling around the market that a starved body was discovered. There are so many people talking about it that it’s being viewed as a fact.”
The source added that the credibility of the rumors is high, saying, “There was a severe drought at the beginning of the year in North and South Hamgyong provinces and Ryanggang Province. The corn and rice harvest did not meet its targets, amounting to approximately half the volume produced last year.”
Full article:
Food insecurity riles North Korea’s poorest provinces
Kim Chung Yeol
Daily NK
2017-10-18

As crude as it may sound, one cannot draw sharp conclusions from one unconfirmed death by starvation in a North Korean city. But the fact that people think conditions bad enough to believe such rumors to be true says something about the instability of food supply in North Korea right now.

For several years, the supply of food in North Korea has looked remarkably stabile compared to the 1990s. A combination of more freedom for the markets to operate, more leeway for farmers in how they operate, produce and sell their goods (and procure inputs such as fertilizer), larger and more consistent imports from China – these are all factors that have led to better food security overall in North Korea. Market prices have sent a clear message on this.

But perhaps “stabile” was the wrong way to describe food supply. “Consistent” may have been a better way of looking at it. A system is hardly stabile when a combination of relatively usual events for the country – bad weather and changing geopolitical conditions – can shake its core.

As usual with these dynamics, it would be wrong to attribute the changes to one single factor. That is, we cannot say that sanctions –> starvation in some automatic fashion. Rather, several trends have coincided and caused the dire situation:

First, North Korea has experienced a very troubling drought early on in the farming season. As Andy Dinville shows at 38North, using satellite data, weather conditions have been particularly bad this year, significantly harming this year’s harvest.

In any normal year since the early 2000s, when market mechanisms seriously became a routinized part of North Korea’s agricultural economic system, it seems that the effects of a drought could have been offset at least in part by increased imports from China, or other sorts of shifts.

Which brings us to a second factor, namely sanctions and the current tensions, and China’s enforcement of economic pressure on North Korea. Not only does this mean that overall trading conditions are difficult, and that Chinese sellers are wary of trusting that they’ll actually receive payments from North Korean buyers. It also means that goods such as fertilizer for farming are more difficult to acquire. Like the Daily NK article notes:

“Last year, North and South Hamgyong and Ryanggang provinces endured a flood of epic proportions and this year there was a drought, so the agricultural situation in both regions is poor. Additionally, because of the sanctions, it has been harder to procure different kinds of fertilizer necessary for farming, so this has exacerbated the damage.” he continued.
Third, the geopolitical instability naturally makes for a nervous market overall. The price of corn, for example, is up by 47 percent compared to last year. It is important to note that this sort of change in market prices has not been observable during the many instances in the past when international aid organizations have warned of food shortages in North Korea. Hoarding is a natural behavior on any market when actors believe a shortage is looming in the near future. It is a stark sign of the shift in China’s behavior from previous rounds of sanctions that North Korean markets now seem to confirm that China is putting real and heavy economic pressure on the country. The loopholes may still be there but they are much more narrow than usual.
As winter approaches, things aren’t likely to get any easier. Fuel shortages will make heating more difficult and expensive than usual for average North Koreans, particularly as the state soaks up oil and fuel from the market, raising prices further. Things may well get much worse before they get any better.
UPDATE 2017-10-24: 
A reader with extensive experience working on North Korean food security emailed a somewhat skeptical note regarding the food production decrease estimates I cite above. The main point is: even if food production goes down, it may not spell disaster as the past few years harvests have been exceptionally good in comparative perspective. I quote an excerpt here with the reader’s permission:
It really doesn’t look like there is much difference between positive and negative trends, particularly if you just look at the end of August. And his [Dinville] data compares the 2017 harvest with the 2016 harvest, which was probably the best harvest in 30 years. So even if 2017 is a bit lower than 2016, it will still be a relatively stable year and much, much better than 2001. There were no major disasters in the country, as well, aside from the drought and the effects of the flooding from last fall in a few counties in the northeast. My takeaway from his [Dinville’s] data is that there were a few fields (the red “strongly negative” portion) that couldn’t be irrigated sufficiently but we shouldn’t extrapolate to the entire country harvest. Kitchen gardens have also expanded in the country and can help to mitigate a poor harvest, at least for some families.
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Despite chinese sanctions enforcement, goods still crossing North Korea border

Friday, September 29th, 2017

Benjamin Katzeff Silberstein

Yes, the idea of a close North Korea-China friendship is fundamentally flawed and deeply simplified. Yes, China is currently making life very difficult for those among its own citizens who are involved in business with North Korea, and for North Koreans at the other side of the business deals. And yes, China’s enforcement of sanctions against North Korea is hurting the country’s economy and the general public.

But that by no means that all ties have been cut. China’s policy on North Korea and sanctions is not a binary question of either or.

On September 26, 2017, Wall Street Journal reported that coal imports from North Korea, which went down to zero in February this year (at least in terms of what Chinese customs data reported), again went up to levels in August that looks fairly average and regular for the past year or so:

China had suspended purchases of North Korean coal in February, in response to a U.N.-set cap on Pyongyang’s coal trade set last November, part of sanctions to curb North Korea’s nuclear ambitions.

Chinese coal imports from its neighbor this year remained below those limits after last month’s shipments.

Chinese customs data released Tuesday shows China accepted about 1.64 million tons of North Korean coal worth some $138.1 million in August, when the U.N. Security Council expanded sanctions to a complete halt on coal shipments and banned Pyongyang from exporting iron, lead and seafood.

China has been the sole importer of North Korean coal. Tuesday’s data shows Pyongyang earned more coal-export income in August than in either January or February, when China imported about $122.5 million and $98.1 million worth of North Korean coal, respectively.

China’s customs agency reported no North Korean coal imports between March and July.

The latest coal shipments preceded a Sept. 5 deadline for U.N. members to implement the August sanctions. Beijing said on Aug. 14 it would comply with those sanctions while continuing to process imports of banned goods until the deadline if those shipments had already reached Chinese territory.

Full article:
Before U.N. Deadline, China Again Buys North Korean Coal
Chun Han Wong
Wall Street Journal
2017-09-26

 

The August 2017 numbers don’t necessarily reflect a drastic change of policy on the side of China. But one can speculate that perhaps now that tensions have lingered at a high pitch for quite some time, letting shipments through prior to the September 5th enforcement deadline is seen as less problematic.

In the trade data, we also see that China’s export of food to North Korea has surged in July. We’re currently in the so-called “lean season” when food is particularly scarce in North Korea, and with economic anxiety following the tensions of the spring and summer, the price instability on the markets has surely made access to food less certain. Wall Street Journal:

China’s agricultural exports to North Korea rose sharply in July and August, amid rising geopolitical tensions and at a time of year when the food supply in the isolated nation is usually at its lowest.

In July and August, China corn exports jumped to a total of 34,964 metric tons, nearly 100 times the levels seen in the year-earlier period. Rice exports increased 79% to 17,875 metric tons, while exports of wheat flour surged more than elevenfold to 8,383 metric tons, according to China’s Customs data.

Full article:
China’s Food Exports to North Korea Surge
Lucy Craymer
Wall Street Journal
2017-09-27

Again, this does not necessarily imply a stark change of policy on the side of China. Rather, it is one indication among many that hopes are naive that Chinese pressure on North Korea would mean a complete cutoff of North Korea by China from the rest of the world. At the end of the day, the same old truth still holds: China desires a degree of social stability in North Korea in order to maintain peace and calm along its border and in the region overall. Food is certainly an important factor in such peace and calm, particularly in the long run.

Now, how (or if) North Korea is paying for these imports is less clear…

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Market prices in North Korea rise sharply after sanctions and tensions

Tuesday, September 19th, 2017

By Benjamin Katzeff Silberstein

Historically, market prices in North Korea (as reported by Daily NK) have tended to remain surprisingly stabile throughout many periods of tension and crisis. At times, while the rest of the world has seemed to be running for the bomb shelters, market prices in North Korea have barely moved, suggesting a lack of belief within North Korea that sanctions will be implemented or that imports will get restricted as a result of the tensions.

This time, it’s different.

While DailyNK’s market price database has not been updated since August 4th, news reports from inside North Korea suggest prices are much higher than they normally would be, as a result of news of added sanctions and an embargo on fuel sales to the country. Corn prices, for example, are reported to be 42 percent higher than what is normal at this time of year. The story here is that news of China’s participation in the sanctions regime give cause for worry on the ground, as is the bad harvest season:

According to inside sources, the cost of one kilogram of rice was about KPW 5,800 at the end of last month in Pyongyang, South Pyongan Province Sinuiju City, and Ryanggang Province Hyesan City. On September 5th, the prices passed the KPW 6,000 mark and have continued to slowly rise. After the North’s nuclear test, gasoline prices rose sharply around the country. Rice and other grains followed suit in due course.
Insiders located in the border regions near China – which have long served as hubs of trade and smuggling – are also sensing the climbing prices. A source from Ryanggang Province explained to Daily NK on September 11, “When we heard about economic sanctions in the past, there were merely slight increases in the cost of rice, but now we are seeing a different kind of effect.”
She continued, “Even though we are currently at the height of the corn harvest season, corn is nonetheless selling for KPW 2,700 per kilogram, [it sold for just KPW 1,900 per kg at the end of August]. Merchants haven’t been overly concerned until now, but now that we see corn prices increasing during the harvest season, it seems clear that the economic situation will continue to deteriorate.”
Witnessing the cost of diesel and gasoline spike upwards, some merchants have predicted that this will cause the price of other products to raise as well, and have therefore responded by reducing the number of products available for sale. By doing so, they hope to be able to sell at a higher price later. This reduced supply, in turn, has itself pushed prices up.
Also, as reports and rumors from the outside world penetrate further into North Korea, more and more people are coming to realize that North Korea’s closest friends, especially China, are meaningfully participating in the sanctions. This information also helps to push prices up.
A poor yield of corn this year is also playing a role. Severe droughts in the spring have hurt bottom line harvests of grains such as corn.
This should not come as a surprise. As external income sources are increasingly getting strangled by Chinese sanctions enforcement, the North Korean economy as a whole is feeling the pinch. Again, this is not at all a strange development. On the contrary, the remarkable resilience of North Korean market prices in past periods of tensions is the really peculiar story. Most likely, past rounds of the same –tensions followed by sanctions followed by tensions followed by eventual deescalation — has lacked a credible belief among North Koreans that China would really tighten the screws enough for the domestic economy to really take a hit.
It is still far too early to say anything about how long China will keep up the pressure, or how well the North Korean economy can adapt by, for example, switching over to fuels that are more abundantly available, such as liquified coal. It’s also important to remember that oil and fuel has never been cheap in North Korea, and that many residents prefer solar panels instead of diesel-powered generators to cover their needs during the frequent power outages in the country. But none of these adaptions are cheap or easy. These things take time and effort, and real costs as well as opportunity costs are likely to be large.
To be sure, the regime very likely expected and planned for this outcome. The increase in gasoline prices over the past few months suggests that the state has been siphoning off fuel from the markets for quite a while, to fill up their own stockpiles. The climb in gas prices is not limited to Pyongyang, but extends to other regions as well. The pattern of nuclear- and missiles tests this year, as many have noted, also seem to be a signal of defiance toward China. Moreover, if regime survival is the ultimate goal of Pyongyang, it’s important to remember that only a few years ago, North Korea’s trade was a third of what it is today, and regime collapse wasn’t exactly on the radar. And again, sanctions pressure from China likely won’t last forever.
But the price trend in late August and early September is a reminder that the North Korean economy, after all, works according to the laws of supply and demand. Unlike at many previous occasions, China is — at least for now — clamping down on trade with North Korea, and its residents are feeling it.
Will sanctions be strongly enforced enough to cripple North Korea’s economy? Probably not. But there is a very wide range of states between crippled and unaffected, and while North Korea’s domestic economy may be very resilient, it is not beyond the reach of international tensions.
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