Archive for the ‘International trade’ Category

« Older Entries
Newer Entries »

Is China trying to destroy North Korea?, wonders this North Korean trader

Tuesday, May 7th, 2019

Benjamin Katzeff Silberstein

I suppose the headline for this post might count as clickbait in our field, but I couldn’t help it… Daily NK:

North Korean workers in China facing visa denials or restrictions on their sojourn periods are being forced to return home, according to an affected source in China.

A North Korean trader in Liaoning Province recently told Daily NK by phone that Chinese authorities are demanding that all North Korean workers return home.

“I do business in Liaoning Province. China is making a big fuss and ordering us out [of the country] and now my Chinese visa has almost expired. But few North Koreans actually care about their visa status in China. China telling us to leave and it’s making me really angry and annoyed,” he said.

“A lot of people are returning home. This happened in the past, but this time is different. I asked a North Korean customs official and he said that half of the North Koreans in Dandong have left. That’s a huge number of people. Those who remain are worried about their status here. People who work in China generally have debts to pay back. I sometimes wonder if China is trying to destroy North Korea.”

He also spoke about his own precarious situation.

“I’ve brought over many workers myself into China. Each of them gave me 500 dollars and I found them work in factories run jointly with China. They’re all 500 dollars in debt. They can’t repay this money, so they’re worried about returning home. They could get beaten up or even die if they can’t repay their debts,” he said.

“I haven’t been able to contribute enough to the [regime’s] loyalty fund either. Returning home would be a death sentence. I’d rather die here (in China) before my body returns home.”

Full article:
North Korean trader in China expresses concerns about his own precarious situation
Ha Yoon Ah
Daily NK
2019-05-07

Share

Tags:
Posted in China, International trade, Sanctions | Comments Closed

Possible North Korea five-year strategy document leaked, says Japanese newspaper

Monday, April 22nd, 2019

Benjamin Katzeff Silberstein

The following is interesting if true, and it makes a great deal of sense. One of North Korea’s main challenges is diversifying itself away from the overwhelming reliance on China for trade and economic ties. It’s easier said than done, though, and a wise (from a North Korean point of view) strategic ambition is one thing; realizing it is entirely different. I’ve written elsewhere about the age-old North Korean aim of diversifying itself economically away from reliance on China. Still, not much has happened since Kim Jong-il’s speech in the 1990s…

Hankyoreh’s re-write of Mainichi Shimbun:

A document titled “National Economic Development Strategy (2016–2020)” that North Korea adopted in the 2016 congress of the Workers’ Party of Korea (WPK) stated that the country needs to become less dependent on China, the Japanese press has reported.Japanese newspaper the Mainichi Shimbun reported on Apr. 21 that the strategy document set the goal of achieving an average annual economic growth rate of 8% and proposed “reducing our reliance on China and expanding foreign trade in a number of areas, including Russia, Southeast Asia, and the Middle East.”

While this strategy was adopted in the 7th WPK Congress, held in May 2016, after a hiatus of 36 years, the specific details and figures in the strategy had not been previously disclosed. The Mainichi explained that the strategy document had recently been acquired by Cho Yun-yeong, a Korean-Japanese researcher on North Korea.This document said that China represented 71.6% of North Korea’s trade value in 2014; Russia, 4.2%; and Germany, 0.8%. “China accounts for an overwhelming share of trade. We’ve been unable to move away from our dependence on China,” the document said.

The solution posited by the document was the diversification of foreign trade.More specifically, North Korea set the goal of increasing the amount of its trade with Russia to US$1 billion by 2020. According to the latest estimate by the South Korean government, North Korea’s trade with Russia amounted to US$77.84 million in 2017. In other words, the North was seeking to increase its trade with Russia more than tenfold in the space of just four years.The Mainichi Shimbun also said the North Korean document proposed gaining funds needed for building hydroelectric plants from Russia, as well as technical cooperation for upgrading facilities such as the Kim Chaek Iron and Steel Complex and the Musan Iron Mine.

North Korea also appears to have drawn up a plan to attract investment from Russian companies in international tourism zones in Wonsan and Mt. Kumgang and an economic development zone in Chongjin, along the the East Sea, in order to “build a cooperative network for producing medical products on consignment, processing marine products and developing natural energy.”The Japanese newspaper predicted that economic cooperation between the two countries could be on the agenda of the summit between North Korean leader Kim Jong-un and Russian President Vladimir Putin, which is likely to be held in Vladivostok on Apr. 24. But given the failure of the second North Korea-US summit, in Hanoi, to live up to its expectations, it won’t be easy for the North to massively boost its trade with Russia, as it hopes to do.

Full article:

N. Korean document reveals strategy to decrease reliance on China, Japanese press reports
Cho Ki-weon
Hankyoreh
2019-04-22

And here’s the original article:

Documents obtained by a South Korean researcher have shed light on the full breadth of North Korea’s top-secret state economic development strategy for 2016 to 2020, including an 8% economic growth target and strengthened ties with Russia and other countries to break dependence on China.

The 157 pages of strategy documents, along with a Jan. 21 paper titled “Cabinet decision No. 2,” which presents North Korea’s agenda for this year, were obtained by Cho Yun-yong, a researcher on North Korea who formerly served as a Tokyo correspondent for South Korean news agency Newsis.

According to the documents, Pyongyang aims to achieve 8% annual economic growth through technological development and trade diversification. While the state economic development strategy had been presented at the seventh convention of the Workers’ Party of Korea in May 2016, its details and numerical targets were not publicly released.

The objectives outlined in the documents likely provided motivation for Pyongyang’s strong demand that economic sanctions on the country be lifted during a February summit between North Korean leader Kim Jong Un and U.S. President Donald Trump. They also likely played a part in the planned summit between Kim and Russian President Vladimir Putin later this month.

With regard to the current status of the North Korean economy, the strategy documents point to low output levels of electricity and coal and the failure to fulfill domestic demand for food supply and daily necessities. As measures to realize the economic development strategy, the documents cite technological development, trade diversification and the full introduction of a new economic management method, which implies de-facto economic reform.

Specifically, the strategy calls for a break from the North’s exclusive devotion to China and expansion of trade to Russia and other countries in Southeast Asia and the Middle East. In particular, the initiative aims to boost the amount of trade with Russia to 1 billion dollars (about 110 billion yen) by 2020. The figure is more than 10 times the North Korea-Russia trade value of 77.84 million dollars in 2017, as reported in South Korean statistics.

The five-year strategic plan also suggests having Russia provide North Korea with the funds necessary to build hydroelectric plants and other facilities, as well as technological cooperation for revamping the Kim Chaek Iron and Steel Complex and the Musan Mine.

Furthermore, the economic strategy proposes inviting investment from Russian companies for special economic zones along the Sea of Japan. These proposals may become topics for discussion at the upcoming summit between Kim Jong Un and Russian President Putin.

Article source:
Docs shed light on scope of N. Korean development strategy through 2020
Koichi Yonemura
Mainichi Shimbun
2019-04-20

Share

Posted in China, Foreign direct investment, International trade, Political economy | Comments Closed

North Korea has skipped Kaesong liaison office meetings for eight weeks

Thursday, April 18th, 2019

Benjamin Katzeff Silberstein

Reports Yonhap:

North Korea skipped a weekly meeting of the co-chiefs of an inter-Korean liaison office for the eighth straight week on Friday, deepening concerns about slumping cross-border exchanges amid stalled denuclearization negotiations between the U.S. and the North.

“North Korea informed us in advance that the North’s office head could not attend this week’s meeting,” unification ministry spokesman Lee Sang-min told a regular press briefing. “The meeting will not be held (this week), but the two Koreas continue to discuss necessary matters in a normal manner.”

When the two Koreas launched the liaison office last September in the North’s border town of Kaesong, they promised to hold a meeting of its co-heads — Vice Unification Minister Chun Hae-sung on the South side and his North Korean counterpart Jon Jong-su — every week, mostly on Fridays, to discuss cross-border issues.

The weekly meeting has not been held since before the Hanoi summit between North Korean leader Kim Jong-un and U.S. President Donald Trump, which ended without a deal due to differences over how to match Pyongyang’s denuclearization steps with Washington’s sanctions relief. It was last held on Feb. 22.

Full article:
N. Korea skips meeting of liaison office chiefs for 8 straight weeks
Yonhap News
2019-04-19

Share

Posted in International trade, Kaesong Industrial Complex (KIC), South Korea | Comments Closed

New bridge crossing open between Jian and Manpo

Monday, April 8th, 2019

Benjamin Katzeff Silberstein

Bloomberg:

China and North Korea opened a new border crossing over the Yalu River, signaling aspirations for deeper economic ties between the neighbors even as Pyongyang’s trade remains crimped by international sanctions.

The border checkpoint at the foot of a new bridge opened Monday, connecting the northeastern Chinese city of Jian with North Korea’s Manpo, Chinese state media reported. The China-DPRK Jian-Manpo highway connection is for passenger and cargo transport and hosts an advanced customs facility, the China News Service said.

The opening was marked by several tour buses crossing from the Chinese side and then returning from North Korea, the Yonhap News Agency of South Korea reported, citing a person familiar with the matter. The ceremony appeared to show that local Chinese officials were ready to step up trade and exchanges with North Korea in response to its call for economic development, according to Yonhap.

China provides a lifeline to North Korean leader Kim Jong Un and his state has long been dependent on Beijing’s help to keep its meager economy afloat. Kim’s summit with U.S. President Donald Trump in Hanoi broke down on Feb. 28 over sanctions that have cut Pyongyang off from global commerce and were imposed on North Korea for its pursuit of a nuclear arsenal.

It was unclear how the new border checkpoint — the fourth between China and North Korea — would operate under the sanctions, which ban or limit a broad range of goods from moving in or out of the country. The South Korean Unification Ministry declined to comment.

The economic penalties are expected to be a main topic of discussion when South Korean President Moon Jae-in meets Trump at the White House on Thursday. Moon, a long-time advocate of reconciliation with North Korea, has repeatedly played the role of mediator since he took office in May 2017 amid escalating threats of war between Trump and Kim.

The Manpo border area has drawn the attention of North Korea for years, with Kim’s father and former leader, Kim Jong Il, crossing there in 2010 in one of his rare trips outside the country, the Chosun newspaper of South Korea reported at the time. In the 2010 trip, Kim Jong Il visited the school his father and North Korean state founder Kim Il Sung attended on the Chinese side when he was a child.

China and North Korea agreed to embark on the bridge project in 2012 and completed construction in 2016, Yonhap reported. The opening was delayed by UN Security Council sanctions imposed on North Korea.

In 2017, China’s overall trade with North Korea declined by more than 10 percent to about $5 billion, as Trump secured Beijing’s backing for four escalating rounds of sanctions in response to North Korea nuclear weapons program testing.

Article source:

China, North Korea Open New Border Crossing Despite Sanctions

Jon Herskovitz and Dandan Li
Bloomberg News
2019-04-08

Yonhap:

China and North Korea on Monday officially opened a new cross-border bridge halfway along the Yalu River, offering clues to their possible expansion of bilateral economic exchanges amid ongoing international sanctions.

The new bridge connects Jian in the northeastern Chinese province of Jilin with North Korea’s northern border city of Manpo.

The two countries agreed to the Jian-Manpo bridge project in May 2012 and completed its construction in 2016. But they have since delayed its official opening, apparently affected by United Nations Security Council sanctions on the North over its missile and nuclear programs.

Jian, located about halfway along the Yalu River, is considered a representative base of trade between North Korea and China, along with Liaoning Province’s Dandong on the Yalu River estuary and Jilin Province’s Hunchun on the Tumen River estuary.

Four tourist buses arrived in China from North Korea via the new bridge at 8:20 a.m. Monday before returning to the North about one hour later carrying about 120 passengers.

According to a local tour company, the tourists are planning to return to Jian around 5 p.m. after visiting attractions in and around Manpo.

A source in the border area told Yonhap News Agency that China’s provincial governments appear to be boldly trying to cooperate with North Korea in response to their demand for economic development.

“North Korea’s denuclearization has not been implemented, but the environment surrounding North Korea and China appears to be partially changing,” the source said.

“China may not expand its economic cooperation with North Korea considerably in consideration of its relations with the United States. But the opening of a new bridge may signal expansion of bilateral economic exchanges,” said the source.

Article source:
China, N. Korea open new cross-border bridge
Yonhap News
2019-04-08

Share

Posted in China, Foreign direct investment, International trade, Political economy, Sanctions | Comments Closed

North Korea’s harvest numbers: what “food production” really means

Monday, March 11th, 2019

By Benjamin Katzeff Silberstein

I wrote about the confusing harvest numbers this past Friday, and I’ve been able to find little new information to make things clearer. Basically, the problem is that talking about “food production” is too vague, since that can mean a lot of different things. In the standard World Food Program/FAO crop assessments, there are usually two numbers quoted: one estimate for total production of food,  and one for “milled cereal equivalent”, a standardized measurement used to translate the varying nutritional contents of different crops into a standardized weight measure.* (See below for a more detailed explanation.) Basically, the “milled cereal equivalent” figure tends to be significantly smaller, by about 20 percent or so, than the original, total food production figure.

Since we don’t actually know exactly which number is being thrown around in analyses of the current harvest, I’ve calculated a possible milled-equivalent harvest figure, using the average difference between milled and unmilled for the years where I have the two different numbers from the WFP/FAO crop assessments. None of the historical estimates I’ve found correspond with the harvest numbers for previous years in the 2019 UN Needs and Priorities Plan. Crop production figures are usually given in terms of “marketing years”, not in calendar years. For simplicity’s sake, I denote each year by the second half of the marketing year, when most consumption will occur. So “2019” is the 2018/2019 marketing year, “2018” is the 2017/2018 marketing year, et cetera.

The following shows the scenario where the 4.95 million tonnes production figure is the “unmilled” cereal equivalent measure. Based on the average difference between milled and unmilled for the years where I’ve had data available from UN institutions (0.85 million tonnes), I’ve added and subtracted to complete the figures where necessary. This is not an exact, scientific way of looking at the harvest numbers. For exact accuracy, I’d need to calculate the milled cereal equivalent of each crop, something I don’t have time to do right now. This may well make the figure even lower. (Hazel Smith’s figure, for reference, is 3.2 million tonnes.) But the following does, at the very least, give a sense of the proportions at hand. And it makes the numbers look different from my initial assessment.

Food production, million tonnes (unmilled) Food production, million tonnes (milled)
2009.00 4.20 3.30
2010.00 5.17 4.32
2011.00 5.33 4.50
2012.00 5.50 4.66
2013.00 5.80 4.90
2014.00 5.98 5.03
2015.00 5.93 5.08
2016.00 5.92 5.07
2017.00 6.03 5.23
2018.00 5.75 5.00
2019.00 4.95 4.10

Table 1. Figures are sourced from various assessments by the WFP and FAO; contact me for exact sourcing on specific figures. 

Graphically, the trend in food production in milled terms, i.e. the lower-end, more realistic figure of how much food is available for consumption, using the above assumption for the 2019-figure, looks like this:

Graph 1. Estimate food production in North Korea, million tonnes, in milled cereal equivalent terms.

In short, this does give a rather grim and highly problematic food situation, putting the quantity of the harvest at 4.10 million tonnes. It puts North Korea back to a state of food production prior to 2010–2011, when harvest started to climb. And now, North Korea receives far less aid than it did a decade ago. Plus, its imports will only amount to 200,000 tons, the government seems to be saying, a similar amount to what it procured in imports and humanitarian aid in 2016/2017, when the harvest was much larger.

For long, this is how low North Korean harvests were. Only a few years ago, this would have looked like a rather solid harvest. Looking back in the future, it might turn out that the past few years of food production growth, since around 2011, was an abnormally good period of time. None of this means that this food situation is anything but poor.

To me, among the figures I’ve been able to find, it’s the only one that make sense in the context of the statement from UN representatives that this harvest was the worst “in a decade”. Hopefully things will become clearer over the coming days and weeks, as more information may be published, in which case I’ll update this post.

In sum, the actual food available in North Korea is, in all likelihood, much lower than the 4.95 million tonnes-figure quoted by the UN and the North Korean government. As the following graph shows, even using the North Korean government’s figures, the drop from last year doesn’t appear all that massive. But on closer inspection, the actual quantity of food available may be significantly lower than the figure the North Korean government states, as I’ve tried to show in this post.

Graph 2. Food production in North Korea, from the UN’s “2019 Needs and Priorities” report on North Korea.

Finally, a note on the issue of the markets and the public distribution system. I maintain that it’s impossible to get a sense of total food availability and circulation in North Korea as a whole, without taking the markets into account. According to most studies we have, the majority of North Korea’s population rely on these markets, rather than the public distribution system, for their sustenance.

But one has to acknowledge that just like the UN and North Korean government figures may not reflect the whole situation accurately, there may be a fair bit of bias in the data on the prevalence of the markets too. Most of this data comes from surveys done with defectors in South Korea. They overwhelmingly tend to come from the northern provinces of the country, closer to China, where market trade has traditionally been more prolific. Most sources for news from inside North Korea are based in the northern parts of the country, where one can get access to Chinese cell phone network coverage.

There’s likely another form of bias present in these surveys, too. Most people who are reliant on the PDS for their sustenance are likely underrepresented among defectors. People in state administration and security organs, for example, are less likely to leave North Korea, though that of course happens too. And in any case, we’re talking about a quite large demographic of people, whose livelihoods would be significantly impacted by cut rations. Such cuts are already happening, Daily NK reports, with some professional groups receiving only 60 percent of  what they otherwise would. The PDS may have changed shape and function quite drastically since the early 2000s, but it may also be more important to the North Korean public than the currently available survey data and reports from inside the country tells us.

Conclusion

North Korea’s food situation, though not at famine-time levels, does appear to be dire. The figures, in combination with reports from inside the country, gives serious cause for concern. Government numbers may not tell the full story since they likely underestimate the role of the markets. Nonetheless, things do look serious. The government could easily alleviate the situation by changing its spending priorities and policies. Chances are that it won’t.

Footnote:

*I’m borrowing here a footnote from a 38 North piece by the late scholar Randall Ireson, whose archive of articles remain one of the best sources for information on North Korean agriculture:

The FAO has consistently used grain equivalent (GE) values for the major crops to compensate for varying moisture and energy content. Thus, husked rice (GE) is .66 of the paddy weight, potatoes (GE) are .25 of the fresh weight, and soybean (GE) is 1.2 times the dry weight because of the high oil and thus calorie content.

Share

Posted in Agriculture, China, Economic reform, International Aid, International trade, Political economy, Statistics, Uncategorized | Comments Closed

North Korea’s 2018/2019 harvest and food shortage

Thursday, March 7th, 2019

By Benjamin Katzeff Silberstein

The UN has officially compiled and published the estimated harvest figure for North Korea during the 2018/2019 marketing year, and as we already knew, it lands at 4.95 million tonnes. AFP:

North Korea recorded its worst harvest for more than a decade last year, the United Nations said Wednesday (Mar 6), as natural disasters combined with its lack of arable land and inefficient agriculture to hit production.

The isolated North, which is under several sets of sanctions over its nuclear weapon and ballistic missile programmes, has long struggled to feed itself and suffers chronic food shortages.

But last year’s harvest was just 4.95 million tonnes, the United Nations said in its Needs and Priorities assessment for 2019, down by 500,000 tonnes.

It was “the lowest production in more than a decade”, the UN’s Resident Coordinator in the North Tapan Mishra said in a statement.

“This has resulted in a significant food gap.”

As a result 10.9 million people in the North needed humanitarian assistance – 600,000 more than last year – with a potential for increased malnutrition and illness.

It is equivalent to 43 per cent of the population.

But while the number of people needing help rose, the UN has had to cut its target for people to help – from 6.0 million to 3.8 million – in the face of a lack of funding.

Only 24 per cent of last year’s appeal was met, with Mishra describing it as “one of the lowest funded humanitarian plans in the world”.

Several agencies had been forced to scale back their programmes and some faced closing projects, he said, appealing to donors to “not let political considerations get in the way of addressing humanitarian need”.

“The human cost of our inability to respond is unmeasurable,” he said, adding that sanctions had created unintended delays and challenges to humanitarian programmes, even though they are exempt under UN Security Council resolutions.

[…]

It was hit by a heatwave in July and August last year, followed by heavy rains and flash floods from Typhoon Soulik. As a result, the UN said, rice and wheat crops were down 12 to 14 per cent.

The figure is significantly larger than in the South, where rice production was down only 2.6 per cent last year, according to Seoul’s statistics, even though it experiences similar weather and climate.

The North’s soybean output slumped 39 per cent and production of potatoes – promoted by leader Kim as a way to increase supplies – was 34 per cent down, the UN said.

Last month Pyongyang told the UN that it was facing a shortfall of 1.4 million tonnes of food this year.

Full article and source:
North Korea food production ‘lowest for a decade’: UN
AFP
2019-03-06

A few thoughts on this:

The UN figures must have been updated and adjusted over the past few years, because according to the data I have at hand, 4.95 million tonnes is not nearly the worst production figure in a decade. I’m assuming that the 4.95-figure refers to the “milled tonnes equivalent” number. According to the World Food Program’s November 2011 estimate, for example, the equivalent figure for 2011/2012 was 4.66 million tonnes. But again, the numbers might have been adjusted since they were first calculated.

Like I wrote a few weeks ago, there is little to suggest a true food emergency of massive proportions. Market prices for rice, for example, have barely moved over the past few weeks, and are actually down quite a bit in the latest observation, from 4,600–4,870, to 4,200–4,210 won/kg. This might not mean much, but still, these prices tell us something. Usually, prices seem to only climb in reaction to shortages as the market gets closer to the next harvest season, and food availability becomes increasingly scarce. Expectations aren’t easy to calculate or project. It may be that the market as such isn’t even fully aware of the shortages.

While current prices alone aren’t necessarily a sufficiently certain indicator of the food situation, however, were the situation completely disastrous, we should have seen prices rise already, as farmers and others hoard grains to store up for worse times to come. Instead, prices remain stabile.

Again, that’s not to say that things aren’t bad. A ten percent decrease in the harvest, even though not disastrous, is still a notable decrease. The view from the ground in North Korea seems to unequivocally be that yes,  this year’s harvest is much worse than those of the past few years, mainly due to the dry, hot weather in the summer and fall of last year. News outlets with sources inside North Korea, such as Daily NK, have also reported – independently of the North Korean government, unlike the UN – that harvests have been notably poor.

Conditions also vary a lot between different regions and socio-economic groups. Though there’s been no wide-spread starvation in North Korea since the early 2000s, some particularly vulnerable groups do likely rely on humanitarian assistance for their sustenance.

It really is striking and strikingly problematic how little we know though. The fact that the international community isn’t even allowed to monitor the markets, the most important source of sustenance for most North Koreans, is problematic. To my knowledge, international humanitarian organizations are not allowed to survey the market system in any comprehensive way.

There’s also an important overarching question we should be asking: what about the long term? Food insecurity in North Korea did not arise with “maximum pressure” or the sanctions. It’s been a fact since the late 1980s. Humanitarian international institutions are,  I am sure, doing their best. Hopefully, they continuously to ask North Korean regime representatives what institutional, systemic changes the government is undertaking to alleviate the problem. Giving humanitarian aid without making demands for systemic change would be to let down the people in greatest need of help.

Share

Tags:,
Posted in Agriculture, International Aid, International trade, Political economy, Statistics | Comments Closed

North Korea’s economic situation, going into Hanoi: a roundup of the data

Thursday, February 21st, 2019

By Benjamin Katzeff Silberstein

The Hanoi summit is under a week away, Daily NK recently put out new market price data, and I’ve finally had time to update my dataset. There seems like no better time than the present to take a look at some of the numbers we have available for the North Korean economy, thanks to outlets such as Daily NK and Asia Press/Rimjingang.

Currency

Let’s start with the exchange rate. A few weeks ago, the (North Korean) won depreciated quite significantly against the USD, which I wrote about here. At 8,500 won/1usd, the USD-exchange rate on the markets hit its highest point since the inception of “maximum pressure”. The graph below is shows the average market exchange rate in three North Korean cities for won-to-USD.

Graph 1. Average won-USD exchange rate on markets in three North Korean cities, spring of 2017–February 2019. Data source: Daily NK.

As the graph shows, the won rebounded somewhat after the initial spike in early January. According to the latest data point, the exchange rate stands at 8190 won, still somewhat higher than the average for the period, 8136, but barely.

What could have caused this spike? One possibility is that the government has started to soak up more foreign currency from the market, because the state’s foreign currency coffers are waning. After all, given the vast trade deficit, the continued necessity of spending hard currency on things like fuel (bought at higher prices through illicit channels to a greater extent) and other factors, it would make a great deal of sense. Currencies fluctuate all over the globe, sometimes based even on loose rumors that fuel expectations. One anonymous reader who often travels to North Korea for work heard from Korean colleagues that accounting conditions for firms had gotten stricter, likely because the government wants to be able to source more foreign currency from the general public.

It is also noteworthy that while the Daily NK price index reports that the USD-exchange rate has gone back to more normal levels, the Rimjingang index remains at very high levels. Its latest report (February 8th) has the USD at 8,500, and on January  10th, it registered 8,743 won, a remarkably high figure that the Daily NK index hasn’t been near since early 2015. The difference between the two may simple come from the figures being sourced from different regions, or the like. North Korea’s markets still hold a great deal of opportunity for arbitrage, not least because of the country’s poor infrastructure.

So, it does seem like there may be some unusual pressure on the won against the dollar. What it comes from is less clear, but the state demanding more hard currency from the semi-private sector and others may be one important factor. In any case, we shouldn’t be surprised if the trend continues, unless sanctions ease soon.

At the same time, while the RMB has appreciated against the won over the past few weeks, it hasn’t really gone outside the span of what’s been normal over the past few years.

Graph 2. Average exchange rate for won to RMB, average of three North Korean cities, late 2015–early 2019. Data source: Daily NK.

The average exchange rate for RMB since the start of Daily NK’s data series in late 2015 is 1228 won. The latest available observation gives 1241 won/RMB, and the RMB has appreciated against the won over the past few weeks. The Rimjingang data, here, too, gives a higher FX-rate for RMB than Daily NK, at 1250 won. Their index, too, shows the FX-rate for RMB going up over the past few weeks, but not to levels out of the ordinary. Still, if the won continues to depreciate against both the dollar and the RMB, it may be a sign of a more persistent foreign currency shortage.

Food prices

Rice prices remain as stabile as ever, in fact, even more so than this time last year. They continue to hoover between 4,500–5,000, with the latest observation being at 4,783.

Graph 3. Average rice price for three North Korean cities, spring of 2017–early 2019. Data source: Daily NK.

This should not necessarily be taken to mean that North Korea’s current food situation is not problematic. Even with increasing harvests in the past few years, it’s always been fragile. The past year’s drought reportedly took a toll on the harvest. Though market prices aren’t suggestive of any shortages as of yet, that could change in the months ahead. The latest harvest was likely lower than those of several previous years and difficulties in importing fertilizer may have contributed, but the dry weather was the main factor.

Even with a slightly lower harvest than in previous years, it seems that structural changes in agricultural management has improved agricultural productivity to such an extent that food safety isn’t severely threatened even with a reduced harvest.

Gasoline

Gas prices appear to have stabilized around a sanctions equilibrium, of sorts, since a few months back. The past year hasn’t seen any spikes near those of the winter in 2017, when prices went above 25,000 won per kg. For the past year, the price has mostly hovered between 13,000 and 15,000 won per kg. The last observation available from Daily NK, is at 15,200 won per kg. This is slightly higher than the average of the past 12-month period, 13,500 won per kg. A more recent report from Rimjingang puts prices at 13,750 won per kg, so perhaps prices have declined over the past few weeks.

What’s likely happened is that China has settled on a comfortable level of enforcement of the oil transfers cap, for now. (For a detailed look at fuel prices in North Korea and Chinese sanctions enforcement, see this special report.)

Graph 4. Average gasoline price, three North Korean cities, early 2018–winter 2019. Data source: Daily NK.

There is lots to be said about gas prices and their impact on the economy, but for now, it looks like supply of gasoline in North Korea is restricted, but stabile.

Hard currency reserves

I unfortunately don’t have any data to present on this issue, but it’s too important not to mention. We don’t know how large North Korea’s foreign currency reserves are, but all throughout “maximum pressure”, people have been speculating that they’ll soon run out. One South Korean lawmaker said in early 2018 that by October that year, North Korea would be out of hard currency. That clearly didn’t happen.

The lack of stabile foreign currency income may still be a problem for the regime, as mentioned above. It’s hard to imagine how it couldn’t be a huge headache. Look at the following graph for example, showing North Korea’s trade (im)balance with China, throughout 2017 and the first few months of 2018.

Graph 5. North Korea’s trade balance with China, in $1,000 terms. Data source: KITA.

Let’s assume that China is simply letting North Korea run a trade deficit, with only some vague future promise of payment in the form of cheap contracts for coal and minerals. Or, let’s say that China is even just sending North Korea a bunch of stuff without requiring any form of payment whatsoever. It seems highly unlikely to me that even a government like China would support the full extent of these imports. Even if North Korea is only paying in hard currency for a relatively small proportion of what it imports from China, that’s still a lot of money that’s just leaving the vaults, with virtually nothing coming in to replenish them. How long can this go on for? Probably longer than many estimated at the onset of “maximum pressure”, but certainly not forever.

Summary

In sum, judging by the numbers, North Korea’s domestic economic conditions appear stabile but quite difficult. No sense of widespread, general crisis is visible in the data. Nonetheless, the regime is likely under a great deal of stress concerning the economy. How much is hard to tell, but definitely enough for some form of sanctions relief and/or economic cooperation to be high on their agenda for Hanoi.

Share

Posted in China, Economic reform, Foreign direct investment, General markets (FMR: Farmers Market), International trade, Political economy, South Korea, Statistics, Uncategorized | Comments Closed

The sanctions relief that North Korea might be asking for

Thursday, February 14th, 2019

By: Benjamin Katzeff Silberstein

Some interesting reporting by Hankyoreh, citing South Korean government sources familiar with the US-North Korea negotiations, suggests that North Korea is pushing for two concessions from the US:

According to a South Korean government source closely acquainted with the North Korea-US talks, Kim reaffirmed the North’s willingness to dismantle its Yongbyon nuclear facilities during the first round of working-level talks in Pyongyang on Feb. 6–8, while demanding the partial loosening of sanctions as a corresponding measure for allowing inspections of the facilities. The North Korean side said it “could offer more generous steps” if the US were to even partially loosen sanctions as a corresponding measure, the source reported.

Politically,  this makes a great deal of sense. Yongbyon dismantlement would make for great photo-ops and video clips, regardless of the actual substantive meaning of such actions. For North Korea, partially loosened sanctions would be highly beneficial for several reasons. For one, it could be a tacit signal to China and Russia that the US will no longer be as vigilant on sanctions monitoring as it has been in the past. Moreover, should North Korea push for the ceiling on its oil imports to be lowered, that would likely save the regime substantial amounts of hard currency that it now has to put towards more expensive, illicit transfers and the like. Gas prices in the country have stabilized over the past few months, but are still higher than in normal times. (I dig into this more in a new working paper published by the Stimson Center, click here to read it.)

And not least, any sanctions exemptions on Mt Kumgang and the like could – hopefully, from the regime’s point of view – be a first step to more South Korean investments and cash flows to tourism in North Korea, one of Kim Jong-un’s hallmark industries.

According to Hankyoreh, none of this is out of the question:

Biegun stated in no uncertain terms that the US would not be able to loosen or lift sanctions. At the same time, he reportedly suggested it may consider loosening sanctions if North Korea were to offer the Yongbyon dismantlement “plus something extra.”

And:

Accordingly, they suggested that if North Korea adopts a more forward-thinking approach on the Yongbyon dismantlement issue during negotiations, the US may grant priority consideration to projects involving inter-Korean cooperation, including partial resumption of the Kaesong Complex and Mt. Kumgang tourism. This prediction was based on the limited range of measures available to the US without touching the current sanctions framework. Indeed, many Korean Peninsula experts have noted that the Mt. Kumgang tourism venture individually would not be in violation of UNSC resolutions and suggested that it should be quickly resumed.

I’m no judicial sanctions expert, but I suspect that this might not be entirely accurate. If sanctions are strenuous enough to prevent South Korean reporters to bring in laptops into North Korea, it’s easy to wonder how large-ish-scale tourism to North Korea through Kumgangsan wouldn’t risk violating sanctions. In a way, the multilateral UN sanctions are easier to loosen in practice. A strong, even informal signal from the US to China could make the latter re-interpret its sanctions interpretations, and make monitoring and enforcement much more loose. Truck traffic has reportedly already increased across the border compared to a few months ago, and it’s a trend that’ll likely become increasingly more pronounced the less vigilant the US is about pushing for rigid sanctions implementation.

Article source:
N. Korea demands partial relaxation of sanctions in exchange for Yongbyon inspections
Kim Ji-eun
Hankyoreh
2019-02-14

Share

Tags:, ,
Posted in China, International trade, Political economy, Sanctions | Comments Closed

Gas prices down in North Korea after Kim’s China visit

Thursday, January 31st, 2019

By: Benjamin Katzeff Silberstein

A while back, I speculated that fuel prices in North Korea might go down after Kim Jong-un’s visit to China. This is precisely what happened, Daily NK reports. Causality is of course impossible to prove, but given circumstances (and the historical pattern of fuel price movements, which I write about in a forthcoming working paper), a connection doesn’t seem unlikely.

“The cost of 1 kg of fuel has fallen by around 2,500 KPW from 13,000 KPW two weeks ago,” said a North Hamgyong Province-based source on January 22. “The fall of 2,500 KPW per kg is a lot, so it’s being welcomed by merchants.”

The drop in fuel costs has impacted gasoline prices in the country’s northern region, with the source adding that truck drivers he spoke with have reported that the fuel prices in Pyongyang are similar.

Despite the restrictions on oil imports into the country due to international sanctions, smuggling across the country’s porous sea and land borders have kept gasoline supplies (including diesel) steady in the country, the source said.

The cost of fuel in North Korea last year fluctuated considerably due to sanctions pressure. News outlets reported last year that fuel prices reached 27,000 KPW per kg in early January 2017, a 60% spike from December 2016 prices.

The prices dipped back down to around 15,000 per kg, before settling at 15,500 KPW in December 2018. This suggests that gasoline prices in North Korea are more sensitive to international sanctions than other commodities like rice.

The recent fall in prices is likely due to a reduction in the price of smuggled fuel from China and the rising volumes of diesel fuel being refined and sold in the country.

Domestically refined diesel is generally supplied to the military and state-run factories, but also finds its way to the markets through different avenues. The source reported that there is now more diesel fuel being circulated in the markets.

Also, see this on the general ease of smuggling conditions/border controls after the visit.

Full article:
Optimism rising as fuel prices dip in North Korea
Kang Mi Jin
Daily NK
2019-01-28

Share

Tags:
Posted in China, International trade, Political economy | Comments Closed

UN panel says North Korea is selling fishing rights

Thursday, January 31st, 2019

Benjamin Katzeff Silberstein

One of the many ways in which North Korea earns hard currency is sales of fishing rights to vessels from China. This is also supposedly one of the reasons for the North Korea “ghost ships” drifting to Japan. Because many fishings rights near North Korea are sold to Chinese vessels, North Korean boats have to go further out, often without adequate fuel supplies. Kyodo News reports that the UN panel of experts will soon publish their report detailing some of these fishing rights sales, which breach the sanctions currently in place:

The claim is based on information provided by two unnamed member states, though one has been identified as Japan, according to officials in Tokyo.

It is also expected to be reported that more than 15 Chinese fishing vessels were inspected and found to be carrying licenses from North Korea, officially known as the Democratic People’s Republic of Korea, during the reporting period of January-November 2018.

It is anticipated that information obtained from fishermen who were questioned will reveal that around 200 Chinese fishing vessels were operating in North Korean waters. Based on another interview, it was discovered that the price of a single fishing license cost about 50,000 yuan ($7,250) per month.

The fishing vessels apparently displayed fishing permit number plates that were attached to the outside of the vessels, flown on flags, or both in combination.

These actions violate a Security Council resolution adopted in December 2017 in response to Pyongyang’s ballistic missile launch the previous month. In it, the 15-member council clarified that any sale of fishing rights by North Korea was strictly prohibited.

Last September, Japan’s Foreign Minister Taro Kono highlighted concerns about the sale of fishing rights as well as ship-to-ship transfers of petroleum products as two examples of the North’s “sophisticated efforts to evade and circumvent” past resolutions.

The resolutions were imposed on the country in escalating fashion as it carried out a total of six underground nuclear tests and numerous missile launches using banned equipment.

Each year, the panel prepares its report based on information analyzed by its eight members, who have expertise on a variety of issues such as nuclear nonproliferation and export trade control.

Full article:
N. Korea likely to be accused of illegally selling fishing rights
Kyodo News
2019-01-31

Share

Tags:
Posted in China, International trade, Political economy, Sanctions | Comments Closed

« Older Entries
Newer Entries »